Delhi District Court
Union Of India vs Samir Udyog on 29 April, 2024
IN THE COURT OF SH. SACHIN SOOD, DISTRICT JUDGE - 01,
CENTRAL, TIS HAZARI COURTS, DELHI.
ARB No. 84349/16
CNR No DLCT010030492016
Union of India
Through; its
Controller of Stories
Rail Coach Factory,
Kapurthala, Office Situated at
Railway Office Complex,
Tilak Bridge, New Delhi-110002. ...............Petitioner
Versus
M/s Samir Udyog
44-C, Indian Mirror Street,
Near Wellington Square
Kolkatta-700013 ............Respondent
Date of institution : 22.03.2016
Date on which order was reserved : 25.04.2024
Date of decision : 29.04.2024
JUDGMENT
1. The present petition has been filed under Section 34 of Arbitration and Conciliation Act 1996 (hereinafter referred to as the Act) seeking setting aside of the Arbitration Award dated 15.01.2016 passed by learned Sole Arbitrator, Sh. Virender Kumar.
Arb No : 84349/16 Union of India Vs. M/s Samir Udyog Page no 1/23
2. Brief Facts leading to filing of the present petition are inter-alia as under:
a) That the petitioner floated a tender for supply of 14650 Nos of RC Fans 110 V DC. The aforesaid tender was opened on 25.10.2005. The respondent participated in the tender proceeding and purchase order bearing no.
04950137. T0540076 dated 15.12.2005 was placed upon the respondent to supply of 1500 Nos railway carriage fans against tender quantity of 14650 Nos of fans. The purchase order was placed at the rate of Rs.1451.67 each and material was to be supplied at the end of the consignee i.e. Dy. C.M.M. (D)/RCF/HSQ/FUR. The delivery period was to start from 01.04.2006 to 30.09.2006 in six installments. The aforesaid purchase order was subject to the applicability of other terms and conditions apart from IRS condition of contract which all terms and conditions were binding upon the parties.
b) The respondent had written a letter dated 05.07.2006 to the Petitioner that he will start the supply of material by July end and requested to amend the purchase order for consignee inspection instead of RITES inspection. The petitioner allowed the amendment on 13.07.2006. Even then the respondent did not start to supply the material as per the purchase order. As such a letter dated 08.06.2006 was sent to the respondent to supply the material which is urgently required followed by letter dated 29.07.2006.
c) The petitioner sent a letter dated 22.08.2006 bearing No. 04/950137/P4/521/06 in the shape of risk purchase notice wherein respondent was intimated that in case he failed to supply the material upto 30.09.2006 as per the purchase order, then purchase order will be cancelled on the risk and cost of the respondent and it was also intimated that tender bearing No. 3004060041 is due on 03.10.2006. It was further stated that Arb No : 84349/16 Union of India Vs. M/s Samir Udyog Page no 2/23 respondent failed to supply the material, a letter dated 29.08.2006 was sent to the respondent in the shape of advance intimation of risk purchase but no step had been taken by the respondent as such in compliance of tender bearing no. 3004060041 which was opened on 03.10.2006, a risk purchase order was placed upon M/s Light Engineering Corporation on 20.10.2006.
d) That the respondent did not supply the material as per the purchase order and as such a letter dated 20.10.2006 was sent to the respondent wherein the respondent was informed that as intimated earlier on 22.08.2006 the tender bearing No. 3004060041 is due on 03.10.2006 was floated at the risk and cost of the Respondent and balance quantity of 1300 Nos. material has been cancelled. It is submitted that as per the risk purchase tender has been decided and fresh purchase order bearing No. 04950137. TO540078 dated 20.10.2006 has been placed upon M/s Light Engineering Corporation @ Rs.1,919/- each and the differences of cost worked out to the tune of Rs.6,07,529/- which is to be recovered from the respondent and the same was intimated to the respondent by letter dated 20.10.2006. Thereafter, respondent had written a letter dated 20.11.2006 and sought extension of original delivery period. It was stated that there was a gap of almost one year since the order on this firm was placed. Due to inflation in the intervening period, risk purchase tender was finalized @ 32% higher rate which was considered reasonable by the tender committee.
