Delhi High Court
Ircon International Limited vs Arvind Construction Company Limited ... on 6 August, 1999
Equivalent citations: 81(1999)DLT268, 1999(50)DRJ769
Author: S.K. Mahajan
Bench: S.K. Mahajan
JUDGMENT S.K. Mahajan, J.
1. This order will dispose of the application of the petitioner under Section 34 of the Arbitration and Conciliation Act, 1996 whereby the petitioner has challenged the award made and published by the arbitrator, namely, respondent No, 2 in the matter of disputes between the parties relating to the project nomenclature as Al-Muthana (CFBL project) in Iraq. The facts in short are:-
In or about 1982-83, the New Railway Implementation Authority of the Republic of Iraq awarded certain contracts relating to a railway project in Iraq to the petitioner. One of the project was the cement factory in Al-Muthana (in short referred to as the CFBL project). The value of this project was about Iraqi Dinar 34,473 millions and the work of construction of certain buildings and temporary diversions in this project was awarded to the respondent by the petitioner. The work so awarded to the respondent was of the value of about Iraqi Dinar 0.43 millions.
2. For execution of work, the respondent availed certain loans from the petitioner in foreign currency and Indian rupees and the work was completed in the year 1984-85. The projects at Iraq were executed by the petitioner on Deferred Payment Arrangement (in short referred to as the "DPA") signed between the Government of Iraq and the Government of India. For executing the projects, the petitioner had also availed loans from certain banks including the State Bank of India, Behrain (foreign currency loan) and from the State Bank of India, New Delhi/EXIM Bank of India (rupee currency loan). The foreign currency loan was availed by the petitioner against a counter guarantee given by the Ministry of Railways, Government of India to the Bank and the rupee currency funding was availed by the petitioner against security of receivables for the work done at Iraq under the DPA.
3. Payments for the work done having not been received in terms of the DPA, the Government of India constituted a task force which recommended as under :-
"i) RBI and ECGC will issue bonds against receivables from Iraq against which project exporters have availed loan from EXIM Bank and commercials banks.
ii) ECGC will issue bonds for amount covered by the organisation under policies/guarantees net of amount settled in cash.
iii) RBI will issue bonds for the balance amount, net of amount payable by different Ministries of Government of India under Counter guarantees given by them against guarantees issued by commercial banks and EXIM Bank on behalf of public sector undertakings under relevant Ministry.
iv) Bonds to be issued by RBI will cover exporters dues to commercial banks/EXIM Bank as also surplus amount due to exporters/concerned company after liquidation of their liabilities to banking system."
4. The cash compensation received by the petitioner in terms of the recommendations of the Task Force was adjusted by the EXIM Bank/State Bank of India, New Delhi against recovery of their loans. The foreign currency loan due to the State Bank of India, Behrain was recovered by the Bank by invoking the counter guarantee given by the Ministry of Railways, Government of India. Pursuant to the recommendations of the Task Force, the petitioner executed a deed of assignment assigning all its rights, title, interest, claim, demand on the receivables from the Government of Iraq. This was in consideration of the Government of India releasing compensation (Project support to Iraq) bonds 2001 under its Notification dated 24th March, 1991.
5. As certain amount was due from the respondent to the petitioner being the loan given to the respondent, the petitioner called upon the respondent to pay the same before the Reserve Bank of India bonds were released in its favour. It appears that the loan was adjusted by the petitioner by discounting the RBI bonds by 20% and paid the RBI bonds of the face value of Rs. 10.50 crores to the respondent. According to the respondent, the petitioner could not discount the bonds by 20% for adjusting the loan payable by the respondent to the petitioner. The respondent sought reference of this dispute to an arbitrator. On receipt of the letter dated 12th June, 1996 from the respondent, the petitioner appointed Mr. C.8. Anand, a retired Financial Commissioner of the Indian Railways as the sole arbitrator in respect of one of the two projects, namely, Al-Muthana CFBL project and it was agreed between the parties that they will be bound by the decision of the arbitrator in respect of MKS project as well.
