Delhi District Court
M/S Mohan Lal Gupta vs The General Manager Of Ordnance Factory on 31 May, 2022
IN THE COURT OF SH GURVINDER PAL SINGH,
DISTRICT JUDGE (COMMERCIAL COURT)-02,
PATIALA HOUSE COURT, NEW DELHI
OMP (Comm.) No. 133/2021
M/s Mohan Lal Gupta
Through its Authorized Representative
Sh. Raman Gupta
D-89, Shastri Nagar, Meerut City,
U.P.-250004
Email : [email protected] ...Petitioner
versus
The General Manager of Ordnance Factory
Muradnagar,
Ghaziabad-201206 (U.P.)
E mail : [email protected] ...Respondent
Date of Institution : 16/12/2021
Arguments concluded on : 12/05/2022
Decided on : 31/05/2022
Appearances : Sh. Ankit Gupta, Ld. Counsel for petitioner.
Ms. Kalpana, Ld. Counsel for respondent.
JUDGMENT
1. Petitioner had filed the present petition under Section 34 of The Arbitration and Conciliation Act, 1996 (herein after referred as The Act) for partly setting aside the impugned arbitral award dated 19/11/2021 passed by Sh. B. Krishnamoorthy, Ld. Sole Arbitrator in Case No. 1(1)/Arbitrator/OFM/OFBNDO/2020 titled 'M/s Mohan Lal Gupta vs. The General Manager Ordnance Factory' with respect to claim nos. 1 (partly), 2,3,4,6,7,8,9 and also for granting and allowing the claim nos. 1 (partly), 2,3,4,6,7,8,9 of petitioner.
OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 1 of 352. Following were the 9 claims of petitioner/claimant before Ld. Sole Arbitrator:-
Sl. No. Claim No. Description
1. Claim No. 1 Rs. 12,14,355/- of withheld
amount of work done under
contract.
2. Claim No. 2 Rs. 2,15,000/- for work against
rectification of illegal defects
3. Claim No. 3 Rs. 5,08,363/- for payment for
extra work.
4. Claim No. 4 Rs. 70,000/- in the form of FDR
towards performance guarantee
5. Claim No. 5 Rs. 1,67,283/- reserved amount at
the time of part payment of final
bill
6. Claim No. 6 Rs. 6,22,958/- for blockage of
payment of final bill
7. Claim No. 7 Rs. 32,00,000/- of loss & profit of
the firm
8. Claim No. 8 For interest @ 24% P.A.
9. Claim No. 9 Rs. 3,00,000/- for cost of
reference.
3. Following is the award of Ld. Sole Arbitrator with respect to above said claims of petitioner/claimant:-
Sr. Claim of Award
No. Claimant
1 Withheld A portioned amount for 50 sq.m
amount of work can be deducted. Rest amount of
done under Rs. 1175499.80 should be
contract: Rs. released to the contractor.
1214355.00 Amount of Rs.38,855.00 shall be
released if the contractor repairs
the damaged portion of 50 sqm
of road otherwise this amount
should be forfeited.
2 For work against Not admitted
illegal defects:
Rs. 215000.00
3 For payment for Not admitted
extra work: Rs.
OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 2 of 35
5,08363/-
4 In the form of Repair of defect for one year
FDR towards from the date of completion of
performance the work is the part of the
guarantee: Rs. contract. Road is badly damaged
70,000.00 in 50 sqm and claimant has not
repaired the road. Hence this
amount should only be released if
the claimant repairs the road
otherwise this amount should be
forfeited.
5 Reserved Rs. 20,000.00 admitted for claim
amount at the (e).
time of part
payment of final
bill : Rs.
1,67,283.00/-
Later revised to
Rs. 20,000/-
6 For blockage of It is an assumed loss hence not
payment of final admitted
bill (Interest):
6,22,958.00
7 Of loss and It is an assumed loss hence not
profit of the admitted
firm: Rs.
32,00,000.00
8 Interest @ 24% It is an assumed loss hence not
per annum on admitted
the amount of
Rs. 12,14,355.00
= Rs.
6,79,067.30 (2
years and 4
months)
9 For cost of Not admitted
reference: Rs.
3,00,000.00
4. I have heard Sh. Ankit Gupta, Ld. Counsel for petitioner and Ms. Kalpana, Ld. Counsel for respondent and perused the record of the case including reply, the copies of arbitral proceedings record, filed brief written arguments, relied upon precedents on behalf of parties and given my thoughtful consideration to the OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 3 of 35 rival contentions put forth.
5. Following is the brief factual matrix of the case of the parties. The work for repair of road from flyover-bridge to south barrier at Ordnance Factory Muradnagar, Uttar Pradesh was awarded to the petitioner/claimant/contractor M/s Mohan Lal Gupta by respondent vide Work Order No. GM/OFM/04/ENGG/2018-19 dated 12.09.2018. The cost of work was Rs. 34,98,904.80 paisa. The date of commencement of work was 25/09/2018. The date of completion of work was 24/01/2019. Actual date of completion of work was 21/01/2019. It was the case of petitioner/claimant before Ld. Sole Arbitrator that respondent with malafide intention did not release the payment of work done under the contract, though petitioner/ claimant/contractor rectified the defects, carried out extra work beyond the scope of contract provisions etc. The case of respondent before Arbitral Tribunal was that petitioner/ claimant/contractor did not submit any RAR bill during the time of execution of the work and had submitted such final bill dated 29/08/2019 which was received by respondent on 03/09/2019 and was of amount Rs. 38,10,013/- . Respondent withheld the amount of Rs. 12,14,354.80p for the following reasons:-
"a) Contractor has not used filler while making bituminous premix asphaltic dense concrete against item no 4
b) Item no 6 is not found as per specified grade of material in 411 sqm of prepared road.
c) A portion of 25 sqm was damaged by traffic during execution. This damaged portion was repaired by the contractor but surface is still uneven.
d) Road surface is cracking at some place. Road is now badly damaged and big potholes have developed on the road."
Dispute arose between the parties. It led to appointment of OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 4 of 35 the Ld. Sole Arbitrator by the respondent. Arbitration proceedings culminated in the impugned arbitral award.
