Bangalore District Court
Iti Limited vs Renasia Cinemas Dooravaninagar ... on 28 February, 2024
1
Com.AP.No.84/2022
KABC170023022022
IN THE COURT OF LXXXII ADDL. CITY CIVIL & SESSIONS
JUDGE, AT BENGALURU (CCH.83)
THIS THE 28th DAY OF FEBRUARY 2024
PRESENT:
SUMANGALA S. BASAVANNOUR., B.COM, LL.M.,
LXXXII ADDL.CITY CIVIL & SESSIONS JUDGE,
BENGALURU.
Com.A.P.No.84/2022
BETWEEN:
ITI Limited
A Government of India
Undertaking, Having its
registered office at: ITI
Bhavan, Dooravaninagar,
Bengaluru -- 560016.
Represented by its Dy. M-
HR (Legal) and authorised
signatory, Mr. M.
Rajendran
: PETITIONER
(Represented by
Sri.Raghuram Cadambi -
Advocate)
2
Com.AP.No.84/2022
AND
1. Renasia Cinemas
Dooravaninagar Private
Limited, A company
incorporated under the
Companies Act, 2013,
Having its registered
office at: No. 11/5, 7th
Main, Indiranagar, II
Stage, Bengaluru-560038.
Represented by its
Director, Mr. Raghavendra
T.
2. Mr. I. S. Antin, District
Judge (Retd.), Having
his address at: Arbitration
and Conciliation Centre
High Court of Karnataka,
Bengaluru, Khanija
Bhavan, East Wing No.49,
Racecourse Road,
Bengaluru - 560001
: RESPONDENTS
(Represented by Sri.
Siddharth B. Muchandi-
Advocate)
3
Com.AP.No.84/2022
Date of Institution of the 28.05.2020
suit
Nature of the suit (suit
on pronote, suit for Petition for setting aside
declaration & Possession, Arbitral Award
Suit for injunction etc.)
Date on which judgment 28.02.2024
was pronounced
Total Duration Year/s Month/s Day/s
01 06 02
(SUMANGALA S. BASAVANNOR),
LXXXII Addl. City Civil & Sessions Judge,
Bengaluru.
JUDGMENT
This petition is filed under Section 34 of the Arbitration and Conciliation Act, 1996. The petitioner prays that set-aside the award dated 31.05.2022 passed by the Sole Arbitrator, Respondent No.2 herein in its entirety.
4Com.AP.No.84/2022
2. Brief facts of the petition:
The petitioner is a contractor on several key projects of Government of India including National Population Register, Socio- Economic Caste Census etc. The Petitioner has received several accolades and the certificates recognizing its work in the telecommunication sector. The Respondent is a company registered under the Companies Act, 2013 purporting to be in the business of setting up cinema theaters in and around Bengaluru. The Petitioner, desirous of renting a cinema theater in the "A" area of the ITI Township, in the Bangalore Plant of the Petitioner, floated a tender dated 10.02.2017 bearing ref. no. ITI / BNG / Theatre / 16-17 / 01 (the Tender), inviting offers for occupation the premises for the purpose of setting up a multi- screen cinema and allied facilities. One Renasia Cinema Services Private Limited herein submitted its technical bid on 02.03.2017, and since it was the only bidder, the Petitioner accepted the technical bid of Renasia Cinema Services Private Limited. After these meetings, the Petitioner entered into a Letter of Intent dated 18.05.2017 (the Lol) with the Respondent herein, the Lol incorporated all of the terms and conditions of the Tender and therefore, such terms were to be applicable to the Respondent under the LoI. After the execution of the Lol, the 5 Com.AP.No.84/2022 Petitioner carried out some civil works that were within its responsibility under Clause XXIV(A) of the Tender, and thereafter handed over the theatre to the Respondent on 17.07.2017 on an "as is where is" basis. The Petitioner also noticed that certain documents had not been furnished by the Petitioner during its bid and requested the Respondent to provide these documents viz., incorporation certificate, sales tax clearance certificate, trade license, PAN card, and audited balance sheet, as was it right in terms of Clause III(A) of the Tender. By way of an undated letter received by the Petitioner on 15.12.2018 the Respondent replied to the Petitioner's request and provided copies of its certificate of incorporation, GST certificate, and PAN certificate. Upon reviewing these documents for the first time, the Petitioner noticed for the first time that the Respondent was not in existence at the time of the submission of the bid, in so far as the incorporation certificate of the Respondent was dated 11.05.2017, more than two months after the submission of the bid. This rendered the Respondent ineligible for the Contract, in terms of Clause III of the Tender. Further, it was also noticed that during the bidding process, the Respondent had submitted a positive. Therefore, in view of the conduct of the Respondent in failing to execute the lease agreement, and in view of the fact that the Tender and LoI had been entered into through misrepresentation and fraud, the 6 Com.AP.No.84/2022 Petitioner was constrained to terminate the Contract, by way of letter dated 11.02.2019, in view of the Respondents failure to cure the defects mentioned by the Petitioner in its letter dated 02.01.2019 within a thirty-day period, as mentioned in Clause XV(6) of the Tender. Thereafter, the Respondent invoked arbitration under Clause 39 of the Lol. The Hon'ble High Court of Karnataka was pleased to allow the petition in C.M.P.No.117 / 2019, referring the matter to arbitration before the Arbitration and Conciliation Centre, Bengaluru and appointing the Respondent No. 2 herein as the Sole Arbitrator. The arbitration proceedings came to be numbered as A.C No. 148/2021. The Respondent filed its claim statement and the Petitioner filed a statement of defence. The petitioner and respondent led evidence and thereafter both parties addressed oral arguments and also filed written submissions. The impugned Award then came to be passed on 31.05.2022 as under;
(i) The claim is allowed in part
(ii) The counter-claim is dismissed
iii) The claimant is held entitled to relief of specific performance as prayed. The respondent is directed to execute a lease agreement in terms of LoI dated 18.05.2017 within 2 months from the date of the award.
7Com.AP.No.84/2022
iv) The respondent is directed to pay the claimant a total sum of Rs.40,00,000/- on or before 01.08.2022.
v) The claimant is further entitled to recover from the respondent, pendente lite and future interest @ 9% per annum on the said amount of Rs.40 lakhs till the date of realization.
