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Delhi District Court

M/S. Grosvenor Trades Pvt. Ltd vs M/S Thrislington Gulf on 19 August, 2017

In the Court of Ms. Vineeta Goyal: Additional District Judge
      South District, Saket Court Complex, New Delhi.

Arbt No.: 285/17
CNR No : DLST01-002246-2017

In the matter of :-

M/s. Grosvenor Trades Pvt. Ltd.,
80 Navjivan Vihar
New Delhi - 110017
Through its Director,
Mr. Shaival Sahay                          ....... Petitioner

                         VERSUS

M/s Thrislington Gulf
Madinat Musaffah Industrial Zone
M42, Plot 122+123, Municipality Building
Abu Dhabi, UAE, PO Box-9547              .......Respondent


Date of institution         :22.10.2007
Reserved for judgment       :19.08.2017
Date of decision            :19.08.2017

Appearance :-     Sh. Udaibir Singh Kochar, Counsel for
                  petitioner.
                  Sh. Navnit Kumar, Counsel for
                  respondent.

JUDGMENT

1. This is a petition under Section 34 of Arbitration & Conciliation Act, 1996 (hereinafter referred to as "Act, 1996"), whereby the petitioner is seeking setting aside of an award dated 19.07.2007 passed by Ld. Arbitral Tribunal ARBT No. 285/17 Page No.1 / 17 (hereinafter referred to as 'impugned award'), whereby majority of the said Tribunal awarded a sum of Rs.23,75,548.34 alongwith interest @ 12% p.a. from July 11th,2016 till the date of actual payment on favour of respondent.

2. Facts necessary for disposal of present petition are that the respondent, situated at Abu Dhabi in UAE, has filed a claim petition before the Ld. Arbitral Tribunal alleging that it is engaged in manufacturing specialized steel fire rated doors, office dismountable partitioning system, acoustic panels and modular clear rooms for oil, aeronautic, pharmaceutical and interior industries. The respondent has entered into two agencies agreement dated 15.02.2004 and 01.04.2005 in succession with the petitioner, who is a private limited company incorporated under the Indian Companies Act in India, for sale and marketing of respondent's goods and products. It was alleged that there was a relationship of Principal and Agent between the respondent and petitioner. The petitioner took a contract of M/s Reliance Engineering Associates Pvt. Ltd. and entered into an agreement on 27.10.2004 for "Supervision of installation and Commissioning and Review of Design Basis of Clean Room panels" for its Biotech Center at Navi Mumbai Project for a total consideration of Rs.24,85,748.34 inclusive of service tax through a work ARBT No. 285/17 Page No.2 / 17 order no. FB-2/3560893 which was subsequently reduced to Rs.23,75,548.32. This work order of M/s Reliance Engineering Associates Pvt. Ltd. was one and it has two items i.e. installation and commissioning and review of design and HVAC (high velocity air conditioning). It was alleged that respondent took the aforesaid contract as an Agent during the currency of Agency Agreement dated 15.02.2004, which was completed in the year 2005. The respondent in their claim petition has alleged that the job order from M/s Reliance Engineering Associates Pvt. Ltd. was in the Principal's name and the Agent was to execute it. But, the petitioner has received the full amount from M/s Reliance Engineering Associates Pvt. Ltd and has failed to pay over the same to the respondent to whom the money belongs as the petitioner was acting merely as agent to the respondent in India for the sale of its products.

2.1. This claim petition was resisted by the petitioner on the ground that review design of high velocity air conditioning of the value of Rs.14,55,670/- was the petitioner's independent business and was not executed as an Agent of respondent. It was further resisted on the ground that the respondent has no expertise in HVAC and further it is not the product of the respondent. The industrial license issued by Abu Dhabi Municipality & Town Planning, Economic Activities, Licensing department ARBT No. 285/17 Page No.3 / 17 clearly states that the activities of the respondent is confined to manufacture of fire and heat resistance metal doors, imports of materials related thereto, export of factory products, manufacture of wooden doors and on show, off show oil fields and construction services. HVAC work was not within the scope of two agencies agreements and the respondent has nothing to do. It was alleged that money, which was received from M/s. Reliance Engineering Associates Pvt. Ltd., for aforesaid work order was on account of petitioner's own separate independent business. It is also alleged that with regard to the installation and commissioning work, this work was executed as an agent of the respondent and the money when received from the M/s. Reliance Engineering Associates Pvt. Ltd will be paid over to the respondent and in this case, it has not yet been received.

