Madras High Court
M/S.Chennai Petroleum Corporation Ltd vs M/S.Ion Exchange [India] Ltd
Author: N. Sathish Kumar
Bench: N. Sathish Kumar
Original Petition Nos.492 & 544 of 2020
THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on Delivered on
23~09~2021 07~10~2021
CORAM:
THE HONOURABLE MR.JUSTICE N. SATHISH KUMAR
ORIGINAL PETITION Nos.492 of 2020 & 544 of 2020 &
Application Nos.2666 of 2020 & 2992 of 2021
M/s.Chennai Petroleum Corporation Ltd.,
536, Anna Salai, Teynampet,
Chennai – 600 018.
Represented by its
Chief General Manager [HR & Legal],
Mr.M.Sankaranarayanan ... Petitioner in O.P.No.
492 of 2020 & respondent in 544 of 2020
.Vs.
M/s.Ion Exchange [India] Ltd.,
Registered office at 'Ion House,
42, B.N.Reddy Road, T.Nagar,
Chennai – 600 017. ... Respondent inO.P.No.
492 of 2020 & petitioner in 544 of 2020
Prayer: Petitions filed under section 34 (2) (b) (ii) & 2-A of the Arbitration and
Conciliation Act,. 1996, O.P.No.492 of 2020 to partially set aside the impugned
arbitral Award dated 23.04.2018 modified vide Order dated 03.09.2018, in so far as
it directs payment of a sum of Rs.1,09,33,063/- to the respondent with interest
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Original Petition Nos.492 & 544 of 2020
thereon and allow this petition in costs and O.P.No.544 of 220 filed to set aside the
Arbitral Award dated 23 April 2018 [Received on 26 April 2018] passed by the
Arbitral Tribunal in so far as related the claim Nos.1 to 4, 5, 7 and 9 to 14 rejected
by the Arbitral Tribunal with costs.
For Petitioner in O.P.No.492 of 2020
& respondent in O.P.No.544 of 2020 : Mr.Arjun Suresh
For respondent in O.P.No.492 of 2020
& petitioner in O.P.No.544 of 2020 : Mr.V.Ramakrishnan, SC
for G.Sivasankaran
COMMON ORDER
Aggrieved over the award passed by the learned sole arbitrator, O.P.No.492 of 2020 filed by the respondent to set aside the award. O.P.No.544 of 2020 has been filed by the claimant against the award disallowing certain claims.
2. Since both the Original Petitions arise out of the same award, the parties are referred as per their ranking in O.P.No.492 of 2020 and the petitioner in O.P.No.492 of 2020 Chennai Petroleum Corporation [CPCL] is referred as the claimant and the respondent in O.P.No.492 of 2020 Ion Exchange [India] Ltd. [IOIL] is referred as the respondent.
Page 2 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020
3. Brief facts leading to filing of this original petitions is as follows :
The claimant is a leading water treatment company and is a pioneer in Reverse Osmosis Technology. They were awarded with a contract by the respondent for construction of the Desalination Plant [LSTK2] out of LSTK- 1 to 3. Originally tender was invited for a period of one year. The claimant submitted its offer on 06.04.2009 and the price quoted was Rs.1.07 Crore per month. After meeting, the price per month was revised to 65 lakhs per month for two years contract period. Accordingly, Letter of Acceptance was issued by the respondent on 04.10.2010. On 22.10.2010 a contract was entered between the claimant and the respondent. The claimant took over the operation and maintenance on 24.10.2020 and continued the operations and maintenance for the contractual period upto 23.10.2012. It is the contention of the claimant that although the claimant fulfilled its contractual obligations, the respondent did not pay large amount which was due and payable to the claimant under the contract. Hence, the claimant raised the following claims :
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1. Claimant engaged key operations and maintenance personal at the Rs.7,42,500/-
respondent's insistence from 05.02.2010 until 23.10.2010
2. Outstanding monthly running bills claim [out of Rs.200 lakhs, - Rs.110 Rs.90,25,492/-
lakhs already paid on 01.03.2013]
3. Interest on the unpaid outstanding monthly running bills from 01.03.2013 Rs.39,25,701/-
to 31.07.2015 at 18% per annum
4. Interest on amounts wrongly deducted towards Security Deposit between Rs,9,51,517/-
November 2011 and July 202 from the date of deduction upto 26.04.2013 at 18% per annum [Security Deposit repaid on 26.04.2013
5. Amount wrongfully deducted by the respondent as penalty for shortfall in Rs.81,58,475/-
quality of treated water
6. Interest on the amount wrongly deducted by the respondent as penalty Rs.41,90,77/-
for shortfall in quality or treated water from the dates upto 31.07.2015 at 18% per annum
7. Amount wrongfully deducted and retained by the respondent as Penalty Rs.36,55,233/-
for the shortfall in quantity of Treated Water [Rs,58 lakhs deducted out of which Rs.36.54 lakhs was paid on 09.04.13. The balance is claimed here
8. Interest on the amount wrongfully deducted and retained by the Rs.27,05,079/-