6. Petitioner has impugned the arbitral award partly but mainly on the following grounds with respect to amount of Rs. 38,855/- withheld from claim no. 1; adjudication on claim nos. 2,3,4,6,7,8,9. The impugned award is absolutely unreasonable, unjustifiable, lacking in particulars and unsustainable. Ld. Sole Arbitrator has failed to appreciate or consider the evidence placed on record of arbitration proceedings and contentions/ arguments raised by the petitioner. Ld. Sole Arbitrator has committed a material irregularity by not having due regard to the evidence and the documents placed on the record by the petitioner to prove its case and facts brought to the notice of Ld. Sole Arbitrator during hearings in arbitration. Impugned award passed by Ld. Sole Arbitrator is based on clear misunderstanding and misrepresentation of contract condition. Ld. Sole Arbitrator has wrongly considered and without any evidence on record held that the amount of Rs. 38,855/- out of Rs. 12,14,355/- shall be released if the contractor repairs the damaged portion of 50 sqm of road otherwise this amount should be forfeited. The claim amount of Rs. 12,14,355/- for work done recorded in Measurement Book maintained was admitted by respondent. Respondent never stated anywhere in its pleading that the said amount be released in case the petitioner rectifies the defect in the work. Ld. Sole Arbitrator had gone beyond the pleadings and ignored the vital evidence of the case and held that the amount of Rs. 38,855/- out of Rs. 12,14,355/- shall be released if the contractor repairs the damaged portion of 50 sqm of road OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 5 of 35 otherwise this amount should be forfeited. Ld. Sole Arbitrator ignored vital evidence on record as shown by the petitioner in his documents by way of photos that this defect had arisen due to the leakage of pipeline, due to work of building material by other agency, JCB was working, damaged the road at several places and the same was shown to higher authorities of respondent and duly informed along with photographs vide letter dated 22/02/2019 to the respondent. Ld. Sole Arbitrator had ignored the facts and documents in the claim no. 2 that respondent acted malafidely to harass the petitioner by raising illegal defects in the work of the petitioner. Respondent first time raised defect of work executed by the petitioner vide letter dated 30/01/2019. Petitioner objected the said defects by clarifying in several correspondences with respondent that some portion of road was damaged by the other activities on the road. Inspite of that, petitioner rectified the defects pointed out by the respondent and duly informed vide its letter dated 31/01/2019 to respondent. Petitioner filed an application before Arbitral Tribunal and sought opportunity for cross examination of the officer of respondent but Arbitral Tribunal being an employee of the respondent played bias with the petitioner and never allowed petitioner to cross examine the officer of respondent. Ld. Sole Arbitrator did not consider to appoint expert and lead the evidence while dealing with claim no. 3 whereas petitioner/claimant/contractor claimed an amount of Rs. 5,08,363/- for additional work done at site on the satisfactory WIC but respondent failed to make measurement for executed additional work. The additional work was done on oral request of the WIC at site. The details of extra work got done was submitted to respondent vide letter dated 22/01/2019 but OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 6 of 35 claimed payment for additional work was not made by respondent to petitioner. Petitioner had filed the application before Arbitral Tribunal seeking opportunity to conduct cross examination of officer of respondent but petitioner was never allowed by Ld. Sole Arbitrator to cross examine the officer of respondent. Ld. Sole Arbitrator also did not appoint any expert to show the extra work of the petitioner at site. Respondent had failed to discharge its contractual obligation by not releasing the FDR of Rs. 70,000/- after completion of defect liability period of one year i.e., 21/01/2020 but respondent acted malafidely to harass the petitioner by raising illegal defects in the work of the petitioner. Respondent for the first time raised defect of work executed by the petitioner vide its letter dated 30/01/2019. Petitioner objected the said defects, by clarifying in several correspondences with respondent that some portion of road was damaged by the other activities on the road. Inspite of that petitioner rectified the defects pointed out by the respondent and duly informed vide its letter dated 31/01/2019 to the respondent. Petitioner had filed application before the Arbitral Tribunal for opportunity to cross examine of officer of respondent but was not so permitted. After completion of the work on 21/01/2019, respondent failed to release the RAR payment or final bill payment to the petitioner by respondent despite repeated requests made by petitioner to respondent verbally as well as vide letters dated 24/12/2018, 31/01/2019, 15/02/2019, 22/02/2019, 15/04/2019, 23/05/2019, 05/06/2019, 22/06/2019, 08/07/2019, 05/08/2019, 29/08/2019, 03/09/2019, 27/09/2019, 11/10/2019. Resultantly firm of petitioner faced financial crises whereby suppliers of the material were pressing hard for the credits and OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 7 of 35 they were also levying heavy interest for the material they supplied. Despite repeated verbal requests and written requests made by the petitioner, final payment of Rs. 38,10,000/- was not released by respondent to petitioner. Even RAR payment was not released by the respondent during the execution of the work. Due to this, firm of the petitioner was facing financial crises and loss of goodwill in the market besides which suppliers were pressing hard for the credits and also levied interest for the material. The annual turnover of the petitioner firm was reduced to Rs. 2.5 crores from Rs. 4 crores in the financial year 2018-19. Ld. Sole Arbitrator did not award the interest and cost in claim nos. 8 and 9 nor passed any detailed order or reason for the same in the impugned arbitral award which depicted bias. Ld. Sole Arbitrator failed to take note of relevant documents; also ignored the provisions of contract; so it vitiated award. Ld. Sole Arbitrator granted the relief by overlooking the terms and conditions of the contract, facts of the present case and without assigning any reason as required under the law. Impugned arbitral award suffers from serious and patent illegality as the same is in conflict of public policy of India. Impugned award also shocks the conscience of the Court as no prudent person can arrive at a conclusion as had been done by Ld. Sole Arbitrator relating to the claims made by petitioner. The impugned arbitral award is in conflict with the most basic notions of morality and justice. Impugned arbitral award needs to be set aside. This Court has territorial jurisdiction to adjudicate the present petition since respondent appointed Ld. Sole Arbitrator at Ordnance Factory Road, New Delhi where the entire arbitral proceedings were conducted.
OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 8 of 357. In filed reply, it was averred by respondent and also argued by Ld. Counsel for respondent that petition is liable to be dismissed as this Court does not have territorial jurisdiction for the subject matter whereas the objection raised are completely unsustainable in law and failed to substantiate the stand taken by the petitioner. It was argued by Ld. Counsel for respondent that even despite the fact that arbitration proceedings have taken place in New Delhi even then this Court does not have territorial jurisdiction. It was argued that the accepted Work Order dated 12/09/2018 inter alia had the term that contractor shall abide by RMES, IAFW2249 and DWP 2007. Clause 70 of IAFW 2249 stipulated that the venue of arbitration shall be such place or places as may be fixed by the Arbitrator in his sole discretion. As per Clause 71 of IAFW 2249, the jurisdiction vested with the Courts of the place from where the acceptance of the tender had been issued or the place where the work was executed. It was argued that New Delhi was not the seat but only a venue of the arbitration and hence this Court does not have the jurisdiction to entertain the present petition. It was argued that since New Delhi was not the seat of arbitration and was only the venue which was also at the discretion of the Arbitrator so this Court did not have jurisdiction to entertain the present petition. It was also argued by Ld. Counsel for respondent that petitioner failed to establish how the impugned award is against the public policy and how it was in contravention with the fundamental policy of Indian law whereas petitioner attempted to seek re-examination of the merits of the claim which cannot be permitted. It is the legislative intent that minimal intervention of the Courts is to be in the arbitration OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 9 of 35 process. The role of the Courts under Section 34 of the Act is only supervisory in nature and arbitral award can only be reviewed to ensure fairness and not otherwise. Patent illegality must go to the root of the matter and that the public policy violation should be so unfair and unreasonable as to shock the conscience of the Court. The Court cannot substitute its view with that of the Arbitral Tribunal. When a Court is applying the "public policy" test to an arbitration award, it does not act as a Court of appeal and consequently errors of facts cannot be corrected, as the Arbitrator is the ultimate master of the quantity and quality of the evidence to be relied upon when he delivers his arbitral award. A possible view by the Arbitrator on the facts has necessarily to pass muster. Award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score. The arbitral award can be challenged only under the grounds mentioned in Section 34(2) of the Act. The proceedings under Section 34 of the Act are summary in nature and the scope of enquiry in the proceedings is restricted to specified grounds for setting aside only. Even the erroneous interpretation of a contractual provision by the Arbitral Tribunal cannot be a ground to challenge the award on merits. The Court would not construe the nature of claim by adopting too technical an approach and indulging into hair-splitting, otherwise the whole purpose behind holding the arbitration proceedings as an alternative to Civil Court Forum would stand defeated. In the present case the seat of arbitration is in Murad Nagar and the venue of arbitration is in Delhi, so this Court has no jurisdiction to entertain and decide the present petition. Ld. Sole Arbitrator passed the award after perusal of OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 10 of 35 entire facts and material placed on record. Ld. Counsel for respondent argued that present petition is devoid of merits and deserves dismissal. Ld. Counsel for respondent relied upon the following precedents:-
1. Spentex Industries Ltd. vs Louis Dreyfus Commodities India Pvt. Ltd., O.M.P. (Comm) 174/2017 decided by Delhi High Court on 22/02/2019 and
2. PCP International Limited vs Lanco Infratech Limited, OMP (I) No. 350/2015 decided by Delhi High Court on 17/07/2015.
8. Ld. Counsel for the petitioner argued in terms of the above elicited grounds for impugning the arbitral award. It was also argued by Ld. Counsel for petitioner that the contention of the respondent on the territorial jurisdiction was totally wrong as it is admitted fact that neither in the GCC Clauses 70-71 nor whole contract, reveals the seat of arbitration whereas both the parties to the arbitration had chosen New Delhi as the seat of arbitration under Section 20(1) of the Act. It was argued by Ld. Counsel for petitioner that since this was the case, so both the parties to the arbitration had chosen that the Courts at New Delhi alone would have exclusive jurisdiction over the arbitral proceedings. It was also argued by Ld. Counsel for petitioner that impugned arbitral award had been signed at Ordnance Factory Board, Government of India, Ministry of Defence at New Delhi; so this Court had exclusive territorial jurisdiction to adjudicate the present petition. Ld. Counsel for the petitioner relied upon the cases of (i) ION Exchange (India) Ltd. vs Panasonic Electric Works Co. Ltd., 208 (2014) DLT 597 (DB); (ii) BGS SGS Soma JV vs. NHPC Ltd., 2019 (17) Scale 369. Ld. Counsel for petitioner also argued for partly setting aside the impugned arbitral award as per prayer in the petition to the extent of claim no. 1 (partly); claim nos. 2, OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 11 of 35 3,4,6,7,8,9 as their adjudication was against the principles of natural justice, patently illegal, perverse, erroneous, in contravention with the facts and settled law. Ld. Counsel for petitioner also relied upon the cases of (iii) Union of India vs U.P Upbhokta Sehkari Sangh Ltd. Lucknow & Anr., 2003 (67) DRJ 596; (iv) Associate Builders vs Delhi Development Authority, 2014 (13) Scale 226. It was also argued that being a serving officer of the department of the respondent, Ld. Sole Arbitrator was influenced and played biased role towards the petitioner while passing the part of claim no. 1 and 4 in impugned award as evident from the conclusion para (in rejected claims) which were in fact contrary to the observations of Ld. Sole Arbitrator and also being without any reason. It were own observations of Ld. Sole Arbitrator that petitioner/claimant/ contractor started its work on time and completed its work on time, whereas the road area damaged was around 50 square meters and in the other portion of the road no settlement; the issue of water pipeline leakage/break was shown in the documents submitted by the petitioner/claimant /contractor for consideration for being responsible for certain extent as water damages the bitumen road surface; further water stagnation in the low line area may be the reason for the damage; therefore, the responsibility of these facts lies with the factory engineers of respondent. Despite such observations of Ld. Sole Arbitrator in the impugned arbitral award, yet part of claim no. 1 was declined by Ld. Sole Arbitrator. It was also argued by Ld. Counsel for petitioner that petitioner/claimant/contractor filed an application under Section 18 and 19 of the Act for seeking to file affidavit by the way of the evidence and to conduct the cross examination of OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 12 of 35 the witnesses to substantiate the claims but vide email dated 24/08/2021 Ld. Sole Arbitrator declined and stated that the arbitration shall be conducted only on the basis of documents filed by the parties and no cross examination will be carried out. It was also argued by Ld. Counsel for petitioner that due to lack of conducting the cross examination of the witnesses of the respondent, petitioner/claimant/contractor could not prove its claim nos. 2 and 3 whereas there was documentary proof of letter dated 22/01/2019 regarding payment for the additional work in support of claim no. 3 and even respondent had admitted the receipt of said letter in the affidavit of admission and denial of documents of claimant/petitioner but petitioner/claimant/ contractor was not allowed for cross examination of the witnesses of respondent. Ld. Counsel for petitioner relied upon the case of Sukhbir Singh vs M/s Hindustan Petroleum Corporation Ltd., 266 (2020) DLT 612 wherein Delhi High Court held that when Ld. Sole Arbitrator refused to allow the cross examination of witness of respondent, it is a valid ground for challenge and to set aside the award. It was also argued by Ld. Counsel for petitioner that in regard to claim nos. 6 and 7 so many documentary evidences were given by petitioner/claimant/ contractor which were not considered by Ld. Sole Arbitrator rejecting these claims without any reason which is against the principles of natural justice. It was also argued by Ld. Counsel for petitioner that in terms of Section 31(3) of the Act, Ld. Sole Arbitrator in arbitral award is required to state reasons upon which it is based. In unreasonably and summarily denial of interest to petitioner, award falls foul to section 31(3) of the Act with respect to the claim of interest whereas petitioner/claimant/ OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 13 of 35 contractor was entitled for interest for pre-reference period, pendentelite and post award in terms of Section 31A of Act. Ld. Counsel for petitioner/claimant/contractor relied upon the case of BWL Ltd. vs UOI & Anr., 230 (2016) DLT 554 terming the denial of interest and cost are patent illegality as award is bereft of reasons for it. It was argued by Ld. Counsel for petitioner that the above said impugned parts of the arbitral award are accordingly liable to be set aside.
