Delhi District Court
Bharat Heavy Electricals Ltd vs Delkon India (P) Ltd on 3 January, 2019
IN THE COURT OF SHRI GIRISH KATHPALIA,
DISTRICT & SESSIONS JUDGE
SOUTH EAST : SAKET COURT, NEW DELHI.
ARBITRATION No. 398/2016 (21208/2016)
BHARAT HEAVY ELECTRICALS LTD.
(i) BHEL HOUSE, SIRI FORT
NEW DELHI 110049
(ii) POWER SECTORNORTHERN REGION
PLOT No. 25, SECTOR 16A
NOIDA 201301
....PETITIONER
VERSUS
DELKON INDIA (P) LTD.
(i) 240, 2nd FLOOR, 25A,
PARK STREET, KOKATA 700016
(ii) FLAT No. 1, D36, SOUTH EXTENSION,
PARTII, NEW DELHI 110049
...RESPONDENT
Date of filing : 01.07.2008
First date before this court : 28.07.2017
Arguments concluded on : 13.12.2018
Date of Decision : 03.01.2019
Appearance: Shri Udit Seth, counsel for petitioner
Shri S.N. Mitra, counsel for respondent
JUDGMENT
1. By way of present objection petition brought under the provisions of Section 34 of the Arbitration & Conciliation Act, 1996, petitioner, a company of Government of India, has assailed the Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 1 of 34 pages arbitration award dated 05.02.2008 passed against it by the arbitral tribunal consisting of sole arbitrator, whereby the present petitioner was held liable to pay to the present respondent a total sum of Rs. 12,11,031.80 alongwith pendente lite and future interest at a rate of 15% per annum. On the basis of caveat, counsel for the present respondent appeared and accepted notice. Originally, this objection petition was filed on the Original Side of the Hon'ble Delhi High Court but thereafter, on enhancement of pecuniary jurisdiction, this petition was transferred and my predecessor opted to retain it in this court for hearing. I have heard learned counsel for both sides who took me through the complete arbitral records as well as the relevant law.
2. Petitioner pleaded in the petition that it accepts the award with respect to claim no. 5 completely and with respect to claims no. 2 and 4 partly, so it is ready to pay the consolidated amount of Rs. 2,76,034.95. Consequently, vide order dated 11.07.2008 of Hon'ble Single Judge of the Delhi High Court, petitioner was directed to pay the admitted amount. Vide order dated 11.11.2008, learned counsel for respondent submitted that arguments would be advanced on the basis of record of arbitration proceedings and respondent did not want to file any formal reply to the petition.
3. Briefly stated, the claim raised by the present respondent against the present petitioner before the arbitral tribunal, as borne out of the arbitral record was as follows.
Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 2 of 34 pages 3.1 The present respondent, engaged in business of erecting, testing and commissioning of boilers and other auxiliaries had been appointed as contractor by the present petitioner from time to time since the year 1977 for various contracts after tender process.
3.2 On the basis of tender process initiated by the present petitioner for handling, transportation, erection, testing, commissioning and trial of electrostatic precipitators for boilers no. 7 and 8 at Renusagar Thermal Power Station in Uttar Pradesh and expansion programme, parties executed contract no. 37 of 1996 dated 05.04.1996 for a value of Rs. 19,74,900/ for only boiler no. 7 with scheduled commencement date of 08.02.1996 and scheduled completion date of 23.08.1996. According to the present respondent, it had submitted offer for both boilers at a total price of Rs. 39,49,800/ but on 23.01.1996, in a meeting between the parties, it was decided that the present respondent had to commence the erection work within ten days from the date of letter of intent and depending upon satisfactory progress, order for the second boiler would be placed within six months.
3.3 Pursuant to the said contract, the present respondent furnished security deposit in the form of bank guarantee for a sum of Rs. 1,06,254/ in favour of the present petitioner towards satisfactory performance and completion of the contract.
Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 3 of 34 pages 3.4 The present respondent commenced the work on 16.02.1996. According to the respondent, it had mobilized the machinery at the site to commence the erection work on 04.02.1996 but the erection could not commence as the present petitioner could not erect base plates and top plates. In that regard, a meeting between the parties was held on 08.03.1996. The present petitioner had also awarded additional work vide letter of intent dated 18.04.1996 for a sum of Rs. 1,61,500/.
3.5 According to the present respondent, despite completion of the awarded work, the present petitioner committed breach of trust and did not award work for the second boiler, thereby putting the present respondent into financial losses, for which the present respondent claimed Rs. 5,18,411.25 towards compensation.
3.6 Besides, according to the present respondent, the materials and other inputs required for expeditious erection were not supplied by the present petitioner because of which the completion of work got delayed.
3.7 Under these circumstances, the present respondent raised claim for arbitration as enlisted below :
Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 4 of 34 pages Sl. Rs.