respondent as penalty for shortfall in quantity of treated water from the dates of deduction upto 31.07.2015 at 18 per annum
9. Amount wrongfully, deducted and retained by the respondent towards Rs.1,59,24,698/-
stoppage of plant on account of labourers problem from the adjacent villages
10. Interest on the amount wrongfully, deducted and retained by the Rs.1,16,65,511/- respondent towards plant stoppage on account of labour problem from the dates of deduction upto 31.07.2015 at 18% per annum
11. Amount wrongly deducted and retained by the respondent towards Rs.9,50,000/- Provident Fund
12. Interest on the amount wrongfully deducted and retained by the Rs.28,500/- respondent towards Provident Fund from 19.05.2015 upto 31.07.2015 at 18% per annum
13. Claim for additional Man power/workers engaged by the Claimant Rs.75,33,141/-
14. Interest on the amount of additional Man Power/Workers engaged by the Rs.23,41,439/- claimant from the dates of payment upto 31 July 2015 at 18% per annum Total Rs.7,16,98,023/-
Page 4 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 With these pleadings, the claimant has come forward with the following prayers to pass an award :-
A. Directing the respondent to pay the claimant a sum of Rs.7,16,98,023/- together with interest at 18% per annum on the principal amount of Rs.46,841,016/- from 01.08.2015 till the date of payment of realisation and directing the respondent to pay the claimant the cost of this arbitration.
4. Admitting the contract, it is the contention of the respondent that the value of the contract was Rs.16,50,00,000/- payable over two years. The said sum was payable, only if the claimant meets all the criteria provided under the Contract and the R.A. Bills are raised within the contractual conditions. As per the Contract, Engineer-in-charge has to provide the minimum product water requirement. If the plant runs for less than 650 hours per month [600 hours for the month of February], the contract provides for deductions and also levy of liquidated damages, albeit labeled 'penalty', for the failure to meet the performance parameters. The deduction were to be made as per the formula provided under the Contract, subject to the maximum of 5% of the corresponding amount payable in that month. Hence, it is his contention that as there were short falls in quantity and quality of the product Page 5 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 water and the number of hours, the running of the plant was less than 650 hours, for the reasons not attributable to the respondent, the respondent is entitled to make deductions,which are much less than the actual losses incurred by them. They also raised the following counter claims :
A. Cost incurred towards water procured on account of poor quality Rs.17,41,65,060/- and quantity of Treated Water after PGTR [after 24 .10.2014 B. Loss on account of production shut down during the period of poor Rs.45,81,00,000/- quality and quantity of treated water [July 2012 to Dec 2012 C. Proportionate cost for the premature deterioration and replacement Rs.1,36,70,128/- of the R.O. Membranes d. Interest at 18% per annum on all the above Counter Claims from the date the same fell due until realisation Total Rs.64,59,35,188/-
It is also the case of the respondent that the claim for the period from 17.01.2011 to 24.10.20212 were barred by limitation and denied various other allegations.
5. Based on the above pleadings, the following issues have been framed by the learned arbitrator :
1. Whether the claims made by the claimant are arbitrable?
2. Whether the claimant is entitled to the claims made in paragraph 17 of the claim statement?
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3. Whether the respondent is entitled to the counter claims made in para 54 of the counter statement?
4. Whether the counter claims made by the respondent are arbitrable in this arbitration proceedings?
5. Whether any of the counter claims made by the respondent are barred by limitation?
6. Whether the parties are entitled for interest? If so, at what rate, for what period and for what amount?
7. Whether the parties are entitled for the costs of the proceedings?
8. To what other relief, the parties are entitled to?
6. On the side of the claimant C.W.1 and C.W.2 were examined and Ex.C.1 to Ex.C.270 were marked. On side of the respondent, R.W.1 was examined and Ex.R.1 to Ex.R.127 were marked. After analysing the entire materials, the learned arbitrator passed the following award :
1. The claims 1 to 4 and 9 to 14 are rejected.
2. The claimant is entitled under Claim Nos.5 to 8 to recover from the Page 7 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 respondent a sum of Rs.92,34,063.00 [Rs.74,66,540.00 + Rs.17,67,523.00] with interest at 15% per annum from 01.08.2015 till the date of recovery from the respondent.
