Himachal Pradesh High Court
State Of Himachal Pradesh & Another vs Of on 20 September, 2023
IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA Arbitration Case No. 4004 of 2013 Reserved on:21.08.2023 .
Date of Decision: 20th September, 2023 State of Himachal Pradesh & another ...Petitioners/Non-claimants /Objectors Versus of Kanta Devi & others rt ..Respondents/Claimants/Non-Objectors Coram Hon'ble Mr Justice Rakesh Kainthla, Judge.
Whether approved for reporting? Yes For the Petitioners : Mr. Anup Rattan, Advocate General with Mr. R.P.Singh, Mr. Prashant Sen and Ms. Avni Kochhar, Deputy Advocates General.
For the Respondents : Mr. Suneet Goel, Advocate.
Rakesh Kainthla, Judge.
The present objections have been filed against the Arbitral Award passed in Arbitration Case No. 38 of 2011, dated 13.03.20113, whereby the claim filed by the respondents/claimants/non-objectors before the learned Arbitrator was partly allowed. (Parties shall hereinafter be ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 2 referred to in the same manner as they were arrayed before the learned Arbitrator for convenience).
.
2. Briefly stated, the facts giving rise to the present objections are that this Court appointed a sole Arbitrator on 13.10.2011. The claimants filed a claim before the learned Arbitrator stating that he is a Government Contractor and of executes work on a contract basis. He entered into an agreement with the respondent for the execution of the work relating to C/o rt Balla to Kishore road km 0/0 to 9/675 (SH:-F/C including R/wall/work km. 0/0 to 9/675, P/L Kharanja soling essential reaches roadside drain in km 0/0 to 9/675" under NABARD against agreement no. 29 of 2008-09. The work was allotted for a sum of ₹1,42,82,753/- on 09.05.2008 (Annexure C-1). The work was to be completed within 18 months to be calculated from the 15th day of the issuance of the letter of award. The claimant made necessary arrangements of labour and material for the execution of the work. He started the execution of work as per the instructions of the department. The department failed to provide him a hindrance-free site, designs, drawings, instructions and material as per the agreement. The department failed to pay the ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 3 amount regularly for the work done. The claimant wrote various letters to the department. It was found that after the .
commencement of the work that the site for the execution of the work was not available with the department. The work involved the construction of a new road.More than 60% of the road passed through the forest land. The respondent had invited the tender of without obtaining the approval of the forest department under the Forest Conservation Act. The road was to pass through the land rt owned by various people but no gift deeds were obtained from the landowners. The claimant faced many problems and they were brought to the notice of the department vide letter dated 26.11.2008. The claimant specifically told the department that he would charge the compensation for keeping the machinery idle because the claimant was not being allowed to work by the forest department and the private landowners. The private landowners filed a civil suit against the respondents, in which an injunction order was issued. The claimant again asked the respondent to provide a hindrance-free site but nothing was done by the respondents. The claimant executed the work worth ₹1 Crore and he suffered damages @₹ 50,000/- per day, due to the failure of the respondents to perform their part of the agreement. Hence, ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 4 the claimant filed the claim for damages, idle machinery,labourers'wages, anticipated profit and interest @18% .
per annum.
3. The claim was opposed by filing a reply. It was asserted that the claim petition is not maintainable as the claimant is estopped by his act, deed and acquiescence to file the present of objections. The construction of the road from Balla to Kishore was proposed on general public demand in the year 2005-06.
rt Earlier a Jeepable road was constructed from KM 00 to 70 under the scheme of "Vikas Main Jan Sahyog" by the Development Block Theog. An estimate was prepared for executing the work from 0/0 to 9/675. The detailed project report was prepared and notice for inviting tenders was issued. The rates quoted by late Sh. Parkash Chand Sethi were found lowest. Negotiations were held and the contract was awarded with the stipulation to complete the work within 1 ½ years. The construction site was handed over to the contractor free from all hindrances. The necessary drawings were sent to him by the Engineer-in-Charge within 10 days from the date of issue of the award. The sites for the construction of the retaining walls, cross-drainage works and breast walls were ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 5 marked with marking paints at different reduced distances without any hindrances. The contractor started the execution of .
work w.e.f. 22.5.2008. The payment was made to the contractor in 2008. The contractor failed to accelerate the progress of work by employing sufficient labourers and machinery. A letter was issued to the contractor on 19.12.2008. The payment was released after of the completion of the work by the contractor. 75.57% of payment was made till April 2012. One Kanshi Ram had filed a Civil Suit rt before the learned Civil Judge (Sr.Divn.), Theog. The matter was settled in the Lok Adalat on 18.12.2010. The balance payment of the work was made to the legal heirs of the original contractor.
There was no fault on the part of the respondents. Forest land involved in a few portions could not be made available to the contractor due to non- receipt of necessary approval/sanction from the Forest department. The department took efficacious steps to get the matter settled with the private landowners. Hence, it was prayed that the present claim petition be dismissed.
4. A rejoinder denying the contents of the reply and affirming those of the claim was filed.
5. The parties led their evidence.
::: Downloaded on - 20/09/2023 20:37:36 :::CIS 66. The learned Arbitrator held that work was to be completed within 18 months to be calculated from 15 days of .
issuance of the award letter. The respondents admitted that forest approval was not obtained before awarding the contract regarding the portion of the road passing through the forest area.
They also admitted that an injunction order was issued by the of Court at the instance of private landowners. This shows that respondents failed to provide a hindrance-free site to the rt contractor for carrying out the work. The department had failed to obtain the forest sanction required under the Forest Conservation Act or acquire the land of private landowners. The respondents admitted that one JCB, one tipper and one compressor, 30 Beldars were employed. Hence, the claimant was held entitled to ₹33,00,000/- as damages for idle labour and machinery for 5 months. The claimant was also held entitled to the refund of the security amount of ₹3,50,000/-, the claimant was also entitled to 10% of the loss of profit amounting to₹3,49,890/-. Thus, a total amount of ₹39,99,890/- was awarded with interest @ 9% per annum from the date of filing of the claim till the realization plus costs.
::: Downloaded on - 20/09/2023 20:37:36 :::CIS 77. Feeling aggrieved and dissatisfied with the award passed by the learned Arbitrator, the present objections have been .
filed under Section 34 of the Arbitration and Conciliation Act, 1996 for setting aside the award. It has been asserted that the award passed by the learned Arbitral Tribunal is against the law and not in consonance with the contract executed between the of parties. It conflicts with the public policy of India. The award is not reasoned and violative of Section 31(7) of the Arbitration and rt Conciliation Act 1996. Learned Arbitrator failed to appreciate the relevant clauses of the agreement. The contractor visited the site and satisfied himself about the conditions prevalent on the spot.
