Madras High Court
The Governor Of Tamil Nadu vs Jm Combines
Author: M. Duraiswamy
Bench: M. Duraiswamy, Sunder Mohan
O.S.A.(Cad) Nos.75 and 76 of 2022
IN THE HIGH COURT OF JUDICATURE AT MADRAS
RESERVED ON : 26 .07.2022
DELIVERED ON : 11.08.2022
CORAM:
THE HON'BLE MR. JUSTICE M. DURAISWAMY
AND
THE HON'BLE MR. JUSTICE SUNDER MOHAN,
O.S.A.(Cad) Nos.75 and 76 of 2022
and C.M.P. Nos.9474 and 9475 of 2022
The Governor of Tamil Nadu,
Represented by the Secretary,
Highways and Minor Ports Department,
Fort St. George,
Chennai – 600 009. .. Appellant in both OSAs
v.
M/s.GMR Chennai Outer Ring Road Pvt. Ltd.
Having its registered Office at 25/1,
Skip House,
Museum Road,
Bangalore – 560 025. ... Respondent in both OSAs
Page 1/142
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O.S.A.(Cad) Nos.75 and 76 of 2022
O.S.A.No 75 of 2022 : Original Side Appeal filed under Section 13(1)
of the Commercial Courts Act read with Clause 15 of Letters Patent to
set aside the order dated 17.11.2021 in O.P.No.285 of 2021.
O.S.A.No 76 of 2022 : Original Side Appeal filed under Section 13(1)
of the Commercial Courts Act read with Clause 15 of Letters Patent to
set aside the order dated 17.11.2021 in O.P.No.124 of 2021.
For Appellant : Mr.R.Shanmugasundaram, A.G.
(in both the Appeals) Assisted by Mr.Edwin Prabakar, S.G.P.
For Respondent : Mr. Aravind B.Datar, Senior Counsel
(in both the Appeals) & Mr. Sathish Parasaran, Senior Counsel
for M/s.Rahul Balaji and Vishnu Mohan
COMMON JUDGMENT
M. DURAISWAMY, J.
Challenging the Common Order passed by the learned Single Judge in O.P.Nos. 124 and 285 of 2021, dated 17.11.2021, the Government of Tamil Nadu has filed the above Original Side Appeals.
2. The brief case of the respondent/claimant is as follows:-
(i) The respondent/claimant was the successful bidder for the Page 2/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 development of Chennai Outer Ring Road to a total length of 29.5 Kms and a Concession Agreement [CA] was entered between the parties on 5.12.2009 for Design, Build, Finance, Operate and transfer [DBFOT] basis and the respondent/claimant was to be paid annuities half yearly post the construction period. The appointed date for the purpose of commencement of construction work under the Concession Agreement is
03.06.2010. The construction period as per the Concession Agreement is 913 days with the planned completion period as per the Engineering, Procurement and Construction [EPC] Agreement, the Financing Agreements and the Financial Model fixed at 24 months. The planned project completion date was 02.06.2012 as per the agreement and the concession period is 20 months from the appointed date. The project was expected to be implemented at a total project cost of INR 1166,78,00,000/-. The investment of INR 1166.75 crores during construction [project cost] and about INR 425.89 crores estimated for doing O & M for the project [including taxes] apart from interest costs by the respondent/claimant was to be recovered through 35 regular annuity payments of INR 62,12,91,213 each in terms of Article 27 of the Concession Agreement apart from a promise of a Bonus payment Page 3/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 equivalent to one annuity period as per Article 28 of the Concession Agreement for completion within 24 months.
(ii) The respondent/claimant entered into an EPC Agreement with the EPC Contractor in order to complete the construction within 24 months so that it could earn bonus as per the Concession Agreement. The respondent/claimant also mobilized requisite manpower and machinery for completing the project within 24 months. Besides, submitted Master Construction schedule on 20.05.2015. Article 6 of the Concession Agreement set out the performance obligations of the claimant and reciprocal obligations by the appellant. However, the appellant has failed to cooperate with the respondent/claimant and failed to discharge the obligations. Further, there were number of delays and breaches attributable to the appellant. Thus, it has affected the completion of the project within 24 months.
(iii) The respondent/claimant periodically submitted representations to the Independent Engineer not only for extension of time, but also for compensation. Hence, the respondent/claimant made Page 4/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 the following claims in their Claim Statement and Updated/Supplemental Claim Statement:-
Claim Nature of claim Amount upto Additional No. claim statement Claim in Rs.
1. Financial Impact due to 144,03,21,479/- --
change in ground condition
2. Financial Impact due to 92,93,61,985/- --
delay/non issuance of permits for borrow earth areas
3. Financial Impact due to 379, 70,00,237/- --
escalation in costs due to
prolonged construction
beyond 24 months
3[i] Additional interest on term 43,39,42,888/- 71,83,99,817/-
loan and promoter's fund
3[ii] Loss of Bonus 62,12,91,213/- --
3[iii] Addl. Cost of plant, 228,89,08,598/- 251,01,68,771/-
[a to c] machinery & overheads
3[iii] [a] Addl. Cost of plant & 124,68,74,422/- 144,01,89,441/-
machinery
3[iii] [b]
Addl. Cost of overheads 81,20,00,000/- 82,21,50,000/-
3[iii] [c]
Addl. Time dependent cost 23,00,34,176/- 24,78,29,330/-
3[iv] Material Escalation 45,38,57,538/- 53,11,39,568/-
Total of 616,66,83,701/- 675,06,82,833/-
claims
1 to 3
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O.S.A.(Cad) Nos.75 and 76 of 2022
Therefore, the respondent/claimant has claimed the following reliefs in their Claim Statement and Updated/Supplemental Claim Statement :-
A] Direct the appellant to pay to the respondent/claimant a sum of Rs.675,06,82,833/- [Rupees six hundred and seventy five crores, six lakhs, eighty two thousands and eight hundred and thirty three] as set out in the above table.
B] Direct the appellant to pay interest, both pendente lite and future interest at the rate set out in clause 47.5 of the Concession Agreement from the date the respective sums became due until the date of payment.
3. The brief case of the appellant is as follows:-
(i) According to the appellant, the claims made by the respondent/claimant are not maintainable since they do not fall within the scope of the agreement as the agreement is DBFOT in nature and the claims made by the respondent/claimant are barred by limitation.
Further, the final impact due to the change in alignment and ground condition is liable to be rejected since they are not attributable to the appellant. The stand taken by the respondent/claimant that the quantity Page 6/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 of earth work estimated at the time of bid and the levels before commencing the work had huge differences and therefore, the respondent/claimant had to procure extra borrow earth cannot be accepted. That apart, the appellant has not stated any earth work quantity in respect of ROW, but clearly given ground levels for the centre line for the entire stretch of 29.5 km alone. Further, since the project is DBFOT basis, the increase or decrease in earth quantities cannot be attributable to the appellant. The respondent/claimant, without any proof or evidence, made claim for additional earth quantity.
(ii) According to the appellant, the responsibility of the respondent/claimant is to maintain a strict vigil over the site as per Article 10.3.3 of the agreement and the respondent/claimant, having failed to maintain a strict vigil, cannot blame the appellant. Further, the obligation of the respondent/claimant is to procure all necessary permits from the Government instrumentalities and the obligation of the appellant is confined only to provide reasonable support and assistance to the respondent/claimant in obtaining necessary permits. The appellant has taken necessary steps to provide reasonable support and assistance in this regard.
Page 7/142https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022
(iii) As far as the claim in respect of the prolonged construction beyond 24 months is concerned, the delay is not attributable to the appellant, but attributable to the respondent-claimant. The respondent/claimant only unilaterally fixed the period of 24 months for completing the project, instead of 30 months specified by the appellant.
There is no delay on the part of the Independent Engineer in approving drawings. It is the responsibility of the respondent/claimant to submit the detailed and correct drawings in accordance with the specifications of the agreement and the appellant cannot be blamed for furnishing drawings that are not in confirmation with the specifications. The respondent/claimant is solely liable to obtain necessary permits, clearance and approval to facilitate land acquisition from National Highways Authority of India and the appellant has no obligation in this regard. Therefore, if there was any delay in getting approval, it shall be attributable to the respondent/claimant and not to the appellant.
(iv) According to the appellant, if there is delay in approval of Railway Drawings, it is attributable to the respondent/claimant, since it is Page 8/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 the responsibility of the respondent/claimant to obtain approval from the Railways. With regard to the delay in shifting utilities and removing encroachment, it is the responsibility of the respondent/claimant.
Further, additional interest on term loan and promoters fund has to be borne by the respondent/claimant. Since, the delay is attributable to the respondent/claimant, additional cost on plant, machinery and overheads have to be borne by the respondent/claimant and the same will apply to the material escalation cost also.
4. On the basis of the above pleadings, the learned Arbitral Tribunal framed the following issues :
1. Whether the claims are maintainable in view of the nature of the contract entered into between the parties?
2. Whether the claimant/respondent have complied with the respective obligation in respect of the contract entered into between them?
3. Whether the claimant is entitled to the claim made in its claim statement?Page 9/142
https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022
4. Whether the claimant is entitled to any interest and if so, what is the rate of interest?
5. Whether the claimant/respondent is entitled to any cost and if so, what is the costs?
6. To what relief the parties are entitled to? Additional Issue framed by the Tribunal :
1. Whether the claim raised by the claimant is barred by limitation?
5. Before the Arbitral Tribunal, on the side of the respondent/claimant, 2 witnesses were examined and 115 documents, Exs.C-1 to C-115 were marked and on the side of the respondent, R.W.1 was examined and 58 documents, Exs. R-1 to R-58 were marked.
The court documents were marked as Exs.X-1 to X-6.
6. Considering the submissions made by both the parties, the learned Arbitral Tribunal has passed following Award :
“In the result, an award is passed directing the respondent to pay to the claimant a sum of Page 10/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 Rs.340,97,02,243/- within 3 months from the date of Award, failing which, the same shall be payable with interest at 18% p.a. from the date of Award till the date of realization.”
7. Aggrieved over the findings of the Arbitral Tribunal, the respondent has filed the Original Petitions under Section 34 of the Arbitration and Conciliation Act, 1996, to set aside the Award dated 30.01.2020 passed by the Arbitral Tribunal.
8. The learned Single Judge, after taking into consideration the case of both the parties passed the following order in the Original Petitions:-
“ Original Petition in O.P.No.124 of 2021 challenging the entire award of the Tribunal is dismissed and Original Petition in O.P.No.285 of 2021 is allowed and pendentilite interest at the rate of 9% is substituted.
9. Challenging the common order passed in O.P.Nos. 124 and 285 of 2021, the Government of Tamil Nadu, petitioner in the Original Petitions, has filed the above Original Side Appeals.
10. Heard Mr.R.Shanmugasundaram, learned Advocate General, Page 11/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 appearing for the appellant and Mr. Aravind B.Datar and Mr. Sathish Parasaran, learned Senior Counsels appearing for the respondent.
11.1 Mr. R.Shanmugasundaram, learned Advocate General, submitted that the claims are barred by limitation, since the arbitration was invoked after three years from the time, they were rejected by the Independent Engineer. The role of Engineer has been clearly described in the Agreement under Article 23 (Vol.2 pg. 58 and 59). Even assuming, without admission that the Independent Engineer's decision cannot be taken as proper denial, it is to be seen that the respondent thereafter did not raise any protest and the respondent is said to have acquired the constructive knowledge of the denial of its claim through Independent Engineer's decision. Whereas, as per Article 23, the decision of Independent Engineer is mandatory and gives rise to cause of action.
The Independent Engineer is empowered to take decisions including the decision of the costs as per Article 23 (Vol2 Pg.58) and Schedule Q (Vol-2 Pg.218) of the contract. If the decision is not challenged and it has been accepted, then it has to be complied with. Failure to comply with the decision of the Independent Engineer would amount to breach Page 12/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 of contract. The claims are barred by limitation, since the arbitration was invoked after three years from the time, they were rejected by the Independent Engineer. The learned Advocate General submitted that the claims are not raised as per the terms of the Concession Agreement. The impugned Award is hit by Section 28(2) and 28(3) of the Arbitration and Conciliation Act. The only data given by the respondent/claimant is centre line coordinates and the respondent/claimant has not even pleaded that it was changed.
11.2 The learned Advocate General further submitted that it was the duty of the respondent/claimant to fix the ROW boundary during the development period as per the site condition based on the Central Line GPS Coordinates under the contract. As per the site condition, if there is any change in the boundary pillars due to various reasons including missing boundary pillars due to theft or displacement of pillars or pits or ponds, it would not amount to change in the data already provided under the contract, which is for the central line and thus, the contract data did not change. The position of the ROW pillars alone needs to be adjusted within the 72 meters of the road width. Hence, there is no change in Page 13/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 alignment at all. Since ROW boundary coordinates were not provided under the contract, there cannot be any breach of contract. Hence, there is no breach of contract. The contractor cannot find fault with the agreement after executing the agreement after conducting due diligence before entering into the contract on the actual site conditions. It was the duty of the contractor to ascertain the actual site conditions for designing, engineering and for precise estimation and projections for the project inasmuch as this is DBFOT contract. The learned Advocate General submitted that the Arbitral Tribunal has granted 25% of the Claim No.1 without any justification or sanctity for fixing 25%.
11.3 The learned Advocate General submitted that the delay in issuance of permit for borrow earth, the power is vested with the Collector of the District under the Minor Mineral Concession Rules, 1959 to grant permit within the Terms and Rules contained therein. The appellant has no authority to compel the District Collector to grant permit.
11.4 The learned Advocate General further submitted that the Page 14/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 Tribunal has not looked into the waiver sought for by the respondent/claimant on 01.06.2010 and the waiver granted by the Government on 02.06.2010. In view of the waiver granted by the Government on specific condition that they are not responsible for any delay or damages, the 2nd claim is not maintainable. Further, the Tribunal has not looked into the Government Order made in G.O.Ms.No.122, dated 12.07.2013, granting Extension of Time (EoT) for 202 days without any financial implication.
11.5 The learned Advocate General submitted that once the site is handed over to the Concessionaire, it is the duty of the Concessionaire, to have round the clock vigil to protect the site from any encroachment or occupation as per Article 10.3.3.
11.6 The learned Advocate General submitted that the Tribunal having accepted the claim of the respondent/claimant on the basis of 24 months is erroneous, ought to have rejected 3rd claim in limine. The construction period is 913 days plus 202 days (extended time) and no claim can be raised for this period, as the extension was granted without Page 15/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 financial implication. However, the Tribunal awarded 3rd claim for the period beyond 30 months, ignoring the EoT of 202 days. Hence, the learned Advocate General submitted that once the respondent/claimant has not objected for the EoT without financial implications, they are estopped from raising any claims for that period.
11.7 The learned Advocate General further submitted that the learned Single Judge ought not to have granted pendente lite interest and that the learned Single Judge ought to have either set aside the award of the Arbitral Tribunal or remanded the matter back to the Arbitral Tribunal. Further, awarding pendente lite interest amounts to modifying the award and the same is not permissible.
11.8 The learned Advocate General also submitted that the object, scope and nature of appeal under Chapter IX Section 37 is very much wider in manifestation than scope under Section 34 under Chapter VII.
The appeal under Section 37 is not confined itself only as appeal against order under Section 34 alone. The appeal against orders passed under Sections 8, 9, 16, 17 and 34 of Arbitration and Conciliation Act also lies Page 16/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 under Section 37. Therefore, the appeal against each of these Sections has different scope, operation and purpose under the Act. Hence, Section 37 plays variety of roles than Section 34.
11.9 The learned Advocate General appearing for the appellant, in support of his contentions, has relied upon the following judgments:-
(i) 1988( 2) SCC 338 [Major (Retd.) Inder Singh Rekhi v.
Delhi Development Authority], wherein the Hon'ble Supreme Court held as follows:-
“.... 4. Therefore, in order to be entitled to order of reference under Section 20, it is necessary that there should be an arbitration agreement and secondly, difference must arise to which this agreement applied. In this case, there is no dispute that there was an arbitration agreement. There has been an assertion of claim by the appellant and silence as well as refusal in respect of the same by respondent. Therefore, a dispute has arisen regarding non-payment of the alleged dues of the appellant. The question is for the present case when did such dispute arise. The High Court proceeded on the basis that the work was completed in 1980 and therefore, the appellant became entitled to the payment from that date and the cause of action under Article 137 arose from that date. But in order to be entitled to ask for a reference under Section 20 of the Act there must not only be an entitlement to money but there must be a difference or dispute must arise. It is true that on completion of the work a right to get payment would Page 17/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 normally arise but where the final bills as in this case have not been prepared as appears from the record and when the assertion of the claim was made on 28- 2-1983 and there was non-payment, the cause of action arose from that date, that is to say, 28-2-1983. It is also true that a party cannot postpone the accrual of cause of action by writing reminders or sending reminders but where the bill had not been finally prepared, the claim made by a claimant is the accrual of the cause of action. A dispute arises where there is a claim and a denial and repudiation of the claim. The existence of dispute is essential for appointment of an arbitrator under Section 8 or a reference under Section 20 of the Act. See Law of Arbitration by R.S. Bachawat, first edition, page 354. There should be dispute and there can only be a dispute when a claim is asserted by one party and denied by the other on whatever grounds. Mere failure or inaction to pay does not lead to the inference of the existence of dispute. Dispute entails a positive element and assertion of denying, not merely inaction to accede to a claim or a request. Whether in a particular case a dispute has arisen or not has to be found out from the facts and circumstances of the case. ...........”
