Bangalore District Court
To Pay A Sum Of Rs.2 vs Has Not Challenged The Impugned Award on 22 July, 2021
1
Com.A.S.No.31/2019
IN THE COURT OF LXXXII ADDL.CITY CIVIL & SESSIONS
JUDGE, AT BENGALURU (CCH.83)
THIS THE 22nd DAY OF JULY 2021.
PRESENT:
SRI.DEVARAJA BHAT.M., B.COM, LL.B.,
LXXXII ADDL.CITY CIVIL & SESSIONS JUDGE,
BENGALURU.
Com.A.S.No.31/2019
BETWEEN:
The Karnataka State
Electronics Development
Corporation Limited,
having its Office at 2nd
Floor, TTMC A Block,
BMTC Shanthi Nagar,
K.H.Road, Bengaluru
-560 027, represented
by its authorized
signatory Mr.
Shivakumar Karadkal,
Manager (Technical).
: PLAINTIFF
(Represented by Sri.
Nishanth A.V.-Advocate)
AND
M/s Promax
Management Consultant
Pvt. Ltd., Company
incorporated under the
Companies Act, Office at
2
Com.A.S.No.31/2019
No.552, 13th Cross, 7th
Main, RMV 2nd Stage,
Dollars Colony,
Bengaluru -560 094,
represented by its
Managing Director Mr. N.
Rama Priya.
: DEFENDANT
(Defendant is
represented by
Siddharth B. Muchandi-
Advocate)
Date of Institution of the suit 26.02.2019
Nature of the suit (suit on
pronote, suit for declaration & Petition for setting aside
Possession, Suit for injunction Arbitral Award
etc.)
Date of commencement of
recording of evidence - Nil -
Date on which judgment was 22.07.2021
pronounced
Date of First Case - Not held -
Management Hearing
Time taken for disposal from 13 days
the date of conclusion of
arguments
Total Duration Year/s Month/s Day/s
01 04 26
(DEVARAJA BHAT.M),
LXXXII Addl. City Civil & Sessions Judge,
Bengaluru.
3
Com.A.S.No.31/2019
JUDGMENT
This is a Petition filed under Section 34 of the Arbitration & Conciliation Act, 1996 for setting aside the Arbitral Award dated 10.01.2019 passed in A.C.No.46/2018 by the learned Sole Arbitrator.
2. The Defendant, "M/s Promax Management Consultants Pvt.ltd" had invoked the Arbitration Agreement and preferred certain Claims against M/s Karnataka State Electronics Development Corporation Limited (KEONICS), the Plaintiff. In response to the Statement of Claim preferred by the Defendant, said KEONICS filed its statement of objections.
3. The Brief facts leading to the case are as follows:-
The Plaintiff is a Government of Karnataka Enterprise with the sole object of forming Electronic Industries in Karnataka and intended to set up an IT Park measuring 50,000 square feet at Commercial Plot No.5 of KHB Layout, Gulbarga and in that regard, a request for proposal (RFP) was floated by the Plaintiff on 08.01.2010 in the newspapers, e-Tender and on KEONICS website and the Defendant was the lowest bidder having quoted the rate of Rs.33,09,000/-, that on 18.02.2010 negotiations were held between the Plaintiff and Defendant and 4 Com.A.S.No.31/2019 the Defendant offered a special discount of 2% on the quality fee and agreed a price of Rs.32,42,820/- with respect to the IT Park, Gulbarga, that pursuant to the said negotiations, a Letter of Intent came to be issued on 15.03.2010, and the Plaintiff and Defendant entered into a Project Management Consultancy Agreement on 05.04.2010, that as per the Agreement, the preliminary cost of establishment of IT Park Complex at Gulbarga was estimated at Rs.9,00,00,000/-, that the said IT Park was to be constructed by M/s. Nagarjuna Constructions Company (NCC) and the contract was for a sum of Rs.10,50,00,000/-, that an additional work was assigned by KEONICS to NCC amounting to Rs.95,34,916.64, that the NCC is yet to complete the work till date, that a total sum of Rs.26,80,979/- has been paid by the Plaintiff to the Defendant till date and in addition to the same, in terms of the Agreement, Bank Guarantee of Rs.4,41,000/- has been withheld, that dispute arose between the parties and the Defendant issued a Legal Notice dated 26.02.2016 seeking a sum of Rs.1,46,73,327/-, that invoking the Arbitration Proceedings the Defendant filed CMP No.73/2017 before the Hon'ble High Court of Karnataka for appointment of Arbitrator, that the Sole Arbitrator was appointed and the Defendant filed Claim Petition seeking payment of a sum of Rs.2,68,48,780/- along with interest thereon at 24% per annum, that the Plaintiff filed 5 Com.A.S.No.31/2019 statement of Objections, admitting the fact that it was liable to pay Rs.5,61,841/- on completion of the work, that after hearing both sides, the Sole Arbitrator has passed the Impugned Award allowing the Claim of the Defendant, directing the Plaintiff to pay a sum of Rs.39,83,102/- together with interest at the rate of 18% per annum from October 2013 till March 2018 and 12% from the date of Claim Petition till the date of Award and 9% from the date of Award till the date of realization.
4. Being aggrieved by the said Arbitral Award, the Plaintiff has challenged the same on various grounds which will be discussed later in the body of the Judgment.