3. The impugned award has challenged on following grounds;
(a) The Impugned Award has completely failed to appreciate the evidence adduced by the parties. It has arrived at some findings which are based on no evidence and other findings which ignore vital evidence, and therefore contains patent illegalities in terms of Section 34(2-A) of the Arbitration Act, which render it liable to be set aside.
(b) Impugned Award Refuses to apply binding terms of the contract to the dispute, holding that the Lol was "binding", and that it would prevail over a Tender in terms of Clause XXV (3) of the Tender.
(c) Firstly, this finding completely ignores the fact that on the very first page of the Lol and the terms 8 Com.AP.No.84/2022 and conditions contained within the Tender are explicitly stated to be a part of the Lol. Hence, all of the terms contained within the Tender would be applicable to the Lol. Therefore, a finding that the terms of the Tender are not applicable to the present dispute, has been made in complete ignorance of the terms appearing on the face of the record, and is hence, patently illegal.
(d) Similarly the finding that as per clause XXV(3) of the Tender, the Lol would prevail over the terms of the Tender is ex facie incorrect.
(e) The finding that the terms Lol and License Agreement are interchangeable, and hence, the terms of the Lol override the Tender conditions, is ex-facie perverse and contrary to the explicit terms of the Contract - both the Tender and the Lol and therefore, cannot be permitted to stand. For this reason alone, the impugned award is liable to be set aside.
(f) The Learned Sole Arbitrator, purporting to apply the Lol also found the Petitioner to be in default of its obligation to procure necessary approvals to run 9 Com.AP.No.84/2022 the theatre despite such obligation not being cast upon the Petitioner under the Lol. In fact, Clause II of the Tender explicitly provided that the Respondent was liable to procure all of the necessary licenses for the running of the theatre. The Learned Arbitrator has not returned any finding relating to how the procurement of such licenses was the duty of the Petitioner. In the absence of such a finding, the Learned Arbitrator could not have held the Petitioner to be in breach of the Contract. In view of this statement from the Respondent, the Learned Sole Arbitrator could not have come to a finding that the Petitioner "shirked its responsibilities". These findings show a complete ignorance of vital evidence by the Learned Sole Arbitrator. The crux of the issue was in relation to the electricity to be provided by the Petitioner. Further, as already stated, both the Tender at Clause XI and the LoI at Clause 30 explicitly provided that the theatre was equipped only with 15 KVA back up power. The Tender further provided that electricity would be supplied on a chargeable basis as per the existing infrastructure available, in terms of Clause XXI(6). Even the draft lease agreement provided by 10 Com.AP.No.84/2022 the Respondent provides that the Petitioner is only required to provide 15 KVA back-up power. Moreover, in the deposition of PW-1, the Petitioner admitted that it was aware that the infrastructure had been handed over on an "as is where is" basis. Therefore, if the Respondent required any further power beyond what was existing, it would have been incumbent upon the Respondent to procure it through whatever means necessary. This was also made clear by the Petitioner in its pleadings and in paragraphs 10 -13 of the Petitioner's written arguments. In light of the above, it is shocking that the Learned Sole Arbitrator has come to a finding that it was the obligation of the Petitioner to "provide such power supply (as demanded by the Respondent) without further delay." Even assuming that the Lol prevailed over the terms of the Tender, which it does not, the Lol also does not require the Petitioner to install infrastructure over and above what was already existing, at its own cost, to suit the whims and fancies of the Respondent.
(g) Impugned award grants specific performance to the respondent despite it not being ready and 11 Com.AP.No.84/2022 willing to perform its part of the contract. The Learned Arbitrator has found that the Petitioner was unwilling to execute a lease agreement in terms of the Lol. The main basis of this finding is a statement made by the Petitioner in its letter dated 02.01.2019 that "the request for execution of the Lease Deed in line with the binding Lol dated 18.05.2018 is not acceptable to us." This statement referred to the draft lease deed submitted by the Respondent. The above statement was followed by the statement "On the contrary, the Company is ready to execute the draft dated 22.08.2018, which is forward to you for acceptance (...)," which referred to the draft submitted by the Petitioner. This statement alone shows the willingness of the Petitioner to perform its obligation of executing a lease deed as specified under the Contract. The Respondent itself had produced evidence regarding the negotiations between the parties which were marked. From the correspondence, it is clear that the Petitioner has always been ready to execute a lease agreement in consonance with the terms of the Contract. Moreover, from the evidence, it is clear that the main reason for non-execution of the lease 12 Com.AP.No.84/2022 agreement was the Respondent's insistence on a term of 20 years, as shown above, would have been squarely contrary to both the Lol and Clause XIll(C) of the Tender.
(h) Since December 2018, it has been the recorded stand of the Petitioner that the Respondent's bid was invalid due to the fact that the Respondent was not an incorporated entity at the time of submission of the bid, in terms of Clause III of the Tender. It is not in dispute that the incorporation certificate of the Respondent was first provided to the Petitioner only 15.12.2018. It was only on the said date that the Petitioner realised that the Respondent was technically not qualified under the Tender conditions. The Respondent had played fraud and had misrepresented the status of its incorporation. The Respondent, having scrutinized Renasia Cinema Services Private Limited, had in good faith believed the representations of the promoters of the Respondent regarding the eligibility of the Respondent. Thus, upon discovering the fraud and misrepresentation, the Petitioner was constrained to terminate the Contract after giving the required 13 Com.AP.No.84/2022 notice to the Respondent under the Tender. The communications from the Petitioner are clear evidence showing that the Petitioner only discovered the misrepresentation in 2018, which were produced by the Respondent itself. No evidence to the contrary has been adduced by the Respondent. The Sole Arbitrator, completely ignoring the evidence adduced by the parties, has imputed mala fides to the Petitioner and deducted that the Petitioner had "engineered" such a plea, despite evidence to the contrary. The Learned Sole Arbitrator incorrectly held that in view of the acceptance of the Lol by the Petitioner, it cannot contend that the Contract was vitiated. Moreover, the Sole Arbitrator has dismissed the counterclaims as "belated", despite the fact that Section 23(3) Arbitration Act provides that parties may supplement their claims at any time during the course of arbitral proceedings. Section 34(2)(a)(v) has three parts namely: (i) the composition of the Tribunal 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); (ii) the Arbitral Procedure 14 Com.AP.No.84/2022 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 (iii) ailing any such agreement, the composition of the Tribunal or the arbitral procedure was not in accordance with this part. Hence, a violation of the provisions of the Arbitration Act is a ground for an award to be set aside under Section 34 of the Arbitration Act.
