Bangalore District Court
Integra Micro Systems Pvt. Ltd vs The Chief Executive Officer on 30 August, 2021
IN THE COURT OF THE LXXXIII ADDITIONAL CITY CIVIL
AND SESSIONS JUDGE AT BENGALURU CITY [CCH84]
:Present:
Ravindra Hegde,
M.A., LL.M.,
LXXXIII Addl. City Civil & Sessions Judge,
Bengaluru
Dated on this the 30th day of August 2021
COM.A.S.No.14/2019
Plaintiff Integra Micro Systems Pvt. Ltd.,
(CIN:U72200KA1982PTC011338)
A company incorporated under the
provisions of the Companies Act, 1956,
having its registered office at:
C5, Swiss Complex, 33,
Race Course Road,
Bengaluru560001
Represented by its authorized
representative Mr.Sandeep Kasliwal.
(By Sri.B.N.P, Advocate)
// versus //
Defendants 1. The Chief Executive Officer,
Centre for eGovernance,
DPAR (eGovernance)
M.S.Building, Room No.146 Gate 2,
Bengaluru560001.
2. Hon'bleJustice A.N.Venugopala Gowda,
Former Judge of
High Court of Karntaka,
Arbitration & Conciliation Centre,
Bengaluru(Domestic & International),
2
CT 1390_Com.A.S.142019_Judgment .doc
Khanija Bhavan, Race Course Road,
Bengaluru560001.
(By SBM/ADGP, Advocate)
Date of Institution of the : 07/02/2019
suit
Nature of the suit : Arbitration Suit
Date of commencement of :
recording of the evidence
Date on which the : 30/08/2021
Judgment was pronounced.
: Year Month/ Day/s
Total duration /s s
02 06 23
JUDGMENT
This Arbitration Suit is filed by the plaintiff praying to set aside the award dated 9/11/2018 passed by the Arbitral Tribunal in AC No.157/2017 and to allow the claim petition filed by the plaintiff and for cost.
2. Plaintiff was the claimant before the Arbitral Tribunal. Defendant No.1 was the respondent and defendant No.2 is the learned Arbitrator.
3. The brief facts of the claimant's case is as under:
Pursuant to Memorandum of Understanding dated 18/3/2010 executed between Unique Identification Authority of India (UIDAI) and the Government of Karnataka for implementation of Unique Identification Numbers (UID).3
CT 1390_Com.A.S.142019_Judgment .doc Government of Karnataka was authorized to set up agencies called as 'Enrollment Agencies' to work under the supervision of the Chief Executive Officer, Centre for eGovernance, DPAR. The defendant No.1 was appointed as one of the Registrar under the State of Karnataka. The 1st defendant has floated tender on 15/7/2011 for enrollment agency and the claimant participated in the bidding process for selection as the UID (Aadhaar) enrollment agency in respect of Bengaluru City and Bengaluru Rural District. After evaluation, a letter of intent was issued to the claimant on 1/8/2011 and agreement was executed on 4/11/2011. The cost of enrollment for per successful generation of UID and scanning of documents related to Aadhaar was fixed as Rs.37.50 and cost of capturing KYR + data and scanning of documents for services was Rs.1/. The contract period was upto 14/8/2012. Pursuant to letter of intent the claimant/ plaintiff was required to enroll 47,94,555 residents. The plaintiff commenced its enrollment activities. On 12/1/2012, respondent served a termination notice on the claimant to stop the enrollment activity within 30 days by making reference to communication dated 29/12/2011 of the UIDAI. The claimant has carried out the enrollment after receiving the termination notice till 11/2/2012. According to the claimant 10,11,562 residents were enrolled and 9,92,997 Aadhaars were generated. Subsequently several meetings were held between the parties relating to missing documentary proof and penalty to be imposed. For such 4 CT 1390_Com.A.S.142019_Judgment .doc missing documentary proof, the plaintiff/ claimant had requested for an opportunity to rectify the issue at his cost and requested for details of those enrollment for which documentary proofs are missing. Thereafter on 13/2/2013, the respondent/ 1st defendant by its letter notified the imposition of over all penalty of Rs.1,39,24,671/ on the claimant. The plaintiff has disputed the premature termination and penalty imposed by its letter dated 3/7/2015 and made a claim of Rs.4,08,33,191/. Inspite of service of notice for settlement as per clause 8.1 of the contract, the defendant No.1 has not replied nor complied with the terms within time frame. Therefore, plaintiff has invoked clause 8.2(a) of the contract and referred the dispute to the Principal Secretary (eGovernance) for settlement of dispute vide notice dated 3/8/2015. Thereafter the defendant No.1 provided response on 6/8/2015 to which the plaintiff replied stating that it is not within time as per the contract. The Principal Secretary did not give decision within 30 days from the date of reference of dispute and plaintiff again sent letter on 27/10/2015 and thereafter on 2/11/2015 principal secretary has replied and declined the claims of the plaintiff and plaintiff invoked arbitration clause contained in clause 8.2(b) of the contract dated 30/11/2015. Since the Arbitral Tribunal was not constituted by mutual agreement, the plaintiff / claimant approached the Hon'ble High Court and as per the order of the Hon'ble High Court in CMP No.59/2016 2nd defendant was appointed as learned 5 CT 1390_Com.A.S.142019_Judgment .doc Arbitrator. Before the learned Arbitrator, the claimant/ plaintiff filed claim statement and has raised objection against premature termination penalty imposed and deducted out of this bill and non payment of amount in certain enrollment on the ground of rejection and also interest thereon. The claimant contended that he has suffered loss of Rs.1,50,00,000/ as capital and revenue loss of premature termination. The plaintiff also contended that he is entitle for recovery of Rs.1,39,24,671/ which was deducted out of the bill as penalty. Plaintiff also contended that he is entitle for Rs.8,13,075/ towards payment for enrollment which was not paid and which are rejected without valid reasons. The plaintiff has also prayed interest of Rs.1,27,68,783/ from 13/2/2013 to 5/12/2017 @18% per annum, in total the plaintiff ha made a claim for Rs.4,25,06,529/ before the learned Arbitrator.
