Delhi District Court
Capt Abeed Syed vs Pawan Hans Ltd on 12 December, 2023
1
IN THE COURT OF MS. GUNJAN GUPTA,
ADDITIONAL DISTRICT JUDGE (ADJ-04) SOUTH EAST DISTRICT,
SAKET COURTS, NEW DELHI
In the matter of:
ARBTN 6/19
CAPT ABEED SYED,
S/o Sh. PS Anwar,
R/o Vadakayli House PO Valapad,
Thrissur, Kerala-680567 ....Petitioner
VERSUS
1. PAWAN HANS LTD.
Regd Office: C- 14, Sector-1,
Noida-201301
2. SH. SAFIULLAH SYED,
R/o West Croft Balhayll Road,
PO Valapad, Thrissur, Kerala-680567
3. SH. AJAY YADAV,
S/o Sh. DS Yadav,
D8/64, Bhandari Skyline,
Duttnagar Alandi Road,
Dighi Pune-411015
...Respondents
ARB No. 06/2019
2
Date of Institution : 30.11.2019
Judgment reserved on : 30.11.2023
Date of judgment : 12.12.2023
Decision : Petition allowed.
PETITION U/S. 34 OF THE ARBITRATION AND CONCILIATION ACT,
1996 FOR PARTLY SETTING ASIDE THE ARBITRAL AWARD DT
03.09.2019
JUDGMENT:
1. The petitioner has filed the present petition under section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the 'Act' ) seeking to partly set-aside the impugned award dated 03.09.2019 passed by the Ld. Arbitrator in the Arbitration Proceedings titled as "Pawan Hans V. Abeed Syed and Ors".
2. The facts in brief, leading to the filing of the present petition, are that the respondent No. 1 company which provides helicopter and transport services to its clients appointed the petitioner as Captain A (for Dhruv ALH fleet) on contractual basis for 5 years. The petitioner was issued the appointment letter dated 15.04.2013 wherein it was categorically stated that the appointment is on temporary basis, for a fixed term and would come to an end in 5 years. Clause 9 of the appointment letter stated that the petitioner can resign from the contractual service subject to a six months notice, fulfilment of obligation in the service bond and compliance of the relevant CAR (Civil Aviation Requirements as stipulated by DGCA ).
ARB No. 06/2019 33. It is averred that as per clause 10 of the appointment letter, the petitioner on 01.05.2013 signed a Service-cum-Indemnity Bond for ₹ 25 Lakhs to serve the respondent no. 1 company for a term of 5 years and respondent no. 2 & 3 signed the service cum indemnity bond as sureties. As per clause 7 of the said agreement, in the event of resignation by the petitioner before the expiry of five years, the petitioner was to pay damages to the respondent no. 1 to be decided by the Managing Director/ General Manager/Company Secretary of respondent no. 1, and an upper cap of Rs. 25 Lakhs was fixed. The petitioner joined the service on 09.05.2013, however due to personal reasons he tendered his resignation on 25.05.2015 to take effect from 25.11.2015, thereby giving six months notice to respondent no. 1, as per the appointment letter, service bond, Pawan Hans Service Rules & DGCA C-A-R. The respondent no. 1 rejected the resignation of the petitioner vide IOM dated 22.09.2015 on the ground that the company has made a good investment on the petitioner for cross conversion on dauphin N3 helicopter, petitioner could not be utilised on the said helicopter. It was also stated that as the petitioner was a captain in Dhruv ALH fleet and the petitioner remained utilised in a ALH fleet, the petitioner can exit only if respondent No. 1 can get experienced endorsed pilot on Dhruv ALH. It was also stated that the petitioner was under Service Bond Obligation. The petitioner on completion of six months i.e. on 25.11.2015, stopped reporting for duty.
4. Aggrieved by the rejection of the resignation, the petitioner filed a writ petition bearing number W.P (c ) No. 10121/2015 challenging the rejection of his resignation. The petition was dismissed vide order dated 18.11.2015. The petitioner filed an appeal against the said order bearing ARB No. 06/2019 4 LPA No. 859/2015 which was disposed off vide order dated 22.12.2015 referring the parties to Arbitration and directing that the payability of the sum of ₹ 25 Lakhs would be adjudicated by the Ld. Arbitrator. It is pertinent to mention here that during the pendency of the above LPA the respondent No. 1 agreed to accept the resignation of the petitioner and to secure the interest of the respondent no. 1, the petitioner deposited the sum of ₹ 25 Lakhs with the Ld. Registrar General of Hon'ble High Court of Delhi.
5. The proceeding commenced before the Ld. Arbitrator and award dt 03.09.2019 was passed by the Ld. Arbitrator. The said award was challenged by filing a section 34 petiton titled as "Pawan Hans Ltd Vs. Capt. Abeed Syed" in Arbitration Petition No. 390 of 2017 (hereinafter referred to as Ist Section 34). The award was subsequently set aside by the Ld. Judge vide order dated 23.07.2018.
