Delhi District Court
Union Of India vs M/S B.N.N Communication Engineers on 11 April, 2023
IN THE COURT OF MR. SATYABRATA PANDA, ADJ-04,
PATIALA HOUSE COURTS, NEW DELHI
ARBTN NO. 324 OF 2018
Date of institution:26.02.2018
Date of arguments: 02.03.2023
Date of judgment: 11.04.2023
Union of India
through Sr. DDG
Telecommunication Engineering Centre
Khurshid Lal Bhawan, Janpath
New Delhi .........Petitioner
VS
M/s B.N.N Communication Engineers
through proprietor
11/11, Sector-III, Rajender Nagar
Sahibabad-201005 .........Respondent
JUDGMENT
1. The petitioner has filed the present petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenging the Award dated 06/10/2017 passed by the Ld. Sole Arbitrator, Mr. Saurabh Gupta, DDG (Training), Department of Telecommunications, Government of India.
2. The disputes between the parties arose in respect of contract arising out of tender No. TEC/ADMN/MM/41/Tender-SARLAB/2010-11 dated 15/07/2011 for supply, installation and commissioning of Specific Absorption Rate Laboratory (SAR Lab) in the Telecommunication Engineering Centre (TEC), New Delhi. In terms of the arbitration agreement contained in Clause 17 of Section III of Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.1 the tender, the ld. sole arbitrator was appointed by the Sr. DDG, TEC vide letter dated 25/10/2016.
3. The case of the claimant, who is the respondent herein, before the ld.
arbitrator was as follows. The claimant had been awarded the work for supply, installation and commissioning of SAR lab at TEC, New Delhi against a purchase order on 26/09/2012. The payment terms of the contract were as follows: 80% payment was to be made on receipt of goods by the consignee and completion of RF shielded enclosure; the balance 20% was to be released after the satisfactory performance of the items for 6 months subject to production of certificate of satisfactory service from the designated in-charge of the consignee. It was the claimant's case that all the materials as mentioned in the Schedule of Requirements (SOR) of the tender were supplied on 12/12/2012 and the respondent had made 80% payment against the delivery of the items. It was the claimant's case that the lab was commissioned on 15/01/2013 within the stipulated time schedule as mentioned in the purchase order. It was the claimant's case that however, the balance 20% payment was not paid. It was also the claimant's case that the Form-C was not issued resulting in excess payment of VAT, performance bank guarantee was not released, the warranty period was not decided and the Annual Maintenance Contract (AMC) had not been effected, all of which the respondent was obligated to do.
4. It was the claimant's case that the lab was operated for a period of six months from 15/01/2013, and thereafter, in accordance with Clause 8.2 of section-III of the tender documents, the claimant requested for satisfactory operation certificate which was denied by Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.2 the respondent. It was the claimant's case that, hence, 20% of the balance payment amounting to Rs.47,44,065/- was held up. It was further the claimant's case that as per the SOR the respondent was required to issue Form-C to qualify for only 5% VAT which was not provided forcing the claimant to pay a higher VAT at 14.5%. It was the claimant's case that the claimant had to pay the difference amount of Rs. 16,42,338/-. Though the respondent later has paid the 80% of the difference amount, the balance 20% of the difference amount Rs. 3,29,468/- still remained pending. It was further the claimant's case that the performance bank guarantee originally obtained for 2 years had to be extended upto December, 2017 and the claimant had to bear an additional expense of Rs. 1,96,720 /- towards this extension. It was the claimant's case that the equipment was successfully commissioned on 15/01/2013 and according to Clause 15.1 of section IV of tender terms and conditions, the one- year warranty was already over on 15/01/2014. It was the claimant's case that the claimant had continued to provide uninterrupted maintenance of the lab throughout the period. As the lab was commissioned and was fully operational and no defect was outstanding, the AMC charges also became due from 21/01/2014. It was the claimant's case that despite meeting all the requirements of the tender contract, the balance due payments were not made. The claimant claimed the following amounts before the ld. sole arbitrator:
i) 20% of balance amount (Rs. 47,44,063/-) with 18% interest with effect from 22/07/2013 till payment was made, Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.3
ii) Pending excess VAT tax amount with 18% interest from 16/01/2013 till 15/09/2016 for amount of Rs.
13,13,870/-, and from l6/01/2013 till payment was made for amount of Rs. 3,29,468/-,
iii) Payment for AMC from 21/01/2014,
iv) Payment for additional expense towards PBG extension amounting to Rs.1,96,720/-
5. It was the case of the claimant before the ld. sole arbitrator that after supply of all items, the equipment was installed and integrated to set up the SAR lab. A test plan for acceptance testing was submitted to TEC for approval which was to be conducted prior to commissioning. Subsequently, the test plan was approved by TEC and all tests as per the approved test plan were carried out in December, 2012. The acceptance testing was conducted as per the approved test plan in presence of supplier's representative and the equipment successfully passed acceptance, validation and customization tests and was found to be satisfactory. No limitation or deficiency was informed during or after the conduction of tests. It was the claimant's case that as there were no observations, the lab was commissioned on 15/01/2013 within the stipulated delivery schedule. The lab was inaugurated by the then Minister of Telecom on 21/01/2013. It was the claimant's case that a copy of the commissioning report was sought from TEC vide letter dated 28/02/2013, however, the same was neither replied to nor any report was given. After commissioning, the lab was operated by TEC with the supplier's representative in attendance for a period of six months till 15/07/2013. The claimant submitted that in accordance with the tender terms and conditions, the lab was tested by a committee for Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.4 validation and other customization tests and no deficiency/non provisioning or limitation was informed to them during the trial period of six months neither verbally, nor telephonically nor in written form. Post completion of trial period of six months on 15/07/2013, the claimant requested for issue of Satisfactory Operation Certificate for claiming the balance 20% payments. The claimant submitted that the Satisfactory Operation Certificate was denied by TEC by mentioning alleged pending deficiencies. The claimant denied this and stated that it was never informed of any discrepancy during the trial period either telephonically, verbally or in written form.
6. Before the ld. arbitrator, the claimant relied upon the Acceptance Committee Report formed by Sr. DOG (TEC) for acceptance of the SAR lab equipment which the claimant had obtained through RTI. The claimant referred to the report and submitted that the equipment was tested by committee members and found to meet all the hardware as well as software tests of the approved test schedule approved by TEC and recommended for provisional commissioning the SAR lab w.e.f. 16/01/2013. The report also mentioned few minor deficiencies, which as per the claimant, were not in the approved test schedule and were not in their scope of works.
7. It was the claimant's case that it had supplied all the items as per SOR and after installation and setting up of the lab, all tests were conducted by the committee as per the approved test schedule, and no non-provisioning, deficiency, limitation, shortfall or defect of any kind was observed during conduct of tests. Also, no deficiency during commissioning of lab and during the trial period of six Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.5 months was communicated to the claimant either verbally or in writing. The Clause 27 of section IV of the terms and conditions were fully met and the lab system qualified for final acceptance from 16/0l/2013 and accordingly the certificate of satisfactory operation ought to have been issued.
8. It was further the claimant's case that TEC as per tender condition Annexure-3 note no. 7 of the Schedule of Requirements of the tender was required to issue Form 'C' to enable the claimant to qualify for only 5% VAT. The same was earlier denied and the claimant had to pay a higher VAT at 14.5% resulting in excess payment of Rs 13,13,870/-. The claimant submitted that on their request only 80% of the difference of the higher VAT amount was paid by the respondent on 15/09/2016 after a delay of two years and four months which should have been paid to them alongwith the 80% payment on 17/01/2013, whereas the balance 20% of the difference amount was still pending. The claimant submitted that as these payments were delayed, TEC was liable to pay interest to the claimant.
9. It was also the claimant's case that the Performance Bank Guarantee originally obtained for 2 years had to be extended upto December, 2017 incurring an extra expense of Rs 1,96,720/- to them. The claimant submitted that the PBG should be released immediately and the extra expenses which the claimant had to bear due to non- issuance of Satisfactory Operation Certificate by the respondent should also be refunded to them. The claimant further submitted that as per clause no. 15.1 of Section IV of the tender conditions, the lab was under warranty for a period of one year from the date of Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.6 commissioning. The claimant submitted that as the lab has already been commissioned on 15/01/2013 and operational since its commissioning, the one-year warranty period was completed and expired on 15/01/2014. The claimant further submitted that though the satisfactory operation certificate was not issued by the respondent and no Purchase Order for Annual Maintenance Contract (AMC) was placed on them, they continued to provide uninterrupted maintenance services throughout the period which included maintenance of lab, calibration of test equipment and various testers and providing full support in SAR testing of mobile handsets. The lab was fully operational and no defect was outstanding. It was the claimant's case that had the Satisfactory Operation Certificate been issued to claimant, the warranty period would have been completed and expired on 15/01/2014 and AMC would have come into effect since 15/01/2014. As the Satisfactory Operation Certificate had been denied due to no valid reason by the respondent, the claimant submitted that the lab must be treated under AMC and they must be paid for maintaining the lab as per the AMC clause of the tender.