5. Along with the Main Petition, the Plaintiff has filed I.A. No.I for stay of the Impugned Award, and since the Defendant appeared as Caveator, after hearing the matter, on 22.10.2010 the said Award is stayed until further Orders. I.A. No. II is filed under Section 34(5) & (3) read with Section 34 of the Arbitration & Conciliation Act, 1996 . On 23.01.2021, I have heard the arguments of learned Advocate Sri. A.V. Nishanth on behalf of the Plaintiff. On 03.02.2021, the Advocate for Plaintiff has filed detailed written arguments. On 03.04.2021, the advocate for the Defendant has filed his written arguments. On 09.07.2021, both the Advocates prayed to post the matter to 6 Com.A.S.No.31/2019 pronounce Judgment and hence, the case was posted for pronouncement of Judgment.
6. Based on the above contentions of both parties, following Points arise for my consideration:-
1. Whether there are grounds to set aside the Impugned Award under Section 34 of the Arbitration & Conciliation Act?
2. What Order?
7. My findings on the above points are as follows:-
Point No.1:- In the Negative Point No.2:- As per the final Order for the following reasons.
REASONS
8. Point No. 1: - The Claimant (i.e. the present Defendant) has preferred a Claim Petition before the Learned Arbitrator for relief of directing the Respondent (i.e. the present Plaintiff) to pay a sum of Rs.2,68,48,780/- along with interest at the rate of 24% P.A. from the date of Claim till the date of realization.
9. The Learned Arbitrator has partly allowed the claims of the Claimant in the Impugned Award. Thought the Learned 7 Com.A.S.No.31/2019 Arbitrator has partly allowed the claim of the Defendant, the Defendant has not challenged the Impugned Award, and hence the same attained finality to that extent.
10. The Plaintiff has challenged the said Impugned Award in this proceeding. The Hon'ble High Court in the Judgment dated 17.04.2021 in Com.A.P.No.25/2021 (Union of India vs. M/s Warsaw Engineers) has laid down certain guidelines/principles about the writing of Judgments in a Petition filed under Section 34 of the Arbitration & Conciliation Act. Keeping in my mind the said guidelines, I now propose to examine each and every ground urged by the Plaintiff specifically with reference to the submissions made by both Advocates.
11. The First ground is that the Impugned Award passed by the learned Arbitrator is blatantly illegal and unreasonable and is in conflict with the Public Policy of India. This ground being a general ground, the same will be discussed later, after discussing about all other specific grounds.
12. The Second ground is that the Impugned Award is in contravention with the fundamental policy of Indian Law and is based on complete disregard to the settled principles of law.
8Com.A.S.No.31/2019 This ground being a general ground, the same will be discussed later, after discussing about all other specific grounds.
13. The Third ground is that the Impugned Award is in conflict with the most basic notion of morality and justice and deals with the disputes not contemplated or falling within the scope of Arbitration and is contrary and inconsistent with the terms and conditions of the Agreement between the parties. This ground being a general ground, the same will be discussed later, after discussing about all other specific grounds.
14. The Fourth ground urged is that the Impugned Award is passed in contravention and opposed to Section 31(A) of the Arbitration & Conciliation Act, 1996 and on this ground alone the Award is liable to be quashed. This ground being a general ground, the same will be discussed later, after discussing about all other specific grounds.
15. The Fifth ground urged is that the Impugned Award is passed with non-application of mind and is ex-facie contrary to the admitted position on record and documents produced before the learned Arbitrator as well as the evidence led by both parties.
9Com.A.S.No.31/2019
(a) The Learned Arbitrator has framed four issues at Para No.20 of the Award and he had discussed Issue No. 1 & 2 jointly, elaborately, after referring the contentions of the parties, the oral evidence adduced and the documents produced by the both parties and has held that the Defendant has proved that as on the date of inauguration of IT Park on 18.10.2012, it had competed the works in terms of Ex.P5/ Agreement and that the Defendant had carried out additional works pursuant to Ex.P8/ Additional Work Order. Prima-facie, on perusal of the Arbitral Records, it appears that the Impugned Award was passed after making detailed discussion of the material on record before the Arbitral Tribunal and it is a speaking order and the same will be discussed later while discussing about other grounds also. Hence, the said ground is not available for the Plaintiff under Sub-Section (2) and Sub-Section (2-A) of Section 34 of the Arbitration & Conciliation Act. Thus, the challenge flanked by the Plaintiff calling for the setting aside of Arbitral Award on this count is thwarted and rejected.
16. The Sixth ground urged is that the learned Arbitrator has completely ignored Ex.P.5 and further ignored the written arguments filed by the Defendant on 30.11.2018 and has erroneously held that the cost agreed by the consultant i.e., the Defendant amounting to Rs.32,42,820/- is for Rs.6,00,00,000/, which is contrary to the Agreement between the parties.
10Com.A.S.No.31/2019
(a) In order to appreciate this ground, it is necessary to discuss about the facts involved in this dispute. The Defendant was engaged by the Plaintiff for setting up IT Park at a cost of Rs. 6 Crores. Request for Proposal came to be floated by the Plaintiff in that regard on 08.01.2010 through electronic tendering process and presentation. The Plaintiff appointed the Defendant as Project Management Consultants. Initially the Defendant quoted the professional fee of Rs.33,15,000/- for a project costing Rs. 6 Crores and later during the price negotiations, the Defendant submitted a letter dated 18.02.2010 revising its fees to Rs. 32,42,820/-. Accepting the proposal, the Plaintiff appointed the Defendant as per Ex.P.4/ Letter of Intent dated 15.03.2010. Ex. P.5/ Agreement came to be executed on 05.04.2010 between the parties reflecting the said professional fee and details of services and assignments undertaken by the Defendant. The Defendant had completed the work by the end of June 2010 and issued Ex.P6/Letter on 30.06.2010 to the Plaintiff and also raised an Invoice for the services rendered. The IT Park came to be inaugurated by the then Hon'ble Chief Minister on 18.10.2012. Thereafter the Defendant issued Ex.P7/ Letter on 07.11.2012 along with its Invoice for a sum of Rs. 6,67,833/- for completion of the IT Park and requested for release of payment.
