Bangalore District Court
Sri. Chandrashekar vs The Bsnl Represented By on 2 February, 2022
1 Com.A.P.No.40/2021
IN THE COURT OF THE LXXXVIII ADDL. CITY CIVIL &
SESSIONS JUDGE (EXCLUSIVE COMMERCIAL COURT):
BENGALURU CITY. (CCH-89)
Present: Sri. P.J. SOMASHEKARA, B.A.,LL.M,
LXXXVIII Addl. City Civil & Sessions Judge
Bengaluru City.
Dated this the 2nd day of February 2022
Com.A.P.No.40/2021
Appellant: Sri. Chandrashekar,
S/o late Anjaneya Reddy,
Aged about 56 years,
R/at No.57/1, APK Road, 2nd Block,
T.R. Nagar, Bengaluru -28.
(By Sri. Parvaiah, Advocate)
-vs-
Respondents: 1. The BSNL represented by
The Executive Engineer (Civil)
BSNL Civli Division-III, WMS
Compound, 5th Block, Jayanagar,
Bengaluru - 560 041.
2. J. Ganesan, Sole Arbitrator,
Old No.18, New No.24,
Vishwanathapuram 2nd Street,
Kodambakkam, Chennai 600024.
(By Sri. P.B. for R.1, Advocate)
JUDGMENT
This is a petition under Sec.34 of the Arbitration and Conciliation Act filed by the plaintiff against the award passed 2 Com.A.P.No.40/2021 dated 11.11.2009 and additional award dated 18.03.2021 passed in No.CE/ARB/BSNL/JG/003 pursuant to the agreement No.40/TCD- III/2003-04 by the 2nd respondent and award cost the proceedings together with interest @ 24% p.a. in the interest of justice and equity.
2. Brief facts of the plaint are as under:
The plaintiff being the claimant before the arbitral tribunal feeling aggrieved by the award has filed the instant suit stating that who is a reputed qualified civil engineer, class-I contractor registered contract from past 28 years and involved in executing the civil works of public undertaking especially in BSNL, CPWD and postal department. The defendant No.1 has invited the tenders for addition and alteration to the accommodate officers of QA circle and RSU building in WMS compound, Jayanagar, Bangalore. He being the aspired for the said tender work filed the tender application quoting his price for execution of the said work taking note of the period of the work, nature of the work and then prevailing market position. The price which quoted by him was attractive, economical and conductive to the 1st respondent, thus the 1st respondent accepted his tender vide letter acceptance No.23(215)/BSNL/CD-II/BGL/2005/1176 dated 04.07.2005, consequent to which an agreement bearing No.40/TCD-III/2003- 3 Com.A.P.No.40/2021 2004 was entered in between him and the 1 st defendant. The nature of the contract was addition and alteration to accommodate officers of QUA circle at RSU building in WMS compound, in nature which a time limits of one month as admitted in between them and he has to complete the work within a period of one month, because the 1st defendant prolonging the allotment of work in order to enable him to commence work on due date and to continue smooth progress of the work for timely completion. The 1 st defendant was required to fulfill their obligation on the part of the 1 st defendant was required to fulfill their reciprocal core obligation within a reasonable time which could enable him to meet the stipulated date. The fundamental obligations on the part of the 1 st defendant include handing over of hindrance free sight, timely issue of stipulated materials, timely decision, details and drawing to prevent holdup of execution of any item at any stage, payment of regular monthly running account bills as per terms of the contract. The dispute was arisen in between them, thereby sole arbitrator has been appointed and who filed his submission and 1st defendant has taken substantial time to submit counter statement and adduced the documentary evidence in support of the claims and addressed the arguments and thereafter the sole arbitrator 4 Com.A.P.No.40/2021 passed the impugned award dated 11.11.2019 in respect of the agreement bearing No.40/TCD-III/2003-04 and the 2 nd defendant being the sole arbitrator rejected his majority of the claims and awarded negligible amount in respect of his claims and he has suffered great injustice and injury under the award, thereby has filed the instant suit for the following;
GROUNDS a. The impugned award is illegal, arbitrary, biased and malafide which is deserved for set aside and the award suffers from serious illegal infirmities and the gravity of the claims which made by him and the counter claim which made by the 1 st defendant, the tribunal ought to have framed proper issues regarding the dispute in between them, but the tribunal passed the award without framing such issues nor recorded the reasons on each of the issues which is liable to be set aside.
b. The appointment of the arbitrators Sri. J. Ganesan was retired on superannuation and thereafter consequent to retirement, the arbitrator vacates his office as such he cannot be arbitrator in accordance to the clause 25 settlement of disputes by arbitrator, only a new arbitrator to be appointed, but the said arbitrator has been continued even after retirement and passed the award which is not permissible under law, liable to be set 5 Com.A.P.No.40/2021 aside and the arbitrator failed to take note of his submission and has not considered the documentary evidence which produced by him and the award which passed is one sided award without assigning any reasons.