10. The case of the petitioner herein i.e. Telecommunication Engineering Centre (TEC), who was the respondent in the arbitration proceedings, was as follows. TEC justified the non- issuance of Satisfactory Operation Certificate and non-payment of the balance 20% amount. TEC submitted that the claimant was awarded the work of supply, installation and commissioning of SAR Lab. The equipment was installed in December 2012. On completion of installation of the equipment a committee was constituted for testing/ acceptance/validation of SAR lab system by Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.7 TEC vide letter No. TEC/R/SAR Lab/2012 dated 27/11/20l2. TEC submitted that the committee carried out testing from 17/12/2012 to 15/01/2013 and submitted its report on 16/01/2013. The committee in its report pointed out deficiencies that SAR tests for 2450 MHz relating to Wi-Fi and Bluetooth features of mobile phones were not offered by the supplier for want of non-provisioning of Probe Calibration and non-availability of system validation kit D2450V2 required for making the DASY system compatible with SAR Testing in 2450 MHz band. TEC submitted that on account of non- compliance of deficiencies pointed out by the committee, the SAR lab system did not qualify for acceptance as per the requirements of provisions of clause 27.0 of Section-IV of the Tender Document. Therefore, the certificate of final acceptance could not be issued. TEC relied upon the clause 14.4 of the terms and conditions of tender and submitted that the actual commissioning of SAR lab was to be considered as commissioned only after validation by TEC and satisfactory operation during the trial period of six months thereafter. The trial was to be started after successful validation of customization activities. TEC submitted that during the validation process by TEC it was further noticed that SAR tests for Data and simultaneous Voice + Data were not offered by the claimant. This was intimated to the claimant in person a number of times followed by intimation in writing vide office letter dated 22.07.2013 and subsequent correspondence. Due to the non-compliance of these deficiencies, the validation was not completed and therefore trial period could not be started. TEC submitted that on account of non- compliance of deficiencies pointed out by the committee, the SAR Lab system did not qualify for acceptance and the trial could not Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.8 start and hence letter for commissioning was not issued to the claimant. TEC argued that in the absence of compliance of the deficiencies pointed out by committee constituted for testing/validation/commissioning of SAR lab, the self-declaration by the claimant of SAR lab as functional cannot be accepted. TEC justified non issuance of Satisfactory Operation Certificate and thereby holding up of the balance 20% payment in terms of the tender document.
11. TEC further submitted that SAR measurement was a complex procedure and the lab was first of its kind, therefore as per Clause 17 of the section IV of the tender documents the specifications were not of a definite design and the supplier was expected to provide complete details of additional facilities/optional facilities available in the offered solution and even those which were not covered in the tender documents. It was submitted that the claimant was also obligated to supply any additional component required to complete the project free of cost.
12. TEC further submitted that 80% of the difference of excess amount of VAT has already been paid to the claimant while the remaining 20% of the excess amount of VAT would be paid to claimant only after completion of all obligations by the claimant along with the balance payment. TEC further submitted that release of PBG is governed by the clause 4.4 of section III of the tender document which was to be released after sixty days beyond completion of performance /obligations including any warranty obligations under the contract. TEC submitted that the lab equipment was not accepted and the obligations of warranty were also not fulfilled by the Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.9 supplier, and justified the extension of PBG. TEC submitted that on account of non-compliance of deficiencies pointed out by the committee in the Acceptance Testing Report, the SAR lab did not qualify for acceptance as per the requirements of provisions of clause 27 of section IV of the tender document and the validation was not completed, therefore trial could not be started. TEC submitted that the certificate of satisfactory operation, was not issued to claimant due to the aforesaid reasons and hence the date of start of warranty period could not be decided. TEC refuted the claim of completion of warranty period and mentioned that the one-year warranty period would be completed only after completion of all the pending discrepancies. TEC submitted that in the absence of compliance of deficiencies pointed out by the committee, the SAR lab system did not qualify for acceptance and hence letter for commissioning was not issued to the claimant. The validation was not completed and hence the trial could also not be started. Due to this, as per the clause no. 14.4 of section IV of terms & conditions of the tender, the claimant was not awarded the AMC work. TEC submitted that the claims of the claimant ought to be rejected. It was submitted that as the claimant had not fulfilled its obligations and the contract was not executed in time so TEC could not achieve the objective and suffered losses/damages and prayed to the arbitrator to pass an award against claimant for an amount of Rs. 2 lacs as damages as well as costs of Rs. 1 lac.
13. The ld. sole arbitrator has recorded the contentions of the claimant in paragraphs 1.0 to 1.4.2 of the arbitral award. The ld. sole arbitrator has recorded the contentions of TEC in paragraphs 2.0 to 2.14 of the Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.10 award. The ld. sole arbitrator has recorded his findings in paragraphs 3.0 to 3.8 of the impugned award. The ld. arbitrator has ultimately awarded the following claims to the claimant, which are summarised in paragraph 4.0 of the impugned award, and the same is reproduced hereunder:
"4.0 Having considered the petition, counter reply, rejoinder, arguments and counter arguments and the conclusion drawn in the matter, I order the following:
(a) Payment of balance 20% of the payment be released to the claimant immediately within 4 weeks of the receipt of this order.
(b) Payment of balance 20% of excess VAT amount towards refund of excess VAT amount be paid along with interest amounts as below;
(i) interest amount @ 9% on the already paid amount Rs.13,13,870/- from 16th July, 2014 till 15th September, 2016 and
(ii) Interest amount @ 9% on the balance amount Rs.
3,29,468/- from l 6th July, 2014 till payment the date of payment.
The above amount be paid to the claimant within 4 weeks of receipt of this order.
(c) The lab should be treated under warranty through the period since 15/07/2013 till the date of signing the AMC.
(d) All the formalities for completion of warranty should be completed and the Annual Maintenance Contract (AMC) be signed from 01.01.2018.
(e) The Performance Bank Guarantee (PBG) may be released after signing of AMC contract.
No cost to either party"
14. The learned counsel for petitioner herein i.e. TEC has submitted that the impugned award suffers from material infirmity and is without Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.11 any justification or reason. It is submitted that the ld. arbitrator has passed a factually incorrect award. It is submitted that the ld. arbitrator has in paragraph 3.1 of the award made observations regarding the validity or reasonableness of the tender document which was outside his jurisdiction. It is submitted that the ld. arbitrator being a creature of the contract could not hold any provision of the contract to be unreasonable. It is submitted that as such the award was illegal and liable to be set aside. The learned counsel for the petitioner has further submitted that the learned arbitrator has made observations that the lab was working satisfactorily, that the lab was continuously in use, that various devices were being tested and regarding the start date of trial period of six months, which findings were contrary to the record and factually incorrect. It is further submitted that the claimant was expected to operate the SAR lab satisfactorily during the trial period of six months as per Clause 14.4 Section IV of the tender document. It is submitted that in the present case, on account of non- compliance of the deficiencies, the SAR lab did not qualify for acceptance under Clause 27.0 of Section IV tender documents due to which TEC did not issue the certificate of final acceptance. The ld. counsel has also relied upon Clause 17 of Section IV of tender document and has submitted that the specifications in the tender were not of a definite design and the supplier was expected to provide complete details of additional facilities/optional facilities available in the offered solution and even those which were not covered in the tender documents. It is submitted that the claimant was also obligated to supply any additional component required to complete the project free of cost. It is submitted that as such the ld.
Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.12 arbitrator has erred in holding that the deficiencies were not in the scope of work of the claimant. On the aforesaid basis, the submission of the learned counsel for TEC is that the impugned award suffers from material irregularity and is as such against public policy and is also patently illegal, and is as such liable to be set aside.
15. Per contra, the learned counsel for the respondent has supported the findings in the impugned award. It is submitted that the ld. arbitrator has given findings after elaborate discussion on the facts of the case and as such there is no perversity in the findings in the award. The learned counsel for respondent has submitted that the scope of jurisdiction of this Court u/s. 34 A&C Act is narrow and that the Court cannot reappraise the evidence and findings of the Ld. Arbitrator as if this Court was sitting in appeal. It is submitted that the objections raised by TEC sought reappraisal of the evidence and findings of the ld. arbitrator which was not permissible u/s. 34 A&C Act. It is submitted that TEC has sought to argue the present petition as if it were an appeal against the arbitral award which is impermissible.