(i) The Learned Sole Arbitrator has awarded damages of Rs. 16 lakhs to the Respondent in lieu of "salary, wages, and remuneration of Directors, office maintenance and sundry purchases for the period of 2018-2020 and the hardship and inconvenience suffered by (the Respondent)." There is no bifurcation of heads in lieu of which the said amount has been awarded. Even assuming, without admitting, that the Petitioner is liable to pay any amount in damages to the Respondent, in law, a cardinal rule of damages is causation, i.e., that the harm must have been caused at the hands of the party against whom damages are awarded. In the present case, no such stipulation is pleaded or 15 Com.AP.No.84/2022 proven by the Respondent. In the absence of pleadings and proof, has granted damages, which amounts to a conclusion without evidence. In addition, it is settled that where a claim is made for mental hardship, distress or inconvenience, evidence is to be adduced to prove that such hardship in fact was suffered. No evidence to that effect was adduced by the Respondent. In the absence of such evidence, the Learned Sole Arbitrator could not have awarded any damages to the Respondent for hardship.
(j) The Respondent, in its claim statement, sought to claim an amount of Rs 54,44,685/- on the basis of some calculation produced by it, marked as Ex.P63 and Ex P64 This amount was later reduced by the Respondent to Rs 24,00,000/- for reasons best known to the Respondent.
(j) The Learned Sole Arbitrator has completely failed to apply his mind to the argument put forth by the Petitioner orally, as well in written arguments, that the said amount claimed was not supported by any documentation, and the calculation did not bear 16 Com.AP.No.84/2022 any signature. The Petitioner also explicitly argued that PW-1 in his cross-examination admitted that the said calculation was prepared by the Respondent on the assumption that the theatre would run on full capacity. The Sole Arbitrator has awarded the entire amount of damages for business loss claimed by the Respondent, without even considering, let alone adjudicating upon the serious objections raised by the Petitioner to the said amount. In view of this non-application of mind, the Impugned Award is liable to be set aside. Hence prayed to allow the petition.
4. The respondent filed objection stating that the present Arbitration Petition is preferred by the petitioner against the award passed in A.C.No.148/2021 dated 31/05/2022 by the Hon'ble Sole Arbitrator. The respondent no.1 is a private company Incorporated under the Companies Act and is registered at Registrar of Companies, Bangalore, The respondent is into the business of setting up cinemas. The supply of power backup by means of dedicated diesel generator and not the actual raw power which the petitioner ought to have provided for running the theatre. Even as per the clause- 13 of LoI and as per the tender it was the duty of the petitioner 17 Com.AP.No.84/2022 to provide 100% power as required by the operator for operating and managing the multi screen cinema. The demand for 160 KVA for running of cinemas for the purpose of running cinemas by e-mails is not disputed. It is in fact after ascertaining the practicality of power requirement for running new age cinemas, only after rightful and persistent demand of the respondent, the petitioner agreed to supply 45 KVA. The respondent no.1 is a private company Incorporated under the Companies Act and is registered at Registrar of Companies, Bangalore, The respondent is into the business of setting up cinemas. The contention of the petitioner that the terms and conditions contained within the tender are explicitly stated to be part of LOI Is untenable and baseless and also was not a part of the pleading in the arbitral proceedings and hence now the petitioner cannot come up with such & contention in this petition. It is relevant to notice that sub clause 3 of the XXV provides for execution of the License Agreement and the sub Clause 3 (b) stipulates that license agreement shall prevail over tender document. It is manifestly clear that the overriding focus for the resolution of the dispute is on the binding LOI. In fact a careful reading of the LOI (Ex-P2) would clearly make out that both the parties shall perform their duties and discharge their obligations as per the terms of the LOI. The LOI prevailed upon the tender document in the matter of giving effect to the rights 18 Com.AP.No.84/2022 and obligation of the parties under the contract. That apart, the mandatory clauses required the petitioner to execute the lease agreement in accordance with the letter and spirit of LOI.
The respondent has produced documents along with the claim petition and also in evidence particularly Ex.P9 to P12 which demonstrates the damages and the unattended works such as water leakages, cracks in walls, cracked roof sheets, repairs/ completion of electrical works, etc., which is also not seriously disputed by the respondent and in fact RW-1 has admitted the same when confronted with the emails during cross examination. It Is needless to state that several reminders were issued to the petitioner herein to attend the civil works and hand over the same within two months from the date of signing of the LOI i.e., by 18/07/2017 which the petitioner has failed to do so. Further they had undertaken that if delay continues beyond the above period, then the respondent would have a right to renegotiate the Lol. The petitioner has handed over possession of the theatre to the respondent without completing or carrying out civil works which formed part of the responsibility of the petitioner in terms of Clause XXIV Sub Clause A of the tender document which speaks about the Lessor's obligations.
19Com.AP.No.84/2022 Regarding failure of the petitioner to provide adequate power supply, it Is only after repeated persuasion by the respondent, the petitioner undertook to provide 45 KVA power supply and further directed the respondents to arrange for 30KVA by itself. On perusal of Ex-P17 it would clearly indicate that the theatre to be operated by the respondent legitimately needed 75 KVA for the effective running of the theatre. When the petitioner was aware of the adequate power supply of 75 KVA necessary for running the theatre, it was incumbent upon it to provide such power supply without delay. When the petitioner was well aware of its contractual obligations in the matter of attending to the repair works and other legitimate grievances of the respondent, it remained reluctant to Carry out the repair works which it was bound to carry out. The mandatory clause required the both the petitioner and the respondent to execute the lease agreement in accordance with the LOI. The petition at para no.2 of the notice dated 02/01/2019 marked as Ex.P12 has categorically mentioned that "the request for execution of lease deed in line with the binding LOI dated 18/05/2018 Is not acceptable to us." On perusal of the statement made by the respondent in the aforementioned letter Clearly shows the recalcitrant attitude of the petitioner to breach the mandatory terms of the Binding LOI, Though the petitioner later had agreed for the terms of lease as per LOI, they later made various 20 Com.AP.No.84/2022 deviations In the lease and compelled the claimant to agree to it. The allegation of the petitioner that at the time of submission of bid, respondent's company was not duly incorporated and subsequent incorporation cannot rectify the defect is perverse. When the petitioner company chose to accept the bid and execute the binding LOI, it cannot contend that the entire process is vitiated and consequently there was no liability to give effect to the LOI. It may be emphasized that binding LOI has overriding effect and at the relevant time of voluntary execution of such material documents, the respondent company was admittedly incorporated. The petitioner cannot take the advantage of its own acts of commissions and omissions in the matter of due verification of the bid documents at the time of acceptance of the bid of the respondent. It is only that the petitioner company failed to arrive at consensus and execute the lease deed in terms of the LOI has come out with this belated strategy of coming up with this plea relating to delay in incorporation of the respondent company.