The learned Arbitrator misinterpreted the documents on record to hold that the machinery and labour remained idle. The rates awarded by the learned Arbitrator are based on the claims made by the contractor without taking judicial notice of the notification of the Government under the Minimum Wages Act. The contractor was required to deploy a Junior Engineer and other skilled staff.
The record was to be kept for the inspection of the Engineer-in-
Charge. Such record was not produced. The payment was made to the contractor from time to time. However, he failed to execute the work without any justification. The contractor employed the ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 8 machinery in some other project. He had only executed 60% of the work. The interest on the security amount was bad as the .
security was deposited in the form of a fixed deposit receipt and the contractor was entitled to interest from the bank. The site was not made available before the commencement of the work and the contractor had to arrange his working programme accordingly.
of The road involved a total length of 9.657 KM. The forest land was in the portion 4/750 to 6/345 and 7/00 to 7/840. Thus, the Forest rt land portion consisted of 25% of the total length of the road. The work continued beyond the stipulated period and was closed ultimately due to the death of the contractor. The dispute was beyond 4/750 and the contractor had not completed the work upto 4/750 within the stipulated time. The contractor took around 20 months from the stipulated period to complete the work. The learned Arbitrator had grossly erred in assessing the anticipated profit @10% of the value of the balance work to be executed.
Hence, it was prayed that present objections be allowed and the award passed by the learned Arbitrator be set aside.
8. I have heard Mr. Anup Rattan, learned Advocate General assisted by Mr. R.P.Singh, Mr. Parshant Sen and Ms. Avni ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 9 Kochhar, learned Deputy Advocates General, for the petitioners/State and Mr. Suneet Goel, Advocate, for the .
respondents/claimants.
9. Mr. Anup Rattan, learned Advocate General submitted on behalf of the State that the learned Arbitrator erred in holding that the State was at fault. The site was made available to the of contractor but he had not carried out the work as per the schedule.
He was supposed to carry out the work as per the conditions of the rt agreement within 18 months. However, the work was to be extended from time to time. The learned Arbitrator erred in awarding the interest on the security amount. There was no satisfactory evidence for assessing the damages and the learned Arbitrator erred in assessing the damages on guesswork. The wages were allotted @₹250/- per day much higher than the minimum wages fixed by the State Government. The learned Arbitrator erred in awarding the loss of the anticipated profit @10% per annum without any yardstick. The security amount was deposited in FDR which earned the interest from the bank and the claimant could not have been held entitled to interest on the FDR ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 10 @ 9%. He prayed that present objections be allowed and award passed by the learned Arbitrator be set aside.
.
10. Mr. Suneet Goel, learned counsel for the respondents/claimants submitted that the jurisdiction under Section 34 of the Arbitration and Conciliation Act, 1996 is limited.
The Court cannot sit in an appeal over the award passed by the of learned Arbitrator. The learned Arbitrator is a final Court on the facts. The award can be challenged on limited grounds. These rt grounds are not satisfied in the present case. He relied upon the judgements of this Court in Himachal Pradesh Power Corporation vs. Sh.Arvind Kumar, 2022 HHC 12955, and Himachal Pradesh Housing & Urban Development Authority vs. Ajay Kumar 2022 HHC:15050. Hon'ble Supreme Court Case in Associate Builders vs. Delhi Development Authority 2015 (3) Supreme Court Cases 49, in support of his submissions.
11. I have given considerable thought to the rival submissions at the bar and have gone through the records carefully.
12. There is force in the submissions of Mr. Suneet Goal, learned counsel for the claimants that the jurisdiction of the Court ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 11 is quite limited while deciding a petition under Section 34 of the Arbitration and Conciliation Act. It was laid down by this Court in .
Himachal Pradesh Electricity Board vs SAB Industries 2019 (1) Him.
L.R. (HC) 450 (HC) that the scope of interference by the Court with the award of the Arbitrator is limited. It cannot sit in appeal over the findings recorded by the Arbitrator. It was observed:-
of
"13. It is quite apparent from the aforesaid exposition of law that the scope of interference by the Court is very limited while considering objections having been filed by the aggrieved party under S.34 of the Act. The award passed rt by the learned Arbitrator can be interfered with in case of fraud bias or violation of principles of natural justice.
Interference, if any, on the ground of 'patent illegality is only permissible, if the same goes to the root of the case.- Violation should be so unfair and unreasonable as to shock the conscience of the Court. In the judgment referred hereinabove, it has been held by the Hon'ble Apex Court that what is to be constituted as 'public policy is a matter dependent upon the transaction and nature of the statute, but the same should be so unfair and unreasonable as to shock the conscience of the Court, as has been observed hereinabove.
14. Similarly, there cannot be any dispute, as has been repeatedly held by the Hon'ble Apex Court as well as this Court that the court, while deciding objections, if any, filed by the aggrieved party under S.34 of the Act, against the Award passed by an Arbitrator, does not sit in appeal over the findings returned by the learned Arbitrator and there can not be any reappraisal of evidence on the basis of which learned Arbitrator has passed the Award. Otherwise also, in terms of S. 34 of the Act, objections, if any, filed by the aggrieved party can be considered by the Court if the Award is in any manner ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 12 against the public policy, which certainly has to be liberally interpreted in view of the facts of the case." (Emphasis supplied)
13. A similar view was taken in Indian Oil Corpn. Ltd. v.
.
Shree Ganesh Petroleum, (2022) 4 SCC 463, wherein it was observed:-
"45. The Court does not sit in appeal over the award made by an Arbitral Tribunal. The Court does not ordinarily of interfere with the interpretation made by the Arbitral Tribunal of a contractual provision unless such interpretation is patently unreasonable or perverse. Where a contractual provision is ambiguous or is capable of being rt interpreted in more ways than one, the Court cannot interfere with the arbitral award, only because the Court is of the opinion that another possible interpretation would have been a better one."
14. Similarly, it was held in Associate Builders vs. Delhi Development Authority 2015 (3) Supreme Court Cases 49 that the judicial authority cannot intervene with an award passed by the learned Arbitrator except on the grounds specified in Section 34 of the Arbitration and Conciliation Act, 1996.It was observed:
"16. It is important to note that the 1996 Act was enacted to replace the 1940 Arbitration Act in order to provide for an arbitral procedure which is fair, efficient and capable of meeting the needs of arbitration; also to provide that the tribunal gives reasons for an arbitral award; to ensure that the tribunal remains within the limits of its jurisdiction; and to minimise the supervisory roles of courts in the arbitral process.::: Downloaded on - 20/09/2023 20:37:36 :::CIS 13
17. It will be seen that none of the grounds contained in sub-section (2)(a) of Section 34 deal with the merits of the decision rendered by an arbitral award. It is only when we come to the award being in conflict with the public policy of .
