Union of India v. M/S J&S Construction

(ii) The claimant is held entitled to interest@ 12% p.a. on the amount of Rs. 56,99,030.00/- (Rupees Fifty-Six Lac Ninety-Nine Thousand Thirty), w.e.f. the date of filing Statement of Claim, i.e., 27.08.2018 till the date of Award.

(iii) The claimant is also held entitled to interest @ 12% p.a.

on the amount of security of Rs.37,24,000/- (Rupees Thirty- Seven Lac Twenty Four Thousand only) from 01.07.2015 till the date of Award.

(iv) The claimant is further held entitled to interest@ 12% p.a. on the amount of Rs. 45,000/- (Rupees Forty Five Thousand only) w.e.f. the date of filing Statement of Claim, i.e. 27.08.2018 till the date of Award.‖

12. In light of these aforementioned facts and aggrieved by the Impugned Award, the petitioner has approached this Court and prayed for setting aside the Award dated 7th October 2019 which granted the claims worth Rs. 1,37,94,040.98/- of the claimant/respondent and rejected the counterclaims filed by the petitioner.

13. It is submitted by learned counsel appearing on behalf of the petitioner that the work was to be completed within a period of 6 months from the date of the Award, i.e., 22nd December, 2011 but the claimant took 36 months and 9 days to complete the work and in between the commencement and the completion of the work, various extensions were sought by the respondent/claimant to which approvals were given by the petitioner. The claimant/respondent was intimated on various instances of the little progress of the site. A total of 38 instructions had been given in the site order to the claimant to expedite the progress of work but the same was not followed resulting in delay.

14. It is further submitted that as per Clause 19.[3] of the General Conditions of Contract, 1999 (hereinafter called “GCC”), the claimant was supposed to submit the bar chart about the modalities of execution within 30 days but the claimant failed in the same. Multiple letters were sent by the petitioner to the respondent to expedite the progress of the work.

15. It is submitted that the cost of the work was revised to Rs. 5,08,88,113.35/- vide 1st Addendum dated 10th September, 2014 and the same was signed by the claimant/ respondent without any protest with regard to quantities and rates.

16. It is further submitted that the petitioner sent several oral requests and communications through registered post to sign the final measurement so as to enable the processing of the final addendum/corrigendum and subsequently releasing the final bill. As per Clause 64(1)(i) of GCC-1999, the claimant is supposed to raise its final claim. The railways, if fails to decide within 120 days, then the claimant, after 120 days and before 180 days of his presenting the final claim on disputed matter, shall demand in writing that the dispute be referred to arbitration. The final measurement was recorded by the petitioner on 26th May, 2015 in the presence of the claimant/respondent and subsequently, vide letters dated 3rd June, 2015, and 27th July, 2015, the claimant was requested to sign the same but the claimant neither signed the final measurement nor raised its final bill instead invoked the arbitration clause contained in the Contract. Clause 64(1)(i) reads as under: ―In the event of any dispute or difference between the parties hereto as to the construction or operation of this contract, or the respective rights and liabilities of the parties on any matter in question, dispute or difference on any account or as to the withholding by the Railway of any certificate to which the contractor may claim to be entitled to, or if the Railway fails to make a decision within 120 days, then and in any such case, but except in any of the ―excepted matters‖ referred to in Clause 63 of these conditions, the contractor, after 120 days but within 180 days of his presenting his final claim on disputed matters shall demand in writing that the dispute or difference be referred to arbitration.‖

17. It is further submitted that as per Clause 64(1)(iv) of GCC-1999, if the contractor does not prefer his specific and final claim in writing within a period of 90 days of receiving the intimation from the Railways that the final bill is ready for payment, then it will be deemed to have waived his claim and the Railway shall be discharged and released of all the liabilities under the contract in respect of these claims. Hence, if the duration of 90 days is calculated from 3rd June 2015, then the time period of 90 days expired on 2nd September 2015 whereas the arbitration clause was invoked on 11th January 2016. Hence, the claim is barred being filed after the said duration of 70 days. Clause 64(1)(iv) of the GCC reads as under: ―64 (1) (iv) - If the contractor(s) does/do not prefer his/their specific and final claims in writing, within a period of 90 days of receiving the intimation from the Railways that the final bill is ready for payment, he/they will be deemed to have waived his/their claim(s) and the Railway shall be discharged and released of all liabilities under the contract in respect of these claims.‖

18. It is submitted by learned counsel appearing on behalf of petitioner that the arbitration was invoked by the claimant/respondent before the previous Arbitral Tribunal claiming 11 claims for an amount of Rs. 6,64,26,730.43/- along with an interest of 24% p.a. on the claimed amount. The petitioner submits that since, the claims fall under the category of „excepted matters‟, they cannot be adjudicated by the arbitrator as the dealing of excepted matters is expressly prohibited by Clauses 63, 64(1)(i) and (ii) of GCC-1999 and arbitrator cannot travel beyond the Contract to adjudicate on the excepted matters. The relevant Clauses of the Contract prohibiting the adjudication of excepted matters are as under: ―63. Matters finally determined by the Railway – All disputes and differences of any kind whatsoever arising out of or in connection with the contract, whether during the progress of the work or after its completion and whether before or after the determination of the contract, shall be referred by the contractor to the GM and the GM shall within 120 days after receipt of the contractor‘s representation make and notify decisions on all matters referred to by the contractor in writing provided that matters for which provision has been made in clauses 8, 18, 22(5), 39, 43(2), 45(a), 55, 55-A(5), 57, 57A,61(1), 61(2) and 62(1) to (xiii) (B) of General Conditions of contract or in any clause of the special conditions of the contract shall be deemed as ‗excepted matters‘ (matters not arbitrable) and decisions of the Railway authority, thereon shall be final and binding on the contractor; provided further that ‗excepted matters‘ shall stand specifically excluded from the purview of the arbitration clause. 64 (1) (i) - Demand for Arbitration- In the event of any dispute or difference between the parties hereto as to the construction or operation of this contract, or the respective rights and liabilities of the parties on any matter in question, dispute or difference on any account or as to the withholding by the Railway of any certificate to which the contractor may claim to be entitled to, or if the Railway fails to make a decision within 120 days, then and in any such case, but except in any of the ―excepted matters‖ referred to in Clause 63 of these conditions, the contractor, after 120 days but within 180 days of his presenting his final claim on disputed matters shall demand in writing that the dispute or difference be referred to arbitration. 64 (1) (ii) - (a) The Arbitration proceedings shall be assumed to have commenced from the day, a written and valid demand for arbitration is received by the Railway. (b) The claimant shall submit his claim stating the facts supporting the claims along with all the relevant documents and the relief or remedy sought against each claim within a period of 30 days from the date of appointment of the Arbitral Tribunal.