11Com.A.S.No.31/2019
(b) The Plaintiff appointed M/s. Nagarjuna Construction Company Limited as contractor and entrusted some additional work to said Company. The Defendant monitored and supervised the said additional work. Such entrustment of additional work to the Defendant was as per Ex.P8/Additional Work Order dated 24.05.2013.
(c) The Plaintiff issued Ex.P9/ Letter on 26.10.2013 to the M/s NCC Limited; contending that Deputy Chief Electrical Inspector had issued an Inspection Report and sought for rectification and that M/s NCC Limited had not rectified the issues which caused the delay for getting HT Power Line to IT Park.
(d) Despite the completion of IT Park and its handing over to the Plaintiff, the Plaintiff issued Ex.P10/Ex.R4/ Letter dated 26.11.2014 to the Defendant alleging non-completion of the balance work. The Defendant issued a reply as per Ex.P11 on 02.12.2014 and another reply as per Ex.P12 on 03.12.2014 and sought for issuance of Virtual Completion Certificate. On 19.12.2014, M/s Nagarjuna Construction Company Limited issued Ex.P13/Letter to the Plaintiff stating that it had cleared all the works from their end and the few snags that were noticed were also cleared and that project was handed over to the user Department. The Plaintiff also alleged breakage of 12 Com.A.S.No.31/2019 glasses and sought for replacement by issuing Ex.P.14/ Letter dated 21.01.2015.
(e) The work was completed by the Defendant and the Plaintiff has issued a Virtual Completion Certificate on 31.03.2015 as per Ex.R1.
(f) According to the Defendant, even though the Defendant had cleared all the pending works and snags and handed over the premises, the Plaintiff issued Ex.P15/Ex.R5/ Letter on 25.04.2015 asking the Defendant to clear all the pending works and snags and to hand over the premises.
(g) The Defendant has issued a Legal Notice as per Ex.P.20 on 26.02.2016 to the Plaintiff detailing elaborately the entire case of the Defendant including the payments due to the Defendant from the Plaintiff. The Plaintiff has not issued any reply to Ex.P.20.
(h) Considering all these aspects and also the non - issuance of reply to Ex.P20 by the Plaintiff, the learned Arbitrator has held that the Defendant had agreed to provide consultancy services for the revised fees of Rs.32,42,820/- for the project costing Rs.6,00,00,000/- and that as regards to the 13 Com.A.S.No.31/2019 increase in the cost of the Contract entrusted to the Contractor (NCC) from Rs.6,00,00,000/- to Rs.10.5 Crores, it is apparently a departure from the agreed terms of the Contract between the Plaintiff and Defendant and the additional work entrusted to NCC was long after the execution of Ex.P.5, that the Defendant had admittedly agreed to accept consultancy charges of Rs.32,42,820/- for the project costing Rs.6 Crores, that it is axiomatic that with the increase in the cost of the project, the Defendant becomes legitimately entitled to proportionate increase in the consultancy charges.
(i) Further, the Learned Arbitration has also considered the written arguments filed by the both Advocates at Para No. 29 to 32 and has also considered the oral arguments of the Learned Advocate for the Plaintiff at Para No. 33 of the Award. Hence, the allegation of the Plaintiff that the Learned Arbitrator has not considered his written arguments cannot be accepted at all. The said findings of the Learned Arbitrator are not perverse and it is not contrary to the terms of contract. Further the said findings are not contrary to any public policy and the same is not patently illegal. Hence, the said ground is not available for the Plaintiff under Sub-Section (2) and Sub-Section (2-A) of Section 34 of the Arbitration & Conciliation Act. Thus, the challenge flanked by the Plaintiff calling for the setting aside of Arbitral Award on this count is thwarted and rejected.
14Com.A.S.No.31/2019
17. The Seventh ground urged is that the learned Arbitrator has completely ignored Article 21 - Project Completion Schedule and also has ignored Note-I attached thereto and Article 27 of Ex.P.5 and hence, the finding of the Arbitrator is completely contrary to the Agreement between the parties and therefore, the Impugned Award is liable to be set aside.
(a) The Learned Advocate for the Plaintiff has argued that as per Article 21 of Ex.P5, the Defendant is not entitled for any compensation/extra charges as consultant's agreement shall accordingly deemed to have been extended with "NIL" financial effect and hence the said finding being contrary to the material on record and also opposed to fundamental policy of Indian Law and settled position of law.
(b) From the reading of Para No. 28 of the Award, the same argument was advanced before the Learned Arbitrator and the Learned Arbitrator has held that having regard to the additional work entrusted to NCC for which additional consultancy Service was provided by the Defendant, the Plaintiff is held obliged in law to compensate the Defendant reasonably, that after referring Article 27 of Ex.P5 the Learned Arbitrator has held that 15 Com.A.S.No.31/2019 when the contractual obligation not been performed by the Plaintiff, the Defendant Company could not have been held solely responsible for the snags in the work entrusted to NCC. In view of the said findings of the Learned Arbitrator, the same cannot be considered as perverse. The said findings are not contrary to the terms of Ex.P5 read with the terms of Ex.P8 and hence the same is not contrary to any public policy and the same is also not patently illegal. Hence, the said ground is not available for the Plaintiff under Sub-Section (2) and Sub-Section (2-A) of Section 34 of the Arbitration & Conciliation Act. Thus, the challenge flanked by the Plaintiff calling for the setting aside of Arbitral Award on this count is thwarted and rejected.