16. I have considered the submissions of the learned counsels for both the parties and I have perused the record. I have also considered the written submissions filed by the parties.
17. It would be appropriate to refer at the outset to the judgment of the Hon'ble High Court of Delhi (Division Bench) in Delhi Development Authority v. Bhardwaj Brothers, 2014 SCC OnLine Del 1581, in which the scope and ambit of jurisdiction of the Court u/s. 34 A&C Act has been delineated. In this judgment, the Hon'ble Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.13 High Court has also referred to its earlier judgments in State Trading Corporation of India Ltd. v. Toepfer International Asia Pte Ltd. MANU/DE/1480/2014, and in Delhi State Industrial & Infrastructure Development Corporation Ltd. v. Rama Construction Company MANU/DE/1518/2014. The relevant portion of the judgment in DDA v. Bhardwaj Brothers (supra) is extracted hereunder:
"8. We have enquired from the counsel for the appellant whether not the said challenge is a challenge on the merits of the arbitral award. We have yet further put to the counsel for the appellant that as to how, misinterpretation of a contractual provision or misinterpretation of a contract by the Arbitral Tribunal constitutes a ground of challenge under Section 34 of the Arbitration Act.
9. We have in State Trading Corporation of India Ltd. supra held : -
"5. The challenge in this appeal is on the ground that the learned Single Judge ignored that the interpretation of the contract between the parties given by the Arbitral Tribunal is contrary to the express terms and conditions thereof and the Arbitral Tribunal has given a meaning to the terms and conditions which is not contemplated in the contract. The senior counsel for the appellant thus wants us to read the contract between the parties, particularly the clauses relating to demurrage, and then to judge whether the interpretation thereof by the Arbitral Tribunal is correct or not.
6. In our view, the interpretation in Saw Pipes Ltd. supra (ONGC Ltd. v. Saw Pipes Ltd. (2003) 5 SCC
705) of the ground in Section 34 of the Act for setting aside of the arbitral award, for the reason of the same being in conflict with the public policy of India, would not permit setting aside, in the aforesaid facts. A Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.14 Section 34 proceeding, which in essence is the remedy of annulment, cannot be used by one party to convert the same into a remedy of appeal. In our view, mere erroneous/wrong finding of fact by the Arbitral Tribunal or even an erroneous interpretation of documents/evidence, is non-interferable under Section 34 and if such interference is done by the Court, the same will set at naught the whole purpose of amendment of the Arbitration Act.
7. Arbitration is intended to be a faster and less expensive alternative to the courts. If this is one's motivation and expectation, then the finality of the arbitral award is very important. The remedy provided in Section 34 against an arbitral award is in no sense an appeal. The legislative intent in Section 34 was to make the result of the annulment procedure prescribed therein potentially different from that in an appeal. In appeal, the decision under review not only may be confirmed, but may also be modified. In annulment, on the other hand, the decision under review may either be invalidated in whole or in part or be left to stand if the plea for annulment is rejected. Annulment operates to negate a decision, in whole or in part, thereby depriving the portion negated of legal force and returning the parties, as to that portion, to their original litigating positions. Annulment can void, while appeal can modify. Section 34 is found to provide for annulment only on the grounds affecting legitimacy of the process of decision as distinct from substantive correctness of the contents of the decision. A remedy of appeal focuses upon both legitimacy of the process of decision and the substantive correctness of the decision. Annulment, in the case of arbitration focuses not on the correctness of decision but rather more narrowly considers whether, regardless of errors in application of law or determination of facts, the decision resulted from a legitimate process.
8. In the case of arbitration, the parties through their agreement create an entirely different situation because regardless of how complex or simple a dispute Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.15 resolution mechanism they create, they almost always agree that the resultant award will be final and binding upon them. In other words, regardless of whether there are errors of application of law or ascertainment of fact, the parties agree that the award will be regarded as substantively correct. Yet, although the content of the award is thus final, parties may still challenge the legitimacy of the decision-making process leading to the award. In essence, parties are always free to argue that they are not bound by a given "award" because what was labeled an award is the result of an illegitimate process of decision.
9. This is the core of the notion of annulment in arbitration. In a sense, annulment is all that doctrinally survives the parties' agreement to regard the award as final and binding. Given the agreement of the parties, annulment requires a challenge to the legitimacy of the process of decision, rather than the substantive correctness of the award.
10. *** *** ***
11. Arbitration under the 1940 Act could not achieve the savings in time and money for which it was enacted and had merely become a first step in lengthy litigation. Reference in this regard can be made to para 35 of Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc. (2012) 9 SCC 552. It was to get over the said malady that the law was sought to be overhauled. While under the old Act, the award was unenforceable till made rule of the court and for which it had to pass various tests as laid down therein and general power/authority was vested in the court to modify the award, all this was removed in the new Act. The new Act not only made the award executable as a decree after the time for preferring objection with respect thereto had expired and without requiring it to be necessarily made rule of the court but also did away with condonation of delay in filing the said objections. The reason/purpose being expediency. The grounds on which the objections could be filed are also such which if made out, the only consequence thereof could be Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.16 setting aside of the award. It is for this reason that under new Act there is no power to the court to modify the award or to remit the award etc. as under the old Act. A perusal of the various grounds enunciated in Section 34 will show that the same are procedural in nature i.e., concerning legitimacy of the process of decision. While doing so, the ground, of the award being in conflict with Public Policy of India, was also incorporated. However the juxtaposition of Section 34(2)(b)(ii) shows that the reference to 'Public Policy' is also in relation to fraud or corruption in the making of the award. The new Act was being understood so [see Konkan Railway Corporation Ltd. v. Mehul Construction Co. (2000) 7 SCC 201 (para 4 and which has not been set aside in S.B.P. & Co. v. Patel Engineering Ltd. (2005) 8 SCC 618)] till the Supreme Court in Saw Pipes Ltd. (supra) held that the phrase 'Public Policy of India' is required to be given wider meaning and if the award on the face of it is patently in violation of statutory provisions, it cannot be said to be in public interest and such award/judgment/decision is likely to adversely affect the administration of justice. In para 37 of the judgment it was held that award could be set aside if it is contrary to fundamental policy of Indian Law or the interest of India or justice or morality or if it is patently illegal. A rider was however put that illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that the award is against the public policy. Yet another test laid down is of the award being so unfair and unreasonable that it shakes the conscience of the court.
12. The courts have thereafter been inundated with challenges to the award. The objections to the award are drafted like appeals to the courts; grounds are urged to show each and every finding of the arbitrator to be either contrary to the record or to the law and thus pleaded to be against the Public Policy of India. As aforesaid, the courts are vested with a difficult task of simultaneously dealing with such objections under two diverse provisions and which has led to the courts Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.17 in some instances dealing with awards under the new Act on the parameters under the old Act.
13. The result is that the goal of re-enactment has been missed.
14. The re-enactment was not only to achieve savings in time and prevent arbitration from merely becoming the first step in lengthy litigation but also in consonance with the international treaties and commitments of this country thereto. Since the enactment of the 1940 Act, the international barriers had disappeared and the volume of international trade had grown phenomenally. The new Act was modeled on the model law of international commercial arbitration of the United Nations Commission on International Trade Law (UNICTRAL). It was enacted to make it more responsive to contemporary requirements. The process of economic liberalization had brought huge foreign investment in India. Such foreign investment was hesitant, owing to there being no effective mode of settlement of domestic and international disputes. It was with such lofty ideals and with a view to attract foreign investment that the re-enactment was done. If the courts are to, notwithstanding such re-enactment, deal with the arbitration matters as under the old Act it would be a breach of the commitment made under the treaties on international trade.
15. Applying the aforesaid test, we are afraid, the arguments of the senior counsel for the appellant are beyond the scope of Section 34.
16. The senior counsel for the respondent has in this regard rightly argued that the scope of appeal under Section 37 is even more restricted. It has been so held by the Division Benches of this Court in Thyssen Krupp Werkstoffe v. Steel Authority of India MANU/DE/1853/2011 and Shree Vinayak Cement Clearing Agency v. Cement Corporation of India 147 (2007) DLT 385. It is also the contention of the senior counsel for the respondent that the argument made by the appellant before the learned Single Judge and Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.18 being made before this Court, that the particular clause in the contract is a contract of indemnification, was not even raised before the Arbitral Tribunal and did not form the ground in the OMP filed under Section 34 of the Act and was raised for the first time in the arguments.