(c) The Railway shall submit its defence statement and counter claim(s), if any, within a period of 60 days of receipt of copy of claims from Tribunal thereafter, unless otherwise extension has been granted by Tribunal.

(d) The place of arbitration would be within the geographical limits of the Division of the Railway where the cause of action arose or the Headquarters of the concerned Railway or any other place with the written consent of both the parties.‖

19. Learned counsel for the petitioner has placed reliance upon DDA vs. R.S. Sharma & Co., 2008 13 SCC 80 for strengthening his argument. The case holds that the arbitrator is the creature of the contract and must operate within the four corners of the contract and cannot travel beyond it and cannot award any amount, which is ruled out or prohibited by the terms of the agreement. The Court stated that:

43. It is a settled law that a Section 34 proceeding does not contain any challenge on the merits of the award. This position of law has been crucified in the Hon‟ble Supreme Court‟s judgment of MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163, which reads as follows: - ―14. 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.‖

44. Likewise, in Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131, the Hon‟ble Supreme Court under the caption “Section 34(2)(a) does not entail a challenge to an arbitral award on merits” referred to Hon‟ble Supreme Court‟s judgment in Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 [the “New York Convention”] and various other authorities to conclude that there could be no challenge on merits under the grounds mentioned in Section 34. The Hon‟ble Supreme Court also held, in Maharashtra State Electricity Distribution Co. Ltd. v. Datar Switchgear Ltd., (2018) 3 SCC 133, that the Court hearing a Section 34 petition does not sit in appeal.

45. As a matter of fact, it is to be noted that the point raised in the appeals stands concluded in McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181, wherein the Hon‟ble Supreme Court held: - ―51. After the 1996 Act came into force, under Section 16 of the Act the party questioning the jurisdiction of the arbitrator has an obligation to raise the said question before the arbitrator. Such a question of jurisdiction could be raised if it is beyond the scope of his authority. It was required to be raised during arbitration proceedings or soon after initiation thereof. The jurisdictional question is required to be determined as a preliminary ground. A decision taken thereupon by the arbitrator would be the subject-matter of challenge under Section 34 of the Act. In the event the arbitrator opined that he had no jurisdiction in relation thereto an appeal there against was provided for under Section 37 of the Act.

52. The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice, etc. The court cannot correct the errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, the scheme of the provision aims at keeping the supervisory role of the court at a minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court's jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it.‖

46. Considering the embargo imposed on the constitutional Courts under the ambit of Section 34 of the Act, the decision of the Hon‟ble Supreme Court in Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd., (2019) 20 SCC 1, is of utmost relevance. The Court held as under: ―36. At this juncture, it must be noted that the legislative intent of providing Section 34(4) in the Arbitration Act was to make the award enforceable, after giving an opportunity to the Tribunal to undo the curable defects. This provision cannot be brushed aside and the High Court could not have proceeded further to determine the issue on merits.

37. In case of absence of reasoning the utility has been provided under Section 34(4) of the Arbitration Act to cure such defects. When there is complete perversity in the reasoning then only it can be challenged under the provisions of Section 34 of the Arbitration Act. The power vested under Section 34(4) of the Arbitration Act to cure defects can be utilised in cases where the arbitral award does not provide any reasoning or if the award has some gap in the reasoning or otherwise and that can be cured so as to avoid a challenge based on the aforesaid curable defects under Section 34 of the Arbitration Act. However, in this case, such remand to the Tribunal would not be beneficial as this case has taken more than 25 years for its adjudication. It is in this state of affairs that we lament that the purpose of arbitration as an effective and expeditious forum itself stands effaced.‖

47. A Coordinate Bench of this Court, while considering the pertinent issue under Section 34 of the Act, held in Cybernetics Network Pvt. Ltd. v. Bisquare Technologies Pvt. Ltd., 2012 SCC OnLine Del 1155, as under: ―47. The next question that arises is whether the above claims as mentioned in para 44 that have been erroneously rejected by the learned Arbitrator can be allowed by this Court in the exercise of its powers under Section 34(4) of the Act?

48. Under Section 34(4) of the Act, the Court while deciding a challenge to an arbitral award, can either ―adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of the arbitral tribunal will eliminate the grounds for setting aside the arbitral award‖. This necessarily envisages the Court having to remit the matter to the Arbitral Tribunal. This is subject to the Court finding it appropriate to do so and a party requesting it to do so.