c. The 2nd defendant has failed to exercise its jurisdiction as an adjudicatory authority fear or favour and thereby the impugned award is vitiated and the 2nd defendant has failed to pass a speaking order as required under Sec.31 of the Arbitration and Conciliation Act and there is no explanation and discussion regarding the material evidence adduced by him in support of his claim. The arbitrator has acted contrary to the terms of the agreement and also provision of the Arbitration and Conciliation Act especially under Sec.27, 28 and 31 of the Arbitration and Conciliation Act by violating the public policy of India and who has registered his under protest and his dissatisfaction towards the sole arbitrator questioning the conduct of the arbitrator and demanded the removal of arbitrator as well as termination, the mandate of the arbitrator due to guilt of bias and supporting the 1st defendant interest openly during the arbitration proceedings. d. The compensation towards the works done by him as per the vide agreement and other miscellaneous terms and his claim for idling establishment undertlization and non utilization idling 6 Com.A.P.No.40/2021 loses suffered and overheads incurred for 149 days at Rs.1150/- per day claimed an amount of Rs.1,71,350/- and the defendant No.1 admitted due to his prolongation up to 14.08.2004, the 2 nd defendant ought to have allowed his claim in entirety, but the sole arbitrator has not taken into consideration and the work was actually completed on 14.08.2004 with a delay of 149 days. The EOT has been sanctioned without levy of compensation up to the actual date of completion as per the documents submitted namely EOT part 1 and 2 by the 1st defendant vide letter No.ARB/ EE/BSNL/CD-III/BGL/2011 dated 18.05.2011 and the 1st defendant has admitted that who has held responsible for the entire delay of 149 days, but the 2nd defendant has not taken into consideration to allow his claim entirety.
e. The 2nd defendant has failed to exercise its power only action as an official of the department, due to the prolongation of the contract results in extra expenditure on technical staff other establishment at site watch and ward, establishment at head office etc, for which claimed for idling establishments, undertization and non utilization idling losses suffered and overheads incurred for 149 days at Rs.1150/- per day which comes to Rs.1,71,350/-, but the award which passed is contrary to the agreement.
7 Com.A.P.No.40/2021
f. The 2nd defendant has not taken into consideration of his claim of Rs.1,80,000/- towards increase cost of working in lieu of 10 CC on Rs.6,00,000/- at 30% and the 1st defendant has admitted the prolongation of the work is on departmental account and beyond his control and the 2nd defendant has not provided finality towards claim, even though claim has been admitted, but he was not taken into consideration and who has made the claim of Rs.44,107/- towards correct payment of item No.34(a) of the agreement quantity 801.95 and rate of Rs.55 in as much as the amount awarded and amount claimed is short only by Rs.613.009/- and he does not press the said claim for further.
g. The 2nd defendant allowed the claim towards delayed payments of final bills and security deposit and the 2nd defendant has agreed for the delay of 1st defendant awarded meagre amount towards the compensation against the delay in payment of account bills, final bills and security deposit against the claim which is too far from truth based on recorded ground realities and the admitted evidence placed by him before the arbitrator, but it was not taken into consideration by the sole arbitrator.
h. The 2nd defendant ought to have allowed his claim in entirety. In the simple truth the 1st defendant has never accused him was not available at worksite from the date of 8 Com.A.P.No.40/2021 commencement of the work up to its completion and who is directed control and supervision of the work on day to day basis and the longer stay at worksite beyond the original stipulated period resulted in extra over head cost quantity of materials, labours coefficients lead, lift sundry etc which has to be compensated that too EOT is granted without levy of compensation that is no penalty. Therefore, the finding which given by the 2nd defendant is patently against the admitted record and ground realties.
I. The defendant No.2 has not taken into consideration about the compensation towards the extra items, items rates at which those items paid by the 1 st defendant is not workable. The 2nd defendant require to take into consideration of the provisions of Contract Act but the 2nd defendant has failed to consider all these facts rejected his claim which is liable to be set aside.
j. The defendant No.2 has not taken into consideration about the compensation of Rs.16,473/- which sought towards extra item No.3 finishing walls with texturized exterior paint santex mat and failed to consider the same and reject entirety which is liable to be set aside, though sought for compensation of Rs.6,582/- towards extra item No.4 finishing walls with textarised exterior paint santex mat including water proofing cement paint 9 Com.A.P.No.40/2021 as primer on existing cement surface was ordered by the 1st defendant and the 2nd defendant though aware of the said facts has failed to consider his claim but rejected without any valid reasons.
k. The 2nd defendant ought to have awarded his claim towards delay for payments of RA bills of Rs.80,000/- in entirety but the 2nd defendant has not taken into consideration in a proper manner and failed to consider his claim without any valid reasons and he has also claimed compensation of Rs.75,000/- towards the original deduction during negotiation but the 2nd defendant fails to consider the claim which made was came to be rejected without any valid reasons.
l. The 2nd defendant ought to have award his claim at least minimum reasonable amount to be awarded, since has not delayed the work and who has sought for compensation towards MM Brigade agreement to be paid back @ 24% p.a. though the 2nd defendant has aware of the said facts has failed to consider his claim and rejected the same without valid reason.
m. The 2nd defendant ought to have allowed at least commercial nationalized bank lending rates interest which was not taken into consideration by the 2nd defendant and the finding 10 Com.A.P.No.40/2021 of the 2nd defendant is bad in law and against to the facts and circumstances of the case.
n. The 2nd defendant though has sought for compensation towards loss of earnings on working capital at 30% on claim No.1 to 11 which was not taken into consideration by the 2 nd defendant and rejected the same without considering the facts and documents which produced by him which is against to the principles of natural justice.
o. The 2nd defendant ought to have award the interest @ 24% p.a. in all his claim No.1 to 11which was not taken into consideration has awarded simple interest @ 10% without considering the interest of nationalized banks charges monthly rest compounding basis of interest and the 2 nd defendant has not taken into consideration about the cost of arbitration and other charges nor passed a reasonable award, based on the facts and circumstances of the case.
p. The 2nd defendant has not considered the trade usage of India and all the laws such as Indian Contract as per Sec.28(3) of the Act and not taken into consideration nor decided in accordance with the terms of the contract and the award which passed is beyond the contract which taken place in between them 11 Com.A.P.No.40/2021 and failed to frame the issues involved in the dispute nor taken into consideration which placed on record.
q. The application has been filed under Sec.34 of the Arbitration and Conciliation Act by challenging the award passed by the 2nd defendant pursuant to the agreement and who has filed application for correction, interruption and additional award under Sec.33 of the Arbitration and Conciliation Act on 08.03.2021, after considering his application corrected, interpreted and the additional award passed on 18.03.2021 and same was posted to his address and he has received the same on 22.03.2021 within the jurisdiction of this court and prays for allow the suit.