(ii) 1993(4) SCC 338 [Panchu Gopal Bose v. Board of Trustees For Port of Calcutta], wherein the Hon'ble Supreme Court held as follows:-
“........ 9. In Pegler v. Railway Executive [1948 AC 332, 338 : (1948) 1 All ER 559] House of Lords held that just as in the case of actions the claim is not to be brought after the expiration of a specified number of years from the date on which the cause of action accrued, so in the case of arbitrations, the claim Page 18/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 is not to be put forward after the expiration of the specified number of years from the date when the claim accrued. While accepting the interpretation put up by Atkinson, J. as he then was in the judgment under appeal, learned Law Lords accepted the conclusion of Atkinson, J. in the language thus: “the cause of arbitration” corresponding to “the cause of action” in litigation “treating a cause of arbitration in the same way as a cause of action would be treated if the proceeding were in a court of law”.
10. In West Riding of Yorkshire County Council v. Huddersfield Corpn. [(1957) 1 All ER 669] the Queens Bench Division, Lord Goddard, C.J.
(as he then was) held that the Limitation Act applies to arbitrations as it applies to actions in the High Court and the making, after a claim has become statute-barred, of a submission of it to arbitration, does not prevent the statute of limitation being pleaded. Russel on Arbitration, 19th Edn., reiterates the above proposition. At page 4 it was further stated that the parties to an arbitration agreement may provide therein, if they wish, that an arbitration must be commenced within a shorter period than that allowed by statute; but the court then has power to enlarge the time so agreed. The period of limitation for commencing an arbitration runs from the date on which the cause of arbitration accrued, that is to say, from the date when the claimant first acquired either a right of action or a right to require that an arbitration takes place upon the dispute concerned.
11. Therefore, the period of limitation for the commencement of an arbitration runs from the date on which, had there been no arbitration clause, the cause of action would have accrued. Just as in the case of Page 19/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 actions the claim is not to be brought after the expiration of a specified number of years from the date on which the cause of action accrued, so in the case of arbitrations, the claim is not to be put forward after the expiration of the specified number of years from the date when the claim accrued.
...
13. The Law of Arbitration by Justice Bachawat in Chapter 37 at p. 549 it is stated that just as in the case of actions the claim is not to be brought after the expiration of a specified number of years from the date when the claim accrues, so also in the case of arbitrations, the claim is not to be put forward after the expiration of a specified number of years from the date when the claim accrues. For the purpose of Section 37(1) ‘action’ and ‘cause of action’ in the Limitation Act should be construed as arbitration and cause of arbitration. The cause of arbitration, therefore, arises when the claimant becomes entitled to raise the question, i.e. when the claimant acquires the right to require arbitration. The limitation would run from the date when cause of arbitration would have accrued, but for the agreement. ..........”
(iii) 2004 (5) SCC 109 [Bharat Coking Coal Ltd v. L.K. Ahuja ], wherein the Hon'ble Supreme Court held as follows:-
“ .......11. There are limitations upon the scope of interference in awards passed by an arbitrator. When the arbitrator has applied his mind to the pleadings, the evidence adduced before him and the terms of the contract, there is no scope for the court to reappraise the matter as if this were an appeal and even if two views are possible, the view taken by the Page 20/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 arbitrator would prevail. So long as an award made by an arbitrator can be said to be one by a reasonable person no interference is called for. However, in cases where an arbitrator exceeds the terms of the agreement or passes an award in the absence of any evidence, which is apparent on the face of the award, the same could be set aside.
......
24. Here when claim for escalation of wage bills and price for materials compensation has been paid and compensation for delay in the payment of the amount payable under the contract or for other extra works is to be paid with interest thereon, it is rather difficult for us to accept the proposition that in addition 15% of the total profit should be computed under the heading “Loss or Profit”. It is not unusual for the contractors to claim loss of profit arising out of diminution in turnover on account of delay in the matter of completion of the work. What he should establish in such a situation is that had he received the amount due under the contract, he could have utilised the same for some other business in which he could have earned profit. Unless such a plea is raised and established, claim for loss of profits could not have been granted. In this case, no such material is available on record. In the absence of any evidence, the arbitrator could not have awarded the same. This aspect was very well settled in Sunley (B) & Co.
Ltd. v. Cunard White Star Ltd. [(1940) 1 KB 740 :
(1940) 2 All ER 97 (CA)] by the Court of Appeal in England. Therefore, we have no hesitation in deleting a sum of Rs 6,00,000 awarded to the claimant. .........”
(iv) 2009 (12) SCC 1 [State Of Rajasthan & Anr v. Ferro Page 21/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 Concrete Construction Private Limited], wherein the Hon'ble Supreme Court held as follows:-
“ ....... 54. In fact even though there is no evidence, while making Claims 36 and 37 the contractor has given value of the plant and machinery as Rs 36,84,161. Even assuming the said figure to be true, at best the blocked up investment was only Rs 36,84,161 and the loss would be around 1% thereon per month by way of interest which would be Rs 36,841 per month. What is more strange is nowhere in the award the arbitrator considers the validity of the claim of Rs 12,072 per day nor accepts the said claim as valid or correct. In a reasoned award if the claim of a contractor is equated to proof of the claim, then it is obviously a legal misconduct and an error apparent on the face of the award.
55. While the quantum of evidence required to accept a claim may be a matter within the exclusive jurisdiction of the arbitrator to decide, if there was no evidence at all and if the arbitrator makes an award of the amount claimed in the claim statement, merely on the basis of the claim statement without anything more, it has to be held that the award on that account would be invalid. Suffice it to say that the entire award under this head is wholly illegal and beyond the jurisdiction of the arbitrator, and wholly unsustainable. . ............”
(v) 2002 (4) SCC 45 [General Manager,Northern Railway and another v. Sarevesh Chopra], wherein the Hon'ble Supreme Court held Page 22/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 as follows:-
15. In our country question of delay in performance of the contract is governed by Sections 55 and 56 of the Indian Contract Act, 1872. If there is an abnormal rise in prices of material and labour, it may frustrate the contract and then the innocent party need not perform the contract. So also, if time is of the essence of the contract, failure of the employer to perform a mutual obligation would enable the contractor to avoid the contract as the contract becomes voidable at his option. Where time is “of the essence” of an obligation, Chitty on Contracts (28th Edn., 1999, at p. 1106, para 22-015) states “a failure to perform by the stipulated time will entitle the innocent party to (a) terminate performance of the contract and thereby put an end to all the primary obligations of both parties remaining unperformed; and (b) claim damages from the contract-breaker on the basis that he has committed a fundamental breach of the contract (‘a breach going to the root of the contract’) depriving the innocent party of the benefit of the contract (‘damages for loss of the whole transaction’)”.
If, instead of avoiding the contract, the contractor accepts the belated performance of reciprocal obligation on the part of the employer, the innocent party i.e. the contractor, cannot claim compensation for any loss occasioned by the non-performance of the reciprocal promise by the employer at the time agreed, “unless, at the time of such acceptance, he gives notice to the promisor of his intention to do so”. Thus, it appears that under the Indian law, in spite of there being a contract between the parties whereunder the Page 23/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 contractor has undertaken not to make any claim for delay in performance of the contract occasioned by an act of the employer, still a claim would be entertainable in one of the following situations: (i) if the contractor repudiates the contract exercising his right to do so under Section 55 of the Contract Act,
(ii) the employer gives an extension of time either by entering into supplemental agreement or by making it clear that escalation of rates or compensation for delay would be permissible, (iii) if the contractor makes it clear that escalation of rates or compensation for delay shall have to be made by the employer and the employer accepts performance by the contractor in spite of delay and such notice by the contractor putting the employer on terms.
(vi) 2015 (3) SCC 49 [Associate Builders v. Delhi Development Authority ], wherein the Hon'ble Supreme Court held as follows:-
“ .... 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.
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 Page 24/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 certain specified circumstances.
..
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) “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 public good and the public interest. What is for public good or in 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 public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term ‘public policy’ in 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—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 trivial nature it cannot be held Page 25/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 that 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 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 of 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 Page 26/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022
(b) failing such agreement, the arbitral procedure was not in accordance with Part I of the Act.
However, exception for setting aside the award on the ground of composition of 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:
(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 specific stipulation in the agreement that the time and date of delivery of the goods was 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;Page 27/142
https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022
(iii) it was also explicitly understood that the agreed liquidated damages were genuine pre- estimate of damages;
(iv) on the request of the respondent to extend the time-limit for 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 unreasonable;
(vii) in certain contracts, it is impossible to assess the damages or prove the same. Such situation is taken care of by Sections 73 and 74 of the Contract Act and in the present case by specific terms of the contract.” ..................
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
(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;Page 28/142
https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 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.
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 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.” ...............
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. ......” Page 29/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022
(vii) 2008 (2) SCC 444 [J.C. Budhraja v. Chairman, Orissa Mining corporation Ltd., and another], wherein the Hon'ble Supreme Court held as follows:-
“............26. Section 37(3) of the Act provides that for the purpose of the Limitation Act, an arbitration is deemed to have been commenced when one party to the arbitration agreement serves on the other party thereto, a notice requiring the appointment of an arbitrator. Such a notice having been served on 4-6-1980, it has to be seen whether the claims were in time as on that date. If the claims were barred on 4-6- 1980, it follows that the claims had to be rejected by the arbitrator on the ground that the claims were barred by limitation. The said period has nothing to do with the period of limitation for filing a petition under Section 8(2) of the Act. Insofar as a petition under Section 8(2) is concerned, the cause of action would arise when the other party fails to comply with the notice invoking arbitration. Therefore, the period of limitation for filing a petition under Section 8(2) seeking appointment of an arbitrator cannot be confused with the period of limitation for making a claim. The decisions of this Court in Major (Retd.) Inder Singh Rekhi v. DDA [(1988) 2 SCC 338] , Panchu Gopal Bose v. Board of Trustees for Port of Calcutta [(1993) 4 SCC 338] and Utkal Commercial Corpn. v. Central Coal Fields Ltd. [(1999) 2 SCC 571] also make this position clear.
27. The appellant next contended, relying on Section 18 of the Limitation Act, that as there was acknowledgment of liability in regard to Contract No. 30/F-2 in the letter dated 28-10-1978, and the notice invoking arbitration was issued on 4-6-1980 within 3 years from 28-10-1978, he was at liberty to make any Page 30/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 claim in regard to the contract before the arbitrator (even though such claims had not been earlier made) and all such claims shall have to be treated as being within the period of limitation. Such a contention cannot be countenanced. As noticed above, the cause of action arose on 14-4-1977. But for the acknowledgment on 28-10-1978, on the date of invoking arbitration (4-6-1980), the claims would have been barred by time as being beyond the period of limitation. The limitation is extended only in regard to the liability which was acknowledged in the letter dated 28-10-1978. It is not in dispute that either on 28-10-1978 or on 4-3-1980, the contractor had not made the fresh claims aggregating to Rs 67,64,488 and the question of such claims made in future for the first time on 27-6-1986, being acknowledged by OMC on 28-10-1998 did not arise.
28. Another aspect requires to be noticed. The contractor was N.C. Budhraja. The original claim (which was the subject-matter of letter dated 28-10-
1978, subjected to examination by the committee as per report dated 7-12-1979, and towards which Rs 3,50,000 was paid) made by the contractor N.C. Budhraja aggregated to Rs 50,15,820. The appellant who is his LR cannot for the first time make a fresh claim before the arbitrator, which was never made by N.C. Budhraja. The appellant could only pursue the claim made by N.C. Budhraja, which were pending or subsisting when N.C. Budhraja issued the notice dated 4-6-1980.
........
33. The award of the arbitrator in respect of time-barred claim of Rs 67,64,488 is an error apparent on the face of the award. Award of amounts in excess Page 31/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 of claim (referred to in Paras 22, 23 and 24) clearly amount to exceeding the jurisdiction. All these, that is, awarding amount towards time-barred part of the claim of Rs 67,64,488, and awarding amounts of Rs 29,86,871, Rs 6,70,285 and escalation in cost at a rate more than what is claimed, are all legal misconducts and the award in regard to those amounts are null and void. There is however some overlapping of the aforesaid amounts. . ..........”
(viii) 2018 (16) SCC 758 [ Lion Engineering Consultants v. The State of Madhya Pradesh ], wherein the Hon'ble Supreme Court held as follows:-
“ .... 3. Learned Advocate General for the State of M.P. submitted that the amendment sought is formal. Legal plea arising on undisputed facts is not precluded by Section 34(2)(b) of the Act. Even if an objection to jurisdiction is not raised under Section 16 of the Act, the same can be raised under Section 34 of the Act. It is not even necessary to consider the application for amendment as it is a legal plea, on admitted facts, which can be raised in any case. He thus submits the amendment being unnecessary is not pressed. Learned Advocate General also submitted that observations in M/s MSP Infrastructure Ltd. (supra), particularly in Paragraphs 16 and 17 do not laid down correct law.
4. We find merit in the contentions raised on behalf of the State. We proceed on the footing that the amendment being beyond limitation is not to be allowed as the amendment is not pressed. We do not see any bar to plea of jurisdiction being raised by way Page 32/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 of an objection under Section 34 of the Act even if no such objection was raised under Section 16. .......”
(ix) 2021 SC Online SC 473 [ Lion Engineering Consultants v. The State of Madhya Pradesh ], wherein the Hon'ble Supreme Court held as follows:-
“ ........... 40. It can therefore be said that this question has now been settled finally by at least 3 decisions of this Court. Even otherwise, to state that the judicial trend appears to favour an interpretation that would read into Section 34 a power to modify, revise or vary the award would be to ignore the previous law contained in the 1940 Act; as also to ignore the fact that the 1996 Act was enacted based on the UNCITRAL Model Law on International Commercial Arbitration, 1985 which, as has been pointed out in Redfern and Hunter on International Arbitration, makes it clear that, given the limited judicial interference on extremely limited grounds not dealing with the merits of an award, the ‘limited remedy’ under Section 34 is co- terminus with the ‘limited right’, namely, either to set aside an award or remand the matter under the circumstances mentioned in Section 34 of the Arbitration Act, 1996. ..........”
(x) 2021 SC Online SC 1027 [ Lion Engineering Consultants v. The State of Madhya Pradesh ], wherein the Hon'ble Supreme Court held as follows:-
“.....23.We are afraid, the plea of waiver taken Page 33/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 against the appellant-State on the ground that it did not raise such an objection in the grounds spelt out in the Section 34 petition and is, therefore, estopped from taking the same in the appeal preferred under Section 37 or before this Court, would also not be available to the respondent-Company having regard to the language used in Section 34(2A) of the 1996 Act that empowers the Court to set aside an award if it finds that the same is vitiated by patent illegality appearing on the face of the same. Once the appellant-State had taken such a ground in the Section 37 petition and it was duly noted in the impugned judgment, the High Court ought to have interfered by resorting to Section 34(2A) of the 1996 Act, a provision which would be equally available for application to an appealable order under Section 37 as it is to a petition filed under Section 34 of the 1996 Act. In other words, the respondent-Company cannot be heard to state that CIVIL APPEAL NO. 4353 OF 2010 the grounds available for setting aside an award under sub-Section (2A) of Section 34 of the 1996 Act could not have been invoked by the Court on its own, in exercise of the jurisdiction vested in it under Section 37 of the 1996 Act. Notably, the expression used in the sub-rule is “the Court finds that”. Therefore, it does not stand to reason that a provision that enables a Court acting on its own in deciding a petition under Section 34 for setting aside an Award, would not be available in an appeal preferred under Section 37 of the 1996 Act.Page 34/142
https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 12.1 Countering the submissions made by the learned Advocate General appearing for the appellant, Mr.Aravind B.Datar and Mr.Sathish Parasaran, learned Senior Counsels appearing for the respondent submitted that the disputes and claims referred to arbitration arose from the rejection of monetary claims by the Tamil Nadu Government, which were never the subject matter of the letters relied on by the Tamil Nadu Government in the arguments. In any event, the subject matter was not even within the Independent Engineer's jurisdiction under the Terms of Reference included in the Concession Agreement in Article 23.2.1 read with Schedule Q. Schedule Q sets out power of the Independent Engineer. None of the provisions thereof empower the Independent Engineer to advice, instruct, decide, direct or make an Award with respect to any of the disputes and claims made in the arbitration i.e. monetary claims arising out of breaches by Tamil Nadu Government. Thus, Article 23.6 of the Concession Agreement is wholly inapplicable. Without prejudice to the above, the learned Senior Counsels submitted that the cause of action for referring disputes to arbitration was the decision of Tamil Nadu Government through TNRDC to reject the claim which was communicated on 24.02.2015.
