Bangalore District Court
Issued A Risk Purchase And Cost Notice ... vs To Handover The Stores And Site Office ... on 8 June, 2021
1
Com.AS.No.160/2017
& Com.AS.No.190/2017
IN THE COURT OF LXXXII ADDL.CITY CIVIL & SESSIONS
JUDGE,AT BENGALURU (CCH.83)
THIS THE 8th DAY OF JUNE 2021.
PRESENT:
SRI.DEVARAJA BHAT.M.,B.COM,LL.B.,
LXXXII ADDL.CITY CIVIL & SESSIONS JUDGE,
BENGALURU.
Com.A.S.No.160/2017 & 190/2017
Parties in Com.A.S.No.160/2017
BETWEEN:
M/s Bharat Heavy
Electricals Limited,
Having its registered
Office at BHEL House,
Siri Fort, New Delhi -
110 049.
And its Industrial
System Group at
P.B.No.1249, Professor
C.N.R. Rao Circle, IISc
Post, Malleswaram,
Bengaluru -560 012.
: PLAINTIFF
(Represented by M/s
A.K.Law Chambers-
Advocates.)
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Com.AS.No.160/2017
& Com.AS.No.190/2017
AND
1. TECPRO Systems
Limited, Having its
registered Office at
No.106, Vishwadeep
Tower, Plot No.4, District
Center, Janak Puri, New
Delhi - 110 058.
And another Office at:
TECPRO Towers, 11, A17,
5th Cross Road, SIPCOT
IT Park, Siruseri,
Chennai - 603 103,
represented by Mr.
Venkata Subramanian,
Chief Re-structuring
Officer, appointed by
NCLT, Principal Bench,
New Delhi, in C.A.No.(IB)
197 (PB)/2017.
: DEFENDANT
(Defendant is
represented by M/s
Imperium Legal -
Advocates)
2. Hon'ble Justice Sri.
R. Raveendran (Rtd.),
Former Judge of
Hon'ble Supreme
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Com.AS.No.160/2017
& Com.AS.No.190/2017
Court of India, the
Hon'ble Arbitrator,
No.8/2, Krishna Road,
Basavanagudi,
Bengaluru - 560 004.
: RESPONDENT
Parties in Com.A.S.No.190/2017
BETWEEN:
1. TECPRO Systems
Limited, A Company
incorporated under the
Companies Act, 1956,
Having its Head Office at
No.25, 2nd Floor, 1st Main
Road, Gandhi Nagar,
Adyar, Chennai - 600
020, represented by its
authorised signatory Mr.
Mohammed Assadullah.
: PLAINTIFF
(Plaintiff is
represented by M/s
Imperium Legal -
Advocates)
AND
M/s Bharat Heavy
Electricals Limited, A
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Com.AS.No.160/2017
& Com.AS.No.190/2017
Company incorporated
under the Companies
Act, 1956, Having its
registered Office at
BHEL House, Siri Fort,
New Delhi - 110 049.
And its Industrial
System Group at
P.B.No.1249, Professor
C.N.R. Rao Circle, IISc
Post, Malleswaram,
Bengaluru -560 012.
: DEFENDANT
(Defendant is
represented by M/s
A.K.Law Chambers-
Advocates)
2. Hon'ble Justice Sri. R.
Raveendran (Rtd.),
Former Judge of Hon'ble
Supreme Court of India,
the Hon'ble Arbitrator,
No.8/2, Krishna Road,
Basavanagudi,
Bengaluru - 560 004.
: RESPONDENT
Date of Institution of the (1) 15.11.2017 (2) 16.12.2017
suit
Nature of the suit (suit on
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Com.AS.No.160/2017
& Com.AS.No.190/2017
pronote, suit for Petition for setting aside
declaration & Possession, Arbitral Award
Suit for injunction etc.)
Date of commencement of
recording of evidence - Nil -
Date on which judgment
was pronounced 08.06.2021
Date of First Case - Not held -
Management Hearing
Time taken for disposal 54 days
from the date of
conclusion of arguments
Total Duration Year/s Month/s Day/s
(1) 03 06 23
(2) 03 05 22
(DEVARAJA BHAT.M),
LXXXII Addl.City Civil & Sessions Judge,
Bengaluru.
COMMON JUDGMENT
These two Petitions are filed by both parties under Section
34 of the Arbitration & Conciliation Act, 1996 for setting aside
the Arbitral Award dated 21.08.2017 passed by the learned
Arbitrator.
2. The Plaintiff in Com.A.S.No.160/2017, M/s Bharat Heavy
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Com.AS.No.160/2017
& Com.AS.No.190/2017
Electricals Limited" had invoked the Arbitration Agreement and
preferred certain Claims against the Defendant. In response to
the Statement of Claim preferred by the Plaintiff, the Defendant
filed its statement of objections.
3. For the sake of clarity and convenience, the parties are
hereinafter referred by their ranks and status, i.e., Bharath
Heavy Electricals Limited as Plaintiff and the M/s Techpro
Systems Limited as Defendant.
4. The Brief facts leading to the case are as follows:-
National Mineral Development Corporation (NMDC), a
Government of India Enterprise under Ministry of Steel, had
proposed to set up a 3.0 MTPA Integrated Steel Plant based on
BF-BOF Route at Nagarnar, District Bastar, State of Chattisgarh,
that the NMDC had engaged MECON, a Government of India
Enterprise as a consultant, that as a part of the project, NMDC
with an intention of setting up Raw Material Handling System
(RMHS) published invitation for bid from interested Agencies for
expression of interest for the said RMHS on 04.03.2009 and
revised expression of interest on 31.12.2009, that on being
successful bidder, the Plaintiff entered into a Contract with
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Com.AS.No.160/2017
& Com.AS.No.190/2017
NMDC on 03.09.2011 for the afore-mentioned works, that on
09.02.2010, the Plaintiff submitted its revised Expression of
Interest to NMDC and in turn, invited offers for pre-tender tie-up
for execution of (a) conveyors and structures for Coal Handling
Plant (CHP) and Ore Handling Plant (OHP) and (b) Civil Works
relating to RMHS, that the Plaintiff received offers from 3 parties
for CHP and 2 offers for OHP, that the Defendant is one among
the bidders for CHP and OHP, as per the price bids dated
29.09.2010, that it is a part of the tender that the price shall
remain firm, Freight on Road (FOR) Site and delivery period shall
be progressively within 18 months and completion of Erection
and Commissioning shall be within 24 months from the date of
receipt of NMDC Order of the Plaintiff, that 2 Memorandum of
Understandings (MOUs) were entered into between the Plaintiff
and Defendant on 04.10.2010, that in furtherance of the same,
the Defendant issued two letters on 15.06.2011 quoting the
final price for CHP and OHP as Rs.114.5 Crores and Rs.406.85
Crores respectively inclusive of all taxes, duties and entry tax,
that the Plaintiff on receipt of approval for Defendant's
appointment for carrying out conveyors and structures in
respect of of RMHS package in pursuance with the execution of
the contract dated 03.09.2011 between the Plaintiff and NMDC,
the Plaintiff issued two Letters of Intent dated 14.09.2011 with
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Com.AS.No.160/2017
& Com.AS.No.190/2017
the Contract Value of CHP and OHP as Rs.114.5 Crores and
Rs.406.85 Crores respectively, that the Defendant
unconditionally accepted all the terms of the two Letters of
Intent dated 14.09.2011 vide letters dated 16.09.2011 and
accordingly furnished two Performance Bank Guarantees for
10% of the respective Contract Values dated 12.10.2011 as
required under the Contract. On acceptance of Letter of Intent
by the Defendant, the Plaintiff issued two Purchase Orders
bearing No.77/11/0132/PS and 77/11/0133/PS dated 13.10.2011
to the Defendant with the scope of work and the same was
received and acknowledged by the Defendant on 21.10.2011,
that on several occasions the Plaintiff complained about the fall
in progress and not meeting the contractual delivery schedule
of the work performed by the Defendant, that on 23.10.2013,
Plaintiff issued a Risk Purchase and Cost Notice pointing out that
the Defendant had failed to keep up its commitments and
referred to the fact that stoppage of payment by the Defendant
to its Vendors and Sub-Contractors during the last seven
months had resulted in abandonment of fabrication, equipment
supply etc., that the non-performance of the Defendant was
solely attributable to its financial distress and in addition to this,
their bankers stopped providing financial support and
subsequently the Defendant suo-motto referred to BIFR for the
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Com.AS.No.160/2017
& Com.AS.No.190/2017
determination of sickness of the Company, that there was no
improvement in the progress of work by the Defendant, the
Plaintiff terminated the two Purchase Orders reserving the right
to claim general and repudiated damages and additional costs
incurred by the Plaintiff by taking Orders on alternative
Suppliers/Contractors on 15.12.2013, that the works
abandoned, was subsequently placed on alternative agencies,
that on 16.09.2014, the Plaintiff invoked two Performance Bank
Guarantees, that on 07.11.2014, the Plaintiff requested the
Defendant to handover the Stores and site Office buildings, that
on 27.12.2014, the Plaintiff requested the Defendant to
handover the materials stores, and site office buildings and to
deposit an amount of Rs.160 Crores towards additional money
spent by the Plaintiff arising under the list and cost of the work
abandoned by the Defendant, that since the Defendant did not
respond to these letters, the Plaintiff issued a Legal Notice on
14.01.2015, that the Defendant on 07.04.2015, disputed the
issuance of Termination Letter and invoked Arbitration Clause
and hence, the dispute was referred to the Arbitrator and he has
passed the Impugned Award.