9. Following are the relevant parts of General Conditions of Contracts in I.A.F.W.-2249 applicable to the contract in question in terms of work order dated 12/09/2018:-
"43. Approval of Works by Stages- All work embracing more than one process shall be subject to examination and approval at each stage thereof and the Contractor shall give due notice in writing to the Engineer-in-Charge when each stage is ready. In default of such notice being received, the Engineer-in-Charge shall be entitled to appraise the quality and extent thereof and in the event of any dispute the decision of the G.E. thereon shall be final and binding.
......................................................................................................
70. Arbitration- All disputes, between the parties to the Contract (other than those for which the decision of the C.W.E. or any other person is by the Contract expressed to be final and binding) shall, after written notice by either party to the Contract to the other of them, be referred to the sole arbitration of an Serving Officer having degree in Engineering or equivalent or having passed final/direct final Examination of sub-Division II of Institution of Surveyor (India) recognised by the Govt. of India. to be appointed by the authority mentioned in the tender documents. .........................................................................................................
The venue of Arbitration shall be such place or places as may be fixed by the Arbitrator in his sole discretion. ..........................................................................................................
71. Jurisdiction of Courts- Irrespective of the place of issue of tenders, the place of acceptance of tenders, the place of execution of contract or the place of payment under the contract, the contract shall be deemed to have been made at the place from where the acceptance of tenders has been issued and the work is executed/executable. The Courts of the place from where the acceptance of the tender has been issued or the place where the work is executed/under execution shall alone have jurisdiction to OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 14 of 35 decide any dispute arising out of or in respect of the contract."
10. Ld. Sole Arbitrator was appointed by respondent. Above elicited parts of Clause 70 and 71 of applicable I.A.F.W.-2249, no where embody seat of arbitration in particular nor is there any other provision in the contract inter se parties to the arbitration embodying/revealing the seat of arbitration. The arbitration proceedings were conducted by Ld. Sole Arbitrator, the officer of respondent at Ordnance Factory Board, Government of India, Ministry of Defence at New Delhi and even the impugned arbitral award was signed there which is within New Delhi. Petitioner had not laid any objection before Ld. Sole Arbitrator for the facet of appointment of Ld. Sole Arbitrator or for the facet of the seat of arbitration or venue of arbitration or conducting of arbitral proceedings at New Delhi. Similarly respondent never laid any sort of objection for above said. Section 20 of the Act inter alia embodies that the parties to arbitration are free to agree on the place of arbitration and when there is no such agreement then the place of arbitration is determined by the Arbitral Tribunal having regard to the circumstances of the case, including the convenience of the parties. In the case in hand, after the respondent appointed Ld. Sole Arbitrator, the employee of respondent at Ordnance Factory Board, Government of India, Ministry of Defence at New Delhi and the parties to arbitration participated in the arbitral proceedings conducted in New Delhi, it can be safely inferred that both parties to arbitration had chosen the place of arbitration at New Delhi. Moreover, impugned arbitral award was signed at Ordnance Factory Board, Government of India, Ministry of Defence at New Delhi. Arbitral proceedings were initiated, conducted and concluded with OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 15 of 35 pronouncement of arbitral award at New Delhi.
11. Supreme Court in the case of Hindustan Construction Company Limited vs NHPC Ltd & Another, (2020) 4 SCC 310 held that once the seat of arbitration is designated, the same operates as an exclusive jurisdiction clause as a result of which only the courts where the seat is located would have the jurisdiction, to the exclusion of all other courts, even court(s) where part of the cause of action may have arisen, to entertain the application under Section 34 of The Arbitration & Conciliation Act, 1996 for setting aside an arbitral award. In said case contract between the parties was executed at Faridabad and part of cause of action arose there, whereas New Delhi was the chosen seat of the parties. Applying the law laid in the case of BGS SGS Soma JV vs NHPC Ltd., (2020) 4 SCC 234, it was held that Courts at New Delhi alone would have jurisdiction for the purposes of challenge to the award under Section 34 of the Arbitration & Conciliation Act, 1996.
12. Supreme Court in the case of Indus Mobile Distribution Pvt. Ltd. vs Datawind Innovations Pvt Ltd., (2017) 7 SCC 68 has held that if the juridical seat of arbitration is chosen by parties in terms of arbitration agreement, such designated seat of arbitration is akin to an exclusive jurisdiction clause as the Court has supervisory powers over the arbitration. It was held that the Mumbai Courts alone thus had the jurisdiction to the exclusion of all other Courts in the country, as the juridical seat of arbitration was at Mumbai.
