M.P. Road Development Corporation Ltd vs M.S.P. Infrastructure Ltd

Sujoy Paul, J.

This appeal filed under Section 37 of the Arbitration & Conciliation Act, 1996 ('Arbitration Act') takes exception to the order dated 05.12.2016

passed in MJC Arbitration Case No.09/2007 whereby the application filed by appellant under Section 34 of the Arbitration Act against the Arbitral

award was disallowed by the court below.

Draped in brevity, the relevant facts are that a tender was issued by appellant for the work of detailed Design, Engineering, Financing,

Procurement, Construction, Operation and Maintenance of Raisen-Rahatgarh road of about 100 kms. On 31.12.2001, a Letter of Acceptance(LOA)

was issued to the consortium of Tantia-MPL(JV) having conditions of submission of performance bank guarantee within two weeks and signing of

agreement within four weeks for issuance of LOA. After submission of performance bank guarantee on 08.03.2002, consortium agreement dated

04.02.2002 was entered into between the parties. The stipulated completion period of work was 18 months as per the Concessionaire Agreement. The

extended date of completion on failure of achieving milestone and showing progress of work was 03.02.2004. The agreement was terminated on

24/28.01.2003 on alleged violation of terms of contract and on the allegation of snail progress by the contractor.

Indisputably, a civil suit was filed by the respondents at Kolkata in which on 19.05.2003, the parties decided to refer the dispute to arbitration in

view of Arbitration Act.

In turn, a Three Member Arbitral Tribunal (Tribunal) was constituted. The respondent/contractor filed statement of claim for Rs.89,67,00,000/-.

After completion of pleadings and filing of documents, etc., the Arbitrator passed the award and awarded total amount with interest i.e.

Rs.6,90,34,743/-(upto the date of signing the award).

The appellant feeling aggrieved with this award, assailed it before the court below by filing an application under Section 34 of the Arbitration Act.

The Court below after hearing the parties, passed the impugned order dated 05.12.2016 and dismissed the application. This order is subject matter of

challenge in this appeal filed under Section 37 of the Arbitration Act.

Shri Shashank Shekhar, learned counsel for the appellant placed reliance on the relevant paras of the statement of claim and urged that the

contractor prayed for passing an award for Rs.89,67,00,000/- as per the pleadings in para 51 of the claim. The said para of the claim was relied upon

to submit that neither in this para nor in subsequent paras any break up is provided on the strength of which claim of Rs.89,67,00,000/- was raised. The

claim is therefore without any basis and foundation.

By taking this Court to the award dated 13.11.2006, it is urged by learned counsel for the appellant that the rival claims of the claimants and

respondents were reproduced by the Tribunal in the award. Thereafter, the Tribunal determined certain amount in favour of the claimants. Much

emphasis is placed on repeated findings of the Tribunal wherein it is recorded that ‘reasoning and details are discussed elsewhere’. In certain

places, it is mentioned that ‘ we have dealt with this in details elsewhere in the award’ or ‘we have tried to examine this under

reasoning’. By taking this Court to the entire award, it was urged that although it was repeatedly mentioned that the reasons for deciding the

claim/counter claim are dealt with by Tribunal separately, in fact, no such separate reasoning is available in the award. The stand taken by the

appellant is not considered by the Tribunal. The Tribunal reached to 'conclusions' without assigning any justifiable 'reasons'. The quantification of the

amount is without there being any basis. In absence of any formula or break up, the amount determined and directed to be paid is based on surmises

and conjectures. Such direction is without there being any evidence, quantification and objective calculation and; is therefore, perverse in nature.

In Clause 9.1 of the award, the Tribunal opined that since the respondent has not decided the amount claimed, the amount is payable. It is argued

that this finding of Tribunal runs contrary to Section 25(b) of the Arbitration Act. Even if no reply is filed by the employer/appellant, it will not amount

to admission of claim by the appellant.

The Tribunal assumed that filling up of potholes was part of the Contract whereas it was the ordinary business procedure, which was required to be

followed by the Contractor to make the road motorable and construct the road thereupon. The Tribunal without considering this aspect, jumped to the

award amount on the head of filling up of potholes. It is further urged that the Tribunal erred in granting 24% interest whereas Section 31(7)(b)

(unamended) provides that interest to the tune of 18% alone can be provided.

