Delhi District Court
M/S Chandulal Mohanlal Majithia vs The Natinal Building Construction Co. ... on 31 August, 2023
IN THE COURT OF SH. AJAY KUMAR JAIN:
DISTRICT JUDGE COMMERCIAL COURT 03 - SOUTH EAST
DISTRICT, SAKET COURTS, NEW DELHI.
OMP (COMM) 135/19
M/s Chandulal Mohanlal Majithia
Through its authorized signatory and
LR of Late Sh Chandu Lal Majuthia,
Sh. Paresh Majithia
Shraddha Society, Nr. Jesar Road,
Savarkundla,
District Amreli, Gujarat ....Petitioner/ Claimant
VERSUS
1. The National Building Construction Co.
(Now NBCC India Ltd.)
Through its Chairman Cum Managing Director
NBCC Bhavan, Lodhi Road,
New Delhi- 110003
2. K.P.M. Swamy, Sole Arbitrator,
Hindustan Steel Works Construction Limited
Corporate Office : 5/1, Commissariat Road, Hstings,
Kolkata- 700022 (West Bengal) ....Respondents
Date of Institution : 23.12.2019
Date of final arguments : 07.08.2023
Date of Judgment : 31.08.2023
OMP (COMM) 135/19 Dated. 31.08.2023 Page 1 of 28
M/s Chandulal Mohanlal Majithia Vs. The National Building Construction Co. (NBCC)
Judgment
1. Vide this judgment, I shall decide the petition under section
34 of Arbitration and Conciliation Act, 1996 for setting aside the Ex-parte
award dated 23.09.2019 passed by Ld. Arbitrator.
2. Brief facts of the case are that in the year 2002, the
respondent has invited tender for the construction of erection and
commissioning work of 220 kv. D/C Akrimota-Nakhtrana, line for
Gujarat Electricity Board on 28.09.2002, the letter of award was issued in
favour of the petitioner for a contract price of Rs. 1,07,80153/- which is
to be completed within eight months i.e. 31.03.2003, however, the work
was completed by 28.02.2004. Thereafter, the petitioner/claimant sent
legal notice raising a demand of Rs. 42,36,380/- along with interest @ 18
% per annum. Pursuant to which, on 21.02.2008, the sole Arbitrator Sh.
M. C. Sharma was appointed for settlement of dispute and both the
parties filed their respective of claims and statement of defence, and
arbitration proceedings continued. Then, on 10.09.2014 as the previous
Arbitrator resigned and Sh. K.P. Sharma was appointed as the Arbitrator.
On 14.07.2017, the petitioner accorded his consent for appointment of
Sole Arbitrator. The arbitration proceedings, thereafter commenced and
parties are directed to file additional documents, arguments heard, but the
petitioner/claimant stopped appearing therefore, proceeded ex-parte on
24.09.2018 and impugned award was passed on 23.09.2019.
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M/s Chandulal Mohanlal Majithia Vs. The National Building Construction Co. (NBCC)
3. Ld. counsel for the petitioner submitted that independence
and impartiality of the Arbitrator is the basic requirement, however, no
official disclosure was given by the Sole Arbitrator. As far as, respondent
no. 2 (K.P.N. Swami) is concerned, he was appointed on 10.09.2014 after
Ld. Arbitrator Sh. M.C. Sharma resigned on 23.08.2014, and it was his
legal duty to disclose and file fresh statement of disclosure as per section
12 of the Act. Ld. Counsel submitted that it is argued by the counsel for
the respondent that prior to the amendment 2015, the sitting officer of
NBCC were not legally barred to be appointed as Arbitrator, however, in
Union of India Vs. Singh Builders Syndicate, 2009 (4) SCC 523, Apex
Court suggested that the Govt., statutory authority should considered
phasing out arbitration clauses providing for appointment of serving
officer and encouragement of professionalism in arbitration. The
judgment of Hon'ble Culcutta High court as relied by the respondent i.e.
West Bengal Housing Board Vs. M/s Abhishek Construction is not
applicable because the petitioner has raised objection vide letter dated
30.08.2018. There is no applicability of section 4 i.e. doctrine of waiver
also, as the objection raised by the petitioner regarding various grievances
are not covered in any of the situation raised. The petitioner has raised
objection over biasness against Arbitrator vide letter dated 30.08.2018.
The Arbitrator has changed the venue on 14 and 15 September 2018
without prior consent and thereby petitioner unable to present his case
properly. Ld. Arbitrator undermined party autonomy which is against the
public policy. The counter-claim is time barred. It was filed on
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M/s Chandulal Mohanlal Majithia Vs. The National Building Construction Co. (NBCC)
15.05.2009 which was beyond limitation period from the actual
completion of work i.e. 28.02.2004. Ld. Counsel submitted that the
claims which are allowed that is claim no. 1 to 3 are not under challenge,
however, the claim which are rejected are challenged. The rest of the
claims were wrongly decided and the respondent is also not entitled for
the counter claims. The impugned award suffers from patent illegality and
also against public policy, therefore, liable to be set aside.
4. Ld. counsel for the respondent on the other hand submitted
that petitioner is estopped from challenging the arbitral award on the
ground of section 12 of Arbitration and Conciliation Act. The amendment
in the arbitration act effected from 23.10.2015, however, in this case the
arbitrator has already been appointed in 2008 and thereafter in 2014.
Even if the unamended section 12 (1) of the Act is concerned, the
challenge on the ground of arbitrator's non disclosure under the said
section was provided in section 12, 13 and 14 of the Act subject to
restriction in Section 16 of the Act. In case of failure to challenge under
section 13 the deemed waiver under section 4 will apply. Sh. M.C.
Sharma, was appointed in 2008, instead of challenging the appointing,
both the parties filed their respective of claims and statement of defense
and arbitration proceedings continued with no objection to its
constitution. In 2014, another Arbitrator Sh. K.PM Swamy was appointed
due to resignation of previous Arbitration, however, no objection was
raised instead the petitioner gave consent to appointment of arbitrator in
2017 and continued with arbitral proceedings and arguments. The
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petitioner for the first time on 30.05.2018, after gap of almost 10 years
raised the issue of fairness and impartiality, thereafter stopped appearing
and ex-parte award was passed. Unilateral appointment of Arbitrator was
not barred when the arbitration proceedings commenced in 2008.