3. The counter claims are disposed of with observation.
4. Both parties shall bear their own respective costs of the arbitral proceedings.
7. Aggrieved over the same O.P.No.492 of 2020 has been filed and O.P.No.544 of 220 has been filed aggrieved over the dismissal of the claims 5, 7 and 9, which has been canvassed before this Court.
8. The main challenge in O.P.No.544 of 2020 is in respect of the claim No.5 for disallowing the claim for the month of July 2012, and claim No.7, for January 2011 and Claim No.9 in toto.
9. The learned counsel appearing for the petitioner in O.P.No.492 of 2020 and the respondent in O.P.No.544 of 2020 submitted that the reasoning of the learned arbitrator while awarding return of liquidated damages interpreting the Page 8 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 clause 66.2 that there is no deviation against the terms of the contract, it is his further contention that the learned arbitrator has not considered clauses 66.2 and 66.3 of SCC 1.2 and 1.3 of the scope of the work. Hence, it is his contention that operation of the plant includes producing quality water. Even if the plant was to run more than 650 hours and the quantity is in variance with the guaranteed parameters, those hours would not be considered for the purpose of operation of the desalination plant. Hence, it is his contention that if the hours in which the desalination plant was running while deficient producing water, it has to be construed as the desalination plant in operation and it would be unreasonable and contrary to the express terms of the contract and above view of the arbitrator is not even possible. Hence, it his contention that if such an interpretation is given, the contractor would be in a position to pass sewerage water and supply the same to CPCL as product water for a period in excess of 650 hours per month and CPCL would still be required to pay the entire consideration of Rs.65,00,000/- to the claimant.
10. It is the further contention that as per the contract, the hours of the operation of the plant not producing the quality water will be treated as lost hours. Therefore, it is their contention that the liquidated damages are levied with effect Page 9 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 from February 2012 to October 2012 due to the product water being deficient. Hence, proportionate liquidated damages has been levied. Therefore, the learned arbitrator having held that the defective water is not attributable to CPCL and found that the IEIL has established that it has incurred a sum of Rs.1,25,00,000/- loss per month on account of the shortfall in the quality or quantity of water. However, the arbitrator has erroneously rejected the contention of the respondent that even if the claimant operated the desalination plant for a period of 650 hours per month with inferior quality product water, liquidated damages could be levied. Such interpretation is contrary to the express terms of the contract. It is also submitted that the learned arbitrator has also failed to construe the terms of the contract holistically and harmoniously and rejected liquidated damages in so far as quality parameters are concerned and awarding a sum of Rs.74,66,540/- in favour of the claimant is vitiated by patent illegality and such a finding has to be set aside. The express terms of the contract are clear to mean operation would mean quality operation, nevertheless, the words subject to and notwithstanding ought to have been implied in clauses 66.3.1 and 66.2 and Contract as it would be reasonable and equitable, necessary to give business efficacy, it goes without saying, capable of clear expression and it does not contradict any express terms of the contract. Page 10 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020
11. It is the further contention of the learned counsel for the petitioner that the learned arbitrator awarding interest from the date of the statement of claim is erroneous. As far a disallowing claim No.5, it is submitted that the arbitrator has in fact has factually recorded a finding that no production was done due to the strike by the workmen during installation and commissioning of the desalination plant by the claimant. The above claim was made as a strike by workmen as force majeure event. Now, before this Court, the contention of the claimant is that it does not come under the force majeure clause and the same is contrary to their pleadings and submissions before the learned arbitrator. At any event, the learned arbitrator has considered the entire aspects and rejected the claim. Therefore, claiming such an amount by the claimant is not maintainable in the eye of law. With regard to the claim No.7, the learned arbitrator has factually deducted the damages for quantity and quality of water for particular months. The above findings is based on the factual findings of the learned arbitrator and the same cannot be interfered. Hence, it is his contention that the awarding pendentilie interest is also not as per law and against the contractual terms. In support of his submissions, he has relied upon the following judgments :