4. The defendant No.1 / respondent appeared and filed statement of objection and denied the claim of the plaintiff. Thereafter reply statement, additional rejoinder are all filed and learned Arbitrator has framed issues 1 to 7. Plaintiff has lead evidence as PW.1 and produced documents at Ex.P.1 to Ex.P.26. For the respondent/ defendant No.1, DW.1 was examined Ex.R.1 to Ex.R.75 were marked. Thereafter, the learned Arbitrator has heard the arguments and then passed the award on 9/11/2018 by dismissing the claim made by the plaintiff.
6CT 1390_Com.A.S.142019_Judgment .doc
5. Being aggrieved by this award, the claimant / plaintiff has filed the present arbitration suit on various grounds. The award of the learned Arbitrator is challenged on the ground that it is perverse, illegal and opposed to facts and probabilities of the case and is opposed to public policy and against fundamental policy of Indian law and suffers from patent illegality appearing on the face of the award. The plaintiff contended that the Arbitral Tribunal erred in holding that the termination of the contract is neither arbitrary nor illegal. It is stated that the notice of termination was given on 12/1/2012 as per Ex.P.3 on the basis of communication of UIDAI dated 29/12/2011 and clause 2.2(b) and 2.9.1(l) of the Contract was invoked by the 1 st defendant and as per clause 2.2(b), defendant No.1 has no right to terminate the contract on or before 31/3/2012. It is also contended that contract can be terminated in clause 2.9.1(l) at the sole discretion of the defendant No.1, for any reason whatsoever, but defendant No.1 has terminated contract on the instruction of UIDIA which means that it is not based on its own discretion. In the cross examination of PW.1, it is even suggested that the termination was only due to Ex.R.5 received from the UIDAI. The plaintiff has contended that the defendant No.1 would not have terminated the contract if Ex.R.5 was not received and the reasoning of the Arbitral Tribunal for termination is illegal, suffers from patent illegality as it is not in terms of clause 2.9.1(l). It is also contended that the reasoning of the tribunal holding that the termination is neither arbitrary nor 7 CT 1390_Com.A.S.142019_Judgment .doc illegal is irrational as contract do not provide for termination on the basis of UIDAI letter or instructions. It is stated that the Arbitral Tribunal has erred in applying clause 3.36 of RFP for the reason that it is not applicable and when defendant No.1 has not invoked the said clause, tribunal cannot invoke the same. It is also contended that the tribunal has erred in coming to the conclusion that the plaintiff has not raised objection to Ex.P.3 within a reasonable period and for long time after closure of the project in terms of the exit management plan. It is contended that Ex.P.3 is not in terms of termination clause and Exit Management Plan is a consequence of termination and following Exit Management Plan does not imply the acceptance of termination itself and plaintiff was constrained to follow the Exit Management Plan, as continuing enrollments after 11/2/2012 would have resulted in payment disputes and not submitting enrollment data as per the exit management plan would have resulted in gross privacy violations of the residents enrolled. It is also contended that the tribunal has erred in rejecting the claim of Rs.1,50,00,000/ for premature termination. It is also contended that the Arbitral Tribunal has erred in rejecting the claim of Rs.1,39,24,671/ imposed as a penalty by the defendant No.1 when the defendant No.1 has failed to prove Ex.R.6 Audit report. It is stated that without audit report, penalty cannot be imposed. It is also stated that discrepancies in the evidence presented by defendant NO.1 and RW.2 with regard to the penalty imposed on the plaintiff 8 CT 1390_Com.A.S.142019_Judgment .doc for the first quarter at 25% and second quarter 40% are not considered. It is also contended that the tribunal ought to have noticed the discrepancies in number of enrollments and Aadhaars generated as stated in Ex.R.6 compared with those in the periodic reports shared by defendant No.1 and should have disregarded the alleged audit report Ex.R.6 and testimony of RW.2 who is not its author. It is also contended that though this audit report is not the original and did not contain signature, same is relied by the tribunal and the award of the tribunal is bad in law, perverse and suffers from patent illegality. On all these grounds the award is prayed to be set aside.
