Allahabad High Court
Union Of India vs M/S Arti Associates on 13 March, 2024
Author: Vivek Kumar Birla
Bench: Vivek Kumar Birla
HIGH COURT OF JUDICATURE AT ALLAHABAD
Reserved
Neutral Citation No. - 2024:AHC:44554-DB
Case :- APPEAL UNDER SECTION 37 OF ARBITRATION AND CONCILIATION ACT 1996 No. - 1010 of 2023
Appellant :- Union of India
Respondent :- M/S Arti Associates
Counsel for Appellant :- Subodh Kumar
Counsel for Respondent :- Ramakant Tiwari
Hon'ble Vivek Kumar Birla,J.
Hon'ble Donadi Ramesh,J.
(Per Hon'ble Donadi Ramesh, J.)
1. Heard Sri Subodh Kumar and Sri Udit Chandra, learned counsels appearing for the Union of India-appellant and Sri Shambhu Chopra, learned Senior Counsel assisted by Sri Ramakant Tiwari, learned counsel for the respondent.
2. The present appeal has been filed challenging the judgment and order dated 19.10.2023 passed by the Prescribed Authority, Commercial Court, Bareilly, in Misc. Case No.10 of 2023 (CNR No. UPBR - 4300001-2003) Union of India Vs. M/s Arti Associates whereby the application / objection under Section 34 (3) Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act') has been rejected, affirming the arbitral award dated 11.11.2002.
3. The proceedings were initiated based on the contract C.A. No. CEB/DDN/36 of 1994-95 regarding the construction of ground level water tank of 3 lacs gallon capacity, in replacement of 4 lacs gallon steel tanks at Lansdowne executed between the parties on 10.12.1994 for a total sum of Rs.12,65,538.21 paise. The work has to be completed on 05.01.1995 and 04.04.1996, respectively. The site was handed over to the contractor on 17.01.1995. The contractor instead of completing the work by 04.04.1996 has completed on 01.10.1997. Hence, there is delay on the part of the contractor.
4. As the dispute arose, the matter was referred to the Arbitrator who delivered the award on 11.11.2002. As against the said award, appeal / objection under Section 34(3) of the Act was filed by the appellant herein which was rejected vide order dated 19.10.2023. The said order has been challenged in the present appeal on the following grounds:
1. " Because the learned Arbitrator as well as Hon'ble Court below has totally failed to consider that the contractor has not prepared CPM charge i.e. the proposed work, execution programme and as such the contractor is at fault. Further, the contractor has not deployed sufficient number of labour (skilled, semi-skilled or non skilled) and as such, there was a delay of about more than one year in execution of the work period. Further, the contractor has not deployed qualified engineer and authorized representative for proper execution and completion of the work within time. The contractor is also at fault for not procurement of electricity and water connection within time. For this reason the contractor was at fault and as such all action taken by the Union of India / its representatives were within the ambit of the conditions of the contract agreement acceptable between both the parties.
2. Because while entering into the contract, the contractor was well aware about the fact that the work was to be executed in the hilly area of lansdowne. Therefore, the possibility of the rock cannot be ruled out. The quantum of amount of agreement was with possibility of an obstruction including hard rock.
3. Because despite completion of the work on 1st October, 1997 (though belated by one year) the contractor has submitted bill on 24th October, 1998 that too under protest. This clearly shows malafide on the part of the contractor.
4. Because the contractor did delay on his part, on the other hand raised frivolous claim and demanded appointment of Arbitrator in terms of Clause 70 of IAFW 2249. The said frivolous claim work outside the terms of IAFW 2249 and as such not admissible and not adjudicable by the Arbitrator. In this way the Arbitrator has gone beyond the terms and conditions of the arbitral agreement.
5. Because there is a specific condition under the contract that the Engineer Incharge is authorized to require the contractor to return all surplus material over drawn by the contractor and in case of default, the contractor is further responsible to pay the value of the material at the rate double of the prevailing market rate. In the light of the above, the claim awarded by the Arbitrator regarding Claim No.1 is outside the arbitral agreement.
6. Because insofar as the Claim No.2 is concerned i.e. delay in payment of RAR and final bill each and every RAR was timely paid as and when the same shall due on submission and request of the contractor. The contract agreement nowhere contemplate specific time for making the payment of RAR after its submission. Therefore, the said dispute is also outside the purview of IAFW 2249.
7. Because insofar as Claim No.4A is concerned regarding hard rock, as per Clause-7 of the IAFW 2249, it was to be decided by CWE and not by the Arbitrator. Hence the amount awarded by the Arbitrator on this ground is also not correct.
8. Because the Claim No.4-C regarding G.I. pipe was without written instructions of the engineer in charge and as such outside the purview of arbitral agreement.
9. Because insofar as the recovery done by the Union of India from final bill, i.e. Rs.29467/-, the contract agreement nowhere provide for expansion in the floor slab.
10. Because the claim of the contractor awarded by the sole Arbitrator regarding site clearance is beyond the terms of the contract agreement and by adjudicating this claim, the learned Arbitrator has travelled beyond his jurisdiction. The said claim was neither referable for arbitration nor it was arbitrable by the Arbitrator. In this way the learned Arbitrator has committed misconduct.
11. Because insofar as the payment of Claim No.12 regarding labour sitting idle is concerned, it was not on fault of the appellant as the site was given in time. Once, the work was stopped by the contractor and the labour was sitting idle, the Union of India cannot be penalized for the same.
12. Because insofar as the non-release of additional security is concerned, since the contractor has not submitted no dues certificate, as such the tension of the security is justifiable.
