Orissa High Court
Principal Secretary To The Govt vs M/S. Jagganath Chaudhury on 22 April, 2024
Author: D.Dash
Bench: D.Dash
IN THE HIGH COURT OF ORISSA AT CUTTACK
ARBA No.27 of 2019
In the matter of an Appeal under Section 37(1)(a) of the
Arbitration and Conciliation Act, 1996 assailing the judgment
dated 8th April, 2019 passed by the learned District Judge,
Mayurbhanj at Baripada in Arbitration Case No.10 of 2015.
----
Principal Secretary to the Govt. .... Appellants of Odisha & Others
-versus-
M/s. Jagganath Chaudhury .... Respondent Appeared in this case by Hybrid Arrangement (Virtual/Physical Mode):
================================================ For Appellants - Mr. S.N. Das, (Additional Standing Counsel) For Respondent - Mr. Pratik Parija, Advocate CORAM:
MR. JUSTICE D.DASH Date of Hearing : 19.02.2024 : Date of Judgment: 22.04.2024 D.Dash, J. The State of Odisha by filing this Appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (for short 'the A&C Act' 1996), has assailed the judgment dated 8th April, 2019 passed by the learned District Judge, Mayurbhanj at Baripada in the matter of an application under section 34 of Page 1 of 54 ARBA No.27 of 2019 the Act, refusing thereby to set aside the award passed by the learned Arbitrator.
2. FACTUAL MATRIX OF THE CASE:-
(i) The Respondent-Claimant a Superclass Contractor was awarded to execute the work of construction of Left Head Regulator of Jambhira Earth Dam under Subarnarekha Irrigation Project (SIP), Odisha. As per the decision of the State Government to proceed with a truncated section of Jambhira Earth Dam as source of irrigation, the Respondent-Claimant entered into an agreement with the Appellant on 25.01.1996 vide Agreement No.13 LCD of 1995-
96. The period of work was from 25.01.1996 till 24.01.1998 (24 months). The accepted tender value and/or agreement value was 28.54% or 29% excess over the estimated cost put to tender.
(ii) The Respondent-Claimant stated that the sheet piling below cut off trench in order to control seepage of water through Dam base as per the site condition was substituted by providing adequate upstream earth blanket in consultation with the Geological Survey of India.
(iii) The project work commenced in November and December, 1995 with the assistance of NABARD and it was to be completed by March, 1997. The entire Dam had to be completed within tweleve months of working time as per the Page 2 of 54 ARBA No.27 of 2019 letter dated 05.08.1997 and as such the time period for completion of work was reduced by one year. But then there was frequent resistance and interruption from the side of the local people when agitation also took place. In a meeting held on 03.06.1996 in the chamber of the Chief Engineer and Basin Manager, Baitarani, Subarnarekha and Budhabalanga Basin, it was decided to complete the work of truncated Jambhira Dam by March, 1997.
(iv) The progress of the work was hindered on account of profuse seepage of water into cut off and foundation trench, as a result of which mixture of clay, slushy soil was produced which required to use of vassel and pan for removal and then profuse oozing of water during excavation necessitated dewatering by using pumps and thus the process consumed time and the progress of work thus hampered.
(v) During excavation laterite rocks found in the foundation had to be dealt with keeping in view the safety of the Dam as blasting was not permissible and as per the instruction of the Engineer-in-Charge, excavator machine had to be deployed for loosening the rocks and that again slowed down the progress of the work on account of diversion of the summer water as well as monsoon water through Left Head Regulator for completion of truncated section of the Dam Page 3 of 54 ARBA No.27 of 2019 after closing of river gap, the work was severely delayed as even suspension of work took place, over and above the frequent disruption in the power supply at the Dam site causing further delay in the progress of the work.
(vi) Two barrels, one for irrigation purpose and another for Hydel Power purpose had been provided to be connected by Y-piece. The Appellant could not supply the drawing of the Y-piece and that caused delay in the work as even suspension of the work for the same had to be made. The barrel required for irrigation and power generation purpose necessitated Special Grade Steel Plate as per the specification which were not available in the open market for which the Department procured such special grade steel plate by placing special order with Rourkela Steel Plant. That again caused the delay by waiting for those plates.
All these factors standing on the way of timely completion of the work entrusted to the Respondent- Claimant had been intimated to the Appellant from time to time.
(vii) During execution of the work, 19 numbers of extra items of work had to be executed in addition to the items provided in Bill of Quantity (BOQ) of the Agreement.
3. The Respondent-Claimant thus claimed those as under:-
Page 4 of 54 ARBA No.27 of 2019
Claim towards execution of extra items
(i) Excavation of Slushy Oil-Rs.58,38,237.75/-
(ii) Excavation of laterite rock -Rs.24,71,764.80/-
(iii) Borrow earth filling-Rs.80,57,981.83/-
(iv) Execution of Cement Concrete in 7.5 grade -
Rs.10,56,349,36/-
(v) Rehandling of hard granite broken stones-
Rs.2,11,888/-
(vi) Providing Construction Joints-Rs.10,083.75/-
(vii) Providing of Block outs in the concrete for fitting and fixing of the embedded parts-Rs.1,05,743/-
(viii) Fitting and fixing of embedded parts-
Rs.11,845.45/-
(ix) Not there in the SOC
(x) Provision of Airvent pipe-Rs.1609/-
(xi) Provision of special type of wooden form works-
Rs.3,51,622/-
(xii) Provision of special type of Form Work (Steel)-
Rs.7,19,656.33/-
(xiii) Manufacturing, supply and embedding of Steel Chairs for erection of liner pipes of the Barrel- Rs.19,37,725.61/-
(xiv) Provision for suitable bracings to the inner face of the Steel liner pipes-Rs.1,60,905.60/- Page 5 of 54 ARBA No.27 of 2019
(xv) Not there in the SOC (xvi) Filling of gaps by precision ramming-
Rs.83,99,222/-
(xvii) Labour charges for pipe driving below Head Regulator-Rs.1,41,210/-
(xviii) Provision for Primer Coat on exposed iron works-Rs.7,134.16/-
(xix) Stage II Concrete -Rs.11,442.15/- (xx) Execution of RCC M 25-Rs.11,442.15/- (xxi) Clearing of silt deposits in the barrel and foundation trenches, entry, (approach) and exit channels-Rs.46,04,008/-
(xxii) Supply and spreading of sand below PPP M 7.5 Grade-Rs.2,53,479/-
(xxiii) Construction of coffer dams-Rs.3,95,000/-
(b) Claim towards execution of extra items under BOQ:-
A. BOQ Item No.1-Rs.24,14,307.60/-
B. BOQ Item No.2-Nil
C. BOQ Item No.3-Rs.11,77,331.60/-
D. BOQ Item No.4-NIL
E. BOQ Item No.5-Rs.1,34,98,073.20/-
F. BOQ Item No.6-Rs.Recovery @ Rs.15,000 per M.T.
G. BOQ Item No.7-Rs.67,42,541,85/-
Page 6 of 54
ARBA No.27 of 2019
H. BOQ Item No.8-Rs.5,81,600/-
I. BOQ Item No.9-Rs.4540.12/-
J. BOQ Item No.10-Rs.50,551.71/-
K. BOQ Item No.11-Nil since claimed as extra item
separately
L. BOQ Item No.12-Rs.16,31,996.32/-
M. BOQ Item No.13-Rs.10,95,315/-
N. BOQ Item No.14-Rs.2,15,317.44/-
O. BOQ Item No.15-3,25,648/-
P. BOQ Item No.16-7,173.15/-
Q. BOQ Item No.17-NIL
R. BOQ Item No.18-Rs.5,53,180/-
S. BOQ Item No.19-Rs.26333.87/-
In total Rs.2, 60,29,941/- after deduction of the
payment already made has stood as the claim of the Respondent-Claimant as against the Appellant. Over and above, the Respondent -Claimant asked for a sum of Rs.73,71,444/- towards price escalation. Rs.2,86,22,591/- towards idling charges of machineries. Refund of security deposit of Rs.5,70,923/- as well as refund of withheld amount of Rs.2,40,395/-, compensation for loss of earning profit Rs.65,76,728/- and pre-reference, pendete lite and future interest.
