Jharkhand High Court
R.K. Construction Private Limited vs Government Of Jharkhand on 13 January, 2021
Author: Aparesh Kumar Singh
Bench: Aparesh Kumar Singh, Anubha Rawat Choudhary
IN THE HIGH COURT OF JHARKHAND AT RANCHI
Commercial Appeal No. 06 of 2020
R.K. Construction Private Limited, Engineers & Contractor, through Mr. Siraj
Ahmed Khan, Director, 1, Shastri Nagar, Patna - 800023 at present, A
company incorporated under the Companies Act, 1956, bearing CIN Number
U00500BR1984PTC001953, having its registered office address at Reyaz
Manzil, R.K. Nagar, F.C.I Road, Phulwari Sharif, Patna - 801 505, through its
director, Mr. Siraj Ahmed Khan (aged 36 years), son of late Riyaz Ahmed
Khan, resident of Riyaz Nagar, F.C.I. Road, P.O. and P.S. - Phulwari Sharif,
District - Patna, Bihar --- --- Appellant/Petitioner
Versus
1. Government of Jharkhand, through its Chief Engineer Subarnarekha
Multipurpose Project, Government of Jharkhand, Ranchi at present,
Adityapur, PO & PS - Adityapur, Jamshedpur, District - Seraikela
Kharsawan
2. Executive Engineer, Irrigation Division, Water Resources Department,
Galudih, District - East Singhbhum, PO & PS - Galudih, Jharkhand
--- --- Respondents/Respondents
And
Commercial Appeal No.07 of 2020
R.K. Construction Private Limited, Engineers & Contractors through Mr. Siraj
Ahmed Khan, Director, 1, Shastri Nagar, Patna - 800023 at present, A
company incorporated under the Companies Act, 1956, bearing CIN Number
U00500BR1984PTC001953, having its registered office address at Reyaz
Manzil, R.K. Nagar, F.C.I Road, Phulwari Sharif, Patna - 801 505, through its
director, Mr. Siraj Ahmed Khan (aged 36 years), son of late Riyaz Ahmed
Khan, resident of Riyaz Nagar, F.C.I. Road, P.O. and P.S. - Phulwari Sharif,
District - Patna --- --- Appellant/Petitioner
Versus
1. Government of Jharkhand, through its Chief Engineer Subarnarekha
Multipurpose Project, Government of Jharkhand, Ranchi at present,
Adityapur, PO & PS - Adityapur, Jamshedpur, District - East Singhbhum
2. Executive Engineer, Irrigation Division, Water Resources Department, PO
Mahulia, PS - Ghatsila, Galudih, District - East Singhbhum, Jharkhand
--- --- Respondents/Respondents
---
CORAM: Hon'ble Mr. Justice Aparesh Kumar Singh Hon'ble Mrs. Justice Anubha Rawat Choudhary Through: Video Conferencing
---
For the Appellant : Mr. Salona Mittal, Advocate For the Respondents: Mr. Sachin Kumar, A.A.G. II : Mr. Deepak Kumar Dubey, Advocate
---
13/13.01.2021 Heard Mr. Salona Mittal, learned counsel appearing on behalf of the appellant in both the cases.
22. Heard Mr. Sachin Kumar, learned Additional Advocate General II along with Mr. Deepak Kumar Dubey, Advocate appearing on behalf of the respondents in both the cases.
3. Commercial Appeal No.6 of 2020 and Commercial Appeal No.7 of 2020 have been filed challenging the judgments both dated 23rd January 2020 passed by learned District Judge - I - cum - Commercial Court, East Singhbhum at Jamshedpur in Arbitration Case No.2 of 2019 and Arbitration Case No.3 of 2019 respectively whereby petitions under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act of 1996) challenging the arbitral awards both dated 2nd October, 2018, passed by the same learned Arbitrator, has been dismissed.
Commercial Appeal No.6 of 2020 and Commercial Appeal No.7 of 2020 arise out of Agreement No. LCB - 03 of 1985-86 dated 12.03.1986 with respect to excavation of GRB Main Canal Ex. Galudih Barrage from KM 43.05 to KM 50.25 and Agreement No. LCB - 04 of 1985-86 dated 12.03.1986 with respect to excavation of GRB Main Canal Ex. Galudih Barrage from KM 50.25 to KM 56.04, respectively.
4. Both the aforesaid cases have been taken up together as similar facts and issues are involved in both the cases between the same parties having similar agreements.
5. It is not in dispute that the learned sole Arbitrator was appointed in both the cases by the Hon'ble Supreme Court vide order dated 09.03.2017 and while appointing the sole Arbitrator, liberty was given to the learned Arbitrator to fix his own remuneration, date and venue of arbitration in consonance with the amended provision of Arbitration and Conciliation Act, 1996.
6. The Government of Bihar, Orissa and west Bengal conceived of a plan to make Galudih right bank main canal to be the main link meant for supply of irrigation water to the then State of Bihar (now State of Jharkhand), the State of Orissa and State of West Bengal parallel to Swarnrekha Multi-purpose project. The then State of Bihar invited tenders for excavation of Galudih right bank main canal from KM 43.05 to KM 50.25 and also KM 50.25 to KM 56.04 in which the appellant participated and was allocated work order by the Chief Engineer, Icha Galudih vide letter no. 272 dated 06.03.1986. The work order was followed by two separate agreements between the parties for KM 43.05 to KM 50.25 and KM 50.25 to KM 56.04 respectively with identical terms and conditions numbered as LCB - 03 of 1985-86 and LCB - 04 of 1985-86 both dated 12.03.1986.
7. The factual matrix of the two cases is similar which would reflect from the following chart containing the essential details of the cases are as under: -
3Commercial Appeal No.6 of 2020 Commercial Appeal No.7 of 2020 LCB - 03 of 1985-86 LCB - 04 of 1985-86 KM 43.05 to KM 50.25 KM 50.25 to KM 56.04 Agreement dated 12.03.1986 Agreement dated 12.03.1986 Contract price - Rs.2,62,80,786/-. Contract price - Rs.2,15,13,645/-. Date of commencement of work-on Date of commencement of work-on 14.03.1986 14.03.1986 Date of completion of work as per Date of completion of work as per agreement-13.03.1988 (24 months) agreement-13.03.1988 (24 months) The time for completion was extended The time for completion was extended till 30.06.1993 till 30.06.1993 After creation of State of Jharkhand After creation of State of Jharkhand with effect from 15.11.2000, the with effect from 15.11.2000, the government examined the project and government examined the project and decided to get the unfinished work decided to get the unfinished work completed either by the appellant under completed either by the appellant under the agreement or by fresh contract. the agreement or by fresh contract.
Letter was issued to the appellant on Letter was issued to the appellant on 14.03.2002 for the purpose and by letter 14.03.2002 for the purpose and by letter dated 01.11.2002 the appellant dated 01.11.2002 the appellant conveyed his willingness to complete conveyed his willingness to complete the work with certain conditions to the work with certain conditions to which the respondents did not agree. which the respondents did not agree.
Government took decision to take final Government took decision to take final measurement and communicated to the measurement and communicated to the appellant vide letter dated 30.05.2003 to appellant vide letter dated 30.05.2003 to be taken between 16.06.2003 to be taken between 16.06.2003 to 25.06.03. 25.06.03.
The appellant did not participate in the The appellant did not participate in the measurement and the measurement was measurement and the measurement was done ex-parte. done ex-parte. The agreement was closed vide letter The agreement was closed vide letter dated 08.07.2003 dated 08.07.2003 Work was not completed and as per the Work was not completed and as per the case of appellant the reason for delay case of appellant the reason for delay was attributable to the respondents. was attributable to the respondents. Certain disputes arose between the Certain disputes arose between the parties parties Steps taken for settlement of disputes Steps taken for settlement of disputes under clause 51 of GCC vide letter under clause 51 of GCC vide letter dated 13.11.2003. dated 13.11.2003. Appellant invoked arbitration clause Appellant invoked arbitration clause under Section 52 of GCC vide letter under Section 52 of GCC vide letter dated 20.05.2004 dated 20.05.2004 Upon getting no response, the appellant Upon getting no response, the appellant nominated an arbitrator and the nominated an arbitrator and the 4 nomination was challenged in the writ nomination was challenged in the writ petition. Ultimately the arbitrator was petition. Ultimately the arbitrator was appointed by the Hon'ble Supreme appointed by the Hon'ble Supreme
Court vide order dated 09.03.2017. Court vide order dated 09.03.2017.
The statement of claim filed by the The statement of claim filed by the
appellant on 14.07.2017 before the appellant on 14.07.2017 before the
learned Sole Arbitrator, the following learned Sole Arbitrator, the following
claims were made: claims were made:
(a) Balance due related to B.O.Q and (a) Balance due related to B.O.Q and
Extra Items contained in Statement Extra Items contained in Statement
A, Part - I amounting to A, Part - I amounting to
Rs.1,11,67,858.65 Rs.1,30,02,985.80
Statement A, Part - II- extra items Statement A, Part - II - extra items
not measured, amounting to not measured, amounting to
Rs.31,50,075/- Rs.36,61,374.75/-
(b) Statement B -Compensation for (b) Statement B -Compensation for
damages due to distortion / breach damages due to distortion / breach
of contract amounting to of contract amounting to
Rs.8,76,99,697/- Rs. 7,37,99,683/-
(c) Interest on the amount claimed (c) Interest on the amount claimed
under Statements A & Statement B under Statements A & Statement B
from the date on which they became from the date on which they
due; became due;
(d) Pendente lite and future interest on (d) Pendente lite and future interest on
amount claimed under Statements A amount claimed under Statements
& B; A & B;
(e) Cost of the arbitration proceedings. (e) Cost of the arbitration proceedings.
8. The respondents filed its defence reply before the learned Arbitrator and in the reply filed in both the cases similar points were taken. In the award involved Commercial Appeal No.6 of 2020 it has been recorded that it was, interalia, pleaded as under -
a. That in spite of giving mobilization advance, the appellant could execute only 67% value of the work which was valued at Rs.174.93 lakhs during the period of 24 months i.e., 67% of total value of contract. However, in the interest of the project, the respondents granted extension of time till 30.06.1993 to complete the work, but the appellant did not show any interest to complete the work even during the extended period and in the meantime, the World Bank did not provide further finance and therefore, the work under the project was suspended after June, 1993. b. It was further the case of the respondents that after creation of State of Jharkhand in the year 2000, the Government decided to get the unfinished work completed either by the appellant under the agreement or by fresh contract through another agency and accordingly, a letter dated 14.03.2002 5 was issued to the appellant to inform as to whether the appellant was interested and willing to complete the work under the agreement and the appellant conveyed its willingness to complete the unfinished work but with certain conditions on which no consensus could be reached and ultimately, the Government took the decision to take final measurement of the work executed by the appellant vide letter dated 30.05.2003 and also published the notice in the newspapers. The final measurement was to be taken between 16.06.2003 to 25.06.2003 and the appellant was requested to depute its representative(s), failing which the measurement would be taken in their absence and no claim on this score will be entertained. The appellant ultimately did not participate in the measurement exercise and the final measurement was taken in absence of the appellant and the respondents closed the agreement vide letter dated 08.07.2003. c. It was further the specific case of the respondents before the learned Arbitrator that the appellant had completed only 67% of the work during the period of 24 months and was paid an amount of Rs.3,18,17,831/- by making payment up to 26th Running Account Bill (R.A) Bill in June 1990 against the agreed value of Rs.2,62,80,786/-.
d. It was contended by the respondents that the payment of R.A. Bill was in the nature of advance payment which was to be adjusted against the final bill on the basis of final measurement of the work executed by the appellant.
e. It was also the case of the respondents that after preparation of final bill, on the basis of final measurement, the appellant has been paid an amount of Rs.58,08,911/- in excess.
f. However, the specific case of the respondents during the course of argument was that the excess payment of Rs.55,37,045/- was paid for the extra work done by the appellant i.e., the lead up to the site to the dump excavated material had to be extended and the distance had become greater. The specific case of the respondents before the learned Arbitrator was that nothing was payable to the appellant on account of idle period and allied claims let alone the unfinished work.
g. The respondents had also contended before the learned Arbitrator that the claim was barred by limitation as the cause of action arose as back as in the year 1990 and the period of limitation of 3 years had expired and the appellant had submitted its claim vide letter dated 13.11.2003. In the arbitral proceedings involved in Commercial Appeal No.7 of 2020 also similar plea were taken but the figures were different.