13. Because insofar as the payment regarding escalation of labour wages and fuel is concerned, clause 63 of IFAW 2249 is very much clear that the Union of India is not liable to pay such amount, as such the learned Tribunal has committed fault and has travelled beyond its jurisdiction.
14. Because the Union of India has exercised its power as per Clause 46 and 47 of IAFW 2249 which is binding on both the parties. Hence the amount is this respect is also incorrect.
15. Because insofar as awarding of the interest at different rate is concerned, all the said rate of interest are totally beyond the power of the sole arbitrator. The learned sole Arbitration has no power to award interest beyond 6%. However, in the present case, the interest at different rates including future interest at the rate of 15% per annum is too much excessive and beyond the powers of the sole Arbitrator. No interest about 6% is awardable other previous or present or future, while denying so, the Arbitrator has mis-conducted itself and has exercised the power which is not with the sole Arbitrator."
5. Based on the above grounds, learned counsel for the appellant has mainly contended that the award passed by the sole Arbitrator dated 11.11.2002 is not a reasoned one and while passing the order, the Arbitrator has not mentioned any reasons, hence the same is contrary to the observations made by the Apex Court in the case of M/s Dyna Technologies Pvt. Ltd. Vs. Crompton Greaves Ltd reported in 2019 (20) SCC page 1.
6. Learned counsel for the appellant has submitted that the award passed by the Arbitrator with regard to Claim No.2 reads as follows:
"32.2.0 Claim No.2 Compensation for delay in payment of RARs and final bill Amount of Claim Rs.91, 490.00 : Revise to Rs.1, 98, 870.00 "32.2.1 As per condition 64 of IAFW-2249 forming part of the contract agreement, the running payments were to be made to the contractor at an intervals of 30 days. Similarly final bill was to be paid within six months of completion of work. The work was completed on 01 Oct 1997 whereas the final bill was paid on 09 Sep 2001 i.e. almost after four years of completion of work.
32.2.2 The contractor has supported his claim vide his letter at Exhibit C-6, C-44, C-18, C-21, C-22 and written to the respondent asking for running payment and final bill. The details of claims have been revised from Rs.91, 490/- to Rs. I, 98, 870/- vide letter No AA-36/94-95/ ARB dt 13 Aug 2002.
32.2.3 Union of India in their pleading in defence have stated that payment of each and every RAR was timely made to the claimant as and when became due on submission/request by the claimant. It has further been stated by them that no time frame has been laid down in the contract for making the RAR payments.
32.2.4 Union of India has brought out that final bill could only be paid within six months of submission of final bill as per condition 64 of IAFW-2249 and return of overdrawn schedule 'B' stores.
32.2.5 Regular payments to the contractor whether small or big, is lifeline of the contractor for smooth execution of the works. The contractor can not be expected to work smoothly in case contractual obligations for regular payments are not discharged by the department.
32.2.6 It was argued by the contractor that final bill could not be submitted by him as measuement books for preparation of abstract or the abstracts of work done : against provisional quantities were not provided by the respondent. DO's were not finalised. Certain DO's were issued by the respondent even two to three years after the date of completion. The contractor has demanded interest @ 18% per annum for delayed payments.
32.2. 7 I have analysed the submissions made by both the parties and have come to the conclusion that claim of the contractor is partly sustained.
32.2.8 Considering a simple interest of 12% per annum on the delayed payment, I award a sum of Rs.I,11,412/- to the contractor against their claim No.2 and direct that Union of India represented by Chief Engineer, Bareilly Zone, Bareilly Cantt shall pay a sum of Rs. I,11,412. 00 to M/S Arti Associates, II-A/11, Nehru Nagar, Ghaziabad - 20I001 against their Claim No.2."
7. Perusal of the above said claim, it clearly discloses that the Arbitrator has not mentioned any reason for allowing the said claim, hence it has to be set aside as there is no reason mentioned in the award.
"32.6.0 Claim 4 (c) Bending of GI pipes 50 mm dia as per profile of the ground. Amount of Claim Rs.13,233.00 32.6.1 The contractor has submitted that ground where the GI pipe lines for water supply was to be laid was not even and having deep undulation. He had to carry out the work laying pipelines as per profiles.
32.6.2 Union of India in their submissions have stated that as per contract condition the claimant was liable to supply and lay GI tubing with all fittings and fixtures and that payment for bending of pipes as per profile is neither specified in the contract nor admissible. The claimant also did not raise this issue during the currency of the contract but on the contrary the contractor has saved provisions of GI bends, which they were supposed to provided.
32.6.3 However, Union of India agreed for connection of 50 mm GI pipes and 100 mm GI pipes with the existing pipe line amounting to Rs.2,500/- which was not covered under the contract agreement.
32.6.4 After going through the correspondence and provisions of the contract I have come to a conclusion that claim of contractor is not sustained for bending of pipes except connecting of new pipe line with the existing pipeline. I, therefore, award a sum of Rs.2,500/- to the contractor and direct the Union of India represented by Chief Engineer, Bareilly Zone, Bareilly Cantt shall pay a sum of Rs.2500.00 to M/S Arti Associates, II-A/11, Nehru Nagar, Ghaziabad - 20I001 against their Claim No.4 (c).
32.10.0 Claim No.10 Under payment made against DO No.3 for site clearance Amount of Claim Rs.4,18,230.00 32.10.1 The claimant contractor submitted that complete site clearance work under DO No. 3 against Schedule 'A' Part III has been carried out by them by chiseling the rock except the top layer of 1.50m depth. The strata of soil for top layer upto 1.5 deep was soft/disintegrated rock but the payment of DO No. 3 was not made to the claimant accordingly. They are, therefore, entitled for the extra expenditure incurred by them on this account.
