Union Of India vs M/s Allied Traders

Manoj K. Tiwari, J

This appeal from order has been filed under Section 37 of Arbitration and Conciliation Act, 1996 against the judgment and order dated 18.01.2010 passed by learned District Judge, Dehradun in Arbitration Case No. 1 of 2005, whereby appellant's objection under Section 34 of the Arbitration and Conciliation Act was rejected.

Appellant awarded a contract to the respondent (contractor) for construction of a Pump House Building, including allied works at NHO, Dehadun. As per the contract, construction work was to commence from 28.03.1996 and was to be completed within 11 months i.e. on or before 27.02.1997. There was some delay in handing over the construction site to the contractor and the site was ultimately handed over to the contractor after several months and, thereafter also, construction work had to be stopped for various reasons. Consequently, contractor was given extension from time to time. As per the last extension, he was required to complete the work by 30.08.1999. According to the contractor (respondent herein) the work was completed and handed over to the appellant on 30.08.1999.

Since dispute arose between the parties regarding payment for the work done by the contractor, therefore, the matter was referred for arbitration in terms of the contract executed between the parties.

Learned Arbitrator by his award dated 15.12.2014 allowed the claim made by the contractor under certain heads, while his claim under other heads was disallowed by the Arbitrator. The employer as well as the contractor challenged the award given by learned Arbitrator by filing separate applications under Section 34 of the Arbitration and Conciliation Act, 1996 mainly on the ground of misconduct by the Arbitrator. Employer's application under Section 34 of the Act was registered as Arbitration Petition No. 1 of 2005, while contractor's application under Section 34 of the Act was registered as Arbitration Case No. 156 of 2005.

Learned District Judge, Dehradun rejected both applications filed under Section 34 of the Act by a common judgment dated 18.01.2010. The contractor (respondent herein) has not challenged the said judgment and only the employer has approached this Court against the judgment passed by learned District Judge through this appeal filed under Section 37 of the Act.

The only ground raised in this Appeal is that learned Arbitrator has overlooked the condition contained in Clause 11(C) of the contract, while giving the award. Clause 11(C) of the contract executed between the parties is extracted below:

"11(C) No claim in respect of compensation or otherwise, howsoever arising, as a result of extensions granted under Conditions (A) and (B) above shall be admitted."

Award given by learned Arbitrator is on record as Annexure-3 to the affidavit filed in support of stay application. Learned Arbitrator has considered the import of Clause 11(C) of the contract in paragraph no. 42 of the award, which is extracted below:-

"42. I have already mentioned my decision on jurisdiction of claim listed in Appendix 'B'. I conducted further hearing to ascertain maintainability of the claim. Claimant while submitting statement of claim revised the claim amount to Rs. 10,06,328/- which has three components i.e. (i) loss of profit (Rs. 4,72,333/-) Addl. Off expenses (Rs. 4,72,333/-) and payment of additional escalation upto the extended period without freezing indices (Rs. 61,662/-). I have also discussed applicability of Condition 11 before arriving at a conclusion that no final and binding decision on claims for losses or damages on account of prolongation of contract for granting extension of time is catered for in the contract. With above background I record my following findings in subsequent paragraph before making award:

(1) The contract was supposed to be completed on 27.02.97. The work got actually completed on 30.08.99 resulting delay of 30 months. Quote a few evidences from respondent were filed chasing claimant for faster completion. UOI filed copies of a few letters from end of 96 till prior to issue of compensation notice dated 28 Feb 97 which are relevant to the context. In reply to those, claimant explicitly clarified the delay issue. Claimant in his reply mostly covered the aspect of urgency of quick decision for faster completion of his work. In his claim, claimant attributed total delay on the part of omission and commission of respondent and classified them under six board headings for the purpose of making claims and those are as under:

(a) Delay in handling over site as bore well work was under progress by a different contractor.

(b) Stoppage of work as development to tube well bore was under taken by a different agency.

(c) Delay in issue of CI pipes.

(d) Change in original specifications and delay in conveying decisions.

(e) Delay due to defects in the bore hole.

(f) Delay in granting extension of time.

