Karnataka High Court
U B Shetty vs State Of Karnataka on 19 September, 2024
Author: K.Somashekar
Bench: K.Somashekar
1
R
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 19TH DAY OF SEPTEMBER, 2024
PRESENT
THE HON'BLE MR JUSTICE K.SOMASHEKAR
AND
THE HON'BLE DR. JUSTICE CHILLAKUR SUMALATHA
COMMERCIAL APPEAL NO.359 OF 2022
CONNECTED WITH
COMMERCIAL APPEAL NO.360 OF 2022
CONNECTED WITH
COMMERCIAL APPEAL NO.361 OF 2022
CONNECTED WITH
COMMERCIAL APPEAL NO.362 OF 2022
CONNECTED WITH
COMMERCIAL APPEAL NO.363 OF 2022
IN COMAP NO.359/2022
BETWEEN:
U B SHETTY
S/O MADAYYA SHETTY
AGED ABOUT 59 YEARS
CLASS-I CONTRACTOR
R/AT WINDCHIME APARTMENTS
NO.497, 6TH MAIN, RMV 2ND STAGE
DOLLARS COLONY
BENGALURU - 560007.
...APPELLANT
(BY SRI. YASHODHAR HEGDE - ADVOCATE)
AND:
1. STATE OF KARNATAKA
REPRESENTED BY ITS
PRINCIPAL SECRETARY
DEPARTMENT OF HEALTH AND
2
FAMILY WELFARE
III-FLOOR, VIKASA SOUDHA
BENGALURU - 560 001.
2. KARNATAKA HEALTH SYSTEMS
DEVELOPMENT PROJECT
REPRESENTED BY ITS
PROJECT ADMINISTRATOR
NOW RENAMED AS HEALTH AND
FAMILY WELFARE SERVICES
REPRESENTED BY ITS DIRECTOR
6TH FLOOR, AROGYA SOUDHA
MAGADI ROAD
BENGALURU - 560 023.
3. THE CHIEF ENGINEER
KARNATAKA HEALTH SYSTEM
DEVELOPMENT PROJECT(KHSDP)
I-FLOOR, STATE FOOD LABORATORY
BHI BUILDING, SHESHADRI ROAD
K R CIRCLE, BENGALURU - 560 001.
CURRENTLY AT:
ENGINEERING WING
AROGYA SOUDHA
3RD FLOOR, LEPROSY HOSPITAL
PREMISES, I-CROSS, MAGADI ROAD
BENGALURU - 560 023.
...RESPONDENTS
(BY SMT. MAMATA SHETTY - AGA & SRI. MAHANTESH SHETTAR - AGA
FOR RESPNDENTS NO.1 & 2; SRI. ZULFIKIR KUMAR SHAFI -
ADVOCATE FOR RESPONDENT NO.3)
THIS COMAP/COMMERCIAL APPEAL FILED UNDER SECTION
13(1)A) OF THE COMMERCIAL COURTS ACT, 2015 R/W SECTION
37(1)(c) OF ARBITRATION AND CONCILIATION ACT- 1996, PRAYING
TO:
3
i) ALLOW THIS APPEAL AND SET ASIDE THE IMPUGNED
JUDGMENT DATED 30.06.2022 PASSED IN COM.A.S.NO.
113/2019 BY THE LEARNED LXXXV-ADDL. CITY CIVIL AND
SESSIONS JUDGE (COMMERCIAL COURT) AT BENGALURU;
ii) CONSEQUENTLY, SET ASIDE THE PORTION OF THE AWARD
DATED 14.03.2019, WHICH WAS RECTIFIED VIDE AWARD
DATED 27.04.2019 PASSED IN A.C.NO.9/2018, REJECTING
THE BALANCE OF CLAIMS TO THE EXTENT OF
RS.77,79,44,000/-;
iii) CONSEQUENTLY, RELEGATE THE PARTIES BACK TO
ARBITRATION WITH RESPECT TO THE PORTION OF THE
AWARD DATED 14.03.2019, WHICH WAS RECTIFIED VIDE
AWARD DATED 27.04.2019 PASSED IN A.C.NO.9/2018,
REJECTING THE BALANCE OF CLAIMS TO THE EXTENT OF
RS.77,79,44,000/-.
IN COMAP NO.360/2022
BETWEEN:
U B SHETTY
S/O MADAYYA SHETTY
AGED ABOUT 59 YEARS
CLASS-I CONTRACTOR
R/AT WINDCHIME APARTMENTS
NO.497, 6TH MAIN, RMV 2ND STAGE
DOLLARS COLONY
BENGALURU - 560007.
...APPELLANT
(BY SRI. YASHODHAR HEGDE - ADVOCATE)
AND:
1. STATE OF KARNATAKA
REPRESENTED BY ITS
4
PRINCIPAL SECRETARY
DEPARTMENT OF HEALTH AND
FAMILY WELFARE
III-FLOOR, VIKASA SOUDHA
BENGALURU - 560 001.
2. KARNATAKA HEALTH SYSTEMS
DEVELOPMENT PROJECT
REPRESENTED BY ITS
PROJECT ADMINISTRATOR
NOW RENAMED AS HEALTH AND
FAMILY WELFARE SERVICES
REPRESENTED BY ITS DIRECTOR
6TH FLOOR, AROGYA SOUDHA
MAGADI ROAD
BENGALURU - 560 023.
3. THE CHIEF ENGINEER
KARNATAKA HEALTH SYSTEM
DEVELOPMENT PROJECT(KHSDP)
I-FLOOR, STATE FOOD LABORATORY
BHI BUILDING, SHESHADRI ROAD
K R CIRCLE, BENGALURU - 560 001.
CURRENTLY AT:
ENGINEERING WING
AROGYA SOUDHA
3RD FLOOR, LEPROSY HOSPITAL
PREMISES, I-CROSS, MAGADI ROAD
BENGALURU - 560 023.
...RESPONDENTS
(BY SMT. MAMATA SHETTY - AGA & SRI. MAHANTESH SHETTAR - AGA
FOR RESPNDENTS NO.1 & 2; SRI. ZULFIKIR KUMAR SHAFI -
ADVOCATE FOR RESPONDENT NO.3)
THIS COMAP/COMMERCIAL APPEAL FILED UNDER SECTION
13(1)A) OF THE COMMERCIAL COURTS ACT, 2015 R/W SECTION
37(1)(c) OF ARBITRATION AND CONCILIATION ACT- 1996, PRAYING
TO:
5
i) ALLOW THIS APPEAL AND SET ASIDE THE IMPUGNED
JUDGMENT DATED 30.06.2022 PASSED IN COM.A.S.NO.
115/2019 PASSED BY THE LEARNED LXXXV-ADDL. CITY CIVIL
AND SESSIONS JUDGE (COMMERCIAL COURT) AT
BENGALURU;
ii) CONSEQUENTLY, SET ASIDE THE PORTION OF THE AWARD
DATED 14.03.2019, WHICH WAS RECTIFIED VIDE AWARD
DATED 27.04.2019 PASSED IN A.C.NO.11/2018, REJECTING
THE BALANCE OF CLAIMS TO THE EXTENT OF
RS.76,11,27,000/-;
iii) CONSEQUENTLY, RELEGATE THE PARTIES BACK TO
ARBITRATION WITH RESPECT TO THE PORTION OF THE
AWARD DATED 14.03.2019, WHICH WAS RECTIFIED VIDE
AWARD DATED 27.04.2019 PASSED IN A.C.NO.11/2018,
REJECTING THE BALANCE OF CLAIMS TO THE EXTENT OF
RS.76,11,27,000/-.
