CPG Consultants India Pvt. Ltd. vs Mfar Realtors Pvt. Ltd

P.B.Suresh Kumar, J.

This appeal under Section 37 of the Arbitration and Conciliation Act 1996 (the Act) is directed against the order dated 17.07.2017 in O.P.(Arbitration) No.85 of 2016 on the files of the court of the Second Additional District Judge, Ernakulam. The appellant is the petitioner in the said original petition.

2.The appellant, a company engaged in the business of providing design services for master planning, infrastructure planning etc., have entered into an agreement with the respondent, a company engaged in the business of development of lands, for rendering design services in respect of one of the projects of the respondent. Disputes arose between the parties in the course of execution of the project. The agreement entered into between the parties provided for resolution of disputes by recourse to arbitration.

The disputes were accordingly referred to the Arbitrator for resolution at the instance of the respondent. Before the Arbitrator, the respondent raised a claim against the appellant and the appellant, in turn, raised a counter claim against the respondent. The counter claim raised by the appellant against the respondent in the proceedings was for an award for Rs.81,61,137/-, which comprises of Rs.43,68,000/- towards the balance amount payable to them by the respondent covered by three invoices and Rs.37,93,137/- towards compensation at the rate of one percent per month worked out on Rs.43,68,000/- from the due date. The Arbitrator rejected the claim of the respondent and allowed the counter claim of the appellant in part permitting them to realise only the balance amount covered by the invoices, namely Rs.43,68,000/-.

3.Aggrieved by the award, to the extent it declined compensation at the rate of one percent per month worked out on Rs.43,68,000/- from the due date, the appellant instituted the original petition referred to above invoking Section 34 of the Act. The court below found that the award of the Arbitrator is not one which warrants any correction in terms of Section 34 and consequently, dismissed the original petition. The appellant is aggrieved by the said order and hence this appeal.

4.Heard the learned counsel for the appellant as also the learned counsel for the respondent.

5.The learned counsel for the appellant submitted that the agreement entered into between the parties, in terms of which design services have been rendered by the appellant to the respondent, is a peculiar one in the sense that the consideration payable in terms of the same is styled therein as 'compensation', instead of fees. Referring to Clause 5.2 of the agreement, the learned counsel has also submitted that the agreement was to the effect that if the appellant does not receive the compensation within thirty days from the date of submission of the invoice, the respondent shall pay to the appellant the compensation covered by the invoice along with additional compensation for overdue payment at the rate of one percent per month calculated on the overdue sum from the due date for payment of the invoice till the actual date of payment. It was argued by the learned counsel that though the agreement uses the expression 'additional compensation', what was meant by the parties by that expression was the interest for the amount covered by the invoice. It was pointed out by the learned counsel that it was the said amount that was claimed by the appellant in the counter claim preferred before the Arbitrator in addition to the balance amount covered by the invoices raised by them against the respondent. It was argued by the learned counsel that the Arbitrator, in the circumstances, ought to have upheld the said claim of the appellant also. It was the contention of the appellant that grant of interest on default of payment is part of the fundamental policy of Indian law and the award, insofar as it declined the additional compensation claimed by the appellant over and above the amount covered by the invoices is, therefore, liable to the corrected under Section 34(2) of the Act, being one in conflict with the fundamental policy of Indian law. It was also the contention of the learned counsel that the said part of the counter claim of the appellant was strictly in accordance with the terms of the agreement, and the award, insofar as it relates to the said part of the counter claim being one rendered contrary to the terms of the agreement, the same is liable to be corrected as patently illegal also. The learned counsel relied on paragraphs 15, 55 and 61 of the decision of the Apex Court in ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705, in support of his arguments. It was pointed out by the learned counsel that the main ground stated by the Arbitrator for declining the additional compensation claimed by the appellant is that the appellant had not claimed the same in the various correspondence addressed to the respondent. It was argued by the learned counsel that the said finding of the Arbitrator is perverse as the Arbitrator himself has noted in paragraph 51 of the award that the appellant has claimed the additional compensation in one of their correspondence addressed to the respondent.

6.Per contra, the learned counsel for the respondent submitted that cogent and convincing reasons have been given by the arbitrator to decline the additional compensation claimed by the appellant against the respondent and that part of the award cannot, therefore, be questioned under any of the grounds provided for in Section 34 of the Act.