3. In response of the summons the defendant No.1 has been appeared through its counsel and the notice has been served on the 2nd defendant who is the sole arbitrator. The defendant No.1 has filed the statement of objection in which has alleged the suit which filed by the plaintiff is not maintainable in law or on facts and he has already satisfied the decree/award and the plaintiff has been accepted the same. Therefore the instant suit itself infructous which is not maintainable in law or on facts and the suit which filed is barred by time since the plaintiff has not filed the instant suit within the statutory period. On this 12 Com.A.P.No.40/2021 ground alone the suit which filed by the plaintiff is liable to be dismissed and the award is not suffering from any jurisdictional error much less an error on the face of the record and the arbitrator has not behaved or the composition of arbitral award, arbitral tribunal is hit by any illegality and not traveled beyond the scope of the contract which taken place in between them and not dealt with any disputes falling outside the terms of the contract. Composition of the arbitral tribunal is not in dispute and it is not a case of passing an award without notice to the other side. The agreement and contract entered into between is valid and lawful and the award which passed is not against the public policy of India and the plaintiff has not raised any grounds which are enumerated under Sec.34 of the Arbitration and Conciliation Act to interfere the award which passed by the sole arbitrator.
4. The suit which filed by the plaintiff is liable to be dismissed both in law and on facts and the suit which filed by the plaintiff is beyond the period of limitation prescribed under Sec.34 of the Arbitration and Conciliation Act as the arbitration award has been passed on 11.11.2019 and same was duly served on the plaintiff and the plaintiff has filed the instant suit beyond the period of limitation prescribed under the Act and the arbitrator had given the additional award on 18.03.2021 but it 13 Com.A.P.No.40/2021 was not an award as it is a clarification given by the arbitrator as per the request which made by the plaintiff on 09.09.2021 that too after expiry of the limitation period. On this ground alone the suit which filed is deserved for dismissal and the plaintiff has utterly failed to made out the grounds which are enumerated under Sec.34 of the Arbitration and Conciliation Act. So question of interference of this court does not arise and this court cannot sit in an appeal to consider the correctness of an award on the merits in respect of the matter of fact or even law and the re- appreciation of the evidence which already considered by the sole arbitrator is not permissible for this court to interfere the award which passed by the sole arbitrator and it is not open to the court for re-appreciation of the facts and to substitute its view in the view of the sole arbitrator and the arbitrator is the sole judge of the quality as well as the quantity of the evidence and it is not for the court to take upon itself the task of being judge of evidence which was present before the arbitrator and all the grounds which raised by the plaintiff are nothing but challenge to the reasons given by the sole arbitrator and the plaintiff sought for re- appreciation of the facts and evidence which is not permissible under Sec.34 of the Arbitration and Conciliation Act. 14 Com.A.P.No.40/2021
5. The sole arbitrator passed the award after considering the documentary evidence available on record and granted full opportunity to both sides and after following the procedure contemplated under the Arbitration and Conciliation Act passed the award and there is no illegality or arbitrariness whatsoever in the award for interference of this court and the grounds which raised in the petition do not fall within the ambit of Sec.34 of the Arbitration and Conciliation Act. The award which passed by the sole arbitrator based on the reasoning after appreciation of the oral and documentary evidence. So question of interference of this court does not arise.
6. The defendant No.1 in its objection statement has further alleged that the plaintiff is already accepted the award and received the amount, since the sole arbitrator awarded Rs.43,494/- towards item No.34(a) based on the revised market rate and the payment which made has been received by the plaintiff and the suit which filed is deserved for dismissal. All the contractors bills were supposed to be prepared and submitted by the contractors to the division, as per the terms and conditions of the contract since same was not fulfilled by the plaintiff and bills were prepared by the departmental engineers as the departmental engineers were busy with other works bills might 15 Com.A.P.No.40/2021 have delayed and compensation in the form of interest for delay in making the payment for final bill and delay in release of SD as proposed by the arbitrator had been paid to the plaintiff. The plaintiff is bound by the provisions of the contract conditions and he has worked out the rates for the extra items strictly in accordance with the provisions contained in clause 12.1.0 and payments were made in various bills to the plaintiff accordingly which was protested by the plaintiff in the final bill only, having the knowledge of the trade practice and accepted the conditions of the contract and raising the objections at a belated stage without materials is not sustainable and the plaintiff has to demonstrate the loss which alleged to have been incurred with appropriate documentary proof as required under Sec.73 of the Indian Contract Act.