6. During the pendency of the above petition, the respondent no. 1 served a notice dt 05.05.2017 upon the petitioner quantifying its claim through the Company Secretary, detailing the same under various heads and demanding Rs. 25 lacs from the petitioner as per the service agreement bond.
7. Fresh arbitration proceedings were commenced before the Ld. Arbitrator and on 03.11.2019, the impugned award was passed allowing the claims of respondent no. 1 of ₹ 25 Lakhs and directing that the interest received by the petitioner on the FDR deposited with the Registrar General, Hon'ble Delhi High Court, shall be paid to the respondent no. 1. The counter claim of the petitioner was also partly allowed declaring that the rejection of the resignation was contrary to the ARB No. 06/2019 5 appointment letter and the DGCA CAR. Rest of the Counter-claim were rejected by Ld. Arbitrator.
8. By way of the present petition, the petitioner is seeking to partly set aside the impugned award to the extent it allows the claims of respondent no. 1 on the ground that the award is vitiated by patent illegality appearing on the face of the award, it is in contravention with the fundamental policy of Indian law and also being in conflict with the most basic notions of morality or justice.
Submissions of the petitioner
9. It is submitted by the Ld. Counsel for the petitioner that the Ld. Arbitrator erred in allowing the Claim of the respondent of ₹ 25 Lakhs stipulated in the indemnity bond dated 01.05.2013. It is submitted that the claim of the respondent was allowed despite the fact that the respondent did not lead any evidence in support of his claim and the vital evidence placed by the petitioner before the Ld. Arbitrator was ignored.
10. It is submitted that the petitioner to substantiate his contention that the respondent no. 1 had not incurred any expenses towards training of the petitioner, had filed before the Ld. Arbitrator the MOU dated 20.09.2013 executed between the respondent no. 1 and the BSF, MHA which provided that the expenses for training for Dhruv ALH was to be borne by the BSF/MHA. It is submitted that the BSF was the owner of the Dhruv ALH fleet of helicopters and the above-mentioned MOU was entered for operations and maintenance of Dhruv ALH fleet. According to the MOU, the BSF was to reimburse the respondent no. 1 for all the costs incurred in training of pilots including Simulator training. Thus no expenditure was actually incurred by the respondent no. 1. It is further ARB No. 06/2019 6 submitted that to prove its losses/expenses the respondent no. 1 did not file any documents (before the arbitral tribunal).
11. The Ld. counsel for the petitioner has placed reliance upon the judgement of the Hon'ble Supreme Court in PSA Sical Terminals Pvt Ltd vs. The Board of Trustees of VO Chidambranar Port Trust Tuticorin and others passed in Civil Appeal no. 3699 and 3700 of 2018 decided on 28.07.2021 passed by Hon'ble Supreme Court wherein it was held that "a finding based on no evidence at all or and 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".
12. The petitioner has also placed reliance upon the judgment of the Hon'ble High Court of Delhi in Sudershan Bhayana Kumar versus Vinod Seth - (MANU/DE/6659/2023:2023:DH:7053-DB) wherein it was held as under:-
'44. Absent any pleadings that the owners had suffered damages or incurred loss on account of delay in construction of the work, a claim of damages would not be sustainable. In addition, as noted above, admittedly there is no evidence or material on record to establish that the owners had suffered any loss or the quantum of such loss. The owners have simply relied upon clause 7 of the collaboration agreement'.
13. It is further submitted by the Ld. counsel for the petitioner that the award is liable to be partly set-aside as the same is passed in contravention with the fundamental policy of Indian law as the Ld. Arbitrator ignored the principles of the section 74 of the Indian Contract Act, 1872 and the law as laid down by the Hon'ble Courts in various ARB No. 06/2019 7 judgments passed from time to time. It is submitted that the Ld. Arbitrator failed to consider that as per section 74 only a reasonable amount can be awarded as damages even if the amount is stipulated in the contract itself. It is further submitted that the damage or loss is a Sine qua non for awarding compensation under section 74 and the law is settled in judgment cited as Kailash Nath Associates versus Delhi Development Authority in Civil Appeal No. 193 of 2015 passed by Hon'ble Supreme Court wherein it was held that the expression 'whether or not damage or loss is proved to have been caused thereby 'means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage and loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre- estimate of damage or loss can be awarded. It is submitted that the Ld. Arbitrator failed to give any reasoning for awarding the maximum amount of ₹ 25 Lakhs as stipulated in in the service bond.