32.10.2 Union of India in their pleading in defence have stated that contention of the claimant that any rock was met with at site is not based on facts and hence denied. The strata at site was measured and paid to the claimant through DO No.3. As per the details of the claim,. there is no dispute about the quantity of the excavation in rock done at site. The claimant had disputed the pricing of the DO but the pricing has been done on SSR as per the terms of contract.
32.10.3 After going through the submissions made by both the parties and details of claims submitted by the contractor I have come to the conclusion that the claim of the contractor is partly sustained.
32.10.4 I, therefore, award a sum of Rs. I,98,320.00 to the contractor against this claim and direct that Union of India represented by Chief Engineer, Bareiliy Zone, Bareilly Cantt shall pay a sum of Rs.I,98,320.00 to M/S Arti Associates, II-A/ll, Nehru Nagar, Ghaziabad-201001 against their Claim No.10.
32.12.0 Claim No.12 Reimbursement of payment made to labour who was sitting idle on account of suspension of work Amount of Claim Rs.19 760 00 32.12.1 The claimant contractor has claimed reimbursement on account of idle period from 25 Oct 1995 to 09 Nov 1995 i.e. for 16 days. 32.12.2 Union of India have brought out that the work was suspended because of non employment of site engineer in terms of condition 25 of IAFW-2249 despite repeated requests and notices from the respondent. The work was suspended w.e.f. 26 Oct 1995 and was ordered to be resumed from 02 Nov 1995. However, the contractor deployed the labour w.e.f 01 Nov 1995 as per the work diary. The work was, therefore, suspended for 07 days only. The work was suspended by the respondent for non-submission of copy of degree of the engineer employed. The claimant produced only photocopy of the degree.
32.12.3 Non production of degree certificate in original of engineer when photocopy of the same was submitted by the claimant cannot be taken as disqualification for employment of engineers. It is seen from the works diary that during suspended period of 07 days, total 51 Mazdoors, 7 Masons and one Mistry were deployed. The claim of the contractor is partly sustained.
32.12.4 I, therefore, award a sum of Rs.3,415.00 for the labour remained idle during suspended period of 07 days to the contractor and direct that Union of India represented by Chief Engineer Bareilly Zone, Bareilly Cantt shall pay a sum of Rs 3,415.00 to M/S Arti Associates, II-A/I I, Nehru Nagar, Ghaziabad-201001 against their Claim No.12.
32.16.0 Claim No.16 Payment of escalation of labour wages material and fuel on Account of under payment made against Claim No.4 to 10.
32.16.1 The claimant contractor has submitted that he is entitled for the payment of escalation in respect of material, fuel and labour wages on award amount against their Claims 4 to 10 above.
32.16.2 Union of India in their pleadings has submitted that none of the claims of the contractor are tenable and are liable to be rejected. \ 32.16.3 The claim of the contractor is sustained. They are entitled for payment of escalation of the award amount against claim No.4 to 10. I, therefore, award a sum of Rs.36,559.00 against their claim No.16 and direct that Union of India represented by Chief Engineer Bareilly Zone, Bareilly Cantt shall pay a sum of Rs.36.599.00 against their claim No.16 to M/S Arti Associates, II-A/I I, Nehru Nagar, Ghaziabad-201001.
32.19.0 Claim No.19 Interest from the date dues withheld to the date of payment @ 18% per annum 32.19.1 The claimant contractor has demanded past, pendentelite and future interest on all payments delayed. They have quoted various Court judgments where interests have been allowed on delayed payment by the Hon'ble Courts.
32.19.2 Union of India in the pleading in defence has stated that claims of the claimant are not tenable and deserve to be rejected. There is no question of payment of any interest. The rate of interest claimed is also exorbitant.
(a) Past interest and pendentelite interests
(i) Keeping in view of arguments advanced by the parties, I am of the view that end of justice would be met a simple interest of 12% per annum from one day after the date of final bill to the date of award against claims Nos.1, 4, 6, 10, 16 and 17 is made. Date of payment of final bill is chosen because on this date all payment and recoveries are settled.
(ii) I, therefore, award a simple interest of 12% per annum on awarded amount against Claim Nos. 1, 4, 6, 10, 16 and 17 for a period from 10 Sep 2001 (part final bill period on 09 Sep 2001) to the date of award to the contractor and direct that the Union of India represented by Chief Engineer Bareilly Zone shall pay interest as aforesaid to M/S Arti Associates, II-A/I I, Nehru Nagar, Ghaziabad-201001 against their Claim No.19.
(b) Future interest I allow to the Union of India a period of 90 days from the date of award to pay the amount due (including interest thereon) to the contractor. However, in case of their failure Union of India shall also pay on the amount due on the date of award, future interest from a day after the award to the date of actual payment or court decree whichever is earlier. The rate of such future interest shall be @ 15% per annum simple interest."
8. With regard to the above mentioned claim, the sole Arbitrator has not given any reason while passing the impugned award. Apart from that, the Sole Arbitrator has also granted interest which is contrary to the observations made by the Apex Court in catena of the decisions, hence learned counsel for the appellant requested to set aside the above claim.
9. To substantiate his contention, learned counsel for the appellant has relied on the decision of the Apex Court in the case of M/s Dyna Technologies Pvt. Ltd. Vs. M/s Crompton Greaves Ltd reported in 2019 (20) SCC page 1, particularly on paragraph nos. 27, 29, 30, 33, 34, 36, 40, 42 and 43 which are reproduced hereinunder:
"27. Moreover, umpteen number of judgments of this Court have categorically held that the Courts should not interfere with an award merely because an alternative view on facts and interpretation of contract exists. The Courts need to be cautious and should defer to the view taken by the Arbitral Tribunal even if the reasoning provided in the award is implied unless such award portrays perversity unpardonable under Section 34 of the Arbitration Act.
