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Judgment
100 paragraphs · 2,531 wordsSatyen Vaidya, J
The appellants have filed the instant appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (for short “the Act”) assailing the judgment dated 07.11.2023 passed by learned Single Judge in Arbitration Case No. 105 of 2021, whereby the petition of the appellant under Section 34 of the Act has been dismissed.
Respondent (hereinafter referred to as “the Contractor”) was awarded work of improvement and widening of formation in KM 250/0 to 268/740 on Shimla Wangtoo Section. The scope of awarded work provided for widening of existing road to double lane and construction of retaining walls, breast walls and cross drainage. The award letter was issued on 20.09.1995. The total contract amount was Rs.1,24,23,659/- and the stipulated period for completion of work was two years. The work was started on 29.09.1995 and was completed on 31.03.2001.
The contractor raised certain dispute arising out of the contract and invoked arbitration clause. Accordingly, the Arbitrator was appointed.
The contractor raised following claims before the Arbitrator:-
Sr. No.
Description of Claims
Amount claimed.
1.
Claim No.1:- Payment due for the balance amount of escalation payable under Clause 10CC
Rs.27,90,580/-
2.
Claim No.2:-Payment on account of extra earth work beyond schedule of quantities and prescribed deviation limit as per Clause 12-A of the contract agreement.
Rs. 1,02,68,000/-
3.
Claim No.3:- Payment on account of unauthorised deductions made by the appellants from the final bill.
Rs.8,97, 647/-
4.
Claim No.4:- Payment of compensation on account of loss of profit.
Rs.69,74,000/-
5.
Claim No.5:- Interest pendent lite and post award
@24%
6.
Claim No.6:- Cost of arbitration
Nil.
The Arbitrator partially allowed the claims No.1, 2, 3, 5 and 6 in following terms.
Sr. No.
Description of Claims
Amount claimed.
1.
Claim No.1:- Payment due for the balance amount of escalation payable under Clause 10CC
Rs.10,32,900/-
2.
Claim No.2:-Payment on account of extra earth work beyond schedule of quantities and prescribed deviation limit as per Clause 12-A of the contract agreement.
Rs. 81,00,700/-
3.
Claim No.3:- Payment on account of unauthorised deductions made by the appellants from the final bill.
Rs.2,20,758/-
4.
Claim No.5:- Interest pendent lite and post award
@ 9.5% as pendent lite interest and 18% as interest after award.
5.
Claim No.6:- Cost of arbitration
Rs.1,00,000/-
As regards Claim No.4, the same was withdrawn by the contractor during the pendency of the arbitration proceedings.
The appellants preferred petition under Section 34 of the Act in this Court which was registered as Arbitration Case No. 105 of 2021 inter alia raising following objections:-
i) The award was illegal.
i) The award was against basic notion of law and fundamental policy of Indian law.
ii) The Arbitrator had illegally assumed jurisdiction to decide the claim of contractor under Clause 10CC of the contract agreement which was a non arbitrable issue.
iii) The claim No.2 was wrongly adjudicated in favour of the contractor without there being fulfillment of condition precedent i.e. the issuance of notice by the contractor to the Engineer-in-charge within the stipulated time as per Clause 12-A of the contract agreement.
iv) The grant of interest and costs to the contractor by the Arbitrator was also objected to on the ground that since the claims of the contractor were not maintainable, therefore, the question of payment of costs and interest did not arise.
v) The Arbitrator was also accused of having given undue, unreasonable and unwarranted benefits to the contractor without adoption of proper procedure and following the legal provisions.
The learned Single Judge vide impugned judgment has dismissed the Arbitration case No.105 of 2021 by holding that the view taken by the Arbitrator had the backing of the material on record and also was a possible view on detailed consideration of subject issues. Learned Single Judge also noted the restrictive jurisdiction vested in courts in deciding the petitions under Section 34 of the Act.
We have heard the learned counsel for the parties and have also gone through the entire record carefully.
Learned Additional Advocate General contended that the learned Single Judge had not gone into the question of jurisdiction of Arbitrator to decide the claim under Clause 10CC of the contract agreement and also had erred in not declaring the award vitiated being against public policy. He further submitted that the arbitral award was perverse.
In order to test the arguments raised on behalf of the appellants, we have gone through the records. The Arbitrator has returned his findings of facts after discussing the material available on record. He has recorded detailed reasons for arriving at a view favouring the contractor. In this view of the matter, no fault can be found with the impugned judgment, which has been rendered after taking into consideration the principles of law laid down in Dyna Technologies Private Limited vs. Crompton Greaves Limited, (2019)20 SCC 1, Parsa Kente Collieries Limited vs. Rajasthan Rajya Vidyut Utpadan Nigam Limited, (2019)7 SCC 236 and UHL Power Company Limited vs. State of Himachal Pradesh, (2022)4 SCC 116.
As regards the non arbitrability of claim under Clause 10CC of the contract agreement, the Arbitrator has recorded as under:-
“During the course of Third hearing on 28.12.2013 on this claim both the parties though failed to produce Engineer-in Chief letter dated 03.04.1995 but agreed that the agreement incorporates the said revised clause of 10CC. Thus, the applicability of the said clause is not in dispute. The respondent EE was directed to check the balance amount of the claim now payable to the claimant/contractor and intimate this Tribunal.”
The recording of above fact by the Arbitrator suggests that the appellants had not raised a specific ground as to the non arbitrability of claim under Clause 10CC of the contract agreement. What can be gathered is that the appellants had rather admitted the existence of revised clause 10CC in the contract agreement and further there was an admission as to the applicability of said clause inter se the parties. Thus, the appellant could not have raised the ground of non arbitrability of claim under clause 10Cc under Section 34 of the Act much less before this Court in appeal under Section 37 of the Act.
