Delhi High Court
National Thermal Power Corpn. vs Gannon Dunkerkey Ltd. on 24 September, 2002
Author: Mukundakam Sharma
Bench: Mukundakam Sharma
JUDGMENT
Mukundakam Sharma, J:
1. The present petition is filed by the petitioner under the provisions of Section 28(3),31 read with Section 34 of the Arbitration and Conciliation Act, 1996. By filing the aforesaid petition, the petitioner challenges the award dt. 17.8.2000 passed by the sole arbitrator in respect of the disputes between the petitioner and the respondent, which had arisen in connection with and/or out of the contract dated 12.8.96.
2. The petitioner herein was engaged in construction and operation of thermal power stations throughout India. Farakka Super Thermal Project is also one of the projects established by the petitioner at Farakka District, Murshidabad, West Bengal.
The aforesaid project work was to be performed at two stages. The construction work of State-I commenced in the year 1980-81 and completed in the year 1985-86. For construction of Stage-II work, by issuing notice dt. 18.11.1985, tenders were invited from different parties for the work of pilling, pllecaps, footings, load test piles, TG foundation-pedestaral, equipment foundations, transformers foundation channels etc. as per the specifications. The tender submitted by the respondent was accepted and the respondent was so intimated by issuing telex dt. 11.7.1986 about the award of the contract in its favor. The said telex message was followed by a letter of award dt. 12.8.1986. It is an admitted position that although no formal agreement was executed between the parties providing for any arbitration but in the tender document and general conditions of contract governing the work, the provision of arbitration is envisaged providing that if any dispute arises out of and/or in connection with the aforesaid work, the same shall be referred to and adjudicated upon through the process of arbitration, in terms of the arbitration clause. The respondent accepted the said clause while filling the tender. The entrusted work was required to be completed within schedule of 39 calender months to be reckoned from 11.7.86. It is the case of the petitioner that the time of completion of work, mentioned in the letter of award was the essence of the contract and, therefore, no deviation thereto was possible and the work were required to be completed within the time stipulated in the said letter of award. On 31.5.94, the petitioner issued an amendment to the letter of award earlier issued for the aforesaid work. The said letter dt. 31.5.94 upon making reference to the earlier award letter dt. 12.8.88 stated that the letter dt. 31.5.94 would amend the detailed award letter dt. 12.8.88 to the extent as mentioned in the said letter. It was stipulated in the letter dt. 13.5.94 that the total award value of the above-referred LOA to be corrected as Rs. 13,00,54,527.09 (Rupees Thirteen crores fifty four thousand five hundred twenty seven and paise nine only). It was also specifically stated therein that all other terms and conditions of their award letter would remain unaltered. it is required to be be mentioned that in terms of the earlier award letter dt. 12.8.88, the total value of the work given to the respondent was more than Rs. 15 crores.
3. Disputes arose between the parties during the course of execution of the aforesaid contract and accordingly, the same were referred to the sole arbitration of Sh. S.P.S.Chauhan. The said reference was made by the Chairman & Managing Director of the petitioner by appointing him as the sole arbitrator. The said arbitrator is also an officer of the petitioner. After reference in the aforesaid manner to the arbitrator, the parties submitted to his jurisdiction and filed their claims and counter- claims and also the documentary evidence before him. It was stated by both the parties before him that no oral evidence shall be adduced by any of the parties before him and thereafter the parties were heard by the Arbitrator and thereafter he made and published his award on 17.8.2000. The petitioner herein being aggrieved by the aforesaid award has filed the aforesaid petition.
4. I have heard the learned counsel appearing for the parties, who have taken me through the relevant documents as also the award passed by the arbitrator and in the light of their submissions and the records of the case, I proceed to dispose of the petition by giving my reasons for the same.