Furthermore, the present award is not exfacie ex-parte award, as the
petitioner appeared and filed the statement of claim along with documents
and also argued the matter but due to his continuous disappearance and
multiple adjournment, proceeded ex-parte. Ld. Counsel submitted that no
ground made out challenging the award U/s 34 of Arbitration and
Conciliation Act.
5. Both the parties also filed written submissions.
6. Arguments heard. Record perused.
7. Perusal of arbitral record suggests that on 03.07.2008, the
claimant filed statement of claim and subsequently in hearing held on
15.05.2009, respondent filed reply to the statement of claim along with
counter-claim. The claimant later on filed two additional set of
documents, however, Ld. Arbitrator Sh. M.C Sharma resigned on
23.08.2014, that Sh. K.P.M. Swamy was appointed. Thereafter, during
proceedings on 17.06.2015, both the parties agreed that all the documents
filed may be admitted in evidence without formal proof. On 02.07.2015,
both the parties are directed to submit further documents if any, thereafter
respondent submitted additional documents vide letter dated 21.07.2016.
In the meanwhile, claimant C.M Majithia expired and his legal heir Sh.
Paresh Majithia brought on record and both the parties consented for
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continuation of Sole Arbitrator, then arguments heard, however,
adjournment was granted on specific request of claimant. The matter was
fixed on 14 and 15 September 2018 at Nagpur office for arguments.
However, vide letter dated 30.08.2018, the claimant raised issues
regarding fairness and impartiality of the Arbitrator which was replied
vide letter dated 10.09.2018, but claimant did not appear despite several
opportunities. Therefore, finally claimant was proceeded ex-parte and
claim and counter-claims were decided, and impugned award was passed.
8. Claim no. 1 of the claimant is for Rs. 2,00,000/- for the work
done but not paid as per final bill. The Ld. Arbitrator found that an
amount of Rs. 1,45,672/- has been withheld by the respondent and found
no reason of withholding the same, therefore, allowed an amount of Rs.
1,45,672/- to the claimant in respect of claim no. 1.
9. In claim no. 2, the claimant sought refund of security amount
and the Ld. Arbitrator found no justification for withholding the security
deposit, therefore, claim no. 2 also allowed. The claim no. 3 is for release
of retention money. The Ld. Arbitrator found that completion of work and
commissioning line already stands completed, therefore found no ground
to withhold the retention money and allowed the claim no. 3.
10. In claim no. 4, the claimant claimed that a sum of Rs.
10,28,951/- on account of refund of amount deducted as withheld amount
from various R.A bills. The Ld. Arbitrator, upon considering the various
clauses held that deduction of security deposit and retention money has
been made in accordance with the aforesaid clause of GCC. The refund of
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security deposit amount and retention money has already been dealt in
claim no 2 and 3, however, claimant could not show any documents in
support to prove such deduction of amount as claimed in this claim,
therefore, rejected the same.
11. In claim no. 5, the claimant claimed a sum of Rs. 1,18,050/-
on account of refund amount deducted from R.A bills towards time limits.
The Ld. Arbitrator found on basis of documents of the respondent that
there is breach of the contract on the part of the claimant for non
performance of the contract within stipulated time. The claimant,
however, not adduced any documents in support of prove of its claim,
therefore, rejected the claim no. 5. In claim no. 6 is for amount of Rs.
22,776/- towards refund of amount deducted from R.A bill no. 10,
however, the same was rejected as no document was produced by the
claimant to support the said claim. In claim no. 7, an amount of Rs.
50,418/- on account of refund deducted towards WC Tax from second
R.A bill, the deduction was found to be statutory requirement, therefore,
this claim was also rejected.
12. In claim no. 8, an amount of Rs. 1,51,239/- on account of
refund of amount paid less in various R.A bills, however, the said claim
was also not supported with documents, therefore, was rejected. In claim
no. 9, the claimant sought amount of Rs. 7,63,597/- on account of
compensation for the loss caused due to extra expenses incurred on
various overhead. Ld. Arbitrator observed that the claimant failed to
complete the work within prescribed period due to his own default,
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therefore, the said claim has no merit, hence, the claim no. 9 was also
rejected. The claim no. 10 is for amount of Rs. 7,63,598/- on account of
compensation for loss of profit due to over engagement beyond the
stipulated period of completion. However, Ld. Arbitrator found the
claimant unable complete the work in time, therefore, also rejected the
said claim. In claim no. 11, the claimant sought amount of Rs. 1,53,151/-
on account of compensation for the loss of profit due to reduction of
work, however, the complainant himself has not completed the work
within time due to his own default and also not submitted supportive
documents, therefore, the said claim also rejected. As far as claim no. 12
is concerned, interest @ 18 % is sought on all the above claims. After
considering the submission, Ld. Arbitrator allowed the simple interest @
6% on the awarded amount.
13. The respondent in counter-claim raised three claims. The
counter-claim no. 1 is regarding the penalty for delay in completion of
work for an amount of Rs. 10,78,015/-. The Ld. Arbitrator observed that
the respondent had written number of letters to the claimant regarding
slow progress of work and also evident from the facts that Gujarat
Electricity Board also written to the respondent for slow progress of
work. The claimant did not apply for any extension of time nor any
supported documents submitted by the claimant, therefore, the claimant is
liable for liquidated damages as per the conditions of the contract. The
Gujarat Electricity Board had also imposed the time limit penalty on the
respondent for a sum of Rs. 4,05,648/-, therefore, the Ld. Arbitration
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allowed the counter claim no. 1 to the extent of Rs. 4,05,648/- in favour
of the respondent against the claim amount of Rs. 10,78,015/-.
