Delhi District Court
M/S H.S Oberoi Buildtech Private ... vs Union Of India on 4 March, 2025
IN THE COURT OF GORAKH NATH PANDEY
DISTRICT JUDGE (COMMERCIAL COURT-08),
CENTRAL DISTRICT, TIS HAZARI COURTS: DELHI.
OMP (COMM.) 75/2021
CNR NO.DLCT01-013762-2021
M/S. H. S. OBEROI BUILDTECH PVT. LTD.,
B-11/9, DLF PHASE -V, SECTOR - 54,
GURGRAM HARYANA
THROUGH ITS DIRECTOR MR. H. S. OBEROI.
.....PETITIONER
VS.
UNION OF INDIA
(EARLIER IMPLEADED AS ORGANIZING
COMMITTEE COMMON WEALTH GAMES
2010)
THROUGH THE SECRETARY DEPARTMENT OF SPORTS
MINISTRY OF YOUTH AFFAIRS AND SPORTS
SHASTRI BHAWAN, NEW DELHI.
....RESPONDENT
Date of Institution : 23.10.2021
Date of final arguments : 03.02.2025
Date of decision : 04.03.2025
Decision : Allowed.
J U D G E M E N T:-
1. Vide this judgment, I shall decide the present petition under Section 34 of the Arbitration & Conciliation Act, 1996 filed by petitioner for challenging the impugned award dated 05.03.2019 in case titled as "Union of India Vs. M/s. H. S. Oberoi Building Pvt. Ltd." (hereinafter called as impugned award) whereby Ld. Arbitrator has passed the following award:
OMP (COMM.) 75/2021 Page no.1/25 M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA
(i) Rs.13,70,440/- towards DVAT which was deposited on behalf of the respondent.
(ii) Rs.27,40,880/- towards penalty calculated @ 4% p.a. on the total payment of Rs.6,85,22,008/- received by the respondent.
(iii) Rs.30,83,490/- towards interest calculated @ 15% p.a.
(iv) Pendentelite and future interest @ 10% per annum from the date of filing of the claim i.e. 08.07.13 till the payment.
(v) Rs.2 lacs towards cost of arbitral proceedings and the lawyers fee.
2. The brief facts as stated in the petition are as below:
Vide letter of acceptance dated 02.09.2018 of the respondent, the respondent was awarded work of carrying out interiors at the office of 5th and 6th Floor, NDCC Phase-II, Building of NDMC, Opposite Jantar Mantar, Connaught Place, New Delhi for total amount of Rs.7,66,88,778/- to be completed within three months from the date of commencement which was 15th day from the date of letter (i.e. 17.09.2018). In furtherance of the letter of acceptance, an agreement dated 16.09.2018 was signed and executed between the parties.
On 20.06.2009, the petitioner informed the respondent to take the premises as the work was complete though the work could not be completed in stipulated time due to the reasons attributed to the respondent. The respondent took over the possession of the premises on 18.08.2009. The petitioner OMP (COMM.) 75/2021 Page no.2/25 M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA submitted the final bill of Rs.7,26,54,745/- for the work done by it. Against the said bill, the respondent made payment of Rs.6,85,22,008/- and withheld the remaining payment on frivolous grounds.
Vide letter dated 22.02.12, the respondent intimated regarding the notice under Section 59 of DVAT Act from Govt. of NCT of Delhi to the effect that TDS under DVAT has not been deducted in view of Section 36 of the Act and asked for the relevant documents from the petitioner. Vide letter dated 25.02.12, the petitioner requested the respondent to furnish the details of the notice. Vide letter dated 01.10.2012, the petitioner was asked to pay Rs.13,70,740/- towards DVAT; vide letter dated 14.12.12, the respondent invoked the arbitration clause and appointed Sole Arbitrator.