The arbitrator has rightly dismissed the counterclaim of the petitioner as the same was an afterthought to cover up their delay and laches. In fact, the petitioner had to attend the civil works and hand over the same within two months from the date of signing of the LOI i.e., by 18/07/2017 which they have failed 21 Com.AP.No.84/2022 to carryout repair work and further delayed the process by failing to execute the lease deed in terms of the LOI. Hence, the demand as raised by the petitioner company in their counter claim is perverse. It can be noticed that the petitioners had not taken any stand regarding loss of opportunity or loss of rents to the tune of Rs. 1,83,18,403. It is only at the belated stage of respondent's arguments, with an intention to drag the proceedings came up with this untenable claim. The damages awarded and allowing the prayer of the specific performance as prayed for by the respondent are just and proper. The arbitration suit is not maintainable either in law or on facts and liable to be dismissed.
The learned Arbitrator has rightly evaluated the hardship and inconvenience suffered by the respondent company due to delay caused by the petitioner company. Thus viewing from any angle the acts of the petitioner company are unjustified and the Arbitrator after meticulous examination of the facts and evidence has rightly passed the award. The petitioner company has not made out any circumstances enumerated under Section 34 of the Arbitration and Conciliation Act, warranting interference of this Court in the well reasoned arbitral award. The arbitral award is in accordance with law and there is no necessity for this Hon'ble Court to entertain this petition. There 22 Com.AP.No.84/2022 is no ground to challenge the arbitration award and this Arbitration Suit has been filed without any basis. This respondent company craves liberty from this Court to urge and lastly respondent No.1 prays to dismiss this arbitration petition and confirm the arbitral award passed on 31/05/2022 in A.C No. 148/2021 by the sole arbitrator.
5. Heard arguments by the Petitioner and Respondent. The Petitioner relied upon a following decisions:
1. M/s Dyna Technologies Private Limited vs. M/s Crompton Greaves Limited, 2019 (20) SCC 1
2. Som Dutt Builders Private Limited vs. State of Kerala - 2009 (10) SCC 259
3. Bihar State Housing Board and others vs. Priyo Ranjan Roy - 1997 (6) SCC 487
4. Kanti Bijlee Utpadan Nigam Limited vs. Paltech Cooling Towers and Equipments Limited - 2022 SCC Online Del 1881
5. Sun Edison Solar Power India Private Limited vs. Kumar Pramendra - 2023 SCC Online Mad 5205
6. Indian Oil Corporation Limited, Mumbai vs. Kadbrotee Engineering Industries, Navi Mumbai - 201 SCC Online Bom 61 23 Com.AP.No.84/2022
7. Ghaziabad Development Authority vs. Union of India - 2000 (6) SCC 113
8. Kanchan Udyog Limited vs. United Spirits Limited
- 2017 (8) SCC 237
9. Steel of Authority of India V.J.C. Budharaja - 1999 (8) SCC 122
10. Indian Oil Corporation Limited vs. Sree Ganesh Petroleum Rajgurunagar - 2022 (4) SCC 463
11. PSA SICAL Terminals Private Limited vs. Board of Trustees of V.O. Chidambranar Port Trust Tuticorin - 2021 SCC Online SC 508 -
6. The Advocate for the Respondent has relied upon a following decisions :
1. Vidya Drolia vs. Durga Trading Corporation -
2019) 20 SS 406
2. Olympus Superstructures Private Limited vs. Meena Vijay Kehtan (1999) 5 SCC 651
3. Compact Griha Nirman vs. Kusum Alloys Limited - ILR 2007 Kar 3794
4. A.B.K. Dubhash Vs. Petit Towers Co-Op Housing Society Limited - 2011 (2) Mh.L.J
5. Hotel Vrinda Prakash vs. K.S.F.C - ILR 2008 Kar 1311 24 Com.AP.No.84/2022
7. Based on the above contentions of both parties, and the arguments of both Advocates, following Points arise for my consideration:-
1. Whether there are grounds to set aside the Impugned Award under Section 34 of the Arbitration & Conciliation Act?
2. What Order?
8. My findings on the above points are as follows:-
Point No.1:- In the Affirmative.
Point No.2:- As per the final Order for the following reasons.
REASONS
9. Point No.1: - The settled position in law that in proceedings under Section 34 of the Act, the Court does not sit in appeal over the Award. Thus, an Arbitral Award passed by an Arbitrator shall not be interfered with lightly. The Court can neither sit in appeal nor reassess or re-appreciate the evidence and the Arbitral Award can only be interfered with grounds stipulated in Section 34(2) of the Act.
25Com.AP.No.84/2022
10. It is settled position in law that an Award could be set aside if it is contrary to :-
(a) fundamental policy of Indian law; or
(b) the interest of India ; or
(c) justice or morality ; or
(d) in addition, if it is patently illegal.
11. The 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. Award could also be set aside, if it is so unfair and unreasonable that it shocks the conscience of the Court. Such an award is opposed to public policy and is required to be adjudged void.
12. The Hon'ble Supreme Court in the landmark judgment reported in 2015(3) - S.C.C. - 49 (Associate Builders vs. Delhi Development Authority), (which is relied on by the Advocate for the Defendent) while setting aside the judgment passed by the Division Bench of Hon'ble High Court of Delhi culled out the legal principles after traversing the judicial pronouncements passed by the various High Courts and the Hon'ble Apex Court. In the said case, it is held that it is important to note that the 1996 Act was enacted to replace the Arbitration Act, 1940 in order to provide for an Arbitral procedure which is fair, efficient and capable of meeting the 26 Com.AP.No.84/2022 needs of Arbitration and also to provide that the tribunal gives reasons for an Arbitral Award; to ensure that the Arbitral Tribunal remains within the limits of its jurisdiction and to minimize the supervisory role of Courts in the Arbitral process.