7. The defendant No.1 in its objection statement has further alleged that has passed the order extra item No.3 and finalized the rate as Rs.95.36% per square metre by enhancing the DSR 2002 rate of Rs.69.70 by the clause 12 percentage of 36.81% strictly in accordance with laid down procedure of the contract to which the plaintiff contractor is also a party and the plaintiff is bound by the provisions of the contract and the plaintiff has demanded on the basis of vague and generic statement did not 16 Com.A.P.No.40/2021 placed any material despite repeated opportunity given by the arbitrator and the claim which is totally unreasonable not justifiable one and finalized the rate by enhancing the DSR 2002 rate of Rs.80/- in respect of the extra item No.4 as per clause 12 percentage of 36.81% strictly in accordance with laid down procedure of the contract and the obligation is on the plaintiff to demonstrate the short payment made if any subject to production of appropriate documentary proof but did not do so and the contract bills were supposed to be prepared and submitted by the contractor to the division as per the terms and conditions of the contract but it was not fulfilled by the plaintiff, bills were prepared by the department engineers. The plaintiff had offered reduced rate for 40 items from the original quoted rates in the tender vide letter dated 30.01.2004, at the time of negotiation as the quoted rates were found to be higher and whenever the quoted rates are found very higher then the prevailing justified market rates in order to moderate the rates to bring within the acceptable limit. The plaintiff used to apply his mind and offer the reduced rates for those items and recalling of that offer of reduced rates at a later stage too after completion of the work itself is legally and contractually not sustainable. The plaintiff had executed a work of extension of the existing cable duct and the 17 Com.A.P.No.40/2021 provision of additional manholes at Kanakapura Road for MM Brigade Exchange under agreement No.37/TCD-111/BGL/1999- 2000 and issued a departmental materials such as cement and steel for the work as stipulated in the agreement but the plaintiff did not pay the said amount, however it was recovered out of the bill amount and over head charges on works contract is an integral part of the quoted rate by the plaintiff contractor in the individual items and earned upon completion of the contract. The rate of profit considered in the CPWD works contract is 15% including the overhead charges and there is no case of laws of profit in general as the total contract value was of Rs.3,25,642.50/- and actual value of the work done under the contract was of Rs.5,105/- which works to 53% deviation and the compensation for having incurred certain additional overhead charges, escalation charges etc., for the work carried out during the extended period of contract has already been compensated under the claim No.2 by invoking clause 10(c) under order of the arbitral tribunal and loss of profit can be claimed for the actual loss sustained and definitely not for the claim made on mere vague statements and hypothetical claims.
8. The defendant No.1 in its objection statement has alleged the contractor profits and overheads charges on works 18 Com.A.P.No.40/2021 contract is an integral part of the quoted rate by the claimant contractor in the individual items and is earned upon the completion of the contract. The obligation is on the plaintiff to demonstrate the loss of profit in clear terms with details thereof with appropriate documentary proof which is totally missing except vague and general statement and the plaintiff has preferred claim of interest at 24% p.a. on the claim amount which is not in accordance with law and the damage has been considered based on the realistic appraisal of the sufferings and losses and prays for dismiss the suit.
9.The Learned counsel for the plaintiff files written arguments.
10. Heard the arguments on both sides.
11. The points that arise for consideration of this court are as under:
1) Whether the plaintiff has made out the grounds which are enumerated under Sec.34 of the Arbitration and Conciliation Act ?
2) Whether the plaintiff has made out that the award which passed by the sole arbitrator suffers from any serious infirmities as stated by the plaintiff?
3) What order?19 Com.A.P.No.40/2021
12. My answer to the above points are as under:
Point No.1: In the Affirmative;
Point No.2: In the Affirmative;
Point No.3: As per final order, for the following;
REASONS
13. POINT NO.1 & 2: These points are interrelated to each other hence in order to avoid repetition of facts and materials on record, these points are discussed together. The plaintiff being the claimant before the sole arbitrator has filed the instant suit feeling aggrieved by the award which passed in Arbitration Proceedings No.CE/ARB/BSNL/JG/003 on the ground the work has been entrusted in pursuance of the contract agreement, but the defendant No.1 did not discharge its obligation in terms of the contract, thereby the dispute has been arisen and the sole arbitrator was appointed, though no confidence letter was written to the sole arbitrator has been continued the arbitral proceedings and passed the award. Feeling aggrieved by the said award the plaintiff has filed the instant suit against the defendant.
14. The learned counsel for the plaintiff apart from written arguments has submitted that the defendant No.1 had invited the tenders for the work and the plaintiff has applied for tender by quoting the price for execution of the work and his tender was 20 Com.A.P.No.40/2021 came to be accepted and work has been issued to the plaintiff for which the agreement was taken place in between the plaintiff and the 1st defendant, but the defendant No.1 did not discharge its obligation in terms of the agreement which taken place in between them in spite of repeated request and demand, thereby the dispute has been arisen in between them, sole arbitrator has been appointed, subsequently due to the reasons mentioned in the award sole arbitrators have been challenged and lastly one J.
Ganesan was appointed as sole arbitrator for which the plaintiff has wrote a letter for no confidence over the sole arbitrator namely J. Ganesan, but without considering the same the said J. Ganesan passed the award without considering the materials which placed by the plaintiff which is against to the natural justice and the grounds which alleged in the plaint are comes within the purview of Sec.34 of the Arbitration and Conciliation Act and the arbitrator has not taken into consideration about the delay RA bills and other aspects which are placed on record and the arbitrator has failed to give equal and full opportunity to the plaintiff to prove his case and the award which passed by the sole arbitrator which is against to the 7th schedule of the Arbitration and Conciliation Act nor complied under Sec.12 of the Arbitration and Conciliation Act and the arbitrator acted contrary to Sec.21, 21 Com.A.P.No.40/2021 28(c) and 28(3) of the Arbitration and Conciliation Act and who has violated clause 9(2) of the general conditions of the contract and the arbitrator has passed the award with sole intention to help the defendant No.1 and failed to frame the issues based on the dispute which raised, though the plaintiff has placed the materials which was not taken into consideration by the sole arbitrator. Therefore, it is just and necessary to set aside the award which passed by the sole arbitrator and prays for allow the suit and to set aside the award which passed by the sole arbitrator.
