Tarapore & Company v. M/s National Thermal Power Corporation Ltd.

14. Initially, Mr. Shankarlingam, who was then serving as General Manager was appointed as the Arbitrator. Subsequently, after his elevation as a Chairman and Managing Director of NTPC, he appointed Mr. Deshpande, also a General Manager, as the substituted Arbitrator. Mr. Deshpande passed the impugned Award dated 14.03.2008 awarding Claim Nos. 1, 2, 3 and 4 in favour of Tarapore and Counter Claim Nos.1, 2, 5 and 7 in favour of NTPC and thus, hereby awarded NTPC an amount of Rs. 2,55,21,532.85/- and thereafter adjusted an amount of Rs. 11,73,292/- awarded in the favour of Tarapore. Thus, the net amount payable to NTPC by Tarapore totalled to Rs. 2,43,48,240.85/-. Aggrieved by the Award, both the parties have challenged the said Award. NTPC filed a petition under Section 34 of the 1996 Act whereas, Tarapore file objections under Section 33 of the 1940 Act.

SUBMISSIONS ON BEHALF OF PARTIES Preliminary objections: a. Application of 1940 Act versus application of the 1996 Act

15. Ms. Priya Kumar, learned senior counsel for Tarapore, at the outset, challenges the maintainability of the present proceedings filed by the NTPC under the 1996 Act, submitting that the arbitration was invoked in 1990 and is therefore, should be governed by the 1940 Act. Further, the parties consistently proceeded under the 1940 Act, including filing proceedings under Section 20 of the 1940 Act for appointment of the Arbitrator and for revocation of the Arbitrator‟s authority, and never agreed to be governed by the 1996 Act. Despite specific objections, the present/substituteArbitrator assumed jurisdiction under the 1996 Act and rendered the Award under the 1996 Act itself. Such unilateral application of the 1996 Act to proceedings governed by the 1940 Act vitiates the Award and renders it liable to be set aside on this ground alone.

16. Opposing the same, Ms. Kanika Agnihotri, learned counsel for NTPC, objects to the maintainability of Tarapore‟s objections under Section 33 of the 1940 Act and submits that Clause No. 56 of the GCC being the Arbitration Clause expressly applies the 1940 Act or “any statutory modification or re-enactment thereof”, thereby making the intention of parties manifestly clear to be governed by the law in force at the time of the proceedings, i.e. the 1996 Act. She further submits that the disputes were referred to arbitration by order dated 07.10.1996, by which the 1996 Act had already come into force. Further and most importantly, Tarapore itself, by letter dated 04.02.1999 and subsequent correspondence, requested the Arbitrator that the proceedings be conducted under the 1996 Act. Having consented to and participated in the proceedings under the 1996 Act, Tarapore cannot now turn around and invoke the 1940 Act. b. Appointment of Arbitrator, i.e. the respondent No. 3 in CS (OS) is contrary to the provisions of the 1996 Act

17. Further, learned senior counsel for Tarapore raises another preliminary issue and submits that the appointment of the Arbitrator is contrary to the provisions of the 1996 Act. The appointment of Mr. T. Shankarlingam as Sole Arbitrator was fundamentally flawed and gave rise to a serious apprehension of bias. Though his appointment dated 04.12.1996 was earlier challenged on the ground that he was the General Manager of the very project in dispute, and this Court, while declining to interfere vide order dated 12.08.1998, did so only on the premise and presumption that he would act independently and fairly. However, contrary to NTPC‟s representation that he was no longer in charge of the project and that the proceedings would be conducted in Delhi, Mr. Shankarlingam fixed the first hearing at Farakka without consent or prior intimation to Tarapore. The conduct of a serving NTPC officer, who had dealt with the project and contract in question, was inconsistent with the requirement of impartiality and equal treatment under the 1996 Act. Once his conduct gave rise to a reasonable apprehension of bias, not only continuation of his mandate but also any subsequent appointment made by him stood vitiated.

18. Learned counsel for NTPC submits that the allegations of bias against Mr. T. Shankarlingam, the respondent No. 2 in C.S. (OS) NO. 1499/2008, does not have any basis. Mr. T. Shankarlingam, the original Arbitrator and Mr. G.J. Deshpande, the respondent No. 3 in C.S. (OS) No. 1499/2008 and also the subsequent Arbitrator, acted fairly, independently andwith complete impartiality throughout the proceedings. In fact, in the meeting dated 23.03.2002, Mr. Deshpande expressly offered, subject to consent of the parties, to commence the proceedings de novo, which itself demonstrates the fairness and transparency adopted in the arbitral process.

19. Moreover, the respondent No. 2, though posted as General Manager, Farakka, had no role in the execution of the balance work or in raising Counter Claims, which had in fact been initiated much earlier and was revised by the competent authority. This Court, in OMP No. 158/1997, had already rejected Tarapore‟s apprehension that the respondent No. 2 had raised the Counter Claims or had become a judge in his own cause. In any event, the final Award was not passed by the respondent No. 2, rather by the substituted Arbitrator, i.e. the respondent No. 3. Objections on merits:

20. Learned senior counsel for Tarapore vociferously opposes the Award to the extent of disallowing and partly allowing Claim Nos. 1(i), 2, 4, 5, 6, 7, 9 and 10 and allowing Counter Claim Nos. 1, 2, 5 and 7.She states that the entire Award is devoid of any reasoning and primarily predicated on the findings on the preliminary issues. Even the findings on preliminary issues are devoid of any reasons and does not even deal with contentions of Tarapore.

21. On the other hand, learned counsel for NTPC, vehemently opposes the challenge of Tarapore and further challenges the Award to the extent of allowing of Claim Nos. 1 (ii), 2, 3 and 4 and rejection of Counter Claim Nos. 2, 3, 4, 6 and 8. Claim No. 1: Payment under 10th and 12th R.A. Bill Challenged by both Tarapore and NTPC

22. Learned senior counsel for Tarapore states that the Arbitrator has fallen into manifest error both on facts and in law inasmuch as certain pleas raised by the NTPC have been accepted as correct without perusing any evidence on record. He has failed to appreciate that such measurements were duly and jointly signed by the parties and that the final quantification of the work executed was never in dispute. Since the statements were jointly signed, the Arbitrator was duty bound to accept the Claim in its entirety rather than unjustifiably reducing the same by permitting disputed recoveries.

23. She further contends that the Arbitrator has committed an error in recording a finding that delays were occasioned due to outside factors. He conveniently ignored the fact that NTPC was under a clear obligation to ensure conducive and workable site conditions to facilitate timely execution of the work, and the failure to do so resulted in murder of two engineers of Tarapore. The violation of ensuring conducive and workable site ought to have enured to the benefit of Tarapore. Moreover, the Arbitrator has erred in law in accepting vague and general denials advanced by the NTPC, contrary to the settled principles that such general denials are liable to be treated as admissions.