69. It is important to note that it has been recorded in both the cases by the learned Arbitrator and is not in dispute that neither side had placed on record a copy of the letter dated 08.07.2003 by which the agreement was closed. It is also important to note that neither the final bill nor the final measurement was brought on record by either party before the learned Arbitrator.
Findings of the learned Arbitrator.
10. The learned arbitrator summarized his findings in Commercial Appeal No. 6 of 2020 as under:
"10. In view of the foregoing discussion, the findings are summarized hereinbelow: -
i. The claim petition is not barred by limitation. ii. The arbitration proceeding is not hit by Clause 51 of GCC. iii. The appellant completed 67% of the work allotted under the agreement within a period of twenty-four months. iv. The claimant has done extra work over and above the terms of the agreement, as directed by the executive engineer. v. Payment of R.A. C bills were released to the claimant in violation of clause 34(i) of GCC.
vi. The reason for non - completion of the project are entirely and wholly attributable to the respondent."
Identical findings have been recorded in Commercial Appeal No.7 of 2020 except that the claimant completed 82% of the work allotted under the agreement within a period of twenty-four months.
11. None of the parties were aggrieved with the aforesaid findings of the learned Arbitrator in both the cases.
12. However, at the end of para 10 of both the award passed by the learned Arbitrator, it was held as follows: -
"Obviously, therefore, the claimant is entitled to payment of the unpaid dues, and damages for distortion and/or breach of contract, after adjustments of the payment already made to it."
13. At this stage, it is relevant to point that the learned counsel for the appellant has specifically assailed the aforesaid later part of para 10 of the award wherein, the learned Arbitrator has recorded that the claimant would be entitled to the amount after adjustment of payments already made to it.
14. The learned Arbitrator from para 11 onwards, in both the awards proceeded for quantification of the amount payable to the appellant. The learned Arbitrator recorded that the materials on record filed on behalf of both the sides are inadequate to determine the amount of compensation claimed by the appellant 7 and also recorded that in case of doubt or difficulty, the tribunal may lean in favour of the appellant. The learned Arbitrator also recorded that it is not clear from the materials on record, the date by which extra work as per the direction of the Executive Engineer was executed by the appellant. Claim of damages
15. Thereafter, the learned Arbitrator has first dealt with the computation of damage in connection with the breach of the contract. The learned Arbitrator considered the judgment relied upon by the claimant in the case of Hadley Vs. Baxendale, (1843-60) ALL E L Reports 461, and was of the view that if the breach is calculated to cause a loss of goodwill, a reasonable sum can be awarded without positive proof, but if it is sought to recover substantial sum under the heads, particulars should be given and the evidence of actual loss should be adduced. The learned Arbitrator held that applying the principles of law to the facts of the case, the appellant had not set up a case to the effect that it lost other available work because of the delay in execution of the present contract. The claimant has also not set up a case that there was a drop in its turnover which had resulted from the delay rather than extraneous causes. On the contrary, the appellant's cause as set out in the statement of claim, is that this was their main work, rather the only work. The net result of the case, as per the learned Arbitrator, that the effect of the delay is only with respect to receipt of the money for the unfinished work and the appellant was entitled to that much only with interest.
16. With the aforesaid background, the learned arbitrator made the following award with respect to the claim of damages: -
Commercial Appeal No. 6 of 2020 Commercial Appeal No. 7 of 2020
12. As to item no.(ii), the question is 12. As to item no.(ii), the question is of determination of the amount of of determination of the amount of damages payable to the claimant damages payable to the claimant because the claimant was unable to because the claimant was unable to execute 33% of the work, which, as I execute 18% of the work, which, as I have found above, was for reasons have found above, was for reasons entirely attributable to the respondent, entirely attributable to the respondent, and it lingered upto 08.07.2003, when and it lingered upto 08.07.2003, when the agreement was rescinded. The the agreement was rescinded. The claimant has claimed damages under claimant has claimed damages under the following heads: the following heads:
a) Rs.113,44,300/- towards a) Towards compensation for compensation for underutilized underutilized overheads, namely, office overheads, namely, office staff, their 8 residence, transport, etc. staff, their residence, transport, etc.
b) Rs.5,12,00,000.00 for idle period of b) For idle period of tools, plants, and tools, plants, and machineries and the machineries and the hire charges.
hire charges.
c) A sum of Rs.68,62,350/- has been c) Has been claimed by way of 30% claimed by way of 30% extra on the extra on the unexecuted work on unexecuted work on account of account of abnormal price rise.
abnormal price rise.
Learned counsel for the claimant has Learned counsel for the claimant has during the course of submissions given during the course of submissions given up claims of compensation for loss due up claims of compensation for loss due to profit not earned at appropriate time, to profit not earned at appropriate time, for lost productivity and efficiency, for lost productivity and efficiency, compensation for opportunity losses, compensation for opportunity losses, and additional cost of insurance, bank and additional cost of insurance, bank guarantees because of absence of guarantees because of absence of materials on record to prove these materials on record to prove these claims. claims.
In so far as items (a) to (c) are In so far as items (a) to (c) are concerned, the claims appear to be concerned, the claims appear to be unsubstantiated and exaggerated. unsubstantiated and exaggerated. However, the claimant is being However, the claimant will be compensated by the direction for 33% compensated by not being required to of the unfinished work without actually pay interest to the respondent on the doing the work. extra amount paid to it. This part of the claims (the three items) is in part being compensated for awarding payment of interest @ 9% of the unfinished work without actually doing the work.
In my view, interest of justice would be In my view, interest of justice would be served if the claimant is paid the served if the claimant is paid for the balance of the contract amount i.e., 37% unfinished work, i.e., 18% of the work of Rs.2,62,80,786/- which is 90,10,659/- under the agreement Rs.2,15,13,654/- is . The claimant will thus be paid the contracted amount, and Rs.90,10,659/- (2,62,80,786/- minus Rs.1,76,41,196/- would be towards 82% 1,76,08,127/-). of the work done has been granted hereinabove. 18% of 2,15,13,654/- is 38,72,458/-. The claimant will thus be 9 paid Rs.38,72,458/- (2,15,13,654/-
minus 1,76,41,196/-).
The claimant should be mindful of the The claimant should be mindful of the position that it could complete 82% of position that it completed 67% of the the allotted work in time and was paid. allotted work in time and was paid. Therefore, its claim for damages is to Therefore, its claim for damages is to that extent is reduced. It was also that extent reduced. It was also unexpectedly assigned extra work for unexpectedly assigned extra work which it has been paid. which exceeded by more than 30% of the contracted amount of work getting profit to that extent and was paid.
Claim of extra work -Part I of Statement A of the claim i.e., the receivable from the department
17. The learned arbitrator has considered the Part I of Statement A of the claim i.e., the receivable from the department as under-
Commercial Appeal no. 6 of 2020 Commercial Appeal no. 7 of 2020 The learned Arbitrator while The learned Arbitrator while considering the Part I of Statement A of considering the Part I of Statement A of the claim i.e., the receivable from the the claim i.e., the receivable from the department, has recorded that as to Part department, has recorded that as to Part I, the respondents had not disputed the I, the respondents had not disputed the computation in its statement of defence. computation in its rejoinder. Thereafter, Thereafter, the learned Arbitrator the learned Arbitrator considered the considered the various communications. various communications. The learned Arbitrator ultimately held The learned Arbitrator ultimately held that it appeared to him that a sum of that it appeared to him that a sum of Rs.1,11,67,858.65 was payable for the Rs.12,00,000/- was payable for the extra extra work done and this amount was work done and this amount was obviously over and above the amount obviously over and above the amount receivable for 67% of the work done. receivable for 82% of the work done. 67% of Rs.2,62,80,786/- comes to 82% of Rs.2,15,13,654/- comes to Rs.1,76,08,126/-. The two amounts total Rs.1,76,41,196/-. The two amounts total being Rs.2,87,75,986/- and the claim to being Rs.1,88,41,196/- and the claim to this amount was allowed subject to this amount was allowed subject to adjustment of the amount already paid adjustment of the amount already paid to the claimant. to the claimant.
10Claim of items not measured
18. So far as the claim under Part II of Statement A dealing with items not measured, is concerned, the same was rejected on the ground that the appellant never participated in the final measurement. This finding is common in both the awards.
Consideration of payments already made
19. In Commercial Appeal No. 6 of 2020, the learned Arbitrator also took into consideration the fact that the payment of Rs.3,18,17,831/- up to 26th R.A. Bill in June, 1990 was an admitted fact and therefore, the learned Arbitrator was of the view that the total amount of Rs.2,87,75,986/- was to be paid to the appellant subject to adjustment. So far as the damages are concerned, the learned Arbitrator was of the view that the damages would be payable to the appellant because the appellant was unable to execute 33% of the work, for the reasons entirely attributable to the respondents, which lingered upto 08.07.2003 and on this score, the learned Arbitrator was of the view that the interest of justice would be served if the appellant is paid the balance of the contract amount i.e., 37% of Rs.2,62,80,786/- which comes to Rs.90,10,659/- and ultimately, the appellant was found to be entitled to a sum of Rs.2,87,75,986/- plus Rs.90,10,659/- which came to a total of Rs.3,77,86,645/- and as the appellant had already received an amount of Rs.3,18,17,831/-, the appellant was found to be entitled to a balance of Rs.59,68,814/-.
Similarly, in Commercial Appeal No. 7 of 2020, the learned Arbitrator also took into consideration the fact that the payment of Rs.2,67,59,598/- up to 23rd R.A. Bill in June 1990 was an admitted fact and therefore, the learned Arbitrator was of the view that the total amount of Rs.1,88,41,196/- was to be paid to the appellant subject to adjustment. So far as the damages are concerned, the learned Arbitrator was of the view that the damages would be payable to the appellant because the appellant was unable to execute 18% of the work, for the reasons entirely attributable to the respondents, which lingered upto 08.07.2003 and on this score, the learned Arbitrator was of the view that the interest of justice would be served if the appellant is paid the balance of the contract amount i.e., 18% of Rs. 2,15,13,645/- which comes to Rs.38,72,458/- and ultimately, the appellant was found to be entitled to a sum of Rs.1,88,41,196/- plus Rs.38,72,458/- which came to a total of Rs.2,27,13,654/- and as the appellant had already received an amount of Rs.2,67,59,598/- the respondents were found to be entitled to a balance of Rs.40,45,944/-.
11Operative portion of the award Operative portion of the award challenged in Commercial Appeal No.6 of challenged in Commercial Appeal No.7 of 2020 2020 A) For execution of 67% of the A) For execution of 82% of the contracted work plus the extra work contracted work plus the extra work executed by the claimant, it is executed by the claimant, it is entitled entitled to a sum of 2,87,75,986/-. to a sum of Rs.1,88,41,196/-.
B) Towards damages for the unfinished B) Towards damages for the unfinished
work, the claimant is entitled to the work, the claimant is entitled to the
sum of Rs.90,10,659/-. sum of Rs.38,72,458/-.
Item Nos. (A) & (B) total Item Nos. (A) & (B) total up to
Rs.3,77,86,645/-. Rs.2,27,13,654 /-.
C) Sum of Rs.3,18,17,831/- has already C) Respondent has paid sum of
been paid to the claimant which has Rs.2,67,59,598/- to the claimant
to be adjusted against the sum of which has to be adjusted against the
Rs.3,77,86,645/- payable to the sum of Rs.2,27,13,654/- payable to
claimant, which comes to the claimant. Therefore, the claimant
Rs.59,68,814/- is liable to refund of Rs.40,45,994/-
D) The claimant is entitled to simple to the respondent.
interest @ 9% on the sum of D) The claimant shall also have to pay
Rs. 59,68,814/- from 01.01.1989 till interest @ 6% on the sum of
the date of payment. Rs.40,45,994/- to the respondents
E) Cost of arbitration- Rs.50,00,000/- from 01.01.1989 till date of
with interest @ 9% from 02.10.2018, adjustment.
the date of award till the date of
payment.
