Appellants vs Mahmood Hassan on 5 January, 2022

[Cites 45, Cited by 0]

Uttarakhand High Court

Appellants vs Mahmood Hassan on 5 January, 2022

This is an appeal against the judgment and order dated 15.05.2008 passed in Civil Misc. Case No. 15 of 2007, Chairman and Managing Director, THDC and another v. Mahmood Hassan, by the court of District Judge, Tehri Garhwal at New Tehri ("the case"). By the impugned judgment and order, an application filed under Section 34 of the Arbitration and Conciliation Act, 1996 (for short, "the Act") for setting aside an arbitral award dated 07.04.2007 given by the sole Arbitrator has been rejected and the arbitral award upheld.

2. The facts necessary to resolve the controversy, briefly stated are as follows. The Tehri Hydro Development Corporation ("THDC" - hereinafter referred to as "the appellant") is a joint venture of Government of India and the State of Uttar Pradesh, formed to execute the mega project of construction of Tehri Dam. As a result of construction of the Dam, huge area was to be submerged. The affected persons were to be rehabilitated. The task of rehabilitation was to be carried out by the appellant. In order to construct 110 EWS category houses at different sites, tenders were floated by the appellant. The tender submitted by the respondent was accepted. On 16.10.1995, a contract agreement was executed between the appellant and the respondent ("the contract agreement"). The work was to be completed on or before 12.09.1996. The period of completion of work was mentioned as essence of the contract. The work was to commence on the date of the agreement itself. The total value of the work was Rs. 59,84,735.43.

3. The record reveals that subsequent to the execution of the contract agreement, the displaced persons opted for compensation in cash instead of 3 houses to be constructed under the agreement. The matter was, therefore, referred to the Central Government. A High Powered Committee was constituted, which gave its recommendation in the month of November, 1997. It was recommended that instead of constructing the houses, compensation, in cash, be paid to the displaced persons. It is for this reason that the requirement to construct the EWS category houses was no longer felt necessary. In the meanwhile, the rehabilitation work was transferred to the State of Uttar Pradesh. But, again after the creation of the State of Uttarakhand, the task of rehabilitation was handed over to the State of Uttarakhand by a communication dated 02.01.2001 issued by the Ministry of Power, Government of India. On 30.05.2003, the State of Uttarakhand took a decision that the work, under the agreement in question, was to be supervised by the appellant.

4. On 07.02.2001, the Executive Engineer, Tehri Dam, Block 22, wrote a letter to the Assistant Engineer disclosing the facts as to why construction of 110 EWS category houses could not be undertaken and even 12 other houses proposed to be constructed 4 could not be completed (It may be noted here that initially when 110 EWS category houses could not be constructed, a decision was taken that instead of EWS category houses, some other work may be undertaken from the respondent, but that could also not be completed). According to this letter, as approved by the Manager (Urban Rehabilitation) THDC, the unfinished work may be got completed from the contractor. And further, in order to save the department of the liability to pay compensation to the Contractor at the rate of 5% of the total value of the contract, he be entrusted with the work of construction of eight type-III houses at 9-B extension site (near Geeta Bhawan). This work was also not completed.

5. Thereafter, a dispute arose between the parties with regard to the contract and the payment that was to be made to the respondent. The respondent served a notice on 12.09.2003 and another notice on 14.08.2004 requiring the appellant to invoke arbitration clause. Thereafter, the respondent approached this Court under Section 11(6) of the Act. Pursuant to the directions given by 5 this Court, the arbitral proceedings were concluded and arbitral award was rendered on 07.04.2007. It is this award, which was unsuccessfully challenged under Section 34 of the Act in the case. Aggrieved by it, the appellant is in appeal.

6. Before appreciating the arguments, it would be apt to state as to what was the claim made by the respondent before the arbitral tribunal. The respondent raised seven claims under the following heads :-

"(1) Payment due as claim on account of non availability of site.

(2) Payment due as claim on account of loss of material which could not be utilized for construction of the building but was collected for construction of the same.

(3) Payment due as claim on account of refund of interest charged on Mobilization Advance.

(4) Payment due as claim on account of delay in completion.

(5) Payment due as claim on account of work done but not paid for.

(6) Payment due as claim on account of non-

completion of the work and loss suffered on that account.

(7) Payment due as claim on account of mental torture harassment and damages inflicted by way of non fulfillment of the contractual obligations on the part of the Employer."

7. On the application filed by the applicant under Section 34 of the Act, written statement was filed by the respondent. The arbitral tribunal framed six issues for disposal. They are as hereunder:-

"1. What was the amount due and payable to the Contractor for work done?

- [It covers the claim 5 made by the respondent.]

2. What could be the amount payable to Contractor for mental torture, harassment, etc.?

- [This includes claim no. 7 made by the respondent.]

3. What could be the losses to the Contractor on account of failure, in case, if any, on the part of the respondent (THDC) as per the contract?

- [It includes claim nos. 1, 2, 3, 4 & 6 made by the respondent.] 7

4. Whether the claim as put forth by the Contractor are barred by limitation?

5. Whether the respondent is entitled to the counter claim as put forth?

                          -   [The       counter   claim   has      been
                              rejected.]

6. Was there frustration of contract between the parties as envisaged by Section 56 of the Contract Act?"

8. The following table shows as to what was the claim under each of the seven heads made by the respondent and what was allowed by the Arbitral Tribunal.

            Sr.   Claim                                  Decision      of
                                                         the     arbitral
            No.
                                                         tribunal

1. Payment due as claim on Not allowed.

account of non availability of site.

Total Rs. 1,12,548.66 has been claimed.

2 Payment due as claim on Rs.

account of loss of material 2,25,000/-

which could not be utilized for construction of the building but was collected for construction of the same.

Total Claim - Rs. 10,00,000/-

3 Payment due as claim on Rs. 10,000/-

              account of refund of interest
                                                        Allowed
              charged      on         Mobilization
              Advance.

4 Payment due as claim on Allowed.

              account          of         delay    in
              completion.
              Total Claim Rs. 8,28, 343/-

5 Payment due as claim on Rs. 8,84,614/- account of work done but not paid for.

Total Claim Rs. 10,32,775/-

6 Payment due as claim on Rs. 2,50,000/- account of non-completion of the work and loss suffered on that account.

Total Claim Rs. 14,88,380/-

7 Payment due as claim on Not allowed account of mental torture harassment and damages inflicted by way of non fulfillment of the contractual obligations on the part of the Employer.

