Madras High Court
Chief Administrative Officer ... vs M/S.Haven India Projects & Power Ltd on 12 August, 2022
Author: M.Sundar
Bench: M.Sundar
Arb.O.P (Com.Div) No.147 of 2022
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated : 12.08.2022
Coram
THE HONOURABLE MR. JUSTICE M.SUNDAR
Arb.O.P (Com.Div) No.147 of 2022
&
A.No.1393 of 2022
Chief Administrative Officer (Construction)
Southern Railway, Poonamalle High Road
Egmore, Chennai - 600 008
Represented through
Deputy Chief Engineer /Construction/I
Southern Railway, Madurai ... Petitioner
vs.
M/s.Haven India Projects & Power Ltd.,
M.Gokul Kumar
Manager - Projects & Business Development
No.1, Old No.25, Thomas Nagar
Little Mount, Saidapet
Chennai - 600 115 ... Respondent
Petitioner filed under Section 34(2)(a)(iv), b(ii) of the Arbitration
and Conciliation Act, 1996 as amended by Amendment Act, 2015 to set
aside the Arbitration Award dated 18.07.2021 passed by the Arbitral
Tribunal made in relation to disputes arising out of Agreement
No.24/Dy.CE/CN/II/MDU/2018 dated 14.06.2018.
For Petitioner : Mr.P.T.Ramkumar
Standing Counsel for Southern Railway
For Respondent /
Caveator : Mr.P.Raja
https://www.mhc.tn.gov.in/judis
1/15
Arb.O.P (Com.Div) No.147 of 2022
ORDER
This order will now dispose of captioned 'Arbitration Original Petition' ('Arb.OP' for the sake of brevity) and captioned application thereat.
2. Captioned Arb.OP has been presented in this Court on 21.12.2021 under Section 34 of 'The Arbitration and Conciliation Act, 1996 (Act No.26 of 1996)' [hereinafter 'A and C Act' for the sake of brevity], assailing an 'arbitral award dated 18.07.2021' [hereinafter 'impugned award' for the sake of brevity, convenience and clarity] made by a three member 'Arbitral Tribunal' ['AT' for the sake of brevity]. To be noted, the impugned award is a unanimous award.
3. Union of India, Department of Railway [hereinafter 'Southern Railways' for the sake of brevity, convenience and clarity] is the protagonist of the captioned Arb.OP and Mr.P.T.Ramkumar, learned Standing Counsel for Southern Railways is before this Court.
4. 'Haven Infra Projects & Power Ltd.,', which is the lone respondent in captioned Arb.OP, shall hereinafter be referred to as 'Contractor' for the sake of brevity, convenience and clarity. https://www.mhc.tn.gov.in/judis 2/15 Arb.O.P (Com.Div) No.147 of 2022
5. The nucleus of the matter on hand is a 'Letter of Intent dated 07.03.2018 followed by an agreement dated 14.06.2018' [hereinafter collectively 'primary contract' for the sake of convenience and clarity] for 'Gauge conversion between Madurai and Bodinayakkanur, construction of S & T accommodation, station building, platform, passenger amenities etc., for stations at Usilampatti, Andipatti, Theni (Crossing Stations), Vadapalanji, Theni Collectorate (Halt) and Bodinayakkanur (Terminal)' [hereinafter 'said work' for the sake of brevity, convenience and clarity]. To be noted wherever it is necessary to refer to 'Letter of Intent dated 07.03.2018' and 'agreement dated 14.06.2018' independent of each other, the same shall be referred to as 'said LOI' and 'said agreement' respectively. This Court is informed that the value of primary contract is a little over Rs.10.17 Crores [Rs.10, 17,62,471/- to be precise].