Arguments of the learned counsel for the Appellant
20. Learned counsel for the appellant submits as under:
(i) The appellant had filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 raising several grounds before the learned court below within the stipulated time frame and no petition for setting aside the award or no cross objection in connection with the setting aside of the award was filed by the respondents-State.
(ii) The learned counsel has submitted that although the grounds for challenge were within the scope of Section 34 of Arbitration and Conciliation Act, 1996, but the learned court below has not appreciated any of the grounds 12 and has passed unreasoned order and the impugned judgment passed by the learned court below is ex facie perverse.
(iii) While advancing his argument, the learned counsel has referred to the jurisprudence in connection with the scope of challenge to the arbitral award under Section 34 of Arbitration and Conciliation Act, 1996. The learned counsel has submitted that the lead case in the matter has been decided by the Hon'ble Supreme Court in the case of (Ssangyong Engg. & Construction Co. Ltd. vs. NHAI) reported in (2019) 15 SCC 131.
(iv) The learned counsel has submitted that admittedly, the claim was filed before the learned Arbitrator post 2015 amendment and accordingly, the petition for setting aside the arbitral award was also filed post 2015 amendment, therefore, in view of the pronouncement by the Hon'ble Supreme Court in the case of Ssangyong Engg. (supra), the petition under Section 34 is to be governed by the amended provisions of 2015 amendment in the Arbitration and Conciliation Act, 1996.
(v) The learned counsel has further submitted that the judgment passed in the case of Patel Engg. Ltd. Vs. North Eastern Electric Power Corpn. Ltd., reported in (2020) 7 SCC 167 has followed the judgment passed by Hon'ble Supreme Court in the case reported in (2018) 6 SCC 287 (BCCI Vs. Kochi Cricket (P) Ltd.) and also the judgment passed in the case of Ssangyong Engg. (supra).
(vi) The learned counsel submits that the award was mainly challenged on the ground that the learned sole Arbitrator has miscalculated the amount payable to the appellant by adjusting certain sums allegedly payable to the respondents even when there was no counter-claim or claim of set off filed before the learned Arbitrator. The learned counsel has specifically argued that in absence of filing of any set off or counter-claim, the amount quantified by the learned Arbitrator which was held to be payable to the appellant could not have been adjusted against the amount already paid to the appellant as back as in the year 1990. The other leg of argument for setting aside the award was that the learned Sole Arbitrator had awarded a miniscule portion of damages claimed by the appellant.
(vii) The learned counsel has also submitted that the point that no counter claim was ever filed by the respondents was specifically raised in the petition filed under Section 34 of Arbitration and Conciliation Act,1996 but the learned court below though has noticed the aforesaid challenge, but has neither considered nor decided the same.13
(viii) The learned counsel has further submitted that since the appellant had already received amount of Rs.3,18,17,381/- by way of 26th R.A. Bill as back as in the month of June, 1990, in Commercial Appeal No. 6 of 2020 and already received amount of Rs.2,67,59,598/- by way of 23th R.A. Bill as back as in the month of June, 1990, in Commercial Appeal No. 7 of 2020, there was no occasion for the appellant to raise a claim for the work for which the payment was already made to the appellant. The learned counsel submits that the claim of the appellant before the learned Arbitrator was over and above the amount which was already received by the appellant and accordingly, neither any counter claim nor any claim of set off was filed by the respondents before the learned Arbitrator. The learned counsel submits that the adjustment made by the learned Arbitrator is ex facie perverse and cannot be sustained in the eyes of law and was certainly a ground of challenge under Section 34 of Arbitration and Conciliation Act, 1996 as amended in the year 2015.
(ix) The learned counsel submits that once the learned Sole Arbitrator in Commercial Appeal No. 6 of 2020 has held that the appellant was entitled to Rs.1,11,67,858.65 for extra work done that should have been the end of matter as the extra work which was done by the appellants stood admitted by the respondents in the arbitration proceedings. The learned Arbitrator has ignored the fact that the amount of Rs.1,11,67,858.65 was being claimed over and above the payment already made in the month of June, 1990 and not for 67 % of the work which was done till the agreement period i.e., March 1988. The learned counsel has submitted that the subject matter of dispute before the learned Arbitrator was not the entire contract and the extra work done, but it was only the remaining amount which was to be paid to the appellant on account of extra work for which no payment was made.
(x) The learned counsel submits that an award can be challenged on the ground of "patent illegality" if the award is perverse and one of such grounds of perversity is when the learned Arbitrator ignored vital evidence as has been done in the present case. He has referred to a number of letters and submits that some of them have been referred to in the arbitral award and the others have not been referred to in the arbitral award to submit that these vital correspondences have not been considered by the learned Arbitrator. The learned counsel has also submitted that the adjustment made by the learned Arbitrator by assuming that Rs.3,18,17,381/- included the sum of Rs.1,11,67,858.65 is itself perverse, in as much as, no reasonable person could have come to this conclusion. The learned counsel also submits that the award as challenged by the appellant was also against the most basic notions of 14 justice. He submits that elucidating on justice as a ground for challenge to an award the Hon'ble Supreme Court in the case of Associate Builders Vs. Delhi Development Authority reported in (2015) 3 SCC 49, by way of illustration has referred to a situation, where a person claims Rs.30,00,000/-, but is awarded Rs.45,00,000/- as being against the most basic notions of justice.
Applying the same logic, where the counter claim of the respondents in the present case was nil, there being no counter claim at all, any deduction or adjustment made by the learned sole Arbitrator would be against the most basic notions of justice. He submits that the learned court below has failed to consider the consequence of not filing counter claim by the respondents before the learned Arbitrator and has accordingly, erred in law in rejecting the challenge to the award under Section 34 of Arbitration and Conciliation Act, 1996 as amended in the year 2015.
(xi) The learned counsel has also referred to Section 34 (2) (a) (iv) of the aforesaid Act of 1996, as amended, to submit that the Arbitrator has dealt with the matter not contemplated by the parties and which was not an issue before him. A bare perusal of the statement of claim will make it evident that what was claimed by the appellant was payment towards extra work and accordingly, the learned Sole Arbitrator ought to have restricted himself to the claim for extra item only and in absence of counter claim, the learned sole Arbitrator ought not to have gone into the issue of making any adjustment at all.
(xii) So far as the damages are concerned, the learned counsel for the appellant has submitted that in Commercial Appeal No. 6 of 2020 and in Commercial Appeal No.7 of 2020, the appellant had claimed damage to the extent of Rs.8,76,99,697/- and Rs. 7,37,99,683/- respectively, for breach of contract under different heads, but the learned Arbitrator has ignored the various heads i.e., under-utilized over heads, loss due to under-utilized tools, plants and machinery and demand due to need to restructure rates during the extended period, for which, due justification was provided in the claim petition, but in spite of that, the learned Arbitrator had awarded only a miniscule amount of the claim only to the extent of the work which could not be executed by the appellant as per the contract. The learned counsel has also submitted that the reasoning adopted by the learned sole Arbitrator in refusing to award, the damages as claimed by the appellant, is also against the "Public Policy of India".
(xiii) The learned counsel submits that the respondents had breached the contract by delaying the execution of work, the natural consequence thereof, 15 would have been to award damages to the appellant. This is a fundamental policy of Indian law as enshrined in Section 73 of the Indian Contract Act, 1872. He submits that Section 73 of the Indian Contract Act, 1872 is the statutory recognition of the fundamental policy that where the party to the contract on account of breach by the others suffers losses should be compensated for the loss caused to him. The learned counsel submits that the finding of the learned sole Arbitrator that the claim for damages is unsubstantiated is patently illegal for the reason that cogent explanation was given by the appellant for claiming damages, in fact, the learned sole Arbitrator had stated in the award that it was due to unnecessary litigation initiated by the respondents that had adversely affected the existence and availability of evidence. He also submits that the calculation used by the learned sole Arbitrator for arriving at damages has no basis at all.
(xiv) The learned counsel has also submitted that the learned Arbitrator has refused to consider the claim of the appellant under Part II of Statement A, which was the work already executed by the appellant, but not measured. The learned counsel has submitted that merely because the appellant did not participate at the time of measurement, the same was not sufficient to reject the claim, in as much as, the measurement as well as the final bill were not brought on record by the respondents and there was no material on record to suggest as to whether the claim of work as mentioned in Part II of claim A was already included in the measurement or not.
(xv) The learned counsel submits that in view of the aforesaid facts and circumstances, the learned court below ought to have considered the grounds for challenge in the light of the amended provisions of Arbitration and Conciliation Act, 1996 as amended in 2015 read with the judicial pronouncements particularly in the case of Ssangyong Engg. (supra). He submits that the judicial pronouncement made by the Hon'ble Supreme Court and the amendment of 2015 was not brought to the notice of the learned court below while deciding the case. The learned counsel has also submitted that the doctrine of public policy has been restricted by the learned court below only to fraud and corruption which is ex facie in conflict with the provisions of law under Section 34 of Arbitration and Conciliation Act, read with 2015 amendment and the judicial pronouncement.
Arguments of the learned counsel for the Respondents
21. The learned counsel appearing on behalf of the respondents has vehemently opposed the appeals and submitted as under:
16i) The awards passed by the learned Arbitrator in both the cases are well-
reasoned awards and considering the limited scope of interference under Section 34 of Arbitration and Conciliation Act, 1996, no case for interference was made out and accordingly the learned court below has rightly rejected the petitions.
ii) Upon perusal of the grounds for setting aside of the awards, it appears that only a vague statement was made that the award is against the public policy of India and in fact none of the grounds come within the ambit of Section 34 of Arbitration and Conciliation Act, 1996. The learned counsel has also submitted that the applicant failed to satisfy the learned court below by advancing arguments as to how the case fell within the ambit of Section 34 of Arbitration and Conciliation Act, 1996 and in such circumstances, the learned court below has recorded that no such effort was made to show as to how the award is against public policy of India. He also submits that in the entire pleading, there was not even a single pleading alleging that the award is patently illegal or prejudicial to the rights of the parties and further there was no material available on record to show any misconduct on the part of the learned Arbitrator.
iii) The learned counsel has also submitted that the learned sole Arbitrator has taken into consideration the pleadings, the clause of the agreement executed between the parties and the correspondences made between them while passing the awards and there was no scope for interference by the learned court below. He has also submitted that the appellant cannot travel beyond the grounds which were taken in the petition under Section 34 of the aforesaid Act of 1996 and in the present case, the learned counsel for the appellant has improved upon his arguments and plea which is not permissible in the eyes of law. He submits that new grounds cannot be permitted to be raised at this stage.
iv) The learned counsel has also submitted that so far as the scope of interference under Section 34 of Arbitration and Conciliation Act, 1996 is concerned, in the present case, admittedly, the award as well as the challenge to the award is post 23.10.2015 and accordingly, so far as the grounds for challenge are concerned, those will be governed by amended provisions of Section 34 of the aforesaid Act of 1996. He has also submitted that so far as the proceedings are concerned, the same would be governed by the unamended provisions in view of the fact that the arbitration clause in the instant case was invoked prior to amendment of 2015. Therefore, his specific submission is that the arbitration proceedings are governed by pre-amendment provisions of the 17 Act of 1996 and the challenge to the awards are governed by amended provisions of Section 34 of the Arbitration and Conciliation Act, 1996.
v) The learned counsel has referred to para 25 of the judgment passed by the Hon'ble Supreme Court reported in (2019) 15 SCC 682 (Union of India Vs. Parmar Construction Company) and submits that it has been held that the 2015 amendment Act was gazetted on 01.01.2016, and according to Section 1 (2) of the Amendment Act, 2015, it was deemed to have come into force on 23.10.2015. Section 21 of the aforesaid Act of 1996 clearly envisages that unless otherwise agreed by the parties, the arbitral proceedings in respect of a dispute shall commence from the date on which a request for that dispute to be referred to arbitration is received by the respondents and the plain reading of Section 26 of Amendment Act, 2015 is itself explicit, leaves no room for interpretation.