5. The first contention that is raised by the counsel appearing for the petitioner is that the claims of the respondent are barred by the law of limitation. It was also submitted by him that the earlier contract between the parties, which contained an arbitration clause was substituted and there was total novation in view of the fact that a fresh contract came to be entered into between the parties under letter dt. 31.5.94, which contained no arbitration clause and, therefore, the decision and the award, rendered by the arbitrator is in excess of its jurisdiction. Similar pleas were also raised before the arbitrator. It was submitted by the counsel for the petitioner that the contract was entered in through telex of award dt. 11.7.86 and the work on the said contract was substantially completed on 30.6.91. To the aforesaid extent there was an alteration in terms of letter dt. 31.5.94 and the respondent also agreed to the aforesaid alteration through their letter dt. 9.2.95. The respondent herein demanded arbitration through their letter dt. 5.2.98. As the respondent demanded arbitration through their letter dt. 5.2.98; it was submitted by the counsel appearing for the petitioner that the claims of the respondent are barred by limitation. The earlier contract was altered and substituted terms were added to the earlier telex award dt. 11.7.86 by letter of the petitioner dt. 31.5.94. It is proved that there was alteration/modification to the earlier contract by additions/alterations of work under letter dt. 9.2.95 and, therefore, claims and counter-claims, if any, would arise out of the contract dt. 11.7.86 altered by letter dt. 9.2.95. Since alteration/substitution was made by the petitioner to the terms and conditions of the contract, the period of limitation would also begin to run from 9.2.95 and since demand for arbitration is made by the respondent within three years from the date of entering into the altered/substituted contract, the claims are within the period of limitation. In this connection, reference may also be made to the letter dt. 23.5.97 issued by the petitioner seeking to recover excess expenditure incurred by the NTPC on account of off-loading at part work from the respondent. By the aforesaid letter the petitioner demanded a sum of Rs. 126.47 lakhs from the respondent, failing which it was made clear that legal action would be taken against the respondent for recovery of the aforesaid amount. The said payment was demanded by making reference to the letter of award and also the subsequent alterations made on 31.5.94, which was accepted by the respondent on 9.2.95. Therefore, it is an accepted position that no new or fresh contract was created and that some of the earlier terms were also substituted on 31.5.94. The said letter, which was issue by the petitioner to the respondent also gave rise to cause of action for the respondent to seek for arbitration claiming certain payment in its favor and, therefore, I agree with the conclusions arrived at by the arbitrator that the claims are within the period of limitation.
6. It was also specifically submitted by the counsel appearing for the petitioner that the parties having arrived at a new contract under letter dt. 31.5.94, which was accepted by the respondent on 9.2.95 and the said contract having not envisaged any arbitration agreement, no decision and award could have been made by the arbitrator and, therefore, the award passed by the arbitrator is required to be set aside and quashed.
7. I have considered the records of the case in the light of the aforesaid submission of the counsel appearing for the petitioner, which was refuted by the counsel appearing for the respondent. I have also given my thoughtful consideration to the same. The records reveal that the telex of award dt. 11.7.86 was followed by a formal letter of award dt. 12.8.86, which contained some of the terms and conditions of the contract. The said terms and conditions contained in the letter of award are necessarily to be read in conjunction with the condition int he tender documents and general conditions of the contract, which contain the arbitration clause. The submission of the counsel appearing for the petitioner is that the said contract came to be substituted by a new contract through the application of the principle of novation as the parties agreed to the amendment under letter dt. 31.5.94, which was accepted by the respondent on 9.2.95.
8. I have carefully perused the language and contents of the letter dt. 31.5.94 which is annexed with the petitioner as Annexure P-V. The said letter specifically says that the said letter was an amendment being amendment No.I to letter of award dt. 12.8.86. It also stated that the detailed award letter dt. 12.8.86 was amended to the extend indicated in the said letter. It was also mentioned that the same will form a part of the earlier letter of award dt. 12.8.86. One of the paragraphs therein also stated that all other term sand conditions of the detailed letter of award shall remain unaltered. The said contents were accepted by the respondent and, therefore, the arbitration agreement which was subsisting between the parties was never altered or substituted. There was no intention at all of any of the parties to substitute and/or replace the arbitration clause in any manner. Even the own action of the petitioner justifies the aforesaid conclusion, for the appointing authority, namely, the Chairman & Managing Director of the petitioner, on receipt of the claims of the petitioner referred the same to the arbitrator for his decision. At that stage, the petitioner did not take up any stand that there is no arbitration clause between the parties. Be that as it may, in view of the aforesaid discussion and conclusion, I agree with the finding of the arbitrator that there was a valid and subsisting arbitration agreement between the parties, in terms of which a valid reference was made to the arbitrator by the appointing authority and, therefore, the award passed by the arbitrator cannot be set aside on the said ground.
