Karnataka High Court
Mphasis Limited vs Sreevan Infocomm Limited on 20 May, 2025
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 20TH DAY OF MAY, 2025
PRESENT
THE HON'BLE MR JUSTICE V KAMESWAR RAO
AND
THE HON'BLE MR JUSTICE S RACHAIAH
COMMERCIAL APPEAL NO. 323 OF 2022
BETWEEN:
MPHASIS LIMITED,
A PRIVATE LIMITED COMPANY
LIMITED BY SHARES,
INCORPORATED UNDER THE COMPANIES ACT, 1956,
HAVING ITS REGISTERED OFFICE AT
BAGMANE WORLD TECHNOLOGY CENTRE,
MARATHALLI OUTER RING ROAD,
DODDANEKUNDI VILLAGE, MAHADEVAPURA,
BANGALORE-560 048.
REPRESENTED BY ITS VICE PRESIDENT-LEGAL,
MS. SILVI JOSEPH.
...APPELLANT
(BY SRI DHANANJAY V. JOSHI, SENIOR COUNSEL FOR
SRI. VACHAN.H.U AND SMT. KAVITHA DAMODARAN, ADVOCATES)
AND:
1. SREEVEN INFOCOMM LIMITED,
A PRIVATE COMPANY LIMITED BY SHARES,
INCORPORATED UNDER THE COMPANIES ACT, 1956,
HAVING ITS REGISTERED OFFICE AT,
FLAT NO.201, H.NO.7-1-396/2/10/1,
SHREE VENKAT RESIDENCY BK GUDA,
HYDERABAD,
REPRESENTED BY ITS MANAGING DIRECTOR.
2
2. JUSTICE (RETD.) SUBHASH B.ADI,
SOLE ARBITRATOR,
HAVING HIS RESIDENCE AT:
94/A, 9TH CROSS, 10TH MAIN,
R.M.V.EXTENSION, SADASHIVANAGAR,
BANGALORE-560 080.
...RESPONDENTS
(BY SRI. SRINIVAS RAGHAVAN, SENIOR COUNSEL FOR
SRI. ABHINAY.V, ADVOCATE FOR R1,
NOTICE TO R2 IS DISPENSED WITH V/O/D 10.10.2023)
THIS COMMERCIAL APPEAL IS FILED UNDER SECTION 37(1)(c)
OF THE ARBITRATION AND CONCILIATION ACT, 1996 READ WITH
SECTION 13(1A) OF THE COMMERCIAL COURTS ACT, 2015 PRAYING
THAT THIS HON'BLE COURT MAY BE PLEASED TO SET ASIDE THE
IMPUGNED JUDGMENT (ANNEXURE-A), DATED 31.05.2022 PASSED BY
THE LXXXIV ADDITIONAL CITY CIVIL & SESSIONS JUDGE, BANGALORE
(CH-85) IN COM.A.P.NO.23/2021, AND TO ISSUE SUCH FURTHER AND
OTHER ORDERS AND/OR DIRECTIONS AS THIS HON'BLE COURT MAY
DEEM FIT AND PROPER IN THE FACTS AND CIRCUMSTANCES OF THE
CASE.
THIS APPEAL HAVING BEEN HEARD AND RESERVED FOR
JUDGMENT ON 12.12.2024, COMING ON FOR PRONOUNCEMENT
OF JUDGMENT THIS DAY, V KAMESWAR RAO J., DELIVERED
THE FOLLOWING:
CORAM: THE HON'BLE MR JUSTICE V KAMESWAR RAO
AND
THE HON'BLE MR JUSTICE S RACHAIAH
3
CAV JUDGMENT
(PER: HON'BLE MR JUSTICE V KAMESWAR RAO) This appeal under Section 37(1)(c) of the Arbitration and Conciliation Act, 1996 (in short, the Act of 1996) read with Section 13(1A) of the Commercial Courts Act, 2015 has been filed by the appellant-M/s.Mphasis Limited challenging the order/judgment dated 31.05.2022 passed by LXXXIV Additional City Civil and Sessions Judge, Bengaluru (CH-85) (in short, 'Sessions Judge') in Com.A.P.No.23/2021, whereby the learned Sessions Judge has allowed the petition-AP No.23/2021 filed under Section 34 of the Act of 1996 by the Respondent No.1 herein and set aside the Arbitral Award dated 10.06.2020 passed by the learned sole Arbitrator in SBA/AC-01/2019.
2. Suffice to state that the contesting party is the Respondent No.1. The facts to be noted for the purpose of this judgment are as under:
3. The National Institute of Electronics and Information Technology (in short, 'NIELIT') is an Autonomous Scientific 4 Society of the Department of Electronics and Information Technology, Ministry of Communications and Information Technology, Government of India, which invited bids for providing Managed Data Digitalization Services for Creation of Aadhar Enrolment and National Population Register for residents of Rural Areas in India.
4. The Respondent No.1 had been selected as one of the successful bidders known as Managed Service Providers (MSPs) or also as Enrolment Agencies for collection of data in specified locations in various States. The appellant and the Respondent No.1 entered into a mutual arrangement in respect of the substantial portions of the work to be carried out in relevant States and one Union Territory, pursuant to which, the appellant and the Respondent No.1 entered into agreements/purchase orders with reference to various tasks on mutually agreed terms and conditions. During the execution of the said project, certain disputes arose between the parties leading to a claim by the appellant on the Respondent No.1 in a sum of Rs.8,77,24,864/-. 5
5. It is the case of the appellant that, pursuant to negotiations, the Respondent No.1 and the appellant entered into a settlement agreement dated 02.09.2014 under which the appellant was persuaded to receive a lesser amount in full and final settlement of its claim. It is the case of the appellant that in terms of the settlement agreement, it was agreed:-
i) The Respondent No.1 shall pay the appellant a sum of Rs.5.00,00,000/- (Rupees Five Crore) in full and final settlement of all dues over to the appellant.
ii) The settlement amount will be paid by Respondent No.1 upon receipt of payment from NIELIT.
iii) To manage and safeguard the flow of funds from NIELIT, the appellant and the Respondent No.1 agreed to open a joint Escrow Account and the Respondent No.1 agreed to advice NIELIT to make all payments into the Escrow Account.
iv) The initial release of a sum of Rs.2,00,00,000/-
(Rupees Two Crore) from NIELIT into Escrow Account will be entirely released to Respondent No.1 for clearing the vendors'/sub-vendors' dues. 6
v) As against the further release of payment by NIELIT, the Respondent No.1 will be entitled to 60% of the payment subject to a limit of Rs.2,00,00,000/- (Rupees Two Crores) fixed. The appellant is entitled to receive the entire balance amount released by NIELIT into the Escrow Account.
