Bangalore District Court
Karnataka State Electronics ... vs Pinaka Informatics Pvt Ltd on 25 September, 2024
1
Com.AP.No.102/2021
KABC170019532021
IN THE COURT OF LXXXII ADDL. CITY CIVIL & SESSIONS
JUDGE, AT BENGALURU (CCH.83)
THIS THE 25th DAY OF SEPTEMBER 2024
PRESENT:
SUMANGALA S. BASAVANNOUR., B.COM, LL.M.,
LXXXII ADDL.CITY CIVIL & SESSIONS JUDGE,
BENGALURU.
Com.A.P.No.102/2021
BETWEEN:
Karnataka State
Electronics Development
Corp Limited, 2nd Floor,
TTMC, 'A' Block BMTC
Complex, Shanthinagar,
K H Road, Bengaluru -
560 027, represented by
its Managing Director.
: PETITIONER
(Represented by Mr.
Nishanth A.V -
Advocate)
2
Com.AP.No.102/2021
AND
Pinaka Informatics Pvt.
Ltd, D-111, Chandra
Kiran Apartments, 42/1,
Netaji Road, Frazer
Town, Bengaluru - 560
005, represented by its
Managing Director.
(Represented by
Sri.Dhananjay Joshi,
Advocate)
: RESPONDENTS
Date of Institution of the 04.12.2021
suit
Nature of the suit (suit on
pronote, suit for Petition for setting aside Arbitral
declaration & Possession, Award
Suit for injunction etc.)
Date on which judgment 25.09.2024
was pronounced
Total Duration Year/s Month/s Day/s
02 09 21
(SUMANGALA S. BASAVANNOR),
LXXXII Addl. City Civil & Sessions Judge,
Bengaluru.
3
Com.AP.No.102/2021
JUDGMENT
This Petition is filed under Section 34 of the Arbitration & Conciliation Act, 1996 for setting aside the Arbitral Award dated 17.08.2021 passed in A.C. No. 55/2019 filed by the respondent before the Sole Arbitrator.
2. The Brief facts leading to the case are as follows:-
The petitioner is a Karnataka State Electronics Development Corporation Limited endeavour to provide state of technology solutions to the customers to keep pace with changing technology. The petitioner entered into an agreement dated 23.01.2010 with the Department of Agricultural Marketing for 'Master Services for the Implementation and Toll out of Agricultural Commodities Electronics Tender System', which was revised by agreement dated 19.04.2010. The said agreement was entered for implementation and roll out of E- tendering solutions for agricultural commodities and for implementing the RKVY funded E-tendering project for 24 Agricultural produce Market Committee in Karnataka as second phase commencing from 2009-2010 for a period of 5 years. The another agreement dated 19.04.2010 was entered between the petitioner and the Respondent for Master Services for 4 Com.AP.No.102/2021 implementation and roll out of Agricultural Commodities Electronic Tender System''. As per the said agreement, the Respondent had to implement the Bilingual Uniform Online Tendering System by way of supporting acquisition of hardware, software services networking, implementing training, data migration solutions and supplying of trained manpower at the premises of the 24 APMCs in Karnataka. The said project was running successfully after implementation of the e-tendering at various APMCs for two years without any complaints from the 24 APMCs. The petitioner addressed a letter dated 28.05.2012 to the Department of Agricultural Marketing, expressing its objections and disagreement to the proposal for involving NCDEX into the APMCs at locations where the petitioner is already providing services and further requested to permit the petitioner to continue the services of providing e-tendering solutions in already covered APMCs by the petitioner along with MOU partners.
The petitioner further contended that the NCDEX was illegally and unilaterally inducted into the APMCs where the petitioner had already implemented the said project and the same was successfully running. Although the project implemented by the petitioner was utilized by the Department of Agricultural Marketing through the AMPCs, the petitioner's 5 Com.AP.No.102/2021 dues were not cleared and as such the petitioner suffered irreparable losses both monetary and also to. The reputation was damaged. In spite of several requests by the petitioner, no efforts were made by the Department of Agricultural Marketing to stop illegal induction of NCDEX and taking over of project by NCDEX at the locations where the petitioner was already providing e- tendering services. Due to illegal induction of NCDEX by the Department of Agricultural Marketing, the Respondent invoked arbitration clause as per the agreement dated 19.04.2010 against the petitioner and had filed Civil Miscellaneous Petition bearing No. 59/2018 before the Hon'ble High court of Karnataka. The said petition came to be allowed and a sole arbitrator was appointed to resolve the dispute. In furtherance of the same, the Respondent filed claim petition in AC No. 55/2019, before the sole arbitrator Mr. Ajit J. Gunjal (Retd.) Former Judge, Hon'ble High Court of Karnataka, at the arbitration and Conciliation Centre, at Bengaluru. The petitioner had challenged the claim petition was partly allowed by the award dated 17.08.2021.