Page 35/142https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 The said rejection constituted breach of Contract by Tamil Nadu Government. Hence, the period of limitation (3 years) started to run under Article 55 of the Schedule to the Limitation Act from 25.02.2015.
Even otherwise, when the road construction works were completed only on 15.06.2013 and the said completion date was determined by the Independent Engineer in the provisional Completion Certificate dated 08.04.2014, the cause of action could never have arisen before the completion has been certified.
12.2. The learned Senior Counsels appearing for the respondent further submitted that the contention of the learned Advocate General that there was no change in alignment is once again contrary to the facts on record and the findings of fact made by the Tribunal which is unassailable under the narrow scope of Section 34 of the Act and even more restricted under Section 37, as the finding is based on documentary evidence on record and is not even contended to be perverse or without evidence.
12.3. The learned Senior Counsels appearing for the respondent Page 36/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 further submitted that though the contract provided for an obligation on GMR to obtain borrow earth permit as a condition precedent and the same was waived on GMR's request, that was a consequence of Government of Tamil Nadu itself not making the borrow earth available despite it being in their power and control to do so. The waiver was in recognition of the fact that there cannot be an obligation on a party to obtain a statutory permission, since obtaining the same is beyond the control of a private party. Therefore, the appellant cannot take advantage of its own wrong in failing to make borrow earth permits available within the time stipulated for satisfaction of condition precedent.
12.4 The learned Senior Counsels appearing for the respondent further submitted that in the Concession Agreement it was GMR's obligation to obtain permit for borrow earth. However, admittedly Railways and NHAI refused to deal directly with GMR, but only dealt with Government of Tamil Nadu. There was delay by Government of Tamil Nadu in signing an agreement with NHAI which was a pre-
condition for permits. The agreement was signed in October 2011, Page 37/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 which was about 1½ years after construction commenced. The Railways also refused to deal with GMR directly, which is evidenced by their letter dated 10.09.2010. Hence, extension of time was granted acknowledging that these delays were not attributable to GMR.
12.5 The learned Senior Counsels further submitted that challenge laid by the appellant in the Award dated 30.01.2020 has been negatived and the learned Single Judge ordered pre-award interest at the rate of 9% per annum based on the contractual provisions. The claims made by the appellant under Section 34 of the Arbitration and Conciliation Act, 1996, are ex facie untenable, since they do not fall under the narrow scope of interference of this Court under Section 34 of the Act as enumerated in the judgments of the Hon'ble Supreme Court of India and the even more restricted scope of interference under Section 37 of the Act.
12.6 The learned Senior Counsels for the respondent submitted that the challenge under Section 34 of the Act was on factual aspects or on interpretation of Concession Agreement, neither of which fell within Page 38/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 the grounds available under Section 34(2)(a) or 34(2)(b) or 34(2-A) of the Act. The learned Senior Counsels submitted that the scope of interference in an appeal preferred under Section 37 of the Act, as in the present appeals, is narrower than the grounds available in an application under Section 34 of the Act, which by itself is restricted in scope as per the law laid down by the Hon'ble Supreme Court of India in several judgments. The learned Senior Counsels also submitted that the law pertaining to interference by the Appellate Court under Section 37 of the Act to be narrower in scope than enquiry under Section 34 of the Act and this position of law has been enunciated in several judgments.
12.7 The learned Senior Counsels appearing for the respondent, in support of his contentions, has relied upon the following judgments:-
(i) 2022 (4) SCC 116 [UHL Power Co. Ltd. v. State of H.P ], wherein the Hon'ble Supreme Court held as follows:-
“ ..... 15. This Court also accepts as correct, the view expressed by the appellate court that the learned Single Judge committed a gross error in reappreciating the findings returned by the Arbitral Tribunal and taking an entirely different view in Page 39/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 respect of the interpretation of the relevant clauses of the implementation agreement governing the parties inasmuch as it was not open to the said court to do so in proceedings under Section 34 of the Arbitration Act, by virtually acting as a court of appeal.
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 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 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, Page 40/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 compliance with the 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.”
(ii) 2019) 15 SCC 131 [S. Ssangyong Engg. & Construction Co. Ltd. v. National Highways Authority of India ], wherein the Hon'ble Supreme Court held as follows:-
“...............21. It is important to note that Sections 34(2)(b) and 48(2)(b) of the 1996 Act, before their amendment in 2015, stated as follows:
34. Application for setting aside arbitral award.
— (1) * * * (2) An arbitral award may be set aside by the court only if— ***
(b) the court finds that—
1. the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
2. (ii) the arbitral award is in conflict with the public policy of India.
Explanation.—Without prejudice to the generality of sub-clause (ii) it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in Page 41/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 violation of Section 75 or Section 81.
48. Conditions for enforcement of foreign awards.— (1) * * * (2) Enforcement of an arbitral award may also be refused if the court finds that— ***
(b) the enforcement of the award would be contrary to the public policy of India.
Explanation.—Without prejudice to the generality of clause (b) of this Section, it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption.” It will thus be seen that whether the ground of “public policy of India” is used to set aside an award under Section 34, or to refuse recognition and enforcement of a foreign award under Section 48, Section 34(2)(b) ought to have been construed in the same manner as Section 48(2)(b).
25. It is at this stage that certain fundamental changes were made in the law pursuant to the 246th Report of the Law Commission of India (the Law Commission Report) of August 2014. The Law Commission Report first suggested an amendment to the Preamble of the 1996 Act as follows:
“Amendment to the Preamble After the words aforesaid “Model Law and Rules” the following be inserted:
And whereas it is further required to improve the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign Page 42/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 arbitral awards as also to define the law relating to conciliation, in order to provide a fair, expeditious and cost-effective means of dispute resolution; [Note.—This amendment is proposed in order to further demonstrate and reaffirm the Act's focus on achieving the objectives of fairness, speed and economy in resolution of disputes through arbitration.]” ........................
32. Section 28(3), before the Amendment Act, read as follows:
“28. Rules applicable to substance of dispute.—(1)- (2) * * * (3) In all cases, the Arbitral Tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction.” Section 28(3), after amendment, reads as follows:
“28. Rules applicable to substance of dispute.—(1)- (2) * * * (3) While deciding and making an award, the Arbitral Tribunal shall, in all cases, take into account the terms of the contract and trade usages applicable to the transaction.” Section 34(2)(b)(ii), after amendment, reads as follows:
“34. Application for setting aside arbitral award.— (1) * * * (2) An arbitral award may be set aside by the court only if— ***
(b) the court finds that—
(ii) the arbitral award is in conflict with the public policy of India.Page 43/142
https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 Explanation 1.—For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if—
(i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2.—For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.” Sub-Section (2-A) of Section 34 was also added, which reads as follows:
“34. Application for setting aside arbitral award.— (1)-(2) * * * (2-A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the court, if the court finds that the award is vitiated by patent illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.”
33. Correspondingly, Section 48 was also amended to bring the unamended Section 48 in line with the amendments made in Section 34, except that sub-Section (2-A) of Section 34 is missing in Section 48 as the said Section deals with recognition and enforcement of foreign awards. Section 48, post amendment, reads as follows:Page 44/142
https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 “48. Conditions for enforcement of foreign awards.— (1) * * * (2) Enforcement of an arbitral award may also be refused if the court finds that— ***
(b) the enforcement of the award would be contrary to the public policy of India.
Explanation 1.—For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if—
(i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2.—For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.”
34. What is clear, therefore, is that 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 [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] i.e. the fundamental policy of Indian law would be relegated to “Renusagar” understanding of this expression. This would necessarily mean that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] expansion has been done away with. In short, Western Page 45/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] , as explained in paras 28 and 29 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , would no longer obtain, as under the guise of interfering 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. However, 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 [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] .
35. It is important to notice that the ground for interference insofar as it concerns “interest of India” has since been deleted, and therefore, no longer obtains. Equally, 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 [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , as it is only such arbitral awards that shock the conscience of the court that can be set aside on this ground.
36. Thus, it is clear that public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as understood in paras 18 and 27 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , or secondly, that such award is against basic notions of justice or morality as understood in paras 36 to 39 of Associate Page 46/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] . Explanation 2 to Section 34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) was added by the Amendment Act only so that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] , as understood in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , and paras 28 and 29 in particular, is now done away with.
37. 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. 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.
38. Secondly, it is also 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.
39. To elucidate, para 42.1 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Para 42.2 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC Page 47/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 49 : (2015) 2 SCC (Civ) 204] , 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.
40. 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 [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , 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. Also, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under Section 34(2-A).
41. What is important to note is that a decision which is perverse, as understood in paras 31 and 32 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , while no longer being a ground for challenge under “public policy of India”, would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse.
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42. Given the fact that the amended Act will now apply, and that the “patent illegality” ground for setting aside arbitral awards in international commercial arbitrations will not apply, it is necessary to advert to the grounds contained in Sections 34(2)(a)(iii) and (iv) as applicable to the facts of the present case.
43. Sections 34(2)(a)(iii) and (iv) state as under:
“34. Application for setting aside arbitral award.— (1) * * * (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; 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:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or”
44. In Renusagar [Renusagar Power Co.
Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] , this Court dealt with a challenge to a foreign award Page 49/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 under Section 7 of the Foreign Awards (Recognition and Enforcement) Act, 1961 (the Foreign Awards Act). The Foreign Awards Act has since been repealed by the 1996 Act. However, considering that Section 7 of the Foreign Awards Act contained grounds which were borrowed from Article V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (the New York Convention), which is almost in the same terms as Sections 34 and 48 of the 1996 Act, the said judgment is of great importance in understanding the parameters of judicial review when it comes to either foreign awards or international commercial arbitrations being held in India, the grounds for challenge/refusal of enforcement under Sections 34 and 48, respectively, being the same.
45. After referring to the New York Convention, this Court delineated the scope of enquiry of grounds under Sections 34/48 (equivalent to the grounds under Section 7 of the Foreign Awards Act, which was considered by the Court), and held :
(Renusagar case [Renusagar Power Co.
Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] , SCC pp. 671-72 & 681-82, paras 34-37 & 65-66) “34. Under the Geneva Convention of 1927, in order to obtain recognition or enforcement of a foreign arbitral award, the requirements of clauses (a) to (e) of Article I had to be fulfilled and in Article II, it was prescribed that even if the conditions laid down in Article I were fulfilled recognition and enforcement of the award would be refused if the court was satisfied in respect of matters mentioned in clauses
(a), (b) and (c). The principles which apply to recognition and enforcement of foreign awards are in substance, similar to those adopted by the English courts at common law. (See Dicey & Morris, The Page 50/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 Conflict of Laws, 11th Edn., Vol. I, p. 578.) It was, however, felt that the Geneva Convention suffered from certain defects which hampered the speedy settlement of disputes through arbitration. The New York Convention seeks to remedy the said defects by providing for a much more simple and effective method of obtaining recognition and enforcement of foreign awards. Under the New York Convention the party against whom the award is sought to be enforced can object to recognition and enforcement of the foreign award on grounds set out in sub-clauses
(a) to (e) of Clause (1) of Article V and the court can, on its own motion, refuse recognition and enforcement of a foreign award for two additional reasons set out in sub-clauses (a) and (b) of Clause (2) of Article V. None of the grounds set out in sub- clauses (a) to (e) of Clause (1) and sub-clauses (a) and (b) of Clause (2) of Article V postulates a challenge to the award on merits.
35. Albert Jan van den Berg in his treatise The New York Arbitration Convention of 1958 : Towards a Uniform Judicial Interpretation, has expressed the view:
‘It is a generally accepted interpretation of the Convention that the court before which the enforcement of the foreign award is sought may not review the merits of the award. The main reason is that the exhaustive list of grounds for refusal of enforcement enumerated in Article V does not include a mistake in fact or law by the arbitrator. Furthermore, under the Convention the task of the enforcement judge is a limited one. The control exercised by him is limited to verifying whether an objection of a respondent on the basis of the grounds for refusal of Article V(1) is justified and whether the enforcement of the award would violate the public Page 51/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 policy of the law of his country. This limitation must be seen in the light of the principle of international commercial arbitration that a national court should not interfere with the substance of the arbitration.’ (p.
269)36. Similarly Alan Redfern and Martin Hunter have said:
‘The New York Convention does not permit any review on the merits of an award to which the Convention applies and, in this respect, therefore, differs from the provisions of some systems of national law governing the challenge of an award, where an appeal to the courts on points of law may be permitted.’ (Redfern & Hunter, Law and Practice of International Commercial Arbitration, 2nd Edn., p.
461.)
37. In our opinion, therefore, in proceedings for enforcement of a foreign award under the Foreign Awards Act, 1961, the scope of enquiry before the court in which award is sought to be enforced is limited to grounds mentioned in Section 7 of the Act and does not enable a party to the said proceedings to impeach the award on merits.**
65. This would imply that the defence of public policy which is permissible under Section 7(1)(b)(ii) should be construed narrowly. In this context, it would also be of relevance to mention that under Article I(e) of the Geneva Convention Act of 1927, it is permissible to raise objection to the enforcement of arbitral award on the ground that the recognition or enforcement of the award is contrary to the public policy or to the principles of the law of the country in which it is sought to be relied upon. To the same effect is the provision in Section 7(1) of the Protocol & Convention Act of 1837 which requires that the enforcement of the foreign award must not be Page 52/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 contrary to the public policy or the law of India. Since the expression “public policy” covers the field not covered by the words “and the law of India” which follow the said expression, contravention of law alone will not attract the bar of public policy and something more than contravention of law is required.
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 of 1927 and Section 7(1) of the Protocol and Convention Act of 1937. This would mean that “public 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 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 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 policy if such enforcement would be contrary to (i) Page 53/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality.” (emphasis supplied)
46. This judgment was cited with approval in Redfern and Hunter on International Arbitration by Nigel Blackaby, Constantine Partasides, Alan Redfern, and Martin Hunter (Oxford University Press, 5th Edn., 2009) (Redfern and Hunter) as follows:
“11.56. First, the New York Convention does not permit any review on the merits of an award to which the Convention applies. [This statement, which was made in an earlier edition of this book, has since been cited with approval by the Supreme Court of India in Renusagar Power Co. Ltd. v. General Electric Co. [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] The Court added that in its opinion ‘the scope of enquiry before the court in which the award is sought to be enforced is limited [to the grounds mentioned in the Act] and does not enable a party to the said proceedings to impeach the award on merits’.] Nor does the Model Law.
47. The same theme is echoed in standard textbooks on international arbitration. Thus, in International Commercial Arbitration by Gary B. Born (Wolters Kluwer, 2nd Edn., 2014) (Gary Born), the learned author deals with this aspect of the matter as follows:
“[12] No Judicial Review of Merits of Foreign or Non-Domestic Awards in Recognition Actions It is an almost sacrosanct principle of international arbitration that courts will not review the substance of arbitrators' decisions contained in foreign or non- domestic arbitral awards in recognition proceedings.Page 54/142
https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 Virtually every authority acknowledges this rule and virtually nobody suggests that this principle should be abandoned. When national courts do review the merits of awards, they labour to categorize their action as an application of public policy, excess of authority, or some other Article V exception, rather than purporting to justify a review of the merits.