6. It is the case of the appellant, pursuant to Clause- 9 of the Settlement Agreement, the appellant and the Respondent No.1 opened a joint Escrow Account bearing No.000205024669 with the ICICI Bank Limited. In further compliance of its obligation under Clause-9 of the Settlement Agreement, the Respondent No.1 addressed a letter to NIELIT duly furnishing the details of the Escrow Account and instructing NIELIT to update the Bank Account for release of the project payments arising out of and in relation to the said project. Pursuant there to, on 30.09.2015, vide its letter, Respondent No.1 and the appellant jointly requested the NIELIT to release the payments in relation to the said project into the Escrow Account, the details of which were already submitted to NIELIT.
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7. It is stated that, on 10.11.2016, the appellant and the Respondent No.1 amended the Settlement Agreement dated 02.09.2014, pursuant to which the appellant and the Respondent No.1 agreed to the following changes to the Settlement Agreement leaving the remaining terms unchanged:-
a) Out of the initial amount released into the Escrow Account by NIELIT, a sum of Rs.57,45,000/- was to be paid to the appellant.
b) The appellant was required to withdraw the criminal complaint i.e., PCR No.1227/2013 filed against the Respondent No.1 and its Managing Director.
8. It is stated by the appellant that, the ICICI Bank, which held the Escrow Account on behalf of the appellant and the Respondent No.1 was informed about the amendment to the Settlement Agreement dated 01.11.2016 vide letter dated 01.12.2016 submitted by the Respondent No.1 and the appellant. It is stated that on 10.11.2016, the Respondent No.1 yet again issued a letter to NIELIT to release the outstanding amount only into the Escrow 8 Account. In compliance with Clause-2 to the amendment of the Settlement Agreement, the appellant on 06.01.2017 withdrew the criminal complaint i.e., CC No. 51282/2013 filed against the Respondent No.1, its Managing Director and Executive Director.
9. It is stated that, after withdrawal of the criminal complaint, there was no communication from the Respondent No.1. In spite of more than a year having passed by and in spite of repeated follow-up with the Respondent No.1, the appellant did not received any update on the status of the payments being released by NIELIT. It was eventually on 23.01.2018, the appellant wrote to NIELIT reminding NIELIT of the Escrow Account and requesting NIELIT to only release payments due to the Respondent No.1 to the credit of and into the Escrow Account. To the appellant's surprise, in spite of the receipt of the said letter dated 23.01.2018, there was no response from NIELIT. It is stated that, on 07.02.2018, the appellant sent an Email to NIELIT yet again requesting the NIELIT to make the out- 9 standing payments into the Escrow Account. However, no response was received by the appellant. Hence, vide Advocate's letter dated 09.02.2018, the appellant issued a notice for Arbitration calling upon the Respondent No.1 to consent for constituting an Arbitral Tribunal. In spite of receipt of the notice, the Respondent No.1 did not care to respond. It was stated that, the Respondent No.1 sought information under the Right to Information Act from NIELIT whether it had in fact released any payment to the applicant. On 16.05.2018, by letter addressed to the Respondent No.1 NIELIT furnished a document disclosing that, it had paid Rs.6,17,43,853/- to the Respondent No.1 directly on 31.01.2018.
10. It was the case of the appellant that, since the Respondent No.1 had acted in blatant breach of provisions of the Settlement Agreement by taking away the payments directly from NIELIT without crediting the funds into the joint Escrow Account even after entering into the Settlement Agreement with the appellant and even after having 10 instructed NIELIT to remit all payments into the joint Escrow Account, the appellant was left with no choice but to seek adjudication of his claims against the Respondent Nos.1 by way of arbitration. Accordingly, on a CMP No.199/2018 filed before this Court, this Court had constituted the Arbitral Tribunal. It is stated that the learned Arbitrator passed an award directing sharing of the funds received from NIELIT as per the terms of the settlement between the appellant and Respondent No.1. Being aggrieved by the award dated 10.06.2020, the Respondent No.1 filed an application under Section 34 of the Act, of 1996, which has been allowed by the learned Sessions Judge by the impugned judgment dated 31.05.2022 and hence, the appeal.
11. The appellant herein had filed a statement of claim before the learned Arbitrator claiming release of Rs.5,00,00,000/- with interest at 18% p.a. from 31.01.2018 and damages of Rs.3,77,24,864/- with interest @ of 18% P.A. from 02.09.2014 till the payment alleging that the Respondent No.1 had induced it to the Settlement 11 Agreement with the intention to cheat, commit breach by not letting the funds released in Escrow Account and thereby caused loss to the tune of Rs.3,77,24,864/-
12. The Respondent No.1 herein had filed a statement of objections with counter-claim denying the claim and contending that, as per Clause-3.7 of the main agreement with the Government of India, sub-contracting is prohibited. As such, NIELIT did not credit payment into the Escrow Account. The appellant miserably failed to complete the work by 31.12.2012 and could not even handed-over 20% of the executed data. As a result, the Government issued notices threatening to block list and impose heavy penalty. To save the project, it raised cash credit of Rs.4.00 Crore from the ICICI Bank and completed the project by March 2013; Rs.2,77,58,872/- was paid by it towards interest to ICICI Bank and the same is adjusted in the final payments received from NIELIT. It incurred huge penalties and suffered loss reputation before NIELIT due to the breach committed by the appellant. The NIELIT released 12 Rs.6,17,43,853/- by deducting the penalty and only after it signed an agreement by accepting penalties under various heads, EMD of Rs.57,45,000/- could not be repaid as it was utilized for implementing the project. The appellant is not entitled to enforce the contract, but liable to pay Rs.60,15,019/- towards the interest at 18% p.a. from 01.02.2018 and Rs.10,00,000/- towards mental agony caused due to non-performance of the terms of the Memorandum of Understanding and also initiation of a criminal action.
13. Suffice to state, the appellant herein filed statement of objection to the counter-claim of the Respondent No.1 and thereby reiterating its claim and contending that the counter-claim is unreasonable and it is not liable to make payment to the respondent No.1. The Tribunal has in all framed issues from (a) to (n) on the claims and issues (a) to (d) on counter-claims.
14. After hearing the arguments, the learned Arbitrator allowed the claim and directed the respondent 13 No.1 to pay Rs.4,97,43,853/- with interest @ 18% p.a. from 31.01.2018 until payment and balance amount if any out of settlement amount of Rs.5.00 Crores; the entire cost of arbitral proceedings with interest @ 12% p.a. and also Rs.5,00,000/- as damages with interest and rejected the counter-claim in Toto by the impugned award.
15. On the challenge to the award made by the respondent No.1, the learned Sessions Judge has allowed the petition under Section 34 of the Act of 1996 by stating as under:
ORDER The petition U/Sec.34 of the Arbitration and Conciliation Act is allowed.
The arbitral award dated 10.06.2020 passed by the Sole Arbitrator in SBA/AC01/2019 is set aside.