29. Similar to the position under the Model Law, India also adopts a default Rule to provide for reasons unless the parties agree otherwise. As with most countries like England, America and Model Law, Indian law recognizes enforcement of the reasonless award if it has been so agreed between the parties.
30. There is no gainsaying that arbitration proceedings are not per se comparable to judicial proceedings before the Court. A party under Indian Arbitration Law can opt for an arbitration before any person, even those who do not have prior legal experience as well. In this regard, we need to understand that the intention of the legislature to provide for a default rule, should be given rational meaning in light of commercial wisdom inherent in the choice of arbitration.
33. However, the ratio of Chokhamal case (supra) has not found favour of the Legislature, and accordingly Section 31(3) has been enacted in the Arbitration Act. This Court in Som Datt Builders Ltd. v. State of Kerala, 2010 (1) R.C.R. (Civil) 5 : (2009) 4 ARB LR 13 SC, a Division Bench of this Court has indicated that passing of a reasoned award is not an empty formulation under the Arbitration Act.
34. It may be relevant to note Russell on Arbitration, 23rd edn. (2007), wherein he notes that:
"If the Court can deduce from the award and the materials before it, which may include extracts from evidence and the transcript of hearing, the thrust of the tribunal's reasoning then no irregularity will be found.. Equally, the court should bear in mind that when considering awards produced by non-lawyer arbitrators, the court should look at the substance of such findings, rather than their form, and that one should approach a reading of the award in a fair, and not in an unduly literal way.
(emphasis supplied)
36. When we consider the requirement of a reasoned order three characteristics of a reasoned order can be fathomed. They are : proper, intelligible and adequate. If the reasoning in the order are improper, they reveal a flaw in the decision-making process. If the challenge to an award is based on impropriety or perversity in the reasoning, then it can be challenged strictly on the grounds provided under Section 34 of the Arbitration Act. If the challenge to an award is based on the ground that the same is unintelligible, the same would be equivalent of providing no reasons at all. Coming to the last aspect concerning the challenge on adequacy of reasons, the Court while exercising jurisdiction under Section 34 has to adjudicate the validity of such an award based on the degree of particularity of reasoning required having regard to the nature of issues falling for consideration. The degree of particularity cannot be stated in a precise manner as the same would depend on the complexity of the issue. Even if the Court comes to a conclusion that there were gaps in the reasoning for the conclusions reached by the Tribunal, the Court needs to have regard to the documents submitted by the parties and the contentions raised before the Tribunal so that awards with inadequate reasons are not set aside in casual and cavalier manner. On the other hand, ordinarily unintelligible awards are to be set aside, subject to party autonomy to do away with the reasoned award. Therefore, the courts are required to be careful while distinguishing between inadequacy of reasons in an award and unintelligible awards.
40. Coming back to the award, we need to see whether the award of the Arbitral Tribunal can be sustained in the instant case. Although the Arbitral Tribunal has dealt with the claims separately under different sub-headings, the award is confusing and has jumbled the contentions, facts and reasoning, without appropriate distinction. The Tribunal rendered the award with narration of facts with references to the annexures wherever it relied upon by it. The Tribunal abruptly concluded at the end of the factual narration, without providing any reasons, in the following manner:
(3) Claim for unproductive usage of machineries
(g) All the above facts clearly establish that the machineries deployed by the Claimant had to do unproductive work by shifting from one place to another to suit the availability of work. The contract contemplates only payment for actual turnover of earthwork and for this they had received amount totaling to Rs.1709782.88. The Claimant claims that the hire charges paid to the machineries, men and engineers should be reimbursed to him. He has given the actual expenses in his claim statement.
(emphasis supplied)
42. It may be beneficial to reduce the concluding paragraph of the award, which reads as under:
"3.4. The above arguments and various authorities quoted by them have been studied by the Tribunal and we are convinced that the compensation is payable on the hire charges and expenses incurred by the claimant based on the claims made by him in June 95 and now submitted by the claimant in his revised claim petition on 05.07.1997. We are convinced that the machineries have been actually mobilized from the letter R-3, R-8 and R-10 issued by DCM reporting on the number of machineries deployed by Claimant. The Claimants have produced the log books and bills for the various machineries and modified their claims. The tribunal had perused the log books and idle wages approved in C-7 by Respondent and the claims made in R-17.
(emphasis supplied)
43. From the facts, we can only state that from a perusal of the award, in the facts and circumstances of the case, it has been rendered without reasons. However, the muddled and confused form of the award has invited the High Court to state that the arbitrator has merely restated the contentions of both parties. From a perusal of the award, the inadequate reasoning and basing the award on the approval of the Respondent herein cannot be stated to be appropriate considering the complexity of the issue involved herein, and accordingly the award is unintelligible and cannot be sustained."
10. Learned counsel for the appellant has placed reliance on the decision of the Apex Court in the case of Delhi Airport Metro Express Pvt. Ltd. Vs. Dehli Metro Rail Corporation Ltd. 2022 (1) SCC 131 particularly on paragraph no.25 which reads as follows:
"25. Patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the Arbitral Tribunal would not fall within the expression 'patent illegality'. Likewise, erroneous application of law cannot be categorised as patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the scope of the expression 'patent illegality'. What is prohibited is for courts to re-appreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as courts do not sit in appeal against the arbitral award. The permissible grounds for interference with a domestic award under Section 34(2-A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one, or interprets a Clause in the contract in such a manner which no fair-minded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression 'patent illegality'."