Being aggrieved by the said award, the petitioner prefers this petition before this court on the following inter alia grounds.
6Com.AP.No.102/2021
1. The impugned award passed by the learned Arbitrator is blatantly illegal and unreasonable and is in conflict with the public policy of India.
2. The impugned award is in contravention with the fundamental policy of Indian Law and is based in complete disregard to the settled principles of law.
3. 3. The impugned Award is in conflict with the most basic notions of morality and justice and deals with a dispute not contemplated or falling within the scope of the arbitration and is contrary and/or inconsistent with the terms and conditions of the agreement between the parties.
4. The impugned Award is passed in complete contravention and opposed to Section 31A of the Arbitration and Conciliation Act, 1996. On this ground alone, the Award is liable to be set aside.
5. The Impugned Award is passed with non-
application of mind and is ex-facie contrary to the admitted position on record and documents produced before the Learned Sole Arbitrator as well as the evidence led by both the parties.
6. upon perusal of the various documents furnished by the Claimant/Respondent herein, it is clear that the Claimant had knowledge of the breach as claimed by it, way back in the year 2012 only and as such filing of the claim before the Arbitral Tribunal is barred by law of limitation. Further, the fact that, the Respondent had knowledge of the breach of agreement way back in the year 2012 as 7 Com.AP.No.102/2021 can be seen from the averments and the documents produced along with the claim statement and would clearly demonstrate that the Claimant had knowledge of the breach and had raised dispute/difference as early as in 2012 itself. Pursuant to which, the Claimant has not taken any steps in furtherance of the same. As such, the Claimant should have sought redressal within a period of three (3) years from coming to know of the breach and having raised its concern over the same. However, the Claimant has failed to do so. Having failed to make the claim within the period of limitation of 3 years, the claim made by the Respondent is not maintainable as it is barred by limitation. These facts and circumstances were not considered by the Learned Sole Arbitrator before passing the impugned award.
7. With respect to the Claim No. 1 made by the Respondent, the Respondent/ Claimant has not produced any documents in support of the same so as to substantiate the amount claimed therein. Further, as per the averments of the Claimant in the claim statement itself, the claimant voluntarily waived raising bills with respect to various APMCs. Having voluntarily waived the right, the claimant is estopped for claiming the same by imputing responsibility on the respondent. As such, the claimant is not entitled to the amount claimed therein and hence the impugned award is liable to be set aside.
8. With respect to claim No.2, it is not within the scope of the agreement between the respondent and the petitioner as such the said claim is not 8 Com.AP.No.102/2021 maintainable and an apprehension of loss of opportunity cannot be compensated and there is not even a single pleading in the claim statement regarding rejection of the claimant's tender for the Maharashtra Agricultural Competitiveness Project or that allegedly the tender was cancelled due to alleged non-completion of the work under the present agreement and the claimant had not stated anything regarding the rejection of claimant's tender in view of alleged non-completion of the present agreement in its notice dated 09.03.2015, therefore, the said claim of the claimant is only made up for the purpose of this case and in order to make illegal gain from the petitioner. The learned arbitrator awarding under claim No.2 is contrary to the decision of the Hon'ble Supreme Court in 2006 1 SCC 86 in the case of State of Rajasthan vs. Nav Bharat Construction Co. On this ground alone, the impugned award is liable to be set aside.
9. The claimant is also not entitled to the interest as claimed under Claim No.4 and also not entitled to the costs in the proceedings as sought for in claim no.5 of the claimant statement. The said claims are untenable and the claimant is not entitled to receive any such relief as sought for therein. The claimant has claimed relief/s which are not within the purview of the agreement between the claimant and the petitioner in order to make illegal gain. Because of which, the petitioner is made to incur huge sum of money on prosecuting the said claims and pay charges accordingly to do the same. Therefore these aspects were not considered by the learned Sole Arbitrator and the claim made 9 Com.AP.No.102/2021 by the Respondent is liable to be rejected completely.
10. The findings in the impugned award are contrary to the evidence and material on record before the learned arbitrator. Further, the claim of the respondent made before the learned arbitrator is barred under the Section 3 of the limitation Act, 1963 for the following reasons:
(a) NCDEX was unilaterally inducted by Department of Agricultural Marketing contrary to Ex.P.1. immediately after the petitioner coming to know the said fact, the petitioner vide Ex.P38 dated 28.05.2012 and Ex.P.39 dated 12.06.2012, objected to induction of NCDEX. The Respondent vide Ex.P.42 dated 07.07.2012 was aware of the induction of NCDEX. Therefore, as on 07.07.2012, the respondent herein was aware that the NCDEX was involved by the DAM and that they were working for the APMCs and also that they were using the software developed by the claimant.