IN COMAP NO.361/2022
BETWEEN:
U B SHETTY
S/O MADAYYA SHETTY
AGED ABOUT 59 YEARS
CLASS-I CONTRACTOR
R/AT WINDCHIME APARTMENTS
NO.497, 6TH MAIN, RMV 2ND STAGE
DOLLARS COLONY
BENGALURU - 560007.
...APPELLANT
(BY SRI. YASHODHAR HEGDE - ADVOCATE)
AND:
1. STATE OF KARNATAKA
REPRESENTED BY ITS
6
PRINCIPAL SECRETARY
DEPARTMENT OF HEALTH AND
FAMILY WELFARE
III-FLOOR, VIKASA SOUDHA
BENGALURU - 560 001.
2. KARNATAKA HEALTH SYSTEMS
DEVELOPMENT PROJECT
REPRESENTED BY ITS
PROJECT ADMINISTRATOR
NOW RENAMED AS HEALTH AND
FAMILY WELFARE SERVICES
REPRESENTED BY ITS DIRECTOR
6TH FLOOR, AROGYA SOUDHA
MAGADI ROAD
BENGALURU - 560 023.
3. THE CHIEF ENGINEER
KARNATAKA HEALTH SYSTEM
DEVELOPMENT PROJECT(KHSDP)
I-FLOOR, STATE FOOD LABORATORY
BHI BUILDING, SHESHADRI ROAD
K R CIRCLE, BENGALURU - 560 001.
CURRENTLY AT:
ENGINEERING WING
AROGYA SOUDHA
3RD FLOOR, LEPROSY HOSPITAL
PREMISES, I-CROSS, MAGADI ROAD
BENGALURU - 560 023.
...RESPONDENTS
(BY SMT. MAMATA SHETTY - AGA & SRI. MAHANTESH SHETTAR - AGA
FOR RESPNDENTS NO.1 & 2; SRI. ZULFIKIR KUMAR SHAFI -
ADVOCATE FOR RESPONDENT NO.3)
THIS COMAP/COMMERCIAL APPEAL FILED UNDER SECTION
13(1)A) OF THE COMMERCIAL COURTS ACT, 2015 R/W SECTION
37(1)(c) OF ARBITRATION AND CONCILIATION ACT- 1996, PRAYING
TO:
7
i) ALLOW THIS APPEAL AND SET ASIDE THE IMPUGNED
JUDGMENT DATED 30.06.2022 PASSED IN COM.A.S.NO.
117/2019 PASSED BY THE LEARNED LXXXV-ADDL. CITY CIVIL
AND SESSIONS JUDGE (COMMERCIAL COURT) AT
BENGALURU;
ii) CONSEQUENTLY, SET ASIDE THE PORTION OF THE AWARD
DATED 14.03.2019, WHICH WAS RECTIFIED VIDE AWARD
DATED 27.04.2019 PASSED IN A.C.NO.13/2018, REJECTING
THE BALANCE OF CLAIMS TO THE EXTENT OF
RS.126,78,26,000/-;
iii) CONSEQUENTLY, RELEGATE THE PARTIES BACK TO
ARBITRATION WITH RESPECT TO THE PORTION OF THE
AWARD DATED 14.03.2019, WHICH WAS RECTIFIED VIDE
AWARD DATED 27.04.2019 PASSED IN A.C.NO.13/2018,
REJECTING THE BALANCE OF CLAIMS TO THE EXTENT OF
RS.126,78,26,000/-.
IN COMAP NO.362/2022
BETWEEN:
U B SHETTY
S/O MADAYYA SHETTY
AGED ABOUT 59 YEARS
CLASS-I CONTRACTOR
R/AT WINDCHIME APARTMENTS
NO.497, 6TH MAIN, RMV 2ND STAGE
DOLLARS COLONY
BENGALURU - 560007.
...APPELLANT
(BY SRI. YASHODHAR HEGDE - ADVOCATE)
8
AND:
1. STATE OF KARNATAKA
REPRESENTED BY ITS
PRINCIPAL SECRETARY
DEPARTMENT OF HEALTH AND
FAMILY WELFARE
III-FLOOR, VIKASA SOUDHA
BENGALURU - 560 001.
2. KARNATAKA HEALTH SYSTEMS
DEVELOPMENT PROJECT
REPRESENTED BY ITS
PROJECT ADMINISTRATOR
NOW RENAMED AS HEALTH AND
FAMILY WELFARE SERVICES
REPRESENTED BY ITS DIRECTOR
6TH FLOOR, AROGYA SOUDHA
MAGADI ROAD
BENGALURU - 560 023.
3. THE CHIEF ENGINEER
KARNATAKA HEALTH SYSTEM
DEVELOPMENT PROJECT(KHSDP)
I-FLOOR, STATE FOOD LABORATORY
BHI BUILDING, SHESHADRI ROAD
K R CIRCLE, BENGALURU - 560 001.
CURRENTLY AT:
ENGINEERING WING
AROGYA SOUDHA
3RD FLOOR, LEPROSY HOSPITAL
PREMISES, I-CROSS, MAGADI ROAD
BENGALURU - 560 023.
...RESPONDENTS
(BY SMT. MAMATA SHETTY - AGA & SRI. MAHANTESH SHETTAR - AGA
FOR RESPNDENTS NO.1 & 2; SRI. ZULFIKIR KUMAR SHAFI -
ADVOCATE FOR RESPONDENT NO.3)
9
THIS COMAP/COMMERCIAL APPEAL FILED UNDER SECTION
13(1)A) OF THE COMMERCIAL COURTS ACT, 2015 R/W SECTION
37(1)(c) OF ARBITRATION AND CONCILIATION ACT- 1996, PRAYING
TO:
i) ALLOW THIS APPEAL AND SET ASIDE THE IMPUGNED
JUDGMENT DATED 30.06.2022 PASSED IN COM.A.S.NO.
116/2019 PASSED BY THE LEARNED LXXXV-ADDL. CITY CIVIL
AND SESSIONS JUDGE (COMMERCIAL COURT) AT
BENGALURU;
ii) CONSEQUENTLY, SET ASIDE THE PORTION OF THE AWARD
DATED 14.03.2019, WHICH WAS RECTIFIED VIDE AWARD
DATED 27.04.2019 PASSED IN A.C.NO.12/2018, REJECTING
THE BALANCE OF CLAIMS TO THE EXTENT OF
RS.83,45,66,000/-;
iii) CONSEQUENTLY, RELEGATE THE PARTIES BACK TO
ARBITRATION WITH RESPECT TO THE PORTION OF THE
AWARD DATED 14.03.2019, WHICH WAS RECTIFIED VIDE
AWARD DATED 27.04.2019 PASSED IN A.C.NO.12/2018,
REJECTING THE BALANCE OF CLAIMS TO THE EXTENT OF
RS.83,45,66,000/-.
IN COMAP NO.363/2022
BETWEEN:
U B SHETTY
S/O MADAYYA SHETTY
AGED ABOUT 59 YEARS
CLASS-I CONTRACTOR
R/AT WINDCHIME APARTMENTS
NO.497, 6TH MAIN, RMV 2ND STAGE
DOLLARS COLONY, BENGALURU - 560007.
...APPELLANT
(BY SRI. YASHODHAR HEGDE - ADVOCATE)
10
AND:
1. STATE OF KARNATAKA
REPRESENTED BY ITS
PRINCIPAL SECRETARY
DEPARTMENT OF HEALTH AND
FAMILY WELFARE
III-FLOOR, VIKASA SOUDHA
BENGALURU - 560 001.
