Madras High Court
M/S. Hll Biotech Limited vs M/S. Eta Engineering Pvt. Ltd
Author: D.Krishnakumar
Bench: D.Krishnakumar
O.S.A. (CAD).No.93 of 2022
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on: 16.11.2023 Delivered on: 21.12.2023
CORAM:
THE HONOURABLE MR.JUSTICE D.KRISHNAKUMAR
AND
THE HONOURABLE MR.JUSTICE P.DHANABAL
O.S.A. (CAD).No.93 of 2022
and
C.M.P. No.10229 of 2022
M/s. HLL Biotech Limited
(Government of India Enterprise),
represented by its Chief Executive Officer. ... Appellant
Vs.
M/s. ETA Engineering Pvt. Ltd., ... Respondent
PRAYER: Original Side Appeal filed under Clause 15 of Letters Patent
Act read with Section 13(1) of Commercial Act under Section 37 of the
Arbitration and Conciliation Act, 1996 praying to set aside the fair and
decreetal order dated 28.02.2022 passed in Arb O.P. (Comm. Divn.) No.87
https://www.mhc.tn.gov.in/judis
1
O.S.A. (CAD).No.93 of 2022
of 2022 on the file of the Original Side of this Court and consequently, to
allow Arb O.P. (Comm. Division) No.87 of 2022 as prayed for.
For Appellant : Mr. V. Kamala Kumar
For Respondent : Mr. S.S. Rajesh
JUDGMENT
(Judgment of the Court was made by P.DHANABAL,J.) This Original Side Appeal has been filed as against the order passed in Arb O.P (Commercial Division) No.87 of 2022 dated 28.02.2022 on the file of the original side of this Court, wherein the appellant herein has filed an Arbitration O.P. challenging the arbitration award passed by the sole Arbitrator on 18.09.2021.
2. The respondent herein, as claimant, has filed a claim petition before the Arbitrator and thereafter, the appellant herein, also filed a counter claim before the Arbitrator. After hearing both parties, the Arbitrator has passed an arbitration award dated 18.09.2021. As against the said arbitration award, the appellant herein has filed an original application under Section 34 of Arbitration and Conciliation Act and to set aside the arbitration award passed by the Arbitrator. The learned single https://www.mhc.tn.gov.in/judis 2 O.S.A. (CAD).No.93 of 2022 Judge has dismissed the application on 28.02.2022 and thereby, the present appeal has been filed by the appellant.
3. The claim of the claimant / respondent before the Arbitrator is that:-
The claimant company is manufacturing, selling, installation and commissioning of Air Conditioners, HVAC, Air Conditioner parts and spares. During the regular course of the business of the claimant, the respondent had issued a Purchase Order for the Phase 2 LT electrical distribution work at Integrated Vaccine Complex, Chengalpet vide Purchase Order No.HBL/IVC/ELEC DIST/Ph-2/PO/15-16/001 dated 29.09.2015 for a total value of Rs.3,69,29,065/-. The total value for the supply of the said order included all taxes, duties, loading, unloading, transportation, leading and insurance charges. The Purchase Order was issued pursuant to the tender document submitted by the claimant through Tender document dated 06.08.2015. After all the meetings and negotiations, the final amount of Rs.3,69,29,065/- was arrived at and agreed upon by the parties.
https://www.mhc.tn.gov.in/judis 3 O.S.A. (CAD).No.93 of 2022 3.1. The above contract was an item based contract (BOQ). The Purchase Order dated 29.09.2015 was issued by the respondent along with the said BOQ detailing the items as required by the respondent and the rates were arrived based on and for the list of items provided therein. In addition to the above, the claimant was also awarded the contract for design, installation, fabrication, erection, testing and commissioning vide Service Order dated 29.09.2015 for a total value of Rs.54,70,302/-. As per the terms, the payment is milestone payment, 10% as advance of the contract amount, 60% against delivery of material at site, 10% against installation of material at site, 10% on successful commissioning and 10% on submission of all documentation and on receipt of Final Acceptance Certificate from Purchaser. The Final Acceptance Certificate will be issued after commissioning, qualification and after necessary tests performed at HBL IVC Site.
3.3. After the issuance of the purchase order, the claimant has immediately mobilized the materials and executed the work and the work has been executed to the utmost satisfaction of the respondent. The claimant had executed the project in line with the terms of the contract. For https://www.mhc.tn.gov.in/judis 4 O.S.A. (CAD).No.93 of 2022 the goods supplied from and out of the total work executed, the respondent has to issue C Forms to enable the claimant to avail the necessary credit and clearance from the appropriate statutory authorities. However, for a total value of goods supplied, at Rs.91,43,217/-, the respondent has not issued the necessary C Forms.