13. Supreme Court in the case of Inox Renewables Ltd. vs OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 16 of 35 Jayesh Electricals Ltd., 2021 SCC OnLine SC 448 inter alia appreciated pronouncements of case of BGS SGS (supra) as follows:-
"XXXXXXXXX
82. On a conspectus of the aforesaid judgments, it may be concluded that whenever there is the designation of a place of arbitration in an arbitration clause as being the "venue" of the arbitration proceedings, the expression "arbitration proceedings"
would make it clear that the "venue" is really the "seat" of the arbitral proceedings, as the aforesaid expression does not include just one or more individual or particular hearing, but the arbitration proceedings as a whole, including the making of an award at that place. This language has to be contrasted with language such as "tribunals are to meet or have witnesses, experts or the parties"
where only hearings are to take place in the "venue", which may lead to the conclusion, other things being equal, that the venue so stated is not the "seat" of arbitral proceedings, but only a convenient place of meeting. Further, the fact that the arbitral proceedings "shall be held" at a particular venue would also indicate that the parties intended to anchor arbitral proceedings to a particular place, signifying thereby, that that place is the seat of the arbitral proceedings. This, coupled with there being no other significant contrary indicia that the stated venue is merely a "venue" and not the "seat" of the arbitral proceedings, would then conclusively show that such a clause designates a "seat" of the arbitral proceedings. In an International context, if a supranational body of rules is to govern the arbitration, this would further be an indicia that "the venue", so stated, would be the seat of the arbitral proceedings. In a national context, this would be replaced by the Arbitration Act, 1996 as applying to the "stated venue", which then becomes the "seat" for the purposes of arbitration.
XXXXXXXXX
98. However, the fact that in all the three appeals before us the proceedings were finally held at New Delhi, and the awards were signed in New Delhi, and not at Faridabad, would lead to the conclusion that both parties have chosen New Delhi as the "seat" of arbitration under Section 20(1) of the Arbitration Act, 1996. This being the case, both parties have, therefore, chosen that the courts at New Delhi alone would have exclusive jurisdiction over the arbitral proceedings. Therefore, the fact that a part of the cause of action may have arisen at Faridabad would not be relevant once the "seat" has been chosen, which would then amount to an exclusive jurisdiction clause so far as Courts of the "seat" are concerned."OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 17 of 35
14. Supreme Court also held in the case of Inox Renewables Ltd. vs Jayesh Electricals Ltd. (supra) that the moment the seat is chosen as Ahmedabad, it is akin to an exclusive jurisdiction clause, thereby vesting the courts at Ahmedabad with exclusive jurisdiction to deal with the arbitration. Supreme Court had also appreciated the relevant clauses of Purchase Order therein and held that two clauses must be read together as the Courts in Rajasthan have been vested with jurisdiction only because the seat of arbitration was to be at Jaipur. Once the seat of arbitration is replaced by mutual agreement to be at Ahmedabad, the Courts at Rajasthan are no longer vested with jurisdiction as exclusive jurisdiction is now vested in the Courts at Ahmedabad, given the change in the seat of arbitration. It is pertinent to mention that the purchase order therein had Clause 8.5 inter alia finding mention of venue of the arbitration shall be at Jaipur and Clause 9.11 and 9.12 of Business Transfer Agreement designated Vadodara as the seat of the arbitration between the parties, vesting the courts at Vadodara with exclusive jurisdiction qua disputes arising out of the agreement.
15. Delhi High Court in the case of ION Exchange (India) Ltd. vs Panasonic Electric Works Co. Ltd. (supra) inter alia held that the Courts at the seat or place of arbitration would have territorial jurisdiction to entertain an application under the Act subject to the provisions of Section 42 of the Act, irrespective of the fact that the cause of action arose elsewhere and/or the respondent resides elsewhere.
OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 18 of 3516. Delhi High Court in Balancehero India Pvt. Ltd. vs Arthimpact Finserve Private Limited, 2021 SCC OnLine Del 2872 reiterated that the Court where the seat of arbitration was located would exercise exclusive jurisdiction in respect of arbitration proceedings not withstanding a general exclusive jurisdiction clause in the agreement.
17. Reliance of Ld. Counsel for respondent on the case of Spentex Industries Ltd. vs Louis Dreyfus Commodities India Pvt. Ltd.(supra) is misplaced. The subject contract therein clearly expressed the intention of the parties to vest exclusive jurisdiction in Delhi Courts, for any issues arising out of the arbitration proceedings or the award. For that matter it was held therein that said clause brooks no ambiguity or vagueness. Also was held therein that thus, unlike a court jurisdiction clause, the parties clearly vested the Courts in Delhi with supervisory jurisdiction over the arbitral proceedings. In the case in hand, the contract did not express intention of the parties so as to vest exclusive jurisdiction in Delhi Courts, for any issues arising out of the arbitration proceedings or the award; as is borne out from the elicited part of the clause 70 and clause 71 of I.A.F.W. 2249, elicited herein above.
18. Precedents relied upon by Ld. Counsel for respondent are not applicable in the present case as they embody facts and circumstances entirely different and distinguishable to the facts and circumstances of case in hand.
19. Accordingly in view of above elicited law laid in the cases OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 19 of 35 of (i) BGS SGS Soma JV vs. NHPC Ltd. (supra); (ii) Hindustan Construction Company Limited vs NHPC Ltd & Another (supra); (iii) Indus Mobile Distribution Pvt. Ltd. vs Datawind Innovations Pvt Ltd. (supra); (iv) Inox Renewables Ltd. vs Jayesh Electricals Ltd. (supra); (v) ION Exchange (India) Ltd. vs Panasonic Electric Works Co. Ltd. (supra) and (vi) Balancehero India Pvt. Ltd. vs Arthimpact Finserve Private Limited (supra); once the seat of arbitration is at New Delhi, exclusive jurisdiction now vested in the Courts at New Delhi for adjudication of the petition under Section 34 of the Act. The contention of Ld. Counsel for respondent about this Court not being vested with territorial jurisdiction does not hold water.
20. Following are the findings on the claims of petitioner/claimant of Ld. Sole Arbitrator in para 8 (14) onwards of the impugned arbitral award after visit at the site where the contractor and factory representative were present:-
"8. Findings ..................................................................................
14. .............................................................................
j) It can be seen that amount withheld by the respondent is Rs. 12,14,354.80 from the final bill. Both the parties have agreed that Rs. 12,14,354.80 worth of work was done, and payment was withheld due to quality issues, so as per standard practice, the drawing of joint samples during laying of road and testing thereof was not carried out, which is a lapse on the part of Factory engineers. Sampling on a much later date remains debatable. Also, the stipulated documents such as Site order book, Work dairy should have been maintained properly wherein the instructions have to be communicated to contractor at site in writing, which is not done in this instance. Hence, this above claim of work done can be allowed to contractor.
Respondent had withheld this amount on the ground that item no. 6 OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 20 of 35 (WMM) and item no 4 (Dense asphaltic concrete) were not as per specification.
After site visit it was observed that approximately 50 sqm road was damaged (cracks and potholes) and rest of the road was in good condition. Therefore, a portioned amount for 50sq.m can be deducted.