6. The defendant No.1 has filed written statement contending that the petition is frivolous, vexatious and not maintainable. It is also contended that request for proposal (RFP) for selection of enrollment agencies in Bengaluru Urban District was prepared and issued by Centre for eGovernance, and many enrollment agencies participated in the tender process and plaintiff was one of it and was qualified. It is stated that the bidding companies had given the consent for the terms and conditions mentioned in the RFP document and Plaintiff on 4/11/2011 entered into MOU. It is stated that as per clause 2.9.1(l) it is in the sole discretion of the 1 st defendant to terminate the contract for any reason whatsoever. It is stated that the plaintiff had to set up minimum 100 enrollment centres by 15/8/2011. However, 9 CT 1390_Com.A.S.142019_Judgment .doc the plaintiff failed to comply with the LOI and only 22 enrollment centres were operational as on 17/8/2011 and plaintiff was informed on 19/8/2011 about several violations in the enrollment process and plaintiff replied the same on 23/8/2011 accepting violations committed by the enrollment agencies and also the failure from the company to establish 100 enrollment agencies and also stated its inability to appoint qualified resource persons to carryout the enrollment process. It is stated that at that point 1st defendant had every right to terminate the contract, but the same was not done to give an opportunity to the plaintiff to set right the violations. It is stated that when letter was sent, plaintiff agreed to increase number of enrollment centres to 500 within 30/11/2011. However, plaintiff has failed to comply the same and for this reason show cause notice was also issued to terminate the enrollment and also to blacklist the company from further participating in any of the tenders of the CeG. The plaintiff has questioned the termination of the contract terming it as illegal and arbitrary despite being given numerous opportunities to rectify the issues. It is stated that as per UIDAI letter, CeG issued a notice to all EAs including the plaintiff on 12/1/2012 to stop the enrollment activities beyond 15/2/2012 as the target of 140 lakhs enrollments to Karnataka stipulated by the UIDAI was reached much earlier to the deadline of 31/3/2012. It is stated that the plaintiff has claimed that it enrolled 10,11,5262, but total number of Aadhar generated is only 9,92,997 as on 9/9/2013. It is 10 CT 1390_Com.A.S.142019_Judgment .doc stated that after termination of the contract during January 2012, CeG sent letter to the plaintiff on 30/4/2012 asking plaintiff to submit pending documents to CIDR numbering about 6,669. However there was no response from the plaintiff till 30/8/2012. It is stated that the plaintiff had failed to collect the relevant documents from the residents at the time of enrollments and plaintiff sought permission from CeG through email to collect the documents by visiting every resident which was denied and plaintiff was given sufficient time to submit the document, but the plaintiff has miserably failed to comply with the same and thereby attracting penalty and termination of the contract. It is stated that CeG held meeting on 25/5/2012, 10/10/2012 and 17/10/2012 when the plaintiff discussed about the missing documents and the penalty to be imposed and in the meeting plaintiff requested for an opportunity to rectify the issue at its cost and requested for the details of enrollments for which the documents were missing. However, such opportunity to the plaintiff was denied as there had been number of violations with respect to submission of documents causing inconvenience to the public. It is also stated fine of Rs.1,39,24,671/ was imposed owing to violation of service level agreement and this penalty imposed was according to the calculations done by third party audit agency. It is also stated that as per Section 10.5.1 of RFP, CEG/UIDAI would appoint a third party auditors to audit different aspect of UID enrollment process and compliance audit of the task of the 11 CT 1390_Com.A.S.142019_Judgment .doc EAs. The audit agency will check if the enrollment agency is following the terms of RFP and the technical bid submitted by the firm. It is stated that a detailed presentation of the audit plan, methodology including sample selection logic approach was made known to the plaintiff in the meeting held on 4/1/2012. On 10/10/2012 the audit findings were presented to the plaintiff and inputs was sought before 17/10/2012. However, the plaintiff failed to respond. It is stated that the termination of contract was done as per the communication received from UIDAI. It is stated that though plaintiff had made a claim for Rs.4,08,33,191/, a penalty of Rs.1,39,24,670.63 was imposed as 25% for the first quarter and 40% for the subsequent quarters for the violation of service levels of the RFP and it was communicated to the plaintiff by CeG on 13/2/2013. It is stated that claim made by plaintiff for Rs.2,45,40,364/ as interest on the penalty is baseless as CeG in no way liable to pay any such amount to the plaintiff and plaintiff is liable to pay the penalty imposed as