No
1. Claim No. 1 Damages due to breach of 5,18,411.25 contract
2. Claim No. 2 Release of payment against nonpayment of legitimate dues in respect of :
(a) Amount withheld from 50,000.00 Delkon's RA Bill No. 13 dated 20.03.1997 (b) Amount withheld from 4,166.21 Delkon's RA Bill No. 14 dated 05.04.1997 (c) Amount withheld from 9,217.65 Delkon's RA Bill C77/Final (A) dated 14.04.1997 (d) Amount withheld from 95,124.54 1,58,508.40 Delkon's RA Bill C77/Final (A) dated 14.04.1997 3. Claim no. 3 Non payment of over run 80,000.00 charges as per clause 49 of Contract Agreement 4. Claim no. 4 For extra work 93,600.00 5. Claim no. 5 Price escalation 1,36,297.44 6. Claim no. 6 Interest : Amount due as on 14,14,000.00 30.06.2005 7. Claim no. 7 Cost of litigation Not specified Total 24,00,816.89
4. Briefly stated, response of the present petitioner by way of reply (titled counter statement) to the statement of claims filed before the arbitral tribunal was as follows.
Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 5 of 34 pages 4.1 The present respondent was awarded limited work in view of the considerably large project site where the work had to be alloted to more than one agency and the present respondent was one of the sub contractors of the present petitioner at Renusagar site engaged for specific work assignments referred to in the tender document.
4.2 Parties had clearly agreed that since the contract executed between the present petitioner and its customers envisaged heavy penalties for any delay, initially work related to only one boiler would be awarded and work of second boiler would be confirmed subject to satisfactory progress and performance of first boiler work. That being so, the present petitioner was well within its rights to award work for only one boiler and the present respondent had submitted unqualified acceptance for this vide letters dated 01.02.1996 and 19.02.1996.
4.3 As regards the additional work awarded to the present respondent, a meeting was arranged between the parties on 08.03.1996 and after prolonged discussion, the present respondent agreed to carry out the additional work subject to other terms and conditions as in original letter of intent dated 29.01.1996 and the present petitioner indicated that there would be no change in the overall time schedule of the completion of erection work as already awarded.
Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 6 of 34 pages 4.4 According to para 5 of the work order dated 18.04.1996, the present respondent had to commence work immediately and complete the same within one month. Although, work was completed within the delivery schedule but that in itself does not establish that the present respondent was fully equipped and had mobilized resources for achieving the progress commensurate with the availability of fronts, erection materials, instruction tools and plants from the present petitioner.
4.5 Vide letter dated 08.07.1996, the construction manager of the present petitioner informed the headquarter of the present petitioner that erection progress of the present respondent till that date at Renusagar was not satisfactory and they had not been able to reach the erection targets, so their performance was required to be watched before taking decision on award of work related to the second boiler at Renusagar. As such, the present petitioner sent a fax message dated 19.07.1996 to the present respondent, requesting the respondent to extend validity of its offer till the end of 1997 for work related to the second boiler. But without appreciating the circumstances, the present respondent in return fax dated 23.07.1996 stated that the present petitioner was bound to award work of the second boiler.
4.6 As regards unsatisfactory performance of the present respondent, vide letter dated 17.11.1997, the respondent was Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 7 of 34 pages categorically intimated, referring to the previous various letters on that subject.
4.7 The claims raised by the present respondent are without any basis. For, the delays were solely attributable to the present respondent and as such no over run charges are payable. Further, the work progress got adversely affected in the months of July/August 1996 on account of labour problem when the present respondent denied payments to the main fitters and riggers engaged at the Renusagar site.
4.8 For the extra work carried out by the present respondent, in terms of the relevant clauses of the contract, joint protocol register was maintained at the site in which representatives of both parties signed after proper verification on each occasion and extra payments were promptly released time to time. The present respondent never raised any complaint in that regard. Since the payments were duly received on the basis of actual manpower deployment, claim of the present respondent in that regard is not maintainable.
4.9 The delay in completion of work and the contract period spreading over for 12.75 months was solely attributable to the delayed, poor and unsatisfactory work performance of the present respondent at the site.
Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 8 of 34 pages
5. On the basis of above pleadings, the learned arbitrator conducted arbitration proceedings and delivered the impugned award thereby rejecting claim no. 1, completely allowing claims no. 2 to 4 and partly allowing claims no. 5 to 7, thereby directing the present petitioner to pay to the present respondent a total sum of Rs. 12,11,031.80 with future interest at a rate of 15% per annum. Hence, the present objection petition.
6. As regards rejection of claim no. 1, the present respondent opted not to challenge the impugned award. The present petitioner accepted the award qua claim no. 5 completely and qua claims no. 2 and 4 partly, but challenged the award qua claims no. 3, 6 and 7. It would be appropriate to deal with each of the claims except claim no. 1 and 5 individually, which is done as follows.
CLAIM NO. 2 (UNPAID DUES)
7. Towards the dues allegedly unpaid, the present respondent raised a claim of Rs. 1,58,508.40 on the basis of different amounts withheld out of four RA Bills. Before the learned arbitrator, the present petitioner admitted the outstanding liability under this head to be Rs. 1,57,250.65 and contended that the balance Rs. 1,257.75 was the income tax deducted at source. The learned arbitrator in the impugned award held the present petitioner liable to pay the entire amount since the Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 9 of 34 pages TDS certificates had not been issued, due to which the present respondent was deprived of credit of TDS in its income tax assessment.