49. In Union of India v. Arctic India, 2007 (4) ArbLR 524 (Bom), a learned Single Judge of the Bombay High Court opined that the Court can modify the Award even if there is no express provision in the Act permitting it. The Court followed the decision of the Supreme Court in Krishna Bhagya Jala Nigam Ltd. v. Harischandra Reddy, (2007)2 SCC 720. A similar view has been taken by a learned Single Judge of this Court in Union of India v. Modern Laminators, 2008 (3) Arb LR 489 (Del). There the question was whether in light of the arbitrator having failed to decide the counter claim of the respondent in that case the Court could itself decide the counter claim. After discussing the case law, the Court concluded that it could modify the award but only to a limited extent. It held (Arb LR p. 496): ―Such modification of award will be a species of ‗setting aside‘ only and would be ‗setting aside to a limited extent‘. However, if the courts were to find that they cannot within the confines of interference permissible or on the material before the arbitrator are unable to modify and if the same would include further fact-finding or adjudication of intricate questions of law the parties ought to be left to the forum of their choice i.e.to be relegated under Section 34(4)of the Act to further arbitration or other civil remedies.‖

50. However, none of the above decisions categorically hold that where certain claims have been erroneously rejected by the Arbitrator, the Court can in the exercise of its powers under Section 34(4)of the Act itself decide those claims. The Allahabad High Court has in Managing Director v. Asha Talwar 2009 (5) ALJ 397,held that while exercising the powers to set aside an Award under Section 34 of the Act the Court does not have the jurisdiction to grant the original relief which was prayed for before the Arbitrator. The Allahabad High Court referred to the decision of the Supreme Court in McDermott International Inc. v. Burn Standard Co. Ltd. (2006 ) 11 SCC 181,and ruled.

51. The view of the Allahabad High Court in Managing Director v. Asha Talwar 2009 (5) ALJ 397, appears to be consistent with the scheme of the Act, and in particular Section 34 thereof which is a departure from the scheme of Section 16 of the 1940 Act which perhaps gave the Court a wider amplitude of powers. Under Section 34(2) of the Act, the Court is empowered to set aside an arbitral award on the grounds specified therein. The remand to the Arbitrator under Section 34(4) is to a limited extent of requiring the Arbitral Tribunal ―to eliminate the grounds for setting aside the arbitral award‖. There is no specific power granted to the Court to itself allow the claims originally made before the Arbitral Tribunal where it finds the Arbitral Tribunal erred in rejecting such claims. If such a power is recognised as falling within the ambit of Section 34(4) of the Act, then the Court will be acting no different from an appellate court which would be contrary to the legislative intent behind Section 34 of the Act. Accordingly, this Court declines to itself decide the claims of CNPL that have been wrongly rejected by the learned Arbitrator.‖

48. Following the discussion mentioned above, the dictum laid by the Hon‟ble Supreme Court in the case of NHAI v. M. Hakeem, (2021) 9 SCC 1, is of utmost relevance at this stage. In the said case as well, the Hon‟ble Supreme Court reiterated the embargo imposed on the Constitutional Courts under the ambit of Section 34 of the Arbitration Act. The Hon‟ble Court ruled that:- ―46. Quite obviously if one were to include the power to modify an award in Section 34, one would be crossing the Lakshman Rekha and doing what, according to the justice of a case, ought to be done. In interpreting a statutory provision, a Judge must put himself in the shoes of Parliament and then ask whether Parliament intended this result Parliament very clearly intended that no power of modification of an award exists in Section 34 of the Arbitration Act, 1996. It is only for Parliament to amend the aforesaid provision in the light of the experience of the courts in the working of the Arbitration Act, 1996, and bring it in line with other legislations the world over.‖

49. Thus, the legislative mandate behind the advent of the Arbitration Act, the spirit & scope of Section 34 of the Arbitration Act and the categorical judicial pronouncements on the ambit of Section 34 of the Arbitration Act, clearly elucidates that the Constitutional Courts do not possess the unbridled power to interfere with the Award. The embargo imposed on Constitutional Courts under the Section 34 of the Act is in tune with the legislative intent of the Arbitration Act. Keeping in view the legislative history of the Arbitration Act and the bonafide objective that the Act seeks to achieve, certain fetters are imposed on the powers of the Constitutional Courts. It is the intention of the legislature that the powers of the Courts to entertain the challenge to the Award under Section 34 of the Act should not be unbridled. “Public Policy” ground under Section 34 of the Arbitration Act

50. Malhotra (supra) while explaining the ground of „public policy‟ for setting aside the Award is concerned states that: ―The concept of 'public policy', of course, is not immutable. By its very nature, 'public policy' is not susceptible to a plain meaning by the courts. Public policy is a dynamic concept that evolves continually to meet the changing needs including political, social, cultural, moral and economic dimensions. The doctrine of public policy is a branch of common law, and just like any other branch of common law, it is governed by precedent; the principles have been crystallised under different heads, and though it is permissible for courts to apply them to different situations, the doctrine should only be invoked in clear and incontestable cases of harm to the public. Public policy connotes some matter which concern public good and public interest. The duty of the court is to expound, and not expand the doctrine of public policy. The courts should use circumspection in holding a contract as void against public policy, and should do so, only when the contract is incontestable, and inimical to public interest. The doctrine should be invoked only in clear cases in which the harm to the public is substantially incontestable and does not depend upon the idiosyncratic inferences of a few judicial minds.‖