(b) The respondent herein vide Ex.P.43 also acknowledged the usage of the software by NCDEX.
(c) Ex.P.44 dated 27.07.2012 by the Respondent herein clearly and categorically states that they would not receive any payments of two APMCs.
10Com.AP.No.102/2021
(d) The respondent herein vide Ex.P.47 dated 22.08.2012 clearly and categorically admit that the NCDEX is using its own software.
(e) The Respondent herein vide Ex.P.48 dated27.08.2012 admit that the NCDEX has been operating from 09.01.2012 itseld.
(f) The respondent herein vide Ex.P.57 dated 15.07.2013 clearly and categorically submits that they would not be receiving the payments for eights APMCs.
(g) The respondent in their claim petition at paragraph No. 8 and 9 admit that they was involvement of NCDEX in 2012 itself.
The said fact is reiterated in paragraphs No. 16, 17, 18 and 23 of the claim petition.
(h) In view of the categorical admissions made by the Respondent herein regarding the breach of contract, which is again clearly and categorically reiterated in paragraph No.5 of the statement of defence filed by the petitioner, all the claims are barred by limitation.
11. In so far as claim No.1, the petitioner in their statement of defense (paragraph No.16) has admitted that Rs. 1,02,41,760/- is yet to be 11 Com.AP.No.102/2021 received by respective APMCs. In terms of page 171 volume 1, Ex.P.3, the Respondent shall pay the amount to the claimant by withholding their share of 5%. The rest of the amount claimed in the claim No.1 is without any justification and beyond limitation. It was orally clarified by the learned counsel for the claimant that the amount 2,72,26,072/- was claimed was on the basis that the entire work was completed in terms of Ex.P.3, then their profit would have been Rs, 2,27,26,072/-. This is an imaginary claim, without any basis, plea and further, beyond limitation. There is no evidence substantiating the said claim. However, the learned arbitrator has awarded the said amount of Rs. 2,72,26,072/- without any basis and evidence, on this ground alone, the Impugned award is liable to be set aside.
12. In view of the decision the Hon'ble Supreme court of India in the case of 'State of Gujarat vs. Kothari reported in 2016 (14) SCC 76 the claim of the petitioner is not maintainable.
3. The respondent has filed objections stating that the award produced as Annexure "A" has necessarily to be stamped in accordance with the provisions of the Act. The amount due from the petitioner to the Respondent was Rs. 6,59,84,603/- and accordingly the award produced by the petitioner ought to have been duly and properly stamped for an amount of Rs. 3,02,500/- or such other amount as may be determined. The signed copy of the award as filed by the petitioner being totally 12 Com.AP.No.102/2021 unstamped even though the same is chargeable with duty, cannot be acted upon. By virtue of Section 34 of the Act, the said stamped award cannot be admitted in evidence for any purpose whatsoever or be acted upon by this court unless the said instrument is duly stamped. By virtue of Section 33 of the Act, this court being authorized by law to receive the said award in evidence may ascertain whether the same has been stamped with stamp of the value and description required by law and if the same is found to be not duly stamped, impound the same. IF on an examination of the signed copy of the award as produced by the petitioner, this court finds that the same being unstampled is liable to be impounded, this court by virtue of Section 37(2) may send it to the Deputy Commissioner to take such action to realize the duty payable along with penalty.
The respondent further contend that as per law laid down by the Hon'ble Supreme court of India in a catena of decisions, it has been held that the arbitrator is the sole judge of the quality and quantity of the evidence available before. IT has been further held that a court while considering an application under Section 34 of the arbitration and Conciliation Act, does not sit in appeal over the reasoning or findings of the arbitrator, even assuming but not admitting that the court based on the same evidence may have come to a different conclusion. Mere 13 Com.AP.No.102/2021 reading of the arbitral award would show that the learned arbitrator had considered in detail the contract, the pleadings of the parties, the documentary and oral evidence adduced and the arguments advanced while coming to his conclusions as he did. In para No. 26 and 27 among others of the judgment of Hon'ble Supreme court of India in Dyna Technologies Private Limited vs. Crompton Greaves Limited (MANU/SC/1765/2019 by a bench of Three judges decided on 18.12.2019, among other judgments. On perusal of para 58 (xv) and (xvi) read with para 89 to 91 of the award would clearly show that the learned arbitrator had taken into consideration clause 10 (1) read with clause 1 E of the contract to come to the conclusion that the petitioner was contractually bound to pay interest at 18% per annum on all delayed payments made beyond the 9 th of every month. Hence the said contentions being incorrect and and false may be rejected by this court. It twas brought out in evidence both documentary and oral before the learned arbitrator that the petitioner company as per official annual report obtained from Registrar of Companies, had bank balances running into a few 100 crores and hence this court may be pleased to reject these contentions as false and made only with a view of somehow obtain an order of stay from this court.