6. This being a legal drill under Section 34 of A and C Act, owing to the limited statutory perimeter, short facts shorn of granular particulars i.e., minimum facts that are imperative for appreciating this order sans other particulars will suffice. Short facts are that Southern Railways issued primary contract for said work; that the contractor (as per said LOI) had to complete said work within 9 months from the date of LOI i.e., by 06.12.2018; that said work was not completed within this 9 month https://www.mhc.tn.gov.in/judis 3/15 Arb.O.P (Com.Div) No.147 of 2022 period; that there was one extension on 07.12.2018 and this extension was for a period of six months i.e., from 07.12.2018 to 06.06.2019; that this extension was given by Southern Railways under clause 17A(ii) of 'General Conditions of Contract' ['GCC' for the sake of convenience]; that it is to be noted that GCC which is in the nature of a template and a standard format forms part of said contract; that during this extended period, Southern Railways terminated primary contract on 14.03.2019; that such termination of primary contract on 14.03.2019 was preceded by requisite 7 days notice dated 07.02.2018 and 48 hours notice dated 11.03.2019; that on the date of termination, admittedly contractor had completed 27% of said work valued at a little over Rs.2.73 Crores [Rs.2,73,82,718/- to be precise]; that Southern Railways engaged the services of another contractor for doing the remaining work; that contractor contended that the termination is bad inter alia owing to not being put on advance notice about the alleged deficiency on which termination is predicated; that this led to arbitrable disputes between the parties; that the arbitration clause between the parties was triggered; that a three member AT came to be constituted; that the three member AT adjudicated upon the arbitrable disputes; that the three member AT after full contest rendered the impugned award; that before the AT, the https://www.mhc.tn.gov.in/judis 4/15 Arb.O.P (Com.Div) No.147 of 2022 contractor was claimant who made claims under as many as 35 heads of claims; that Southern Railways as lone respondent before AT made counter claims under two heads of claims; that some heads of claims i.e., 1 to 3 and 7 qua contractor were allowed; that the entire counter claim of the Southern Railways was rejected; that Southern Railways is not assailing the rejection of the counter claim but is only assailing the award qua heads of claims 1 to 3 and 7 in favour of the contractor.
7. This Court, having set out the factual matrix in a nutshell, deems it appropriate to make it clear that the captioned Arb.OP is in the Admission Board before this Court, as already alluded to supra, Mr.P.T.Ramkumar, learned Standing Counsel for Southern Railways is before this Court on behalf of the protagonist of the captioned Arb.OP [Southern Railways] and Mr.P.Raja, learned counsel, who has lodged a caveat on behalf of the contractor [lone respondent in the captioned Arb.OP], is also before this Court. However, as the captioned Arb.OP is in the Admission Board, the matter was heard out in accordance with Rule 8 of the 'The Madras High Court (Arbitration) Rules, 2020' [hereinafter 'MHC Arb. Rules' for the sake of convenience and clarity]. To put it differently, the legal drill was to test if the captioned Arb.OP passes muster qua threshold barrier of admission. https://www.mhc.tn.gov.in/judis 5/15 Arb.O.P (Com.Div) No.147 of 2022
8. Though the caption to the petition in the captioned Arb.OP refers to Section 34(2A) also, learned Standing Counsel for Southern Railways submitted that he would predicate his argument on Section 34(2)(b)(ii) of A and C Act i.e., plea of impugned award being in conflict with public policy vide Clause (ii) of Explanation 1 of Section 34(2)(b)(ii) i.e., conflict with public policy owing to being in contravention with fundamental policy of Indian law.
9. Learned Standing Counsel for Southern Railways, notwithstanding very many averments and several grounds that have been raised in the petition, predicated his campaign against impugned award to the following points:
a) that clause 16.4(f) of GCC says that whenever a contract is rescinded, the Security Deposit should be forfeited, performance guarantee has to be encashed and to this extent, the impugned award directing refund of the Security Deposit and Bank Guarantee is bad;
b) Clause 16.4(g)(iii) of GCC provides for forfeiture of performance guarantee on contract being rescinded;
c) Clause 11.5 of 'Special Conditions of Contract' [hereinafter 'SCC' for the sake of convenience] which forms https://www.mhc.tn.gov.in/judis 6/15 Arb.O.P (Com.Div) No.147 of 2022 part of primary contract also provides for forfeiture of the Security Deposit and performance guarantee on the primary contract being rescinded.
d) AT failed to consider that an amount of a little over Rs.24.04 lakhs has been deducted from the final bill towards recovery / rectification.