it has caused great inconvenience to the general public. It is stated that the calculations made by the plaintiff assuming 9000 enrollments per day for 45 days is purely based on assumption. It is stated that instead of claiming amount, plaintiff should be thankful to CeG for not having been blacklisted for the violations committed. It is contended that plaintiff has sent request letter praying to waive the penalty and the same was replied. It is also stated that for the notice of settlement sent by the plaintiff on 3/8/2015, CeG had 12 CT 1390_Com.A.S.142019_Judgment .doc replied citing reasons for termination of contract and imposition of penalties. It is also stated that 1 st defendant had every right to terminate the contract for violations of SLAs of the RFP. It is stated that UIDAI is the implementing authority with respect to UID enrollments and CeG is only a State Registrar to look into the enrollment matters in Karnataka. However, if UIDAI decides to stop enrollment process, CeG has no option but to adhere by the decision taken by the UIDAI. It is also stated that Arbitral Tribunal has passed order based on documents submitted by the CeG and not by referring to any other documents as mentioned by the plaintiff. It is stated that the plaintiff has admitted and accepted the termination. It is also stated that the objection to audit report is not acceptable and audit report was received by email from the third party auditors on 2/1/2013 and email can be considered as a valid proof and Associate Director of PwC also presented himself before the Arbitral Trubunal to testify that the audit was conducted and a report was submitted by the company. It is also stated that the award passed by the 2nd defendant is in accordance with law. Hence petition is prayed to be dismissed.
7. Now the points that arise for consideration of this court are:
1) Whether the plaintiff has made out grounds to set aside the award passed by learned Arbitrator in AC No.157/2017 on 9/11/2018 in the dispute between the parties, under section 34 of the Arbitration & Conciliation Act?13
CT 1390_Com.A.S.142019_Judgment .doc
2) What order?
8. Heard both counsels. Counsel for the plaintiff filed written arguments also. Perused the records.
9. My answer to the above points are :
POINT No.1 : In the Negative.
POINT No.2 : As per final order for the following:
REASONS
10. POINT No.1 : The admitted facts of the case are that, the defendant No.1 was appointed as one of the Registrar in the State of Karnataka as per Ex.R.3 for generating Unique Identification Number. 1 st defendant was authorized to set up agency called enrollment agency. The 1 st defendant floated tenders on 15/7/2011 and claimant/ plaintiff has participated in the same and was successful and later an indent was issued on 1/8/2011 and agreement was executed on 4/11/2011. For successful enrollment of UID and also document relating to Aadhaar, price fixed was Rs.37.50 for each successful UID. The contract period was upto 14/8/2012. It is also not in dispute that the defendant No.1 served a termination notice on 12/1/2012 and directed the plaintiff to stop enrollment activity within 30 days. For this termination, the 1st defendant has referred to communication as per Ex.R.5 received from UIDAI dated 29/12/2011. In the termination notice, clause 2.9.1(l) and 2.2(b) of the contract is referred. After receiving this 14 CT 1390_Com.A.S.142019_Judgment .doc termination letter, the claimant/ plaintiff had carried out enrollment till 11/2/2012 and during the period of contract, according to the claimant, it had made enrollment of 10,11,652 residents and 9,92,997 Aadhaars were generated. Subsequent to the termination, defendant No.1 by its letter dated 13/2/2013 imposed penalty of Rs.1,39,24,671/. According to the claimant, as per clause 2.2(b) of the contract, termination could take effect only after 31/3/2012. By considering the enrollment which could have been done by the claimant/plaintiff till 31/3/2012 and the amount which would have been received by claimant from such enrollment upto 31/3/2012, claimant claimed Rs.1,50,00,000/ as capital and revenue loss due to premature termination. The claimant has contended that the penalty imposed is unacceptable and is illegal and even termination is illegal and Rs.1,39,24,671/ which is deducted from the amount due to it is necessary to be returned to the claimant. The claimant also contended that some payment for enrollment are not paid and in some cases, enrollment is rejected without valid reasons and Rs.8,13,075/ is payable on these enrollments for which payment is not made. The claimant also contended that he is entitle for Rs.1,27,68,783/ as interest @18% per annum on the penalty amount which was illegally deducted and the balance enrollment amount which is not paid. For deciding these four claims the learned Arbitrator was appointed. After recording evidence and hearing, learned Arbitrator has rejected the claim of the claimant and the same 15 CT 1390_Com.A.S.142019_Judgment .doc has been challenged in the present petition under Section 34 of the Arbitration & Conciliation Act. The 1st defendant/ respondent has opposed the petition.
