Delhi District Court
Union Of India vs M/S Pcm Cement Concrete Pvt. Ltd on 20 December, 2021
IN THE COURT OF SH GURVINDER PAL SINGH,
DISTRICT JUDGE (COMMERCIAL COURT)-02,
PATIALA HOUSE COURT, NEW DELHI
OMP (Comm.) No. 03/2021
Union of India
Through
Mr. Arun Kumar, DY.CE/TP NF/RAILWAY,
Having its office situated at
Office of Principal Chief Engineer,
NF Railway Head Quarter,
Maligaon, Guwahati-781011, Assam ...Petitioner
versus
M/s PCM Cement Concrete Pvt. Ltd.
Through its Secretary/Director,
PCM Tower, 2nd Mile, 3rd Floor,
Sevoke Road, Siliguri-734001,
West Bengal.
Also At
410, Swalka Centre,
4A, Pollock Street,
Kolkata-700001 ...Respondent
Date of Institution : 30/12/2020
Arguments concluded on : 17/11/2021
Decided on : 20/12/2021
Appearances : Sh. Naval Singh, Ld. Counsel for petitioner.
Sh. Saran Suri and Ms. Ruchira Singh, Ld. Counsel for
respondent.
JUDGMENT
1. Petitioner has filed the present objection petition under Section 34 of The Arbitration and Conciliation Act, 1996 (herein after referred as The Act), seeking setting aside of the impugned arbitral award dated 20/07/2020 and 18/09/2020 passed by OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 1 of 36 Arbitral Tribunal comprising of Sri A.K. Misra, IRSSE, Retd. AM (S&T), Railway Board, Ld. Presiding Arbitrator; Sri Premananda Mohanty, IRAS, Retd. FA & CAO/ECOR and Sri Arun Bhagra, IRSME, Retd. AGM, S.C. Railway, Ld. Co- Arbitrators. Arbitral Tribunal awarded Rs. 49,56,648/- with interest @ 10% per annum with effect from one month from the date of publication of award till the date of payment, payable by petitioner to claimant/ respondent.
2. I have heard Sh. Naval Singh, Ld. Counsel for petitioner, Sh. Saran Suri and Ms. Ruchira Singh, Ld. Counsel for respondent and perused the record of the case as well as reply of respondent to petition, the arbitral proceedings record, relied upon precedents, filed brief written arguments on behalf of petitioner as well as on behalf of respondent and given my thoughtful consideration to the rival contentions put forth.
3. Shorn of unnecessary details, the brief the facts of the case of parties are as follows:-
Contract Agreement bearing CE-09/2006 dated 31/01/2006 was entered into between parties to the lis for "Manufacture and supply of prestressed mono block concrete sleeper (pre-tension type) for Broad Gauge (1673 mm) to Drawing number T-2496 to suit 60 kg UIC rail as per RDSO design and IRS Specification No T-39-85 ( Third Revision May 1996) as amended up to date duly loaded into wagon/road vehicle" in terms of Tender No CS-
156 of 2005. The approximate value of the work was Rs.39,44,67,680/- for supply of 4,56,032 sleepers. The said work was to be completed on or before 26/01/2008 with the OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 2 of 36 requirement of maintaining of uniform supply for a period of two years and one calender month from the certified date of commencement i.e. 26/12/2005.The parties agreed to abide by the terms and conditions of the Contract Agreement as well as the Indian Railways Standard Conditions of Contract (in short IRSCC). Before execution of the Contract Agreement, letter of acceptance dated 05/09/2008 accepting the bid of claimant/ respondent was issued by petitioner. In terms of Clause 64 of IRSCC in case of disputes between the parties, the disputes were to be sent for dispute resolution to the Arbitral Tribunal to be appointed by General Manager, North Frontier Railway (GM/NFR) with application of Act. Arbitral Tribunal was constituted by the orders of GM/North East Frontier Railway to adjudicate the dispute inter se parties to the lis. Arbitral proceedings culminated in the impugned arbitral award.
4. Petitioner has impugned the arbitral award dated 20/07/2020 and 18/09/2020 and also the arguments were submitted mainly on the following grounds:-
The impugned arbitral award has been passed by Arbitral Tribunal ignoring the agreed terms and conditions of contract, in violation of Section 28(3) of the Act. Impugned award is against the public policy of India. Subject work was awarded to respondent/claimant subject to applicability of IRSCC.
Clause 0702 of IRSCC reads as under:-
"0702. Failure and Termination. If the Contractor fails to deliver the stores or any installment thereof within the period fixed for such delivery in the contract or as extended or at any time repudiates the contract before the expiry of such period the Purchaser may without prejudice to his other rights-
(a) recover from the Contractor as agreed liquidated damages and not by way of penalty a sum equivalent to 2 per OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 3 of 36 cent of the price of any stores (including elements of taxes, duties, freight, etc.) which the Contractor has failed to deliver within the period fixed for delivery in the contract or as extended for each month or part of a month during which the delivery of such stores may be in arrears where delivery thereof is accepted after expiry of the aforesaid period, or
(b) cancel the contract or a portion thereof and if so desired purchase or authorize the purchase of the stores not so delivered or others of a similar description (where stores exactly complying with particulars are not in, the opinion of the Purchaser, which shall be final, readily procurable) at the risk and cost of the Contractor. It shall, however, be in the discretion of the purchaser to collect or not the security deposit from the firm/firms on whom the contract is placed at the risk and expense of the defaulted firm.
Whereas action is under Sub-clause (b) above, the Contractor shall be liable for any loss which the Purchaser may sustain on that account provided the purchase, or, if there is an agreement to purchase, such agreement is made, in case of failure to deliver the stores within the period fixed for such delivery in the contract or as extended within six months from the date of such failure and in case of repudiation of the contract before the expiry of the aforesaid period of delivery, within six months from the date of cancellation of the contract. The Contractor shall not be entitled to any gain on such purchase and the manner and method of such purchase shall be in the entire discretion of the Purchaser. It shall not be necessary for the Purchaser to serve a notice of such purchase on the Contractor.
Note:- In respect of the stores which are not easily available in the market and where procurement difficulties are experienced, the period for making risk purchase shall be nine months instead of six months provided above."