10. This Court now proceeds to carefully consider the grounds that have been raised by learned Standing Counsel for Southern Railways in the Admission Board in his campaign to dislodge the impugned award.
11. Though the arguments of learned Standing Counsel for petitioner have been set out as four points, effectively there are only two points as points 1 to 3 fall in one category / one basket as all three pertain to consequences of a contract being rescinded and point 4 falls in a separate basket.
12. Before proceeding further, this Court deems it appropriate to briefly extract and reproduce the manner in which AT has dealt with those of the claims which form part of the aforementioned points. As regards Bank Guarantee, Earnest Money Deposit and Security Deposit (Points 1 to 3 which fall in one basket) the decision returned by AT in the https://www.mhc.tn.gov.in/judis 7/15 Arb.O.P (Com.Div) No.147 of 2022 impugned award is as follows:
' In view of above mentioned decision by Arbitral Tribunal as the termination of the Contract can not be justified, the full Performance Bank Guarantee amount of Rs.50,88, 124 encashed by Respondent required to be released to the Claimant. Amount Claimed – Rs.50,88,124/-Amount Awarded-Rs.50,88,124/-' 'In view of above mentioned decision by Arbitral Tribunal, the termination of the Contract cannot be justified in these conditions, therefore the full security deposit (Both components-EMD and SD deducted from Running Bills) to be refunded / paid to the Claimant. However as per GCC Clause 52, any interest on the money held by Railways, is not permissible and hence AT rejects the claim of interest on EMD.
Amount Claimed – Rs.6,81,170/- Amount Awarded-Rs.6,81,170/-'
13. As regards the deduction of little over Rs.24.04 lakhs (Point No.4) , the finding rendered by AT is as follows:
'The work of strengthening of foundations both designing, and execution was done by Respondent after termination. After termination of the contract, there is no obligation on the part of terminated agency to execute any work or even in a hypothetical case. Whatever works executed at the time of termination, the name was supposed to be duly measured and final bill calculated as per Contract conditions, and then deduct any penalties/outstanding from total amount due from Contractor. The terminated Contractor is not obliged to any work of demolition or new construction.
https://www.mhc.tn.gov.in/judis 8/15 Arb.O.P (Com.Div) No.147 of 2022 Respondent reply vide counter statement dated 8.1.2021 in page 15 under claim no 7 confirms that out of Rs.70,14,153 (Final) No.AFA/CN/MDU/dated 17.06.20 only Rs.35,37,467 was paid on 8.11.2019. Respondent is silent about refund of balance amount of Rs.24,04,548. Hence AT considers this deduction of Rs.24,04,548/-
totally untenable and does not meet the justice. Therefore, AT has decided that above unauthorized deduction of Rs.24,04,548/- is required to be released/paid. However, regarding interest, as per GCC Clause 52, any interest on the money held by Railways, is not permissible and hence AT rejects the claim of interest on this deducted amount.