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https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 Associate builders Vs. Delhi Development Authority reported in 2015 [3] SCC 49 Ssangyong Engineering & Construction Company Limited Vs. National Highways Authority of India [NHAI] reported in [2019]15 SCC 131 Nabha Power Limited [NPL] Vs. Punjab State Power Corporation Limited [PSPCL] and another reported in [2018] 11 SCC 508 Sayeed Ahmed and Company V. State of Utta Pradesh and others reported in [2009] 12 SCC 26 The Union of India V. Best Cast Construction in O.P.No.144 of 2017 of this Court
12. Whereas, it is the contention of the learned Senior Counsel appearing respondent in O.P.No.492 of 2020 and petitioner in O.P.No.544 of 2020 is that as per penalty clause 66.2, 66.3, the first part states that where the plant does not produce minimum of 2,00,000 metric ton per month due to reasons attributable to the contractor, penalty will be 30% of the monthly payment. Clause 66.2 states that Page 12 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 no penalty shall be levied if the plant is in operation for a minimum period of 650 hours and produces more than 2,00,000 metric ton per month. As per 66.3, if the plant for reasons attributable to the contractor does not operate for a minimum period of 650 hours per month, but produces more than 2,00,000 metric ton, penalty shall be limited to 15% of the monthly payable lump sum amount. It is his further contention that there is no deviation of operation in the contract. Change in the deviation suggested by the claimant was not accepted by the respondent is not acceptable. Hence, it is his contention that the operation must be taken into consideration to interpret the contract. The learned arbitrator has taken note of the above facts and interpreted the contract reasonably. Hence, it is his contention that the construction of the terms of contract, it is for the arbitrator to decide. The Courts cannot interfere unless the arbitrator has considered the contract beyond the terms of the contract. Hence, it is his contention that the tribunal has applied clause 66.2 to the facts and upheld quality penalty for one month and quantity penalty for another month. Therefore, it cannot be said that there is no application of mind.
13. It is the further of the learned Senior Counsel that as far as the pendentilite interest is concerned, clause 9.35 does not prohibit interest on disputed claims. Clause 9 deals with pre arbitration interest and pre arbitration claim. Page 13 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 Whereas the Special Conditions of the Contract in Clause 45 deals with interest and states that Interest, if awarded by the arbitrator, shall be at a rate not exceeding the cash credit prevailing on the date of the award. Hence, it is his contention that the clause 45 of Special Conditions of the contract empowers the arbitrator to award interest. The arbitral Tribunal interpreted clause 45 and clause 9.3.5 harmoniously and held that clause 9.3.5 prohibits the awarding of pre-arbitration interest and clause 45 permits pendentelite interest. Hence, the reasoning of the learned arbitrator is possible and reasonable and therefore, it cannot be set aside.
14. It is his further contention that as far as O.P.No.544 of 2020 filed against the dismissal of the claim against July 2012 is concerned, it is his contention that the learned arbitrator having found that the plant was not in operation for a minimum period of 650 hours for the reasons not attributable to the contractor and the arbitrator ought to have released liquidated damages to the petitioner in O.P.No.544 of 2020. Similarly, dismissal of the claim for January 2011 is also contrary to the penalty clause 66.3. The arbitral tribunal on finding that the plant had produced 51,525 in January 2011 as required under clause 66.3 ought not have refunded the penalty. Further, the tribunal has not taken note of the above facts. Hence, it is his Page 14 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 contention that rejecting claim for July 2012 and January 2011 has to be set aside.