The respondent herein filed claim before the Ld. Arbitrator on 29.07.13 contending receipt of the letter/notice dated 29.11.12 from the DVAT Officer, Govt. of NCT of Delhi stating that the respondent has not deducted DVAT @ 2% or 4% from the payment to registered and unregistered dealers. The respondent further claimed that the notice was replied. Notice dated 28.02.12 was again receipt seeking explanation as to why DVAT was not deducted on the payment made. Vide order/notice dated 13.03.12, VATO held that the respondent failed to explain the reasons for not deducting the DVAT against the payment made to the contractor which was the statutory duty of the respondent, directed the respondent to pay the due amount. Upon filing of the OMP (COMM.) 75/2021 Page no.3/25 M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA objections by the respondent, the Commissioner vide order dated 13.03.12 modified the order dated 01.02.13. Rectified demand of Rs.84,02,079/- towards DVAT and penalty was raised and the respondent vide challan dated 25.03.2023 deposited Rs.44,37,214/- towards DVAT. The claimant prayed for following reliefs in the claim petition before the Ld. Arbitrator as under:
(1) Award an amount of Rs.13,70,440/- towards TDS calculated @ 2% on the total payment of Rs.6,85,22,008/- made to the respondent.
(2) Award an amount of Rs.27,40,880/- towards penalty calculated @ 4% on the total payment of Rs.6,85,22,008/- made to the respondent.
(3) Awards an interest of Rs.30,83,490/- calculated @ 15% on TDS plus penalty for the period of five years.
(4) Award pendentelite and future interest on the aforesaid amount.
(5) Award cost of proceedings. (6) Award any other relief.
The petitioner herein also filed reply to the claim petition filed by the respondent herein before the Ld. Arbitrator. Ld. Arbitrator passed the award dated 05.03.2019 in favour of the respondent. Hence the present petition.
OMP (COMM.) 75/2021 Page no.4/25 M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA
3. The impugned award is challenged by the petitioner on the grounds as mentioned below:
(i) Ld. Sole Arbitrator has passed the impugned award in a very mechanical manner without considering the facts and pleadings on record and ignoring the provisions of law;
(ii) Impugned award and entire arbitral proceedings are vitiated since there is violation of Section 12 of the Act and the appointment of Ld. Arbitrator is vitiated;
(iii) Impugned award is patently illegal and against the public policy of Indian Law as the same arbitrator has been appointed in arbitration by the same party i.e. Organising Committee of Commonwealth Games;
(iv) Award is in conflict with public policy of India and is patently illegal;
(v) Ld. Sole Arbitrator has failed to appreciate that the respondent has never complied with any of the conditions of the contract executed between the parties and violated the terms of the contract;
(vi) Ld. Arbitrator failed to appreciate that the claim of the respondent is against the provision of Order II Rule 2 CPC as the respondent has filed two claims arising out of the same very contract which is impermissible in law;
(vii) Ld. Arbitrator failed to appreciate that the terms of contract relied upon by the respondent is contrary to law i.e. DVAT Act and is void and not enforceable;
OMP (COMM.) 75/2021 Page no.5/25 M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA
(viii) Ld. Arbitrator erred in making the award and same is defeating the provision of law;
(ix) Ld. Arbitrator failed to appreciate the established principle of law that no one would pay the cost of act and negligence of other. In the present case, the respondent was liable to obtain TAN number and also liable to deduct the requisite amount of DVAT from the bills of contractor and deposit the same with the department and issue certificate thereof but the respondent failed to do so and shifted the burden of it on the petitioner.
In view of these circumstances, it is claimed that the award passed by the Ld. Arbitrator is not sustainable in the eyes of law and the same is liable to be set aside.
4. The respondent did not file reply to the petition.
5. I have heard the final arguments addressed by Ld. Counsel for both the sides and gone through the written submissions filed on their behalf. I have also gone through the arbitral records. Following judgments relied by the counsel for the petitioner in support of contentions as below:
(1) UOI Vs. Reliance Industries Ltd. & Ors., FAO (OS) (Comm.) 201/2023 decided on 14.02.2025 by Hon'ble High Court of Delhi.
(2) Organizing Committee Commonwealth Games, 2010 Vs. PICO Deepali Overlays Consortium and Anr, OMP (Comm) No. 30/2015 decided by Hon'ble Delhi High Court on 08.03.2016;
OMP (COMM.) 75/2021 Page no.6/25 M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA (3) State of Chhatisgarh Vs. M/s. Sal Udyog (P) Ltd. decided on 08.11.2021 by Hon'ble Supreme Court of India;
(4) Delhi Metro Rail Corporation Ltd. Vs. Simplex Infrastructure Ltd., 2011 VII AD Delhi 230;
(5) Sunil Kukreja Vs. North West Sales & Marketing Ltd., OMP (Comm) 456/2017 decided by Hon'ble Delhi High Court on 24.04.2018.