8. As regards this claim, it was contended by learned counsel for the present petitioner that TDS certificates of Rs. 1,257.75 were delivered to the present respondent, so the liability payable under this head is only Rs. 1,57,250.65. But since no documentary record was produced before the learned arbitrator or even before this court, liability of the present petitioner to pay the complete amount cannot be denied.
9. Therefore, I am unable to find any infirmity in the view taken by the learned arbitrator as regards claim no. 2 to the effect that the present petitioner is liable to pay to the present respondent a sum of Rs. 1,58,508.40 towards the amount withheld out of four RA Bills.
CLAIM NO. 3 (OVER RUN CHARGES)
10. The present respondent contended that towards over run charges in terms with clause 49 of the contract, it is entitled to a sum of Rs. 80,000/ at a rate of Rs. 20,000/ per month for the period from 01.12.1996 to 31.03.1997. Resistance of the present petitioner to this claim is on the ground that the said delay of 4 months was solely attributable to the present respondent, who could not mobilize the resources and properly deploy its manpower. After analyzing the material on record, including relevant part of testimony of witnesses, the Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 10 of 34 pages learned arbitrator delivered a finding in favour of the present respondent and held the present petitioner liable to pay the over run charges as claimed by the present respondent.
11. During arguments, learned counsel for petitioner contended that while awarding over run charges, the learned arbitrator ignored the vital condition stipulated in clause 49.1 of the contract, according to which, in case due to reasons not attributable to the present respondent the work got delayed and the scheduled completion date got extended, the present respondent was not entitled to over run charges for a period of first two months and in case the said delay was for more than two months, the present respondent could be considered for over run charges on receipt of advance notice intending to claim over run charges and fulfillment of two conditions, namely that the delay was not attributable to the present respondent and that the targets fixed during over run period were achieved by the present respondent. Since, no advance notice was ever issued by the present respondent, there is no liability of the present petitioner to pay over run charges in view of clause 49.1 according to learned counsel for petitioner. It was further argued on behalf of petitioner that the learned arbitrator completely ignored the material on record reflecting that the delay mainly occurred because the labour engaged by the present respondent went on strike as the present respondent did not pay them wages. It was also argued that as regards liability to pay wages, the learned arbitrator completely ignored the minutes of meeting dated 06.08.1996 which were signed by both sides, Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 11 of 34 pages recording the delay attributable to the present respondent. Besides, learned counsel for the present petitioner also took me through letters dated 10.08.1996, 24.09.1996 and 08.01.1997 in which the present petitioner had expressed serious concern over delay in completion of work solely because of reasons attributable to the present respondent and submitted that all those documents were ignored by the learned arbitrator. According to learned counsel for petitioner, the award suffers perversity on account of the arbitrator having ignored clause 49 of the contract.
12. On the other hand, learned counsel for respondent took me through various correspondence between the parties including letters dated 20.08.1996, 21.08.1996 and 03.10.1996 and submitted that the same clearly reflect that delay in completion of work was for reasons totally beyond the control of the present respondent and the present respondent had clearly conveyed intent to claim over run charges.
13. At this stage, it would be apposite to traverse through the legal position relevant for the present case.
14. The scope of judicial review of an arbitral award is akin to review under Article 226 of the Constitution of India of the decision of bodies, where it is a settled principle of law that judicial review is of the decision making process and not of the decision itself on merits and the same cannot be converted into an appeal. Even Section 34 (2) (a) of the Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 12 of 34 pages Arbitration & Conciliation Act, 1996 amply clarifies the grounds of challenge on the lines of violation of principles of natural justice in making of the award or invalidity of the arbitral agreement and non arbitrability of disputes arbitrated and composition of the arbitral tribunal or arbitral procedure being not in accordance with the agreement between the parties. None of the legislated grounds permits to challenge an arbitral award on merits by way of fresh appreciation of evidence.
15. In the case of Associate Builders vs DDA, (2015) 3 SCC 49, the Hon'ble Supreme Court held thus :
"It must clearly be understood that when a court is applying his public policy test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus, an 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 arbitrator's approach is not arbitrary or capricious, then he is the last word on facts." (emphasis supplied)
16. In the case of Delhi Development Authority vs Bhardwaj Brothers, MANU/DE/1753/2014, a division bench of the Hon'ble Delhi High Court observed thus :
"It cannot also be lost sight of that nonconferring of finality on the arbitral awards not only affects the speed and expense of arbitration but also has a more subtle Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 13 of 34 pages consequences of extensive judicial review changing the nature of the arbitral process to an even greater extent. If arbitration becomes simply another level of decision making, subject to judicial review on merits, arbitrators may begin to decide cases and write opinions in such a way as to insulate their awards against judicial reversal producing opinions that parrot the appropriate statutory standards in conclusory terms, but suffer from a lack of reasoned analysis. Such a shift from the arbitral model in which decision makers are free to focus solely on the case before them rather than on the case as it might appear to an appellate court, to the administrative model, in which decision makers are often concerned primarily with building a record for review, in my opinion would substantially undercut the ability of arbitrators to successfully resolve disputes. The courts therefore have no business weighing the merits of the grievance, considering whether there is equity in a particular claim or determining whether there is particular language in the written instrument which will support the claim. The agreement is to submit all grievances to arbitration, not merely those which the court may deem meritorious. The courts if start undertaking to determine the merits of the grievance, would be usurping the function which under the Arbitration Act, 1996 is entrusted to the arbitration tribunal. This plenary review by the courts of the merits would make meaningless the provisions that the arbitral award is final, for in reality it would almost never be final".