Page 7 of 54 ARBA No.27 of 2019
4. The Appellant countered the claim of the Respondent- Claimant on the following stand:-
(A) Pre-requisite to invoke the arbitration as mandated under Clause-53 (f) of the agreement has not been followed for which the dispute is wholly non-arbitrable;
(B) The dispute raised and claims advanced are grossly barred by limitation;
(C) The claimant had executed total value of work including extra items to the tune of Rs.4,75,41,455.77 and received payment of Rs.4,39,69,210/- and thus is entitled to balance amount of Rs.35,74,245.27;
(D) There being express bar in the contract, the claim for payment of interest has no basis.
5. By order dated 26.06.2010 passed by Hon'ble Chief Justice in ARBP No.15 of 2008, Mr. Justice P.C. Mishra, (Retd.) was appointed as the sole Arbitrator. Having received the order on 27.07.2010, the learned Arbitrator entered into the reference on 29.07.2010 and issued notice to the parties. The Respondent then filed application under section 16 of the A & C Act on 08.12.2010. Said application was dismissed by the learned Arbitrator by his order dated 25.04.2011. The order was challenged in W.P.(C) No.15495 of 2011 and the arbitral proceeding was stayed by the order of this Court passed in Misc. Case No.8422 of 2011 arising therefrom. The Page 8 of 54 ARBA No.27 of 2019 writ petition was finally dismissed on 18.11.2011. The Appellant then again sought for clarification by filing Misc. Case No.74 of 2011 regarding payment of security deposit in terms of Clause-53(f) of the agreement. That application was dismissed by order dated 10.12.2012. The Appellant challenged the order dated 18.11.2011 passed in W.P.(C) No.15495 of 2011 as also the order dated 10.12.2012 passed in Misc. Case No.74 of 2011 carrying SLP No.9559 and 9560 of 2012. Those two SLPs were finally dismissed by the Hon'ble Apex Court. All these were the happenings/developments prior to the filing of the written statement filed by the Appellant before the learned Arbitrator.
6. On the above rival pleadings, the learned Arbitrator framed the following issues:-
(a) Whether the claims advanced by the Claimant in his claim statement are maintainable, legal and justified? If so, to what extent the claimant is entitled to and if the claims are barred by limitation?
(b) Is the claimant entitled to interest on the claimed amount as claimed by him, if so at what rate and amount?
(c) Is the claimant entitled to any amount towards arbitration cost as claimed by him in his claim statement?
(d) Is the claimant entitled to any other relief/reliefs?Page 9 of 54 ARBA No.27 of 2019
7. Considering the evidence, both oral and documentary, on record in the backdrop of the rival pleadings and all other materials available, the learned Arbitrator proceeded to pass the award for Rs.3,81,42,687/- under different head of claims in favour of the Respondent-Claimant. The final award reads as follows:-
"In the result, I award total sum of Rs.3,81,42,687/-
(Rupees Three Crores Eighty One Lakhs Forty Two Thousand Six Hundred Eighty Seven only) with interest @ 12% per annum from 19.02.2008 till this date of award in favour of the claimant. I direct the Respondents to pay said awarded amount of Rs.3,81,42,687/- with interest @ 12% from 19.02.2008 till this date of award within 3 (three) months from the date of Award failing which the entire awarded sum shall carry interest @ 15% per annum from dated of award till the date of realization."
8. Being aggrieved by the award passed by the learned Arbitrator, the Appellant-State filed an application in the Court of the learned District Judge, Mayurbhanj at Baripada under section 34 of the A & C Act praying therein to set aside the said award passed by the learned Arbitrator. The said application having been rejected by the learned District Judge Page 10 of 54 ARBA No.27 of 2019 by judgment dated 08.04.2019, this Appeal under section 37 of the A & C Act has been filed.
9. Mr. S.N. Das, learned Additional Standing Counsel appearing for the Appellant submitted that the learned Arbitrator has committed manifest error of both fact and law in entertaining the claims long after the period of limitation. According to him, at no point of time the Respondent- Claimant had raised his final bill as mandated under Clause- 36 of the General Clauses of Contract (GCC), which contains that the Contractor had to raise his final bill soon after the closure of the work. No document on record to show that in between 22.10.2001 the date whereafter no work was done by the Respondent-Claimant up-till 19.02.2008 (the date on which application under section 11(6) of the A & C Act was filed seeking appointment of the Arbitrator), any of these claims were notified by the Respondent-Claimant thereby raising the dispute as to non-payment and the Respondent- Claimant without even issuing any notice to the Appellant invoking the arbitration clause directly filed the application under 11(6) of the A & C Act before this Court on 19.02.2008. He submitted that when as per Article 55 of the Limitation Act, 1963, the period of limitation for claiming compensation for the breach of contract is three years from the date of accrual of the cause of action, the Respondent-Claimant's Page 11 of 54 ARBA No.27 of 2019 claim is hopelessly time barred. In support of the above, he relied upon the decision of the Apex Court in case of M/s.T & AG vrs. Ministry of Defence; (2023) SCC Online SC 657 with special reference to paragraph-65-72. He submitted that admittedly 36th RA Bill was received by the Respondent- Claimant on 22.1.2001 and the application for appointment of the Arbitrator was filed only on 19.02.2008 without any explanation either in the statement of the claim or evidence as regards such long silence and without indicating as to why the period of limitation would not be computed with effect from 22.01.2001. Inviting the attention of this Court to the reasoning given by the learned Arbitrator, he submits that the same is wholly untenable; when it is stated that since the dues of the Respondent-Claimant were not paid till 17.03.2008, cause of action to lodge the claim would accrue from 17.03.2008 and accordingly, it is barred by limitation. (B) He next submitted that the learned Arbitrator committed manifest error and patent illegality in allowing the claims merely basing on the averments made in the claim statement filed by the Respondent-Claimant when it can be well ascertained that save and except raising various claims under the different heads, the Respondent-Claimant had not adduced any evidence in shape of material to establish his claim and most of the claims towards execution of extra items Page 12 of 54 ARBA No.27 of 2019 of work have been allowed with the assumption that the Respondent-Claimant must have done the said work. It was stated that the reasoning given by the learned Arbitrator that in the absence of 37th running and final bill, the inference stands that what has been stated by the Claimant in regard to the quantity etc. are true is wholly untenable when the Respondent-Claimant in adherence to Clause-36 of the GCC has not submitted the final bill after completion of the work in claiming the balance amount to be paid to him. He thus submitted that the said finding returned by the learned Arbitrator is based on no evidence which is perverse and thus comes within the sweep of patent illegality on the face of the award. In this connection, he relied upon the decision in case of Reliance Infrastructure Ltd. Vrs. State of Goa, (2024) 1 SCC 479, Ssangyong Engineering & Construction Company Ltd. Vrs. NHAI, (2019) 15 SCC 131, Dyna Technology (P) Ltd., Vrs. Crompton Greaves Ltd., (2019) 20 SCC (1), and State of Rajasthan Vrs. Ferro Concrete Construction Private Ltd., (2009) 12 SCC 1.