3.2. On 20.12.2018, a notice was issued by the Assistant Commissioner (CT) to the claimant to pay CST @ 14.5% penalty and interest works out to Rs.34,79,246.93. In addition to that, the respondent have also not paid the balance amount of Rs.53,70,113/- due payable to the claimant for the work executed. In addition to the same, the respondent had also invoked the Bank Guarantee issued by the claimant to the tune of Rs.21,19,968/- on 20.12.2017. The invocation of Bank Guarantee was without any authority and further there was no breach committed by the claimant.
3.3. The claimant has been periodically following up with the respondent for the payment of the above amounts but there is no positive response from the end of the respondent to pay the outstanding amounts https://www.mhc.tn.gov.in/judis 5 O.S.A. (CAD).No.93 of 2022 due payable to the claimant. Since it is commercial transaction, the respondent is liable to pay a sum of Rs.53,70,113/- being the outstanding amount for the work done and payment of Rs.34,79,246.93 paid to VAT authorities due to non-submission of C Form, Rs.21,19,968/- being value of the Bank Guarantee unlawfully invoked on 20.12.2017 and interest at 18% p .a. on the total outstanding as on date i.e., Rs.1,09,69,327.93 to the claimant. Since the respondent was not extending any co-operation to amicably resolve the issue, the claimant issued an arbitration notice dated 25.11.2019 invoking the arbitration agreement. Thereafter, he filed an O.P. No.359 of 2020 on the file of this Court for constitution of Arbitral Tribunal for appointment of arbitrator. Thereafter, the Hon'ble High Court has appointed an Arbitrator through order dated 21.01.2021. Hence the above said claim has been filed before the Arbitrator.
4. The gist of the reply statement and counter claim filed by the respondent / appellant are as follows:-
The bid was invited for supply, installation, testing and commissioning of LT Electrical Distribution Works. The invitation for tender and the tender awarded for the petitioner is admitted. After https://www.mhc.tn.gov.in/judis 6 O.S.A. (CAD).No.93 of 2022 negotiation and discount offered by the claimant, his bid was accepted and the claimant was issued with Purchase Order and Service Order, both dated 29.09.2015 for a value of Rs.3,69,29,065/- and Rs.54,70,302/-
respectively. The total value of the said work was Rs.4,23,99,367/- and the same was approved on 25.09.2015. As per the contract, time period for completion of the works was seven months from the date of issue of Purchase Order / Service Order, which was by 29.04.2016. Though the claimant had started the site mobilization in October 2015, due to change in layout design of civil works, work front was not available to the claimant. Further due to heavy torrential rain and floods which occurred in December 2015, commencement of work further got delayed by one more month. Thus the claimant started the work in January 2016. Considering the above reasons, the respondent issued Extension of Time till 31.08.2016. The claimant could not complete all the supply and installation activities within the time extension provided i.e., 31.08.2016 and requested for further extension of time. Hence provisional extension of time was provided till 30.04.2017 as requested, subject to imposition of liquidated damages. The Purchase Order contract was based on item-wise price for the items listed in the Bills of Quantities (BOQ).
https://www.mhc.tn.gov.in/judis 7 O.S.A. (CAD).No.93 of 2022 4.1. The terms for payment under the Purchase Order is as follows:-
(i) 10% as advance of the contract value, i.e., Rs.36,92,907/-;
(ii) 60% against delivery of material at site;
(iii) 10% on installation of material at site;
(iv) 10% on successful commissioning; and
(v) 10% on submission of all documentation and issuance of Final Acceptance Certificate from the respondent.
The Terms of Payment under the Service Order is as follows:-
(i) 60% against installation of material at site;
(ii) 30% on successful commissioning; and
(iii) 10% on submission of all documentation and issuance of Final Acceptance Certificate from the respondent.
4.2. The progress of the work was very slow despite repeated reminders from the respondent. Thereafter the claimant expressed its inability to continue to the work due to financial limitation and requested the respondent to de-scope the balance work vide email dated 12.10.2017, through its Senior Manager-Electrical. The respondent also acceded to the https://www.mhc.tn.gov.in/judis 8 O.S.A. (CAD).No.93 of 2022 claimant's request to make direct payment to its sub-vendors to ensure supply of materials and accordingly obtained administrative sanction and made direct payment to the sub-vendors of the claimant for supply of LT Cables and LT Panels. It was proposed to de-scope the balance work from the claimant and select alternate vendor to complete the said work to avoid further damages and also to initiate recuperative measures as per the terms and conditions of the tender document. The claimant herein was also informed about the same vide letter dated 03.10.2017. The respondent also de-scoped the work on the administrative approval granted and was re- tendered and awarded to M/s. Shri Vaari Electricals Limited, Chennai for a total value of Rs.86,30,358/-. In fact, the value of the de-scoped work as per the Purchase and Service Orders dated 29.09.2015 issued to the claimant was Rs.41,89,537/-. The increase of Rs.44,40,821/- in value occasioned due to the claimant abandoning the work and its failure in executing the work in time.