Complete items/sleepers were not supplied and due to that reason Liquidated Damages (in short LD) were deducted on 16/03/2009 and contract was terminated on 15/02/2010. Petitioner had the right to recover from the contractor LD on unsupplied quantity of sleepers which the contractor has failed to deliver within the period fixed for delivery. In this regard vide Circular No. 2003/RS(G)/779/9 dated 04/03/2008 of Government of India, Ministry of Railway clarification was there that there OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 4 of 36 should be normally no system of waiver of liquidated damages and imposition of token liquidated damages for delayed supplies in supply contracts. No reason was assigned by respondent for non delivery of the sleeper/goods within the time which were beyond the control of supplier/respondent. Without admitted anything, if petitioner waived the LD Clauses then no contractor/supplier will supply the goods to the Railway in time and due to non supply of goods, the work of Indian Railway will suffer due to which the public at large will be the sufferer if there is delay in execution of any project of Indian Railway in the absence of non supply of the material by the various contractors/ suppliers. Claimant/respondent had signed the contract with its eyes wide open and was aware of the imposition of LD in case of delays in supply of the items/goods. LD Clause in the contract was nothing but the pre-estimated damages which are uniformly applied in the contracts of the Indian Railways irrespective of the status of firms as small scale or otherwise. This clause is kept only with an intent and purpose of simplifying the methodology of quantification of damages. Quantification of damages is not practically possible for Railway by taking into loss of man hours or other criteria. Indian Railways is the biggest organization which is serving the nation 24 X 7 and has no other method of computing the damages other than standard form of imposition of LD at the rate of 5% due to delays of supplies of goods/items by the party irrespective of volume of contracts or due to non supply of sleepers/goods. Rider Agreement was executed on 01/04/2008 and on 02/04/2008 respondent requested to enhance not more than 15% as additional quantity just after signing the Rider Agreement. The observation made by Arbitral Tribunal that OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 5 of 36 request was made by respondent before 01/04/2008 as there was no right of enhancement by petitioner, was without any evidence available on arbitral record and without any evidence the presumption cannot be drawn. On 20/12/2007 a letter was sent by petitioner to respondent with regard to enhancement of quantity up to 30% well before 25/01/2008 prior to supplying the entire quantity as per the original agreement dated 31/01/2006 and thereafter respondent gave consent on 11/01/2008 and thereafter Rider Agreement was executed on 01/04/2008, so the 30% quantity enhanced was well in time before 25/01/2008 and in observation Arbitral Tribunal erred to the extent that right of enhancement lapsed on 24/01/2008 as per agreement. During currency of contract and prior to termination of contract, respondent/claimant never challenged the validity of Rider Agreement dated 01/04/2008 at any point of time and no relief was sought by respondent in the prayer clause of Statement of Claim dated 31/12/2008 challenging the Rider Agreement dated 01/04/2008, so without seeking any prayer relief cannot be granted. Rather the claimant/respondent had manufactured 42440 nos. sleepers out of balance quantity of 136809 nos. of sleepers even prior to execution of Rider Agreement dated 01/04/2008, so by their own conduct, respondent/claimant itself admitted to execute the enhanced quantity of sleepers, as such at this belated stage respondent is stopped by way of rule of estoppel and cannot challenge the validity of Rider Agreement dated 01/04/2008. The Doctrine of waiver is also applied in the present case against the claimant/respondent. The finding returned by Arbitral Tribunal is not based upon the record available before them and is infact contrary to facts and record. There was no provision either in the OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 6 of 36 contract or in IRSCC to issue any prior notice before imposition of liquidated damages. Liquidated damages are always deducted from the bill at the time of clearing the same. The actual loss was not required to be proved by purchaser, so the finding returned by Arbitral Tribunal is liable to be set aside being patently illegal and against the substantive law. The work was awarded subject to applicability of IRSCC, whereas claim of interest is prohibited by Clause 2401 of IRSCC.
Clause 2401 of IRSCC reads as under:-
"2401 Whenever any claim or claims for payment of a sum of money arises out of or under the contract against the Contractor, the Purchaser shall be entitled to withhold and also have a lien to retain such sum or sums in whole or in part from the security, if any, deposited by the Contractor and for the purpose aforesaid, the Purchaser shall be entitled to withhold the said cash security deposit or the security, if any, furnished as the case may be and also have a lien over the same pending finalisation or adjudication of any such claim. In the event of the security being insufficient to cover the claimed amount or amounts or if no security has been taken from the Contractor, the Purchaser shall be entitled to withhold and have lien to retain to the extent of the such claimed amount of amounts referred to supra, from any sum or sums found payable or which at any time thereafter may become payable to the Contractor under the same contract or any other contract with the Purchaser or the Government pending finalisation or adjudication of any such claim.
It is an agreed terms of the contract that the sum of money or moneys so withheld or retained under the lien referred to above, by the Purchaser will be kept withheld or retained as such by the Purchaser till the claim arising out of or under the contract is determined by the Arbitrator (if the contract is governed by the arbitration clause) or by the competent court as prescribed under Clause 2703 hereinafter provided, as the case may be, and that the Contractor will have no claim for interest or damages whatsoever on any account in respect of such withholding or retention under the lien referred to supra and duly notified as such to the contractor:"
Without reasoning Arbitral Tribunal has held that petitioner is not entitled to recover the liquidated damages, which have OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 7 of 36 been deducted from the bill of respondent, so the finding returned by Arbitral Tribunal is liable to be set aside being patently illegal. Arbitral Tribunal had directed to pay the interest @ 10% per annum on the awarded amount within one month from the date of publication of award, whereas petitioner had legal right to challenge the award within three months and further within 30 days as per Section 34(3) of the Act. So the statutory right of filing the objection petition cannot be withdrawn by directing the petitioner to pay the awarded amount within one month, so Arbitral Tribunal has misconducted by passing such order. Impugned award is unfair and unreasonable, which has been published in a mechanical manner and without considering the relevant clauses of the agreement and is based on erroneous legal proposition. Impugned award has been published on the basis of assumption and presumption without any evidence, based on surmises and conjectures and without applying judicious mind. As per agreement, time was the essence of the contract. Ld. Counsel for petitioner prayed for setting aside of the impugned arbitral award and relied upon the following precedents:-
1. Union of India vs Pradeep Vinod Const., Co., O.M.P. 296/2005 & I.A. 6390/2005 decided by Delhi High Court on 30/07/2018;
2. Ashi Limited vs Union of India, O.M.P. 200/2015 decided by Delhi High Court on 19/05/2020 and
3. Sri Chittaranjan Maity vs Union of India, 2017 (6) R.A.J. 1 (SC).
5. In filed reply and written arguments, respondent/claimant through Counsel submitted and argued as follows. Objections/ petition are misconceived and against the settled principles of law. Arbitral Tribunal in impugned award in para nos. 11, 12, 15 and 16 had justifiably allowed the claim of claimant/respondent OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 8 of 36 and had upheld the release of LD of Rs. 49,56,648/- that was held to be wrongly retained by objector/ petitioner for almost 13 years since 25/01/2008 when the Contract number 1's term had expired. Arbitral Tribunal thereby also rejected the Counter Claim filed by objector/petitioner for realization of the said LD. Significantly, in para 11.6 of the impugned award Arbitral Tribunal had returned the finding that signing of the Rider Agreement after expiry of the original tender/Contract no. 1 seemed to be forced. Objector/Petitioner against the said finding, in present proceedings is trying to have another round/chance by pleading that non completion of supplies under the Rider Agreement (on account of enhancement of 30% quantity of contract no. 1) was breach of the said Contract no. 1. Apparently, petitioner is trying to take advantage of three contracts (detailed hereunder) that were dealt with in aforesaid arbitration proceedings by the Arbitral Tribunal. The arbitration was as per the terms of Contract no. 1, where under the said LD was imposed by petitioner. Arbitral Tribunal had held that the Rider Agreement was issued and thrust upon the respondent as it was inter alia held to have been issued after expiry of aforesaid Contract no. 1 to cover up its delay. Following are the details of three contracts:-
S. Contract Details Quantity Quantity Supplied No. Ordered (up to 05.09.2008) (upto 05.09.2008)
1. Contract No.1 4,56,032 4,66,266 sleepers (up (CS-156, supplies to sleepers to 25.01.2008) commence 26.12.2005- 25.01.2008-25 months)
2. Contract No. 2 (Rider 1,36,809 1,36,809 sleepers Agreement- sleepers (supplied partial enhancement of 30% (total quantity of 5,13,218 OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 9 of 36 quantity of Contract 5,92,841 sleepers out of total No.1, supplies to sleepers) quantity of 5,92,841 commence 01.04.2008- sleepers thereby 10.09.2008). supplying about 46,952 sleepers leaving a quantity of 89,857 sleepers unsupplied.)