5. Being Aggrieved by the said Arbitral Award, the Plaintiff has
challenged the same in Com.A.S.No.160/2017 on the following
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Com.AS.No.160/2017
& Com.AS.No.190/2017
grounds:-
(I) The Impugned Award is Contrary to the Law of the land
and the material on record and is liable to be set aside.
(ii) The Impugned Award suffers from complete non-
application of mind and the procedure adopted by the learned
Arbitrator is unknown to law.
(iii) The learned Arbitrator has erroneously held that if time
was the essence and the Contract had therefore come to an end
on 30.08.2013/14.09.2013, there was no need to issue various
Notices requesting the Defendant for Action Plan for completion
and assuring facilitation for completion, that those letters
written subsequent to 30.08.2013/14.09.2013 referring to the
delays and threatened risk purchase action if there was no
satisfactory progress, emphasized the subsistence of the
contract and does not show any intention of the part of the
Plaintiff to treat the Contract as having come to an end on
30.08.2013/14.09.2013.
(iv) The learned Arbitrator has exceeded its mandate by
failing to apply the standard as defined under Clause-44.2.6 of
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Com.AS.No.160/2017
& Com.AS.No.190/2017
General Conditions of Contract for assessment of the amount
that the Plaintiff could claim towards risk and cost under the
Contract and this is an error on the face of the record and the
Impugned Award is liable to be set aside on this ground alone.
(v) The learned Arbitrator has erred in finding that the
failure to mitigate law disentitles the Plaintiff to any amount
towards risk and cost and erroneously observed that the Claim
of the Plaintiff is for damages and further erroneously relied
upon Section 55 of the Indian Contract Act.
(vi) That the entire approach of the learned Arbitrator as to
whether time was the essence of Contract is irrelevant as it is
already held that there is breach of Contract by the Defendant.
(vii) That the terms, conditions and applicability of the
Contract have not been appropriately interpreted or applied by
the learned Arbitrator in respect of the disputes adjudicated
therein.
(viii) That the Impugned Award on acceptance of the
Defendant having been responsible for the delayed and
unfinished project, the finding about denying the Plaintiff
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Com.AS.No.160/2017
& Com.AS.No.190/2017
encashment of the Bank Guarantee is wholly erroneous.
(ix) The learned Arbitrator erred in not considering the fact
that the Defendant was not financially sound and was
performing poorly in business due to financial distress while
passing the Impugned Award.
6. Being Aggrieved by the said Arbitral Award, the Defendant
has challenged the same in Com.A.S.No.190/2017 on the
following grounds:-
(I) The findings of the learned Arbitrator vis-a-vis the Award
of liquidated damages under Issue No.4 at 5% of the total
Contract Value in favour of the Plaintiff is in gross violation of
the Public Policy of India.
(ii) The learned Arbitrator in determining the other Claims
of the Plaintiff has held that since the termination of the
Contract was illegal, the Plaintiff was not eligible for the Claims
made against the Defendant, but the Award allows certain
Claims of the Plaintiff on account of illegal termination of
Contract by the Plaintiff on ground of delayed performance and
time being the essence of Contract.
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Com.AS.No.160/2017
& Com.AS.No.190/2017
(iii) The findings of the learned Arbitrator at Issue No.4 that
the Plaintiff could be eligible for liquidated damages at 5% of
the ceiling limit of total Contract Value on account of delay in
completion by the Defendant, is contrary to the Public Policy of
India.
(iv) It could not have been held against the Defendant that
the time-line contained in the contractual understanding
between the parties continues to apply in spite of the final
adjudication in the Award that time was no longer the essence
of the Contract between the parties.
(v) When the termination by the Plaintiff is held to be
illegal, any relief/damages claimed by the Plaintiff which arises
out of non-performance or delayed performance out of such
illegally terminated Contract, ought to have been disallowed by
the learned Arbitrator.
(vi) The finding that the Plaintiff is eligible for liquidated
damages in spite of absence of a finding that the Defendant
breached its obligations under the Contract due to delayed
performance, the Award of liquidated damages deserves to be
set aside as the same is contrary to the public policy of India.
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Com.AS.No.160/2017
& Com.AS.No.190/2017
(vii) The Award to the extent that if allowed, relief on
account of delayed performance, deserves to be set aside as
the same is against the Public Policy of India.
(viii) The finding that the Plaintiff would be eligible for
liquidated damages is patently erroneous as the value of the
Contract ought to have been considered without including the
taxes and duties on the Contract Value.
(ix) The finding in the Award in so far as it sets off the
amount awarded to Plaintiff from the amount awarded to the
Defendant in Para No.18 deserves to be set aside as it is in
conflict with Public Policy of India.
(x) The learned Arbitrator failed to take into account the
moratorium imposed in the Order dated 07.08.2017 and the
conditions imposed by Section 14(1) of the said Court, which is
expressly prohibited encumbering the legal right of the
Defendant to cheat full recovery of the Arbitral Award in its
favour.
7. It is to be noted that in the Cause Title of
Com.A.S.No.160/2017, it is mentioned that the Proceedings in
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Com.AS.No.160/2017
& Com.AS.No.190/2017
C.A.No.(IB)197(PB)/2017 was pending before the NCLT, Principal
Bench, New Delhi, when the said Petition was filed before this
Court. The learned Advocate for the Defendant has filed a
memo on 01.02.2020 with the Order passed in the said
Proceedings dated 16.01.2020 and in the said Order, an Official
Liquidator was appointed. On 18.02.2020, the Vakalath on
behalf of Official Liquidator was filed in this proceedings.
8. During the pendency of these suits, on 10.03.2020, the
Advocate for the Plaintiff has filed I.A.No.I praying for
permission to lead evidence in Com.A.S.No.160/2017. The
Advocate for the Defendant has filed its detailed Objections to
the said I.A. on 12.03.2020. On 08.01.2021, the Defendant has
filed I.A.No.II praying for dismissal of the present Petition on the
ground that in the above-mentioned C.A.No.(IB)197(PB)/2017
proceedings, M/s Krish Steel & Trading Private Limited has taken
over the management of the Defendant Company in view of the
Order passed on 15.05.2019 and the Order passed by the
Hon'ble Supreme court dated 25.11.2020. The Plaintiff has filed
objections to I.A.No.II on 03.03.2021. On the same day, the
Plaintiff has also filed I.A.No.III under Order XI Rule 12 and Order
XI Rule 15 of Civil Procedure Code praying to direct the
Defendant to furnish the copies of the documents referred to in
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Com.AS.No.160/2017
& Com.AS.No.190/2017
the said I.A.No.III. On 16.03.2021, the Advocate for the
Defendant has filed a Memo with Copy of the Order passed in
Civil Appeal No.3299/2020 of the Hon'ble Supreme Court dated
01.03.2021. In view of the said Order, management of the
Defendant Company has been reverted back to the Official
Liquidator. On 15.04.2021, the I.A.No.II is not pressed by the
Advocate for the Defendant. Hence, I.A.No.II is dismissed as not
pressed. Consequently, the Advocate for the Plaintiff has also
not pressed I.A.No.III. Hence, I.A.No.III is also dismissed as not
pressed.