India that the merits of an arbitral award are to be looked into under certain specified circumstances.
18. In Renusagar Power Co. Ltd. v. General Electric Co. [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644], the Supreme Court construed Section 7(1)(b)(ii) of the Foreign Awards (Recognition and Enforcement) Act, 1961:
of "7. Conditions for enforcement of foreign awards.--
(1) A foreign award may not be enforced under this Act--
rt ***
(b) if the Court dealing with the case is satisfied that--
***
(ii) the enforcement of the award will be contrary to the public policy."
In construing the expression "public policy" in the context of a foreign award, the Court held that an award contrary to
(i) The fundamental policy of Indian law,
(ii) The interest of India,
(iii) Justice or morality, would be set aside on the ground that it would be contrary to the public policy of India. It went on further to hold that a contravention of the provisions of the Foreign Exchange Regulation Act would be contrary to the public policy of India in that the statute is enacted for the national economic interest to ensure that the nation does not lose foreign exchange which is essential for the economic survival of the nation (see SCC p. 685, para 75). Equally, disregarding orders ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 14 passed by the superior courts in India could also be a contravention of the fundamental policy of Indian law, but the recovery of compound interest on interest, being contrary to statute only, would not contravene .
any fundamental policy of Indian law (see SCC pp. 689 & 693, paras 85 & 95).
19. When it came to construing the expression "the public policy of India" contained in Section 34(2)(b)(ii) of the Arbitration Act, 1996, this Court in ONGC Ltd. v. Saw Pipes Ltd. [(2003) 5 SCC 705: AIR 2003 SC 2629] held: (SCC pp. 727- 28 & 744-45, paras 31 & 74) of "31. Therefore, in our view, the phrase 'public policy of India' used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter rt which concerns the public good and the public interest. What is for the public good or in the public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in the public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to the narrower meaning given to the term 'public policy' in the Renusagar case [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] it is required to be held that the award could be set aside if it is patently illegal. The result would be--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, or
(d) in addition, if it is patently illegal.
Illegality must go to the root of the matter and if the illegality is of a trivial nature it cannot be held that the ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 15 award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. Such an award is opposed to public policy and is required to be adjudged .
void.
***
74. In the result, it is held that:
(A)(1) The court can set aside the arbitral award under Section 34(2) of the Act if the party making the application furnishes proof that:
of
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing rt any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration.
(2) The court may set aside the award:
(i)(a) if the composition of the Arbitral Tribunal was not in accordance with the agreement of the parties,
(b) failing such agreement, the composition of the Arbitral Tribunal was not in accordance with Part I of the Act,
(ii) if the arbitral procedure was not in accordance with:
(a) the agreement of the parties, or ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 16
(b) failing such an agreement, the arbitral procedure was not in accordance with Part I of the Act.
However, the exception for setting aside the award on the grounds of the composition of the Arbitral .
Tribunal or illegality of arbitral procedure is that the agreement should not be in conflict with the provisions of Part I of the Act from which parties cannot derogate.
(c) If the award passed by the Arbitral Tribunal is in contravention of the provisions of the Act or any other substantive law governing the parties or is against the of terms of the contract.
(3) The award could be set aside if it is against the public policy of India, that is to say if it is contrary to:
rt
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality; or
(d) if it is patently illegal.
(4) It could be challenged:
(a) as provided under Section 13(5); and
(b) Section 16(6) of the Act.
(B)(1) The impugned award requires to be set aside mainly on the grounds:
(i) there is a specific stipulation in the agreement that the time and date of delivery of the goods were of the essence of the contract;
(ii) in case of failure to deliver the goods within the period fixed for such delivery in the schedule, ONGC was entitled to recover from the contractor liquidated damages as agreed;
(iii) it was also explicitly understood that the agreed liquidated damages were genuine pre-estimate of damages;::: Downloaded on - 20/09/2023 20:37:36 :::CIS 17
(iv) on the request of the respondent to extend the timelimit for the supply of goods, ONGC informed specifically that time was extended but stipulated liquidated damages as agreed would be recovered;
.
(v) liquidated damages for delay in supply of goods were to be recovered by paying authorities from the bills for payment of cost of material supplied by the contractor;
(vi) there is nothing on record to suggest that stipulation for recovering liquidated damages was by way of penalty or that the said sum was in any way of unreasonable;
(vii) In certain contracts, it is impossible to assess the damages or prove the same. Such situation is taken rt care of by Sections 73 and 74 of the Contract Act and in the present case by specific terms of the contract."
20. The judgment in ONGC Ltd. v. Saw Pipes Ltd. [(2003) 5 SCC 705: AIR 2003 SC 2629] has been consistently followed till date.
21. In Hindustan Zinc Ltd. v. Friends Coal Carbonisation [(2006) 4 SCC 445], this Court held: (SCC p. 451, para 14) "14. The High Court did not have the benefit of the principles laid down in Saw Pipes [(2003) 5 SCC 705: AIR 2003 SC 2629], and had proceeded on the assumption that the award could not be interfered with even if it was contrary to the terms of the contract. It went to the extent of holding that contract terms cannot even be looked into for examining the correctness of the award. This Court in Saw Pipes [(2003) 5 SCC 705: AIR 2003 SC 2629] has made it clear that it is open to the court to consider whether the award is against the specific terms of the contract and if so, interferes with it on the ground that it is patently illegal and opposed to the public policy of India."
::: Downloaded on - 20/09/2023 20:37:36 :::CIS 1822. In McDermott International Inc. v. Burn Standard Co. Ltd. [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181], this Court held: (SCC pp. 209-10, paras 58-60) .
"58. In Renusagar Power Co. Ltd. v. General Electric Co. [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] this Court laid down that the arbitral award can be set aside if it is contrary to (a) fundamental policy of Indian law; (b) the interests of India; or (c) justice or morality. A narrower meaning to the expression 'public policy' was given therein by of confining judicial review of the arbitral award only on the aforementioned three grounds. An apparent shift can, however, be noticed from the decision of this Court in ONGC Ltd. v. Saw Pipes Ltd. [(2003) 5 SCC 705:
rt AIR 2003 SC 2629] (for short 'ONGC'). This Court therein referred to an earlier decision of this Court in Central Inland Water Transport Corpn. Ltd. v. Brojo Nath Ganguly [(1986) 3 SCC 156: 1986 SCC (L&S) 429 : (1986) 1 ATC 103] wherein the applicability of the expression 'public policy' on the touchstone of Section
23 of the Contract Act, 1872 and Article 14 of the Constitution of India came to be considered. This Court therein was dealing with the unequal bargaining power of the workmen and the employer and came to the conclusion that any term of the agreement which is patently arbitrary and/or otherwise arrived at because of the unequal bargaining power would not only be ultra vires Article 14 of the Constitution of India but also hit by Section 23 of the Contract Act, 1872. In ONGC [(2003) 5 SCC 705: AIR 2003 SC 2629] this Court, apart from the three grounds stated in Renusagar [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644], added another ground thereto for the exercise of the court's jurisdiction in setting aside the award if it is patently arbitrary.
