Delhi District Court
M/S Bharat Heavy Electricals Ltd vs M/S Abb India Ltd on 18 September, 2021
Through Video Conferencing via Cisco Webex
Link:https://districtcourtdelhi.webex.com/meet/ddc.vc.south12
IN THE COURT OF DISTRICT JUDGE
(COMMERCIAL COURT-2)
SOUTH DISTRICT, SAKET COURTS: NEW DELHI
OMP (COMM) No. 54/2021
Date of Institution 26.08.2021
M/s Bharat Heavy Electricals Ltd., ....... Petitioner
BHEL House
Siri Fort, New Delhi-110049
Also at Power Sector - Northern Region,
Plot No. 25, Sector-16 A, Noida-201301, Uttar Pradesh
Versus
M/s ABB INDIA LTD .......Respondent
21st Floor, World Trade Center,
Brigade Gateway, 26/1
Dr. Rajkumar Road, Malleshwararam West,
Bengaluru -560055
Also at
14, Mathura Road,
Faridabad -121003
OMP (COMM) No. 56/2021
Date of Institution 28.08.2021
M/s Bharat Heavy Electricals Ltd., ....... Petitioner
BHEL House
Siri Fort, New Delhi-110049
Also at Power Sector - Northern Region,
Plot No. 25, Sector-16 A, Noida-201301, Uttar Pradesh
BHEL VS M/s ABB INDIA LTD OMP (COMM) 54 of 2021
BHEL VS M/s ABB INDIA LTD OMP (COMM) 56 of 2021 Page 1 of 29
Versus
M/s ABB INDIA LTD ........Respondent
21st Floor, World Trade Center,
Brigade Gateway, 26/1
Dr. Rajkumar Road, Malleshwararam West,
Bengaluru -560055
Also at
14, Mathura Road,
Faridabad -121003
Date of arguments : 08.09.2021
Date of Judgement : 18.09.2021
JUDGEMENT
1. These are two petitions U/s 34 of Arbitration & Conciliation Act, 1996 (hereinafter referred as "A&C Act") filed by the petitioner, Bharat Heavy Electricals Limited whereby the consolidated award dated 02.06.2020, with respect of arbitration case no. 02.03.2019 and 03.03.2019 passed by Sh. Sudhanshu Batra Senior Advocate - Ld. Sole Arbitrator is impugned. These two petitions are being disposed of vide this common judgment as parties are same, award is consolidated and common question of law and fact arise therein.
BACKGROUND FACTS
2. In brief, background facts leading to filing of these two petitions are that the dispute had arisen between the parties arising out of purchase orders dated 26.08.2009 vide PO No. PSNR/SCP/BOP-BAWANA/AC-SUP 1926 & 1927 to the respondent-ABB INDIA Ltd for the purpose of erection and commissioning of air conditioner systems for 2x750 MW Units at Pragati-III, Bawana, New Delhi.
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3. The supply portion of purchase order was subject matter of arbitration case no. 02/03/2019 which envisaged that claimant/ABB IL had to supply systems for air conditioning with the scope of work including design, engineering, manufacturing, inspection and testing at manufacturer's sub vendor's works, painting at manufacturer's work, duly packed for transportation supply and delivery at project site erect and commission the equipment at site including unloading, storage and handling of equipment at project site, including commission spears, supply of erection materials and consumables required to complete installation as per technical specifications contained therein for a total sum of Rs. 4,18,02,418/- and performance bank guarantee no. 0002BG00060609 dated 25.08.2009 in the sum of Rs. 41,40,242/ was deposited by the respondent in terms of clause 7 of General conditions of Contract.
4. The E & C portion of the purchase order was subject matter of arbitration case no. 03/03/2019 which envisaged erection and commissioning the equipment at site, including unloading, storage and handling of equipment at site, erection and commissioning, final painting , carrying out performance/acceptance tests at site and handing over of complete air conditioning system, including supply of erection materials , consumables as required to complete the air conditioning system, installation , rectification of defective equipment , if any per technical No PE-TS-314-553-A001 and various technical clarification or confirmations for a total sum of Rs. 51,21,391/- and performance bank guarantee no. 0002BG00063509 dated 01.09.2009 in the sum of Rs. 4,64,315/- BHEL VS M/s ABB INDIA LTD OMP (COMM) 54 of 2021 BHEL VS M/s ABB INDIA LTD OMP (COMM) 56 of 2021 Page 3 of 29 was deposited by the respondent in terms of clause 7 of General conditions of Contract for the E & C portion of the purchase order.
5. It is noted in the award that the date of two contracts the scope of work , the date of completion and its execution , except for the short supply is not disputed. Dispute having arisen between the parties, the matter was referred for arbitration. Vide order dated 20.01.2019 Sh. Sudhanshu Batra Ld. Senior Advocate was appointed as Sole Arbitrator for adjudication of disputes between the parties , in both the petitions .
6. On the pleadings of the parties, the common issues framed in both the arbitrations on 06.12.2019 were as under:
a) Whether claimant (i.e. ABBIL ) is entitled to its claim as prayed for in the SOC? If yes to what extent and at what interest? OPC
b) Whether the respondent/counterclaimant (i.e. BHEL) is entitled to counter claim , as prayed? If yes to what extent and at what interest ? OPR
c) Relief.