Total Claim Rs. 1,00,000/-

9. On Issue No. 4, the arbitral tribunal held that the claims made by the respondent are not time barred.

10. Issue no. 6 is with regard to frustration of contract. In the arbitral award, it is noted "realizing that the plea is weak and flimsy, the THDC through its counsel and departmental officer rightly did not press the issue, which was dropped". Accordingly, this issue has been decided against the appellant.

11. Heard learned counsel for the parties and perused the record.

12. Learned counsel for the appellant would submit as follows:-

(i) The arbitral award is in conflict with the public policy of India. The award is in contravention to the terms and conditions of the contract.

(ii) The claims have been decided without there being any evidence.

(iii) Interest could not have been granted in the instant matter, as it was barred by the terms and conditions of the contract.

(iv) The application under Section 34 of the Act filed by the appellant has wrongly been dismissed. The impugned 10 judgment and order is not in accordance with law.

13. Learned counsel for the respondent would submit that this is an appeal under Section 37 of the Act. This Court cannot sit in appeal against the arbitral award. The jurisdiction is limited under Section 37 of the Act. The factual aspects cannot be examined. If the view taken by the Arbitrator is a possible view, it cannot be disturbed in a proceeding under Section 37 of the Act. On the question of interest, learned counsel for the respondent would submit that the arbitral tribunal has rightly interpreted the clause in the contract and awarded interest.

14. This is an appeal under Section 37 of the Act. The Act has been enacted in tune with the United Nations Commission on International Trade Law ("UNCITRAL"), Model Law on International Commercial Arbitration adopted in the year 1985. Delay and intervention of the Court in arbitral award had been a cause for concern.

15. Challenge to the arbitral award has been made by the appellant under Section 34 of the Act, which is as hereunder:-

"34. Application for setting aside arbitral award. - (1) Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub- section (3).

(2) An arbitral award may be set aside by the court only if-

(a) The party making the application establishes on the basis of the record of the arbitral tribunal that-

(i) a party was under some incapacity, or

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or

(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:

Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or

(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or

(b) the court finds that-

(i) the subject-matter of the dispute is not capable of settlement by arbitration 12 under the law for the time being in force, or

(ii) the arbitral award is in conflict with the public policy of India.

Explanation I. For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if, -

(i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or

(ii) it is in contravention with the fundamental policy of Indian law; or

(iii) it is in conflict with the most basic notions of morality or justice.

Explanation 2. - For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.

(2-A). an arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the court, if the court finds that the award is vitiated by patent illegality appearing on the face of the award:

Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.

(3) an application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under Section 33, from the date on which that request had been disposed of by the arbitral tribunal:

Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.

(4) on receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral 13 tribunal will eliminate the grounds for setting aside the arbitral award.

(5) an application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement.

(6) an application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub-section (5) is served upon the other party."

16. Explanation to Section 34 (2) (b) of the Act was substituted by Act No. 03 of 2016 w.e.f. 23.10.2015. Prior to 23.10.2015, the Explanation to Section 34 (2) (b) was as hereunder:-

"Explanation. - Without prejudice to the generality of sub-clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81."

17. The effect of this amendment has been considered by the Hon'ble Supreme Court in Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (NHAI), (2019) 15 SCC 131, as hereunder:-

"34. What is clear, therefore, is that the expression "public policy of India", whether contained in Section 34 or in Section 48, would now mean the "fundamental policy of Indian law" as explained in paras 18 and 27 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] i.e. the fundamental policy of Indian law would be relegated to "Renusagar"

understanding of this expression. This would necessarily mean that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] expansion has been done away with. In short, Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] , as explained in paras 28 and 29 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , would no longer obtain, as under the guise of interfering with an award on the ground that the arbitrator has not adopted a judicial approach, the Court's intervention would be on the merits of the award, which cannot be permitted post amendment. However, insofar as principles of natural justice are concerned, as contained in Sections 18 and 34(2)(a)(iii) of the 1996 Act, these continue to be grounds of challenge of an award, as is contained in para 30 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] .

35. It is important to notice that the ground for interference insofar as it concerns "interest of India" has since been deleted, and therefore, no longer obtains. Equally, the ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the "most basic notions of morality or justice". This again would be in line with paras 36 to 39 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , as it is only such arbitral awards that shock the conscience of the court that can be set aside on this ground.

36. Thus, it is clear that public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as understood in paras 18 and 27 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , or secondly, that such award is against basic notions of justice or morality as understood in paras 36 to 39 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] . Explanation 2 to Section 34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) was added by the Amendment Act only so that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] , as understood in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , and paras 28 and 29 in particular, is now done away with.

37. Insofar as domestic awards made in India are concerned, an additional ground is now available under sub-section (2-A), added by the Amendment Act, 2015, to Section 34. Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous 15 application of the law. In short, what is not subsumed within "the fundamental policy of Indian law", namely, the contravention of a statute not linked to public policy or public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality.

38. Secondly, it is also made clear that reappreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award.

39. To elucidate, para 42.1 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Para 42.2 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award."

18. In the case of Renusagar Power Co. Ltd. General Electric Co., 1994 Supp (1) SCC 644, the Hon'ble Supreme Court interpreted the words "public policy" in the context of Section 7(1)(b) (ii) of the Foreign Awards (Recognition and Enforcement) Act, 1961. The Court considered the words "public policy"

in Article V(2)(b) of the Convention on the Recognition & Enforcement of Foreign Arbitral Awards (New York, 1958), Article I(e) of the Convention on the Execution of Foreign Arbitral Awards, 1927 and Section 7(1) of the of the Arbitration (Protocol and Convention) Act, 1937. Having considered, all these aspects, the Hon'ble Supreme Court observed "Applying the said criteria it must be held that the enforcement of a 16 foreign award would be refused on the ground that it is contrary to public policy if such enforcement would be contrary to (i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality."