11. The jurisdiction of the court to set aside an arbitral award is limited to the ground set out in Section 34 of the Arbitration & Conciliation Act 1996. Even if a contrary view based on the facts before the Arbitral Tribunal is possible, in the absence of any compelling reasons, court cannot interfere with the view taken by the learned Arbitrator, as if, it is sitting in appeal over the award. Grounds on which the award of the Tribunal can be set aside by this court is clearly mentioned in Section 34(2) and 34(2A) of the Arbitration & Conciliation Act and these grounds are also elaborated by the Hon'ble Supreme Court in various decisions including Associate Builders v/s Delhi Development Authority. Since any of the grounds mentioned in Section 34(2)(a) and 34(2)(b)(i) of the Act are not urged, challenge to the present award of the Arbitral Tribunal would be under Section 34(2)(b)(ii) and 34(2A) of the Act. Award could be set aside if it is against public policy of India or is patently illegal. Under the head of Public Policy of India, Fundamental Policy of Indian Law, Interest of India, justice or morality are included. It is also well established principle that the court sitting U/S.34 of the Act is not supposed to go for re appreciation of evidence or impose its view as against the view of learned Arbitral Tribunal and the power of the court is only 16 CT 1390_Com.A.S.142019_Judgment .doc to set aside the award, if it is coming under one of the grounds mentioned in said section. In the presence of these basic principles, grounds urged by Plaintiff and the award of the learned Arbitrator are to be looked into.
12. The learned counsel for the claimant/ plaintiff has vehemently argued that the learned Arbitrator has rejected all the claims without considering the provisions of contract and facts of the case and evidence lead. The learned counsel has argued that Ex.P.3 do not give any valid reason for terminating the contract and it has referred to communication of the UIDAI which is not binding on the plaintiff. It is also stated that the learned arbitrator by considering communication of UIDAI at Ex.R.5 has held the termination valid and the arbitrator who is not expected to go beyond the contract has considered extrinsic evidence which is not permissible. It is also stated that Audit report was required to assess the process violation, but Audit report produced is not established and the evidence of RW.1 and also RW.2 clearly show that there was no proper audit and there was no audit for the first part and still the penalty is levied. The learned counsel has also argued that though learned Arbitrator has referred to the letter sent by the plaintiff seeking waiving of the penalty, such letter cannot be considered as admission and acceptance of the penalty. The learned counsel has also argued that reasons for termination are not given and termination is upheld by Arbitral Tribunal 17 CT 1390_Com.A.S.142019_Judgment .doc for the reason outside the contract. It is also argued that Ex.R.6, which is not even signed and author is also not examined and is inadmissible has been relied by the tribunal. The learned counsel has argued that the tribunal has considered extrinsic evidence outside the contract and has also not properly considered the evidence and documents produced and has wrongly rejected the claim and the findings of the tribunal is against the public policy as being against fundamental policy of Indian law and is patently illegal.
13. The learned counsel for the 1st defendant has vehemently argued that the plaintiff has already received the entire amount due to it on proper calculation and as there was several irregularities, penalty was imposed based on the report of the audit, which is conducted as per the terms of the contract and the same cannot be questioned. It is also argued that from the beginning plaintiff has not complied with the terms of contract and instead of 100 centres which was required to be opened, petitioner opened only 22 centres. It is also argued that successful registration is very necessary for making payment and for every successful registration, payment has been made. It is stated that the show cause notice was also issued to the plaintiff.
14. On looking to the petition, statement of objection and the award and hearing arguments, as stated above, ground for interference in the Arbitral Award by this court under Section 34 of the Arbitration & Conciliation Act is very 18 CT 1390_Com.A.S.142019_Judgment .doc limited. The plaintiff have to establish that the award is against the public policy of India and or is patently illegal. On looking to the award, the plaintiff and 1st defendant entering into contract as per the letter of intent dated 1/8/2011 and agreement dated 4/11/2011 are not in dispute and it is also not in dispute that the plaintiff had started enrollments of the UID. Though, 1st defendant has stated about lapses on the part of the plaintiff like not opening 100 centres as agreed, termination letter given in Ex.P.3 is as admitted by PW.1 is based on Ex.R.5 communication of the UIDAI. On 12/1/2012 termination notice was given as per Ex.P.3 to stop enrollment activities within 30 days period by making reference to the communication dated 29/12/2011 of the UIDAI. In the letter of the communication of the UIDAI as per Ex.R.5 it has been noted that the target of 1,40,00,000 enrollments to Karnataka stipulated by the UIDAI is reached much earlier to the dead line on 31/3/2012 and therefore the direction is given to the CeG to stop enrollment beyond 15/2/2012. Accordingly, 1st defendant has sent notice to all the enrollment agencies including the plaintiff to stop enrollment activities beyond 15/2/2012. Therefore, prima facie, the termination notice was given not for the lapses which are referred by the 1st defendant, but because of Ex.R.5 letter of the UIDAI dated 29/12/2011.