The appellant by taking this Court to the pleadings of application filed under Section 34 of the Arbitration Act contended that the award was called

in question on permissible grounds as per Section 28 and 31 read with Section 34 of the Arbitration Act. It was a statutory obligation on the part of the

Tribunal to assign reasons. Reliance is placed on Section 31(3) (7)(a) and 34(2)(ii)(b) of the Arbitration Act. It is also urged that as per Section 73 of

the Contract Act, the compensation cannot be given for any remedy or indirect loss or damage sustained by reasons of the breach by the Contractor.

To elaborate, Shri Shashank Shekhar placed reliance on a recent judgment of this Court in AA. No.51/17 (Union of India & Ors. vs. M/s.

Venkatesh Earthen Pvt Ltd. & Anr.). It is stated that in the impugned order, the Court below has not applied its mind on the points raised in the

application under Section 34 of the Act. No justifiable reasons are assigned as to why the points raised in the said application are not trustworthy.

Reliance is placed on (2014) 9 SCC 212 (Anand Brothers P. Ltd. vs. Union of India )and (2015) 3 SCC 49 (Associates Builders vs. Delhi

Development Authority) and on a recent judgment of Apex Court reported in 2019 SCC Online 677 (Ssangyong Engineering & Construction Co. Ltd.

vs. National Highways Authority of India (NHAI).) On the strength of these judgments, it is canvassed that the expression ‘Public Policy of

India’ would now mean the ‘Fundamental Policy of Indian Law’. If the impugned order of Court below is tested on the anvil of these

principles, it will be clear that the Court below has erred in not interfering with the award. In nutshell, the argument of appellant is that the order of

Tribunal was unreasonable and cryptic. The amount is determined without there being any foundation for the same. The appellant’s contentions

raised in the application filed under Section 34 were not raised by the Court below. The order passed by the Tribunal runs contrary to the Public Policy

and the Court below has failed to examine it in its correct perspective.

Shri Brian Da’Silva, learned senior counsel on the other hand supported the award and the impugned order passed by the Court below. It is

argued that one Arbitrator was appointed by the appellant and another by the Contractor. These two Arbitrators decided the name of third Arbitrator.

Three Arbitrators constituted the Tribunal. All the Arbitrators were technocrats and they were not legally trained brains. If the parties are able to

understand what Arbitrators intended to convey, it is sufficient compliance of the requirement of Arbitration Act and no interference can be made

because Award is not a reasoned one. If a man of common prudence comes to the same conclusion on which Tribunal has reached, no interference

can be made. The findings are based on some evidence and the same cannot be treated to be perverse. If the Tribunal and the Court below have

taken a plausible view, merely because another view is possible, no interference is warranted. Furthermore, as per Section 19(3) and (4) of the

Arbitration Act, the Tribunal can decide its own procedure and conduct the proceeding accordingly. The rival contentions of the parties were taken

note of by the Tribunal. The details of admission are mentioned with utmost clarity by the Tribunal.

Shri Brian D’Silva, learned Senior Counsel urged that in the present appeal, there is no pleading that the arguments advanced by the appellant

before the Court below were not considered by the Court below. The claim of loss and damages were disallowed by Item No.7 (b-a), 7(b-2) and 7(c).

Since the Tribunal has applied its mind and assigned sufficient reasons for interfering with termination of contract, it is not a case where this Court

should sit as an Appellate Court to re-appreciate and re-weigh the entire evidence. In support of aforesaid contentions, reliance is placed on (2006)

126 DLT 466 (D.D.A. vs. Bhagat Construction Co. Pvt. Ltd.,) (2018) 1 SCC 718 (Sutlej Construction Ltd.) ,AIR 1982 Deli 425 (Delhi Development

Authority vs. Uppal Engineering Construction) ,(2019) 4 SCC MMTC Ltd. vs. Vedanta Ltd. )and also a judgment of Apex Court passed in Special

Leave to Appeal No.13117/19 (The State of Jharkhand & Ors. vs. M/s. H.S.S. Integrated SDN & Anr.).