19. The interpretation given to the words "public policy" in the case of Renusagar (supra) has further been considered by the Hon'ble Supreme Court in the case of Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705. In the case of Saw Pipes (supra), the Hon'ble Supreme Court gave a wider meaning to the phrase "public policy of India". In para 31 of the judgment, the Hon'ble Supreme Court observed as hereunder:-

"31. Therefore, in our view, the phrase "public policy of India" used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term "public policy" in Renusagar case [1994 Supp (1) SCC 644] it is required to be held that the award could be set aside if it is patently illegal. The result would be -- award could be set aside if it is contrary to:

(a) fundamental policy of Indian law; or

(b) the interest of India; or 17

(c) justice or morality, or

(d) in addition, if it is patently illegal.

Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that 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 award is opposed to public policy and is required to be adjudged void."

20. Having considered the law on the point, in the case of Delhi Development Authority v. R.S. Sharma and Company, New Delhi, (2008) 13 SCC 80, the Hon'ble Supreme Court summed up the law in paragraph 21 of the judgment as hereunder:-

"21. From the above decisions, the following principles emerge:

(a) An award, which is

(i) contrary to substantive provisions of law; or

(ii) the provisions of the Arbitration and Conciliation Act, 1996; or

(iii) against the terms of the respective contract; or

(iv) patently illegal; or

(v) prejudicial to the rights of the parties;

is open to interference by the court under Section 34(2) of the Act.

(b) The 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.

(c) The award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court.

(d) It is open to the court to consider whether the award is against the specific terms of contract and if so, interfere with it on the ground that it is patently illegal and opposed to the public policy of India."

21. How to read an award, what more is required to be looked into while considering an application under Section 34 of the Act, this has 18 further been discussed by the Hon'ble Supreme Court in the case of Oil and Natural Gas Corporation Limited v. Western Geco International Limited, (2014) 9 SCC 263. In the case of Western Geco (supra), the Hon'ble Supreme Court added three more factors for consideration. They are - (i) judicial approach; (ii) principle of natural justice and (iii) reasonableness on the touchstone of the principles as laid down in the case of Associated Provincial Picture House Ltd. v. Wednesbury Corpn., (1948) 1 KB 223 : 1947 (2) All ER 680 (CA). The Hon'ble Supreme Court observed as hereunder:-

"35. What then would constitute the "fundamental policy of Indian law" is the question. The decision in ONGC [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705] does not elaborate that aspect. Even so, the expression must, in our opinion, include all such fundamental principles as providing a basis for administration of justice and enforcement of law in this country. Without meaning to exhaustively enumerate the purport of the expression "fundamental policy of Indian law", we may refer to three distinct and fundamental juristic principles that must necessarily be understood as a part and parcel of the fundamental policy of Indian law. The first and foremost is the principle that in every determination whether by a court or other authority that affects the rights of a citizen or leads to any civil consequences, the court or authority concerned is bound to adopt what is in legal parlance called a "judicial approach" in the matter. The duty to adopt a judicial approach arises from the very nature of the power exercised by the court or the authority does not have to be separately or additionally enjoined upon the fora concerned. What must be remembered is that the importance of a judicial approach in judicial and quasi-judicial determination lies in the fact that so long as the court, tribunal or the authority exercising powers that affect the rights or obligations of the parties before them 19 shows fidelity to judicial approach, they cannot act in an arbitrary, capricious or whimsical manner. Judicial approach ensures that the authority acts bona fide and deals with the subject in a fair, reasonable and objective manner and that its decision is not actuated by any extraneous consideration. Judicial approach in that sense acts as a check against flaws and faults that can render the decision of a court, tribunal or authority vulnerable to challenge.

38. Equally important and indeed fundamental to the policy of Indian law is the principle that a court and so also a quasi- judicial authority must, while determining the rights and obligations of parties before it, do so in accordance with the principles of natural justice. Besides the celebrated audi alteram partem rule one of the facets of the principles of natural justice is that the court/authority deciding the matter must apply its mind to the attendant facts and circumstances while taking a view one way or the other. Non- application of mind is a defect that is fatal to any adjudication. Application of mind is best demonstrated by disclosure of the mind and disclosure of mind is best done by recording reasons in support of the decision which the court or authority is taking. The requirement that an adjudicatory authority must apply its mind is, in that view, so deeply embedded in our jurisprudence that it can be described as a fundamental policy of Indian law.

39. No less important is the principle now recognised as a salutary juristic fundamental in administrative law that a decision which is perverse or so irrational that no reasonable person would have arrived at the same will not be sustained in a court of law. Perversity or irrationality of decisions is tested on the touchstone of Wednesbury principle [Associated Provincial Picture Houses Ltd. v. Wednesbury Corpn., (1948) 1 KB 223 :

(1947) 2 All ER 680 (CA)] of reasonableness.

Decisions that fall short of the standards of reasonableness are open to challenge in a court of law often in writ jurisdiction of the superior courts but no less in statutory processes wherever the same are available."

22. In the case of Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49, the Hon'ble Supreme Court interpreted the phrases "judicial 20 approach", "principle of natural justice" and "reasonableness" as hereunder:

"29. It is clear that the juristic principle of a "judicial approach" demands that a decision be fair, reasonable and objective. On the obverse side, anything arbitrary and whimsical would obviously not be a determination which would either be fair, reasonable or objective.

30. The audi alteram partem principle which undoubtedly is a fundamental juristic principle in Indian law is also contained in Sections 18 and 34(2)(a)(iii) of the Arbitration and Conciliation Act. These sections read as follows:

"18.Equal treatment of parties.--The parties shall be treated with equality and each party shall be given a full opportunity to present his case.

***

34.Application for setting aside arbitral award.--(1)*** (2) An arbitral award may be set aside by the court only if--

(a) the party making the application furnishes proof that--

***

(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case;"

31. The third juristic principle is that a decision which is perverse or so irrational that no reasonable person would have arrived at the same is important and requires some degree of explanation. It is settled law that where:

(i) a finding is based on no evidence, or

(ii) an Arbitral Tribunal takes into account something irrelevant to the decision which it arrives at; or

(iii) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse.

34. It is with this very important caveat that the two fundamental principles which form part of the fundamental policy of Indian law (that the arbitrator must have a judicial approach and that he must not act perversely) are to be understood."