18. The Eighth ground urged is that PW.1 in his cross- examination has admitted to the fact that there is no other Agreement/Contract other than Ex.P.5 and in view of the admission, the Plaintiff relied on a decision reported in 1996 (4) - S.C.C. - 551 (Tamilnadu Electricity Board and another vs. N. Raju Reddiar and another), but the learned Arbitrator ignored the said decision of the Hon'ble Supreme court and also the admission of PW.1 while passing the Impugned Award.
16Com.A.S.No.31/2019
(a) However, after discussing the arguments advanced by the both Advocates, the Learned Arbitrator at Para No. 34 of the Impugned Award has referred to the said Judgment relied on by the Advocate for the Plaintiff and has held that he could not successfully rely on the said decision to defeat the claim of the Defendant in toto. Therefore, the said contention of the Plaintiff is without any basis. Further, before me also the Learned Advocate for the Plaintiff has relied on the decision reported in 1996 (4) - S.C.C. - 551 (Tamilnadu Electricity Board and another vs. N. Raju Reddiar and another). I have gone through the said decision. In the said decision it is held that where the agreement between the parties is a written agreement, the parties are bound by the terms and conditions of the agreement, that once a contract is reduced to writing, by operation of Section 91 of the Evidence Act, it is not open to any of the parties to seek to prove the terms of the contract with reference to some oral or other documentary evidence to find out the intention of the parties, that under Section 92 of the Evidence Act, where the written instrument appears to contain the whole terms of the contract then parties to the contract are not entitled to lead any oral evidence to ascertain the terms of the contract, that it is only when the written contract does not contain the whole of the agreement between the parties and there is any ambiguity then oral evidence is 17 Com.A.S.No.31/2019 permissible to prove the other conditions which also must not the inconsistent with the written contract.
(b) Apart from the said decision, he has also relied on a decision reported in 2012 (8) - S.C.C. - 148 (Union of India vs. Ibrahim Uddin & Another) wherein it is held that the admission is substantive evidence and may operate as estoppel in certain circumstances. By relying on the said decision, the learned Advocate for the Plaintiff has argued that the PW.1 has made certain admissions during the course of trial before the Arbitral Tribunal and he insists to re-appreciate the said evidence in this proceeding. Section 34 of the Arbitration & Conciliation Act, 1996 does not empower the Courts to re- appreciate and re-evaluate the evidence produced before the Arbitral Tribunal and thereafter to judge if the findings of the Arbitral Tribunal are correct or wrong. The Superior Courts have repeatedly held that it is not permissible to a Court to examine the correctness of the findings of the arbitrator, as if it were sitting in appeal over his findings. The findings of fact by the Arbitral Tribunal, if based on evidence, even where a different opinion can be held on the basis of that evidence, the findings given by the Arbitrator has to be accepted and the Courts cannot substitute its opinion. The power to interpret the contract also lies with the Arbitrator. Once the courts reach to 18 Com.A.S.No.31/2019 the conclusion that the Arbitrator has acted within its jurisdiction, even if the courts are of the view that the opinion of the arbitrator is wrong the same cannot be disturbed unless it is against the public policy.
(c ) Further, with regard to this ground, I deem appropriate to reproduce Section 18 and 19, nestled under Chapter V - Conduct of Arbitral Proceedings of the Arbitration & Conciliation Act, 1996, which reads as under:-
"CHAPTER V Conduct of arbitral proceedings
18. Equal treatment of parties: - The parties shall be treated with equality and each party shall be given a full opportunity to present his case.
19. Determination of rules of procedure:-
(1) The arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 (5 of 1908) or the Indian Evidence Act, 1872 (1 of 1872).
(2) Subject to this Part, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting its proceedings.
(3) Failing any agreement referred to in sub-section (2), the arbitral tribunal may, subject to this Part, conduct the proceedings in the manner it considers appropriate.
(4) The power of the arbitral tribunal under 19 Com.A.S.No.31/2019 sub- section (3) includes the power to determine the admissibility, relevance, materiality and weight of any evidence."
(d) I am of the considered view that the aforesaid challenge flanked by the Plaintiff to the arbitral award is on a very thin ice. In the decision reported in 2002 - S.C.C. OnLine - Bom - 983 (Maharashtra State Electricity Board vs. Datar Switchgear Ltd.), it is observed that sub-section (1) of Section 19 of the Arbitration & Conciliation Act, 1996 has prescribed that the arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 or by the Evidence Act, 1872. The paragraph No. 41 of the said decision is reproduced verbatim, as under: -
"41. In sub-section (1) of section 19, the Act has prescribed that the Arbitral Tribunal shall not be bound by the Code of Civil Procedure, 1908 or by the Evidence Act, 1872. These are words of amplitude and 30 not of restriction. These words no not prohibit the Arbitral Tribunal from drawing sustenance from the fundamental principles underlying the Civil Procedure or Evidence Act, but free the Tribunal from being bound, as would a Civil Court, by the requirement of observing the provisions of the Code and the law relating to evidence with all its rigour. Sub-section(2) of Section
19 preserves the consensual nature of the arbitral proceedings by laying down that subject to the provisions of Part-I, the parties are free to agree on 20 Com.A.S.No.31/2019 the procedure to be followed by the Arbitral Tribunal in conducting its proceedings. The freedom which is conferred upon the parties to agree on the procedure to be followed by the Arbitral Tribunal is regulated by Part-I but subject to that regulation parties are otherwise free to agree on arbitral procedure and the conduct of proceedings. In the event that parties are not agreed on the procedure to be followed in the conduct of proceedings, the Arbitral Tribunal is against, subject to Part-I, free to conduct the proceedings in a manner which it considers appropriate. Sub-section (4) of Section 19 provides some indication of the contents of sub- section (3). Sub-section (4) lays down that the power of the Arbitral Tribunal under sub-section (3) includes the power to determine the admissibility, relevance, materiality and weight of any evidence. Sub-section (4) is of course not exhaustive of the content of sub-section (3) but provides an instance of the power conferred by sub-section (3)."