7. After conclusion of proceeding, ld. Tribunal rejected the counter claim and granted the following relief to the claimant-ABBIL (respondent in the present petitions) a. a sum of Rs. 39,59,908/- towards the amount claimed in the claim no. 1 for the supply portion of the contract and Rs/7,15,861/- towards the amount claimed under Claim no. 1 of the E & C portion of the contract within two weeks from the date of the award.
BHEL VS M/s ABB INDIA LTD OMP (COMM) 54 of 2021 BHEL VS M/s ABB INDIA LTD OMP (COMM) 56 of 2021 Page 4 of 29 b. The respondent was directed to release and discharge BG No. 0002BG00060609 dated 25.08.2009 for an amount of Rs. 41,80,242/- and BG No. 0002BG00063509 dated 01.09.2009 for an amount of Rs. 4,64,315/- in favour of the claimant. c. The respondent was directed pay to the claimant simple interest @ 10%p.a. on the amount awarded in terms of (a) above , both pendente lite and future till actual payment within the period of two weeks from the date of the award. d. In case, respondent failed to pay the awarded amount with interest as aforesaid, within two weeks form the date of the award, the claimant was held entitled to the amount awarded in terms of (a) above plus pendent lite interest @ 10% p.a alongwith future interest @18% p.a. from the date of the award till actual payment. Aggrieved with the award , petitioner-BHEL has preferred these two petitions u/s 34 of A & C act .
8. This court has heard the submissions advanced by Sh. Atul Mathur Learned counsel appearing for petitioner and Sh. Saket Sikri Learned counsel for respondent and perused the material on record.
SUBMISSIONS ADVANCED BY THE COUNSELS
9. Ld. Counsel appearing for petitioner submitted that present challenge to the Impugned Award dated 2.06.2021 passed by the Ld. Sole Arbitrator in the arbitral proceedings between the parties is maintainable under Section 34(2)(b)(ii) as the Impugned Award is in conflict with the Public Policy of India. It is further submitted that the Impugned Award is also vitiated by patent illegality on the face of it as per Section 34(2A).
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10. It is submitted that as per the judgment of the Hon'ble Apex Court in Associate Builders v. Delhi Development Authority reported as (2015) 3 SCC 49, the Fundamental Policy of India , which includes complying with statutes and judicial precedents , forms a ground for challenge under Public Policy.
11. It is submitted that the Ld. Sole Arbitrator had ignored vital evidence admitted on behalf of the Petitioner as well as misconstrued the clauses of General Conditions of Contract of the subject contract ('Bawana Contract') in such a way that no reasonable person could have arrived at a decision as done by the Ld. Sole Arbitrator
12. It is further submitted that in Associate Builders (supra), the Hon'ble Apex Court also held that if the Arbitrator misconstrued the contract in such a way which no reasonable person can be expected to do so, then also the award is liable to be set aside as it makes the award patently illegal.
13. Ld. Counsel for petitioner submitted that the judgment in Associate Builders (supra) was delivered before the Arbitration and Conciliation (Amendment) Act, 2015 came into effect. However, the said judgment with regard to the public policy has been affirmed by the Hon'ble Supreme Court in the case of Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India, reported as (2019) 15 SCC 131 and further in the judgment of PSA SICAL Terminals Pvt Ltd v. Board of Trustees of V.O. Chidambranar Port Trust Tuticorin and Others reported as 2021 SCC OnLine SC 508. In this regard it is submitted that PSA SICAL had BHEL VS M/s ABB INDIA LTD OMP (COMM) 54 of 2021 BHEL VS M/s ABB INDIA LTD OMP (COMM) 56 of 2021 Page 6 of 29 clarified that Associate Builders holds good even after the Arbitration and Conciliation (Amendment) Act, 2015 .
14. Ld. Counsel for petitioner relied upon the judgment of the Hon'ble Supreme Court in MMTC Limited v. Vedanta Limited reported as (2019) 4 SCC 163 in support f his submission that patent illegality itself means contravention of the terms of the contract.
15. Sh.Mathur, Learned Counsel for petitioner submitted that Claim 1 and 2 of the Respondent therein were allowed by Ld. Sole Arbitrator. It is submitted that the impugned award is solely based on the judgment of the Hon'ble Supreme Court in Gangotri Enterprises vs. Union of India reported as 2016 (11) SCC 720, however Gangotri (supra) only deals with a clause similar to Clause similar to that of Clause 9 of the GCC of the Bawana Contract and does not take into account Clause 22 of the GCC of the Bawana Contract.
16. It is submitted that the Impugned Award does not take into account Clause 22 of the Bawana Contract and also ignores the interpretation of Hon'ble Supreme Court of similar clauses in the case of Union of India v. Concrete Products and Construction Company reported as (2014) 4 SCC 416, which were worded similarly to Clause 22 in Bawana and Anpara contracts.
17. It is further submitted that the finding of the Arbitral Tribunal is incorrect as Clause 9 and 22 were the two clauses which provide for withholding of payment by BHEL. It is submitted that letter dated 9th February 2018 which states that BHEL VS M/s ABB INDIA LTD OMP (COMM) 54 of 2021 BHEL VS M/s ABB INDIA LTD OMP (COMM) 56 of 2021 Page 7 of 29 the Petitioner is withholding the said payment due to the outstanding amounts in the Anpara Contract.