(C) He further contended that on the face of the express bar under Clause-53(C) and 53(E) of the GCC governing the contract between the parties for payment of interest, the learned Arbitrator would not have awarded any interest over and above which the learned Arbitrator has gone to award by Page 13 of 54 ARBA No.27 of 2019 traversing beyond what has been contemplated between the parties. He placed reliance upon the decision of Union of India Vrs. Manraj Enterprises, (2022) 2 SCC 331. He further submitted that even though the above ground was not taken in the application under section 34 of the A & C Act from the side of the Appellant as per the law laid down in case of State of Chhattisgarh Vrs. SAL Udyog (P) Ltd., (2022) 2 SCC 275. The said ground is permissible to be taken in the Appeal under section 37 of the A & C of the Act and non-raising of such ground would not amount to waiver. Raising all the above contentions, he urged for set aside the award.
10. Mr. P. Parija, learned counsel for the Respondent- Claimant having submitted that (A) the Arbitral award is not an ordinary adjudicatory order so as to be lightly interfered with by the Courts under section 34 and 37 of the A & C Act as if dealing with an appeal or revision against a decision of any subordinate court, relying upon the decision in case of Reliance Infrastructures Vrs. State of Goa; (2024) 1 SCC 479 contended that the present award is not liable to be interfered with on any of the grounds urged by the learned Additional Standing Counsel.
(B) the issue of limitation was very much before the learned Arbitrator and that has been decided in favour of the Page 14 of 54 ARBA No.27 of 2019 Respondent-Claimant holding his claim to be not barred by limitation. He submitted that even though it is taken for a moment that the Respondent-Claimant had not raised the final bill after the work but as the matter relating to payment to be made to him on account of the extra items of work executed were pending before the Appellant and under consideration and had continued for a period without being responded in any positive or negative manner, the learned Arbitrator has rightly held that the cause of action for raising the claim in the facts and circumstances of the case has arisen on the day when the Respondent-Claimant filed the application under section 11(6) of the A & C Act, finding no other option in getting his unpaid dues from the Appellant without further wasting time in a fruitless manner.
(B) It was submitted that the learned Arbitrator as can be seen from the relevant paragraph of the award has gone for detail discussion of the materials before him and considered the same in the backdrop of the rival case projected by the parties including some extra items of work admitted by the Appellant to have been done by the Respondent-Claimant and when everything being taken into consideration in their proper prospective, the learned Arbitrator has arrived at a finding on each of the head of the claim and also has gone to disallow certain items of claim Page 15 of 54 ARBA No.27 of 2019 lodged by the Respondent-Claimant, it cannot be said to be the findings based on no evidence so as to term as perverse coming within the sweep of patent illegality warranting interference. It was submitted that there being no express denial and as such as against the claim of interest in the contract/agreement, the learned Arbitrator is absolutely right in awarding the interest for the period having all the authority to do so. With the above submissions, he contended that the Appeal is devoid of merit and as such is liable to be dismissed confirming the award as well as the judgment passed on the application under section 34 of the A & C Act filed by the Appellant.
11. Issues for consideration: -
Having heard learned counsel for the parties at length and giving my anxious and thoughtful consideration over the same, the following points for determination had been identified for being answered.
(1) What is the scope of this Court's power under section 37 of the A & C Act and whether the arbitral award is in contravention of the fundamental policy of Indian law, as in the given case contrary to the provision laid down in the Indian Limitation Act, 1963?Page 16 of 54 ARBA No.27 of 2019
(2) Whether the findings of the Arbitrator are based on no evidence and as such the same are perverse and thus the award suffers from the vice of patent illegality?
(3) Whether the learned Arbitrator is right in awarding the interest as afore-stated by travelling beyond the contract, which is wholly impermissible and as such without jurisdiction?
12. ISSUE A: WHAT IS THE SCOPE OF THIS COURTS POWER UNDER SECTION 37 OF THE A&C ACT
1. In the present case, we are only concerned with Section 37(1)(c) which states that an appeal lies under Section 37 from an order setting aside or refusing to set aside an arbitral award under Section 34 of the A& C Act.
2. We may note that the law laid down by the Supreme Court constricts the supervisory role of the courts while testing the validity of an Arbitration Award. In the case of Mcdermott International Inc. v. Burn Standard Co. Ltd. 1 , the Supreme Court has held as under:--
"The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few 1 (2006) 11SCC 181 Page 17 of 54 ARBA No.27 of 2019 circumstances only, like, in case of fraud or bias by the Ld. Arbitral Tribunals, violation of natural justice, etc. The court cannot correct errors of the Ld. Arbitral Tribunals. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, the scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court's jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it."
3. It is now a settled position that while exercising a power under Section 34 of the A&C Act, the arbitral award can only be confirmed or set aside, but not modified. To buttress the said position of law, reliance is placed on the decision of the Supreme Court's recent judgment and order in NHAI v. M. Hakeem 2, wherein the Supreme Court held that:
"16. What is important to note is that, far from Section 34 being in the nature of an appellate provision, it provides only for setting aside awards on very limited grounds, such grounds being contained in sub-sections (2) and (3) of Section 34. Secondly, as the marginal note of Section 34 indicates, "recourse" to a court against an arbitral 2 2021 SCC Online SC 473 Page 18 of 54 ARBA No.27 of 2019 award may be made only by an application for setting aside such award in accordance with sub-sections (2) and (3). "Recourse" is defined by P. Ramanatha Aiyar's Advanced Law Lexicon (3rd Edn.) as the enforcement or method of enforcing a right. Where the right is itself truncated, enforcement of such truncated right can also be only limited in nature. What is clear from a reading of the said provisions is that, given the limited grounds of challenge under sub-sections (2) and (3), an application can only be made to set aside an award. This becomes even clearer when we see sub-section (4) under which, on receipt of an application under sub-section (1) of Section 34, the court may adjourn the Section 34 proceedings and give the Arbitral Tribunal an opportunity to resume the arbitral proceedings or take such action as will eliminate the grounds for setting aside the arbitral award. Here again, it is important to note that it is the opinion of the Arbitral Tribunal which counts in order to eliminate the grounds for setting aside the award, which may be indicated by the court hearing the Section 34 application.
xxx
31. Thus, there can be no doubt that given the law laid down by this Court, Section 34 of the Arbitration Act, 1996 cannot be held to include within it a power to modify an award. The sheet anchor of the argument of the respondents is the judgment of the learned Single Judge in Gayatri Balaswamy [Gayatri Balaswamy v. ISG Novasoft Technologies Ltd., 2014 SCC OnLine Mad 6568 : (2015) 1 Mad LJ 5] . This matter arose out of a claim for Page 19 of 54 ARBA No.27 of 2019 damages by an employee on account of sexual harassment at the workplace. The learned Single Judge referred to the power to modify or correct an award under Section 15 of the Arbitration Act, 1940 in para 29 of the judgment. Thereafter, a number of judgments of this Court were referred to in which awards were modified by this Court, presumably under the powers of this Court under Article 142 of the Constitution of India. In para 34, the learned Single Judge referred to para 52 in McDermott case [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] and then concluded that since the observations made in the said para were not given in answer to a pointed question as to whether the court had the power under Section 34 to modify or vary an award, this judgment cannot be said to have settled the answer to the question raised finally.
xxx
42. It can therefore be said that this question has now been settled finally by at least 3 decisions [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] , [Kinnari Mullick v. Ghanshyam Das Damani, (2018) 11 SCC 328 : (2018) 5 SCC (Civ) 106] , [Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies (P) Ltd., (2021) 7 SCC 657] of this Court. Even otherwise, to state that the judicial trend appears to favour an interpretation that would read into Section 34 a power to modify, revise or vary the award would be to ignore the previous law contained in the 1940 Act; as also to ignore the fact that the 1996 Act was enacted based on the Page 20 of 54 ARBA No.27 of 2019 Uncitral Model Law on International Commercial Arbitration, 1985 which, as has been pointed out in Redfern and Hunter on International Arbitration, makes it clear that, given the limited judicial interference on extremely limited grounds not dealing with the merits of an award, the "limited remedy"
under Section 34 is coterminous with the "limited right", namely, either to set aside an award or remand the matter under the circumstances mentioned in Section 34 of the Arbitration Act, 1996.