(e) In Paragraph No. 52 of the said decision, the Hon'ble Bombay High Court has eloquently reiterated the concept of an arbitral tribunal. The relevant extract of the same is as under: -
"52. The jurisprudential concept of an Arbitral Tribunal is that it is a private forum which is chose by the parties as a means of a speedy and expeditious resolution of disputes between them. The Arbitral Tribunal is not akin to a Court of law which has ordinarily a jurisdiction in general and an existence in perpetuity. The existence of an Arbitral Tribunal arises out of an arbitral agreement between the parties and upon the invocation of arbitration. The adjudicatory 21 Com.A.S.No.31/2019 powers of an Arbitral Tribunal extend to such matters as parties have referred to it. The Arbitration and Conciliation Act, 1996 is a regulatory statute which has consolidate and amended the law of arbitration. The legislature in its wisdom has conferred power upon the Arbitral Tribunal to terminate its proceedings or to suspend its hearings in situations envisaged in the statute. It would, in my view, be impermissible for an Arbitral Tribunal to transcend the ambit of the powers which the parties have conferred and what the legislature has envisaged."
(f) The Hon'ble Apex Court in the decision reported in (2018) 9 - S.C.C. 49 (Emkay Global Financial Services Ltd. vs. Girdhar Sondhi) has held that an application under Section 34 of the Arbitration & Conciliation Act, 1996 for setting aside an arbitral award will not ordinarily require anything beyond the record that was before the arbitrator. I have carefully perused the arbitral record and it is observed that as per Section 19(2) of the Arbitration & Conciliation Act, 1996, no procedure between the parties was agreed to be followed by the arbitral tribunal in conducting its proceedings. It is further observed that the learned Arbitrator rightfully exercised the power vested in him under the mandate of Section 19(3) and 19(4) of the Arbitration & Conciliation Act, 1996. It is accordingly, held that the arbitral award is neither against the fundamental policy of India nor in contravention of law. The Learned Arbitrator is not bound by the Code of Civil Procedure 22 Com.A.S.No.31/2019 or by the Indian Evidence Act. All that is required of is that he follows the principles of natural justice and treats the parties impartially and gives them full and equal opportunity to present their case. From perusal of the arbitral records it is observed that the Learned Arbitrator did adhere to the principles of natural justice and treated the parties impartially and gave them full and equal opportunity to present their case. Therefore, the above-mentioned decisions relied on by the Advocate for the Plaintiff, reported in 1996 (4) - S.C.C. - 551 (Tamilnadu Electricity Board and another vs. N. Raju Reddiar and another) and 2012 (8) - S.C.C. - 148 (Union of India vs. Ibrahim Uddin & Another) are not applicable to the present case. Hence, the said ground is not available for the Plaintiff under Sub-Section (2) and Sub-Section (2-A) of Section 34 of the Arbitration & Conciliation Act. Thus, the challenge flanked by the Plaintiff calling for the setting aside of Arbitral Award on this count is thwarted and rejected.
19. The Ninth ground urged is that consultancy services of the Defendant continued to exist till the project is completed by the Contractor (NCC), that it was always the case of the Plaintiff that the Contractor has not completed the work till date, that therefore the question of Plaintiff paying the amount did not arise as the claim made by the Defendant is premature, that 23 Com.A.S.No.31/2019 the said aspect has not at all been considered and is ignored by the Arbitrator while passing the Impugned Award.
(a) The contention of the Defendant is that it is an admitted fact that the project has been completed, inaugurated and is in operation, that the Plaintiff at one stage contends that the preliminary cost of the project was estimated at Rs.9 Crores and that the Plaintiff is liable only to pay a sum of Rs.5,61,841/- and at another stage, he states that the consultancy services of the Defendant continued to exist till the project is completed by the Contractor and hence, the said contentions are contradictory to one another.
(b) Further as could be seen from Ex.R1/ Virtual Completion Certificate, the Plaintiff himself has certified that the construction of IT Park complex was virtually completed on 31.03.2015 with minor snags. As per the findings of the learned Arbitrator, the RW.1/ The Manager of the Plaintiff has deposed in the Affidavit filed in - lieu of oral Examination Chief, that the IT Park was inaugurated on 18.10.2012, the work of the project was not complete on that day. However, the learned Arbitrator has further held that the alleged pending work as on the date of inauguration of IT Park is not discernible from the evidence of RW.1 and that he would only refer to Ex.P10, which was 24 Com.A.S.No.31/2019 apparently issued after the entrustment of additional work to NCC as per Ex.P8 and hence the alleged snags listed by the Plaintiff at Ex.P10 where in the context of additional work entrusted to NCC for which the Defendant was required to provide consultancy services. The said findings of the learned Arbitrator are not perverse and contrary to any public policy and are also not patently illegal. Hence, the said ground is not available for the Plaintiff under Sub-Section (2) and Sub-Section (2-A) of Section 34 of the Arbitration & Conciliation Act. Thus, the challenge flanked by the Plaintiff calling for the setting aside of Arbitral Award on this count is thwarted and rejected.