14. In counter-claim no. 2, the respondent sought compensation
of Rs. 9 Lakhs due to loss suffered by the respondent on overheads,
however, the said counter-claim no. 2 is rejected. In counter-claim no. 3,
the respondent sought an amount of Rs. 26,08,328/- for non-utilization of
owner/client materials issued to them during the execution of work and
non return of the same to the respondent/owner. Ld. Arbitrator observed
that as per the joint measurement report wherein members of Gujarat
Electricity Board, respondent and claimant participated, and there was a
difference of 1.33 KM was acknowledged by the claimant which implies
that claimant had extra material in his custody. The Gujarat Electricity
Board made a proposal for recovery of Rs. 24,24,328.07/-. Therefore,
finally the ld. Arbitrator allowed the counter-claim to the tune of Rs.
23,83,706.18/- only against the claim of Rs. 26,08,323/-. The claim no. 4
and 5 of the respondent are rejected. In counter-claim no. 6, respondent
claimed Rs. 74,39,308/- towards interest @ 18 % per annum, however,
the Ld. Arbitrator granted @ 6 % interest over the above claim. Claim no.
7 is the cost of arbitration proceeding towards, however, the Ld.
Arbitrator directed to both the parties to bear the respective costs and
expenses.
15. Ld. counsel for the petitioner/claimant during arguments
raised the plea that the claims which were rejected are wrongly rejected,
however, this court is not empowered to enter into the merit of the award,
OMP (COMM) 135/19 Dated. 31.08.2023 Page 9 of 28
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the award passed by the Ld. Arbitrator is on the basis of the reasons. This
Court in present jurisdiction cannot comment upon reasonability of the
reasons. Furthermore, the petitioner himself stopped participating in the
arbitral proceedings despite opportunities. Therefore, Ld. Arbitrator left
with no option except to pass the award on the basis of arguments address
by the respondent and material on record. Ld. Arbitrator passed reasoned
award and I do not find any patent illegality in passing of the award.
16. The first arbitrator was appointed in 2008 and before the
parties filed respective statement of claims, replies and counter-claim etc.
and thereafter in the year 2014, the first Arbitrator resigned and second
Arbitrator was appointed on 23.08.2014 prior to the amendment in 2015,
therefore, the ground of unilateral appointment is not available to the
claimant/petitioner.
17. The Hon'ble Culcutta High Court in case title 'West Bengal
Housing Board Vs. Abhisek Construction, AP 189 of 2019, dt.
11.04.2023, 2023 SCC OnLine Cal 82' have dealt this issue in detail and
held as under :
"...8. For the sake of clarity in the judgment, I have formulated the
contentions of the parties into two issues :-
1. Whether non-disclosure by the arbitrator as mandated under
Section 12(1) of the Act can be a ground for setting aside an
arbitral award?
2. Whether the provisions of 2015 Amendment Act in relation to
unilateral appointment would apply to arbitral proceedings
initiated before October 23, 2015?
****
Issue 2
13. The practice of unilateral appointments hits the crux of the arbitration process which is that of independence and impartiality OMP (COMM) 135/19 Dated. 31.08.2023 Page 10 of 28 M/s Chandulal Mohanlal Majithia Vs. The National Building Construction Co. (NBCC) in decision making. In TRF Limited (supra) and Perkins Eastman (supra), the apex court held that the Courts have a duty to uphold and safeguard the sanctity of arbitral process at every step in the entire arbitration process. By virtue of the aforesaid decisions, the apex court judicially expanded Schedule VII of the Act to include persons unilaterally appointed by one of the parties. It has now become a settled principle of law that compliance with Section 12(5) r/w Schedule VII of the Act is sine qua non for any arbitral reference to gain recognition and validity before the Courts. An arbitral reference which begins with an illegal act vitiates the entire arbitral proceedings including the award itself, and the same cannot be validated by the Courts at any later stage. Thus, it would be a logical inference to consider such arbitral proceedings and the consequent arbitral award as void ab initio.
14. However, it is to be kept in mind that ineligibility which plagues such arbitral appointments operates as a result of Section 12(5) r/w Schedule VII of the Act which in turn emerges from the 2015 Amendment Act. Ergo, it would be appropriate on my part to adjudicate upon the applicability of the said amendment in the present facts in hand.
15. As mentioned above, the issue before me is to determine whether the provisions of the 2015 Amendment Act, in relation to unilateral appointment of arbitrators, apply retrospectively to arbitral proceedings which were initiated before October 23, 2015, ('effective date') that is, before the 2015 Amendment Act came into force but where the award was passed on or after the effective date that is after the 2015 Amendment Act came into force. Therefore, to begin, it would be apt for me to reproduce the relevant provision of the 2015 Amendment Act :-
"26. Act not to apply to pending arbitral proceedings - Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act."
16. From the bare reading of Section 26 of the 2015 Amendment Act, it can be deduced that the said amendment will not apply to those arbitral proceedings which have commenced, in accordance with Section 21 of the Act, before the effective date. However, the provision permits the parties to agree on the applicability of the said amendment on pending arbitral OMP (COMM) 135/19 Dated. 31.08.2023 Page 11 of 28 M/s Chandulal Mohanlal Majithia Vs. The National Building Construction Co. (NBCC) proceedings. In the present case, the arbitral proceedings commenced way back in 2012, much prior to coming into force of the 2015 Amendment Act.
17. At this juncture, it would be prudent on my part to refer to the judicial pronouncements on the interpretation of Section 26 of the 2015 Amendment Act. While dealing with a similar situation in the case of Union of India -v- Parmar Construction reported in (2019) 15 SCC 682, the apex court outlined that by virtue of Section 26 of the 2015 Amendment Act, the 2015 Amendment Act will only apply to those arbitral proceedings which had commenced in accordance with Section 21 of the Act on or after the effective date, provided that the parties have not agreed otherwise. I have extracted the relevant paragraphs below -
"26. The conjoint reading of Section 21 read with Section 26 leaves no manner of doubt that the provisions of the 2015 Amendment Act shall not apply to such of the arbitral proceedings which have commenced in terms of the provisions of Section 21 of the principal Act unless the parties otherwise agree. The effect of Section 21 read with Section 26 of the 2015 Amendment Act has been examined by this Court in Aravali Power Co. (P) Ltd. v. Era Infra Engg. Ltd. and taking note of Section 26 of the 2015 Amendment Act laid down the broad principles as under :
*
27. We are also of the view that the 2015 Amendment Act which came into force i.e. on 23-10-2015, shall not apply to the arbitral proceedings which have commenced in accordance with the provisions of Section 21 of the principal Act, 1996 before the coming into force of the 2015 Amendment Act, unless the parties otherwise agree."