3. Contract No. 3 (CS- - --
160, supplies to
commence
05.09.2008).
LDs were wrongly deducted by objector/petitioner on 14/03/2009 and contract no. 2 was terminated on 15/02/2010.
Claim no. 2 of respondent was disallowed by Arbitral Tribunal since it was held that interest was not payable in terms of clause no. 2907 of the IRSCC, as per agreed terms. Only interest for post award period was allowed by Arbitral Tribunal in terms of Section 31 (7) of the Act (with effect from expiry of one month from the date of the publication of impugned award till the date of payment @ 10% per annum). Notice was must for taking any penal action against any party as per settled principles. Petitioner had failed to either establish or prove any loss suffered for any short supply of sleepers. So, party claiming any compensation has to prove the loss suffered under Section 73 of The Contract Act, 1872. More than 96% quantity was supplied within the delivery period, therefore, it was observed that claimant supplied nearly all supplies, hence imposition of LD was wrongful. Even to claim damages under Section 74 of the Contract Act, 1872 a party needs to plead, establish and to prove losses even if LD has been provided in the contract, as pre-estimate of damages. Arbitral Tribunal had applied its mind and the Court cannot reappraise the facts/matter as if it were a Court of appeal and OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 10 of 36 even if two views are possible, the view taken by the Arbitrator, if plausible will prevail. Arbitral Tribunal has rightly observed that there is no letter from objector/petitioner after closure of supply under the Contract no. 1 i.e., after 05/09/2008. The conduct of the ground officials of petitioner and respondent/ claimant shows that ground staff also believed in their mind that supply under the Contract no. 1 were subsumed under Contract no. 3. View taken by Arbitral Tribunal is a plausible view based on the interpretation of the contracts, material on record and the law applicable to the dispute. The impugned award is well reasoned award and does not suffer from any infirmity much less to be in violation of the public policy or in violation of provisions of the Act. Even 2015 Amendment to Section 28 (3) of the Act stipulates that in all cases the Arbitral Tribunal shall decide in accordance with the terms of the agreement and shall take into account the the usage of the trade applicable to the transaction. Arbitral Tribunal rightly held that it was bound to follow the law of the land and it will be erroneous with respect to the imposition of LD as the law even takes precedence over the conditions of the agreement. Impugned award is not perverse but based on reasonable interpretation of relied clauses of the Contract(s) and law, so it does not call for interference. Ld. Counsel for respondent relied upon the following precedents:-
1. Maula Bux vs Union of India, MANU/SC/ 0081/1969;
2. Ssangyong Engineering & Construction Co. Ltd. vs National Highways Authority of India (NHAI), MANU/SC/0705/2019;
3. Sutlej Construction vs Union Territory of Chandigarh, MANU/SC/1589/2017;
4. Swan Gold Mining Ltd. vs Hindustan Copper Ltd., MANU/SC/0849/2014;
5. Associate Builders vs Delhi Development Authority, MANU/SC/1076/2014;OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 11 of 36
6. Rashtriya Ispat Nigam Ltd. vs Dewan Chand Ram Saran, MANU/SC/0327/2012;
7. Associate Builders vs Delhi Development Authority, (2015) 3 SCC 49 and
8. Navodaya Mass Entertainment Ltd. vs J.M. Combines, MANU/SC/0735/2014.
6. An arbitral award can be set aside on the grounds set out in Section 34 (2) (a), Section 34 (2) (b) and Section 34 (2A) of the Act in view of Section 5 of the Act and if an application for setting aside such award is made by party not later than 3 months from the date from which the party making such application had received the signed copy of the arbitral award or if a request had been made under Section 33 of the Act, from the date on which that request had been disposed of by the Arbitral Tribunal. If the Court is satisfied that the applicant was prevented by sufficient cause from the making the application within the said period of three months it may entertain the application within further period of 30 days, but not thereafter.
7. Section 34 (1) (2), (2A) and (3) of The Arbitration and Conciliation Act, 1996 read 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-
(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 OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 12 of 36 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
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the court finds that-
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Explanation 1 - For the avoidance of any doubt, it is clarified that 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.
(2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 13 of 36 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.
(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."
8. Supreme Court in case of Associate Builders vs. Delhi Development Authority, (2015) 3 SCC 49 has held that the interference with an arbitral award is permissible only when the findings of the arbitrator are arbitrary, capricious or perverse or when conscience of the Court is shocked or when illegality is not trivial but goes to the root of the matter. It is held that once it is found that the arbitrator's approach is neither arbitrary nor capricious, no interference is called for on facts. The arbitrator is ultimately a master of the quantity and quality of evidence while drawing the arbitral award. Patent illegality must go to the root of the matter and cannot be of trivial nature.
Also was held therein that:
"33. "...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....
Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts.."
9. Supreme Court in case of Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 14 of 36 India, 2019 SCC OnLine SC 677 has held that under Section 34 (2A) of the Act, a decision which is perverse 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. A finding based on the 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 characterized as perverse. It is held that 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.
10. Supreme Court in the case of Patel Engineering Ltd. vs North Eastern Electric Power Corporation Ltd., MANU/SC/ 0447/2020 inter alia held that wherein the findings of Ld. Arbitrator are arrived at by taking into account irrelevant facts and by ignoring the vital clauses, the same suffers from the vice of irrationality and perversity and that the award will be liable to be set aside when while interpreting the terms of the contract, no reasonable person could have arrived at such a conclusion and the award passed by the arbitrator suffers from the vice of irrationality and perversity.
11. Following are some of the excerpts of the findings of Arbitral Tribunal in impugned arbitral award:-
"11. Observation and AWARD of the Arbitral Tribunal 11.1. With regards to delayed supply of cement as argued by the Claimant, it is a fact from the contemporary records attached with pleadings. In the strict sense it is not feasible to keep continuous stock of cement for two months production as OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 15 of 36 argued by the Respondent in accordance with the agreement as neither one could procure cement on daily basis nor supplier would supply cement on daily basis. However, the Claimant is entitled for cement as and when required as supply of cement was basic obligation of the Respondent. The Respondent could not deny their obligation in this regard. However, the Claimant failed to prove how much delay occurred for non-supply of cement. From the contemporaneous documents it showed that non supply had not put much hindrances in production as within 24/01/2008, the Claimant supplied more sleepers than contractor for. The tribunal do not find any important contribution of non- supply of cement to the failure of contract leading to imposition of LD.