4.3. The entire commercial transaction between the claimant and the respondent being an 'intra-state transaction', the question of the respondent issuing 'C-Form' to the claimant never arose. When the claimant requested https://www.mhc.tn.gov.in/judis 9 O.S.A. (CAD).No.93 of 2022 for issuance of 'C-Form' towards E-1 transactions, the respondent's Assistant Manager (F) had through email dated 07.06.2017 categorically stated that all the invoices raised by the claimant were booked as 'E-1 Transaction NIL against C-Form' and that he was in need of the E-1 declaration and invoice copies for purposes of obtaining manual C-Form from the Sales Tax Department. In response to the same, the claimant had furnished the respondent with Form E-1 declarations dated 01.11.2018, whereupon the respondent has perused the matter with the Commercial Tax Department for issuance of the 'C-Form' vide its letter dated 21.11.2018 and the same is under process and pending with the department.
4.4. The claimant had raised invoice bills in support of the Purchase and Service Orders respectively. All the invoice bills were paid then and there. The claim of Rs.53,70,113/- is outstanding towards work done is bereft of details as to which invoice bill remains unpaid. The claimant is liable to pay compensation to the respondent for the damages suffered due to delay and abandonment of work and escalation of value for the de- scoped work.
https://www.mhc.tn.gov.in/judis 10 O.S.A. (CAD).No.93 of 2022 4.5. The claimant had raised Purchase RA Bills for a sum of Rs.2,58,60,244/-. The claimant has been paid with a sum of Rs.36,92,907/- on 31.10.2015 towards 10% of the total Purchase Orders as per the terms and conditions. The claimant had raised RA bills to the tune of Rs.2,58,60,244/-, but he is entitled to only 10% advance on the said value, which worked out to Rs.25,86,024/-. Therefore, the respondent is entitled to recover the excessive advance amount of Rs.11,06,883/- from the claimant.
4.6. Due to de-scoped work, the increase of Rs.44,40,821/- was occasioned due to the abandonment of work by the claimant. Therefore, the respondent is liable to recover the said escalation amount from the claimant. Already, the claimant submitted Bank Gaurantee for a sum of Rs.21,19,968/- and the same has to be deducted from the escalated price of Rs.44,40,821/-. The remaining amount of Rs.23,20,853/- has to be paid by the claimant. Further, the respondent is entitled to recover the liquidated damages to the maximum of 5% of the contract price as per Clause-II (c) of the Purchase and Service Orders dated 29.09.2015. Thereby, the respondent is entitled to recover a sum of Rs.21,19,968/- from the claimant https://www.mhc.tn.gov.in/judis 11 O.S.A. (CAD).No.93 of 2022 towards liquidated damages. Therefore, in total, the respondent is entitled to claim a sum of Rs.55,47,704/-.
5. After hearing the parties and perusing the records, the Arbitrator has dismissed the 1st claim of the claimant for a sum of Rs.34,79,246.93 as not maintainable. The claim no.2 of the claimant towards supply of materials was partly allowed and awarded a sum of Rs.50,23,062/-. The claim no.3 towards encashed performance guarantee for a sum of Rs.21,19,968/- was allowed and directed the respondent to pay the above said amount. As far as the counter claim is concerned, the excess mobilization advance of Rs.10,24,075/- was allowed. The counter claim with regard to liquidated damages of Rs.21,19,968/- was dismissed. The counter claim no.3 towards the balance of escalation charges of Rs.23,20,853/- was also dismissed. In fine, the claimant after deducting the counter claim amount of Rs.10,24,075/- from the claim amount with regard to unbilled supply of materials for a sum of Rs.50,23,062/-, was awarded a sum of Rs.39,98,967/- with 12% interest. Further awarded a sum of Rs.21,19,968/- with 12% interest p.a. towards the encashed performance guarantee from 28.11.2017 (date of encashment) till date of https://www.mhc.tn.gov.in/judis 12 O.S.A. (CAD).No.93 of 2022 realization. As against the above said award passed by the Arbitrator, the unsuccessful respondent has filed an arbitration O.P. under Section 34 of Arbitration and Conciliation Act by challenging the award on various grounds. The learned single Judge after elaborate discussions, has dismissed the said Arbitration Original Petition.
6. As against the order passed by the learned single Judge, the present appeal has been filed on the following grounds:-
1. The learned single Judge erred in not appreciating that the award passed by the learned sole Arbitrator is a result of her erroneous understanding and application of the terms of contract between the parties.