Calculation for 50 Sq.m Area Sl No. Item No. Rate in Rs. Quantity Amount in Rs.
1 2 90/10sqm 50sqm 450 2 3 175/10Kg 50 Kg 875 3 4 2870/cum 2 cum 5740 4 6 2200/cum 5.75 cum 12650 5 7 5280/cum 3.625 cum 19140 Total 38855.00
Rest amount of Rs. 1175499.80 should be released to the contractor. Amount of Rs. 38,855.00 shall be released if the contractor repairs the damaged portion of 50 sqm of road otherwise this amount should be forfeited.
ii) Claim (b) Rs. 2,15,000 For work against Rectification of Illegal defects: Repair of damage for one year from the date of competition of the work is the part of the contract. Also, no documentary proof for repair works due to shifting of road divider submitted by the contractor. Hence claim b) not admitted.
iii) Claim (c) cost of Rs. 5,08,363 For payment for extra work: The claim by contractor that extra work done without any valid contract seems illogical. Claimant has not produced any documentary evidence for any order by the respondent for extra work. Also, respondent has denied the execution of any extra work and has intimated that work carried is as per measurement book, which is signed by the claimant. Hence claim (c) not admitted.
iv) Claim (d) is for release of Amount of Rs. 70,000 in the form of FDR towards performance guarantee: Repair of defect for one year from the date of completion of the work is the part of the contract. Road is badly damaged in 50 sqm and claimant has not repaired the road. Hence this amount should only be released if OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 21 of 35 the claimant repairs the road otherwise this amount should be forfeited.
v) Claim (e) is the claim for reserve amount of Rs. 1,67,283. is the claim for reserve amount of Rs. 167283. As per the documents submitted by the respondent amount reserved was only Rs. 20000.00 and rest were tax and cess deductions. Total deductions were Rs. 157224 only. Hence only Rs. 20,000.00 admitted for claim (e).
vi) Claim (f) Rs. 6,22,958 for blockage of payment is an assumed loss. Claimant submitted his final bill on 29.08.2019 and bill was processed as per the guidelines mentioned in MES manual on contract, 2007. Hence claim (f) cannot admitted.
vii) Claim (g) is an assumed loss. Hence claim (g) cannot be admitted.
viii) Claim (h) is an assumed loss. Hence claim (h) cannot be admitted.
ix) Claim (i) is an assumed loss. Hence claim (i) cannot be admitted."
21. Section 34 (1) (2), (2A) and (3) of The Arbitration and Conciliation Act, 1996 read as under:-
"34. Application for setting aside arbitral award- (1) Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub- section (3).
(2) An arbitral award may be set aside by the court only if-
(a) the party making the application furnishes proof that-
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 22 of 35 unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the court finds that-
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Explanation 1 - For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,-- (i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or (ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2.-- For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.
(2A) 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 OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 23 of 35 merely on the ground of an erroneous application of the law or by reappreciation of evidence.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter."
22. Supreme Court in case of Associate Builders vs. Delhi Development Authority, (2015) 3 SCC 49 has held that the interference with an arbitral award is permissible only when the findings of the arbitrator are arbitrary, capricious or perverse or when conscience of the Court is shocked or when illegality is not trivial but goes to the root of the matter. It is held that once it is found that the arbitrator's approach is neither arbitrary nor capricious, no interference is called for on facts. The arbitrator is ultimately a master of the quantity and quality of evidence while drawing the arbitral award. Patent illegality must go to the root of the matter and cannot be of trivial nature.
Also was held therein that:
"33. "...when a court is applying the 'public policy' test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award....
Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts.."
23. Supreme Court in case of Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India, 2019 SCC OnLine SC 677 has held that under Section 34 (2A) of the Act, a decision which is perverse while no longer OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 24 of 35 being a ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award. A finding based on the 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. It is held that 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.
24. Above elicited findings of Ld. Sole Arbitrator with respect to claim no. 1 in the conclusion for the rejected part of claim makes it evident to be per se contrary to own observations. It is so as Ld. Sole Arbitrator concluded of (i) work in question having been done by petitioner/contractor within the period of contract; (ii) as per standard practice, the drawing of joint samples during laying of road and testing thereof was not carried out, which is a lapse on the part of Factory Engineers (of respondent); (iii) sampling on a much later date remains debatable; (iv) the stipulated documents such as Site Order Book, Work dairy should have been maintained properly wherein the instructions have to be communicated to contractor at site in writing, which is not done in this instance; which resulted in allowing of the above elicited part of the claim no. 1. For reaching the finding about alleged damaged 50 sqm road having cracks and potholes; the rejection of the claim was so per contra to own findings of Ld. Sole Arbitrator and it amounts to a decision which is perverse and thus a patent illegality appearing OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 25 of 35 on the face of award; as per law laid in the case of Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India (supra).
25. At page nos. 267 to 316 of arbitral proceedings record is an application on behalf of petitioner/claimant/contractor under Section 18 read with Section 19 of the Act with an application on behalf of petitioner/claimant/contractor to discovery of document with the copy of the precedent titled Sukhbir Singh vs M/s Hindustan Petroleum Corporation Ltd. (supra). In the said application dated 23/06/2021 of claimant under Section 18 read with Section 19 of the Act, it had been the prayer inter alia of applicant/petitioner/claimant to allow both the parties to arbitration to file affidavit by way of evidence in chief and also to allow the parties to cross examine the witnesses of the respondent. Arbitral proceedings as well as impugned arbitral award find no adjudication of aforesaid application of petitioner/ claimant/contractor under Section 18 read with Section 19 of the Act and/or with respect to the prayer for examination of the witnesses of the parties followed by cross examination of the witnesses of respondent. It was averred in the above said application of petitioner/claimant/contractor that it was necessary to permit the parties to file affidavits by way of examination in chief and also in a time bound manner complete the cross examination of witnesses of both parties in accordance with the principles of natural justice as part of fundamental policy of Indian law. It was also elicited that the Work diary, Site order book which were in the possession of respondent were necessary to be called during evidence to resolve the issue in question. It OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 26 of 35 was argued that the extra work got done by respondent from petitioner/claimant/contract was required to be elucidated from the register of the work diary, site order book which were in the possession of respondent.