15. Per contra, the Learned counsel for the defendant No.1 in his arguments has submitted that the sole arbitrator after considering the materials placed on record passed the award and question of interference of this court does not arise and the award passed by the sole arbitrator in pursuance of the contract which taken place in between the plaintiff and the defendant No.1 and the plaintiff has not made out any of the grounds which enumerated under Sec.34 of the Arbitration and Conciliation Act for interference of this court and the plaintiff has filed the instant suit by challenging the award on merits and it is well settled principles of law this court cannot sit in an appeal to consider the correctness of an award which passed by the sole arbitrator. 22 Com.A.P.No.40/2021 Therefore, question of correcting the award nor re-appreciation of the materials on record or placed view of this court in the place of arbitrator does not arise, as the arbitrator is the sole judge of quality as well as the quantity of the evidence. The grounds which are raised by the plaintiff are nothing but challenge to the reasons which given by the arbitrator which is against to the principles of natural justice and the Arbitration and Conciliation Act and the grounds which urged in the plaint do not fall within the ambit of Sec.34 of Arbitration and Conciliation Act and the plaintiff has not placed any materials on record the grounds which are raised in the plaint are comes within the purview of Sec.34 of the Arbitration and Conciliation Act and the sole arbitrator after considering the materials on record has passed the award and prays for dismiss the suit.
16. It is an admitted fact the plaintiff being the claimant before the sole arbitrator feeling aggrieved by the award filed the instant suit. The Learned counsel for the plaintiff while canvassing his arguments has much argued that the grounds which urged in the plaint falls within the purview of Sec.34 of the Arbitration and Conciliation Act and though the plaintiff after appointment of one J. Ganesan as the sole arbitrator raised the objection and wrote a letter for no confidence against the sole arbitrator, but it was not 23 Com.A.P.No.40/2021 taken into consideration. So before considering the arguments which advanced by both the counsels and the materials on record, it is just and necessary to consider the legal aspects for the proper appreciation which reads like this:
1. What is arbitration?
2. When court can interfere with arbitral award?
3. What is the scope of Court's power to interfere with the arbitral award?
4. What are the grounds are required to set aside the award?
5. Setting aside of arbitral award when permissible?
Let me decide one by one for proper appreciation of the materials on record. Thus this court drawn its attention on Sec.2(1)(a) of the Arbitration and Conciliation Act, 1996 which reads like this:
2(1)(a). The definition arbitration means any arbitration whether or not administered by permanent arbitral institution.
Arbitration is a private dispute resolution mechanism agreed upon by the parties.
Arbitration is a binding voluntary alternative dispute resolution process by a private forum chosen by the parties.
Arbitration is a process of settlement extra curses curiae and the parties are at liberty to choose their judge. "The essence of arbitration without assistance or intervention of the court is settlement of dispute by a tribunal of the own choosing of the parties." Law of arbitration aids in implementation of arbitration agreement contract between the parties which remains a private adjudication by 24 Com.A.P.No.40/2021 a forum consequently chosen by the parties and made on consequential reference.
Now let me know when court can interfere with the arbitral award. Thus this court drawn its attention on Sec.34(43) of the Arbitration and Conciliation Act, 1996 which reads like this:
43. Principles of interference with arbitral award:-
The principles of interference with an arbitral award under Sec.34(2) of the Act are as follows:
(1) An award, which is -
(i) contrary to substantive provisions of law; or
(ii) The provisions of Arbitration and Conciliation Act, 1996, or
(ii) 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 Sec.34(2) of the Act.
(2) 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.
(3) The award could also be set aside, if it is so unfair and unreasonable that it shocks the conscience of the court.
(4) It is open to the court to consider whether the award is against the specific terms of the 25 Com.A.P.No.40/2021 contract and if so interfere with it on the ground that it is patently illegal and opposed to the public policy of India.
So by virtue of the provision which stated above, the court can interfere with the arbitral award in the grounds which mentioned above.
Now let me know what is the scope of Court's power to interfere with the arbitral award? Thus this court drawn its attention on Sec.34(34) of the Arbitration and Conciliation Act which reads like this;
Scope of Court's power to interfere with the arbitral award:
The scope of the interference by the court's in regard to arbitral award is limited. Courts do not sit in appeal over the findings and decision of the arbitrator, nor can it reassess or re- appreciate evidence or examine the sufficiency or otherwise of the evidence.
So by virtue of the provision which stated supra, the scope of interference by the court in regard to the arbitral award is limited scope. The scope of interference under Sec.34 of the Act is limited in view of the judgment of the Hon'ble Supreme Court of India which reported in AIR 2003 SC 2629 in between Oil and Natural Gas Corporation Ltd., V/s Shah Pipes Ltd., and in the said judgment, their Lordship held that; 26 Com.A.P.No.40/2021
'an award can be set aside if it is contrary to fundamental policy of Indian Law, the interest of India, justice or morality, if it is patently illegal and unfair and unreasonable it shocks the conscience of the court'.
Now let me know what are the grounds are required to set aside the award which passed. Thus this court drawn its attention on Sec.34(18) of the Arbitration and Conciliation Act which reads like this:
18. Grounds to set aside award:- Under the new Act, 1996 misconduct of arbitrator is no ground to set aside an award but court may set aside an award in the following grounds:
(1) if the composition of the arbitral tribunal was not in accordance with the agreement of the parties.
(2) falling such agreement, the composition of arbitral tribunal was not in accordance with the part I of the Act.
(3) if the arbitral proceeding was not in accordance with -
(a) the agreement of the parties.
(b) failing such agreement - the arbitral procedure was not in accordance with part I of the Act. However exception for setting aside the award on the ground of composition of arbitral tribunal or illegality of arbitral procedure is that the agreement should not be in conflict with the provisions of part I of the Act from which parties cannot derogate; 27 Com.A.P.No.40/2021
(c) if the award passed by the arbitral tribunal is in contravention of the provisions of the Act or any other substantive law governing the parties or is against the terms of the contract.
An award can be set aside, if it is against the public policy of India that is to so it is contrary to:
(1) fundamental policy of Indian law, (2) the interest of India, or (3) justice or morality , or (4) if it is patently illegal.