[a] No Judicial Review of Awards Under New York and Inter-American Conventions Neither the New York Convention nor the Inter- American Convention contains any exception permitting non-enforcement of an award simply because the arbitrators got their decision on the substance of the parties' dispute wrong, or even badly wrong. This is reasonably clear from the language of the Convention, which makes no reference to the possibility of a review of the merits in Article V's exhaustive list of the exclusive grounds for denying recognition of foreign and non-domestic awards. There is also no hint in the New York Convention's drafting history of any authority to reconsider the merits of an arbitral award in recognition proceedings. Likewise, the prohibition against review of the merits of the arbitrator's decision is one of the most fundamental pillars of national court authority interpreting the Convention. This prohibition has repeatedly and uniformly been affirmed by national courts, in both common law and civil law jurisdictions. Simply put:“the court may not refuse to enforce an arbitral award solely on the ground that the arbitrator may have made a mistake of law or fact” [Karaha Bodas Co. LLC v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara [Karaha Bodas Co. LLC v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 364 F 3d 274 (5th Cir 2004)] , F 3d at pp. 287-88]. Thus, in Page 55/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 the words of the Luxembourg Supreme Court [Judgment of 24-11-1993 [(1996) 21 YB Comm Arb 617 (Luxembourg Cour Supérieure de Justice)] , YB Comm Arb at p. 623]:
“The New York Convention does not provide for any control on the manner in which the arbitrators decide on the merits, with as the only reservation, the respect of international public policy. Even if blatant, a mistake of fact or law, if made by the Arbitral Tribunal, is not a ground for refusal of enforcement of the tribunal's award.” Or, as a Brazilian recognition decision under the Convention held [Judgment of 19-8-2009, Atecs Mannesmann GmbH v. Rodrimar S/A Transportes Equipamentos Industriais e Armazes Gerais [Atecs Mannesmann GmbH v. Rodrimar S/A Transportes Equipamentos Industriais e Armazes Gerais, (2010) 35 YB Comm Arb 330 (Brazilian Tribunal de Justiça)] , YB Comm Arb at p. 331]:
“These questions pertain to the merits of the arbitral award that, according to precedents from the Federal Supreme Court and of this Superior Court of Justice, cannot be reviewed by this Court since recognition and enforcement of a foreign award is limited to an analysis of the formal requirements of the award.” Commentators have uniformly adopted the same view of the Convention [see for e.g. K.-H. Böckstiegel, S. Kröll & P. Nacimiento, Arbitration in Germany 452 (2007)].” (emphasis supplied)
48. Likewise, the UNCITRAL Secretariat Guide on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) (2016 Edn.) (the UNCITRAL Guide on the New York Convention) also states:Page 56/142
https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 “9. The grounds for refusal under Article V do not include an erroneous decision in law or in fact by the Arbitral Tribunal. A court seized with an application for recognition and enforcement under the Convention may not review the merits of the Arbitral Tribunal's decision. This principle is unanimously confirmed in the case law and commentary on the New York Convention. .............”
(iii) (2020) 14 SCC 643 [Geo Miller & Co. (P) Ltd. v.
Rajasthan Vidyut Utpadan Nigam Ltd.,] wherein the Hon'ble Supreme Court held as follows:-
“ ..... 28. Having perused through the relevant precedents, we agree that on a certain set of facts and circumstances, the period during which the parties were bona fide negotiating towards an amicable settlement may be excluded for the purpose of computing the period of limitation for reference to arbitration under the 1996 Act. However, in such cases the entire negotiation history between the parties must be specifically pleaded and placed on the record. The Court upon careful consideration of such history must find out what was the “breaking point” at which any reasonable party would have abandoned efforts at arriving at a settlement and contemplated referral of the dispute for arbitration. This “breaking point” would then be treated as the date on which the cause of action arises, for the purpose of limitation. The threshold for determining when such a point arises will be lower in the case of commercial disputes, where the party's primary interest is in securing the payment due to them, than in family Page 57/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 disputes where it may be said that the parties have a greater stake in settling the dispute amicably, and therefore delaying formal adjudication of the claim. .........”
(iv) (2021) 6 SCC 150 [Oriental Structural Engineers (P) Ltd. v.
State of Kerala] wherein the Hon'ble Supreme Court held as follows:-
“ ......... 2. In the present proceeding, however, the only point of dispute on which arguments have been advanced before us is over entitlement of the appellants to receive interest on delayed payment on the subject heads, which were to be paid by the employer in local currency as per the stipulations in the said agreement. The agreement had provision for resolution of disputes by a Disputes Review Board (“DRB”) which was to make recommendations at the first instance. If the recommendations were not acceptable to any of the parties, such disagreeing party was required to give notice to commence arbitration within a specified time and thereafter the dispute was to be settled through arbitration. So far as the controversies out of which this appeal arises are concerned, disputes on three counts arose between the parties, which could not be resolved at the stage of DRB recommendations. Those disputes were referred to a three-member Arbitral Tribunal (“the Tribunal” in short). We have already referred to the scope of controversy involved in this appeal. This controversy shall be henceforth referred to in this judgment as dispute on delayed payment. We shall address that issue only in this judgment.
10. Before the Tribunal, the appellants had taken a point that the said letter of 14-7-2004 was Page 58/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 issued under coercion or duress. Their second plea on this count was that the content of the first letter was restricted to release of withheld amount recommended by the Review Board in respect of Interim Payment Certificate-I (“IPC-I”). The Tribunal accepted the stand of the appellants (claimants before it). It was, inter alia, observed in the award:
“The essential element of waiver is intentional relinquishment of known right. The claimant has stated that the said letter was given by them under coercion. This holds goods in view of the fact and circumstances of the case. It is also noted that the said letter dated 14-7-2004 (Ext. R-1) is not even mentioned in the defence statement dated 29-1-2005. Nor has this issue been raised before the DRB. So the argument of the respondent that the letter dated 14-7- 2004 (Ext. R-1) is a waiver of the rights of the claimant does not stand. The fact that this letter was issued at the time of receiving payment in respect of IPC-I suggests that this was given under coercion. The waiver does not apply to the instant case. This is corroborated by the fact that the claimant has been continually agitating for the payment of interest before and after the issuance of the said letter. As discussed earlier, payment of interest on unpaid sums was due under the terms of the contract and under the law. The recommendation of the DRB made after due deliberations and discussions with the parties has relevance in the matter.” (quoted verbatim) The Tribunal directed interest on delayed payment in Paras 1.6 to 1.8 of the award. Extract from the award containing these paragraphs would appear later in this judgment.Page 59/142
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11. The majority view of the Tribunal was that the contract itself provided for payment of interest with regard to local currency and foreign currency. The plea of the appellants has been that there was no waiver and in any event the communication of 14-7- 2004 followed by that of 3-8-2004 related to IPC-I only. This stand had been broadly accepted by the Tribunal. The Tribunal had also accepted the appellants/claimants' stand that there was no waiver on claim of interest in respect of all sums due for which interim payment certificates had been issued. The Tribunal's finding on that aspect was buttressed by the fact that the appellants/claimants had continued to raise demand for interest subsequent to the issue of those two communications. These were essentially findings on facts.
12. The Arbitration Court and the appellate court in sustaining the State's application for setting aside the award were of the view that the contract could not be construed to contain provisions for interest on delay in payment with regard to the local currency component contained in the agreement, as the appellants did not fill up the blank space with the rate of interest. Opinion of the appellate Bench was that in the event it was intention of the claimants to retain their entitlement to interest on delayed payment under that head, they ought to have had filled in the blank space in the “appendix to bid”. Another facet of the High Court's reasoning was that the respondents might have been persuaded to accept the appellants' bid on the basis that the appellants would claim no interest on delayed payment in such situation, as this factor could have made their bid more competitive.
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13. This appeal, in substance, is an extension of a proceeding under Section 34 of the 1996 Act. To go into the question of legality of the decisions made by the two judicial fora, we need to test first if the grounds of challenge to the award met the test laid down by this Court in ONGC v. Saw Pipes Ltd. [ONGC v. Saw Pipes Ltd., (2003) 5 SCC 705] The contention of the respondents has been that the Arbitral Tribunal's order stood vitiated under the “patent illegality” principle spelt out in that judgment. This principle came under the broad heading of “Public Policy” test, applying which an arbitral award could be set aside.
...............
16. On the other hand, the specific term of the agreement entered into by and between the parties provided for payment of interest on delayed payment as terms of the contract. What was not specifically agreed upon was the rate at which such interest would be paid. The blank space in the “appendix to the bid”, in our opinion, cannot be construed as cancellation of the clause providing for payment of interest on delayed release of funds. We do not think the appellate court or the Arbitration Court were right in adopting the approach that by not specifying the blank space provided for filling in the interest rate. We are of the view that to come to such an inference, active exclusion of payment of interest under that head was necessary to have been incorporated in the agreement. Though G.C. Roy [Irrigation Deptt., State of Orissa v. G.C. Roy, (1992) 1 SCC 508] was delivered in a dispute to which the 1940 Act was applicable, the Constitution Bench of this Court has laid down certain general proposition or principle on the aspect of grant of interest. This general proposition was referred to by the Tribunal. It has been held in Para Page 61/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 43(i) of the Report (in G.C. Roy [Irrigation Deptt., State of Orissa v. G.C. Roy, (1992) 1 SCC 508] ):
(SCC pp. 532-33, para 43) “43. The question still remains whether arbitrator has the power to award interest pendente lite, and if so on what principle. We must reiterate that we are dealing with the situation where the agreement does not provide for grant of such interest nor does it prohibit such grant. In other words, we are dealing with a case where the agreement is silent as to award of interest. On a conspectus of aforementioned decisions, the following principles emerge:
(i) A person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name.
It may be called interest, compensation or damages. This basic consideration is as valid for the period the dispute is pending before the arbitrator as it is for the period prior to the arbitrator entering upon the reference. This is the principle of Section 34, Civil Procedure Code and there is no reason or principle to hold otherwise in the case of arbitrator.”
17. The underlying principle guiding award of interest is that interest payment is essentially compensatory in nature. But as we have already observed, in the case before us, interest on delayed payment formed part of the contract itself. The agreement did not contain any express exclusion clause on payment of interest on delayed payment whether on component of payment in foreign currency or local currency. We accept the reasoning of the Tribunal on the basis of which it rejected the respondents' plea of waiver. This was a finding of fact on appreciation of materials placed before the Tribunal. One of the reasons behind the decisions of Page 62/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 the appellate court and the Arbitration Court was that the appellants, while bidding, had given up their claims for interest. In substance, the respondents' assertion is that the Tribunal went beyond the contractual terms, and the said two fora sought to invoke the principle of law contained in the third sub- head of the “patent illegality” principle elaborated in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] .
(v). (2021) 9 SCC 1 [NHAI v. M. Hakeem] wherein the Hon'ble Supreme Court held as follows:-
“............. 31. Thus, there can be no doubt that given the law laid down by this Court, Section 34 of the Arbitration Act, 1996 cannot be held to include within it a power to modify an award. The sheet anchor of the argument of the respondents is the judgment of the learned Single Judge in Gayatri Balaswamy [Gayatri Balaswamy v. ISG Novasoft Technologies Ltd., 2014 SCC OnLine Mad 6568 :
(2015) 1 Mad LJ 5] . This matter arose out of a claim for damages by an employee on account of sexual harassment at the workplace. The learned Single Judge referred to the power to modify or correct an award under Section 15 of the Arbitration Act, 1940 in para 29 of the judgment. Thereafter, a number of judgments of this Court were referred to in which awards were modified by this Court, presumably under the powers of this Court under Article 142 of the Constitution of India. In para 34, the learned Single Judge referred to para 52 in McDermott case [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] and then concluded that since the observations made in the said para were not Page 63/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 given in answer to a pointed question as to whether the court had the power under Section 34 to modify or vary an award, this judgment cannot be said to have settled the answer to the question raised finally.
.................
41. As has been pointed out by us hereinabove, McDermott [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] has been followed by this Court in Kinnari Mullick [Kinnari Mullick v. Ghanshyam Das Damani, (2018) 11 SCC 328 : (2018) 5 SCC (Civ) 106] . Also, in Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies (P) Ltd. [Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies (P) Ltd., (2021) 7 SCC 657] , a recent judgment of this Court also followed McDermott [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] stating that there is no power to modify an arbitral award under Section 34 as follows : (Dakshin Haryana Bijli Vitran Nigam case [Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies (P) Ltd., (2021) 7 SCC 657] , SCC p. 676, para 44) “44. In law, where the court sets aside the award passed by the majority members of the Tribunal, the underlying disputes would require to be decided afresh in an appropriate proceeding. Under Section 34 of the Arbitration Act, the court may either dismiss the objections filed, and uphold the award, or set aside the award if the grounds contained in sub-Sections (2) and (2-A) are made out. There is no power to modify an arbitral award.”
42. It can therefore be said that this question has now been settled finally by at least 3 decisions [McDermott International Inc. v. Burn Standard Co.
Page 64/142https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 Ltd., (2006) 11 SCC 181] , [Kinnari Mullick v. Ghanshyam Das Damani, (2018) 11 SCC 328 : (2018) 5 SCC (Civ) 106] , [Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies (P) Ltd., (2021) 7 SCC 657] of this Court. Even otherwise, to state that the judicial trend appears to favour an interpretation that would read into Section 34 a power to modify, revise or vary the award would be to ignore the previous law contained in the 1940 Act; as also to ignore the fact that the 1996 Act was enacted based on the UNCITRAL Model Law on International Commercial Arbitration, 1985 which, as has been pointed out in Redfern and Hunter on International Arbitration, makes it clear that, given the limited judicial interference on extremely limited grounds not dealing with the merits of an award, the “limited remedy” under Section 34 is coterminous with the “limited right”, namely, either to set aside an award or remand the matter under the circumstances mentioned in Section 34 of the Arbitration Act, 1996. ..............
60. Given the fact that in several similar cases, the NHAI has allowed similarly situated persons to receive compensation at a much higher rate than awarded, and given the law laid down in Nagpur Improvement Trust [Nagpur Improvement Trust v. Vithal Rao, (1973) 1 SCC 500] , we decline to exercise our jurisdiction under Article 136 in favour of the appellants on the facts of these cases. Also, given the fact that most of the awards in these cases were made 7-10 years ago, it would not, at this distance in time, be fair to send back these cases for a de novo start before the very arbitrator or some other arbitrator not consensually appointed, but appointed by the Central Government. The appeals are, therefore, dismissed on facts with no order as to Page 65/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 costs.”
(vi) (2019) 20 SCC 1 [Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd.], wherein the Hon'ble Supreme Court held as follows:-
“............... 23. Before we devolve into the contractual issues, we need to observe certain pointers on the jurisdiction of the court under Section 34 of the Arbitration Act. Section 34 as it stood before the Amendment Act of 2015, was as follows:
“34. Application for setting aside arbitral award.—(1) Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-Section (2) and sub- Section (3).
(2) An arbitral award may be set aside by the court only if—
(a) 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 of 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:Page 66/142
https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the Arbitral Tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the court finds that—
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Explanation.—Without prejudice to the generality of sub-clause (ii) it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under Section 33, from the date on which that request had been disposed of by the Arbitral Tribunal:
Provided that if the court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.
(4) On receipt of an application under sub-Section (1), the court may, where it is appropriate and it is so Page 67/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 requested by a party, adjourn the proceedings for a period of time determined by it in order to give the Arbitral Tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of Arbitral Tribunal will eliminate the grounds for setting aside the arbitral award.”
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 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 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 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.Page 68/142
https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022
26. Having established the basic jurisprudence behind Section 34 of the Arbitration Act, we must focus on the analysis of the case. The primary contention of the learned counsel appearing on behalf of the appellant is that the award by the learned Tribunal was perverse for want of reasons. The necessity of providing reasons has been provided under Section 31 of the Arbitration Act, which reads as under:
“31. Form and contents of arbitral award.— (1)-(2) * * * (3) The arbitral award shall state the reasons upon which it is based, unless—
(a) the parties have agreed that no reasons are to be given, or
(b) the award is an arbitral award on agreed terms under Section 30.” (emphasis supplied)
27. Under the UNCITRAL Model Law the aforesaid provision is provided as under:
“31. (2) The award shall state the reasons upon which it is based, unless the parties have agreed that no reasons are to be given or the award is an award on agreed terms under Article 30.”
28. Similar to the position under the Model Law, India also adopts a default rule to provide for reasons unless the parties agree otherwise. As with most countries like England, America and Model Law, Indian law recognises enforcement of the reasonless award if it has been so agreed between the parties.
Page 69/142https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022
29. There is no gainsaying that arbitration proceedings are not per se comparable to judicial proceedings before the Court. A party under Indian Arbitration Law can opt for an arbitration before any person, even those who do not have prior legal experience as well. In this regard, we need to understand that the intention of the legislature to provide for a default rule, should be given rational meaning in light of commercial wisdom inherent in the choice of arbitration.
30. A five-Judge Constitution Bench of this Court in Raipur Development Authority v. Chokhamal Contractors [Raipur Development Authority v. Chokhamal Contractors, (1989) 2 SCC 721 : AIR 1990 SC 1426] , considered the scope of Section 30 of the Arbitration Act, 1940 and held as under: (SCC p. 736, para 19) “19. It is now well settled that an award can neither be remitted nor set aside merely on the ground that it does not contain reasons in support of the conclusion or decisions reached in it except where the arbitration agreement or the deed of submission requires him to give reasons. The arbitrator or umpire is under no obligation to give reasons in support of the decision reached by him unless under the arbitration agreement or in the deed of submission he is required to give such reasons and if the arbitrator or umpire chooses to give reasons in support of his decision it is open to the court to set aside the award if it finds that an error of law has been committed by the arbitrator or umpire on the face of the record on going through such reasons. The arbitrator or umpire shall have to give reasons also where the court has directed in any order such as the one made under Section 20 or Section 21 or Section 34 of the Act that reasons should be given or Page 70/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 where the statute which governs an arbitration requires him to do so.”