vi) The learned counsel has also referred to para 32 of the judgment passed by the Hon'ble Supreme Court in the case of Ssangyong Engg. (supra) reported in (2019) 15 SCC 131 to submit that Section 28 (3) as it stood prior to amendment and post amendment have been quoted in the said judgment and before the amendment, the arbitral tribunal was to decide in accordance with the terms of contract and was to take into account the usages of trade applicable to the transaction, but post amendment, the arbitral tribunal was to take into account the terms of the contract and trade usage applicable to the transaction. However, during the course of arguments, the learned counsel has failed to explain this Court as to how the applicability of Section 28, pre- amendment or post-amendment, has any bearing in the present case as it is not the case of the learned counsel appearing on behalf of the appellant that the proceedings by the learned Arbitrator was against any of the provisions of the Arbitration and Conciliation Act, 1996.
vii) The learned counsel has extensively referred to the various paragraphs of the aforesaid judgment in the case of Ssangyong Engg. (supra) to explain to this Court that the extent of the scope of interference under Section 34 of the aforesaid Act of 1996 has been restricted and curtailed by virtue of the amendment of 2015. He submitted that the law is well settled that the arbitral award can be set aside or interfered with only if the challenge to the award falls within the four corners of the provisions of Section 34 of the Arbitration and Conciliation Act, 1996 and not beyond. He submitted that there is no scope for re-appreciation of evidence as the learned court below does not sit in appeal against the arbitral award and even if there is some error of fact or law, 18 the same do not call for any interference unless such error falls within the four corners of the grounds of challenge under Section 34 of the Act of 1996.
viii) The learned counsel submitted that the main argument which has been advanced on behalf of the appellant is that there has been no counter-claim filed by the respondents before the learned Arbitrator and accordingly the amount which was paid to the appellant could not have been adjusted. The learned counsel has submitted that in order to claim adjustment, no counter claim or set off was required to be filed and in fact neither the State had filed any counter claim nor the State had filed any set off rather it was brought on record before the learned Arbitrator that excess amount was paid to the appellant. He submits that the learned Arbitrator was within his right and jurisdiction to adjust the excess amount which was already paid by the respondents to the appellant. The learned counsel submits that the law is also well settled that in order to claim adjustment there is no question of any limitation.
ix) The learned counsel has also referred to judgment passed by Hon'ble Supreme Court in the case of Patel Engg. (supra) to submit that the Hon'ble Supreme Court has acknowledged that there could be no unjust enrichment and unjust enrichment by itself is contrary to Fundamental Policy of Indian law and is a ground for interference with an arbitral award. The learned counsel submits that in the instant case, if the adjustment is not permitted then under such circumstances, there would be unjust enrichment of the appellant as it was never disputed by the appellant that Rs.3,18,17,831/- and Rs.2,67,59,598/- in Commercial Appeal No.6 of 2020 and in Commercial Appeal No.7 of 2020 respectively, were paid to the appellant.
x) The learned counsel has referred to judgment passed by Hon'ble Supreme Court reported in (2004) 3 SCC 504 Union of India Vs. Karam Chand Thapar to submit that it has been held by the Hon'ble Supreme Court that apart from the rule enacted in Rule 6 there exists a right to set-off, called equitable, independently of the provisions of the Code of Civil Procedure. Such mutual debts and credits or cross-demands, to be available for extinction by way of equitable set-off, must have arisen out of the same transaction or ought to have been connected in their nature and circumstances so as to make it inequitable for the Court to allow the claim before it and leaves the defendant high and dry for the present unless he files a cross-suit of his own.
xi) The learned counsel has also referred to judgment passed by Hon'ble Patna High Court reported in 1966 SCC Online Patna 112 (Chandra Dutt Vs. Shantiram Tiwary and Anr.) and the judgment again passed by Hon'ble Patna 19 High Court reported in 1955 SCC Online Patna 83 (Jyanti Lal and Anr. Vs. Abdul Aziz and Anr.) to submit that there is a marked distinction between counter claim and set off on one hand, and claim for adjustment on the other. He submits that the State neither filed any counter claim nor filed any set off, but the claim of the State was in the realm of adjustment which has been rightly considered by the learned Arbitrator and the appellant had wrongly understood the claim of adjustment made by the respondents before the learned Arbitrator as a counter claim. He submits that the entire challenge of the appellant to the claim of adjustment and actually adjustment done by the learned Arbitrator is misconceived and is devoid of any merit.
xii) He has also relied upon the judgment passed by Hon'ble Delhi High Court in the case of Walchand Nagar Industries Ltd. Vs. Cement Corporation of India reported in 2012 SCC Online Delhi 2389 again to draw distinction between counter claim, set off and adjustment.
xiii) The learned counsel has submitted that the non-filing of final measurement or non-filing of final bill before the learned Arbitrator has no bearing in the matter because of the reason that the appellant was also served with a copy of the final measurement and final bill and if the appellant wanted to rely upon the same, the same could have been brought on record by the appellant, which was never done. The learned counsel has also submitted that sufficiency or insufficiency of evidences on record is not a ground for interference under Section 34 of Arbitration and Conciliation Act, 1996 and the award by itself is based on cogent evidence and materials brought on record.
xiv) The learned counsel has further submitted that the learned Arbitrator has also interpreted the clause in the contract which clearly indicated that all the payments which were made to the appellant were by way of advance and accordingly it cannot be said that the payment made in advance also could not be adjusted while quantifying the amount actually payable to the appellant. The learned counsel has also submitted the point that the excess amount which the respondents had parted and paid to the appellant was not subject to adjustment, was also not raised and argued before the learned Arbitrator and the appellant challenged the adjustment by submitting that no counter claim was filed. He submits that the point, if any, in that regard ought to have been raised for consideration by the learned Arbitrator and the appellant having not raised this point before the learned Arbitrator it is not open to the appellant to raise the same at a later stage. The learned counsel has also submitted that the manner in which the advance payment is to be dealt with is by itself dependent 20 upon the interpretation of contract between the parties which is in the exclusive jurisdiction of the learned Arbitrator and the learned Arbitrator has duly interpreted the contract and adjusted the amount.
xv) The learned counsel has also referred to the judgment passed by the Hon'ble Supreme Court reported in (2006) 11 SCC 181 (McDermott International Inc Vs. Burn Standard Co. Ltd.) para 112 and 113 to submit that the construction of contract is within the jurisdiction of learned Arbitrator. He has also referred to the judgment passed by Hon'ble Supreme Court reported in (2003) 7 SCC 396 (State of U.P. Vs. Allied Constructions) to submit that it has been held by Hon'ble Supreme Court that award made by the Arbitrator may be wrong in either law or merit, but the same by itself is not sufficient to nullify the award.
xvi) He has also referred to the judgment passed by Hon'ble Supreme Court reported in (2010) 11 SCC 296 (Sumitomo Vs. ONGC) to submit that the Arbitrator is legitimately entitled to take a view which he holds to be the correct after considering the materials before him and if he does so, the decision of the Arbitrator has to be accepted as final and binding. xvii) The learned counsel while summing up his argument has submitted that none of the grounds for interference under Section 34 as amended by Act of 2015 have been made out by the appellant in his challenge to the arbitral award before the learned court below and not only the award passed by the learned Arbitrator is a reasoned one, but also the impugned judgment passed by the learned court below is well reasoned and accordingly both the orders do not call for any interference. The learned counsel has submitted that the clauses 51 and 52 have been considered and interpreted by the learned Arbitrator and the entire dispute arising out of the contract was before the learned Arbitrator and it was not only in relation to the extra work done for which the payment was not made to the appellant. Accordingly, the learned Arbitrator has rightly considered the extent of work executed by the appellant and the extra work done and adjusted it qua the amount paid by way of advance through running on account bill in both the cases. He has also submitted that there is no illegality in adjustment of the damages awarded by the learned Arbitrator against the amount paid by way of advance. The learned counsel has also submitted that it was never the case of the appellant before the learned court below that the claim of the appellant was relating to over and above the amount which was already received by the appellant rather during the arbitration proceedings, there was no sufficient material to indicate as to when the extra work was actually executed by the appellant. The learned 21 counsel has reiterated that it has not been disputed by the appellant before the learned Arbitrator that the measurement was done and final bills were prepared and the amount of Rs.3,18,17,831/- and Rs.2,67,59,598/- in Commercial Appeal No.6 of 2020 and in Commercial Appeal No.7 of 2020 respectively, were paid.
xviii) The learned counsel for the respondents has further submitted that the action of the learned Arbitrator in adjusting the amount is in consonance with Section 59, 60 and 61 of the Indian Contract Act, 1872 and does not suffer from any illegality.
Rejoinder arguments of the learned counsel for the Appellant
22. The learned counsel for the appellant has submitted that the specific case of the appellant before the learned court below was that the manner in which the damages have been calculated, has no legal sanctity and the appellant had produced evidence to support the claim of damages which has not been considered by the learned Arbitrator and accordingly the award passed by the learned Arbitrator was perverse. The learned counsel has also submitted that a specific plea was raised before the learned court below in the petition under Section 34 that no counter claim was filed by the respondents and at least this aspect of the matter was to be necessarily dealt with by the learned court below as there can be no doubt that in absence of any counter claim or plea for set off, no amount can be realized from the appellant and the counter claim and/or set off by itself is a separate cause of action calling for adjudication where various issues including point of limitation are also involved. He submits that without prejudice to the aforesaid submission even if it is assumed that the claim was only for adjustment, then under such circumstances, the adjustment could have taken place only against the amount crystalized on the date of filing of the claim and the damages are crystalized and payable only upon its adjudication, therefore, there was no question of adjustment qua damages. The learned counsel submits that the adjustment towards damages could have been done only if there was a counter claim or a claim for set off and as per the argument advanced on behalf of the respondents, they have specifically stated that the amount which was paid by the respondents to the appellant, the respondents had not filed any counter claim or a claim for set off and it was for adjustment only. The learned counsel has also submitted that the learned Arbitrator having allowed adjustment towards damages has indirectly allowed the counter claim or set off and he submits that what is directly not permissible cannot be permitted to be done indirectly as well. He submits that on this score, the adjustment done by the learned Arbitrator suffers from perversity as there was no counter-claim or claim for set off and such 22 adjustment is patently illegal which is sufficient enough to shock the conscience of the court. He submits that the learned court below though has recorded this ground, but the same has not been considered and no finding has been recorded by the learned court below on this point. The learned counsel has submitted that the order passed by the learned court below is ex facie unreasoned and perverse. He further submits that since the parties have advanced elaborate arguments on the grounds for setting aside the award, therefore, the same may be decided by this Court itself being the appellate Court. The learned counsel has also distinguished the judgment passed in the case of Parmar Construction (supra) to submit that the Hon'ble Supreme Court in the said case was considering the matter regarding the appointment of Arbitrator which has no bearing in this case. He has also distinguished the judgment passed in the case of Patel Engg. Ltd. (supra) reported in (2020) 7 SCC 167 to submit that in the said case, the State was aggrieved by the award and in the instant case, the State has accepted the award and has neither filed any petition under Section 34 nor filed any cross objection.