14. It is further submitted that the award is in conflict with the most basic notions of morality or justice as as the respondent has claimed the refund of ₹ 7 Lakhs which was paid as salary to the petitioner for the work done by the petitioner. Since the respondent no. 1 is claiming back the salary paid to the petitioner for the work already done it shocks the conscience of the court. It is further submitted that the claim of respondent No. 1 is violative of article 14, 19, 21 and 23 of the Constitution. The Ld. counsel for the petitioner has placed heavy reliance upon the judgement of the Hon'ble Supreme Court in Central electricity supply utility of Orisa versus Dhobi Sahu and others(2014) 1 SCC 161, wherein it was held that 'denial of the salary for the service rendered ARB No. 06/2019 8 tantamounts to forced labour which is impermissible. Recovery of salary would amount to deprivation of payment while the incumbent was holding the post and had worked. Asking someone to work and when his appointment is nullified by issue of a writ of Co-warranto by the court, we think that neither the employer can recover the amount nor the court can direct for recovery of the same'.
Submissions of the Ld. counsel for the Respondent no. 1
15. Per contra it is submitted by the Ld. counsel for the respondent no.1 that the Ld. Arbitrator has considered the contract in full and also all the aspects of the dispute between the parties. It is submitted that the Ld. Arbitrator has dealt with contentions of the petitioner in detail in para 15 and para 13 of the award. It is submitted that the Ld. Arbitrator in Para 35 and 36 of the award arrived at a finding that the breach of bond was not in dispute as the petitioner has not denied committing the breach of the indemnity and service bond. And hence the petitioner is liable to pay the liquidated damages as mentioned in the bond.
16. It is further submitted that the Ld. Arbitrator in deciding the quantum of damages payable, discussed at length in para 37 of the award, the clause 7 and observed that clause 7 stipulates that the bond amount of ₹ 25 Lakhs not only includes training but also loss of business revenue opportunities, expenses, liquidated damages to be suffered by the company and expenses incurred to train another person, cost of supervision, skill test and other losses suffered due to leaving of the pilot. It is submitted that the Ld. Arbitrator also discussed and considered the judgement of the Hon'ble Supreme Court in ONGC vs. Saw Pipes Ltd (AIR 2003 Supreme Court 2629) wherein it was held that if the nature ARB No. 06/2019 9 of the contract was such that it was impossible for the court to assess the compensation arising from the breach then the court can award the genuine pre-estimate damages as compensation.
17. It is further submitted that even in the judgement of the Hon'ble Supreme Court in Kailash Nath Associates versus Delhi Development Authority in Civil Appeal No. 193 of 2015 it was held that in the cases where damage or loss is difficult to prove the liquidated amount named in the contract can be awarded.
18. It is further submitted that in para 39 of the award the Ld. Arbitrator noticed that the petitioner has received the training on Dauphin N3 helicopter and Simulator training and that the resignation by the petitioner has hampered and restricted capability of the respondent no. 1 company to provide services to the clients. It found that the petitioner only alleged that no bills have been filed but has not denied having received training at HATSOFF Bangalore or having received Dhruv currency skill test instrument rating. The Ld. Arbitrator thus found that the facts of the case was clearly covered by the Hon'ble Supreme Court judgement in ONGC versus Saw Pipes Ltd and concluded that the nature of the contract in the present case is such that loss of the respondent company is a consequence of the resignation of the petitioner and such loss need not be proved.
19. It is submitted that the Ld. Arbitrator proceeded to adjudicate the dispute on the basis of admitted facts and the documents placed on record and after having considered the terms and conditions of the contract and the service and indemnitybond.
ARB No. 06/2019 1020. It is further submitted that the respondent no. 1 has already paid the salary to the petitioner during the pendency of the writ petition before the Hon'ble High Court of Delhi.
21. It is further submitted that while arriving at its finding the Ld. Arbitrator relied upon the judgement passed by the Hon'ble High Court of Delhi Ashwani Bahl & Others Versus Air India Ltd: FAO No. 222/2012 and discussed the relevant portion of the said judgement.
22. In support of his contentions that the impugned award cannot be set aside the Ld. counsel for the respondent no. 1 has placed reliance upon the following judgements in Food Corporation of India versus Shanthi Serial Private Limited, 2010(3) ARB.L.R.296(Del)(DB) wherein it was held in para 10 as under:
'there is no gain saying that the arbitral tribunal is the master of the factual arena and even if it goes wrong while deciding the factual ssues, unless there is something manifest from the face of the award that is so grave as to move the conscience of the Court that the error would result in a monumental miscarriage of justice, no interference by the Court is called for'.