2. KARNATAKA HEALTH SYSTEMS
DEVELOPMENT PROJECT
REPRESENTED BY ITS
PROJECT ADMINISTRATOR
NOW RENAMED AS HEALTH AND
FAMILY WELFARE SERVICES
REPRESENTED BY ITS DIRECTOR
6TH FLOOR, AROGYA SOUDHA
MAGADI ROAD
BENGALURU - 560 023.
3. THE CHIEF ENGINEER
KARNATAKA HEALTH SYSTEM
DEVELOPMENT PROJECT(KHSDP)
I-FLOOR, STATE FOOD LABORATORY
BHI BUILDING, SHESHADRI ROAD
K R CIRCLE, BENGALURU - 560 001.
CURRENTLY AT:
ENGINEERING WING
AROGYA SOUDHA
3RD FLOOR, LEPROSY HOSPITAL
PREMISES, I-CROSS, MAGADI ROAD
BENGALURU - 560 023.
...RESPONDENTS
(BY SMT. MAMATA SHETTY - AGA & SRI. MAHANTESH SHETTAR - AGA
FOR RESPNDENTS NO.1 & 2; SRI. ZULFIKIR KUMAR SHAFI -
ADVOCATE FOR RESPONDENT NO.3)
11
THIS COMAP/COMMERCIAL APPEAL FILED UNDER SECTION
13(1)(A) OF THE COMMERCIAL COURTS ACT, 2015 R/W SECTION
37(1)(c) OF ARBITRATION AND CONCILIATION ACT- 1996, PRAYING
TO:
iv) ALLOW THIS APPEAL AND SET ASIDE THE IMPUGNED
JUDGMENT DATED 30.06.2022 PASSED IN COM.A.S.NO.
114/2019 PASSED BY THE LEARNED LXXXV-ADDL. CITY CIVIL
AND SESSIONS JUDGE (COMMERCIAL COURT) AT
BENGALURU;
v) CONSEQUENTLY, SET ASIDE THE PORTION OF THE AWARD
DATED 14.03.2019, WHICH WAS RECTIFIED VIDE AWARD
DATED 27.04.2019 PASSED IN A.C.NO.10/2018, REJECTING
THE BALANCE OF CLAIMS TO THE EXTENT OF
RS.92,68,84,000/-;
vi) CONSEQUENTLY, RELEGATE THE PARTIES BACK TO
ARBITRATION WITH RESPECT TO THE PORTION OF THE
AWARD DATED 14.03.2019, WHICH WAS RECTIFIED VIDE
AWARD DATED 27.04.2019 PASSED IN A.C.NO.10/2018,
REJECTING THE BALANCE OF CLAIMS TO THE EXTENT OF
RS.92,68,84,000/-.
THESE COMAPs', HAVING BEEN HEARD AND RESERVED FOR
HEARING, COMING ON FOR PRONOUNCEMENT THIS DAY,
K. SOMASHEKAR .J, DELIVERED THE FOLLOWING:
CORAM: THE HON'BLE MR JUSTICE K.SOMASHEKAR
AND
THE HON'BLE DR. JUSTICE CHILLAKUR SUMALATHA
12
CAV JUDGMENT
(PER: THE HON'BLE MR JUSTICE K.SOMASHEKAR) These Commercial Appeals are filed by the common appellant namely, Shri U.B. Shetty, under Section 13(1)(A) of the Commercial Courts Act, 2015 read with Section 37(1)(c) of the Arbitration and Conciliation Act, 1996. The Appellant is aggrieved by the individual Judgments, all dated 30th June 2022 passed in Comm. A.S. No.113/2019, Comm. A.S. No.114/2019, Comm. A.S. No.115/2019, Comm. A.S. No.116/2019 and Comm. A.S. No.117/2019 respectively, by the Learned LXXXV Addl. City Civil and Sessions Judge (Commercial Court) at Bengaluru, dismissing each of the said Arbitration Suits filed by the Appellant/Contractor, under Section 34 of the Arbitration and Conciliation Act, 1996.
2. The brief facts of the cases necessary for adjudication, are as under:
The Appellant / contractor was a successful bidder for 14 projects pertaining to the renovation/expansion of Primary Health Centres (PHC); Maternity and Children Hospitals (MCH);
Hospitals attached to the Medical Institutions, Taluka Level 13 Hospitals (TLH) and District Hospitals (DH). Out of the aforementioned 14 works, the Appellant is said to have executed and successfully completed nine (9) works, within the prescribed period. With respect to the remaining five (5) projects, the Appellant was prevented from executing the works within time, due to inordinate delay attributable solely to the Respondents / Government and breach of contract by the Respondents. The said 5 projects are depicted in the table below:
Extra time Name of taken for Final the Estimated Tender completion Agreed cost of Actual Project for Comm. COMAP cost amount Date of of the date of works date of renovation A.S. No. No. (in akhs) (In work order project. completion (in completion & Lakhs) (in lakhs) Expansion months) District hospital, 117/2019 361/2022 31 580 520.74 27.03.1999 26.03.2001 696.04 27.10.2003 Madikeri MCH, 115/2019 360/2022 27 205 191.6 27.03.1999 26.09.2000 229.94 31.12.2002 Madikeri TLH, 116/2019 362/2022 22 398 395.26 08.09.2000 07.03.2002 454.15 30.01.2004 Virajpet District Hospital, 114/2019 363/2022 30 298 267.73 23.03.1999 22.09.2000 260.11 31.03.2003 Dharwad District Hospital 113/2019 359/2022 37 330 263.91 03.09.1999 15.03.2001 220.29 30.03.2004 (KIMS), Hubli 1811 1639.24 1860.53 TOTAL 14
3. The Appellant / Contractor, was said to have prevented from performing the Contract and completing the works assigned on time due to the failure on that part of the Respondents / Government in handing over the project site to the Appellant / contractor. The Appellant/contractor made several representations to the Respondents/Government, pursuant to which the matter pertaining to the escalation of amounts claimed by the Appellant was placed before the Project Governing Board during its 25th Meeting on 17.08.2002. In the said meeting, a decision was taken in favour of the Appellant that instead of terminating the contract and entrusting the works to some other contractor, the Appellant could be permitted to continue with the work and to try and complete the works by 31.03.2003, after negotiating the rates with the Appellant/contractor.
4. Accordingly, the above five works were completed through the same Appellant / Contractor, between 31.12.2002 and 30.03.2004. Thereafter, the Appellant/contractor submitted his claim statement, along with all supporting documents on 02.04.2005 with respect to all 5 contracts, by making individual claims with respect to each contract, which was disputed. 15 Further, despite an unequivocal admission of liability by the Respondents/Government, since the Respondents/Government had not taken any steps to release the amount admitted by the Respondents itself, the Appellant/contractor was constrained to approach the Hon'ble High Court of Karnataka by way of a Writ Petition No. 15783/2006 and eventually, by way of an order dated 07.02.2014, the Writ Petition was allowed to the extent of Rs. 888.81 lakhs, which the Respondent/Government itself had admitted was payable. Hence, a direction was issued for payment of the said amount along with interest.
5. The Appellant/contractor issued a notice for commencement of arbitration, which eventually culminated into the constitution of the Hon'ble Arbitral Tribunal and the passing of the Award under challenge. The Appellant/ contractor herein filed a Claim Statement before the Sole Arbitrator raising certain claims. The Respondents appeared before the Sole Arbitrator and filed their Statement of Defence and defended the matter. After the trial was concluded, by virtue of the Award, certain claims were allowed by the Sole Arbitrator and certain claims were dismissed by the Tribunal.