15. Admittedly in the termination letter, clause 2.2(b) and clause 2.9.1(l) of the contract is referred. As per clause 19 CT 1390_Com.A.S.142019_Judgment .doc 2.2(b), not withstanding the duration of the contract, Registrar reserves the right to terminate the contract for the time beyond 31/3/2012. If the contract is terminated under clause 2.2(b) the termination should take effect after 31/3/2012. As per clause 2.9.1(l) the purchaser i.e. the 1 st defendant can terminate the contract in its sole discretion and for any reason whatsoever. This clause 2.9.1(l) is so wide that the 1st defendant in its discretion, for any reason whatsoever, can decide to terminate the contract. Though clause 2.2(b) give power to terminate only beyond 31/3/2012, clause 2.9.1(l) permit termination on the sole discretion of 1 st defendant for any reason. Therefore, this clause 2.9.1(l) which is even stated in the petition, gives ample power to 1 st defendant to terminate the contract for whatever reason at his discretion. Therefore, Ex.P.3 which was issued under this clause is within the power of defendant No.1 and by this clause he can validly terminate the contract. Therefore, in view of clause 2.9.1(l), contract between plaintiff and 1 st defendant can be terminated by 1 st defendant at his discretion for whatever reason. Admittedly the 1st defendant had a reason i.e. the letter of UIDAI as per Ex.R.5. For the reason stated therein, that is Karnataka State crossing 1,40,00,000 enrollments before the fixed date on 31/3/2012, UIDAI has asked Karnataka to stop enrollment. This is sufficient reason for terminating the contract by 1st defendant. Since UIDAI is the authority which decide on enrollments and 1st defendant is only an agent who is appointed by the UIDAI, it had to act 20 CT 1390_Com.A.S.142019_Judgment .doc as per the instructions of the UIDAI. Therefore, on receiving Ex.R.5 from UIDAI, respondent/1st defendant had no other option then to terminate the contract with enrollment agencies including plaintiff. Accordingly, Ex.P.3 is given.
16. The learned Arbitrator has considered the same and also considered the evidence placed before it. He has referred to the evidence of PW.1, wherein witness admitted that he is aware of communication of UIDAI dated 29/12/2011 and admitted that UIDAI had issued instructions to all the Registrars and the respondent issued notice of termination as per Ex.P.3 based on Ex.R.5. PW.1 has even admitted that respondent would not have terminated the contract, but for Ex.R.5 received from UIDAI. Therefore, even PW.1 is aware of the reason for termination. Though for whatsoever reasons, 1st defendant can terminate contract, Ex.R.5 is the valid reason for such termination and such termination is clearly in accordance with clause 2.9.1(l) of the contract. The Arbitral tribunal by considering Ex.P.3 has clearly held that such termination notice is given not only to the plaintiff, but also to other enrollment agencies and no discriminatory treatment is given to the plaintiff. The Tribunal, by holding so, upheld the termination and denied the contention of the plaintiff that termination is illegal and not valid. Though clause 2.2(b) provides that the termination under that provision would be after 31/3/2012, the termination as made in the case can be considered as under 21
CT 1390_Com.A.S.142019_Judgment .doc clause 2.9.1(l) of the contract and is valid. Therefore, the award of the learned Arbitrator upholding the termination by Ex.P.3 notice is well founded.
17. The learned counsel for the plaintiff has vehemently argued that the tribunal has not given any reason for termination. In view of clause 2.9.1(l) and as 1 st defendant terminating the contract due to letter received from UIDAI as per Ex.R.5 is clearly established, this contention cannot be accepted. The learned counsel has argued that the termination is upheld by the tribunal for the reason outside the contract and argued that the tribunal should not have relied on Ex.R.5 and 1st defendant not exercising any discretion as provided in the said clause of termination is not considered. This argument is also cannot be accepted, as 1 st defendant gets its authority from UIDAI and whatever the instructions and directions that come from UIDAI cannot be considered as not binding on the respondent or to the claimant. Even otherwise vast discretion is given to 1 st defendant to terminate the contract for whatever reasons. Hence this argument cannot be accepted.
18. The learned counsel for the plaintiff has relied on a decision reported in (1978) 1 SCC 405 (Mohinder Singh Gill v. Chief Election Commissioner, New Delhi and others) in which in para 8 the Hon'ble Supreme Court has held that when a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so 22 CT 1390_Com.A.S.142019_Judgment .doc mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, an order bad in the beginning may, by the time it comes to Court on account of a challenge, get validated by additional grounds later brought out. On going through the decsion, same cannot be applied in the present case as admittedly and as known to the plaintiff, termination is for the reason of getting intimation from the UIDAI as per Ex.R.5 and the contract itself permits the employer to terminate the contract for any reasons.