31. A three-Judge Bench of this Court in another case of S. Harcharan Singh v. Union of India [S. Harcharan Singh v. Union of India, (1990) 4 SCC 647] , reiterated its earlier view that the arbitrator's adjudication is generally considered binding between the parties for he is a Tribunal selected by the parties and the power of the Court to set aside the award is restricted to cases set out in Section 30 of the Arbitration Act, 1940.
32. However, the ratio of Chokhamal case [Raipur Development Authority v. Chokhamal Contractors, (1989) 2 SCC 721 : AIR 1990 SC 1426] has not found favour of the legislature, and accordingly Section 31(3) has been enacted in the Arbitration Act. This Court in Som Datt Builders Ltd. v. State of Kerala [Som Datt Builders Ltd. v. State of Kerala, (2009) 10 SCC 259 : (2009) 4 SCC (Civ) 153 : (2009) 4 Arb LR 13] , a Division Bench of this Court has indicated that passing of a reasoned award is not an empty formulation under the Arbitration Act.
33. It may be relevant to note Russell on Arbitration, 23rd Edn. (2007), wherein he notes that:
“If the Court can deduce from the award and the materials before it, which may include extracts from evidence and the transcript of hearing, the thrust of the tribunal's reasoning then no irregularity will be found….Equally, the court should bear in mind that when considering awards produced by non-lawyer arbitrators, the court should look at the substance of Page 71/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 such findings, rather than their form, and that one should approach a reading of the award in a fair, and not in an unduly literal way.”
34. The mandate under Section 31(3) of the Arbitration Act is to have reasoning which is intelligible and adequate and, which can in appropriate cases be even implied by the courts from a fair reading of the award and documents referred to thereunder, if the need be. The aforesaid provision does not require an elaborate judgment to be passed by the arbitrators having regard to the speedy resolution of dispute.
35. When we consider the requirement of a reasoned order, three characteristics of a reasoned order can be fathomed. They are: proper, intelligible and adequate. If the reasonings in the order are improper, they reveal a flaw in the decision-making process. If the challenge to an award is based on impropriety or perversity in the reasoning, then it can be challenged strictly on the grounds provided under Section 34 of the Arbitration Act. If the challenge to an award is based on the ground that the same is unintelligible, the same would be equivalent of providing no reasons at all. Coming to the last aspect concerning the challenge on adequacy of reasons, the Court while exercising jurisdiction under Section 34 has to adjudicate the validity of such an award based on the degree of particularity of reasoning required having regard to the nature of issues falling for consideration. The degree of particularity cannot be stated in a precise manner as the same would depend on the complexity of the issue. Even if the Court comes to a conclusion that there were gaps in the Page 72/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 reasoning for the conclusions reached by the Tribunal, the Court needs to have regard to the documents submitted by the parties and the contentions raised before the Tribunal so that awards with inadequate reasons are not set aside in casual and cavalier manner. On the other hand, ordinarily unintelligible awards are to be set aside, subject to party autonomy to do away with the reasoned award. Therefore, the courts are required to be careful while distinguishing between inadequacy of reasons in an award and unintelligible awards.
36. At this juncture it must be noted that the legislative intention of providing Section 34(4) in the Arbitration Act was to make the award enforceable, after giving an opportunity to the Tribunal to undo the curable defects. This provision cannot be brushed aside and the High Court could not have proceeded further to determine the issue on merits.
37. In case of absence of reasoning the utility has been provided under Section 34(4) of the Arbitration Act to cure such defects. When there is complete perversity in the reasoning then only it can be challenged under the provisions of Section 34 of the Arbitration Act. The power vested under Section 34(4) of the Arbitration Act to cure defects can be utilised in cases where the arbitral award does not provide any reasoning or if the award has some gap in the reasoning or otherwise and that can be cured so as to avoid a challenge based on the aforesaid curable defects under Section 34 of the Arbitration Act. However, in this case such remand to the Tribunal would not be beneficial as this case has taken more than 25 years for its adjudication. It is in this state of Page 73/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 affairs that we lament that the purpose of arbitration as an effective and expeditious forum itself stands effaced.
38. It may be noted that when the High Court concluded that there was no reasoned award, then the award ceased to exist and the Court was functus officio under Section 34 of the Arbitration Act for hearing the challenge to the award under the provisions of Section 34 and come to a conclusion that the arbitration award was not in terms of the agreement. In such case, the High Court ought to have considered remanding the matter to the Tribunal in the usual course. However, the High Court analysed the case on merits, but, for different reasons and we need not go into the validity of the High Court's interference. ..........”
(vii) 2018 SCC Online Del 8367 [M/s, L.G. Electronics India (P) Ltd., v. Dinesh Kalra ], wherein the Delhi High Court held as follows:-
“ .........16. The scope of judicial scrutiny and interference by an appellate court under Section 37 of the Act is even more restricted, while deciding a petition under Section 34 of the Act. The Hon'ble Supreme Court in the case of McDermott International Inc. v. Burn Standard Co. Ltd. and Ors, (2006)11SCC181 held as under:
"52.The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, Page 74/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 in case of fraud or bias by the arbitrators, violation of natural justice, etc. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court's jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it."
(viii) Manu/TN/6466/2018 [M/s.Digital Illusion India Pvt.
Ltd.,and another v. 1.M/s.Shriram City Union Finance Limited and others], wherein the Division Bench of this Court held as follows:-
“ ..... 27. The scope of interference in the impugned order passed by the learned Single Judge is very limited under Section 37 of the Arbitration Act......”
(ix) 2018(6) CTC 609 [Marg Limited v. V Oord Dredging and Marine Contractors BV and others]wherein the Division Bench of this Court held as follows:-
“ ..... 29. . It is also a well-settled position of law that terms and conditions of the contract cannot be substituted by new terms and since it is in the nature of judicial review, the findings rendered by the Arbitratral Tribunal, unless vitiated on account of patent illegality, perversity or contravention of any of the provisions of the Act or against public policy, it Page 75/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 cannot be interfered with. The scope of interference in the award passed by the Arbitrator under Section 34 and more particularly, under Section 37 of the Arbitration Act, is very very limited.”
13. On a careful consideration of the materials available on record, the submissions made by the learned Senior Counsel on either side and also the judgments relied upon by the respective learned Senior Counsel, it could be seen that the though several grounds have been raised in the above appeals, the main grounds canvased by the learned Advocate General are that the claims are barred by limitation, since the arbitration was invoked after three years from the time, they were rejected by the Independent Engineer. It is the specific contention of the learned Advocate General that the consolidated claim for Rs.506.46 crores made by the claimant on 17.09.2012 was forwarded to the Independent Engineer by TNRDC dated 21.09.2012 and the same was refused by the Independent Engineer on 24.12.2012. Hence, it is his contention that as per Articles 23 and 44 of the Concession Agreement, the claim ought to have been referred to arbitration immediately. From the year 2010 to 2011 itself, issues have been raised by the respondent with regard to change in alignment and change in earth quantity due to Page 76/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 theft and the same was refused and refuted by the appellant. Hence, it is his contention that Article 23.6 indicate that as against the decision of the Independent Engineer, the dispute shall be resolved in accordance with the Dispute Resolution Procedure as per Article 44 of the Concession Agreement. Therefore, it is his contention that the moment when the Independent Engineer has rejected the request made by the respondent in the year 2010 and 2011, within a period of three years, the matter should have been referred to the arbitration, which was not been done by them.
Hence, it is his contention that the arbitration invoked beyond the period of three years is not maintainable in the eye of law and the entire claim is barred by limitation which is over looked by the Arbitral Tribunal.
14. Now, the main contention of the learned Advocate General is that since the Independent Engineer rejected various issues from the year 2011 onwards, the arbitration should have been invoked within a period of three years. Much emphasis is made on Article 23.06 and Article 44 of the contract to buttress the submissions of the learned Advocate General. Article 23.1 deals with appointment of the Independent Engineer. Article 23.2 deals with the duties and functions of the Page 77/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 Independent Engineer appointed by the GOTN and the relevant Article 23.2.3 is extracted below:-
“Notwithstanding anything to the contrary contained anywhere in the Agreement Schedules or elsewhere, the Independent Engineer shall, up to the date of issue of Completion Certificate and if required upto 45 days thereafter, furnish/submit to TNRDC one copy of all the correspondences, Designs, Drawings, Document, reports, and such other Document as may be covered under Schedules and other communications/letters/notices etc. being submitted to or required to be submitted to GOTN.”
15. The duties and functions set out in Article 23.2.3 are mainly with regard to furnishing of correspondences, license, contracts, reports, etc. Article 23.6 deals with dispute resolution, which reads as follows :-
If either party disputes any advice, instruction, decision, direction or award of the Independent Engineer, or, as the case, may be, the assertion or failure to assert jurisdiction, the dispute shall be resolved in accordance with the Dispute Resolution Procedure contained in Article 44.
16. Though the letter dated 17.09.2012 sent by the Page 78/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 respondent/claimant to the Independent Engineer complaining various delays on the part of the appellant, which resulted in additional expenses which is accepted by the Independent Engineer on 24.12.2012, the fact remains that vide letter dated 29.12.2012, extension has been recommended by the Independent Engineer. It is to be noted that a reading of Article 23.6 makes it clear that only when any party dispute any advice, instruction, decision, direction or Award of the Independent Engineer, the dispute shall be resolved in accordance with the Dispute Resolution Procedure contained in Article 44 of the Agreement. As far as rejection of the monetary claim is concerned, the same was never within the domain of the Independent Engineer. The duties and functions of the Independent Engineer referred above do not authorise him or empower him to deal with the monetary claim or pass an Order etc. Therefore, when the decision of allowing or rejection of the monetary claims was never in the domain of the Independent Engineer, such decision cannot be construed to mean that it gives cause of action for claiming monetary claims. The moment the Independent Engineer rejects any request, Clause 23.6 or 23 in entirety does not empower the Independent Engineer to make an Award with respect to the nature of the dispute made in the Page 79/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 arbitration, i.e., the monetary claim arising out of the contract. Hence, the contention of the learned Advocate General that Article 23.6 will come into play cannot be countenanced.
17. As far as the other contention of the learned Advocate General that the respondent/claimant is not entitled for the claim of compensation, since the contract is based on DBFOT, Article 7.1 deals with representations and warranties of the Concessionaire and 7.2 deals with representations and warranties of GOTN Clause 7.2 [h] has been relied upon much which reads as follows :
“All information provided by it in the Tender Notice and invitation to bid in connection with the Project is, so the best of its knowledge and belief, true and accurate in all material respects."
Clause 7.3 relates to disclosure of any occurrence or of circumstance comes to the attention of either party with regard to the representations or warrantees as untrue or incorrect, which can bring to the notice of either side etc. Clause 8.1 deals with disclaimer which reads as follows :
8.1 Disclaimer Page 80/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 8.1.1 The Concessionaire acknowledges that prior to the execution of this Agreement, the Concessionaire has, after a complete and careful examination, made an independent evaluation of the Tender Notice, Scope of the Project, Specifications, and Standards, Site, local conditions, physical qualities of ground, subsoil and geology, traffic volumes and all information provided by GOTN or obtained, procured or gathered otherwise, and has determined to its satisfaction the accuracy or otherwise thereof and the nature and extent of difficulties, risks and hazards as are likely to arise or may be faced by it in the course of performance of its obligations hereunder. Save as provided in Clause 7.2, GOTN or any other person, entity, agency or TNRDC or authority etc., either acting through or for on behalf GOTN make no representation whatsoever, express, implicit or otherwise, regarding the accuracy and/or completeness of the information provided by it and the Concessionaire confirms that it shall have no claim whatsoever against GOTN or any other person, entity, agency or TNRDC or authority etc., either acting through or for or on behalf of GOTN in this regard.
8.1.2. The Concessionaire acknowledges and hereby accepts the risk of inadequacy, mistake or error in or relating to any of the matters set forth in Clause 8.1.1. above and hereby acknowledges and agrees that GOTN shall not be liable for the same in any manner whatsoever to the Concessionaire, the Consortium Members and their Associates or any person claiming through or under any of them.” The above Clauses sought to be used as against the respondent/claimant from claiming any compensation. A perusal of the above clauses makes it very clear that the above clauses deal only with regard to the representation of the accuracy and completeness of the information.Page 81/142
https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 Therefore, only for inaccuracy and incompleteness in providing information, Concessionaire confirms that it shall have no claim whatsoever against GOTN. These clauses cannot be used as a total bar for claiming any monetary bar on account of breach of the contract of the parties. Whereas, Article 35.2 provides for compensation for material breach. Therefore, it cannot be said that on the basis of the disclaimer clause, which is meant for different aspect, the parties are barred from claiming any compensation. If such meaning was given to disclaimer clause to prevent a person from claiming compensation for material breach, certainly the same is not enforceable under Section 28 of the Indian Contract Act. Similarly, claiming damages for material breach is statutory right as per Sections 55 and 73 of the Indian Contract Act. The same cannot be taken away lightly. Therefore, the contention that merely because GOTN provided information put in all material aspects, it cannot be a ground to deny the compensation when the alignment including the levels were not properly given and the representation found to be wrong at a later point of time. Therefore, claim for loss suffered is certainly maintainable. Therefore, the contention of the learned Advocate General in this regard that the claims are not maintainable, also cannot be Page 82/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 sustained.
18. With regard to the submissions of the borrowal of earth and obtaining the permits, the Tribunal has infact considered Article 6.1.2, which deals with obligations of GOTN. which reads as follows :
“GOTN agrees to provide support to the Concessionaire and undertakes to observe, comply with and perform, subject to and in accordance with the provisions of this Agreement and the applicable laws, the following :
[a] Upon written request from the Concessionaire, and subject to the Concessionaire complying with applicable laws, provde ll reasonable supportand assistance to the Concessionaire in procuring applicable permits required from any Government Instrumentality for implementation and operation of the project.
[b] Upon written request from the Concessionaire, assist the Concessionaire in obtaining access to all necessary infrastructure, facilities and utilities, including water and electricity at rates and on terms no less favourable to the Concessionaire that those generally available to commercial customers receiving substantially equivalent services.”
19. The dispute between the parties leading to the claim made by the respondent under various heads arises out of Ex.C2 Concession Agreement dated 05.12.2009 entered into between the appellant and the Page 83/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 respondent for the development of Chennai Outer Ring Road Phase-I comprising of Segment-I from NH 45 to NH 4 Ch.Km. 0+000 to Km 18+950 and Segment-II from NH 4 to NH 205 Ch.Km. 18+950 to Km 29+650 to a total length of 29.65 Kms. The Agreement pertains to the construction of Phase-I at Vandalur in the South with Tiruvottiyur – Ponneri – Panchetti Road at Meenjur in the North along the periphery of Chennai Metropolitan area in Kanchipuram and Tiruvallur Districts.
20. The respondent, in the arbitral proceedings, raised their claim for recovery of Rs.675,06,82,833/- under the following heads:
(1) Financial impact due to change in ground condition;
(2) Financial impact due to delay/non-issuance of permits for borrow Earth area;
(3) Financial impact due to prolonged construction beyond 24 months
(i)Additional interest on term loan and promoter's fund
(ii)Loss of bonus
(iii)Additional cost of plant, machinery and Page 84/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 overheads
(iv)Material escalation cost
21. The nature of the Concession Agreement entered into between the parties is on Design, Built, Finance, Operate and Transfer (DBFOT) basis. The total cost of the project was Rs.1166.75 crores with about Rs.425.89 crores for doing O & M apart from interest costs to be invested by the respondent and to be recovered through 35 regular annuity payments of Rs.62,12,91,213/-, each payable half yearly post the construction concession period, apart from promise of bonus payment equivalent to one annuity payment by the appellant during the construction period for completion within 24 months. The project cost was financed through a combination of equity, project support, fund and debt. The Appointed Date for the purpose of commencement of construction work under the Concession Agreement is 03.06.2010 and the period of construction as per the Agreement was 913 days (30 months) with the planned completion period as per the Engineering, Procurement and Construction (EPC) Agreement, the Financing Agreements and the Financial Model. The completion date was Page 85/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 02.06.2012 as per the Agreement and the concession period is 20 years from the appointed date.