20. The Tenth ground urged is that the claim being premature, the awarding of interest by the learned Arbitrator is bad, illegal and perverse and hence, the interest awarded from October 2013 till March 2018 is contrary to Ex.P.5 and hence, the Impugned Award is liable to be set aside.
(a) The Learned Advocate for the Plaintiff has argued that the work of the Defendant to supervise the project subsists until it is fully completed, that in Para 32 of the Claim Petition, the Defendant has admitted to the fact that there was delay and shortfalls on the Contractor in completion of the work, that the Contractor is yet to complete his work, that the final bill of the contractor is yet to be cleared and hence the question of 25 Com.A.S.No.31/2019 clearing the final bill of the Defendant did not arise at all. He has further argued that the Defendant has stated that the cause of action arose when the Defendant defaulted in payment of the dues in spite of the Legal Notice dated 26.02.2016 issued by the Defendant, the Learned Arbitrator has awarded interest from October 2013 and hence the same is beyond the claim of the Defendant.
(b) However from the Arbitral records as could be seen from Para No. 37 of the Claim Petition filed by the Defendant, he has claimed interest from October 2013 itself. The Learned Arbitrator has reproduced the same tabular form as mentioned at Para No. 37 of the Claim Petition at Para No. 8 of the Impugned Award. Therefore, it is very clear that the Defendant/Claimant had claimed interest from October 2013 itself. Therefore the said direction of the learned Arbitrator is not perverse and contrary to any public policy and not patently illegal. Hence, the said ground is not available for the Plaintiff under Sub-Section (2) and Sub-Section (2-A) of Section 34 of the Arbitration & Conciliation Act. Thus, the challenge flanked by the Plaintiff calling for the setting aside of Arbitral Award on this count is thwarted and rejected.
21. The Eleventh ground is that the Arbitral Tribunal has no jurisdiction to decide the matter on the alleged additional work, 26 Com.A.S.No.31/2019 which was ignored by the learned Arbitrator while passing the Impugned Award.
(a) On perusal of the Arbitral records, the Plaintiff in his Statement of Defence filed under Section 23 of the Arbitration & Conciliation Act, filed before the Learned Arbitrator on 03.09.2018 has not taken any such ground about the jurisdiction of the Arbitral Tribunal to decide the matter on alleged additional work. When such being the case, as per Section 4 of the Arbitration & Conciliation Act, the Plaintiff is deemed to have waived his right to object the jurisdiction of the Arbitral Tribunal in this proceedings. Hence, the said ground is not available for the Plaintiff under Sub-Section (2) and Sub- Section (2-A) of Section 34 of the Arbitration & Conciliation Act. Thus, the challenge flanked by the Plaintiff calling for the setting aside of Arbitral Award on this count is thwarted and rejected.
22. The Twelfth ground is that the learned Arbitrator has awarded the damages of Rs.5,00,000/- without any basis and reasoning contrary to the terms of the Agreement and hence, the same is bad, untenable and opposed to settled principles of law.
27Com.A.S.No.31/2019
(a) The Learned Advocate for the Plaintiff has drawn my attention to Article 21 of Ex.P.5 Agreement and has argued that the finding of the Learned Arbitrator is contrary to the said terms of contract and hence the damages awarded is contrary to the terms of the contract.
(b) However I have already discussed about this aspects while considering seventh ground earlier. For the same reasons, this ground is not available for the Plaintiff under Section 34 (2) and Section 34 (2-A) of the Arbitration & Conciliation Act. Thus, the challenge flanked by the Plaintiff calling for the setting aside of Arbitral Award on this count is thwarted and rejected.
23. The Thirteenth ground is that the findings in the Impugned Award are contrary to the evidence and material on record before the learned Arbitrator.
(a) In view of my discussion in respect of other grounds elsewhere in this Judgment, the said argument of the learned Advocate for the Plaintiff cannot be accepted. Moreover, this ground is in the nature and tenor of appeal. The position in law is well settled that this court while exercising power under Section 34 of the Arbitration & Conciliation Act does not sit as a court of appeal. The nature of proceedings under Section 34 of 28 Com.A.S.No.31/2019 the Act is summary in nature as held in the decision reported in (2019) - S.C.C. Online - S.C. - 1244 = (2019) 9 - S.C.C. - 462 (Canara Nidhi Limited vs. M. Shashikala) . Hence, the said ground is not available for the Plaintiff under Sub-Section (2) and Sub-Section (2-A) of Section 34 of the Arbitration & Conciliation Act. Thus, the challenge flanked by the Plaintiff calling for the setting aside of Arbitral Award on this count is thwarted and rejected.
24. The Fourteenth ground is that the Impugned Award passed by the learned Arbitrator is beyond the scope of the reference and is not maintainable in law and is liable to be set aside and that the Impugned Award is not valid, is opposed to Public Policy, contrary to law and is liable to be set aside under Section 34 of the Arbitration & Conciliation Act, 1996.
(a) In view of my discussion in respect of other grounds elsewhere in this Judgment, the said argument of the learned Advocate for the Plaintiff cannot be accepted. Moreover, this ground is in the nature and tenor of appeal. This Court is not sit as an Appellate Court. Hence, the said ground is not available for the Plaintiff under Sub-Section (2) and Sub-Section (2-A) of Section 34 of the Arbitration & Conciliation Act. Thus, the 29 Com.A.S.No.31/2019 challenge flanked by the Plaintiff calling for the setting aside of Arbitral Award on this count is thwarted and rejected.