(ii) I have examined all evidences filed as well as produced before me during hearing. I have noted that time extensions were given in installments. From above, I have come to a conclusion that reasons at (d) & (f) are other than those given in condition 11(A) and 11(B) of IAFW-2249. Therefore, respondent is to share responsibility for delayed completion of work for them which extension of time has been granted by them for reasons mentioned above. For remaining reasons, brought out by claimant, he stands compensated by way of time extension. While analyzing the delay period covered under reasons (d) & (f), I have arrived at a conclusion that work got prolonged for a net period of 12 months for acts and omission on the part of respondent. In arriving this net period due consideration has been attributed to over lapping of time period of individual reasons and its relevant consequences. UOI therefore cannot take shelter of condition 11 (C) for this prolongation of 12 months period. This 12 months period calls for payment of damages to the claimant by respondent because delay occurred due to default of respondent.

(iii) Claimant in his claim worked out compensation amount for loss of profit on percentage basis on the empirical formula quoting certain publication. Loss of profit being an indirect loss. I do not allow any compensation under section 73 of Indian Contract Act 1872 for this part of the claim. As far as his claim for additional escalation upto extended period without freezing indices, claimant himself filed copy an undertaking dated 20.12.2000 (as evidence) agreeing to the proposition. He now contradicts its contents and states that respondent under coercion has extracted the same. This allegation of claimant is not considered valid as claimant never came out openly against the undertaking on any occasion in last three years and slept over it. This justifies his voluntary submission of undertaking. The claimant has proffered his claim for loss due to additional overhead expenses. Similar logic of 10% of value of work considered in the empirical formula to work out claim amount without furnishing any proof. Use of empirical formula do not take ground realities into consideration therefore over assess the damages. Since no escalation has been allowed for the extension period of the contract, I, therefore, consider it necessary to allow him compensation due to site and head office over head. The nature of work since, concerning provisions of services, I do not anticipate many of contractor's T&P were locked up during this 12 months period. I have assessed the likely loss suffered by the contractor on this account on the basis of Rs. 6,000/- per month over this 12 months period."

A perusal of the award reveals that learned Arbitrator has held that employer (appellant herein) is equally responsible for the delay in completion of work. Learned Arbitrator has given reasons for holding that the appellant cannot take shelter behind Clause 11 (C) for the delay of 12 months caused due to lapses on his part and accordingly he awarded Rs. 72,000/- (Rs. 6,000/- per month) as damages for the delay in completion of work, which was attributable to the appellant.

Heard learned counsel for the parties and perused the record.

A perusal of the impugned judgment passed by learned District Judge indicates that the award was challenged on the ground of misconduct on the part of the Arbitrator.

Learned District Judge has rightly held that this ground is not available under Arbitration and Conciliation Act, 1996. Section 34 of the said Act enumerates the grounds, which are available for setting-aside award given by an Arbitrator. Misconduct by the Arbitrator is no more a ground of challenge to an arbitration award.

Leaned counsel for the appellant submits that the learned Arbitrator erred in allowing the claim made by the contractor without appreciating the real controversy involved in the matter. He further submits that the learned District Judge erred in rejecting the challenge thrown by the appellant by making application under Section 34 of the Act.

The submission made on behalf of the appellant is without any substance. Scope of interference with Arbitrator's award is very limited. The Court would not be justified in reappraising the material on record and substituting its own view in place of the view taken by Arbitrator. Once the Arbitrator has applied his mind to the matter before him, the Court cannot reappraise the matter as if it were an appeal and even if two views are possible, the view taken by the Arbitrator would prevail as held by Hon'ble Supreme Court in the case of Navodaya Mass Entertainments Ltd. v. J.M. Combines reported in (2015) 5 SCC 698.

Hon'ble Supreme Court in the case of Sutlej Construction Ltd. v. State (UT of Chandigarh) reported in (2018) 1 SCC 718 has held that when it comes to setting aside of an award under the public policy ground, it would mean that the award should shock the conscience of the court and would not include what the court thinks is unjust on the facts of the case seeking to substitute its view for that of the arbitrator to do what it considers to be "justice. Paragraph nos. 10 to 13 of the said judgment are extracted below:-

"10. We are not in agreement with the approach adopted by the learned Single Judge. The dispute in question had resulted in a reasoned award. It is not as if the arbitrator has not appreciated the evidence. The arbitrator has taken a plausible view and, an in our view, as per us the correct view, that the very nature of job to be performed would imply that there has to be an area for unloading and that too in the vicinity of 5 km as that is all that the appellant was to be paid for. The route was also determined. In such a situation to say that the respondent owed no obligation to make available the site cannot be accepted by any stretch of imagination. The unpreparedness of the respondent is also apparent from the fact that even post-termination it took couple of years for the work to be carried out, which was meant to be completed within 45 days. The ability of the appellant to comply with its obligations was interdependent on the respondent meeting its obligations in time to facilitate appropriate areas for unloading of the earth and for its compacting. At least it is certainly a plausible view.