22. For the purpose of answering the present issue, the relevant Clauses to be referred to are Article 3 – Grant of Concession, Article 4 – Conditions Precedent, Article 4.2 – Damages for delay by GOTN, Article 5 – Obligations of the Concessionaire, Article 6 – Obligations of GOTN, Article 7.1 – Representations and warranties of the Concessionaire, Article 7.2 – Representations and warranties of GOTN, Article 8 – Disclaimer, Article 10.2 – Right of Way to be provided and granted by GOTN, Article 10.3 – Procurement of site free from encumbrances and encroachments, Article 11 – Utilities, Associated Roads and Trees, Article 12 – Obligations prior to commencement of construction, Article 12.2 – Maintenance during construction period, Article 13 – Monitoring of construction, Article 14 – Completion Certificate, Article 16 – Change of scope, Article 23 – Independent Engineer, Article 24 – Financial close, Article 27 – Annuity, Article 28 – Bonus and deduction in annuity, Article 35 – Compensation for Breach of Agreement, Article 35.2 – Compensation for default of GOTN and Annexure – I Schedule A Clause Page 86/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 1.2 Disclaimer.
23. According to the respondent/claimant, the respondent, in pursuance of the CA, had entered into an EPC Agreement with the EPC Contractor to facilitate the completion of the project within 24 months from the Appointed Date as per the CA to enable the respondent to earn the bonus. The respondent has also ensured mobilisation of requisite manpower and machinery to complete the works within the time of 24 months. It is the further case of the respondent that the CA provided for performance of obligations by the respondent which were dependent on the performance of number of reciprocal obligations by the appellant as set out in Article 6 of the CA. It is their case that the satisfactory compliance of the obligations of the GOTN as per the CA was necessary to enable the respondent to complete the construction work as planned.
The said obligations on the part of the GOTN included ensuring that the description of the site in the Request for Proposal (REP) correspondent with the actual position and condition of the site, providing right of way, enabling access to the site free from encumbrances, assisting and providing all reasonable support to the respondent in obtaining Page 87/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 applicable permits, taking all necessary steps towards accomplishment of acquisition of site and its handing over to the respondent, ensuring prevention of theft of assets including Earth, co-ordinating with the GOTN authorities for completing the legal requirement and maintaining law and order during removal of encroachments by the respondent, providing all reasonable support and assistance to the respondent in obtaining necessary clearances/permissions/permits in respect of borrow Earth, environmental clearances, tree cutting, compensatory afforestation, shifting of all types of utility services and rehabilitation and resettlement, etc. According to the respondent, the timely fulfillment of specific obligations as stated above by the appellant GOTN were crucial to the timely execution of the project at the estimated cost by the respondent.
24. It is the specific case of the respondent that the appellant failed to co-operate with the respondent and failed to discharge its obligations under the contract and during the course of construction of the project's work there were number of delays and breaches attributable to the appellant. It is their case that such breaches and delays, which were beyond the control of the respondent, severely affected the rate of Page 88/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 progress, thereby resulting in delay in completion of the work beyond the planned completion date of 24 months from the Appointed Date.
25. According to the respondent, the following are the acts of breaches and acts of delay on the part of the respondent GOTN:
i. Delay in acquiring the land;
ii. Failure to hand over encumbrances free land.
iii. Delay in handing over of land, diversion of utilities, approval of design and drawings for interchanges.
iv. Change in alignment and change in ground condition due to theft and removal of Earth by private 3rd parties including brick kiln owners at a number of locations prior to handing over of site and other hindrances in the form of abandoned quarry and water bodies resulting in increase in quantity of Earth work in comparison to the Earth work quantity calculated on the basis of the original Earth level which resulted in huge additional cost for extra Earth purchased from alternate sources on commercial basis.Page 89/142
https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 v. Delays/deliberate failure/willful inaction in issuing Earth permits by the concerned authorities despite adequate steps taken by the respondent to obtain necessary permits.
vi. The failure of the appellant to fully support and assist the respondent in obtaining various permits and approvals on time from the concerned authorities who were the functionaries of the appellant, despite repeated notification made to the Independent Engineer/Appellant and vii.Misrepresentation on material particulars.
26. According to the respondent, the above referred to delays and breaches in performing their part of the obligations as explained in the specific Clauses of CA cause huge delay in completion of the project for which the respondent was forced to over stay at site. Thus, according to the respondent, they suffered an increase in cost in the form of additional cost of machinery, overheads and additional escalation on cost of materials and concession beyond the planned construction period of 24 months and caused prolongation of construction period leading to huge Page 90/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 increase in project cost having material adverse effect on the project and resulted in additional costs/losses suffered by the respondent. The respondent has, in para 66 of the claim statement, described in detail the broad causes for delay and disruptions and the effects thereof on the individual works as well as on the project.
27. The respondent claimed that they have incurred significant additional costs/losses over and above the bid considerations in additional to the increased costs and has also been deprived of the revenue in the form of bonus and regular annuities. In these circumstances, the respondent claimed that the appellant should compensate the additional costs and losses incurred by the respondent.
The respondent also relied on Article 35.2 of the CA which provides for compensation in case of defaults or breaches by the appellant and Article 42.1.2 of the Agreement entitling the respondent to recover such loss or damages on indemnity basis from the appellant. They also relied on Sections 55 and 73 of the Indian Contract Act providing for compensation for additional costs for contractual breaches or defaults in the absence of contract to the contrary. The respondent contended that Page 91/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 the delays and breaches attributable to the appellant and beyond the control of the respondent and the sufferings incurred by the respondent due to the same have been duly intimated to the appellant through the Independent Engineer in their applications periodically submitted to the Independent Engineer for extension of time. In the same communications, the respondent also highlighted the liability of the appellant to suitably compensate the respondent and the Independent Engineer having accepted the grievance of the respondent, rightly decided to extend the time by 202 days beyond 913 days from the Appointed Date.
28. So far as the plea of limitation is concerned, admittedly, the appellant has not raised the same in their pleadings. It is pertinent to note that rejection by TNRDC, acting on behalf of the appellant, is a party to Ex.C2 Agreement, which was communicated to the respondent by letter dated 24.02.2015 for the first time. Such rejection by TNRDC amounts to breach of contractual obligations on the part of the appellant and it raises dispute between the parties and gives rise to cause of action for referring the matter for conciliation at the first instances as provided in Clause Page 92/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 44.2 of Ex.C2 CA. The dispute referred for conciliation by the respondent's letter dated 20.03.2015, marked as Ex.C4, had failed on 18.09.2015 which is evident from the Conciliator's letter dated 18.09.2015 marked as Ex.C4. In these circumstances, the cause of action and the right of the respondent for invoking the Arbitration Clause arose only thereafter and the Arbitrator Clause was invoked by the respondent by their letter 19.11.2015 leading to the constitution of 3 Member Arbitral Tribunal on 16.01.2016. Since the cause of action for raising the dispute and the right to sue having been accrued on 24.02.2015, the date of rejection by TNRDC on 18.09.2015 and the date of failure of conciliation proceedings, the arbitral proceedings initiated on 19.11.2015 (i.e.) within one year from the date of cause of action is well within time and the plea regarding limitation raised by the appellant cannot be accepted. The Arbitral Tribunal and the learned Single Judge have categorically held that the claim made by the respondent/claimant is not barred by limitation.
29. The appellant contended that the respondent is not entitled for claim of compensation, since the contract is based on DBFOT, Clauses Page 93/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 7.1, 7.2, 7.3, 8.1, 8.1.1 and 8.1.2 sought to be used against the respondent from claiming any compensation. A perusal of the above Clauses makes it clear that they deal only with regard to the representation of the accuracy and completeness of the information. Therefore, only for inaccuracy and incompleteness in providing information, Concessionaire confirms that it shall have no claim whatsoever against the appellant.
These Clauses cannot be used as a total bar for claiming any monetary bar on account of breach of contract of the parties. Article 35.2 provides for compensation for material breach., hence, it cannot be said that on the basis of the disclaimer Clause, which is meant for different aspect, the parties are barred from claiming any compensation. The learned Single Judge has rightly held that if such meaning is given to disclaimer Clause to prevent a person from claiming compensation for material breach, certainly, the same is not enforceable under Section 28 of the Indian Contract Act. Further, claiming damages for material breach is statutory right as per Sections 55 and 73 of the Indian Contract Act. The learned Single Judge has rightly held that the claim for loss suffered is maintainable.
Page 94/142https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022
30. With regard to the change in alignment and borrowal of Earth and use of fly ash instead of pond ash, the learned Single Judge rightly held that the submissions are made against the factual finding of the learned Arbitral Tribunal. The Arbitral Tribunal specifically analysed various breaches and causes of delay on the part of the appellant. The contention of the appellant before the Arbitral Tribunal that the commissions and omissions are not material breaches as contemplated under the Concession Agreement was also rightly negatived by the learned Single Judge. It is the responsibility of the respondent to avoid the same. The findings rendered by the Arbitral Tribunal on the factual matrix after appreciating all the documents was rightly confirmed by the learned Single Judge. Once the Tribunal has thoroughly analysed various documents and took note of the various contractual conditions, such a finding cannot be assailed merely on the ground that it went against the other party. Unless it is established that such a finding is a result of perversity or a result of ignoring vital documents or relying upon only the irrelevant documents, the factual finding recorded by the Arbitral Tribunal cannot be interfered. The learned Arbitrators are the finding Forum to give a finding with regard to the facts. The Tribunal has Page 95/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 considered various Clauses of the contract and analysed the documentary evidence and recorded a factual finding. The learned Single Judge has rightly found no perversity in the findings of the Arbitral Tribunal.
31. With regard to the borrowal of Earth and obtaining permits, the Tribunal took into consideration Article 6.1.2 and observed that mere writing of few letters requesting to perform is not sufficient when the control is entirely within the power of the appellant. The Arbitral Tribunal considered various documents and has dealt with every claim and factually recorded that from 2010, various correspondences made by the respondent/claimant repeatedly informing the appellant about the excess quantity of Earth required. It is an admitted fact that the appellant itself has not supplied the Earth at the relevant point. The Tribunal analysed each and every claim on the factual basis. When the Earth is mines and mineral, the Government has absolute control over it, cannot direct the party to the contract to get permission and permit which is beyond their control, cannot be put against them.
32. With regard to the permission to be obtained from the State Page 96/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 and National Highways Authority, the Tribunal discussed various documents and correspondences between the parties from the inception and finally concluded that the delay in obtaining permit the National Highways is attributable to the appellant.
33. With regard to fly ash, it is the contention of the appellant that the power plant needs to supply the same free of cost by the Central Government Notification. Since the dispute is in respect of the period of construction of the project, which is completed in the year 2013, the Notification issued by the Central Government dated 25.01.2016, cannot be applied. When the Tribunal has factually recorded a finding appreciating the entire evidence, the same cannot be assailed merely because some other view is possible. The Tribunal has granted interest for the post Award period at the rate of 18% per annum. When there is an Agreement in respect of interest, the Tribunal is bound by the Contract while awarding interest. Article 47.5 reads as follows:
“Delayed payments :
The parties hereto agree that payments due from one Party to the other Party under the provisions of this Page 97/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 Agreement shall be made within the period set forth therein and if no such period is specified, within 15 [fifteen] days of receiving a demand along with the necessary particulars. In the event of delay beyond such period, the defaulting Party shall pay interest for the period of day calculated as a rate equal to 3% [three per cent] above the Bank Rate and recovery thereof shall be without prejudice to the rights of the parties under this Agreement including Termination thereof.”
34. The underlying principle guiding Award of interest is that the interest payment is essentially compensatory in nature. As we have already observed, in the case before us, interest on delayed payment formed part of the contract itself. The agreement did not contain any express exclusion Clause on payment of interest on delayed payment whether on component of payment in foreign currency or local currency.
We accept the reasoning of the Tribunal on the basis of which it rejected the appellant's ' plea. This was a finding of fact on appreciation of materials placed before the Arbitral Tribunal. The learned Single Judge accepted the reasoning of the Arbitral Tribunal. The Arbitral Tribunal had already come to a factual finding on appreciation of evidence that Page 98/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 the Award of interest is just and proper. If the finding of the Arbitral Tribunal is interfered, it amounts to rewriting the contract, which is impermissible. In our view, the view taken by the Arbitral Tribunal on consideration of the contract was both reasonable and possible view.
35. Article 47.5 makes it clear that the interest need not be confined to the sum adjudged. When the parties agreed for specific rate of interest, the Tribunal is bound by the Contract between the parties.
There is no discretion vested with the Tribunal in view of Section 30(7)(a) of the Arbitration and Conciliation Act. The learned Single Judge, relying on Article 47.5, which provides for rate of interest of 3% above the Bank rate, rightly Awarded pendente lite interest at the rate of 9% from the date of petition till the date of Award and 18% thereafter as ordered by the Arbitral Tribunal.
36. In the judgment reported in (2015) 5 SCC 598 [Navodaya Mass Entertainment Vs. JM Combines], challenge made by the appellant was restricted to interpretations of the Contract or findings of fact neither of which has been urged to be perverse or even contrary to Page 99/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 express terms of the contract. Further, the Apex Court held that the finding of fact are, in any event, unassailable under Section 34 of the Act. Further, the scope of interference in an appeal preferred under Section 37 of the Act, as in the present appeals, is narrower than the grounds available or considerations in an application under Section 34 of the Act, which by itself is restricted in scope as per the law laid down by the Hon'ble Supreme Court in various judgments.
37. In the judgment reported in 2022 SCC Online SC 19 [UHL Power Company Ltd. Vs. State of Himachal Pradesh], the Apex Court held that interference by an Appellate Court under Section 37 of the Act to be narrower than enquiry under Section 34 of the Act.
38. The scope of interference in an appeal preferred under Section 37 of the Arbitration Act, as in the present appeals, is narrower than the grounds available in an application filed under Section 34 of the Act, which by itself is restricted in scope as per the law laid down by Page 100/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 the Hon'ble Supreme Court. In the following Judgments, the Hon'ble Supreme Court held that the jurisdiction conferred on courts under Section 34 of the Arbitration Act is fairly narrow and an interference by the Appellate Court under Section 37 of the Act is narrower than enquiry under section 34 of the Act. This position of law has been observed in the following judgments, which are extracted below:-
(i) 2015 (3) SCC 49 [Associate Builders vs. Delhi Development Authority], wherein the Hon'ble Supreme Court held as follows:-
“......... 15. This Section in conjunction with Section 5 makes it clear that an arbitration award that is governed by Part I of the Arbitration and Conciliation Act, 1996 can be set aside only on grounds mentioned under Sections 34(2) and (3), and not otherwise. Section 5 reads as follows: “5.Extent of judicial intervention.—Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.”
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;Page 101/142
https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 and to minimise the supervisory roles of courts in the arbitral process.
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:
“7. Conditions for enforcement of foreign awards.—(1) A foreign award may not be enforced under this Act— **
(b) if the Court dealing with the case is satisfied that — ***
(ii)the enforcement of the award will be contrary to the public policy.”
(iii)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, Page 102/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 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 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) “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 public good and the public interest. What is for public good or in 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 public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term Page 103/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 ‘public policy’ in 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— 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 trivial nature it cannot be held that 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 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 of 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 Page 104/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 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
(b) failing such agreement, the arbitral procedure was not in accordance with Part I of the Act.
However, exception for setting aside the award on the ground of composition of 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 Page 105/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022
(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 specific stipulation in the agreement that the time and date of delivery of the goods was 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;
(iv) on the request of the respondent to extend the time-limit for 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 unreasonable;
vii) in certain contracts, it is impossible to assess the damages or prove the same. Such situation is taken care of by Sections 73 and 74 of the Contract Act and in the present case by Page 106/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 specific terms of the contract.” ............
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. ........
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.
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 Page 107/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 10 : 1999 SCC (L&S) 429] , it was held:
“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.”
33. It must clearly be understood that when a 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. 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 [ Very often an arbitrator is a lay person not necessarily trained in law. Lord Mansfield, a famous English Judge, once advised a high military officer in Jamaica who needed to act as a Judge as follows:“General, you have a sound head, and a good heart; take courage and you will do very well, in your occupation, in a court of equity. My advice is, to make your decrees as your head and your heart dictate, to hear both sides patiently, to decide with firmness in the best manner you can; but be careful not to assign your reasons, since your determination may be substantially right, although your reasons may be very Page 108/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 bad, or essentially wrong”.It is very important to bear this in mind when awards of lay arbitrators are challenged.] . Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts. In P.R. Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H. Securities (P) Ltd. [(2012) 1 SCC 594 : (2012) 1 SCC (Civ) 342] , this Court held: (SCC pp. 601-02, para 21) “21. A court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or re appreciating the evidence. An award can be challenged only under the grounds mentioned in Section 34(2) of the Act.
The Arbitral Tribunal has examined the facts and held that both the second respondent and the appellant are liable. The case as put forward by the first respondent has been accepted. Even the minority view was that the second respondent was liable as claimed by the first respondent, but the appellant was not liable only on the ground that the arbitrators appointed by the Stock Exchange under Bye-law 248, in a claim against a non-member, had no jurisdiction to decide a claim against another member. The finding of the majority is that the appellant did the transaction in the name of the second respondent and is therefore, liable along with the second respondent. Therefore, in the absence of any ground under Section 34(2) of the Act, it is not possible to re-examine the facts to find out whether a different decision can be arrived at.”