14Com.AP.No.102/2021
4. Heard arguments and perused the records.
5. The Advocate for the Petitioner has relied upon a following decision reported in
1. Super Diamond Tools and Others vs. K. Mohan Rao, 2023 SCC Online SC 302.
2. Bharat Sanchar Nigan Limited and another vs. Nortel Networks India Private Limited, 2021 (5) SCC
738.
3. Uttarakhand Purv Sainik Kalyan Nigam Limited vs. Northern Coal Field Limited, 2020 (2) SCC 455.
4. State of Gujarat vs. Kothari and Associate, 2016 (14) SCC 761.
5. Sundaram Finance Limited vs. Noorjahan Beevi and Another, 2016 (13) SCC 1.
6. State of Rajasthan vs. Nav Bharath Construction Co, 2006 (1) SCC 86.
7. Gammon Engineers and Contractors Pvt. Ltd. vs. Sahay Indsutries, 2023 SCC Online Bom 750.
8. Batliboi Environmental Engineers Limited vs. Hindustan Petroleum Corporation Limited and another, 2024 (2) SCC 375.
15Com.AP.No.102/2021 The Advocate for the Respondent has relied upon a following decision reported in
1. Reliance Infrastructure Limited vs. State of Goa, 2024 (1) SCC 479.
2. S.V. Samudram vs. State of Karnataka and another, 2024 (3) SCC 623.
3. Konkan Railway Corporation Limited vs. Chenab Bridge Project Undertaking, 2023 (9) SCC 85.
4. UHL Power Company Limited vs. State of Himachal Pradesh, 2022 (4) SCC 116.
5. MMTC Limited vs. Vedanta Limited, 2019 (4) SCC 163.
6. Based on the above contentions of both parties, and the arguments of both Advocates, following Points arise for my consideration:-
1. Whether there are grounds to set aside the Impugned Award under Section 34 of the Arbitration & Conciliation Act?
2. What Order?16
Com.AP.No.102/2021
7. My findings on the above points are as follows:-
Point No.1:- In the Affirmative.
Point No.2:- As per the final Order for the following reasons.
REASONS
8. Point No.1: - The settled position in law that in proceedings under Section 34 of the Act, the Court does not sit in appeal over the Award. Thus, an Arbitral Award passed by an Arbitrator shall not be interfered with lightly. The Court can neither sit in appeal nor reassess or re-appreciate the evidence and the Arbitral Award can only be interfered with grounds stipulated in Section 34(2) of the Act.
9. It is settled position in law that an Award could be set aside if it is contrary to :-
(a) fundamental policy of Indian law; or
(b) the interest of India ; or
(c) justice or morality ; or
(d) in addition, if it is patently illegal.17
Com.AP.No.102/2021
10. The illegality must go to the root of the matter and if the illegality is of trivial nature, it cannot be held that the award is against the public policy. Award could also be set aside, if it is so unfair and unreasonable that it shocks the conscience of the Court. Such an award is opposed to public policy and is required to be adjudged void.
11. The Hon'ble Supreme Court in the landmark judgment reported in 2015(3) - S.C.C. - 49 (Associate Builders vs. Delhi Development Authority), (which is relied on by the Advocate for the Defendent) while setting aside the judgment passed by the Division Bench of Hon'ble High Court of Delhi culled out the legal principles after traversing the judicial pronouncements passed by the various High Courts and the Hon'ble Apex Court. In the said case, it is held that it is important to note that the 1996 Act was enacted to replace the Arbitration Act, 1940 in order to provide for an Arbitral procedure which is fair, efficient and capable of meeting the needs of Arbitration and also to provide that the tribunal gives reasons for an Arbitral Award; to ensure that the Arbitral Tribunal remains within the limits of its jurisdiction and to minimize the supervisory role of Courts in the Arbitral process.
18Com.AP.No.102/2021
12. In the said decision, the Hon'ble Apex Court observed that it must be clearly understood that when a Court is applying the "Public Policy" test to an Arbitration Award, it does not act, as a Court of appeal and consequently errors of fact cannot be corrected. A possible view by the Arbitrator on facts has necessarily to pass muster, as the Arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his Arbitral Award. Thus, an Arbitral Award based on little evidence or no evidence which does not measure up in quality to a train legal mind would not be held to be invalid on this count.
13. In view of the above mentioned discussions, the position in law is well settled that while dealing with an award under Section 34 of the Act, the Courts are not supposed to sit in appeal and re-appreciate the evidences as an appellate Court. Hence, the findings of the facts by the Arbitral Tribunal, if based on evidence, even where a different opinion can be held on the basis of that evidences, the findings given by the Arbitrator has to be accepted and the Courts cannot substitute its opinion. The power to interpret the contracts also lies with the Arbitrator. Once the Court reach to the conclusion that the Arbitrator has acted within its jurisdiction, even if the Courts 19 Com.AP.No.102/2021 are of the view that the opinion of the Arbitrator is wrong, the same cannot be disturbed unless it is against the public policy.