17. In the case of Rashtriya Ispat Nigam Ltd. vs M/s Dewan Chand Ram Saran, Civil Appeal No. 3905/12 decided on 25.04.2012 by the bench comprising Hon'ble Mr. Justice H.L. Gokhale, the Hon'ble Supreme Court of India held thus :
"29. In any case, assuming that clause 9.3 was capable of two interpretations, the view taken by the arbitrator Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 14 of 34 pages was clearly a possible if not a plausible one. It is not possible to say that the arbitrator had traveled outside his jurisdiction, or that the view taken by him was against the terms of contract. That being the position, the High Court had no reason to interfere with the award and substitute its view in place of the interpretation accepted by the arbitrator. The legal position in this behalf has been summarized in paragraph
18 of the judgment of this court in SAIL vs Gupta Brother Steel Tubes Ltd. (supra) and which has been referred to above. Similar view has been taken later on Sumitomo Heavy Industries Ltd. vs ONGC Ltd. reported in [2010 (11) SCC 296] to which one of us (Gokhale J.) was a party. The observations in paragraph 43 thereof are instructive in this behalf. This paragraph 43 reads as follows :
43. The umpire has considered the fact situation and placed a construction on the clauses of the agreement which according to him was the correct one. One may at the highest say that one would have preferred another construction of Clause 17.3 but that cannot make the award in any way perverse. Nor can one substitute one's own view in such a situation, in place of the one taken by the umpire, which would amount to sitting in appeal. As held by this Court in Kwality Mfg. Corpn. v. Central Warehousing Corpn*. The Court while considering challenge to arbitral award does not sit in appeal over the findings and decision of the arbitrator, which is what the High Court has practically done in this matter. The umpire is legitimately entitled to take the view which he holds to be the correct one after considering the material before him and after interpreting the provisions of the agreement. If he does so the decision of the umpire has to be accepted as final and binding. *[2009 (5) SCC 142] (emphasis supplied) Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 15 of 34 pages
18. Besides, in the case of National Highways Authority of India vs Oriental Structural Engineers Pvt. Ltd., MANU/DE/ 0080/2015, the Hon'ble Delhi High Court referred to the judgment of Hon'ble Supreme Court of India in the case of Steel Authority of India Ltd. vs Gupta Brother Steel Tubes Ltd., (2009) 10 SCC 63 in which it was held that an error by the arbitrator related to interpretation of contract is an error within his jurisdiction and is not an error on the face of the award and is not amenable to corrections by the courts. It was further held that the legal position is no longer res integra that the arbitrator having been made final arbiter of resolution of disputes between the parties, the award is not open to challenge on the ground that arbitrator reached at a wrong conclusion. Traversing through various judicial pronouncements, the Hon'ble Delhi High Court held that if we were to start analyzing the contract between the parties and interpreting the terms and conditions thereof and which will necessarily have to be in the light of the contemporaneous conduct of the parties, it will be nothing else than sitting in appeal over the arbitral award and that is not permissible.
19. Falling back to the present case, clause 49.1 of the contract stipulates that if the completion of work got delayed due to reasons not attributable to the contractor (the present respondent), for over run period of first two months, the contractor would not be entitled to any over run charges, but if the completion of work got delayed beyond two Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 16 of 34 pages months, then the contractor shall be considered for payment of fixed over run charges at a rate of Rs. 20,000/ per month on receipt of advance notice intending to claim over run charges provided the delay was not attributable to contractor. Therefore, in order to be entitled to over run charges, the respondent had to establish that the delay in completion of work was not on account of reasons attributable to it and that it had issued an advance notice intending to claim over run charges.
20. As regards the reasons for delay in completion of work, learned arbitrator while dealing with claim no. 3 quoted substantially from the material on record including the relevant parts of testimony of CW1 and RW1 and arrived at a finding that major cause for delay in completion of work was that the base unit was not ready and consequently held that the present respondent had made out a good case for payment of over run charges. The arbitrator having minutely analyzed the evidence on record, this court under the provisions of section 34 of the Arbitration and Conciliation Act cannot reappreciate the evidence by sitting in appeal over the arbitral award. Even otherwise, the letters and minutes of meeting relied upon by the present petitioner in support of its contention that the delay occurred on account of reasons solely attributable to the present respondent were not even proved in accordance with law despite a clear stand of the present respondent that those documents were not genuine.
Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 17 of 34 pages
21. Argument of learned counsel for the present petitioner that the learned arbitrator overlooked clause 49 of the contract is contrary to the contents of the arbitral award. While dealing with claim no. 3, the learned arbitrator not just examined the rival contentions in pleadings and evidence but also specifically referred to clause 49 of the contract.
22. So far as issuance of advance notice of intent to claim over run charges, letter dated 10.08.1996 addressed by the present petitioner to the present respondent clearly mentions that the present respondent had confirmed not to claim over run charges till November 1996. It clearly means that for delay beyond November 1996, it certainly would claim over run charges. In any case, the argument related to advance notice was never raised before the learned arbitrator. The view taken by the learned arbitrator was certainly a possible view on facts and as held in law cited above, this court under section 34 of the Act would not hold the award invalid merely because the same was based on little evidence or on evidence which does not measure up in quality to a judicial mind.
23. In view of above discussion, I am unable to find any ground to interfere with the decision of the learned arbitrator on claim no. 3.
CLAIM NO.4 (EXTRA WORK)
24. Towards extra work got executed from the present respondent by the present petitioner, the learned arbitrator directed that Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 18 of 34 pages a sum of Rs. 93,600/ be paid by the present petitioner to the present respondent.
25. Learned counsel for the present petitioner argued that the learned arbitrator ignored clause 50.3 of the contract according to which, the extra work is only that work which is certified to be extra work by the Engineer Incharge and since the Engineer Incharge certified only a sum of Rs. 9,320/, the award of Rs. 93,600/ under this head was not legally valid. It was also argued on behalf of the present petitioner that claim no. 4 was covered by clause 33 of the contract and therefore, beyond the scope of arbitration.
26. On the other hand, learned counsel for the present respondent argued that what was certified by the Engineer Incharge was the amount of bill and not the amount of work, therefore, there was no infirmity in the view taken by the learned arbitrator. It was also argued on behalf of the present respondent that claim no. 4 does not fall under clause 33 of the contract and even otherwise, the present petitioner never raised this ground before the learned arbitrator.
27. Clause 33 of the contract is basically the arbitration clause, according to which all disputes arising between the parties out of or in relation to the contract are arbitrable disputes except those disputes in which decision of the Engineer or any other person is, by contract, expressed to be final and conclusive. Clause 50.3 of the contract Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 19 of 34 pages contemplates that the extra work would be identified by the Engineer and only those works which are certified by BHEL Engineer Incharge, will be considered for payment and the decision of BHEL in this regard shall be final and binding on the contractor. But before the learned arbitrator, it was never contended by the present petitioner that the dispute related to extra work is not an arbitrable dispute. That being so, in the present proceedings, the arbitrability of claim no. 4 cannot be challenged by the present petitioner. Besides, what clause 50.3 deals with is extra work while clause 33 deals with a dispute.
28. While allowing a sum of Rs. 93,600/ under claim no. 4, the learned arbitrator referred to not just clause 50 of the contract but even the present respondent's six bills and voluminous documentary material related to extra work as against a bald statement of the present petitioner. Learned arbitrator also analyzed the evidence and recorded reasons in support of his opinion allowing the said claim. Admittedly, none of the bills for extra work was rejected by the present petitioner.
29. Therefore, I am unable to find any reason to interfere with the findings of the learned arbitrator on claim no. 4.
CLAIM NO.6 (INTEREST)
30. This claim, pertaining award of interest by the learned arbitrator, was the most hotly contested portion of the impugned award.
Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 20 of 34 pages By way of impugned award, the learned arbitrator rejected the claim of the present respondent for interest at a rate of 18% per annum, observing the same to be on higher side and awarded interest at a rate of 15% per annum on the principal awarded amount of Rs.4,41,572.74. According to the present petitioner, no interest at all could be awarded.
31. Learned counsel for petitioner contended that clause 17 of the contract specifically bars award of interest, therefore the learned arbitrator could not have awarded interest. It was argued on behalf of petitioner that vide section 28(3) of the Arbitration and Conciliation Act, the arbitral tribunal has to decide the dispute in accordance with the terms of the contract and section 31(7) of the Act clearly stipulates that the issue of interest is primarily governed by the contract between the parties and in the absence thereof, by discretion of the learned arbitrator. Since clause 17 of the contract specifically holds that no interest shall be payable by the present petitioner on earnest money deposit, security deposit or on any money due to the contractor, according to petitioner, findings of the learned arbitrator as regards claim no. 6 are faulty and not sustainable in the eyes of law.
32. On the other hand, learned counsel for respondent argued that clause 17 of the contract is against public policy, so the same was rightly ignored by the learned arbitrator. It was argued on behalf of respondent that there being an unequal bargaining power between the parties, such a clause prohibiting award of interest is against public Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 21 of 34 pages policy. It was also argued on behalf of respondent that section 31(7)(a) of the Act deals with preaward interest while section 31(7)(b) of the Act deals with post award interest and the latter is not subject to the terms of the contract.