26. It was also argued by Ld. Counsel for petitioner/claimant/ contractor that letter dated 22/01/2019 with respect to payment for additional work in support of claim no. 3 was a documentary proof and for that respondent had admitted the receipt of said letter in affidavit of admission and denial of documents for which petitioner was not allowed for cross examination of any witnesses of respondent. It is the case of petitioner/claimant/ contractor that repeated requests were made by petitioner to respondent as were evident from letters dated 24/12/2018, 31/01/2019, 15/02/2019, 22/02/2019, 15/04/2019, 23/05/2019, 05/06/2019, 22/06/2019, 08/07/2019, 05/08/2019, 29/08/2019, 03/09/2019, 27/09/2019, 11/10/2019 for release of RAR payment or final bill payment to the petitioner by respondent and copies of these letters were placed on arbitral proceedings record, yet per contra to principle of natural justice i.e., audi alteram partem petitioner/claimant/contractor was not afforded reasonable opportunity despite demands to cross examine the witnesses of respondent for the claims in question.
27. Delhi High Court in the case of Sukhbir Singh vs M/s Hindustan Petroleum Corporation Ltd. (supra) had held that in the fact of the matter therein refusal of Ld. Sole Arbitrator to allow cross examination of witnesses of respondent was a valid ground for challenge and to set aside the impugned arbitral award.
OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 27 of 3528. It was also put forth by petitioner to respondent in the communications elicited herein above that some portion of the road was damaged by the other activities on the road, despite which, petitioner had rectified the defects pointed out by the respondent and the facts necessary and elicited in the communications sent by petitioner to respondent were required to be put forth in the cross examination of witnesses of respondent.
29. Section 24 (1) of the Act reads as under:-
"24. Hearings and written proceedings.-- (1) Unless otherwise agreed by the parties, the arbitral tribunal shall decide whether to hold oral hearings for the presentation of evidence or for oral argument, or whether the proceedings shall be conducted on the basis of documents and other materials:
Provided that the arbitral tribunal shall hold oral hearings, at an appropriate stage of the proceedings, on a request by a party, unless the parties have agreed that no oral hearing shall be held.
Provided further that the arbitral tribunal shall, as far as possible, hold oral hearings for the presentation of evidence or for oral argument on day-to-day basis, and not grant any adjournments unless sufficient cause is made out, and may impose costs including exemplary costs on the party seeking adjournment without any sufficient cause."
30. Following is the conclusion of Delhi High Court in interpretation of Section 24 (1) of the Act in the case of Sukhbir Singh vs M/s Hindustan Petroleum Corporation Ltd. (supra):-
"(d) Conclusion:
44. From the aforesaid materials, and upon an interpretation of Section 24 consistent with the requirements of natural justice, I am of the view that the first proviso to Section 24(1) requires a party's request for oral hearings at the stage of evidence or arguments to be granted. Unless the right to require oral evidence or oral arguments has been waived by a prior agreement to the contrary between the parties, the proviso to Section 24(1) expresses a legislative preference for the grant of oral hearing at the request of either party. The judgment in V. Tulasamma (supra) [V. OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 28 of 35 Tulasamma & Ors. vs. Sasha Reddy, (1977) 3 SCC 99], cited by Mr. Srivastava, holds that a proviso carves out an exception to the main provision, but cannot destroy the effect of the main provision itself. In my view, this interpretation of the proviso to Section 24 does not fall foul of this principle - the proviso provides for an exception to the general provision, that the arbitrator has discretion on the question of whether or not to permit oral hearings.
45. Some guidance in this regard can also be found in the recent judgment of the Supreme Court in Jagjeet Singh Lyallpuri (Dead) Through Lrs. & Ors. v. Unitop Apartments & Builders Ltd., 2019 SCC OnLine SC 1541 [Civil Appeal No. 692/2016, decided on 03.12.2019]. The High Court, in that case, had set aside an award on the ground that parties were not given adequate opportunity to lead evidence and cross-examine witnesses. The Supreme Court set aside that decision on the finding that the parties had expressly agreed that cross-examination of witnesses was not required. The challenge was therefore repelled (in paragraph 15 of the judgment) on the grounds of estoppel, rather than on a finding that the party did not otherwise have a right to lead evidence or cross-examine witnesses.
46. Having so held, a word of caution is necessary. The right granted in Section 24 does not require an Arbitral Tribunal to countenance unending cross-examination or oral arguments. It is always open to the arbitrator to determine the length and scope of oral hearings, which would necessarily depend upon the facts and circumstances of each case. If a party seeks oral evidence, for example, the Tribunal may be able, after hearing the parties, to determine the points on which evidence is to be led. Similarly, arbitrators can set appropriate time limits for oral arguments.
The arbitrators can require an application to be filed by the concerned party, setting out the necessary material to enable the Tribunal to determine these matters. Further, the second proviso to Section 24 (1) expressly provides for hearings on a day-to-day basis without unnecessary adjournments. The specific insertion of the second proviso to Section 24 (1) in our law, which goes beyond the framework of the Model Law, indicates a legislative direction to litigants and arbitrators in the interests of expeditious adjudication. Paragraph 8 of the Analytical Commentary, paragraph 203 of the UNCITRAL Report on Adoption of the Model Law, and paragraph 32 of the Explanatory Note to the Model Law make the limits of Section 24 quite clear - a party's rights do not extend to determining procedural issues, such as the length or timing of oral hearings. These matters remain squarely in the domain of the Arbitral Tribunal. In an appropriate case, a request for oral hearing may be found to have been unreasonable or unnecessary, and to have been made for collateral purposes, such as to delay the OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 29 of 35 proceedings. In such a case, Section 31 (8) read with Section 31A of the Act empowers the Arbitral Tribunal to make an order of costs in favour of the innocent party. Sections 31A(3)(a) and 31A(4)(e) and (f) in particular permit the Tribunal to make a specific order of costs in relation to a particular stage of proceedings, having regard inter alia to the conduct of the parties. Recourse to these safeguards will check strategic requests for oral hearing, intended only to delay proceedings, without denying parties the fundamental protections of natural justice."
31. It is borne out of record that not only vital evidence in arriving at the decision has been ignored by Ld. Sole Arbitrator but also in the fact of the matter, the principles of natural justice of audi alteram partem were put to winds since the request for examination of witnesses of parties and cross examination of witnesses of respondent was not responded even despite the fact that right to require oral evidence or oral arguments was not waived by a prior agreement to the contrary between the parties.
32. Ld. Sole Arbitrator was empowered to determine length and scope of oral hearings, which would necessarily depend upon the facts and circumstances of each case and after hearing the parties Ld. Sole Arbitrator could have determined the points on which evidence was to be led and could have set appropriate time limits for oral arguments. Accordingly, dilatory tactics could have been appropriately checked.