e) The petitioner sent a letter dated 06.12.2006 in a reference of letter dt 20.11.2006 written by the respondent wherein request of extention in original DP was regretted and respondent once again was requested to pay an amount of Rs.6,07,529/- on account of difference of risk purchase Arb No : 84349/16 Union of India Vs. M/s Samir Udyog Page no 3/23 account. It is further submitted that lateron delivery period of purchase order place on respondent was extended upto 03.11.2006 with LD and denial clause as per terms and condition vide letter bearing No. 04950137/P4/727/07 dated 02.07.2007. Even the respondent again requested for extension of delivery period for 200 Nos. of materials vide its letter No. 5134 dated 06.07.2007. As per the terms and conditions of the Contract, the required L.D. of Rs.5,807/- has been deducted as per rule. The respondent again written a letter dated 18.08.2007 bearing No. 5175 and intimated that the amount of Rs.4,82,466/- has been deducted from his pending bills by the North Eastern Railway out of the risk purchase difference amount of Rs.6,07,529/- and further requested to release an amount of Rs.2,90,335/- as he has supplied 200 Nos. RC fans. The controller of store of the respondent written a letter dated 24.08.2007 to FA&CAO that the amount of Rs.4,82,466/- which has been deducted from the pending bills of the respondent be transferred from NE Railways to RCF Kapurthala and balance payment be recovered under the intimation to the respondent.
f) That the stand-by risk purchase tender was issued which was to be opened on 03.10.2006, accordingly proper risk purchase notice dated 22.08.2006 was given to the respondent in which it was made clear that if the firm fails to supply the items by 30.09.2006 which was the original delivery period then risk purchase tender will be decided at their risk and cost. The advance intimation regarding participation in risk purchase tender was given to the firm vide office letter bearing no. 04950137/P4 dated 29.08.2006 and respondent was advised to participate in risk purchase tender by submitting Arb No : 84349/16 Union of India Vs. M/s Samir Udyog Page no 4/23 security deposit @ 10% of value of offer, however, firm did not participate in the risk purchase tender. In view of the urgency tender was settled on priority on the merit of the case and risk purchase recovery notice was issued on 20.10.2006 after following due process of law.
g) The inspection clause was changed from RITES to consignee for 500 nos. only to enable firm to supply 500 nos. under consignee inspection to meet urgent requirement of RCF and to ensure that they can supply item as per specification given in the PO. There was no bar to supply 500 nos. at a time. It is constraint on the firm that they had supplied only 200 nos. instead of 500 nos. for which inspection clause was changed from RITES to consignee. Firm itself is at fault for not supplying 500 nos. for which inspection clause was changed from RITES to consignee within original DP of 30.09.2006. DP extension for 200 nos. was given upto 03.11.2006 for accountal of material which was received after expiry of original delivery period of 30.09.2006. Risk purchase action was initiated for 1500 nos. but risk purchase tender was finalized for 1300 nos. by reducing quantity by 200 nos. which the firm had dispatched within original DP but was received in RCF after expiry of DP. RCF was well within its rights to initiate and finalize risk purchase action after expiry of original delivery period on 30.09.2006 and after giving reasonable opportunity to the firm.
h) That as agreed by both the parties as per clause 13 of specification which is the part of contract in which it was clearly mentioned that the manufacturer who supplies the subject items for first time will have to get prototype cleared by CEE/RCF prior to manufacturing of bulk quantity but in this case the Respondent being the first timer manufacturer of the subject material Arb No : 84349/16 Union of India Vs. M/s Samir Udyog Page no 5/23 did not obtain prior approval of prototype by CEE/RCF as such M/s. RITES has rightly cancelled the inspection call against ICF's order because of non- availability of prototype approval by CEE/RCF because it was mandatory as per specification. The Respondent has never made any request for prototype approval from CEE/RCF with reference to the subject purchase order so there is no fault on the part of the petitioner. Accordingly after receipt of request from the Respondent dated 05.07.2006, the petitioner issued modification advice to amend inspection clause from RITES to consignee vide letter dt 13.07.2006.
i) It is further stated that all the dimensions were as per IS:6680/1992 with amendment H(Due 2002) as per which the body of the tendered item was to be made with Aluminum of grade 4600 instead of cast iron body. The claimant has also agreed that in the clause No. 13 of specification it was clearly mentioned that the manufacturer who supplies this item for first time will have to get prototype cleared by CEE/RCF prior to manufacture of bulk quantity.
j) The Respondent invoked the Arbitration clause and accordingly the learned General Manager RCF has appointed Sh. Virender Kumar Chief Works of Engineer (Shell)/RCF/KXH to act as a Sole Arbitrator and accordingly the letter has been issued on 03.11.2010. It is stated that after completion of the pleadings by both the parties, finally award has been passed by the learned Sole Arbitrator on 15.01.2016.
k) The Ld Sole Arbitrator to whom 5 claims had been submitted passed an award only in respect of 2 claims i.e. claim towards risk purchase amount deducted to the tune of Rs 6,07,529/- and also the claim towards interest @ Arb No : 84349/16 Union of India Vs. M/s Samir Udyog Page no 6/23 6% per annum claimed on the amount of risk purchase deducted by the petitioner for the pendent-lite period i.e. for the period on which date the Arbitrator entered reference till the date of the award.
l) Feeling aggrieved from the said Arbitral Award, the Petitioner is challenging the impugned award on the following grounds.