The Ld. Counsel for the respondent vehemently argued that the petition is liable to be dismissed and the award is entitled to be upheld being passed as per the facts of the case. The respondent in the written submissions relied upon the judgments as below in support of contentions:
(1) Puri Construction Pvt. Ltd. vs. UOI, AIR 1989 SC 777;
(2) Indu Engineering & Textiles Ltd. Vs. DDA, 2001 SLT 190;
(3) Allen Berry & Co. Pvt. Ltd. Vs. UOI, AIR 1971 SC 696;
(4) Associate Builders Vs. DDA, (2015) 3 SCC 49.
(5) Union of India Vs. Popular Construction Co., 2001 SCC 8
470.
6. Alongwith the petition, an application under Section 5 read with Section 14 of the Limitation Act was filed by the petitioner to condone the delay of 26 days in filing the petition. As contended, after the award was passed, it was challenged before the Competent Court at Patiala House Courts. The petition was OMP (COMM.) 75/2021 Page no.7/25 M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA returned on the ground of jurisdiction and again filed before this court. I have considered the records. The impugned dated 05.03.2019 was challenged before the Competent Court at Patiala House and it was returned to the petitioner vide order dated 17.09.21. There is no dispute that the award was challenged before the Competent Court at Patiala House, New Delhi within time. The petition was filed before this court on 18.10.2021. It is contended by the petitioner that it took time in getting the certified copy after the petition was returned on the ground of jurisdiction. The certified copy of the order is stamped dated 07.10.2021. In view of the sufficient reasons explained by the petitioner, the delay in filing the petition is condoned and the application is disposed off.
7. Section 34 of the Arbitration and Conciliation Act, 1996 deals with setting aside of an arbitral award. The scope and ambit of the jurisdiction under Section 34 was dealt and explained in detail by Hon'ble Apex Court in Delhi Airport Metro Express Pvt. Ltd. Vs. Delhi Metro Rail Corporation Ltd., (2022) 1 SCC 131 wherein it is held as under:
"20. The 1996 Act was enacted to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards and also to define the law relating to conciliation and for matters connected therewith, by taking into account the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration and the UNCITRAL Conciliation Rules. One of the principal objectives of the 1996 Act is to minimize the supervisory role of courts in the arbitral process. With respect to Part I of the 1996 Act, Section 5 imposes a bar on intervention OMP (COMM.) 75/2021 Page no.8/25 M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA by a judicial authority except where provided for, notwithstanding anything contained in any other law for the time being in force. An application for setting aside an arbitral award can only be made in accordance with provisions of Section 34 of the 1996 Act. Relevant provisions of Section 34 (as they were prior to the Arbitration and Conciliation (Amendment) Act, 2015) read as under:-
"34. Application for setting aside arbitral award.- (1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if -
(a) the party making the application furnishes proof that -
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or,failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part;or
(b) the Court finds that -
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or OMP (COMM.) 75/2021 Page no.9/25 M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA
(ii) the arbitral award is in conflict with the public policy of India.
Explanation.--Without prejudice to the generality of sub-clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81...."
22. A cumulative reading of the UNCITRAL Model Law and Rules, the legislative intent with which the 1996 Act is made, Section 5 and Section 34 of the 1996 Act would make it clear that judicial interference with the arbitral awards is limited to the grounds in Section 34. While deciding applications filed under Section 34 of the Act, courts are mandated to strictly act in accordance with and within the confines of Section 34, refraining from appreciation or re-appreciation of matters of fact as well as law. (See: Uttarakhand Purv Sainik Kalyan Nigam Limited. v. Northern Coal Field Limited. 2, Bhaven Construction Through Authorised Signatory Premjibhai K. Shah v. Executive Engineer Sardar Sarovar Narmada Nigam Ltd. and Another and Rashtriya Ispat Nigam Limited v. Dewan Chand Ram Saran).