::: Downloaded on - 20/09/2023 20:37:36 :::CIS 1959. Such patent illegality, however, must go to the root of the matter. The public policy violation, indisputably, should be so unfair and unreasonable as to shock the conscience of the court. Where the .
arbitrator, however, has gone contrary to or beyond the expressed law of the contract or granted relief in the matter not in dispute would come within the purview of Section 34 of the Act. However, we would consider the applicability of the aforementioned principles while noticing the merits of the matter.
60. What would constitute public policy is a matter of dependent upon the nature of the transaction and the nature of the statute. For the said purpose, the pleadings of the parties and the materials brought on record would be relevant to enable the court to judge rt what is in the public good or public interest, and what would otherwise be injurious to the public good at the relevant point, as contradistinguished from the policy of a particular Government. (See State of Rajasthan v. Basant Nahata [(2005) 12 SCC 77] .)"
23. In Centrotrade Minerals & Metals Inc. v. Hindustan Copper Ltd. [(2006) 11 SCC 245], Sinha, J., held: (SCC p. 284, paras 103-04) "103. Such patent illegality, however, must go to the root of the matter. The public policy, indisputably, should be unfair and unreasonable so as to shock the conscience of the court. Where the arbitrator, however, has gone contrary to or beyond the expressed law of the contract or granted relief in the matter not in dispute would come within the purview of Section 34 of the Act.
104. What would be a public policy would be a matter which would again depend upon the nature of the transaction and the nature of the statute. For the said purpose, the pleadings of the parties and the materials brought on record would be relevant so as to enable the court to judge the concept of what was a ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 20 public good or public interest or what would otherwise be injurious to the public good at the relevant point as contradistinguished by the policy of a particular Government. (See State of Rajasthan v. Basant .
Nahata [(2005) 12 SCC 77].)"
24. In DDA v. R.S. Sharma and Co. [(2008) 13 SCC 80], the Court summarised the law thus: (SCC pp. 91-92, para 21) "21. From the above decisions, the following principles emerge:
(a) An award, which is of
(i) contrary to substantive provisions of law; or
(ii) the provisions of the Arbitration and Conciliation Act, 1996; or rt
(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) the 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 the contract and if so, interfere with it on the ground that it is patently illegal and opposed to the public policy of India.
With these principles and statutory provisions, particularly, Section 34(2) of the Act, let us consider whether the arbitrator as well as the Division Bench of the High Court were justified in granting the award in ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 21 respect of Claims 1 to 3 and Additional Claims 1 to 3 of the claimant or the appellant DDA has made out a case for setting aside the award in respect of those claims with reference to the terms of the agreement duly .
executed by both parties."
25.J.G. Engineers (P) Ltd. v. Union of India [(2011) 5 SCC 758 :
(2011) 3 SCC (Civ) 128] held: (SCC p. 775, para 27) "27. Interpreting the said provisions, this Court in ONGC Ltd. v. Saw Pipes Ltd. [(2003) 5 SCC 705: AIR 2003 SC 2629] held that a court can set aside an award under Section 34(2)(b)(ii) of the Act, as being in of conflict with the public policy of India, if it is (a) contrary to the fundamental policy of Indian law; or
(b) contrary to the interests of India; or (c) contrary to justice or morality; or (d) patently illegal. This Court rt explained that to hold an award to be opposed to public policy, the patent illegality should go to the very root of the matter and not a trivial illegality. It is also observed that an award could be set aside if it is so unfair and unreasonable that it shocks the conscience of the court, as then it would be opposed to public policy."
26.Union of India v. Col. L.S.N. Murthy [(2012) 1 SCC 718 :
(2012) 1 SCC (Civ) 368] held: (SCC p. 724, para 22) "22. In ONGC Ltd. v. Saw Pipes Ltd. [(2003) 5 SCC 705:
AIR 2003 SC 2629] this Court after examining the grounds on which an award of the arbitrator can be set aside under Section 34 of the Act has said: (SCC p. 727, para 31) '31. ... However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in the public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to the narrower meaning given to the term "public policy" in the Renusagar case [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] it ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 22 is required to be held that the award could be set aside if it is patently illegal."
Fundamental Policy of Indian Law .
27. Coming to each of the heads contained in Saw Pipes [(2003) 5 SCC 705: AIR 2003 SC 2629] judgment, we will first deal with the head "fundamental policy of Indian law". It has already been seen from Renusagar [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] judgment that violation of the Foreign Exchange Act and disregarding orders of superior courts in India would be regarded as being contrary to the fundamental policy of of Indian law. To this, it could be added that the binding effect of the judgment of a superior court being disregarded would be equally violative of the fundamental policy of Indian law.
rt
28. In a recent judgment, ONGC Ltd. v. Western Geco International Ltd. [(2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12], this Court added three other distinct and fundamental juristic principles which must be understood as part and parcel of the fundamental policy of Indian law. The Court held: (SCC pp. 278-80, paras 35 & 38-40) "35. What then would constitute the 'fundamental policy of Indian law' is the question. The decision in ONGC [(2003) 5 SCC 705: AIR 2003 SC 2629] does not elaborate on that aspect. Even so, the expression must, in our opinion, include all such fundamental principles as providing a basis for the administration of justice and enforcement of law in this country. Without meaning to exhaustively enumerate the purport of the expression 'fundamental policy of Indian law', we may refer to three distinct and fundamental juristic principles that 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 ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 23 bound to adopt what is in legal parlance called a 'judicial approach' in the matter. The duty to adopt a judicial approach arises from the very nature of the power exercised by the court or the authority does not .
have to be separately or additionally enjoined upon the fora concerned. What must be remembered is that the importance of a judicial approach in judicial and quasi-judicial determination lies in the fact that so long as the court, tribunal or the authority exercising powers that affect the rights or obligations of the parties before them shows fidelity to judicial approach, of they cannot act in an arbitrary, capricious or whimsical manner. The judicial approach ensures that the authority acts bona fide and deals with the subject in a fair, reasonable and objective manner and that its rt decision is not actuated by any extraneous consideration. Judicial approach in that sense acts as a check against flaws and faults that can render the decision of a court, tribunal or authority vulnerable to challenge.