11.2 With regards to delayed lifting of sleepers as argued by the Claimant, is the fact from the contemporary records attached with pleadings. The Respondent cannot hide their responsibility of delayed lifting of sleepers on the ground that stacking yard for 95000 sleepers was available to the Claimant and on instance of time, the yard had 95000 sleepers. Non- lifting of sleepers never posed any hindrances to the execution. The Arbitrator Tribunal notes that as per clause 11.4 of the LOI "Delay in dispatch of sleepers for want of BFRs/Wagons beyond 15 days of passing by the Inspecting Authority shall be considering for the purpose of extension of time by the Railway". In this clause there was no mention of over flow of stock yard or such types of wording in the agreement. The clause clearly says delay in lifting shall be considered as extension of time. Strangely, the Respondent is asking for liquid damages even after clear failure on their part of obligation. One must remember the settled maxim as mandated by the apex court time and again "One who seeks equity must come with clean hand". The tribunal is of the view that the position of the Respondent is not strong to claim liquidated damages liquidated damages.
11.3. With regards to issue of huge unprecedent price rise the Claimant referred some apex court judgment. It is a undisputed fact that M/s Track Innovations India Pvt. Ltd along with 6 other parties approached Delhi High Court regarding alleged defective PVC formula of the Respondent's tender no. CS/156 of 2005. Hon'ble Delhi High Court dismissed the said WP(C) No. 9178/2009 (RD/15). On appeal, the apex court has not clearly supported the cause of the Claimant. Hence, the Tribunal is of the view that issue of price rise cannot at all be considered in support of the Claimant to nullify the imposition of the penalty.
11.4 With regard to Claimant's argument that they had OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 16 of 36 supplied more than 95% of contracted quantity, the Respondent argued that during the period 24/01/2008 to 01/04/2008, there was no agreement between the parties and as such the Claimant might have produced sleepers in their plants but those sleepers could only be recorded in the books of the Respondent only after 01/04/2008. Hence, in legal sense, there was no substantive period for execution. AT notes that there is a slight flaw in the computation as advanced by the Claimant. The tribunal considers 24 months for initial production period (setting aside one month for preparation of production), 2 months slow progress, as well as 5 months for later stage. Revised quantity should be 539000 (27 X 19000 + 2 X 13000). Based on the revised calculation also, the Claimant supplied more than 95% of 539000 ie 512050. The Respondent should consider the fact that the Claimant supplied most of contracted sleepers even after several hindrances like delayed supply of cement, delayed lifting, delayed payments etc. besides several other subtle hindrances normally encountered by a private party while making business with Railway organization, keeping in mind that the Claimant is basically a captive unit of Railway. The Tribunal feels that the Claimant deserved some relaxation by the Railway authority with regards to imposition of Liquidated damages.
11.5 Claimant argued that clause 19 of GCC and Rider Agreement is void as uncertain as per section 29 of Contract Act. It is the considered opinion of the tribunal that very clause 19 of GCC is not uncertain as such on the basis on such clause the Claimant applied for additional supply. With regards to rate in the Rider Agreement, the tribunal finds that the said Rider Agreement is uncertain under section 29 to the extent of the lower rate issue. However, no sleepers were ever supplied by the Claimant in lower rate and this issue is not applicable against imposition of LD.
11.6 The Claimant argued that the Respondent lost the right to apply Clause 19 to enhance the supply by 30% as on 24/1/2008 original agreement had expired and as such the Claimant supplied more sleepers than the contracted quantity. Hence contract ended on 24/1/2008. The Respondent argued that the Claimant himself applied for additional quantity vide letter dated 11/1/2008 (RD-3) and letter dated 21/01/2008 (RD-5). The Respondent also admitted that the Claimant on 26/03/2008 (C- 5/3) prior to signing of Rider Agreement (01/04/2008) requested not to enhance the additional quantity under clause 19. Moreover, it was also admitted that on 02/04/2008 (C-5/5), the Claimant requested to enhance not more than 15% as additional quantity just after signing the Rider Agreement 1/4/2008. From the facts on contemporaneous records, Tribunal finds that a OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 17 of 36 request by the Claimant was made before 01/04/2008 as there was no right of enhancement by the Respondent. Thereafter, signing Rider Agreement after the expiry of original tender seems to be a forced event especially when the Claimant requested not to enhance the contract quantity before signing of the Rider Agreement and just one day after signing the Rider Agreement. Logically, the Claimant was not in favor of signing the Rider Agreement and signed on some pressure as evident on the next day itself requested the Respondent to reduce the enhancement. The Tribunal is of the opinion that right to enhancement lapsed on 24/01/2008 as per agreement. Any subsequent agreement - the Rider Agreement, is not in accordance with the original agreement and therefore cannot be appropriate ground for imposition of liquidated damage. The very imposition of liquidated damages is wrongful in this count itself.
11.7. When regards to issue of Contra Proferentum as argued by the Claimant, the Respondent argued that in the Rider Agreement there was no mention that supply under CS-156 would be subsumed in CS-160. The Tribunal also supports the said contention. Nowhere it was shown that supply could not been made simultaneously under CS-156 & CS-160. But perhaps both the ground official of the Claimant and Respondent had their mind that the supply under CS-156 subsumed under CS-160 and agreement under CS-156 was foreclosed as there was no letter ever issued from the Respondent after closer of supply in CS-156 since 5/09/2008. It is a fact that the Respondent never reminded the Claimant even after stoppage of monthly progress report by the Claimant that the Claimant was also obliged to supply sleepers against the old contract as per requirement of Clause 17 of that contract agreement. From the very conduct itself, it clearly shows that ground staff were also believed in their mind that supply against agreement CS- 156 subsumed to CS-160. In that sense issue of Contra Proferentum has some relevance.
11.8. With regards to issue of whether time is of the essence or not, the Tribunal decides that "Time is not the essence of the contract" as per settled principle of law as laid down in HIND CONSTRUCTION judgment. However, such issue is of no relevance in the present dispute.
11.9. With regard to requirement of prior notice for any penal action as argued, the Tribunal is of strong opinion that notice is a must for any penal action as per settled principle laid down in constitution bench. The very imposition of Liquidated damages is wrongful as no prior notice was issued.OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 18 of 36
11.10. With regards to argument advanced by the Claimant that no loss was suffered by the Respondent for such short supply of sleepers, is on record that the Claimant started supply the same sleepers under the agreement CS-160 below the rate of CS-156 as on 05/09/2008. It is also a fact that no letter/ notice against non-supply of CS-156 since 05/09/2008 ever existed. As per section 73 of the contract, the Respondent would get compensation for any loss or damage caused to him thereby. Respondent failed to establish any loss suffered for such short supply of sleepers under CS-156. Hence, the Respondent is not entitled for any liquidated damages under the veil of compensation. The Respondent referred to section 74 where for a party suffering a breach is entitled to prefixed compensation irrespective of whether actual loss proved or not. From the plain reading of section 73 and section 74, it appears to the Tribunal that, for any compensation the party has to prove loss suffered under section 73 and if it is proved that loss existed, then even in the absence of proving exact quantum of actual loss, party is entitled for compensation as named in the agreement as per section 74 Contract Act. Here no loss was occasioned to the Respondent and hence very imposition of liquidated damages is wrongful as per section of 73 of Contract Act read with apex court judgment MAULA BUX. The Respondent also referred to section 28(3) of the Arbitration Act, 2015 which states: "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." The Tribunal is bound to follow the law of Land which takes precedence over the conditions of the contract. In any case, this also is a subset of trade practices. In view of the above deliberations, the Tribunal concludes that imposition of liquidated damages is wrongful.