13. In the said decision, the Hon'ble Apex Court observed that it must be clearly understood that when a Court is applying the "Public Policy" test to an Arbitration Award, it does not act, as a Court of appeal and consequently errors of fact cannot be corrected. A possible view by the Arbitrator on facts has necessarily to pass muster, as the Arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his Arbitral Award. Thus, an Arbitral Award based on little evidence or no evidence which does not measure up in quality to a train legal mind would not be held to be invalid on this count.
14. In view of the above mentioned discussions, the position in law is well settled that while dealing with an award under Section 34 of the Act, the Courts are not supposed to sit in appeal and re-appreciate the evidences as an appellate Court. Hence, the findings of the facts by the Arbitral Tribunal, if based on evidence, even where a different opinion can be held on the basis of that evidences, the findings given by the 27 Com.AP.No.84/2022 Arbitrator has to be accepted and the Courts cannot substitute its opinion. The power to interpret the contracts also lies with the Arbitrator. Once the Court reach to the conclusion that the Arbitrator has acted within its jurisdiction, even if the Courts are of the view that the opinion of the Arbitrator is wrong, the same cannot be disturbed unless it is against the public policy.
15. The applicant challenged this award on the ground that the learned sole arbitrator has refused to apply the terms of the tender to the dispute, holding that the LOI was "binding" and that it would prevail over the tender in terms of clause XXV (3) of the tender.
16. Ex.P.2 the binding letter of intent it discloses that the binding letter intent is made and executed at bengaluru on 18.05.2017 between petitioner and respondent and also discloses the tender and correspondence are the part of this agreement. The render reference No. ITI/BNG/Theater/16-17/01.
17. Perused the tender clause XXV (3) in the heading Miscellaneous: (3) The license agreement are to be taken as mutually explanatory and unless otherwise expressly provided elsewhere in this, in the event of any conflict between them, the priority shall be in the following order:
28Com.AP.No.84/2022
(a) License agreement.
(b) Documents i.e., the license agreement above shall prevail over tender document. In case of any correction/addition/alteration/omission in the tender document observed at any stage, the bid shall be treated as non-
responsive and shall be rejected.
18. In clause 13 (b) (1) : after evaluation of bids, letter of intent(the "LOI") shall be issued by ITI to the selected bidder and the selected bidder shall, within 15 days of the receipt of the LOI submit the letter of acceptances in acknowledgment and unconditional acceptance thereof along with "interest free security".
19. Clause 13 (b) (4): The contract/license agreement shall be executed before handing over of theater. Payment of stamp duty on agreement, if any, to be executed in pursuance of this bid shall be borne by successful bidder. The contract period shall commence from the date of agreement from the date of handing over of theater and vacant space.
20. The learned arbitrator in page No. 44 held that it is of relevance to notice that sub-clause 3 of XXV provides for execution of licence agreement and sub-clause 3(B) stipulates that licence agreement shall prevail over tender document. Further discussed that a careful reading of Ex.P.2(LOI) would 29 Com.AP.No.84/2022 make it manifestly clear that both parties shall perform their duties and discharge their obligations as enumerated in the LOI. The document clearly mandates execution of the lease deed in terms of LOI. The lease period and lock-in-period are clearly set out in this martial document. The manifestly clear that the overriding focus for resolution of the dispute is on the binding LOI. It is emphasized that the caption of the materials document produced at Ex.P.2 is shown as "Binding Letter of intent". The intention of the parties to abide by the terms of LOI and give due effect to LOI is writ large on the fact of record. On the contrary in Page No. 46 as already emphasized above, the LOI prevailed upon the tender document in the matter of giving effect to rights and obligations of the parties under the contract. In page No. 48 the arbitrator discussed that at the risk of repetition, it may be emphasized that binding LOI has overriding effect and at the relevant time of voluntary execution of such material document, the claimant company was admittedly incorporated.
21. The Plaintiff counsel relied upon a following decisions
(a) M/s Dyna Technologies Private Limited vs. M/s Crompton Greaves Limited, 2019 (20) SCC 1 Wherein the Hon'ble High Court held that : When we 30 Com.AP.No.84/2022 consider the requirement of a reasoned order three characteristics of a reasoned order can be fathomed. They are: proper, intelligible and adequate. If the reasoning in the order are improper, they reveal a flaw in the decision-making process. If the challenge to an award is based on impropriety or perversity in the reasoning, then it can be challenged strictly on the grounds provided under Section 34 of the Arbitration Act. If the challenge to an award is based on the ground that the same is unintelligible, the same would be equivalent of providing no reasons at all. Coming to the last aspect concerning the challenge on adequacy of reasons, the Court while exercising jurisdiction under Section 34 has to adjudicate the validity of such an award based on the degree of particularity of reasoning required having regard to the nature of issues falling for consideration. The degree of particularity cannot be stated in a precise manner as the same would depend on the complexity of the issue. Even if the Court comes to a conclusion that there were gaps in the reasoning for the conclusions reached by the Tribunal, the Court needs to have regard to the documents submitted by the parties and the contentions raised before the Tribunal so that awards with inadequate reasons are not set aside in casual and cavalier manner. On the other hand, ordinarily unintelligible awards are to be set aside, subject to party autonomy to do away with the reasoned award. Therefore, the courts are required to be careful while distinguishing between inadequacy of reasons in an award and unintelligible awards.
In case of absence of reasoning the utility has been provided under of Section 34 (4) of the Arbitration Act to cure such defects. When there is complete perversity in the reasoning then only it can be challenged under the provisions of Section 34 of the Arbitration Act. The power vested under Section 34 (4) of the Arbitration Act 31 Com.AP.No.84/2022 to cure defects can be utilized in cases where the arbitral award does not provide any reasoning or if the award has some gap in the reasoning or otherwise and that can be cured so as to avoid a challenge based on the aforesaid curable defects under Section 34 of the Arbitration Act. However, in this case such remand to the Tribunal would not be beneficial as this case has taken more than 25 years for its adjudication. It is in this state of affairs that we lament that the purpose of arbitration as an effective and expeditious forum itself stands effaced.