Amount Claimed– Rs.24,04,548/- Amount Awarded – Rs.24,04,548/-'
14. A careful perusal of the above makes it clear that the view taken by AT is not an implausible view. A similar situation came up for consideration before this Court in Arb.O.P.(Com.Div.) No.297 of 2022 dated 11.07.2022 and the most relevant paragraphs are Paragraphs 5 and 12, which read as follows:
'5. Now that the learned standing counsel for Southern Railway has made it clear that the challenge to the impugned award is qua termination being held to be bad and sequitur directive to refund PBG, SD and EMD, the task of deciding the captioned Arb OP for admission is cut out.' '12. This takes this Section 34 Court to the next argument advanced by learned standing counsel for Southern Railway. Next argument is once the contract is terminated, the question of refund https://www.mhc.tn.gov.in/judis 9/15 Arb.O.P (Com.Div) No.147 of 2022 of PBG, SD and/or EMD does not arise. This Court is of the view that this argument tantamounts to begging the question as this argument is only sequitur to the first of the arguments i.e., challenge to finding of AT that the termination is bad. This Court finds that there is no ground to interfere qua impugned award regarding the finding of AT that the termination of said contract (Ex.R-37) is bad as it is not an implausible view and therefore, this Section 34 legal drill does not call for judicial intervention. Once this Court has taken the view that the finding returned by AT that termination is bad, it follows as a sequitur nay inevitable sequitur that PBG, SD and/or EMD have to be refunded. After all if the termination is bad, the question of PBG, SD and EMD being retained by Southern Railway does not arise.'
15. In the case on hand also where the facts are broadly similar, the view of AT is not implausible and therefore, there cannot be judicial intervention. The Court also notices Explanation 2 to Section 34(2)(b)(ii) of A and C Act, which makes it clear that the test as to whether there is contravention of fundamental policy of Indian law does not entail a review on the merits of the dispute. This was very elucidatively dealt by Hon'ble Supreme Court in the oft-quoted / celebrated Ssangyong case law [Ssangyong Engineering and Construction Company Limited Vs. National Highways Authority of India reported in (2019) 15 SCC 131] and relevant paragraph is https://www.mhc.tn.gov.in/judis 10/15 Arb.O.P (Com.Div) No.147 of 2022 paragraph 41, which reads as follows:
'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.'
16. To be noted, Ssangyong case law was delivered post 23.10.2015 i.e., after the insertions qua Section 34(2)(b)(ii) kicked in and after patent illegality was codified as a ground under Section 34(2A) albeit with a proviso therein. Besides paragraph 41, paragraphs 34 to 36 of Ssangyong case law are of immense relevance and the same read as follows:
'34. What is clear, therefore, is that the expression “public policy of India”, whether contained in Section 34 or in Section https://www.mhc.tn.gov.in/judis 11/15 Arb.O.P (Com.Div) No.147 of 2022 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 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”. https://www.mhc.tn.gov.in/judis 12/15 Arb.O.P (Com.Div) No.147 of 2022 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 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.'
17. Absent review on the merits of the dispute, this Court would judicially intervene only when a Arbitral Tribunal takes an utterly implausible view. As long as the view is a plausible view, there will be no judicial intervention. This is owing to the principle that Section 34 is neither an appeal nor a revision. It is not even a full-fledged judicial https://www.mhc.tn.gov.in/judis 13/15 Arb.O.P (Com.Div) No.147 of 2022 review. It is a mere challenge to an arbitral award within the specified slots adumbrated under Section 34 and these slots have been repeatedly described by this Court as 'pigeon holes'. This principle flows from the fundamental judicial philosophy that Section 34 is a default clause being a delicate balance between finality of arbitral award ingrained in Section 35 of A and C Act read with Section 5 in which minimum judicial intervention principle is ingrained on one side and judicial review being one of the facets of rule of law on the other. As Southern Railways has made it clear that the rejection of the counter claim in entirety is not being assailed, it is not necessary to discuss much less dilate on the same.
In the light of the narrative, discussion and dispositive reasoning thus far, this Court does not find any ground to judicially intervene qua impugned award. The sequitur is captioned Arb.OP fails and the same is dismissed. Consequently captioned application is also dismissed. There shall be no order as to costs.
12.08.2022 Speaking order: Yes/No Index: Yes/No gpa M.SUNDAR.J., https://www.mhc.tn.gov.in/judis 14/15 Arb.O.P (Com.Div) No.147 of 2022 gpa Arb.O.P (Com.Div) No.147 of 2022& A.No.1393 of 2022 12.08.2022 https://www.mhc.tn.gov.in/judis 15/15