9. Having held thus, I may now deal with the contention of the counsel appearing or the parties in respect of the merit of the award passed by the arbitrator. There are altogether 11 claims of the respondent and there are 2 counter claims of the petitioner. Various amounts were claimed in the claim heads by the respondent. After consideration of various claims of the respondent, an amount of Rs. 3,00,09,277/- was held justified as payable to the respondent. Both the counter claims of the petitioner were rejected and Nil award was awarded in respect of the said counter claims. It was also held by the arbitrator that the awarded amount would be paid to the respondent by the petitioner with 45 days of the date of the award failing which the respondent would be entitled to interest at the rate of 18% p.a. On the awarded amount from the 46th day till payment.
10. The operative portion of the award is extracted below for easy and ready reference:--
"CLAIMANT CLAIMS CLAIM No. CLAIM HEAD CLAIMED AMOUNT AWARDED AMOUNT
1. Forcing -claimants to employ specifled labour 2,99,91,8667- 1,97,92,5727-
2.
Piling work wrongfully taken from claim amount 56,92,500/- Nil 3. On and off-site Idle overhead 61,52,073/- Nil 4. Wrongful deduction towards deviation from 'Standard length. 83,26,925/- 83,26,925/- 5. Infructuous rolling of rigs Withdrawn Nil 6. Delay in Issue of drawings No separate claim Nil 7. Delay in issue of steel -do- Nil 8. Misc. work 48,30,197/- 8,72,000/- 9. Interest As accrued
Pendentellte only @ 18% p.a. On awarded value from 22.6.98 till payments
10. Undisputed dues and escalation As Determined 10,17,780/-
11. Release of bank guarantee Rs.15,50,000/-
To be released for Total:
Rs.3,00,09,277/-
Respondents counter claims Claim No. Claim Head Claimed Amt.
Awarded Amt.
1.
As laid down in paragraphs 53 and SO of the counter statement 1,27,24,000/-
Nil
2. As laid down in paragraphs 61 and 63 of the counter statement 1,16,25,000/-
Nil The awarded amount shall be paid to the beneficiary Gannon Dunkerely & Co. Ltd. By National Thermal Power Corporation Limited within 45 days of date here of faling which the latter company shall pay 18% interest on the awarded amount from the 46th day till payment.
Sd/-
(S.P.S.CHAUHAN) Sole Arbitrator Arbitral Tribunal"
11.A bare perusal of the award makes it crystal clear that practically three claims of the respondent herein were allowed along with a direction to pay interest and also to release the bank guarantee. Rest of the claims were rejected whereas both the counter-claims of the petitioner were rejected by the arbitrator. Arguments were advanced by the counsel for the petitioner challenging the award passed by the arbitrator more particularly, in respect of Claim No. 1, Claim No. 4 and Counter Claim No. 1.
12. Counsel appearing for the respondent, however, submitted that the award passed by the arbitrator is legal and valid and none of the clauses under Section 34 of the Arbitration and Conciliation Act, 1996 gets attracted in the facts and circumstances of the present case and, therefore, this court should not and cannot interfere with the award passed by the arbitrator. He submitted that neither the award is beyond the terms of the reference nor the same is opposed to the public policy and, therefore, the contention of the counsel for the petitioner is liable to be rejected.
13. In the context of the aforesaid submissions of the counsel for the parties, I have considered the records.
14. Claim No. 1- relates to claim of Rs. 2,99,91,866/- on account of respondent being forced by the petitioner to employ specified labour and/or labourer in specified manner, as alleged in the statement of claims. The arbitrator held that as per the contract there was no restriction placed on the respondent to employ their own labour to carry out the various obligations as they deemed fit. However, there was only one restriction that sufficient labour should be employed to ensure due progress. The arbitrator further held that contrary to the above the petitioner super-imposed an additional condition of employing the labour chosen by them, thus taking away decision of the respondent regarding a very important resource for completing the contract. In the context of the finding, the arbitrator held that the respondent would be entitled for an award in its favor on account of loss caused by unproductive and inefficient labour thrust by the petitioner. The arbitrator held that the respondent has been able to substantial its case for 3714 idle rig days and on the basis thereof he held that a sun of Rs. 1,00,46,370/- on account of idle rig charges for the period for which the rig remained idle, should be paid to the respondent. The arbitrator also allowed the claim of the respondent on account of extra cost of labour for an amount of Rs. 97,46,202/-.