23. So far as Commercial Appeal No.7 is concerned, the learned counsel appearing on behalf of the appellant has submitted that the facts in Commercial Appeal No.6 of 2020 and Commercial Appeal No.7 of 2020 are almost parallel to each other and only the figures are different. He submits that while considering the claim of extra work under Part I of claim A, the learned Arbitrator has picked up different figure in Commercial Appeal No.7 of 2020 although in the parallel proceeding in Commercial Appeal No.6 of 2020, the total figure was taken up. He submits that upon comparison of the two records, it is apparent that the learned Arbitrator has committed error of record. However, during the course of hearing, he admitted that no petition for rectification of the award was filed before the learned Arbitrator. The learned counsel has further submitted that there is one more distinction between Commercial Appeal No.6 of 2020 and Commercial Appeal No.7 of 2020, in Commercial Appeal No.6 of 2020, the entire amount which was paid by the respondents stood adjusted and an award was passed in favour of the appellant, but so far as Commercial Appeal No.7 of 2020 is concerned, although admittedly, there was no counter claim or claim for set off, but an award has been passed directing the appellant to pay certain amount to the respondents. The learned counsel submits that the law is well settled that in absence of any counter claim or claim for set off, no money decree can be passed in favour of the defendant asking the plaintiff to pay certain amount. The learned counsel submits that as admittedly, the amount paid was claimed for adjustment therefore, even if it is assumed, though not admitting that there was excess amount paid to the appellant, the learned Arbitrator could not have passed any award 23 against the appellant by adjusting the awarded amount. The learned counsel submits that this action of the learned Arbitrator is certainly fit to shock the conscience of this Court as it is against the most basic notions of justice. Findings of this Court
24. Before considering the rival submissions of both the parties, it would be necessary to examine as to whether the challenge to the arbitration award would be governed by pre-amended or post-amended provisions of Section 34 of Arbitration and Conciliation Act, 1996 and what is the scope of challenge to the awards.
25. In the judgment passed by the Hon'ble Supreme Court reported in (2019) 15 SCC 131 (Ssangyong Engg. & Construction Co. Ltd. vs. NHAI), the Hon'ble Supreme Court first considered the applicability of the Arbitration and Conciliation (Amendment) Act, 2015, in particular, in the public policy of India ground for challenge to arbitral award. The Hon'ble Supreme Court also considered the judgment passed in case of BCCI vs. Kochi Cricket (P.) Ltd. and Ors. reported in (2018) 6 SCC 287.
In para 19 it has been held that fundamental changes have been made in law by virtue of 2015 amendment. The expansion of "public policy of India" in ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705 ["Saw Pipes"] and ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263 ["Western Geco"] has been done away with and a new ground of "patent illegality" with inbuilt exceptions have been introduced. Given this, it was declared in para 19 of the judgement that section 34, as amended, will apply only to section 34 applications that have been made to the court on or after 23.10.2015, irrespective of the fact that the arbitration proceedings may have commenced prior to that date.
26. In the instant cases, admittedly the awards as well as the petitions challenging the awards were filed after 23.10.2015 and hence section 34, as amended would apply.
27. One of the points raised by the learned counsel for the respondents is that though the petition under section 34 of the aforesaid Act of 1996 is to be governed by the amended provisions of 2015 but the arbitration proceedings would be governed by pre-amended provisions of the Act of 1996 as the arbitration clause was invoked much prior to the amendment in 2015. This Court finds that the learned counsel for the appellant has not raised any ground challenging the mode and manner of proceedings before the learned Arbitrator and the appellant is aggrieved by only a limited portion of the award. Though it has been argued by the learned counsel appearing on behalf of the respondents that the arbitration proceedings would be governed by the pre-amendment provisions of the Act, but 24 no argument has been advanced to demonstrate as to how the same would have any bearing in the matter. Accordingly, there is no need to pronounce in the present case as to whether the arbitration proceedings would be governed by pre- amended provision of the Act of 1996 or post amended provision. We leave the issue at this stage.
Scope of challenge to award under section 34 of Arbitration and Conciliation Act, 1996 as amended vide Amendment Act of 2015.
28. The scope of challenge to the award passed under Section 34 of the aforesaid Act of 1996 is required to be examined in the light of the development of law, both on the judicial side as well as on the legislative side read with the law commission recommendations. The law was ultimately crystalized with the pronouncement of the judgement by the Hon'ble Supreme Court in the case reported in (2019) 15 SCC 131 (Ssangyong Engg. & Construction Co. Ltd. vs. NHAI). However, before dealing with ratio of the said judgment a little background would be required.
29. In the judgment passed by the Hon'ble Supreme Court in the case of Renusagar Power Co. Ltd. (supra), the Hon'ble Supreme Court was construing Section 7 (1) (b) (ii) of the Foreign Awards (Recognition and Enforcement) Act, 1961 which provided that a foreign Award may not be enforced if the enforcement of the award will be contrary to "public policy" and in the case of Renusagar (supra), it was held that the expression "public policy" would be attracted if the court held that the award is contrary to
(i) The fundamental policy of Indian law,
(ii) The interest of India,
(iii) Justice or morality and would be set aside on the ground that it would be contrary to the public policy of India. In the case of Renusagar (supra) it was also held that a contravention of the provisions of the Foreign Exchange Regulation Act would be contrary to the public policy of India as the said statute is enacted for the national economic interest which was essential for the economic survival of the nation. It was also held that disregarding orders passed by the Supreme Court of India could also be a contravention of the fundamental policy of Indian law. However, the recovery of compound interest on interest, was held to be merely contrary to the statute and the same was held not contrary any fundamental policy of Indian law.
2530. Section 34(1) and (2) of Arbitration and Conciliation Act, 1996 deals with the grounds for setting aside an arbitral award. The Section 34(2) was, inter alia, amended vide Arbitration and Conciliation (Amendment) Act, 2015 with effect from 23.10.2015.
31. In the judgement passed by the Hon'ble Supreme Court reported in (2003) 5 SCC 705 (ONGC Limited versus Saw pipes Limited), pre-amendment, it was held that an award contrary to substantive provisions of law or the provisions of Arbitration and Conciliation Act, 1996 or against the terms of the contract would be patently illegal, and if it effects the rights of the parties, it would be open to interference by court under section 34(2) of the aforesaid Act of 1996.
32. The interpretation of law by the Hon'ble Supreme court in so far as Section 34 of the Act of 1996, as it stood then, was summarized in Para-21 of the judgment which is reported in (2008) 13 SCC 80 (DDA versus R.S Sharma and co.) which is quoted as under: -
"21. From the above decisions, the following principles emerge:
(a) An award, which is
(i) contrary to substantive provisions of law; or
(ii) the provisions of the Arbitration and Conciliation Act, 1996; or
(iii) against the terms of the respective contract; or
(iv) patently illegal; or
(v) prejudicial to the rights of the parties; is open to interference by the court under Section 34(2) of the Act.
(b) The award could be set aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality.
(c) The award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court.
(d) It is open to the court to consider whether the award is against the specific terms of contract and if so, interfere with it on the ground that it is patently illegal and opposed to the public policy of India."
33. By another judgment in the case of ONGC vs. Western Geco International Ltd. reported in (2014) 9 SCC 263, pre-amendment, the Hon'ble Supreme Court, by yet another expansion of the phrase "public policy of India" contained in Section 34 of the 1996 Act, added three other distinct and fundamental juristic principles which were to form part and parcel of the fundamental policy of Indian law.
It was held that without meaning to exhaustively enumerate the purpose of the 26 expression 'fundamental policy of Indian law', three distinct and fundamental juristic principles must necessarily be understood as a part and parcel of the fundamental policy of Indian law.
The first and foremost is the principle that in every determination whether by a court or other authority that affects the rights of a citizen or leads to any civil consequences, the court or authority concerned is bound to adopt what is in legal parlance called a 'judicial approach' in the matter and they cannot act in arbitrary, capricious or whimsical manner and the subject is required to be dealt with in fair, reasonable and objective manner and that the decision is not actuated by any extraneous consideration.
The second fundamental to the policy of Indian law was held to be the determination of dispute in accordance with the principles of natural justice which included not only the principle of audi alteram partem but also the authority must apply its mind to the facts and circumstances while taking a view one way or the other and non-application of mind is a defect that is fatal to any adjudication and recording of reasons in support of the decision is best demonstrated for disclosure of mind. It was held that the requirement that an adjudicatory authority must apply its mind is so deeply embedded in our jurisprudence that it can be described as a fundamental policy of Indian law.
The third point which was included was that a decision which is perverse or so irrational that no reasonable person would have arrived at the same will not be sustainable in a court of law.
The Hon'ble Supreme Court in the case of Western Geco (supra) was also of the view that it was neither necessary nor proper to attempt an exhaustive enumeration of what would constitute the fundamental policy of Indian law. The Hon'ble Supreme Court in Para Nos. 29, 30 and 31 of Western Geco (supra) held as follows: -
"29. It is clear that the juristic principle of a "judicial approach"
demands that a decision be fair, reasonable and objective. On the obverse side, anything arbitrary and whimsical would obviously not be a determination which would either be fair, reasonable or objective.
30. The audi alteram partem principle which undoubtedly is a fundamental juristic principle in Indian law is also contained in Sections 18 and 34(2)(a)(iii) of the Arbitration and Conciliation Act. These sections read as follows:
"18. Equal treatment of parties. --The parties shall be treated with equality and each party shall be given a full opportunity to present his 27 case.
34. Application for setting aside arbitral award. -- xxx (2) An arbitral award may be set aside by the court only if--
(a) the party making the application furnishes proof that--
(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;"
31. The third juristic principle is that a decision which is perverse or so irrational that no reasonable person would have arrived at the same is important and requires some degree of explanation. It is settled law that where:
(i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into account something irrelevant to the decision which it arrives at; or
(iii) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse."
34. In Associate Builders v. DDA, (2015) 3 SCC 49, the head "public policy of India" was considered as falling into following heads and subheads: -
a. Fundamental policy of Indian Law-
i. Compliance with statutes, Judicial Precedents orders of superior courts in India. (para 27) ii. Need for judicial approach- decision be fair, reasonable and objective.
(para 29) iii. Natural Justice compliance- Audi alterem partem rule. (para 30) iv. Wednesbury reasonableness- Perversity or irrationality. (para 31) b. Interest of India. (Para 35) Related to foreign powers of India c. Justice or morality (para 36), and d. Patent illegality-
i. Contravention of substantive law of India.
ii. Contravention of Arbitration and Conciliation Act, 1996.
iii. Contravention of terms of contract.
Perversity has been considered in the following terms:
31. The third juristic principle is that a decision which is perverse or so irrational that no reasonable person would have arrived at the same is important and requires some degree of explanation. It is settled law that where:
(i) a finding is based on no evidence, or 28
(ii) an Arbitral Tribunal takes into account something irrelevant to the decision which it arrives at; or
(iii) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse.
32. A good working test of perversity is contained in two judgments. In Excise and Taxation Officer-cum-Assessing Authority v. Gopi Nath & Sons [1992 Supp (2) SCC 312], it was held: (SCC p. 317, para 7) "7. ... It is, no doubt, true that if a finding of fact is arrived at by ignoring or excluding relevant material or by taking into consideration irrelevant material or if the finding so outrageously defies logic as to suffer from the vice of irrationality incurring the blame of being perverse, then, the finding is rendered infirm in law."
In Kuldeep Singh v. Commr. of Police [(1999) 2 SCC 10 : 1999 SCC (L&S) 429] , it was held: (SCC p. 14, para 10) "10. A broad distinction has, therefore, to be maintained between the decisions which are perverse and those which are not. If a decision is arrived at on no evidence or evidence which is thoroughly unreliable and no reasonable person would act upon it, the order would be perverse. But if there is some evidence on record which is acceptable and which could be relied upon, howsoever compendious it may be, the conclusions would not be treated as perverse and the findings would not be interfered with."
Justice has been considered in the following terms -
36. The third ground of public policy is, if an award is against justice or morality. These are two different concepts in law. An award can be said to be against justice only when it shocks the conscience of the court. An illustration of this can be given. A claimant is content with restricting his claim, let us say to Rs 30 lakhs in a statement of claim before the arbitrator and at no point does he seek to claim anything more. The arbitral award ultimately awards him Rs 45 lakhs without any acceptable reason or justification. Obviously, this would shock the conscience of the court and the arbitral award would be liable to be set aside on the ground that it is contrary to "justice".