6. The arbitrator after hearing the parties made and published his award holding inter alia that there was no justification for discounting the bonds by the petitioner and the accounts of the respondent should be settled without discounting the bonds. By the present application, the petitioner has challenged this award of the arbitrator.
7. Under Section 34 of the Arbitration and Conciliation Act (in short referred to as "the Act"), an arbitral award may be set aside by the Court only if anyone of. the grounds as contained in Sub-section 2 of that Section exist. Section 34 of the Act reads as under :-
"34. Application for setting aside arbitral award :-
(1) Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with Sub-section (2) and Sub-section (3).
(2) An arbitral award may be set aside by the court only if :-(a) the party making the application furnishes proof that -(a) a party was under some incapacity, or
(ii) the arbitration, agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the Court finds that :-
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under Section 33, from the date on which that request had been disposed of by the arbitral tribunal;
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.
(4) On receipt of an application under Sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an Opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award."
8. From a bare reading of the Section, it is clear that the award can be set aside only if any one of the five grounds as contained in Sub-Section 2(a) of the Act or any one of the two grounds as contained in Sub-Section 2(b) of the Act exist. Mr. Singla submits that his challenge to the award under Section 34 is confined only to Section 2(a)(iv) and Section 2(b)(ii). Besides these two grounds, it is also the submission of the petitioner that under Sub-Section 3 of Section 31, the arbitrator is required to state reasons upon which the award was based unless the parties had agreed that no reasons were to be given. Since in this case there was no agreement between the parties that no reasons to be given, it was mandatory upon the arbitrator to give reasons for the award and the arbitrator having not given reasons, the award is liable to be set aside. Mr. Singla, therefore, confines his argument for setting aside the award on the following three grounds :-
"i) The arbitral award contains decision on matters beyond the scope of submission to arbitration;
ii) That the award ignores and disregards mandate of Section 31(3) of the Arbitration and Conciliation Act, 1996 as it does not state the reasons upon which it is based;
iii) The arbitral award is in conflict with the public policy of India inasmuch as different yardsticks in answering the dispute is applied by the Arbitrator. The principle of back-to- back basis applied for deciding the issue in favour of respondent has not been applied in favour of petitioner/IRCON by observing that same is outside the scope of reference."
9. It is contended by Mr. Singla, appearing for the petitioner, that the award contains decisions on matters beyond the scope of submissions to arbitration. The petitioner has not been able to point out as to which decision in the award was not referred to the arbitrator. From the synopsis filed by the petitioner before the arbitrator, it is clear that during the proceedings held on 30th December, 1996, the parties had agreed that the proceedings will be limited to the claim pertaining to Al-Muthana CFBL project and to the question whether reduction of ad-hoc advances by the discounting of bonds by IRCON was justified or not. This is the only point on which the arbitrator has given his decision. It is held by him that there was no justification for the discounting of bonds by the petitioner and the petitioner should settle the accounts of the respondent without discounting of the same. In my opinion, therefore, there is no substance in the arguments of the petitioner that the arbitrator has given decision on the questions beyond the scope of reference to him.
10. The next submission of the petitioner is that the arbitrator has ignored and disregarded the mandate of Section 31(3) of the Arbitration and Conciliation Act, 1996 as it does not state the reasons upon which it was based. I am not in agreement with Mr. Singla inasmuch as the arbitrator while deciding the issue before him has elaborately discussed the respective contentions of the parties and has given his reasons for arriving at the decisions he has taken. The arbitrator is not expected to write judgment like a Court of law but has only to state as to how he has come to the finding arrived at by him. No particular form is required for giving reasons. The arbitrator is not expected to record at great length the communications exchanged or submissions made by the parties nor he is expected to analyse the law and the authorities. It is sufficient for him to explain what his findings are and how he reached at the conclusions. Sufficiency of reasons is not to be gone into by the Court. The arbitrator in this case was an expert being a retired Financial Commissioner of the Railway Board and was appointed by the petitioner. He, after hearing the parties, has given his decisions and also recorded reasons. May be, in the opinion of the petitioner, the arbitrator has not analysed the law and has not elaborately discussed the various contentions of the parties, but that in itself, in my opinion, is not sufficient to set aside the award of the arbitrator. The arbitrator having given reasons for arriving at the decision taken in the award, there is no force in the submission of Mr. Singla that award is liable to be set aside on any alleged ground.