16
6. Aggrieved by the Arbitral Award, the Appellant/contractor filed Arbitration Suits under Section 34 of the Act challenging portions of the Impugned Award wherein certain claims made by the Appellant were rejected by the Sole Arbitrator. Vide the Impugned Judgments, the Trial Court dismissed the Com.A.S.No.113/2019 to Com.A.S.No.117/2019 filed by the Appellant solely on the ground that the scope of Section 34 is limited. Being aggrieved by the Impugned Judgment and the portions of the Impugned Award, the instant Appeal has been filed.
7. We have heard the learned counsel Shri Yashodhar Hegde appearing for the respective appellant / Contractor in all these appeals as well as the learned AGA Smt. Mamata Shetty and Shri Mahantesh Shettar for Respondent Nos.1 and 2 and the learned counsel Shri Zulfikir Kumar Shafi for Respondent No.3.
8. Learned counsel Shri Yashodhar Hegde for the respective appellant / Contractor contends that Commercial Court erred in dismissing their Arbitration Suits filed under Section 34 of the Act. The learned counsel for the appellant contends that the 17 Arbitrator ignored the vital evidence and passed an award that is contrary to the fundamental policy of Indian law and basic notions of justice. The appellant asserts that the Commercial Court failed to consider the severability of the award, as established by the Supreme Court, and erroneously concluded that the claims were interlinked and that the Arbitrator had considered the evidence on record.
9. It is the further contention on behalf of the appellant/contractor that the Arbitrator rejected several claims without considering the voluminous documents provided in support thereof, which were not disproved by the Respondent/ Government. The appellant/contractor seeks leave to demonstrate the non-consideration of evidence by the Arbitrator, which is in conflict with the public policy of India.
10. It is further contended that the Arbitrator failed to consider the evidence and erroneously included the claim for interest on the claim amount into the claim for interest under Section 31(7) of the Act. The appellant asserts that the respondent admitted that the delay was caused by them, constituting a breach of contract and entitling the appellant to 18 damages under Section 73 of the Indian Contract Act, 1872. In support of the same, he has relied on the following citations of the Hon'ble Supreme Court:
i) ONGC vs. SAW PIPES ((2003) 5 SCC 705)).
ii) ASSOCIATE BUILDERS vs. DELHI DEVELOPMENT AUTHORITY ((2015 (3) SCC 49))
iii) SANJAY ROY vs. SANDIP SONI (2022 SCC ONLINE DEL 1525)
11. It is also further contended that that the Arbitrator himself has acknowledged the financial suffering and hardship of the appellant due to the respondent's actions but rejected the claims for compensation, without proper reasoning. The appellant contends that the award disregards judicial decisions and orders passed by the superior court, violating the fundamental policy of Indian law.
12. Furthermore, the learned counsel for the appellant asserts that the rejection of claims by the Arbitral Tribunal for lack of supporting case laws, is contrary to the fundamental policy of India and opposed to the very notions of justice. Hence, 19 the learned counsel for the appellant seeks to modify the award and thereby to allow the claims that have been rejected, providing detailed arguments for each claim. The claims rejected by the respondents / Government, are depicted in a tabular form below:
COMAP 359/2022 (arising out of Comm.A.S.No.113/2019) Amount Amount Partly Amount Claim Particulars Claimed (Rs.) Allowed (Rs.) Rejected (Rs.) Extra lead charges for size 7,47,000 - 7,47,000 stones & jelly Interest on the above 32,41,000 - 32,41,000 claims Loss Turnover from F.Y 17,51,20,000 39,59,000 17,11,61,000 2003-04 to F.Y 2016-17 Loss due to Extra Burden 88,72,000 - 88,72,000 & Interest paid Loss due to sale of 67,96,000 - 67,96,000 machinery Loss due to lapse of LIC 27,64,000 - 27,64,000 Policy Loss due to Mental Agony 3,50,29,000 - 3,50,29,000 Loss due to loss of 1,75,15,000 - 1,75,15,000 Reputation Loss due to Overall goodwill on loss of 1,75,15,000 - 1,75,15,000 turnover Loss towards maintaining Establishment Expenses 87,51,000 - 87,51,000 etc Loss suffered due to sale 54,20,000 - 54,20,000 of Immovable properties Legal Practitioner's fees & 1,35,000 - 1,35,000 other legal Expenses Exemplary damage 50,00,00,000 - 50,00,00,000 TOTAL 79,26,43,000 1,46,99,000 77,79,44,000 20 COMAP 363/2022 (Arising out of Comm A.S No.114/2019) Amount partly Amount rejected Amount Particulars of allowed by the by the Sole Claimed (in the claims Sole Arbitrator (in Arbitrator (in Rs./-
Rs./-)
Rs./-) )
Re. Table-1
Extra lead charges for
11,38,000 - 11,38,000
size stones & jelly
Interest on the above
82,46,000 - 82,46,000
claims
Re. Table-2
Loss Turnover from
F.Y. 2003-04 to F.Y. 26,65,14,000 39,59,000 26,25,55,000
2016-17
Loss due to Extra
Burden (18% interest 1,35,02,000 - 1,35,02,000
paid)
Loss due to sale of
1,03,42,000 - 1,03,42,000
machinery
Loss due to lapse of
42,07,000 - 42,07,000
LIC Policy
Loss due to Mental
5,33,11,000 - 5,33,11,000
Agony
Loss due to loss of
2,66,55,000 - 2,66,55,000
Reputation
Loss due to Overall
goodwill on loss of 2,66,55,000 - 2,66,55,000
turnover
Loss towards
maintaining
1,33,17,000 - 1,33,17,000
Establishment
Expenses & Interest
Claim towards loss
suffered due to sale of 82,49,000 - 82,49,000
Immovable properties
Legal Practitioner's
fees & other legal 2,05,000 - 2,05,000
Expenses
Re. Table-3
Exemplary damage 50,00,00,000 - 50,00,00,000
TOTAL 94,89,74,000 2,20,90,000 92,68,84,000
21
COMAP 361/2022 (arising out of Comm AS NO.117/2019) Amount partly Amount rejected by Particulars of the Amount Claimed allowed by the Sole the Sole Arbitrator (in Claims (in Rs./-) Arbitrator (in Rs./-) Rs./-) Re. Table - 1 Extra lead charges for 9,70,000 - 9,70,000 table moulded bricks Extra lead charges for 8,88,000 - 8,88,000 Excavated stuff Interest on the above 81,94,000 - 81,94,000 claims Interest charges for delay in making bills 18,50,000 - 18,50,000 payment Re. Table - 2 Loss on Turnover from F.Y 2003-04 to F.Y 48,12,43,000 78,11,000 47,34,32,000 2016-17 Loss due to Extra Burden (18% interest 2,43,81,000 - 2,43,81,000 paid) Loss due to sale of the 1,86,75,000 - 1,86,75,000 machinery Loss due to lapse of LIC 75,96,000 - 75,96,000 Policy Loss due to Mental 9,62,64,000 - 9,62,64,000 Agony Loss due to loss of 4,81,32,000 - 4,81,32,000 Reputation Loss due to Overall goodwill on loss of 4,81,32,000 - 4,81,32,000 turnover Loss towards maintaining 2,40,47,000 - 2,40,47,000 Establishment Expenses & Interest Claim towards loss suffered due to sale of 1,48,95,000 - 1,48,95,000 Immovable properties Legal Practitioner's fees 3,71,000 - 3,71,000 & other legal Expenses Re. Table - 3 Exemplary damage 50,00,00,000 - 50,00,00,000 TOTAL 1,29,47,60,000 2,69,34,000 1,26,78,26,000 22 COMAP 360/2022 (Arising out of Comm.A.S.No.115/2019) Amount partly Amount Amount rejected by Particulars of the allowed by the Claimed (in the Sole Arbitrator claims Sole Arbitrator Rs./-) (in Rs./-) (in Rs./-) Re. Table-1 