Patent illegality: Again sub-divided into:
a) Para 42.1- contravention of substantive law of India
b) Para 42.2 - contravention of the Arbitration Act itself.
c) Para 42.3 - arbitrator deciding outside the terms of the contract
35. The expanding nature of interpretation of the term "fundamental policy of India" in order to set-aside an award under Section 34 of the Act of 1996 was noticed and was followed by law commission recommendations which ultimately 29 culminated into amendment of the aforesaid Act of 1996 vide amendment Act 2015. The entire back ground and the purport of the Amendment Act 2015 in aforesaid Act of 1996 has been fully narrated and explained in the judgement reported in (2019)15 SCC 131 (Ssangyong case, supra).
36. It has been clearly held in the said judgement that considering the expanding nature of the judicial pronouncement while interpreting the term "fundamental policy of India" in order to set-aside an award under Section 34 of the Act of 1996 certain fundamental changes were made in law pursuant to the 246 th Report of the Law Commission of India of August 2014 and the Commission was of the view that the legitimacy of judicial intervention in the case of purely domestic award is far more than in cases where a court is examining the correctness of a foreign award or a domestic award in an international commercial arbitration and therefore the Commission recommended addition of Section 34 (2-A) to deal with purely domestic awards, which may also be set aside by the court if the court finds that such award is vitiated by 'patent illegality appearing on the face of the award' and in order to provide a balance and to avoid excessive intervention, it was clarified in the proposed proviso to the proposed Section 34 (2-A) that such 'an award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciating evidence.' The recommendation was apparently to do away with the unintended consequences of the decision of the Hon'ble Supreme Court in the case of ONGC vs. Saw Pipes Ltd., which although was in the context of a purely domestic award, but had effect of being extended to apply equally to both awards, arising out of international commercial arbitration as well as foreign awards. The amendment to Section 28 (3) was also proposed in order to remove the basis for the decision of the Supreme Court in the case of ONGC vs. Saw Pipes Ltd. However, in the case of Shri Lal Mahal Ltd. reported in (2014) 2 SCC 433, the Hon'ble Supreme Court was of the view that the expansive construction accorded to the term "public policy" in Saw Pipes (supra) cannot apply to the use of the same term "public policy of India" in Section 48 (2) (b) relating to enforcement of foreign awards and Shri Lal Mahal Ltd had overruled Phulchand Exports Limited reported in (2011) 10 SCC 300 on the point.
37. It has also been held that the recommendation of the Commission went further to ensure that the legitimacy of court intervention to address patent illegalities in purely domestic awards is directly recognized by the addition of Section 34 (2-A) and not indirectly by according an expansive definition to the phrase "public policy". Thus, as per the amendment of 2015 'patent illegality' is a distinct ground other than public policy of India for the purposes of setting aside an award under Section 34. The Commission had also recommended the restriction of the scope of 30 "public policy" in both Sections 34 and 48 to bring the definition in line with the definition propounded by the Supreme Court in the case of Renusagar (supra) which was confined to only three categories: -
(i) Fundamental policy of Indian law,
(ii) The interest of India,
(iii) Justice or morality and the Commission had recommended that an award can be set-aside on public policy ground only if it is opposed to the "fundamental policy of India law" or it is in conflict with 'most basic notions of morality or justice'.
38. Consequently, the amendments proposed were as follows: -
Explanation II to bring the standard for setting aside an award in conformity with the decision of the Supreme Court in Renusagar and Shri Lal Mahal Ltd.
Ground of "morality or justice" is qualified by their most basic notions and the terms used in Renusagar - cannot be used to widen the test.
(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.
The scope of review under Section 34(2A) is based on the patent illegality standard set out by the Supreme Court in ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705. The proviso carefully limits the ground and creates exceptions for erroneous application of the law and re- appreciation of evidence, which cannot be the basis for setting aside awards.
39. After Western Geco (supra) was delivered by the Hon'ble Supreme Court, a supplementary report of February 2015 was made by the Law Commission, indicating that the statement of objects and reasons of 1996 Act itself provided that one of the principle objects of the law was "minimization of judicial intervention"
and suggested to insert explanation 2 to Section 34 (2) (b) (ii) of the Act.
"Explanation 2- for 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"
40. Accordingly, pursuant to 246th Law Commission Report and supplementary report to the same, the Act of 1996 was amended with effect from 23.10.2015 by mentioning in the objects and reasons of the amendment bill that interpretation of the provisions of the Act by courts in some cases have resulted in delay of disposal of arbitration proceedings and increase in interference of the Court in arbitration matters which tend to defeat object of the Act.
3141. In the judgment passed by the Hon'ble Supreme Court reported in (2018) 12 SCC 471 [HRD Corporation vs. GAIL (India) Ltd.], it has been held that the amendment has the effect of limiting the ground of challenge to arbitral award in line with the Law Commission Report and the judgment in Saw Pipes Ltd. (supra) and Western Geco (supra) have been expressly done away with. It was also held that both Sections 34 and 48 have been brought back to the position of law contained in case where "public policy" will now include only two of the three things set out there in viz. "fundamental policy of Indian law" and "justice or morality".
The ground relating to "the interest of India" is no longer there.
"Fundamental policy of Indian law" is now to be understood as laid down in Renusagar, 1994 Supp (1) SCC 644.
"Justice or morality" has been tightened and is now to be understood as meaning only basic notions of justice and morality i.e., such notions as would shock the conscience of the Court as understood in Associate Builders (supra).
Section 28(3) has also been amended to bring it in line with the judgment of this Court in Associate Builders (supra) making it clear that the construction of the terms of the contract is primarily for the arbitrator to decide unless it is found that such a construction is not a possible one.
42. In the judgment passed by the Hon'ble Supreme Court reported in (2019) 15 SCC 131 (Ssangyong Engg. & Construction Co. Ltd. vs. NHAI), para 34 to 42 has considered the point so far as it relates to setting aside of an award if it is in conflict with public policy of India in the light of changes made by 2015 Amendment Act. The Hon'ble Supreme Court in para 34 to 42 summarizing the law and held that the ground -
I. Public policy of India a. The expression "public policy of India", whether contained in Section 34 or in Section 48, would now mean the "fundamental policy of Indian law" as explained in paras 18 and 27 of Associate Builders i.e. "Renusagar" understanding of this expression.
(This would necessarily mean that Western Geco expansion has been done away with. In short, Western Geco, as explained in paras 28 and 29 of Associate Builders, would no longer obtain, as under the guise of interfering 32 with an award on the ground that the arbitrator has not adopted a judicial approach, the Court's intervention would be on the merits of the award, which cannot be permitted post amendment.) b. Insofar as principles of natural justice are concerned, as contained in Sections 18 and 34(2)(a)(iii) of the 1996 Act, these continue to be grounds of challenge of an award, as is contained in para 30 of Associate Builders.
c. The ground for interference insofar as it concerns "interest of India" has since been deleted, and therefore, no longer obtains.
d. The ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the "most basic notions of morality or justice". This again would be in line with paras 36 to 39 of Associate Builders, as it is only such arbitral awards that shock the conscience of the court that can be set aside on this ground.
II. Patent illegality a. Insofar as domestic awards made in India are concerned, an additional ground is now available under sub-section (2-A), added by the Amendment Act, 2015, to Section 34. Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law.
b. In short, what is not subsumed within "the fundamental policy of Indian law", namely, the contravention of a statute not linked to public policy or public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality.
c. Secondly, it has been made clear that reappreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award.
d. Para 42.1 of Associate Builders, namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award.
e. Para 42.2 of Associate Builders, however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award.
33f. The change made in Section 28(3) by the Amendment Act really follows what is stated in paras 42.3 to 45 in Associate Builders, namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair- minded or reasonable person would; in short, that the arbitrator's view is not even a possible view to take.
g. If the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under Section 34(2-A).
h. A decision which is perverse, as understood in paras 31 and 32 of Associate Builders, while no longer being a ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award.
i. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality.
j. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse.
k. The "patent illegality" ground for setting aside arbitral awards in international commercial arbitrations will not apply.
43. In Patel Engg. Ltd. v. North Eastern Electric Power Corpn. Ltd., (2020) 7 SCC 167, the Hon'ble Supreme Court has also dealt with the scope of the term 'patent illegality' in the following terms:
22. The present case arises out of a domestic award between two Indian entities. The ground of patent illegality is a ground available under the statute for setting aside a domestic award, if the decision of the arbitrator is found to be perverse, or, so irrational that no reasonable person would have arrived at the same; or, the construction of the contract is such that no fair or reasonable person would take; or, that the view of the arbitrator is not even a possible view.
44. 'Patent illegality' has been held to include the following:
a) Para 39 - 42.2. and 42.3 of Associate Builders.
b) Para 40 - If an arbitrator deals with matters not allotted to him.34
c) Para 41 - 'Perversity' as detailed in Paras 31 and 32 of Associate Builders.
45. The Supreme Court has also dealt in detail with the scope of Section 34(2)(a)(iv) as a ground of challenge, namely:
the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration.
46. In paragraph 59 of the said judgment, the Hon'ble Supreme Court relies on the treatise International Commercial Arbitration by Gary Born. Gary Born, in his treatise, has opined that an award can be annulled / set aside if the tribunal awards a relief that neither party requested. Another ground for annulment was described as when awards decide issues or disputes that the parties have not submitted to the Arbitral Tribunal. A tribunal exceeds its authority by ruling on an issue not presented by the parties in the arbitration even if the issue or dispute that it addresses is within the scope of the parties' arbitration agreement. It was finally held that:
68. A conspectus of the above authorities would show that where an Arbitral Tribunal has rendered an award which decides matters either beyond the scope of the arbitration agreement or beyond the disputes referred to the Arbitral Tribunal, as understood in Praveen Enterprises [State of Goa v. Praveen Enterprises, (2012) 12 SCC 581], the arbitral award could be said to have dealt with decisions on matters beyond the scope of submission to arbitration.
47. In the aforesaid legal position regarding scope of interference in arbitration award under section 34 of Arbitration and Conciliation Act, 1996, as amended in 2015, the impugned awards and the impugned judgements are examined as under:
Damages (in both the cases)
(i) This Court finds that one of the grounds, which has been raised by the learned counsel appearing on behalf of the appellant in both the cases is regarding the award of damages only to a small extent as compared to what was claimed by the appellant. The learned counsel has submitted that the evidence in connection with the quantification of damage was already on record, but that has not been considered. This Court finds that in the award it has been recorded that the appellant had relied on Hudson formula to work out the damages and it was claimed that the appellant was entitled for idle period and overhead expenses and for unfinished work. The grievance of the petitioner before the learned court below was that the 35 learned arbitrator ought to have applied the formula for calculation of damages as suggested by the appellant in both the cases.
(ii) This Court finds that in the judgment passed by the Hon'ble Supreme Court reported in (2006) 11 SCC 181 Mcdermott International Inc Vs. Burn Standard Co. Ltd., it has been held that Sections 55 and 73 of the Indian Contract Act do not lay down the mode and the manner as to how and in what manner the computation of damages or compensation has to be made and that there is nothing in Indian law to show that any of the formula adopted in any other countries is prohibited in law or the same would be inconsistent with the law prevailing in India. In the same judgment, certain formulas have been considered by the Hon'ble Supreme Court and one of the formula is the Hudson formula, which is based on the contract value. This Court finds that the appellant had himself based his claims on Hudson's formula which by itself is based on estimation. This Court also finds that the learned Arbitrator while considering the claim for damages, has taken the entire value of the contract and recorded that part of the contract was executed and in both the cases the opinion of the learned arbitrator was that the interest of justice would be served if the appellant is paid the balance of the contract amount and was accordingly directed to be paid. The appellant had himself submitted before the learned Arbitrator that the evidences were destroyed.