15. It is the further contention of the learned Senior Counsel that the arbitral tribunal dismissed the claim No.9 on the ground that since the labourers created problem and went on strike, the same lead to shut down of the plant and this amounts to force majeure events and therefore, the arbitrator has held that the contractor is relieved of payments. It is his contention that the interpretation of the arbitrator is not reasonable and plausible and will not fall under Clause 7.8.1. Clause 7.4 deals with the extension of time or relieve the contractor of his full obligation under the contract. Clause 7.4.6 not restricted to extension of time alone. It covers time for completion of all the obligations in the contract including monthly production of water. The learned arbitral tribunal interpreted clause 7.8 in isolation from clause 7.4.6 and held that even if the events constitute force majeure, IEIL will not be relieved from the responsibility under clause 7.4.6. Therefore, penalty clause 66.1 will apply and CPCL cannot withheld the entire amount. Hence, it is his contention that the arbitral tribunal ought to have granted all his claims. In support of his contentions he relied on the following judgments :
Patel Engineering. Ltd. Vs. North Eastern Electric Power Corporation Page 15 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 Ltd. reported in [2020] 7 SCC 167 Union of India V. Ambica Construction reported in [2016] 6 SCC 36 South East Asia Marine Engineering & Constructions Ltd. [SEAMEC LTD.] V. Oil India Ltd. reported in [2020] 5 SCC 164 Chennai Petroleum Corporation Limited Vs. Afcons Infrastructure Limited reported in 2017 SCC OnLine Mad 27433
16. Before going to the merits of the case, it is relevant to note that the main challenge in the two Original Petitions i.e., O.P.No.492 of 2020 is mainly against claim Nos. 5 and 7 and directing the respondent to pay the amount with interest at the rate of 18%. O.P.No.544 of 2020 is filed against dismissal of the claim in respect of specific months, namely, July 2012 and January 2011 in claim Nos.5 and 7 and rejection of the claim in toto in claim No.9. The entire claim is based on the interpretation of the contract entered between the parties. Contract, Ex.C.4 dated 04.01.2010 is binding on the parties. It is relevant to extract the various clauses for levy of penalty.
66.0 Penalty :
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https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 66.1 O & M Contractor shall produce a minimum of 2,00,000 M3 per month. If the production is less than the above mentioned quantity due to reasons attributable to the Contractor, then the penalty will be levied at the rate of 30% of the monthly payable lump sum amount.
66.2 If the plant is operation for a minimum period of 650 hours [for February – 600 hrs] in a month and produces more than 2,00,000 M3, then no penalty shall be levied.
66.3 If the plant for reasons attributable to the contractor does not operate for a minimum period of 650-hours [for February-600 hrs]/month, but produces more than 2,00,000 M3, then penalty shall be as follows :
No. of hours “lost” x [LS price for operation of the plant per month/650 [For February-600 hrs] but limited to 15% of the monthly payable lump sum amount.
66.3.1 If the Plant does not produce the specified quality, then the hours of operation of the plant which is not producing quality water Page 17 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 will be treated as “lost” hours. Similarly, if the production is less than the quantity specified by the Enginerr-in-charge, then also the hours of operation with lesser production will be treated as “lost” hours.
17. The learned arbitrator considering the various grounds raised by the claimant, held that liquidated damages cannot be enforced in claim No.5 and 7 and discussed various reasons attributable to claimant and negatived the claim. Though the word has been used as penalty under clause 66, it is only a pre-determined liquidated damages. The learned arbitrator in para 15 concluded that the in the contract in question there is no lump sum amount fixed as even maximum amount fixed cannot be treated as something in terrorem. It is not lumpsum, but the same is proportionate to loss and so it has to be treated as pre determined liquidated damages. Hence, the arbitrator has concluded factually that the word penalty mentioned in clause has to be treated only as liquidated damages. The various factors pleaded by the claimant for violating the contractual obligation is also discussed in para 17 to 27 by the learned arbitrator in his award. The above contentions are not much canvased before this Court. Page 18 / 36
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18. The only submission of the learned counsel appearing for the claimant with regard to the interpretation of the clause 66.0 which is extracted above. The learned arbitrator has infact, held that under 66.2, the conditions are complied with, no penalty shall be levied. Under 66.3 the respondent can levy penalty as stipulated under the said clauses and rejected the contention of CPCL that mere operation of the plant for more that 650 hours without production of quality water cannot be a ground to deny the liquidated damages. Such submissions has not been accepted and the arbitrator has given reason for the above that the clause is not subject to the other clauses and held that each clause is independent and is not subject to other clauses and held that levy of liquidated damages for the month of February 2012 and June 2012 and October 2012 is not correct, except for the month of July 2012. The learned arbitrator has also given a reason for levying liquidated damages for the month of October 2012 in para 34 of the award. Similarly in para 7, it is held that clause 66 quantity of water should be as stipulated in the contract and having held that except for the month of January 2011, he has granted relief to the claimant. The reasons has been clearly recorded by the learned arbitrator. Though much emphasis was made by the learned counsel for CPCL that the contract ought to have been harmoniously considered with clause 1.1.2 and the breach of Page 19 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 scope of work along with Special Conditions of the Contract and submitted that there has to be operation of the plant for producing quality water.