14. The petitioner has challenged this award on the ground of limitation. The petitioner stated that the documents furnished by the Claimant/Respondent herein, it is clear that the Claimant had knowledge of the breach as claimed by it, way back in the year 2012 only and as such filing of the claim before the Arbitral Tribunal is barred by law of limitation. Further, the fact that, the Respondent had knowledge of the breach of agreement way back in the year 2012 as can be seen from the averments and the documents produced along with the claim statement and would clearly demonstrate that the Claimant had knowledge of the breach and had raised dispute/difference as early as in 2012 itself. Pursuant to which, the Claimant has not taken any steps in furtherance of the same. As such, the Claimant should have sought redressal within a period of three (3) years from coming to know of the breach and having raised its concern over the same. However, the Claimant has failed to do so. Having failed to make the claim within the period of limitation of 3 years, the claim made by the Respondent is not maintainable as it is barred by limitation. These facts and circumstances were not considered by the Learned Sole Arbitrator before passing the impugned award.
20Com.AP.No.102/2021
15. The learned arbitrator has held that the claimant regarding breach was pursuant to Ex.P.83, a notice dated 09.03.2015. A perusal of Ex.P.83 shows that the situation was not congenial and for the first time the claimant received a copy of the letter dated 31.01.2015 by the respondent on 09.02.2015 from the director, KSAMB making a reference to the Tri-partite agreement singed on 2009-10 referring to certain clauses. The notice further discloses that certain obligations were cast on the respondent company and it had clearly defaulted in commitment as envisaged in Clause 18.2 of the Contract. There is also a claim for the balance of amount and the loss of profit etc., This was replied by the Respondent by Ex.C.84 asking the claimant to comply with Clause 17-17.2 of Ex.P.3. Suffice to note that the exchange of notices culminated in Ex.P.86 dated 03.10.2017 followed by a final notice dated 05.10.2017 invoking the arbitration clause. Immediately thereafter the claimant filed a CMP 59/2018 before the Hon'ble High court of Karnataka. The certain breach was committed, may not be at the behest of the Respondent, nonetheless the rumblings started when NCDEX was inducted and NCDEX was making use of the claimant's software.
16. The learned arbitrator further held that the provisions of Section 18 of the Limitation Act to my mind is not applicable to 21 Com.AP.No.102/2021 the present set of circumstances. Assuming that it is applicable it is to the advantage of the claimant in as much as a fresh period of limitation shall be computed from the time of acknowledgment, the case on hand is pursuant to Ex.P.84. In fact it is the specific case of the respondent that there is a breach of contract by the claimant, the limitation would commence from the date of breach and Article of the limitation act would be applicable which would be 3 years from the time when the contract is broken and when the breach in respect of which the suit is instituted occurs of when it seizes. In the case on hand it is to be noticed that section 22 itself contemplates a fresh period of limitation runs at every moment of time during which the breach or the Tort as the case may be continues. In the case on hand the breach committed is a continuing breach and at every moment of time fresh period of limitation begins. Even Article 55 contemplates that the period of limitation 3 years commences when the contract is broken or when there are successive breaches. A compendious reading of the arbitration act and limitation act with reference to the notice issued, I am of the view that the claim is well within time. In fact if section 21 and Section 43 (2) of Arbitration and Conciliation Act are read in tandem it is clear that the initiation of proceedings is well within time in as much as the residuary Article 137 of the Limitation Act is squarely attracted. Thus the 22 Com.AP.No.102/2021 claim is well within time. If any authority is required, one can refer to the Judgment of the Apex Court in Civil Appeals No. 843-844/2021 is BSNL and another vs. M/s Nortel Networks (India) Private Limited. After considering the various judgments, the conclusion reached is as follows:' "Accordingly we hold that the period of limitation for filing an application under Section 11 would be governed by Article 137 of the First Schedule of the limitation Act 1963. The period of limitation begins to run from the date when there is a failure to appoint an arbitrator."
The decision sought to be pressed into service by Mr. Nishant to buttress his contention is on a different set of facts and what fell for consideration is Section 3 and Article 55 of Limitation Act which is not the case here in as much as it is not successive or multiple breaches, but a continuous breach.
The above findings of the learned arbitrator, does not suffer from any infirmity so as to hold that any error apparent on the face of the record. According to the arbitration record and proceedings, the Arbitrator has not committed any legal misconduct. In my opinion, the above findings rendered by the learned Arbitrator, does not call for any interference.