2. The Hon'ble Judge failed to appreciate the fact that when the payment terms of the contract between the parties is one of milestone payment, the reasoning and decision of the learned sole Arbitrator directing the appellant to pay the contractor / respondent not completing the milestone work, is not only an implausible view, but against the terms and conditions of the contract.
3. The learned Judge failed to consider the order directing the appellant to pay the contractor for the uncompleted milestone works for https://www.mhc.tn.gov.in/judis 13 O.S.A. (CAD).No.93 of 2022 10% on installation of materials at site, 10% on successful commissioning and 10% on submission of all documentation and issuance of Final Acceptance Certificate.
4. The Arbitral Tribunal failed to consider the pith and substance of the Purchase Order and violated the Section 28(3) of the Arbitration and Conciliation Act.
5. The award is explicitly contrary to fundamental policy of Indian Law and basic notions of justice or morality bringing the appellant's petition under Section 34 of the Act.
6. The learned Judge failed to see that the learned Arbitrator patently wrong inference of the terms of contract in disallowing the counter claim for escalation cost.
7. The learned counsel appearing for the appellant would contend that the respondent was awarded Purchase Order for a sum of Rs.3,69,29,065/- and Service Order for a sum of Rs.54,70,302/- totalling to a sum of Rs.4,23,99,367/- for supply, installation, testing and commissioning of LT Electrical Distribution Works through order dated 29.09.2015. The contract was Bill of Quantities (BOQ) and the terms of https://www.mhc.tn.gov.in/judis 14 O.S.A. (CAD).No.93 of 2022 payment were milestone payment. The contract period was only 7 months.
In spite of several extension of time given to the respondents, he failed to complete the work and requested to de-scope the uncompleted work through email dated 12.10.2017. Thereafter, de-scoped work was awarded to M/s. Shri Vaari Electricals Limited, on 21.10.2017 for a total value of Rs.86,30,358/-. In fact, the value of the de-scoped work issued to the claimant for a sum of Rs.41,89,537/-. The increase of Rs.44,40,821/- was due to the abandonment of work by the respondent. All the invoices raised by the claimant were paid then and there. The total value of Purchase Order is Rs.3,69,29,065/-. 100% value of RA Invoices raised by the respondent is Rs.2,58,60,244/-. The 2nd milestone payment of 60% would come to a sum of Rs.1,73,72,921.90. The 1st milestone payment of 10% is Rs.16,54,656/. The respondent before the learned Arbitrator had claimed to be entitled for Purchase Order's balance milestone payments, alleging that the milestone works have been completed. But the respondent had never completed the work and thereby, the respondent is not entitled to the 100% value of the RA Invoices as claimed by them i.e., Rs.2,58,60,244/-. The above said aspects have not been considered by the learned Arbitrator. https://www.mhc.tn.gov.in/judis 15 O.S.A. (CAD).No.93 of 2022 7.1. The contract between the parties is based on Bill of Quantities [BOQ] and the mode of payment is milestone payment. The total amount shown in the RA Invoices is not per se value of the materials supplied. The calculation of the alleged payment due to the respondent arrived at by the Arbitrator has been based on addition of total amount of the RA bills minus 60% paid, is totally against the concept of milestone payment. The Arbitrator has totally gone against the essence of the contract. The Hon'ble single Judge has slighted away all these aspects by virtue of the principles of plausibility without considering the true essence of the contract. There is no termination of the contract, because the contract was de-scoped at the request of the respondent. Hence appropriation of the Performance Bank Guarantee is justifiable. Therefore the fair and decreetal order dated 28.02.2022 in Arb O.P. (Com. Div.) No.87 of 2022 on the file of the Original side of this Court by confirming the Arbitration Award in O.P. No.359 of 2020 dated 18.09.2021, is liable to be set aside.
7.2. The learned counsel appearing for the appellant has relied upon the following judgments:-
https://www.mhc.tn.gov.in/judis 16 O.S.A. (CAD).No.93 of 2022
1. Associate Builders vs. Delhi Development Authority reported in (2015) 3 SCC 49.
2. Ssangyong Engineering & Constructions Company Ltd., vs. National Highways Authority of India reported in (2019) 15 SCC 131.