7.We have examined the contentions raised by the learned counsel for the parties on either side.

8.There is no dispute between the parties to the fact that the total amount covered by the invoices raised by the appellant against the respondent as on 29.10.2009 was Rs.87,36,000/- and that the said amount has not been paid by the respondent on the due dates. The materials indicate that after various correspondence in between, the respondent has made a proposal that they will pay 50% of the outstanding amount namely, Rs.43,68,000/- and on receipt of the same, appropriate changes required by the respondent in the designs already provided to them shall be carried out by the appellant and that balance amount will be effected only thereafter. The materials also indicate that the said proposal of the respondent was accepted by the appellant and they have carried out the changes required in the designs after receiving Rs.43,68,000/- in terms of the above proposal. The materials further indicate that the respondent has not paid the balance amount covered by the proposal as agreed even after the appellant carrying out appropriate changes in the designs required by the respondent and the counter claim was for realisation of the said balance amount covered by the invoices together with the additional compensation at the rate of one percent per month worked out on Rs.43,68,000/-for the delayed period.

9.Clause 5.2 of the agreement reads thus:

"If the consultant does not receive payment within thirty days(30) Days from the date of submission of invoice, the client shall pay the consultant the Agreed Compensation along with additional compensation for overdue payment at the rate of one percent(1%) per month calculated on the overdue sum from the due date for payment of the invoice till the actual date of payment. Notwithstanding the above, nothing provided in this clause 5.2 shall affect the rights of the consultant stated in clause 12.3."

As discernible from the extracted clause in the agreement what is provided for in the clause aforesaid is that in the event of non payment of the compensation covered by the invoice within 30 days from the date of submission of the invoice, the respondent is liable to pay the said amount to the appellant together with the amount worked out at one percent per month on the overdue sum from the due date for payment of the invoice till the actual date of payment by way of liquidated damages. The learned counsel for the appellant is right in contending that insofar it is found that the balance amount covered by the invoices has not been paid by the respondent, the appellant is entitled to the said amount. The question however is as to whether the decision of the Arbitrator in declining the said relief to the appellant is one which could be corrected in a proceedings under Section 34 of the Act.

10.Paragraphs 58 to 61 of the Award of the Arbitrator dealing with the claim of the appellant for additional compensation read thus:

"58. As regards the counter claim raised for compensation for delay in payment of Rs.43,68,000/-, as per clause 5(2) of Ex.C1 agreement; I am of the considered opinion that it is not sustainable in law in the special facts and circumstances of the case.

59.The balance amount due as per invoices 1 to 3 was pending from 29.10.2009. Thereafter repeated attempts were made by the respondent for collecting the outstanding amount through M/s GCS Management Solutions India Pvt. Ltd. The averments in Para 9 to 12 of the defense statement and the contents of email Ex R17 dated 13.6.2011 would show that there was a proposal made by the claimant at the time when the total amount due was Rs.87,36,000/- that the claimant will pay 50% of the outstanding amount namely Rs.43,68,000/ immediately to the respondent on acceptance of the proposal to effect some revision/modification to the plan and designs already submitted and the balance amount will also be paid on resubmission of the plans and designs after revision/modification. Even at the risk of repetition I may state that the proposal was considered in detail taking considerable time and was accepted by Ex R17 email dated 13.6.2011 which was to the following effect.

"Dear Mr. Abdul Basheer,

Please find the trail of mails that elaborates the approval and acceptance of the proposal by CPG."

The email was one Issued by Satinder of GCS to Abdul Basheer of the claimant company.