3. GROUNDS:
The Petitioner has assailed the impugned award, primarily on the following grounds :
A. That the impugned Award is liable to be set aside on the ground that the Ld. Arbitrator has not applied its judicial mind at the time of passing the impugned Award dated 15.01.2016. The Ld. Arbitrator has also violated the provision of section 34 (2) (b) (II) of Arbitration and Conciliation Act. as such the award is against the public policy of India. It is submitted that the subject purchase order was placed upon the Respondent subject to applicability of IRS condition of contract and other terms and condition which is the part of the contract which has been issued by the Indian Railway on behalf of Government of India and on behalf of president of India for monitoring the work of Indian Railway in the interest of public at large. It is submitted that the Hon'ble Apex Court has laid down the law in Civil Appeal No. 7419 of 2001 titled as "Oil & Natural Gas Corporation Ltd. Vs Saw Pipes Ltd." reported in AIR 2003 SC 2629 wherein the detail of observation has been made by the Hon'ble Apex Court as to when the award can be set aside by the Court. It is submitted that in view of the above law the impugned award is liable to be set aside.
Arb No : 84349/16 Union of India Vs. M/s Samir Udyog Page no 7/23 B. That the impugned award passed by the Ld. Arbitrator to be set aside as the Ld. Arbitrator has awarded an amount of Rs. 6,07,529/- against claim No.1 in favour of claimant/Respondent which is against the terms of the contract as such the same is also against the provision of section 28 (3) as well as against the public policy of India. The Ld. Arbitrator at the time passing the subject award against claim No.1 made observation at page No.2 of the impugned award "the blame for the RP tender therefore partly lies with RCF due to delay in carrying out the prototype inspection. As the same RP led to deduction of Rs. 6,07,529/- from the firms bill therefore considering all the facts of the case, claim of the claimant of this amount is considered to be admissible'. In this regard it is stated that the Ld. Arbitrator did not consider the IRS conditions and special condition in the tender according to which the Respondent was supposed to take prior prototype approval by CEE/RCF which is a mandatory as per specification but the respondent did not obtain prior prototype approval from CEE and even the Respondent has not requested for issuing modification in inspection clause prior to 05.07.2006 and without request of claimant/Respondent, the modification in the contract is not possible so there was no fault on the part of Petitioner/ purchaser as such the Petitioner was within its rights to invite risk purchase tender at the risk and cost of the Respondent to purchase the balance quantity of material and the differences occurred in purchasing the balance quantity of material which was not supplied by the Respondent and later on the same was cancelled as such the differences of cost in risk purchase has been correctly recovered from the other pending bill of the Respondent as per clause 2401 of IRS condition of contract as such the Ld. Arbitrator Arb No : 84349/16 Union of India Vs. M/s Samir Udyog Page no 8/23 ought to have rejected the claim No. 1 of Rs.6,07,529/- as such the award No. 1 is liable to be set aside being against the terms of the contract, patently illegal as well as against the public policy of India. C. That the impugned award is liable to be set aside as the same is against the terms of the contract and is also against the public policy of India. The respondent has claimed 18% interest per annum on the amount of total claim of Rs.23,11,789/- but the Ld. Arbitrator has awarded 6% interest on the amount of Rs.6,07,529/- w.e.f. date of entering into reference i.e. 18.11.2010 till the date of passing of award i.e. 15.01.2016 and awarded an amount Rs.1,88,334/- relying upon of the provision of Section 31 (7) of Arbitration and Conciliation Act. In this regard it is clarified that the impugned award, awarded in favour of the claimant against claim No. 5 to the tune of Rs.1,88,334/- relying upon the provision of Section 31 (7) of the Arbitration and Conciliation Act is patently illegal and against the provision of law. It is submitted that the Ld. Arbitrator cannot set up his own fresh terms of the contract which is beyond the scope of the contract for the purpose of awarding any award in favour of the claimant. It is submitted that the Ld. Arbitrator ought not to have awarded the interest of Rs.1,88,334/- in favour of the claimant by ignoring the terms and condition of the contract specifically clause 0503, 2401, 2403 of IRS condition of contract. It is submitted that as per provision of Section 31 (7) (a) of Arbitration and Conciliation Act the word has been used by the legislature that unless otherwise agreed by the parities, but in this case the claimant/Respondent agreed that he will not claim any interest on any Arb No : 84349/16 Union of India Vs. M/s Samir Udyog Page no 9/23 amount retained by the Petitioner. The extract of clause 0503, 2401, 2403 of IRS condition of contract are as under:-
0503: No claim shall lie against the Purchaser in respect of interest on cash deposits or Government Securities or depreciation thereof.