9. I have heard the arguments of the Learned Senior Counsel
Sri. Srinivasa Raghavan on behalf of the Plaintiff. I have heard
the arguments of the learned Senior Counsel Sri. Arun Kumar
on behalf of the Defendant. They have argued both on main
matter as well as on I.A.No.I. The learned Advocate for Plaintiff
has also filed his written arguments on 22.04.2021.
10. Based on the above contentions of both parties,
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?
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Com.AS.No.160/2017
& Com.AS.No.190/2017
2. What Order?
11. 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
12. Point No. 1 : - The Arbitration and Conciliation
(Amendment) Act, 2015 made major changes to Section 34. The
changes were suggested by the 246 th Report of the Law
Commission of India on Amendments to the Arbitration and
Conciliation Act, 1996 of August 2014 and the Supplementary
to the 246th Report of the Law Commission of India on
Amendments to the Arbitration and Conciliation Act, 1996 of
February 2015. These changes were aimed at restricting Courts
from interfering with arbitral awards on the ground of "public
policy." Accordingly, the amendment added "Explanation 2" to
Section 34(2) as well as Section 2A. Explanation 2 of Section
34(2) states:-
"For the avoidance of doubt, the test as to whether
there is a contravention with the fundamental policy of
Indian Law shall not entail a review on the merits of the
dispute."
18
Com.AS.No.160/2017
& Com.AS.No.190/2017
13. Thus, this Explanation significantly curtailed the scope of
interpretation made in the decision reported in 2014 (9) -
S.C.C. - 263 (ONGC vs. Western GECO International
Limited). Because of this amendment, Courts would no longer
be able to interfere with the award passed by the Arbitrator. The
Explanation makes it especially clear that in no way would a
Court be entailed to review the award on merits of the dispute.
Similarly, Section 2A also curtails the scope of interpretation of
"patently illegal" as propounded in the decision reported in
2003 (5) - S.C.C. - 705 ( ONGC vs. Saw Pipes Limited).
Section 2A states:-
"An arbitral award arising out of arbitrations other
than international commercial arbitrations, may also be
set aside by the Court, if the Court finds that the award
is vitiated by patent illegality appearing on the face of
the award:
Provided that an award shall not be set aside
merely on the ground of an erroneous application of law
or by re-appreciation of evidence."
14. Thus, Courts can no longer reappraise evidence or set
aside awards merely because the Arbitral Tribunal has made
errors when dealing with the same. In the decision reported in
(2017) 13 - SCALE - 91 (SC) (Venture Global Engineering
19
Com.AS.No.160/2017
& Com.AS.No.190/2017
LLC and Ors vs. Tech Mahindra Ltd. and Ors), the Hon'ble
Supreme court has held as follows:-
"The Award of an Arbitral Tribunal can be set aside
only on the grounds specified in Section 34 of the
Arbitration & Conciliation Act and on no other ground.
The Court cannot act as an Appellate Court to examine
the legality of Award, nor it can examine the merits of
claim by entering in factual arena like an Appellate
Court."
15. A similar view is also taken in the decision reported in
(2017) 14 - SCALE - 240 (SC) (Sutlej Construction vs. The
Union Territory of Chandigarh).
16. The ratio of the above-mentioned decisions show that the
recent trend of interpretation of "public policy" has been one
where the Courts have refused to examine the Arbitral Awards
on merits, thereby upholding the legislative mandate of
"minimal intervention of the Courts in the arbitral process" as
reflected by the changes brought by the Arbitration and
Conciliation (Amendment) Act, 2015.
17. In the decision reported in 2019 (15) - S.C.C. - 131
(Ssangyong Engineering & Construction Co. Ltd. vs.
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Com.AS.No.160/2017
& Com.AS.No.190/2017
National Highways Authority of India Ltd.) , the Hon'ble
Supreme Court has once again reiterated the law related to the
examination by a Court of an Award under Section 34 of the Act
and has held as under:-
"34. What is clear, therefore, is that the expression
public policy of India, whether contained in Section 34
or in Section 48, would now mean the fundamental
policy of Indian law as explained in paragraphs 18 and
27 of Associate Builders (supra), i.e., the fundamental
policy of Indian law would be relegated to the
"Renusagar" understanding of this expression. This
would necessarily mean that the Western Geco (supra)
expansion has been done away with. In short, Western
Geco (supra), as explained in paragraphs 28 and 29 of
Associate Builders(supra), would no longer obtain, as
under the guise of interfering with an award on the
ground that the arbitrator has not adopted a judicial
approach, the Court's intervention would be on the
merits of the award, which cannot be permitted post
amendment. However, in so far as principles of natural
justice are concerned, as contained in Sections 18 and
34(2)(a)(iii) of the 1996 Act, these continue to be
grounds of challenge of an award, as is contained in
paragraph 30 of Associate Builders (supra).
35. It is important to notice that the ground for
interference in so far as it concerns "interest of India"
has since been deleted, and therefore, no longer
obtains. Equally,the ground for interference on the basis
that the award is in conflict with justice or morality is
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Com.AS.No.160/2017
& Com.AS.No.190/2017
now to be understood as a conflict with the "most basic
notions of morality or justice". This again would be in
line with paragraphs 36 to 39 of Associate Builders
(supra), as it is only such arbitral awards that shock the
conscience of the court that can be set aside on this
ground.
36. Thus, it is clear that public policy of India is now
constricted to mean firstly, that a domestic award is
contrary to the fundamental policy of Indian law, as
understood in paragraphs 18 and 27 of Associate
Builders(supra), or secondly, that such award is against
basic notions of justice or morality as understood in
paragraphs 36 to 39 of Associate Builders (supra).
Explanation 2 to Section 34(2)(b)(ii) and Explanation 2
to Section 48(2)(b)(ii) was added by the Amendment Act
only so that Western Geco (supra), as understood in
Associate Builders (supra), and paragraphs 28 and 29 in
particular, is now done away with.
37. Insofar as domestic awards made in India are
concerned, an additional ground is now available under
subsection (2A), added by the Amendment Act, 2015,to
Section 34.Here, there must be patent illegality
appearing on the face of the award, which refers to such
illegality as goes to the root of the matter but which
does not amount to mere erroneous application of the
law. In short, what is not subsumed within the
fundamental policy of Indian law, namely, the
contravention of a statute not linked to public policy or
public interest,cannot be brought in by the back door
when it comes to setting aside an award on the ground
of patent illegality.
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& Com.AS.No.190/2017
38. Secondly, it is also made clear that re-
appreciation of evidence, which is what an appellate
court is permitted to do, cannot be permitted under the
ground of patent illegality appearing on the face of the
award.
39. To elucidate, paragraph 42.1 of Associate
Builders(supra), namely, a mere contravention of the
substantive law of India, by itself, is no longer a ground
available to set aside an arbitral award. Paragraph 42.2
of Associate Builders (supra), however, would remain,
for if an arbitrator gives no reasons for an award and
contravenes Section 31(3) of the 1996 Act, that would
certainly amount to a patent illegality on the face of the
award.
40. The change made in Section 28(3) by the
Amendment Act really follows what is stated in
paragraphs 42.3 to 45 in Associate Builders (supra),
namely, that the construction of the terms of a contract
is primarily for an arbitrator to decide, unless the
arbitrator construes the contract in a manner that no
fair minded or reasonable person would; in short, that
the arbitrator's view is not even a possible view to take.
Also, if the arbitrator wanders outside the contract and
deals with matters not allotted to him, he commits an
error of jurisdiction. This ground of challenge will now
fall within the new ground added under Section 34(2A).
41. What is important to note is that a decision
which is perverse, as understood in paragraphs 31 and
32 of Associate Builders (supra), while no longer being
aground for challenge under public policy of India,would
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& Com.AS.No.190/2017
certainly amount to a patent illegality appearing on the
face of the award. Thus, a finding based on no evidence
at all or an award which ignores vital evidence in
arriving at its decision would be perverse and liable to
be set aside on the ground of patent illegality.
Additionally, a finding based on documents taken behind
the back of the parties by the arbitrator would also
qualify as a decision based on no evidence inasmuch as
such decision is not based on evidence led by the
parties, and therefore, would also have to be
characterized as perverse."
18. In another decision reported in 2019 (16) - SCALE -
823 (Hindustan Construction Company Limited & Anr. vs.