Emphasis Added
18. In another such instance in the case of Union of India -v- Pradeep Vinod Construction Co. reported in (2020) 2 SCC 464, the apex court held that for arbitral proceedings commenced before the effective date, the provisions of the 2015 Amendment Act will not apply. I have delineated the relevant paragraphs below:-
"11. The respondent(s) are registered contractors with the Railways and they are claiming certain payments on account of the work entrusted to them. The request of the respondent(s) for appointment of arbitrator invoking Clause 64 of the contract was declined by the Railways stating that their claims have been settled and the respondent(s) have issued "no claim" certificate and OMP (COMM) 135/19 Dated. 31.08.2023 Page 12 of 28 M/s Chandulal Mohanlal Majithia Vs. The National Building Construction Co. (NBCC) executed supplementary agreement recording "accord and satisfaction" and hence, the matter is not referable to arbitration. Admittedly, the request for referring the dispute was made much prior to the Amendment Act, 2015 which came into force w.e.f. 23- 10-2015. Since the request for appointment of arbitrator was made much prior to the Amendment Act, 2015 (w.e.f. 23-10-2015), the provision of the Amendment Act, 2015 shall not apply to the arbitral proceedings in terms of Section 21 of the Act unless the parties otherwise agree. As rightly pointed out by the learned counsel for the appellant, the request by the respondent(s) contractors is to be examined in accordance with the principal Act, 1996 without taking resort to the Amendment Act, 2015."
Emphasis Added
19. Expanding the view taken earlier, the Supreme Court in the case of BCCI -v- Kochi (supra) held that while the 2015 Amendment Act will not apply to arbitral proceedings initiated, in accordance with Section 21 of the Act, before the effective date, it will apply to court proceedings, which are in relation to arbitral proceedings, initiated after the effective date irrespective of when the arbitral proceedings were initiated. I have reproduced the relevant portions of the judgment below for ease of reference -
"36. All the learned counsel have agreed, and this Court has found, on a reading of Section 26, that the provision is indeed in two parts. The first part refers to the Amendment Act not applying to certain proceedings, whereas the second part affirmatively applies the Amendment Act to certain proceedings. The question is what exactly is contained in both parts. The two parts are separated by the word "but", which also shows that the two parts are separate and distinct. However, Shri Viswanathan has argued that the expression "but" means only that there is an emphatic repetition of the first part of Section 26 in the second part of the said section. For this, he relied upon Concise Oxford Dictionary on Current English, which states: "introducing emphatic repetition; definitely (wanted to see nobody, but nobody)."
Quite obviously, the context of the word "but" in Section 26 cannot bear the aforesaid meaning, but serves only to separate the two distinct parts of Section 26.
37. What will be noticed, so far as the first part is concerned, which states--
"26. Act not to apply to pending arbitral proceedings.-- Nothing contained in this Act shall apply to the arbitral proceedings OMP (COMM) 135/19 Dated. 31.08.2023 Page 13 of 28 M/s Chandulal Mohanlal Majithia Vs. The National Building Construction Co. (NBCC) commenced, in accordance with the provisions of Section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree...." is that: (1) "the arbitral proceedings"
and their commencement is mentioned in the context of Section 21 of the principal Act; (2) the expression used is "to" and not "in relation to"; and (3) parties may otherwise agree. So far as the second part of Section 26 is concerned, namely, the part which reads, "... but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act" makes it clear that the expression "in relation to" is used; and the expression "the" arbitral proceedings and "in accordance with the provisions of Section 21 of the principal Act"
is conspicuous by its absence.
38. That the expression "the arbitral proceedings" refers to proceedings before an Arbitral Tribunal is clear from the heading of Chapter V of the 1996 Act, which reads as follows: "Conduct of arbitral proceedings" The entire chapter consists of Sections 18 to 27 dealing with the conduct of arbitral proceedings before an Arbitral Tribunal. What is also important to notice is that these proceedings alone are referred to, the expression "to" as contrasted with the expression "in relation to" making this clear. Also, the reference to Section 21 of the 1996 Act, which appears in Chapter V, and which speaks of the arbitral proceedings commencing on the date on which a request for a dispute to be referred to arbitration is received by the respondent, would also make it clear that it is these proceedings, and no others, that form the subject-matter of the first part of Section 26. Also, since the conduct of arbitral proceedings is largely procedural in nature, parties may "otherwise agree" and apply the Amendment Act to arbitral proceedings that have commenced before the Amendment Act came into force. In stark contrast to the first part of Section 26 is the second part, where the Amendment Act is made applicable "in relation to" arbitral proceedings which commenced on or after the date of commencement of the Amendment Act. What is conspicuous by its absence in the second part is any reference to Section 21 of the 1996 Act. Whereas the first part refers only to arbitral proceedings before an Arbitral Tribunal, the second part refers to court proceedings "in relation to" arbitral proceedings, and it is the commencement of these court proceedings that is referred to in the second part of Section 26, as the words "in relation to the arbitral proceedings" in the second part are not controlled by the application of Section 21 of the 1996 Act.
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39. Section 26, therefore, bifurcates proceedings, as has been stated above, with a great degree of clarity, into two sets of proceedings -- arbitral proceedings themselves, and court proceedings in relation thereto. The reason why the first part of Section 26 is couched in negative form is only to state that the Amendment Act will apply even to arbitral proceedings commenced before the amendment if parties otherwise agree. If the first part of Section 26 were couched in positive language (like the second part), it would have been necessary to add a proviso stating that the Amendment Act would apply even to arbitral proceedings commenced before the amendment if the parties agree. In either case, the intention of the legislature remains the same, the negative form conveying exactly what could have been stated positively, with the necessary proviso. Obviously, "arbitral proceedings" having been subsumed in the first part cannot re- appear in the second part, and the expression "in relation to arbitral proceedings" would, therefore, apply only to court proceedings which relate to the arbitral proceedings. The scheme of Section 26 is thus clear: that the Amendment Act is prospective in nature, and will apply to those arbitral proceedings that are commenced, as understood by Section 21 of the principal Act, on or after the Amendment Act, and to court proceedings which have commenced on or after the Amendment Act came into force."