23. For a better understanding of the role ascribed to courts in reviewing arbitral awards while considering applications filed under Section 34 of the 1996 Act, it would be relevant to refer to a judgment of this Court in Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (NHAI) 5 wherein R.F. Nariman, J. has in clear terms delineated the limited area for judicial interference, taking into account the amendments brought about by the 2015 Amendment Act. The relevant 2 (2020) 2 SCC 455 3 2021 SCC OnLine SC 8 4 (2012) 5 SCC 306 5 (2019) 15 SCC 131 passages of the judgment in Ssangyong (supra) are noted as under: -
"34. What is clear, therefore, is that the expression "public policy of India", whether contained in Section 34 or in Section 48, would now mean the "fundamental policy of Indian law" as explained in paras 18 and 27 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49: (2015) 2 SCC (Civ) 204] i.e. the fundamental policy of Indian law OMP (COMM.) 75/2021 Page no.10/25 M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA would be relegated to "Renusagar" understanding of this expression. This would necessarily mean that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] expansion has been done away with. In short, Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] ,as explained in paras 28 and 29 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204] , would no longer obtain, as under the guise of interfering with an award on the ground that the arbitrator has not adopted a judicial approach, the Court's intervention would be on the merits of the award, which cannot be permitted post amendment. However, insofar as principles of natural justice are concerned, as contained in Sections 18 and 34(2) (a)(iii) of the 1996 Act, these continue to be grounds of challenge of an award, as is contained in para 30 of Associate Builders [Associate 24 | P a g eBuilders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] .
35. It is important to notice that the ground for interference insofar as it concerns "interest of India"
has since been deleted, and therefore, no longer obtains. Equally, the ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the "most basic notions of morality or justice". This again would be in line with paras 36 to 39 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , as it is only such arbitral awards that shock the conscience of the court that can be set aside on this ground.
36. Thus, it is clear that public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as understood in paras 18 and 27 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49:
(2015) 2 SCC (Civ) 204], or secondly, that such award is against basic notions of justice or morality as understood in paras 36 to 39 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204]. Explanation 2 to Section 34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) was added by the Amendment Act only so that OMP (COMM.) 75/2021 Page no.11/25 M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA Western Geco [ONGC v. Western Geco International Ltd., 25 | P a g e(2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] ,as understood in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , and paras 28 and 29 in particular, is now done away with.
37. Insofar as domestic awards made in India are concerned, an additional ground is now available under sub-section (2-A), added by the Amendment Act, 2015, to Section 34. Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law. In short, what is not subsumed within "the fundamental policy of Indian law", namely, the contravention of a statute not linked to public policy or public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality.
38. Secondly, it is also made clear that reappreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award.
39. To elucidate, para 42.1 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204] , namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Para 42.2 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204] , however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award. 40. The change made in Section 28(3) by the Amendment Act really follows what is stated in paras 42.3 to 45 in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair-
minded or reasonable person would; in short, that the OMP (COMM.) 75/2021 Page no.12/25 M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA arbitrator's view is not even a possible view to take. Also, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under Section 34(2-A).
41. What is important to note is that a decision which is perverse, as understood in paras 31 and 32 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , while no longer being a ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse."
24. This Court has in several other judgments interpreted Section 34 of the 1996 Act to stress on the restraint to be shown by courts while examining the validity of the arbitral awards. The limited grounds available to courts for annulment of arbitral awards are well known to legally trained minds. However, the difficulty arises in applying the well-established principles for interference to the facts of each case that come up before the courts. There is a disturbing tendency of courts setting aside arbitral awards, after dissecting and reassessing factual aspects of the cases to come to a conclusion that the award needs intervention and thereafter, dubbing the award to be vitiated by either perversity or patent illegality, apart from the other grounds available for annulment of the award. This approach would lead to corrosion of the object of the 1996 Act and the endeavours made to preserve this object, which is minimal judicial interference with arbitral awards. That apart, several judicial pronouncements of this Court would become a dead letter if arbitral awards are set aside by categorising them OMP (COMM.) 75/2021 Page no.13/25 M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA as perverse or patently illegal without appreciating the contours of the said expressions.
25. Patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the Arbitral Tribunal would not fall within the expression 'patent illegality'. Likewise, erroneous application of law cannot be categorised as patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the scope of the expression 'patent illegality'. What is prohibited is for courts to re-appreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as courts do not sit in appeal against the arbitral award. The permissible grounds for interference with a domestic award under Section 34(2-A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one, or interprets a clause in the contract in such a manner which no fair- minded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression 'patent illegality'.
