State Of Chhattisgarh vs M/S Brijmohan Agrawal

This appeal has been preferred by the State/Appellants under Section 37 of the Arbitration and Conciliation Act, 1996 (for short 'the AC Act') being aggrieved by the order dated 01.01.2016, passed by learned District Judge, Ambikapur, District Surguja, Chhattisgarh, passed in Miscellaneous Civil Case No.52/2014, whereby the application preferred by the Appellants/State under Section 34 of the AC Act has been rejected and the award dated 07.09.2014 passed by learned sole Arbitrator retired Justice Shri L.C. Bhadoo in Arbitration Case relating to MCC No.52/2014 has been affirmed.

Facts of the case are that the State through the Public Works Department, National Highway had floated a tender for widening work in kilometer 401 to 422 i.e. reconstruction of Culvert in Katni-Gumla National Highway 78. The Respondent participated and submitted its bid and was the successful bidder. On 17.04.2008, the work order was issued in favour of the Respondent and as per the terms and conditions of the agreement, period of the contract was of 12 months including the Rainy Season. The work programme was to be submitted within 21 days after receiving the acceptance, but the Respondent did not submit any work program within stipulated time. After receiving work order, it is the obligation of the Respondent to start the work on the very next day. But, the Respondent did not start the work, therefore, the Appellant no.3 had issued several letters to the Respondent but the Respondent did not start the work then the Appellant No.2 issued show cause notices dated 22.10.2008, 12.11.2008 and 17,11,2008 then also the Respondent did not report any progress of the work. Ultimately, the Appellant No.2 terminated the contract vide its order dated 28.11.2008 (Annexure A-5). After termination of the contract, the Respondent submitted an application for revocation of termination of contract on 28.11.2008 (Annexure A-6). The Chief Engineer, Public Works Department, National Highway Division, Raipur vide its order dated 24.01.2009 (Annexure A-7) revoked the termination of the contract in public interest. After revocation of the contract, the Respondent again failed to show sufficient progress of work and, therefore, several letters were issued to the Respondent but, he failed to perform the contract in doing so. According to Clause 59.1 of the contract agreement, the State/Appellants had issued final show cause notice dated 24.10.2009 (Annexure A-10) to the Respondent. After issuance of show cause notice, the Respondent for the first time on 31.10.2009 raised the issue of redesign and working parameters which was raised only to seek extension of time. Vide order dated 01.12.2009, the Appellants requested the Respondent to remain present at the site on 07.12.2009 for final measurement, however neither the Respondent nor any of its agent were present on site on the said date. Finally, vide order dated 31.12.2009 (Annexure A-13), the contract of the Respondent was terminated in accordance with the relevant provisions of the contract agreement. The Appellants again offered another opportunity to the Respondent to remain present on 19.01.2010 for final measurement, but on 19.01.2010 also, the Respondent was not present. Therefore, the Appellants had completed the measurement on 20.01.2010 and recorded the same in the measurement book and informed the Respondent about the measurement on 01.05.2010 & 13.07.2010 respectively. As per Clause 24 & 25 of conditions of contract agreement, the Respondent ought to have approached the Dispute Review Expert (DRE) within 14 days from the decision of the Appellants. However, the Respondent approached the DRE and the DRE gave its decision on 19.08.2010 (Annexure A-15) stating that 'the case was fixed for hearing on 28.07.2010 but, on the said date, the Respondent was not present, therefore, the case was dismissed'. Thereafter, the Respondent preferred Miscellaneous Civil Case under Section 11 (6) of the AC Act for appointment of sole Arbitrator before this Court. This Court vide its order dated 20.09.2013 (Annexure A-17) allowed the prayer of the Respondent and appointed former Justice Shri L.C. Bhadoo as sole Arbitrator. The Arbitrator vide its arbitral award dated 07.09.2014 (Annexure A-18) passed an award in favour of the Respondent, the State/Appellants contested in the said arbitration proceedings and filed their counter claim. Being aggrieved by the award dated 07.09.2014, passed by learned Arbitrator, former Justice Shri L.C. Bhadoo, the State/Appellants had preferred an application under Section 34 of the AC Act before the learned District Judge Ambikapur which was rejected by the learned District Judge vide its impugned order dated 01.01.2016 passed in Miscellaneous Civil Case No. 52/2014 and affirmed the arbitral award passed by the learned Arbitrator. Hence, this appeal.