2401. whenever any claim or claims for payment of a sum of money arises out of or under the contract against the Contractor, the Purchaser shall be entitled to withhold and also have a lien to retain such sum or sums in whole or in part from the security, if any, deposited by the Contractor and for the purpose aforesaid, the Purchaser shall be entitled to withhold the said cash security deposit or the security, if any, furnished as the case may be and also have a lien over the same pending finalization or adjudication of any such claim. In the event of the security being insufficient to cover the claimed amount or amounts or if no security has been taken from the Contractor, the Purchaser shall be entitled to withhold and have lien to retain to the extent of the such claimed amount or amounts referred to supra, from any sum or sums found payable or which at any time thereafter may become payable to the Contractor under the same contract or any other contract with the Purchaser or the Government pending finalization or adjudication of any such claim.
It is an agreed term of the contract that the sum of money or moneys so withheld or retained under the lien referred to above, by the purchaser will be kept withheld or retained as such by the Purchaser till the claim arising out of or under the contract is determined by the Arbitrator (if the contract is governed by the arbitration clause) or by the competent court as prescribed under clause 2703 hereinafter provided, as the case may be, and that the Contractor will have no claim for interest or damages whatsoever on any account in respect of such withholding or retention under the lien referred to supra and duly notified as such to the contractor.
2403. LIEN IN RESPECT OF CLAIMS IN OTHER CONTRACTS:-
a) Any sum of money due and payable to the Contractor (including the security deposit returnable to him) under the contract may withhold or retain by way of lien by the Purchaser or Government against any claim of the Purchaser or Government in respect of payment of a sum of money arising out of or under any other contract made by the Contractor with the Purchaser or Government.
b) It is an agreed term of the contract that the sum of money so withheld or retained under this clause by the Purchaser or Government will be kept withheld or retained as such by the Purchaser or Government till his claim arising out of the same contract or any other contract is either mutually settled or determined by the arbitrator, if the contract is governed by the arbitration clause or by the competent court under clause 2703 hereinafter provided, as the case may be, and that the Contractor shall have no claim for interest or damages whatsoever on this account or on any other ground in respect of any sum of money withheld or retained under this clause and duly notified as such to the Contractor.
Arb No : 84349/16 Union of India Vs. M/s Samir Udyog Page no 10/23 D. That the Learned Sole arbitrator has committed an illegality in as much as granting interest for the pendent-lite period i.e from the date of entering reference till the date of the award in violation of the law laid down by the Hon'ble Apex court in case titled as "Sh. Kamatchi Amman Constructions Vs Divisional Railway Manager (Works), Palghat & Ors." reported in (2010) 8 SCC 767 wherein it has been held in para no. 13 to 19:
"That Arbitrator cannot award interest for pre-reference and pendente lite period when agreement prohibits grant of interest therefore. It has been further hold that the arbitrator is bound by terms of contract for award of interest therefore. It was further held that in view of specific bar against payment of interest under clause 16 (2) of General Condition of Contract, Arbitrator rightly refuse to award of interest from the date of cause of action to date of award. Ratio of the subject judgment is applicable in the present facts and circumstances of the case where the interest has to be allowed from the date of deduction by LD by the petitioner".
4. Notice of the present petition was issued to the respondent. The respondent in furtherance of the notice had filed the complete Arbitral record before this court and the arguments were addressed by both the parties and thereafter the matter was listed for judgments.