It could be challenged -
(a) as provided under Sec.13(5); and
(b) Sec. 16(6) of the Arbitration and conciliation Act. So the court can set aside the award, if the grounds found which stated supra.
So, if the petitioner is made out the grounds which stated supra, court can set aside the award. Now let me know about the setting aside of arbitral award when permissible. Thus this court drawn its attention on Sec.34(4) of the Arbitration and Conciliation Act, 1996
4. Setting aside of arbitral award when permissible:-
That the court can set aside the arbitral award under Sec.34(2) of the Arbitration and Conciliation Act if the party making the application furnishes the proof that:
(i) a party was under some incapacity 28 Com.A.P.No.40/2021
(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 time being in force.
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or otherwise unable to present his case.
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitrator or it contains visa decisions on matters behind the scope of the submission to arbitration.
(2) The court may set aside the award:
(I) (a) if the composition of the arbitral tribunal was not in accordance with the agreement of the parties.
(b) falling such agreement, the composition of the arbitral tribunal was not in accordance with part-1 of the Act.
(ii) if the arbitral procedure was not in accordance with:
(a) the agreement of the parties, or
(b) failing such agreement, the arbitral procedure was not in accordance with part-1 of the Act.
However exception for setting aside the award on the ground of composition of arbitral tribunal or illegality of arbitral procedure is that the agreement should not be in conflict within the provisions of part-1 of the Act from which the parties cannot derogate.
29 Com.A.P.No.40/2021
(c) If the award passed by the arbitral tribunal is in contravention of provisions of the Act or any other substantive law governing the parties or is against the terms of the contract. (3) The award could be set aside if it is against the public policy of India, that is to say, if it is contrary to:
(a) fundamental policy of Indian Law;
(b) the interest of India; or
(c) justice or morality; or
(d) if it is patently illegal.
(4) It could be challenged-
(a) as provided under Sec.13(5); and
(b) Section 16(6) of the Act."
"B. Further held as follows in this case: (1) The impugned award requires to be set aside mainly on the grounds:
(I) There is specific stipulation in the agreement that the time and date of delivery of the goods was the essence of the contract;
(ii) in case of failure to deliver the goods within the period fixed for such delivery in the schedule, ONGC was entitled to recover from the contractor liquidated damages as agreed;
(iii) it was also explicitly understood that the agreed liquidated damages were genuine pre- estimate of damages;
(iv) on the request of the respondent to extend the time limit for supply of goods, ONGC informed specifically that time was extended but stipulated liquidated damages as agreed would be recovered;
(v) liquidated damages for delay in supply of goods were to be recovered by paying 30 Com.A.P.No.40/2021 authorities from the bills for payment of cost of material supplied by the contractor;
(vii) there is nothing on record to suggest that stipulation for recovering liquidated damages was by way of penalty or that the said sum was in any way unreasonable.
(viii) in certain contracts, it is impossible to asses the damages or prove the same. Such situation is taken care by section 73 and 74 of the Contract Act and in the present case by specific terms of the contract" - Oil and Natural Gas Corporation V Shah Pipes Ltd. (2003)5 SCC 705 : AIR 2003 SC 2629; see also Moona Abousher V M/s. Cholamandalam DBS Finance Ltd. AIR 2019 Mad 233.
The above provisions which referred above are very much clear when court can interfere with the arbitral award and what is the scope of court's power to interfere with the arbitral award and what are the grounds are required to be set aside the award as well as setting aside of arbitral award when permissible.
17. Apart from the above legal aspects it is necessary to know the arbitration clause which appeared in the agreement taken place in between the plaintiff and the defendant. Thus this court drawn its attention on general conditions of the contract for works in department of telecommunications in clause 25, clause
(iv) which reads like this:
(iv) Except where the decisions have become final, binding and conclusive in terms of the contract, all disputes arising out of the notified 31 Com.A.P.No.40/2021 claims of the contract as aforesaid and all claims of the department shall be for adjudication through the arbitration by the sole arbitrator appointed by the Chief Engineer, Department of Telecommunications/ Post in-
charge of the work or if there be no Chief Engineer, the Administrative Head of the said department of Telecommunications/post. It will also be no objection to any such appointment that the arbitrator so appointed is a government servant and that he had to deal with the matters to which the contract relates in the course of his duties as Government Servant. If the arbitrator so appointed is unable or unwilling to act or resigns his appointment of vacates his office due to any reason whatsoever another sole arbitrator shall be appointed in the manner aforesaid by the said chief Engineer. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor.
The above clause is very much clear all disputes arisen out of the notified clients the department shall be adjudicate the same through the arbitration by appointing the sole arbitrator by the Chief Engineer, Department of Telecommunication who is the administrative head of the Department of Telecommunications and if the arbitrator so appointed is unable or unwilling to act or resigns his appointment or vacates his office duty to any reason another sole arbitrator shall be appointed by the Chief Engineer to pass the award. So, one thing is clear from the above clause whenever the dispute has been arisen in between the plaintiff and the defendant No.1 the Chief Engineer of the administrative 32 Com.A.P.No.40/2021 head of telecommunications has to appoint the sole arbitrator and if the sole arbitrator is not willing to act as a sole arbitrator nor resigns his appointment or vacates his office due to any reason the Chief Engineer shall appoint another sole arbitrator for adjudication of the matter.