Learned counsel appearing for the State submits that learned District Judge has failed to appreciate that in the contract agreement, time frame for completion of work was essential but the Respondent despite granting 5 ½ months extension of time, failed to complete the work and has completed only 13.43% of work till 17.05.2009. He further submitted that the learned District Judge also failed to consider this fact that while awarding the entire amount by the learned Arbitrator, he is failed to consider various deductions totaling to Rs.15,09,625/-. The specific ground number 25 in the memo of application under Section 34 of the AC Act which has been raised by the Appellant/State but without considering the same, the learned District Judge dismissed the application. It is further submitted by the Counsel that the learned District Judge also failed to consider the fact that the learned Arbitrator has committed irregularities in granting Rs.12,00,000/- which was the amount of performance guarantee. Since, the Respondent failed to complete the work despite of extension of time, therefore, this amount was rightly withheld by the Appellant/State. Further, learned District Judge also failed to consider the fact that the learned Arbitrator committed irregularities in awarding Rs.56,85,000/- towards the head anticipated loss on income. Since, the Respondent himself has not performed the entire contract and because of his fault, he could not get the profit on the award, therefore, loss of anticipated income cannot be awarded to the Respondent. Further, the amount of Rs. 13,43,753/- was also adjusted by the State as per the terms of the agreement but this fact has also not considered by the learned District Judge. It is further submitted by the Counsel that learned District Judge again failed to consider the fact that the learned Arbitrator has awarded rate of interest at very higher side which is not accordance with the terms of the contract and as per the Section 31(7)(B) of the AC Act. The learned Counsel lastly submitted that as the work alloted to the Respondent relates to construction of public road, therefore, it was the interest of the public but, this aspect has also not been considered by the learned District Judge while dealing with the issue.

Learned Counsel appearing for the Respondent supported the impugned order as well as arbitral award. It is submitted by the Counsel that learned District Judge in a very detailed manner after considering each and every aspect of the matter rejected the contentions of the State/Appellants. The leaned Court below has dealt with each and every point raised by the Appellants and passed a reasoned order. Further, a full fledged arbitration proceeding was drawn wherein facts of matter was placed, pleaded, witnesses were examined, cross examined by both the parties and the learned Arbitrator taking all the materials into consideration with due application of judicial mind passed the arbitral award. There was no perversity in the order passed by the learned Arbitrator which has been examined by the learned District Judge. Hence, the order passed by the learned District Judge requires no interference by this Court.

I have heard learned Counsel appearing for the parties and perused the entire material available on record.

It is well settled law that scope of interference by a Court while hearing and entertaining an application under Section 34 of the AC Act for setting aside the arbitral award is limited to specific grounds enumerated in Section 34 of the AC Act.

At this stage, it is necessary to analyse the scope of judicial interference in an arbitral award.

In the matter of Kwality Manufacturing Corporation v. Central Warehousing Corporation (2009) 5 SCC 142, the Supreme Court has held that the court considering the application for setting aside the arbitral award under the Arbitration Act, 1940, does not sit in appeal over the findings and decision of the arbitrator, nor can it reassess or reappreciate evidence or examine the sufficiency or otherwise of the evidence and succinctly observed as under: -

“10. At the outset, it should be noted that the scope of interference by courts in regard to arbitral awards is limited. A court considering an application under Section 30 or 33 of the Act, does not sit in appeal over the findings and decision of the arbitrator. Nor can it reassess or reappreciate evidence or examine the sufficiency or otherwise of the evidence. The award of the arbitrator is final and the only grounds on which it can be challenged are those mentioned in Sections 30 and 33 of the Act. Therefore, on the contentions urged, the only question that arose for consideration before the High Court was, whether there was any error apparent on the face of the award and whether the arbitrator misconducted himself or the proceedings.”