ARGUMENTS OF THE PETITIONER:
5. The Ld Counsel for the Petitioner, during his arguments made the following submissions:-
The Ld Counsel for the Petitioner has contended that the Ld Sole Arbitrator in as much as in passing the impugned award has wrongly held that the petitioner was to be blamed for the delay caused in carrying out the inspection of the prototype and the request letters for carrying out the same were not replied and neither any inspection was carried out by the petitioner and accordingly claim 1 has wrongfully been awarded towards risk purchase amount deducted by the petitioner. It is further contended by the petitioner Arb No : 84349/16 Union of India Vs. M/s Samir Udyog Page no 11/23 that the Arbitrator has traveled beyond the contract who is under a duty to decide the lis in accordance with the terms of the contract and accordingly the award as passed by the Ld Sole Arbitrator is against the public policy of India. It has further been contended that the award of interest against claim no 5 to the tune of Rs 1,88,334/- is illegal and against the provision of law and the Arbitrator has imposed fresh terms of the contract by ignoring clause 0503, 2401, 2403 of the IRS Condition of Contract. It has further been submitted that the award in so far as it allowed claim no 5 i.e. interest for the pendente-lite period being in conflict with the public policy is liable to be set aside.
ARGUMENTS OF THE RESPONDENT:
6. On the other hand, Ld Counsel for respondent submitted that there is no infirmity in the award as passed by Ld Sole Arbitrator.
ANALYSIS AND FINDINGS
7. I have heard the submissions of both the parties and have gone through the complete record.
8. Section 34 of the A&C Act, prior to amendment effected vide Act No. 3 of 2016 with retrospective effect from 23.10.2015, reads as under:
Section 34 of the Arbitration Act provides as under :
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 furnishes proof 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 Arb No : 84349/16 Union of India Vs. M/s Samir Udyog Page no 12/23
(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 under the law for the time being in force, or (ii) the arbitral award is in conflict with the public policy of India.
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.
(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 tribunal will eliminate the grounds for setting aside the arbitral award.
9. Before dealing with the contentions of the parties, it is apt to note that the powers of the Court under Section 34 of the Act are very limited and an application under Section 34 of the Arbitration Act, 1996 is in the nature of summary proceedings and not in the nature of a regular suit. It is a settled law that a Court reviewing an award under Section 34 of the Act does not sit as an appellate court over the award passed by the Arbitrator or to re- examine or to re-appreciate the evidence as an Appellate Court if the view taken by the Arbitrator is plausible in terms of the judgments passed in the Arb No : 84349/16 Union of India Vs. M/s Samir Udyog Page no 13/23 matter of Canara Nidhi Ltd. v/s M. Shashikala 2019 SCC Online SC 1244 and Associated Construction v/s Pawanhans Helicopters Ltd. (2008) 16 SCC 128.
10 In Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran (2012) 5 SCC 306 with the clarification that where a term of the contract is capable of two interpretations and the view taken by the arbitrator is a plausible one, it cannot be said that the arbitrator traveled outside the jurisdiction or the view taken the arbitrator is against the terms of the contract. The court cannot interfere with the award and substitute its view with the award and interpretation accepted by the arbitrator, the reason being the court does not sit in appeal over the findings and decision of the arbitrator, while deciding an application under Section 34 of the A&C Act. The arbitrator is legitimately entitled to take a view after considering the material before him/her and interpret the agreement. The judgment should be accepted as final and binding.
11. In Associate Builders emphasised that the public policy test to an arbitral award does not give jurisdiction to the court to act as a court of appeal and consequently errors of fact cannot be corrected. Arbitral tribunal is the ultimate master of quality and quantity of evidence. An award based on little evidence or no evidence, which does not measure up in quality to a trained legal mind would not be held to be invalid on this score. Every arbitrator need not necessarily be a person trained in law as a Judge. At times, decisions are taken acting on equity and such decisions can be just and fair should not be overturned under Section 34 of the A&C Act on the ground that the arbitrator's approach was arbitrary or capricious.
Arb No : 84349/16 Union of India Vs. M/s Samir Udyog Page no 14/23
12. Similarly in Sumitomo Heavy Industries Ltd. v. ONGC Ltd: The observations in para 43 thereof are instructive in this behalf.
(Sumitomo case 21, SCC p. 313) 43. ... The umpire has considered the fact situation and placed a construction on the clauses of the agreement which according to him was the correct one. One may at the highest say that one would have preferred another construction of Clause 17.3 but that cannot make the award in any way perverse. Nor can one substitute one's own view in such a situation, in place of the one taken by the umpire, which would amount to sitting in appeal. As held by this Court in Kwality Mfg. Corpn. vs. Central Warehousing Corpn. (2009) 5 SCC 142, the Court while considering challenge to arbitral award does not sit in appeal over the findings and decision of the arbitrator, which is what the High Court has practically done in this matter. The umpire is legitimately entitled to take the view which he holds to be the correct one after considering the material before him and after interpreting the provisions of the agreement. If he does so, the decision of the umpire has to be accepted as final and binding."