23. It has also been held in the case of Associate Builders (supra) that when the court applies 21 the "public policy test" in an arbitral award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. It was observed "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 award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score. Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts."

24. An argument has been raised on behalf of the appellant that since the claims have been allowed in contravention of the terms and condition of the contract, the arbitral award is patently illegal and, therefore, the arbitral award deserves to be set aside.

25. Undoubtedly, patent illegality is one of the grounds for setting aside an award. In the case of Associate Builders (supra), the Hon'ble Supreme Court discussed the sub-heads under the principle of 22 patent illegality. The Hon'ble Supreme Court observed as hereunder:

"42. In the 1996 Act, this principle is substituted by the "patent illegality" principle which, in turn, contains three subheads:

42.1. (a) A contravention of the substantive law of India would result in the death knell of an arbitral award. This must be understood in the sense that such illegality must go to the root of the matter and cannot be of a trivial nature. This again is really a contravention of Section 28(1)(a) of the Act, which reads as under:

"28.Rules applicable to substance of dispute.--(1) Where the place of arbitration is situated in India--

(a) in an arbitration other than an international commercial arbitration, the Arbitral Tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India;"

42.2. (b) A contravention of the Arbitration Act itself would be regarded as a patent illegality -- for example if an arbitrator gives no reasons for an award in contravention of Section 31(3) of the Act, such award will be liable to be set aside.

42.3. (c) Equally, the third subhead of patent illegality is really a contravention of Section 28(3) of the Arbitration Act, which reads as under:

"28.Rules applicable to substance of dispute.--(1)-(2)*** (3) In all cases, the Arbitral Tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction."

This last contravention must be understood with a caveat. An Arbitral Tribunal must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair-minded or reasonable person could do.

43. In McDermott International Inc. v. Burn Standard Co. Ltd. [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] , this Court held as under:

(SCC pp. 225-26, paras 112-13) "112. It is trite that the terms of the contract can be express or implied.

The conduct of the parties would also be 23 a relevant factor in the matter of construction of a contract. The construction of the contract agreement is within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and they cannot be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. It is also trite that correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law. [See Pure Helium India (P) Ltd. v. Oil and Natural Gas Commission [(2003) 8 SCC 593 : 2003 Supp (4) SCR 561] and D.D. Sharma v. Union of India [(2004) 5 SCC 325] .]

113. Once, thus, it is held that the arbitrator had the jurisdiction, no further question shall be raised and the court will not exercise its jurisdiction unless it is found that there exists any bar on the face of the award. ..................................................................... ..................................................................... ...................................................................."

26. The paragraph 42.3 in the judgment of Associate Builders (supra) deals with third sub-head of patent illegality. It deals with the situation when arbitral award is not in accordance with the terms of the contract. But, what is held by the Hon'ble Supreme Court needs reiteration. The Court at the cost of repetition reiterates it. It has been observed "An Arbitral Tribunal must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of 24 a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair-minded or reasonable person could do."

27. The interpretation to the phrase "public policy" as given in the case of Renusagar (supra), Saw Pipes (supra), Western Geco (supra) and Delhi Development Authority (supra) were given prior to the amendment in the Explanation of Section 34 (2) (b) of the Act. The question is whether in the instant case, the amended provisions as they exist today will apply or whether the provisions as stood prior to amendment made in the year 2016 (w.e.f. 23.10.2015) would apply? This controversy has been put to rest by the Hon'ble Supreme Court in the case of Board of Control for Cricket in India v. Kochi Cricket Private Limited and others, (2018) 6 SCC 287. The Hon'ble Supreme Court held that "The scheme of Section 26 is thus clear : that the Amendment Act is prospective in nature, and will apply to those arbitral proceedings that are commenced, as understood by Section 21 of the principal Act, on 25 or after the Amendment Act, and to court proceedings which have commenced on or after the Amendment Act came into force ". .

28. In the instant case, the arbitral proceedings in terms of Section 21 of the Act had commenced prior to amendment in the Act and the court proceedings also commenced prior to the amendment in the Act. Therefore, instant case shall be dealt with the law, as stood, prior to the amendment as incorporated in the Act in the year 2016 (w.e.f. 23.10.2015). Accordingly, the law as summed up in the case of Associate builders (supra) will be the guiding factor.

29. In so far as the jurisdiction under Section 37 of the Act is concerned, it cannot be beyond the limitation as imposed under Section 34 of the Act. This position has been reiterated by the Hon'ble Supreme Court in the case of MMTC Ltd. v. Vedanta Limited, (2019) 4 SCC 163. In fact, the extent of jurisdiction under Section 34 of the Act has also been discussed by the Hon'ble Supreme Court in the case 26 of MMTC (supra). The Hon'ble Supreme Court observed as hereunder:-

"11. As far as Section 34 is concerned, the position is well-settled by now that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited ground provided under Section 34(2)(b)(ii) i.e. if the award is against the public policy of India. As per the legal position clarified through decisions of this Court prior to the amendments to the 1996 Act in 2015, a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice or morality, and the existence of patent illegality in the arbitral award. Additionally, the concept of the "fundamental policy of Indian law" would cover compliance with statutes and judicial precedents, adopting a judicial approach, compliance with the principles of natural justice, and Wednesbury [Associated Provincial Picture Houses v. Wednesbury Corpn., (1948) 1 KB 223 (CA)] reasonableness. Furthermore, "patent illegality" itself has been held to mean contravention of the substantive law of India, contravention of the 1996 Act, and contravention of the terms of the contract.

12. It is only if one of these conditions is met that the Court may interfere with an arbitral award in terms of Section 34(2)(b)(ii), but such interference does not entail a review of the merits of the dispute, and is limited to situations where the findings of the arbitrator are arbitrary, capricious or perverse, or when the conscience of the Court is shocked, or when the illegality is not trivial but goes to the root of the matter. An arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts. (See Associate Builders v. DDA [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] . Also see ONGC Ltd. v. Saw Pipes Ltd. [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705] ; Hindustan Zinc Ltd. v. Friends Coal Carbonisation [Hindustan Zinc Ltd. v. Friends Coal Carbonisation, (2006) 4 SCC 445] ; and McDermott International Inc. v. Burn Standard Co. Ltd. [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181]

14. As far as interference with an order made under Section 34, as per Section 37, is concerned, it cannot be disputed that such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. In other words, the court cannot undertake an independent assessment of the merits of the award, and must only ascertain that the exercise of power by the court under 27 Section 34 has not exceeded the scope of the provision. Thus, it is evident that in case an arbitral award has been confirmed by the court under Section 34 and by the court in an appeal under Section 37, this Court must be extremely cautious and slow to disturb such concurrent findings."