In Jhang cooperative group Housing Society versus P.T Munshi Ram and Associates Private Limited, 202(2013) DLT 218(DT) it was held as under"
"where the arbitral tribunals assesses the material and evidence placed before it in detail, the court while considering the objections under section 34 of the Act does not sit as a Court of appeal and is not expected to reappreciate the entire evidence and reassess the case of the parties. The jurisdiction under section 34 is not an Appeal in nature and an award passed by the arbitral tribunals cannot be set aside on the ground that it was erroneous. It is not open to the court to interfere with the award merely because in the opinion of the court, another view is possible. The duty of the court in these circumstances is to see whether the view taken by the Appellate Tribunal is a plausible view on the facts, pleadings and evidence before it. Even if on the assessment of material, the Court while considering the objections under section 34 of the Act is of the view that there are two views possible and the Arbitral Tribunal has taken one of the possible views, which could have been taken on the material before it, the court would ARB No. 06/2019 11 be reluctant to interfere. The court is not to substitute its view with the view of the Arbitral Tribunal if the view taken by the Arbitral Tribunals is reasonable and plausible.' In Delhi Airport Metro express(P) Ltd versus DMR C, 290(2022) DLT 116(SC) wherein it was held that"
'what is prohibited is for the courts to reappreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as courts do not sit in appeal against the arbitral award. The permissible grounds for interference with the domestic award under section 34(2 A) on the ground of patent illegality is when the Arbitrator takes a view which is not even possible one, or interprets the clause in the contract in such a manner which no fair-minded reasonable person would, or if the Arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them.' In Dina technologies(Dina technologies Private Limited) versus Cromton greens Ltd (2019) 20 SCC 1 where in it was held that 'moreover, the number of judgements of this court have categorically held that the court should not interfere with an award merely because an alternative view on the facts and interpretation of contract exists. The court needs to be cautious and should differ to the view taken by the Arbitral Tribunal even if the reasoning provided in the award is implied unless such award portrays perversity unpardonable under section 34 of the Arbitration Act. '
23. It is submitted that the award is very much sustainable and is neither against public policy nor against the contract or the law. It is submitted that there exists no ground for interference with the award and the present application filed by the petitioner is devoid of merits and should be dismissed.
Rebuttal Arguments by the Ld. counsel for the petitioner
24. It is submitted by the Ld. counsel for the petitioner that though it is contended by the Ld. counsel for the respondent No. 1 that the damages could not have been calculated, however, at page 18 of the ARB No. 06/2019 12 statement of claim filed before the arbitral tribunals the respondent no. 1 has tabulated the various heads under which it claims ₹ 25 Lakhs showing the expenses incurred by the respondent. The respondent no. 1 failed to support the same with the relevant documents. It is further submitted that one of the heads as shown in the table was the salary paid to the petitioner for the work already done. It is further submitted that though it is contended by the respondent no. 1 that it has already paid the salary to the petitioner yet by showing the same as one of the components of the expenses incurred and including that in the sum of ₹ 25 Lakhs tantamounts to literally claiming back the paid salary.
25. I have heard the arguments advanced by both the Ld. counsel and also carefully perused the record of the case.
FINDINGS
26. The Ld. Arbitrator in its award dt 03.09.2019 has awarded Rs.
25 Lakhs in favour of respondent no. 1 holding that respondent no. 1 is entitled to the said amount as liquidated damages. This findings of the Ld. Arbitrator is a major bone of contention between the parties in present petition u/s. 34 of Act, 1996.
27. The relevant part of the arbitration award is reproduced hereinbelow:
Findings
35. The Respondent in Para-2 of his reply admits that while the applicability of Clause-7 of the Service Bond is not denied, since, the Claimant has not spent any amount towards training of Respondent No.1, there fore, the question of paying Rs. 25 lakhs doesn't arise at all as the Claimant has not been able to prove any loss of business, liquidated damages, expenses to train a replacement pilot etc. due to his resignation.
36. Thus breach of the bond is not in dispute.ARB No. 06/2019 13
37. Clause-7 of the Service Bond Agreement provides as under:
That if the pilot fails to complete his bond period successfully, the pilot undertake along with the sureties that they shall jointly/ severally compensate the company for all the expenses incurred by it on account of and in connection with his service. The said expenditure shall not only include the loss of business revenue / opportunities but also expenses / liquidated damages to be suffered, expenses to be incurred to train another person to obtain experience to fly independently, salary of the pilot during the period, cost of supervision, cost of trainings, skill test, proficiency test, checks and other damages/expenses suffered due to leaving of said pilot. The decision of the managing Director / General Manager / Company Secretary or any officer nominated by the Managing Director shall be binding as to the total amount of the expenditure incurred and loss suffered by the company on account of and in connection with the training / other expenses of the pilot. Although the above mentioned cost would be fairly high amount, however, in case of breach of any condition of this bond by the pilot, he along with the sureties shall be liable to pay and reimburse to the Company by way of damages, the amount to the Company but the said recoverable amount of damages shall not exceed Rs. 25,00, 000/- (Rupees Tventy Five Lakhs Only).
38. It has been argued on behalf of the Claimant that the service bond contains stipulation of a genuine pre-estimate of damages by mutual agreement naming the liquidated damages of Rs. 25 lakhs. A perusal of Clause -7 of the Service Bond shows that the amount of Rs. 25 lakhs mentioned in the service bond provides the maximum amnount of liquidated damages to which the respondents can be made liable. The amount of Rs. 25 lakhs is a genuine pre-estimate of damages mutually agreed by the parties. It clearly shows that in case of breach of the bond the respondents would be liable to pay the damages subject to a maximum of Rs. 25 lakhs.