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48. Quite obviously if one were to include the power to modify an award in Section 34, one would be crossing the Lakshman Rekha and doing what, according to the justice of a case, ought to be done. In interpreting a statutory provision, a Judge must put himself in the shoes of Parliament and then ask whether Parliament intended this result. Parliament very clearly intended that no power of modification of an award exists in Section 34 of the Arbitration Act, 1996. It is only for Parliament to amend the aforesaid provision in the light of the experience of the courts in the working of the Arbitration Act, 1996, and bring it in line with other legislations the world over."
Further, the Supreme Court also re-iterated the above position in National Highway Authority of India vs. Sri P.Nagaraju @ Cheluvaiah & Anr as under:
"26. Under the scheme of the Act 1996 it would not be permissible to modify the award passed by the learned Arbitrator to enhance or Page 21 of 54 ARBA No.27 of 2019 reduce the compensation based on the material available on record in proceeding emanating from Section 34 of the Act, 1996..."
13. It is thus amply clear that the extent of judicial scrutiny under Section 34 of the A&C Act is limited and the scope of interference is narrow. Under Section 37, the extent of judicial scrutiny and scope of interference is further narrower still. An appeal under Section 37 is akin to a second appeal, the first appeal being by way of objections under Section 34. Where there are concurrent findings of facts and law, first by the Learned Arbitral Tribunal which are then confirmed by the court while dealing with objections under Section 34, in an appeal under Section 37, the Appellate Court should be very cautious and loathe to interfere in the findings returned in the award by the Arbitral Tribunal and confirmed by the court under Section
34. As laid down by the Apex Court, the supervisory role of the court in arbitration proceedings has been kept at a minimal level and this is so because, the parties to the agreement make a conscious decision to exclude the court's jurisdiction by opting for arbitration as the parties prefer the expediency and finality offered by it. Page 22 of 54 ARBA No.27 of 2019
6. Further, the Supreme Court in the case of UHL Power Co. Ltd. v. State of H.P. 3, recently held as follows:
"16. As it is, the jurisdiction conferred on courts under Section 34 of the Arbitration Act is fairly narrow, when it comes to the scope of an appeal under Section 37 of the Arbitration Act, the jurisdiction of an appellate court in examining an order, setting aside or refusing to set aside an award, is all the more circumscribed. In MMTC Ltd. v. Vedanta Ltd. [MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163 : (2019) 2 SCC (Civ) 293] , the reasons for vesting such a limited jurisdiction on the High Court in exercise of powers under Section 34 of the Arbitration Act have been explained in the following words : (SCC pp. 166-67, para
11) "11. As far as Section 34 is concerned, the position is well-settled by now that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited ground provided under Section 34(2)(b)(ii) i.e. if the award is against the public policy of India. As per the legal position clarified through decisions of this Court prior to the amendments to the 1996 Act in 2015, a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice or morality, and the existence of patent illegality in the arbitral award. Additionally, the concept of the 3 2022 SCC Online SC 19 Page 23 of 54 ARBA No.27 of 2019 "fundamental policy of Indian law" would cover compliance with statutes and judicial precedents, adopting a judicial approach, compliance with the principles of natural justice, and Wednesbury [Associated Provincial Picture Houses Ltd. v. Wednesbury Corpn., (1948) 1 KB 223 (CA)] reasonableness. Furthermore, "patent illegality" itself has been held to mean contravention of the substantive law of India, contravention of the 1996 Act, and contravention of the terms of the contract."
A similar view, as stated above, has been taken by the Supreme Court in K. Sugumar v. Hindustan Petroleum Corpn. Ltd. 4, wherein it has been observed as follows:-
"2. The contours of the power of the Court under Section 34 of the Act are too well established to require any reiteration. Even a bare reading of Section 34 of the Act indicates the highly constricted power of the civil court to interfere with an arbitral award. The reason for this is obvious. When parties have chosen to avail an alternate mechanism for dispute resolution, they must be left to reconcile themselves to the wisdom of the decision of the arbitrator and the role of the court should be restricted to the bare minimum. Interference will be justified only in cases of commission of misconduct by the arbitrator which can find manifestation in different forms including exercise of legal perversity by the arbitrator."4
(2020) 12 SCC 539 Page 24 of 54 ARBA No.27 of 2019
14. In the same vein, the Supreme Court in the case of Haryana Tourism Ltd. v. Kandhari Beverages Ltd. 5 has held as follows:
"9. As per settled position of law laid down by this Court in a catena of decisions, an award can be set aside only if the award is against the public policy of India. The award can be set aside under Sections 34/37 of the Arbitration Act, if the award is found to be contrary to: (a) fundamental policy of Indian law; or (b) the interest of India; or (c) justice or morality; or
(d) if it is patently illegal. None of the aforesaid exceptions shall be applicable to the facts of the case on hand. The High Court has entered into the merits of the claim and has decided the appeal under Section 37 of the Arbitration Act as if the High Court was deciding the appeal against the judgment and decree passed by the learned trial court. Thus, the High Court has exercised the jurisdiction not vested in it under Section 37 of the Arbitration Act. The impugned judgment and order [Kandhari Beverages Ltd. v. Haryana Tourism Ltd., 2018 SCC OnLine P&H 3233] passed by the High Court is hence not sustainable."
More recently, the Supreme Court affirmed the above legal position in the case of Punjab State Civil Supplies Corporation Ltd. v. Ramesh Kumar and Company 6. 5 (2022) 3 SCC 237 6 2021 SCC Online SC 1056 Page 25 of 54 ARBA No.27 of 2019 In case of Reliance Infrastructure (Supra); the Court referring to several decisions has reiterated the same legal principles and keeping in view the same with regard to the limited scope of interference in an arbitral award by a Court in exercise of its jurisdiction under section 34 of the A & C Act which is all the more circumscribed in an appeal under section 34 of the Act had gone to examine the rival submissions.
15. In the light of the of the parameters as laid down above vis-à-vis the scope of judicial intervention that the present Appeal in view of the judgment passed by the learned District Judge in Arbitration Case No.10 of 2015 arising out of the arbitration award dated 30.04.2015 passed by the learned Arbitrator has to be addressed.
(A) Limitation The issue as to the limitation has been decided by the learned Arbitrator as that had been raised from the very beginning. This Court addressing the rival submission advanced, feels that at first, it would be profitable to take note of the law laid down by the Hon'ble Apex Court in case of B and T AG (supra). The Court was dealing with a petition under section 11(6) of the A & C Act. It was vehemently opposed on twin points of limitation; (1) that the petition under section 11(6) of the A & C Act is time barred and (2) Page 26 of 54 ARBA No.27 of 2019 that the claims raised by the Petitioner were hopelessly barred by limitation. The Court, therefore, was called upon to rule whether time barred claim or claims which are barred by limitation can be said to be live claim so as to be referred to the Arbitrator. Having said that no time limit has been prescribed for filing the application under section 11(6) of the A & C Act for appointment of the Arbitrator, the Court, however, referring to section 43 of the A & C Act and the decision in case of Consolidated Engineering Enterprises Vrs. Principal Secretary, Irrigation Department, (2008) 7 SCC 169, which had addressed the contention that section 43 of the A & C Act makes the provision of Limitation Act, 1963 applicable only to arbitration and not to any proceeding relating to arbitration in a court had negated the same in saying that the provisions of Limitation Act, 1963 shall apply to all proceedings under the A & C Act, both in court and in arbitration, except to the extent expressly excluded by the provisions of A & C Act. It was then, however, observed that there is a fine distinction between the plea that the claims raised are barred by limitation and the pleas that the application for appointment of an Arbitrator is barred by limitation. Referring to the celebrated decision of the High Court of Calcutta in case of Dwijendra Narayan Roy Vrs. Page 27 of 54 ARBA No.27 of 2019 Jogesh Chandra Dey & Another, AIR 1924 (Cal) 600, deciding the cause of action the followings have been said:-
Cause of action becomes important for the purposes of calculating the limitation period for bringing an action. It is imperative that a party realises when a cause of action arises. If a party simply delays sending a notice seeking reference under the Act 1996 because they are unclear of when the cause of action arose, the claim can become time-barred even before the party realises the same.