13. In McDermott International Inc. vs. Burn Standard Co. Ltd. (2006) 11 SCC 181, it was further noted that the interpretation of a contract is a matter for the Arbitrator to determine, even if it gives rise to determination of a question of law. Once, 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.
14. In Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd. [2019 SCC Online SC 1656] laid down the scope of such interference. The Hon'ble Supreme Court of India observed as follows:
Arb No : 84349/16 Union of India Vs. M/s Samir Udyog Page no 15/23 "26. There is no dispute that Section 34 of the Arbitration Act limits a challenge to an award only on the grounds provided therein or as interpreted by various Courts.
We need to be cognizant of the fact that arbitral awards should not be interfered with in a casual and cavalier manner, unless the Court comes to a conclusion that the perversity of the award goes to the root of the matter without there being a possibility of alternative interpretation which may sustain the arbitral award. Section 34 is different in its approach and cannot be equated with a normal appellate jurisdiction. The mandate under Section 34 is to respect the finality of the arbitral award and the party autonomy to get their dispute adjudicated by an alternative forum as provided under the law. If the Courts were to interfere with the arbitral award in the usual course on factual aspects, then the commercial wisdom behind opting for alternate dispute resolution would stand frustrated."
15. PSA SICAL Terminals (P) Ltd. v. Board of Trustees of V.O. Chidambranar Port Trust Tuticorin, 2021 SCC OnLine SC 508, in which the Hon'ble Supreme Court of India reiterated its view on MMTC Limited v. Vendanta Limited, (2019) 4 SCC 163 wherein it was observed that:
"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) ..." "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." "...the court cannot undertake an independent assessment of the merits of the award, and must only ascertain that the exercise of power by the court under Section 34 has not exceeded the scope of the provision."...
16. In the present case the Ld Sole Arbitrator after going through the pleadings of the parties and the materials produced by the parties in as much as allowing claim no 1 held that the requests letters for prototype inspection written by the firm to RCF were neither replied to nor any inspection was carried out by the RCI. Ld Sole Arbitrator further observed that had prototype inspection been cleared, it could be possible that some quantities Arb No : 84349/16 Union of India Vs. M/s Samir Udyog Page no 16/23 may have been delivered by the firm within DP Schedule and firm may not have invited risk purchase at their cost. The Ld Sole Arbitrator further held that though RCF ended up paying extra amount for the 1300 nos fans against RP tender but the same could have avoided it had timely prototype inspection been carried out. Firm also suffered for the amount of Rs 607529/- deducted on account of risk purchase at their cost. The blame for the RP tender therefore partly lies with RCF due to delay in carrying out the prototype inspection. As the same RP led to deduction of Rs 6,07,529/- from the firm's bills therefore considering all the facts of the case, claim of the claimant of the amount is considered to be admissible.
17. As stated above and within the parameters of the principles governing the exercise power U/s 34 of the Arbitration and Conciliation Act since the court does not exercise the power of judicial review over the award and since the view adopted by the Arbitrator is a plausible view who has accordingly allowed claim no 1 based upon the laxity on the part of the petitioner herein in as much as not clearing the prototype inspection despite request letters which had not been replied, no perversity can be said to have crept in the Arbitration award. Accordingly, the claim no 1 of the award is not liable to be set aside on this ground.
18. However the Ld Sole Arbitrator in as much as allowing claim no 5 has awarded simple interest of 6% per annum on the amount of Rs 6,07,529 from the date of entering into reference i.e. 18.11.2010 till the date of award. The Ld Sole Arbitrator in as much as awarding/allowing claim no 5 has not discussed and has not taken into consideration clause 0503, 2401, 2403 of IRS condition of contract which reads as under:
Arb No : 84349/16 Union of India Vs. M/s Samir Udyog Page no 17/23 0503: No claim shall lie against the Purchaser in respect of interest on cash deposits or Government Securities or depreciation thereof.