(b). Som Dutt Builders Private Limited vs. State of Kerala - 2009 (10) SCC 259 Section 31(3) mandates that the arbitral award shall state the reasons upon which it is based, unless - (a) the parties have agreed that no reasons are to be given or (b) the award is an arbitral award under Section 30. That the present case is not covered by clauses (a) and
(b) is not in dispute. In the circumstances, it was obligatory for the arbitral tribunal to state reasons in support of its award in respect of claim nos. 1 and 4B. By legislative mandate, it is now essential for the arbitral tribunal to give reasons in support of the award. It is pertinent to notice here that Act, 1996 is based on UNCITRAL Model Law which has a provision of stating the reasons upon which the award is based.
22. The requirement of reasons in support of the award under Section 31(3) is not an empty formality. It guarantees fair and legitimate consideration of the controversy by the arbitral 32 Com.AP.No.84/2022 tribunal. It is true that arbitral tribunal is not expected to write judgment like a court nor it is expected to give elaborate and detailed reasons in support of its finding/s but mere noticing the submissions of the parties or reference to documents is no substitute for reasons which the arbitral tribunal is obliged to give. Howsoever brief these may be, reasons must be indicated in the award as that would reflect thought process leading to a particular conclusion. To satisfy the requirement of 64 (1966) DLT 553 Section 31(3), the reasons must be stated by the arbitral tribunal upon which the award is based; want of reasons would make such award legally flawed.
23. Clauses of Tender Notification reads as under:
As per clause 13 (b) of Tender after evaluation of bids, letter of intent (LOI) shall be issued by ITI to the selected bidder and the selected bidder shall within 15 days of receipt of LOI submit the letter of acceptance (LOA) in acknowledgment and unconditional acceptance thereof along with the interest fee security.
24. Initial security deposit of 10 months rent after adjusting EMD without consideration of interest" to be paid within 15 days of LOI ( along with LOA). In the event, the LOA duly signed by the selected bidder is not received by the stipulated date, ITI may, unless it consents to extension of time for submission thereof, forfiet the Bid security of such bidder as damages on account of failure of the selected bidder to 33 Com.AP.No.84/2022 unconditionally accept the terms of the LOI.
25. After submission of LOA along with "interest free security deposit" and Theater and vacant land/space shall be handed over to Licensee within 10 days from the date of receipt of payment and letter of award will be issued to the selected bidder on "as is where is basis" on the terms and conditions hereunder contained in this tender document.
26. The contract/License agreement shall be executed before handing over of theater, payment of stamp duty on agreement, if any, to be executed in pursuance of this bid shall be borne by successful bidder. The contract period shall commence from the date of agreement from the date of handing over the theater and vacant space.
27. After issue of letter of award and handing over of theater and vacant space, where the licensee shall exclusive rights over running the theater immediately after issue of letter of acceptance (LOA).
24. Thus it was clearly put has a pre-condition that after evaluation of bid letter of intent shall be issued and selected bidder within a 15 days receipt of LOI submit letter of Acceptance (LOA) in acknowledgment and unconditional acceptance along with interest free security deposit. Further it also discloses that, if the LOI not received, forfeited the bid security of a such bidder as a damage on account of failure.
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25. The letter of intent merely indicated the party intention to enter into contract no binding relationship at this stage emerges. The Hon'ble supreme court in the decision South Easter Coal limited vs. S. Kumar's Associates AKM (JV) 2021 SCC Online 486 has held that issue whether a concluded contract had been arrived at inter se the parties is in term dependent on the terms and conditions of the NIT, the LOI and conduct of the parties. The proposition that an LOI merely indicates a parties intentions to enter into contract with other party in future. No binding relationship between the parties at this stage emerges and totality of the circumstance have to be considered in each case.
26. In para 16 in Page No. 19 the learned arbitrator held that it is of relevance to notice that sub-clause 3 of XXV provides for execution of Licence agreement and sub-clause 3 (b) stipulates that Licence agreement shall prevail over tender document.
27. On the contrary In Page No. 21 Para 17 the learned arbitrator held that as already emphasized. The LOI prevailed upon the tender document in the matter of giving effect to rights and obligations of the parties under the contract.
35Com.AP.No.84/2022
28. In page No. 23 in Para No. 19 the learned arbitrator held that at the risk of repetition, it may be emphasizd that binding LOI has oveeriding effect and at the relevant time of voluntary execution of such material document, the claimant company was admittedly incorporated.
29. It is clear that there was no concluded contrast inter se parties. So, letter of intent cannot be construe as a binding contract. It is well settled legal possession under the Indian laws that an agreement to enter into an agreement neither enforceable not does it conform any rights upon the parties. The letter of intent generally indicates a party's intention to enter into contract with the other party in future. A letter of intent is not intended to bind either party ultimately to enter into contract. Hence, the letter of intent does not conform no contractual obligation. Hence ,it is no valid and binding contract.
30. In this regard I relied upon a decision reported in Rajasthan Co-op Diary Federation Limited vs. Maha Laxmi Mingrate Marketing Services Private Limited, wherein the Hon'ble Supreme Court Held that :
36Com.AP.No.84/2022 "the letter of intent merely expresses an intention to enter into a contract.. There was no binding legal relationship between the appellant and the respondent 1 at this stage and the appellant was entitled to look at the totality of circumstances in deciding whether to enter into a binding contract with respondent 1 or not."
31. In the present case, as per clause XXV (3) of the tender, specifically provides that the "License Agreement" would prevail over the terms of the tender document. The Term "License agreement" as contemplated in the tender refers to the definitive lease agreement that was to be executed pursuant to the LOI, as set out in clause XIII (B)(4) of the tender. The terms of LOI and License Agreement are not used interchangeably in the tender and cannot possibly be equated to mean the same. Even accordingly to the Respondent, the petitioner was required to execute a lease/license agreement in pursuance to the LOI, which is not a final agreement- hence why the respondent sought for specific performance against the petitioner. The findings given by the learned arbitrator, the terms of the LOI override the tender conditions, is ex-facie perverse and contrary to the explicit terms of the contract- both the tender and the LOI.
37Com.AP.No.84/2022
32. Hence the findings of the tribunal is beyond the scope of arbitration agreement as also has act without jurisdiction. This is also a clear case of patent illegality. In view of the above decision. The impugned award is liable to be set aside on this ground also.