30. The above settled principle will guide this Court to decide the instant controversy. The Court would like to take note of one more fact at this stage only, which is with regard to the jurisdiction under Section 34 of the Act. Section 34 of the Act entertains an application for setting aside an arbitral award. The question is as to whether partial modification can be made by the Court in proceedings under Section 34 or 37 of the Act?

31. This issue came for discussion in the case of Project Director, National Highways No. 45 and 220 National Highways Authority of India v. M. Hakeem and another, (2021) 9 SCC 1. The Hon'ble Supreme Court in this case discussed the law extensively, considered the legislative intent to enact the Act so as to ensure minimum judicial interference in the arbitral award. The Hon'ble Supreme Court observed as hereunder:-

"42. It can therefore be said that this question has now been settled finally by at 28 least 3 decisions [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] , [Kinnari Mullick v. Ghanshyam Das Damani, (2018) 11 SCC 328 : (2018) 5 SCC (Civ) 106] , [Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies (P) Ltd., (2021) 7 SCC 657] of this Court.

Even otherwise, to state that the judicial trend appears to favour an interpretation that would read into Section 34 a power to modify, revise or vary the award would be to ignore the previous law contained in the 1940 Act; as also to ignore the fact that the 1996 Act was enacted based on the UNCITRAL Model Law on International Commercial Arbitration, 1985 which, as has been pointed out in Redfern and Hunter on International Arbitration, makes it clear that, given the limited judicial interference on extremely limited grounds not dealing with the merits of an award, the "limited remedy" under Section 34 is coterminous with the "limited right", namely, either to set aside an award or remand the matter under the circumstances mentioned in Section 34 of the Arbitration Act, 1996."

(emphasis supplied)

32. On all the seven claims, as raised by the contractor before the arbitral tribunal, the learned counsel for the respondent would submit that the arbitral award on those claims is based on facts, therefore, in appeal under Section 37 of the Act, no interference is warranted. The view taken by the arbitrator on those seven claims is a possible view and does not warrant interference.

33. The court first and foremost deals with the seven claims as made by the contractor before the arbitral tribunal.

34 Claim Nos. 1, 2, 3, 4 & 6 have been dealt with under issue no. 3 in the arbitral award. Claim No. 1 is with regard to "payment due as claim on account of non availability of site". The arbitral tribunal did not allow this claim, hence it needs no discussion at all.

35. Claim No. 2 is with regard to "payment due as claim on account of loss of material which could not be utilized for construction of the building but was collected for construction of the same". The contractor claimed Rs. 10 lakh under this claim and he was awarded Rs. 2,25,000/-.

36. Learned counsel for the appellant would submit that the claim has been awarded against the terms of contract clause no. 15.2.08, which bars damages for such situation. This clause 15.02.08 states that "the contractor shall solely be responsible for the safety, quality and quantity of the material after it is issued by the owner". 30

37. On the other hand, learned counsel for the respondent would submit that this claim has been considered on the basis of material available before the arbitral tribunal and accordingly, it has been allowed.

38. As stated, the respondent in the instant case was first given a contract, but the work could not be completed due to the change in Policy. Subsequently, he was given another task, but that also remained incomplete. Having considered all these aspects, the arbitral tribunal observed that the clause in contract have no application in the background of the instant facts and circumstances. It was held "it is true that the contractor had to safeguard his own interests and take care of the stores on the spot but here is the question of wastage and loss on account of not making the sites available to the Contractor and changing the nature of work and the spot time and again".

39. Having considered all the aspects, the arbitral tribunal awarded Rs. 2, 25,000/- as damages. The finding cannot be said to be against the terms of 31 contract. The arbitral tribunal has interpreted the clause of the terms of contract and distinguished it under the facts and circumstances of the instant case. Therefore, objections to the claim have rightly been rejected in the impugned judgment and order.

40. Claim No. 3 is with regard to "payment due as claim on account of refund of interest charged on Mobilization Advance".

41. Learned counsel for the appellant would submit that there is no reason as to how this claim has been allowed. It is simply a guess work.

42. The arbitral tribunal noted the following pleadings of the appellant that "as such there is no question of refund of any amount of interest charged on the said advance". It was held that, in fact, the appellant charged interest on the mobilization advance. The mobilization advance was interest free. The appellant did not submit any bills or accounts or any other documents maintained on such subject. Having considered, the arbitral tribunal awarded a sum of Rs. 10,000/- as claimed by the 32 contractor. In the impugned judgment and order, this finding has been upheld. In appeal, this Court does not see any reason to make any intervention. It is a matter of evidence. The view taken by the arbitral tribunal does not shock the conscience of this Court. Hence, the objection as raised by the appellant has rightly been rejected in the impugned judgment and order.

43. Claim no. 4 is with regard to "payment due as claim on account of delay in completion". The arbitral tribunal observed that every contractor takes a work on profit. Work of contract is part of his livelihood. 15% of the total work was awarded under this head by the arbitral tribunal. The law on this subject has also been discussed. There appears to be nothing wrong in the finding of the arbitral tribunal while allowing this claim. The objection against it has rightly been rejected in the impugned judgment and order.

44. Claim No. 5 is with regard to "payment due as claim on account of work done but not paid for". This claim is covered under issue no. 1 in the 33 arbitral award. The respondent claimed Rs. 9,92,774.58 as well as Rs. 40,000/- security money. Against this amount, total Rs. 8,84,614/- has been allowed.

45. Learned counsel for the appellant would submit that the arbitral tribunal has wrongly shifted the burden on the appellant. The appellant had demanded for summoning the witness but request was not allowed. There was no document, which may establish the claim of the respondent. There is no evidence in support of the claim. There is no basis to it.