25. Now I discuss about the grounds 1 to 4 mentioned above. The scope of this court is limited with regard to Section 34 of the Arbitration & Conciliation Act, 1996. The position of law stands crystallized today, that findings, of fact as well as of law, of the learned Arbitrator are ordinarily not amenable to interference under Section 34 of the Arbitration & Conciliation Act, 1996. The scope of interference is only where the finding of the Tribunal is either contrary to the terms of the contract between the parties, or, ex facie, perverse, that interference, by this court, is absolutely necessary. The Arbitrator is the final arbiter on facts as well as in law, and even errors, factual or legal, which stops short of perversity, does not merit interference under Section 34 of the Arbitration & Conciliation Act, 1996.
26. The Impugned Award was passed after the Arbitration and Conciliation (Amendment) Act, 2015 came into force. The said Amendment made major changes to Section 34. The changes were suggested by the 246th Report of the Law Commission of India on Amendments to the Arbitration and Conciliation Act, 1996 of August 2014 and the Supplementary to the 246 th Report of the Law Commission of India on Amendments to the 30 Com.A.S.No.31/2019 Arbitration and Conciliation Act, 1996 of February 2015. These changes were aimed at restricting Courts from interfering with arbitral awards on the ground of "public policy." Accordingly, the amendment added "Explanation 2" to Section 34(2) as well as Section 2A. Explanation 2 of Section 34(2) states:-
"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."
27. Thus, this Explanation significantly curtailed the scope of interpretation made in the decision reported in 2014 (9) - S.C.C. - 263 (ONGC vs. Western GECO International Limited). Because of this amendment, Courts would no longer be able to interfere with the award passed by the Arbitrator. The Explanation makes it especially clear that in no way would a Court be entailed to review the award on merits of the dispute. Similarly, Section 2A also curtails the scope of interpretation of "patently illegal" as propounded in the decision reported in 2003 (5) - S.C.C. - 705 ( ONGC vs. Saw Pipes Limited). Section 2A states:-
"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 31 Com.A.S.No.31/2019 merely on the ground of an erroneous application of law or by re-appreciation of evidence."
28. Thus, Courts can no longer reappraise evidence or set aside awards merely because the Arbitral Tribunal has made errors when dealing with the same. In the decision reported in (2017) 13 - SCALE - 91 (SC) (Venture Global Engineering LLC and Ors vs. Tech Mahindra Ltd. and Ors), the Hon'ble Supreme court has held as follows:-
"The Award of an Arbitral Tribunal can be set aside only on the grounds specified in Section 34 of the Arbitration & Conciliation Act and on no other ground. The Court cannot act as an Appellate Court to examine the legality of Award, nor it can examine the merits of claim by entering in factual arena like an Appellate Court."
29. A similar view is also taken in the decision reported in (2017) 14 - SCALE - 240 (SC) (Sutlej Construction vs. The Union Territory of Chandigarh).
30. The ratio of the above-mentioned decisions show that the recent trend of interpretation of "public policy" has been one where the Courts have refused to examine the Arbitral Awards on merits, thereby upholding the legislative mandate of "minimal intervention of the Courts in the arbitral process" as 32 Com.A.S.No.31/2019 reflected by the changes brought by the Arbitration and Conciliation (Amendment) Act, 2015.
31. In the decision reported in 2019 (15) - S.C.C. - 131 (Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India Ltd.), the Hon'ble Supreme Court has once again reiterated the law related to the examination by a Court of an Award under Section 34 of the Arbitration & Conciliation Act, 1996 and has held as under:-
"34. What is clear, therefore, is that the expression public policy of India, whether contained in Section 34 or in Section 48, would now mean the fundamental policy of Indian law as explained in paragraphs 18 and 27 of Associate Builders (supra), i.e., the fundamental policy of Indian law would be relegated to the "Renusagar" understanding of this expression. This would necessarily mean that the Western Geco (supra) expansion has been done away with. In short, Western Geco (supra), as explained in paragraphs 28 and 29 of Associate Builders (supra), would no longer obtain, as under the guise of interfering with an award on the ground that the arbitrator has not adopted a judicial approach, the Court's intervention would be on the merits of the award, which cannot be permitted post amendment. However, in so far as principles of natural justice are concerned, as contained in Sections 18 and 34(2)(a)(iii) of the 1996 Act, these continue to be grounds of challenge of an award, as is contained in paragraph 30 of Associate Builders (supra).33
Com.A.S.No.31/2019
35. It is important to notice that the ground for interference in so far as it concerns "interest of India"
has since been deleted, and therefore, no longer obtains. Equally, the ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the "most basic notions of morality or justice". This again would be in line with paragraphs 36 to 39 of Associate Builders (supra), as it is only such arbitral awards that shock the conscience of the court that can be set aside on this ground.
36. Thus, it is clear that public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as understood in paragraphs 18 and 27 of Associate Builders (supra), or secondly, that such award is against basic notions of justice or morality as understood in paragraphs 36 to 39 of Associate Builders (supra). Explanation 2 to Section 34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) was added by the Amendment Act only so that Western Geco (supra), as understood in Associate Builders (supra), and paragraphs 28 and 29 in particular, is now done away with.
37. Insofar as domestic awards made in India are concerned, an additional ground is now available under subsection (2A), added by the Amendment Act, 2015,to Section 34.Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law. In short, what is not subsumed within the fundamental policy of Indian law, namely, the contravention of a statute not linked to public policy or public interest, cannot be brought in by the back door 34 Com.A.S.No.31/2019 when it comes to setting aside an award on the ground of patent illegality.
38. Secondly, it is also made clear that re-
appreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award.
39. To elucidate, paragraph 42.1 of Associate Builders (supra), namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Paragraph 42.2 of Associate Builders (supra), however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award.