2.2. The Ld. Arbitral Tribunal by majority passed the impugned award in favour of the respondent alongwith the cost of arbitration.

3. Aggrieved by this, the petitioner has challenged the impugned award on the grounds that Ld. Arbitrators had failed to take into account the relevant documents and further have not correctly appreciated the facts in the right perspective. It was contended that work order by M/s.

Reliance Engineering Associates Pvt. Ltd. was issued in favour of petitioner but the Ld. Arbitrators proceeded on the assumption that work order was issued in favour of the respondent. The Ld. Arbitrators further failed to appreciate that review of design of HVAC is not a product of the respondent and it is an independent function performed by the petitioner. In the brochure of respondent, there is no mention that they are experts or are carrying on the work of HVAC. The respondent only supplies the materials for control environmental rooms, which is corroborated by industrial license issued by Abu Dhabi Municipality and Town Planning, Economic Activities, Licensing Department. It is further contended that respondent has also failed to produce any material to show that the staff engaged by the petitioner with the approval of respondent were competent to execute the work of HVAC. The next contention of the petitioner was that the Ld. Arbitrators did not grant reasonable opportunity to the petitioner to prove that no payment has been received with regard to Part-I of the work order particularly when the Ld. Arbitrators had directed the petitioner to produce material to show that no payment has been received from M/s Reliance Engineering Associates Pvt. Ltd. In compliance to the said order, the petitioner, on 13.05.2007, had filed an e-mail dated 29.05.2007 from M/s Reliance Engineering Associates Pvt. Ltd. certifying that ARBT No. 285/17 Page No.5 / 17 petitioner has been paid only Rs.12,77,835/- exclusive of service tax till 29.05.2007 and also filed follow up letters addressed to M/s Reliance Engineering Associates Pvt. Ltd. for the payment of the balance amount. The petitioner has also filed its entire bank statement of account to show that it has not received the payment of Part-I of work order. It was argued that Ld. Arbitrators totally ignored the said letter and came to presumptive conclusion that it stands to reason that Rs.8,00,000/- has also been paid as installation of partition, which precedes HVAC. It was next contended that Ld. Arbitrators exceeded their jurisdiction in awarding a sum of Rs.24,85,748.34 against the petitioner and further erred in presuming that entire payment had been made to the petitioner. It is further argued that the Ld. Arbitrators failed to appreciate that there was no provision either expressed or implied in the agency agreement restraining or prohibiting the petitioner from carrying on any other activity independent of and unrelated to the respondent's product. The agent in law cannot be prevented from carrying on other independent activities unrelated to the product of th respondent. The work which the petitioner carried out was neither within the scope of agency agreement nor related to or ancillary to the performance of petitioner while selling or marketing or installation of products of the respondent. It is contended by petitioner that Ld. Arbitrators were in error in allowing the claim of ARBT No. 285/17 Page No.6 / 17 the respondent in its entirety.

3.1. Per contra, it is argued by learned counsel for respondent that there is no infirmity in the impugned award passed by the Ld. Arbitral Tribunal. A well-reasoned award has been passed in this matter and through the present petition, the petitioner is trying to re-open the issue on merits and has impugned the arbitral award on the grounds not covered under Section 34 (2) of Act, 1996.

4. I have heard arguments advanced by learned counsel for parties and gone through the record.

4.1. Before adverting the case on merits, it is significant to note that the parties to the arbitration proceedings have very limited scope to challenge the arbitration award. The Act, 1996, provides very limited scope for setting aside the arbitral award. The aggrieved parties can challenge the arbitral award only on the grounds envisaged under Section 34 of the Act, 1996. For the sake of convenience, the provisions of Section 34 of the Act, 1996, is reproduced herewith:

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 -

(I) a party was under some incapacity, or

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

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

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

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

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

(b) the Court finds that -

(I) the subject matter of the dispute is not capable of settlement by arbitration 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 ARBT No. 285/17 Page No.8 / 17 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.