Interest on the above 34,14,000 - 34,14,000 claims Interest charges for delay in making bills 4,79,000 - 4,79,000 payment Re. Table-2 Loss Turnover from F.Y 2003-04 to F.Y 16,46,19,000 40,16,000 16,06,03,000 2016-17 Loss due to Extra Burden (18% interest 83,40,000 - 83,40,000 paid) Loss due to sale of 63,88,000 - 63,88,000 machinery Loss due to lapse of 25,98,000 - 25,98,000 LIC Policy Loss due to Mental 3,29,29,000 - 3,29,29,000 Agony Loss due to loss of 1,64,64,000 - 1,64,64,000 Reputation Loss due to Overall goodwill on loss of 1,64,64,000 - 1,64,64,000 turnover Loss towards maintaining 82,26,000 - 82,26,000 Establishment Expenses & Interest Claim towards loss suffered due to sale of 50,95,000 - 50,95,000 Immovable properties Legal Practitioner's fees & other legal 1,27,000 - 1,27,000 Expenses Re. Table 3 Exemplary damage 50,00,00,000 - 50,00,00,000 TOTAL 76,99,52,000 88,25,000 76,11,27,000 23 COMAP No.362/2022 (Arising out of Comm A.S No 116/2019) Amount Amount partly Amount rejected by Particulars of the Claimed (in allowed by the Sole the Sole Arbitrator claims Rs./-) Arbitrator (in Rs./-) (in Rs./-) Re. Table-1 Extra charges for 9,33,000 - 9,33,000 transportation of water Interest on the above 34,14,000 - 31,08,000 claims Interest charges for delay in making bills 4,79,000 - 4,79,000 payment Re. Table-2 Loss Turnover from F.Y 2003-04 to F.Y 2016- 21,13,04,000 59,29,000 20,53,75,000 17 Loss due to Extra Burden (18% interest 1,07,05,000 - 1,07,05,000 paid) Loss due to sale of 82,00,000 - 82,00,000 machinery Loss due to lapse of LIC 33,35,000 - 33,35,000 Policy Loss due to Mental 4,22,67,000 - 4,22,67,000 Agony Loss due to loss of 2,11,34,000 - 2,11,34,000 Reputation Loss due to Overall goodwill on loss of 2,11,34,000 - 2,11,34,000 turnover Loss towards maintaining 1,05,59,000 - 1,05,59,000 Establishment Expenses & Interest Claim towards loss suffered due to sale of 65,40,000 - 65,40,000 Immovable properties Legal Practitioner's fees 1,63,000 - 1,63,000 & other legal Expenses Re. Table- 3 Exemplary damage 50,00,00,000 - 50,00,00,000 TOTAL 84,99,18,000 1,53,52,000 83,45,66,000 24
13. The learned counsel for the appellant has highlighted the uncontroverted evidence of the losses incurred due to the respondent's delay and non-payment, including the sale of machinery, loss of turnover, lapse of LIC policies, mental agony, loss of reputation, and goodwill. The learned counsel for the appellant argues that the respondent is liable to restore the appellant to the same financial condition as if the breaches had not occurred. As regards loss of turnover, the learned counsel has relied on a judgment in the case of M.C. DERMOTT INTERNATIONAL INC. vs. BURNSTANDARD COMPANY ((2006 (11) SCC 181)).
14. As regards entitlement of interest, the learned counsel for the appellant has relied on the following citations:
i) EXECUTIVE ENGINEER (R&B) vs. GOKUL CHANDRA KANUNGO (2022 SCC ONLINE SC 1336)
ii) B.S. RAJPUT vs. M/s. CELLAR (ILR 1992 KAR 1678)
15. Learned counsel for the appellant also contends that the power of this Hon'ble Court to modify the award, stems from the power under Section 34(1) of the Act. In this regard, he relies 25 on the judgment in the case of VEDANTA LIMITED vs. SHENZEN SHANDONG NUCLEAR POWER CONSTRUCTIONS COMPANY LTD. ((2019 (11) SCC 465)).
16. Additionally, it is the contention of the learned counsel that the establishment charges were rejected solely based on lack of supporting case laws, despite the Arbitrator acknowledging the completion of works. The appellant also has disputed the rejection of the claim for loss due to the distress sale of immovable properties, providing evidence of the undervalued sale. Hence, the counsel for the appellant concludes by asserting that the exemplary damages claimed are a consequence of the breach of contract and are legally tenable. As regards the contention regarding exemplary damages, the learned counsel has relied on a judgment in the case of MS. GAYATRI BALASWAMY vs. ISGNOVASOFT ((2014 (5) LW
97)).
17. Hence, he has prayed this Court to allow these five Commercial Appeals and to thereby set aside each of the five Commercial Court's judgments, modify the awards, and allow the 26 rejected portions of the claims as stated above in the respective Tables and provide justice and equity to the appellant.
18. Per contra, it is the contention of the learned AGA for the respondents / State that the Government of Karnataka, with World Bank assistance, established the Karnataka Health System Development Project (KHSDRP), namely the Third Respondent in these appeals. The objective of KHSDRP was to renovate and expand all Taluk and District Level Hospitals throughout Karnataka. As a consequence, KHSDRP called for tenders, and the appellant, being the successful tenderer, was entrusted with the renovation and expansion of 14 Hospitals. Out of these, the appellant completed 9 works within the agreed period but failed to complete five works within the stipulated period. During the 25th Project Governing Board (PGB) meeting on 17.08.2002, discussions took place regarding the appellant's failure to complete the works in respect of the five Hospitals. The PGB decided to continue to entrust the lingering works with the appellant and it was aimed that the appellant would complete them by 31.03.2003. The Chairman directed the project authorities to negotiate reasonable rates with the appellant. 27 However, the appellant had completed the five pending works and the final bills for these works were settled in March 2004 by the KHSDRP. The appellant acknowledged the final bills as full and final settlement of all claims. At the time of settling these final bills, it is contended that no claims from the appellant were pending before KHSDRP.
19. It is the contention of the learned AGA for the respondents that eventually, nearly a year later, on 02.04.2005, the appellant claimed Rs.1841.15 lakhs from the respondents. The Chief Engineer forwarded the claim to the Assistant Executive Engineers for verification. At the time of final bill settlement, the appellants neither made any claims nor approached arbitration as provided in the contract. The funding for the project had closed as of 31.03.2005.
20. During the course of verification, it is stated that the appellant filed W.P. No.15783/2006 before the learned Single Judge, seeking the release of the amount admitted in the audit report dated 28.04.2006 with 18% interest for delayed payment. The learned Single Judge, by an interim order dated 08.02.2007, directed the Principal Secretary, Health & Family Welfare 28 Department, to consider the Chief Engineer's recommendation and the audit report within three weeks.
21. The Respondents verified all documents and submitted a report arriving at an amount of Rs.188.73 lakhs as reasonable for the appellant's claims. The report was submitted to the Project Administrator, KHSDRP, and was later placed before the Programme Steering Committee, which approved it. Learned AGA further states that the Project Governing Board, in its meeting held on 20.03.2007, discussed the Hon'ble High Court's interim order.