11. Learned counsel for the appellant has further relied on decision of this Court in the case of Hindustan Steelworks Construction Limited Vs. New Okhala Industrial Development Authority 2024 (1) All. LJ 200, more particularly on paragraph nos.51, 54, 140, 146 which are reproduced hereinunder:
"51. Two points which arise for determination are:
(A) Whether award of damages during the period of suspension of contract (Claim No. 2), by the arbitral tribunal falls within the clutches of sub-section (2) or (2-A) of Section 34 of the Act, so as to warrant interference by the Court.
(B) Whether the Court, in proceeding emanating from Section 34 of the Act has power to sever bad part of the award from good part even in situations not covered under the proviso to Section 34 (2) (a) (iv) of the Act?
54. The Supreme Court explained that the phrase "public policy of India" used in Section 34 and 48 would now mean the "fundamental policy of Indian Law" as explained in paras 18 and 27 of Associate Builders. Therein reliance was placed on the meaning assigned to the aforesaid expression in Renu Sagar. Para 18 and 27 of Associate Builders reads thus:-
18. In Renusagar Power Co. Ltd. v. General Electric Co.3, the Supreme Court construed Section 7(1)(b)(ii) of the Foreign Awards (Recognition and Enforcement) Act, 1961:
7. Conditions for enforcement of foreign awards. (1) A foreign award may not be enforced under this Act-
(b) if the Court dealing with the case is satisfied that-
(ii) the enforcement of the award will be contrary to the public policy."
In construing the expression "public policy" in the context of a foreign award, the Court held that an award contrary to
(i) The fundamental policy of Indian law,
(ii) The interest of India,
(iii) Justice or morality, would be set aside on the ground that it would be contrary to the public policy of India. It went on further to hold that a contravention of the provisions of the Foreign Exchange Regulation Act would be contrary to the public policy of India in that the statute is enacted for the national economic interest to ensure that the nation does not lose foreign exchange which is essential for the economic survival of the nation (see SCC p. 685, para 75). Equally, disregarding orders passed by the superior courts in India could also be a contravention of the fundamental policy of Indian law, but the recovery of compound interest on interest, being contrary to statute only, would not contravene any fundamental policy of Indian law (see SCC pp. 689 & 693, paras 85 & 95).
27. Coming to each of the heads contained in Saw Pipes judgment, we will first deal with the head "fundamental policy of Indian law". It has already been seen from Renusagar judgment that violation of the Foreign Exchange Act and disregarding orders of superior courts in India would be regarded as being contrary to the fundamental policy of Indian law. To this it could be added that the binding effect of the judgment of a superior court being disregarded would be equally violative of the fundamental policy of Indian law.
140. The Full Bench while taking the above view, duly took into account the judgement of the Supreme Court in McDermott International Inc. (supra) as well as the provisions of the Old Act and observed as under :-
"35. The Supreme Court was primarily stating the principles which have been kept in mind by the courts while interfering with the award of the Arbitral Tribunal that it was to outline the supervisory role of the courts within the ambit and scope of section 34. It is true that the court like a court of appeal cannot correct the errors of arbitrator. It can set aside the award wholly or partially in its discretion depending on the facts of a given case and can even invoke its power under section 34(4). It is not expected of a party to make a separate application under section 34(4) as the provisions open with the language "on receipt of application under sub-section (1), the court may.........."which obviously means that application would be one for setting aside the arbitral award to be made under section 34(1) on the grounds of reasons stated in section 34(2) and has to be filed within the period of limitation as stated as reply under section 34(3). The court may if it deems appropriate can pass orders as required under section 34(4). In other words, the provisions of section 34(4) have to be read with section 34(1) and 34(2) to enlarge the jurisdiction of the court in order to do justice between the parties and to ensure that the proceedings before the Arbitral Tribunal or before the award are not prolonged for unnecessarily. In our humble view, the Division Bench appears to have placed entire reliance on para 52 by reading the same out of the context and findings which have been recorded by the Supreme Court in subsequent paragraphs. It is also true that there are no pari materia provisions like sections 15 and 16 of the Act of 1940 in the 1996 Act but still the provisions of section 34 read together, sufficiently indicate vesting of vast powers in the court to set aside an award and even to adjourn a matter and such acts and deeds by the Arbitral Tribunal at the instance of the party which would help in removing the grounds of attack for setting aside the arbitral award. We see no reason as to why these powers vested in the court should be construed so strictly which it would practically frustrate the very object of the Act. Thus, in our view, the principle of law stated by the Division Bench is not in line with the legislative intent which seeks to achieve the object of the Act and also not in line with accepted norms of interpretation of statute."
146. We have thus, no hesitation in holding that scheme of the Act does not put any limitation on power of the court to apply the doctrine of severability to an arbitral award while considering the objections under Section 34 of the Act. It is well within the power of court to segregate, severe and set aside part of the award and uphold the remaining part. The only restriction is (i) that while exercising the power, the court cannot proceed to modify the findings returned on any of the issues decided by the arbitral tribunal and (ii) the remaining part is capable of surviving on its own."