11.11 The Claimant argued that the very imposition of liquidated damages as well as termination was made much after the expiry of the agreement CS-156. Hence the very imposition of liquidated damages was wrongful. It is on record that there was no substantive agreement between the parties as no time extension was made after 10/09/2008 and termination was made on 15/2/2010 (19 months after the expiry of the agreement). It is a fact that no sleepers were ever taken by the Respondent under CS-156 after the expiry of the time allocated. Hence the second part under clause 13 of SCC (The Liquidated damages in pursuance of Clause 0702 of IRS Conditions of Contract) would be applied which states that "In case the delivery of the store is not accepted by the purchaser after the expiry of the period fixed for delivery in the contract or as extended or the contract is terminated before the expiry of the contract due to failure of the contractor to execute the contract as per the agreed terms OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 19 of 36 and conditions of the contract during its currency, the liquidated damages equivalent to 5% of the cost of sleepers undelivered / cancelled would be recovered from the contractor. Hence the right to imposition of liquidated damages will be lost if termination is made after the expiry of the contract. Hence the very imposition of liquidated damages after the expiry of the period of supply is wrongful.
12. From the aforesaid reasons the imposition of liquidated damages is wrongful and the Claimant is entitled for Claim no. 1 quashing the counter claim of the Respondent in this respect.
13. With regards to Claim no 2, the Claimant has also demanded for interest. The Tribunal is made aware that delayed payment has caused a lot of financial damage to the Claimant in form of cost of working capital, loss of value of money and opportunity cost. The Tribunal is of the opinion that the Claimant is not entitled for interest in terms of clause 2907 the Indian Railways Standard Conditions of Contract (Supply Contract) forming a part of the instant contract between the parties. The Tribunal is aware of a Judgment dated 07.02.2019 in CA No. 1539/2019 where Hon'ble Supreme court held in terms of clause 16(3) of GCC of Railway's works contract that arbitrator cannot award interest on award if the agreement expressly prohibits grant of interest. The Tribunal notes that Arbitrator cannot award interest.as per para 31(7) of Arbitration act 1996, which reads as follows"- "Unless otherwise agreed by the parties, where and in so for as an arbitral award is for the payment of money, the Arbitral Tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the dated on which the cause of action arose and the date on which the award is made".
If the agreement has a clause which debars payment of interest, the Arbitrator is not allowed to allow any claim for interest. Supreme Court in its judgment has also held that the words "any amount due to contractor" is very widely worded and clearly bars the payment of interest. Tribunal is of the view that the order of Honorable Supreme court is the guiding principle and the same principle coupled with the terms of the existing contract leads the Tribunal to conclude that no interest is payable on any amount due under the contract. The Tribunal therefore decides that no interest is payable to the Claimant under any claim.
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15. The counter claim of the Respondent is rejected due to the reasons as above while deciding the claim no 1 of the OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 20 of 36 Claimant.
16. The Arbitral Tribunal, therefore, passes the Award for payment of Rs. 49,56,648/- (Rupees Forty Nine Lakhs Fifty Six Thousand Six Hundred and Forty Eight Only) by the Respondents to the Claimant together with interest @ 10% per annum, on the said amount, with effect from one month from the date of the publication of award till the date of payment.
........................................................................................................"
12. In the case of M/s Tamilnadu Telecommunication Ltd vs Bharat Sanchar Nigam Ltd., OMP (Comm.) 430/16, decided by Delhi High Court on 11/11/2016, in para 17, following pronouncements of the case of ONGC Ltd. Vs Saw Pipes Ltd., (2003) 5 SCC705 were elicited:
64. ....Under Section 73, when a contract has been broken, the party who suffers by such breach is entitled to receive compensation for any loss caused to him which parties knew when they made the contract to be likely to result from the breach of it. This Section is to be read with Section 74, which deals with penalty stipulated in the contract, inter alia (relevant for the present case) provides that when a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, the party complaining of breach is entitled, whether or not actual loss is proved to have been caused, thereby to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named. Section 74 emphasizes that in case of breach of contract, the party complaining of the breach is entitled to receive reasonable compensation whether or not actual loss is proved to have been caused by such breach. Therefore, the emphasis is on reasonable compensation. If the compensation named in the contract is by way of penalty, consideration would be different and the party is only entitled to reasonable compensation for the loss suffered. But if the compensation named in the contract for such breach is genuine pre-estimate of loss which the parties knew when they made the contract to be likely to result from the breach of it, there is no question of proving such loss or such party is not required to lead evidence to prove actual loss suffered by him.....
67.....In our view, in such a contract, it would be difficult to prove exact loss or damage which the parties suffer because of the breach thereof. In such a situation, if the parties have pre-
estimated such loss after clear understanding, it would be OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 21 of 36 totally unjustified to arrive at the conclusion that party who has committed breach of the contract is not liable to pay compensation. It would be against the specific provisions of Section 73 and 74 of the Indian Contract Act. There was nothing on record that compensation contemplated by the parties was in any way unreasonable. It has been specifically mentioned that it was an agreed genuine pre-estimate of damages duly agreed by the parties. It was also mentioned that the liquidated damages are not by way of penalty. It was also provided in the contract that such damages are to be recovered by the purchaser from the bills for payment of the cost of material submitted by the contractor. No evidence is led by the claimant to establish that stipulated condition was by way of penalty or the compensation contemplated was, in any way, unreasonable. There was no reason for the tribunal not to rely upon the clear and unambiguous terms of agreement stipulating pre-estimate damages because of delay in supply of goods ......"
13. In the case of Swan Gold Mining Ltd. vs Hindustan Copper Ltd., MANU/SC/0849/2014, the law laid in the case of Oil & Natural Gas Corporation Ltd. vs Saw Pipes Ltd., (2003) 5 SCC 705 was discussed and inter alia held that when the parties have entered into concluded contract, agreeing terms and conditions of the said contract, they cannot back out and challenge the award on the ground that the same is against the public policy and the Court was precluded from re-appreciating the evidence and to arrive at different conclusion by holding that the arbitral award is against the public policy.