(iii) This Court also finds that the learned counsel for the appellant has not demonstrated before this Court or even from the grounds raised before the learned court below, as to what material were not considered by the learned Arbitrator and whether non-consideration of such material would amount to any perversity calling for any interference under section 34 of the aforesaid Act of 1996, as amended in 2015. This Court is of the considered view that the mode and manner of calculation of damages having not been specifically prescribed under Indian law and the formula as suggested by the appellant before learned Arbitrator i.e., Hudson formula, was not binding on the learned Arbitrator nor non-consideration of the formula by the learned Arbitrator could have been a ground for challenge by the appellant under section 34 of the aforesaid Act of 1996 as amended in the year 2015. In such circumstances, this Court finds that the award of damages in both the cases, though based on estimation by the learned Arbitrator and on the materials, which were provided for consideration by the learned Arbitrator, was within the scope of consideration by the learned Arbitrator and the same do not call for any 36 interference in the light of limited scope of interference under Section 34 of Arbitration and Conciliation Act, 1996, as amended in 2015 read with the aforesaid judicial pronouncements on its interpretation.
Part II of the claim A of Statement A (claim of work not measured- in both the cases)
(iv) So far as the claim in connection with Part II of statement A is concerned, the learned counsel has submitted that nothing has been awarded under the same head. This Court finds that the learned Arbitrator has considered the Part II of claim A by stating that the claim does not appear to be convincing for the reason that the respondents had invited the appellant for final measurement, but the appellant's representative was not present at the time of measurement, therefore, the measurement done by the respondents was final and nothing was admissible for Part II. This Court finds that the final measurement as well as the bill were admittedly not brought on record before the learned Arbitrator and even the appellant did not make any effort to bring the same on record either himself or by seeking a direction upon the respondents to bring the same on record at the stage of proceedings before the learned Arbitrator. In such circumstances, in absence of final measurement, the learned Arbitrator has passed a reasoned order rejecting Part II of the claim A of Statement A and accordingly, the same also does not call for any interference as such challenge to the do not fall under any of the limited grounds of challenge under Section 34 of Arbitration and Conciliation Act, 1996 as amended in 2015.
Adjustments of the amount already paid although admittedly no counter claim or set-off was filed by the respondents (in both the cases)
(v) So far as the challenge of the appellant in connection with adjustment to the extent of amount paid is concerned, it has been argued by the learned counsel for the appellant before this Court that the claim of the appellant was over and above the amount already paid to the appellant and accordingly, the same was not subject to adjustment. Apart from this, the learned counsel has also argued that in absence of any counter claim or set off, the same could not have been adjusted and further that even if it is assumed the same could have been adjusted under no circumstances, the same could have been adjusted against the damages which stood crystalized and payable only after it was adjudicated by the learned Arbitrator and as per the concept of adjustment, the adjustment can be 37 done only against the amount which was payable on the date of filing of the suit.
(vi) This Court finds that so far as the paid amount is concerned, it was the specific case of the respondents that the same was paid up to running on account bill till June, 1990 and it was argued before the learned Arbitrator that an amount of Rs.53,37,045/- was paid for the extra work done i.e., the lead up to the site to the dump excavated material had to be extended as the distance had become greater. Similar plea was taken in both the cases but the amounts regarding payment made and for extra work done were different.
(vii) Upon perusal of the awards, this Court does not find anything to show that the claim of the appellant before the learned Arbitrator was over and above the amount already paid. It has come in the findings of the learned Arbitrator that there was no evidence on record to suggest as to when the appellant had executed the extra work. The learned Arbitrator has also recorded that the materials on record on behalf of both the sides were rather inadequate to determine the amount of compensation claimed by the appellant and rather the learned Arbitrator was of the view that in case of doubt or difficulty, the arbitral Tribunal may lean in favour of the appellant. Although, it has been vehemently agitated by the learned counsel appearing on behalf of the appellant that the claim was only for the amount over and above the amount already paid, but the same is not clear from the award. In the awards it has been recorded that the appellant had claimed payment of dues for the work done by them as per the terms of agreement, the extra work done by them and damages for unfinished work which could not be executed for the reasons attributable to the respondents. The learned counsel for the appellant has tried to draw the attention of this Court to certain correspondences between the parties but has not been able to show as to how the same could make the award perverse within the scope of permissible grounds of interference under Section 34 of the Act of 1996 as amended in the year 2015. This Court is of the considered view that such re-appreciation of documentary evidences filed before the learned Arbitrator is not permissible under Section 34 of the Arbitration and Conciliation Act, 1996 as amended in 2015. The law contemplates least judicial interference in arbitral awards except on the limited grounds mentioned in Section 34 of the Arbitration and Conciliation Act, 1996 as amended in 2015.
38(viii) This Court finds that the learned Arbitrator had specifically dealt with the General Conditions of Contract and held that all the interim payments shall be treated as advance payment and accordingly, the learned Arbitrator had treated the payment made in both the cases as advance payment and adjusted the same against the allowed claims including damages.
(ix) This Court is also of the considered view that so far as adjustment is concerned, the fact as to whether it can be adjusted against damages or not by itself is a matter of interpretation of contract. This Court finds that the appellant did not raise any point before the learned Arbitrator or an alternative plea before the learned Arbitrator that the amount could not have been adjusted against the damages.
(x) This Court finds that so far as the adjustment of the amount against claim of damages is concerned, the same was neither specifically raised before the learned Arbitrator nor specifically raised in the petition for setting aside the arbitration award. This Court finds that the only point in this regard which was raised by the appellant before the learned court below in the setting aside petition was that no counter claim was filed by the respondents. It has been argued by the learned counsel appearing on behalf of the respondents, the amount paid was sought to be adjusted by applying the principles of adjustment as the same is in the nature of advance payment as per the clause of the contract and for this purpose neither any counter claim or set-off was required to be filed and were accordingly not filed before the learned Arbitrator. The learned Arbitrator had also treated the plea as a plea of adjustment and had accordingly adjusted. Thus, this Court is of the considered view that the fact that the same could have been adjusted against the damages or not is by itself a matter of interpretation of contract between the parties and was exclusively within the domain of the learned Arbitrator and the adjustment having been made against the damages are neither ex facie illegal nor shocks the conscience of the court as it was admitted fact on record that an amount of Rs.3,18,17,831/- was received by the appellant from the respondents in Commercial Appeal No.6 of 2020 and an amount of Rs.2,67,59,598/- was received by the appellant from the respondents in Commercial Appeal No.7 of 2020. Accordingly, this Court finds that the challenge to adjustment against the damage also does not fall within the grounds enumerated under Section 34 of Arbitration and Conciliation Act, 1996 as amended in 2015.
39(xi) In order to draw distinction amongst, counter-claim, set-off, payment and adjustments, following judgements relied upon by the parties would be relevant-
a. In the judgment passed by Hon'ble Patna High Court reported in AIR 1956 Patna 199 (Jayanti Lal and Anr. Vs. Abdul Aziz and Anr.), it has been held that a plea of set off must be distinguished from, a plea of payment. A payment refers to a satisfaction, or extinguishment of a debt effected prior to the raising of the defence of payment, while a plea of set off prays for a satisfaction or extinguishment thereof commencing in the future after the date of the plea. A question of set off, therefore, can arise only in respect of dues which are outstanding, and which have not already been adjusted. A plea of satisfaction by adjustment is essentially different from a plea, or claim of set off. b. In the judgment passed by Hon'ble Patna High Court reported in AIR 1967 Patna 358 (Chandra Dutt Vs. Shantiram Tiwari), it has been held that "set off" has rightly been distinguished from the plea of 'payment' in several decisions, which is to the effect that where the defendant pleads adjustment or payment of certain amount to the plaintiff towards his dues prior to the date of the suit, it is adjustment or plea of payment. It is only when the defendant pleads that certain amount, which the plaintiff owes to him, or which he is under an obligation to pay to the defendant, should be adjusted towards his dues by the court and which he himself had not already specified as payment to the plaintiff and communicated to him, then and then only it would be regarded as a set off.
c. In the judgment passed by Hon'ble Patna High Court reported in the Indian Law Reports (1954) 33 Pat 52 (P.P. Mukherjee Vs. Saragrmal), it has been held that where the claim of the defendant is really in the nature of defence, the defendant cannot be asked to bring a separate suit and hence no court fees is payable on such a claim. It has also been held that such a claim cannot be set off. The essence of a set off is that the defendant should have a cause of action against the plaintiff apart from the suit and not merely as a defence to the plaintiff's claim. To put it differently, the set off is in the nature of cross objection which could be separately entertained. It has also been observed in the said judgment that a counter claim is to be treated as an independent action.
40d. In the judgment passed by Hon'ble Delhi High Court reported in 2012 SCC Online Delhi 2389 (Walchandnagar Industries Ltd. Vs. Cement Corporation of India), the said case was an appeal filed under Section 37 of Arbitration and Conciliation Act, 1996 arising out of judgment passed by learned Single Judge who allowed the objection filed under Section 34 of the aforesaid Act of 1996. In the said case, the counter claim was rejected by the learned Arbitrator as barred by limitation and the learned Single Judge dealing with the matter under Section 34 of the aforesaid Act of 1996 held it to be a plea of adjustment and not a counter claim and accordingly held that the plea of limitation would not apply. The Hon'ble Division Bench of Delhi High Court upheld the judgment of the learned Single Judge and held that the Arbitrator has to apply the law of the land and it is no longer res integra that an award in violation of law (in this case, in violation of the law entitling adjustment) is against public policy and can be interfered with by the courts. It was held that refusal to apply the law of adjustment is also a perversity causing grave injustice entitling interference of the award. With respect to the aforesaid judgment i.e., Walchandnagar Industries (supra), it may be noted that the said judgment was passed prior to coming into force of the amendment in Arbitration and Conciliation Act, 1996 as amended in the year 2015.
e. However, in the said case, the Hon'ble Delhi High Court has relied upon the judgment reported in AIR 1997 Delhi 355 (Cofex Exports Ltd. Vs. Canara Bank) wherein it was held that a defendant has a right to defend himself by raising all possible pleas permitted by law and the plea of defendant faced with the suit for recovery of a debt can be classified as payment, adjustment, set off and a counter claim. It was further held in the said judgment that a payment is the satisfaction or extinguishment of a debt prior to filing of the written statement and adjustment contemplates existence of mutual demands between the same parties in the same capacity. The broad distinction between a payment and an adjustment is that in an act of payment one party deals with the other, while in an adjustment it is the act of the party himself prior to the filing of the written statement though the benefit of both is claimed by raising a plea in the written statement. A plea of adjustment is to be distinguished from a plea of a set off or counter claim. Adjustment like payment is relatable to a period anterior to the date of such plea being set out before the court. A plea is in the nature of 41 payment, adjustment and the like can be raised in defence as of right. The plea if upheld, has an effect of mitigating or wiping out the plaintiff's claim on the date of the suit itself. The plea is not a claim made by the defendant.
A counter claim or a plea of a set off is a claim made by the defendant. It does not extinguish the plaintiff's claim; it exonerates the defendant from honoring plaintiff's claim though upheld. Such a plea if raised shall be gone into by the court, if permitted by law applicable to the court and would have the effect of a decree in favour of the defendant taking away plaintiff's right to realize such amount as has been upheld in favour of the defendant. In the said case of Cofex Exports (supra), it has also been held that the reason why the defence are separately classified is that with respect to the defence of payment and adjustment, they fall under the head where neither limitation applies nor court fee is payable, whereas, with respect to defence of set off and counter claim, law of limitation applies and the person who pleads set off and counter claim is also liable to pay the court fee on the set off and counter claim.
f. In the present case, this Court finds that the learned counsel for the respondents have specifically argued that the plea of the respondents was that of adjustment of the amount already paid and the learned Arbitrator has also treated the same as a plea of adjustment and this plea was specifically taken in the statement of defence by indicating that amounts exceeding the contractual amount was paid to the appellant and it was pleaded that excess amount was paid. It is not in dispute that no plea was ever raised by the respondents asking for any award directing the appellant to pay any amount to the respondents and admittedly neither any counter claim was filed nor any plea of set off was raised. Keeping in view the aforesaid judicial pronouncements in connection with the distinction drawn amongst payment/adjustment, counter claim, set off, equitable set off and also the judicial pronouncement that for the purposes of claiming adjustment/payment in the written statement, there is no period of limitation prescribed, this Court finds that essentially the plea raised by the respondent before the learned Arbitrator was a plea of payment / adjustment. The fact remains that claim of the appellant was in relation to extra work done, work not measured and damages, and the learned Arbitrator upon appreciation of the records allowed the claim in connection with extra 42 work, disallowed the claim in connection with work not measured as the appellant did not participate in the measurement and partly allowed the claim of damages and while quantifying the award amount adjusted the amount paid by the respondents to the appellant in connection with the contract including extra work and damages.