"Russell on Arbitration by Anthony Walton (19th Edn.) at pp. 4-5 states that the period of limitation for commencing an arbitration runs from the date on which the "cause of arbitration"
accrued, that is to say, from the date when the claimant first acquired either a right of action or a right to require that an arbitration take place upon the dispute concerned. The period of limitation for the commencement of an arbitration runs from the date on which, had there been no arbitration clause, the cause of action would have accrued:
"Just as in the case of actions the claim is not to be brought after the expiration of a specified number of years from the date on which the cause of action accrued, so in the case of arbitrations, the claim is not to be put forward after the expiration of the specified number of years from the date when the claim accrued."
In Law of Arbitration by Justice Bachawat at p. 549, commenting on Section 37, it is stated that subject to the Act 1963, every arbitration must be commenced within the prescribed period. Just as in the case of actions the claim is not to be brought after the expiration of a specified number of years Page 28 of 54 ARBA No.27 of 2019 from the date when the cause of action accrues, so in the case of arbitrations the claim is not to be put forward after the expiration of a specified number of years from the date when the claim accrues. For the purpose of Section 37(1) "action" and "cause of arbitration" should be construed as arbitration and cause of arbitration. The cause of arbitration arises when the claimant becomes entitled to raise the question, that is, when the claimant acquires the right to require arbitration. An application under Section 11 of the Act 1996 is governed by Article 137 of the Schedule to the Act 1963 and must be made within 3 years from the date when the right to apply first accrues. There is no right to apply until there is a clear and unequivocal denial of that right by the respondent. It must, therefore, be clear that the claim for arbitration must be raised as soon as the cause for arbitration arises as in the case of cause of action arisen in a civil action.
Whether any particular facts constitute a cause of action has to be determined with reference to the facts of each case and with reference to, the substance, rather than the form of the action. If an infringement of a right happens at a particular time, the whole cause of action will be said to have arisen then and there. In such a case, it is not open to a party to sit tight and not to file an application for settlement of dispute of his right, which had been infringed, within the time provided by the Limitation Act, and, allow his right to be extinguished by lapse of time, and thereafter, to wait for another cause of action and then file an application under Section 11 of the Act 1996 for establishment of his right which was not then alive, and, which had been long extinguished because, in such a case, such an application would mean an Page 29 of 54 ARBA No.27 of 2019 application for revival of a right, which had long been extinguished under the Act 1963 and is, therefore, dead for all purposes. Such proceedings would not be maintainable and would obviously be met by the plea of limitation under Article 137 of the Act 1963.
Negotiations may continue even for a period of ten years or twenty years after the cause of action had arisen. Mere negotiations will not postpone the "cause of action" for the purpose of limitation. The Legislature has prescribed a limit of three years for the enforcement of a claim and this statutory time period cannot be defeated on the ground that the parties were negotiating.
In Panchu Gopal Bose v. Board of Trustees for Port of Calcutta reported in (1993) 4 SCC 338, this Court had held that the provisions of the Act 1963 would apply to arbitrations and notwithstanding any term in the contract to the contrary, cause of arbitration for the purpose of limitation shall be deemed to have accrued to the party, in respect of any such matter at the time when it should have accrued but for the contract. Cause of arbitration shall be deemed to have commenced when one party serves the notice on the other party requiring the appointment of an arbitrator. The question was when the cause of arbitration arises in the absence of issuance of a notice or omission to issue notice for a long time after the contract was executed? Arbitration implies to charter out timeous commencement of arbitration availing of the arbitral agreement, as soon as difference or dispute has arisen. Delay defeats justice and equity aids promptitude and resultant consequences. Defaulting party should bear the hardship and should not transmit the hardship to the other Page 30 of 54 ARBA No.27 of 2019 party, after the claim in the cause of arbitration was allowed to be barred. It was further held that where the arbitration agreement does not really exist or ceased to exist or where the dispute applies outside the scope of arbitration agreement allowing the claim, after a considerable lapse of time, would be a harassment to the opposite party. It was accordingly held in that case that since the petitioner slept over his rights for more than 10 years, by his conduct he allowed the arbitration to be barred by limitation and the Court would be justified in relieving the party from arbitration agreement under Sections 5 and 12(2)(b) of the Act. [See: State of Orissa v. Damodar Das, (1996) 2 SCC 216] The observations made by this Court in Panchu Gopal (supra) in paras 10, 11, 12, 13, 14 and 15 respectively, are also relevant. The observations read as under:
"10. In West Riding of Yorkshire County Council v. Huddersfield Corpn. [(1957) 1 All ER 669] the Queen's Bench Division, Lord Goddard, C.J. (as he then was) held that the Limitation Act applies to arbitrations as it applies to actions in the High Court and the making, after a claim has become statute-barred, of a submission of it to arbitration, does not prevent the statute of limitation being pleaded. Russel on Arbitration, 19th Edn., reiterates the above proposition. At page 4 it was further stated that the parties to an arbitration agreement may provide therein, if they wish, that an arbitration must be commenced within a shorter period than that allowed by statute; but the court then has power to enlarge the time so agreed. The period of limitation for commencing an arbitration runs from the date on Page 31 of 54 ARBA No.27 of 2019 which the cause of arbitration accrued, that is to say, from the date when the claimant first acquired either a right of action or a right to require that an arbitration takes place upon the dispute concerned.
The observations made by this Court in Panchu Gopal (supra) in paras 10, 11, 12, 13, 14 and 15 respectively, are also relevant. The observations read as under:
10. In West Riding of Yorkshire County Council v. Huddersfield Corpn. [(1957) 1 All ER 669] the Queen's Bench Division, Lord Goddard, C.J. (as he then was) held that the Limitation Act applies to arbitrations as it applies to actions in the High Court and the making, after a claim has become statute-barred, of a submission of it to arbitration, does not prevent the statute of limitation being pleaded. Russel on Arbitration, 19th Edn., reiterates the above proposition. At page 4 it was further stated that the parties to an arbitration agreement may provide therein, if they wish, that an arbitration must be commenced within a shorter period than that allowed by statute; but the court then has power to enlarge the time so agreed. The period of limitation for commencing an arbitration runs from the date on which the cause of arbitration accrued, that is to say, from the date when the claimant first acquired either a right of action or a right to require that an arbitration takes place upon the dispute concerned.