***
38. Equally important and indeed fundamental to the policy of Indian law is the principle that a court and so also a quasi-judicial authority must, while determining the rights and obligations of parties before it, do so in accordance with the principles of natural justice. Besides the celebrated audi alteram partem rule one of the facets of the principles of natural justice is that the court/authority deciding the matter must apply its mind to the attendant facts and circumstances while taking a view one way or the other. Non-application of mind is a defect that is fatal to any adjudication. Application of mind is best demonstrated by disclosure of the mind and disclosure of mind is best done by recording reasons in support of the decision which the court or authority is taking. The requirement that an adjudicatory authority must apply its mind is, in that view, so deeply embedded in our ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 24 jurisprudence that it can be described as a fundamental policy of Indian law.
39. No less important is the principle now recognised as a salutary juristic fundamental in .
administrative law that a decision which is perverse or so irrational that no reasonable person would have arrived at the same will not be sustained in a court of law. Perversity or irrationality of decisions is tested on the touchstone of Wednesbury [Associated Provincial Picture Houses Ltd. v. Wednesbury Corpn., (1948) 1 KB 223 : (1947) 2 All ER 680 (CA)] principle of of reasonableness. Decisions that fall short of the standards of reasonableness are open to challenge in a court of law often in the writ jurisdiction of the superior courts but no less in statutory processes rt wherever the same are available.
40. It is neither necessary nor proper for us to attempt an exhaustive enumeration of what would constitute the fundamental policy of Indian law nor is it possible to place the expression in the straitjacket of a definition. What is important in the context of the case at hand is that if on facts proved before them, the arbitrators fail to draw an inference which ought to have been drawn or if they have drawn an inference which is on the face of it, untenable resulting in miscarriage of justice, the adjudication even when made by an Arbitral Tribunal that enjoys considerable latitude and play at the joints in making awards will be open to challenge and may be cast away or modified depending upon whether the offending part is or is not severable from the rest."
(emphasis in original)
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.
::: Downloaded on - 20/09/2023 20:37:36 :::CIS 2515. This position was reiterated in Welspun Specialty Solutions Ltd. v. ONGC, (2022) 2 SCC 382: 2021 SCC OnLine SC 1053 , .
wherein it was held:
22. Before we analyse the award, we need to first ascertain the scope of Section 34 of the Arbitration Act, before the 2015 amendment, which provided for certain specific grounds for challenge. Section 34, as it existed, reads as under:
of "34. Application for setting aside arbitral award.--(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside rtsuch award in accordance with sub-sections (2) and sub-sections (3).
(2) An arbitral award may be set aside by the Court only if--
***
(b) the Court finds that--
(i) the subjectmatter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India."
(emphasis supplied)
23. The limited grounds provided under Section 34 of the Act, have been interpreted by this Court on numerous occasions. In this case at hand, the challenge of the award is based on the fact that the same is against public policy and patent illegality. Public policy as a ground of challenge has always been met with certain scepticism. The phrase "public policy" does not indicate "a catch-all provision" to challenge awards before an appellate forum on infinite grounds. However, the ambit of the same is so diversely interpreted that in some cases, the purpose of limiting the ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 26 Section 34 jurisdiction is lost. This Court's jurisprudence also shows that Section 34(2)(b) has undergone a lot of churning and continues to evolve. The purpose of Section 34 is to strike a balance between the court's appellate .
powers and the integrity of the arbitral process.
24. The first case, which expounded on the scope of "public policy" was Renusagar Power Co. Ltd. v. General Electric Co. [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644], which inter alia provided that a foreign award may not be enforced under the said Act if the court dealing with the case is satisfied that the enforcement of of the award will be contrary to the public policy. After elaborate discussion, the Court arrived at the conclusion that public policy comprehended in Section 7(1)(b)(ii) of the Foreign Awards (Recognition and Enforcement) Act, 1961 is rt the "public policy of India" and does not cover the public policy of any other country.
25. For giving meaning to the term "public policy", the Court observed thus : (Renusagar Power case [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644], SCC p. 682, para 66) "66. Article V(2)(b) of the New York Convention of 1958 and Section 7(1)(b)(ii) of the Foreign Awards Act do not postulate refusal of recognition and enforcement of a foreign award on the ground that it is contrary to the law of the country of enforcement and the ground of challenge is confined to the recognition and enforcement being contrary to the public policy of the country in which the award is set to be enforced. There is nothing to indicate that the expression "public policy" in Article V(2)(b) of the New York Convention and Section 7(1)(b)(ii) of the Foreign Awards Act is not used in the same sense in which it was used in Article I(c) of the Geneva Convention, 1927 and Section 7(1) of the Protocol and Convention Act, 1937. This would mean that "public ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 27 policy" in Section 7(1)(b)(ii) has been used in a narrower sense and in order to attract the bar of public policy the enforcement of the award must invoke something more than the violation of the law of India.
.
Since the Foreign Awards Act is concerned with the recognition and enforcement of foreign awards which are governed by the principles of private international law, the expression "public policy" in Section 7(1)(b)(ii) of the Foreign Awards Act must necessarily be construed in the sense the doctrine of public policy is applied in the field of private of international law. Applying the said criteria it must be held that the enforcement of a foreign award would be refused on the ground that it is contrary to public rtpolicy if such enforcement would be contrary to (i) the fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality."
(emphasis supplied)
26. In ONGC v. Saw Pipes Ltd. [ONGC v. Saw Pipes Ltd., (2003) 5 SCC 705], the scope of Section 34 was expanded to include patent illegality as a ground for challenging the award and held as under : (SCC pp. 727-28 & 744-45, paras 31 & 74) "31. Therefore, in our view, the phrase "public policy of India" used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns the public good and the public interest. What is for the public good or in the public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in the public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to the narrower meaning given to the term "public ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 28 policy" in the Renusagar case [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] it is required to be held that the award could be set aside if it is patently illegal. The result would be--
.
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, or
(d) in addition, if it is patently illegal.
Illegality must go to the root of the matter and if of the illegality is of trivial nature it cannot be held that the award is against the public policy. Award could also be set aside if it is so unfair and rt unreasonable that it shocks the conscience of the court. Such an award is opposed to public policy and is required to be adjudged void.
***
74. In the result, it is held that:
(A)(1) The court can set aside the arbitral award under Section 34(2) of the Act if the party making the application furnishes proof that:
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 29 decisions on matters beyond the scope of the submission to arbitration.