33. In rebuttal, learned counsel for petitioner argued that the argument of public policy was never raised before the arbitrator. It was argued by learned counsel for petitioner that the argument of unequal bargaining strength between the present parties has already been rejected by certain judicial pronouncements. It was also argued that the same clause 17 of the contract was examined in a number of judicial pronouncements that flow from the Hon'ble Supreme Court and various High Courts but none of those courts found the clause to be against public policy.
34. In support of his arguments, learned counsel for petitioner placed reliance on the judgments in the cases of M/s Lion Engineering Consultants vs State of MP & Ors., 2018 SCC Online SC 327; Rashtriya Chemicals and Fertilizers Ltd. vs Chowgule Brothers & Ors., 2010 8 SCC 563; Bharat Heavy Electricals Ltd. vs Globe Hi Fabs Ltd., (2015) 5 SCC 718; S.K. Jain vs State of Haryana, (2009) 4 SCC 357; M.B. Patel & Company vs ONGC, (2008) 8 SCC 251; Bharat Coking Coal Ltd. vs Annapurna Construction, (2003) 8 SCC 154; and Union of India vs Krafters Engineering & Leasing Pvt. Ltd., (2011) 7 SCC 279.
Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 22 of 34 pages
35. On the other hand, learned counsel for respondent placed reliance on the judgments in the cases of State of Haryana vs S.L. Arora & Company, (2010) 3 SCC 690; M/s Sayeed Ahmad & Company vs State of UP, JT 2009 (9) SC 429; and Raveechee & Company vs Union of India, (2018) 7 SCC 664.
36. At this stage, it would be necessary to quote clause 17 of the contract which is the epicentre of the dispute on payment of interest and the same is as follows :
"17. No interest shall be payable by BHEL on earnest money deposit, security deposit or any moneys due to the contractor."
What is to be examined is as to whether the above quoted clause 17 of the contract is enforceable in law and if so, to what extent. As mentioned above, contention of learned counsel for respondent contractor is that such a clause having been permitted in the contract on account of unequal bargaining strength of parties is contrary to public policy, so the same is not enforceable. On the other hand, contention of learned counsel for petitioner BHEL is that the same clause was scrutinized in a number of cases by the Hon'ble Supreme Court of India and various High Courts, who did not find it to be contrary to public policy. The learned arbitrator in the impugned award has completely ignored this clause of the contract while awarding interest.
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37. In the case of M/s Lion Engineering (supra), the Hon'ble Supreme Court of India rejected the contention that it is public policy of India that unless the arbitration was held under the law of the concerned State, it would be in violation of public policy of India and held that the intention of providing that the award should not be in conflict with the public policy of India is referable to public policy of India as a whole i.e. the policy of the Union of India and not merely the policy of an individual State. It was held that public policy of India refers to law in force in India whether State law or the Central law.
38. In the case of Rashtriya Chemicals (supra), it was held that where the arbitrator, who derives authority from the contract but acts in manifest disregard of the terms of contract, the award given by the arbitrator would be an arbitrary one and may also tantamount to malafide action. It was held that if there is a specific term in the contract or law which does not permit the parties to raise a point before the arbitrator, then the award passed by the arbitrator in respect thereof would be in excess of jurisdiction.
39. In the case of Globe Hi Fabs (supra), the Hon'ble Supreme Court of India dealt with the issue of award of interest in a case where the contract between the parties contained clause 3.3 (ix) which is verbatim similar to clause 17 of the contract between the present parties. In the said case, contention of appellant was that interest could only be awarded from the date of award and not prior to the same while Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 24 of 34 pages contention of respondent was that the said clause has to be read ejusdem generies, so liberal interpretation cannot be given to the words "or on any money due to the contractor by the employer". The Hon'ble Supreme Court of India after detailed discussion rejected the contention of respondent on the ground that the clause barring interest is very widely worded and the expression "any amount due to the contractor by the employer" cannot be read ejusdem generies with the earlier words "earnest money" or "security deposit". The Hon'ble Supreme Court of India upheld the contention of appellant that in view of such a clause the interest would be payable only from the date of award and not prior thereto. It would be significant to notice that the said interest barring clause was not considered on the anvil of public policy argument and in view of detailed analysis of such clause, had the Hon'ble Supreme Court of India found the clause to be in conflict with public policy, the clause would have been struck down.
40. In the case of S.K. Jain (supra), the Hon'ble Supreme Court of India tested the argument of "unequal strength" while analyzing clause 25A(7) of the contract between the State of Haryana and the appellant. It was contended on behalf of appellant that the said clause was incorporated in the agreement as a result of unequal bargaining power of the parties and the government is not required to make deposit which is unconscionable, so the said clause is in conflict with section 23 of the Contract Act. The Hon'ble Supreme Court of India rejected the contention and held that the concept of "unequal Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 25 of 34 pages bargaining power" has no application in the case of commercial contracts.
41. In the case of M.B. Patel & Company (supra) also there was interest barring clause, viz. Clause 18 of the contract between the parties but the learned arbitrator awarded interest, so the arbitral award was set aside by the Hon'ble High Court, against which appeal was filed before the Hon'ble Supreme Court of India. The Hon'ble Supreme Court of India upheld the judgment of the Hon'ble High Court on the ground that interest had been awarded in violation of the interest barring clause of the agreement.