19. It is to be noted that the form – II infact as rightly pointed out by the learned Senior Counsel for the IEIL, the definition of operation is not found in the contract. However, in amendment sought to be made by the CPCL included would operate as stated in the penalty clause. To bring operation in the penalty clause, to include the number of hours in actual service or the readiness of the plant [steam wise] to be put into produce quality water for charging penalty suggested by the CPCl is not accepted by the IEIL. It is also found in page No.104 in Form II of the typed set Volume No.II filed in O.P.No.492 of 2020. Taking in to consideration all these aspects, the learned arbitrator has interpreted the contract as per the facts pertaining to the present case. Merely because some other interpretation is also possible, that cannot be a ground to interfere the award on the ground of perversity. It is well settled that, it is for the arbitrator to construe the contract in a manner pertaining to the facts of the case.
20. In Associate builders Vs. Delhi Development Authority reported in Page 20 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 2015 [3] SCC 49, the apex Court has held as follows :
“This last contravention must be understood with a caveat. An Arbitral 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. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair-minded or reasonable person could do.”
21. In Ssangyong Engineering & Construction Company Limited Vs. National Highways Authority of India [NHAI] reported in [2019]15 SCC 131, the Apex Court has held as follows :
“27. Secondly, it is also made clear that re-appreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award.
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28. To elucidate, paragraph 42.1 of Associate Builders (supra), namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Paragraph 42.2 of Associate Builders (supra), however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award.
29. The change made in Section 28(3) by the Amendment Act really follows what is stated in paragraphs 42.3 to 45 in Associate Builders (supra), namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair-
minded or reasonable person would; in short, that the arbitrator’s view is not even a possible view to take. 42 Also, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under Page 22 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 Section 34(2A).
30. What is important to note is that a decision which is perverse, as understood in paragraphs 31 and 32 of Associate Builders (supra), while no longer being a ground for challenge under “public policy of India”, would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse.”
22. The learned arbitrator has interpreted the contract keeping in mind all the factual aspects for production of the required water and it is not for this Court to take a different interpretation of the contract. It is not the case of CPCL that IEIL Page 23 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 has not produced quality water. Though it is admitted that there are certain deficiencies in quality and quantity on the part of the IEIL, the arbitrator in his finding in issue Nos.5 and 6 elaborately dealt and appreciated the entire evidence in this regard. In such view of the matter, this Court is of the view that mere different interpretation is possible, the same cannot be a ground to bring the award within the ambit of perversity. Such an interpretation by the arbitrator is plausible taking note of all the facts of the case. Therefore, the contention of the CPCL that the contract ought to have been harmoniously considered and interpretation should be otherwise than one taken by the arbitrator cannot be countenanced.
23. In respect of the submission of the petitioner in O.P.No.544 of 2020 as against the dismissal of their claim towards July 2011 and dismissal of their claim against January 2012, the learned arbitral tribunal while rejecting the claim for two months attributed reasons which is possible and plausible while levying liquidated damages for two months. The learned arbitrator has given reasons which are plausible for rejecting the claim and for levying liquidated damages for the month of July 2012 and January 2011, in claim Nos.5 and 7 after appreciation of the evidence Page 24 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 on record. Besides, the learned arbitrator has also interpreted the contract justifying the levy of liquidated damages. Hence, this Court is of the view that the same is also a plausible view and that cannot be interfered under section 34 of the Arbitration and Conciliation Act.
24. In this regard, it is relevant to refer the judgment of the Apex Court in Union of India V. Ambica Construction reported in [2016] 6 SCC 36, wherein the Apex Court has held as follows :
“32. In para 4 in Engineers-De-Space-Age (supra) this Court has observed that bar under the contract will not be applicable to Arbitrator cannot be said to be observation of general application. In our opinion, it would depend upon the stipulation in the contract in each case whether power of Arbitrator to grant pendente lite interest is expressly taken away. If answer is ‘yes’ then Arbitrator would have no power to award pendente lite interest.
33. The decision in Madnani Construction Corporation (supra) has followed decision in Engineers-De-Space-Age (supra). Page 25 / 36
https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 Same is also required to be diluted to the extent that express stipulation under contract may debar the Arbitrator from awarding interest pendente lite. Grant of pendente lite interest may depend upon several factors such as phraseology used in the agreement, clauses conferring power relating to arbitration, nature of claim and dispute referred to Arbitrator and on what items power to award interest has been taken away and for which period.