No other point is pressed by learned counsel for the parties.

We have heard the parties at length and perused the record.

Before dealing with rival contentions of the parties, it is apposite to refer relevant portion of Section 31 of the Arbitration Act which reads as

under:

Violation of Section 31(3) of the Act, 1996: Sec 31. Form and contents of arbitral award.â€

(1) ….......

(2) ….......

(3) The arbitral award shall state the reasons upon which it is based, unless:

(a) the parties have agreed that no reasons are to be given, or

(b) the award is an arbitral award on agreed terms under section 30.

Violation of Section 31(7)(a) & (b) of the Act, 1996:

Form and contents of arbitral award.â€

(1) ….......

(2) ….......

(3) ….......

(4) ….......

(5) ….......

(6) ….......

(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

the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of

the period between the date on which the cause of action arose and the date on which the award is made.

(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of two per cent. higher than the

current rate of interest prevalent on the date of award, from the date of award to the date of payment.

A plain reading of the aforesaid provision leaves no room for any doubt that Arbitral Tribunal is under a statutory duty to state the reasons upon which

its conclusion are drawn or in other words, award is passed. The only exception is when it is agreed between the parties that assigning of reason is

unnecessary. It is nobody's case that in the instant matter, parties have reached to any understanding that reasons are not required to be assigned.

Similarly, relevant portion of Section 34 of the Arbitration Act reads as under:

“5. Violation of Section 34(2)(a)(iv) and (b)(ii) of the Act, 1996:

Sec 34. Application for setting aside arbitral award

(1) ….

(2) An arbitral award may be set aside by the Court only if:

(a) the party making the application furnishes proof that:

(i) …..

(ii) …..

(iii) …..

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions

on matters beyond the scope of the submission to arbitration:

(b) the Court finds thatâ€

(i) …..

(ii) the arbitral award is in conflict with the public policy of India.â€​

Section 34 of the Arbitration Act makes it obligatory on the part of the Court to interfere with the arbitral award if it is in conflict with the public policy

of India. The expression 'public policy of India' became subject matter of interpretation and adjudication in catena of judgments. In the recent

judgment in Ssangyong Engineering(Supra), the Apex Court considered its previous judgments and noted it with profit that Fundamental Public Policy

of India would now mean the “fundamental policy of Indian lawâ€. After taking note of its previous judgment reported in 2014 (9) SCC 263 (Oil

and Natural Gas Corporation Ltd. vs. Western Geco International Ltd.,) it was observed that such fundamental policy of Indian law knew all such

fundamental principles as providing a basis for administration of justice and enforcement of law in India. Without meaning to exhaustively enumerate

the purport of fundamental policy of Indian law, the distinct and fundamental juristic principles can be seen. It was emphasized that judicial approach is

one such principle and a quasi-judicial/judicial authority is under obligation to follow the celebrated principles of audi alteram partem. The Court is

required to apply its mind to the attendant facts and circumstances. Non-application of mind is a fatal defect. The reasons need to be given in support

of the decision. It is further held that Wednesbury principle is also applicable in the matter of judicial review under the Arbitration Act.

Audi alteram partem or principles of natural justice makes it obligatory for the courts to assign adequate reasons. The reasons are held to be

heartbeats of conclusion. The reasons are required to be assigned because principle of justice is that ‘justice must not only be done, it must also

appear to be done as well’. Recording of reasons also operates a valid restraint on any possible arbitrary exercise of judicial/quasi-judicial or even

administrative power. The reasons reassure that discretion has been exercised by the decision maker on relevant grounds and by disregarding the

extraneous and irrelevant consideration. Reasons have virtually become as indefeasible component of decision making process. Reasons also

formulated the process of judicial review by the superior courts. The judicial trend is in favour of reasoned decision based on relevant facts. This is

virtually the life blood of judicial decision making, justifying the principle that reason is the soul of justice. The insistence on reasons is a requirement of

both judicial accountability and transparency. Transparency is the sine qua non of restraint on abuse of judicial powers. Transparency in decision

making not only makes judges and decision makers less prone to errors but also makes them subject to broader scrutiny. Assignment of reasons based

on broad doctrine of fairness in decision making. In other words, it can be said that requirement of giving reasons for the decision is of the essence

and is virtually a part of ‘due process’.