Therefore, the period of limitation for the commencement of an arbitration runs from the date on which, had there been no arbitration clause, the cause of action would have accrued. Just as in the case of actions the claim is not to be brought after the expiration of a specified number of years from the date on which the cause of action Page 32 of 54 ARBA No.27 of 2019 accrued, so in the case of arbitrations, the claim is not to be put forward after the expiration of the specified number of years from the date when the claim accrued In Russell on Arbitration, at pages 72 and 73 it is stated thus:
"Disputes under a contract may also be removed, in effect, from the jurisdiction of the court, by including an arbitration clause in the contract, providing that any arbitration under it must be commenced within a certain time or not at all, and going on to provide that if an arbitration is not so commenced the claim concerned shall be barred. Such provisions are not necessarily found together. Thus the contract may limit the time for arbitration without barring the claim depriving a party who is out of time of his right to claim arbitration but leaving open a right of action in the courts. Or it may make compliance with a time- limit a condition of any claim without limiting the operation of the arbitration clause, leaving a party who is out of time with the right to claim arbitration but so that it is a defence in the arbitration that the claim is out of time and barred. Nor, since the provisions concerned are essentially separate, is there anything to prevent the party relying on the limitation clause waiving his objection to arbitration whilst still relying on the clause as barring the claim."
At page 80 it is stated thus:
"An extension of time is not automatic and it is only granted if 'undue hardship' would otherwise be caused. Not all hardship, however, is 'undue hardship'; it may be proper that hardship caused to a party by his own default should be borne by him, and not transferred to the other Page 33 of 54 ARBA No.27 of 2019 party by allowing a claim to be reopened after it has become barred. The mere fact that a claim was barred could not be held to be 'undue hardship'."
The Law of Arbitration by Justice Bachawat in Chapter 37 at p. 549 it is stated that just as in the case of actions the claim is not to be brought after the expiration of a specified number of years from the date when the claim accrues, so also in the case of arbitrations, the claim is not to be put forward after the expiration of a specified number of years from the date when the claim accrues. For the purpose of Section 37(1) 'action' and 'cause of action' in the Limitation Act should be construed as arbitration and cause of arbitration. The cause of arbitration, therefore, arises when the claimant becomes entitled to raise the question, i.e. when the claimant acquires the right to require arbitration. The limitation would run from the date when cause of arbitration would have accrued, but for the agreement.
Arbitration implies to charter out timeous commencement of arbitration availing the arbitral agreement, as soon as difference or dispute has arisen. Delay defeats justice and equity aid the promptitude and resultant consequences. Defaulting party should bear the hardship and should not transmit the hardship to the other party, after the claim in the cause of arbitration was allowed to be barred. The question, therefore, as posed earlier is whether the court would be justified to permit a contracting party to rescind the contract or the court can revoke the authority to refer the disputes or differences to arbitration. Justice Bachawat in his Law of Arbitration, at p. 552 stated that "in an appropriate case leave should be given to revoke the authority of the Page 34 of 54 ARBA No.27 of 2019 arbitrator". It was also stated that an ordinary submission without special stipulation limiting or conditioning the functions of the arbitrator carried with it the implication that the arbitrator should give effect to all legal defences such as that of limitation. Accordingly the arbitrator was entitled and bound to apply the law of limitation. Section 3 of the Limitation Act applied by way of analogy to arbitration proceedings, and like interpretation was given to Section 14 of the Limitation Act. The proceedings before the arbitration are like civil proceedings before the court within the meaning of Section 14 of the Limitation Act. By consent the parties have substituted the arbitrator for a court of law to arbiter their disputes or differences. It is, therefore, open to the parties to plead in the proceedings before him of limitation as a defence.
In Mustiu and Boyd's Commercial Arbitration (1982 Edn.) under the heading "Hopeless Claim" in Chapter 31 at page 436 it is stated thus:
"There is undoubtedly no jurisdiction to interfere by way of injunction to prevent the respondent from being harassed by a claim which can never lead to valid award for example in cases where claim is brought in respect of the alleged Arbitration agreement which does not really exist or which has ceased to exist. So also where the dispute lies outside the scope of arbitration agreement.""
(Emphasis Supplied) (B). Adverting the case at hand it is found that the learned Arbitrator has dealt this issue at paragraph 26 of the award which are as follows:-
"So far as the question of limitation is concerned, Section 43 of the Act, 1996 speaks that the Limitation Act, 1963 Page 35 of 54 ARBA No.27 of 2019 shall apply to arbitrations as it applies in proceedings in courts. Right to apply to the court for appointment of Arbitrator arises only when disputes subsists. From Ext.C-
21, it is apparent that on scrutiny of records reveals the work was completed but further follow up action for payment of dues of the Contractor with full and final settlement of all his claims was not taken. In Ext.C-21, the Chief Engineer and Basin Manager, Respondent No.2 had written a letter on 17.03.2008 to the Superintending Engineer, Subarnarekah Irrigation Circle to the above effect expressing his concern that the steps on that behalf had not been taken through 6 years have already been lapsed. The said letter under Ext.C-21 also reveals that the Contract Closer Proposal, Price Escalation Bills of the Contractor etc. were yet to be canaliged for approval."
16. As per the case of the Appellant, the Respondent- Claimant abandoned the work on and from 22.01.2001 leaving the work incomplete to the tune of Rs.1742147/- and it is stated that thereafter no final bill having been raised, the claim of the Respondent-Claimant was already barred by limitation when on 19.02.2008 the application under section 11(6) of the A & C Act was filed which too was also barred and was with a view to give life to dead claims. Page 36 of 54 ARBA No.27 of 2019
In this connection, the letter of the Chief Engineer and Basin Manager, Baitarani-Subarnarekha-Budhabalanga Basin bears importance and is of great significance. The letter is dated 17.03.2008. It had been addressed to the Superintendent Engineer, Subaranarekha Irrigation Circle. Concern therein was expressed that why and how could no steps had been taken for all these six years with regard to the proposal of the Respondent-Claimant for closure of the contract, on price escalation bills raised by the Respondent- Claimant. Without going to touch upon any other material, the above letter, itself, reveals that the Respondent-Claimant having raised the price escalation bills and having given the proposal for closure of the contract etc., those were remaining without any response. Therefore, at no point of time till the Respondent-Claimant filed the application under section 11(6) of the A & C Act, his claims can be said to have been denied so as to have given rise to the cause of action to move for their award of said claims being so disputed/denied so as to get those adjudicated for recovery of the same. The claims of the Respondent-Claimant thus were not dead by virtue of lapse of time period prescribed under the Limitation Act, 1963 under Article 55 (three years from the date when the cause of action arises) as being unenforceable in the eye of law. Therefore, it was not at all a case where the claims of the Page 37 of 54 ARBA No.27 of 2019 Respondent-Claimant were barred by limitation by the time application under section 11(6) of the A & C Act was filed which too was barred under Article 137 of the Limitation Act, 1963.
17. The position of law is no more res integra that a finding recorded by the learned Arbitrator which is not based on any evidence so as to be substantiated the said finding is perverse and as such is liable to be set aside being under the sufferance of vice of patent illegality can only be gone into for reappraisal and appropriate finding based on that. It has been held in case of Associate Builders (supra) as under:-
xxx xxx xxx xxx
31. The third juristic principle that a decision which is perverse or so irrational that no reasonable person would have arrived at the same is important and requires some degree of explanation. It is settled law that where:
(i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into account something irrelevant to the decision which it arrives at: or
(iii) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse.
32. A good working test of perversity is contained in two judgments. In Excise and Taxation Officer-cum- Page 38 of 54 ARBA No.27 of 2019 Assessing Authority v. Gopi Nath & Sons, it was held:
(SCC p. 317, para 7) "7. ... It is, no doubt, true that if a finding of fact is arrived at by ignoring or excluding relevant material or by taking into consideration irrelevant material or if the finding so outrageously defies logic as to suffer from the vice of irrationality incurring the blame of being perverse, then, the finding is rendered infirm in law."
In Kuldeep Singh v. Commr. of Police, it was held: (SCC p.14, para 10) "10. A broad distinction has, therefore, to be maintained between the decision which are perverse and those which are not. If a decision is arrived at on no evidence or evidence, which is thoroughly unreliable and no reasonable person would act upon it, the order would be perverse. But if there is some evidence on record which is acceptable and which could be relied upon, howsoever compendious, it may be, the conclusions would not be treated as perverse and the findings would not be interfered with."