33. Section 31(3), (7) and (8) of the Act read as under:-
"31. Form and contents of arbitral award.-- ................................................................................
(3) The arbitral award shall state the reasons upon which it is based, unless--
(a) the parties have agreed that no reasons are to be given, or OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 30 of 35
(b) the award is an arbitral award on agreed terms under section 30.
........................................................................
(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 two per cent. higher than the current rate of interest prevalent on the date of award, from the date of award to the date of payment.
Explanation.- The expression "current rate of interest" shall have the same meaning as assigned to it under clause (b) of section 2 of the Interest Act, 1978 (14 of 1978).
(8) The costs of an arbitration shall be fixed by the arbitral tribunal in accordance with section 31A"
34. With respect of the claim of interest, the finding of Ld. Sole Arbitrator, as above elicited, is that since it is an assumed loss; so such claim cannot be admitted.
35. Accordingly, Ld. Sole Arbitrator denied the interest without assigning any reason except that it is an assumed loss but otherwise awarded part of the claims in favour of petitioner/ claimant/contractor holding it to be entitled for such parts of claims. In terms of Section 31(3) of the Act, the arbitral award is required to state the reasons upon which it is based. In unreasonably and summarily denial of the interest to petitioner, the award fell foul to Section 31(3) of the Act to that extent. In terms of Section 31(7) of the Act, unless otherwise agreed by parties, an award for payment of money is to include interest for period between the date on which cause of action arose and the date of award as well as for post award period OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 31 of 35 interest. It is not the case in hand that the parties to arbitration had expressly agreed for non grant of any interest for the payments of money for which the claimant is entitled. Accordingly, outright denial of interest in the fact of the matter by Ld. Sole Arbitrator is bad in law. Reliance placed upon the law laid by Delhi High Court in the case of BWL Ltd. vs UOI & Anr. (supra).
36. Supreme Court in the case of M/s Dyna Technologies Pvt. Ltd. vs M/s Crompton Greaves Ltd., 2020(1) R.A.J. 33 (SC) inter alia held that arbitral award is to be set aside on the grounds of insufficiency and inadequacy of reasoning being unintelligible and therefore unsustainable.
37. On the grounds of insufficiency, inadequacy of reasonings the award being unintelligible and per contra to Section 31 (3) of the Act is liable to be set aside.
38. Delhi High Court in case of Nussli Switzerland Ltd. v. Organizing Committee Commonwealth Games, 2014 SCC OnLine Del 4834 had inter alia held:-
34. A party like the Organizing Committee which has its claims rejected, except a part, but which subsumes into the larger amount awarded in favour of the opposite party, even if succeeds in the objections to the award would at best have the award set aside for the reason the Arbitration and Conciliation Act, 1996 as distinct from the power of the Court under the Arbitration Act, 1940, does not empower the Court to modify an award. If a claim which has been rejected by an Arbitral Tribunal is found to be faulty, the Court seized of the objections under Section 34 of the Arbitration and Conciliation Act, 1996 has to set aside the award and leave the matter at that. It would be open to the party concerned to commence fresh proceedings (including arbitration) and for this view one may for purposes of convenience refer to sub-Section (4) of Section 43 of the Arbitration and Conciliation Act, 1996. It reads: -OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 32 of 35
"43. Limitations-
(1) xxxxx (2) xxxxx (3) xxxxx (4) Where the Court orders that an arbitral award be set aside, the period between the commencement of the arbitration and the date of the order of the Court shall be excluded in computing the time prescribed by the Limitation Act, 1963, for the commencement of the proceedings (including arbitration) with respect to the dispute so submitted."
39. Aforesaid pronouncements of Delhi High Court in the case of Nussli Switzerland Ltd. v. Organizing Committee Commonwealth Games (supra) found approval of Supreme Court in case of The Project Director, National Highways No. 45 E AND 220 National Highways Authority of India vs. M. Hakeem & Anr., Civil Appeal No. of 2021 [Arising out of SLP (Civil) No.13020 of 2020] decided on 20/07/2021.
40. Division Bench of Delhi High Court in the case of Mahanagar Telephone Nigam Limited vs Fujitshu India Private Limited, MANU/DE/0459/2015 inter alia appreciated the following law laid by Supreme Court in the case of McDermott International Inc. v. Burn Standard Co. Ltd. and Ors., MANU/ SC/8177/2006:(2006) 11 SCC 181 :-
"The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice, etc. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court's jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it."
41. Supreme Court in the case of Kinnari Mullick & Anr. vs OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 33 of 35 Ghanshyam Das Damani, Civil Appeal No. 5172 of 2017 [Arising out of SLP (Civil) No. 2370 of 2015 decided on 20/04/2017 appreciated the legal position expounded in the case of McDermott International Inc. vs Burn Standard Ltd., (supra) wherein it was observed that parliament had not conferred any power of remand to the Court to remit the matter to the arbitral tribunal except to adjourn the proceedings as provided under sub-section (4) of Section 34 of the Act. It was also held therein that the limited discretion available to the Court under Section 34(4) of the Act can be exercised only upon a written application made in that behalf by a party to the arbitration proceedings. It is crystal clear that the Court cannot exercise this limited power of deferring the proceedings before it suo moto.
42. Delhi High Court in the case of Steel Authority of India Limited vs Indian Council of Arbitration & Anr., LPA 103/2016 decided on 28/03/2016 placed reliance upon the decision of Supreme Court in the case of McDermott International Inc. vs Burn Standard Ltd. (supra), wherein it was held that once an award has been set aside, the parties would be free to begin the arbitration once again.
43. In view of foregoing discussions, the impugned parts of the award are set aside. Parties to this lis have all their rights and remedies as available in law including under The Act including under Section 43 of The Act and may take recourse to appropriate remedies permissible in law.
OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 34 of 3544. The parties are left to bear their own costs.
45. File be consigned to record room.
Digitally signed by GURVINDER GURVINDER PAL
SINGH
PAL SINGH Date: 2022.05.31
12:41:12 +0530
ANNOUNCED IN (GURVINDER PAL SINGH)
OPEN COURT District Judge (Commercial Court)-02
On 31st May, 2022. Patiala House Court, New Delhi.
(DK) OMP (Comm.) No. 133/2021 M/s Mohan Lal Gupta vs The General Manager of Ordnance Factory Page 35 of 35