26. Section 34 (2) (b) refers to the other grounds on which a court can set aside an arbitral award. If a dispute which is not capable of settlement by arbitration is the subject-matter of the award or if the award is in conflict with public policy of India, the award is liable to be set aside. amended by the 2015 Amendment Explanation (1), Act, clarified the expression 'public policy of India' and its connotations for the purposes of reviewing arbitral awards. It has been made clear that an award would be in conflict with public policy of India only when it is induced or affected by fraud or corruption or is in violation of Section 75 or Section 81 of the 1996 Act, if it is in contravention with the fundamental policy of Indian law or if it is in conflict with the most basic notions of morality or justice. In Ssangyong (supra), this Court held that the meaning of the expression 'fundamental policy OMP (COMM.) 75/2021 Page no.14/25 M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA of Indian law' would be in accordance with the understanding of this Court in Renu Sagar Power Co. Ltd. v. General Electric Co.6 In Renu Sagar (supra), this Court observed that violation of the Foreign Exchange Regulation Act, 1973, a statute enacted for the 'national economic interest', and disregarding the superior courts in India would be antithetical to the fundamental policy of Indian law. Contravention of a statute not linked to public policy or public interest cannot be a ground to set at naught an arbitral award as being discordant with the fundamental policy of Indian law and neither can it be brought within the confines of 'patent illegality' as discussed above. In other words, contravention of a statute only if it is linked to public policy or public interest is cause for setting aside the award as being at odds with the fundamental policy of Indian law. If an arbitral award shocks the conscience of the court, it can be set aside as being in conflict with the most basic notions of justice. The ground of morality in this context has been interpreted by this Court to encompass awards involving elements of sexual morality, such as prostitution, or awards 6 1994 Supp (1) SCC 644 seeking to validate agreements which are not illegal but would not be enforced given the prevailing mores of the day".
8. Permissible grounds for interference with an arbitration award, in terms of Section 34 of the Arbitration and Conciliation Act, 1996 (as amended upto date) which can be culled out from the aforesaid observations of Hon'ble Supreme Court while read in the light of the judgments of Hon'ble Supreme Court in Ssangyog Engg. & Construction Co. Ltd. Vs. NHAI (2019) 1 SCC 131 and Associate Builders Vs. DDA (2015) 3 SCC 49 are:
1. A party to the agreement was under some incapacity; or
2. the arbitration agreement is not valid under the law; or
3. the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
4. the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to OMP (COMM.) 75/2021 Page no.15/25 M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration; or
5. the composition of the Arbitral Tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with this Part; or
6. the subject-matter of the dispute was not arbitrable under law; or
7. the arbitral award is in conflict with the public policy of India;
a) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or
b) it is in contravention with the fundamental policy of Indian law i.e.
i) the same is in contravention of the provisions of any statute enacted to protect the national interest such as the Foreign Exchange Regulation Act which is enacted to ensure that the nation does not lose foreign exchange which is essential for the economic survival of the nation.
ii) the same is passed while disregarding orders passed by the superior courts in India.
iii) the same is passed disregarding the binding effect of the judgement of a superior court.
c) it is in conflict with the most basic notions of morality which in this context has been interpreted by Hon'ble Apex Court to encompass awards involving elements of sexual morality, such as prostitution, or awards seeking to validate agreements which are not illegal but would not be enforced given the prevailing mores of the day;
d) it is in conflict of most basic notions of justice i.e. it shocks the conscience of the Court.
8. It is vitiated by patent illegality on the face of the award which means-
i) if an arbitrator gives no reasons for an award; or OMP (COMM.) 75/2021 Page no.16/25 M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA
ii) if he construes the terms of a contract in a manner that no fair minded or reasonable person would i.e. the arbitrator's view is not even a possible view to take; or
iii) if the arbitrator wanders outside the contract and deals with matters not allotted to him; or
iv) if he gives a finding based on no evidence at all; or
v) if he passes an award which ignores vital evidence in arriving at its decision; or
vi) if he gives a finding based on documents taken behind the back of the parties; or
vii) if he gives a finding based on documents copy of which had not been supplied to the opposite party.