The Arbitration and Conciliation (Amendment) Act, 2015 provides:

"18. In Section 34 of the Principal Act:-

(I) In sub-section (2), in clause (b), for the Explanation, the following Explanations shall be substituted, namely:-

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

(ii) It is in contravention with the fundamental policy of India law: or

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

Explanation 2 - For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute" (ii) after sub-section (2) the following sub section shall be inserted, namely:-

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

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

4.2. To add to this, in a land mark judgment rendered by the Hon'ble Supreme Court of India reported in AIR 2015 ARBT No. 285/17 Page No.9 / 17 SC 620 between "Associate Builders Vs. Delhi Development Authority" extends a wider scope to Section 34 of the Arbitration and Conciliation Act, 1996. Their Lordships have clearly mandated that:

"an extent of judicial intervention notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part. (Section 5) It is important to note that, the 1996 Act was enacted to replace the 1940 Arbitration Act in order to provide for an arbitral procedure which is fair, efficient and capable of meeting the needs of Arbitration; also to provide that the tribunal gives reasons for an arbitral award; to ensure that the tribunal remains within the limits of its jurisdiction; and to minimize the supervisory roles of courts in the arbitral process.

Therefore, in our view, the phrase "public police of India" used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term "public policy" in Renusagar case is required to be held that the award could be ARBT No. 285/17 Page No.10 / 17 set aside if it is patently illegal. The result would be, award could be set aside if it is contrary to:

(a) Fundamental policy of Indian Law; or

(b) The interest of India; or

(c) Justice or morality, or

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

Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. Such award is opposed to public policy and is required to be adjudged void.

103. Such patent illegality, however, must go to the root of the matter. The public policy, indisputably, should be unfair and unreasonable so as to shock the conscience of the court. Where the Arbitrator, however, has gone contrary to or beyond the expressed law of the contract or granted relief in the matter not in dispute would come within the purview of Section 34 of the Act.

35. Without meaning to exhaustively enumerate the purport of the expression "fundamental policy of Indian law", we may refer to three distinct and fundamental juristic principles that must necessarily be understood as a part and parcel of the fundamental policy of Indian law. The first and foremost is the principle that in every determination whether by a court or other authority that affects the rights of a citizen or leads to any civil consequences, the court or authority concerned is bound to adopt what is in legal parlance called as "judicial approach" in the matter. The duty to adopt a judicial approach arises from the very nature of the power ARBT No. 285/17 Page No.11 / 17 exercised by the court or the authority does not have to be separately or additionally enjoined upon the for a concerned. What must be remembered is that the importance of a judicial approach in judicial and quasi-judicial determination lies in the fact that so long as the court, tribunal or the authority exercising powers that affect the rights or obligations of the parties before them shows fidelity to judicial approach, they cannot act in an arbitrary, capricious or whimsical manner. Judicial approach ensures that the authority acts bona fide and deals with the subject in a fair, reasonable and objective manner and that its decision is not actuated by any extraneous consideration. Judicial approach in that sense acts as a check against flaws and faults that can render the decision of a court, tribunal or authority vulnerable to challenge.

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

1. a finding is based on no evidence, or

2. an arbitral tribunal takes into account something irrelevant to the decision which is arrives at; or

3. ignores vital evidence in arriving at its decision.

Such decision would necessarily be perverse.

A board distinction has, therefore, to be maintained between the decisions which are perverse and those which are not. If a decision is arrived at on no evidence or evidence which is thoroughly unreliable and no reasonable person would act upon it, the order would be perverse. But if there is some evidence on record which is acceptable and ARBT No. 285/17 Page No.12 / 17 which could be relied upon, howsoever compendious it may be, the conclusions would not be treated as perverse and the findings would not be interfered with.

It must clearly be understood that when a court is applying the "public policy" test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the Arbitrator on facts has necessarily to pass muster as the Arbitration is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score.

A Court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or re-appreciating the evidence. An award can be challenged only under the ground mentioned in Section 34(2) of the Act.

The third ground of public policy is, if an award is against justice or morality. These are two different concepts in law. An award can be said to be against justice only when it shocks the conscience of the court. An illustration of this can be given. A claimant is content with restricting his claim, let us say to Rs.30 lakhs in a statement of claim before the Arbitrator and at no point does he seek to claim anything more. The arbitral award ultimately awards him 45 lakhs without an acceptable reason or justification. Obviously, this would shock the conscience of the court and the arbitral award would be liable to be set aside on the ground that it is contrary to "justice".