60.The trail mails would clearly show that the proposal was to pay 50% of the outstanding amount on the condition that respondent will agree to carry out necessary revision/modification to the plans and designs already submitted and that on resubmission the remaining 50% of the balance amount will also be paid in full. Even though the making of the above proposal and acceptance of the same by the respondent were made about two years after 29.10.2009 no claim for compensation was made by the respondent during that time. Similarly during the second attempt made by the claimant to revive the relationship between the parties on the basis of Ex R18 email dated 14.6.2011 also, no claim for payment of compensation for delay in payment of Rs.43,68,000/- was raised by the respondent. Neither during the joint meetings held for discussing and considering the proposal for revision/modification nor while finalizing the terms to be included in the proposed amendment agreement, no demand is seen made by the respondent to claim compensation for delay on the above amount from the claimant. In fact the respondent through out its correspondence and joint meetings with the claimant was only pressing for the outstanding amount of Rs.87,36,000/-and no demand was ever made for payment of any compensation as provided in clause 5.2 or by way of interest at the rate of 1% per month or at any other rate. Even in Ex R29 A, R29 B, R30 and R31 the respondent has not made any claim specifically for the payment of compensation as per clause 5.2 or for interest at any other rate in addition to the outstanding amount of Rs.43,68,000/-. As such taking note of the entire facts and circumstances of the case especially the attitude of the respondent taken consistently during the several attempts made to recover the outstanding amount as evidenced by the various documents produced in the case, I find that it is a totally unjust and unfair counter claim which is only to be rejected. As such I reject the claim for compensation under clause 5.2 of Ex C1 agreement.

61.Before concluding the discussion under issues nos. 3&4, I would record a finding that having rejected the counter claim for compensation for delay In paying the amount of Rs 43,68,000/-, it is only just, legal and necessary to allow interest at a reasonable rate of 12% on the said amount and to recover such amount also from the claimant if the claimant fails to pay the said amount to the respondent within three months from the date of the award. In that event respondent will be entitled to recover interest on the amount at the above rate from the date of the award till the date of recovery."

A close reading of the extracted paragraphs would show that on an appraisal of the evidence on record, especially the various correspondence addressed to each other by the parties, the Arbitrator found that the relationship between the parties broke sometime during October, 2009 and was revived only in terms of the proposal made by the respondent during the year 2011 which was accepted by the appellant in their e-mail dated 13.06.2011. The Arbitrator also found from the materials on record that even though the amount agreed in terms of the proposal has been paid by the respondent to the appellant, there were still disputes between the parties and there had been several correspondence and joint meetings between them to resolve the disputes by modifying the terms of the agreement. The Arbitrator also found that the appellant had not raised the claim for additional compensation in any of those meetings or correspondence. The learned counsel for the appellant is right in pointing out that the Arbitrator has noted in paragraph 51 of the award that in Ext.C10 notice, the respondent claimed not only the balance outstanding due but also the additional compensation. But, it is seen that the Arbitrator was referring to the various correspondence and meetings took place between the parties thereafter. It is all the more so since the Arbitrator has specifically referred to the correspondence addressed by the appellant to the respondent which were marked in the proceedings as Exts.R29A, R29B, R30 and R31. Those are correspondence addressed by the appellant to the respondent between 14.09.2012 to 27.09.2012. In the light of the said findings, it is seen that the Arbitrator was of the view that the claim for additional compensation raised by the appellant against the respondent is one that was waived by the appellant, though the Arbitrator does not use the expression 'waiver' in the award. The said stand of the Arbitrator and the findings rendered by the Arbitrator to arrive at the said stand, may or may not be correct on facts, but the question is whether the said findings could be corrected in a proceedings under Section 34 of the Act. The question whether the appellant has waived a particular claim against the respondent is a pure and simple question of fact to be rendered on an appraisal of the evidence on record. A finding to that effect even if it is rendered on an erroneous application of law, cannot be corrected in a proceedings under Section 34 of the Act. If the view aforesaid cannot be interfered with in a proceedings under Section 34, it has to be accepted as correct and if that be so, it cannot be said that the award of the Arbitrator is in conflict with the fundamental policy of the Indian law or that the same is patently illegal, being contrary to the terms of the contract.

11.In ONGC Ltd., the Apex Court has held that if an award is contrary to the terms of the contract, it would be patently illegal and could be corrected under Section 34 of the Act. There cannot be any doubt to the said proposition especially in the light of the provisions contained in Section 28(3) of the Act. According to us, the said judgment will not have any application to the facts of the present case, for the view taken by the Arbitrator is that there was a conscious abandonment of a term of the contract by one of the parties to the contract.

In the said view of the matter, we do not find any merit in the appeal and the same is, accordingly, dismissed.