33. The petitioner has taken another ground that the impugned award imputes breach in the absence of contractual obligations. The learned petitioner has argued that the Learned Sole Arbitrator, purporting to apply the Lol also found the Petitioner to be in default of its obligation to procure necessary approvals to run the theatre despite such obligation not being cast upon the Petitioner under the Lol. In fact, Clause II of the Tender explicitly provided that the Respondent was liable to procure all of the necessary licenses for the running of the theatre. The Learned Arbitrator came to a finding that the Petitioner had not completed its scope of work under the LOI, despite the fact under the tender, the premises were handed over on as "as is where is" basis. Moreover, the respondent, in its email dated 26.04.2018, in fact, admitted that the purported issues with the premises had been rectified and only the issue relating to electricity remained. In view of this statement from the Respondent the learned sole arbitrator could not have come to a finding that the petitioner "shirked its responsibilities".
38Com.AP.No.84/2022 These findings show a complete ignorance of vital evidence by the learned sole arbitrator.
34. Clause 2 of the tender reads as under :- Scope of contract for running the theater:
1. The selected bidder shall have exclusive rights to run the theater with renewal of existing license from the authorities at his cost.
2. Successful bidder shall be responsible for the following department.
* To obtain renewed license from the respective department.
* Cost of design the structure and approved by the licensed engineer if any modifications/alterations/renovations of the existing theater.
* Cost of license fees, cost of electricity, BBMP charges and any other charges which are connected to the running the theater will borne by the bidder.
35. The learned arbitrator in Page No. 20 as held that the evidence adduced in the case is also reflective of the fact that the respondent shirked its responsibilities of procuring necessary approvals and licences from various government departments such as, Electrical inspectorate, PWD, health and 39 Com.AP.No.84/2022 films division and shifted such burden to the claimant. The material on record would further reveal that there was remiss on the part of the respondent to perform the other contractual obligations in the matter of providing equipment and the required load of electricity to the theatre.
36. As per the tender it is the responsibilities of the bidder to obtain renewed license from the respective department. Cost of design the structure and approved by the licensed engineer if any modifications/alterations/renovations of the existing theater. So, it is clear that the findings given by the learned arbitrator is perverse and illegal. Since, all the obligations as per the tender contractual obligation on the part of the respondent.
37. The learned advocate petitioner has argued that the impugned award has awarded damages to the respondent for harm not caused by the Petitioner.
38. The learned sole arbitrator has award damages of Rs. 16 lakhs to the Respondent in lieu of "salary, wages and remuneration of Directors, office maintenance and sundry purchases for the period of 2018-2020, and the hardship and inconvenience suffered by(the Respondent).
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39. In this regard the Petitioner has relied upon a following decision :
(a) Bihar State Housing Board and others vs. Priyo Ranjan Roy - 1997 (6) SCC 487 " Where damages are awarded there must be an assessment thereof and the order awarding damages must contain an indication of the basis upon which the amount awarded is arrived at. There should have been some statements in the order under challenge about the relationship between the amount awarded and the default and unjustifiable delay and harassment found to have been caused. "
(b). Kanti Bijlee Utpadan Nigam Limited vs. Paltech Cooling Towers and Equipments Limited - 2022 SCC Online Del 1881 ". The counter-claims made by KBUNL were also rejected summarily as the Arbitral Tribunal concluded that the same had been raised as a counterblast to PCTEL's claim at a belated stage. The Arbitral Tribunal also concluded that the delay in execution of the works was on account of KBUNL in issuing the Certificate of COF. It is difficult to reconcile this finding with the Arbitral Tribunal's finding that PCTEL had "left some balance works which had to be got completed by the respondent at its own level/cost". It was KBUNL's case that the cooling towers did not meet the requisite parameters and thus, it was entitled to liquidated damages.
This dispute was not addressed. The Arbitral Tribunal merely accepted that PCTEL was not required 41 Com.AP.No.84/2022 to conduct a PG Test.
This Court is of the view that the impugned award entered in favour of PCTEL is without any basis and without adjudicating any of the claims raised by PCTEL. In addition, the Court is also of the view that the decision of the Arbitral Tribunal to summarily reject the counter-claims cannot be sustained. The Arbitral Tribunal's conclusion that the counter-claims are belated is, ex facie, erroneous. The counter- claims are not barred by limitation and cannot be rejected on the grounds of delay.
(c). Sun Edison Solar Power India Private Limited vs. Kumar Pramendra - 2023 SCC Online Mad 5205 "The Award suffers from patent illegality attracting Section 34 of the Arbitration and Conciliation Act as the determination of the compensation by the Arbitrator is unintelligible without any basis and without any supporting oral or documentary evidence.
The decisions relied upon by the learned counsel for the petitioner referred to supra makes it clear that the impugned Award suffers from patent illegality and it has to be set aside by this Court. However, to determine whether any breach of contract has been committed by the petitioner or the respondent and whether compensation is payable to any of them and for what amount under various heads, parties will have to be granted liberty to initiate fresh arbitration in accordance with law. The impugned arbitral award is set aside only on the ground that the compensation awarded by the arbitrator towards unliquidated damages in favour of the respondent is not supported 42 Com.AP.No.84/2022 by any evidence and the award is an unintelligible award.
(d). Indian Oil Corporation Limited, Mumbai vs. Kadbrotee Engineering Industries, Navi Mumbai - 201 SCC Online Bom 61 " In view of above, the finidings given by the arbitrator in para (f) while awarding this amount is without any material evience and supporting documents and therefore, unacceptable and just contrary to law and even the material placed on record. The reasoning that the claimants cannot be made to suffer losses due to the rescission, even if it is proper and lawful, in my view, also cannot be the reason to award such amount in such fashion, basically when the learned arbitrator has already observed by referring to clauses 31 and 32 of the contract that the action so taken by the petitiner of termination of contract is well within the square of the contract by giving the reasons on merits also. Therefore, the termination itself than the forfeiture so invoked also supports the case of the petitioner."