Similarly, what is not permissible for a Court in exercise of powers under Section 34 of the Act, in the light of said judgments can be summed up in the following manner:
i) What adjudicating whether an award is in conflict with fundamental policy of law, the court shall not conduct review on the merits of the dispute;
ii) an awards shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciation of evidence;
iii) Contravention of a statute not linked to public policy or public interest cannot be a ground to set at naught an arbitral award as being discordant with the fundamental policy of Indian law nor can it be brought within the confines of "patent illegality".
9. The agreement between the parties is not disputed. The award is challenged by the petitioner on the ground of violation of Section 12 of the Act. The impugned award itself contained that the Ld. Arbitrator informed the parties regarding his engagement as Arbitrator in other cases by the respondent herein and also given opportunity to the petitioner to get the arbitrator changed but no action was taken by the petitioner in this regard.
OMP (COMM.) 75/2021 Page no.17/25 M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA The award also contained that the claimant has given no objection to the Ld. Arbitrator to continue with the proceedings as recorded vide order dated 26.09.16 and 27.10.2016. The objection of the petitioner accordingly regarding violation of Section 12 of the Act has no merit. It is further observed that the arbitrator was appointed by the duly authorized person who was looking after the affairs of the claimant/respondent herein.
I have gone through the claim filed by the respondent herein before the Ld. Arbitrator. The respondent herein had paid total amount of Rs.6,85,22,008/- to the petitioner for completion of the work and also issued NOC. The respondent received the notice under DVAT Act dated 29.12.2011 and after correspondence with the appropriate authorities deposited total amount of Rs.44,37,214/- and submitted relevant form DVAT 27(A) alongwith challan to the concerned VATO on 25.03.2013.
The respondent herein in rejoinder to the reply of the petition before the Ld. Arbitrator admitted that the petitioner was asked vide letter dated 01.10.12 to deposit amount of Rs.13,70,440.16 only towards payment of VAT on the total payment of Rs.6,85,22,008/-. As per the agreement entered into between the parties, the taxes was to be paid by the petitioner herein. As the petitioner not deposited the amount, the arbitration clause was invoked. The relevant part of the agreement in respect to payment of taxes as contained are below:
"8.5. The rates quoted by the tenderers shall be inclusive of all applicable taxes including Service Tax, VAT, octroi and levies etc. levied by Central/State Govt. and the contractor shall pay the OMP (COMM.) 75/2021 Page no.18/25 M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA aforesaid taxes, levies, duties etc. directly to the Central/State Govt. Organizing Committee, Commonwealth Games, 2010 will have no liability whatsoever on any account to pay any taxes, levies, duties etc. levied by Central/State Govt. pertaining to executive of work. 6.5 The rates for all items unless clearly specifies otherwise cover all costs for proper execution of work including labour, material, hires charges of machinery and other inputs involved during execution of the work alongwith the cost of construction of temporary arrangements. The rates should be inclusive of all applicable taxes, direct or indirect including service Tax."
10. The defence of the petitioner remained that it was the duty of the respondent to deduct and deposit the DVAT before making final payment to the petitioner as per law. The respondent failed in its duty. The contention of the petitioner in this regard appears to have substance and is also supported with the assessment order by the concerned authorities i.e. VATO of Govt. of NCT of Delhi. The duty of the respondent to deduct the tax is also referred in the impugned award but has been ignored by the Ld. Arbitrator on the ground that petitioner has not deposited the taxes with the authorities. The lapse on the part of the claimant is also referred in the impugned award alongwith non payment of tax by the petitioner.
11. I have gone through the letters/notices/correspondence between the Tax Authorities of Govt. of NCT of Delhi alongwith the claimant/respondent herein. As noted in letter dated 22.02.2012, in view of Section 36A of DVAT Act, the Organizing Committee i.e. claimant itself was liable to deduct tax on source @ 2% and 4% from the payment made to the registered and unregistered contractors respectively. The relevant provisions of 36A of the DVAT Act is reproduced below in this regard:
OMP (COMM.) 75/2021 Page no.19/25 M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA "Any person not being an individual or a Hindu, undivided family, who is responsible for making any payment to any contractor (hereinafter in his section referred to as "the contractor") for discharge of any liability on account of valuable consideration payable for the transfer of property in goods (whether as goods or in other some form) in pursuance of work contract for value exceeding twenty thousand rupees or such amount as may be order in writing published in official Gazette, he notified by the Commissioner from time to time, shall at the time of credit of such amount in the account of the contractor or at the time of payment thereof in cash or by any other mode whichever is earlier, deduct tax thereon at the rate of two percent".