3. Kailash Nath Associates vs. Delhi Development Authority & another reported in (2015) 4 SCC 136.
8. The learned counsel appearing for the respondent would contend that the respondent was the successful bidder pursuant to the tender floated by the appellant for supply, installation, testing and commissioning of Phase 2 block electrical distribution system at HLL Biotech Limited, Chengalpattu. The respondent being the successful bidder, two independent work orders were issued by the appellant, one being the Purchase Order dated 29.09.2015 for supply of materials and another one is Service Order dated 29.09.2015. Due to certain delay, the project could not be executed within the time limit and the learned Arbitrator also held that the delay could not be attributed to the respondent / claimant alone. The claimant had to seek for de-scoping of work due to reasons including https://www.mhc.tn.gov.in/judis 17 O.S.A. (CAD).No.93 of 2022 financial difficulties and he issued a letter dated 03.10.2017 by explaining his inability to continue the work. Thereafter, the work awarded to the claimant was descoped. In that letter, there was no reservation of any right to forfeit the balance amount payable for the materials supplied.
8.1. As per the payment terms, the respondent / claimant is entitled to 60% payment at the time of delivery and the balance payment needs to be paid on various dates. There is no dispute that the stages set out in payment clause did not arise as the scope of work granted to the respondent was de-scoped vide letter dated 03.10.2017. Thus, transaction relationship between the appellant and respondent ended after supplying materials. The supply of materials is independent of service order. Hence, the de-scoping happened seamlessly. Since payments were not made, the respondent / claimant, for the materials supplied under the Purchase Order dated 29.09.2015, had invoked the Arbitration Clause and initiated the Arbitration proceedings. After filing the claim statement, the appellant herein filed a counter claim claiming that the respondent has to refund the excessive advance amount of Rs.11,06,883/- and to pay towards escalation charges of Rs.23,20,853/- after deducting the Performance Bank Guarantee and also claimed liquidated damages @ 5% on the total value of contract. https://www.mhc.tn.gov.in/judis 18 O.S.A. (CAD).No.93 of 2022 8.2. The learned Arbitrator passed a detailed and reasoned award by partly allowing the claim of the claimant and by partly allowing the counter claim filed by the respondent herein. The appellant challenged the said award and the learned single Judge has penned a very reasoned order by holding that the learned Arbitrator has passed award analysing all the facts, understanding between the parties and the performance of the contract by the respective parties. The Arbitral Tribunal had further clearly calculated the value of the total materials supplied and passed an award.
8.3. The respondent / claimant established that 100% of the value of the materials supplied and only 60% of the payment was released leaving balance 40% as unbilled. When the contract has been de-scoped by the appellant without any reservation to forfeit the 40% of the unbilled value of materials supplied. No materials were furnished either at real time or during the course of Arbitration, the counter claim of the appellant / respondent were primarily rejected and partially adjusted against the amounts payable to claimant. Therefore, no grounds to exercise the jurisdiction under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.
8.4. The learned counsel appearing for the respondent / claimant has https://www.mhc.tn.gov.in/judis 19 O.S.A. (CAD).No.93 of 2022 relied upon the following judgements:-
1. Associate Builders vs. Delhi Development Authority reported in (2015) 3 SCC 49.
2. Ssangyong Engineering & Constructions Company Ltd., vs. National Highways Authority of India reported in (2019) 15 SCC 131.
3. Prem Kumar Menon & others vs. Lancor Holdings Ltd., reported in 2019 (3) CTC Pg 1
4. MMTC Ltd., vs. Vedanta Ltd., reported in 2019 (4) CTC 263.
5. Kothari Industrial Corporation Limited vs. Southern Petrochemicals Industries Corporation Limited MHC unreported judgment.
6. Konkan Railway Corporation Limited vs. Chenab Bridge Project Undertaking reported in 2023 SCC Online SC 1020.
9. Heard both sides and perused the entire materials available on record.
10. Upon hearing both sides and perusing the materials, the point for consideration in this appeal is whether the order dated 28.02.2022 https://www.mhc.tn.gov.in/judis 20 O.S.A. (CAD).No.93 of 2022 passed by the learned Single Judge in Arb O.P. (Comm. Divn.) No.87 of 2022 is sustainable and this appeal is liable to be allowed or not.
11. Points: In this case, it is an admitted fact that the appellant awarded contract to the respondent vide Purchase Order for a value of Rs.3,69,29,065/- and Service Order for a sum of Rs.54,70,302/- both dated 29.09.2015 for supply, installation, testing and commissioning of LT Electrical Distribution Works in Phase 2 at IVC, Chengalpattu vide tender document dated 06.08.2015. Further it is also admitted that the contract was an item based contract i.e, Bills of Quantities and terms of payment was milestone payment. The terms for payment under the Purchase Order is as follows:-
(i) 10% as advance of the contract value, i.e., Rs.36,92,907/-;
(ii) 60% against delivery of material at site;
(iii) 10% on installation of material at site;
(iv) 10% on successful commissioning; and
(v) 10% on submission of all documentation and issuance of Final Acceptance Certificate from the respondent.