12. Based on the above observations of the Apex Court, learned counsel for the appellant has submitted that the award cannot be interfered or interdicted except on the ground of reasoning which is unintelligible and inadequate as the award is not having any reason then such award can be interfered under Section 34 (3) of the Act. Where the award has no reason would make itself susceptible to challenge under Section 34 (3) of the Act but the Commercial Court, Bareilly has not appreciated the grounds raised by the appellants herein under Section 34 (3) of the Act and in mechanical manner has dismissed the appeal filed by the appellant with the following order:
"9- अतः इस संबंध में मध्यस्थ ने जो विपक्षी के तर्क एवं साक्ष्य को ग्राह्य किया, उसे त्रुटिपूर्ण नहीं माना जा सकता। इस प्रकार देरी से कार्य पूर्ण करने का आधार समुचित एवं पर्याप्त है। जब किसी कार्य को पूर्ण करने में अप्रत्याशित कारणों से विलम्ब होता है तब निश्चित रूप से न केवल श्रम की हानि होती है, बल्कि कार्य की मूल्य दर भी बढ़ जाती है और इस संबंध में मध्यस्थ के निष्कर्ष को गलत नहीं ठहराया जा सकता है। याची पक्ष की ओर से कुछ तर्क साक्ष्य की विवेचना के संबंध में भी प्रस्तुत किये गये हैं जिसमें सीमेन्ट की बोरी तथा कुछ स्टील के पाइपों का लोपन विपक्षी द्वारा होना बताया गया है। इस संबंध में मध्यस्थ द्वारा दोनों ही पक्षों की साक्ष्य को और तर्को को सुना है और उस पर निष्कर्ष दिया है। साक्ष्य की समीक्षा के आधार पर दिये गये निष्कर्ष से भिन्न निष्कर्ष वर्तमान की कार्यवाही में नहीं दिया जा सकता है। याची पक्ष यह बताने में असफल है कि मध्यस्थ द्वारा पंचाट पारित करते समय किसी तात्विक अवैधानिकता को किया है अथवा कौन-सी लोकनीति के विरूद्ध पंचाट पारित किया है। साक्ष्य की सूक्ष्म विसंगतियां और सूक्ष्म विसंगति पूर्ण निष्कर्ष धारा-34 मध्यस्थ एवं सुलह अधिनियम के अन्तर्गत नहीं आती है।।
अतः याची पक्ष की याचिका खारिज किये जाने योग्य है। वाद के प्राचीन होने एवं अन्य परिस्थितियों को दृष्टिगत रखते हुए पक्षकारों द्वारा स्वयं वाद व्यय ग्रहण करना उचित होगा।
आदेश याची यूनियन ऑफ इण्डिया की ओर से प्रस्तुत याचिका जो CA NO. CEB/DDN/36 of 1994-95 से संबंधित पंचाट दिनांकित 11.11.2002 के संबंध में निरस्त की जाती है। पक्षकार अपना-अपना वाद व्यय स्वयं वहन करेंगे।
दिनांकः- 19.10.2023 (देव राज प्रसाद सिंह) पीठासीन अधिकारी, वाणिज्यिक न्यायालय, बरेली।"
13. The Commercial Court, Bareilly has not considered the objection raised by the appellants and the same was rejected which is contrary to the observation of the Apex Court, hence learned counsel for the appellant has requested to set aside the award more particularly Claim Nos.2, 4 (c), 10, 12, 16 and 19.
14. Per contra, learned Senior Counsel appearing on behalf of the respondents has contended that the sole Arbitrator has considered the claims and passed a reasoned award. In fact, to support his contention, learned counsel has submitted that Claim No.2 is with regard to compensation for delay in payment of final bill amount of Rs.91,490/- revised to Rs.1,98,870/- wherein the Arbitrator has considered the payment which was made whether it is as per agreement or not, and clearly stated that regular payment to the contractor whether small or big is a lifeline for contractor for smooth functioning of the work. The contractor cannot be expected to work smoothly in case payments are not discharged by the department. Hence after analysing the submissions made by both the counsels, the Arbitrator came to the conclusion that all the claims of the contractor is partly sustainable. As sole Arbitrator being a technical person, mentioned reason in the award, which is a reasoned order and a technical person cannot be expected to give more reasons than what was available on record.
15. In the instant claim, the Arbitrator has considered the claim made by the contractor and also the submissions made by both the parties. The Arbitrator came to the conclusion that claim of the contractor is partly sustainable, therefore, reason was given by the Arbitrator. Hence, argument advanced by learned counsel for the appellants is not sustainable as the Arbitrator has given his reasons in allowing the said award.
16. Learned Senior Counsel appearing for the respondents has further pointed out with regard to Claim No.4 (c), which is claim for Rs.13,233/- that Union of India has agreed for connection of 50 mm GI pipes and 100 mm GI Pipes with the existing pipe line amounting to Rs.2500/- which was not covered under the contractor agreement. Accordingly, the award has been made for a sum of Rs.2500/- as agreed by the Union of India, hence the same cannot be said to be a unreasoned order.
17. With regard to Claim No.10 for an amount of Rs.4,18,230/- made against D.O.No.3 for site clearance, it has been noted that the defence taken in the defence statement by the Union of India that the rock was met with at site is not based on facts and hence denied.
18. After going through the submissions and details of the claim submitted by the contractor, the sole Arbitrator came to the conclusion that all the claims of the contractor is sustainable. Hence, based on the record, the sole Arbitrator by giving the reason, awarded the claim partly. Likewise, in each and every claim, the Arbitrator has considered separately based on record and recorded reasons for awarding the same.
19. Learned Senior Counsel for the respondents has contended that as per noted contention of the appellants, he has more particularly questioned claim of the contractor i.e. Claim Nos.2, 4(c), 10, 12, 16 and 19, which are only nominal amount and that itself shows that the appellants are not interested to settle the award for one reason or other. The appellants are dragging the respondent to the Courts. In the instant appeal, Claim No.2, 4(c), 10, 12, 16 and 19 would not have much amount it comes to only Rs.2,00,000 or Rs.3,00,000/- that itself shows intention of the appellants. The Arbitrator has recorded reasons and passed the award, the same was considered by the Prescribed Authority, Commercial Court, Bareilly, in Misc. Case No.10 of 2023 (CNR No. UPBR - 4300001-2003) Union of India Vs. M/s Arti Associates under Section 34 (3) of the Act and rightly rejected the objection.