24. While opposing the submissions of learned senior counsel for Tarapore, learned counsel for NTPC submits that the challenge to Claim No. 1, pertaining to payments under 10th R.A Bill, is wholly misconceived. The gross amount of the 10th R.A. Bill being Rs. 11,82,064.10 was jointly signed and duly accepted by both parties. Out of the said amount, Rs. 8,77,250.10 was released as an advance to Tarapore. The balance amount stood validly adjusted towards the following: a. Security deposit @ 5%: Rs. 59,103.00/b. Mobilisation advance @ 5%: Rs. 59,103.00/c. Secured advance: Rs. 1,71,210.00/d. Income Tax @2.16% on the balance amount: Rs. 1,609.00/e. Interest on mobilisation advance from 21.06.89 to 10.07.89 on Rs. 2,30,090: Rs. 13,789.00/-

25. Tarapore was duly informed by the NTPCvide letter dated 08.08.1989 that no amount remained payable against the 10th and 11th R.A. Bills

26. While challenging the Award with respect to Claim No. 1(ii), which pertains to the 12th R.A. Bill for Rs. 14,68,454/-, the learned counsel for NTPC states that Tarapore failed to send any representative for joint measurement despite repeated requests, including letter dated 03.07.1989. It was only pursuant to the order dated 30.11.1990 of the High Court that joint measurement was conducted. Upon such measurement, the gross value of the Bill came to be Rs. 7,68,933.10/and, after recovering security deposit of 5% i.e. Rs. 38,446.65, income tax of 2.16% i.e. Rs. 16,608/- and cost of 2.27 MT cement i.e. Rs. 6,356 the net amount payable under the 12th R.A. Bill was computed to be Rs. 7,07,521.50. However, the Arbitrator failed to consider that only a sum of Rs. 4,80,543/- is payable after deducting a sum of Rs. 2,26,798.00 which had already been released to Tarapore as on account payment towards price adjustment amount, which should not have been payable in terms of Clause No. 53.[7] of the GCC, as it clearly bars price adjustment where delay was attributable to the contractor, in this case Tarapore. The Arbitrator has himself held that Tarapore is responsible for delay and for abandoning the work. In view thereof, the award to the extent of Rs. 2,26,798.00 is ex facie contrary to the contractual provisions and is liable to be set aside. Claim No. 2: Escalation under the Contract

27. With respect to Claim No. 2 relating to escalation under the Contract where the Arbitrator awarded an amount of Rs.3,29,585/-, learned senior counsel for Tarapore submits that the Arbitrator has acted in an arbitrary manner in awarding of 50% of the escalation Claim as the Arbitrator himself has categorically held that the delay in execution of the works was justified and occasioned by factors beyond the control of the parties. There was no legal or contractual basis to restrict the escalation Claim to 50%, rather the entire escalation Claim ought to have been allowed. The finding of the Arbitrator that third party interference causing delays fell outside the scope of the contract could not have been a ground to divide the burden of escalation equally between the parties. The failure of NTPC to ensure safety and prevent disruptions, directly contributed to the delays. Furthermore, NTPC itself had accepted and paid escalation in full, which renders rationale of allowing the Claim of escalation only to the extent of 50%, arbitrary. Thus,the Award, to this extent, suffers from patent illegality and arbitrariness.

28. Learned counsel for NTPC, in this regard submits that Tarapore‟s Claim for escalation of Rs. 6,59,170/- is contrary to the express terms of the Contract. Although provisions for price adjustment exist in the said contract being Clause No. 8.1.0 of LOA and Clause No. 7.0.0 of the SCC read with Clause No. 53 of GCC, but the same has to be read with Clause No. 53.[7] of the GCC which clearly bars such price escalation where delay is attributable to the contractor, in this case Tarapore. Tarapore failed to adhere to the stipulated schedule by commencing work belatedly on 06.05.1988 and also did not execute it as per the work schedule. Hence, no escalation was payable. The Arbitrator, despite noting the delay, erroneously awarded 50% of the Claim on an equitable and hypothetical basis by attributing delay to third parties. The same is dehors the Contract. Claim No. 3: Miscellaneous Works Challenged by NTPC

29. NTPC opposes the finding on Tarapore‟s Claim for Rs. 28,550/- and Rs. 8,250/- towards miscellaneous works. It is stated that the same is not covered within the scope of executing the construction of the Ash Bund. The said works were required to be executed by Tarapore for having temporary access to the site, which squarely falls within the obligations of the contractor, i.e. Tarapore, under Clause No. 17.[1] of the GCC. The Arbitrator, in allowing the said Claim, has failed to appreciate the clear import of Clause No. 17.[1] and has erroneously awarded amounts contrary to the interpretation of the terms of the Contract. He has further failed to appreciate that there is no provision in the Contract providing for such payment by NTPC. The Award to the extent of Claim No. 2 thus, travels beyond the contractual provisions, including Clause No. 47(a) and (b) of the GCC, and is liable to be set aside.

30. Learned senior counsel for Tarapore, opposes the said challenge and submits that the challenge raised by NTPC to the Award allowing Rs. 36,800/- towards miscellaneous works is wholly untenable. Once the work is executed, NTPC cannot evade payment on a technical plea of scope of the Contract, particularly when the works were carried out in connection with and for the benefit of the project. The objection of NTPC being based on the fact that the Arbitrator has travelled outside the scope of the terms of the GCC, is an unjust attempt to deny legitimate dues for work admittedly performed. Therefore, NTPC cannot be permitted to take advantage of its own breaches, which hindered the proper execution of corresponding obligations. The conduct of NTPC in resisting payment, despite deriving benefit from the work done by Tarapore, is inequitable. Claim No. 4: Diesel Generating Set Charges

31. With regards to Claim No. 4, Ms. Kumar, learned senior counsel, states that the Arbitrator has acted arbitrarily in restricting the Claim to 50% despite recording a clear finding that Tarapore was entitled to free supply of electricity/power and that NTPC had failed to discharge this obligation, necessitating deployment of diesel generating10 sets at site. The detailed expenditure incurred in this regard was duly placed on record but still was wholly disregarded without any justification. Further, the Arbitrator arbitrarily presumed that a portion of the electricity was utilized for residential purposes of the labour, in the absence of any evidence led by NTPC in that regard. Such an assumption was beyond the scope of the evidence placed on record. Thus, Award to the extent of Claim No. 4 is liable to be set side.

32. Learned counsel for NTPC states that the Award of 50% of the Claim amounting to Rs. 1,99,131/- towards DG set charges is extraneous to the Contract. As per Clause No. 5.0.0 of the SCC read with Clause NO. 48 of the GCC, Tarapore was permitted reimbursement of power generated strictly for construction purposes at State Electricity Board11 tariff rates. Tarapore, however, utilized the generated power for residential accommodation of its staff, which was expressly excluded from the Contract and chargeable at applicable SEB rates. Despite specific directions issued by NTPC vide letter dated 27.01.1989 to segregate lines and install meters for proper assessment, Tarapore failed to comply. Moreover, the DG set deployed was excessive, and Claims based on its running or idling were unjustified. Tarapore cannot seek reimbursement beyond actual and permissible contractual usage. Thus, Tarapore is not entitled to any amount under this head. Claim No. 5: Idling charges of resources Challenged by Tarapore “DG” hereinafter. “SEB” hereinafter.

33. Learned senior counsel for Tarapore submits that the rejection of Claim No. 5, pertaining to idling charges of plant, machinery and equipment, is liable to be set aside. While the Arbitrator accepted that delays had been caused because of which Tarapore could not complete the work on time, however, he erroneously denied the Claim on the ground that the delays were caused by external factors and that there was no contractual provision entitling Tarapore to idling charges. The Award is liable to be set aside with respect to this Claim as the aforesaid reflects a complete misappreciation of the law of damages, inasmuch as the absence of an express enabling clause does not bar a legitimate claim for damages unless specifically prohibited by the contract. Further, the Arbitrator failed to consider the evidence on record regarding the costs incurred, summarily rejected a substantial Claim without proper reasoning, and ignored material relevant to establishing delay attributable to NTPC.