Union of India & Ors.), the Hon'ble Apex Court has held as
under :-
"49. Further, this Court has repeatedly held that an
application under Section 34 of the Arbitration Act, 1996
is a summary proceeding not in the nature of a regular
suit - see Canara Nidhi Ltd. v. M. Shashikala 2019 SCC
OnLine SC 1244 at paragraph 20. As a result, a court
reviewing an arbitral award under Section 34 does not
sit in appeal over the award, and if the view taken by
the arbitrator is possible, no interference is called for -
see Associated Construction v. Pawanhans Helicopters
Limited. (2008)16 SCC 128 at paragraph 17.
50. Also, as has been held in the recent decision
Ssangyong Engineering & Construction Co. Ltd. vs. NHAI
2019 SCC OnLine SC 677, after the 2015 Amendment
Act, this Court cannot interfere with an arbitral award
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Com.AS.No.160/2017
& Com.AS.No.190/2017
on merits."
19. Therefore, in view of the ratio of the said decisions,
without touching into merits of the case, I now propose to
consider the contentions of both parties. It is to be noted here
that both parties are not satisfied with the Impugned Award and
both have challenged the same in these proceedings on
separate grounds.
20. In the Impugned Award, the Learned Arbitrator has held as
per Dispute No. 1 and 6, that the time was not the essence of
contract and hence without issuing a notice making time the
essence, the termination notice dated 16.12.2013 is illegal and
invalid.
21. By relying Clause 5 and 11 of the Purchase Orders dated
13.11.2011 and Clause 26 of the Notice inviting Tenders dated
29.07.2010, the Plaintiff has contended that the time was the
essence of contract before the Learned Arbitrator. As per Para
41 of the Award, the Defendant has contended that the time
was not of the essence of contract on the grounds narrated at
(a) to (d) of the said Paragraph.
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& Com.AS.No.190/2017
22. However, the Learned Advocate for the Plaintiff has
drawn my attention to Page 12 of the Reply Statement filed by
the Defendant before the Learned Arbitrator, wherein the
Defendant has contended that due to the breach of contract by
the Plaintiff in not fulfilling any of the contractual obligations,
time was no more an essence of the contract between the
Plaintiff and Defendant. Hence, the Defendant has not
contended that the time was not the essence of contract, but
he contended that the time was no more an essence of
contract. The Learned Advocate for the Plaintiff has drawn my
attention to Para 20 at Page 13 of the Reply Statement filed by
the Defendant before the Learned Arbitrator, wherein the
Defendant has contended that the Plaintiff has repeatedly
insisted that the Defendant was to abide by all the contract
conditions including the timelines contained in the said
purchase orders. It is to be noted that the Defendant has filed a
separate Statement of Claim in respect of his Counter-Claim.
The Learned Advocate for the Plaintiff has drawn my attention
to Para 27 at Page 14 of the said Claim Statement filed by the
Defendant before the Learned Arbitrator, wherein the
Defendant has contended as follows :-
"27. Techpro continued to followup with BHEL for
payments due for approvals of drawings submitted. In
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& Com.AS.No.190/2017
spite of failing to release payments for the work
undertaken and equipment/products supplied, BHEL
issued a Risk and Cost Notice dated 16.12.2013, bearing
Reference No.IS-1-11-2008/MM, illegally terminating the
POs arbitrarily, alleging delay in completion of work
under the POs. BHEL, in spite of being the cause for
such delay in execution by Techpro, which had rendered
that "time is no more essence of contract", arbitrarily
raised untenable concerns against Techpro and illegally
terminated the POs, causing massive financial losses to
Techpro."
23. In the said Paragraph also, the Defendant has contended
that the time was no more an essence of the contract between
the Plaintiff and Defendant. Hence, the Defendant has not
contended that the time was not the essence of contract, but
he contended that the time was no more an essence of
contract. The Learned Advocate for the Plaintiff has argued that
the Learned Arbitrator has not properly understood the
contentions of the Defendant, and has held erroneously that the
time was not essence of the contract. By perusing the said
contentions, the arguments of the Learned Advocate for the
Plaintiff cannot be brushed aside.
24. The Learned Arbitrator has further held in view of the
Clause No.5 of the Letters of Intent dated 14.09.2011 and
27
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& Com.AS.No.190/2017
Clause No. 7.1 of the Purchase Orders dated 13.10.2011, which
provides for extension of time by levying liquidated damages,
only course open to the Plaintiff to levy liquidated damages and
to issue a notice fixing the date for completion by granting
reasonable time for completion and specifying that completion
within the time so fixed is the essence of the contracts; and
after such notice, if the Defendant failed to complete the work
within the time fixed by the notice, the Plaintiff could terminate
the contracts. For the same reasons, the Learned Arbitrator has
denied the relief under the Risk Purchase Clause to the Plaintiff
and as against the claim of the Plaintiff for Rs. 262.62 Crores as
damages by way of extra cost for completion, the Plaintiff was
awarded only a sum of Rs.26.07 Crores, i.e. 5% of the contract
as liquidated damages for the delay.
25. The Learned Advocate for the Plaintiff has vehemently
argued that the said finding is erroneous and contrary to public
policy of India. He has relied upon a decision reported in A.I.R.
- 1984 - Del - 360 = 1984 - S.C.C. Online - Del - 60 ( M/s
Saraya Distillery vs. Union of India and Anr.),wherein at
paras 2-3, 8-9, 11-12 has held that there can be different
remedies 'without prejudice to each other' under the contract
for different breaches of the contract, for instance, right of
28
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& Com.AS.No.190/2017
repurchase (loss claimed on account of repurchase) and right of
the purchaser to recover damages for breach of the contract.
26. Now I discuss about the said legal aspect. Usually,
liquidated damages are quantified and limited to stipulated
percentage of the contract value. However, merely because the
parties agree to a maximum ceiling limit for claiming liquidated
damages, that by itself does not preclude the parties from
claiming or recovering damages on other accounts, if otherwise
the contract provides for the same and the actual damages
suffered is much more.
27. The proposition of law that the aggrieved party is only
entitled to a reasonable compensation which should not exceed
the sum of penalty or predetermined amount which has to be
paid after the breach of the contract, may be held to be correct,
if the relevant provision of the contract does not expressly or by
necessary implication keep alive the right to claim damages
under the general law, the right to claim the same may be
necessarily excluded. For that aspect, I wish to refer the
decision reported in A.I.R. - 1962- S.C. - 1314 ( Sir Chunilal
vs. Mehta and Sons Ltd. vs. Century Spinning and
Manufacturing Co. Ltd.).
29
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& Com.AS.No.190/2017
28. In addition to the provision for Liquidated Damages,
subject to the terms of the contract the aggrieved party may be
well within his or her rights to recover risk purchase costs/
additional costs and expenses incurred for engaging third
parties for carrying out balance work with a view to avoid delay
in contemplation and/or mitigate further delay.
29. In the present case, according to the Plaintiff, the claim
for recovery of Risk Purchase cost by the Plaintiff was a
contractual claim , i.e. as per the Clause 11.0 of the Contract,
and not in the nature of damages.
30. Therefore, claiming of Liquidated Damages and Risk
Purchase Costs simultaneously is indeed a reality but would
necessarily depend upon the terms and conditions of the
contract which would essentially govern the right of the parties.
But the mere existence of provision for Liquidated Damages in a
contract which may provide for a maximum ceiling limit in
terms of stipulated percentage of the contract value would per
se not be a bar from recovering actual damages incurred under
other heads.
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& Com.AS.No.190/2017
31. In situations where provisions of the contract between the
parties reveal that the parties agreed to claim for liquidated
damages or risk purchase then the intention of the parties
crystallized into the words of the contract will prevail. In the
aforesaid background, subject to the provisions of the contract,
Liquidated Damages and Risk Purchase costs both may be
claimed for following reasons.
32. Liquidated Damages are penal/ compensatory in nature
which is imposed on the Contractor for the delay and damage
suffered by the Principal Employer due to such delay in
execution of the works under the contract. Risk purchase costs
on the other hand are in the nature of reimbursements claimed
by the principal towards costs and expenses incurred for
engaging third parties/purchasing materials from third parties
and includes additional costs incurred to avoid delay in
contemplation and/ or mitigate further delay.
33. The Learned Advocate for the Plaintiff has argued that the
Learned Arbitrator has held that the Defendant had caused
significant delay in making supplies and had made only a
fraction of supply as required under the contract and that the
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& Com.AS.No.190/2017
Claim of the Plaintiff under Clause 11.0 of the Contract was in
the nature of reimbursement for purchase of the supplies from
alternative agencies.