39. The learned Counsel for the Claimant would further argue that in the present case the Respondent No.1 was employed as a pilot for ALH DHRUV Helicopter. He was also given training on Dauphin N3 helicopters. The appointment letter shows that the Respondent No.l could be deployed in support of various customers of the claimant including election duty, disaster management, para military/ State Police Operation, spproved by the regulatory authority. The resignation of the Respondent No.I thus, hampered and restricted the capability of the Claimant to provide services to its customers. It is not disputed by the Respondent that he had been imparted training on Dauphin N-3 simulator and Dauphin N-3 helicopter. It has been argued by the learned Counsel for the Claimant that the only defence is that the Claimant has not placed any documents to show the amount spent on such training. He has alleged that the cost of training with regard to Dhruv Helicopters was to be reimbursed by BSF. The Respondent has not denied that ARB No. 06/2019 14 he was sent to HATSOff Bangalore on 10.04.2014, Dhruv Currency Skill Test on 25.06.2013, Instrument Rating on 02.11.2013. The present case is clearly covered by the judgment of the Supreme Court in the Case of ONGC Vs. Saw Pipes (Supra). The nature of the contract in this case is such that the loss of the Claimant is a consequence of the resignation of Respondent No.1. Such loss need not be proved by the Claimant.
40...........
41. ..........
42. In paragraph 20 of the statement of claim the Claimant has specifically alleged that there is an acute shortage of Dauphine N3 helicopter pilots and to find an alternative pilot and impart training to make them fly expenditure. independently is a time taking process entailing huge expenditure.
43. In the case of Ashwani Bahl & Others Versus Air India Ltd:
FAO No. 222/2012 decided on 21 January, 2014 it has been held by the Hon'ble High Court (Delhi) that in the present case, the Arbitrator while awarding the damages as claimed by the respondents/ claimants has made the following observations:
"18. In my view therefore the respondent No.1 has committed a breach of the contract and the only question is as to what damages, is the clainant entitled to. It is argued on behalf of the respondent No. I that the cost of training is only to the extent of about Rs. 50,000/- to Rs. 60,000/- and therefore the amount mentioned in the contract and by damages is in the nature of a penalty. It is no doubt true that the amount of Rs. 7,50,000/- does not appear to have any bearing or relation to the cost of training and therefore I have to consider what should be the amount of damages to be awarded. However, it is to be noted that the cost of the training is only one aspect of the matter. The real question for purpose of determining the damages is how long the claimant would take to train another person to be trained and become a pilot with the efficiency as the respondent No. 1. The time taken to train a new person to become a pilot and for him to take charge of a plane and the loss which would be caused in that period to the claimant is running its business and obtain the goodwill of its customers is also matters to be taken into consideration. It is not possible to measure the amount of losses which the claimant would suffer and if the party had chosen to measure the said damages on the basis of losses per year then it is not either for the court or the arbitrator to determine the same in absence of evidence which undoubtedly cannot be given with sufficient accuracy. In conclusion therefore I hold that the agreement between the claimant and respondent No.1 is valid and enforceable in law. I also hold that the respondent No.1 had committed a breach of the contract. I further hold that there are no ARB No. 06/2019 15 extenuating circumstances not to hold respondent No. l for being liable in damages."
In my opinion, the reasoning and discussion given by the Arbitrator is flawless. The language used is completely apposite and I am sure this Court could have done no better. Surely, losses which are caused to an Airline on account of a Pilot leaving before the contractual period has various ramifications of which the cost of training is only but one aspect. Therefore in such cases, once the actual damages which are caused to the Airline, cannot be exactly calculated and proved, then, there is no illegality in awarding fixed/liquidated damages as specific in the Contract.
44. In view of the judgement in the case of Ashwini Behl and others versus Air India Ltd, I find that the stipulation in the service agreement bond is in the nature of liquidated damages.
45. Clause 7 of the service bond provides that the expenditure incurred on account of and in connection with the service of respondent No. 1 shall not only include the loss of business revenue/opportunity but also expenses/liquidated damages to be suffered, expenses to be incurred to train another person to obtain experience to fly independently, salary of the pilot during the period, cost of supervision, cost of trainings, skill test proficiency test, checks and other losses/expenses suffered due to leaving of the pilot. It further provides that the decision of the Managing Director/General Manager/Company Secretary or an officer nominated by the Managing Director shall be binding as to the total amount of expenditure incurred and loss suffered by the company on account of and in connection with the training/other expenses of the pilot.
46. From the terms contained in the service bond it is apparent that the respondent No. 1 committed breach of the bond by resigning before the completion of the bond and that the parties had agreed that the assessment of the company in respect of the losses suffered by the specified officers of the company shall be binding on the parties.