20. To support his contention, learned Senior Counsel appearing for the respondents has relied on the decision of the Apex Court in the case ofM/s Larsen Air Conditioning and Refrigration Company Vs. Union of India and others, reported in 2023 LawSuit (SC) 785, particularly in paragraph nos. 11, 13, 15, 16 which are extracted hereinunder:
" 11. Section 31(7)(b) of the 1996 Act, was amended by Act 3 of 2016, w.e.f. 23.10.2015. The pre-amended provision, empowers the arbitrator to award both pre-award and post-award interest, and specifies that the awarded sum would carry an interest of 18% per annum, unless provided otherwise, from the date of award till the date of payment. The pre-amended section, as it stood on the date of award by the arbitrator (21.01.1999), read as follows:
"31. Form and contents of arbitral award [...] (7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.
(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen per centum per annum from the date of the award to the date of payment."
(emphasis provided)
13. In the present case, given that the arbitration commenced in 1997, i.e., after the Act of 1996 came into force on 22.08.1996, the arbitrator, and the award passed by them, would be subject to this statute. Under the enactment, i.e. Section 31(7), the statutory rate of interest itself is contemplated at 18% per annum. Of course, this is in the event the award does not contain any direction towards the rate of interest. Therefore, there is little to no reason, for the High Court to have interfered with the arbitrator's finding on interest accrued and payable. Unlike in the case of the old Act, the court is powerless to modify the award and can only set aside partially, or wholly, an award on a finding that the conditions spelt out under Section 34 of the 1996 Act have been established. The scope of interference by the court, is well defined and delineated [refer to Associate Builders v. Delhi Development Authority 2014 13, SCR 895 Ssangyong Engineering Construction Co. Ltd v. National Highways Authority of India (NHAI) 2019 7 SCR 522 and Delhi Airport Metro Express Pvt. Ltd. v Delhi Metro Rail Corporation Ltd 2021 5 SCR 984].
15. The limited and extremely circumscribed jurisdiction of the court under Section 34 of the Act, permits the court to interfere with an award, sans the grounds of patent illegality, i.e., that "illegality must go to the root of the matter and cannot be of a trivial nature"; and that the tribunal "must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground" [ref: Associate Builders (supra)].
The other ground would be denial of natural justice. In appeal, Section 37 of the Act grants narrower scope to the appellate court to review the findings in an award, if it has been upheld, or substantially upheld under Section 34. It is important to notice that the old Act contained a provision which enabled the court to modify an award. However, that power has been consciously omitted by Parliament, while enacting the Act of 1996. This means that the Parliamentary intent was to exclude power to modify an award, in any manner, to the court. This position has been iterated decisively by this court in Project Director, National Highways No. 45E and 220 National Highways Authority of India v M. Hakeem 2021 5 SCR 368:
"42. It can therefore be said that this question has now been settled finally by at least 3 decisions [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] , [Kinnari Mullick v. Ghanshyam Das Damani, (2018) 11 SCC 328 : (2018) 5 SCC (Civ) 106] , [Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies (P) Ltd., (2021) 7 SCC 657] of this Court. Even otherwise, to state that the judicial trend appears to favour an interpretation that would read into Section 34 a power to modify, revise or vary the award would be to ignore the previous law contained in the 1940 Act; as also to ignore the fact that the 1996 Act was enacted based on the Uncitral Model Law on International Commercial Arbitration, 1985 which, as has been pointed out in Redfern and Hunter on International Arbitration, makes it clear that, given the limited judicial interference on extremely limited grounds not dealing with the merits of an award, the "limited remedy" under Section 34 is coterminous with the "limited right", namely, either to set aside an award or remand the matter under the circumstances mentioned in Section 34 of the Arbitration Act, 1996."
16. In view of the foregoing discussion, the impugned judgment warrants interference and is hereby set aside to the extent of modification of rate of interest for past, pendente lite and future interest. The 18% per annum rate of interest, as awarded by the arbitrator on 21.01.1999 (in Claim No. 9) is reinstated. The respondent-state is hereby directed to accordingly pay the dues within 8 weeks from the date of this judgment."
21. Learned Senior Counsel appearing for the respondents has further placed reliance on the decision of the Apex Court in the case of Union of India Vs. Pam Development Pvt. Ltd. 2014 0 Supreme (SC) 117, in paragraph nos.14, 16, 17, 18 which are reproduced hereinunder:
"14. A perusal of clause 64 would show that in case of claims which are below Rs.5,00,000/- (Rupees five lakh), the General Manager or a Gazetted Railway Officer nominated by him shall be the sole arbitrator. In case of claims of Rs.5,00,000/- (Rupees five lakh) and above, the Arbitral Tribunal shall consist of three arbitrators to be appointed in terms of clause 64(3)(b). Under clause 64(3)(b), the Railways will send a panel of more than three names of Gazetted Railway Officers from whom the contractor will be asked to suggest one name. The General Manager will appoint the second arbitrator on behalf of the Railways. The clause also provided that two arbitrators shall nominate an Umpire who shall be a Gazetted Railway Officer.