46. On behalf of the respondent, it is argued that, in fact, initially the respondent was required to construct 110 EWS houses. The respondent constructed 12 houses, but the policy was changed. Thereafter, the respondent was asked to construct 8 type-III houses. The respondent leveled the ground, demolished the old existing buildings, constructed the security wall, but again the Department required the respondent to construct a Dharmshala. He was not provided with the drawings. Whatever work was done 34 by the respondent, he was not paid for it and the arbitral tribunal has rightly paid this amount.

47. In fact, in this case, the appellant has taken a different stand. According to the appellant, in the year 1998, the respondent was paid for the work which he had done. But, subsequent to the transfer of rehabilitation work to the State of U.P., the respondent was required to undertake certain works. He claimed payment for that also. Documents were not produced before the Tribunal. The arbitral tribunal, in fact, observed "it is not understandable as to why the THDC felt shy to producing documents in these arbitral proceedings." The arbitral tribunal took into consideration the communication between the department and the respondent.

48. The respondent has given the details of work which he has done. It is not a question of shifting the burden. The respondent has given the measurement and the amount, which he incurred in undertaking the construction under this claim. The appellant has not produced any document to show 35 that such work was not carried out or the amount as claimed was not correct. The arbitral tribunal has rightly held that if the task of rehabilitation was given to the State of U.P., it does not absolve the appellant from its liability because as per the terms of the contract also, the appellant is liable under the contract because the official of the State Government always acted as agents/representatives of the appellant as per the terms of the contract. The appellant never rescinded or scrapped the contract. By a reasoned order, this claim has been allowed. It has rightly been not disturbed in the impugned judgment.

49. Claim No. 6 is with regard to "payment due as claim on account of non-completion of the work and loss suffered on that account".

50. On this claim, the learned counsel for the appellant would submit that clause 15 and 59 of the contract bar such claim. The award is beyond reference, hence, patently illegal and deserves to be set aside on this ground alone.

51. Rs. 8,28,343/- has been claimed, which has been allowed. Learned counsel for the appellant would submit that clause 33 of the terms of the contract provides for 5% of the damage. Damage could be claimed under Section 74 of the Contract Act, 1872. It is argued that the claim has been awarded on the basis of the communication made by the contractor, which is not permissible. Therefore, the arbitral award is patently illegal and liable to be set aside.

52. The arbitral tribunal considered the details of the claim made by the respondent, which relate to unutilized shuttering, depreciation on other equipments and camp establishment, etc. It is held that the respondent remained tied up to work for a considerable long time of more than six years for no fault of him. The respondent had always been ready and willing to undertake the contract work. The finding of the tribunal is based on the facts and circumstances of the case. This Court cannot, as a court of appeal, meticulously examine as to what is the amount due. The arbitral tribunal has awarded Rs. 2,50,000/- under this head. This finding has 37 righty been not disturbed in the impugned judgment and order.

53. Claim no. 7 is with regard to "payment due as claim on account of mental torture harassment and damages inflicted by way of non fulfillment of the contractual obligations on the part of the Employer." This claim has not been allowed.

54. The arbitral tribunal has awarded interest on the claims making reference to Section 31(7) of the Act. This has been very vehemently objected by the learned counsel for the appellant. It is argued that the awarding interest is against the terms of the contract. Learned counsel would submit that clause 55.6.0 and 55.7.0 of the contract provide for non-payment of interest. These clauses are as hereunder:-

"55.6.0. No claim for delayed payment due to dispute, etc.--The contractor agrees that no claim for interest of damages will be entertained or payable by the Government in respect of any money or balances which may be lying with the Government owing to any disputes, differences or misunderstandings between the parties or in respect of any delay or omission on the part of the engineer-in-charge in making immediate or final payments or in any other respect whatsoever.

55.7.0. Interest on money due to the contractor.--No omission on the part of the engineer-in-charge to pay the amount due upon measurement or otherwise shall vitiate or make void the contract, nor shall the contractor be entitled to interest upon any guarantee or 38 payments in arrears nor upon any balance which may on the final settlement of his accounts be due to him."

55. It is argued that similar clauses were considered by the Hon'ble Supreme Court in the case of Tehri Hydro Development Corporation Limited v. Jai Prakash Associates Limited, (2012) 12 SCC 10 and (2019) 17 SCC 786, and the Hon'ble Supreme Court held that these clauses do not permit grant of interest.

56. In the case of Jai Prakash Associates Limited (supra) of the year 2012, the Hon'ble Supreme Court observed "A reading of the aforesaid two clauses of the contract agreement between the parties clearly reveal that despite some overlapping of the circumstances contemplated by the two clauses, no interest is payable to the contractor for delay in payment, either, interim or final, for the works done or on any amount lying in deposit by way of guarantee. The aforesaid contemplated consequence would be applicable both to a situation where withholding of payment is on account of some dispute or difference between the parties or even otherwise." 39

57. Similar clauses again came up for interpretation in the case of Jai Prakash (supra) in the year 2019 also. In fact, in the case of Jai Prakash (supra - 2019), the High Court had not awarded interest in view of the terms of the contract and this order was upheld.

58. On the other hand, the learned counsel for the contractor would submit that the terms of the contract was interpreted by the arbitral tribunal in view of the law as applicable at the relevant time and the arbitral tribunal took a view accordingly. It is argued that the view taken by the arbitral tribunal is based on sound judicial reasoning; it is a possible view. This view cannot be said to be in contravention of the terms of the contract. It cannot be said that it makes the arbitral award patently illegal. It makes no difference that subsequently the same clauses were held as barring interest. It is argued that it does not vitiate the arbitral award at all.

59. In the instant case, the contract clause nos. 55.6.0. and 55.7.0 provide for non-payment of interest under certain circumstances as given 40 thereunder. It is a fact that subsequently in the year 2012 and 2019, in the case of Jai Prakash Associates Limited (supra), the similar clauses have been interpreted by the Hon'ble Supreme Court and it is held that these clauses bar payment of interest.

60. The question is whether the interpretation of the clauses given firstly in the year 2012 by the Hon'ble Supreme Court in the case of Jai Prakash Associates Limited (supra) and further in the case of Jai Prakash Associates Limited (supra) in the year 2019 will apply to the arbitral award in the instant case which was given in the year 2007 to construe that the arbitral award is against the law.