In discharge of the liability of the claimant in this regard, notice under Section 59 (2) dated 28.02.12 was also issued to the claimant by the office of Commissioner, Trade and Tax Department, Govt. of NCT of Delhi for explaining reasons for non deduction of TDS on amount of VAT at the time of making payments to contractor which was the responsibility of the claimant as per Section 36A of DVAT Act. The provisions of the Act alongwith document on record itself shows the lack of the part of the claimant in non deduction of TDS and payment before the Competent Authorities. The petitioner can not be penalized for any non performance of the duty of the claimant at all. The duty of the claimant is further reiterated in the order dated 01.02.13 from the Spl. Commissioner, Department of Trade and Taxes and objection of the claimant regarding sub-contract to deposit the tax was set aside while passing the assessment order. It was categorically held in the order that -
"10. Perusal of the cited provisions would show that the OC (Organizing Committee) being responsible for payment to contractors ought to have deducted the TDS at applicable rates and deposited the same to the appropriate Head of Account at the time of making the payments. The fact that under the agreement entered OMP (COMM.) 75/2021 Page no.20/25 M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA between OC and the sub-contractor, the responsibility to pay taxes, levies and duties are on the sub-contractors can not be taken as an excuse to ignore the liability to deduct TDS at the source/time of making payments. The contractors have similar individual responsibility to deposit applicable tax, file returns and other necessary papers with the department as per law. The default shall invite penalty as per the provisions cited above".
12. The claimant for the first time in discharge of its obligations under Section 36A of the DVAT Act referred above, vide letter dated 01.10.12 asked the petitioner to deposit Rs.13,70,440.16 else action shall be taken for the recovery of the amount. Admittedly, the petitioner was liable to pay the tax of Rs. 13,70,440.16 only towards DVAT. The claimant has never asked the petitioner to pay any penalty or interest as claimed in the petition before Ld. Arbitrator nor is there ground for claim of penalty from the petitioner. No such amount has been paid by claimant to the tax authorities. Further the rectification order dated 08.03.2013 imposed penalty and interest upon the claimant under Section 86 of Delhi Value Added Tax Act, 2004 for non deduction of TDS on the paid amount. The penalty was imposed on the claimant due to failing in its duty which can not be passed to the petitioner though no such penalty or interest has been paid by the respondent/claimant. Even after the rectification order dated 08.03.2013, the claimant has deposited only Rs.28,00,693/- as tax and Rs.16,36,521/- as interest on 25.03.2013. In the claim petition, the claimant itself mentioned that total amount of Rs.44,37,214/- deposited by the claimant comprised only Rs.21,78,151/- towards the share of the petitioner. Applying the principle of Quasi Contract as well, the claimant can claim only OMP (COMM.) 75/2021 Page no.21/25 M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA amount deposited on behalf of the petitioner. The award of Rs.27,40,880/- against the petitioner towards penalty and Rs.30,83,490/- towards interest @ 15% p.a. has no basis at all. The claimant can not be permitted unjust enrichment at the cost of the petitioner despite the claimant failing in its duty to comply with the relevant provisions of law. Needless to mention that the petitioner was liable to pay the tax but it was the duty of the claimant to deduct the tax on the amount paid to the petitioner and deposit the tax with the authorities. Undoubtedly the claimant failed in its duty. There is no basis of the claim of penalty as well as interest from the petitioner at all. Moreover, no such penalty or interest as claimed by the claimant has been paid to any authority. The claimant can recover from the petitioner only the amount which was due and payable on the paid amount i.e. Rs.13,70,440/- towards TDS @ 2% on the total payment of Rs.6,85,22,008/- as the petitioner failed to make the due payment despite notice dated 01.10.2012.