34. Thus, our answer to the reference is that if contract expressly bars award of interest pendente lite, the same cannot be awarded by the Arbitrator. We also make it clear that the bar to award interest on delayed payment by itself will not be readily inferred as express bar to award interest pendente lite by the Arbitral Tribunal, as ouster of power of Arbitrator has to be considered on various relevant aspects referred to in the decisions of this Court, it would be for the Division Bench to consider the case on merits.
25. Similarly, as far as claim No.9 is concerned, it is the contention of the Page 26 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 learned Senior Counsel that the dismissal of the claim No.9 on the ground of force majeure is not correct and it is his contention that the Clause 7.8.1 makes it very clear that the said clause is not an exclusive definition to infer that only riot, terrorism, rebellion, sabotage and communal clashes alone have to be construed as 'Civil Disturbance'. It is only an inclusive definition and it enlarges the meaning of the expression defined, so as to comprehend not only such things which the clause declares that they signify according to their nature import, but also those things which the clause declares that they shall include. Whereas clause 7.45 indicate that the strike or shutdown is not a ground of extension of time to relieve the obligation under the contract. Hence, it is his contention that the tribunal did not interpret clause 7.6 and 7.8 of the contract harmoniously. The learned arbitrator in claim Nos.9 to 10 in para 5 recorded that there is no dispute regarding quantum of amount retained, number of days, during which the plant was shut down and the reason for such shut down. It is also admitted that the reasons for shutdown cannot be attributed to the claimant and in para 10, the learned arbitrator has held as follows :
“On a careful reading of the said clause, it is mainly provided to enable the Contractor to get extension of time on the Force Majeure circumstances as defined in Clause 7.8. It is also stated that Page 27 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 if the shut down was due to any other reasons, mentioned in later portion of the clause, it will not relieve the Contractor's obligation under the Contractor's obligation under the contract and no charges are payable for such shut down to the Contractor. It is further stipulated that no charge is payable to the Contractor [Claimant] by the owner [Respondent], if there was no progress in work, due to shut down, even due to the existence of Force Majeure circumstances. In view of the specific Clause under the Contract, the argument of the learned Senior Counsel, relying on Clause 66 cannot be accepted. As discussed above, Clause 7.4.6 gives right to the respondent for not paying the charges during shut down period due to the existence of Force Majeure circumstances.”
26. It is the further contention of the learned Senior Counsel that clause 7.4.5 has not been properly construed by the learned arbitrator. Such contention cannot be countenanced. The learned arbitrator in issue No.9 & 10, in para 9 and 10, relying on clause 7.4.6 has clearly held such delay as defined in clause 7.8.1 shall afford the Contractor a for extension of time for completion of the work or any part Page 28 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 of the work or any operation[s] involved therein and specifically or relieve the contractor of his obligation under the contract or no shut down or idle time charges payable be payable by owner to Contractor for any delay in the commencement, progress. In para 10, the learned arbitrator has in fact considered the above clause. The learned arbitrator has not only given reasons which is plausible but also possible by interpreting the two clauses reasonably taking note of the fact that no works were carried out at the relevant point of time. Therefore, the contention of the learned Senior Counsel in O.P.No.544 of 2020 in this regard cannot be countenanced.
27. With regard to the interest, the learned arbitrator Ordered interest at the rate of 15% per annum from 01.08.2015 till the date of recovery from the respondent. The learned arbitrator though found clause 935 prohibits interest, however ordered interest from 01.08.2015 ill the date of recovery from the respondent. In this regard, it is useful refer clause 9.35 which reads as follows :
“Monies payable under the Contract shall not become due and payable to the Contractor until submission to the Owner of the Final Bill prepared in accordance with the provisions of this Chapter. The owner shall make payment based on the Final Bill to the extent Page 29 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 admitted by the Owner and subject to any set-off, recoveries, or other adjustments witinn 90 [ninety] days of the receipt of the Final Bill complete in all respects. Any delay in payment on undisputed claim/amount beyond 90 days of the receipt of the Final Bill, complete in all respects, will attract interest @ 0.5% per month. No interest will be paid or payable on disputed claims.”