Emphasis Added
20. Whilst all the aforesaid decisions were delivered by the apex court considering the existence of Section 26 of the 2015 Amendment Act, there was a legislative change in circumstances when the Parliament enacted the 2019 Amendment Act wherein Section 26 of the 2015 Amendment Act was deleted and deemed to have been omitted with effect from October 23, 2015 1 and Section 87 was introduced and deemed to have been inserted in the Act with effect from October 23, 2015. Section 87 of the Act reads as follows -
"87. Unless the parties otherwise agree, the amendments made to this Act by the Arbitration and Conciliation (Amendment) Act, 2015 shall--
(a) not apply to--
(i) arbitral proceedings commenced before the commencement of the Arbitration and Conciliation (Amendment) Act, 2015 (23rd October, 2015);
(ii) court proceedings arising out of or in relation to such arbitral proceedings irrespective of whether such court proceedings are OMP (COMM) 135/19 Dated. 31.08.2023 Page 15 of 28 M/s Chandulal Mohanlal Majithia Vs. The National Building Construction Co. (NBCC) commenced prior to or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015;
(b) apply only to arbitral proceedings commenced on or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015 and to court proceedings arising out of or in relation to such arbitral proceedings."
21.Considering it against the very essence of the ratio laid down by the apex court in BCCI -v- Kochi (supra), the constitutional gavel in the case of Hindustan Construction (supra) struck down deletion of Section 26 of the 2015 Amendment Act together with the insertion of Section 87 into the Act by the 2019 Amendment Act. In plain words, Section 26 of the 2015 Amendment Act and the judicial interpretation thereto stood restored. The relevant paragraphs have been extracted below:-
"59.This now sets the stage for the examination of the constitutional validity of the introduction of Section 87 into the Arbitration Act, 1996, and deletion of Section 26 of the 2015 Amendment Act by the 2019 Amendment Act against Articles 14, 19(1)(g), 21 and Article 300-A of the Constitution of India. The Srikrishna Committee Report recommended the introduction of Section 87 owing to the fact that there were conflicting High Court judgments on the reach of the 2015 Amendment Act at the time when the Committee deliberated on this subject. This was stated as follows in the Srikrishna Committee Report:
"However, Section 26 has remained silent on the applicability of the 2015 Amendment Act to court proceedings, both pending and newly initiated in case of arbitrations commenced prior to 23-10- 2015. Different High Courts in India have taken divergent views on the applicability of the 2015 Amendment Act to such court proceedings. Broadly, there are three sets of views as summarised below:
(a) The 2015 Amendment Act is not applicable to court proceedings (fresh and pending) where the arbitral proceedings to which they relate commenced before 23-10- 2015.
(b) The first part of Section 26 is narrower than the second and only excludes arbitral proceedings commenced prior to 23-10-
2015 from the application of the 2015 Amendment Act. The 2015 Amendment Act would, however, apply to fresh or pending court proceedings in relation to arbitral proceedings commenced prior to 23-10-2015.
(c) The wording "arbitral proceedings" in Section 26 cannot be construed to include related court proceedings. Accordingly, the OMP (COMM) 135/19 Dated. 31.08.2023 Page 16 of 28 M/s Chandulal Mohanlal Majithia Vs. The National Building Construction Co. (NBCC) 2015 Amendment Act applied to all arbitrations commenced on or after 23-10-2015. As far as court proceedings are concerned, the 2015 Amendment Act would apply to all court proceedings from 23-10-2015, including fresh or pending court proceedings in relation to arbitration commenced before, on or after 23-10-2015. Thus, it is evident that there is considerable confusion regarding the applicability of the 2015 Amendment Act to related court proceedings in arbitration commenced before 23-10-2015. The Committee is of the view that a suitable legislative amendment is required to address this issue. The committee feels that permitting the 2015 Amendment Act to apply to pending court proceedings related to arbitrations commenced prior to 23-10-2015 would result in uncertainty and prejudice to parties, as they may have to be heard again. It may also not be advisable to make the 2015 Amendment Act applicable to fresh court proceedings in relation to such arbitrations, as it may result in an inconsistent position. Therefore, it is felt that it may be desirable to limit the applicability of the 2015 Amendment Act to arbitrations commenced on or after 23-10-2015 and related court proceedings."
(emphasis supplied)
60. The Srikrishna Committee Report is dated 30-7-2017, which is long before this Court's judgment in Kochi Cricket case [BCCI v. Kochi Cricket (P) Ltd., (2018) 6 SCC 287 : (2018) 3 SCC (Civ) 534] . Whatever uncertainty there may have been because of the interpretation by different High Courts has disappeared as a result of Kochi Cricket [BCCI v. Kochi Cricket (P) Ltd., (2018) 6 SCC 287 : (2018) 3 SCC (Civ) 534] judgment, the law on Section 26 of the 2015 Amendment Act being laid down with great clarity. To thereafter delete this sChapter V, and which speaks of the arbitral proceedings commencing on the date on which a request for a dispute to be referred to arbitration is received by the respondent, would also make it clear that it is these proceedings, and no others, that form the subject-matter of the first part of Section 26. Also, since the conduct of arbitral proceedings is largely procedural in nature, parties may "otherwise agree" and apply the Amendment Act to arbitral proceedings that have commenced before the Amendment Act came into force.alutary provision and introduce Section 87 in its place, would be wholly without justification and contrary to the object sought to be achieved by the 2015 Amendment Act, which was enacted pursuant to a detailed Law Commission Report which found various infirmities in the working of the original 1996 statute. Also, it is not OMP (COMM) 135/19 Dated. 31.08.2023 Page 17 of 28 M/s Chandulal Mohanlal Majithia Vs. The National Building Construction Co. (NBCC) understood as to how "uncertainty and prejudice would be caused, as they may have to be heard again", resulting in an "inconsistent position". The amended law would be applied to pending court proceedings, which would then have to be disposed of in accordance therewith, resulting in the benefits of the 2015 Amendment Act now being applied. To refer to the Srikrishna Committee Report (without at all referring to this Court's judgment) even after the judgment has pointed out the pitfalls of following such provision, would render Section 87 and the deletion of Section 26 of the 2015 Amendment Act manifestly arbitrary, having been enacted unreasonably, without adequate determining principle, and contrary to the public interest sought to be subserved by the Arbitration Act, 1996 and the 2015 Amendment Act. This is for the reason that a key finding of Kochi Cricket [BCCI v. Kochi Cricket (P) Ltd., (2018) 6 SCC 287 : (2018) 3 SCC (Civ) 534] judgment is that the introduction of Section 87 would result in a delay of disposal of arbitration proceedings, and an increase in the interference of courts in arbitration matters, which defeats the very object of the Arbitration Act, 1996, which was strengthened by the 2015 Amendment Act.