61. The arbitral tribunal, in the instant case, while awarding interest has considered the law as laid down by the Hon'ble Supreme Court in the case of State of U.P. v. M/s Harish Chand & Co., (1999) (1) SCC 63. The law relating to interest in arbitral proceeding has been immensely changed in the Act. Sub-section (7) of Section 31 of the Act makes provision with regard to interest. It is as hereunder:-

"31. Form and contents of arbitral award.

(1).....

(2).....

(3).....

(4).....

(5).....

(6).....

(7) (a) Unless otherwise agreed by the parties, where and in so far as the 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.

(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of two per cent higher than the current rate of interest prevalent on the date of award, from the date of award to the date of payment.

Explanation. - The expression "current rate of interest" shall have the same meaning as assigned to it under clause (b) of Section 2 of the Interest Act, 1978 (14 of 1978)."

62. Sub-section (7) of Section 31 mandates for interpretation of the term of contract in the matter of payment of interest. In the case of Harish Chand (supra), the following clause with regard to interest has been interpreted :-

"1.9 No claim for delayed payment due to dispute etc.--No claim for interest or damages will be entertained by the Government with respect to any moneys or balances which may be lying with the Government owing to any dispute, difference; or misunderstanding between the Engineer-in-Charge in marking periodical or final payments or in any other respect whatsoever."

63. In para 10 of the judgment in the case of Harish Chand (supra), the Hon'ble Supreme Court while interpreting the clause 1.9 of the contract, as quoted hereinbefore before, held that the "The claim 42 for damages or claim for payment for the work done and which was not paid for would not obviously cover any money which may be said to be lying with the Government. Consequently, on the express language of this clause, there is no prohibition which could be culled out against the respondent-contractor that he could not raise the claim for interest by way of damages before the arbitrator on the relevant items placed for adjudication."

64. In fact on the question of determination of interest in the case Sayeed Ahmed and Company v. State of Uttar Pradesh and others, (2009) 12 SCC 26, the following clause of the contract was considered by the Hon'ble Supreme Court:-

"G. 1.09. No claim for interest or damages will be entertained by the Government with respect to any money or balance which may be lying with the Government or any become due owing to any dispute, difference or misunderstanding between the Engineer-in-Charge on the one hand and the contractor on the other hand or with respect to any delay on the part of the Engineer-in-Charge in making periodical or final payment or any other respect whatsoever."

65. The Hon'ble Supreme Court in the case of Sayeed Ahmed (supra), discussed the law laid down in 43 the case of Harish Chand (supra) and observed that in the case of Sayeed the terms of contract is different than the terms of contract as contained in the case of Harish Chand (supra). The Hon'ble Supreme Court in the case of Sayeed (supra) observed as hereunder:

"19. But in the present case, Clause G1.09 is significantly different. It specifically provides that no interest shall be payable in respect of any money that may become due owing to any dispute, difference or misunderstanding between the Engineer- in-Charge and contractor or with respect to any delay on the part of the Engineer-in- Charge in making periodical or final payment or in respect of any other respect whatsoever. The bar under Clause G1.09 in this case being absolute, the decision in Harish Chandra [(1999) 1 SCC 63] will not assist the appellant in any manner."

66. In the case of Jai Prakash (supra) of the year 2019, the Hon'ble Supreme Court discussed the law on the point. In para 18 and 19, the Hon'ble Supreme Court posed a question and in paragraph 20 answered it. Para 18, 19 and 20 of the judgment are as hereunder:-

"18. Another reason given by the High Court is equally convincing. Clauses 50 and 51 of GCC are pari materia with Clauses 1.2.14 and 1.2.15 of GCC in THDC case [Tehri Hydro Development Corpn. Ltd. v. Jai Prakash Associates Ltd., (2012) 12 SCC 10 : (2013) 2 SCC (Civ) 122] . Those clauses have been interpreted by holding that no interest is payable on claim for delayed payment due to the contractor. Same construction adopted in respect of these clauses, which, in fact, is a case between the same parties, is without any blemish.

19. In this backdrop, the only argument of the appellant that remains to be considered is as to whether such a construction is contrary to the judgment in Harish Chandra case [State of U.P. v. Harish Chandra & Co., (1999) 1 SCC 63] .

20 Complete answer to this argument is provided in Reliance Cellulose Products Ltd. [Reliance Cellulose Products Ltd. v. ONGC, (2018) 9 SCC 266 : (2018) 4 SCC (Civ) 351] judgment. Following discussion contained therein which discussed THDC [Tehri Hydro Development Corpn. Ltd. v. Jai Prakash Associates Ltd., (2012) 12 SCC 10 : (2013) 2 SCC (Civ) 122] judgment would amply demonstrate this :

(Reliance Cellulose case [Reliance Cellulose Products Ltd. v. ONGC, (2018) 9 SCC 266 : (2018) 4 SCC (Civ) 351] , SCC pp. 291-92, para 25) "25. ... Also, unlike the clause in Tehri Hydro Development Corpn. Ltd. [Tehri Hydro Development Corpn. Ltd. v. Jai Prakash Associates Ltd., (2012) 12 SCC 10 : (2013) 2 SCC (Civ) 122] , Clause 16 does not contain language which is so wide in nature that it would interdict an arbitrator from granting pendente lite interest. It will be remembered that the clause inTehri Hydro Development Corpn. Ltd. [Tehri Hydro Development Corpn. Ltd. v. Jai Prakash Associates Ltd., (2012) 12 SCC 10 : (2013) 2 SCC (Civ) 122] spoke of no claim for interest being entertained or payable in respect of any money which may be lying with the government owing to disputes, difference or misunderstanding between the parties and not merely in respect of delay or omission; Further, the clause inTehri Hydro Development Corpn.

Ltd. [Tehri Hydro Development Corpn. Ltd. v. Jai Prakash Associates Ltd., (2012) 12 SCC 10 : (2013) 2 SCC (Civ) 122] goes much further and makes it clear that no claim for interest is payable "in any other respect whatsoever"."