23Com.AP.No.102/2021
17. The petitioner has challenged the award on the ground that the Claim No. 1 made by the Respondent, the Respondent/ Claimant has not produced any documents in support of the same so as to substantiate the amount claimed therein. Further, as per the averments of the Claimant in the claim statement itself, the claimant voluntarily waived raising bills with respect to various APMCs. Having voluntarily waived the right, the claimant is estopped for claiming the same by imputing responsibility on the respondent. As such, the claimant is not entitled to the amount claimed therein and hence the impugned award is liable to be set aside.
18. In para No. 61 and 62 the learned arbitrator discussed about the oral evidence as well as documents Ex.P.1 and Ex.P.2, Ex,P.3, Ex,P.87, Ex,P 68, Ex,P 69 and Ex.P.81 held that in fact a perusal of the documents at Ex. P-81, a communication sent by the Respondent to the Claimant would indicate that the invoices were to be raised reducing the rate retrospectively at the rate of Rs.8,000/- per Senior Operator and Rs.6,500/- per Junior Operator from the existing rates of Rs.32,895/- and Rs.14,150/- respectively unilaterally. Indeed the Claimant would be entitled to the Contractual Rate, but however, the Claimant had raised invoices/ bills at the reduced rates. A perusal of Ex. P-87 discloses regarding the manpower totalling 24 Com.AP.No.102/2021 to Rs.1,00,84,986/- which is a sub-total of SL. Nos. 1-16 exclusive of interest and taxes. Insofar as Sl. Nos. 17-19 are concerned, the same were not affected. Insofar as Sl. Nos. 20- 24 of Ex. P-87 are concerned, it is the case of the Claimant that they refused to comply with the directions and the Contract insofar as those 5 APMCs are concerned, they were rendered infructuous thus affecting the costing and profits which would amount to Rs.66,58,000/- which is a sub-total of Sl. Nos. 20-24 of Ex. P-87 exclusive of interest and taxes Ex.P63 is a communication issued by the Claimants to the Manager, IT services of the Respondent clearly indicating outstanding amount due and which has been withheld by the Respondent. The said total amount due would work out to rs.1,01,09,475/-. This is substantiated by the annexures appended to Ex. P63 which gives a clear indication that the said amount is due. Thus the Claimant would be entitled to the sub-total of Rs.1,00,84,986/- + Rs.66,58,000/- + Rs.5,10,786/- + 1,30,540/- which amounts to Rs. 1,73,84,312/-. Thus Claimant is entitled to the sum of Rs.1,73,84,312/- Rs. 1,02,41,760/- + which amounts to a total of Rs.2,76,26,072/-.
The above findings given by the learned arbitrator is not perverse and illegal. According to the arbitration record and proceedings, the Arbitrator has not committed any legal 25 Com.AP.No.102/2021 misconduct. In my opinion, the above findings rendered by the learned Arbitrator, does not call for any interference.
19. The petitioner has challenged the award on the ground that the Claim No. 2, it is not within the scope of the agreement between the respondent and the petitioner as such the said claim is not maintainable and an apprehension of loss of opportunity cannot be compensated and there is not even a single pleading in the claim statement regarding rejection of the claimant's tender for the Maharashtra Agricultural Competitiveness Project or that allegedly the tender was cancelled due to alleged non-completion of the work under the present agreement and the claimant had not stated anything regarding the rejection of claimant's tender in view of alleged non-completion of the present agreement in its notice dated 09.03.2015, therefore, the said claim of the claimant is only made up for the purpose of this case and in order to make illegal gain from the petitioner. The learned arbitrator awarding under claim No.2 is contrary to the decision of the Hon'ble Supreme Court in 2006 1 SCC 86 in the case of State of Rajasthan vs. Nav Bharat Construction Co. On this ground alone, the impugned award is liable to be set aside.
26Com.AP.No.102/2021
20. Perused the claim petition, under Claim No.2 the claimant sought that he entitled to receive and claims from the Respondent an amount of Rs. 10.55 crores by way of compensation for losses caused to the claimant by way of opportunity cost/ loss of profit on account of rejection of claimants tender submitted to Respondent for Maharashtra Agricultural Competitiveness Project due to the alleged non competition instant contract for its entire tenure.
21. The learned arbitrator has discussed regarding damages under claim No.2 para No. 63 to 77. The learned arbitrator held that indeed as has been observed, there cannot be any mathematical precision with which the loss or damages can be assessed. It is also to be noticed that except for the tender of the respondent in Maharashtra Agricultural Competitiveness Project not being materialized and no other material having been placed before the Arbitral Tribunal, keeping this in mind the quantum of damages/ loss of business/ loss of opportunity is to be assessed. To any mind the loss of business/ loss of opportunity is to be assessed at Rs. 25,00,000/-.