22. The learned AGA for the respondent further contended that, the Board noted that the order directed the consideration of specific annexures but did not mandate payment of the amounts mentioned therein. The Project Governing Board, after discussions, rejected claims for idle charges and accepted claims for revised rates, price adjustment, lead charges, extra cost of transportation, and interest charges at 12%. Consequently, the learned Single Judge, in its order dated 07.02.2014 in W.P. No.15783/2006, directed the respondents to pay the amount 29 mentioned in the audit report along with interest. In compliance, Respondents/Government paid Rs.21.25 crores to the appellant.
23. Furthermore, the appellant filed CMP No.100006/2015 for appointing an Arbitrator, and this Court appointed Justice R.Gururajan as the sole Arbitrator. The Arbitrator, on an adjudication of the claims by the appellant, passed an Award, which led to the appellant filing execution petitions and receiving Rs.16.35 crores with interest. Incidentally, the appellant filed AS No.113/2019 to AS No.117/2019 seeking enhancement of the award. The Commercial Court dismissed these appeals on 30.06.2022 on the legally tenable ground of limited Scope of Section 34 under Arbitration and Conciliation Act, which has led to the filing of the present appeals.
24. In a nut-shell, the learned AGA for the respondents argues that the appellant's claims were exaggerated and lacked sufficient evidence to support the amounts claimed. They contend that the Arbitrator conducted a thorough examination of the evidence and rendered a well-reasoned award which adequately addressed the issues in dispute. The respondents 30 assert that the appellant had accepted the final settlement of the projects and is now seeking to reopen settled matters.
25. In support of his contentions, the learned AGA has relied on the following citations:
i) Indian Oil Corporation Ltd., Vs. Indian Carbon Ltd.
(AIR 1988 SUPREME COURT 1340)
ii) Gujarat Water Supply and Sewerage Board Vs. Unique Erectors (Gujarat) (P) Ltd., and another (AIR 1989 SUPREME COURT 973)
iii) Venture Global Engineering Llc Vs. Tech Mahindra Ltd., and Another Etc. (LAWS(SC)2017-11-50)
iv) Ssangyong Engineering and Construction Company Ltd., Vs. National Highways Authority of India (NHAI) ((2019) 15 SCC 131)
v) Hindustan Constructions Co. Ltd., Vs. Union of India (LAWS(SC)2019-11-94)
vi) MMTC Ltd. Vs. Vedanta Ltd. ((2019) 4 SCC 163) 31
vii) Patel Engineer Ltd., Vs. North Eastern Electric Power Corporation Ltd., ((2020) 7 SCC 167)
viii) UHL Power Company Ltd., Vs. State of Himachal Pradesh ((2022) 4 SCC 116))
ix) S.V.Samudram Vs. State of Karnataka and others (2024 SCC Online SC 19)
x) Bombay Slum Redevelopment Corporation Private Ltd., Vs. Samir Narain Bhojwani (2024 SCC OnLine SC 1656)
xi) M/s. BPL LIMITED vs. M/s. MORGAN SECURITIES & CREDITS PVT. LTD. (FAO (OS) (COMM) NO.46/2019)
26. The learned AGA for the Respondents concludes that they have complied with all the legal and procedural requirements and have made the necessary payments as per the Court's directions and that no further amounts are due to the appellant. Hence, the learned AGA for the respondents prays to dismiss the appeals as lacking merits.
32
27. On a careful consideration of the contentions advanced by the learned counsel for both the parties, it is relevant to state that these Commercial Appeals have been filed under Section 13(1)(A) of the Commercial Courts Act, 2015, read with Section 37(1)(c) of the Arbitration and Conciliation Act, 1996. The appellant, a contractor, is challenging the Judgments dated June 30, 2022, passed by the LXXXV Additional City Civil and Sessions Judge (Commercial Court) in Bengaluru. The Commercial Court had dismissed the appellant's Arbitration Suits filed under Section 34 of the Arbitration and Conciliation Act, 1996, in relation to Comm. A.S. Nos. 113, 114, 115, 116, and 117 of 2019.
28. The appellant had been awarded 14 projects for the renovation and expansion of various healthcare facilities in Karnataka, including Primary Health Centres (PHC), Maternity and Children Hospitals (MCH), Hospitals attached to medical institutions, Taluka Level Hospitals (TLH), and District Hospitals (DH). Of these 14 projects, the appellant successfully completed nine within the stipulated time frame. However, the appellant was unable to complete the remaining five projects pertaining to
i) District Hospital, Madikeri, ii) MCH, Madikeri, iii) TLH, Virajpet, 33
iv) District Hospital, Dharwad and v) District Hospital, KIMS, Hubli, within the agreed timeline due to significant delays attributed solely to the respondents, i.e., the Government of Karnataka, and breaches of contract by the respondents.
29. The appellant argued that these delays were caused by the respondents' failure to hand over the project sites on time, which prevented the contractor from completing the works within the agreed period. Several representations were made by the appellant to the respondents, leading to a decision during the 25th Meeting of the Project Governing Board on August 17, 2002. It was decided that instead of terminating the contract and awarding it to another contractor, the appellant would be allowed to continue the work and try to complete it by March 31, 2003, after negotiating new rates.
30. The appellant raised several claims, which were rejected by the Arbitral Tribunal. The claims and the corresponding decisions in Comm.A.S. No. 113/2019 (COMAP 359/2022), 114/2019 (COMAP 363/2022), 115/2019 (COMAP 360/2022), 116/2019 (COMAP 362/2022), and 117/2019 (COMAP 361/2022) are detailed below:
34
Claim Details:
Amount COMAP Claim Amount Claimed Amount Partly No. Particulars (Rs.)Respondant Rejected (Rs.) Allowed (Rs.) Various claims (loss of turnover, 79,26,43,000 1,46,99,000 77,79,44,000 extra burden, 359/2022 etc.) Various claims (loss of turnover, 94,89,74,000 22,09,00,000 92,68,84,000 mental agony, 363/2022 etc.) Various claims (loss of turnover, 1,29,47,60,000 2,69,34,000 1,26,78,26,000 mental agony, 361/2022 etc.) Various claims (loss of turnover, 76,99,52,000 88,25,000 76,11,27,000 mental agony, 360/2022 etc.) Various claims (loss of turnover, 84,99,18,000 1,53,52,000 83,45,66,000 mental agony, 362/2022 etc.)
31. Keeping in view the arguments put forth by the learned counsel for the respective parties and on a perusal of the material on record, this Court feels that the learned Arbitrator has failed to properly appreciate the voluminous evidence and documentation submitted, which clearly demonstrated that the delays were attributable solely to the respondent's actions and inactions. We find justification in the appellant's contention that the Arbitrator's dismissal of their claims was not based on a fair 35 and comprehensive consideration of the material on record and that the decision was contrary to the fundamental policy of Indian law and the basic principles of justice. We are of the view that the Arbitrator's reasoning was flawed, particularly in rejecting claims related to financial losses, mental agony, and reputational damage, since the learned Arbitrator has overlooked key documents, including correspondence between the parties, site inspection reports, and financial statements, which would have substantiated the appellant's claims for damages, as contended and more so, we find that there is substance in their contention for intervention.
32. Upon careful consideration of the submissions made by both parties and on a detailed examination of the arbitral record, this Court finds that the learned Arbitrator has failed to adequately appreciate the voluminous documents and substantial evidence presented by the appellant. The evidence on record, which included correspondence, site inspection reports, and financial documentation, clearly pointed to the respondent's responsibility for the delays. The Arbitrator's oversight in properly evaluating these critical documents has resulted in an 36 award that is not only contrary to the fundamental policy of Indian law but also unjust to the appellant, viewed from any angle.
33. It is evident that the delays in project completion were primarily caused by the respondent / State's failure to provide timely site access, approvals, and other necessary resources. The appellant, as a contractor, incurred significant financial losses, mental distress, and reputational damage due to these delays, which were not adequately compensated in the arbitral award.