19. The learned counsel has also relied on the judgment of the Hon'ble Supreme Court in Associate Builders v/s Delhi Development Authority (2015) 3 SCC 49 in which in para 31 it is held that where a finding is based on no evidence or an Arbitral Tribunal takes into account something irrelevant to the decision which it arrives at or ignores vital evidence in arriving at its decision, such decision would necessarily be perverse and would be patently illegal. In the present case the contention of the plaintiff that the tribunal has taken into account something irrelevant to the decision cannot be accepted. Ex.R.5 cannot be considered as irrelevant material in the contract between the parties. Therefore, these findings also cannot be made applicable to the present case. The learned counsel has also relied on a decision reported in (2019) 15 23 CT 1390_Com.A.S.142019_Judgment .doc SCC 131 (SsangYong Engineering & Construction Company Limited v. National Highway Authority of India) and in this decision also it is held that the tribunal cannot go beyond the contract and have to consider the contract while deciding the matter before it or otherwise award would be against the basic notion of justice and would be against the fundamental principles of Indian law. This decision also cannot be applied to the present case.
20. Similarly in the decision in (2020) 7 SCC 167 (Patel Engineering v. North Eastern Electric Power Corporation Limited), it is held that contravention of the substantive law of India would result in death nell to an Arbitral Award. In the present case, the Arbitral Tribunal has considered terms of the contract and tribunal interpreted it. As held in the decision in Associate Builders, referred above, construction of terms of the contract is primarily for an arbitrator to decide. The learned counsel has also relied on a latest decision of the Hon'ble Supreme Court reported in 2021 SCC online SC 508 (FSA SICAL Terminals Private Limited v. Board of Trustees of V.O.Chidambranar Port Trust Tuticorin and others) in which in para 44 the Hon'ble Supreme Court has held that a decision which is perverse, though would not be a ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award. It is also 24 CT 1390_Com.A.S.142019_Judgment .doc held that a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. For the same discussion made above, this decision also do not help the present plaintiff to contend that the award upholding termination by Ex.P.3 is perverse or is patently illegal. Therefore, finding of the tribunal that the contract is properly terminated in terms of contract, cannot be held to be against the public policy of India or is against fundamental policy of Indian law or is patently illegal.
21. When termination of contract is held to be valid, claim of the plaintiff for Rs.1,50,00,000/ which is based on estimating the loss of profit for the 45 days by calculating 9000 enrollment per day x 45 would also fail. Since the contract is validly terminated and the contract do not provide for awarding compensation for the loss suffered due to the premature termination of the contract, tribunal has rightly rejected the claim of the plaintiff for Rs.1,50,00,000/ towards capital and revenue loss on premature termination. Therefore, this finding of the tribunal also cannot be said to be against the public policy of India.
22. Claimant/Plaintiff had prayed for revocation of penalty of Rs.1,39,24,671/ which is made from the bills due to the claimant. The claimant has contended that the penalty imposed on the basis of report of the PwC is untenable and is against the principles of natural justice. It is also contended 25 CT 1390_Com.A.S.142019_Judgment .doc that no damages is suffered and the imposition of penalty is on the basis of defective audit. Clause 3.45 of Service Level Agreement of the RFP and clause 3.6 of the contract empower the respondent employer to get the audit done by auditors appointed by it. The PwC was selected as an Auditor. The respondent justified the levying of penalty by stating that it is as per the guidelines of UID and is based on the audit report. The respondent has stated that even after the audit, findings were shown to the claimant in the meeting and thereafter report was finalized and was shared with the claimant. It appears that the claimant has even accepted the audit report and has claimed waiver of the penalty. Before the learned Arbitrator it was contended for the claimant that the doctrine of waiver cannot be applied. The tribunal has considered the evidence that was lead before it and noted that PW.1 has admitted that claimant after understanding this clause in RFP has signed it and also admitted that there is a penalty clause and there could be third party audit of transaction and is also aware that the PwC was appointed as Auditor and it had taken sample while conducting the audit by randum pic. Learned Arbitrator has also referred to the audit report at Ex.R.5 and the evidence of RW.2, who has given evidence on this audit report.
23. Since there were several lapses in the enrollment process by the claimant, penalty was imposed. Enrollment Agency's performance relating to progress of enrollment, data transfer and other related activities and the enrollment made 26 CT 1390_Com.A.S.142019_Judgment .doc without valid document in violation of process, attracted penalty and the same appears to have been considered in the audit report. Before the learned Arbitrator the documents were produced including the audit report and also correspondence between the parties and the records of meeting held including request of the claimant for waiver of the penalty. The tribunal has also noted the communication showing that there were missing document in KYR+ towards end of the closure of the project. The tribunal has also considered Ex.R.4 which deals with the penalty applicable. It is mentioned in the award that the CeG has noticed that large number of enrollment were not backed by corresponding KYR+ packets and are without valid documents and by considering all these, the tribunal has held that there are no ground to hold that the penalty imposed is illegal. The tribunal has also noted that the respondent has imposed the penalty on all the enrollment agencies in which process violation is found and there was no discrimination. It is also observed that all the enrollment agencies were treated alike and undisputed document marked by consent speak for themselves and there is nothing to show that the penalty imposed is contrary to the contract.