(2) The court may set aside the award:
.
(i)(a) if the composition of the Arbitral Tribunal was not in accordance with the agreement of the parties,
(b) failing such agreement, the composition of the Arbitral Tribunal was not in accordance with Part I of the Act.
(ii) if the arbitral procedure was not in accordance of with:
(a) the agreement of the parties, or
(b) failing such an agreement, the arbitral rt procedure was not in accordance with Part I of the Act.
However, the exception for setting aside the award on the grounds of the composition of the Arbitral Tribunal or illegality of arbitral procedure is that the agreement should not be in conflict with the provisions of Part I of the Act from which parties cannot derogate.
(c) If the award passed by the Arbitral Tribunal is in contravention of the provisions of the Act or any other substantive law governing the parties or is against the terms of the contract.
(3) The award could be set aside if it is against the public policy of India, that is to say if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality; or
(d) if it is patently illegal.
(4) It could be challenged:::: Downloaded on - 20/09/2023 20:37:36 :::CIS 30
(a) as provided under Section 13(5); and
(b) Section 16(6) of the Act."
27. Eventually, a three-judge Bench in ONGC v. Western Geco .
International Ltd. [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12], while upholding Saw Pipes case [ONGC v. Saw Pipes Ltd., (2003) 5 SCC 705], noted that "illegality" of the award must go to the root of the matter. The illegality of a trivial nature could not be held to violate public policy.
28. In Dyna Technologies (P) Ltd. v. Crompton Greaves of Ltd. [Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd., (2019) 20 SCC 1], this Court held : (SCC p. 12, paras 24-25) "24. There is no dispute that Section 34 of the rtArbitration Act limits a challenge to an award only on the grounds provided therein or as interpreted by various Courts. We need to be cognizant of the fact that arbitral awards should not be interfered with in a casual and cavalier manner unless the Court comes to a conclusion that the perversity of the award goes to the root of the matter without there being a possibility of alternative interpretation which may sustain the arbitral award. Section 34 is different in its approach and cannot be equated with a normal appellate jurisdiction. The mandate under Section 34 is to respect the finality of the arbitral award and the party's autonomy to get their dispute adjudicated by an alternative forum as provided under the law.
If the Courts were to interfere with the arbitral award in the usual course on factual aspects, then the commercial wisdom behind opting for alternate dispute resolution would stand frustrated.
25. Moreover, umpteen number of judgments of this Court have categorically held that the Courts should not interfere with an award merely because an alternative view on facts and interpretation of ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 31 contract exists. The Courts need to be cautious and should defer to the view taken by the Arbitral Tribunal even if the reasoning provided in the award is implied unless such award portrays .
perversity unpardonable under Section 34 of the Arbitration Act."
16. A similar view was taken UHL Power Co. Ltd. v. State of H.P., (2022) 4 SCC 116: (2022) 2 SCC (Civ) 401: 2022 SCC OnLine SC 19 at page 124, wherein it was held:
of "16. As it is, the jurisdiction conferred on courts under Section 34 of the Arbitration Act is fairly narrow, when it comes to the scope of an appeal under Section 37 of the rt Arbitration Act, the jurisdiction of an appellate court in examining an order, setting aside or refusing to set aside an award, is all the more circumscribed. In MMTC Ltd. v. Vedanta Ltd. [MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163 : (2019) 2 SCC (Civ) 293], the reasons for vesting such a limited jurisdiction on the High Court in the exercise of powers under Section 34 of the Arbitration Act have been explained in the following words : (SCC pp. 166-67, para 11) "11. As far as Section 34 is concerned, the position is well-settled by now that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited ground provided under Section 34(2)(b)(ii) i.e. if the award is against the public policy of India. As per the legal position clarified through decisions of this Court prior to the amendments to the 1996 Act in 2015, a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice or morality, and the existence of patent illegality in the arbitral award. Additionally, the concept of the "fundamental policy of Indian law" would cover compliance with statutes and judicial precedents, adopting a judicial approach, compliance with the ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 32 principles of natural justice, and Wednesbury [Associated Provincial Picture Houses Ltd. v. Wednesbury Corpn., (1948) 1 KB 223 (CA)] reasonableness. Furthermore, "patent illegality" itself has been held to mean contravention of .
the substantive law of India, contravention of the 1996 Act, and contravention of the terms of the contract."
17. A similar view, as stated above, has been taken by this Court in K. Sugumar v. Hindustan Petroleum Corpn. Ltd. [K. Sugumar v. Hindustan Petroleum Corpn. Ltd., (2020) 12 SCC 539], wherein it has been observed as follows : (SCC p. 540, para 2) of "2. The contours of the power of the Court under Section 34 of the Act are too well established to require any reiteration. Even a bare reading of Section 34 of the Act indicates the highly constricted power of the civil court rt to interfere with an arbitral award. The reason for this is obvious. When parties have chosen to avail an alternate mechanism for dispute resolution, they must be left to reconcile themselves to the wisdom of the decision of the arbitrator and the role of the court should be restricted to the bare minimum. Interference will be justified only in cases of commission of misconduct by the arbitrator which can find manifestation in different forms including the exercise of legal perversity by the arbitrator."
18. It has also been held time and again by this Court that if there are two plausible interpretations of the terms and conditions of the contract, then no fault can be found if the learned arbitrator proceeds to accept one interpretation as against the other. In Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd. [Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd., (2019) 20 SCC 1], the limitations on the Court while exercising powers under Section 34 of the Arbitration Act has been highlighted thus : (SCC p. 12, para 24) "24. There is no dispute that Section 34 of the Arbitration Act limits a challenge to an award only on the grounds provided therein or as interpreted by various Courts. We ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 33 need to be cognizant of the fact that arbitral awards should not be interfered with in a casual and cavalier manner unless the Court comes to a conclusion that the perversity of the award goes to the root of the matter .
without there being a possibility of alternative interpretation which may sustain the arbitral award. Section 34 is different in its approach and cannot be equated with a normal appellate jurisdiction. The mandate under Section 34 is to respect the finality of the arbitral award and the party's autonomy to get their dispute adjudicated by an alternative forum as provided of under the law. If the Courts were to interfere with the arbitral award in the usual course on factual aspects, then the commercial wisdom behind opting for alternate dispute resolution would stand frustrated." rt
19. In Parsa Kente Collieries Ltd. v. Rajasthan Rajya Vidyut Utpadan Nigam Ltd. [Parsa Kente Collieries Ltd. v. Rajasthan Rajya Vidyut Utpadan Nigam Ltd., (2019) 7 SCC 236 : (2019) 3 SCC (Civ) 552], adverting to the previous decisions of this Court in McDermott International Inc. v. Burn Standard Co. Ltd. [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] and Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran [Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran, (2012) 5 SCC 306], wherein it has been observed that an Arbitral Tribunal must decide in accordance with the terms of the contract, but if a term of the contract has been construed in a reasonable manner, then the award ought not to be set aside on this ground, it has been held thus : (Parsa Kente Collieries case [Parsa Kente Collieries Ltd. v. Rajasthan Rajya Vidyut Utpadan Nigam Ltd., (2019) 7 SCC 236 : (2019) 3 SCC (Civ) 552], SCC pp. 244-45, para 9) "9.1. ... It is further observed and held that construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair-minded or reasonable person could do. It is further observed by this Court in the aforesaid decision in para 33 that when a ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 34 court is applying the "public policy" test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster .
as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. It is further observed that thus an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score.