34. In the instant case, only the provision under which the award could have been assigned was for it to have been in conflict with public policy which indicates the issue emerged between the appellant and the respondent respectively. In the judgment in the case of INDIAN OIL CORPORATION LIMITED vs. SHREE GANESH PETROLEUM (CIVIL APPEAL NOS.837- 838 OF 2022) the Hon'ble Apex Court while summarizing as regards an award which could be said to be against the public policy of India, inter alia, under the following circumstances: 37
"(i) When an award is, on its face, in patent violation of a statutory provision.
(ii) When the Arbitrator/Arbitral Tribunal has failed to adopt a judicial approach in deciding the dispute.
(iii) When an award is in violation of the principles of natural justice.
(iv) When an award is unreasonable or perverse.
(v) When an award is patently illegal, which would include an award in patent contravention of any substantive law of India or in patent breach of the 1996 Act.
(vi) When an award is contrary to the interest of India, or against justice or morality, in the sense that it shocks the conscience of the Court."
35. As regards the instant case relating to issues which emerged between the appellant and the respondents, but the reasons recorded by the Challenging Court which has initiated proceedings under Section 34 of the Arbitration Act to interfere the award rendered by the Arbitral Tribunal, on a perusal of the impugned judgment and decree rendered by the court below relating to the aforesaid appeal matters, but the common award 38 has been rendered by the Arbitral Tribunal by formulating issues which are indicated in detail in the award rendered by the Arbitral Tribunal. But the Court, while considering the award rendered by the Arbitral Tribunal and keeping in view Section 34 of the Arbitration Act, referred to a judgment in the case of MMTC Ltd. Vs. Vedanta Ltd. ((2019) 4 SCC 163) as regards interference with an order made under Section 34 as per Section 37 of the Arbitration Act is concerned, it cannot be disputed that such interference under Section 37 cannot travel behind the restriction laid down under Section 34 of the Arbitration Act. In order words, the Court cannot undertake an independent assessment of the merits of the award and must only ascertain with the exercise of powers by the Court under Section 34 has not exceeded the scope of the provisions. Thus, it is evident that in case an arbitral award has been challenged before the Challenging Court under Section 34 of the Arbitration Act, and by the Court in an appeal under Section 37, this Court must be extremely cautious and also slow to disturb any such findings.
36. But in the instant case, and so also issues emerged between the appellant and the respondent respectively, in the 39 above five appeals but the Court has ultimately allowed the appeal of the claimant / appellant by setting aside the judgment rendered by the Challenging Court under Section 34 of the Arbitration Act with a direction to expeditiously persuade the matters in between the appellant and the respondent relating to the claim which has been sought and more so, the claims were rejected which is indicated in detail in the award rendered by the Arbitral Tribunal.
37. Arbitration, as a mode of Alternate Dispute Resolution, has now become an integral part of the Indian legal system. The comprehensive statute dealing with arbitrations, that is, the Arbitration and Conciliation Act, 1996, is a complete code in itself and is in tune with the international standards set out in Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law ('UNCITRAL').
38. In a three-judge Bench in the case of GAYATRI BALASAMY vs. ISG NOVASOFT TECHNOLOGIES LTD. [SLP (C) 15336/2021], the Hon'ble Apex Court decided to refer the matter to a Constitution Bench the contentious issue relating to 40 the scope of interference which the appellate and subordinate courts are permitted to exercise under Sections 34 and 37 of the Arbitration Act and whether these provisions allow the subordinate courts to modify arbitral awards. The said reference order has mentioned both instances, wherein on the one hand, the apex court has held that modification of an award is not permissible under the Arbitration Act, while on the other hand, there are several judgments that have either modified the award or upheld the modification done by subordinate courts.
39. Before dwelling into the topic, it would be beneficial to briefly look into the scheme of Section 34 and 37 of the Arbitration Act. As per Section 34 of the Arbitration Act, recourse to a court (Civil Court or High Court having original jurisdiction) may be made for setting aside an arbitral award only on certain grounds. Keeping in view the power to modify an arbitral award, it is the language used in Section 34 sub-clause (2)(b) that has tempted the courts to go beyond the mandate of 'setting aside' an award venture into correcting errors that, at times, include modification of an award to secure the ends of justice. Under what circumstances can a court interfere with an arbitral award 41 has been comprehensively covered in the case of ONGC Ltd. Vs. SAW PIPES LTD ((2003) 5 SCC 705)).
40. Section 37, on the other hand, inter-alia, provides for an appeal against an order passed under Section 34. The jurisdiction of appellate courts under Section 37 of the Arbitration Act has been discussed by the Hon'ble Supreme Court in the case of MMTC LTD. Vs. VEDANTA LTD ((2019) 4 SCC 163)) and in the case of UHL POWER COMPANY LTD. Vs. STATE OF HIMACHAL PRADESH ((2022) 4 SCC 116)) wherein it was held that interference under Section 37 cannot travel beyond the restrictions laid down under Section 34, and that an independent assessment of the merits of the award is not permitted. Thus, a limited scope of interference in arbitral awards has been given to the Courts under Sections 34 and 37 of the Arbitration Act.
41. However, this Court has to deal with the issues relating to the appellant and the respondent respectively, keeping in view the scope of Section 37 of the Arbitration Act and so also the provision of Section 13A of the aforesaid Act, which needs for interference for the aforesaid reasons.
42
42. It is relevant to extract Sections 89 and 96 of the Code of Civil Procedure, which reads thus:
"89. Settlement of disputes outisde the Court.--(1) Where it appears to the Court that there exist elements of a settlement which may be acceptable to the parties, the Court shall formulate the terms of settlement and give them to the parties for their observations and after receiving the observations of the parties, the Court may reformulate the terms of a possible settlement and refer the same for:--
(a) arbitration;
(b) conciliation;
(c) judicial settlement including settlement through Lok Adalat: or
(d) mediation.
(2) Where a dispute has been referred--
(a) for arbitration or conciliation, the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply as if the proceedings for arbitration or conciliation were referred for settlement under the provisions of that Act;43
(b) to Lok Adalat, the Court shall refer the same to the Lok Adalat in accordance with the provisions of sub-section (1) of section 20 of the Legal Services Authority Act, 1987 (39 of 1987) and all other provisions of that Act shall apply in respect of the dispute so referred to the Lok Adalat;
(c) for judicial settlement, the Court shall refer the same to a suitable institution or person and such institution or person shall be deemed to be a Lok Adalat and all the provisions of the Legal Services Authority Act, 1987 (39 of 1987) shall apply as if the dispute were referred to a Lok Adalat under the provisions of that Act;
(d) for mediation, the Court shall effect a compromise between the parties and shall follow such procedure as may be prescribed.]
96. Appeal from original decree:
"(1) Save where otherwise expressly provided in the body of this Code or by any other law for the time being in force, an appeal shall lie from every decree passed by any Court exercising original jurisdiction to the Court authorized to hear appeals from the decisions of such Court.44
(2) An appeal may lie from an original decree passed ex parte.
(3) No appeal shall lie from a decree passed by the Court with the consent of parties.
1[(4) No appeal shall lie, except on a question of law, from a decree in any suit of the nature cognizable by Courts of Small Causes, when the amount or value of the subject-matter of the original suit does not exceed 2 [ten thousand rupees.]]"