34. It is with this very important caveat that the two fundamental principles which form part of the fundamental policy of Indian law (that the arbitrator must have a judicial approach and that he must not act perversely) are to be understood.
Interest of India
35. The next ground on which an award may be set Page 109/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 aside is that it is contrary to the interest of India. Obviously, this concerns itself with India as a member of the world community in its relations with foreign powers. As at present advised, we need not dilate on this aspect as this ground may need to evolve on a case-by-case basis.
Justice
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”. Morality
37. The other ground is of “morality”. Just as the expression “public policy” also occurs in Section 23 of the Contract Act, 1872 so does the expression “morality”. Two illustrations to the said Section are interesting for they explain to us the scope of the expression “morality”:
“(j) A, who is B's Mukhtar, promises to exercise his influence, as such, with B in favour of C, and C promises to pay 1000 rupees to A. The agreement is void, because it is immoral.
(k) A agrees to let her daughter to hire to B for concubinage. The agreement is void, because it is immoral, though the letting may not be punishable Page 110/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 under the Penal Code, 1860.”
38. In Gherulal Parakh v. Mahadeodas Maiya [1959 Supp (2) SCR 406 : AIR 1959 SC 781] , this Court explained the concept of “morality” thus: (SCR pp. 445-46 : AIR pp. 797-98) “Re. Point 3 — Immorality: The argument under this head is rather broadly stated by the learned counsel for the appellant. The learned counsel attempts to draw an analogy from the Hindu law relating to the doctrine of pious obligation of sons to discharge their father's debts and contends that what the Hindu law considers to be immoral in that context may appropriately be applied to a case under Section 23 of the Contract Act. Neither any authority is cited nor any legal basis is suggested for importing the doctrine of Hindu law into the domain of contracts. Section 23 of the Contract Act is inspired by the common law of England and it would be more useful to refer to the English law than to the Hindu law texts dealing with a different matter. Anson in his Law of Contracts states at p. 222 thus:
‘The only aspect of immorality with which courts of law have dealt is sexual immorality….’ Halsbury in his Laws of England, 3rd Edn., Vol. 8, makes a similar statement, at p. 138:
‘A contract which is made upon an immoral consideration or for an immoral purpose is unenforceable, and there is no distinction in this respect between immoral and illegal contracts. The immorality here alluded to is sexual immorality.’ In the Law of Contract by Cheshire and Fifoot, 3rd Edn., it is stated at p. 279:
‘Although Lord Mansfield laid it down that a contract contra bonos mores is illegal, the law in this Page 111/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 connection gives no extended meaning to morality, but concerns itself only with what is sexually reprehensible.’ In the book on the Indian Contract Act by Pollock and Mulla it is stated at p. 157:
‘The epithet “immoral” points, in legal usage, to conduct or purposes which the State, though disapproving them, is unable, or not advised, to visit with direct punishment.’ The learned authors confined its operation to acts which are considered to be immoral according to the standards of immorality approved by courts. The case law both in England and India confines the operation of the doctrine to sexual immorality. To cite only some instances: settlements in consideration of concubinage, contracts of sale or hire of things to be used in a brothel or by a prostitute for purposes incidental to her profession, agreements to pay money for future illicit cohabitation, promises in regard to marriage for consideration, or contracts facilitating divorce are all held to be void on the ground that the object is immoral.
The word ‘immoral’ is a very comprehensive word. Ordinarily it takes in every aspect of personal conduct deviating from the standard norms of life. It may also be said that what is repugnant to good conscience is immoral. Its varying content depends upon time, place and the stage of civilisation of a particular society. In short, no universal standard can be laid down and any law based on such fluid concept defeats its own purpose. The provisions of Section 23 of the Contract Act indicate the legislative intention to give it a restricted meaning. Its juxtaposition with an equally illusive concept, public policy, indicates that it is used in a restricted sense; otherwise there would be Page 112/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 overlapping of the two concepts. In its wide sense what is immoral may be against public policy, for public policy covers political, social and economic ground of objection. Decided cases and authoritative textbook writers, therefore, confined it, with every justification, only to sexual immorality. The other limitation imposed on the word by the statute, namely, ‘the court regards it as immoral’, brings out the idea that it is also a branch of the common law like the doctrine of public policy, and, therefore, should be confined to the principles recognised and settled by courts. Precedents confine the said concept only to sexual immorality and no case has been brought to our notice where it has been applied to any head other than sexual immorality. In the circumstances, we cannot evolve a new head so as to bring in wagers within its fold.”
39. This Court has confined morality to sexual morality so far as Section 23 of the Contract Act, 1872 is concerned, which in the context of an arbitral award would mean the enforcement of an award say for specific performance of a contract involving prostitution. “Morality” would, if it is to go beyond sexual morality necessarily cover such agreements as are not illegal but would not be enforced given the prevailing mores of the day. However, interference on this ground would also be only if something shocks the court's conscience.
Patent Illegality
40. We now come to the fourth head of public policy, namely, patent illegality. It must be remembered that under the Explanation to Section 34(2)(b), an award is said to be in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption. This ground is perhaps the Page 113/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 earliest ground on which courts in England set aside awards under English law. Added to this ground (in 1802) is the ground that an arbitral award would be set aside if there were an error of law by the arbitrator.
This is explained by Denning, L.J.
in R. v. Northumberland Compensation Appeal
Tribunal, ex p Shaw [(1952) 1 All ER 122 : (1952) 1 KB 338 (CA)] : (All ER p. 130 D-E : KB p. 351) “Leaving now the statutory tribunals, I turn to the awards of the arbitrators. The Court of King's Bench never interfered by certiorari with the award of an arbitrator, because it was a private tribunal and not subject to the prerogative writs. If the award was not made a rule of court, the only course available to an aggrieved party was to resist an action on the award or to file a bill in equity. If the award was made a rule of court, a motion could be made to the court to set it aside for misconduct of the arbitrator on the ground that it was procured by corruption or other undue means (see Statutes 9 and 10 Will. III, C. 15). At one time an award could not be upset on the ground of error of law by the arbitrator because that could not be said to be misconduct or undue means, but ultimately it was held in Kent v. Elstob [(1802) 3 East 18 : 102 ER 502] , that an award could be set aside for error of law on the face of it. This was regretted by Williams, J., in Hodgkinson v. Fernie [(1857) 3 CB (NS) 189 :
140 ER 712] , but is now well established.”
42. In the 1996 Act, this principle is substituted by the “patent illegality” principle which, in turn, contains three subheads:
48. The Division Bench while considering Claims 9, 10, 11 and 15 found fault with the application of Hudson's formula which was set out by the learned arbitrator in order to arrive at the claim made under Page 114/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 these heads. The Division Bench said that it was not possible for an arbitrator to mechanically apply a certain formula however well understood in the trade.
This itself is going outside the jurisdiction to set aside an award under Section 34 inasmuch as in McDermott case [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] , it was held: (SCC pp. 222-24, paras 104-06) “104. It is not in dispute that MII had examined one Mr D.J. Parson to prove the said claim. The said witness calculated the increased overheads and loss of profit on the basis of the formula laid down in a manual published by the Mechanical Contractors Association of America entitled ‘Change Orders, Overtime, Productivity’ commonly known as the Emden Formula. The said formula is said to be widely accepted in construction contracts for computing increased overheads and loss of profit. Mr D.J. Parson is said to have brought out the additional project management cost at US $1,109,500. We may at this juncture notice the different formulas applicable in this behalf.
(a) Hudson Formula: In Hudson's Building and Engineering Contracts, Hudson Formula is stated in the following terms:
(a) Hudson Formula: In Hudson's Building and Engineering Contracts, Hudson Formula is stated in the following terms:
“Contract head office overhead × Contract sum x Period of delay and profit percentage Contract period In the Hudson Formula, the head office overhead percentage is taken from the contract. Although the Hudson Formula has received judicial support in many cases, it has been criticised principally because Page 115/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 it adopts the head office overhead percentage from the contract as the factor for calculating the costs, and this may bear little or no relation to the actual head office costs of the contractor.
(b) Emden Formula: In Emden's Building Contracts and Practice, the Emden Formula is stated in the following terms:
“Head office overhead × Contract sum x Period of delay and profit Contract period 100 Using the Emden Formula, the head office overhead percentage is arrived at by dividing the total overhead cost and profit of the contractor's organisation as a whole by the total turnover. This formula has the advantage of using the contractor's actual head office overhead and profit percentage rather than those contained in the contract. This formula has been widely applied and has received judicial support in a number of cases including Norwest Holst Construction Ltd. v. Coop. Wholesale Society Ltd. [ Decided on 17-2-1998 : 1998 EWHC Technology 339] , Beechwood Development Co. (Scotland) Ltd. v. Mitchell [ Decided on 21-2-2001 : 2001 CILL 1727 : 2001 SLT 1214 (Scot)] and Harvey Shopfitters Ltd. v. Adi Ltd. [(2004) 2 All ER 982 : 2003 EWCA Civ 1757 (CA)]
(c) Eichleay Formula: The Eichleay Formula was evolved in America and derives its name from a case heard by the Armed Services Board of Contract Appeals, Eichleay Corporation. It is applied in the following manner:
‘Step 1 “Contract billings × Total overhead = Overhead Page 116/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 Total billings for for contract period allocable to the contract contract period ‘Step 2 “Allocable overhead = Daily overhead rate Total days of contract Step 3 “Daily contract × Number of days = Amount of unabsorbed overhead rate of delay overhead This formula is used where it is not possible to prove loss of opportunity and the claim is based on actual cost. It can be seen from the formula that the total head office overhead during the contract period is first determined by comparing the value of work carried out in the contract period for the project with the value of work carried out by the contractor as a whole for the contract period. A share of head office overheads for the contractor is allocated in the same ratio and expressed as a lump sum to the particular contract. The amount of head office overhead allocated to the particular contract is then expressed as a weekly amount by dividing it by the contract period. The period of delay is then multiplied by the weekly amount to give the total sum claimed. The Eichleay Formula is regarded by the Federal Circuit Courts of America as the exclusive means for compensating a contractor for overhead expenses.
105. Before us several American decisions have been referred to by Mr Dipankar Gupta in aid of his submission that the Emden Formula has since been widely accepted by the American courts being Nicon Inc. v. United States [331 F 3d 878 (Fed Cir 2003)] , Gladwynne Construction Co. v. Mayor and City Council of Baltimore [807 A 2d 1141 : 147 Md App Page 117/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 149 (2002)] and Charles G. Williams Construction Inc. v. White [271 F 3d 1055 (Fed Cir 2001)] .
106. We do not intend to delve deep into the matter as it is an accepted position that different formulae can be applied in different circumstances and the question as to whether damages should be computed by taking recourse to one or the other formula, having regard to the facts and circumstances of a particular case, would eminently fall within the domain of the arbitrator.”
49. Obviously, the Division Bench has exceeded its jurisdiction in interfering with a possible view of the arbitrator on facts.
50. The Division Bench then went on to hold:
(Associate Builders case [DDA v. Associate Builders, 2012 SCC OnLine Del 769] , SCC OnLine Del paras 17-18) “17. There is admittedly no evidence that the contractor i.e. the respondent had a central establishment. It appears to be a case where the contractor is a petty contractor and the only expenses incurred are at the site. The claim is towards hire charges paid for centring and shuttering, hiring tools, plants and scaffoldings i.e. the claim is not for the contractor's own equipment lying idle. There is just no evidence that the contractor paid hire charges as claimed by him. Not a single bill raised by the alleged person who let on hire the equipment to the contractor has been filed nor any evidence adduced for the payment made. Except for listing a 10 HP water pump, 4 number 1 HP water pump, 3 mixers, 250 scaffolding bamboos, 150 ballis and 2 vibrators in Annexure J to the statement of claim, no document proving hiring the same and brought at the site has been led. We highlight that the claim is on account of Page 118/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 hire charges paid and there is no evidence of said payment. It does happen that where a work is stopped, the person who takes an equipment on hire returns the same and re-hires the same when work recommences. Thus, Claims 9, 10 and 11 cannot be allowed because there is no evidence to support the claims. Damages on account of establishment expenses incurred during the period of contract got prolonged have certainly to be recompensed, but we find no evidence in the form of books of accounts, vouchers, etc. to show payments to the staff or expenses incurred in maintaining an establishment at site in the form of a site office. The wages register, photocopy whereof was filed before the arbitrator, pertains to wages paid to the unskilled, semi-skilled and skilled labour deployed to execute the works. The pleadings pertaining to the claim would show that as per the contractor he had deployed one Executive Officer, one graduate engineer, one Junior Engineer, one accountant, one storekeeper and Supervisor and one mechanic at the site and had also deployed watch and ward. Details of the persons employed have been listed in Annexure N to the statement of claim and the documents filed to establish the same would evidence that the contractor has filed photocopies of the salary register, which are available from pages 1255 to 1322, but unfortunately for the contractor, the cat is out of the bag when we look at the documents. They pertain to payments made for a site at Mayur Vihar. We highlight that the contract in question pertains to flats and houses at Trilokpuri and not Mayur Vihar. It is apparent that the contractor has tried to pull the wool on the eyes of the primary adjudicator of the claim. It is not the case of the contractor that these persons were simultaneously supervising the work at two sites. Assuming this was the case, the matter would then have been adjudicated with reference to same number of persons supervising Page 119/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 two sites and the time spent at each site by them.
18. Thus, the award pertaining to Claims 9, 10, 11 and 15 is liable to be set aside and it is so set aside. We need not therefore take corrective action on the apparent error i.e. the learned arbitrator has worked out the claim on the original contract value of Rs 87,66,678, of course by reducing it by 15%, but ignoring that final work executed was only in sum of Rs 62,84,845.”
51. Mr Verma argued correctly that there is nothing on record to show that the contractor is a petty contractor and that the only expenses incurred are at the site. He has shown us that the contract itself required execution of the work by a Class I contractor and has further shown us that Class I contractors require to have certain stipulated numbers of works worth large amounts before they can apply for the tender and that their financial soundness has to be attested too by banker's certificate showing that their worth is over 10 crores of rupees. Further, he has pointed out from the statement of claims before the arbitrator that there was evidence for Claims 9, 10 and 11 laid before the arbitrator which the arbitrator has in fact accepted. Also establishment expenses were set out in great detail before the arbitrator and it is only on this evidence that the arbitrator ultimately has awarded these claims. Mr Verma is also right in saying that the Division Bench was completely wrong in stating that the establishment expenses pertained to payments for a site at Mayur Vihar as opposed to Trilok Puri which were where the aforesaid houses were to be constructed. He pointed out that in the completion certificate dated 30-5-1997 given by the DDA to the appellant, it is clear that the houses that Page 120/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 were, in fact, to be constructed were in Mayur Vihar, Phase II, which is part of the Trilok Puri Trans-
Yamuna area.
52. It is most unfortunate that the Division Bench did not advert to this crucial document at all. This document shows not only that the Division Bench was wholly incorrect in its conclusion that the contractor has tried to pull the wool over the eyes over the DDA but it should also have realised that the DDA itself has stated that the work has been carried out generally to its satisfaction barring some extremely minor defects which are capable of rectification. It is clear, therefore, that the Division Bench obviously exceeded its jurisdiction in interfering with a pure finding of fact forgetting that the arbitrator is the sole Judge of the quantity and quality of evidence before him and unnecessarily bringing in facts which were neither pleaded nor proved and ignoring the vital completion certificate granted by the DDA itself. The Division Bench also went wrong in stating that as the work completed was only to the extent of Rs 62,84,845, Hudson's formula should have been applied taking this figure into account and not the entire contract value of Rs 87,66,678 into account.
..........
62. The Single Judge is clearly right. We have gone through all the 15 claims supplied to us and we find that none of these claims are in fact overlapping. They are all contained under separate heads. This argument, therefore, must also fail.
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(ii) 2020 (7) SCC 167 [Patel Engg. Ltd. v. North Eastern Electric Power Corpn. Ltd.], wherein the Hon'ble Supreme Court held as follows:-
“......... 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.
23. In the present case, the High Court has referred to the judgment in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49, paras 40 to 45 : (2015) 2 SCC (Civ) 204] at length in para 42 of its judgment dated 26-2-2019 [North Eastern Electric Power Corpn. Ltd. v. Patel Engg.