40. The change made in Section 28(3) by the Amendment Act really follows what is stated in paragraphs 42.3 to 45 in Associate Builders (supra), namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair minded or reasonable person would; in short, that the arbitrator's view is not even a possible view to take. Also, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under Section 34(2A).
41. What is important to note is that a decision which is perverse, as understood in paragraphs 31 and 32 of Associate Builders (supra), while no longer being 35 Com.A.S.No.31/2019 aground for challenge under public policy of India, would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterized as perverse."
32. In the decision reported in 2019 (16) - SCALE - 823 (Hindustan Construction Company Limited & Anr. vs. Union of India & Ors.), the Hon'ble Apex Court has held as under:-
"49. Further, this Court has repeatedly held that an application under Section 34 of the Arbitration Act, 1996 is a summary proceeding not in the nature of a regular suit - see Canara Nidhi Ltd. v. M. Shashikala 2019 SCC OnLine SC 1244 at paragraph 20. As a result, a court reviewing an arbitral award under Section 34 does not sit in appeal over the award, and if the view taken by the arbitrator is possible, no interference is called for - see Associated Construction v. Pawanhans Helicopters Limited. (2008)16 SCC 128 at paragraph 17.
50. Also, as has been held in the recent decision Ssangyong Engineering & Construction Co. Ltd. vs. NHAI 2019 SCC OnLine SC 677, after the 2015 Amendment Act, this Court cannot interfere with an arbitral award on merits."36
Com.A.S.No.31/2019
33. The Hon'ble Supreme Court in the decision reported in 2020 - SCC Online - S.C. - 466 (Patel Engineering Ltd. vs. North Eastern Power Corporation Ltd) has once again exposited the 'patent illegality' ground, appearing in Section 34 (2A) of the Arbitration and Conciliation Act, 1996. The most significant part of this judgment is the recognition and re- affirmation given to the test of patent illegality, as set out in Paragraph (42.3) of the Associate Builders case and which was reiterated in Paragraph (40) of Ssangyong Engineering case. The aforementioned test of 'patent illegality' lays down that any contravention of Section 28 (3) of the Arbitration & Conciliation Act, 1996 is deemed to be a sub-head of patent illegality. According to it, an Arbitral Tribunal must decide in accordance with the terms of the contract, but if an Arbitrator construes a term of the contract in such a way that it could be said to be something that no fair minded or reasonable person could do, the same will render the award 'patently illegal'.
34. By keeping in mind about the said legal aspects, I am of the opinion that the Arbitral Award is not marred by any patent illegality, as there is no contravention of the substantive law of India, which would result in the death knell of an Arbitral Award. It is also observed that there is no patent illegality in the Arbitral Award, which must go to the root of the matter. The Arbitral Award is also a well reasoned and a speaking award.
37Com.A.S.No.31/2019 The Arbitral Award is also held to not be in contravention of Section 28(3) of the Arbitration & Conciliation Act, which pertains to the terms of the contract, trade usages applicable to the nature of contract and substance of dispute. Hence, the above-mentioned grounds 1 to 4 are not available for the Plaintiff under Sub-Section (2) and Sub-Section (2-A) of Section 34 of the Arbitration & Conciliation Act. Thus, the challenge flanked by the Plaintiff calling for the setting aside of Arbitral Award on the said grounds is thwarted and rejected.
35. On a parting note, I would like to add, that the challenge to the various clauses of contract by the Plaintiff under the present petition is not tenable. It is accordingly, held that the Arbitral Award is neither against the fundamental policy of India nor in contravention of law. Therefore, I find no perversity in the Arbitral Award and the same is upheld.
36. Having given my careful consideration to the submissions urged and the complete case record in the preceding paragraphs of this judgment, I am of the view that is not a fit and proper case for exercise the jurisdiction of this court under Section 34 of the Arbitration & Conciliation Act and interfere with the Arbitral Award and the same is upheld. Hence, I answer this Point in the "Negative".
38Com.A.S.No.31/2019
37. Point No. 2:- Therefore, I proceed to pass the following Order.
ORDER The Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996, is dismissed.
The Arbitral Award dated 10.01.2019 is hereby confirmed.
Consequently, the I.A. No.II is dismissed as infructous.
The Plaintiff shall pay the cost of this proceeding to the Defendant.
Office is directed to return the Arbitral records to the Arbitration Centre after the Appeal period is over.
The Office is directed to send copy of this judgment to both parties to their email ID as required under Order XX Rule 1 of the Civil Procedure Code read with Section 16 of the Commercial Courts Act.
(Dictated to the Stenographer, typed by her directly on the computer, verified and pronounced by me in open Court on this the 22nd day of July 2021.).
(DEVARAJA BHAT.M), LXXXII Addl. City Civil & Sessions Judge, Bengaluru.
39 Com.A.S.No.31/2019 The Judgment is pronounced in Open Court. The operative portion of the said Judgment is as follows :-
ORDER The Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996, is dismissed.
The Arbitral Award dated 10.01.2019 is hereby confirmed.
Consequently, the I.A.
No.II is dismissed as
infructous.
The Plaintiff shall pay the
cost of this proceeding to the
Defendant.
Office is directed to
return the Arbitral records to
the Arbitration Centre after
the Appeal period is over.
The Office is directed to
send copy of this judgment to
both parties to their email ID
40
Com.A.S.No.31/2019
as required under Order XX
Rule 1 of the Civil Procedure
Code read with Section 16 of
the Commercial Courts Act.
(vide my separate detailed
Judgment dated 22.07.2021 ).
(Typed to my dictation)
LXXXII ACC&SJ, B'LURU.