28. Whereas, it is the contention of the learned Senior counsel in O.P.No.544 of 2020 that clause 45 of the Special Condition of the contract gives power to the arbitrator to award interest including the pendentilite interest. Clause 45 of the Special Condition of the Contract reads as follows :
45.0 Arbitration :
Any dispute arising out of this contract shall be settled as per the Arbitration and Conciliation Act 1996 of the Govt. of India,. In the case of dispute between the owner and non public sector contracts and as per the directives of the Depart of Public Enterprises in case of disputes between the owner and Public Sector Enterprises. Page 30 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 The following clauses shall be added to the clauses already furnished in the General Conditions of the Contract.
Any dispue or difference whatsoever arising between the parties and of or relating to the construction, interpretation, application, meaning, scope, operation or effect of this contract or the validity or the breach thereof, shall be settled by arbitration in accordance with the SCOPE Forum of Arbitration Rules framed by the Standing Conference of Public Enterprises [SCOPE] and the award made in pursuance thereof shall be final and binding on the parties.
Notwithstanding the amount of claim, all the disputes or differences shall be settled by a Sole Arbitrator in accordance with SCOPE Forum of Arbitration Rules.
The venue of Arbitration shall be Chennai, India and the Arbitration Proceedings shall be conducted and the award shall be rendered in English.
The Arbitrator shall give a speaking award.
The Arbitrator shall render the award within six months of the commencement of the Abitral Proceedings which period may be Page 31 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 enlarged by consent of both the parties.
The cost of Arbitration Proceedings shall be borne by both the parties equally.
Interest, if awarded by arbitrators, shall be at a rate not exceeding the cash credit rate prevailing on the date of the award.”
29. It is to be noted that clause 9.35 specifically prohibits claim of interest and it is stated that “No interest will be paid on disputed claims”. Therefore, the claimant is certainly not entitled to interest till the award is passed. Having found that the contract prohibits interest on disputed claim, the learned arbitrator awarded pendentite interest. It is to be noted that Arbitration Act, 1940 wherein interest is envisaged under 3 stages pre reference, pendentelite and post award. Whereas, Arbitration and Conciliation Act 1996, particularly Section 37 [7] [a] and (b) of the Act, contemplates interest payable on two stages, i.e., from the date of cause of action until the award and post award. Therefore, the learned arbitrator awarding interest for the pre-reference stage including to pendentilite interest is contrary to the very contractual terms and provisions of the Arbitration and Conciliation Act. Page 32 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 The Apex Court in Sayeed Ahmed and Company V. State of Utta Pradesh and others reported in [2009] 12 SCC 26 in para 16, has held as follows :
“In view of clause [a] of sub-section [7] of Section 31 of the Act, it is clear that the arbitrator could not have awarded interest upto the date of the award, as the agreement between the parties barred payment of interest. The bar against award of interest would operate not only during the pre-reference period, that is, up to 13.03.1997 but also during the pendentilite lite period, that is from 14.03.1997 to 31.07.2001.”
30. Clause 45 of the Special Conditions of the Contract does not specify the payment of pendentilite interest. It only envisages rate of interest in the event of interest is awarded by the arbitrator. Therefore, merely because the rate of interest is suggested in Special Conditions of the Contract, it cannot be said that such clause permit the arbitrator to award pendentilite interest. Therefore, this Court is of the view that when the terms of the contract particularly bars interest, awarding pendentilite interest by the arbitrator is nothing but perverse. Accordingly, granting interest from 01.08.2015 till the date of the award, i.e., 23.04.2018 is set aside. Page 33 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 However, the post interest at the rate of 15% Ordered by the arbitrator is confirmed and the rest of the award is also confirmed including post award interest. Accordingly, this Court do not find none of the grounds under section 34 of the Arbitration and Conciliation Act to interfere the award other than the interest portion in O.P.No.492 of 2020.
31. Accordingly, the Original Petition in O.P.No.492 of 2020 is partially allowed setting aside granting of pendentilite interest alone and rest of the award is confirmed.
32. Accordingly, the Original Petition in O.P.No.544 of 2020 is dismissed.
33. Consequently, the applications filed in A.Nos.2992 of 2021 in O.P.No.544 of 2020 to refer the matter to the arbitral tribunal and A.No.2666 of 2000 in 492 of 2020 for interim stay of the impugned award are also dismissed.
07.10.2021 Page 34 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 vrc Page 35 / 36 https://www.mhc.tn.gov.in/judis Original Petition Nos.492 & 544 of 2020 N. SATHISH KUMAR, J.
vrc Common Order in:
ORIGINAL PETITION Nos.492 & 544 of 2020 07.10.2021 Page 36 / 36 https://www.mhc.tn.gov.in/judis