It is also admitted that the work was not completed by the https://www.mhc.tn.gov.in/judis 21 O.S.A. (CAD).No.93 of 2022 respondent and the work was de-scoped and thereafter, the work was done by another contractor namely M/s. Shri Vaari Electricals Limited, Chennai.
12. According to the appellant, due to the non-completion of work by the respondent, re-tender was awarded to the said M/s. Shri Vaari Electricals Limited, Chennai for a sum of Rs.86,30,358/-. The original purchase order was issued to the respondent for a sum of Rs.41,89,537/-. Thereby, increase of Rs.44,40,821/- was due to the failure on the part of the respondent. Further, according to the appellant, the type of payment is milestone payment after delivery of materials. The respondent is only entitled to 60% of the total contract amount. But the RA bills raised by the respondent for a sum of Rs.2,58,60,244/- was admitted by the learned Arbitrator in total. The 1st milestone payment of 60% is Rs.1,73,72,921.90. Further according to the petitioner, 10% of the award amount would come to the value of Rs.25,58,624/- but already the respondent received a sum of Rs.36,92,907/- and further, the appellant has invoked the Performance Bank Guarantee for a sum of Rs.21,19,968/-. The above said Bank Guarantee was invoked due to the failure on the part of the respondent.
https://www.mhc.tn.gov.in/judis 22 O.S.A. (CAD).No.93 of 2022
13. According to the respondent, due to unavoidable circumstances, he was unable to complete the contract and thereby, he expressed his willingness through letter dated 03.10.2017 and the same was also accepted by the appellant without any conditions. The respondent has purchased the entire materials and he was unable to complete the work and thereby, he claimed for the bill amount purchased by the respondent for the supply of materials. Further without any valid reasons, the appellant invoked the Bank Guarantee. Further the appellant claimed towards damages for 5% of the total contract amount. The above said claims were partly allowed and partly negatived by the learned Arbitrator after discussing all the aspects.
14. The learned Arbitrator in the award elaborately discussed about the materials purchased and supplied by the claimant, bills pertaining to BOQ contract, mobilization advance, encashment of bank guarantee, counter claim relieves and request of excessive advance amount, escalation charges and liquidated damages and costs by framing appropriate issues and passed reasoned order by analysing the evidences and documents adduced on both sides. The learned single Judge in the order categorically https://www.mhc.tn.gov.in/judis 23 O.S.A. (CAD).No.93 of 2022 discussed the legal aspects and the scope of Section 34 of Arbitration and Conciliation Act. The learned single Judge discussed about the public policy by relying the judgments of Renusagar Power Co., Ltd. vs. General Electric Co., Oil & Natural Gas Corporation Ltd., vs. Saw Pipes Ltd., ONGC Ltd., v. Western Geco International Ltd., Associate Builders vs. Delhi Development Authority and Ssangyong Engineering and Construction Company Limited vs. National Highways Authority of India. Further discussed the provisions of Section 34(2)(a)(iv) and Section 28(3) of Arbitration and Conciliation Act along with the grounds and fairly came to a conclusion that the view taken by the Arbitrary Tribunal is not an implausible view and only if it is an implausible view, this Court would judicially intervene in a Section 34 of Arbitration and Conciliation Act legal drill and dismissed the Arbitration Original Petition.
15. With the above said aspects, this Court has to see the provisions of Sections 34 and 37 of Arbitration and Conciliation Act. As per provisions under Sections 34 and 37 of Arbitration and Conciliation Act, it is clear that an appeal under Sections 34 and 37 of the Arbitration and Conciliation Act is not a regular appeal, which Court would discharge its https://www.mhc.tn.gov.in/judis 24 O.S.A. (CAD).No.93 of 2022 duties in Appellate jurisdiction. The very basic principle of interference of Court on the ground of public policy and on the ground of patent illegality appearing on the face of the Award and perversity.
16. With the above said legal backdrop, this Court has to approach this case. As far as the grounds raised by the appellant are concerned, all the grounds are on factual aspects and none of the grounds come under the purview of Section 34 of Arbitration and Conciliation Act. All the factual aspects have already been answered by the learned Arbitrator and already the learned Arbitrator has clearly discussed about the entitlement of amount by the claimant as well as the respondent and passed the award. The learned single Judge also, after relying the judgments of Hon'ble Apex Court, dismissed the application as no any ground to interfere with the award under Section 34 of Arbitration and Conciliation Act. As far as the ground of milestone payment is concerned, the respondent / claimant has supplied all the materials and not able to continue the work for installation and commissioning, thereby the learned Arbitrator allowed the RA bills raised by the respondent / claimant, by reasoned order, thereby it is not an implausible view. As far as the violation of Section 28(3) is concerned, the https://www.mhc.tn.gov.in/judis 25 O.S.A. (CAD).No.93 of 2022 learned Arbitrator has acted in terms of the contract and the impugned award is not covered under Section 34(2)(a)(iv) of Arbitration and Conciliation Act. Therefore there is no any grounds to interfere either under Section 34 or 37 of Arbitration and Conciliation Act.