34. Disputing the same, the stance of NTPC is such that Claim of Tarapore seeking an amount of Rs. 2,72,36,000/- towards alleged idling of plant, machinery and equipment is wholly untenable and has been rightly rejected by the Arbitrator. The Claim is de hors the Contract as there is no provision for computation or payment of idling charges. In the absence of any term in the Contract, NTPC cannot be held liable to pay such charges. The alleged delay is attributable to external factors such as law and order disturbances and heavy monsoon, which were beyond the control of NTPC. Tarapore cannot seek to shift the burden of such eventualities upon NTPC.

35. It is further submitted that Tarapore was itself grossly deficient in performance, having executed only about 19% of the work over a substantial period of 16½ months out of the stipulated 22 months. Tarapore abandoned the site during monsoon in 1988 and resumed only in January 1989, despite the monsoon having subsided much earlier by the middle of August. Notably, no responsible officer was posted at site during this period. The computation of alleged idling charges is, therefore, baseless. Even otherwise, NTPC extended all reasonable assistance and cannot be held liable for circumstances beyond its control. In these circumstances, the Claim has been rightly rejected. Claim No. 6: Losses on account of removal of components from machinery and equipment

36. Challenging the findings on the said Claim, learned senior counsel for Tarapore also contends that the Arbitrator has erroneously rejected Claim No. 6 on the ground that it is outside the scope of Contract. He ignored the fact that it was due to NTPC‟s fault that Tarapore had to abandon its work and leave behind the equipment. For compensation on such a Claim there is no requirement of a positive clause in the contract in this regard.

37. It is submitted by the learned counsel for the NTPC that the contention of learned senior counsel for Tarapore in respect of Claim No. 6, seeking Rs. 15,33,375/- towards alleged losses arising from removal of components of machinery and equipment, is wholly misconceived and liable to be rejected. It is an admitted position that the machinery and equipment were neither in the custody nor within the premises of NTPC, but were retained by the Tarapore in its own camp office, occupied as a licensee. The said equipment remained under the exclusive control, custody and security of Tarapore. No liability can be attributed to it for the alleged removal of components or damage to the equipment. NTPC had no role whatsoever in the upkeep, maintenance or security of the Tarapore‟s machinery. Claim No. 7: Loss of profit

38. It is stated by Tarapore that the Arbitrator has erred in law in rejecting the Claim No. 7 on the ground that it fell outside the scope of the Contract and on the erroneous premise that Tarapore had abandoned the work. The Arbitrator has failed to appreciate that loss of profit is a well-recognized legal entitlement, upheld by the Hon‟ble Supreme Court in catena of cases, and could not have been rejected as being beyond the scope of the Contract. Moreover, the conclusion regarding alleged abandonment is also erroneous as the material on record clearly demonstrates that performance was rendered impossible due to supervening circumstances, and therefore, the conclusion of abandonment does not arise.

39. It is submitted by NTPC that the contention of learned senior counsel for Tarapore in respect of the Claim for Rs. 52,16,179/- towards alleged loss of profit is also liable to be rejected. The Arbitrator has rightly disallowed the said Claim, as Tarapore had unilaterally abandoned the work. Tarapore has committed fundamental breaches of the Contract. A party in breach cannot be permitted to Claim loss of profit arising out of its own default. It is an admitted position that Tarapore executed merely about 19% of the work over 16½ months out of the stipulated 22 months, and thereafter abandoned the project without justification. Despite repeated requests and reminders, Tarapore failed to resume and complete the work. Claim No. 8: Damages

40. Ms. Kumar, learned senior counsel further states that the Arbitrator has erred in law in rejecting Claim No. 8 pertaining to losses on account of idle labour/excess wages and idle establishment, on the untenable ground that involvement of a third party absolves NTPC of its liability. Clause No. 13.[2] of the Contract expressly contemplates acts of third parties, and therefore, the conclusion of the Arbitrator is contrary to the terms of the Contract. Even otherwise, it is a well-settled principle that where a party fails to provide adequate facilities for execution of the work, it is liable for the consequences arising therefrom. In this regard, reliance is placed on the judgment of the Hon‟ble Supreme Court in K.N. Sathyapalan v. State of Kerala and Anr.12

41. NTPC rebuts the Claim for Rs. 71,39,262/- towards alleged damages stating that the Arbitrator has rightly disallowed the Claim, holding that no liability can be fastened upon NTPC. The Claim is de hors the Contract and is, in substance, merely an extension of Claim No.5. NTPC further specifically denies any obligation to ensure a peaceful or congenial working atmosphere at or around the site as being a public sector undertaking, NTPC cannot be held responsible for matters of law and order, which fall exclusively within the domain of the government authorities. The allegations regarding forced imposition of local labour are unfounded. Hence, the Claim is stated to be baseless.

42. With regards to Claim No. 9, Ms. Kumar, states that while deciding whether NTPC is entitled to retain the security deposit merely on the ground that Tarapore could not complete the work, the Arbitrator has failed to appreciate that completion of the work had become impossible for reasons beyond the control of Tarapore, as already demonstrated. In such circumstances, Tarapore could not have been penalized and was, in fact, entitled to appropriate compensation.

43. As per NTPC the Claim of Rs. 1,68,497/- towards refund of security deposit is wholly misconceived and liable to be rejected. The amount of Rs. 5 lakhs was released to Tarapore on submission of bank guarantee. In terms of Clause No. 9.[6] of the GCC, 50% of the security deposit is refundable only upon successful completion of the work, and the balance 50% upon expiry of the defects liability period or payment of the final Bill. Tarapore has admittedly failed to perform the contract and abandoned the work. The very purpose of the security deposit is to secure due performance, the same is liable to be forfeited in the event of non-performance. Claim No. 10: Interest on Claims

44. The Claim pertains to interest and has been challenged by Tarapore. The said challenge has been disputed by NTPC. Counter Claim No. 1: Unadjusted amount of balance mobilisation advance

45. Learned senior counsel for Tarapore, states that the conclusion of the Arbitrator with respect to allowing refund of the balance mobilisation advance and adjusting the same against the Claims of Tarapore is incorrect and illegal.

46. While opposing the said contention, it is submitted by the learned counsel for NTPC that the terms of Clause No. 6.0.0 of the LOA read with Clause No. 54 of the GCC, NTPC had disbursed a total sum of Rs.

26.30 lakhs to the Tarapore as mobilization advance against a Bank Guarantee, carrying interest @ 12% per annum. The said advance was contractually required to be recovered from R.A.Bills @ 5%. However, as Tarapore executed only about 19% of the work and thereafter abandoned the project. NTPC was deprived of the opportunity to fully recover the advance through running Bills. Only a sum of Rs. 5,92,088/- could be adjusted up to the 11th R.A. Bill, leaving a balance of Rs. 20,37,912/- outstanding, payable to NTPC. In these circumstances, NTPC was fully entitled to recover the said amount, and the Arbitrator has rightly allowed the recovery of Rs. 20,37,912/towards the unadjusted balance of mobilization advance. Counter Claim No. 2: Interest on mobilisation advance

47. The Counter Claim No. 2 pertains to interest on mobilisation advance. Learned senior counsel for Tarapore submits that since the Arbitrator has erred in allowing return of mobilisation advance in Counter Claim No. 1, the interest allowed thereon is also incorrect in law. The Arbitrator has applied different yardsticks in allowing the interest.