15. Counsel for the petitioner challenged the aforesaid on the ground that the aforesaid award passed by the arbitrator is beyond the terms of the contract and, therefore, the arbitrator exceeded its jurisdiction in awarding the aforesaid amount in favor of the respondent. It was also his submission that the aforesaid award is also against the public policy of India. Therefore, the counsel for the petitioner tried to invoke the provisions of Clause -IV of Section 34(2)(A) of the Act, which reads as follows:-
"the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration."
. . . . . . . . . .
16. Section 34(2)(ii) of the Act also lays down a ground on which an arbitral award could be set aside. It is provided that if the court finds that the arbitral award is in conflict with the public policy of India, the same could also be set aside. There is an explanation added tot he aforesaid provision, wherein it is provided that without prejudice to the generally of Sub-clause (ii) of Clause (b), an award is in conflict with the public policy of India, if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 of Section 81 of Act. In C.V. JANI AND COMPANY V. HINDUSTAN FERTILIZER CORPORATION reported in 2001 (1) AD Delhi 143 and in RENUSAGAR POWER CO.LTD. v. GENERAL ELECTRIC CO. , the Supreme Court has held that the enforcement of a foreign award would be refused on the ground that it contrary to public policy if such enforcement would be contrary to (i) fundamental policy of Indian law (ii) the interests of India and (iii) justice of morality. Although the aforesaid decision was rendered in the context of a foreign award but he said decision does throw some light as to what is envisaged under the aforesaid expression. Said concepts would constitute public policy of India. Therefore, if the award is found to be contrary to any of the aforesaid principles, namely, fundamental policy of India law or Indian interest or justice or morality, the same could be held to be contrary to public policy of India.
17. There cannot be any denial of the fact that the scope of interference with an arbitral award under the Arbitration and Conciliation Act, 1996 is far more restricted than under the Arbitration Act, 1940. Section 34(2)(iv) of the Act came up for interpretation before the Supreme Court in the case of RAJINDER KRISHAN KHANNA AND ORS. v. UNION OF INDIAN AND ORS. . In para 11 of the said decision the Supreme Court held as follows:--
"Section 34(1) of the Act states that recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with Sub-sections (2) and (3). Under Sub- section (2) Clause (iv) an award may be set aside if it "deals with a dispute not contemplated by or nor falling with the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration". The proviso to Clause (iv) says that if the decision on matters submitted to arbitrations an be separated fro those not so submitted only that part of the award, which contains decisions on matters not submitted to arbitration may be set aside."
18. In OLYMPUS SUPERSTRUCTURES PVT. LTD. v. MEENA VIJAY KHETAN AND ORS. Clause 34(2)(b)(i) came up for interpretation before the Supreme Court. In para 37 of the said judgment, it was held as follows:-
"This point concerns the issues between the parties on the merits of the award relating to default, time being of the essence, readiness and willingness etc. These are all issues of fact. If we examine Section 34(2) of the Act, the relevant provisions of which have already been extracted under Points 1 and 2, it will be seen that under Clause (b) of Section 34(2), interference is permissible by the court only if
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral amount is in conflict with the public policy in India.
The explanation to the provisions says that without prejudice to the generally of Sub-clause (ii) of Clause (b), it is declared for the avoidance of any doubt, that an award is to be created basic treated) as in conflict with the public policy of India if the making of the award has been induced or effected by fraud, or corruption or was in violation of Sections 75 or 81. Section 75 or 81. Section 75 deals with confidentiality while Section 81 deals with admissibility of evidence in other proceedings. We do not have any such situation before us falling within Section 34(2)(b)(ii). The factual points raised in the case before us, to which we have referred to earlier, do not fall within Section 34(2)(b)(ii). Coming to Section 34(2)(b)(i) we have already held that the subject-matter of the dispute is not incapable of settlement by arbitration under the law for the time being in force. Nor is any point raised that the arbitral award is in conflict with the public policy of India. We are, therefore, of the view that the merits of the award on the facts of the case do not fall under Section 34(2)(b) of the Act. Point 4 is held accordingly against the appellant."