61. Further, this Court has repeatedly held that an application under Section 34 of the Arbitration Act, 1996 is a summary proceeding not in the nature of a regular suit--see Canara Nidhi Ltd. v. M. Shashikala [Canara Nidhi Ltd. v. M. Shashikala, (2019) 9 SCC 462 : (2019) 4 SCC (Civ) 545] , SCC para 20. As a result, a court reviewing an arbitral award under Section 34 does not sit in appeal over the award, and if the view taken by the arbitrator is possible, no interference is called for--see Associated Construction v. Pawanhans Helicopters Ltd. [Associated Construction v. Pawanhans Helicopters Ltd., (2008) 16 SCC 128] , SCC para 17.
*
63. Also, it is important to notice that the Srikrishna Committee Report did not refer to the provisions of the Insolvency Code. After the advent of the Insolvency Code on 1-12-2016, the consequence of applying Section 87 is that due to the automatic stay doctrine laid down by judgments of this Court--which have only been reversed today by the present judgment--the award-holder may become insolvent by defaulting on its payment to its suppliers, when such payments would be forthcoming from arbitral awards in cases where there is no stay, or even in cases where conditional stays are granted. Also, an arbitral award-holder is deprived of the OMP (COMM) 135/19 Dated. 31.08.2023 Page 18 of 28 M/s Chandulal Mohanlal Majithia Vs. The National Building Construction Co. (NBCC) fruits of its award--which is usually obtained after several years of litigating--as a result of the automatic stay, whereas it would be faced with immediate payment to its operational creditors, which payments may not be forthcoming due to monies not being released on account of automatic stays of arbitral awards, exposing such award-holders to the rigors of the Insolvency Code. For all these reasons, the deletion of Section 26 of the 2015 Amendment Act, together with the insertion of Section 87 into the Arbitration Act, 1996 by the 2019 Amendment Act, is struck down as being manifestly arbitrary under Article 14 of the Constitution of India.
*
66. The result is that Kochi Cricket judgment will therefore continue to apply so as to make applicable the salutary amendments made by the 2015 Amendment Act to all court proceedings initiated after 23-10-2015"
Emphasis Added
22. Therefore, it becomes manifestly clear that Section 26 of the 2015 Amendment Act is the position of law on this subject whereas Section 87 in the principal Act is no longer in existence. While interpreting a particular statutory provision, the Court has to accord significance to every word, space, and character in that provision. Post BCCI -v- Kochi (supra) interpretation of Section 26 of the 2015 Amendment Act, it is crystal clear that the applicability of 2015 Amendment Act is prospective in nature, and will apply to those arbitral proceedings that have commenced, in accordance with Section 21 of the Act, on or after the effective date, and also to court proceedings which have commenced on or after the effective date.
23. Reliance can also be placed upon the decision in Ratnam Sudesh Iyer -v- Jackie Kakubhai Shroff reported in [2021] 11 S.C.R. 97 wherein after analyzing the earlier pronouncements in BCCI -v- Kochi (supra) and Hindustan Construction (supra), the apex court concluded that on a conjoint reading of Section 21 of the principal Act and Section 26 of the 2015 Amendment Act makes it apparent that unless the parties otherwise agree, provisions of 2015 Amendment Act will not apply to arbitral proceedings which had commenced in accordance with Section 21 of the Act before the effective date. The relevant portions from the aforesaid said judgment have been extracted below -
"21. In BCCI v. Kochi Cricket (P) Ltd. [(2018) 6 SCC 287] a reference OMP (COMM) 135/19 Dated. 31.08.2023 Page 19 of 28 M/s Chandulal Mohanlal Majithia Vs. The National Building Construction Co. (NBCC) was made to Section 26 of the 2015 Amendment Act which had bifurcated proceedings into arbitral proceedings and court proceedings. The said provision reads as under:
"26. Act not to apply to pending arbitral proceedings.-- Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of Section 21 of the principal Act, before the commencement of this Act, unless the parties, otherwise agree but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act."
22. It was clearly elucidated in para 39 of the judgment that the reason behind the first part of Section 26 of the 2015 Amendment Act being couched in the negative was only to state that the Amendment Act will apply even to arbitral proceedings commenced before the amendment if the parties otherwise agree. This is not so in the second part. The judgment derived that the intention of the legislature was to mean that the 2015 Amendment Act is prospective in nature and will apply to those arbitral proceedings that are commenced, as understood by Section 21 of the said Act, on or after the 2015 Amendment Act, and to court proceedings which had commenced on or after the 2015 Amendment Act came into force.
23. The applicability of Section 34(2-A) was further elucidated in Ssangyong Engg. & Construction Co. Ltd. v. NHAI [(2019) 15 SCC 131], where the SC categorically opined that Section 34 as amended will apply only to Section 34 applications that have been made to the Court on or after 23-10-2015, irrespective of the fact that the arbitration proceedings may have commenced prior to that date.
24. In the subsequent judgment of Hindustan Construction Co. Ltd. v. Union of [(2020) 17 SCC 324] , it was observed in para 60 that the result of the BCCI judgment was that salutary amendments made by the 2015 Amendment Act would apply to all court proceedings initiated after 23-10-2015."