9.2. Similar is the view taken by this Court in NHAI v. ITD of Cementation India Ltd. [NHAI v. ITD Cementation India Ltd., (2015) 14 SCC 21 : (2016) 2 SCC (Civ) 716], SCC para 25 and SAIL v. Gupta Brother Steel Tubes Ltd. [SAIL v. Gupta Brother Steel Tubes Ltd., (2009) 10 SCC 63 : (2009) 4 SCC rt (Civ) 16], SCC para 29."
(emphasis supplied)
20. In Dyna Technologies [Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd., (2019) 20 SCC 1], the view taken above has been reiterated in the following words :
(SCC p. 12, para 25) "25. Moreover, umpteen number of judgments of this Court have categorically held that the courts should not interfere with an award merely because an alternative view on facts and interpretation of contract exists. The courts need to be cautious and should defer to the view taken by the Arbitral Tribunal even if the reasoning provided in the award is implied unless such award portrays perversity unpardonable under Section 34 of the Arbitration Act."
21. An identical line of reasoning has been adopted in South East Asia Marine Engg. & Constructions Ltd. (SEAMEC Ltd.) v. Oil India Ltd. [South East Asia Marine Engg. & Constructions Ltd. (SEAMEC Ltd.) v. Oil India Ltd., (2020) 5 SCC 164 : (2020) 3 SCC (Civ) 1] and it has been held as follows :
(SCC p. 172, paras 12-13) ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 35 "12. It is a settled position that a court can set aside the award only on the grounds provided in the Arbitration Act as interpreted by the courts. Recently, this Court in Dyna Technologies (P) Ltd. v. Crompton Greaves .
Ltd. [Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd., (2019) 20 SCC 1] laid down the scope of such interference. This Court observed as follows : (SCC p. 12, para 24) '24. There is no dispute that Section 34 of the Arbitration Act limits a challenge to an award only on the grounds provided therein or as interpreted by various Courts. We need to be cognizant of the fact that of arbitral awards should not be interfered with in a casual and cavalier manner unless the Court comes to a conclusion that the perversity of the award goes to the root of the matter without there being a possibility of rt alternative interpretation which may sustain the arbitral award. Section 34 is different in its approach and cannot be equated with a normal appellate jurisdiction. The mandate under Section 34 is to respect the finality of the arbitral award and the party's autonomy to get their dispute adjudicated by an alternative forum as provided under the law. If the Courts were to interfere with the arbitral award in the usual course on factual aspects, then the commercial wisdom behind opting for alternate dispute resolution would stand frustrated.'
13. It is also settled law that where two views are possible, the Court cannot interfere in the plausible view taken by the arbitrator supported by reasoning. This Court in Dyna Technologies [Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd., (2019) 20 SCC 1] observed as under : (SCC p. 12, para 25) '25. Moreover, umpteen number of judgments of this Court have categorically held that the Court should not interfere with an award merely because an alternative view on facts and interpretation of contract exists. The Courts need to be cautious and ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 36 should defer to the view taken by the Arbitral Tribunal even if the reasoning provided in the award is implied unless such award portrays perversity unpardonable under Section 34 of the Arbitration .
Act.' "
(emphasis supplied)
22. In the instant case, we are of the view that the interpretation of the relevant clauses of the implementation agreement, as arrived at by the learned sole arbitrator, are both, possible and plausible. Merely because another view could have been taken, can hardly be of a ground for the learned Single Judge to have interfered with the arbitral award. In the given facts and circumstances of the case, the appellate court has rightly held that the learned Single Judge exceeded his jurisdiction rt in interfering with the award by questioning the interpretation given to the relevant clauses of the implementation agreement, as the reasons given are backed by logic."
17. Therefore, it is apparent from the judgments of this Court as well as the Hon'ble Apex Court that it is not permissible to challenge the award on merits. The Court can interfere with the award where it is in violation of the principles of natural justice, is against the public policy of India, goes beyond the matter referred to the Arbitrator or the terms and conditions of the agreement.
The present objections have to be decided on these parameters.
18. The respondent did not dispute that the complete site was not handed over to the contractor. Even it was admitted in para 9 of the present objection that the road involved a total ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 37 length of 9.675 Km. 0ut of which forest land was in portions 4/750 to 6/345 and 7/00 to 7/840. The forest land portion consists .
of 25% of the total length of the road. Therefore, the findings recorded by the learned Arbitrator that the hindrance- free site was not handed over to the contractor is correct.
19. It was stated in para 9 of the petition that the of Contractor had executed approximately 60% of the awarded work till the allotted time as per the agreement. It shows that a lot of rt work was executed within the stipulated time under the agreement. It is admitted case of the parties that the time was extended by the respondents. It has been stated in para 4 of the preliminary submissions in reply to the Statement of fact filed before the learned Arbitrator that payment of each bill was made to the contractor and 75.57% payment was made to the Contractor till April 2012. The fact that payment of 75. 57% was made to the Contractor shows that the Contractor has executed 75% work.
Since it is admitted that 25% of land fell within the forest area;
therefore, the conclusion drawn by the learned Arbitrator that the Contractor was not at fault cannot be faulted.
::: Downloaded on - 20/09/2023 20:37:36 :::CIS 3820. The learned Arbitrator held that the admissions made by the respondents regarding the existence of the forest land, not .
obtaining permission from the competent authority as per the Forest Conservation Act and filing of the Civil Suit by the owners were undisputed. These findings are supported by the record shown above.
of
21. The learned Arbitrator awarded the damages based on Annexure R-7, a letter written by the SDO to Executive Engineer rt This letter specifically mentions one JCB, one Tipper and one Air Compressor. The learned Arbitrator had concluded the damages based on this letter. Thus, there is no fault with the award passed by the learned Arbitrator for compensation based on the aforesaid letter (Annexure R-7).