42. In the case of Bharat Coking Coal (supra), the arbitral award was partly set aside to the extent the same had been passed by the learned arbitrator without keeping in mind the relevant clauses of the contract.
43. In the case of Krafters Engineering (supra), also the Hon'ble Supreme Court of India dealt with a similar interest barring clause 1.15 of the contract and observing that under the Arbitration Act 1940 there was no specific provision relating to the power of the arbitrator to award interest, which power was granted in the Arbitration & Conciliation Act, 1996, held that the bar under clause 1.15 of the contract is absolute and interest cannot be awarded without rewriting the contract.
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44. In the present case also, what is under consideration is a commercial contract executed between two commercial entities. It is not an agreement between, say a workman and management of the industry, which could be treated to be a case of unequal bargaining strength. In a case of the present nature, where both parties are extensively engaged in the business of construction work and entered into the contract with complete awareness of all its terms and conditions, one of the parties at this stage cannot raise a bogey of "unequal strength" in order to wriggle out of the significant condition of interest barring clause. That being so, in my considered view, clause 17 of the contract was certainly not against public policy or in any manner contrary to section 23 of the Contract Act.
45. Besides, before the learned arbitrator, there was not even a whisper, challenging clause 17 of the contract on the ground of public policy, so such an objection cannot be raised at this stage.
46. Then comes the question of the extent of effect of clause 17 of the contract. For that purpose, it would be appropriate to examine Section 31(7) of the Arbitration & Conciliation Act 1996 (as it stood prior to the amendment of 2016), which is quoted below for ready reference :
"31(7)(a). Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 27 of 34 pages 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 cause of action arose and the date on which the award is made.
(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen per centum per annum from the date of award to the date of payment."
47. Under the Arbitration Act of 1940, there was no provision dealing with the powers of the arbitrator to award interest and Section 29 of the said Act merely provided for post decree interest which was within the domain of the court. The Arbitration & Conciliation Act 1996 came up with specific provision quoted above, dealing with power of the arbitral tribunal to award interest. As would be clear from the above quoted provision, a distinction between pre award stage and post award stage has to be kept in mind while dealing with the issue of interest. What is subject to terms of the contract is only the pre award interest and not post award interest. The latter is subject to the terms of the award. In other words, pre award interest cannot be awarded by the arbitrator in a case where parties have agreed that there should be no such interest, whereas post award interest depends upon the contents of the award dealing with interest and in the absence thereof, post award interest payable is at a rate of 18% per annum, as per pre 2016 amendment position.
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48. In the case of S.L. Arora & Company (supra), the Hon'ble Supreme Court of India elucidated the distinction between Section 31(7)(a) and Section 31(7)(b) of the Act thus :
"23. The difference between clauses (a) and (b) of Section 31 (7) of the Act may conveniently be noted at this stage. They are :
(i) Clause (a) relates to pre award period and clause (b) relates to post award period.
The contract binds and prevails in regard to interest during the pre award period. The contract has no application in regard to interest during the post award period.
(ii) Clause (a) gives discretion to the arbitral tribunal in regard to the rate, the period, the quantum (principal which is to be subjected to interest) when awarding interest. But such discretion is always subject to the contract between the parties. Clause (b) also gives discretion to the arbitral tribunal to award interest for the post award period but that discretion is not subject to any contract; and if that discretion is not exercised by the arbitral tribunal, then the statute steps in and mandate payment of interest, at the specified rate of 18% per annum for the post award period.
(iii) While clause (a) gives the parties an option to contract out of interest, no such option is available in regard to the post award period.
In a nutshell, in regard to pre award period, interest has to be awarded as specified in the contract and in the absence of contract, as per discretion of the arbitral tribunal. On the other hand, in regard to the post award period, interest is payable as per the Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 29 of 34 pages discretion of the arbitral tribunal and the absence of exercise of such discretion, at a mandatory statutory rate of 18% per annum".
49. In the case of Raveechee & Company (supra) relied upon by learned counsel for respondent also the Hon'ble Supreme Court of India dealt with a similar interest barring clause 16(3) of the contract. In the said case, the arbitral tribunal relied upon clause 16(3) of the contract and declined to award interest for pre award period but granted pendente lite interest, holding that the said clause did not prohibit the same. The Hon'ble Supreme Court of India held thus :
"11. We are, therefore, of the view that the arbitrators rightly awarded interest pendente lite for the period from 26.09.1998 to 23.03.2001, which is the date of award, on the amounts found due to the claimant. Undoubtedly, such a power must be considered inherent in an arbitrator who also exercises the power to do equity, unless the agreement expressly bars an arbitrator from awarding interest pendente lite. An agreement which bars interest is essentially an agreement that the parties will not claim interest on specified amounts. It does not bar an arbitrator who is never a party to the agreement from awarding it".