24. As held in Associate Builders case, referred above, Arbitrator have to give effect to the terms of the contract. The contract provides for such auditing and imposition of penalty for different lapses. For the lapses, separate penalty and 27 CT 1390_Com.A.S.142019_Judgment .doc separate procedure is also provided. By considering all these, Learned Arbitrator has held that the imposition of penalty is as per the contract. This finding of the tribunal is based on terms of the contract and it cannot be held to be against the public policy or is patently illegal. Therefore, the finding of the tribunal on the aspect of imposing penalty cannot be interfered.
25. Plaintiff/claimant had also made a claim for Rs.8,13,075/ towards balance payment for successful enrollment and for enrollment which are rejected without valid reasons. Learned Arbitrator, in issue No.4 has considered this claim. According to the claimant he has carried out 10,11,562 enrollments but only 9,89,880 enrollments have been considered and for 21,682 enrollments payment is not made, out of which 8,497 enrollments have been rejected without valid reasons. The claimant contended that claimant is not aware of remaining 13,185 enrollments as to whether they resulted in successful enrollment or are rejected. In respect of entire 21,682 enrollments multiplied by unit price of Rs.37.50 the claimant has claimed Rs.8,13,075/. PW.1 has admitted that the data submitted to the respondent would be sent to the UIDAI and it will be sent to data centre of UIDAI called CIDR and it will process the data and generates Aadhar if the data is not duplicate. PW.1 himself has admitted before the Arbitral tribunal that CIDR is will ultimately issue Aadhar after ascertaining the data made 28 CT 1390_Com.A.S.142019_Judgment .doc available by claimant. It is also admitted that unless CIDR generate Aadhar, on the basis of the data furnished by the claimant, work done by the claimant till then will be of no consequence. Even the documents produced before the tribunal have shown that enrollment agency will be paid only for those enrollments resulting in UID generation. Therefore unless UID is generated, claimant is not entitle for payment. Therefore, unless the claimant established that on all the enrollments of 10,11,562, made by the claimant Aadhaar has been generated, the plaintiff/claimant cannot claim this amount. Before the tribunal claimant appears to have not placed any such evidence showing that on all the enrollments made by it, Aadhaar is generated. Unless such Aadhar is generated, the claimant is not entitle for payment as per the contract which is even admitted by PW.1.
26. Though the claimant contended that enrollment have been rejected without valid reasons, such rejection is made by UIDAI and CIDR and not by the respondent. It is the respondent duty is to send the data to UIDAI Data Centre i.e. CIDR. Thereafter the enrollment data collected by the claimant would be send to CIDR and CIDR which will process the data and generate Aadhar. Therefore rejection of enrollment by CIDR cannot be questioned before the respondent. As the payments are made only for the successful generation of Aadhar and unless the claimant/plaintiff prove that on all the enrollments, Aadhar is 29 CT 1390_Com.A.S.142019_Judgment .doc generated, plaintiff/claimant would not be entitle for this claim. By considering all these, tribunal has rejected the claim for Rs.8,13,075/ and this finding also is based on the facts and the terms of the contract and there are no ground to interfere with the same.
27. The next claim of the claimant is for Rs,1,27,68,783/ towards interest on the alleged due amount deducted as penalty and amount which is not paid. Since both the deduction of Rs.1,39,24,761/ towards penalty and non payment of Rs.8,13,075/ are held to be justified and are not against the terms of contract, and entitlement for Rs.1,50,00,000/ is also not established, question of awarding interest on these amounts do not arise. Accordingly, the tribunal has rejected the claim for interest and the same is well justified. The claim for interest depend on the entitlement of the plaintiff for these amounts. When claimant is not entitle for such amount, question of payment of interest do not arise. On considering the award and also the contention raised by the claimant, as discussed above, and on looking to the entire records, the plaintiff has failed to show presence of any of the grounds to set aside the arbitral award passed by the learned Arbitrator. The plaintiff has failed to show that the award is against the public policy of India or is patently illegal or it is bad on any of the ground appearing in Section 34 of the Arbitration & Conciliation Act. As such, the award passed by the learned Arbitrator cannot 30 CT 1390_Com.A.S.142019_Judgment .doc be set aside. Hence the Arbitration Suit filed by the claimant/plaintiff before this court under Section 34 of the Arbitration & Conciliation Act is to be dismissed with cost. Accordingly, point No.1 is answered in the negative.
28. POINT No.2 : For the discussion made on above point, following order is passed:
ORDER This Petition filed U/S.34 of the Arbitration & Conciliation Act, praying to set aside the impugned award dated 9/11/2018 passed by the learned Arbitrator in AC No.157/2017, is dismissed with costs.
[Dictated to the Judgment Writer; transcript thereof corrected, signed and then pronounced by me, in the Open Court on this the 30th day of August 2021] [Ravindra Hegde] LXXXIII Additional City Civil Judge.
BENGALURU.
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