2401. whenever any claim or claims for payment of a sum of money arises out of or under the contract against the Contractor, the Purchaser shall be entitled to withhold and also have a lien to retain such sum or sums in whole or in part from the security, if any, deposited by the Contractor and for the purpose aforesaid, the Purchaser shall be entitled to withhold the said cash security deposit or the security, if any, furnished as the case may be and also have a lien over the same pending finalization or adjudication of any such claim. In the event of the security being insufficient to cover the claimed amount or amounts or if no security has been taken from the Contractor, the Purchaser shall be entitled to withhold and have lien to retain to the extent of the such claimed amount or amounts referred to supra, from any sum or sums found payable or which at any time thereafter may become payable to the Contractor under the same contract or any other contract with the Purchaser or the Government pending finalization or adjudication of any such claim.
It is an agreed term of the contract that the sum of money or moneys so withheld or retained under the lien referred to above, by the purchaser will be kept withheld or retained as such by the Purchaser till the claim arising out of or under the contract is determined by the Arbitrator (if the contract is governed by the arbitration clause) or by the competent court as prescribed under clause 2703 hereinafter provided, as the case may be, and that the Contractor will have no claim for interest or damages whatsoever on any account in respect of such withholding or retention under the lien referred to supra and duly notified as such to the contractor. 2403. LIEN IN RESPECT OF CLAIMS IN OTHER CONTRACTS:-
a) Any sum of money due and payable to the Contractor (including the security deposit returnable to him) under the contract may withhold or retain by way of lien by the Purchaser or Government against any claim of the Purchaser or Government in respect of payment of a sum of money arising out of or under any other contract made by the Contractor with the Purchaser or Government.
b) It is an agreed term of the contract that the sum of money so withheld or retained under this clause by the Purchaser or Government will be kept withheld or retained as such by the Purchaser or Government till his claim arising out of the same contract or any other contract is either mutually settled or determined by the arbitrator, if the contract is governed by the arbitration clause or by the competent court under clause 2703 hereinafter provided, as the case may be, and that the Contractor shall have no claim for interest or damages whatsoever on this account or on any other ground in respect of any sum of money withheld or retained under this clause and duly notified as such to the Contractor.
19. In terms of the aforesaid clauses, it was agreed by both the parties that no claim shall lie against the petitioner in respect of interest on cash deposit or government securities and in case of any claim for payment for a sum of Arb No : 84349/16 Union of India Vs. M/s Samir Udyog Page no 18/23 money arising out or under the contract against the contractor, the purchaser/ petitioner shall be entitled to withhold and also to have a lien to retain such sum in whole or in part pending finalization or adjudication of any such claim and such sum of money so withheld or retained under the lien by the purchaser will be kept withheld or retained till the claim arising out of or under the contract is determined by the arbitrator and that the contractor will have no claim for interest or damages whatsoever on any account in respect of such withholding or retention under the lien. In other words all the 3 clauses as reproduced herein above prohibit the grant of interest till the time the claim arising out of the contract is either mutually settled or determined by the arbitrator and the contractor/the respondent herein is ill-suited to claim interest or damages on any money withheld or retained by the purchaser/petitioner herein for the pre reference and pendente-lite period. The petitioner acting under the said process deducted/recovered an amount of Rs 6,07,529/- on account of the extra expenditure incurred in risk purchase.
20. The Ld Sole Arbitrator vide the impugned award granted an amount of Rs 1,88,334/- towards interest @ 6% per annum for the pendente-lite period dehors the conditions of the contract and more particularly clause(s) 0503, 2401, 2403 of IRS condition of contract which could not have been awarded by the Ld Sole Arbitrator being contrary to the terms of the contract.
21. The Hon'ble Supreme Court of India recently in the matter of M/s Garg Builders vs. Bharat Heavy Electricals Ltd, 2021 SCC Online SC 855 while dealing with the law relating to award of pendente lite interest by the Arb No : 84349/16 Union of India Vs. M/s Samir Udyog Page no 19/23 arbitrator under the 1996 Act held that the provisions of 1996 Act give paramount importance to the contract entered into between the parties and categorically restricts the power of an arbitrator to award pre-reference and pendente lite interest when the parties themselves have agreed to the contrary. The Hon'ble Apex Court dealt with Section 31(7)(a) of the Arbitration and Conciliation Act, 1996 which deals with the payment of interest and held that from the provisions of Section 31(7)(a) itself, it is clear that if the contract prohibits pre-reference and pendente lite interest, the arbitrator cannot award interest for the said period.
22. Now coming to the legal aspect as to whether the award can be partially set aside by the court in exercise of the powers under section 34 of the Arbitration and Conciliation Act, 1996, the question of severability of claims came up before the consideration of the Supreme Court in the case of J.G. Engineers Pvt. Ltd. v. Union of India, (2011) 5 SCC 758 wherein the doctrine of severability was invoked and it was held that when the Award deals with several claims that can be said to be separate and distinct, the Court can segregate the Award on items that do not suffer from any infirmity and uphold the Award to that extent.