13. The claimant itself averred that it was liable to deduct tax at source from the payment made to registered/unregistered contractors. The VATO also observed that the claimant has failed to explain the reasons for non deduction of TDS on account of VAT at the time of making payment to contractor. It is also noted that the claimant had never asked the petitioner to pay any penalty and only asked to deposit amount of Rs.13,70,440/- vide letter dated 01.10.2012. The Special Commissioner also vide order dated 01.02.2013 reiterated that the liability to pay tax, OMP (COMM.) 75/2021 Page no.22/25 M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA interest and penalty against the respondent/petitioner shall remain on the claimant i.e. respondent herein. As the respondent failed in its duty to make the payment, penalty was imposed vide order dated 08.03.2013 for non deduction of TDS. Even after the said order, the claimant has deposited only amount of Rs.21,78,151/- qua the petitioner and accordingly, there is no basis of the demand of other penalty or interest by the claimant against the petitioner. The relevant para 17, 18 and 19 of the award is reproduced as below:
"17. The claimant furnished details about deposit of the requisite DVAT by four contractors except the respondent and M/s. Russel Interior Pvt. Ltd and requested the respondent and the other contractors to deposit an amount of Rs.13,70,440.16 with the claimant by 10.10.2013 failing which appropriate action for recovery of the said amount will be taken against the respondent.
18. The department after taking into credit the payments of DVAT made by four contractors recalculated the amount and held the claimant liable to pay (including penalty of 4% and interest) total Rs.44,37,214/- in respect of the two contractors.
19.The claimant then had no option but to deposit the said amount and submitted the proof to the department. The said total amount comprises Rs.21,78,158/- as share of and as payable by the respondent".
The claimant can not be permitted to recover the amount from the petitioner towards taxes more than what has been paid towards the liability of the petitioner. It is not disputed that the petitioner was under contractual obligation to pay all taxes to the claimant pertaining to the execution of work but there is no failure on the part of the petitioner for which the claimant was directed to pay penalty and interest by the Tax Authorities. The OMP (COMM.) 75/2021 Page no.23/25 M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA Tax Authorities had taken action against the claimant while imposing penalty and interest due to the non-fulfillment of its obligation which are not liable to be passed to the petitioner. It is reiterated that the claimant while making the payment to the petitioner towards the work done issued already No Due Certificate.
It is not disputed that the petitioner has performed its part of the contract and No Due Certificate was issued after completion of the work. I have gone through the judgment of Hon'ble Delhi High Court in Organizing Committee Commonwealth Games (Supra) which dealt with similar issue regarding imposing of penalty and interest for non payment of taxes. Relevant para 70 of the said judgment is reproduced as under:
"70. So far as interest and penalty are concerned it is attributable to the delay on the part of the petitioner in depositing the amount of cess if it was leviable. It was held that the petitioner should have promptly deposited the amount of cess and then recovered it from the claimant if the contract and/or the law permitted it to do so. So far as the cess is concerned, it was stated during the course of final hearing that the petitioner was contesting the legality of the assessment order as per law, both parties were to join the contest. It was held that if the petitioner is exonerated from payment of liability, the matter would end. No argument is addressed by any of the counsel. Thus, the award is upheld on this issue also".
14. It is true that the re-appreciation and examination of evidence led by the parties before Ld. Arbitrator is impermissible under Section 34 of the Arbitration and Conciliation Act. In view of the judgment UOI vs. Reliance Industries Ltd. & Ors. (Supra), OMP (COMM.) 75/2021 Page no.24/25 M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA the impugned award needs to be examined with respect to arbitrariness, perversity or capriciousness thereby giving an impermissible view which could not have been arrived at by any person upon an ordinary application of mind. In the case in hand, the impugned award is with respect to the penalty and interest and there appears to be no basis for imposition of penalty and interest upon the petitioner. It is reiterated that the claimant is entitled for the recovery of the amount for which the petitioner is liable and the amount can be recovered as per law. The respondent can not be permitted to recover the amount which is not due or which is imposed due to the fault of the respondent. In view of the above referred provisions and law, in my considered view the impugned award dated 05.03.2019 is liable to be set aside.
In view of the aforesaid discussions, the present petition under Section 34 of Arbitration and Conciliation Act, 1996 is hereby allowed and the impugned award passed by the Sole Arbitrator is hereby set aside.
15. The copies of the judgment be issued to all the parties to the dispute through Electronic Mail. Judgment be also uploaded on the server.
16. File be consigned to Record Room after necessary Digitally signed by GORAKH compliance. NATH GORAKH NATH PANDEY Date: 2025.03.06 PANDEY 15:43:31 +0530 Announced in the open court (GORAKH NATH PANDEY) th on 04 March, 2025. District Judge (Commercial Court-08) Central, Tis Hazari Courts, Delhi.
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