In the matter of Sumitomo Heavy Industries Limited v. Oil and Natural Gas Corporation Limited (2010) 11 SCC 296, it has been held by the Supreme Court that if the conclusion of the arbitrator is based on a possible view of the matter, the court is not expected to interfere with the award. It is observed by the Supreme Court in paragraphs 41 and 42 of Sumitomo Heavy Industries Limited (supra) as under: -

“41. The view canvassed on behalf of the respondent was that Clause 17.3 ought to be read narrowly like an indemnity clause or given a literal interpretation as in the case of an insurance policy. The umpire on the other hand has observed that this clause is couched in wide terms and it was commercially understandable and sensible, since it was designed to cover a wide and potentially unforeseeable spectrum viz. the likely impact of a possible change in Indian law in future. In the circumstances the approach adopted by the umpire being a plausible interpretation, is not open to interference. The Division Bench was clearly in error when it observed that the view of the umpire on Clause 17.3 is by no stretch of imagination a plausible or a possible view. Perhaps, it can be said to be a situation where two views are possible, out of which the umpire has legitimately taken one. As recently reiterated by this Court in SAIL v. Gupta Brother Steel Tubes Ltd., (2009) 10 SCC 63, if the conclusion of the arbitrator is based on a possible view of the matter, the court is not expected to interfere with the award. The High Court has erred in so interfering.

Can the findings and the award in the present case be described as perverse? This Court has already laid down as to which finding would be called perverse. It is a finding which is not only against the weight of evidence but altogether against the evidence. This Court has held in Triveni Rubber & Plastics v. CCE, 1994 Supp (3) SCC 665 : AIR 1994 SC 1341 that a perverse finding is one which is based on no evidence or one that no reasonable person would have arrived at. Unless it is found that some relevant evidence has not been considered or that certain inadmissible material has been taken into consideration the finding cannot be said to be perverse. The legal position in this behalf has been recently reiterated in Arulvelu v. State, (2009) 10 SCC 206 : (2010) 1 SCC (Cri) 288.”

In the matter of P.R. Shah, Shares and Stock Brokers Private Limited v. B.H.H. Securities Private Limited and others, (2012) 1 SCC 594, the Supreme Court has held that while considering application under Section 34 of the Arbitration and Conciliation Act, 1996, court cannot sit in appeal over award by reassessing or reappreciating evidence and observed as under: -

“21. A court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or reappreciating the evidence. An award can be challenged only under the grounds mentioned in Section 34(2) of the Act. The Arbitral Tribunal has examined the facts and held that both the second respondent and the appellant are liable. The case as put forward by the first respondent has been accepted. Even the minority view was that the second respondent was liable as claimed by the first respondent, but the appellant was not liable only on the ground that the arbitrators appointed by the Stock Exchange under Bye-law 248, in a claim against a non-member, had no jurisdiction to decide a claim against another member. The finding of the majority is that the appellant did the transaction in the name of second respondent and is therefore, liable along with the second respondent. Therefore, in the absence of any ground under Section 34(2) of the Act, it is not possible to re-examine the facts to find out whether a different decision can be arrived at.”

In the matter of Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49, the Supreme Court has held that merits of arbitral award can be assailed only when it is in conflict with public policy of India and the award can be set aside only on the grounds mentioned in Section 34(2) of the AC Act and not otherwise.