14. In the case of M/s Arosan Enterprises Ltd vs Union of India & Anr., MANU/SC/0595/1999, it was inter alia held that reappraisal of evidence by the Court is not permissible in the proceeding under the Arbitration Act. In the event of there being no reason in the award, question of interference of the court would not arise at all. In the event, however there are reasons, the interference would still be not available within the jurisdiction of OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 22 of 36 the Court unless of course, there exist a total perversity in the award or the judgment is based on wrong proposition of law. In the event, however, two views are possible on a question of law as well, the Court would not be justified in interfering with the award. Also was held that the Court as matter of fact, cannot substitute its evaluation and come to the conclusion that the arbitrator had acted contrary to the bargain between the parties. If the view of arbitrator is a possible view the award or the reasoning contained therein cannot be examined. The decisions in the cases of State of Rajasthan vs Puri Construction Co. Ltd, MANU/SC/0865/1994 and Sudersan Trading Company vs Government of Kerala & Anr., MANU/SC/0361/1989 were relied. Also was held therein that where an Arbitrator makes a mistake either in law or in fact in determining the matters referred, but such mistake does not appear on the face of the award, the award is good notwithstanding the mistake, and will not be remitted or set aside.
15. In the case of MCD vs Harcharan Dass Gupta Construction Pvt Ltd., MANU/DE/4010/2018, the pronouncements in the case of Associated Builders vs Delhi Development Authority, (2015) 3 SCC 49 were relied upon. In aforesaid case of Associated Builders, it was inter alia held that:
"xxxx xxxx xxxx
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.OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 23 of 36
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: 2011 LAWPACK(SC) 50505:
2011(6) R.A.J. 27], 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 reappreciating 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.
xxxx xxxx xxxx"
16. In the case of Vishal Engineers & Builders vs Indian Oil Corporation Ltd., FAO (OS) 204 of 2010, decided by Delhi High Court on 30/11/2011, it was inter alia held that it was duty of the Court not to enforce penalty clause but only to award a reasonable compensation, which had been held to be statutorily imposed upon Courts by Section 74 of the Contract Act and Court had to adjudge in every case, reasonable compensation for breach of contract having regard to conditions which existed on date of breach.
It was held therein that if there was absence of any loss, whatsoever, an aggrieved party could not claim that it was still entitled to liquidated damages without, at least, proving a semblance of loss.
OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 24 of 3617. Supreme Court in the case of Kailash Nath Associates vs Delhi Development Authority, MANU/SC/0019/2015 had elicited the law on compensation for breach of contract under Section 74 as follows:-
"43. On a conspectus of the above authorities, the law on compensation for breach of contract Under Section 74 can be stated to be as follows:
1. Where a sum is named in a contract as a liquidated amount payable by way of damages, the party complaining of a breach can receive as reasonable compensation such liquidated amount only if it is a genuine pre-estimate of damages fixed by both parties and found to be such by the Court. In other cases, where a sum is named in a contract as a liquidated amount payable by way of damages, only reasonable compensation can be awarded not exceeding the amount so stated. Similarly, in cases where the amount fixed is in the nature of penalty, only reasonable compensation can be awarded not exceeding the penalty so stated. In both cases, the liquidated amount or penalty is the upper limit beyond which the Court cannot grant reasonable compensation.
2. Reasonable compensation will be fixed on well known principles that are applicable to the law of contract, which are to be found inter alia in Section 73 of the Contract Act.
3. Since Section 74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the Section.
4. The Section applies whether a person is a Plaintiff or a Defendant in a suit.
5. The sum spoken of may already be paid or be payable in future.
6. The expression "whether or not actual damage or loss is proved to have been caused thereby" means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be awarded.
7. Section 74 will apply to cases of forfeiture of earnest money under a contract. Where, however, forfeiture takes place under the terms and conditions of a public auction before agreement is reached, Section 74 would have no application."OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 25 of 36
18. Arbitral Tribunal recorded finding of the fact that present petitioner failed to prove that any damages were suffered by them. Arbitral Tribunal also held that assuming that there was indeed delay in supplies, the present petitioner had shown no evidence, no document, no figure to corroborate that they suffered any damages because of the said delay. Accordingly, it is on the record of arbitral proceedings that no loss was suffered by petitioner on account of delayed delivery of goods. It is trite law that liquidated damages are no different from un-liquidated damages. In both cases, the aggrieved party is required to prove injury or damage. The only difference being, where parties agree to liquidated damages, which are a genuine pre-estimate of the damages likely to be caused, the aggrieved party is entitled to recover the same to the extent they are reasonable subject to the maximum amount agreed to between the parties. Where quantification is possible, an aggrieved party is required to quantify the same even where liquidated damages are provided for in the contract between the parties. Reliance placed upon the cases of (1) Kailash Nath Associates vs Delhi Development Authority (supra); (2) Union of India vs Raman Iron Foundry, (1974) 2 SCC 231; (3) Fateh Chand vs Balkishan Dass, AIR 1963 SC 1405; (4) ONGC Ltd. vs Saw Pipes Ltd. (supra); (5) Maula Bux vs. Union of India (supra) and (6) Union of India vs M/s V.S. Sethia and Co., OMP 1085/2013, decided on 30/10/2013 by Delhi High Court.
19. Nothing from the arbitral proceedings record is borne out to infer or prove the fact of petitioner even averred of having suffered any loss due to stated delay in supplies.
OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 26 of 3620. The proceedings under Section 34 of the Act are summary in nature and the scope of enquiry in the proceedings under Section 34 of the Act is restricted to specified grounds for setting aside only, as was held in the case of Canara Nidhi Limited vs M. Shashikala & Ors., 2019 SCC Online SC 1244. The Court would not construe the nature of claim by adopting too technical an approach or by indulging into hair-splitting, otherwise the whole purpose behind holding the arbitration proceedings as an alternative to Civil Court's forum would stand defeated, as was held in the case of Sangamner Bhag Sahakari Karkhana Ltd. vs Krupp Industries Ltd., AIR 2002 SC 2221. An award is not open to challenge on the ground that the arbitrator had reached a wrong conclusion or had failed to appreciate some facts, but if there is an error apparent on the face of the award or if there is misconduct on the part of the arbitrator or legal misconduct in conducting the proceedings or in making the award, the court will interfere with the award; as was held by Supreme Court in the case of Oil & Natural Gas Corporation vs M/s Wig Brothers Builders & Engineers Pvt. Ltd., (2010)13 SCC 377. Reappraisal of evidence by the court is not permissible and as a matter of fact, exercise of power to reappraise the evidence is unknown to a proceeding under the Arbitration Act; as was held by Supreme Court in the case of Ispat Engineering & Foundry Works vs Steel Authority of India Ltd., (2001) 6 SCC 347. In order to provide a balance and to avoid excessive intervention, the award is not to be set aside merely on the ground of an erroneous application of the law or by re-appreciating evidence; as was held by Supreme Court in the case of P.R Shah, Shares & Stock Brokers Pvt. Ltd vs B.H.H. Securities Pvt.Ltd. & Ors., (2012) 1 OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 27 of 36 SCC 594. At global level the doctrine of 'Contra Proferentem' is generally applied by the Judges/Arbitrator in the cases where a contract appears ambiguous to them; the Judges/Arbitrator in India have appreciated and adopted similar line of reasoning in the cases involving ambiguous contract wherein it is believed that 'an ambiguity is needed to be resolved' in order to find the correct intention of the contract. If the conclusion of the arbitrator is based on a possible view of the matter, the court is not expected to interfere with the award and if the Arbitrator relies on a plausible interpretation out of the two possible views, then it would not render the award perverse; as was held by Supreme Court in the case of M/s Sumitomo Heavy Industries Ltd. vs Oil & Natural Gas Commission of India, 2010 (11) SCC 296. Award is not open to challenge on the ground that the Arbitral Tribunal had reached a wrong conclusion or had failed to appreciate the facts; the appreciation of evidence by the arbitrator is never a matter which the Court considers in the proceeding under Section 34 of the Act, as the Court is not sitting in appeal over the adjudication of the arbitrator.; as was held by Delhi High Court in the case of NTPC Ltd vs Marathon Electric Motors India Ltd., 2012 SCC OnLine Del 3995. Supreme Court in the case of Associate Builders vs Delhi Development Authority, (2015) 3 SCC 449 has restricted the scope of public policy, so the Court does not act as a Court of appeal and consequently errors of fact cannot be corrected. An error relatable to interpretation of the contract by an arbitrator is an error within his jurisdiction and such error is not amenable to correction by Courts as such error is not an error on the face of the award; as was held by Supreme Court in the case of Steel Authority of OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 28 of 36 India Ltd. vs Gupta Brother Steel Tubes Ltd., (2009) 10 SCC
63.