11. The last contention of the petitioner is that the arbitrator's award is in conflict with the public policy inasmuch as different yardsticks in answering the dispute are applied by the arbitrator. The principle of back-to-back basis applied for deciding the issue in favour of respondent has allegedly not been applied in favour of the petitioner.
12. Elaborating his arguments that the award is against public policy, Mr. Singla contends that the State Bank of India, Behrain recovered the amount of foreign currency loan from the petitioner by invoking counter guarantee thereby receiving the amount of loan in cash. Similarly, the EXIM Bank/State Bank of India, New Delhi for the recovery of their loans adjusted cash compensation adjudged by ECGC under their construction policy out of Rs. 30.84 crores settled by them in form of cash payment. On receipt of this amount, both the State Bank of India, Behrain as well as EXIM Bank/State Bank of India, New Delhi issued no objection for release of compensation bonds to the petitioner. As the amount had allegedly been paid in cash by the petitioner to the banks, it wanted the respondent also to repay the amount in cash so as to enable it to release compensation bonds in favour of the respondent. On the respondent not making payment in cash, the petitioner discounted the Reserve Bank of India bonds and released them at a discounted factor of 20%. Mr. Singla, therefore, submits that as it was pursuant to the policy of the Government of India that the payment was required to be made in cash and discounting was pursuant to the said policy, the award given by the arbitrator holding that the petitioner was not justified in discounting the bonds, was against public policy.
13. It is an admitted position that no payment was made in cash by the petitioner to the banks. It was either the encashment of the bank guarantee given on behalf of the petitioner or by payment made to the bank by the Ministry that no objection was issued by the banks for release of Reserve Bank of India bonds to the petitioner. Even assuming for the sake of argument that the payment made by the Ministry to the bank on behalf of the petitioner and the encashment of the bank guarantee given by the Ministry on behalf of the petitioner was payment in cash, the question is whether the respondent was obliged to make payment in cash and if so on not making such payment in cash whether the petitioner was entitled to discount the bonds and such discounting was in the interest of public policy. The contention of Mr. Singla is that the task force recommendations were a public policy and as the award was not in accordance with the recommendations of the task force, the same was liable to be set aside under Section 34(2)(b) of the Act.
14. I have given my thoughtful consideration to the arguments advanced by Mr. Singla but I have not been able to persuade myself to agree with him . On a reading of the award, I do not find any finding against either the recommendations of the task force or any alleged public policy. There is nothing in the recommendations of the task force that the bonds will be released at a discount. If the intention of the parties was that the re- payment of loan was to be made by the respondent in cash and on not making such payment the petitioner was entitled to discount the bonds, the same would have been so incorporated in some of the documents which had been placed before the arbitrator. Neither the recommendations of the task force nor any document placed before the arbitrator show that the petitioner was entitled to discount the bonds. In my opinion, no question of public policy is involved in the present case. It is only to bring this case within the four corners of Section 34(2)(b) of the Act that this argument of public policy has been advanced by the petitioner.
15. In my opinion, therefore, none of the grounds contained in Section 34 or Section 31(b) of the Act exists for setting aside the award. It is now well settled that it is not open for the Court to sit as a Court of Appeal over the decision of the arbitrator. The Court will not substitute its own views in place of the views of the arbitrator, if the view taken by the arbitrator is a plausible view under the terms of contract, even if the same is erroneous. In my opinion, the petitioner has not been able to make out any case for setting aside the award of the arbitrator.
16. I, therefore, find no merits in the application of the petitioner and the same is, accordingly, dismissed. In the facts and circumstances of the case, however, the parties are left to bear their own costs.