In the matter of Swan Gold Mining Limited v. Hindustan Copper Limited, (2015) 3 SCC 49, the Supreme Court has held that the court dealing with Section 34(2) of the AC Act cannot interfere with the finding of facts recorded by the arbitrator and cannot re-appreciate the evidence and observed as under: -

“11. Section 34 of the Arbitration and Conciliation Act, 1996 corresponds to Section 30 of the Arbitration Act, 1940 making a provision for setting aside the arbitral award. In terms of sub -section (2) of Section 34 of the Act, an arbitral award may be set aside only if one of the conditions specified therein is satisfied. The arbitrator’s decision is generally considered binding between the parties and therefore, the power of the court to set aside the award would be exercised only in cases where the court finds that the arbitral award is on the fact of it erroneous or patently illegal or in contravention of the provisions of the Act. It is a well-settled proposition that the court shall not ordinarily substitute its interpretation for that of the arbitrator. Similarly, when the parties have arrived at a concluded contract and acted on the basis of those terms and conditions of the contract then substituting new terms in the contract by the arbitrator or by the court would be erroneous or illegal.

It is equally well settled that the arbitrator appointed by the parties is the final judge of the facts. The finding of facts recorded by him cannot be interfered with on the ground that the terms of the contract were not correctly interpreted by him.”

In the matter of Centrotrade Minerals and Metal Inc. v. Hindustan Copper Limited, (2017) 2 SCC 228, a three-judges Bench of the Supreme Court has taken note of the earlier decisions and also followed the decision in Associate Builders (supra) with approval by holding as under: -

“45. In our country, the case law on the subject has recently been exhaustively discussed and stated in Associate Builders v. DDA, (2015) 3 SCC 49, and it is not necessary to revisit this. Briefly, it has been held that an award could be set aside if it is contrary to:

(a) fundamental policy of Indian law; or

(b) the interest of India; or

(c) justice or morality, or

(d) if it is patently illegal.”

Recently in the matter of Punjab State Civil Supplies Corporation Ltd and Anr vs. Ramesh Kumar and Company and Ors., AIR 2021 Supreme Court 5758, it is held by the Supreme Court in paragraph 11 as under:-

“11 While considering a petition under Section 34 of the 1996 Act, it is well-settled that the Court does not act as an appellate forum. The grounds on which interference with an arbitral award is contemplated are structured by the provisions of Section 34. The District Judge had correctly come to the conclusion that there was no warrant for interfere4nce with the arbitral award under Section 34. The High Court seems to have proceeded as if it was exercising jurisdiction in a regular first appeal from a decree in a civil suit. The jurisdiction in a first appeal arising out of a decree in a civil suit is distinct from the jurisdiction of the High Court under Section 37 of the 1996 Act arising from the disposal of a petition challenging an arbitral award under Section 34 of the 1996 Act.

The concepts of the above cited judgments rendered by the Hon'ble Supreme Court, it is clear that the Court shall not sit as Court of appeal over the findings of arbitral Tribunal, nor it can reassess or re-appreciate the evidence to substantive his view to that the arbitral Tribunal. It is also clear that the arbitral award could be set-aside only if it is contrary to fundamental policy of Indian Law, contrary to the interest of India or contrary to justice of morality or if it is patently illegal.

Reverting to the facts of the present case in the light of the above stated settled legal position, on examination of the facts of this case, it is clear that the full fledged arbitration proceeding was drawn where the facts of the matter was placed, pleaded, witnesses of both the sides were examined, cross-examined and the learned Arbitrator taking all the materials into consideration with due application of judicial mind, passed the arbitral award. On perusal of order of learned District Judge also shows that all the issues which have raised by the Appellants in this appeal have already been dealt by the learned District Judge and a detailed and well reasoned order has been passed by the learned District Judge which does not want any interference by this Court.

Accordingly, order dated 01.01.2016 passed by learned District Judge, Ambikapur, District Surguja (C.G.) passed in Miscellaneous Civil Case No.52/2014 is hereby affirmed and the appeal is liable to be and is hereby dismissed as no merits.