47. ......
48. Therefore hold that the claimant is entitled to liquidated damages of ₹ 25 Lakhs."
28. One of the primary contention of the petitioner is that the respondent no. 1 has quantified its claims for damages but has not proved the same and therefore, the Ld. Arbitrator erred in awarding the damages as liquidated damages to the respondent no.1 and he also ignored the vital evidence led by ARB No. 06/2019 16 the petitioner to disprove the claims of the respondent no. 1. However, respondent no.1 supports the award contending that the the Ld. Arbitrator has passed a reasoned award discussing in detail the clause 7 of the Service Agreement Bond and as such the scope of interference of this court is extremely limited u/s. 34 of the Act.
29. This court is aware that the scope of interference with an award under section 34 of the Act is extremely limited and an award can be set aside only if the same falls within the four corners of section 34 of the Act and not otherwise. However, in the present case this court is of the opinion that the impugned award is liable to be set aside as it is hit by various grounds mentioned in Section 34 of the Act which are discussed in detail hereinbelow:
i). Admittedly, the respondent no. 1 served a notice dt 05.05.2017 upon the petitioner quantifying its claims through the Company Secretary and demanding ₹ 25 Lakhs as per the service agreement bond.
In the 2nd Arbitration proceedings wherein the impugned award was passed, the respondent no. 1 filed its claim statement claiming ₹ 25 Lakhs stipulated in the service agreement bond and here also it quantified its damages/expenses and gave a summary of expenses to the tune of ₹ 25,40,000/-.
The para 18 of the statement of claim filed by respondent no. 1 in Arbitration proceedings is reproduced as under:
" 18. Training imparted at the cost of company ARB No. 06/2019 17 Sr. Training name Hours/ days Cost (approx in Rs.) no.
1 Training on Dhruv Simulator at 05 hours 4 lacs HATSOFF- Banglore (10.4.2014) 2 Dhruv Currency - Skill test on Dhruv 3.45 hours 3.45 lacs helicopter (25.6.2013 and thereafter every six months - 45 minutes each) 3 Instrument Rating on Dhruv Helicopter 1 hour 1 lacs (2.11.2013) 4 Conversion training on Dauphin N3 5 hours 4.25 lacs helicopter Simulator from HATS OFF-
Banglore (17.7.2014) and Instrument Rating on 7.6.2014 5 Conversion Training on Dauphin N3 3.30 hours 3.30 lacs helicopter 6 N 3 endorsement (after ground training 3 days 1.30 lacs at HATS OFF - Banglore) 7 Acquired ATPL (H) with endorsement (17.4.2015) Mandatory Ground Training 8 Cockpit Resource Management 2 days 0.20 lac (9/10.6.2015) 9 Dangerous Goods Training (9.4.2014) 01 day 0.10 lac 10 Monsoon Training (10.6.2015) 01 day 0.10 lac 11 Medical every six months (last medical 05 days 0.50 lac on 11.8.2015) 12 Training on Procedures (28/29.5.2015) 02 days 0.20 lac 13 Salary, traveling by air, TA/DA during 7 lacs training period.
TOTAL 25.40 lacs The petitioner in his reply to the statement of claim raised the objection to the amounts stated in para 18 of the statement of claim as the same was not supported by any bills/invoices/memos etc. Thereafter in the rejoinder, the respondent no. 1 in para F took a contrary plea that the ARB No. 06/2019 18 claims are difficult to assess. Thus it is clear that the respondent no. 1 has taken contrary stands in its pleadings before the Ld. Arbitrator.
Once the respondent no. 1 has quantified its claims, giving a bifurcation of the damages/expenses under various heads, the same have to be proved and supported by documents. The respondent no. 1 cannot be allowed to approbate and reprobate at the same time.
The Ld. Arbitrator failed to take note of the above contradictory stands of the respondent no. 1 and also the fact that the respondent no. 1 has already quantified its claims. The Ld. Arbitrator simply relied upon the judgment of Ashwani Bahl & Others Versus Air India Ltd: FAO No. 222/2012 to hold that the damages stipulated under clause 7 of the service agreement bond are in the nature of liquidated damages. Ignoring the pleadings before him and without appreciating the fact that the damages/expenses have already been quantified.
The Ld. Arbitrator has also not considered the following part of clause 7 of Service Agreement Bond:
" ...........The decision of the Managing Director/General Manager/Company Secretary or an officer nominated by the Managing Director shall be binding as to the total amount of the expenditure incurred and loss suffered by the Company on account of and in connection with the training/other expenses of the pilot....."
From the above part of clause 7 of the Service Agreement Bond, it is clear that the parties were ad-idem at the time of entering into agreement that the Managing Director / General Manager / Company Secretary or nominee of the Managing Director shall decide the total amount of damages/expenses. This further shows that the damages/expenses were quantifiable otherwise there would have been no basis for the Managing Director Etc, to decide the quantum of damages/expenses and there was no need of this part of clause 7 if the damages/expenses were not quantifiable.