It is pertinent to mention that the aforesaid judgment also discusses and analyses Harish Chandra case [State of U.P. v. Harish Chandra & Co., (1999) 1 SCC 63] . In the first place, the judgment in Harish Chandra 45 case [State of U.P. v. Harish Chandra & Co., (1999) 1 SCC 63] is under the 1940 Act. More pertinently, this judgment is explained and distinguished in Sayeed Ahmed & Co. case [Sayeed Ahmed & Co. v. State of U.P., (2009) 12 SCC 26 : (2009) 4 SCC (Civ) 629] in the following paragraphs : (Sayeed Ahmed & Co. case [Sayeed Ahmed & Co. v. State of U.P., (2009) 12 SCC 26 : (2009) 4 SCC (Civ) 629] , SCC pp. 33-34, paras 17-19) "17. The appellant strongly relied upon the decision of this Court in State of U.P. v. Harish Chandra and Co. [State of U.P. v. Harish Chandra & Co., (1999) 1 SCC 63] to contend that Clause 1.09 of the contract did not bar the award of interest. The clause barring interest that fell for consideration in that decision was as under : (SCC p. 67, para 9) '1.09. No claim for delayed payment due to dispute, etc.--No claim for interest or damages will be entertained by the government with respect to any moneys or balances which may be lying with the government owing to any dispute, difference; or misunderstanding between the Engineer-in-Charge in making periodical or final payments or in any other respect whatsoever.' This Court held that the said clause did not bar award of interest on any claim for damages or for claim for payment for work done. We extract below the reasoning for such decision : (Harish Chandra [State of U.P. v. Harish Chandra & Co., (1999) 1 SCC 63] , SCC p. 67, para 10) '10. A mere look at the clause shows that the claim for interest by way of damages was not to be entertained against the Government with respect to only a specified type of amount, namely, any moneys or balances which may be lying with the Government owing to any dispute, difference between the Engineer-in-Charge and the contractor; or misunderstanding between the Engineer-in-Charge and the contractor in making periodical or final payments or in any other respect whatsoever. The words "or in any other respect whatsoever" also 46 referred to the dispute pertaining to the moneys or balances which may be lying with the Government pursuant to the agreement meaning thereby security deposit or retention money or any other amount which might have been with the Government and refund of which might have been withheld by the government. The claim for damages or claim for payment for the work done and which was not paid for would not obviously cover any money which may be said to be lying with the government. Consequently, on the express language of this clause, there is no prohibition which could be culled out against the respondent contractor that he could not raise the claim for interest by way of damages before the arbitrator on the relevant items placed for adjudication.'

18. In Harish Chandra [State of U.P. v. Harish Chandra & Co., (1999) 1 SCC 63] a different version of Clause 1.09 was considered. Having regard to the restrictive wording of that clause, this Court held that it did not bar award of interest on a claim for damages or a claim for payments for work done and which was not paid. This Court held that the said clause barred award of interest only on amounts which may be lying with the Government by way of security deposit/retention money or any other amount, refund of which was withheld by the Government.

19. But in the present case, Clause G1.09 is significantly different. It specifically provides that no interest shall be payable in respect of any money that may become due owing to any dispute, difference or misunderstanding between the Engineer-in-Charge and contractor or with respect to any delay on the part of the Engineer-in- Charge in making periodical or final payment or in respect of any other respect whatsoever. The bar under Clause G1.09 in this case being absolute, the decision in Harish 47 Chandra [State of U.P. v. Harish Chandra & Co., (1999) 1 SCC 63] will not assist the appellant in any manner."

67. The discussion on the question of the interest as made in the case of Jai Prakash Associates Limited (supra), both in the year 2012 and 2019, and in the case of Harish Chand (supra) and Sayeed Ahmed (supra), makes it abundantly clear that the payment of interest has always been subject to interpretation of the terms of contract.

68. The arbitral tribunal in the instant case, interpreted the terms of the contract in accordance with the law as available at that point of time [(Harish Chand (supra)]. It is true that a judgment which interprets the law, applies to all proceedings.

69. In the case of Jai Prakash Associates Limited (supra), 2012 and 2019 both, the Hon'ble Supreme Court, in fact, did not clarify the legal position. The legal position is well settled with regard to payment of interest, as embodied under Section 31(7) of the Act. The Hon'ble Supreme Court in these two cases interpreted the clause of a contract and 48 took a view. In fact, in the case of Jai Prakash Associates (supra) of the year 2019, great deliberation has been made to arrive at a conclusion. There was another possible view, which was not accepted by the Hon'ble Supreme Court.

70. In view of the above, this Court is of the view that the interpretation of the clauses as made by the Hon'ble Supreme Court in the cases of Jai Prakash Associates Limited (supra) of the years 2012 and 2019 both, will have no effect to make the arbitral award patently illegal. It cannot be said that the arbitral tribunal awarded interest in contravention of the clause of the contract. The arbitral tribunal interpreted the clause of the contract and while arriving at the conclusion on interest, a judicial approach has been taken. The principle of law as laid down in the case of Harish Chand (supra) has been considered.

71. This situation is covered by the dictum of law as laid down by the Hon'ble Supreme Court in the case of Associate Builders (supra). On the question of patent illegality when it is based on the ground of 49 contravention of any terms of contract, the Hon'ble Supreme Court observed that this contravention must be understood with a caveat. The Hon'ble Supreme Court observed that an arbitral tribunal must decide in terms of the contract, but if an arbitrator construes a term of contract in a reasonable manner, it will not mean that the award can be set aside on this ground.

72. In para 42.3 of the judgment in the case of Associate Builders (supra), it has been observed by the Supreme Court, which has already been quoted hereinbefore, but at the cost of repetition, this Court reproduces it once again. This is as hereunder:-

"An Arbitral Tribunal must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair-minded or reasonable person could do."

73. In the instant case also, the arbitral tribunal construed the term of contract in the year 2007 and took a view. This is a possible view. Subsequently, in the year 2012 and thereafter in the year 2019, the same terms of contract has been held 50 by the Hon'ble Supreme Court as barring payment of interest, but this does not make the arbitral award patently illegal.

74. In view of the above, this Court finds no merit in the appeal. Accordingly, the appeal is liable to be dismissed.

75. The appeal is dismissed (Ravindra Maithani, J.) 05.01.2022 Avneet/

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