Ltd., 2019 SCC OnLine Megh 30] and arrived at the correct conclusion that an arbitral award can be set aside under Section 34 if it is patently illegal or perverse. This finding of the High Court is in conformity with para 40 of the judgment of this Court in Ssangyong Engg. [Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131, para 19]
24. In the present case, the High Court in para 60 has held [North Eastern Electric Power Corpn. Ltd. v. Patel Engg. Ltd., 2019 SCC OnLine Megh 30] that no reasonable person could have arrived at a different conclusion while interpreting Clauses 2.7 and 3.4 of the BoQ and Clauses 32(ii)(a) and 33(iii) Page 122/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 of the Conditions of Contract. Any other interpretation of the above clauses would definitely be irrational and in defiance of all logic. The relevant extract reads : (North Eastern Electric Power Corpn. Ltd. case [North Eastern Electric Power Corpn. Ltd. v. Patel Engg. Ltd., 2019 SCC OnLine Megh 30] , SCC OnLine Megh) “60. … Clause 33(iii) specifically provides that “If the rates for such items of work cannot be determined in the manner as specified in Clause 33(ii), the rates for such items to be executed shall be determined by the Engineer-in-Charge on the basis of actual and analysed cost taking the following into consideration the rates for such items of works as are required to be executed due to deviations as stated in sub-clause shall be payable in the manner as stated hereunder…”. We are of the firm view that this is the only possible interpretation of Clauses 2.7 and 3.4 of the BoQ and Clauses 32(ii)(a) and 33(iii) of the Conditions of Contract. No reasonable person would arrive at a different conclusion while interpreting Clauses 2.7 and 3.4 of the BoQ and Clauses 32(ii)(a) and 33(iii) of the Conditions of Contract. Any other interpretation of the above clauses would definitely be irrational and in defiance of all logic.” (emphasis supplied)
25. The High Court in para 61 came to the finding that the findings in the award suffer from the vice of irrationality and perversity, and held as follows : (North Eastern Electric Power Corpn. Ltd. case [North Eastern Electric Power Corpn. Ltd. v. Patel Engg. Ltd., 2019 SCC OnLine Megh 30] , SCC OnLine Megh paras 61-63) “61. The arbitral awards and the findings of the learned arbitrator suffer from the vice of perversity.
Page 123/142https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 The learned arbitrator has taken into account various factors irrelevant in coming to the decision and has ignored vital clauses of the tender documents like Clause 2 and various sub-clauses i.e. sub-clauses 2.1 to 2.8.7 under Clause 2 and Clause 3 and various sub-clauses i.e. sub-clauses 3.1 to 3.7 under Clause 3 of the BoQ, Clause 2 and various sub-clauses i.e. sub-clauses 2.1 to 2.17.7 under Clause 2 and Clause 3 and various sub-clauses i.e. sub-clauses 3.1 to 3.10.5 under Clause 3 of “Particular Technical Specifications”, Vol. 2, Part II. The learned arbitrator has taken into consideration an irrelevant fact that while making provisional payment, the initial lead of 3.0 km has been deducted and that this shows that Clauses 2.7 and 3.4 of the BoQ are applicable. The provisional payment was an interim arrangement and was preceded by meetings dated 7- 12-2012 and 8-12-2012 wherein it was specifically agreed between the parties that HoP, NEEPCO would take steps for referring the dispute to arbitration and that till the arbitral award, the payment would be made as per the prevailing provisional rate without any escalation and that final rate payable for transportation of sand and boulder shall be done on implementation of the arbitral award. As such the fact that provisional payment was made by deducting initial lead of 3.0 km was an irrelevant fact for deciding the issue. The findings of the learned arbitrator having been arrived at by taking into account irrelevant factors and by ignoring vital clauses, the same suffers from vice of irrationality and perversity. It must be borne in mind that the arbitral awards in question are declaratory arbitral awards and involved interpretation of Clauses 2.7 and 3.4 of the BoQ and Clauses 32(ii)(a) and 33(iii) of the Conditions of Contract and the learned arbitrator was required to interpret the same in accordance with the Page 124/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 established rules of interpretation. The findings of the learned Additional Deputy Commissioner (Judicial), Shillong while upholding the arbitral awards of the learned arbitrator also suffer from the similar vice. We are, therefore, of the considered view that that the common order dated 27-4-2018 passed by the learned Additional Deputy Commissioner (Judicial), Shillong in Arbitration Case No. 5 (T) 2016, Arbitration Case No. 6 (T) 2016 and Arbitration Case No. 7 (T) 2016 as well as the 3 (three) arbitral awards dated 29-3- 2016 passed by the learned arbitrator warrant interference in these appeals under Section 37 of the Arbitration and Conciliation Act, 1996.
62. There are additional reasons for interfering with order dated 27-4-2018 passed by the learned Additional Deputy Commissioner (Judicial), Shillong and the arbitral awards dated 29-3-2016 passed by the learned arbitrator. As the learned counsel for the appellant has submitted, the potential effect of the Arbitral Award on public exchequer is that the appellant, which is a public sector undertaking, will have to pay a sum of about Rs 3.56 lakhs for every truckload of 10 cubic metre of sand or boulder (travelling for 100 km) and the total potential effect would be about Rs 1000 crores. We are of the considered view that payment of Rs 3.56 lakhs per truck (10 cubic metre) of sand or boulder (100 km distance) is definitely a case of unjust enrichment which is contrary to the fundamental policy of Indian Law. Unjust enrichment being contrary to the fundamental policy of Indian Law is a ground for interference with an arbitral award under Section 34(2) of the Act. The Bombay High Court inAngerlehner Structural & Civil Engg.
Co. v. Municipal Corpn. of Greater Mumbai [Angerlehner Structural & Civil Engg.
Page 125/142https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 Co. v. Municipal Corpn. of Greater Mumbai, 2017 SCC OnLine Bom 1743] has recognised unjust enrichment of a party at the cost of public exchequer as being against the fundamental policy of Indian law. The Bombay High Court has held : (SCC OnLine Bom para 65) ‘65. … If the argument of the contractors is accepted, it leads to them blatantly enriching themselves over and above what they are entitled. Such completely unjust enrichment, that too at the cost of public funds, is abhorrent under the fundamental policy of Indian law. The award in AJECT, which permits such blatant enrichment is therefore also vitiated on the ground that it is against the fundamental policy of Indian law.’
63. We are also of the considered view that the arbitral award which would potentially result in unjust enrichment of the respondent to the extent of about Rs 1000 crores is against the fundamental policy of Indian law and, therefore, warrants interference on this count as well. Though this Court is not sitting in appeal over the award of the Arbitral Tribunal, the presence of grounds under Section 34(2) of the Act and the satisfaction arrived at by this Court in this regard, warrants interference more so, as the arbitral awards in question are declaratory arbitral awards and involved interpretation of Clauses 2.7 and 3.4 of the BoQ and Clauses 32(ii)(a) and 33(iii) of the Conditions of Contract and the learned arbitrator was required to interpret the same in accordance with the established rules of interpretation and in line with the fundamental policy of Indian law.” (emphasis supplied)
26. Even though the High Court in para 44 of the judgment [North Eastern Electric Power Corpn.
Page 126/142https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 Ltd. v. Patel Engg. Ltd., 2019 SCC OnLine Megh 30] referred to various judgments, including Western Geco [ONGC v. WesternGeco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] [which is now no longer good law], the case has been decided on the ground that the arbitral award is a perverse award and on a holistic reading of all the terms and conditions of the contract, the view taken by the arbitrator is not even a possible view. The High Court has rightly followed the test set out in para 42.3 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49, paras 40 to 45 : (2015) 2 SCC (Civ) 204] , which was reiterated in para 40 of Ssangyong Engg. [Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131, para 19] judgment.
27. In our view, while dealing with the appeal under Section 37 of the Act, the High Court has considered the matter at length, and held [North Eastern Electric Power Corpn. Ltd. v. Patel Engg. Ltd., 2019 SCC OnLine Megh 30] that while interpreting the terms of the contract, no reasonable person could have arrived at a different conclusion and that the awards passed by the arbitrator suffer from the vice of irrationality and perversity. ........”
(iii) 2021 (3) SCC 308 [Anglo American Metallurgical Coal Pty. Ltd. v. MMTC Ltd., ] wherein the Hon'ble Supreme Court held as follows:-
“...... 48. Given the parameters of judicial review laid down in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , it is obvious that neither the ground of Page 127/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 fundamental policy of Indian law, nor the ground of patent illegality, have been made out in the facts of this case, given the fact that the majority award is certainly a possible view based on the oral and documentary evidence led in the case, which cannot be characterised as being either perverse or being based on no evidence. ........”
(iv) 2022 (2) SCC 382 [Welspun Specialty Solutions Limited (formerly known as Remi Metals Gujarat Limited) v. Oil and Natural Gas Corporation Limited] wherein the Hon'ble Supreme Court held as follows:-
“..............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: “34. Application for setting aside arbitral award.— (1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-Section (2) and sub- Section (3).
(2) An arbitral award may be set aside by the Court only if— (3) *** (4) (b) the Court finds that—(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.” Page 128/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 (emphasis supplied)
23. The limited grounds provided under Section 34 of the Act, has been interpreted by this Court on numerous occasions. In this case at hand, the challenge of award is based on the fact that the same is against the 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 diversly interpreted that in some cases, the purpose of limiting the Section 34 jurisdiction is lost. This Court's jurisprudence also shows that Section 34(2)(b) has undergone a lot of churning and continue to evolve. The purpose of Section 34 is to strike a balance between the court's appellate powers and 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 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 the “public policy of India” and does not cover the public policy of any other country.
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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 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 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 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 policy if such enforcement would be contrary to (i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality.” Page 130/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 (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 public good and the public interest. What is for public good or in 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 public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term “public policy” in 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—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 trivial nature it cannot be held that award is against the public policy. Award could also Page 131/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. Such 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 of 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 Page 132/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022
(b) failing such agreement, the arbitral procedure was not in accordance with Part I of the Act.
However, exception for setting aside the award on the ground of composition of 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:
(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 root of the matter. Illegality of a trivial nature could not be held to violate the public policy.
28. In Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd. [Dyna Technologies (P) Page 133/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 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 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 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 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 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. ...............” Page 134/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022
(v) 2020 (5) SCC 164 [South East Asia Marine Engineering and Constructions Limited (SEAMEC Limited) v. Oil India Limited] wherein the Hon'ble Supreme Court held as follows:-
“....... 12. It is a settled position that a court can set aside the award only on the grounds as 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 :
2019 SCC OnLine SC 1656] laid down the scope of such interference. This Court observed as follows : (SCC pp. 11-12, 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 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 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.” (emphasis supplied) Page 135/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022
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 : 2019 SCC OnLine SC 1656] observed as under : (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.” (emphasis supplied)
14. However, the question in the present case is whether the interpretation provided to the contract in the award of the Tribunal was reasonable and fair, so that the same passes the muster under Section 34 of the Arbitration Act?
15. In the present case, the respondent has argued that the view taken by the Arbitral Tribunal was not even a possible interpretation, therefore the award being unreasonable and unfair suffers from perversity.
Hence, the respondent has pleaded that the award ought to be set aside. In this context, we may state that usually the Court is not required to examine the merits of the interpretation provided in the award by the arbitrator, if it comes to a conclusion that such an interpretation was reasonably possible.
.................
17. The Arbitral Tribunal held that this clause must be liberally construed and any circular of the Page 136/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 Government of India would amount to a change in law. The Arbitral Tribunal observed:
“According to rule of construction of any document harmonious approach should be made reading or taking the document as a whole and exclusion should not be readily inferred unless it is clearly stated in the particular clause of the document. This is according to rule of interpretation. A consistent interpretation should be given with a view to smooth working of the system, which the document purports to regulate. The word, which makes it inconsistent or unworkable, should be avoided. This is known as beneficial construction and a construction should be made which suppresses the mischief and advances the remedies. So, the increase in the operational cost due to enhanced price of the diesel is one of the subject-matters of the contract as enshrined in Clause 23. It may be said that Clause 23 may be termed as “Habendum Clause”. In the deed of the contract containing various granting clauses and the habendum signifying the intention of, the grantor.
That Clause 23 requires liberal interpretation for interpreting the expression “law” or change in law, etc. will also be evident from the facts that the respondents Oil India Ltd. through its witness Mr Pasrija has clearly stated that the change in diesel price or any other oil price was never done and by way of any statutory enactment either by Parliament or by State Legislature. So, it is clear that at the time when Clause 23 was incorporated in the agreement Oil India Ltd. was very much aware that change in oil price was never made by any statutory legislation but only by virtue of government order, resolution, instruction, as the case may be, on accepting that a condition of the appropriate committee, namely, OPC Page 137/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 it is also clear to apply when there is change in oil price, here HSD, by the Government and its statutory authority as enacted in the above without resorting to any statutory enactment. Therefore that the interpretation of expression “law” or change in law, etc. requires this extended meaning to include the statutory law, or any order, instruction and resolution issued by the Central Government in its Ministry of Petroleum and Natural Gas.” The majority award utilises “liberal interpretation rule” to construe the contract, so that the price escalation of HSD could be brought under Clause 23 of the contract. Further, the Arbitral Tribunal identifies the aforesaid clause to be a “Habendum Clause”, wherein the rights granted to the appellant are required to be construed broadly........”
39. The scope of judicial scrutiny and interference by an Appellate Court under Section 37 of the Act is even more restricted while deciding a petition under Section 34 of the Act. The Arbitration Act makes provision for the supervisory role of Courts for the review of the Arbitral Award only to ensure fairness. Intervention of the Court is envisaged in few circumstances only, like in case of fraud or bias by the Arbitrators, violation of natural justice, etc. The Court cannot correct errors of the Arbitrators. It can only quash the Award, leaving the parties free to begin the arbitration again if it is desired. Hence, the scheme of the provision Page 138/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 aims at keeping the supervisory role of the Court at minimum level and this can be justified as parties to the Agreement make a conscious decision to exclude the Court's jurisdiction by opting for Arbitration as they prefer the expediency and finality offered by it. While entertaining appeals under Section 37 of the Act, the Court is not sitting as a Court of Appeal over the Award of the Arbitral Tribunal and the Court would not re-appreciate or re-assess the evidence. It is also a well settled position of law that the terms and conditions of the Contract cannot be substituted by new terms and since it is in the nature of judicial review, the findings rendered by the Arbitral Tribunal unless vitiated on account of patent illegality, perversity or contravention of any of the provisions of the Act or against public policy, it cannot be interfered with. The scope of interference in the Award passed by the Arbitrator under Section 34 and more particularly, under Section 37 of the Arbitration Act is very limited.
The reasonableness of the reasons given by the Arbitrator cannot be challenged. Appraisement of evidence by the Arbitrator is never a matter which the Court considers and questions. If the parties have selected their own form, the deciding forum must be conceded the power of appraisement of the evidence. The Arbitrator is the sole Judge of the Page 139/142 https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022 quality as well as the quantity of the evidence and it will not be for the Court to take upon itself the task of being a Judge on the evidence before the Arbitrator.
40. In view of the settled position of law, the present appeals do not warrant any consideration as they re-iterate the very same grounds urged before the learned Single Judge, which are in the nature of challenge to factual findings and evidence, which cannot be considered at this stage. Since the Arbitral Tribunal has come to the conclusion based on the detailed analysis of the facts and evidences, there is no infirmity, which warrant any interference under Section 34 of the Act, much less Section 37 of the Act.
41. The respondent made claims initially for an amount of Rs.616,66,83,700/- under different heads, which was subsequently amended to Rs.675,06,82,833/-. Out of the total claim, the Arbitral Tribunal Awarded a sum of Rs.340,97,02,243/-. The learned Single Judge also confirmed the Award passed by the Arbitral Tribunal.
Page 140/142https://www.mhc.tn.gov.in/judis O.S.A.(Cad) Nos.75 and 76 of 2022
42. The Arbitral Tribunal had full discretion under Section 31(7) of the Act to determine the rate of interest post-award. The Arbitral Tribunal and the learned Single Judge have rightly awarded interest.
43. In view of the ratio laid down by the Hon'ble Supreme Court in the above referred judgments, since there is no perversity either in the Award passed by the Arbitral Tribunal or in the order passed by the learned Single Judge, we do not find any ground to interefere with the order passed by the learned Single Judge. The above Original Side Appeals are liable to be dismissed. Accordingly, the Original Side Appeals are dismissed. No costs. Consequently, the connected Miscellaneous Petitions are closed.
[M.D., J.] [S.M., J.]
11.08.2022
Index : Yes/No
Internet : Yes
Rj
M. DURAISWAMY, J.
Page 141/142
https://www.mhc.tn.gov.in/judis
O.S.A.(Cad) Nos.75 and 76 of 2022
and
SUNDER MOHAN, J
Rj
Judgment in
O.S.A.(CAD)Nos.75 and 76 of 2022
and C.M.P. Nos.9474 and 9475 of 2022
11.08.2022
Page 142/142
https://www.mhc.tn.gov.in/judis