34. The Liquidated Damages is limited to the damages
incurred generally due to delay and the Risk purchase costs are
wider in that sense as it generally relates to all costs and
expenses incurred due to default to avoid delay in
contemplation and/or mitigate further delay.
35. The Indian Contract Act, 1872 itself provides for
compensation under the heads of 'loss or damage caused by
breach of contract' under Section 73 and 'breach of contract
where penalty stipulated for' under Section 74. The Liquidated
Damages component claimed for is under Section 74 in the
nature of a penalty for breaching the contract by failing to meet
milestones and the remaining component of unliquidated
damages may be claimed for under Section 73 as loss suffered
or damage caused by breach of contract i.e. direct costs of
hiring third party/ purchasing materials which was the known
natural consequence of default.
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& Com.AS.No.190/2017
36. In the decision reported in (2009) 10 - S.C.C. - 63
(Steel Authority Of India Ltd vs. Gupta Brother Steel
Tubes Ltd) at Paras 21 to 24 has held that existence of a
Liquidated Damages clause is not a bar for recovery of
damages under other clauses under the contract. This principle
of law is further explained by following and referring the ratio of
this decision by the Hon'ble High Court of Bombay in the
decision reported in 2014 - S.C.C. Online - BOM - 1277(
Oil & Natural Gas Corporation Limited vs. Soconord
OCTG and Soconord vs. Oil & Natural Gas Corporation
Limited) at paras 28, 43 to 46 and in 2015 (5) - Mh.L.J. -
135, (Simplex Infrastructures Limited vs. Siemens
Limited & Anr.), (which is relied on by the Advocate for the
Plaintiff), at paras 4 and 13 has held that reimbursements of
payments made on behalf of the Contractor is separate from
Liquidated Damages and that that if a Liquidated Damages
clause stipulates a ceiling on account of delay in delivery, then
such a clause would not prevent a party from claiming damages
on account of the goods supplied under the contract being
defective.
37. Hence, in view of the ratio of the above-mentioned
decisions, it is fairly settled that there is no bar that once there
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& Com.AS.No.190/2017
is a Liquidated Damages clause in respect of a particular claim,
damages cannot be awarded although they arise on account of
another claim under the same contract. Therefore, in
furtherance of the legal principle that Liquidated Damages and
Risk Purchase costs may be claimed simultaneously, it is only
fair that the ceiling provided for the claim on account of
Liquidated Damages is not made applicable to the claim on
account of Risk Purchase costs.
38. It is a settled position of law that for interpreting a
provision of a contract, the intention behind execution of the
contract by the parties is sacrosanct and needs to be
determined. If the parties to a contract, out of their own free
will and volition agreed to concurrently apply different
provisions of the contract within their ambit for dealing with
different breaches, the provision for liquidated damages
stipulating a maximum ceiling limit would be construed merely
as one of the modes to recover damages for a specific breach
only. Such a provision would not act as a bar in a case where
the contract itself provides for and allows the affected party to
claim damages under various other heads including - Risk
Purchase Costs/ Additional Costs in addition to and apart from
the stipulated Liquidated Damages. Therefore, Liquidated
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& Com.AS.No.190/2017
Damages and Other Damages such as Risk Purchase costs/
Additional Costs both can be claimed simultaneously and the
ceiling on Liquidated Damages claim cannot be made
applicable to claim of damages under other heads.
39. While denying the said relief, the Learned Arbitrator has
referred to a decision reported in 2015 (4) - S.C.C. - 136
(Kailashnath Associates vs. Delhi Development
Authority) at Para No. 122 of the Impugned Award. In the said
decision, the Hon'ble Supreme Court had considered the earlier
decisions and held as under: -
"43. On a conspectus of the above
authorities, the law on compensation for breach
of contract under Section 74 can be stated to be
as follows:
43.1 Where a sum is named in a contract as
a liquidated amount payable by way of damages,
the party complaining of a breach can receive as
reasonable compensation such liquidated amount
only if it is a genuine pre-estimate of damages
fixed by both parties and found to be such by the
Court. In other cases, where a sum is named in a
contract as a liquidated amount payable by way
of damages, only reasonable compensation can
be awarded not exceeding the amount so stated.
Similarly, in cases where the amount fixed is in
the nature of penalty, only reasonable
35
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& Com.AS.No.190/2017
compensation can be awarded not exceeding the
penalty so stated. In both cases, the liquidated
amount or penalty is the upper limit beyond
which the Court cannot grant reasonable
compensation."
40. It is to be noted that the said case was decided on
09.01.2015. Subsequently on 04.02.2015, the Hon'ble Supreme
Court in the decision reported in A.I.R. - 2015 - S.C. - 1282
(M/s. Construction and Design Services vs. Delhi
Development Authority), again considered the issue of
Liquidated Damages, proof required etc., in the light of the
earlier decision of the Hon'ble Supreme Court reported in
(2003) 5 - S.C.C. - 705 (Oil and Natural Gas Corporation
Ltd vs. Saw Pipes). The said subsequent decision reiterates
the principle that if the sum is named as liquidated damages
then it is payable and the burden for showing that there has
been no loss or injury is on the contractor. It is to be noted that
the Hon'ble High Court of Bombay in the decision reported in
2016 - S.C.C. Online- Bom - 10023 (Ultratech Cement
Ltd vs. Sunfield Resources Pvt Ltd), decided on 21.12.2016
in Appeal 881 of 2005, has considered sequence of judgments
of the Hon'ble Courts, including the above-mentioned decision
of the Hon'ble Supreme Court reported in 2015 (4) - S.C.C. -
36
Com.AS.No.160/2017
& Com.AS.No.190/2017
136 (Kailashnath Associates vs. Delhi Development
Authority). In view of the above, the settled law is that if the
sum named as liquidated damages is not by way of penalty but
is genuine pre-estimate of the loss that will be suffered, then
there is no necessity to enquire into actual loss and the
agreement reached between the parties stipulating the sum is
binding and is payable. The agreement between the parties
estimating the damage would itself be evidence. In other words,
no actual loss or damages need to be established. Unless the
Liquidated Damages provision results in payment of an
exorbitant and unconscionable amount, the same cannot be
treated a penalty, particularly, in the context of the parties
being free to agree to the terms and conditions of the contract
and adequacy of consideration not being a relevant issue.
41. The Learned Arbitrator has further held that after
30.08.2013, the Plaintiff has written letters to the Defendant on
10.09.2013, 21.10.2013, 23.10.2013, and 6.11.2013 and tried
to persuade and facilitate the Defendant to carry out the work,
and thereby it is evident that the Plaintiff treated the contracts
as subsisting beyond 30.08.2013/14.09.2013 until the contract
was terminated on 16.12.2013 and hence the stipulation that
work should be completed by 30.08.2013/14.09.2013 was
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Com.AS.No.160/2017
& Com.AS.No.190/2017
waived by the Plaintiff and that it is clear that time was not
intended to be the essence of the contracts; and at all events,
the Plaintiff, by its conduct, waived any requirement to
complete the work by 30.08.2013/14.09.2013. The Learned
Advocate for the Plaintiff has attacked the said findings of the
Learned Arbitrator that the plea of waiver should be pleaded
and without pleadings and proof, the Learned arbitrator cannot
come to such conclusion and that the Defendant has not
pleaded any waiver and hence the said finding is contrary to
the public policy. In support of his arguments, he has relied on a
decision reported in A.I.R. - 1979 - S.C.- 621 = (1979) 2 -
S.C.C. - 409 (M/s. Motilal Padampat Sugar Mills Co. Ltd.
vs. State of Uttar Pradesh and others). In the said case,
the Chief Secretary of the Government gave a categorical
assurance that total exemption from sales tax would be given
for three years to all new industrial units in order to establish
themselves firmly, that acting on this assurance the appellant
sugar mills set up a hydrogenation plant by raising a huge loan,
that subsequently, the Government changed its policy and
announced that sales tax exemption will be given at varying
rates over three years, that the appellant contended that they
set up the plant and raised huge loans only due to the
assurance given by the Government. The Hon'ble Supreme
38
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& Com.AS.No.190/2017
Court has held that the Government was bound by its promise
and was liable to exempt the appellants from sales tax for a
period of three years commencing from the date of production.