18. The learned counsel for the plaintiff while canvassing his arguments has submitted that one J. Ganesan has been appointed as sole arbitrator, prior to his appointment has been appointed number of sole arbitrators who vacated the office on one or the other reasons, though appointed one Mukesh Bhargav G.E. BSNL, Tamil Nadu Circle, Chennai as sole arbitrator but he was resigned from the reference upon his transfer thereby J. Ganesan CE BSNL, Tamil Nadu Circle, Chennai has been appointed as sole arbitrator for which the plaintiff has wrote a letter by way of objection that there is no confidence on the sole arbitrator i.e. J. Ganesan who is the employee of the said department and who has not complied under Sec.12, 13 and schedule 7 of the Arbitration and Conciliation Act. Thus this court drawn its attention on Sec.12 of the Arbitration and Conciliation Act which reads like this:
12. Grounds for challenge.--
(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any 33 Com.A.P.No.40/2021 circumstances likely to give rise to justifiable doubts as to his independence or impartiality.
(2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him. (3) An arbitrator may be challenged only if--
(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or
(b) he does not possess the qualifications agreed to by the parties. (4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made. (5) Not withstanding any prior agreement to the contrary any person whose relationship with the parties or counsel or the subject matter of the dispute falls under any of the categories specified in the 7th schedule shall be ineligible to be appointed as an arbitrator.
The above provision is very much clear when a person is approached in connection with his possible appointment as an arbitrator he shall disclose in writing about the relationship existed either direct or indirect of any past or present with or interest in any of the parties or in relation to the subject matter in dispute financial, business, professional or other kind which is likely to give rise to justifiable doubts as it is has to his independence or impartiality. So, one can challenge the appointment of the arbitrator in view of Sec.12 of the Arbitration and Conciliation Act and whenever the sole arbitrator has been appointed shall disclose in writing in respect of the schedule 6 and 7.
34 Com.A.P.No.40/2021
19. The learned counsel for the plaintiff while canvassing his arguments has submitted that when the appointment of the sole arbitrator has been challenged on the ground of bias and no confidence and the said objection has to be decide in accordance with law, but it was not decided nor vacated the office of the sole arbitrator by J. Ganesan and the plaintiff not only challenge the proceedings of the sole arbitrator, but also challenged about his appointment on the ground of bias and no confidence. Thus this court drawn its attention on Sec.13 of the Arbitration and Conciliation Act which reads like this:
13. Challenge procedure.--
(1) Subject to sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator. (2) Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-
section (3) of section 12, send a written statement of the reasons for the challenge to the arbitral tribunal.
(3) Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge. (4) If a challenge under any procedure agreed upon by the parties or under the procedure under sub-section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award.
(5) Where an arbitral award is made under sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with section 34. (6) Where an arbitral award is set aside on an application made under sub-section (5), the Court may decide as to whether the arbitrator who is challenged is entitled to any fees. 35 Com.A.P.No.40/2021 The above provision is very much clear whenever the arbitration has been challenged, the arbitral tribunal shall decide the said issue before proceedings and if the challenge under any procedure agreed upon by the parties or under the procedure under Subsection (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an award.
20. Now let me know the arguments which advanced by the learned counsel for both the parties as well as the materials on record, as the learned counsel for the plaintiff while canvassing his arguments has submitted that the plaintiff has wrote a letter to the arbitral tribunal for appointment of independent sole arbitrator on the ground that he has no confidence on the arbitrator, because the arbitrator has openly expressed his affinity to the 1st defendant and discouraging in the arbitral proceedings which leads miscarriage of justice and non applicability of equal parity of treatment of parties enshrined under Sec.18 of the Arbitration and Conciliation Act. Thus this court drawn its attention on Sec.18 of the Arbitration and Conciliation Act, which reads like this:
Equal treatment of Parties.- The party shall be treated with equality and each party shall be given a full opportunity to present his case.36 Com.A.P.No.40/2021
The above provision is very much clear the arbitral tribunal shall treated with equality and each party shall be given a full opportunity to present the case. It is an admitted fact the award which passed by the sole arbitrator reflects that one J. Ganesan was appointed as sole arbitrator vide letter dated 24.11.2014 to decide the issue and to pass the award as per clause 25 of the agreement and the plaintiff has wrote a letter to the arbitration requesting for appointment of independent sole arbitrator and demand for removal of J. Ganesan as arbitrator on the ground of bias and no confidence on the sole arbitrator for the reasons mentioned in the said letter who is ineligible to be appointed as sole arbitrator. Now the question arises whom may be appointed as arbitrator. Thus this court drawn its attention on Sec.11 of the Arbitration and Conciliation Act which reads like this:
Appointment of arbitrator - (I). A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.37 Com.A.P.No.40/2021
So, one thing is clear from the above provision, a person of any nationality may be appointed as an arbitrator, unless agreed by the parties. Now the question arises whether the sole arbitrator i.e. J. Ganesan being the CE (Arb and L and B), CGM, BSNL, Tamil Nadu Circle, Chennai is the eligible to be appointed as an arbitrator, admittedly the said arbitrator being the employee of the BSNL which is not disputed by the defendant No.1. So as per Sec.12(5) of the Arbitration and Conciliation Act which referred above, any person whose relationship with the parties or counsel or the subject matter of the dispute shall be ineligible to be appointed as an arbitrator. Admittedly, the sole arbitrator being the employee of the BSNL having the relationship with the said office is ineligible to be appointed as an arbitrator which comes under 7th schedule of the Arbitration and Conciliation Act. That is the reason why the learned counsel for the plaintiff has attacked while canvassing his arguments on appointment of one J.
Ganesan as sole arbitrator, on the ground who is the employee of the BSNL and the plaintiff has no confidence on the arbitrator and the said counsel has drawn the court attention on the judgment of the Hon'ble Supreme Court of India reported in AIR 1988 SC 1099 in between International Airport Authority of India Vs K.D. Bali & Anr.