If the Arbitrator commits an error in the ARBT No. 285/17 Page No.13 / 17 construction of the contract, that is an error within his jurisdiction. But if he wanders outside the contract and deals with matters not allotted to him, he commits a jurisdictional error. Extrinsic evidence is admissible in such cases because the dispute is not something which arises under or in relation to the contract or dependent on the construction of the contract or to be determined within the award. The ambiguity of the award can, in such cases, be resolved by admitting extrinsic evidence. The rationale of this rule is that the nature of the dispute is something which has to be determined outside and independent of what appears in the award. Such a jurisdictional error needs to be proved by evidence extrinsic to the award.

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.

4.3. Reverting back to the facts of the case in hand, appropriately guided by the ratios laid down by their Lordships in the above referred decision, if we analyze the present case, the petitioner has challenged the impugned award on number of grounds which inter alia includes the appreciation of evidence led in the arbitral proceedings in ARBT No. 285/17 Page No.14 / 17 the form of documents and statements in support of the claim of the petitioner who was respondent before the Ld. Arbitral Tribunal. In nutshell, basically it is a reiteration of the contentions raised before the Ld. Arbitral Tribunal which for the reasons mentioned in the impugned award did not find favour.

4.4 As has already been discussed above, in any proceedings under section 34 of the Act, 1996, it is not open for the civil court to sit in appeal and re-appreciate the evidence and contentions of any of the parties to come to a different conclusion as has been drawn by the Ld. Arbitral Tribunal. It is no more res integra that such an approach would frustrate the purpose of arbitral proceedings. A step further has been held in various judicial pronouncements that the civil courts are not permitted to modify the arbitral award even if there is a mistake apparent or improper appreciation of evidence, it has been held that the proper course available to the parties under such circumstances is to move adequate application before the Tribunal itself.

4.5. In the present petition, a well-reasoned and detailed Award has been passed by the Ld. Arbitral Tribunal touching upon each and every aspect of the case which includes that as to why the theory of two distinct works ARBT No. 285/17 Page No.15 / 17 emerging from the common work order dated 27/10/2004 was not possible; examination of various e-mails have shown that the intention of parties was to execute it as a consolidated work order; the Principal has asked the Agent to raise a common invoice and the Principal has requested the Agent to follow up the payments and remit the same. The Ld. Arbitrators had elaborately discussed the rights and duties of an Agent which include not working to the detrimental of the Principal, fiduciary relationship and other legal aspects touching the concept of agency. It is in this background that the additional claim of the petitioner in respect of expenses incurred for hiring of Engineer was not accepted. On the aspect of quantum of receipt of payment from M/s Reliance Engineering Associates Pvt. Ltd. the Ld. Arbitrator had relied upon a communication stating that nothing is due on account of work order dated 27.10.2004. The Ld. Arbitrator found insufficient evidence on record which could demonstrate that the petitioner as an Agent has not received payments from M/s Reliance Engineering Associates Pvt. Ltd. and there is an outstanding amount. The petitioner of the present suit has led entire evidence before the Ld. Arbitrator which had been appreciated properly and adequate opportunity of being heard has been given before coming to the conclusion.

4.6. Another argument has been raised on behalf of the petitioner that out of the amounts received from M/s. Reliance Engineering Associate Pvt. Ltd. an amount of Rs.2,20,000/- has been paid as service tax which should be reduced from the awarded amount. It is matter of record that no such argument was taken before the Ld. Arbitrator. As it has already been discussed above that the impugned award cannot be modified by the civil court even for the mistake apparent from the record and the law is well settled that once the findings and the conclusions are possible and plausible findings, the court hearing objections under Section 34 of the Act, 1996, will not substitute its view from that of award.

5. In view of detailed discussion, I do not find any infirmity in the impugned award which could be set aside by resort to section 34 of the Act, 1996. The petition of the petitioner is devoid of merits and hence dismissed.

Pronounced in the Open Court
on 19.08.2017                            (Vineeta Goyal)
                                 Additional District Judge-03
                        South District / Saket Court Complex
                                          New Delhi




ARBT No. 285/17                                    Page No.17 / 17