In the said case, the Hon'ble Supreme Court has further held
that waiver is a question of fact and it must be properly pleaded
and proved and no plea of waiver can be allowed to be raised
unless it is pleaded. For better understanding it is relevant to
extract Para 5 of the said decision, which is as follows:-
"We shall first deal with the question of waiver
since that can be disposed of in a few words. The High
Court held that even if there was an assurance given by
respondent on behalf of the State Government and such
assurance was binding on the State Government on the
principle of promissory estoppel, the appellant had
waived its right under it by accepting the concessional
rates of sales tax set out in the letter of respondent 5
dated January 20, 1970. We do not think this view taken
by the High Court can be sustained. In the first place, it
is elementary that waiver is a question of fact and it
must be properly pleaded and proved. No plea of waiver
can be allowed to be raised unless it is pleaded and the
factual foundation for it is laid in the pleadings. Here it
was common ground that the plea of waiver was not
taken by the State Government in the affidavit filed on
its behalf in reply to the writ petition, nor was it
indicated even vaguely in such affidavit. It was raised
for the first time at the hearing of the writ petition. That
was clearly impermissible without an amendment of the
affidavit in reply or a supplementary affidavit raising
such plea. If waiver were properly pleaded in the
39
Com.AS.No.160/2017
& Com.AS.No.190/2017
affidavit in reply, the appellant would have had an
opportunity of placing on record facts showing why and
in what circumstances the appellant came to address
the letter dated June 25, 1970 and establishing that on
these facts there was no waiver by the appellant of its
right to exemption under the assurance given by
respondent 4. But in the absence of such pleading in the
affidavit in reply, this opportunity was denied to the
appellant. It was, therefore, not right for the High Court
to have allowed the plea of waiver to be raised against
the appellant and that plea should have been rejected in
limine."
42. In view of the ratio of the said decision, the said finding
of the Learned Arbitrator cannot be accepted.
43. The Learned Arbitrator has further held that after
30.08.2013, the Plaintiff has written letters to the Defendant on
10.09.2013, 21.10.2013, 23.10.2013, and 6.11.2013 and
extended the time and hence in view of the ratio of the
decisions reported in A.I.R. - 1979 - S.C. - 720 = (1979) 2 -
S.C.C. - 70 (Hind Construction Contractors vs. State of
Maharastra) and (1999) 9 - S.C.C. - 449 (Arosan
Enterprises Ltd vs. Union of India) and held that the time
was not intended to be the essence of the contracts.
40
Com.AS.No.160/2017
& Com.AS.No.190/2017
44. In fact, the Learned Arbitrator has erroneously placed
reliance on the decision reported in A.I.R. - 1979 - S.C. - 720
= (1979) 2 - S.C.C. - 70 (Hind Construction Contractors
vs. State of Maharastra) without appreciating that it does
not lay down that if time ceases to be of essence of the
contract, termination cannot be resorted to by an innocent
party. All that the judgment holds is that in case time is not of
essence, then the innocent party may give a notice to the other
party and terminate the contract. In the present case, despite
the above-mentioned notices, the Defendant failed to complete
the work. In another decision referred to by the Learned
Arbitrator, (1999) 9 - S.C.C. - 449 (Arosan Enterprises Ltd
vs. Union of India), wherein three types of cases have been
carved out where time is termed to be the essence viz., where
the parties expressly stipulate that the time must be complied
with and two, where the circumstances of the contract or the
nature of subject matter indicates a fixed date for completion of
the contract. According to the said decision, where though time
is not originally of essence of the contract, but if one party is
guilty of undue delay then the other party can give a notice to
perform the contract within a reasonable time, depending on
the nature of transactions.
41
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& Com.AS.No.190/2017
45. About this observation of the Learned Arbitrator, the
Learned Advocate for the Plaintiff has relied on a decision
reported in A.I.R. - 2007 - S.C. - 509 = 2007(2) - S.C.C. -
453 ( Ramnath International Construction (P) Ltd vs.
Union of India). In the said case, the facts of the case are
more or less similar in the present case. In the said case, so far
as the Hangar Contract is concerned, the contract work had to
be completed in two phases, the first phase by 31.10.1989 and
the second phase by 30.4.1990, that the contract work could
not be completed within the stipulated time, that on the request
of the contractor, the employer gave several extensions by a
letter dated 28.2.1990 the period of completion of work was
extended up to 30.6.1990; by a letter dated 10.5.1991 it was
extended up to 31.5.1991; by a letter dated 27.8.1991 it was
extended up to 30.9.1991; by a letter dated 23.1.1992 the time
was extended up to 15.4.1992; by a letter dated 15.5.1992 it
was extended up to 28.5.1992 and by a letter dated 4.6.1992, it
was further extended up to 22.6.1992 and that the contract was
subsequently terminated by the employer on 1.7.1992. Only
difference is that the time was extended as per the request of
the contractor in the said case. But the contract was terminated
subsequent to the date of completion fixed in the original
contract after exchange of several letters. In the said case, the
42
Com.AS.No.160/2017
& Com.AS.No.190/2017
Hon'ble Supreme Court has held that the terms of the contract
providing that if in case of any delay attributable either to the
contractor or to the employer or to both, the contractor sought
and obtained extension of time, he would not be entitled to
claim any compensation on the ground of such delay. The
Learned Advocate for the Plaintiff has argued that this decision
is subsequent to the decision of the above-mentioned decisions
reported in A.I.R. - 1979 - S.C. - 720 = (1979) 2 - S.C.C. -
70 (Hind Construction Contractors vs. State of
Maharastra) and (1999) 9 - S.C.C. - 449 (Arosan
Enterprises Ltd vs. Union of India), referred to by the
Learned Arbitrator and in this decision the Hon'ble Supreme
Court has upheld the termination of contract after the period
agreed between the parties and hence, just because the
issuance of letters by the Plaintiff to try and persuade the
Defendant to complete the work after completion of the
contract period, the right of the Plaintiff to terminate the
contract is not lost.
46. Further the Learned Advocate for the Plaintiff has argued
that since the Defendant has not taken any defence that the
time was not the essence of contract, by referring the decisions
reported in A.I.R. - 1979 - S.C. - 720 = (1979) 2 - S.C.C. -
43
Com.AS.No.160/2017
& Com.AS.No.190/2017
70 (Hind Construction Contractors vs. State of
Maharastra) and (1999) 9 - S.C.C. - 449 (Arosan
Enterprises Ltd vs. Union of India), the Learned Arbitrator
cannot hold the termination as illegal, and the said approach of
the Learned Arbitrator amounts to patent illegality. As already
discussed by me, it is true that the Defendant has not taken any
defence that the time was not the essence of the contract.
What he has pleaded is that the time was no longer the essence
of contract. When there is no such defence/plea by the
Defendant, the Learned Arbitrator cannot hold like that by
making any guess work based on the letters written by the
Plaintiff for extension of time. For that aspect, I wish to refer a
decision reported in A.I.R. - 1986 - Karnataka - 14 = I.L.R.
- 1985 - KAR - 2992 (DB) = 1985 (2) - Kar. L. J. - 319 ( M/s
Venkateswara Minerals vs. Jugal kishore Chiranjital
Firm), wherein the parties entered into agreement on February
1, 1968 for delivery of goods by appellants on March 16, 1968,
that on March 20, 1968 respondents contended that appellants
had committed breach of contract and requested for refund of
sale price within 8 days, that on April 9, 1968, appellant
contended that time was not of the essence and delivery was
not made due to respondents fault, that on August 2, 1968
respondent offered to extend the period of delivery by 7 days
44
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& Com.AS.No.190/2017
from date of receipt of this notice, that no acceptance was
communicated to respondent, that on August 24, 1968
appellants wrote contending they have not committed breach.
In the said circumstances, it is held that since one party to the
contract could not unilaterally alter or vary the terms thereof,
he could not extend the time for performance thereof without
the other party's intimating its consent or agreement thereto by
any of the methods stated in Section 4 of the Contract Act, that
this is clear from a plain reading of Sections 55 and 63 of the
Contract Act, that the question if time was of the essence of the
contract should be decided with reference to how the parties to
it intended and the same had to be ascertained from the terms
and conditions and not by substituting a guess as to what they
might have intended in the circumstances. The facts and
circumstances of the said case are similar to the present facts
of the case and hence the ratio of the said decision is clearly
applicable to the present case. When such being the case, the
Learned Arbitrator has held the said aspect contrary to the
terms of the contract and the contentions of the parties and by
merely making guess work and hence the same is a patent
illegality.