33. It must clearly be understood that when a court is applying the 'Public policy' test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on fact has necessarily to pass muster as the arbitrator is the Page 39 of 54 ARBA No.27 of 2019 ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score. Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts. In P.R. shah, shares & Stock Brokers (P) Ltd. v. B.H.H. Securities (P) Ltd., this Court held: (SCC pp. 601-02, para 21) "21. A Court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or reappreciation the evidence. An award can be challenged only under the grounds mentioned in Section 34(2) of the Act. The Arbitral Tribunal has examined the facts and held that both the second respondent and the appellant are liable. The case as put forward by the first respondent has been accepted. Even the minority view was that the second respondent was liable as claimed by the first respondent, but the appellant was not liable only on the ground that the arbitrators appointed by the Stock Exchange udner Bye-law 248, in a claim against a non-member, had no jurisdiction to decide a claim against another member. The finding of the majority is that the appellant did the transaction in the name of the second respondent and is therefore, liable along with the second Page 40 of 54 ARBA No.27 of 2019 respondent. Therefore, in the absence of any ground under Section 34(2) of the Act, it is not possible to re-examine the facts to find out whether a different decision can be arrived at."
34. It is with this very important caveat that the two fundamental principles which from part of the fundamental policy of Indian law (that the arbitrator must have a judicial approach and that he must not act perversely) are to be understood."
18. In a very recent case of Reliance Infrastructure Ltd. (supra) reiterating the principles laid down in case of SSANGYONG ENGINEERING & CONSTRUCTION CO. LTD. (supra) and Delhi Airport Metro Express Private Ltd. Vrs. Delhi Metro Rail Corporation Ltd., (2022) 1 SCC 131, it has been held that -
"patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the Arbitral Tribunal would not fall within the expression "patent illegality". Likewise, erroneous application of law cannot be categorized as patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the scope of the expression "patent illegality". What is prohibited is for Courts to reapprecaition evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as Courts do Page 41 of 54 ARBA No.27 of 2019 not sit in appeal against the arbitral award. The permissible grounds for interference with a domestic award under Section 34(2- A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one, or interprets a clause in the contract in such a manner which no fair-minded or reasonable person should, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account.
The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression "patent illegality".
19. In Ssangyong Engineering and Construction Company Ltd. (Supra) the position held is that although the decision which is perverse is no long a ground for challenge under public policy of India which certainly amount to a patent illegality appearing on the face of the award. Thus a finding based on no evidence at all and the award which ignores vital evidence in arriving at its decision which is perverse and liable to be set aside on the ground of patent illegality. In case of Dyena Technologies Pvt. Ltd. (Supra) whether the award was without any reason and the learned Arbitrator had Page 42 of 54 ARBA No.27 of 2019 merely restated the contentions of the parties without appropriate consideration of the complicity of the issues involved therein, the award was held to be unintelligible and thus liable to be set aside. In case of State of Rajasthan (Supra) where the Arbitrator had simply awarded the amount as claimed in the claim statement merely basing upon the same without anything more, it was held to be invalid being wholly illegal and beyond the jurisdiction of the learned Arbitrator.
It is now, therefore, the rival contention as regards the award under challenge before us stands for being addressed in the touchstone of the afore-stated legal principles. 20 (A) On perusal of the award, it is seen that the learned Arbitrator dealing with the three claims which are akin to one another as regards the excavation in all kinds of soil (SAS); excavation in slushy soil and excavation in laterite as against the claim lodged by the Respondent-Claimant to the tune of Rs.1,07,24,310.15 taking note of the admission of the Appellant that the Respondent-Claimant had executed 17 extra items of work at mutually agreed rate prior to execution and payment thereof, which were to be released on approval of the competent authority further taking note of the rival statement as to the quantity of work done in that direction for non-production of level books by the Appellant Page 43 of 54 ARBA No.27 of 2019 nor the bills for determination of real controversy, has ultimately accepted the Respondent's claim. The learned Arbitrator then having gone through other documentary evidence has finally awarded Rs.27,41,137.30 after adjustment of the payment received. So, the given case is not one where such finding has been arrived at by the learned Arbitrator in the absence of any evidence or being oblivious of any vital evidence on record turning blind eyes towards the same so that it can be said that if the same would have been duly taken note of, the finding would not have been the one as has been rendered but otherwise.
(B) Similarly in respect of the claim on excess quantity of cement concrete required to fill up for the excess of DOQ due to flowing of slushy soil from the side of the foundation, the learned Arbitrator as it appears from the award has gone for detail examination of available evidence in the backdrop of rival statement and upon their evaluation has fixed the Respondent-Claimant entitlement at Rs.1,45,598.40 after deduction of the sum received.
(C) In so far the other items are concerned, a careful reading being given to the discussion of evidence made by the learned Arbitrator on each of the head of the claim, this Court is not at all in a position to say that the same does not stand on the base of evidence. The basis on which those have Page 44 of 54 ARBA No.27 of 2019 been rendered by the learned Arbitrator cannot be said to be wholly erroneous. Therefore, when reappreciation of evidence is not permissible at this stage so as to substitute another view with that of the view of the learned Arbitrator, the views taken by the learned Arbitrator as afore-stated, have to be said to be possible views on the factual settings.
21. Now coming to the award of interest as has been resisted by the Appellant, it would be profitable to straight way look at the general clauses of the GCC, i.e., 53(C) and 53(E): But before that the contentions raised in support be noted. It was contended that when there is express bar on payment of interest stipulated in the agreement, the learned Arbitrator could not have awarded interest over and above the awarded claims.
It was contended that in the present case, Clause 53(C) & 53(E) of the GCC governing the contract between the parties specifically bars payment of interest. It was urged that since the parties are governed by the contract and the arbitrator and the arbitration proceedings are creatures of the contract, they cannot traverse beyond what has been contemplated in the contract between the parties.
22. At first it be stated pin pointedly that such a ground had not been taken by the Appellant before the Court where they presented the application under section 34 of the A & C Page 45 of 54 ARBA No.27 of 2019 Act nor even so specifically before the learned Arbitrator in this Appeal. It has been advanced for the first time in this Appeal. The ground taken is that the award of interest is wholly prohibited under the contract and, therefore, the learned Arbitrator would not have gone to award the same for the claims which he had allowed in favour of the Respondent-Claimant.
23. It has been held in case of State of Chhattisgarh & Another (supra) that under the circumstance if the Court is of the opinion that the award of particular amount under a particular head in favour of the Claimant when is contrary to the express terms and conditions of the agreement governing the party or so taken for subsequent developments having taken place and thus the patent illegality being manifest on the face of the arbitral award as the Arbitrator has not decided in accordance with the terms of the contract while making the award and that goes to the root of the matter and deserves interference, the plea of waiver taken against the party raising such an objection and the contention that the said party is estopped from taking the same in the Appeal provided under section 37 of the A & C Act or thereafter would not be available having regard to the language to be used under section 34(2-A) of the A & C Act that empowers the Court to set aside the award if it finds that the same is Page 46 of 54 ARBA No.27 of 2019 vitiated by patent illegality appearing on the face of the same, more so, when in sub-section 2A of section 34;the expression is "the Courts finds that". Therefore, the contention as to permissibility of grant of interest over the award amount can be gone into in this Appeal without being whittled down as to have been waived and thus the Appellant as being estopped for having not raised before learned Arbitrator or the court in seisin of the application under section 34 of the A & C Act.