50. The judgment in the case of Raveechee & Company (supra) was referred to by the learned counsel for the present respondent in support of his contention that there is no infirmity in the impugned award in so far as grant of pendente lite interest is concerned. But the present case stands on footing different from the said case. In the said Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 30 of 34 pages case, the Hon'ble Supreme Court of India was dealing with the power of arbitrator to award interest under the Arbitration Act, 1940, while the present case pertains to the said power under the Arbitration & Conciliation Act, 1996. The Act of 1940 contained no provision analogous to Section 31(7) of the Act of 1996. As specifically held in para 11 of the said judgment, the said case was decided on the general rule that an arbitrator has power to award interest unless specifically barred from awarding it qua the unascertained damages. Further, the said case dealt with grant of interest on damages and not the earnest money or security deposits or amounts payable under the contract. The Hon'ble Supreme Court of India held that the earnest money, security deposits and amounts payable under the contract, unlike damages, are the amounts, which belong to the contractor and are voluntarily deposited by the contractor with the other party in order to be refunded or forfeited, so these are not the amount which the contractor is deprived the use of against his wishes so as to attract interest. In the present case, as mentioned above, claim no. 1 pertaining to damages was rejected by the arbitrator and does not form subject principal of the impugned interest.
51. In nutshell, reading clause 17 of the contract between the parties in the light of Section 31(7) of the Arbitration & Conciliation Act, 1996, the irresistible conclusion is that for the period from the date of accrual of cause of action to the date of the impugned award, the learned arbitrator was expressly barred from awarding any interest and Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 31 of 34 pages for the period from the date of the impugned award till the date of actual payment, the learned arbitrator clearly had power to award interest.
52. In view of above discussion, the impugned award is liable to be partly set aside to the extent of award of interest to the tune of Rs. 6,97,959.06 for the period till the date of award, i.e. 31.01.2018.
53. However, as regards post award interest, the learned arbitrator held that no post award interest shall be payable if pre award interest is paid within eight weeks and that post award interest shall be payable at a rate of 15% per annum if the pre award interest is not paid within eight weeks. Since the pre award interest is liable to be set aside, the logical inference is that post award interest also is declined by the learned arbitrator and in view of Section 31(7)(b) of the Act, it is the "nil post award interest" that shall prevail over the "statutory post award interest".
54. Therefore, it is held that the present petitioner is not liable to pay to the present respondent any money towards interest - be it for pre award or for post award period.
CLAIM No. 7 (COSTS)
55. Learned arbitrator in the impugned award directed the present petitioner to pay to the present respondent a sum of Rs. 71,500/ Arbitration No. 398/2016 (21208/2016) Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 32 of 34 pages towards costs of arbitration, applying the criteria that fee of the arbitrator had been fixed at Rs. 12,000/ per hearing plus secretarial charges of Rs.1,000/ per hearing and both sides had paid a total sum of Rs.1,43,000/ for eleven hearings and the present petitioner must bear the entire cost by paying a sum of Rs.71,500/ (Rs. 1,43,000/ divided by 2) towards costs to the present respondent.
56. Learned counsel for the present petitioner argued that since the present petitioner had contested the arbitration proceedings bonafide, entire cost of arbitration ought not to have been imposed upon the present petitioner. On the other hand, learned counsel for the present respondent argued that except claim no. 1, all other claims were allowed by the learned arbitrator after strong contest and that reflects lack of bonafide on the part of the present petitioner, so cost was rightly awarded by the learned arbitrator.
57. Section 31(8) of the Arbitration & Conciliation Act 1996 contemplates that costs of arbitration have to be fixed by the arbtiral tribunal unless otherwise agreed by the parties and while awarding costs, the arbitral tribunal has to specify the party entitled to receive cost, the party liable to pay cost, the amount of cost or method of determining that amount and the manner in which the cost has to be paid. It is nobody's case that the contract involved in the present case contained any provision to take away from the arbitrator the power of awarding cost.
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58. As mentioned above, learned arbitrator has even described the formula on the basis whereof he awarded cost of Rs. 71,500/ to the present respondent. Not only this, the learned arbitrator even rejected the claim of Rs. 50,000/ of the present respondent, which amount had allegedly been spent in the proceedings before the Hon'ble Delhi High Court.
59. Therefore, I find no reason to interfere with the amount awarded under claim no. 7 by the learned arbitrator.
CONCLUSION
60. In view of above discussion, the present objection petition is partly allowed and thereby, the impugned award is partly set aside to the extent of interest awarded under claim no. 6 and the impugned award to the extent of remaining claims is upheld.
61. A copy of this judgment be sent to the learned arbitrator and petition file be consigned to records.
Announced in the open court on
this 03rd day of January 2019 (GIRISH KATHPALIA)
Digitally signed District & Sessions Judge
by GIRISH South East, Saket Courts
GIRISH KATHPALIA
New Delhi 03.01.2019 (a)
KATHPALIA Date:
2019.01.05
15:59:39 +0530
Arbitration No. 398/2016 (21208/2016)
Bharat Heavy Electricals Ltd. vs Delkon India (P) Ltd. Page 34 of 34 pages