Emphasis Added
24. In the instant case, the petitioner/ award debtor has presented the arbitral award before this Court to be sacrificed at the altar of unilateral appointments. The judicial expansion of Section 12(5) r/w Schedule VII of the Act to make the arbitrator de jure ineligible creates a substantive right on the parties which had not existed when the arbitrator in the instant case was appointed by the parties and therefore the arbitral proceedings had begun under the OMP (COMM) 135/19 Dated. 31.08.2023 Page 20 of 28 M/s Chandulal Mohanlal Majithia Vs. The National Building Construction Co. (NBCC) unamended Act. It is a settled principle of law that a statute which creates substantive rights and liabilities on the parties shall be construed to be prospective in operation. Hence, on one hand, due regard has to be accorded to the principles of impartiality and un- biasedness which are safeguarded by insertion of Section 12(5) r/w Schedule VII of the Act, whilst on the other hand, the Court must ensure that substantive rights and liabilities should not be imposed on a particular party retrospectively. Therefore, even though 2015 Amendment Act is applicable on court proceedings in relation to arbitral proceedings which had commenced before the effective date, the applicability cannot be said to include the substantive rights and liabilities emerging out of the 2015 Amendment Act. While I have no doubts in holding that the act of unilateral appointment is outlawed as of today and cannot be sustained at any stage whatsoever, it was not so when the unilateral appointment was made in the instant case. This Court finds itself in consonance with the arguments put forth by the counsel for the award holder that there was no bar placed on unilateral appointment of an arbitrator at the time when the appointment was made in the instant case.
25. Moving on, the perplexity which presented itself before me during pleadings was the case of Ellora Paper Mills Ltd. -v- State of MP reported in (2022) 3 SCC 1, which is the only such reported instance where the Supreme Court applied principles of Section 12(5) r/w Schedule VII of the Act to a situation where Section 21 notice was issued prior to the effective date, and the arbitral tribunal was constituted way back in the year 2001. However, before jumping the gun and making the principle of retrospective applicability universal, it needs to be kept in mind that the facts therein were peculiar and an exception. The proceedings, in that case, had not technically commenced prior to the effective date. And therefore, to my understanding, the case of Ellora Paper Mills (supra) is an extraordinary one and cannot be construed as a part of the prevailing jurisprudence on the subject.
Hence, issue no. 2 is also answered in the negative....".
OMP (COMM) 135/19 Dated. 31.08.2023 Page 21 of 28M/s Chandulal Mohanlal Majithia Vs. The National Building Construction Co. (NBCC)
18. In view of mandate of this judgment, the petitioner can not be given any benefit of the amendment which took place after initiation of arbitration proceedings.
19. It is also contended by the counsel for the claimant that the counter-claim is barred by limitation however, no objection in this regard was raised before the Ld. Arbitrator, therefore, the claimant is precluded to raise this argument before this court first time. (relied upon Raj Kishian Vs. NTPC, 2012 SCC Online Del 4799).
20. It is submitted by the Ld. Counsel for the claimant/petitioner that no disclosure statement made by the Ld. Arbitrator regarding his independence and impartiality, and on this ground award is liable to set aside. The perusal of the record shows that the first arbitrator was appointed on 21.02.2018 who is the Deputy General Manager of the respondent, however, no objection was raised by the claimant. The claimant filed the statement of claims and pleadings from both the parties were completed, thereafter, Ld. Arbitrator resigned then present arbitrator was appointed. No objection was also raised regarding his appointment. During proceedings, the claimant C.M. Majithia expired and his legal heir Paresh Majithiya was brought on record vide order dated 14.07.2017 in which both the parties gave consent for continuation of Ld. Arbitrator and the matter was fixed for arguments for 08.09.2017. The claimant, however, after initiation of arguments vide letter dated 30.08.2018 raised issues regarding fairness and impartiality but not participated in the arbitration proceedings, therefore, finally the award was passed after the OMP (COMM) 135/19 Dated. 31.08.2023 Page 22 of 28 M/s Chandulal Mohanlal Majithia Vs. The National Building Construction Co. (NBCC) declaring the claimant ex-parte. The claimant was given the due opportunities in the proceedings. He was also aware about the designation and the fact that the Arbitrator is employee of the respondent. There is nothing in the proceedings or the award to show any biasness and partiality at the behest of the Ld. Arbitrator. Even otherwise, the objections as raised are vague.
21. Scope of interference under section 34 of Arbitration and Conciliation Act with Arbitrator's award is very limited. The Court would not be justified in reappraising the material on record and substituting its own view in place of the view taken by Arbitrator. Once the Arbitrator has applied his mind to the matter before him, the Court cannot reappraise the matter as if it were an appeal and even if two views are possible, the view taken by the Arbitrator would prevail as held by Hon'ble Supreme Court in the case of Navodaya Mass Entertainments Ltd. v. J.M. Combines reported in (2015) 5 SCC 698.
22. Hon'ble Supreme Court in the case of 'Sutlej Construction Ltd. v. State (UT of Chandigarh) reported in (2018) 1 SCC 718' has held that when it comes to setting aside of an award under the public policy ground, it would mean that the award should shock the conscience of the court and would not include what the court thinks is unjust on the facts of the case seeking to substitute its view for that of the arbitrator to do what it considers to be "justice. Paragraph nos. 10 to 13 of the said judgment are extracted below:-
"10. We are not in agreement with the approach adopted by the learned Single Judge. The dispute in question had OMP (COMM) 135/19 Dated. 31.08.2023 Page 23 of 28 M/s Chandulal Mohanlal Majithia Vs. The National Building Construction Co. (NBCC) resulted in a reasoned award. It is not as if the arbitrator has not appreciated the evidence. The arbitrator has taken a plausible view and, an in our view, as per us the correct view, that the very nature of job to be performed would imply that there has to be an area for unloading and that too in the vicinity of 5 km as that is all that the appellant wasto be paid for. The route was also determined. In such a situation to say that the respondent owed no obligation to make available the site cannot be accepted by any stretch of imagination. The unpreparedness of the respondent is also apparent from the fact that even post-termination it took couple of years for the work to be carried out, which was meant to be completed within 45 days. The ability of the appellant to comply with its obligations was interdependent on the respondent meeting its obligations in time to facilitate appropriate areas for unloading of the earth and for its compacting. At least it is certainly a plausible view.