17. As far as the judgments relied upon by the learned counsel appearing for the appellant / respondent in (i) Associate Builders vs. Delhi Development Authority reported in (2015) 3 SCC 49; (ii) Ssangyong Engineering & Constructions Company Ltd., vs. National Highways Authority of India reported in (2019) 15 SCC 131 and (iii) Kailash Nath Associates vs. Delhi Development Authority & another reported in (2015) 4 SCC 136 are concerned, the Hon'ble Supreme Court has clarified the Heads of “Public Policy of India” and also principles of natural justice. But in the case of hand, there is no any ground to attract against the “Public Policy of India”. On careful perusal of the above said judgments, it is clear that the above said case laws will not be applicable to the present facts of the case. The Arbitrator has passed a reasoned award based on the relevant facts and no any ground that the award has been erroneously passed and it would not violate the Public Policies of India. https://www.mhc.tn.gov.in/judis 26 O.S.A. (CAD).No.93 of 2022
18. The learned counsel appearing for the respondent / claimant has relied on the following judgments in:
1. Associate Builders vs. Delhi Development Authority reported in (2015) 3 SCC 49.
2. Ssangyong Engineering & Constructions Company Ltd., vs. National Highways Authority of India reported in (2019) 15 SCC 131.
3. Prem Kumar Menon & others vs. Lancor Holdings Ltd., reported in 2019 (3) CTC Pg 1
- On careful perusal of the above said judgments, it is clear that the award could be set aside if it is contrary to fundamental policy of Indian law, interests of India, justice or morality, or in addition if it is patently illegal and the ground under Section 34(2)(a)(iv) would not be permissible as this ground must be construed harmoniously and so construed, must refer only to matters which are beyond the arbitration agreement or beyond the reference to the Arbitration Tribunal and the Court cannot interfere with the award of the learned Arbitrator unless there is perversity.
https://www.mhc.tn.gov.in/judis 27 O.S.A. (CAD).No.93 of 2022
4. MMTC Ltd., vs. Vedanta Ltd., reported in 2019 (4) CTC 263.
- wherein the Hon'ble Supreme Court held in Para 11 and 12 as follows:-
“11. As far as Section 34 is concerned, the position is well-settled by now that the Court does not sit in Appeal over the Arbitral Award and may interfere on merits on the limited ground provided under Section 34(2)(b)(ii) i.e., if the Award is against the Public policy of India. As per the legal position clarified through decisions of this Court prior to the amendments to the 1996 Act in 2015, a violation of Indian Public Policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the Interest of India, conflict with justice or morality, and the existence of patent illegality in the Arbitral Award. Additionally, the concept of the “fundamental policy of Indian law” would cover compliance with Statutes and judicial precedents, adopting a judicial approach, compliance with the Principles of Natural Justice, and Wednesbury Reasonableness. Furthermore, “patent illegality” itself has been held to mean contravention of the substantive law of India, contravention of the 1996 Act, and contravention of the terms of the contract.
It is only if one of these conditions is met that the Court may interfere with an Arbitral Award in terms of Section 34(2)(b)(ii), but such interference does not entail a review of the merits of the dispute, and is limited to situations where the findings of the Arbitrator are arbitrary, capricious or perverse, or when the conscience of the Court is shocked, or when the illegality is not trivial but goes to the root of the matter. An https://www.mhc.tn.gov.in/judis 28 O.S.A. (CAD).No.93 of 2022 Arbitral Award may not be interfered with if the view taken by the Arbitrator is a possible view based on facts (See Associate Builders v. DDA, 2015(1) CTC 191 (SC): 2015(3) SCC 49. Also see ONGC Ltd. v. Saw Pipes Ltd., 2003(2) CTC 282 (SC) : 2003(5) SCC 705; Hindustan Zinc Ltd., v. Friends Coal Carbonisation, 2006(4) SCC 445; and McDermott International v. Burn Standard Co. Ltd., 2006(11) SCC 181).
It is relevant to note that after the 2015 Amendments to Section 34 the above position stands somewhat modified. Pursuant to the insertion of Explanation 1 to Section 34(2), the scope of contravention of Indian Public Policy has been modified to the extent that it now means fraud or corruption in the making of the Award, violation of Section 75 or Section 81 of the Act, contravention of the fundamental policy of Indian law, and conflict with the most basic notions of justice or morality. Additionally, sub-section (2-A) has been inserted in Section 34, which provides that in case of domestic Arbitrations, violation of Indian Public Policy also includes patent illegality appearing on the face of the Award. The Proviso to the same states that an Award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciation of evidence.