17. The Supreme Court in Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran (2012) 5 SCC 306 refused to set aside an arbitral award, under the 1996 Act on the ground that the view taken by the Arbitral Tribunal was against the terms of the contract and held that it could not be said that the Arbitral Tribunal had travelled outside its jurisdiction and the Court could not substitute its view in place of the interpretation accepted by the Arbitral Tribunal. It was reiterated that the Arbitral Tribunal is legitimately entitled to take the view which it holds to be correct one after considering the material before it and after interpreting the provisions of the Agreement and if the Arbitral Tribunal does so, its decision has to be accepted as final and binding. Reliance in this regard was placed on Sumitomo Heavy Industries Ltd. v. ONGC Ltd. (2010) 11 SCC 296 and on Kwality MFG. Corporation v. Central Warehousing Corporation (2009) 5 SCC 142. Similarly, in P.R. Shah, Shares & Stock Broker (P) Ltd. v. B.H.H. Securities (P) Ltd. (2012) 1 SCC 594 it was held that a Court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or reappreciating evidence and an award can be challenged only under the grounds mentioned in Section 34(2) and in the absence of any such ground it is not possible to reexamine the facts to find out whether a different decision can be arrived at. A Division Bench of this Court also recently in National Highways Authority of India v. Lanco Infratech Ltd. MANU/DE/0609/2014 held that an interpretation placed on the contract is a matter within the jurisdiction of the Arbitral Tribunal and even if an error exists, this is an error of fact within jurisdiction, which cannot be reappreciated by the Court under Section 34 of the Act. The Supreme Court in Steel Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.19 Authority of India Ltd. v. Gupta Brother Steel Tubes Ltd. (2009) 10 SCC 63 even while dealing with a challenge to an arbitral award under the 1940 Act reiterated that an error by the Arbitrator relatable to interpretation of contract is an error within his jurisdiction and is not an error on the face of the award and is not amenable to correction by the Courts. It was further held that the legal position is no more res integra that the Arbitrator having been made the final Arbiter of resolution of dispute between the parties, the award is not open to challenge on the ground that Arbitrator has reached at a wrong conclusion.
18. If we were to start analyzing the contract between the parties and interpreting the terms and conditions thereof and which will necessarily have to be in the light of the contemporaneous conduct of the parties, it will be nothing else than sitting in appeal over the arbitral award and which is not permissible." Before proceeding further, mention may also be made of New Delhi Apartment Group Housing Society v. Jyoti Swaroop Mittal MANU/DE/9107/2007 which remained to be noticed and where a Division Bench of this Court held that Saw Pipes Ltd. supra cannot be read as permitting a Court exercising powers under Section 34 to sit in appeal over the findings of fact recorded by the Arbitrator or interpretation placed upon the provisions of the agreement.
10. We have in Delhi State Industrial & Infrastructure Development Corporation Ltd. supra further held that : -
"...the parties, by agreeing to be bound by the arbitral award and by declaring it to be final, agree to be bound also by a wrong interpretation or an erroneous application of law by the Arbitral Tribunal and once the parties have so agreed, they cannot apply for setting aside of the arbitral award on the said ground. Even under the 1940 Act where the scope of interference with the award was much more, the Apex Court in Tarapore and Co. v. Cochin Shipyard Ltd., Cochin (1984) 2 SCC 680 and U.P. Hotels v. U.P. State Electricity Board (1989) 1 SCC 359 held that the Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.20 arbitrator's decision on a question of law is also binding even if erroneous. Similarly, in N. Chellappan v. Secretary, Kerala State Electricity Board (1975) 1 SCC 289 it was held that even if the umpire committed an error of law in granting amount, it cannot be said to be a ground for challenging the validity of the award; the mistake may be a mistake of fact or of law."
11. We are further of the view that the scope of judicial review of an arbitral award is akin to review under Article 226 of the Constitution of India of the decisions of bodies, where it is a settled principle of law (See State of U.P. v. Maharaja Dharmander Prasad Singh (1989) 2 SCC 505 and State of U.P. v. Johri Mal (2004) 4 SCC 714) that the judicial review is of the decision making process and not of the decision on merits and cannot be converted into an appeal. This is quite evident from the various Clauses of Section 34(2)(a) which prescribe the grounds of challenge on the lines of violation of the principles of natural justice in making of the award or invalidity of the arbitral agreement and nonarbitrability of the disputes arbitrated and of the composition of the Arbitral Tribunal or arbitral procedure being not in accordance with the agreement between the parties. Section 34(2)(b) adds the ground of the arbitral award being in conflict with the public policy of India. None of the said grounds are the grounds of challenge on the merits of the award. The ground of challenge of the award being in conflict with the public policy of India is explained as the award being induced or affected by fraud or corruption or being in violation of Section 75 or Section 81. Thus the grounds of challenge are akin to the grounds of judicial review under Article 226 and not to grounds of appeal or revision. We are reminded of the merits legality distinction in judicial review as culled out by Lord Hailsham in The North Wales v. Evans (1982) 1 WLR 1155 by observing "the purpose of judicial review is to ensure that the individual receives fair treatment, and not to ensure that the authority, after according fair treatment, reaches on a matter which it is authorized by law to decide for itself a conclusion which is correct in the eyes of the Court". Lord Brightman in the same judgment held that judicial review, as the words imply, is not Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.21 an appeal from a decision, but a review of the manner in which the decision was made and it would be an error to think that the Court sits in judgment not only on the correctness of the decision making process but also on the correctness of the decision itself. It was clarified that only when the issue raised in judicial review is whether a decision is vitiated the judicial review of the decision making process includes examination, as a matter of law, of the relevance of the factors. In our opinion the same is an apt test also for judicial review of the arbitral awards and just like a mere wrong decision without anything more is not enough to attract the power of judicial review, the supervisory jurisdiction conferred on the Court under the Arbitration Act is limited to see that the Arbitral Tribunal functions within the limits of its authority and that the arbitral award does not occasion miscarriage of justice. The Supreme Court in Mc. Dermott International Inc. v. Burn Standard Co. Ltd. (2006) 11 SCC 181 commenting on the radical changes brought about by the re-enactment of the arbitration law observed that the role of the Courts under the new law is only supervisory, permitting intervention in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice etc. and the Court cannot correct the errors of arbitrators and can only quash the award leaving the parties free to begin arbitration again.
12. Of the finality of arbitral awards, there is no doubt under our arbitration law. The Supreme Court as far back as in Union of India v. A.L. Rallia Ram AIR 1963 SC 1685 held that : -
"An award being a decision of an arbitrator whether a lawyer or a layman chosen by the parties, and entrusted with power to decide a dispute submitted to him is ordinarily not liable to be challenged on the ground that it is erroneous. In order to make arbitration effective and the awards enforceable, machinery is devised for lending the assistance of the ordinary Courts. The Courts are also entrusted with power to modify or correct the award on the ground of imperfect form or clerical errors, or decision on questions not referred, which are severable from those Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.22 referred...... The Court may also set aside an award on the ground of corruption or misconduct of the arbitrator, or that a party has been guilty of fraudulent concealment or wilful deception. But the Court cannot interfere with the award if otherwise proper on the ground that the decision appears to it to be erroneous. The award of the arbitrator is ordinarily final and conclusive, unless a contrary intention is disclosed by the agreement. The award is the decision of a domestic tribunal chosen by the parties, and the civil courts which are entrusted with the power to facilitate arbitration and to effectuate the awards, cannot exercise appellate powers over the decision. Wrong or right the decision is binding, if it be reached fairly after giving adequate opportunity to the parties to place their grievances in the manner provided in the arbitration agreement."
Of course the said judgment being under the Arbitration Act, 1940 proceeds to hold that an award is bad on the ground of error of law on the face of it. However the legislature while re-enacting the arbitration law has removed the ground of challenge of error of law on the face of the award. In Mc. Dermott International Inc. supra also it was held that the parties to the Arbitration Agreement make a conscious decision to exclude the Courts jurisdiction as they prefer the expediency and finality offered by arbitration. We are bound to respect the said change brought about by the legislature and cannot dogmatically review the awards on the grounds of challenge which have been intentionally taken away by the legislature.
13. It cannot also be lost sight of that non-conferring of finality on the arbitral awards not only affects the speed and expense of arbitration but also has a more subtle consequences of, extensive judicial review changing the nature of the arbitral process to an even greater extent. If arbitration becomes simply another level of decision making, subject to judicial review on merits, arbitrators may begin to decide cases and write opinions in such a way as to insulate their awards against judicial reversal producing opinions that parrot the appropriate statutory standards in conclusory Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.23 terms, but suffer from a lack of reasoned analysis. Such a shift from the arbitral model, in which decision makers are free to focus solely on the case before them rather than on the case as it might appear to an Appellate Court, to the administrative model, in which decision makers are often concerned primarily with building a record for review, in our opinion would substantially undercut the ability of arbitrators to successfully resolve disputes. The Courts therefore have no business weighing the merits of the grievance, considering whether there is equity in a particular claim, or determining whether there is particular language in the written instrument which will support the claim. The agreement is to submit all grievances to arbitration, not merely those which the Court will deem meritorious. The Courts if start undertaking to determine the merits of the grievance, would be usurping the function which under that Arbitration Act, 1996 is entrusted to the Arbitration Tribunal. This plenary review by the Courts of the merits would make meaningless the provisions that the arbitral award is final, for in reality it would almost never be final. We though may admit that sieving out the genuine challenges from those which are effectively appeals on merits is not easy.