21. Sections 28(3) and 31 (7) of The Act read as follows:
"28. Rules applicable to substance of dispute.-- ........................................................................... (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.
..........................................................................
31. Form and contents of arbitral award.--
............................................................................ (7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.
(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of two per cent. higher than the current rate of interest prevalent on the date of award, from the date of the award to the date of payment.
Explanation.- The expression "current rate of interest" shall have the same meaning as assigned to it under clause (b) of section 2 of the Interest Act, 1978 (14 of 1978)."
22. In the case of Ashi Limited vs Union of India (supra), Hon'ble Ms. Justice Jyoti Singh of Delhi High Court had also appreciated law laid by Supreme Court in the case of Sree Kamatchi Amman Constructions vs The Divisional Railway Manager (Works) Palghat & Ors. MANU/SC/0625/2010 and inter alia held as follows:
"54. In so far as the grant of interest by an Arbitrator is concerned, the law is no longer res integra, Section 31(7)(a) of the Act clearly stipulates that unless otherwise agreed by the parties, where the Award is for payment of money, the Tribunal may grant such rate as it deems reasonable, on the whole or any part of the money and for the whole or any part of the period between the date of cause of action and the date of the Award. In OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 29 of 36 the case of Jaiprakash Associates Ltd. (Jal) v. Tehri Hydro Development Corporation India Ltd., MANU/SC/0157/2019, the Supreme Court after noticing the provisions of the 1996 Act and various judgments on the issue of interest, more particularly, the recent judgment in the case of Reliance Cellulose Products Ltd. v. ONGC Ltd., MANU/SC/0777/2018: (2018) 9 SCC 266, summed up the law on interest as under:
"13. Insofar as power of the arbitral tribunal in granting pre- preference and/or pendente lite interest is concerned, the principles which can be deducted from the various judgments are summed up below:
(a) A Constitution Bench judgment of this Court in the case of Secretary, Irrigation Department, Government of Orissa vs G.C. Roy exhaustively dealt with this very issue, namely, power of the arbitral tribunal to grant pre-
reference and pendente lite interest. The Constitution Bench, of course, construed the provision of the 1940 Act which Act was in vogue at that time. At the same time, the Constitution Bench also considered the principle for grant of interest applying the common law principles. It held that under the general law, the arbitrator is empowered to award interest for the pre- reference, pendente lite or post award period. This proposition was culled out with the following reasoning:
"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.
(ii) An arbitrator is an alternative form (sic forum) for resolution of disputes arising between OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 30 of 36 the parties. If so, he must have the power to decide all the disputes or differences arising between the parties. If the arbitrator has no power to award interest pendente lite, the party claiming it would have to approach the court for that purpose, even though he may have obtained satisfaction in respect of other claims from the arbitrator. This would lead to multiplicity of proceedings.
(iii) An arbitrator is the creature of an agreement. It is open to the parties to confer upon him such powers and prescribe such procedure for him to follow, as they think fit, so long as they are not opposed to law. (The proviso to Section 41 and Section 3 of Arbitration Act illustrate this point).
All the same, the agreement must be in conformity with law. The arbitrator must also act and make his award in accordance with the general law of the land and the agreement.
(iv) Over the years, the English and Indian courts have acted on the assumption that where the agreement does not prohibit and a party to the reference makes a claim for interest, the arbitrator must have the power to award interest pendente lite. Thawardas [Seth Thawardas Pherumal v.
Union of India, MANU/SC/0070/1955 : (1955) 2 SCR 48: AIR 1955 SC 468] has not been followed in the later decisions of this Court. It has been explained and distinguished on the basis that in that case there was no claim for interest but only a claim for unliquidated damages. It has been said repeatedly that observations in the said judgment were not intended to lay down any such absolute or universal rule as they appear to, on first impression. Until Jena case [MANU/SC/ 0004/ 1987: (1988) 1 SCC 418: (1988) 1 SCR 253] almost all the courts in the country had upheld the power of the arbitrator to award interest pendente lite. Continuity and certainty is a highly desirable feature of law.
(v) Interest pendente lite is not a matter of substantive law, like interest for the period anterior to reference (pre-reference period). For doing complete justice between the parties, such power has always been inferred."
It is clear from the above that the Court decided to fall back on general principle that a person who is deprived of the use of money to which he is legitimately entitled to, has a right to OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 31 of 36 be compensated for the deprivation and, therefore, such compensation may be called interest compensation or damages.
(b) As a sequitur, the arbitrator would be within his jurisdiction to award pre-reference or pendente lite interest even if agreement between the parties was silent as to whether interest is to be awarded or not.
(c) Conversely, if the agreement between the parties specifically prohibits grant of interest, the arbitrator cannot award pendente lite interest in such cases. This proposition is predicated on the principles that an arbitrator is the creature of an agreement and he is supposed to act and make his award in accordance with the general law of the land and the agreement. This position was made amply clear in G.C Roy case in the discussion thereafter:
"44. Having regard to the above consideration, we think that the following is the correct principle which should be followed in this behalf:
Where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (along with the claim for principal amount or independently) is referred to the arbitrator, he shall have the power to award interest pendente lite. This is for the reason that in such a case it must be presumed that interest was an implied term of the agreement between the parties and therefore when the parties refer all their disputes or refer the dispute as to interest as such to the arbitrator, he shall have the power to award interest. This does not mean that in every case the arbitrator should necessarily award interest pendente lite. It is a matter within his discretion to be exercised in the light of all the facts and circumstances of the case, keeping the ends of justice in view."