It has been opined by this Court that when it comes to setting aside of an award under the public policy ground, it would mean that the award should shock the conscience of the Court and would not include what the Court thinks is unjust on the facts of the case seeking to substitute its view for that of the arbitrator to do what it considers to be "justice".

The approach adopted by the learned Additional District Judge, Chandigarh was, thus, correct in not getting into the act of reappreciating the evidence as the first appellate court from a trial court decree. An arbitrator is a chosen Judge by the parties and it is on limited parameters can the award be interfered with.

The learned Single Judge ought to have restrained himself from getting into the meanderings of evidence appreciation and acting like a second appellate court. In fact, even in second appeals, only questions of law are to be determined while the first appellate court is the final court on facts. In the present case, the learned Single Judge has, thus, acted in the first appeal against objections dismissed as if it was the first appellate court against a decree passed by the trial court."

The scope of interference with an arbitral award under Section 34 of the Act has been considered and discussed by Hon'ble Supreme Court in a recent judgment rendered in the case of MMTC Ltd. v. Vedanta Ltd. reported in (2019) 4 SCC 163. Paragraph nos. 11 to 14 of the said judgment are extracted below:

"11. As far as Section 34 is concerned, the position is well- settled by now that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited ground provided under Section 34(2)(b)(ii) i.e. if the award is against the public policy of India. As per the legal position clarified through decisions of this Court prior to the amendments to the 1996 Act in 2015, a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice or morality, and the existence of patent illegality in the arbitral award. Additionally, the concept of the "fundamental policy of Indian law" would cover compliance with statutes and judicial precedents, adopting a judicial approach, compliance with the principles of natural justice, and Wednesbury reasonableness. Furthermore, "patent illegality" itself has been held to mean contravention of the substantive law of India, contravention of the 1996 Act, and contravention of the terms of the contract.

It is only if one of these conditions is met that the Court may interfere with an arbitral award in terms of Section 34(2)(b)(ii), but such interference does not entail a review of the merits of the dispute, and is limited to situations where the findings of the arbitrator are arbitrary, capricious or perverse, or when the conscience of the Court is shocked, or when the illegality is not trivial but goes to the root of the matter. An arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts.

It is relevant to note that after the 2015 Amendment to Section 34, the above position stands somewhat modified. Pursuant to the insertion of Explanation 1 to Section 34(2), the scope of contravention of Indian public policy has been modified to the extent that it now means fraud or corruption in the making of the award, violation of Section 75 or Section 81 of the Act, contravention of the fundamental policy of Indian law, and conflict with the most basic notions of justice or morality. Additionally, sub-section (2-A) has been inserted in Section 34, which provides that in case of domestic arbitrations, violation of Indian public policy also includes patent illegality appearing on the face of the award. The proviso to the same states that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.

As far as interference with an order made under Section 34, as per Section 37, is concerned, it cannot be disputed that such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. In other words, the court cannot undertake an independent assessment of the merits of the award, and must only ascertain that the exercise of power by the court under Section 34 has not exceeded the scope of the provision. Thus, it is evident that in case an arbitral award has been confirmed by the court under Section 34 and by the court in an appeal under Section 37, this Court must be extremely cautious and slow to disturb such concurrent findings."

In the case of Maharashtra State Electricity Distribution Company Ltd. v. Datar C.C.L. Ltd. reported in (2018) 3 SCC 133 it has been held by Hon'ble Supreme Court that "the proposition of law that the Arbitral Tribunal is the master of evidence and the findings of fact which are arrived at by the arbitrators on the basis of evidence on record are not to be scrutinised as if the Court was sitting in appeal now stands settled by catena of judgments pronounced by this Court without any exception thereto."

In view of the aforesaid legal position, learned District Judge was justified in holding that he cannot go into the question of reasonableness of the reasons given by Arbitrator. Learned District Judge has rightly held that an award given by the Arbitrator cannot be challenged on the ground of misconduct on the part of the Arbitrator.

For the forgoing reasons, this Court finds no reason to interfere with the impugned judgment given by learned District Judge, Dehradun.

Accordingly, the present Appeal from Order is dismissed. No order as to costs.