14. Arbitration will not survive, much less flourish, if this core precept is not followed through by the Courts. The integrity and efficacy of arbitration as a parallel dispute resolution system will be subverted if the Courts appear unable or unwilling to restrain themselves from entering into the merits of every arbitral decision that comes before it. The power to intervene must and should only be exercised charily, within the framework of the Arbitration Act. Minimal curial intervention is underpinned by need to recognise the autonomy of the arbitral process by encouraging finality, so that its advantage as an efficient alternative dispute resolution process is not undermined. The parties having opted for arbitration, must be taken to have acknowledged and accepted the attendant risks of having only a very limited right of recourse to the Courts. It would be neither appropriate nor consonant for the Court to lend assistance to a dissatisfied party by exercising appellate function over arbitral awards, save to the extent statutorily permitted.
Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.24
15. As it would be obvious from the above, the contention aforesaid of the counsel for the appellant does not constitute a challenge to the arbitral award on the grounds permitted and as discussed hereinabove. It is not the case of the appellant that the arbitral award is vitiated, for us to go into the merits of the challenge."
(Emphasis supplied by me)
18. The Hon'ble High Court has in a subsequent judgment in National Highways Authority of India v. Oriental Structural Engineers Pvt. Ltd., 2015 SCC OnLine Del 6524 relied upon the judgments in Delhi Development Authority v. Bhardwaj Brothers (supra) and State Trading Corporation of India Ltd. v. Toepfer International Asia Pte Ltd. (supra). After referring to the said judgments in paragraph 9 of the judgment, the Hon'ble High Court proceeded to observe as follows:
"10. I have enquired from the senior counsel for the petitioner whether not at least this Court would be bound by the judgment aforesaid of the Division Bench and as per which the grounds urged by the petitioner for setting aside of the Arbitral Award are not within the ambit of Section 34(2) of the Arbitration Act.
11. The senior counsel for the petitioner has not shown any judgment to the contrary.
12. I may add, an indication of what the legislature, while re-enacting the arbitration law, meant by including the ground, of the arbitral award being in conflict with public policy of India, for setting aside of arbitral awards can be had from the Explanation to Section 34(2) which declares that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81. Sections 75 as well as 81 are contained in Part III titled 'Conciliation'. Section 75 requires the parties and the conciliator to keep confidential all matters relating to Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.25 conciliation proceedings and the settlement agreement. Section 81 provides that the parties shall not rely on or introduce as evidence in arbitral or judicial proceedings, views expressed or suggestions made by the other party in respect of a possible settlement of the dispute, the admissions made by the other party in course of the conciliation proceedings, the proposals made by the conciliator, the fact that the other party had indicated his willingness to accept a proposal for settlement made by the conciliator. Thus, if the arbitral award is based on what had transpired in the conciliation proceedings which ultimately failed and not on adjudication by the Arbitral Tribunal, it would be deemed to be in conflict with the public policy of India. Though the explanation to Section 34(2) containing the ground of the arbitral award being in conflict with the public policy of India is prefaced with "without prejudice to the generality of Section 34(2)(b)(ii)" but the declaration therein of the award being in conflict with the public policy of India if the making of the award was induced by fraud or corruption or was in violation of Sections 75 or 81, in my humble view is suggestive of the expression "the public policy of India"
being required to be read as meaning grounds ejusdem generis with the grounds of fraud or corruption or the award being based on material exchanged in conciliation which ultimately failed. In my view, the same cannot be read as referring to public policy of India qua adjudication of disputes in Courts, where error of law or fact is a ground for interference by higher Court. If the intent was to make the award liable to be set aside if contrary to the substantive law applicable to the decision thereof the legislature would have provided so. Even under the 1940 Act, neither the error of law nor of fact in the arbitral award was a ground for setting aside thereof. The preamble to the re-enacted Act states the purpose of the re-enactment to make our domestic law relating to arbitration in consonance with the United Nations Commission on International Trade Law (UNCITRAL) Model Law and the grounds of interference with the arbitral award under the same were/are much narrower than the grounds of interference under the 1940 Act. If the words "in conflict with the public policy of India" are to be read as permitting interference with the arbitral award whenever the same is Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.26 found to be contrary to the substantive law applicable to the merits of the dispute, the same in my view would be in violation of the preamble to the re-enacted law.
13. I may however notice Oil and Natural Gas Corporation Ltd. v. Western GECO International Ltd. (2014) 9 SCC 263 where also it was held : -
"35. What then would constitute the 'Fundamental policy of Indian Law' is the question. The decision in Saw Pipes Ltd. (supra) does not elaborate that aspect. Even so, the expression must, in our opinion, include all such fundamental principles as providing a basis for administration of justice and enforcement of law in this country. Without meaning to exhaustively enumerate the purport of the expression "Fundamental Policy of Indian Law", we may refer to three distinct and fundamental juristic principles that must necessarily be understood as a part and parcel of the Fundamental Policy of Indian law. The first and foremost is the principle that in every determination whether by a Court or other authority that affects the rights of a citizen or leads to any civil consequences, the Court or authority concerned is bound to adopt what is in legal parlance called a 'judicial approach' in the matter. The duty to adopt a judicial approach arises from the very nature of the power exercised by the Court or the authority does not have to be separately or additionally enjoined upon the fora concerned. What must be remembered is that the importance of Judicial approach in judicial and quasi judicial determination lies in the fact so long as the Court, Tribunal or the authority exercising powers that affect the rights or obligations of the parties before them shows fidelity to judicial approach, they cannot act in an arbitrary, capricious or whimsical manner. Judicial approach ensures that the authority acts bonafide and deals with the subject in a fair, reasonable and objective manner and that its decision is not actuated by any extraneous consideration. Judicial approach in that sense acts as a check against flaws and faults that can render the Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.27 decision of a Court, Tribunal or Authority vulnerable to challenge.
36. In Ridge v. Baldwin [1963 2 All ER 66], the House of Lords was considering the question whether a Watch Committee in exercising its authority Under Section 191 of the Municipal Corporations Act, 1882 was required to act judicially. The majority decision was that it had to act judicially and since the order of dismissal was passed without furnishing to the Appellant a specific charge, it was a nullity. Dealing with the Appellant's contention that the Watch Committee had to act judicially, Lord Reid relied upon the following observations made by Atkin L.J. in [1924] 1 KB at pp. 206, 207:
Wherever anybody of persons having legal authority to determine questions affecting the rights of subjects, and having the duty to act judicially, act in excess of their legal authority, they are subject to the controlling jurisdiction of the King's Bench Division exercised in these writs.
37. The view taken by Lord Reid was relied upon by a Constitution Bench of this Court in A.C. Co. Ltd. v. P.N. Sharma AIR 1965 SC 1595 where Gajendragadkar, C.J. speaking for the Court observed:
In other words, according to Lord Reid's judgment, the necessity to follow judicial procedure and observe the principles of natural justice, flows from the nature of the decision which the watch committee had been authorised to reach Under Section 191(4). It would thus be seen that the area where the principles of natural justice have to be followed and judicial approach has to be adopted, has become wider and consequently, the horizon of writ jurisdiction has been extended in a corresponding measure.
In dealing with questions as to whether any impugned orders could be revised Under Article 226 of our Constitution, the test prescribed by Lord Reid in this judgment may afford considerable assistance.
Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.28
38. Equally important and indeed fundamental to the policy of Indian law is the principle that a Court and so also a quasi-judicial authority must, while determining the rights and obligations of parties before it, do so in accordance with the principles of natural justice.
Besides the celebrated 'audi alteram partem' rule one of the facets of the principles of natural justice is that the Court/authority deciding the matter must apply its mind to the attendant facts and circumstances while taking a view one way or the other. Non-application of mind is a defect that is fatal to any adjudication. Application of mind is best demonstrated by disclosure of the mind and disclosure of mind is best done by recording reasons in support of the decision which the Court or authority is taking. The requirement that an adjudicatory authority must apply its mind is, in that view, so deeply embedded in our jurisprudence that it can be described as a fundamental policy of Indian Law.
39. No less important is the principle now recognised as a salutary juristic fundamental in administrative law that a decision which is perverse or so irrational that no reasonable person would have arrived at the same will not be sustained in a Court of law. Perversity or irrationality of decisions is tested on the touchstone of Wednesbury's principle of reasonableness. Decisions that fall short of the standards of reasonableness are open to challenge in a Court of law often in writ jurisdiction of the Superior courts but no less in statutory processes where ever the same are available.