23. Similarly, in the case of R.S. Jiwani (M/S.) v. Ircon International Ltd., 2009 SCC OnLine Bom 2021 the Bombay High Court upheld the application of doctrine of severability to an Award. It was observed that it is difficult to prescribe legal panacea which, with regard to the applicability of the principle of severability can be applied uniformly to all cases. The judicial discretion vested in the court in terms of the provisions of Section 34 of the A&C Act, 1996 was held to take within its ambit, power to set aside an Arb No : 84349/16 Union of India Vs. M/s Samir Udyog Page no 20/23 award partly or wholly depending on the facts and circumstances of the given case and it was held that the same is not intended to be whittled down or to divest the court of competent jurisdiction to apply the principle of severability to the award of the Arbitral Tribunal. Further, the proviso to section 34(2)(a)(iv) has to be read ejusdem generis to the main section, as in cases falling in that category, there would be an absolute duty on the court to invoke the principle of severability where the matter submitted to arbitration can clearly be separated from the matters not referred to arbitration and decision thereupon by the Arbitral Tribunal.
24. In this context, The Bombay High Court in the recent judgment of National Highway Authority of India v. The Additional Commissioner, Nagpur, 2022 SCC OnLine Bom 1688 noted the aspect of grave inconvenience highlighted in the aforesaid Full Bench judgment of Bombay High Court in the case of R.S. Jiwani (M/S.) (supra) and observed that if parties are required to go for arbitration afresh in its entirety on every occasion, even when the Arbitral Award is only partly set aside, that the Arbitral Award is found liable to be set aside on some issues, it would lead to multiple rounds of litigation, going against the very purpose of alternative dispute redressal mechanisms like arbitration. The claimants would be forced to pursue numerous rounds of proceedings before the arbitrator and Courts, which cannot be countenanced, thereby indicating that the contention raised in this regard on behalf of the appellants is unsustainable. Thus, following the principle of severability of claims it was held that the Award may be set aside partially.
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25. The Hon'ble Supreme court of India in the case of National Highways Authority Of India vs Trichy Thanjavur Expressway Ltd. 2023 SCC OnLine Del 5183 further explained the concept of severability of a claim under section 34. A reference was made to the case of Alcon Builders and NHAI vs M. Hakeem (2021) 9 SCC 1 and it was observed that the expression "setting aside" as employed in Section 34 includes the power to annul a part of an award provided it is severable and does not impact or eclipse other components thereof.
26. The court in the case of National Highways Authority Of India (2023 SCC OnLine Del 5183) recognised the complexity involved in partial setting aside of an award and observed that "even though an award may be viewed as an agglomeration of the decisions rendered by an AT on various claims, the question of partial setting aside would ultimately depend on whether there is an inextricable link between the offending part of the award with any other part of the disposition. The power to partially sever an offending part of the award would ultimately depend on whether the said decision is independent and distinct and whether an annulment of that part would not disturb or impact any other finding or declaration that may have been returned by the AT. The question of severability would have to be decided bearing in mind whether the claims are interconnected or so intertwined that one cannot be segregated from the other. This for the obvious reason that if the part which is sought to be set aside is not found capable of standing independently, it would be legally impermissible to partially set aside the award."
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27. Thus, from the aforesaid authoritative pronouncement of judgments it is clear that the court under Section 34 of the Act, 1996 can set aside an Award partly if the same is severable in nature. A bare perusal of the award in the present case goes to show that claim no 5 pertains to the award of interest on the amount of Rs 6,07,529/- during the pendente-lite period i.e. the period commencing w.e.f. the date on which the arbitrator entered reference i.e. 18.11.2010 till the date of the award i.e. 15.01.2016. The said claim i.e. claim no 5 is clearly severable and is an independent claim and is not interconnected or intertwined with the amount awarded while allowing claim No 1. Given the fact that as agreed upon by the parties no interest was to be payable for the pre arbitration or for the pendentelite period in terms of clause(s) 0503, 2401, 2403 of IRS condition of contract, the present petition u/s 34 of the Arbitration and Conciliation Act is partly allowed and the award for an amount of Rs 1,88,334/- towards interest for the pendente-lite period is set aside.
28. File be consigned to record room after due compliance.
Announced in the open court (Sachin Sood)
on 29.04.2024. DJ-01 (Central)
THC, Delhi.
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