Issue copy of the judgment to the parties through e-mail as provided U/o XX Rule 1 of CPC, if mail ID is furnished.14
SUBMISSIONS:
16. The submissions of Mr. Dhananjay V.Joshi, the learned Senior Counsel for the appellant-M/s Mphasis Limited are that, while the appellant was successful claimant before the learned Arbitrator; the learned Sessions Judge has, without any basis, contrary to the provisions of Section-34 of the Act of 1996 and contrary to the settled position of law has set aside the award by re-appreciating the evidence, albeit incorrectly and supplanting its own view over the findings of the learned Arbitrator. According to him, the Respondent No.1 had induced the appellant in entering into a Settlement Agreement dated 02.09.2014 under which the appellant was persuaded to receive a lesser amount in full and final settlement of its total claim on the terms and conditions set out in the said agreement. He stated, Clause- 9 of the Settlement Agreement, the appellant and Respondent No.1 had opened a joint Escrow Account with the ICICI Bank Limited. In further compliance of its obligation under Clause-9 of the Settlement Agreement, the 15 Respondent addressed a letter dated 30.09.2014 to NIELIT duly furnishing the details of the Escrow Account and instructing NIELIT to update the bank account details for release of the project payments arising out of and in relation to the project. In fact, a letter dated 30.09.2015 of the Respondent No.1 and the appellant had jointly requested the NIELIT to release payment in relation to the said project into the Escrow Account. He lays stress on the fact that, on 10.11.2016, the appellant and Respondent No.1 had amended the Settlement Agreement thereby amending the release of funds and requiring the appellant to withdraw a criminal complaint that it had filed against the Respondent No.1. Accordingly, on 06.01.2017, in compliance of Clause- 2, the appellant withdrew the criminal complaint. However, after withdrawal of the criminal complaint, there was no communication from the Respondent No.1 in spite of more than one year has passed by and in spite of repeated follow- up with the Respondent No.1. The appellant did not receive 16 any updates on the status of the payments being released by NIELIT.
17. According to Mr. Joshi, under these circumstances, vide letter dated 23.01.2018, the appellant wrote to NIELIT reminding NIELIT of the Escrow Account and requesting NIELIT to only release the payments into the Escrow Account. There was no response from NIELIT. Under these circumstances, the appellant had invoked the Arbitration clause. He highlighted the fact, vide letter dated 16.05.2018 addressed to the appellant by NIELIT, it is clear that an amount of Rs.6,17,43,853/- was paid by NIELIT to Respondent No.1 directly on 31.01.2018. He stated that nowhere in the impugned judgment is there even a single reference to the Arbitrator's analysis and reasoning of the facts and the evidence submitted in the Arbitration proceedings. The learned Sessions Judge has merely re- appreciated the facts and evidence and has arrived at some view different from that arrived from the learned Arbitrator. According to him, the Sessions Judge has conducted the 17 Section 34 proceedings as if he was exercising appellate jurisdiction and over looking the settled position of law and he was required to only examine the award for the limited purpose of ascertaining whether the view taken by the learned Arbitrator is a plausible view on the facts and the evidence, and nothing more.
18. Even with regard to imposition of penalty, the Sessions Judge has erred in ignoring the learned Arbitrator's analysis and reasoning set-out in Paragraphs Nos.78 to 80 of the award. Nowhere in the entire impugned judgment, has the Sessions Judge even referred to Paragraphs 78 to 80 of the award nor has he set-out how the view taken by the learned Arbitrator in Paragraphs-78 to 80 of the award are sustainable.
19. Even on the distribution of funds between the parties, the learned Sessions Judge has erred in ignoring the learned Arbitrator's analysis and reasoning set-out in Paragraphs-89 to 92 and more particularly in Paragraphs- 82 and 83 of the award. He also highlighted the fact that the 18 impugned judgment of the learned Sessions Judge is contrary to law in terms of the judgment of this Court and the Hon'ble Supreme Court in the case of Union of India, CPWD, Bengaluru Vs. M/s. Warsaw Engineers and Another [ILR 2022 KAR 251]. He also stated that, Bombay Slum Re-development Corporation Limited Vs. Samir Narain Bhojwani [2024 SCC OnLine SC 1656]. In these circumstances and submissions, his plea is that this Court ought to be pleased to allow the appeal as prayed for and impose cost on the respondent No.1.
20. In support of his submissions, Mr. Joshi has relied upon the following judgments:
1. National Highways Authority of India V. M/s. Hindustan Construction Company Ltd, judgment dated 07.05.2024 reported in (2024) 6 SCC 809
2. Punjab State Civil Supplies Corporation Limited & Another V. M/s. Sanman Rice Mills & Ors, judgment dated 27.09.2024 reported in 2024 SCC Online SC 2632
21. On the other hand, Mr.Srinivas Raghavan, the learned Senior Counsel for the Respondent No.1 would 19 justify the impugned order/judgment of the learned Sessions Judge by stating that the Arbitral Award dated 10.06.2020 passed by the learned Arbitrator is vitiated by the patent illegality and perversity appearing on the face of the award and as such, the learned Sessions Judge was right in allowing the Section-34 petition filed by the Respondent No.1 and set aside the award. According to Mr. Raghavan, the appellant and Respondent no.1 entered into a Settlement Agreement dated 02.09.2014. As per Clause-5 therein, the appellant was entitled to an amount of Rs.5.00 Crore towards the full and final settlement. As per Clause-6, if any penalties are imposed by NIELIT, the settlement amount stated in Clause-5 stands reduced to that extent. Clauses- 10 to 12 delineated the mode of distribution of amounts between the parties. Thereafter, the appellant and Respondent No.1 entered into an amendment to the Settlement Agreement dated 10.11.2016. Clauses- 10 to 12 of the Settlement Agreement were amended and replaced by the amendment to the Settlement Agreement and a new 20 mode of distribution was agreed upon by the parties. However, these amendments were given a complete go-by by the learned Arbitrator.
22. According to Mr.Raghavan, as per Annexure-R5 it is clear that NIELIT had imposed penalties on the Respondent No.1. In fact, as per the letter dated 09.11.2015 issued by NIELIT to the Respondent No.1, the Respondent No.1 had raised bills worth Rs.10,14,00,726/- and NIELIT proposed to levy a penalty of Rs.28,36,86,694/-. Further, as per Exhibit-R8, the NIELIT on 26.12.2017, informed the Respondent No.1 that pursuant to requests made by the contractors for capping of penalties, the penalties will be capped @ 25% of the contract value and after corrections, the cost will be quantified @ 4.3% of the digitized rate. The NIELIT also called upon Respondent No.1 to submit an affidavit agreeing to the above proposals. Thereafter, on 31.01.2018, the NIELIT released an amount of Rs.6,17,43,853/- to the Respondent No.1 as opposed to Rs.10,14,00,726/- and invoiced by Respondent No.1 on 21 NIELIT. This shows the apparent and clear imposition of penalties by NIELIT on the Respondent No.1.
23. Mr. Raghavan laid stress on the fact that, in the deposition of Respondent No.1 witness it was stated that it is true that payment of Rs.6,17,43,853/- is subsequent to the imposition of the penalty by NIELIT, but according to Mr.Raghavan, the suggestion put-forth by the appellant's counsel to the Respondent No.1's witness that the payment of Rs.6,17,43,853/- was received subsequent to the imposition of the penalty is a clear admission by the appellant that penalties were indeed imposed by NIELIT on the Respondent No.1. As such, the entitlement of the appellant under Clause-5 of the Settlement Agreement gets reduced. Under Clause-6, in view of the penalties imposed on the Respondent No.1. According to him, curiously at Paragraph-71 of the award, the learned sole Arbitrator himself notes that "Thus the Settlement Agreement was entered into by the Respondent and the claimant with full knowledge of the non-performance notice and notice of slab 22 of penalty proposed to be imposed". But, later states in the same award that "there is no evidence that penalty was imposed by NIELIT". This also shows that the award itself is contradictory and is liable to be set aside and was rightly set aside on the ground of being perverse and being vitiated by patent illegality. He stated that, the sole Arbitrator ignored the above vital evidence and as such the award was rightfully set aside by the learned Sessions Judge on the ground of patent illegality. He highlighted his submission on patent illegality and perversity by stating that under Clause- 10 of the amended Settlement Agreement and initial remittance of Rs.57,45,000/- from NIELIT shall be paid to the appellant and subsequent remittance of an amount of Rs.2.00 Crore shall be disbursed entirely to the Respondent No.1. He stated, the learned Arbitrator proceeded to award even the amount of Rs.2.00 Crore that was earmarked for the Respondent no.1 in the Settlement Agreement to the appellant on the ground that Respondent No.1 failed to provide the proof of payments to the Respondent No.1's 23 sub-vendors, when such a condition was not even contemplated in the settlement or amended agreements. Mr. Raghavan stated, neither any pleadings were made by the appellant nor were any issues framed by the learned Arbitrator in that regard. He submitted that this amounts to clear rewriting of the contract, which is impermissible and also amounts to placing of an additional burden on the Respondent No.1, which was never contemplated by the parties.
24. According to Mr. Raghavan, an observation of the sole Arbitrator in Paragraph-85 of the award in relation to Clause-11 of the Settlement Agreement militates against the true purport of Clause-11, and also re-writing of Clause-11 which is impermissible. The award completely fails to take into account the fundamental frame work of the agreement between the parties and mis-reads/mis-understands the basic contractual payment which cannot even be considered a possible view of the contract.
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25. According to Mr. Raghavan, the learned Arbitrator held that the payment of the amounts received from NIELIT have to be worked out in terms of Clauses-10, 11 & 12 of the Settlement Agreement dated 02.09.2014. This according to Mr. Raghavan is a patent illegality on the face of the award considering that the Clauses-10, 11 and 12 stood amended by virtue of the amendment to the Settlement Agreement on 10.11.2016. The learned sole Arbitrator did not even consider the basic terms germane to decide the issues at hand. The award completely fails to take into account the fundamental frame work and mis- reads/mis-understands the basic contractual frame work. He also stated that, in Paragraph-81(iii) of the award, the sole Arbitrator held that, under Clause-11, the appellant would be entitled to Rs.80.00 Lakhs and the Respondent No.1 would be entitled to Rs.1.20 Crore. This finding of the learned Arbitrator is also perverse on the face of the records and amounts to a patent illegality. Even that Clause-11 of the amendment to the Settlement Agreement does not envisage 25 any such scenario. Clause-11 merely stated that, further remittances from NIELIT will be shared in 60:40 ratio between the parties upto a limit to Rs.2.00 Crore for the Respondent No.1's benefit. However, the learned Arbitrator understood the clause to mean that Rs.2.00 Crore has to be shared in a 60:40 ratio between the parties. He stated that, no reasonable person would have arrived at such an interpretation. According to Mr. Raghavan, the illustration Table provided under Clauses-10, 11 and 12 of the amendment to the Settlement Agreement has been completely ignored by the learned Arbitrator, despite its critical relevance. This is contrary to the order reasonably accepted of the learned sole Arbitrator in ensuring comprehensive evaluation of the agreements. This itself is sufficient proof of patent illegality and perversity on the face of the award. As such, the learned Sessions Judge is right in setting aside the award. That apart, it was the submission of Mr.Raghavan that the amount of Rs.1,59,98,853/- awarded by the sole Arbitrator in Paragraph-88(iv) has absolutely no 26 basis and is purely based on surmises and conjunctures and amounts re-writing of the contract, which is impermissible and also places an additional burden on the Respondent No.1, which was never contemplated in the amendment of the Settlement Agreement. The learned Sessions Judge has observed the above patent illegalities and has rightly set aside the award.
26. He stated that the scope of interference in a petition under Section 34 of the Act of 1996 is very limited in as much as when an award completely fails taking into account, the fundamental frame work of the agreement between the parties and mis-reads/mis-understands the basic contractual frame work and proceeds to re-write the contract, the award is vitiated at its root and is liable to be set aside. He stated that the conclusion of the learned Sessions Judge does not amount to re-appreciation of evidence since the learned Sessions Judge has addressed a glaring illegal error going to the heart of the matter. It was the submission of Mr. Raghavan that, in the present case, 27 the learned sole Arbitrator's view is not even possible/plausible view to take like a fair minded reasonable person would construe the award in the manner in which the learned Arbitrator has construed the amendment to the Settlement Agreement. The award was therefore rightfully interfered by the learned Sessions Judge. In support of his submissions, Mr.Raghavan has relied upon the following judgments for the consideration of this Court.
1. Morgan Securities & Credits Pvt.Ltd. Vs. Samtel Display Systems Ltd (Delhi HC OMP No.476/2012) (dt.15.12.2023)
2. PSA Sical Terminals Pvt. Ltd. Vs. Board of Trustees of VO Chidambranar Port Trust 2021 SCC Online SC 508
3. Delhi Metro Rail Corporation Limited Vs. Delhi Airport Metro Express Private Limited (2024) 6 SCC 357
4. Trans Engineers India Pvt. Ltd. Vs. Otsuka Chemicals (India) Pvt. Ltd (2024) SCC Online Del 4964
5. State of Chattisgarh Vs. Sal Udyog Pvt. Ltd. (2021) SCC OnLine SC 1027
6. Patel Engg. Limited Vs. North Eastern Electric Power Corporation Limited (2020) 7 SCC 167
7. DDA Vs. R.S. Sharma & Co. - 2008 12 SCR 785 28
8. Ssangyong Engg. & Construction Co. Limited Vs. NHAI 2019) 15 SCC 131
9. DCM Ltd. Vs. M/s. Aggarwal Developers Pvt. Ltd. And Ors FAO (OS) (COMM) 238/2023 In the last, he seeks dismissal of the appeal filed by the appellant.
27. Having heard the learned counsel for the parties, before we deal with the submissions made by them, it is necessary to re-produce the relevant paragraphs of the award of the learned Arbitrator and also the conclusion drawn by the learned Sessions Judge. The relevant portion of the award of the learned Arbitrator can be seen from paragraph No. 75 and onwards, which we reproduce as under:-
75. After answering the issues raised in this dispute, the scope of the enquiry is limited to Ex.P1 and P5. In the circumstances of the documentary and oral evidence and further having regard to the scope of the arbitration proceedings, it may be mentioned that, the dispute is referred to the Arbitral Tribunal by the Hon'ble High Court of Karnataka by its order dated 8.2.2019 (Ex.P14), at 29 para-5 the Hon'ble High Court referred to clause-15 of the Ex.P1, an arbitration clause and the dispute is referred to the Arbitral Tribunal to resolve the same.
Clause-15 relates to resolving any claim or controversy arising out of or relating to the said agreement or making or performing or interpreting of it. Thus, the dispute needs to be resolved within the terms agreed by the parties under Ex.P1.
76. The title of the Ex.P1 itself shows that, it is a settlement agreement between the parties. Clause-5 of the Ex.P1 refers to the allotment of project to the respondent by the Department of Electronics and both parties had entered into MOU dated 3.11.2011. Clause-6 of Ex.R1 MOU, the original contract between the parties specifically provides for settlement of disputes by negotiation. It is in consonance with the said clause, clause-6 of Ex.P1 refers to certain dispute arising during the execution of the project work and it is in consonance with clause-6, Ex.R1, clause-7 of Ex.P1 refers to the mutual negotiation and with the interference of well- wishers the dispute is resolved in terms of clause-7, wherein both parties agreed to the terms specified therein.
77. Clause-7 (i) refers to claimant had rendered certain services as per MOU dated 3.11.2011. Clause-7 (ii) refers to certain services rendered by the respondent, for which it is entitled to adjust the 30 payment payable to the claimant. Thereafter under clause-7 (iii) it mentions that, dispute arose between the parties as to the volumes executed by the claimant and notices got issued against each other making the claim and counter claim which resulted in initiation of proceedings by the claimant in Criminal Case and thereafter under clause-7(5), which reads as under:-
"By virtue of the settlement arrived at between the parties herein, Sreeven agrees to pay Mphasis an amount of Rs.5,00,00,000/- (Rupees Five Crores only) towards full and final settlement of accounts between the parties against the execution of the data digitalization project and NPR - 2 (NIELIT Project) as and when Sreeven gets paid by National Institute of Electronics and Information Technology (NIELIT) against the services rendered by Mphasis."
78. Clause-7(5) of the Settlement Agreement Ex.P1 categorically makes it clear that the claimant had executed the data digitization project and NPR-2 (NIELIT project) and the respondent settled the said claim by agreeing to pay to the claimant Rs.5,00,00,000/-towards full and final settlement of accounts. However, the said payment would be as 31 and when respondent gets the same from NIELIT against the services rendered by the Mphasis. Thus, under this clause the liability of paying Rs.5,00,00,000/- is admitted by the respondent. However, only in case of any penalties are imposed by NIELIT relating to the project rendered by the claimant, claimant shall be liable against such penalty and settlement amount as stated in clause-7(5) stands reduced by that extent. Clause-7(5) and (6) both together makes it clear that Rs.5.00 crores is the settlement amount and any reduction in the same would be towards penalties, if any, levied by NIELIT in relation to the project rendered by the claimant.
79. The entire evidence led by the parties do not show that NIELIT has imposed any penalty in respect of or in relation to the project rendered by the claimant nor there is any evidence that the parties had made any efforts to ensure no penalty is levied on the claimant. When there is no evidence of levy of any penalty relating to the project rendered by the claimant, reduction of any penalty under clause 7(5) of Ex.P1 also does not arise.
80. The evidence led by the respondent, itself shows that Ex.R4 and R5, which refers to certain proposed action by 'NIELIT' are prior to the date of settlement. Thus, when the settlement agreement Ex.P1 is entered into, parties were aware of all the 32 transactions with the NIELIT and having not mentioned any penalty alleged to have been imposed and in the absence of any evidence of levy of penalty against the execution of project work by the claimant, now the respondent cannot say that the NIELIT has levied the penalty nor it is relevant for the disposal of the dispute. In turn as per clause- 7(7), the respondent is precluded to make any claim against the claimant or its director or employee and in turn, it would make effort to get early release of the payment by the NIELIT.
81. From clause-7 it is clear that, the claimant is entitled for Rs.5.00 crores towards full and final settlement out of the payment received by the respondent from NIELIT towards the project rendered by the claimant. It is in consonance with the terms of clause-7 of the settlement agreement and to ensure that both the parties be kept aware of the receipt of payment from NIELIT towards the project work. They agreed to open joint Escrow Account as per clause-9.
82. Clause nos.10, 11 and 12 relates to utilization of the amount so received from the NIELIT. The initial Rs.2.00 crores would be disbursed to the respondent only for the purpose of closing the accounts with the sub-vendors to ensure that there are no future liabilities on the claimant in this 33 regard. Clauses-10 and 13 puts an embargo on the respondent of the utilization of the amount i.e. an initial payment of Rs.2.00 crores which needs to be used only to close the accounts with the sub-vendors and not for utilization by respondent towards its own purpose. It is clear from Ex.P1 that, the claimant is entitle for Rs.5,00,00,000/- and in the event if there are any payments due towards the sub-contracts, such amount needs to be disbursed by the respondent out of the initial Rs.2.00 crores in order to prevent future liability on the claimant towards the claim of sub-vendors. Thus, this Rs.2 crores is mainly meant for discharging the liability of sub- vendors, if any, against the claimant. Clause-10 of Ex.P1 does not refer to utilization of amount by the respondent either towards his claim or his liability to third person, but it was only for avoiding future liability of the claimant, the respondent was authorized to use only for discharge of sub-vendors liability and not for any other purpose.
83. The evidence produced by the respondent do not show that, the initial Rs.2.00 crores is utilized towards the disbursement of the liability of the sub- vendors. In turn RW1 in his cross-examination admits:
"I have not produced any document to show that, the respondent owes payment to sub-vendors".34
Hence it can be safely held that, the initial release of Rs.2.00 crores was not paid any sub-vendor nor there is any evidence to show that, there was any claim from sub-vendors against the claimant. Hence, in the absence of any evidence of payment towards the liability of sub-vendors, this amount mainly meant for avoiding future liability of the claimant towards such sub-vendors, this amount needs to go to the claimant, which otherwise claimant would have become liable to such sub-vendors. Purpose of clause-10 of Ex.P1 was to make claimant free from any future liability. Which is also clear from clause- 7(7) of Ex.P1, hence in the absence of any evidence of payment towards the claim of sub-vendors, the said amount becomes part of claim of Rs.5,00,00,000/-.
84. Terms of Settlement Agreement and Amended Settlement Agreement shows that, the claimant is entitled for refundable amount of Rs.57,45,000/-, which is to be adjusted out of Rs.5,00,00,000/-, for which the claimant is entitled. Thus, the initial amount of Rs.2.00 crores and Rs.57,45,000/- would need go to the account of the claimant and the claimant would be entitled for Rs.2,57,45,000/-.
85. Under clause-11, next Rs.2.00 crores would be shared between the respondent and the claimant at the rate of 60:40. Under this clause, next Rs.2.00 35 crores needs to be shared at Rs.1,20,00,000/- to the respondent and Rs.80,00,000/- to the claimant.
86. Under clause-12, the future payments made by the NIELIT completely would be paid to the claimant.
87. Though contention is raised by the claimant that clauses-10, 11 and 12 are not applicable because of the breach of the terms of settlement agreement by the respondent and also the said clauses i.e. 10, 11 and 12 being subsequent to clause-7(5), the clause-7(5) would prevail on clauses-10 to 12. When contract is to be interpreted, it has to be interpreted in its entirety and the dispute which is referred in terms of clause-15 of Ex.P1 makes it clear that the controversy or claim arising out of or relating to the settlement agreement etc., based on performing and interpreting the settlement agreement. Hence, it cannot be said that some clauses of settlement agreement are applicable and some are not applicable nor it could be said that the former will prevail over the later. Hence, the claimant cannot claim that the mode of utilization prescribed under clauses 10 to 12 could be ignored or held as not applicable.
88. It is not in dispute that as per Ex.P13, the respondent has received Rs.6,17,43,853/-. Thus, as 36 per clause-5 though claimant is entitle for Rs.5,00,00,000/-, but the said payment needs to be worked-out in terms of clauses-10, 11 and 12 of Ex.P1. As held above, since the respondent failed to prove Rs.2.00 crores under clause-10 was utilized towards the payment of sub-vendors, even otherwise also the claimant become entitle for the said Rs.2.00 crores as part of its claim of Rs.5.00 crores. Thus, the claimant is entitle as under: -
i) Under clause-10, Rs.2.00 crores which is not disbursed to the sub-vendors by the respondent:
ii) Rs.57,45,000/- as per Ex.P5; iii) Under clause-11, claimant would be entitled
for Rs.80,00,000/- and the respondent would be entitled for Rs.1,20,00,000/-;
iv) Under clause-12, the claimant is entitled for the remaining amount out of the amount received so far by the respondent from the NIELIT;
Thus, the claimant is entitle for following amount under Ex.P1:-
Sl. Amount
No. (Rs.) Exibits
1 2,00,00,000-00 Ex.P1
2 57,45,000-00 Under
Ex.P5
3 80,00,000-00 Clause-
11 Ex.P1
4 1,59,98,853.00 Clause-
12 Ex.P1
Total 4,97,43,853-00
37
89. The claimant would be entitled to the above amount out of the claim of Rs.5,00,00,000/- and for the balance, the claimant is entitled to recover the same from the respondent.
90. The claim of the claimant for Rs.3,77,24,864/- is concerned, there is no evidence that the claimant had made any claim of Rs.8,77,24,864/-, except an averment in the claim petition and oral statement. As such, it is difficult to believe that the claimant is entitled for the said amount with interest.
91. Since the claimant has proved that the respondent had committed the breach of the terms of the settlement agreement Ex.P1 and amended settlement agreement Ex. P5, it is entitled for the interest @ 18% from 31.1.2018 till payment and/or realization.
92. From these proceedings, it is clear that the respondent has dragged the claimant for arbitration and made him to incur cost and time. Thus, the claimant is entitled to recover the entire cost of the arbitration proceedings as well as Rs.5,00,000/- towards the damages.
93. Since the respondent has failed to prove its entitlement for the counter-claim, the counter-claim 38 stands rejected. Accordingly, I pass the following award:
AWARD
a) Respondent is directed to pay a sum of Rs.4,97,43,853/-(Rupees Four Crores Ninety-
Seven Lakhs Forty-Three Thousand Eight Hundred Fifty-Three only) together with interest @ 18% per annum from 31.01.2018 until payment / realization;
b) Claimant is entitled to recover the balance amount, if any, out of settlement amount of Rs.5,00,00,000/- (Rupees Five Crores only) from the respondents;
c) Respondent is directed to pay the entire cost of Arbitral Proceedings with interest @ 12% per annum;
d) Respondent is directed to pay Rs.5,00,000/-
(Rupees Five Lakhs only) to the Claimant towards damages with interest.
28. Similarly, in so far as the conclusion drawn by the learned Sessions Judge is concerned, the same can be seen from Paragraph 24 onwards.
39
24. In order succeed in the petition, the respondent/petitioner ought to establish not only the grounds urged in the petition on the basis of the records of the Arbitral Tribunal, but also that the same fall under the grounds provided in Sec.34 of the Act.
25. There is no dispute that the respondent and the claimant entered into an MOU dated 03.11.2011 and rendered certain services pursuant thereto. After disputes arose with regard to the volumes executed by the claimant, notices were exchanged making claim and counter-claim and the claimant initiated proceedings U/s 138 of N.I.Act in respect of the cheque issued by the respondent towards security for the EMD. Later they settled the same by entering into Settlement Agreement, Ex.P1 dated 02.09.2014 whereby the respondent agreed to pay Rs.5 crore to the claimant in full and final settlement of accounts towards execution of Data Digitization Project and NPR-2 as AND and when NIELIT made payments.
26. In Clause 6 of Ex P1 it was specifically agreed that, in the event of penalties being Imposed by NIELIT in relation to the project, the claimant shall be liable for the same and settlement amount of Rs..5 crore would stand reduced by the extent of penalty. Escrow Account to be opened and recorded with NIELIT for release of the amount. Further, the 40 claimant had also agreed to withdraw the criminal case.
27. The arbitration records disclose that the parties opened Escrow Account bearing No.000205024669 with ICICI Bank Ltd., M.G.Road Branch in terms of the Settlement Agreement Ex.P1 and Ex.P2 is a joint letter addressed to ICICI Bank in this behalf. The parties even made all efforts to get the same recorded with NIELIT to ensure release of payment into the Escrow Account.
28. It is pertinent to note that the respondent was the first one to address a letter to NIELIT on 30.09.2014 to release payments into the Escrow Account. There were joint requests by the claimant and the respondent requesting NIELIT to release the amount only into the Escrow Account. Ex. P5 the amendment to Settlement Agreement makes a reference to the joint representation made by the parties to NIELIT regarding mode of release of payments into the Escrow Account.
29. As seen from Ex.P7 dated 10.11.2016, the respondent made request to NIELIT to update the Escrow Account details for NPR project payments, even after Ex.P5 came into existence. The claimant too was aware of the respondent's efforts to get the Escrow Account details recorded with NIELIT for 41 release of payments, as could be gathered from the letter to NIELIT at Ex.P9 dated 23.01.2018.
30. Ex.R4 is the respondent's letter dated 24.12.2012 with regard to continuous non performance of the NPR data entry work of Bihar by the claimant and suggesting that it would take the field operations and control of the project, the claimant should offer Rs.3.25 per entry, and also transfer Rs.25 lakhs per week on weekly basis for four weeks and bear the penalties if any imposed upto the said date.
31. Ex.R5 dated 17.05.2015 reveals that additional penalty at the rate of XxCxD4xDAYS was proposed to be imposed on the respondent by NIELIT for the delay, as 100% work was not completed within the stipulated time. C stood for the cost ordered per digitization record: D4 for the cumulative total number of records not digitized as per the target at the end of 180 days; DAYS for the number of calendar dates taken to complete 100% data digitization target beyond 180 days and X was defined as Nil for 1-14 days, 2% for 15-22 days, 4% for 23 to 30 days and 10% for 31 days or above.
32. Ex.R3 dated 05.06.2012 shows that the total estimated cost of the project awarded to the respondent by NIELIT in respect of zones 6, 7 and 13 42 of Bihar, was Rs.10,97,48,922/-. The annexure-2 to NIELIT's letter dated 09.11.2015 makes it clear that the respondent submitted final bill for Rs.10,14,00,726/- on the basis of QC counts of data digitized and penalty of Rs.28,36,86,694/- was imposed on it.
33. Ex.P12 and Ex.P13 would show that the payment furnished to the claimant by the public information Officer of NIELIT. According to the said information that the respondent was paid Rs.6,17,43,853/- after deducting tax at source Rs.12,34,077/- on 31.01.2018 by cheque No.680235-36. From Ex.R7, the letter dated 04.01.2016 of NIELIT it is seen that the payments to the respondent was processed keeping in view the deductions applicable on account of delay in execution of the work. Vide Ex.R8 dated 26.12.2017 the penalties due to delay was capped at 25% of the contract value after subtracting the amounts fro LRUR corrections; and the said correction cost was quantified at 4.3% of digitized rate quoted by the respondent, to be deducted from final payment. The respondent was required to submit consent for the same by way of an undertaking in the form of affidavit not to raise further claims in this behalf.
34. There appears to be no serious dispute with regard to NIELIT paying the amount to the 43 respondent towards execution of project after imposing penalty, as seen from the following suggestion of the claimant to Rw1 during cross examination and admitted by him:
"It is true that the payment of
Rs.6,17,43,853/- is subsequent to
imposition of penalty by NIELIT."
35. Therefore, as rightly argued by the
learned Senior counsel for the respondent/ petitioner, the Arbitral Tribunal's finding that the respondent committed breach of Clause 9 of Ex.P1 and the entire evidence does not disclose NIELIT imposing penalty, is contrary to the evidence on record and the same is rendered by completely ignoring the vital evidence on record with regard to steps taken by the respondent to inform NIELIT about change in the corporate structure and banking arrangements, to get the payments released into the Escrow Account as also levy of penalty by NIELIT relating to the project.
36. Clauses 10 to 12 of Ex.P1 provided for release of initial payment of Rs.2 crore by NIELIT to the respondent from the Escrow Account to pay and close the accounts with sub-vendors and to ensure that there would be no future liabilities on the claimant. Further amount released by NIELIT was to be shared in 60:40 ratio between the respondent and the claimant; and the respondent was entitled to 44 payment upto the limit of Rs.2 crore only and the entre balance was to be paid to the claimant. This is even illustrated in Clause 12 as below:
Sreeven - 100% First Rs.2,00,00,000/-
from NIELIT
Sreeven - 60% Upto additional
maximum amount of
Rs.2,00,00,000/- to
Mphasis - 40% Sreeven only
Mphasis - 100% Balance release from
NIELIT
37. Subsequently the parties agreed to
amend certain clauses in Ex.P1 relating to
disbursement, sharing of amount and to replace clauses 10 to 12 as well as the illustration as below, by entering into Amendment to the Settlement Agreement, Ex.P5 dated 09.11.2016:
"10. Initial remittances of amounts upto the extent of Rs.57,45,000/- from NIELIT shall be paid to Mphasis entirely from Escrow Account. Subsequent remittances of amounts upto the extent of Rs.2,00,00,000/- by NIELIT shall be disbursed entirely to Sreeven from the above Escrow Account so as to enable Sreeven to pay and close the accounts with sub-vendors and to ensure that there are no future liabilities on Mphasis 45 in this regard. Sreeven hereby agrees to disburse payments to sub-vendors within 60 days of the withdrawal of the money from the Escrow Account. Sreeven further agrees to maintain appropriate receipts, records, vouchers, bank statements, bills, photocopies of cheques, demand drafts, registers and such other financial and other documents as may be necessary to evidence payment and full and final settlement of dues to various sub-vendors, for a period of five (5) years from the date of each such payment.
11. Further remittances of amounts from NIELIT shall be shared in the ratio of 60:40 between Sreeven and Mphasis, respectively upto a limit of Rs.2,00,00,000/- for Sreeven's benefit.
12. All further remittances from NIELIT shall be disbursed only to Mphasis and Sreeven shall have no share or claim whatsoever.46
For illustration:
Details Cumulative Sreeven Mphasis
Receipts Inforcamm
(Beneficiary) Limited
(Client)
Rs.57.45 Lakhs
(Rupees Fifty Seven
Lakhs and Forty Five
thousand only)
0% 100%
Rs.57.45 Lakhs
(Rupees Fifty Seven
Lakhs and Forty Five
thousand only) to
Rs.257.45 Lakhs
(Rupees Two Crore
Fifty Seven Lakhs and
Forty Five thousand 100% 0%
only)
Rs.257.45 Lakhs
(Rupees Two Crore Fifty
Seven Lakhs and Forty
Five thousand only) to
Rs.590.78 Lakhs 40%
(Rupees Five Crore 60%
Fifty Ninety Lakhs and
Seventy Eight thousand
only) (Note-1)
Above Rs.590.78 Lakhs
(Rupees Five Crore 0% 100%
Fifty Ninety Lakhs and
Seventy Eight thousand
only) (Note-1)
47
Note 1: The maximum payout from the Escrow Account to Sreeven Infocomm, out of the money received from NIELIT, will be capped at an absolute upper limit of Rupees Four Hundred (400) Lakhs.
38. Under Clause 4 of Ex.P5 it is provided that the above amendment should be read in conjunction with Ex.P1 and enforced as if it was incorporated therein by way of addition. If there is any inconsistency between the terms/clauses in the two agreements, Ex.P1 and P5, the provisions of Ex.P5 should prevail and except the changes specified in Ex.P5 all other terms and conditions in Ex.P1 to remain unchanged, and together the two agreements to constitute one agreement.
39. By virtue of Clause-6 of Ex.P1 the Settlement Agreement dated 02.09.2014 which remained unchanged under Ex.R5, the claimant was liable for such penalty and the settlement amount stood reduced by the extent of penalty. Even otherwise, as per the amended clauses 10 to 12 in Ex. P5, Rs.590.78 Lakhs (Rupees Five Crore Fifty Ninety Lakhs and Seventy Eight thousand only) (Note-1) Rs.6,17,43,853/- received from NIELIT by the respondent ought to have been shared in the following manner, as per the illustration to amended clause 12:
48
Details Cumulatve Sreeven Mpahsis
Receipts Infocomm Limited
(Beneficiary) (Client)
Rs.57.45 Nil Rs.57.45 Lakhs
Lakhs
Rs.57.45 Rs.2 Crore/ 200 Nil
Lakhs to Lakhs
Rs.257.45
Lakhs
Rs.257.45 60% i.e., 40% i.e.,
Lakhs to Rs.1,99,99,800 Rs.1,33,33,200
Amounts Rs.590.78
Lakhs
Above Nil Rs.26,65.853/-
Rs.590.78
Lakhs
Total Rs.3,99,99,800 Rs.2,17,44,053
40. Without considering the above illustration as to computation under the amended Clause 12 of Ex.P5 which, admittedly has replaced the earlier Clause 12 of Ex.P1. The Arbitral Tribunal has concluded that the claimant is entitled for Rs.4,97,43,853/-. The same is a result of utter disregard for the agreed the terms of Ex.P1 and Ex.P5, and also amounts to the Arbitral Tribunal rewriting the contract between the parties and therefore, without jurisdiction.
41. For the foregoing reasons and having regard to the fact that the Arbitral Tribunal was 49 ignored the vital evidence on record with regard to efforts made by the respondent to get the payments released into the Escrow Account, NIELIT imposing penalty for delay in completing the project and that the claimant had agreed for reduction in its entitlement by the extent of such penalty by virtue of Clause 6 of Ex.P1 which stood unamended, I am of the considered opinion that the impugned award is liable to be set aside as perverse, patently illegal and contrary to the terms of contract between the parties, U/Sec. 34 of the Act. Accordingly, the points for consideration are answered in the affirmative.
42. Point No.4: In the result, I pass the following:
ORDER The petition U/Sec.34 of the Arbitration and Conciliation Act is allowed.
The arbitral award dated 10.06.2020 passed by the Sole Arbitrator in SBA/AC01/2019 is set aside.
Issue copy of the judgment to the parties through e-mail as provided U/o XX Rule 1 of CPC, if mail ID is furnished."
29. Having noted the conclusion drawn by the learned Arbitrator and the learned Sessions Judge, it is seen that the 50 learned Arbitrator held, on a reading of Clause7(5) and 7(6) both together makes it clear that Rs.5.00 Crores is the settlement amount and any deduction in the same would be towards penalties if any, levied by NIELIT in relation to the project rendered by the appellant.
30. It is the finding of the learned Arbitrator that, there is no evidence which shows that NIELIT had imposed any penalty. He held that, when there is no evidence of levy of any penalty relating to the project rendered by the appellant, the deduction of any penalty under Clause 7(5) of Ex.P1 does not arise. He by referring to the Clause-7 of Ex.P1, held that the appellant is entitled to Rs.5.00 Crore towards full and final settlement out of the payment received by the respondent No.1 from the NIELIT towards the project rendered by the appellant. Whereas we note, the learned Sessions Judge has in Paragraphs- 32 to 35 has inter alia concluded that, after imposing the penalty/TDS, an amount of Rs.6,17,43,853/- was made. In this regard, the learned Sessions Judge has, in Paragraph-34, noted the suggestion 51 put by the appellant to RW.1 during the cross-examination which suggestion was admitted by the witness stating as under:
"It is true that the payment of Rs.6,17,43,853/- is subsequent to imposition of penalty by NIELIT."
31. The appellant had not disputed the above position in the appeal. So it follows, after adjusting the penalty, the amount of Rs.6,17,43,853/- was paid. The finding of learned Arbitrator that no penalty was imposed is perverse. It may be stated here that, under Clause-5 of the Settlement Agreement-Ex.P1, the amount of penalty gets reduced under Clause-6 in view of the penalties imposed. In this regard, the conclusion drawn by the learned Sessions Judge at Paragraphs-38 and 39, which we have re-produced above becomes relevant. Be that as it may, assuming the case of the appellant in terms of Clauses-10, 11 & 12, the amount of Rs.6,17,43,853/- has to be distributed in the manner specified therein, then also the payments awarded by the 52 learned Arbitrator has to be in accordance with the above clauses of the amended settlement agreement.
32. In this regard, the question which arises is, whether the payment of Rs.2.00 Crore (From Rs.57.45 Lakhs to Rs.257.45 Lakhs) to the respondent No.1 is for payment to sub-vendors and not for the respondent No.1. The conclusion of the learned Arbitrator is at Paragraph-83, wherein he has held that the evidence produced by the respondent No.1 do not show that, initial Rs.2.00 Crores is utilized towards disbursement of the liability of the sub-
vendors and as such, this amount is to avoid future liability of the appellant and need to go to the appellant. But, the learned Sessions Judge in Paragraph-37 of the impugned order has referred to Clauses-10, 11 & 12 of Ex.P5 to hold that the amount of Rs.6,17,43,853/- has to be shared as per illustration under Clause -12. So, the learned Sessions Judge has interpreted the settlement agreement to mean that the intent of the parties was to share the amount of Rs.6,17,43,853/- in terms of the illustration to amended 53 Clause-12. On such conclusion, the learned Sessions Judge has held in Paragraph-40 that, the conclusion of the learned Arbitrator is in disregard to the Exs.P1 and P5. We agree with the said conclusion of the learned Sessions Judge. Otherwise, the illustration loses its relevance, nor there is stipulation if there are no vendors, the amount shall go to the appellant. The conclusion of the learned Arbitrator that the amount is to avoid future liability of the appellant and need to go to the appellant, is also a perverse finding. There is no denial to the fact that the appellant had signed both the Settlement Agreements- Exs.P1 & P5 and cannot dis-own the contents thereof. In sofar as the judgments relied upon by Mr.Joshi on Paragraph-7 of the Judgment in the case of NHAI (supra) is concerned, it was held the construction of contract, is for the Arbitral Tribunal to make. Further, if after considering the material on record, the Arbitral Tribunal takes a particular view on the interpretation of the contract, the Court under Section 34 of the Act, shall not sit in appeal on the findings of the learned Arbitrator. 54 There is no dispute on the proposition of law advanced by Mr. Joshi, but at the same time, it is also settled law that the Arbitrator cannot go beyond the terms of the contract. It is precisely this conclusion, which had been arrived at by the learned Sessions Judge ie., the learned Arbitrator has in total disregard to the terms of Exs.P1 & P5, has gone beyond the contract, which is impermissible, therefore, without jurisdiction.
33. So it follows the conclusion arrived at by the learned Sessions Judge in as much as the learned Arbitrator has awarded the amount contrary to the illustration under Clause-12 of Ex.P5 is justified. In sofar as the judgment in the case of Punjab State Civil Supplies Corporation Limited (supra) is concerned, the Court has delineated the scope of Section-37 of the Act of 1996 to hold that the appellate power under Section-37 is limited within the domain of Section-34 of the Act. It is exercisable only to find-out if the Court exercising power under Section-34 of the Act has acted within its limits as prescribed thereunder, 55 or has exceeded or failed to exercise powers so conferred. As we have justified the conclusion of the learned Sessions Judge, we are of the view that the learned Sessions Judge has rightly exercised the jurisdiction under Section 34 of the Act.
34. In view of our discussion above, we do not find any merit in the appeal and the same is dismissed.
Sd/-
(V KAMESWAR RAO) JUDGE Sd/-
(S RACHAIAH) JUDGE KGR*