12. As far as interference with an Order made under Section 34, as per Section 37, is concerned, it cannot be disputed that such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. In other words, the Court cannot undertake an independent assessment of the merits of the Award, and must only ascertain that the exercise of power by the https://www.mhc.tn.gov.in/judis 29 O.S.A. (CAD).No.93 of 2022 Court under Section 34 has not exceeded the scope of the provision. Thus, it is evident that in case an Arbitral Award has been confirmed by the Court under Section 34 and by the Court in an Appeal under Section 37, this Court must be extremely cautious and slow to disturb such concurrent findings”.
5. Konkan Railway Corporation Limited vs. Chenab Bridge Project Undertaking reported in 2023 SCC Online SC 1020.
- where the Hon'ble Supreme Court has held in Para 24 as follows:-
“24. Therefore, the scope of jurisdiction under Section 34 and Section 37 of the Act is not akin to normal appellate jurisdiction. It is well settled that Courts ought not to interfere with the arbitral award in a casual and cavalier manner. The mere possibility of an alternative view on facts or interpretation of the contract does not entitle courts to reverse the findings of the Arbitral Tribunal. In Dyna Technologies Private Limited v. Crompton Greaves Limited, (2019) 20 SCC 1, this Court held:
“24. There is no dispute that Section 34 of the Arbitration Act limits a challenge to an award only on the grounds provided therein or as interpreted by various courts. We need to be cognizant of the fact that arbitral awards should not be interfered with in a casual and cavalier manner, unless the court comes to a conclusion that the perversity of the award goes to the root of the matter without there being a possibility of alternative interpretation which may sustain the arbitral award. Section 34 is different in its approach and cannot be equated with a normal appellate jurisdiction. The mandate under https://www.mhc.tn.gov.in/judis 30 O.S.A. (CAD).No.93 of 2022 Section 34 is to respect the finality of the arbitral award and the party autonomy to get their dispute adjudicated by an alternative forum as provided under the law. If the courts were to interfere with the arbitral award in the usual course on factual aspects, then the commercial wisdom behind opting for alternate dispute resolution would stand frustrated.
25. Moreover, umpteen number of judgments of this court have categorically held that the courts should not interfere with an award merely because an alternative view on facts and interpretation of contract exists. The courts need to be cautious and should defer to the view taken by the Arbitral Tribunal even if the reasoning provided in the award is implied unless such award portrays perversity unpardonable under Section 34 of the Arbitration Act”.
19. It is clear through careful reading of the above said judgments that the scope of jurisdiction under Sections 34 and Section 37 of the Act is not akin to normal appellate jurisdiction. It is well-settled that Courts ought not to interfere with the arbitral award in a casual and cavalier manner. The mere possibility of an alternative view on facts or interpretation of the contract does not entitle Courts to reverse the findings of the Arbitral Tribunal. The Court cannot undertake an independent assessment of the merits of the Award, and must only ascertain that the exercise of power by the Court under Section 34 has not exceeded the https://www.mhc.tn.gov.in/judis 31 O.S.A. (CAD).No.93 of 2022 scope of the provision.
20. In the case on hand also, the Arbitral Tribunal passed reasoned award within the provisions of the Act. The learned single Judge also exercised power and not exceeded the scope of the provision. Therefore the award passed by the learned Arbitrator as well as the learned single Judge are reasonable and not an implausible view.
21. Therefore, as discussed supra and having considered the matter in detail, this Court is of the opinion that the award passed by the learned Arbitral Tribunal and the decision of the learned single Judge under Section 34 of the Arbitration and Conciliation Act cannot be termed as perverse or patently illegal or opposed to “Public Policy of India”.
22. Therefore, this Original Side Appeal has no merits and deserves to be dismissed.
https://www.mhc.tn.gov.in/judis 32 O.S.A. (CAD).No.93 of 2022
24. IN THE RESULT, this Original Side Appeal is dismissed. No costs. The connected miscellaneous petition is closed.
(D.K.K.J) & (P.D.B.J)
21.12.2023
mjs
Internet : Yes
Index:Yes/No
Neutral Citation:Yes/No
https://www.mhc.tn.gov.in/judis
33
O.S.A. (CAD).No.93 of 2022
D.KRISHNAKUMAR, J.,
and
P.DHANABAL,J
(mjs)
Pre-delivery judgment in
O.S.A.(CAD) No.93 of 2022
21.12.2023
https://www.mhc.tn.gov.in/judis
34