48. Learned counsel for NTPC submits that the Arbitrator has rightly awarded interest on the outstanding mobilization advance. As stated in Counter Claim No. 1, NTPC had advanced a sum of Rs. 26.30 lakhs to Tarapore, out of which a balance of Rs. 20,37,912/- remains unrecovered. In terms of the Contract, the said mobilization advance carried interest @ 12% per annum, and Tarapore is liable to pay interest on the outstanding amount from 11.07.1989 till payment. In these circumstances, the award of Rs. 44,34,049.85/- towards interest was fully justified. Counter Claim No. 3: Recovered, secured advance paid against materials amounting to Rs. 96,534/-

49. Ms. Agnihotri, learned counsel, further opposes the findings of the Arbitrator on Counter Claim No. 3 as he has erred in rejecting the Counter Claim for Rs. 96,534/- towards unrecovered secured advance paid against the material. A sum of Rs. 2,31,884/-, belonging to NTPC, remained blocked from 21.04.1989 to 06.08.1991 due to Tarapore‟s delays and laches, rendering the amount unproductive and unavailable. It was only from 06.08.1991 the material could be used by Murshidabad Zila Parishad. In these circumstances, NTPC should be entitled to interest for the period during which the amount remained blocked.

50. Learned senior counsel for Tarapore submits that Counter Claim No. 3 does not call for any interference. It is submitted that the materials purchased from the said advance were admittedly procured by Tarapore and remained at site when Tarapore was compelled to leave. NTPC, therefore, had the benefit and possession of the said materials, and no further recovery could lawfully be claimed. If the materials had been used by Tarapore in execution of the work, their value would have formed part of the running Bills, against which the secured advance would have stood adjusted. Thus, NTPC cannot be permitted to repeatedly compensate itself over the same alleged loss. Counter Claim No. 4: Licence Fee and electricity charges for accommodation of NTPC and FBP quarters

51. Learned counsel for NTPC also submits that the rejection of Counter Claim No. 4 for Rs. 42,767.75/- towards license fee and electricity charges is wholly erroneous. Clause No. 47 of the GCC only provided for free allotment of land for site-related purposes. Tarapore, however, sought and was allotted residential quarters in NTPC and Farakka Barrage Project townships for its staff, for which it was liable to pay license fee and electricity charges. Tarapore had, in fact, been regularly paying such charges earlier without any demur. There is no contractual provision for waiver of these charges. The Arbitrator, in rejecting the Counter Claim, has failed to appreciate the clear contractual position, rendering the impugned finding liable to be set aside.

52. Learned senior counsel for Tarapore submits that the Counter Claim pertains to alleged license fee and electricity charges for accommodation provided to Tarapore‟s staff. Under the Contract, it was NTPC‟s obligation to provide the requisite site area and necessary facilities for labour and staff accommodation in connection with execution of the work. Further, Farakka Barrage Project Authorities were not parties to the arbitral proceedings, and any claim allegedly raised by them could not be passed on to Tarapore in arbitration. Once provision of site and basic facilities formed part of NTPC‟s own obligations, no separate recovery on this account could be claimed from Tarapore. Accordingly, the rejection of Counter Claim No. 4 is justified and warrants no interference. Counter Claim No. 5: Cost of Balance work executed at the risk and cost of the Tarapore

53. Learned senior counsel for Tarapore submits that the Arbitrator erred in allowing the Counter Claim towards execution of the balance work at Tarapore‟s alleged risk and cost. Tarapore was compelled to abandon the site due to NTPC‟s failure to provide a safe and workable environment for its staff and labour, despite being aware of persistent law and order disturbances and external interference at site. Having failed to ensure workable conditions for execution, NTPC could not thereafter recover the alleged additional expenditure incurred in getting the balance work completed through someone else. The said Counter Claim is contrary to the contract, as the risk and cost clause could be invoked only upon valid termination/cancellation of the Contract, which never took place. Mere reference in the TOA dated 16.02.1988 for execution of work at Tarapore‟s risk and cost did not amount to termination of the Contract. In the absence of termination in terms of the Contract, the very foundation of the Counter Claim was lacking. Thus, the Award to this extent is liable to be set aside.

54. It is submitted on behalf of NTPC that the Arbitrator has erred in partially allowing the Counter Claim towards cost of balance work executed at the risk and cost of Tarapore. As per Clause EEE of the TOA dated 16.02.1988, NTPC was entitled to get the balance work executed through another agency at the risk and cost of Tarapore upon its failure to complete the work. Though the Arbitrator has rightly held Tarapore to be in default, he has incorrectly restricted the Award only to the differential value of the Contract awarded to Murshidabad Zila Parishad. The Arbitrator has failed to consider the total financial implication incurred by NTPC in completing the balance work, which amounted to Rs. 2,65,83,518/-. In terms of the Contract, the entire cost was recoverable from Tarapore. Counter Claim No. 6: Amount spent for raising existing ash dyke due to non-completion of stage-1 ash dyke

55. Although the Counter Claim No. 6 has been challenged by NTPC, no substantive arguments were advanced to substantiate the challenge. The same does not warrant independent consideration. Counter Claim No. 7: Liquidated Damages

56. It is submitted on behalf of Tarapore that the Arbitrator has erred in law in allowing Counter Claim No. 7 towards liquidated damages. The said finding is inconsistent with other findings, particularly in the absence of any termination of the contract or prior notice for imposition of such damages. There was neither delay nor default attributable to the Tarapore so as to justify levy of liquidated damages. The Arbitrator has also failed to consider that the Counter Claim was ex facie barred by limitation. In terms of Section 3 of the Limitation Act, 1963 it was incumbent upon the Arbitrator to independently satisfy himself that the Counter Claim was within limitation; the burden could not have been shifted upon Tarapore. Mere existence of a clause in the GCC does not ipso facto justify imposition of liquidated damages. In any event, liquidated damages operate as a cap on liability, and the simultaneous award of both liquidated damages and risk and cost for the same cause of action is impermissible in law. Thus, it is liable to be set aside.

57. Opposing the challenge to Counter Claim No. 7, learned counsel for NTPC states that the Arbitrator has rightly awarded a sum of Rs. 32,88,304/- towards liquidated damages, in terms of Clause No. 9.0.0 of the LOA. The Contract stipulated that the work was to be completed within 22 months from the date of intimation of grant of work, failing which Tarapore would be liable to pay liquidated damages at ½% per week of the contract value for the period of delay. Tarapore failed to complete the work and abandoned approximately 81% of the project, thereby causing substantial delay and breach of contractual obligations. Therefore, the findings on said Counter Claim does not warrant any interference. Counter Claim No. 8: Interest

58. It is submitted on behalf of NTPC that the Arbitrator has erred in not awarding interest on the amounts found due to NTPC. It is well settled that an Arbitrator is competent to award interest for the pre-reference, pendente lite, and post award periods. In the present case, a sum of Rs. 2,55,21,532.85 has been awarded in favour of NTPC and hence, interest at 18% per annum ought to have been granted from the date the amounts became due till the date of actual payment.

59. Rebutting the same learned counsel for Tarapore submits that no amount was payable to NTPC in the first place, consequently, no question of payment of interest could arise. Since nothing was payable to NTPC, the Counter Claim for interest was wholly untenable.