22. It was submitted that the learned Arbitrator erred in accepting the version of the claimant without the report of the Engineer to be deployed by the Contractor. A reference was made to clause 36 of agreement(Annexure A-4). This clause reads that a Contractor shall employ one qualified Engineer/Junior Engineer/Supervisor, having experience of 5 years. The technical staff should also be available at the site. It further provides that if ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 39 the Contractor fails to provide technical staff,he shall be liable to pay a reasonable amount not exceeding ₹2000/- per month, in .
case of default of employment of a graduate Engineer and ₹2500/-of default in case of qualified Diploma holder/overseer.There is nothing on record to show that any action was taken by the department for failure to employ the of graduate Engineer or qualified diploma holder/overseer, which shows that a technical person was employed and the plea taken rt that technical staff was not employed cannot be accepted, especially when it was not raised before the learned Arbitrator.
23. Reliance was also placed upon clause 4 which provides that the employer has to pay the wages at the rate not less than the minimum rate/wages fixed by the Government for that class of employee. Thus, the contract only provided a lower ceiling. It did not provide any upper ceiling. Thus, the learned Arbitrator cannot be faulted for accepting the version of the claimant that he had paid ₹250/- per day to the labourers.
24. It was submitted that the period of 5 months taken by the learned Arbitrator was arbitrary. This is not acceptable. Work was to be completed within 18 months as per the contract. The ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 40 time of the work was extended till 30.4.2010 as per para 4 of the affidavit of Mr. Ayub Chaudhary, Executive Engineer. Hence, .
there was an extension of 5 months. Since 60% of work had been done till the stipulated period, it means that only 15% of work was done within the extended period; therefore, the learned Arbitrator had rightly taken 5 months as a period for which the labour and of machinery remained idle.
25. It was submitted that the learned Arbitrator had rt wrongly taken the number of workers as 30. Again, this is not correct Mr. Ayub Chaudhary stated in para 3 of his affidavit that when he inspected the site, he found 30 workers at the site. Hence, the learned Arbitrator cannot be faulted for taking the number of workers as 30.
26. It was submitted that the learned Arbitrator had erred in assessing the loss of profit @10% of the balance work. This is not correct. The learned Arbitrator relied upon the judgment of Hon'ble Apex Court Brij Pal vs. State of Gujrat 1984 (4) SCC 59 and judgment of this Court in H.K.Sareenvs. State of HP and another, 1999(1) Current Law Journal HP 421, wherein it was held:
47. InMessrs A. T. Brij Paul Singh & Bros. v. State of Gujarat [AIR 1984 SC 1703 ], the contractor had claimed damages for ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 41 the loss of profit on account of wrongful termination of a work contract by the State of Gujarat. No evidence was led by the contractor to prove the special damages suffered by him by way of loss of profit and the High Court of Gujarat .
had rejected the claim on that ground. In the appeal before the Hon'ble Supreme Court, it was held:-
"..........What would be the measure of profit would depend upon the facts and circumstances of each case. But that there shall be a reasonable expectation of profit is implicit in a works contract and its loss has to be compensated by way of damages if the other of party to the contract is guilty of breach of contract cannot be gainsaid. In this case, we have the additional reason for rejecting the contention that for the same type of work, the work site being in the rt vicinity of each other and for an identical type of work between the same parties, a Division Bench of the same High Court has accepted 15% of the value of the balance of the works contract would not be an unreasonable measure of damages for loss or profit. We are, therefore, of the opinion that the High Court in error in wholly rejecting the claim under "this head."
48. The Supreme Court accordingly allowed damages towards loss of profit at the rate of 15% of the costs of the remaining work.
49. The ratio laid down by the Hon'ble Supreme Court in the above-referred case is that once the court has held that there is a breach of the works contract the contractor would be entitled to damages by way of loss of profit and the measure of damages of way of loss of profit and the measure of damages if proved, the .damage would be awarded on that basis. But if the damage is not satisfactorily proved, still the contractor would be accorded the benefit of every reasonable presumption as to loss of damages. The court's jurisdiction toward damages cannot be confined to the evidence on recordsonly. The Court is ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 42 entitled to allow damages on any other reasonable basis, even on the basis of mere guesswork;
50. Following the above-said ratio, the High Court of Calcutta in Deo Kumar Saraf v. Union of India, [1988 (2) .
Current Law Journal 325], had held the contractor to be entitled to damages towards loss of profit at the rate of 11% of the value of work.
51. In the present case, as stated above, as per the defendants own evidence contractor's profit was taken at 10% of the value of work. Since, the plaintiff was prevented from completing the work due to the acts of omission and of commission of the defendants he is entitled to damages at such rate of the value of remaining work, which comes to Rs. 2,71,520/-. The issue is decided accordingly in favour of the plaintiff."
27. rt This Court had awarded the loss of profit @10% and learned Arbitrator was justified in assessing the loss of profits @ 10%.
28. It was submitted that the learned Arbitrator erred in awarding the interest @9% per annum especially upon the Security amount, which was deposited with the bank and earned bank interest. In this regard, Section 32 (7) of the Arbitration & Conciliation Act reads as under:-
(7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole, or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.::: Downloaded on - 20/09/2023 20:37:36 :::CIS 43
(b) A sum directed to be paid by an arbitral award shall, .
unless the award otherwise directs, carry interest at the rate of eighteen per centum per annum from the date of the award to the date of payment.
29. It empowers the learned Arbitrator to award interest @18% per annum. Therefore, the award of interest @9% per of annum is not excessive. The learned Arbitrator had not awarded the interest on the accrued amount of the security but only 9%, rt which means that the department, can either retain the interest accrued on the security deposit and pay @9% interest awarded by the learned Arbitrator or it can pay the balance.
30. Therefore, the learned Arbitrator had taken a view, which was reasonable and could be taken based on evidence led before the learned Arbitrator. It was duly supported by the reply and the documents and the plea that the award suffers from illegality or is against the policy of India is not acceptable.
Therefore, there is no reason to interfere with the award passed by the learned Arbitrator.
::: Downloaded on - 20/09/2023 20:37:36 :::CIS 44Final order:
31. In view of the above, the present objections fail and are .
dismissed. Pending miscellaneous applications, if any, also stand disposed of.
(Rakesh Kainthla) Judge of 20th September,2023 (Ravinder) rt ::: Downloaded on - 20/09/2023 20:37:36 :::CIS 45 .
of rt ::: Downloaded on - 20/09/2023 20:37:36 :::CIS