On careful perusal of the said judgment, in the said judgment 38 Com.A.P.No.40/2021 their lordship held that it is well settled that there must be purity in the administration of justice as well as in administration of quasi justice as are involved in the adjudicatory process before the arbitrators. Once the arbitrator enters in an arbitration must not to be a guilty of any act, which can possibly be construed as indicative of partiality or unfairness. The purity of administration requires that the party to the proceedings should not have a apprehension that the authority is biased and likely to decide against the party which must lead to the conclusion that the authority hearing the proceedings is biased. The apprehension must be judged from a healthy reasonable and average point of view. In the instant case also, the plaintiff has wrote a letter to the sole arbitrator and brought to his notice about his apprehension, but in spite of the same, the sole arbitrator passed the award. Thus the judgment which relied by the learned counsel for the plaintiff is directly applicable to the case on hand.
21. The learned counsel for the plaintiff has drawn the court attention on the judgment of Hon'ble Supreme Court which reported in 2012 (4) SCC 609 in between Ladli Construction Company Pvt. Ltd., Vs Punjab Police Housing Corporation Ltd.. & Ors. On careful perusal of the said judgment, in the said judgment their lordship held that vague and general objections will not be apprehension, there 39 Com.A.P.No.40/2021 must be a sufficient proof about the bias of the arbitrator. In the instant case, the plaintiff in the letter has clearly stated about his apprehension regarding the conduct of the sole arbitrator. So the plaintiff has made out a sufficient proof for his apprehension towards the sole arbitrator. Therefore, the principles which are laid down in the above judgment are applicable to the case on hand.
22. So, one thing is clear that the sole arbitrator who has been appointed as sole arbitrator for adjudication of the issue is none other than the employee of the sole arbitrator which comes under schedule 7 of the Arbitration and Conciliation Act and moreover the very plaintiff has wrote a letter to the arbitrator about no confidence on the arbitrator as well as bias of arbitrator due to his conduct. So the sole arbitrator is ineligible to be appointed as a sole arbitrator in view of the judgment of the Hon'ble Supreme Court and the provisions of the Arbitration and Conciliation Act which referred above. When the sole arbitrator who has been appointed is ineligible to be appointed as an arbitrator to decide the issue, the award which passed by the sole arbitrator is the void award which cannot be executable under law and deserved for set aside.
40 Com.A.P.No.40/2021
23. The learned counsel for the plaintiff while canvassing his arguments has rightly submitted the sole arbitrator has not taken into consideration about the materials which placed on record though he was retired on his superannuation even then he has been continued as a sole arbitrator which is against to clause 25 of the general conditions of contract for works in the Department of Telecommunications, as the very clause which referred above reflects if the arbitrator so appointed is unable or unwilling to act or resigns his appointment or vacates his office due to any reason whatsoever another sole arbitrator shall be appointed by the Chief Engineer, such person shall be entitle to proceed with the reference from the stage. Admittedly, one J. Ganesan being the sole arbitrator, after his superannuation has been continued as arbitrator and passed the award which is against to the contract and the clause 25 which referred above. Therefore, the award which passed by the sole arbitrator is deserved for set aside, since after the superannuation of the sole arbitrator who has vacated the office, in spite of the same has been continued the arbitral proceedings and passed the award which is apparently illegal comes under Sec.34 of the Arbitration and Conciliation Act and violation of natural justice. 41 Com.A.P.No.40/2021
24. The learned counsel for the plaintiff has drawn the court attention on the following judgments:
1. 2003 (5) SCC 705
2. 2011 (5) SCC 758
3. AIR 2008 SC 2398
4. AIR 1991 Cal. P.3
5. J.T. 1994(6) SC 412
6. 1994 Suppl. SCC 644
7. AIR 1984 SC 1703
8. AIR 1999 SC 1031
9. 2009 (8) SCC 520
10. 2017 (13) SCC 243
11. AIR 1967 SC 1030 42 Com.A.P.No.40/2021 On careful perusal of the said judgments, in the said judgments their lordship held that in a case where the validity of the award is challenged, there is no necessity of giving a narrower meaning to the term public policy of India on the contrary wider meaning is required to be given, so that the patently illegal award passed by the arbitral tribunal could be set aside and the court can set aside the award as being in conflict with the public policy of India and contrary to the fundamental policy of Indian Law and any exparte award has been passed by the arbitrator which is nothing but violation of natural justice and the legal misconduct of the arbitrator is a valid ground to set aside the award and the contractor is entitle the damages in case of any delay due to the breach of the defendant. So in the instant case also, the plaintiff has made out the grounds which are enumerated under Sec.34 of the Arbitration and Conciliation Act to set aside the award which passed by the sole arbitrator. Thus if the award read entirety, it is clear the award which passed by the sole arbitrator suffers from serious infirmities and the sole arbitrator has not taken into consideration the materials which placed by the plaintiff.
Therefore, the principles which laid down in the above judgments are applicable to the case on hand and the plaintiff has made out the grounds which are enumerated under Sec.34 of the 43 Com.A.P.No.40/2021 Arbitration and Conciliation to set aside the award which passed by the sole arbitrator. Hence, I am of the opinion that the point No.1 and 2 are answered as Affirmative.
25. POINT NO.3: In view of my answer to the point No.1 and 2 as stated above, I proceed to pass the following;
ORDER The petition under Sec.34 of Arbitration and Conciliation Act, 1996 filed by the plaintiff is hereby allowed and set aside the award dated 11.11.2019 and additional award dated 18.03.2021 passed by the sole arbitrator in No.CE/ARB/BSNL/JG/003 pursuant to the agreement No.40/TCD-III/2003-04.
(Dictated to the Stenographer, transcript thereof corrected by me and then pronounced in the open court on this the 2nd day of February, 2022) (P.J. Somashekara) LXXXVIII Addl. City Civil & Sessions Judge, (Exclusive Commercial Court), Bengaluru City