ANALYSIS AND FINDINGS

60. I have heard the learned counsel for the parties.

61. Before delving into the merits and contentions raised by the parties of the present case it is pertinent to decide the applicability of the 1996 Act vis-à-vis the 1940 Act. Applicability of the 1996 Act versus the applicability of the 1940 Act

62. The learned counsel for Tarapore argued in the favour of applicability of the 1940 Act whereas learned counsel for NTPC argued in the favour of the applicability of the 1996 Act. However, during the course of arguments, learned counsel for Tarapore fairly conceded to the applicability of the 1996 Act.

63. In the view of the aforesaid, the objections filed under Section 33 of the 1940 Act shall be treated as objections against the Award under Section 34 of the 1996 Act. Scope of Section 34 under the 1996 Act

64. Since the parties have agreed to the applicability of the 1996 Act, it is apposite to highlight the scope of Section 34 of the 1996 Act as it stood prior to 2015 amendment to the 1996 Act.

65. The Court can only set aside an Arbitral Award on the grounds mentioned in Section 34 of the 1996 Act and not otherwise. The scope of interference under Section 34 of the 1996 Act is very limited and the Court does not sit as a Court of appeal while adjudicating the objections against the Award. The Hon‟ble Supreme Court in Associate Builders v. DDA13,summarised the scope of Section 34 of the 1996 Act, as it stood prior to 2015 Amendment as under: ―19. When it came to construing the expression ―the public policy of India‖ contained in Section 34(2)(b)(ii) of the Arbitration Act, 1996, this Court in ONGC Ltd. v. Saw Pipes Ltd. [(2003) 5 SCC 705: AIR 2003 SC 2629] held: (SCC pp. 727-28 & 744-45, paras 31 & 74) ―31. Therefore, in our view, the phrase ‗public policy of India‘ used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term ‗public policy‘ in Renusagar case [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] it is required to be held that the award could be set aside if it is patently illegal. The result would be—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) in addition, if it is patently illegal.

Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. Such award is opposed to public policy and is required to be adjudged void... xxxx Fundamental Policy of Indian Law

27. Coming to each of the heads contained in Saw Pipes [(2003) 5 SCC 705: AIR 2003 SC 2629] judgment, we will first deal with the head ―fundamental policy of Indian law‖. It has already been seen from Renusagar [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] judgment that violation of the Foreign Exchange Act and disregarding orders of superior courts in India would be regarded as being contrary to the fundamental policy of Indian law. To this it could be added that the binding effect of the judgment of a superior court being disregarded would be equally violative of the fundamental policy of Indian law. xxxx

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.‖

66. With this scope in mind, I shall now deal with rival contentions with respect to preliminary objections, Claims and Counter Claims. Plea of Bias against the Arbitrator

67. At the outset, I am of the considered view that the Award stands vitiated by the vice of bias. A detailed analysis which follows, shows that the initial Arbitrator, Mr. T. Shankarlingam, was a serving General Manager of NTPC and the substituted Arbitrator, Mr. Deshpande, who passed the Award was likewise a serving employee of NTPC, having been appointed by the previous Arbitrator, Mr. Shankarlingam upon his promotion to the position of Chairman and Managing Director. The very fact that the appointment of the subsequent Arbitrator was made by an interested official of NTPC, gives rise to reasonable apprehension regarding lack of independence and impartiality in the arbitral process. The doubt further deepens as the impartiality of the previous Arbitrator was already called into question twice by Tarapore at different stages of the Arbitral Proceedings. There is already an existing finding of this Court in the first challenge to the impartiality of the Mr. T. Shankarlingam, the Court has proceeded forward with the presumption that the Arbitrator being the senior employee of NTPC would act independently and free from bias. The order dated 12.08.1998 passed by this Court reads as under: ―12.8.1998 Present: Mr. Jagdip Kishore for the Petitioner. Mr. R.K. Joshi for respondent No. 1 O.M.P. No. 158/96 & I.A. No. 12886/96 …. I have heard Mr. Jagdip Kishore, counsel appearing for the petitioner as also Mr. R.K. Joshi, counsel for respondent No.1. The arbitration agreement is also on record which states that disputes arising between the parties are to be referred to the sole arbitration of the GeneralManager of National Thermal Power Corporation Ltd., and if the General Manager is unable or unwilling to act, the same shall be referred to the sole arbitration of some other person appointed by the Chairman and Managing Director, National Thermal Power Corporation Ltd. willing to act as such arbitrator. Effect to the aforesaid arbitration agreement was given under order dated 7.10.1996 of this Court, However. while giving effect to the aforesaid arbitration clause, this Court made it clear that the General Manager who was in-charge of the project question the relevant time might not be appointed as the arbitrator in the present case in order to do justice to the parties and in order to root out element of bias on the part of the arbitrator. It was also mentioned in the said order that the General Manager so appointed as the arbitrator may be preferably a person who is working at the Regional/Head Office at Delhi. I have considered the tenor of the aforesaid order and I find that the restriction put in the otherwise discretionary power of the Chairman and the Managing Director of National Thermal Power Corporation Ltd., was to the extent that the General Manager who was in-charge of the project in question at the relevant time should not be appointed as the arbitrator. The Court also expressed a desire that while making such appointment, the appointing authority may consider appointing a General Manager, if possible, from the Regional/Head Office at Delhi. It has been categorically stated by the counsel appearing for the respondents that the respondent No.2 was not in-charge of the project in question at relevant time nor he had any occasion to deal with the disputes referred to him for arbitration at that point of time earlier to the present reference. Counsel appearing for the respondents states that the respondent No.2 although at the time of his appointment was working as the General Manager of Farakka Super Thermal Power Station, but, has since been promoted as the Executive Director (Engineering Services) and at present is posted as such at the EOC Complex, Noida. It is also submitted that the counter claim of the respondent was revised under the charge of the respondent No.2. However, it is stated by the respondent No.1 in its affidavit that the claim was revised by and at the instance of the Chief Construction Manager and that the respondent No.2 had nothing to do with the said revision. Thus, this apprehension and statement of the petitioner is also found to be without basis. The respondent No.2 is admittedly a very senior and responsible officer holding a very high position in the Corporation. No definite allegation of bias except for making very vaguestatement has been made in the petition by the petitioner. I have no doubt in my mind that senior and responsible officer like the respondent No.2 would be always free from any biasness and would definitely act as an independent quasi-judicial authority in deciding the proceedings pending before him. In that view of the matter, I do not find any merit in this petition and the same stands dismissed with the aforesaid observations. The interim order passed on 2.1.1997 stands vacated. The arbitrator shall proceed with the arbitration proceedings immediately after giving notice of the parties. As stated by the counsel for the parties, time for making of the award by the arbitrator stands extended by one year from the date of receipt of a copy of this order.‖

68. This Court deems it appropriate to independently examine the impartiality of the Arbitrator on the basis of contentions advanced by the parties. Tarapore, upon noticing that numerous instances of bias on behalf of Arbitrator, wrote a representation dated 05.03.2002 to the respondent No. 2, i.e. the previous Arbitrator, highlighting the instances of such bias and misconduct during proceedings. Before the said representation, the learned counsel of Tarapore also wrote letters dated 28.02.2002 and 01.03.2002to the Arbitrator mentioning that the dates for the hearing are not being fixed mutually by the Arbitrator and are also being cancelled at his pleasure. Further, the misconduct of Arbitrator to the colleague of the learned counsel for Tarapore was also highlighted in the letter dated 01.03.2002.