47. In view of the said observations, discussions and findings,
45
Com.AS.No.160/2017
& Com.AS.No.190/2017
the finding of the learned Arbitrator on Dispute No.1, 3 to 6 are
contrary to the public policy and also amounts to patent
illegality.
48. It is to be noted that while answering Dispute No.6, the
learned Arbitrator has held that the termination of the two
Purchase Orders dated 13.10.2011 by the Plaintiff was illegal
and arbitrary. The Plaintiff has contended that since the
Defendant has committed breach of contract, he had
terminated the said two Purchase Orders by letter dated
15.12.2013. Per Contra, the Defendant has contended that the
delay alleged by the Plaintiff on the part of the Defendant in the
Supply, Erection and Commissioning of the deliverables under
the two Purchase Orders dated 13.10.2011 were due to reasons
not attributable to the Defendant, but due to the failure of the
Plaintiff to fulfill its primary obligations under the Purchase
Orders. While answering Dispute No.2, after a detailed
appreciation of the evidence available on record, the learned
Arbitrator has held that the Defendant has committed breach of
contract as alleged by the Plaintiff. Further, while answering
Dispute No.7, the learned Arbitrator after a detailed discussion
of the evidence available on record at Para No.101 of the
Impugned Award, has held that in view of the findings on the
46
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& Com.AS.No.190/2017
various breaches alleged by the Defendant, it is held that the
Plaintiff did not commit any of the breaches alleged by the
Defendant. It is to be noted that so far as the breach of
Contract by the Defendant is established as per the findings of
the learned Arbitrator. Since the Defendant has committed
breach of terms of Contract, the Plaintiff had terminated the two
Purchase Orders by letter dated 15.12.2013. Having held that
the Plaintiff has proved and established that the Defendant had
committed breach of Contract while answering Dispute No.2,
the learned Arbitrator has held that the said termination is
illegal while answering Dispute No.6. Therefore, the said
findings are contradictory to each other.
49. Dispute No.8 relates to the contention of the Defendant
that the encashment of the Bank Guarantee furnished by the
Defendant, is illegal and arbitrary and he is entitled to Rs.55
Crores in respect of the wrongful encashment of the said Bank
Guarantees by the Plaintiff. The learned Arbitrator has held
that since the termination of the Contract by the Plaintiff is
illegal, and in view of rejection of Risk Purchase Cost claimed by
the Plaintiff, the Plaintiff is not entitled to adjust the sum of
Rs.52.14 Crores towards the Risk Purchase Cost by encashing
the Bank Guarantees and hence, the said encashment is found
47
Com.AS.No.160/2017
& Com.AS.No.190/2017
to be illegal and the Plaintiff is liable to repay the said amount
of Bank Guarantees wrongfully encashed by it.
50. The Plaintiff had contended that it had spent
Rs.787,97,13,970/- in placing Orders on alternative agencies
after termination of the Contract and in doing so, incurred
additional expenditure of Rs.323,37,62,217/- and thereafter
adjusting Rs.52.14 Crores received by encashing the
Performance Bank Guarantees and adjusting Rs.9,60,85,960/-
being cost of the unused steel, the balance amount claimed by
the Plaintiff from the Defendant towards Risk Purchase Cost was
Rs.261,62,76,310/-. As already mentioned, the learned
Arbitrator has rejected the said claim of the Plaintiff for
Rs.261,62,76,310/-. The reason for rejection of the said amount
is mentioned at Para No.106 of the Award i.e., in view of the
finding of the learned Arbitrator that the termination of Contract
is illegal, the Plaintiff is not entitled to recover any extra cost
incurred for completing the work through alternative Agencies
as Risk Purchase Cost. At Para Nos.110 & 111 of the
Impugned Award, the Claim of the Plaintiff for R.190,06,74,120/-
towards extra cost of completing work towards proposed future
Orders was rejected on the ground of the same not having been
placed even after a period of 3.5 years of the termination of the
48
Com.AS.No.160/2017
& Com.AS.No.190/2017
Contract. At Para No.114.1 of the Impugned Award, the claim
of Rs.2,44,50,170/- and Rs.24,04,500/- towards expenditure for
items relating to supply of Air Blaster Systems and Work Orders
relating to erection and commissioning of Air Blaster is rejected
on the ground that the same being placed on a quotation
submitted by a Vendor before the termination of the Contract,
therefore, unrelated to the termination of the Contract.
51. At Para No.114.2 of the Impugned Award, the claims on
items 3 to 16 of 36 Risk Purchases relating to fabricated
structures under 800GF category and Items 17 to 29 relating to
fabricated structure under MMA GF category were rejected on
the ground that the same was filed after 9 months and 25
months respectively and therefore, it not being a consequence
of the termination of the Contract.
52. While rejecting the said claims, the learned Arbitrator
has given reasons that the Plaintiff has not produced any
relevant documents in respect of the said contentions. The
learned Advocate for the Plaintiff has argued that about the
reasons mentioned by the learned Arbitrator pertaining to the
methodology, timings and reasonableness of steps taken by the
Plaintiff was never contended by the Defendant in the Arbitral
49
Com.AS.No.160/2017
& Com.AS.No.190/2017
Proceedings and hence, there was no scope for the Plaintiff to
produce the said documents before the Arbitral Proceedings. He
has further argued that without giving any scope or opportunity
to put forward relevant materials, the learned Arbitrator has
passed the Impugned Order and hence, the said findings of the
learned Arbitrator is contrary to the principles of natural justice
and hence, he has filed the above mentioned I.A.No.I to permit
him to adduce additional evidence in respect of the said
aspects in this proceedings itself.
53. It has been well established that proceedings under
Section 34 of the Arbitration and Conciliation Act, 1996 are
summary in nature. The scope of enquiry in any proceedings
under Section 34 of the Act has been restricted to consider
whether any of the grounds mentioned in Section 34(2) or
Section 13 (5) or Section 16 (6) are made out to set aside the
award, the grounds for which are specific. In the decision
reported in (2019) - S.C.C. Online - S.C. - 1244 = (2019) 9
- S.C.C. - 462 (Canara Nidhi Limited vs. M. Shashikala),
the Hon'ble Supreme Court has set aside the Judgment of
Hon'ble High Court of Karnataka which allowed the parties to
adduce additional evidence and cross-examine new witnesses,
holding that in normal circumstances the grounds of Section 34
50
Com.AS.No.160/2017
& Com.AS.No.190/2017
shall be confined to the pleadings and evidences filed before
the Arbitrator and only in exceptional cases such a permission
can be granted and the present case is not an exceptional one.
This decision of the Hon'ble Supreme Court has taken into
consideration the 2019 Amendment Act, that replaced the
words "furnishes proof that" by "establishes on the basis of the
record of the Arbitration tribunal that" in Section 34(2)(a) of the
Arbitration and Conciliation Act,1996. This issue came up in
various cases because of the words "furnishes proof that" in the
said Section and the 2019 amendment has brought in clarity
and now the law is well-settled. This decision follows the earlier
decision of the Hon'ble Supreme Court, reported in (2018) 9 -
S.C.C. 49 (Emkay Global Financial Services Ltd. vs.
Girdhar Sondhi). In the said decision, the Hon'ble Supreme
Court has held as follows :-
"We clarify the legal position by stating that an
application for setting aside an arbitral award will not
ordinarily require anything beyond the record that was
before the arbitrator. However, if there are matters not
contained in such record and are relevant to the
determination of issues arising under Section 34(2)(a),
they may be brought to the notice of the court by way of
affidavits filed by both the parties. Cross-Examination of
persons swearing to the affidavits should not be allowed
unless absolutely necessary, as the truth will emerge on
a reading of the affidavits filed by both the parties".
51
Com.AS.No.160/2017
& Com.AS.No.190/2017
54. From the above it can be understood that as per the legal
frame work a challenge to an arbitration award cannot be
treated like a Civil appeal and the challenge should be confined
only to the grounds mentioned in Section 34 of the Act.
55. In light of the 2019 amendment and 2015 amendment to
the Act, it is evident that the intention of the legislature is to
ensure proceedings under Section 34 of the Act are resolved
expeditiously and any application under Section 34 of the Act
must be read in light of the decisions reported in (2009) 17 -
S.C.C. - 796 (Fiza Developers and Inter-Trade Private
Limited vs. AMCI (India) Private Limited and Another),
and (2018) 9 - S.C.C. 49 (Emkay Global Financial
Services Ltd. vs. Girdhar Sondhi).