51. The Hon‟ble Supreme Court in Central Inland Water Transport Corpn. Ltd. v. Brojo Nath Ganguly (1986) 3 SCC 156 explained the concept of public policy. The Court stated that: ―92. The Indian Contract Act does not define the expression ‗public policy‘ or ‗opposed to public policy‘. From the very nature of things, the expressions ‗public policy‘, ‗opposed to public policy‘, or ‗contrary to public policy‘ are incapable of precise definition. Public policy, however, is not the policy of a particular Government. It connotes some matter which concerns the public good and the public interest. The concept of what is for the public good or in the public interest or what would be injurious or harmful to the public good or the public interest has varied from time to time. As new concepts take the place of old, transactions which were once considered against public policy are now being upheld by the courts and similarly where there has been a wellrecognized head of public policy, the courts have not shirked from extending it to new transactions and changed circumstances and have at times not even flinched from inventing a new head of public policy. There are two schools of thought — ‗the narrow view‘ school and ‗the broad view‘ school. According to the former, courts cannot create new heads of public policy whereas the latter countenances judicial law-making in this area. The adherents of ‗the narrow view‘ school would not invalidate a contract on the ground of public policy unless that particular ground had been well established by authorities. Hardly ever has the voice of the timorous spoken more clearly and loudly than in these words of Lord Davey in Janson v. Driefontein Consolidated Gold Mines Ltd. [1902 AC 484, 500: (1900- 03) All ER Rep 426: 87 LT 372 (HL)]: ‗Public policy is always an unsafe and treacherous ground for a legal decision.‘ That was in the year 1902. Seventy-eight years earlier, Burrough, J., in Richardson v. Mellish [(1824) 2 Bing 229, 252: 130 ER 294] described public policy as ‗a very unruly horse, and when once you get astride it you never know where it will carry you‘. The Master of the Rolls, Lord Denning, however, was not a man to shy away from unmanageable horses and in words which conjure up before our eyes the picture of the young Alexander the Great taming Bucephalus, he said in Enderby Town Football Club Ltd. v. Football Assn. Ltd.[1971 Ch 591, 606]: ‗With a good man in the saddle, the unruly horse can be kept in control. It can jump over obstacles‘. Had the timorous always held the field, not only the doctrine of public policy but even the common law or the principles of equity would never have evolved. Sir William Holdsworth in his ‗History of English Law‘, Vol. III, p. 55, has said: ‗In fact, a body of law like the common law, which has grown up gradually with the growth of the nation, necessarily acquires some fixed principles, and if it is to maintain these principles it must be able, on the ground of public policy or some other like ground, to suppress practices which, under ever new disguises, seek to weaken or negative them.‘‖

52. With respect to the “public policy of India” in the context of arbitration cases are concerned, the Hon‟ble Supreme Court examined the meaning, scope and ambit of this expression for the first time in the case of Renusagar Power Co. Ltd. v. General Electric Co., 1994 Suppl (1) SCC 644 in the context of Foreign Awards (Recognition & Enforcement) Act, 1961. The Court stated that; ―66. Article V(2)(b) of the New York Convention of 1958 and Section 7(1)(b)(ii) of the Foreign Awards Act do not postulate refusal of recognition and enforcement of a foreign award on the ground that it is contrary to the law of the country of enforcement and the ground of challenge is confined to the recognition and enforcement being contrary to the public policy of the country in which the award is set to be enforced. There is nothing to indicate that the expression ‗public policy‘ in Article V(2)(b) of the New York Convention and Section 7(1)(b)(ii) of the Foreign Awards Act is not used in the same sense in which it was used in Article I(c) of the Geneva Convention of 1927 and Section 7(1) of the Protocol and Convention Act of 1937. This would mean that ‗public policy‘ in Section 7(1)(b)(ii) has been used in a narrower sense and in order to attract the bar of public policy the enforcement of the award must invoke something more than the violation of the law of India. Since the Foreign Awards Act is concerned with recognition and enforcement of foreign awards which are governed by the principles of private international law, the expression ‗public policy‘ in Section 7(1)(b)(ii) of the Foreign Awards Act must necessarily be construed in the sense the doctrine of public policy is applied in the field of private international law. Applying the said criteria it must be held that the enforcement of a foreign award would be refused on the ground that it is contrary to public policy if such enforcement would be contrary to (i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality.‖

53. The public policy aspect was then examined by the Hon'ble Supreme Court in the case of Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705 [ONGC(I)] and then reiterated in the judgment of Oil & Natural Gas Corporation Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263 [ONGC (II)] wherein the Court stated that: ―(3) The award could be set aside if it is against the public policy of India, that is to say, if it is contrary to: (a) fundamental policy of Indian law; or (b) the interest of India; or

(c) justice or morality; or

(d) if it is patently illegal.‖

54. However, in Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49, the Hon‟ble Supreme Court examined the expression in detail in the light of all previous decisions referred to above on the subject. The Court clarified the meaning of the expression ―public policy of India‖ and what it includes therein and held that violation of the provisions of the Foreign Exchange Act, disregarding orders of superior Courts in India and their binding effect, if disregarded, would be violative of the Fundamental Policy of Indian Laws. It was, however, held that the juristic principle of the “judicial approach” demands that a decision be fair, reasonable and objective. In other words, a decision which is wholly arbitrary and whimsical would not be termed as fair, reasonable or objective determination of the questions involved in the case. It was also held that observance of the audi alteram partem principle is also a part of the juristic principle which needs to be followed. It was held that if the Award is against justice or morality, it is against public policy. It was held that if there is a patent illegality noticed in the Award, it is also against public policy.

55. The petitioner has challenged Claims 3, 4, and 5 and Counter Claims 1 and 2. Hence, the Court will now peruse the adjudication of the said claims by the learned Arbitral Tribunal and will adjudge whether the Arbitrator exceeded its authority so as to violate the public policy ground given under the Act.