69. NTPC was granted time to file a reply to the representation dated 05.03.2002. Eventually, after a delay of 6 months, the reply to the said representation was filed by NTPC. Hearing on the said issue was conducted by the original Arbitrator but no minutes were recorded. Upon enquiring about the outcome of the representation Tarapore received a letter dated 12.12.2002 from the Arbitrator that the objections of Tarapore shall be considered at the time of publishing the Award. Meanwhile, Mr. T Shankarlingam, the original Arbitrator, got promoted to the position of Chairman and Managing Director and thus, appointed Mr. Deshpande as the subsequent Arbitrator.

70. Tarapore protested against the said appointment vide letter dated 18.10.2006 to respondent No. 2 and also wrote a letter dated 14.10.2006 to the subsequent Arbitrator pointing out that Tarapore would require 4 days travel time to reach Farakka and prayed for an alternate venue. Despite this the hearing were fixed at Farakka. Tarapore further, vide letter dated 18.12.2006 informed the subsequent Arbitrator that he had become functus officio and requested him not to procced with the Arbitration as a petition revoking his authority had been filed in this Court. Yet, the subsequent Arbitrator continued with the hearing and shifted the venue to Kolkata disregarding the fact that there had been a petition filed to revoke his authority. Furthermore, the Award was reserved and was passed on 14.03.2008 in the absence of Tarapore.

71. The facts enumerated above show that the apprehension of bias against the Arbitrator was not unfounded. Upon perusal of the facts and circumstances, the hierarchical relationship between the two Arbitrators, being Chairman and Managing Director and a senior officer of NTPC further strengthens the apprehension of bias which strikes at the very root of the arbitral process. Additionally, the order dated 07.10.1996 categoricallyobserved that the General Manager so appointed as the Arbitrator may preferably be a person who is working at the regional office/ head office at Delhi. The same was reiterated in the order of 12.08.1998. The said observations were primarily made for the reason that Delhi was a convenient and neutral venue for Tarapore. Despite the same the Arbitration proceedings were conducted at Farakka only with a view to cause inconvenience and obstacles in Tarapore pursing the Arbitration proceedings. As a result of holding the hearing in Farakka and later on shifting the venue to Kolkata, Tarapore could not participate in the last few proceedings. The said conduct is clearly contrary to the order of this court on 07.10.1996, reiterated on 12.08.1998.

72. In the view of the above factual instances, the Award is to be set aside on the ground of bias alone. Even though the award is likely to be set aside on this ground only, I am considering the claims on merits as well. Findings on Preliminary Issues is devoid of reasoning

73. A careful examination of the Award shows that the findings returned by the Arbitrator on the preliminary issues which pertain to the delay and abandonment of Work and alleged interference by local politicians and trade unions, forms the foundation for adjudication of the Claims and Counter Claims. In the Award at paragraph No. 23, the Arbitrator framed preliminary issues arising out of the arbitration proceedings as under:- ―23.

PRELIMNARY ISSUES ARISING OUT OF ARBITRATION PROCEEDINGS:- Whereas after perusing the entire Arbitration record including the claims and counter claims, written statements and rejoinder thereof submitted by the parties, the undersigned is of the view that to adjudge the claim and counter claim of the parties the following issues between the parties needs to be decided by the undersigned: a) Whether the reasons like alleged interference by the local politicians, trade unions leaders and deteriorating law and order situation in the region as highlighted by the claimant in their pleadings resulting in alleged delay in execution of work and alleged abandonment of contract by the claimant fall within the scope of contract, if yes to then what extent. b) Whether reason of the alleged unprecedented rains during the contract period resulting in alleged delay in execution of work and alleged abandonment of the contract by the claimant thereof fall within the scope of the contract, if yes then to what extent. c) Whether respondents had any obligation under the contract to provide safety and security to the claimant during execution of contract work and if yes to what extent. d) Whether allegedly such conditions were prevalent at around the site, which made it impossible for the claimant to continue the work and it made the claimant company to abandon the work and whether abandonment of contract due to such reasons is within the scope of contract, if yes to what extent.‖

74. However, after framing the aforesaid issues, from paragraph No. 24 onwards, the Arbitrator has verbatim reproduced terms of the Contract, letters written by the parties, averments made by the parties in statement of Claim, Counter Claim and Rejoinder and documents relied on by the parties for more than 30 pages. Thereafter, theArbitrator gave his findings on preliminary issues as under:- “38.

FINDINGS ON PRELIMINARY ISSUES:- The undersigned after carefully perusing the arbitration record is of the opinion that the occurrence of law & Order problem as mentioned in the above issues was never denied completely by the respondent company either during the performance of the contract or during arbitration proceedings, but only liability for the same is denied. Further no evidence is raised by either party on the issues of external problems, but prima facie it seems that claimant had indeed faced adverse site conditions, but I see no provision in the contract between the parties by which respondent company could be made liable to compensate any loss sustained by the contractor because of intervention of third parties. Further it is also clear from the record that respondent company had no control over these external factors although help was rendered by them to the claimant company to find a solution to such issues. The undersigned is of the opinion that it is not within the jurisdiction of the undersigned to absolve the claimants from the performance of their part of the contract as undertaken by them merely because its performance has become onerous on account of an unforeseen turn of events. Further from record it seems that though these law & order problems had initially caused delay in execution of contract by the claimant, but even when the situation seemed to have improved, claimant did not chose to perform their obligations under the contract rather abandoned the contract.

39. Whereas in view of the above findings, the basic issues are decided as follows:a) Whether the reasons like alleged interference by the local politicians, trade unions leaders and deteriorating law and order situation in the region as highlighted by the claimant in their pleadings resulting in alleged delay in execution of work and alleged abandonment of contract by the claimant fall within the scope of contract, if yes to then what extent. Finding: Such reasons do not fall within the scope of the contract and as such claimant could not be absolved from their obligations under the contract on such account. b) Whether reason of the alleged unprecedented rains during the contract period resulting in alleged delay in execution of work and alleged abandonment of the contract by the claimant thereof fall within the scope of the contract, if yes then to what extent. Finding: Such reasons do not fall within the scope of the contract and as such claimant could not be absolved from their obligations under the contract on such account. c) Whether respondents had any obligation under the contract to provide safety and security to the claimant during execution of contract work and if yes to what extent. Finding: Under the contract no-where any duty is cast upon the respondent to provide safety and security. d) Whether allegedly such conditions were prevalent at around the site, which made it impossible for the claimant to continue the work and it made the claimant company to abandon the work and whether abandonment of contract due to such reasons is within the scope of contract, if yes to what extent. Finding: From perusal of record, it is apparent that claimant indeed had faced adverse site conditions at the start of the contract, but on the strength of records available in absence of clear evidence, it is difficult to reach to the conclusion that it was impossible for them to continue the work, but it is clear that by the time Govt. had extended help, the claimant had abandoned the contract. So I had no difficulty in holding that claimant could not be absolved from their obligations under the contract on such account.”

75. A perusal of the above shows that the Arbitrator while adjudicating the preliminary issues has failed to undertake the exercise of appreciating the documents, analysing the submissions made by the parties. The Award to the extent of preliminary findings, to say the least, is cryptic and unreasonable.