ARB No. 06/2019 19Thus in my view the Ld. Arbitrator has erred by ignoring the contrary pleadings of the respondent no. 1 where the respondent on. 1 one hand has quantified the damages/expenses and on the other hand has taken a contrary plea that the damages/expenses are not quantifiable. Also the the Ld. Arbitrator has erred in not considering that clause 7 itself gives power to the Managing Director / General Manager / Company Secretary or the nominee of the MD to decide the total amount of damages/expenses which is only possible if the damages/expenses are quantifiable.
ii). Further the Ld. Arbitrator has failed to consider that clause 7 provides a cap of Rs. 25 Lakhs and not a genuine pre-estimate of damages.
The relevant part of clause 7 is reproduced hereinbelow:
"..... Although the above mentioned cost would be fairly high amount, however, in case of breach of any condition of this bond by the pilot, he alongwith the sureties shall be liable to pay and reimburse to the Company by way of damages, the amount of the company but the said recoverable amount of damages shall not exceed Rs. 25,00,000/- (Rupees Twenty Five Lakhs Only)."
As would be evident from the reading of above said clause it does not provide for genuine pre-estimated damages but states that if Managing Director / General Manager / Company Secretary or the nominee of the MD decides the quantum of damages/expenses and such quantification exceeds Rs. 25 Lakhs the petitioner would be liable to pay such damages/expenses subject to a maximum cap of Rs. 25 Lakhs. Thus the amount of Rs. 25 Lakhs is not a genuine pre-estimated damages but merely a cap agreed between the parties. There may also be a situation where the MD or its nominee may decide that the damages/expenses are less than Rs. 25 Lakhs, say 10 Lakhs, in such a scenario, respondent no. 1 will not be able to claim a sum of Rs. 25 Lakhs and would have been entitled to a sum of Rs. 10 Lakhs only. If that is the case, then in no manner, amount of Rs. 25 Lakhs can be ARB No. 06/2019 20 said to be the genuine pre-estimated damages. Thus in my view the the Ld. Arbitrator has failed to decide this issue in terms of provisions of clause 7 of Service Agreement Bond. It is a trite law that the Arbitrator has to operate within the four corners of the contract and has to give effect to the terms of the contract which according to this Court, the Ld. Arbitrator has failed to do. The counsel for the respondent no. 1 has also pointed out that the view of the Ld. Arbitrator on clause 7 is a plausible view and this Court cannot interfere with the award even if it feels that the view of the the Ld. Arbitrator on clause 7 is incorrect. This court is aware of the law laid down in various judgments of the Hon'ble Courts. But this court is of the view that even if it is the matter of interprtetation of clause 7, then also the Ld. Arbitrator's interpretation of clause 7 is perverse as the plain reading of clause 7 would show that parties have not agreed on any pre- estimated damages and have rather agreed that the damages/expenses would be decided by Managing Director / General Manager / Company Secretary or the nominee of the MD subject to a maximum cap of Rs. 25 Lakhs.
iii). It is the requirement of section 74 of The Indian Contract Act, 1972 that there has to be a genuine pre-estimate of damages agreed between the parties and the finding of the the Ld. Arbitrator where it considers Rs. 25 Lakhs as pre-estimate damages is not correct and falls foul of section 74 of Indian Contract Act. Thus the findings of the Ld. Arbitrator is perverse and is liable to be set aside.
Even if this court proceeds on tyhe premise that RS. 25 Lakhs is a genuine pre-estimate of damages agreed between the parties, then also as per the Kailash Nath judgment, a party has to prove that certain losses are caused to it. It is only in the circumstances where it is difficult to ARB No. 06/2019 21 quantify the losses, the tribunal or the court may award damages as pre- estimated by parties.
In para 43 of Kailash Nath Associates judgment (supra) it was 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:-
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 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.
2. Reasonable compensation will be fixed on well known principles that are applicable to the law of contract, which are to be found inter alia in Section 73 of the Contract Act.
3. Since Section 74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the Section.
4. The Section applies whether a person is a plaintiff or a defendant in a suit.
5. The sum spoken of may already be paid or be payable in future.
6. The expression "whether or not actual damage or loss is proved to have been caused thereby" means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be awarded.
7. Section 74 will apply to cases of forfeiture of earnest money under a contract. Where, however, forfeiture takes place under the terms and conditions of a public auction before agreement is reached, Section 74 would have no application."ARB No. 06/2019 22
In the present case, I have already held that the respondent no. 1 issued notice to petitioner quantifying the losses occurred to it. In the claim petition also, the respondent no. 1 has quantified its losses in a tabular form. The respondent no. 1 very vaguely has mentioned in the rejoinder that it is difficult to quantify the losses but has failed to provide any reason in the pleadings as to why it is difficult to quantify losses.