56. Claim No. 3 pertains to PVC for an amount of Rs. 77,99,030/with contract period extending 12 months. The Claim as per statement of claims is as follows: ―Claimant claims PVC including on the final bill on the basis of Railway Escalation Clause as the contract period has become more than 12months. PVC calculation as per Railway rule based on RBI index annexed.‖

56. A relevant portion of the impugned Arbitral Award has been reproduced below, to apply the test as to whether the learned Arbitrator had erred while adjudication the Claim No. 3: ―64. The contention of the respondent that the extensions were granted to the claimant upon its specific request and the entire delay is attributable to the claimant and not the respondent is completely unfounded. The letter dated 20.03.2015 issued to Dy. Chief Engineer/Const/T&C, Northern Railway, Kashmere Gate, Delhi by Dy. Chief Engineer Jammu Tawi, which has been placed on record clearly belies the submission of the respondent that the extensions were granted on the request of the claimant and the entire delay is attributable to the claimant and not the respondent. The reading of the same will clearly indicate that the reasons considered for granting various extensions cannot be attributable to the claimant. For instance, the delay was caused by heavy rains in monsoon, shortage of labour in winter season, untimely rain in the month of February - March, 2012 and other reasons which can be clearly attributable to the respondent are stated in the sub paragraphs 4, 5, 6, 7, 8, 9 & 10 respectively as indicated in said official letter. It is also stated that extensions 1, 2, 3, & 4 were granted due to few natural causes like heavy rains, acute shortage of labour during harvest season, hindrances due to S&T cables etc. The respondent has also mentioned for extensions 5, 6, 7 & 8 major factor for delay have been the 'delayed and unplanned' release of contractor's bill. The above facts clearly stated in communication with the respondent issued by North Railway. The respondent has filed an affidavit of admission and denial of the documents filed on behalf of the claimant wherein the above noted communication dated 20.03.2015 is admitted. However, despite the averments made in the communication, the respondent has falsely stated that the extensions granted by the respondent were upon specific request of the claimant and the entire delay was attributable to the claimant. In view of the matter, the claimant is entitled to succeed in this Claim no.3. On the above basis as well as on acceptance of calculation made with respect to PVC, which are annexed with the Statement of Claim the same is reproduced hereunder. The claimant is accordingly entitled of Rs. 56,99,030/-.‖

57. While dealing with Claim No. 3, the learned Tribunal considered the claims of both the parties and provided a sound reasoning while upholding the Claim stating that the delay cannot be solely attributable to the claimant/ respondent and there are other factors such as monsoons, short labour etc. delaying the completion of the work. This Court is of the view that the learned Tribunal has correctly held that the delay is not only because of claimant and there are other factors also responsible for same. Hence, this Court finds no cogent reason to interfere in the sound reasoning provided by the learned Tribunal in Claim No. 3.

58. Claim No. 4 dealt with the security deposit and earnest money which ought to have been refunded after the expiry of maintenance period. Claim No. 4 as per the statement of claims is as follows: ―Claimant claim refund, of Security Deposit and Earnest Money which ought to have been refunded after expiry of maintenance period i.e., on01-07 2015. Rs. 34,24,000.00 deducted from running bills Rs. 2,50,000.00 and Rs. 50,000.00 in the shape of PDRs.‖

59. A relevant portion of the impugned Arbitral Award dealing with Claim No. 4 has been reproduced below: ―65. The claimant has made a claim for refund of security deposit and earnest money which ought to have been refunded after expiry of the maintenance period i.e., on 01.07.2015 for a sum of Rs.37,24,000.00. The work was completed though belatedly after a numerous delay which was also attributable to the conduct of the respondent and was further accepted by the respondent to be satisfactory. In this view of the matter, the respondent was not entitled in law to retain the security deposit of the claimant which is liable to be refunded from the date as stated in the statement of claim i.e., 01.07.2015. This claim accordingly is allowed.‖

60. While dealing with Claim No. 4, the learned Tribunal very specifically dealt with the aspect of the work being completed, even though belatedly, but the delay was also attributable to the petitioner seeing its conduct. Hence, this Court is of the view that the learned Tribunal has correctly appreciated the facts and since, the delay was not only attributable to the claimant, the claimant is entitled to a refund after the expiry of maintenance period.

61. Claim No. 5 pertains to an amount of Rs. 45,000/- on account of penalty recovered from the running bills. The Claim as per statement of Claims is reproduced herein: ―Claimant claim Rs. 45, 000/- as refund of penalty recovered. The work was delayed on account of Respondent. Please refer Respondent's letter dated 20-03-2015 written to Dy CE/ C/T &C by which detail reasons were forwarded for delay in execution of work and Respondent indeed recommended to Head Quarter office Kashmere Gate Delhi, for waiver of penalty and payment of PVC. Respondent vide letter dated 10-08-2015 informed that final bill as submitted by the claimant was examined and is not acceptable. It is pertinent to point out that without joint measurement respondent unilaterally decided not to accept the final bill submitted by· the claimant. Respondent further stated that due to variation in quantity of Ns:.[3] negotiation had to be done and case is under process and only after negotiations final A & C will be processed and sanctioned.‖

62. A relevant portion of the impugned Arbitral Award dealing with Claim No. 5 has been reproduced below: ―66. The claimant has made a claim for an amount of Rs.45,000 / - on account of penalty recovered from the running bills. The letter dated 20.03.2015 issued by the respondent and the reading of the same clearly indicates that the reasons considered for granting various extensions cannot be attributable to the claimant. In view of the matter, the penalty recovered by the respondent for granting various extensions is completely unjustified and therefore this claim is accordingly allowed.‖

63. While deciding Claim No. 5, for an amount of Rs. 45,000/- on account of penalty recovered from the running bills, the learned Tribunal very specifically referred to the letter dated 20th March 2015 removing the liability from the claimant in case of delays caused in the work. Ultimately, the Claim was granted in the favour of the claimant. This Court is of the view that since, the claimant is not solely responsible for various extensions sought for the completion of the project, the learned Tribunal has not erred in granting penalty of Rs. 45,000/- to the claimant.

64. Counter Claim No. 1 dealt with the claim made by the petitioner of Rs. 15,29,516/- on account of using the Earth from outside the Railway boundary which is liable to be paid to the District Mineral Office, J&K. The Counter Claim No. 1 is reproduced herein: ―41. An amount of Rs. 15,29,516/- is due against the claimant on account of using the Earth from outside the Railway boundary which is liable to be paid to the District Mineral Office, J&K.‖

65. A relevant portion of the impugned Arbitral Award dealing with Counter Claim No. 1 has been reproduced below: ―81. The respondent has made a claim of Rs. 15,29,516/- on account of using the Earth from outside the Railway boundary which is liable to be paid to the District Mineral Office, J&K.-The claimant was not making the payment of royalty and, therefore, letter dated 01.03.2016 was written by District Mineral Office, Samba, J&K to Dy.CE/E/NR on account of using the earth from outside. As such the respondent is required to deduct the said amount along with TDS @ 2% from the pending bills of the claimant. During the course of arguments, the learned counsel of the respondent has not placed any cogent material on record. Firstly, this amount is allegedly due from the Claimant and secondly that the District Mineral Office, Samba was pressing for the payment. It is also not established that the claimant has used the earth from outside railway boundary wall and, therefore, he was not liable to pay this amount. The determination which is required to be done- is whether such an event took place and the claimant was responsible for the same. The averment of the respondent is not supported by cogent evidence nor any material has been placed on record to substantiate that the claimant is liable to pay this amount. Moreover, it is admitted that no such amount till date has been disbursed to the District Mineral Office, Samba, J&K. The counter claim as raised by the respondent is, therefore, rejected and no deduction is liable to be made from the security deposit held by the respondent which the respondent is liable to refund with interest.‖

66. In Counter Claim No. 1, the learned Tribunal very specifically analysed all the documents and witnessed that the petitioner could not bring any cogent material on record for the same and was also not able to prove that the claimant had used the earth from the outside railway boundary wall. This Court is of the view that since, there was no cogent material to show that the claimant has used the earth from outside the railway boundary wall, the learned Tribunal has not erred in rejecting the Counter Claim No. 1.

67. Counter Claim No. 2 dealt with the claim by petitioner for a sum of Rs. 15,64,571.43/- regarding milestone penalty is concerned. The Counter Claim No. 2 is reproduced herein: ―42. That the milestone penalty, has been worked out to the tune of Rs.15,64,571.43 for period w.e.f. 23.12.2011 to· 31.12.2014 as per the agreed terms and conditions of the contract agreement, to which the respondent reserves its right to recover the same as per the agreement. The respondent has sought indulgence of this Tribunal for an award of this amount of Rs. 15,64,571.43 in the interest of justice.‖

68. A relevant portion of the impugned Arbitral Award dealing with Counter Claim No. 2 has been reproduced below: ―82. The respondent has made a claim for a sum of Rs. 15,64,571.43 with regard to milestone penalty for period w.e.f. 23.12.2011 to 31.12.2014 as per the agreed terms and conditions of the contract agreement, to which the respondent reserves its right to recover the same as per the agreement. The learned counsel for the respondent has not referred to any part of the contract agreement to justify this penalty. It is also not in dispute that the work was required to be· completed within the period of 6 months i.e., up to 22.12.2011 and it took more than that and was completed in 36 months i.e., up to 31.12.2014. The claimant sought extensions and most of these extensions were granted without any penalty. In some cases, the respondent was also responsible for delay. In this view of the matter, the entire blame cannot be fastened on the claimant for the delay and it is not in dispute that the respondent on its own showing was also responsible for delay in execution of the project, thus the respondent cannot be exonerated from the responsibility to cooperate and in releasing funds to the claimant at regular intervals in accordance with the contract agreement. The levy of penalty in the facts and circumstances of the present case cannot be justified and the same is rejected.‖

69. It is clear from the passage produced above the learned Tribunal after perusing all the document and evidences rejected the levying of penalty on the claimant holding that the petitioner could not refer to any part of the contract to justify the penalty. Further, the petitioner was also responsible for the delay and the entire blame could not be fastened on the claimant for the delay caused. This Court is of the view that the petitioner is also responsible for the delay caused and the extensions sought by the claimant/ respondent was granted by the petitioner without penalty. Hence, the claimant/ respondent is not liable for the grant of penalty in the present case.

70. As followed from the discussion mentioned above, it is clear that the learned Tribunal has carefully perused all the documents, evidences and the claims in arriving to the findings. Further, it is manifestly clear that this Court has a very limited scope of interference under Section 34 of the Arbitration act. The ground for public policy has been carefully crystallized by the judicial pronouncements of various courts. In these circumstances, this Court is of the opinion that the petitioner has neither been able to point out any error apparent on the face of the record, nor otherwise made out a case for interference with the award by the Arbitrator with respect to this issue. Thus, this Court comes to the conclusion that the Award passed by the learned Arbitrator passed the muster of public policy enshrined in Section 34 of the Arbitration Act. Moreover, the Impugned Award is also not in conflict with the public policy of India and thus does not suffer from any infirmities enshrined under Section 34 of the Arbitration Act.

ISSUE 2 Whether the arbitrator had no jurisdiction to try and decide on the merits of the claims before deciding the issue of excepted matters first ultimately falling under the rigours of Section 34(2)(a)(iv)?

71. It is submitted by learned counsel for the petitioner that the learned Tribunal had no jurisdiction in the present case as the claims fell within the „excepted matter‟ category. The major contention of the petitioner is that the learned Tribunal went into the merits without dealing with the issue pertaining to excepted matters first. Further, he contends that the learned Tribunal had no jurisdiction to deal with the „excepted matters‟. Reliance has been placed by the petitioner on G.M., Northern Railway v. Sarvesh Chopra, (2002) 4 SCC 45, to state that the excepted matters cannot be referred for adjudication to the Arbitrator. Such matters are not arbitrable and cannot be decided by the Arbitrator.

72. It is pertinent to cite the relevant clauses of GCC-1999 dealing with the matters to be referred to arbitration and the excepted matters during the arbitration: ―63. Matters finally determined by the Railway – All disputes and differences of any kind whatsoever arising out of or in connection with the contract, whether during the progress of the work or after its completion and whether before or after the determination of the contract, shall be referred by the contractor to the GM and the GM shall within 120 days after receipt of the contractor‘s representation make and notify decisions on all matters referred to by the contractor in writing provided that matters for which provision has been made in clauses 8, 18, 22(5), 39, 43(2), 45(a), 55, 55-A(5), 57, 57A,61(1), 61(2) and 62(1) to (xiii) (B) of General Conditions of contract or in any clause of the special conditions of the contract shall be deemed as ‗excepted matters‘ (matters not arbitrable) and decisions of the Railway authority, thereon shall be final and binding on the contractor; provided further that ‗excepted matters‘ shall stand specifically excluded from the purview of the arbitration clause.‖ 64 (1)(i) – Demand for Arbitration In the event of any dispute or difference between the parties hereto as to the construction or operation of this contract, or the respective rights and liabilities of the parties on any matter in question, dispute or difference on any account or as to the withholding by the Railway of any certificate to which the contractor may claim to be entitled to, or if the Railway fails to make a decision within 120 days, then and in any such case, but except in any of the ―excepted matters‖ referred to in Clause 63 of these conditions, the contractor, after 120 days but within 180 days of his presenting his final claim on disputed matters shall demand in writing that the dispute or difference be referred to arbitration.‖

73. Section 34 (2)(a)(iv) of the Act becomes relevant for this Court to refer here as it contains the clauses for the scope of submission before arbitration. It deals with the setting aside of the award if it contains a decision on matters beyond the scope of the submission to arbitration. It states that: ―(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or‖

74. This provision is based on Article 34(2)(a)(ii) of the UNCITRAL Model Law which states as under: ―(iii) the award deals with a dispute not contemplated by or not falling within the terms ort of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside.‖

75. In the case of J.G. Engineers Pot. Ltd. v Union of India, (2011) 5 SCC 758, the Hon‟ble Supreme Court held that an award adjudicating claims which are „excepted matters‟ excluded from the scope of arbitration would violate Section 34(2)(a) (iv) and 34(2)(b) of the Act. Making an award by allowing or granting a claim, which is contrary to the terms of the contract, would violate Section 34(2)(b)(ii) read with Section 28(3) of the Act.

76. Malhotra (supra) states that the adjudication of the excepted matter would be a jurisdictional error and can be set aside if the learned Tribunal rules on the excepted matters. It states that: ―In cases of excepted matters, it would be a jurisdictional error if the arbitrator allows a claim prohibited by the contract, and the court may justifiably set-aside the award. If the arbitrator ignores specific terms of the contract, and awards an amount, despite the prohibition in the agreement, the resulting award, being arbitrary, capricious and without jurisdiction will be a nullity. An award made without jurisdiction, the principles of waiver and acquiescence will have no application because there is no estoppel against a statute. The arbitrator being a creature of the contract cannot act contrary to the specific stipulations contained in the arbitration agreement. He must act within the confines of the contract. If the arbitrator travels beyond the terms of the contract, it would be a jurisdictional error, which would vitiate the award. The arbitrator cannot award any amount which is prohibited by the terms of the agreement. The arbitrator cannot assume jurisdiction of a claim which is excepted from arbitration. 1% An award made by an arbitrator over a claim which is not arbitrable as per the terms of the contract would be liable to be set aside. In a case, where there is no escalation clause in a construction contract, the arbitrator cannot assume jurisdiction and grant an increased rate in the award.‖

77. Section 34(2)(a)(iv) does not apply in the present case as the learned Tribunal has been excluding the excepted matters from its ambit of adjudication while placing reliance on the judgments passed by the Hon‟ble Supreme Court in case titled as M/s. Harsha Construction v. UOI & Ors., AIR 2015 SC 270 and Para No. 18 of the judgment passed in case titled as G.M., Northern/Railway v. Sarvesh Chopra, (2002) 4 SCC 45 stating that the claims cannot be allowed if they fall under the category of being „excepted‟. The Court in these judgments stated that: ―18. In the case before us, the claim in question, as preferred, are clearly covered by 'excepted matter'. The statement of claim, as set out in the petition under Section 20 of the Arbitration Act does not even prima facie suggest, why such claims are to be taken out of the category of 'excepted matters' and referred to arbitration. It would be an exercise in futility to refer adjudication by the arbitrator a claim though not arbitrable and thereafter, set aside the Award if the arbitrator chooses to allow such claim. The High Court was, in our opinion, not right in directing the said four claims to be referred to arbitration.‖

78. One of the instances where the learned Tribunal has excluded the adjudication of a claim is contained in Claim No. 1. The learned Tribunal stated that: ―49. The claimant has claimed an amount of Rs. 18,24,885/on account of alleged deduction @ Rs.65.41 per CUM for 26,000 CUM quantity. The respondent has denied this claim and has stated that as per NS-2, the claimant was supposed to dump the earth after cutting it at the designated place, for which the claimant is not entitled to the payment of any leading/ filling of earth, as such; the required deduction has been correctly made in NS-1 for the quantity, which has been made in NS-2 and NS-6. So, the claimant is not entitled for an amount of Rs. 18,24,885/-. The claimant is challenging the measurement; hence the subject claim falls under the category of 'excepted matter', and therefore, is not arbitrable by this Tribunal.‖

79. From the perusal of the Award, it is clear that the learned Tribunal has separated the grain from the chaff and specifically did not entertain the excepted matters. Clauses No. 1,2,4,6,7, and 8 were considered to be non-arbitrable being in the exempted category and hence, were not entertained by the learned Tribunal.

80. It is relevant for this Court to discuss the scope and ambit of Claim No. 3 (PVC Claim) which was granted by the learned Arbitral Tribunal despite contention of the petitioner to be falling under the excepted category. It is noted fact that both the parties have GCC, 1999 binding alongside the contractual obligations. These GCC, 1999 terms were amended on 28th September 2007 to automatically include in the Contract PVC in the tenders of value more than Rs. 1 crore irrespective of the Contract completion and it shall not be applicable to tenders of value less than Rs. 1 crore. The amendment to the PVC in works Contract is reproduced herein: ―(i) The minimum prescribed limit of one year of contract completion period for incorporating Price variation Clause in tenders (para 1 (a) of above referred letter dated 4.4. 96) stands deleted

(ii) Price variation Clause (PVC) shall be applicable for tenders of value more than Rs. 1 crore irrespective of the contract completion period and PVC shall not be applicable to tenders of value less than Rs. 1 crore.

(iii) The present stipulation that "Price variation Clause will not apply if the price variation is up to 5% and that reimbursement/ recovery due to variation in prices will continue to be made only for the amount in excess of 5% of the amount payable to the contractor" vide para 1 of above…‖

81. It is important for this Court to shed light on the Arbitrator‟s power to deal with the PVC/ Escalation in the work contracts. Since, the arbitrator is the creature of the contract and nothing more, in usual scenarios the arbitrator cannot rule on the PVC unless explicitly provided in the contract. The Hon‟ble Supreme Court in Continental Construction Co. Ltd. v. State of M.P., (1988) 3 SCC 82, struck down the award of an arbitrator for extra claim resulting due to price escalation by, inter alia, observing, “there are specific clauses referred to hereinbefore which barred consideration of extra claims in the event of price escalation”. At the same time, the Supreme Court in State of Orissa v. Sudhakar Das, (2003) 3 SCC 27 considering a scenario of absence of escalation cost clause under a contract, inter alia, observed: ―2. It is not disputed that the arbitration agreement contained no escalation clause. In the absence of any escalation clause, an arbitrator cannot assume any jurisdiction to award any amount towards escalation. That part of the award which grants escalation charges is clearly not sustainable and suffers from a patent error. The decree, insofar as the award of escalation charges is concerned, cannot, therefore, be sustained.‖

82. Hence, after perusal of the amendment to GCC coupled with the judgments of the Hon‟ble Supreme Court, this Court is of the view that there was no perversity in learned Tribunal adjudicating to GCC dated 28th September 2007 on the Claim No. 3/PVC Claim having derived its powers from the amendment which implies PVC in case of tenders above 1 crore in value. It is an established fact as per the letter dated 23rd June 2011 awarding work to the claimant/ respondent that the cost of the project was Rs. 7,08,00,479.13/- which is way above the minimum stipulation for the PVC to be applicable.

CONCLUSION

83. Arbitration provides an alternative mode of settlement with a wider and much more extensive room for negotiation between the parties. The Court has a limited role in the arbitration and it is the learned Tribunal that obtains a major role in adjudicating the disputes. The flexibility of arbitration coupled with time efficiency is a highlight of the arbitration which is very difficult to achieve in the traditional court proceedings.

84. Thus, it is high time that the Courts should keep in mind the boundary imposed on their powers while addressing the challenge to the Arbitral Award under Section 34 of the Act. This check on the powers of the Courts is in light of the legislative mandate of the Arbitration Act. It is also a cardinal duty of the Courts to adhere to this check on the powers of the Court and always keep in mind that the Arbitral Award which has been passed by respecting the mandate of the disputing parties, should not be set aside unless and until it suffers from a grave error that shocks the entire conscience of the Court.

85. Considering the factual matrix of the case, authorities cited, pleadings filed and arguments advanced by the parties, this Court comes to the conclusion that the Arbitral Award dated 7th October, 2019 passed by the learned Arbitral Tribunal in the matter titled as M/s J.S. Constructions v. Union of India does not suffer from any infirmities enshrined in Section 34 of the Arbitration Act. The Impugned is not in conflict with the public policy of India. Further, the learned Tribunal has specifically excluded the excepted matters and has not dealt with them in the award.

86. Accordingly, the petition stands dismissed.

87. Pending applications, if any, also stand dismissed.

88. The judgment be uploaded on the website forthwith.

JUDGE JULY 19, 2023 Dy/ds