22. In this regard the petitioner has relied upon a decision reported in State of Rajsthan vs. Nava Bharath Construction Co, 1 SCC 86, wherein Hon'ble Supreme court held that 27 Com.AP.No.102/2021 There can be no dispute to the well-established principle set out in these cases. However, these cases do not detract from the law laid down in Bharat Coking Coal Ltd. Case 2001 (4) SCC 86 or continental construction Co. Ltd case 1988 (3) SCC 82. An arbitrator cannot go beyond the terms of the contract between the parties. In the guise of doing justice he cannot award contrary to the terms of the contract. If he does so, he will have misconducted himself. Of course if an interpretation of a term of the contract is involved then the interpretation of the arbitrator must be accepted unless it is one which could not be reasonably possible. However, where the term of the contract is clear and unambiguous the arbitrator cannot ignore it.
Batliboi Environmental Engineers Limited vs. Hindustan Petroleum Corp Ltd and Another, 2021 (2) SCC 375, where in Hon'ble Supreme court held that Arbitral tribunal in the present case has given complete go by to these principles well in place, overlooked care and caution required and taken a one- sided view grossly and abnormally inflated the damages. The figures quoted in paragraph 11 supra show the over- statement and aggrandizement in awarding Rs. 1,57,37,666/-, towards loss of overheads and loss of profits/profitability, in a contract of Rs. 5,74,35,213/-. Rs.1,21,95,859.68/- was paid for the work done within the term. Rs. 2,92,07,619.13 was paid for the work done post the term. Thus, Rs. 4,14,03,478.81/- was paid for 80% of the work. The balance was Rs.1,14,87,042.00/. The amount awarded 28 Com.AP.No.102/2021 towards loss of overheads and profits/profitability is Rs.1,57,37,666/-. No justification for computation of the loss is elucidated or can be expounded. Even if one were to rely upon the chart given by the BEEL, and ignore the contradictions in findings, the amount awarded is highly disproportionate and exorbitant. It is clearly a case of overlapping or at least a part doubling of the loss/damages.
McDermott International Inc vs. Burn Standard Co. Ltd., 2006 (11) SCC 181 where in Hon'ble Supreme court held that In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account. Which deal with the effect of failure to perform at fixed time in contracts where time is of essence, and computation of damages caused b breach of contract, respectively, and states that these section neither lay down the mode nor how and in what manner computation of damages for compensation has to be made. As computation depends upon attendant facts and circumstances and methods to compute damages, how the quantum thereof should be determined is a matter which would fall within the domain and decision of the arbitrator. This is without doubt, a sound legal and correct proposition. However, the computation of damages should not be whimsical and absurd resulting in a windfall and bounty for one party at the expense of the other. The computation of damages should not be disingenuous. The damages should commensurate with the loss sustained. In a claim for loss on account of delay in work attributable to the employer, the contractor is entitled to the loss 29 Com.AP.No.102/2021 sustained by the breach of contract to the extent and so far as money can compensate. The party should to be placed in the same situation, with the damages, as if the contract had been performed. The principle is that the sum of money awarded to the party who has suffered the injury, should be the same quantum as s/he would have earned or made, if s/he had not sustained the wrong for which s/he is getting compensated.
We have briefly referred to the principle applicable for computing the claim for compensation/damages in case of partial prevention, i.e., where the breach by the employer is not fundamental and does not entitle the builder/contractor to cease the work, or, being fundamental, is not treated as repudiation by the builder/contractor. Measure of compensation/damages in such cases is the loss of profit arising from reduced profitability or added expense of the work carried out. In a given case, where there is a fundamental breach by the employer, albeit, the builder/contractor does not immediately elect to treat the contract as repudiated, he may still be entitled to raise a claim for loss of profit on the uncompleted work. Offsite expenses or overheads are all administrative or executive costs incidental to the management supervision or capital outlay as distinguished from operating charges. These charges cannot be fairly charged to one stream of work or job, and rather be distributed as they relate to the general business or the work of the contractor/builder being undertaken or to be undertaken, as the overheads are relatable to the builder/contractor's business in entirety.
30Com.AP.No.102/2021 The usage of formulae such as Hudson's, Emden's, or Eichleay's formulae to ascertain the loss of overheads and profits has been judicially approved in the English cases of Peak Construction (Liverpool) Ltd v. McKinney Foundations Limited, Whittal Builders v. Chesterle- Street District Council, JF Finnegan Ltd v. Sheffield City Council and Canadian case of Ellis- Don v. Parking Authority of Toronto. The three formulae deal with theoretical mathematical equations, but are based on factual assumptions, and therefore can produce three different and unrelated compensation/damages. Therefore, while applying a particular equation or method, the assumptions should be examined, and the satisfaction of the assumption(s) ascertained in the facts and circumstances.