The other contention of the appellants that claim No.2 of the contractor was not maintainable, has rightly been rejected by the learned Single Judge. The Arbitrator has arrived at a specific finding of fact that the requisite communications under Clause 12-A of the contract agreement was served upon the Engineer Incharge of the work by the contractor. We do not find such finding of fact to be perverse more particularly keeping in view the fact that despite opportunity, the appellants had failed to prove contrary before the Arbitrator.
In order to succeed, the appellants were required to prove the existence of one or more of the grounds envisaged by Section 34 of the Act for setting aside the arbitral award. Section 34 of the Act reads as under:-
“34. Application for setting aside arbitral award.— (1) * * * * *
(2) An arbitral award may be set aside by the Court only if—
(a) * *********
(b) the Court finds that--
(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 award is in conflict with the public policy of India.
Explanation 1. --For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,--
(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2. --For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.
(2A) An arbitral award arising out of arbitrationsother than international commercialarbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.”
In Delhi Metro Rail Corporation Limited vs. Delhi Airport Metro Express Private Limited, (2024)6 SCC 357, the three Judges bench of Hon’ble Supreme Court has delineated the contours of powers of court under Section 34 of the Act as under:-
“34. The contours of the power of the competent court to set aside an award under Section 34 has been explored in several decisions of this Court. In addition to the grounds on which an arbitral award can be assailed laid down in Section 34(2), there is another ground for challenge against domestic awards, such as the award in the present case. Under Section 34(2-A) of the Arbitration Act, a domestic award may be set aside if the Court finds that it is vitiated by ‘patent illegality’ appearing on the face of the award.
In Associate Builders vs. Delhi Development Authority, (2015)3 SCC 49 a two-judge Bench of this Court held that although the interpretation of a contract is exclusively within the domain of the arbitrator, construction of a contract in a manner that no fair-minded or reasonable person would take, is impermissible. A patent illegality arises where the arbitrator adopts a view which is not a possible view. A view can be regarded as not even a possible view where no reasonable body of persons could possibly have taken it. This Court held with reference to Sections 28(1)(a) and 28(3), that the arbitrator must take into account the terms of the contract and the usages of trade applicable to the transaction. The decision or award should not be perverse or irrational. An award is rendered perverse or irrational where the findings are :
(i) based on no evidence;
(ii) based on irrelevant material; or
(iii) ignores vital evidence.
Patent illegality may also arise where the award is in breach of the provisions of the arbitration statute, as when for instance the award contains no reasons at all, so as to be described as unreasoned.
A fundamental breach of the principles of natural justice will result in a patent illegality, where for instance the arbitrator has let in evidence behind the back of a party. In the above decision, this Court in Associate Builders v. DDA observed:
“31. The third juristic principle is that a decision which is perverse or so irrational that no reasonable person would have arrived at the same is important and requires some degree of explanation. It is settled law that where:
(i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into account something irrelevant to the decision which it arrives at; or
(iii) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse.
* * * *
42.1.............42.2. (b) A contravention of the Arbitration Act itself would be regarded as a patent illegality — for example if an arbitrator gives no reasons for an award in contravention of Section 31(3) of the Act, such award will be liable to be set aside.”
In Ssangyong Engineering & Construction Co. Ltd. vs. NHAI, (2019)15 SCC 131, a two-judge bench of this Court endorsed the position in Associate Builders (supra), on the scope for interference with domestic awards, even after the 2015 Amendment:
“40. The change made in Section 28(3) by the Amendment Act really follows what is stated in paras 42.3 to 45 in Associate Builders, namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair -minded or reasonable person would; in short, that the arbitrator's view is not even a possible view to take. Also, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under Section 34(2-A).
… Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality.Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse.”
(emphasis supplied)
In essence, the ground of patent illegality is available for setting aside a domestic award, if the decision of the arbitrator is found to be perverse, or so irrational that no reasonable person would have arrived at it; or the construction of the contract is such that no fair or reasonable person would take; or, that the view of the arbitrator is not even a possible view.24 A ‘finding’ based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside under the head of ‘patent illegality’. An award without reasons would suffer from patent illegality. The arbitrator commits a patent illegality by deciding a matter not within his jurisdiction or violating a fundamental principle of natural justice.”
In our considered view, we do not find any of the ground set out in Section 34 of the Act to have been established by the appellants.
In Delhi Metro Rail Corporation Limited (supra), Hon’ble Supreme Court has observed on the power of the Appellant Court under Section 37 of the Act as under:-
“40. A judgment setting aside or refusing to set aside an arbitral award under Section 34 is appealable in the exercise of the jurisdiction of the court under Section 37 of the Arbitration Act. It has been clarified by this Court, in a line of precedent, that the jurisdiction under Section 37 of the Arbitration Act is akin to the jurisdiction of the Court under Section 34 and restricted to the same grounds of challenge as Section 34”
In Bombay Slum Redevelopment Corporation Private Limited vs. Samir Narain Bhojwani, (2024)7 SCC 218, the powers of Appellate Court under Section 37 of the Act have been held to be narrower than the powers of Courts under Section 34 of the Act.
Keeping in view the factual aspect of the case and also the exposition of law as noticed above, we do not find any reason to interfere with the impugned judgment dated 07.11.2023 passed by the learned Single Judge in Arbitration Case No.105 of 2021 and the same is affirmed. Accordingly, the instant appeal is dismissed with no order as to the costs.
Pending applications, if any, also stand disposed of.