16. Section 16 of the Arbitration Act, 1996 provides that the Arbitral Tribunal may rule on its own jurisdiction. Section 16 clearly recognizes the principle of kompetenz-kompetenz. Section 16 (2) mandates that a plea that the Arbitral Tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence. Section 4 provides that a party who knows that any requirement under the arbitration agreement has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay shall be deemed to have waived his right to so object.
17. In our opinion, the High Court has correctly come to the conclusion that the appellant having failed to raise the plea of jurisdiction before the Arbitral Tribunal cannot be permitted to raise for the first time in the Court. Earlier also, this Court had occasion to consider a similar objection in Bharat Sanchar Nigam Limited and another versus Motorola India Private Limited [(2009) 2 SCC 337]. Upon consideration of the provisions contained in Section 4 of the Arbitration Act, 1996, it has been held as follows:
39. Pursuant to Section 4 of the Arbitration and Conciliation Act, 1996, a party which knows that a requirement under the arbitration agreement has not been complied with and still proceeds with the arbitration without raising an objection, as soon as possible, waives their right to object. The High Court had appointed an arbitrator in response to the petition filed by the appellants (sic respondent). At this point, the matter was closed unless further objections were to be raised. If further objections were to be made after this order, they should have been made prior to the first arbitration hearing. But the appellants had not raised any such objections. The appellants therefore had clearly failed to meet the stated requirement to object to arbitration without delay. As such their right to object is deemed to be waived.
18. In our opinion, the obligations are fully applicable to the facts of this case. The appellant is deemed to have waived the right to object with regard to the lack of the jurisdiction of the Arbitral Tribunal."
22. Learned Senior Counsel appearing for the respondents has also placed reliance on the decision of the Apex Court in the case of Reliance Infrastructure Ltd. Vs. State of Goa 2023 0 Supreme (SC) 495, particularly in paragraph nos.18, 22, 36 39, which read as under:
"18. As noticed, arbitral award is not an ordinary adjudicatory order so as to be lightly interfered with by the Courts under Section 34 or 37 of the Act of 1996 as if dealing with an appeal or revision against a decision of any subordinate Court. The expression "patent illegality" has been exposited by this Court in the cases referred hereinbefore. The significant aspect to be reiterated is that it is not a mere illegality which would call for interference, but it has to be "a patent illegality", which obviously signifies that it ought to be apparent on the face of the award and not the one which is culled out by way of a long-drawn analysis of the pleadings and evidence. Of course, when the terms and conditions of the agreement governing the parties are completely ignored, the matter would be different and an award carrying such a shortcoming shall be directly hit by Section 28 (3) of the Act, which enjoins upon an Arbitral Tribunal to decide in accordance with the terms of contract while taking into account the usage of trade applicable to the transaction. As said by this Court in Associate Builders (supra), if an Arbitrator construes the term of contract in a reasonable manner, the award cannot be set aside with reference to the deduction drawn from construction. The possibility of interference would arise only if the construction of the Arbitrator is such which could not be made by any fairminded and reasonable person.
22. What has been observed hereinabove and held in disapproval of interference by the High Court in the item of award pertaining to variable charges more or less apply to the other items too, where the High Court has interfered and has upturned the award. In view of the detailed discussion foregoing, we need not elaborate on all other items. Suffice it would be to deal briefly with the same as we find that on every such score, the High Court has rather entered into merits of the matter as if dealing with a regular appeal. It has been a clear case of the High Court travelling beyond the periphery of Section 34 as also Section 37 of the Act of 1996.
36. The narrow scope of "patent illegality" cannot be breached by mere use of different expressions which nevertheless refer only to "error" and not to "patent illegality". We are impelled to reiterate what has been stated and underscored by this Court in Delhi Airport Metro Express (supra) that restraint is required to be shown while examining the validity of arbitral award by the Courts, else interference with the award after reassessing the factual aspects would be defeating the object of the Act of 1996. This is apart from the fact that such an approach would render several judicial pronouncements of this Court redundant if the arbitral awards are set aside by categorizing them as "perverse" or "patently illegal" without appreciating the contours of these expressions.
39. Hence, that part of the impugned judgment and order dated 08.03.2021 as passed by the High Court, which modifies the award dated 16.02.2018 and the order of the Commercial Court dated 12.09.2019, is set aside and consequently, the award in question is restored in its entirety."
23. Based on the above judgment, learned Senior Counsel for the respondents has submitted that the scope of the objection under Section 34 of the Act and the appeal under Section 37 of the Act is very limited and he requested to dismiss the appeal.
24. Considering the submissions made by learned counsels for both the parties and perusing the observations made by the Apex Court in catena of the cases, wherein the Apex Court held that the scope of interference in award is very limited and narrowed.
25. So far as Section 34 of the Act is concerned, the legal position is well settled that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited grounds if the award is against the public policy of India and it has been clarified that a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice or morality, only in those conditions, the Court may interfere with arbitral award. It has been further clarified that so far as the order made under Sections 34 and 37 of the Act is concerned, interference cannot travel beyond restrictions made under Section 34 of the Act.
26. Keeping in view all the aforementioned principles enumerated by the Apex Court with regard to the limited scope of the interference in the arbitral award by the Court whether under Section 34 of the Act or under Section 37 of the Act, perusal of the award as well as the order passed by the Commercial Court under Section 34(3) of the Act, we find that the same is not in violation of the observation made by the Apex Court. The sole Arbitrator has considered all the aspects while passing the impugned award and reasons mentioned are within the ambit of the claim.
27. Hence, there are no good grounds made out for interfering with the judgment and order dated 19.10.2023 passed by the Prescribed Authority, Commercial Court, Bareilly.
28. Accordingly, the instant appeal lacks merits and is, dismissed.
Order Date :- 13.3.2024 rkg