40. It is neither necessary nor proper for us to attempt an exhaustive enumeration of what would constitute the fundamental policy of Indian law nor is it possible to place the expression in the straitjacket of a definition. What is important in the context of the case at hand is that if on facts proved before them the arbitrators fail to draw an inference which ought to have been drawn or if they have drawn an inference which is on the face of it, untenable resulting in miscarriage of justice, the adjudication even when made by an arbitral tribunal Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.29 that enjoys considerable latitude and play at the joints in making awards will be open to challenge and may be cast away or modified depending upon whether the offending part is or is not severable from the rest."
14. I have considered the challenge aforesaid to the arbitral award on the anvil of the above latest adjudication also. No ground, of the Arbitral Tribunal in the instant case having not adopted a judicial approach or having acted in violation of the principles of natural justice has been urged. It is also not the case that the Arbitral Tribunal has not acted bona fide or not dealt with the subject in a fair, reasonable and objective manner or that the decision of the Arbitral Tribunal was actuated by any extraneous consideration. Non application of mind by the Arbitral Tribunal is also not pleaded or argued. No case of perversity or irrationality has also been made out. The entire challenge is on the ground of the findings of the Arbitral Tribunal being factually erroneous and which is not a ground even as per the judgment (supra) of the Supreme Court. Of course, the Supreme Court in para 40 of the judgment has held that if the Arbitral Tribunal, from the facts proved before it fails, to draw an inference which ought to have been drawn or draws the inference which on the face of it is untenable, the arbitral award would be in conflict with public policy of India and the test of "fails to draw inference which ought to have been drawn or draws an inference which is untenable" is very wide but the said test is qualified with the words "resulting in miscarriage of justice". I am unable to read the judgment of the Supreme Court as opening the doors of challenge to an Arbitral Award by a detailed examination of all the facts and material before the Arbitral Tribunal and to determination of whether the inferences drawn and the consequences reached by the Arbitral Tribunal therefrom are correct or not and whether the Court agrees with the same or not. If the same were to be permitted, it would do away with the difference between the Court exercising appellate power and power of judicial review of Arbitral Award under Section 34 of the Act and would be against the several other judgments of the Supreme Court and which, in the judgment (supra) were neither considered nor differed from. The judgment (supra) of the Supreme Court, cannot be read in isolation, forgetting all Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.30 other judgments of the Supreme Court and none of which have been overruled.
15. The expression "miscarriage of justice", used by the Supreme Court in the judgment (supra) as qualifying the test laid down in para 40 thereof of the validity of the Arbitral Award, is an expression well recognized in law and generally associated with grossly unfair outcome in a judicial proceeding as when a defendant is convicted despite a lack of evidence on an essential element of a crime (per Black's Law Dictionary, Eight Edition). The Supreme Court in Union of India v. Ibrahim Uddin (2012) 8 SCC 148 cited with approval Bibhabati Devi v. Ramendra Narayan Roy AIR 1947 PC 19 holding that miscarriage of justice means such a departure from the rules which permeate all judicial procedure as to make that which happen not in the proper sense of the word 'judicial procedure' at all.
16. Thus, it is not every inference drawn or not drawn by the Arbitral Tribunal from the material before it and which the Court finds to have been wrongly drawn or not drawn, which could be held to be resulting in miscarriage of justice. Such inference/failure to interfere by the Arbitral Tribunal, even if in the opinion of the Court wrong, would permit interference under Section 34 of the Arbitration Act only if it results in a grossly unfair outcome.
17. There is another aspect of the matter. A detailed inquiry into the correctness of the inference drawn/not drawn by the Arbitral Tribunal would require the Court not only to go through and dissect the arbitral record which is often voluminous in cases as the present but to also give an opportunity to the parties/their counsels to address on the inferences drawn/not drawn by the Arbitral Tribunal and to only thereafter form an opinion. The same would again make a proceeding under Section 34 of the Arbitration Act and hearing thereof akin to an appeal from original decrees of the Court and would be an antithesis to the very concept of judicial review of arbitral award, even if the Court at the end of such a marathon hearing were to conclude that there has been no miscarriage of justice. It is thus for the contracting party challenging the Arbitral Tribunal to, in the memorandum of challenge itself, make out a case of Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.31 miscarriage of justice within the parameters aforesaid. No such case has been made out in the petition in the present case. Without any such case having been made out in the memorandum of petition, this Court would not embark upon an exercise of requisitioning the arbitral record and giving an opportunity to the parties/their counsels to address on the correctness of the inference drawn/not drawn by the Arbitral Tribunal and on the aspect of whether there has been a miscarriage of justice.
18. Mention may also be made of another recent dicta in Associate Builders v. DDA where on conspectus of plethora of cases including Western GECO International Ltd. supra, the judgment of the Single Judge of this High Court dismissing the petition under Section 34 of the Arbitration Act was restored and the judgment of the Division Bench in appeal thereagainst interfering with the award was set aside holding that the Division Bench exceeded its jurisdiction in interfering with the pure finding of facts forgetting that the arbitrator is the sole Judge of the quantity and quality of evidence before him and that the Division Bench has no business to enter into the pure question of fact to set aside the award. It was further held that the same cannot be done by any Court under jurisdiction exercised under Section 34 of the Act. The Supreme Court further held that the expression 'justice' when it comes to setting aside an award under the public policy ground can only mean that the award shocks the conscience of the Court and that it cannot possibly include what the Court thinks is unjust on the facts of a case for which the Court then seeks to substitute its own view for the arbitrator's view and does what it considers to be 'justice'. The Supreme Court observed that the Division Bench had lost sight of the fact that it is not a first Appellate Court and cannot interfere with errors of fact. The Supreme Court held that if the arbitrators have decided the dispute with a sound head and a good heart and after hearing both sides, the Courts should not interfere with their award, even if the Court disagrees with the reasons assigned by the arbitrator.
19. It is not the case of the petitioners that the arbitrators in the present case have not decided with a sound head and a good heart.
Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.32
20. I therefore do not find any case for entertaining the challenge to the Arbitral Award by way of this petition and dismiss the same."
(Emphasis supplied by me)
19. The aforesaid principles would have to be kept in mind in exercising jurisdiction u/s. 34 A&C Act in a challenge to the arbitral award.
20. In the present case, as per the arbitration agreement between the parties, in the event of any disputes the same were to be referred to the sole arbitration of the Sr. DDG, TEC, New Delhi or some other person appointed by the Sr. DDG, TEC. It was further agreed between the parties that there would be no objection to the appointment on the ground that the arbitrator was a TEC servant i.e. an employee of TEC or that he had dealt with the matter to which the agreement related or that in the course of his duties as TEC officer he had expressed views on all or any of the matter under dispute. Further, it was agreed between the parties that the award of the arbitrator shall be final and binding on the parties to the agreement. It would be appropriate to extract the arbitration clause between the parties as under:
"17.0 Arbitration:
17.1 In the event of any dispute or difference arising as to the execution of the contract or as to the respective rights of liabilities of the parties or the interpretation of any condition of agreement (except as to any matters the decision of which is specially provided for any by those or the special conditions) the same shall be referred to the sole arbitration of Sr. DDG (TEC) New Delhi or of his nominee. The award of the arbitrator shall be final and binding on the parties on the agreement.
Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.33 17.2 No person other than the Sr. DDG (TEC) or the person appointed by him as aforesaid shall act as arbitrator and if for any reason, that is not possible, the matter is not to be referred to arbitration at all.
17.3 The arbitrator may from time to time with the consent of the parties to the agreement enlarge the time for making the award.
17.4 Upon every such reference, the assessment of the cost incidental to the reference and award respectively shall be the discretion of the arbitrator.
17.5 The agreement to appoint an arbitrator will be in accordance with the Arbitration and Conciliation Act, 1996.
17.6 In the event of such arbitrator to whom the matter is originally referred, being transferred or vacating his office or being unable to act for any reasons whatsoever another person shall be appointed to act as arbitrator by Sr. DDG (TEC) in accordance with terms of agreement and person so appointed shall be entitled to proceed from the stage at which it was left out by his predecessors.
17.7 The venue of arbitration shall be the place from which the acceptance note is issued or such other places, as the Sr. DDG (TEC) at his discretion may determine. In this clause, the terms Advisor (I) incuses any other officer who is for the time being the Administrative Head of the organization, whether in addition to other functions or otherwise."