(e). Ghaziabad Development Authority vs. Union of India - 2000 (6) SCC 113 "When a development authority announces a scheme for allotment of plots, the brochure issued by it for public information is an invitation to offer. Several members of public may make applications for availing benefit of the scheme. Such applications are offers. Some of the offers having been accepted subject to rules of priority or preference laid down by the Authority result into a contract between the applicant and the Authority. The legal relationship governing the performance and consequences flowing from 43 Com.AP.No.84/2022 breach would be worked out under the provisions of the contract Act and the Specific Relief Act except to the extent governed by the law applicable to the Authority floating the scheme. In case of breach of contract damages may be claimed by one party from the other who has broken its contractual obligation in some way or the other. The damages may be liquidated or unliquidated. Liquidated damages are such damages as have been agreed upon and fixed by the parties in anticipation of the breach. Unliquidated damages are such damages as are required to be assessed. Broadly the principle underlying assessment of damages is to put the aggrieved party monetarily in the same position as far as possible in which it would have been if the contract would have been performed. Here the rule as to remoteness of damages comes into play. Such loss may be compensated as the parties could have contemplated at the time of entering into the contract. The party held liable to compensation shall be obliged to compensate for such losses as directly flow from its breach. Chitty on Contracts (27th Edition, Vol.1, para 26.041) states - Normally, no damages in contract will be awarded for injury to the plaintiffs feelings, or for his mental distress, anguish, annoyance, loss of reputation or social discredit caused by the breach of contract;..The exception is limited to contract whose performance is to provide piece of mind or freedom from distress.Damages may also be awarded for nervous shock or an anxiety state (an actual breakdown in health) suffered by the plaintiff, if that was, at the time the contract was made, within the contemplation of the parties as a not unlikely consequence of the breach of contract. Despite these developments, however, the Court of Appeal has refused to award damages for injured 44 Com.AP.No.84/2022 feelings to a wrongfully dismissed employee, and confirmed that damages for anguish and vexation caused by breach of contract cannot be awarded in an ordinary commercial contract.
(f). Kanchan Udyog Limited vs. United Spirits Limited
- 2017 (8) SCC 237 " A unilaterally projected profitability in a loan application, which is a mere assumption, cannot be the basis for assessment of damages especially when the appellant conceded that it would not be in a position to earn profit till 1992-93. No evidence had been led with regard to the actual course of the market for cold drinks during 1987-88, and whether other bottlers had made profits. The appellant had failed to demonstrate any real and substantial chance of earning profit, considering that there was no brand acceptance by the consumers also.
Considering the principle of causation to award loss of anticipated profits by breach of agreement, it was held in the facts of the case, that it was not the result of the breach, but was a composition of various factors like lack of brand acceptance, financial crunch of the appellant and lack of adequate infrastructure by it. The claim for damages was therefore, remote as there was not even a speculated chance for making profit by the appellant.
40. In the award the learned arbitrator held that in Para No. 32 the loss of the revenue and the business opportunity for the claimant due to the violation of the binding LOI by the respondent would doubtless entitle the claimant to recover a 45 Com.AP.No.84/2022 sum of Rs. 24 lakhs from the respondent. As for the other expenses which are inclusive of salary, wages, and remuneration of directors, office maintenance and sundry purchases for the period 2018-2020 and the hardship and the inconvenience suffered by the claimant. I considered it just and equitable to award a sum of Rs. 16 lakhs to the claimant. Above findings it is clear that the learned arbitrator is given any reason for come to conclusion regarding the 24 lakhs of damages towards business loss and 16 lakhs towards the different heads.
41. It is well established law that were the damages are awarded there must be assessment there of and the order awarding damaged must contain an indication of basis upon which the amount award is arrived at. Further, the arbitrator shall determine whether compensation is payable any of them for what amount under various heads. The arbitrator cannot assess of damage an mere assumption. In the present case, the award does not contained any indication of basis upon which the learned arbitrator arrived the damage of Rs. 24 lakhs. Hence, the award suffers from illegality attracting the section 34 of Arbitration and Conciliation Act as the determination of the compensation by the Arbitrator is unintelligible without any basis and without any supporting oral or documentary evidence.
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42. The Hon'ble Supreme Court in the landmark judgment reported in 2015(3) - S.C.C. - 49 (Associate Builders vs. Delhi Development Authority), (which is relied on by the Advocate for the Defendant) while setting aside the judgment passed by the Division Bench of Hon'ble High Court of Delhi culled out the legal principles after traversing the judicial pronouncements passed by the various High Courts and the Hon'ble Apex Court. In the said case, it is held that it is important to note that the 1996 Act was enacted to replace the Arbitration Act, 1940 in order to provide for an Arbitral procedure which is fair, efficient and capable of meeting the needs of Arbitration and also to provide that the tribunal gives reasons for an Arbitral Award; to ensure that the Arbitral Tribunal remains within the limits of its jurisdiction and to minimize the supervisory role of Courts in the Arbitral process.
43. In the said decision, the Hon'ble Apex Court observed that it must be clearly understood that when a Court is applying the "Public Policy" test to an Arbitration Award, it does not act, as a Court of appeal and consequently errors of fact cannot be corrected. A possible view by the Arbitrator on facts has necessarily to pass muster, as the Arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his Arbitral Award. Thus, an Arbitral Award 47 Com.AP.No.84/2022 based on little evidence or no evidence which does not measure up in quality to a train legal mind would not be held to be invalid on this count.
44. In view of my above discussions, observations and findings, I am of the opinion that the Award of the Learned Arbitrator is liable to be set aside on the ground that the same is contrary to the Public Policy and also there is patent illegality in the findings of the learned Arbitrator. Further, I make it clear that I have discussed only about the findings given by the learned Arbitrator in the light of the contentions taken by the petitioner without re-appreciating the oral or documentary evidence placed before the Learned Arbitrator. All my findings are based on the legal aspects and the development of case law on the said subject. When such being the case, I have no other option except to set aside the entire Award passed by the learned Arbitrator. Therefore, I answer this Point in the "Affirmative".
45. Point No. 2 :- Therefore, I proceed to pass the following Order.
48Com.AP.No.84/2022 ORDER The Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996, is allowed.
The Arbitral Award dated 31.05.2022 is hereby set aside.
The Office is directed to send copy of this judgment to both parties to their email ID as required under Order XX Rule 1 of the Civil Procedure Code as amended under Section 16 of the Commercial Courts Act.
(Dictated to the Stenographer, typed by her directly on computer, verified and then pronounced by me in open Court on this the 28th day of February, 2024).
(SUMANGALA S. BASAVANNOR), LXXXII Addl. City Civil & Sessions Judge, Bengaluru.