56. Therefore, the permission to adduce additional evidence
as prayed in I.A.No.I cannot be granted in view of the 2019
amendment. Hence, I.A.No.I is dismissed.
57. The learned Advocate for the Plaintiff has argued that
the learned Arbitrator has given findings in relation to the
52
Com.AS.No.160/2017
& Com.AS.No.190/2017
Dispute Nos.3 to 5 and 8, which were neither pleaded nor
argued by both parties and that the Impugned Award has dealt
with the Disputes which neither of the parties raised. He has
further argued that in view of the fact that no opportunity
provided to the Plaintiff to meet the allegations or reasons
mentioned in the Impugned Award, which were not pleaded by
the Defendant, amounts to contrary to the principles of natural
justice and hence, the Award is liable to be set aside under
Section 28 (2) of the Arbitration Act. On a close scrutiny of the
pleadings in the Reply Statement of the Defendant as well as
separate Claim Statement of the Defendant, the said
arguments of the Advocate for the Plaintiff, cannot be brushed
aside. The learned Arbitrator has dealt with the said aspect
without any pleadings of the Defendant.
58. So far as the Defendant is concerned, he supports the
finding of the learned Arbitrator partially and has also attacked
the same to the extent of allowing the relief to the Plaintiff and
set off of the amount from the amount awarded to the
Defendant in Com.A.S.No.190/2017. Most of the grounds urged
by the Defendant in the Com.A.S.No.190/2017 are in the nature
of Appeal. Further, in order to consider the said grounds I have
53
Com.AS.No.160/2017
& Com.AS.No.190/2017
to re-appreciate the evidence on record, which is impermissible
under law. I have already discussed the contentions of both
parties in detail. Therefore, I need not prolong my discussion
about the same facts again. Therefore, Com.AS.No.190/2017 is
liable to be dismissed, since the grounds urged are similar to
the grounds urged in an Appeal, which cannot be considered in
this proceedings.
59. At last, both Advocates prayed for modification of the
Award as per their prayers in both Petitions. They have argued
that this Court has power to modify, revise or vary the Award.
In support of the said arguments, they relied on the following
decisions:-
1. 2003 (4) - S.C.C. - 172 (Tata Hydro Electric Power
Supply Company Limited vs. Union of India)
2. 2006 (4) - S.C.C. - 445 (Hindustan Zinc Limited
vs. Friends Coal Carbonization)
3. 2007 (8) - S.C.C. - 466 (Numaligarh Refinary
Limited vs. Daelim Industrial Company Limited)
4. A.I.R. - 2007 - S.C. - 817 (Krishna Bhagya Jala
Nigam Limited vs. G. Harishchandra Reddy)
54
Com.AS.No.160/2017
& Com.AS.No.190/2017
5. 2008 - Arb.L.R - 489 (Delhi) (Union of India vs.
Modern Laminators)
6. 2015 (1) - M.L.J. - 5 (Gayathri Balaswami vs. ISG
Novasoft Technologies Limited)
60. Both Advocates have also argued that if there is a patent
error in contractual interpretation and there is no requirement
of further fact-finding, then the Court can modify the Award
under Section 34 of the Arbitration & Conciliation Act, 1996.
In support of the said argument, they have relied on the
decisions reported in 2012 (2) - Bom.C.R. - 271 (Axios
Navigation Company Limited vs. Indian Oil Corporation
Limited) and 2015 - S.C.C. - OnLine - Bom- 3455 (Ravi
Uday Construction Company vs. Bhaktiyog Co-operative
Housing Society).
61. The Advocate for the Plaintiff has further argued that in
case I.A.No.I is not allowed, the matter may be remanded to the
Arbitrator for fresh adjudication after recording additional
evidence and in support of the said arguments he has relied on
the decision reported in I.L.R. - (2004) II - Delhi - 88
55
Com.AS.No.160/2017
& Com.AS.No.190/2017
(Bhasin Associates vs. N.B.C.C.).
62. However, I cannot accept the said arguments of the
Advocate for the Plaintiff for remand of the matter in view of the
principle laid down in the decision reported in I.L.R. - 2016 -
KAR - 4136 (DB) (Bhaskar Industrial Development
Limited vs. South Western Railways), wherein it is held that
the power of the Court under Section 34 of the Act is not to
remand the matter to the Arbitral Tribunal after setting aside
the Aribtral Award. The said principle of law is upheld by the
Hon'ble Supreme Court in the decision reported in 2018 (11) -
S.C.C. - 328 (Kinnari Mullick and another vs. Ghanshyam
Das Damani), wherein it is held as follows:-
"The power of the Court to remand the matter to
the Arbitral Tribunal is only to adjourn the Proceedings
for the limited purpose mentioned in Section 34 (4) i.e.,
to give the Arbitral Tribunal an opportunity to resume
the Arbitral Proceedings or to take such other action as
in the opinion of the Arbitral Tribunal, will eliminate the
grounds for setting aside the Arbitral Award. The
conditions required to be satisfied for such remand
are :-
(i) There is a written request made by a party to the
Arbitration Proceedings;
(ii) The Arbitral Award has not already been set
56
Com.AS.No.160/2017
& Com.AS.No.190/2017
aside;
(iii) The challenge to the Award has been set up
under Section 34 about the deficiencies in the Arbitral
Award which may be curable by allowing the Arbitral
Tribunal to take such measures which can eliminate the
grounds for setting aside the Arbitral Award."
63. Therefore, there is no scope to remand the matter as
prayed by the Advocate for the Plaintiff.
64. Further, in view of the decisions reported in 2019 (15) -
S.C.C. - 131 (Ssangyong Engineering & Construction Co.
Ltd. vs. National Highways Authority of India Ltd.), and
2020 (5) - S.C.C. - 164 (South East Asia Marine
Engineering & Constructions Limited vs. Oil India
Limited), this Court has no power to modify, revive or vary the
Arbitral Award under Section 34 of the Arbitration &
Conciliation Act, 1996.
65. 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
57
Com.AS.No.160/2017
& Com.AS.No.190/2017
in the findings of the learned Arbitrator. The learned Advocate
for the Defendant has argued that just because another view is
possible to be taken from the records, the Court cannot set
aside the Arbitral Award passed by the learned Arbitrator in
toto. I too admit the said proposition of law. However, in my
opinion, the only view that can be taken in the circumstances of
the present case is as discussed by me earlier. All the findings
about the termination of Contract, rejection of claims on Risk
Purchase Cost in addition to the liquidated damages and
rejection of claim pertaining to encashment of Bank Guarantee
are all erroneous to the well established principles of law.
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 both parties 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".
66. Point No. 2 :- Therefore, I proceed to pass the following
Order.
58
Com.AS.No.160/2017
& Com.AS.No.190/2017
ORDER
The Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996,in Com.AS.No.160/2017 is allowed. Consequently, the Arbitral Award dated 21.08.2017 is hereby set aside.
The Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996,in Com.AS.No.190/2017 is dismissed.
The Plaintiff is at liberty to begin the Arbitration again if he so desires.
Both parties shall bear their own costs.
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 read with Section 16 of the Commercial Courts Act.
This Judgment is prepared in two sets and one set is kept in Com.A.S.No.160/2017 and a copy of it is kept in Com.A.S.No.190/2017.
(Dictated to the Judgment Writer typed by her, corrected and then pronounced by me in open Court on this the 8th day of June 2021.).
(DEVARAJA BHAT.M), LXXXII Addl.City Civil & Sessions Judge, Bengaluru.
59 Com.AS.No.160/2017 & Com.AS.No.190/2017 ORDER The Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996,in Com.AS.No.160/2017 is allowed.
Consequently, the Arbitral Award dated
21.08.2017 is hereby set aside.
The Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996, in Com.AS.No.190/2017 is dismissed.
The Plaintiff is at liberty to begin the Arbitration again if he so desires.
Both parties shall bear their own costs.
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 read with 60 Com.AS.No.160/2017 & Com.AS.No.190/2017 Section 16 of the Commercial Courts Act.
This Judgment is prepared in two sets and one set is kept in Com.A.S.No.160/2017 and a copy of it is kept in Com.A.S.No.190/2017.
(Vide my separate detailed Judgment dated 08.06.2021) (Typed as per my dictation) LXXXII ACC & SJ,B'LURU.