24. In case of Union of India (Supra), the Apex Court has held that once the Contractor agrees that he would not be entitled to interest or the amounts payable under the contract including the interest upon the earnest money and security deposit being so mentioned under the clause in the agreement/contract between the parties, the Arbitrator being a creature of contract has no power to award interest, contrary to the terms of the agreement/contract between the parties and contrary to the relevant clause in the contract/agreement.
25. In that case, the Court referring to the decisions in case of State of Karnataka Vrs. Shree Rameshwara Rice Mills, (1987) 2 SCC 160 and Garg Builders Vrs. BHEL, (2022) 11 SCC 697 as well as the decision in case of Ambica Page 47 of 54 ARBA No.27 of 2019 Construction Vrs. Union of India, (2017) 14 SCC 323 have been held as under :
"xxx xxx xxx xxx The law relating to award of pendente lite interest by arbitrator under the 1996 Act is no longer res integra. The provisions of the 1996 Act give paramount importance to the contract entered into between the parties and categorically restricts the power of an arbitrator to award pre-reference and pendente lite interest when the parties themselves have agreed to the contrary.
Section 31(7) of the 1996 Act which deals with the payment of interest is as under:-
'31. (7)(a) Unless otherwise agreed by the parties, where and insofar as an arbitral award is for the payment of money, the Arbitral Tribunal may include the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.' It is clear from the above provision that if the contract prohibits pre-reference and pendente lite interest, the arbitrator cannot award interest for the said period. In Page 48 of 54 ARBA No.27 of 2019 the present case, clause barring interest is very clear and categorical. It uses the expression "any moneys due to the contractor" by the employee which includes the amount awarded by the arbitrator.
26. In Sayeed Ahmed & Co. v. State of U.P., (2009) 12 SCC 26, this Court has held that a provision has been made under Section 31(7)(a) of the 1996 Act in relation to the power of the arbitrator to award interest. As per this section, if the contract bars payment of interest, the arbitrator cannot award interest from the date of cause of action till the date of award.
27. In Sree Kamatchi Amman Constructions v. Railways, (2010) 8 SCC 767, it was held by this Court that where the parties had agreed that the interest shall not be payable, the Arbitral Tribunal cannot award interest between the date on which the cause of action arose to the date of the award.
28. BHEL v. Globe Hi-Fabs Ltd., (2015) 5 SCC 718 is an identical case where this Court has held as under: (SCC p. 723, para 16) In the present case we noticed that the clause barring interest is very widely worded. It uses the words "any amount due to the contractor by the employer. In our opinion, these words cannot be read as ejusdem Page 49 of 54 ARBA No.27 of 2019 generis along with the earlier words "earnest money" or "security deposit".
29. In Chittaranjan Maity v. Union of India, (2017) 9 SCC 611, it was categorically held that if a contract prohibits award of interest for pre-award period, the arbitrator cannot award interest for the said period.
Therefore, if the contract contains a specific clause which expressly bars payment of interest, then it is not open for the arbitrator to grant pendent lite interest. The judgment on which reliance was placed by the learned counsel for the appellant in Ambica Construction (supra) has not application to the instance case because Ambica Construction (supra) was decided under the Arbitration Act, 1940 whereas the instant case falls under the 1996 Act.
'16. Relying on a decision of this Court in Ambica Construction v. Union of India, (2017) 14 SCC 323, the learned Senior Counsel for the appellant submits that mere bar to award interest on the amounts payable under the contract would not be sufficient to deny payment on pendente lite interest. Therefore, the arbitrator was justified in awarding the pendente lite interest. However, it is not clear from Ambica Construction (supra) as to whether it was decided under the Arbitration Act, 1940 Page 50 of 54 ARBA No.27 of 2019 (for short "the 1940 Act") or under the 1996 Act. It has relied on a judgment of Constitution Bench in State of Orissa v. G.C. Roy, (1992) 1 SCC 508. This judgment was with reference to the 1940 Act. In the 1940 Act, there was no provision which prohibited the arbitrator from awarding interest for the pre-reference, pendente lite or post-award period, whereas the 1996 Act contains a specific provision which says that if the agreement prohibits award of interest for the pre-award period, the arbitrator cannot award interest for the said period. Therefore, the decision in Ambica Construction (supra) cannot be made applicable to the instant case.
30. Coming to address the rival contentions on the score of award of interest on the awarded amount upon adjudication of the claim of the Respondent-Claimant with effect from 19.02.2008 when the Respondent-Claimant approached the Hon'ble Court for appointment of Arbitrator till the date of award, i.e., 30.04.2015, the attention being focused upon the award, it is seen that the learned Arbitrator has dealt the same under Issue No.2.
The Respondent-Claimant on this score asserted that as because huge amount of capital was blocked for which he became defaulter to clear up his liability towards the cash credit loan availed by him from the Bank and Financial Page 51 of 54 ARBA No.27 of 2019 Institution; so he is entitled to the interest @ 18 % per annum with effect from 23.01.2001.
The Appellant projected the case that the final settlement of the claims could not be made due to non- acceptance of the final measurement and as the Respondent- Claimant did not accept the final measurement and failed to submit the final bill as required under Clause-36 of the GCC for which the final deviation, extension of time up-to 23.01.2001, final price escalation could not be settled; the Appellant is not liable for non-settlement of the claim. Clause-10 of Special Conditions of Contract had also been referred to in support of the contention that no claim for interest for damage under the said Clause is entertainable "over any money or balances which may be lying with the Department".
The learned Arbitrator has taken the view that there was default on the part of the Appellant in settling the final account of the Respondent-Claimant. Then, the learned Arbitrator has said that Clause-10 of SCC does not prohibit to raise the claim for interest before the Arbitrator on the items placed for adjudication. In holding so, the learned Arbitrator is found to have further stated that strictly construing the said clause, it is the Department which cannot entertain the claim of interest, but when the matter goes to Arbitration, the Page 52 of 54 ARBA No.27 of 2019 said Clause does not restrict the Arbitrator from granting interest when he finds the claim to be justified. The view, therefore, is that the contract does not prohibit the Arbitrator in any manner from awarding the interest. In so holding as it appears, the Clause-53(C) and 53 (E) of the GCC governing the contract between the parties have not been touched upon and taking the above view. The Clauses in the contract are required to be given their plain meaning as it would appear on simple reading unless, of course, where it suffers from the vice of ambiguity, urging for clarification, which also to be in the light of serving the intention behind such a clause. The reason upon which the learned Arbitrator has founded the conclusion does not appear to be standing upon a legal base. The reason assigned by the learned Arbitrator is such that it dehors the bar under the Clauses in the contract referred to above, and it is that the Arbitral Tribunal finding the claim to be justified independently and on equitable ground and/or to do justice can award interest for prereference period which on its face is untenable as the claim found to be justified upon adjudication in the proceeding is nothing but the money or balances lying with the Department as payable to the Claimant and as such stands exempted from being paid with interest. Applying the ratio of the decisions referred to above to the facts and circumstances of the case at hand, it is held Page 53 of 54 ARBA No.27 of 2019 that the learned Arbitrator in the instant case has erred in awarding the interest on awarded amount to the Respondent- Claimant under the contract, in question, from 19.02.2008 till the date of award and the learned court in seisin of the application under section 34 of the A & C Act has erred in confirming the same.
31. Accordingly, the present Appeal succeeds in part. The impugned judgment passed by the learned District Judge on an application under section 34 of the A & C Act and the award passed by the learned Arbitrator awarding interest @ 12 % per annum from 19.02.2008 till the date of award are hereby quashed and set aside. However, in the facts and circumstances of the case, there shall be no order as to costs.
(D. Dash), Judge.
Himansu Signature Not Verified Digitally Signed Signed by: HIMANSU SEKHAR DASH Reason: Authentication Location: OHC Date: 30-Apr-2024 15:16:53 Page 54 of 54 ARBA No.27 of 2019