(Emphasis supplied by me)
21. This clearly shows that the parties had agreed that a senior officer of TEC i.e. the petitioner herein would be the sole arbitrator in the case and his award would be final and binding on the parties. It appears that the parties considered that a senior officer of the TEC would have been a fit person to be the sole arbitrator as he/she would have been regularly dealing with contracts of similar nature and would Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.34 have been conversant with such contracts and the working thereof, as well as would have been the best person to understand the nuances of such contracts and the practical aspects thereof. In the present case, the learned sole arbitrator is an officer of TEC, being Mr. Saurabh Gupta, DDG (Training), Department of Telecommunications, Government of India, who has been appointed by the Sr. DDG, TEC vide letter dated 25/10/2016. The Ld. sole arbitrator being a senior officer of the TEC would have had the proper expertise and experience with such contracts and would have been aware of the practical workings of such contracts. This Court would not substitute the view of the Ld. Sole Arbitrator who has expertise in the field, unless there was some perversity in the award. In arbitration cases, the parties voluntarily agree to appoint persons as arbitrators who may not have a legal background but would be professionals having expertise in a particular field, such as in the present case an officer of the TEC has been appointed to adjudicate the disputes. Such an officer of the TEC would have encountered numerous contracts of similar nature and would be aware of the practice of interpretation of such contracts and the practical realities governing such contracts. This Court would be loath to interfere with the award of an arbitrator who has special expertise, unless there is something really perverse in the award.
22. Now, coming to the impugned award, I find that the ld. sole arbitrator has considered the contentions of both the parties and the evidence on record, and has duly applied his mind to the matter in arriving at his findings. The ld. sole arbitrator has recorded the contentions of the claimant in paragraphs 1.0 to 1.4.2 of the arbitral Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.35 award. The ld. sole arbitrator has recorded the contentions of TEC in paragraphs 2.0 to 2.14 of the award. The ld. sole arbitrator has recorded his findings in paragraphs 3.0 to 3.8 of the impugned award. It would be appropriate to reproduce the same hereunder:
"3.0 After going through the claim document, counter reply, rejoinder and the arguments presented by the claimant and the respondent, I draw the following conclusions:
3.1 I find that claimant has successfully supplied the equipment, installed the equipment and made the SAR lab operational. The lab was provisionally commissioned on 15/01/2013 and has been working satisfactorily since then.
The lab was continuously in use by the respondents and being used for all purposes and various devices were also being tested as and when the requests were received.
The arguments of the respondent that the Satisfactory Operation Certificate was denied due to non-offering of SAR tests for 2450 Mhz relating to Wi-Fi and Bluetooth features of Mobile handset, non-provisioning of system validation kit D2450V2 during acceptance test and non-offering of data and, simultaneous voice+data during validation do not stand as these deficiencies were not were communicated to the claimant during trial period of six months from the date of provisionally commissioning of 1ab. Further, from the tender document, I also found that these pending tests were not mentioned in the approved test plan which had been approved by the respondent themselves.
I find from the documents that the intention of the respondent while designing the tender document was to Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.36 complete the work in time in the best manner and to release the payment in phased manner on completion of different stages of the work and is evident from the payment terms under clause 8 of section-Ill of the tender. But, the respondent's mention of clause 17 of section-IV and placement of argument that SAR measurement was a complex procedure and the lab being first of its kind, the supplier was liable to supply anything required for completion of the project free of cost even though not mentioned in the agreed SOR does not stand to reason. I feel that once the SOR is finalized, both the parties are bound by that and the purchaser has no right to force the supplier for supplying any additional item beyond the scope of SOR. Arguing by mentioning this clause displays respondent attitude to make claimant responsible for everything even for supplying the material not mentioned in SoR and making the escape for themselves from their responsibility and accountability towards the completion of the works mentioned in the tender. But, the fact remains that both the parties are bound to follow the finalized SOR of the tender duly vetted and agreed by both of them at the time of placing the purchase order on the claimant.
I also find that the respondent has notified the commissioning of SAR lab through press release, different media as well as its own website and has opened it for testing the mobile handsets for testing the devices on request. Making the lab operational and opening it for all business one side while withholding the payment towards the installation of the Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.37 same lab on the other side does not seem to be justified. In my considered opinion, when the claimant has made the lab operational and has been maintaining it through the entire period since then, withholding the Satisfactory Operation Certificate is not justified and it must have been issued on due date and the due 20% balance payments to the claimant should have been made as per the terms and conditions of the tender.
3.2 The respondent has already accepted the reimbursement of excess payment of VAT to the claimant which had to be made due to non-issuance of Form C. While 80% of excess VAT amount has already been reimbursed, the balance 20% of excess VAT would be paid along with the balance payment. As the excess VAT amount had to be paid by the claimant due to the non-issuance of Form-C by the respondent and also die reimbursement of this excess VAT amount was delayed by the respondents, I feel that the claimant deserves to be compensated for the interest amount for the period of delay on the excess money which the claimant had to bear during the period.
3.3 The Performance Bank Guarantee (PBG) is governed by the clause 4 of the section-III of tender terms and conditions and to be released after sixty days of the performance obligations including warranty obligations. I am convinced with the arguments of respondent that as the tender proceedings were under way and had not reached its completion and warranty was also not completed, so to Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.38 release the PBG at that stage would have been in violation of tender conditions. While, extension of PBG by the claimant shows the integrity of the claimant but it also shows the claimants acceptance of the terms and condition of the contract and willingness towards continuance of the contract as well. If this would not have been the fact, the claimant would not have extended the PBG. I feel the claimant demand for release of PBG and the reimbursement of extra expense due to its extension is not Justified.
3.4 I find that the committee formed for conducting the tests for acceptance/validation/customization of lab carried out all the tests of approved test schedule and found the equipment to meet all the tests and recommended the provisional commissioning of the lab on 15/0l/2013. I find that the facts; committee's recommendations of provisionally commissioning of lab on 15/01/2013 while mentioning the deficiencies as minor and non-mention of deficiencies neither in SoR nor in the test schedule are sufficient to consider the equipment having passed the validation test as envisaged in the tender on 15/01/2013.
I find that clause 14.4 of section-IV defines the trial period of six months from the date of successful Validation and accordingly 15/0l/2013 would be taken as the start of trial period in the instant case. The respondent claim about telephonic intimation of discrepancies to the claimant could not be understood and also could not be substantiated by the respondent in absence of any supporting evidences. I further find that the so called discrepancies which the respondents Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.39 say were communicated to claimant telephonically, were not in the scope of work and also were communicated to the claimant after expiry of trial period of six month. As no deficiencies were communicated to the claimant during the trial period of six months and respondent was not able to produce any evidence in their support, the claimant's claim of successful completion of trial of six months on 15/07/2013 is justified.
3.5 The clause 14.4 of section-IV of the tender documents mentions that the system would be defined as commissioned after validation and satisfactory operation during the trial period. I am convinced that the trial period of six months is considered to be completed on 15/07/2013 after validation and the lab should be considered as commissioned on 15/07/2013.
3.6 I scrutinized the supporting documents and evidences submitted by the claimant and found that the lab was operating with no fault through the period from date of validation to till date. The letter issued by the respondent obtained by claimant through RTI, was also taken to my notice where it has been agreed and accepted that the lab is under use by respondents for all purposes and is being used for testing the devices for measuring the SAR values.
The clause 15 of section IV of tender defines that the one year warranty of the equipment starts from the date of commissioning of the equipment but in the instant case the date of commissioning could not be finalized and so the date Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.40 of warranty also could not be decided due to dispute between the parties. Now the date of commissioning has been concluded and the claimant has been maintaining the lab through the period till date and is under continuous use by the respondent, I agree that the equipment be treated under warranty starting from the date of commissioning i.e. 15/07/2013.
3.7 As the system is operational and the date of commissioning has been concluded as 15/07/2013 and treating the lab under warranty during the period thereafter till date, the system in accordance with clause 15 of section- IV of the tender documents has become due for Annual Maintenance Contract. The system is now in working condition and is being maintained by the claimant since this entire period, I feel that as per the clause 15 of section-IV of the tender the system qualifies to be put under AMC.
3 .8 The lab was provisionally commissioned on 15.01.2013 and since then it has been working satisfactorily. The lab was continuously being used for all purposes and hence not suffered any loss/damages. Also, the sufficient amount in the form of PBG was available with the respondent as a surety against the performance of the equipment. I find no merit in the claim of respondent for losses/damages and the respondents claim for an amount of Rupees two lacs (Rs 02 lacs) as damages is not justified."
(Emphasis supplied by me) Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.41
23. I have considered the findings of the ld. arbitrator in the impugned award. The ld. arbitrator has considered the submissions of both the parties and the evidence on record and has come to a finding of fact that the claimant had successfully supplied the equipment, installed the equipment and made the SAR lab operational.