In my opinion, once the repondent has given calculated figures of damages/expenses under different heads then it does not lie in its mouth to say that the damages/expenses are not quantifiable. The respondent no. 1 in the pleadings has also stated that ONGC has imposed liquidated damages of Rs. 5 Crores against them. This also shows that the losses are quantifiable. Further at least for this loss which the respondent has alleged, it could have easily provided the documentary proof such as notice of liquidated damages by ONGC but the respondent no. 1 chose not to do so. This in view of contrary pleadings and absence of any evidence/reasoning, either to supply the contention that it is difficult to quantify the damages/expenses and or to support the bifurcation of damages/expenses given in the claim petition, the respondent no. 1 cannot be entitled to recover the amount of Rs. 25 Lakhs as it would amount to unjust enrichment.
iv). Further, the respondent no. 1 has relied upon Ashwani Bahl Judgment (supra) to argue that the amount of claims in airline industry are difficult to quantify. The Ld Arbitrator has also relied upon the said judgment to hold that the damages in the present case are liquidated damages.
In my opinion, the judgment in Ashwani Bahl case (supra) is not applicable to the facts of the present case and is distinguishable for the following reasons:
ARB No. 06/2019 23a). In the said judgment, clause of liquidated damages is not mentioned and thus this court is not aware wherther the clause in the present case and the said judgment is the same as it has already been observed above that in the present case that clause 7 itself provides for the decision qua the damages/expenses to be taken by the MD etc which shows that the parties have agreed that the damages/expenses were quantified.
b). The said judgment relates to AIR India, which is passenger Airline whereas the respondent no. 1 is in the services of providing helicopter and transport services to its clients. The nature and scope of business of a passenger Airline cannot be the same as that of respondent no. 1.
c). In the present case, the respondent no. 1 itself quantified its claims.
d). There can be no universal formula to be applied to all operators in the airline industry and the applicability of law u/s. 74 of the Indian Contract Act, is dependent upon facts and circumstances of each case.
v). Further, I could not find anything on record to show that the respondent no. 1 has even prima facie shown that it suffered any loss or damage due to the resignation/breach of contract by the petitioner. It is also not shown that respondent no. 1 suffered a loss of some business opportunity or suffered cancellation of contracts due to the resignation of the petitioner or even that it had hired some new pilot in substitution of the petitioner and trained him. Mere bald allegations have been made regarding the damages of 5 crores imposed by ONGC unsupported by any documents and regarding the training costs incurred upon the petitioner again the same being unsupported by any documents. Only one ARB No. 06/2019 24 email received by the respondent no. 1 from Deputy Chief of Training, HATSOFF Training Private Limited has been filed which provides a quotation in respect of training for 3 DHRUV pilots. One schedule D showing the service charges and payments for the helicopters has also been filed. But to rebut the said claim, the petitioner has filed the copy of the operation and maintenance contract dt 20.09.2013 executed between the respondent no.1 and the BSF, MHA as per which certain training and checks were to be arranged by respondent no. 1 at owner's cost i.e. BSF.
Though the respondent no. 1 has denied the same, however, no reasoning or explanation qua the said contract has been placed on record.
Thus the impugned award is also in voilation of the provision of section 74 of the Indian Contract Act, 1872 and the law laid down in the Kailash Nath Associates judgment (supra).
The impugned award is liable to be set aside being in contravention with the fundamental policy of Indian law and is squarely covered under explanantion 1(ii) to section 34 (2)(b)(ii) of the Arbitration and Conciliation Act, 1996 (reliance is placed upon the judgement cited as Sudarshan Bhayana (supra) and PSA Sical (supra).
vi). The Ld. Counsel for the petitioner in his petition has also prayed for setting aside the award to the extent is rejects the counter claim of the petitioner. However, the petitioner has not made any submissions qua the rejection of his counter-claims either before this court or in his written submissions and has also not pointed out any defects in the impugned award qua the said counter claim.
ARB No. 06/2019 25In anycase, on perusal of the record, I do not find any fault with the award qua the counter claim of the petitioner and does not merit any interference and the same is sustained.
Decision:
30. In view of above discussions, the impugned award dt 03.09.2019 is set aside to the extent it allows damages of Rs. 25 Lakhs to the respondent no. 1 alongwith interest accrued on the FDR deposited with the Ld. Registrar General of Hon'ble High Court of Delhi, being patently illegal and incontravention of the fundamental policy of Indian law covered under Section 34 (2)(a) of Arbitration and Conciliation Act, 1996 and explanantion 1(ii) to section 34 (2)(b)(ii) of the Arbitration and Conciliation Act, 1996.
31. File be consigned to Record Room.
Announced in open court on 12.12.2023.
(GUNJAN GUPTA) ADJ-04/South-East, Saket Courts, New Delhi ARB No. 06/2019