(xii) This Court finds that the distinction has been drawn between counter- claim, set-off and adjustment and it is the specific stand of the respondents that the payment shown to be made by the respondents to the appellant against on account bills was claimed by way of adjustment and it was neither a counter-claim nor a set off. This Court also finds that the learned Arbitrator also treated it as a plea for adjustment and accordingly adjusted.
(xiii) This Court is of the considered view that post 2015, the law as interpreted by the Hon'ble Supreme Court in the case of Ssangyong (supra), the domestic award of the learned Arbitrator cannot be interfered with even if there is an error in application of law or by reappreciation of evidences, unless it shocks the conscience of the court and unless it is vitiated by patent illegality appearing on the face of the award. This Court is of the considered view that the adjustment made against damages and other awarded amounts in both the awards do not suffer from any such ground enumerated under Section 34 of the aforesaid Act of 1996, as amended in the year 2015 including the ground of patent illegality.
(xiv) From the operative portion of the impugned judgments, this Court finds that the learned court below has declined to interfere with the awards but has not considered the grounds in the light of the grounds mentioned in Section 34 of Arbitration and Conciliation Act, 1996 as amended in the year 2015 and as interpreted by the Hon'ble Supreme Court. The aforesaid is reflected from the following findings of the impugned judgement passed in Arbitration Case no. 6 of 2020 particularly the ultimate findings which are as follows: -
....................... In the instant case the applicants have failed to bring the case within the ambit of Section 34 of the Act. Only a bald statement has been made that the award is against the public policy of India. However, no effort has been made to show as to how the award is again the public policy of India. The word public policy has been defined in the act itself and is said to be attracted in case where the award is induced by fraud or corruption. However, from the averments made in the application it shall appear that there is no allegation of the award being induced by fraud or corruption.
...........................In the instant case the petitioner has not even made an attempt to show as to how the award fulfills the criteria provided 43 under section 34 of the Act. The award dated 02-10-2018 is not in any way contrary to substantive provisions of law or the provisions of Arbitration and Conciliation Act, 1996. In the entire pleadings there is not a single pleading alleging therein that award is patently illegal or prejudicial to the rights of the parties.
A perusal of impugned Award clearly shows that the learned Arbitrators have duly dealt with the matter and thereafter the detailed well- reasoned Award has been passed. They have dealt with each and every aspect of the matter. The findings arrived at by the learned Arbitrators are supported by cogent reasons and detailed proceedings. After considering the record and testimonies of witnesses etc. the impugned Award has been passed. In these circumstances, this court is of the view that the impugned Award passed by learned Arbitrators is well reasoned award. This court is not required to appreciate, re-evaluate the findings before the learned Arbitrators. The learned Arbitrators have duly explained for arriving at its decision.
................. So from the above-mentioned discussion of the documentary evidence and judgment of Hon'ble Apex Court and Hon'ble High Court, it is crystal clear that both the awards dated 02- 10-2018 passed by the Hon'ble Mr. Justice Sudhir Kumar Katriar, Sole Arbitrator former Judge of Hon'ble High Court, Patna in Arbitration Case No.02 of 2019 is a reasoned award and no need to interfere in the said award. There is no cogent reasons or material available on the record to set aside the award dated 02-10-2018 ......................................
...............On the basis of oral and documentary evidences of the parties and all the facts and materials available on record this court comes to a conclusion that there is no error appear on the face of the record or it has not come that the arbitrator has not followed the statutory legal position. There is no material available on record which prove that the arbitrator had misconducted himself or the proceedings or the award has been improperly procured or is otherwise invalid that the court may set aside such award, so there is no required interfering with the award ..................
Similarly, for the same reasons, the learned court below did not find any perversity for interference in the award involved in Commercial Appeal No. 7 of 2020 where the appellant is liable to refund the sum of Rs.40,45,944/- to the respondent which is the excess amount with 6% interest effect from 01.01.1989 till the date of adjustment against the amount receivable by the appellant from the respondents.
(xv) The grounds which were raised by the appellant before the learned court below particularly the ground that no counter claim was filed by the respondents before the learned Arbitral Tribunal, certainly called for elaborate discussion and deliberation by the learned court below. The grounds were required to be considered by referring to the findings of the award in the light of the Section 34 of Arbitration and Conciliation Act, 1996 read with its amendment in the year 2015 and judicial 44 pronouncements on the point. The aforesaid exercise has not been properly undertaken by the learned court below.
(xvi) This Court also finds that the manner in which the learned court below has dealt with the petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 reflects that neither the learned counsels for the parties have apprised the learned court below with the up-to-date legal position on the subject nor the learned court below has examined the case in the light of the grounds under Section 34 of the Arbitration and Conciliation Act, 1996, particularly in the light of 2015 amendment read with the law interpreted by the Hon'ble Supreme Court. This has resulted in complete lack of application of judicial mind on the grounds raised for setting aside the arbitral award in both the cases. This Court finds that the leading judgment passed by the Hon'ble Supreme Court reported in (2019) 15 SCC 131 in the case of Ssangyong Engg. (supra) directly on the subject which crystalizes the law on the grounds for setting aside arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996 with up-to-date position in law as well as the applicability of 2015 amendment of the Arbitration and Conciliation Act, 1996 has not been brought to the notice of the learned court below. This Court also finds that the learned court below has recorded that the "public policy of India" doctrine would include only fraud and corruption, which is ex facie incorrect and reflects non-application of judicial mind in the light of the provision of law read with the aforesaid judicial pronouncements by the Hon'ble Supreme Court.
(xvii) This Court has discussed and deliberated upon the common grounds of challenge raised by the appellants in both these cases in the light of the law relating to setting aside of the award under Section 34 of the Arbitration and Conciliation Act, 1996 as interpreted by the Hon'ble Supreme Court and upon deliberations this Court has independently come to the conclusion that there is no merits in the common grounds of challenge to the award as they do not fall under permissible grounds for interference under Section 34 of the Arbitration and Conciliation Act, 1996 . The two additional grounds of challenge to award in Commercial Appeal No. 7/2020 (xviii) The two additional grounds of challenge to award in Commercial Appeal No. 7/2020 are considered as under-
Firstly, challenge to the finding recorded by the learned Arbitrator regarding the quantum of extra work done by the appellant and it has been argued that although the facts of the two awards involved in these two 45 cases were similar but the quantum of admitted extra work has been differently taken by the learned Arbitrator and for this a comparison has been sought to be made by referring to the two awards. It has been argued that applying a parity of reasoning, the amount claimed under the same heading (Part-I of Statement A) which has been allowed in the award subject matter of Commercial Appeal No. 6/2020 ought to have been allowed in the award which is subject matter Commercial Appeal No. 7/2020. It has been submitted that instead of holding that Rs. 1,30,02,985.80 would be payable to the Appellant (as it was done in Commercial Appeal No. 6/2020 on similar facts), the Sole Arbitrator has erroneously held that the Appellant was entitled to only Rs. 12 lakhs for the extra work and having awarded a similar amount in Commercial Appeal No. 6/2020, there was no reason for not awarding the same in Commercial Appeal No. 7/2020.
This Court finds that the appellant is trying to draw a parallel between the claim of extra work in two different awards between the same party and has tried to plead that some error of record has crept in while passing the award which is subject matter of Commercial Appeal No. 7/2020. Admittedly, the appellant did not file any petition for rectification of so- called error of record, if any, before the learned Arbitrator. It is relevant to note that in the award involved in Commercial Appeal No. 6 of 2020, there is no separate entry as "extra items/change orders" under Part I of Statement A of the claim and the entire claim under Part I of Statement A of the claim was allowed. However, in Commercial Appeal No. 7 of 2020 there is a separate entry as "extra items /change orders" to the extent of Rs. 12,00,000/- under Part I of Statement A of the claim and the learned Arbitrator has allowed the claim only to the extent of Rs. 12,00,000/-. This Court is of the considered view that the reasoning given by the learned Arbitrator in one award cannot be looked into and read into in the reasoning given by the same Arbitrator in another award and such ground does not fall under any of the permissible grounds of challenge to award under Section 34 of Arbitration and Conciliation Act, 1996. This Court is of the considered view that entertainment of such a plea would require re- appreciation of evidence and materials on record which is not permissible under Section 34 of the Arbitration and Conciliation Act, 1996. The learned Arbitrator has allowed a claim of extra works to the extent of Rs.12 lakhs only upon consideration of the materials on record which could not have been interfered with by the learned court below under Section 34 of 46 the Arbitration and Conciliation Act, 1996. Accordingly, this plea of the appellant is hereby rejected.
Secondly, an award has been passed against the appellant wherein the appellant has been directed to pay an amount of Rs.40,45,994/- to the respondents when admittedly neither any counter claim nor any set off was filed by the respondents before the learned Arbitrator. So far as the direction of the learned Arbitrator asking the appellant to refund an amount which was found payable by the appellant to the respondents after adjustments is concerned, such direction certainly shocks the conscience of this Court and such direction suffers from patent illegality calling for interference under Section 34 (2-A) of Arbitration and Conciliation Act, 1996 as amended in the year 2015 on the face of the admitted fact that neither any such prayer was made by the respondents before the learned Arbitrator to direct the appellant to pay any amount nor the plea of excess payment was raised by the respondents as a counter claim or set-off. The amount paid by the respondents was adjusted and was treated as a claim for adjustment by the learned Arbitrator as well. Accordingly, the award passed by the learned Arbitrator which is subject matter of Commercial Appeal No.7 of 2020 is interfered with and is set aside to the extent it directs the appellant to refund an amount of Rs.40,45,994/- with an interest @ 6% to the respondents till the date of adjustment.
48. As a cumulative effect of the aforesaid findings and discussions, we hold as follows -
• So far as Arbitration Appeal No. 6 of 2020 is concerned, no grounds for interference in the award under Section 34 of Arbitration and Conciliation Act, 1996 is made out by the appellant though the reasoning for non- interference as assigned by this Court is totally different from the reasonings which have been assigned by the learned court below while refusing to interfere with the award. Accordingly, Arbitration Appeal No. 6 of 2020 is hereby dismissed.
• So far as the Commercial Appeal No.7 of 2020 is concerned, this Court finds that the grounds for challenge of the award in both the cases are similar but in Commercial Appeal No. 7 of 2020 two additional points as discussed above have been taken.
So far as the common grounds and first additional ground for challenge [para 47 (xviii)] regarding quantum of award on account of extra work are 47 concerned, no ground for interference in the award under Section 34 of Arbitration and Conciliation Act, 1996 is made out by the appellant though the reasoning for non-interference as assigned by this Court is totally different from the reasonings which have been assigned by the learned court below while refusing to interfere with the award. The second additional ground of challenge [para 47 (xviii)] regarding award directing the appellant to pay Rs. 40,45,994/- to the respondents (without there being any counter claim/ set-off from the side of the respondents and without any prayer to that effect from the side of the respondents before the learned Arbitrator) is set aside under Section 34(2- A) of the Arbitration and Conciliation Act, 1996 as amended vide amendment Act of 2015, being patently illegal appearing on the face of the record and against the basic notions of justice which shocks the conscience of this court.
Accordingly, Arbitration Appeal No. 7 of 2020 is hereby partly allowed.
49. Before parting, we feel inclined to observe appreciation regarding the valuable assistance rendered by learned counsel for the appellant Mr. Salona Mittal and learned Additional Advocate General- II Mr. Sachin Kumar assisted by Mr. Deepak Dubey on issues of fact and principles of law in assisting the Court in arriving at a decision on the issues in controversy.
50. Let a copy of this judgment be sent to the Judicial Academy for needful.
51. All pending interlocutory applications are closed.
(Aparesh Kumar Singh, J.) (Anubha Rawat Choudhary, J.) Saurav/