24. I have also perused the arbitral record. A committee had been constituted by TEC vide order dated 27/11/2012 to conduct tests on the SAR lab equipment. The test report of the committee dated 15/01/2013 observed as under:
"Test Summary:
Test offered for measurement of DASY52 system for SAR values for CDMA 800 MHz, GSM 900 MHz and 1800 MHz and UMTS 2100 MHz bands have been found satisfactory. Tests on testing instruments and accessories have also been found satisfactory. The committee recommends for provisional commissioning of the SAR lab w.e.f. from 16-01- 2013.
Major Deficiencies:
----NIL---
Minor Deficiencies:
The SAR Lab equipment were procured for SAR measurement in the frequency range 300 MHz to 3 GHz. Clause 2(a) of Schedule of Requirement provides for Testing & measuring equipments/instruments with accessories for calibration of E Field and Dielectric Probe and Software, adopted positioning system, user manual, wave guides etc. and Dielectric Probe Kit (300MHz - 3GHz)(incl. software, dielectric probe, cables, connectors, user manual etc. SAR tests for 2450 MHz relating to Wi-Fi and Bluetooth features of mobile phones were not offered by the supplier for want of non-provisioning of Probe Calibration and non- availability of system validation kit D2450V2 required for Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.42 making the DASY system compatible with SAR Testing in 2450 MHz band. Following items are required in this regard:
i) Probe Calibration- ConvF- For Head 2450 HHz and Probe Modulation response PMR factors for Wi-Fi signals.
ii) System validation kit D2450V2 calibrated for Head tissue at 2450 MHz Wi-Fi and Bluetooh features are essential and inseparable part of standard mobile phones available in the market."
(Emphasis supplied by me)
25. The Conclusion of the Test Plan and Acceptance/Validation/Customization Document is as follows:
"Conclusion The Acceptance/Validation/Customization of the SAR Test Laboratory at TEC Khurshid Lal Bhavan has been successfully completed in respect of the following activities:
1. Verification and Testing of specifications of Test Equipment (R&S, Agilent & Misc.)
2. Verification and Testing of SPEAG Equipment
3. Verification of Calibration Certificates
4. Comparison with OEM Test Result
5. Verification and Testing of E Field Calibration Kit"
(Emphasis supplied by me)
26. Thus, the final acceptance testing of the SAR lab system had been completed on 15/01/2013. I find that the ld. arbitrator has correctly observed that 15/01/2013 would be taken as the start date of trial period of six months under Clause 14.4 of Section IV of tender document.
27. It was the case of TEC before the ld. arbitrator that the Satisfactory Operation Certificate was denied due to: i) non-offering of SAR tests for 2450 Mhz relating to Wi-Fi and Bluetooth features of Mobile handset, and non-provisioning of system validation kit Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.43 D2450V2 during acceptance test, and ii) non-offering of data and simultaneous voice + data during validation. The ld. arbitrator has found that these deficiencies were not communicated to the claimant during the trial period of six months, but were communicated after expiry of the said period. The ld. arbitrator has further found that the respondent's claim about telephonic intimation of discrepancies to the claimant was not substantiated by any supporting evidence. Thus, the ld. arbitrator has come to a finding of fact that TEC had not communicated any discrepancies to the claimant during the trial period of six months.
28. The ld. arbitrator has also observed that these deficiencies were also not in the scope of work under the contract. The ld. arbitrator has observed that in the tender document, the deficiencies claimed by TEC were not mentioned in the approved test plan which had been approved by TEC or in the Schedule of Requirements (SOR). The ld. arbitrator has observed that once the SOR had been finalized, both parties were bound by the same and TEC had no right to force the claimant to supply any additional items beyond the scope of the SOR. The ld. arbitrator has rejected the argument of TEC that the claimant was liable to supply anything required for completion of the project free of cost even though not mentioned in the agreed SOR. The ld. arbitrator has found that the committee formed for conducting the tests for acceptance/validation of the lab had carried out all the tests as per the approved test schedule and found the equipment to meet all the tests and recommended provisional commissioning of the lab on 15/01/2013. The ld. arbitrator has further found that the committee had recommended provisional Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.44 commissioning and had found only minor deficiencies. The ld. arbitrator has further found that even the minor deficiencies were neither in the SOR nor in the test schedule. On this basis, the ld. arbitrator has held that it would be considered that the equipment had passed the validation test as envisaged in the tender on 15/01/2013.
29. The argument of TEC before the ld. arbitrator was primarily based on Clause 17.0 of the Section IV, which provides as under:
"17.0 Complete System These specifications in the document are not a definite design. The intention of this specification is basically to specify the main features required for the system. The bidder is required to provide complete details of additional facilities/optional facilities available in the offered solution even though they are not covered by these specifications. The list of hardware and software indicated in the Tender Document is indicative only. Any additional component required to complete the project as per scope defined in section IV shall have to be supplied free of costs."
30. It was the case of TEC that the specifications in the document were not a definite design and the list of items mentioned in the tender documents was indicative only and the claimant was liable to supply any additional components free of cost under Clause 17. The ld. arbitrator has however rejected this argument of TEC. The ld. arbitrator has observed that when the Schedule of Requirements (SOR) was already agreed between the parties, then TEC could not insist of additional items beyond the scope of the SOR. It was further observed that even the approved test plan did not mention the tests in respect of which the discrepancies were claimed. I find that all this was a question of fact and of interpretation of the contract Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.45 which was within the jurisdiction of the ld. arbitrator. The interpretation of the ld. arbitrator is a plausible one and even if a different view was possible that would be no ground to interfere with the award under section 34 A&C Act. Further, I find that once the ld. arbitrator has come to a finding that the deficiencies claimed by TEC were not within the scope of work under the tender then TEC cannot take advantage of Clause 17. Clause 17 only obligated the claimant to provide any additional component required to complete the project as per the scope of the tender. As already mentioned, the ld. arbitrator has found that the deficiencies claimed by TEC did not find place in the SOR or the approved test plan. The ld. counsel for the TEC has also been unable to show that the deficiencies claimed by the TEC were within the scope of works under the tender. The findings of the ld. arbitrator were well within his jurisdiction and I find no error of jurisdiction committed by the ld. arbitrator.
31. The ld. arbitrator has also found that TEC had notified the commissioning of the SAR lab through press release, different media as well as on its own website and had opened it for testing mobile handsets. The ld. arbitrator has also found on the basis of the documents and evidence on the record that the lab was operating with no fault through the relevant period. In this regard, the ld. arbitrator has relied upon the letter issued by TEC to the claimant through RTI wherein it was accepted by TEC that the lab was under
use by TEC for all purposes and was being used for testing the devices for measuring the SAR values. In these facts and circumstances, it was observed by the ld. arbitrator that when the Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.46 claimant had made the lab operational then withholding the Satisfactory Operation Certificate and the balance payments was unjustified. I find that the findings of the ld. Arbitrator were well within his jurisdiction and there is no perversity or patent illegality in his findings.
32. The ld. arbitrator has found that the trial period of six months would be considered to have been completed on 15/07/2013 and the lab should be considered as commissioned on 15/07/2013. I find that this is a plausible and reasonable conclusion drawn by the ld. arbitrator on the basis of his findings. The ld. arbitrator has awarded the award amounts to the claimant consequential to considering 15/07/2013 as the date of commissioning.
33. I would again emphasise that the ld. sole arbitrator was an officer of the TEC and parties had agreed to the arbitration before him. The parties had agreed that the award passed by the arbitrator would be final and binding. The impugned award of the ld. arbitrator is based on findings of fact and on the basis of interpretation of the contract, both of which were within the jurisdiction of the ld. arbitrator. The ld. arbitrator was an officer of TEC and would have been conversant with the workings and nature of such contracts. The ld. arbitrator would also have been conversant with the practical aspects of working of contracts for supply, installation, testing and commissioning which TEC entered into with private contractors. Once the ld. arbitrator being an expert in the field has interpreted the contract in a particular way, this Court would not interfere with the same in exercise of powers under Section 34 A&C Act. I would hold that the findings of the ld. arbitrator were within his jurisdiction and Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.47 there is no error of jurisdiction in passing the award. I also find no perversity in the award, in the sense of shocking the conscience of the Court, which could lead to any interference with the award. The grounds of objection raised by TEC seek to essentially revisit the merits of the dispute, which is impermissible in an objection u/s. 34 A&C Act.
34. In the result, the present petition u/s. 34 A&C Act is dismissed.
Parties to bear own costs.
File be consigned to record room.
Judgment pronounced in open Court.
(SATYABRATA PANDA) Additional District Judge-04 Judge Code- DL01057 PHC/New Delhi/11.04.2023 Arbtn no.324/2018 Union of India vs. M/s B.N.N Communication Engineers page no.48