19. In Central Inland Water Transport Corporation Ltd. and Anr. v. Brrojo Nath Ganguly and Anr. the Supreme Court had occasion to deal with the meaning of the expression "opposed to public policy".
20. Section 23 of the Indian Contract Act Act states that "The consideration or object of an agreement is lawful, unless...the court regards it as ..... opposed to public policy". In para 93 of the judgment in Central Inland Water Transport Corpn. Ltd. (supra) the Supreme Court dealt with the expression "opposed to public policy. It is admitted that the Contract Act does not define the said expression. It was held in the aforesaid decision that the said expression is incapable of precise definition but it connotes some matter which concerns the public good and the public interest. It was held by the Supreme Court that the principle governing the public policy must be and are capable, on proper occasion, of expansion or modification, for practices which were considered perfectly normal at one time have today obnoxious and oppressive to public conscience. It was also held that if there is no head of public policy which covers a case, then the court must in consonance with public conscience and in keeping with public good and public interest declare such practice to be opposed to public policy. It was further laid down that above all, if any decision is rendered against the preamble to the Constitution of India and the principles underlying Fundamental Rights and the Director Principles enshrined in the Constitution of India.
21. The submissions made by the counsel for the petitioner, therefore, shall have to be considered within the ambit of the aforesaid arena. It was held by the arbitrator that the labour had been thrust upon by the petitioner, which were not productive, willing and efficient. The evidence on record, however, discloses that the respondent was given the liberty to engage their own labourer. Subsequently, however, it was agreed upon by the parties hereto that the labourers would be appointed from the earlier retrenched employees in view of the labour problem in the concerned year but eh choice of making the appointment was at the discretion of the respondent. There is no denial of the fact that there was labour problem at the site which, however, was settled within three months. The contract was awarded to the respondent on 11.7.86 and the formal letter of award was communicated on 12.8.86. By 16.11.86 the labour problem was resolved and, therefore, by the time the respondent started its work, the labour problem was brought to an end. However, it also transpires that even thereafter there had been occasionally labour problems for which the work could not be carried out at times as would be indicated from the own documents of the petitioner, which is filed along with the records of the case. The said document indicates that the work was stopped due to labour problem on various dates from the period from 23.8.86 to 2.1.87 as pointed out by the respondent. However, the conclusions that has been arrived at by the arbitrator that there had been 3714 idle rig days, is not supported by any document. Therefore, the claim made by the respondent and the award given by the arbitrator for 3714 idle rig days is perverse not being substantiated by documents on record and the award given by the arbitrator is, therefore, exorbitant. The arbitrator has also awarded an amount of Rs. 97,46,202/- on account of extra cost of labour for 68,820 man days. How, the aforesaid man days have been calculated and computed is also not indicated in the aforesaid award passed by arbitrator and, therefore, the said award is also found to be exorbitant. No material on record being brought to my notice supporting the said award, the aforesaid stand of the arbitrator and the award being exorbitant and also being not based on any intelligible criteria, the said award would definitely come within the purview of the expression opposed to public good and public interest and is, therefore, opposed to the public policy. The said award accordingly is set side and is remitted back to the arbitrator for fresh consideration and disposal in accordinance with law on the basis of the materials available on record. While considering the matter afresh and giving his award, the arbitrator shall give his reasons for the conclusions and such reasons shall be supported by the materials on record.