In the application filed under Section 34 of the Arbitration Act, the appellant has categorically pleaded that the contract was terminated by

following the 'due process'. The amount awarded by the Tribunal does not have any basis. In other words, the appellant averred before the court

below that there is no formula or basis on the strength of which the Tribunal has reached to a magic figure and appellant was directed to pay the

same. The Tribunal’s award is also challenged on the ground of perversity, etc. It was specifically pleaded that respondents had not quantified the

various claims item wise or head wise in the statement of claim filed before the Tribunal. The pleadings in Para 51 and 57A are not based on any

scientific and objective breakup, yet Tribunal passed the award without any justification.

Shri Da' Silva vehemently argued that these arguments based on pleading of Section 34 application are not reflected in the impugned order passed

by the court below, thus, it appears that these arguments were not advanced before the court below. The appellant cannot be permitted to raise these

arguments for the first time before this Court. We do not see any merit in this contention. The impugned order passed by the court below shows that

the court below has considered the pleadings of the parties and then framed an issue. Sadly, on more than one occasion, the court below recorded that

the contractor’s contract was ‘suspended’ whereas the dispute arose because of ‘termination’ of contract.

A careful reading of the order of court below dated 05.12.2016 shows that many relevant pleadings and grounds raised by appellant were not

taken into account by the court below. For example, the bone of contention of appellant that there was no basis for reaching to Award amount was

not at all taken into account. Indeed, in para 12, it is presumed that whole payment was made to fill up the pot hole. This assumption runs contrary to

clause 7(a)/25 of the award in which in the head of pot hole fixing, an amount of Rs.46,13,875/- was directed to be paid whereas total award is to the

tune of Rs.6,90,34,743/- with interest upto the date of award. Thus, court below was required to examine the necessary pleadings and points raised by

the appellant. The non-application of mind on relevant points vitiates the impugned order. This Court for the same reason interfered with the impugned

order in the case of Union of India(Supra).

In the impugned order, the court below opined that interference can be made if order is passed malafidely or is against the public policy. As

noticed, the expression ‘public policy of India’ was given very wide interpretation and it makes it obligatory for the courts to adopt judicial

approach, assign adequate reasons in support of decision. It needs to follow the principles of ‘audi alteram partem. The award can be challenged on

Wednesbury principles also. In absence of assigning reasons, impugned order of court below has become vulnerable.

Apart from this, a plain reading of impugned order shows that one of the grounds raised (and even reproduced in the impugned order dated

05.12.2016) was that the bills on the strength of which amount was claimed were upto the year 2000 whereas work for instant contract was started in

February, 2003. This point raised clearly falls within the ambit of judicial review of Tribunal’s award and court below was obliged to examine

whether this contention is correct and whether finding given by Tribunal is perverse or not. We are in agreement with the principles laid down in the

judgments cited by Shri Da' Silva, learned senior counsel wherein it was held that this court is not obliged to sit as a court deciding first appeal in a civil

matter. If a reasoned award is passed based on evidence on record, interference cannot be made merely because another view is possible. In the

instant case, as noticed, the decision making process which has a direct nexus with the principles of natural justice was called in question by the

appellant. If decision making process is vitiated, it cannot be said that audi alteram partem principle is satisfied. In absence of assigning reasons and

considering the points raised in Section 34 application, impugned order dated 05.12.2016 cannot be countenanced. The judgments cited by Shri Da'

Silva cannot be pressed into service in a case of this nature where the court below has miserably failed to deal with the points raised by the appellant

and failed to assign reasons on it.

In view of foregoing analysis, we are constrained to hold that court below has not considered various points raised by the appellant in his

application filed under Section 34 of the Act. The decision making process adopted by the court below cannot sustain judicial scrutiny. In the result,

impugned order dated 05.12.2016 passed in MJC(Arbitration) Case No.09/2007 is set aside. The matter is remitted back before the Commercial

Court, Bhopal with the direction to rehear the parties and pass a fresh order in accordance with law. It is made clear that this court has not expressed

any opinion on merits of the case. Appeal is allowed.