18. Ld. Counsel for petitioner further submitted that the question for determination before the Arbitral Tribunal was, whether the Petitioner is entitled to withhold the payments as per the terms of the contract or not. It is submitted that the Impugned Award does not take into consideration Clause 22 of the GCC of the Bawana Contract does not use the word 'outstanding'. It uses the word 'claim or claims for payment of a sum of money' and does not use the word 'outstanding'. Accordingly, the finding of the Arbitral Tribunal that the amount can be withheld only in case of a crystalized amount and not merely a 'claim', is incorrect. The Petitioner has relied upon Clause 22 as mentioned in their Preliminary Objection Nos. 4 and 5 i.e. the Reply of the Petitioner to the Statement of Claim.
19. Ld. Counsel further urged that the GCC in the Anpara contract was also filed by the Petitioner before the Ld. Sole Arbitrator on 11.02.2021 during the course of hearing. It is submitted that Clause 22 of Anpara Contract was pari materia to Clause 22 of Bawana Contract and gives right to Petitioner to withhold amounts from Bawana Contract till Anpara Contract is adjudicated upon.
20. Ld. Counsel for petitioner submitted that placed reliance on Gangotri (supra) was misplaced. It is submitted that the judgement of Gangotri (supra) is based upon the judgement of Union of India v. Raman Iron Foundry reported as (1974) 2 SCC 231 again decided by the Hon'ble Supreme Court in the year 1973.It is submitted that while deciding the matter of BHEL VS M/s ABB INDIA LTD OMP (COMM) 54 of 2021 BHEL VS M/s ABB INDIA LTD OMP (COMM) 56 of 2021 Page 8 of 29 Gangotri (supra) in 2016 and relying upon the judgement of Raman Iron Foundry (supra) the Hon'ble Supreme Court did not take into consideration that the judgement of Raman Iron Foundry (supra) stood overruled by the judgement of M/s HM Kamaluddin Ansari and Co vs Union of India & Ors. reported as (1983) 4 SCC 417 in the year 1983 and accordingly there could not have been any reliance on the judgement of Raman Iron Foundry (supra). Since the judgement of Gangotri is completely based upon Raman Iron Foundry (supra) which judgement already stood overruled the said judgement is per incuriam.
21. Ld. Counsel for petitioner submitted that judgment Gangotri (supra) was said to be per incuriam is also stated by the Hon'ble Supreme Court in the judgement of State of Gujarat v. Amber Builders reported as (2020) 2 SCC 540 wherein it states the said fact at Para 19-21. It is submitted that since Gangotri (supra) is not good law. No reliance can be placed upon the Gangotri (supra).
22. Ld. Counsel submitted that the contrary settled position of law as per Kamaluddin (supra) is that no injunction can be granted for recovery of any amounts even if they are in the nature of damages. It is submitted that the Arbitral Tribunal failed to consider that the reliance placed upon by the Petitioner also relies upon the judgement of Concrete (supra) which interpreted a clause similarly worded to Clause 22 in the GCC of the Anpara and Bawana Contracts to state that the amounts could be withheld and the right envisaged under the said clause is duly enforceable. In the said case it was held by the Hon'ble Supreme Court that no interest could be granted on account of withholding BHEL VS M/s ABB INDIA LTD OMP (COMM) 54 of 2021 BHEL VS M/s ABB INDIA LTD OMP (COMM) 56 of 2021 Page 9 of 29 of accounts under such clause similar to Clause 22 of the GCC of Anpara and Bawana Contracts. It is submitted that Ld. Sole Arbitrator ignored Claim no. 3 as grant of interest with respect to claim for interest by ABB.
23. It is submitted that the respondent had to fulfil its obligations under the Bawana Contract and had further agreed to reimburse BHEL for any cost arising towards BHEL in lieu of the same. It is submitted that the Petitioner had placed an amended BBU on ABB on 26.11.2014 whereby the Respondent was required to supply and erect 45 number of 3TR split air conditioning systems and it had failed to supply beyond 35. It is submitted that on 30.12.2017, the Petitioner agreed to debit the differential cost Pages 69 and 70 of the measurement book. It is submitted that vide Minutes of Meeting dated 08.06.2019 the customer i.e. M/s PPCL informed the Petitioner that it had on 31 July 2018 deducted a composite amount of Rs 9,97,087 due to the Petitioner's failure to supply and erect 10 number air conditioning systems. It is submitted that the Respondent was informed of the same by the Petitioner vide e-mail dated 24.06.2019 that a net amount of Rs. 5, 34,523/- was liable to be recovered from the Respondent on account of its failure to supply and erect 10 number of AC systems.
24. It is argued that the plea of the respondent with regards to the fact that they were coerced to sign the Measurement Books holds no water since the Respondent did not protest against the declarations at the time of signing nor did the Respondent raise any protest thereafter. It is submitted that the same was an afterthought as the respondent only raised this issue BHEL VS M/s ABB INDIA LTD OMP (COMM) 54 of 2021 BHEL VS M/s ABB INDIA LTD OMP (COMM) 56 of 2021 Page 10 of 29 for the first time during the Statement of Claim, and not before. It is submitted that the rejection of Counter Claims of the Petitioner is liable to be set aside.
SUBMISSIONS ADVANCED BY COUNSEL FOR RESPONDENT
25. On the other hand, Sh. Saket Sikri Ld. Counsel appearing for respondent submitted that the only ground taken by the Petitioner is that the Ld. Arbitrator has erroneously interpreted clause 9 and 22 of the GCC. It is argued that Ld. Arbitrator correctly interpreted the clauses, it is settled law that interpretation of clauses of the contract fall within the exclusive domain of the Ld. Arbitrator and an award ought not to be interfered with only because the Ld. Arbitrator could have taken a different view. In support a three-judge bench of the Hon'ble Supreme Court in Dyna Technologies v. Crompton Greaves Limited (2019) 20 SCC 1was referred.