22. So far Claim No. 4 is concerned, an amount of RS. 83,26,925/- is claimed by the respondent towards wrongful deduction/deviation from the standard length, which was allowed in entirety in favor of the petitioner. The arbitrator while deciding the aforesaid claim has held that the parties at the time of entering into the contract did not agree to any standard length. It was held by him that although the standard length was agreed by the parties, but no standard length was quantified. The respondent had stated in their letter dt. 15.6.1988 that they had taken 27.5 mtr as standard length int he original tender bid. However, later on the same turned out to be incorrect as the length of piles were less than the standard length. Accordingly the respondent claimed compensation for more empty driving. The arbitrator has held that so far the letter dt. 15.6.88 of the respondent is concerned, the same was rejected by the petitioner and accordingly the respondent cannot rely upon the contents of the said letter in calculation of the standard length. The aforesaid reasoning given by the arbitrator seems to be foreign and unknown to the concept of public policy of India. In support of the said conclusion, reference may be made to the letter of the respondent dt. 11/13.5.93 to the petitioner and also the letter dt. 13.9.93 by the petitioner to the respondent. In the letter dt. 11/13.5.93 written by the respondent to the petitioner herein it was stated that from engineering consideration the standard length for design purpose had been assumed as 27.5M but commercially piles had been offered by the petitioner herein on "each" i.e. lumpsum basis with no reflection on price for variation in length. However, after giving its explanation, it has stated that for the portion of the work taken out from the respondent and given to another party, the petitioner had themselves specified standard length as 24.5M, which may or could be taken as basis of the standard length for the case of the respondent and rebate may be imposed accordingly. It was stated that the maximum rebate which may be imposed is Rs. 21.26 lakhs or alternatively the maximum levy of rebate would be Rs. 20 lakhs. The aforesaid aspect of the matter was, however, connected with the stipulation that no risk and cost or penalty would be levied from the respondent and that extension of time would be given to the respondent. The petitioner earlier granted extension to the respondent for completion of the work up to 30.6.1991 with a token compensation at 1% of the maximum compensation. It was also stated in the letter dt. 13.9.93 of the petitioner that wavier of application for risk and cost would also be considered by the petitioner. The aforesaid intimation is contained in the letter dt. 13.9.93, which is annexed to the petition as Annexure P-3. At one stage, the petitioner also took the decision that the date of completion would be considered to be extended up to 30.6.91 and that risk and cost would be waived. The aforesaid letters should have been taken notice of and considered by the arbitrator before allowing the entire claim of the respondent for payment of Rs. 83,26,925/-. In one of the communications, the respondent agreed to for a payment of Rs. 23,00,000/-, basing such claim on the standard length being 27.5 Mtr. The respondent also took a stand at one stage that they would not apply risk and cost and would waive the said condition. These letters, which are very very vital for consideration have been ignored and omitted by the arbitrator and, therefore, the award passed by the arbitrator in respect of Claim No. 4 is set aside. Counter-claim No.1 (Issue No. 13) of the petitioner is also inextricably connected and relevant with the Claim No. 1 and 4 of the respondents as is disclosed from the records including correspondences referred to above. As the award passed against claims No.1 and 4 are set aside and remitted to the arbitrator, the award against counter claim also needs to be remitted back. Therefore, the award of the arbitrator in respect of the aforesaid claims and Counter Claim No. 1 are set aside and remitted to the arbitrator for fresh consideration in accordance with law in the light of the evidence already on record.
23. So far the claim of the respondent under Claim No. 8 i.e. for miscellaneous work is concerned, the said claim was for Rs. 48,30,197/- as against which an amount of Rs. 8,72,000/- has been awarded by the arbitrator. I have scrutinised the said award and the same is found to be legal and valid. No. interference is called for as against the said award as also the award passed by the arbitrator for release of the bank guarantee, which was submitted by the respondent for No. 15,50,000/-. Consequently, the award passed by the arbitrator in respect of Claim Nos. 1 & 4 and Counter Claim No.1 is set aside and they are remitted back to the arbitrator for re-consideration in accordance with law. So far the remaining award is concerned, the same is upheld. The award relating to payment of interest in respect of awarded amount for claims No. 1 and 4 is also set aside. The sole arbitrator, who has passed the award shall decide the claims remitted back to him on the basis of the evidence available on record and shall publish his award in respect of the same within three months from today. The petitioner is directed to place the entire records before the arbitrator within ten days from today so as to enable the arbitrator to re-consider the matter in terms of these observation and directions and to pass a fresh award in respect of the aforesaid claim and counter claims, which are remitted back to him. The petition stands disposed of in terms of the aforesaid order.