11. It has been opined by this Court that when it comes to setting aside of an award under the public policy ground, it would mean that the award should shock the conscience of the Court and would not include what the Court thinks is unjust on the facts of the case seeking to substitute its view for that of the arbitrator to do what it considers to be "justice".
12. The approach adopted by the learned Additional District Judge, Chandigarh was, thus, correct in not getting into the act of reappreciating the evidence as the first appellate court from a trial court decree. An arbitrator is a chosen Judge by the parties and it is on limited parameters can the award be interfered with. 13. The learned Single Judge ought to have restrained himself from getting into the meanderings of evidence appreciation and acting like a second appellate court. In fact, even in second appeals, only questions of law are to be determined while the first appellate court is the final court on facts. In the present case, the learned Single Judge has, thus, acted in the first appeal against objections dismissed as if it was the first appellate court against a decree passed by the trial court."
OMP (COMM) 135/19 Dated. 31.08.2023 Page 24 of 28M/s Chandulal Mohanlal Majithia Vs. The National Building Construction Co. (NBCC)
23. The scope of interference with an arbitral award under Section 34 of the Act has been considered and discussed by Hon'ble Supreme Court in a judgment rendered in the case of 'MMTC Ltd. v. Vedanta Ltd. reported in (2019) 4 SCC 163'. Paragraph nos. 11 to 14 of the said judgment are extracted below:
"11. As far as Section 34 is concerned, the position is well- settled by now that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited ground provided under Section 34(2)(b)(ii) i.e. if the award is against the public policy of India. As per the legal position clarified through decisions of this Court prior to the amendments to the 1996 Act in 2015, a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice or morality, and the existence of patent illegality in the arbitral award. Additionally, the concept of the "fundamental policy of Indian law" would cover compliance with statutes and judicial precedents, adopting a judicial approach, compliance with the principles of natural justice, and Wednesbury reasonableness. Furthermore, "patent illegality" itself has been held to mean contravention of the substantive law of India, contravention of the 1996 Act, and contravention of the terms of the contract.
12. It is only if one of these conditions is met that the Court may interfere with an arbitral award in terms of Section 34(2)
(b)(ii), but such interference does not entail a review of the merits of the dispute, and is limited to situations where the findings of the arbitrator are arbitrary, capricious or perverse, or when the conscience of the Court is shocked, or when the illegality is not trivial but goes to the root of the matter. An arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts.
13. It is relevant to note that after the 2015 Amendment to Section 34, the above position stands somewhat modified.
Pursuant to the insertion of Explanation 1 to Section 34(2), the scope of contravention of Indian public policy has been modified to the extent that it now means fraud or corruption in the making of the award, violation of Section 75 or Section 81 OMP (COMM) 135/19 Dated. 31.08.2023 Page 25 of 28 M/s Chandulal Mohanlal Majithia Vs. The National Building Construction Co. (NBCC) of the Act, contravention of the fundamental policy of Indian law, and conflict with the most basic notions of justice or morality. Additionally, sub-section (2-A) has been inserted in Section 34, which provides that in case of domestic arbitrations, violation of Indian public policy also includes patent illegality appearing on the face of the award. The proviso to the same states that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.
14. As far as interference with an order made under Section 34, as per Section 37, is concerned, it cannot be disputed that such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. In other words, the court cannot undertake an independent assessment of the merits of the award, and must only ascertain that the exercise of power by the court under Section 34 has not exceeded the scope of the provision. Thus, it is evident that in case an arbitral award has been confirmed by the court under Section 34 and by the court in an appeal under Section 37, this Court must be extremely cautious and slow to disturb such concurrent findings."
24. In the case of 'Maharashtra State Electricity Distribution Company Ltd. v. Datar C.C.L. Ltd. reported in (2018) 3 SCC 133' it has been held by Hon'ble Supreme Court that "the proposition of law that the Arbitral Tribunal is the master of evidence and the findings of fact which are arrived at by the arbitrators on the basis of evidence on record are not to be scrutinised as if the Court was sitting in appeal now stands settled by catena of judgments pronounced by this Court without any exception thereto."
25. Ld. Arbitrator has passed the award upon consideration of material placed before him. There is nothing on record that the relevant material is not placed before the Ld. Arbitrator. The petitioner despite OMP (COMM) 135/19 Dated. 31.08.2023 Page 26 of 28 M/s Chandulal Mohanlal Majithia Vs. The National Building Construction Co. (NBCC) number of opportunities not joined the proceedings and remained the ex- parte. There is nothing perverse or patently illegal in the findings of the Ld. Arbitrator.
26. The Ld. Sole Arbitrator has drawn inferences and conclusions after the factual appreciation in the light of the legal principles. The views of the Ld. Sole Arbitrator can not be found fault with only for the reason that some other views can emerge by appreciating the same set of facts and evidence, until and unless it is shown that such a view is totally obnoxious and unsupported by the sound legal principles.
27. This Court cannot substitute its own views or the views of the parties with the view taken by the Ld. Arbitral Tribunal, if the view taken by the Ld. Arbitrator is not in conflict with the settled legal position. There is nothing to suggest that the findings and conclusions rendered by the Ld. Arbitrator are per-se perverse, illegal or non- sustainable or against public policy.
28. Accordingly, the present petition under Section 34 of the Arbitration and Conciliation Act as pressed into service by the petitioner is therefore not sustainable within the scope and ambit of the provision, therefore, liable to be dismissed and accordingly dismissed and disposed of.
OMP (COMM) 135/19 Dated. 31.08.2023 Page 27 of 28M/s Chandulal Mohanlal Majithia Vs. The National Building Construction Co. (NBCC)
29. File be consigned to record room after necessary compliance.
Announced in the open court on 31st August, 2023 (Ajay Kumar Jain) District Judge (Commercial Courts- 03), SE/Saket Courts/Delhi OMP (COMM) 135/19 Dated. 31.08.2023 Page 28 of 28 M/s Chandulal Mohanlal Majithia Vs. The National Building Construction Co. (NBCC)