23. In the present case, the learned arbitrator has awarded 25,00,000/- towards loss of business/loss of opportunity. But he has not given any reason for estimating the loss of business and loss of opportunity. It is settled principle of law that the computation of damages should not be whimsical and absurd resulting in a wind fall and bounty for one party at expenses of the other. The party should to be placed same situation with damages as if the contract had been performed. Further, in this case the learned arbitrator does not specifically refereed to any formula or the method and the figures to compute damages under the head of loss of business/loss of opportunity. The learned arbitrator does not referred Section 55, 73 and 74 of contract Act. Furthermore the claimant has sought an amount 31 Com.AP.No.102/2021 of Rs. 10.55 crores by way of compensation for losses caused to the claimant by way of opportunity cost/ loss of profit on account of rejection of claimants tender. On the contrary the learned arbitrator has granted 25,00,000/- more than the relief claimed in the petition, without assigning any reason. A claim for damages, whether general or special, cannot as a matter of course result in an award without proof of the claimant having suffered injury. The arbitral award in question, in my opinion, is patently illegal in that it is based on no evidence and is, thus, outrightly perverse; therefore, again, it is in conflict with the "public policy of India" as contemplated by section 34(2)(b) of the Act.
24. The petitioner has challenged the award on the ground that the claimant is also not entitled to the interest as claimed under Claim No.4 and also not entitled to the costs in the proceedings as sought for in claim no.5 of the claimant statement. The said claims are untenable and the claimant is not entitled to receive any such relief as sought for therein. The claimant has claimed relief/s which are not within the purview of the agreement between the claimant and the petitioner in order to make illegal gain. Because of which, the petitioner is made to incur huge sum of money on prosecuting the said claims and pay charges accordingly to do the same. Therefore 32 Com.AP.No.102/2021 these aspects were not considered by the learned Sole Arbitrator and the claim made by the Respondent is liable to be rejected completely.
25. The learned arbitrator has discussed that the claimant has sought for 18% interest on all the amounts that are found due and payable in respect of the claims awarded. In this regard Article or Clause 1E of Ex.P.3 defines what is the fee chargeable for the manpower supplied. What is more relevant for our purpose is Clause 10.1 with respect to the interest payable for the delayed payment. Clause 10 (1) would read as under:
"Clause 10 (1) : Penalty for late payment:
In the event Keonics fails to pay the fees or other charges on or before the due dates or within the stipulated time in respect thereof, it shall be liable to pay interest at 18% per annum on such amount of fees and other charges that have become due".
26. The conditions No.8 of the payments, terms and conditions envisages that manpower bills paid after 9 th of the month will invite 18% interest of the bill amount. Thus contractually the respondent is liable to pay interest at the rate of 18% of the outstanding amount. Section 31(7)(a) of the 33 Com.AP.No.102/2021 Arbitration and Conciliation Act deals with the payment of interest on the award amount. Section 31(7)(a) would read as under:
(7)(a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made."
27. The payability of interest at the rate of 18% per annum from the date due is mandated by the contract Ex.P.3. This the claimant is entitled for interest at the rate of 18% per annum from 19.04.2015 till the date of award and 8%per annum on such sum which becomes payable from the date of the award till realization in terms of the decision of the Apex court in the case of Hyder Consulting (UK) Limited vs. Governor, State of Orissa, 2015 (2) SCC 189.
The above findings given by the learned arbitrator is not perverse and illegal. In my opinion, the above findings rendered by the learned Arbitrator, does not call for any interference.
34Com.AP.No.102/2021
28. In view of my above discussions, observations and findings, I am of the opinion that the Award of the Learned Arbitrator is liable to be set aside on the ground that the same is contrary to the Public Policy and also there is patent illegality in the findings of the learned Arbitrator. Further, I make it clear that I have discussed only about the findings given by the learned Arbitrator in the light of the contentions taken by the petitioner without re-appreciating the oral or documentary evidence placed before the Learned Arbitrator. All my findings are based on the legal aspects and the development of case law on the said subject. When such being the case, I have no other option except to set aside the entire Award passed by the learned Arbitrator. Therefore, I answer this Point in the "Affirmative".
29. Point No. 2 :- Therefore, I proceed to pass the following Order.
ORDER The Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996, is allowed.
35Com.AP.No.102/2021 The Arbitral Award dated 17.08.2021 passed in AC No. 55/2019 is hereby set aside.
The Office is directed to send copy of this judgment to both parties to their email ID as required under Order XX Rule 1 of the Civil Procedure Code as amended under Section 16 of the Commercial Courts Act.
(Dictated to the Stenographer, typed by her directly on computer, verified and then pronounced by me in open Court on this the 25th day of September, 2024).
(SUMANGALA S. BASAVANNOR), LXXXII Addl. City Civil & Sessions Judge, Bengaluru.