(d) Insofar as 1940 Act is concerned, it was silent about the jurisdiction of the arbitrator in awarding pendente lite interest. However, there is a significant departure on this aspect insofar as 1996 Act is concerned. This distinction has been spelt out in Sayeed Ahmed case in the following manner:
"Re: Interest from the date of cause of action to date of award OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 32 of 36
7. The issue regarding interest as noticed above revolves around Clause G1.09 of the Technical Provisions forming part of the contract extracted below:
"G. 1.09. No claim for interest or damages will be entertained by the Government with respect to any money or balance which may be lying with the Government or any become due owing to any dispute, difference or misunderstanding between the Engineer-in- Charge on the one hand and the contractor on the other hand or with respect to any delay on the part of the Engineer-in-Charge in making periodical or final payment or any other respect whatsoever."
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14. The decisions of this Court with reference to the awards under the old Arbitration Act making a distinction between the pre-reference period and pendente lite period and the observation therein that the arbitrator has the discretion to award interest during pendente lite period in spite of any bar against interest contained in the contract between the parties are not applicable to arbitrations governed by the Arbitration and Conciliation Act, 1996."
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56. In the case of Union of India v. Bright Power Projects (India) (P) Ltd., MANU/SC/0712/2015 : (2015) 9 SCC 695, Supreme Court held that when agreement between the parties bars interest on the amounts from cause of action to the date of the Award, the Arbitrator is bound by it and cannot award interest as Section 31 (7)(a) clearly begins with the words 'unless otherwise agreed by parties'.
57. In State of Haryana v. S.L Arora & Co., MANU/SC/ 0131/2010 : (2010) 3 SCC 690, Supreme Court has held that it is not open to the courts to interfere in the discretion exercised by an Arbitrator in granting the rate of interest. This is purely the domain, power and prerogative of the Arbitrator. Relevant part of the judgment reads as under:-
"23. The difference between clauses (a) and (b) of Section 31(7) of the Act may conveniently be noted at this stage. They are:
(i) Clause (a) relates to pre-award period and clause OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 33 of 36
(b) relates to post-award period. The contract binds and prevails in regard to interest during the pre-award period. The contract has no application in regard to interest during the post-award period.
(ii) Clause (a) gives discretion to the Arbitral Tribunal in regard to the rate, the period, the quantum (principal which is to be subjected to interest) when awarding interest. But such discretion is always subject to the contract between the parties. Clause (b) also gives discretion to the Arbitral Tribunal to award interest for the post-award period but that discretion is not subject to any contract; and if that discretion is not exercised by the Arbitral Tribunal, then the statute steps in and mandates payment of interest, at the specified rate of 18% per annum for the post-award period.
(iii) While clause (a) gives the parties an option to contract out of interest, no such option is available in regard to the post-award period.
In a nutshell, in regard to pre-award period, interest has to be awarded as specified in the contract and in the absence of contract, as per discretion of the Arbitral Tribunal. On the other hand, in regard to the post-award period, interest is payable as per the discretion of the Arbitral Tribunal and in the absence of exercise of such discretion, at a mandatory statutory rate of 18% per annum."
23. Accordingly, for pre award period comprising pre reference period and pendentelite period no interest has been awarded by Arbitral Tribunal in terms of Clause 2401 of IRSCC, whereas as per the discretion of the Arbitral Tribunal and in terms of above elicited Section 31(7) of the Act, post award interest i.e., future interest has been awarded by the Arbitral Tribunal in terms of the award. By no figment of imagination the awarded rate of interest can be said to be unreasonable or meagre to compensate the respondent/claimant for deprivation of the use of money to which it was legitimately entitled to.
24. Relying upon the law laid in the cases of (i) Associate OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 34 of 36 Builders (supra); (ii) Ssangyong Engineering & Constructions Co. Ltd. (supra); (iii) M/s Tamilnadu Telecommunication Ltd (supra); (iv) Swan Gold Mining Ltd. vs Hindustan Copper Ltd. (supra); (v) Oil & Natural Gas Corporation Ltd. vs Saw Pipes Ltd., (supra); (vi) M/s Arosan Enterprises Ltd (supra); (vii) MCD vs Harcharan Dass Gupta Construction Pvt Ltd. (supra);
(viii) Patel Engineering Ltd. (supra); (ix) G. Ramachandra Reddy & Company vs Union of India and Anr., 2009 (6) SCC 414; (x) Sutlej Construction vs Union Territory of Chandigarh (supra); (xi) M/s National Building Construction Corporation Ltd. vs New Delhi Municipal Council & Anr., (2016) 154 DRJ 42; (xii) Veda Research Laboratories Ltd vs Survi Projects, 2013 (2) Arb. LR 16 (Delhi); (xiii) MMTC Ltd. vs Vedanta Ltd., (2019) 4 SCC 163; (xiv) Anglo American Metallurgical Coal Pty. Ltd. vs MMTC Ltd., MANU/SC/0953/2020; (xv) Union of India vs Pradeep Vinod Const. (supra); (xvi) Ashi Limited vs Union of India (supra); (xvii) Sri Chittaranjan Maity vs Union of India (supra); (xviii) Maula Bux vs Union of India (UOI) (supra); (xix) Rashtriya Ispat Nigam Ltd. vs Dewan Chand Ram Saran (supra) and (xx) Navodaya Mass Entertainment Ltd. vs J.M. Combines (supra), it can be said that not only the reasonings of Arbitral Tribunal are logical, but all the material and evidence were taken note of by Arbitral Tribunal and this Court cannot substitute own evaluation of conclusion of law or fact to come to the conclusion other than that of Arbitral Tribunal. Cogent grounds, sufficient reasons have been assigned by Arbitral Tribunal in reaching the just conclusion and no error of law or misconduct is apparent on the face of the record. This Court cannot re-appraise the evidence and it is not open to this OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 35 of 36 Court to sit in the appeal over the conclusion/findings of facts arrived at by Arbitral Tribunal comprising experienced persons i.e., IRSSE, Retd. AM (S&T), Railway Board as Presiding Arbitrator; IRAS, Retd. FA & CAO/ECOR and IRSME, Retd. AGM, S.C. Railway as Co-Arbitrators, who were competent to make assessment while taking into consideration the facet of the matter. Re-appraisal of the matter cannot be done by this Court. No error is apparent in respect of the impugned award. I do not find any contradiction in the observations and findings given by Arbitral Tribunal. The impugned award does not suffer from vice of irrationality and perversity. The conclusion of the Arbitral Tribunal is based on a possible view of the matter, so the Court is not expected to interfere with the award. Even impugned award passed by Arbitral Tribunal cannot be set aside on the ground that it was erroneous. The award is not against any public policy nor against the terms of contract of the parties. No ground for interference is made out. None of the grounds raised by the petitioner attract Section 34 of the Act.
25. For the foregoing reasons, the petition is hereby dismissed.
26. The parties are left to bear their own costs.
27. File be consigned to record room.
Digitally signed by GURVINDER GURVINDER PAL
SINGH
PAL SINGH Date: 2021.12.20
13:06:42 +0530
ANNOUNCED IN (GURVINDER PAL SINGH)
OPEN COURT District Judge (Commercial Court)-02
th
On 20 December, 2021. Patiala House Court, New Delhi.
(DK) OMP (Comm.) No. 03/2021 Union of India vs M/s PCM Cement Concrete Pvt. Ltd. Page 36 of 36