76. The Arbitrator has without any form of analysis has made a brief conclusions that even though law and order situation did create hindrance for Tarapore to complete the work but the delay caused due to the same could not absolve Tarapore from its liability under the Contract. The same is not supported by any other reasoning. Further, the Arbitrator observed that the government had extended support and assistance to Tarapore, but the Award does not disclose as to what assistance was extended and how such assistance was adequate. The averments regarding the kidnapping of the officials, lapses in the law and order situation, forced employment of local labour at higher wages has neither been adverted to not analysed by the Arbitrator. It has nowhere been discussed in the paragraphs reproduced above as to how there was interference by local politicians, trade unionsand its consequences on the delay of execution of work. Even though hindrance in completion of work was caused,there is no analysis or reasons underpinning the conclusion of the Arbitrator that Tarapore could not be absolved from its liability under the Contarct. The said findings of delay attributable to Tarapore is unreasoned.

77. The Statement of Claim and Rejoinder clearly raised averments regarding the such hinderances. The same is reproduced as under: ―22. That the Claimant gave repeated notices to the Respondent that the political & labour atmosphere prevalent in the region and particularly at the work site was not congenial and conducive to working. There was a lot of politicalinterference by the local parties. Labour was being forced upon the Claimant by these local politicians and trade union leaders with arbitrary rates of wages attached to the said workforce irrespective of the fact whether these workmen did any work or not. Any resistance resulted in throwing of bombs on the officers of the Claimant, creation of law and order situation and thereby preventing the execution of Claimant‘s work at the site, which included kidnapping and gheroaing of the officials of the Claimant, thereby causing further hinderance to the execution of the work. The police and district administration also failed to check these unsocial and anti-social elements. In this manner, the Claimant to employ against its will, workers of these local political parties and trade union leaders at wages higher than those contemplated by the Claimant while making the offer to the Respondent and the Respondent failed to do anything about it. Over and above, these workmen expected payment of wages to be made to them irrespective of the fact whetherthey work or not in the course of the day. This added burden also contributed to the delays in as much as the forced Claimant was prevented from making full use of the plant, machinery and equipment mobilised for this work. The Claim-also not permitted to bring its labour force altogether and was coerced into agreeing to 50% of the labour force being employed locally which was also increased to 70% under threat of violence, The Respondent was fully aware these circumstances but failed to do anything about it except a few letters to the Police and Local Administration and in this manner the claimant was prevented from executing the work due to the failure of the Respondent in providing peaceful and conducive atmosphere at and around the place of work at the project site. These factors will be further elaborate while dealing with the specific claims in this regard.‖ Further there were several correspondences between Tarapore and the senior officers of NTPC and the local administration of Murshidabad which the Arbitrator has reproduced in his Award. The same are reproduced as under: a. ―In a letter dated24.05.1988 Tarapore. has written to NTPC that the work is started on 06.05.88 and was proceeding smoothly but stopped from yesterday due to some extraneous problem. In another letter dated. 01.06.88 the GM of Claimant Company had written to officer in charge that some unidentified miscreants have thrown 5 nos. of country bombs on the air at our ash pond area. You are therefore requested to kindly institute a case and do the needful to avoid further such incidents. In another communication dated 04.06.88 the GM of claimant company has written to the officer in charge, Farakka P.S. that Mr. Panu Sekha of Jodpokharia village has threatened our site engineer Sh. T Khadanga with dire consequences if he has not been employed immediately. Thereafter there is a series of letters annexed with their claim by M/s. Tarapore & Co. where they have written to the state authorities about law and order problems and attacked on their officials.‖ b. In letter dated. 24.12.1988, Tarapore had written to Senior Manager of NTPC as under: ―Yesterday, we met SDO alongwith the letter of your Manager (P&A). Be apprised him the situation prevailing here and requested for Immediate police picket at Malancha and he advised us to meet S.P., Murshidabad. We rushed to Berhampore to meet S.P. who had agreed for police picket from 24.12.88. In their letter dated. 06.01.89 at page 173 of their claim addressed to the Chief Construction Manager, NTPC the claimant company had asked to depute the NTPC officials to attend the site regularly.‖ c. In a communication dated 24.02.1989, Tarapore had addressed several issues to the DM, Murshidabad. The same is reproduced as follows:- “Our present problem is supply of sand, metal and boulder. Our sub-contractors, whom we engaged recently to execute the work, are creating problems to us. Before recruitment of these subcontractors we had agreed that 50% of the entire work will be given to subcontractors and the remaining 50% will be done by our company, including earthwork and supply of boulder, metal, sand etc. But of late our earth work area was reduced to 14%, as this area has been encroached by the sub contractors. To have a calm and peaceful atmosphere, we have not viewed this seriously. But we reiterated them that 50% supply of materials will be done by us. When we started bringing materials through our appointed Agencies, some subcontractors objected them. They terrorized our agency and forced them to flee with their trucks fully loaded with supplies. The subcontractors recruited recently are mainly from Malancha and Shankarpur village. Appointment of these contractors were made in consultation with the local leaders, and selection were their choice only. It appears that they are hard core criminals. Now they are out of control of the leaders and doing everything at their own will and pleasure. The sub contractors are supposed to supply materials at their area only allotted to them by us. Now they are demanding that they will take entire supply and not to allow anyone else to ring materials. They are not agreeing the rate fixed to other agency for supply and demanding Increase in rate. If we are cannot started the pitching work now, the earthwork whatever we have done, will be washed away during rainy season which will cause heavy loss to us. We strongly feel that unless we remove some bad elements, we cannot achieve our progress here. We apprehend Intimidation from them, if we take such action. We therefore, request you to kindly help us in this regard. We may also require personal protection for us as these people will Gherao and humiliate us on our way.” d. In another letter dated 05.04.1989 Tarapore had written to the following to Senior Manager (CC) the following: “Further to our letter No.358/862/89 dated. 05.04.89, we wish to Inform you that SARBA DALIYA COMMITTEE formed by all parties except CPM posting a threat to us. They may enforce us to employ their workmen around 500 through agitation. We presume that they may launch a blockade on NH-34 to pressurize us to concede their demands. We may mention that we are having enough workmen with us, more than our requirements. Hence, the question of recruitment of workmen does not arise. if they launch mass movement, it may hamper our progress. This is for your information.” e. In letter dated 09.05.1989 Tarapore highlighted several issues to the then Power Minister of West Bengal by stating the following: ―From 11.01.89, the work appeared to have started smoothly, but periodic pin pricks and disruptions in work have continued and are getting worse. Against 50% area agreed to be worked by local sub-contractors, they have now usurped more than 80% area under coercion and threat of violence. Also while the local sub contractors do not possess the means to cope up with pace of quantum of work, they are obstructing agencies employed directly by us from bringing materials and doing work. Also local sub-contractors do not listen to our engineers, frightening them by threats of violence. The local political leadership does not seem to have the desired influence, nor hold, over the prevailing situation and cannot bring matters under control. We are bringing to their notice almost daily disruptive activities taking place and they are either unwitting or unable to do anything. Our machinery is not being permitted to be utilized and are largely idle. We are not being allowed to operate at optimum levels to sustain ourselves. We have already incurred crushing losses and continue to incur further heavy losses month after month. Beside this, daily large quantities of diesel, petrol are drained out by the Drivers in connivance with our security guards, from the vehicles, adding us to further loss. We are neither able to take disciplinary action nor remove them from service due to intimidation and threats. The materials such as boulder, huts pipes etc. brought to our work site are not allowed to be unloaded unless ‗MASTAN‘ taxes are paid to local goudas, though our contract are Inclusive of loading and unloading charges. Lastly, a fantastic charter of demands has been initiated by the CITU, on behalf of our workmen, and we were forced to agree to their demands, resulting an additionalexpenses of Rs. One lakh per month. To have peaceful atmosphere and to augment the progress we also agreed to exorbitant rates to all item of work.‖

78. No doubt the award can be short on detailed reasons and analysis but cannot be devoid of the same. The present award is one such Award where the reasoning is not merely brief but is substantially absent, is totally cryptic and does not show any basis much less reasonable basis for the Arbitrator to arrive at his conclusions on the preliminary issues.Hence, the fountain head of the analysis of the Claims and Counter Claims itself is perverse and against the public policy of India. A mere reproduction of pleadings followed by conclusions cannot satisfy the requirement of “reasons”.