43. In this regard, this Court finds it relevant to refer to a Supreme Court judgment in the case of BOMBAY SLUM REDEVELOPMENT CORPORATION PRIVATE LIMITED VS. SAMIR NARAIN BHOJWANI (2024) 7 SCC 218. In the said judgment, the Hon'ble Apex Court has acknowledged that the power of remand under Section 37 of the Arbitration and Conciliation Act, 1996, should be exercised only in exceptional circumstances, such as:
"1. Summary disposal of a petition under Section 34 without considering the merits: The Appellate Court may remand the case if a lower court dismisses a challenge to an arbitral award without properly evaluating the merits.45
2. Interference with the award without proper notice to the respondent: The case may be remanded if the lower court modifies or sets aside an award without giving the respondent adequate notice and a fair opportunity to be heard.
3. Proceeding when contesting parties are deceased without involving legal representatives: A remand may be necessary when a lower court renders a decision despite the death of one or more contesting parties without bringing their legal representatives on record."
The aforesaid judgment is taken into consideration in order to address the issue that arises in the present appeals, as contended by the learned counsel for the appellant.
44. This Court after analyzing the judgments of the Hon'ble Supreme Court and after careful introspection of the provisions, finds that the provisions of the Code of Civil Procedure (CPC), which govern traditional civil court procedures, do not directly apply to arbitration proceedings, including those before an Arbitrator or in court under Sections 34 and 37 of the Arbitration and Conciliation Act. Section 19(1) of the Arbitration Act explicitly provides that Arbitral Tribunals are not bound by the CPC. 46 However, this exclusion does not deprive the Appellate Court of the power to remand cases under Section 37 of the Arbitration Act. Without the ability to remand, the appellate process would be rendered ineffective, as an appeal would not provide the relief intended in cases where re-evaluation is necessary.
45. That being said, the power to remand should not be exercised routinely. It must be used sparingly and only in exceptional cases where it is absolutely necessary to ensure justice. Remanding cases unnecessarily may result in delays and additional costs, which would undermine the purpose of arbitration as a speedy and cost-effective method of dispute resolution. Exceptional circumstances, such as a summary dismissal of a petition without considering its merits, lack of proper notice to the respondent, or decisions rendered without the presence of legal representatives of deceased parties, may justify a remand.
46. This Court is also mindful of the growing trend where proceedings under Sections 34 and 37 of the Arbitration Act are being treated similarly to appeals under Section 96 of the CPC, which deals with appeals from decrees. Parties often raise 47 multiple grounds that are not legally permissible under the Arbitration Act, leading to unnecessary litigation and inefficiency. This practice contradicts the legislative intent behind arbitration, which aims for finality and efficiency in dispute resolution.
47. Furthermore, this Court also recognizes the connection between arbitration and Section 89 of the CPC, which promotes arbitration as a key alternative dispute resolution (ADR) mechanism. Frequent remands in arbitration cases would undermine the efficiency and cost-effectiveness of arbitration, negating its purpose as a speedy ADR mechanism. Section 89 encourages quicker and more efficient dispute resolution, and frequent remands would demean this objective.
48. Thus, having carefully gone through the arguments and evidence available on record, we are of the opinion that the impugned judgment dated 30.6.2022 rendered by the Commercial Court, requires to be set aside. Further, in view of the fact that the rejection of these claims appears to have been made on an inadequate appreciation of evidence and arguments presented by the appellant leading to a potential miscarriage of justice, exercising the appellate powers conferred upon this Court under 48 Section 37 of the Arbitration and Conciliation Act, 1996, it is opined that the impugned award dated 14.03.2019 rendered by the Sole Arbitrator as well, requires to be set aside in part, specifically with respect to the claims that were rejected by the Sole Arbitrator.
49. In the present case, this Court finds it appropriate to remand the matter back to the Sole Arbitrator due to the following exceptional circumstances:
i) Failure to adequately appreciate evidence and documentation: The Arbitrator, in the present case, failed to thoroughly consider key documents that could have substantiated the appellant's claims. This oversight led to an unjust award, as material evidence was not given proper weight in the arbitral process.
ii) Errors and deficiencies in the Commercial Court's assessment: The Commercial Court's evaluation of the Arbitrator's award was marred by significant errors, including a misapplication of legal principles and a failure to appreciate the 49 nuances of the evidence presented. These deficiencies contributed to an erroneous outcome.
50. These circumstances are akin to the procedural irregularities and lack of due process, as discussed in the case of Bombay Slum Redevelopment Corporation (Supra), which justify the remand of this case. Hence, in order to ensure a fair and just resolution of the dispute, the Court remands the matters back to the Sole Arbitrator, for a de novo review and re- consideration of the issues emerged between the appellant and the respondents relating to the claims put forth by the appellant. The fresh consideration shall encompass the following:
a) All rejected claims: The learned Arbitrator shall conduct a thorough and independent re-examination of all the claims that were previously rejected in the impugned Award. In the said exercise, both parties shall be given a fair and reasonable opportunity to present their arguments and evidence in support of their respective positions.
b) Interest on Claim Amount: In so far as the interest on claim amount, the Sole Arbitrator shall reassess the interest on 50 the claim amounts separately from the interest under Section 31(7) of the Arbitration and Conciliation Act, 1996. This differentiation is crucial, as Section 31(7) deals specifically with post-award interest, and the calculation of interest prior to the award must be carefully scrutinized to ensure fairness. The Court aims to guarantee that the Appellant is adequately compensated for any delays in payment and that interest calculations are precise and just. The objective is to ensure that the Appellant is adequately compensated for any losses incurred due to delays in payment.
c) Damages for Breach of Contract: In so far as damages for breach of contract, the learned Arbitrator shall comprehensively evaluate the Appellant's claim for damages under Section 73 of the Indian Contract Act, 1872. Section 73 mandates compensation for any loss or damage that naturally arises from a breach of contract or which the parties knew would likely result from the breach at the time they made the contract.
The Arbitrator must re-evaluate the quantum of damages in accordance with this provision, ensuring that the compensation 51 awarded accurately reflects the losses suffered by the Appellant due to the Respondent's breach.
d) Compensation for Specific Losses: In so far as the compensation towards specific losses, the learned Arbitrator shall carefully determine the appropriate quantum of compensation for the losses incurred by the Appellant due to the sale of machinery, lapse of LIC policies, and mental agony. This Court highlights the need for the Arbitrator to determine appropriate compensation for losses relating to the sale of machinery, the lapse of LIC policies, and the mental agony suffered by the Appellant. Although these specific claims are challenging to quantify, they represent real and significant impacts on the Appellant. The Arbitrator is assigned with the task of assessing the evidence supporting these claims and ensuring that the compensation awarded is proportionate to the actual losses incurred.
51. In order to resolve the issues that emerged between the appellant and the respondent respectively in the aforesaid five appeals, the learned Arbitrator shall meticulously examine all the evidence and arguments presented by both parties and arrive 52 at a reasoned decision that is just, equitable, and in accordance with the principles of law. Hence, the appeals are allowed and the proceedings in A.C.No.9/2018, A.C.No.11/2018, A.C.No.13/2018, A.C.No.12/2018 and A.C.No.10/2018 are remanded back to the Sole Arbitrator, with specific instructions to reconsider all previously rejected claims. The Arbitrator shall do a comprehensive evaluation, by reassessing all the claims in light of the evidence and arguments so presented.
52. Lastly, the Court orders that each party bears its own costs, reflecting the view that both parties had valid concerns and arguments warranting judicial consideration. By not awarding costs to either side, the Court emphasizes the equitable nature of its decision, aiming to balance the interests of both the Appellant and the Respondent.
Sd/-
(K.SOMASHEKAR) JUDGE Sd/-
(DR.CHILLAKUR SUMALATHA) JUDGE KS