26. It is submitted that in terms of Clause 7 of the PO, the Respondent duly submitted two Performance Bank Guarantees with the Petitioner. In terms of clause 7.3 of the GCC, for the supply Order/Contract, the validity of the bank guarantee shall be up to the contractual delivery period, initially. It shall be later extended to cover the entire guarantee period, two months before expiry of its validity period. For Order/Contract inclusive of erection and commissioning (E&C), the validity of the bank guarantee shall be up to the contractual E&C period, initially. It shall be later extended to cover the entire guarantee period, two months before expiry of its validity period. Further, clause 6 defined guarantee period to state that the system BHEL VS M/s ABB INDIA LTD OMP (COMM) 54 of 2021 BHEL VS M/s ABB INDIA LTD OMP (COMM) 56 of 2021 Page 11 of 29 equipment and material supplied under this contract shall be guaranteed against all defects in design, raw materials, manufacture, assembly, workmanship etc. for a period of 18 months from the date of completion of supplies or 12 months from the date of commissioning, whichever is earlier as per clause no. 16 of GCC (Rev 03) Vol I Part B.
27. It is submitted that after successful completion of the work, the Respondent wrote letter dated 30.01.2017 to the Petitioner, seeking discharge of the Bank Guarantees as the warranty period had already expired in November 2016 and contract validity/ time extension of Supply and Erection contract had also expired in August 2016. It is submitted that the Petitioner replied on 20.02.2017 stating that "the package AC's system was commissioned on 09.05.2016 and consequently guarantee period shall be over after one year as per clause no. 15.2 of Volume-I, Part-B of GCC of Contract." Therefore, as per the letter of the Respondent itself, admittedly the guarantee period was to be over by 08.05.2017.
28. Sh. Sikri further submitted that letter dated 09.02.2018 came to be issued by the Petitioner stating that "In exercise of the rights conferred under the said clause upon processing of the final bill an amount of Rs.47,45,023/- and other securities furnished under the contract of 2x750 MW Pragati-III, Bawana are now being withheld and adjusted on account of failure of ABB to pay and clear the contractual dues of BHEL under contract of 2x500 MW Anpara-D."
29. It is argued that it was apparent from the above letter, monies due to the Respondent and securities furnished by BHEL VS M/s ABB INDIA LTD OMP (COMM) 54 of 2021 BHEL VS M/s ABB INDIA LTD OMP (COMM) 56 of 2021 Page 12 of 29 the Respondent for the present contract, i.e., Bawana Contract, were only being withheld and adjusted in terms of clause 9 of the GCC, on account of alleged failure of the Respondent to settle dues for another contract, i.e., Anapara contract. Hence, it is admitted by the Petitioner, that as far as the present contract / Bawana Contract is concerned, the Respondent discharged its obligations to the satisfaction of the Petitioner. The Ld. Arbitrator had also given a finding of fact that the work has been completed on time by the Respondent and such finding has not been challenged by the Petitioner.
30. It is pointed out that the only ground put forth by the Petitioner for withholding and adjusting the monies and securities of the Respondent in the present contract is on account of alleged dues to be recovered in the other contract, i.e., Anapara contract. It is submitted that the power to do so, in terms of letter dated 09.02.2018 (supra), was to be found in terms of clause 9 only. However, during the course of the arbitration, the Petitioner also relied upon clause 22 of the GCC.
31. It is contended that the above clauses empower it to withhold and recover sums due to the Respondent in the present contract against any sum claimed against the Respondent in another contract, i.e., BHEL was empowered to withhold and recover amounts due to ABB India Limited in the present contract on account of claims (which are pending adjudication) made by BHEL against ABB India Limited in the Anapara contract.
32. It is submitted that clauses in the present contract were worded differently from the clauses in the judgments BHEL VS M/s ABB INDIA LTD OMP (COMM) 54 of 2021 BHEL VS M/s ABB INDIA LTD OMP (COMM) 56 of 2021 Page 13 of 29 referred to by the Petitioner. Further, it was contended that the claim of the Petitioner in the Anapara contract was essentially a claim for damages and therefore, was not an actionable claim, in order to enable the Petitioner to retain and recover the monies due to the Respondent in the present contract. The Respondent placed reliance on the judgment of Union of India vs. Raman Iron Foundry 1974 (2) SCC 231 to support its contention. Petitioner contended that the judgment of Raman Iron Foundry was over ruled by a larger bench of the Hon'ble Supreme Court in M/s. H.M. Kamaluddin Ansari & Co. v. Union of India (1983) 4 SCC 417 which has been cited with approval in State of Gujarat through Chief Secretary and Another vs. Amber Builders (2020) 2 SCC 540.
33. It is argued that the judgment of Raman Iron Foundry has been overruled on another point in M/s. H.M. Kamaluddin Ansari & Co. and the law laid down by Raman Iron Foundry that 'a claim for damages is not an actionable claim' is still good law. In support of such contention the Respondent relied on a judgment of the Hon'ble High Court of Delhi in Intertoll Ics Cecons. O & M Co. Pvt. Ltd. vs. National Highways Authority of India 2013 SCC Online Del 447 which expressly stated that the decision in Raman Iron Foundry was overruled in M/s. H.M. Kamaluddin Ansari & Co. v. Union of India (1983) 4 SCC 417 on another point "that the clause in the contract applied to a claim itself and not only to an amount due". However, on the nature of the claim for damages the decision in Raman Iron Foundry has not been overruled and is good law.
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34. It is submitted that it was an admitted position that the claim of the Petitioner herein in the other contract was a claim for damages. It was submitted before the Ld. Arbitrator that inter-alia such a claim for damages cannot entitle the Petitioner to recover sums of monies that are admittedly due to the Respondent in the present contract.
35. It is submitted that in the submissions made by Ld. Counsel for petitioner show that impugned award was solely based on the judgment of the Hon'ble Supreme Court of India in the case of Gangotri Enterprises v. Union of India (2016) 11 SCC 720 and further contended that the judgment in Gangotri places reliance on the judgment of Raman Iron Foundry, which as per the Petitioner was over ruled in HM Kamaluddin. It is submitted that such contention was misleading for the reason that as held in ICS Intertoll, Raman Iron Foundry was over ruled on another point and the principle laid down in Raman Iron Foundry that a claim for damages is not an actionable claim is still good law. Further, the following paragraphs of the impugned award will show that the impugned award is not based solely on the judgment of Gangotri .
36. Ld. Counsel contended that the impugned award is based solely on the judgment of Gangotri Enterprises (supra). Further, without prejudice to the foregoing arguments, it is submitted that it is settled law that judgments are rendered in peculiar facts a case and ought not to be read like statutes. It is submitted that the counter claims submitted by the Respondent before the Ld. Arbitrator that the original PO envisaged supply of 6 nos. of AC systems. However, such no. was revised to 35 BHEL VS M/s ABB INDIA LTD OMP (COMM) 54 of 2021 BHEL VS M/s ABB INDIA LTD OMP (COMM) 56 of 2021 Page 15 of 29 subsequently, which regardless of the variation clause, was supplied by the Claimant.
37. It is submitted that in the post engineering stage, arbitrarily & without following Engineering norms, the Respondent insisted on Additional supply of 10 no more 3 TR capacity Split AC systems, thereby changing the original no. of 6 ACs to 45, which was an increase of close to 600% and additional demand was clearly not agreed to by the Claimant and it was not covered by the variation clause as well, which provides that "6.0 VARIATION: The prices shall remain firm for any increase or decrease in the Order/Contract value upto plus or minus 30%. The purchaser shall have the right to increase or decrease quantities and scope upto the above extent of value and Seller/Contractor shall be bound to accept the same at the contracted prices without any escalation." (emphasis supplied)
38. It is submitted that the increase by the Petitioner amounted to an increase of 650%, which far exceeds the 30% permissible in terms of clause 6 and was not agreed to by the Respondent as was recorded in MOM dated 19.09.2014 and was reiterated by the Claimant in meeting held on 21.01.2017. It was submitted that the comments on the measurement book, which were relied on by the Petitioner herein to show that the Respondent had agreed to supply the ACs, were prepared unilaterally by the Petitioner and signed by the Respondent under protest and coercion by the Respondent inasmuch as the Petitioner stated that the contracts would not be closed till the same are signed by the Claimant.
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39. It is submitted that the Ld. Arbitrator has arrived at a correct conclusion, after carefully going through the evidence produced by the parties and case-laws cited by the parties and as far as clause 22 is concerned, the Ld. Arbitrator held that clause 22.1 envisages a situation where the entitlement to withhold or have lien to retain the sum arises only when the Petitioner has a claim for payment under the present contract.
40. It is submitted that Petitioner failed to show one error so grave in the Award that it would rise to meet the threshold laid down by Section 34(2) of the Act or by the Courts while interpreting "fundamental policy of Indian law". In a similar vein, there is a failure to establish "patent illegality appearing on the face of the award". The threshold for "patent illegality appearing on the face of the award" is as set out by a 3- Judge Bench of the Hon'ble Supreme Court in Patel Engineering Ltd. v. North Eastern Electric Power Corporation, SLP No. 3584- 85/2020.
LEGAL STANDARD AS REGARDS SCOPE OF INTERFERENCE BY THE COURT
41. Sub-sections (1) and (2) of Section 34, as amended by the Arbitration and Conciliation (Amendment) Act, 2019, reads thus :
"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).
BHEL VS M/s ABB INDIA LTD OMP (COMM) 54 of 2021 BHEL VS M/s ABB INDIA LTD OMP (COMM) 56 of 2021 Page 17 of 29 (2) An arbitral award may be set aside by a Court only if - (a) the party making the application establishes on the basis of the record of arbitral tribunal 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 unable to present his case; or
(iv) the arbitral award deals with the 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 what is in conflict with the public policy of India, only if, -
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(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 merely on the ground of an erroneous application of the law or by re-appreciation of evidence."
42. It is well settled that following are the basic principles while exercising jurisdiction U/s 34 of A&C Act :-
(i) The Arbitral tribunal is the final arbiter of the facts and the law. Ordinarily, conclusions of fact, or law, at which the arbitral tribunal arrives, are not amenable to interference under Section 34;
(ii) This principle is subject to the following exceptions:-
(a) Where the conclusion of the arbitral tribunal, whether on facts or on law is perverse, it merits interference. Perversity, in such a case must be of such a degree that no reasonable man, conversant with the facts and the law, would arrive at such a decision
(b) If the findings of the arbitral tribunal are contrary to the contract between the parties, the court is bound to interfere. This is, essentially, because the arbitral BHEL VS M/s ABB INDIA LTD OMP (COMM) 54 of 2021 BHEL VS M/s ABB INDIA LTD OMP (COMM) 56 of 2021 Page 19 of 29 tribunal draws its jurisdiction from the contract, and is a creature thereof. The arbitral tribunal, cannot, therefore, arrive at a conclusion which militates against the terms of the contract between the parties, merely to do equity, or for any other reason
(c) Similarly, if the conclusion of the arbitral tribunal is contrary to the law laid down by the Supreme Court, or any other binding judicial precedent, the court can interfere. This is because any conclusion, by the arbitral tribunal, which is contrary to the extant law, is treated as violative of public policy, which is a well settled ground for interference with the award;
(iii) In other cases, as already noted above, ordinarily, interference with the arbitral award is to be scrupulously eschewed. Having elected to resolve their disputes by arbitration, the parties are ordinarily expected to defer to the decision of the arbitrator.
Awards of arbitral tribunals cannot be likened with judgments of courts, which are susceptible to appeal. Else, the very raison d'etre of the establishment of the arbitral institution would stand defeated;
(iv) The court is not, therefore, entitled to sit in appeal over the decision of the arbitral tribunal. Neither can the court re-appreciate the evidence, which has been appreciated by the arbitral tribunal. If, however, the arbitral tribunal ignores material evidence, that would amount to "perversity", which would invite interference under Section34. If all the evidence has been examined by the arbitral tribunal, the court cannot interfere on the ground that the examination of the evidence, as undertaken by the arbitral tribunal, is not, to its mind, satisfactory or sufficient. Nor can the court substitute its own view for the view of the arbitral tribunal, on the ground that, in its perception, the view of the court is "better" or "more appropriate".
43. The aforenoted principles pertain to the scope of interference with arbitral awards, by courts, on merits. These are BHEL VS M/s ABB INDIA LTD OMP (COMM) 54 of 2021 BHEL VS M/s ABB INDIA LTD OMP (COMM) 56 of 2021 Page 20 of 29 apart from the other well-established grounds on which the court may interfere, such as misconduct by the arbitrator, bias or prejudice or conducting of the arbitral proceedings in violation of the principles of natural justice, to refer to a few.
44. The legal position is well settled that a broad distinction has to be maintained between the decisions which are perverse and those which are not and interference by the Court under Section 34(2)(b)(ii) does not entail a review of the merits of the dispute, and is limited to situations where the findings of the arbitrator are arbitrary, capricious or perverse, or when the conscience of the Court is shocked, or when the illegality is not trivial but goes to the root of the matter. An arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts. An award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciation of evidence. (MMTC Ltd. vs. Vedanta Ltd., AIR 2019 SC 1168; Union of India vs. Chenab Construction Company (Regd.), 2019 SCC OnLine Del 10515 and Ssangyong Engineering & Construction Co. Ltd. Vs. National Highways Authority of India (NHAI) - (2019)15SC C 131), Parsa Kente Collieries Limited vs. Rajasthan Rajya Vidyut Utpadan Nigam Limited, AIR2019 SC 2908; Patel Engineering Ltd. Vs. North Eastern Electric Power Corporation Ltd. (NEEPCO) 2020 SCC OnLine SC 466 and Anglo America Metallurgical Coal PTY Ltd. vs MMTC Ltd. 2020 SCC OnLine SC 1030).
BHEL VS M/s ABB INDIA LTD OMP (COMM) 54 of 2021 BHEL VS M/s ABB INDIA LTD OMP (COMM) 56 of 2021 Page 21 of 29 ANALYSIS AND CONCLUSIONS
45. On thoughtful consideration of the submissions advanced at bar by the Ld. counsels for the parties, in the light of aforenoted legal position, this Court finds no merits in the submissions advanced by the learned counsel for the petitioner.
46. Question before the Ld. Arbitrator involved the interpretation of clauses 9 and 22 of the General Commercial Terms and Conditions of Purchase Orders placed by the Petitioner upon the Respondent for Supply, of Air Conditioning System for 2 X 750 MW units at Pragati - III, CCPP, Bawana and Erection and Commissioning of the same. (Contract in question / Bawana Contract) Clause 9 and 22 of the GCC are as follows:
Clause 9.0 Recovery of Outstanding Amount:
"In the event of any amount of money being outstanding at any point in time against the Seller/Contractor, due to excess payment or any other reason whatsoever, in the present order/contract or any other order/contract, the outstanding amount shall be recovered from the payments due to the seller/contractor or at any other appropriate time and manner/mode as deemed fit by the Purchaser at its sole discretion."
Clause 22.0 Withholding and lien in respect of sums claimed:
22.1 Whenever any claim or claims for payments of a sum of money arises out of or under the Contract/Order against the Seller/Contractor, the Purchaser shall be entitled to withhold and also have a lien to retain such sum of sums in whole or sums in part from security, if any, deposited by the Seller/Contractor and for the purpose aforesaid, the purchaser shall be entitled to withhold the said cash security deposit or the security, if any furnished as the case may be and also have a lien BHEL VS M/s ABB INDIA LTD OMP (COMM) 54 of 2021 BHEL VS M/s ABB INDIA LTD OMP (COMM) 56 of 2021 Page 22 of 29 over the same, pending finalisation or adjudication of any such claim. In the event of the security being insufficient to cover the claimed amount or amounts or if no security has been taken from the Seller/Contractor, the purchaser shall be entitled to withhold and have a lien to retain to the extent of such claimed amount or amounts referred to from any sum or sums found payable or which at any time thereafter may become payable to the Seller/Contractor under the same Order/Contract or any other Order/Contract with the purchaser or any other person contracting, pending finalisation or adjudication of any such claim.
22.2 It is an agreed terms of the Order/Contract that the sum of money so withheld or retained under the lien referred to above will be kept withheld or retained as such by the purchaser till the claim arising out of or under the Order/Contract is determined by the Arbitrator or by the competent court, prescribed as the case may be and that the Seller/Contractor will have no claim for interest or retention under the lien referred to and duly notified as such to the Seller. For the purpose of this clause, where the Seller/Contractor is partnership firm or a limited company, the Purchaser shall be entitled to withhold and also have a lien towards such claimed amount or amounts in whole or in part from any such sum found payable to any partner/limited company as the case may be, whether in his individual capacity or otherwise.
22.3 It is an agreed term of the Order/Contract that the sum of money so withheld or retained under this clause by purchaser which will be kept withheld or retained as such by the purchaser or till his claim arising out of in the same Order/Contract or any other Order/Contract is either mutually settled or determined by the arbitrator or competent court hereinafter provided, as the case may be that the Seller/Contractor shall have no claim for interest or damages whatsoever on this account of or any other ground in respect of any such sum of money withheld or retained under this clause and duly notified as such to the seller.
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47. This court is in agreement with the submissions advanced by the learned counsel for the respondent herein that Ld. Arbitrator was well aware of the judgments of HM Kamaluddin and subsequent judgments .
48. No fault can be found with the view taken by learned arbitrator that Clause 9 of the GCC is worded differently from the clause that came up for interpretation in Raman Iron Foundry and Kamaluddin Ansari. The clause in those cases used the word 'claim', whereas the present contract uses the word 'outstanding' , which contemplated that there must be an outstanding amount due against the contractor, which would mean something that would be owed to someone or payable to someone and that amount claimed by the Respondent under the Anapara contract was yet to be established and therefore, cannot be said to be an outstanding against the contractor or that the outstanding amount referred to in clause 9 has to be understood as a debt payable in prasenti or that only after the adjudication of the claim can it be said to be outstanding amount. It also seems to be true that if intention of the parties was to entitle the Respondent to recover the 'claimed' amount, the contract would have specified it. It is pertinent to reproduce the following observations in the award .
"59. Clause 9 of GCC of the present Contracts is differently worded from the clause that came up for interpretation in Raman Iron Foundry (supra) and Kamaluddin Ansari (Supra). Clause 9 of the instant contract does not refer to the 'claim'. It uses the word 'outstanding'. It states that 'in the event of any amount of money being outstanding at any point in time against the contractor, due to excess payment or any other reason BHEL VS M/s ABB INDIA LTD OMP (COMM) 54 of 2021 BHEL VS M/s ABB INDIA LTD OMP (COMM) 56 of 2021 Page 24 of 29 whatsoever in the present contract or any other contract, the outstanding amount shall be recovered from the payments due to the contractor.' This contemplates that there must be an outstanding amount due against the contractor. 'Outstanding amount' means something that would be owed to someone or payable to someone. It is different from the word 'claim', which is yet to be determined.
Admittedly the amount claimed by the Respondent under the contract of Anapara project is yet to be established by adjudication as a debt payable and therefore cannot be said to be an outstanding against the Claimant/contractor in the context in which the word 'outstanding' is used in clause 9. Clearly, the outstanding amount referred to in clause 9 has to be understood as a debt payable in presenti i.e. refers to an actionable claim. Only after the adjudication of the 'claim' can it be said to be 'outstanding amount'. It is clearly an amount payable in prasenti.
61. Furthermore, if the intention of the parties while entering into the contract was to also entitle the Respondent to recover the 'claimed' amount, then the drafters of the contract could have very well used the term 'claim' instead of 'outstanding' in clause 9 of the contracts as it used the word 'claimed' in clause 22. Consequently, the recovery of the amount which is yet to be determined through the adjudicatory process cannot be recovered from the admitted dues in the present contract.
62. The other argument of the learned counsel for the Respondent is that in terms of clause 22.1 whenever any claim or claims for payment of a sum of money arises out of another contract between the same parties, they are entitled to withhold or have lien in the amounts due from the contracts in question, is wholly misconceived.
63. Clause 22.1 provides in unequivocal term that the entitlement of the Respondent to withhold or have lien to retain the sum or sums in whole or in part only arises when the Respondent has a Claim in the present contract BHEL VS M/s ABB INDIA LTD OMP (COMM) 54 of 2021 BHEL VS M/s ABB INDIA LTD OMP (COMM) 56 of 2021 Page 25 of 29 and not in another contract. Clause 22.2 and 22.3 also refer to such claims as are referred to in clause 22.1. The former portion of clause 22.1 clearly envisages that 'whenever any claim or claims for payment of a sum of money arises out of or under the contract against the contractor.......', meaning thereby that the claim or claims need to arise in the contract in question and not in any other contract between the same parties.
64. There is yet another aspect of the matter. Admittedly the amount claimed in the Anapara project is still pending adjudication before another Arbitral Tribunal and the said claim is by way of damages for alleged breach of contract by the Claimant with respect to contracts pertaining to the Ananpra project. In the matter of Intertoll ICS Cecons O&M Co. Pvt. Ltd (supra), the Single Bench of the Delhi High Court has made a distinction between the judgement in Raman Iron Foundry and H.M. Kamaluddin (supra) case to hold that the decision in Raman Iron Foundry was overruled in H.M. Kamaluddin Ansari & Co. v. Union of India, (1983) 4 SCC 417 was on another point i.e. "that the clause in the contract applied to a claim itself and not only to an amount due". However, on the nature of the claim for damages the decision in Raman Iron Foundry has not been overruled and is good law.
65. Similar view has also been taken in another case by the learned single Judge in Lanco Infratech Ltd. Vs Hindustan Construction Company Limited 2016 SCC Online Del 5365.
66. The decision in State of Gujrat's case (supra) doesn't not deal with the distinction drawn by the Learned Single Judge in the aforesaid cases and the facts of that case are distinguishable from the facts of the present case.
67. In view of the aforesaid, I am of the view that the Respondent does not have any right to withhold or recover the amounts which are admittedly payable in the present contracts pertaining to the Bhawana project in lieu of the amounts claimed and pending adjudication in respect of the contracts for the Anapara project. BHEL VS M/s ABB INDIA LTD OMP (COMM) 54 of 2021 BHEL VS M/s ABB INDIA LTD OMP (COMM) 56 of 2021 Page 26 of 29 Likewise, the Respondent does not have a right to withhold or encash the security deposited by way of Bank Guarantees furnished by the Claimant for the contracts relating to the Bhawana projects."
49. Learned arbitrator has properly dealt with all the contentions of petitioner .This court finds that the present petition does not make out any grounds for interference with the arbitral award under Section 34 of A&C Act. This Court cannot sit in appeal over the award passed by Ld. Arbitrator by reassessing and re-appreciating the evidence which is wholly impressible as per settled tenets of law. The view taken by the Ld. Arbitrator after considering the material before him and after interpreting the provisions of agreement is a possible view and, therefore, the same does not warrants any interference.
50. Ld. Arbitrator had done a detailed analysis as regards the factual matrix and has carefully read and examined not only clause 9 but also clause 22 of GCC Contract and the contention of petitioner raised herein have been considered and dealt with appropriately and this court cannot substitute its opinion in the place of opinion of Ld. Arbitrator ,when the view taken by Ld. Arbitrator appears to be a possible and reasonable view . This Court is in agreement with submissions advanced by Ld. counsel for respondent herein that impugned award is not based solely on the judgment of Gangotri. The conclusions of Ld. Arbitrator that the respondent was not having any right to withhold or recover amount which were admittedly payable in the present contracts pertaining to the Bawana Project in lieu of the amount claimed and pending adjudication in respect of the BHEL VS M/s ABB INDIA LTD OMP (COMM) 54 of 2021 BHEL VS M/s ABB INDIA LTD OMP (COMM) 56 of 2021 Page 27 of 29 contracts for Anapara Project and that respondent does not have a right to withhold or encash the security deposited by way of Bank Guarantees furnished by the claimant for the contracts relating to the Bawana projects are reasonable and can't by any stretch of imagination be observed as perverse or against the public policy or having patent illegality
51. On perusal the award as a whole, this court finds no inconsistent or contradictory findings in the award. This court cannot sit in an appeal and re-appreciate the evidence and what weight has to be attached to different pieces of evidence is the act of appreciation of evidence. Perusal of award clearly shows that Ld. Arbitrator has elaborately discussed all the contentions raised by the parties and referred to relevant clauses of the agreement. The award is not based on any conjectures or surmises but is based on the interpretation of the material placed on record as a whole. None of the finding is contrary to the terms of the agreement or the relevant clauses governing the agreement of the parties. This Court finds that award is well reasoned and every contention has been taken into consideration.
52. The award of the Arbitrator can be set aside only on the limited grounds and the award cannot be interfered with simply because another view is possible on the available materials. The Arbitrator is a Judge of choice of parties and this Court cannot set aside award even if the Court can come to different conclusion on the same facts. This court finds that none of the ground raised by the learned Counsel for the petitioner is covered strictly with the purview of Section 34 of A&C Act. It cannot be said that the Award is against the fundamental policy of BHEL VS M/s ABB INDIA LTD OMP (COMM) 54 of 2021 BHEL VS M/s ABB INDIA LTD OMP (COMM) 56 of 2021 Page 28 of 29 Indian law or perverse or has patent illegality which goes to the root of the matter. Therefore, the Award passed by the Ld. Arbitrator is not illegal or invalid and cannot be set aside.
53. In the result, this court finds no merits in the petition and no ground for interference is called in the award. Accordingly, both petitions (OMP (COMM) 54/2021 and 56/2021) U/s 34 of A&C Act deserve to be dismissed. Order accordingly.Copy of this judgment be placed in OMP (COMM) 56 of 2021. No order as to costs. File be consigned to record room.
(Dictated and announced today i.e. On 18.09.2021) (VINAY KUMAR KHANNA) District Judge (Commercial Court-02) South Disttt., Saket, New Delhi.
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