79. The Award must show a link between the material on record and the conclusion reached, which is lacking in the present case. The requirement of a reasoned Award is not a mere formality rather a statutory mandate by Section 31 (3) of the 1996 Act. The same reads as under:

31. Form and contents of arbitral award.— xxx (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.‖

80. The requirement of an Award having adequate and intelligible reasoning is further fortified by catena of judgments including Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd. 14,wherein the Hon‟ble Supreme Court held as under: ―34. The mandate under Section 31(3) of the Arbitration Act is to have reasoning which is intelligible and adequate and, which can in appropriate cases be even implied by the courts from a fair reading of the award and documents referred to thereunder, if the need be. The aforesaid provision does not require an elaborate judgment to be passed by the arbitrators having regard to the speedy resolution of dispute.

35. When we consider the requirement of a reasoned order, three characteristics of a reasoned order can be fathomed. They are: proper, intelligible and adequate. If the reasonings in the order are improper, they reveal a flaw in the decision-making process. If the challenge to an award is based on impropriety or perversity in the reasoning, then it can be challenged strictly on the grounds provided under Section 34 of the Arbitration Act. If the challenge to an award is based on the ground that the same is unintelligible, the same would be equivalent of providing no reasons at all. Coming to the last aspect concerning the challenge on adequacy of reasons, the Court while exercising jurisdiction under Section 34 has to adjudicate the validity of such an award based on the degree of particularity of reasoning required having regard to the nature of issues falling for consideration. The degree of particularity cannot be stated in a precise manner as the same would depend on the complexity of the issue. Even if the Court comes to a conclusion that there were gaps in the reasoning for the conclusions reached by the Tribunal, the Court needs to have regard to the documents submitted by the parties and the contentions raised before the Tribunal so that awards with inadequate reasons are not set aside in casual and cavalier manner. On the other hand, ordinarily unintelligible awards are to be set aside, subject to party autonomy to do away with the reasoned award. Therefore, the courts are required to be careful while distinguishing between inadequacy of reasons in an award and unintelligible awards. xxxx

42. From the facts, we can only state that from a perusal of the award, in the facts and circumstances of the case, it has been rendered without reasons. However, the muddled and confused form of the award has invited the High Court to state that the arbitrator has merely restated the contentions of both parties. From a perusal of the award, the inadequate reasoning and basing the award on the approval of the respondent herein cannot be stated to be appropriate considering the complexity of the issue involved herein, and accordingly the award is unintelligible and cannot be sustained.

81. The said principle was reaffirmed by the Hon‟ble Supreme Court in OPG Power Generation (P) Ltd. v. Enexio Power Cooling Solutions (India) (P) Ltd.15 The relevant paragraphs read as under:

85. With respect to 10th R.A. Bill, being Claim No. 1(i), challenged by Tarapore, the Gross amount of Bill stood to be Rs. 11,82,064/-. It is not disputed that the 10th R.A. Bill of the said amount was jointly signed by both the parties. Further it is also not in dispute that only an amount of Rs. 8,77,250 was released towards the said Bill and thebalance amount Rs. 3,04,814 was adjusted towards various heads being contractual deductions. The argument of Tarapore rests on the fact that the joint 10th R.A.Bill was signed and accepted by NTPC without any reservations or qualifications. Once the Bill has been raised and accepted in totality no deductions could be permitted. The said argument of Tarapore has neither been considered nor been adverted to. In this regard NTPC further relies on the letter dated 08.08.1989 was duly sent to Tarapore informing them about the status of payment under the 10th and 11th R.A. Bills. The same reads as under: “NTPC REGD. ACK.DUE PS: 42: 01: 01/245 08-08-89 To The Managing Partner, M/s. Tarapore & Co. Dhun Building, 827, Anna Salai, Madras: 600 002. Subj:Constn of Ash bund structure for fly ash disposal, LOA No. 01:CC:42:128(R)/DICA dated 28-3-88. Ref. No. Your letter No. 600/2422/89 dtd. July 21, 1989. Dear Sir, With reference to your above letter the matter has been verified from our Finance Deptt and it is found that after correction nothing is payable to you against 10th & 11th bills. As regards to the 12th RA bill you may please note that the joint measurement of works were not completed due to non-availability of Engineers from your end. A letter to this affect was issued to R.E.at site (Copy enclosed) which is self-explanatory. Though it was told to us by your Site engineer, Shri T. Khadanga that he would be available here for taking the measurements and signed in the bill, he left site suddenly without any intimation to us. Under the circumstances, processing of 12th RA bill could not be possible at this end. However, after the completion of Joint measurement and signing of the bill by your representative there- after bill would be forwarded to Finance for further disposal. Necessary action from your end in this matter is requested please. Thanking you, Yours Faithfully, (A K Bhattachrarya) Dy. Manager (CC) Copy forwarded for information:

1) CCM/FS TPP

2) SR.MGR( CC )

86. It is the contention of NTPC that the letter crystalises the position of NTPC regarding 10th R.A.Bill. The receipt of letter has been disputed by Tarapore in its Rejoinder before the Arbitrator as under: ―It is denied that the claimant received any letter dated 03/07/1989 or 08/08/1989, as alleged by the Respondent and, as such, no such intimation as alleged, was received by the claimant from the Respondent. The fact that the claimant had prepared and submitted its 12th R.A.Bill, did not prevent the Respondent from cross-checking the correctness of the measurements and making payments therefor, but it lacked the will and intent to make payments. On the contrary, the Respondent was responsible for virtually pushing the claimant out of the site and not even allowing the claimant to remove its plant, machinery and other equipment, for which the claimant had to take recourse to law and seek appropriate orders from court in this regard.‖

87. The Arbitrator has not given any finding regarding the letter dated 08.08.1989, whereas the Arbitrator has just mentioned that Tarapore has denied ever receiving such letter. This shows that the Arbitrator has failed to take into consideration and material evidence and objections with respect to the same. Further, the assumption of the Arbitrator that the adjustments made by NTPC needed to be shown to be wrong is beyond the terms of the Contract and is contrary to the clear evidence on record. There is no term in the Contract that permits NTPC to unilaterally adjust the any amount in a Bill already signed by both the parties.

88. In this view of the matter, an Award in violation of the terms of the Contract or going against the terms of the Contract falls within the parameter of Section 34 of the 1996 Act and is, thus, vitiated by patently illegality. In the view of the above, the Award is liable to be set aside to the extent of Claim No. 1(i) as being patently illegal as per the ratio laid down in PSA Sical Terminals (P) Ltd. v. V.O. Chidambranar Port Trust.16 The relevant paragraphs read as under: