C R Menon v. Oil and Natural Gas Corporation

BROAD QUESTIONS FOR CONSIDERATION:

13. The following broad questions amongst others arise for consideration in this Appeal.

(i) When admittedly the agreement was a rate contract, whether the Arbitrator committed jurisdictional error by applying rate on pro-rata basis which was dehors the agreement, thereby, committing patent illegality, being in conflict with the public policy of India, being contrary to the fundamental policy of Indian Law, as well as most basic notions of justice, thereby attracting section 34 (2) (a) (iv), 34 (2) (b) (ii) and 34 (2-A) of the Arbitration Act?

(ii) Whether the decision in the Petition under section 34 of the Arbitration Act was rendered by ignoring that the Award was made beyond the terms of the contract and thus the view of the Arbitrator could not have been termed as a possible view?

(iii) Whether rejection of the counter claim by the

CONSIDERATION OF SUBMISSIONS ON POINTS (i) and (ii):

14. Having carefully considered the material on record, in our view Mr Cama for the Appellant is right in submitting that the Respondent has not disputed that the contract was extended for one more year for the period from 1st November 1993 till 31st October 1994 on the same terms and conditions. A perusal of the terms and conditions of the Agreement shows that it does not provide for any change in the method of payment and/or any kind of reduction in the rate of payment. Though the Arbitrator held that the contract between the Appellant and the Respondent was a job contract on tonnage basis, he erroneously accepted the claim of the Respondent regarding the excess payment made to the Appellant by adopting a rate on a pro-rata basis.

15. A perusal of the report dated 14th March 1996 of the in-house committee, which is at page no. 69 of the convenience compilation, shows that the committee recommended release of payment of Rs. 9,34,076.58, which was payable as per books of accounts of the Respondent. It is pertinent to note here that the Respondent accepted the recommendation made by the committee and made payment of the recommended amount. It was only after a period of three years that the Respondent on 17th March 1999, informed the Appellant that the amount paid by the Respondent as per the recommendation made by the committee was ‘a mistake’ and thus called upon the Appellant to refund the amount of Rs. 9,17,076.58. We find that once the Respondent accepted and acted upon the report of its own in-house committee, which was appointed by the Respondent itself, it was illegal on the part of the Respondent to contend that the excess payment was made by mistake and to then claim a refund of the amount paid to the Appellant. Moreover, the recommendations of the in-house committee were based on the entries in the account books maintained by the Respondent itself. The Respondent has not disputed the entries made in its own account books which were considered by the in-house committee. The Arbitrator was thus in serious error by making calculations on a pro-rata basis for holding that there was excess payment of Rs. 2,18,696/-. The calculation on a pro-rata basis was contrary to the terms of the contract, which was a fixed rate contract based on the quantity of materials handled by the Appellant.

16. For a clearer understanding of the payment clause in the Agreement, it is necessary to quote the payment clause in schedule D of the agreement which is at page no. 90 of the Appeal paper book. It reads thus: “The rate for each tonne of Cargo/Material handled in as mentioned as below:

┌────────────────────────────────────────────────────────┐
│ SL NO.           JOB       LESS THAN BEYOND BEYOND     │
│           DESCRIPTION 80000 Tns 80000 Tns 90,250 Tns   │
│                                            UPTO        │
│                                            90,250      │
│                                             TNS        │
└────────────────────────────────────────────────────────┘

Equipment or Wharf (including Shifting, Loading & Offloading at Wharf & Lashing on OSVs) Rs. 41.25 Rs. Forty One & Twenty Five paise M/T Free of Charge Rs. 4.50 Four Rupees & Fifty Paise per M/T OR

OSV to Wharf on transport equipment (including shifting, Loading & Offloading at wharf & lashing on OSVs.) Rs. 41.25 Rs. Forty One & Twenty Five paise M/T Free of Charge Rs. 4.50 Four Rupees & Fifty Paise per M/T NOTE: A) The operations mentioned in (A) & (B) above shall be considered separately from each other for the purpose of payment. But only one Rate/Ton for both the operations shall be payable. For the above purpose wharf shall mean 30 meters from the sea end of the jetty. B) ONGC guarantee payment for handling a total of at least 80,000 tonnes per annum i.e. even if the total cargo handled (i.e. Loaded & Unloaded) during a given year is less than 80,000 tonnes, payment, as per above rate, shall be for the full quantity of 80,000 tonnes. The final adjustment (80,000 tonnes) shall be done on the completion of 80,000 tonnes or at the close of the contractual year or whichever is earlier.” (emphasis added)

17. Schedule D of the Agreement provides for a fixed rate for payment. There is no provision in the agreement for calculation on a pro-rata basis or for reduction in the prescribed rate for payment. The claim of the Appellant regarding the particular quantity handled by him during the contract period has neither been disputed by the Respondent nor shown to be incorrect. The terms and conditions of the Agreement specifically provide for payment towards the work done as per the fixed rate provided in the contract. Thus, the reasons given by the Arbitrator for accepting the contention of the Respondent of calculating the amount on pro-rata basis has absolutely no foundation in the contract or the evidence on record before the Arbitral Tribunal. Thus, if fixed rate as per the agreement is applied, it is clear that there was no excess payment made to the Appellant as sought to be contended by the Respondent.

18. The Respondent tried to rely upon the note (B) at the end of the Schedule D of the Agreement in support of the contention that excess payment was made to the Appellant. We find that the said note (B) in fact guarantees the payment for handling “at least” 80000 tonnes per annum. The Respondent has specifically pleaded in paragraph no. 8 of statement of claim that minimum business of Rs. 33 Lakhs (80000 MT X Rs. 41.25 per ton) was guaranteed for the Appellant. Therefore, the reliance placed by the Respondent on the said note (B) could not be a basis for contending that additional payment was made to the Appellant.

19. The Respondent was unable to show any provision in the Agreement entitling the Respondent to recover any amount from the Appellant towards any payment made to the subsequent contractor. The Respondent was also unable to show that such payment was actually made to the subsequent contractor. Hence, such amount could not have been added in the calculations in the claim of the Respondent.

20. The Arbitrator has not recorded any finding for arriving at the conclusion that there was re-release as retention money of Rs. 10,21,037/-. The Arbitrator erroneously held that an amount of Rs. 12,39,733/- plus interest @ 18% was payable by the Appellant to the Respondent.

21. A perusal of the impugned Order passed by the Learned Single Judge, shows that these aspects have been completely overlooked.

22. The Learned Single Judge misconstrued the contention of the Appellant that the Award passed for payment in excess of the amount of Rs. 917056.58 was beyond the scope of points framed by earlier order dated 8th February 2005. The Learned Single Judge did not consider the said contention, and only held that the said order was passed at the behest of the Appellant and was never challenged. This reason is obviously erroneous, as by the said Order dated 8th February 2005, the Arbitrator was specifically directed to consider whether any sums were due and payable by the Appellant to the Respondent or by the Respondent to the Appellant and, if so, what would be that amount after taking into account a sum of Rs. 9,17,076.58 paid by the Respondent to the Appellant. A perusal of the Order dated 8th February 2005 will show that the contention of the Appellant that the Arbitrator had no jurisdiction to pass an award over and above the sum of Rs. 917056.58 from the Appellant was not at all decided. Thus, there was no reason for the Appellant to challenge the said Order dated 8th February 2005. Therefore, the Appellant was justified in raising the said contention before the learned Single Judge.

23. To conclude, the claim by the Respondent for refund of Rs. 9,17,056.58 was wholly illegal for the reasons recorded above. The additional claim granted to the Respondent by the Arbitrator by making calculations on a pro-rata basis was completely contrary to the terms of the contract. Thus, the award made by the Arbitrator on the claim of the Respondent was liable to be set aside.

CONSIDERATION OF SUBMISSIONS ON POINT (iii):

24. We also find that the Appellant is correct in submitting that it is not disputed by the Respondent that, as per the contract, the Appellant was under an obligation to employ only 52 workers, which the Appellant did employ as per clause no. 7.20, which reads thus: “7.20 The Contractor has to employ the workmen, who were on the roles of the previous contractor as on 01.05.1990” There is no dispute that such employees were only 52 in number. Thus, the rate for payment provided in the Agreement was after taking into consideration the obligation of the contractor to employ only 52 workers. The Appellant relied upon the statement of additional expenditure which was produced before the Arbitrator incorporating the calculations of the total amount of expenditure of Rs. 24,07,620/- incurred for employing 44 additional workers for the period from January 1993 to February 1994. The calculations submitted by the Appellant regarding the expenditure incurred on employing the additional 44 workers were not disputed by the Respondent. Therefore, there was no justification for the Arbitrator to reject the counter claim made by the Appellant for compensation for payment made to these additional 44 workers.

25. The counter claim was made in the sum of Rs.30,88,631.42 on account of expenditure incurred by the Appellant for employing additional workers as well as on account of unpaid bills for the period from November 1993 to March 1994. The report dated 14th March 1996 of the in-house committee, which is at page no. 69 of the convenience compilation, shows that the committee has recorded that the payment of compensation against deployment of additional 44 workers and payment for the month of February 1994 had to be considered after receipt of details from the contractor i.e. the Appellant. The documents produced on record show that the Appellant did submit the relevant details in support of his claim for expenditure towards additional workers as well as towards unpaid bills, by submitting letters/representations before the committee on 15th March 1996 and 2nd April 1996. Thus, the Arbitrator ought to have considered the recommendations made by the committee appointed by the Respondent itself and the material produced by the Appellant in support of his contentions.

26. The Respondent relied upon a Memorandum of Understanding (“MOU”) before the Arbitrator for opposing the counter claim of the Appellant. However, the Respondent was unable to show us that any such MOU providing for employing additional workers was produced on record. Thus, the approach of the Arbitrator is patently illegal and contrary to the most basic notions of justice. Thus, the counter claim of the Appellant for additional expenses deserved favourable consideration.

27. We find that these aspects were not taken into consideration by the learned Single Judge and thus the conclusion arrived at by the Arbitral Tribunal could not have been accepted as a possible view.

28. The particulars of the counter claim submitted by the Appellant consist of the unpaid amount as per the contract, expenses for employing 44 additional workers as well as the interest on the unpaid amount. In the calculations made by the Appellant, a sum of Rs. 9,17,076/- already received by the Appellant is deducted or adjusted. Though the agreement provided for employing only 52 workers engaged by the earlier contractor, at the instance of the Respondent, the Appellant was required to employ 44 additional workers and bear the burden of paying them. Hence, by necessary implication, the Respondent was under an obligation to reimburse the Appellant for expenditure incurred for employing additional 44 workers. Thus, considering the terms and conditions of the contract and the undisputed fact regarding employment of additional 44 workers, the counter claim filed by the Appellant deserved consideration. Hence, the Award made on the counter claim deserves to be set aside. CONCLUSIONS:

29. For these reasons, we hold that the finding recorded by the Arbitrator on the claim made by the Respondent regarding excess payment is against the terms of the Agreement, unreasonable, and patently illegal. In addition, the finding recorded by the Arbitrator on the counter claim is patently illegal. Hence, the findings of the Learned Single Judge that the view of the Arbitrator was a possible view is completely erroneous and cannot be sustained. It is settled law that a patent illegality is a ground for setting aside a domestic award.[1]

30. Now the question is, after setting aside the Award, whether the counter claim can be allowed? The question that follows is whether this Court, exercising jurisdiction under section 37 read with section 34 of the Arbitration Act, can modify, vary or remit the Award. The law in this aspect is no longer res integra. In a recent judgment in NHAI v M. Hakeem[2] Supreme Court considered a catena of judgments on this issue and especially, its decisions in case of Mcdermott International INC v Burn Standard Co. Ltd.[3] as well as Kinnari Mullick v Ghanshyam Das[4] and summarized the legal position as under:

“25. As a matter of fact, the point raised in the appeals stands concluded in McDermott International Inc. v. Burn Standard Co. Ltd. [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181], where this Court held: (SCC p. 208, paras 51-52) “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 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 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.”

26. This statement of the law was followed in Kinnari Mullick v. Ghanshyam Das Damani [Kinnari Mullick v. Ghanshyam Das Damani, (2018) 11 SCC 328: (2018) 5 SCC (Civ) 106] at p. 334 (see para 15). … …

31. Thus, there can be no doubt that given the law laid down by this Court, Section 34 of the Arbitration Act, 1996 cannot be held to include within it a power to modify an award. The sheet anchor of the argument of the respondents is the judgment of the learned Single Judge in Gayatri Balaswamy [Gayatri Balaswamy v. ISG Novasoft Technologies Ltd., 2014 SCC OnLine Mad 6568: (2015) 1 Mad LJ 5]. This matter arose out of a claim for damages by an employee on account of sexual harassment at the workplace. The learned Single Judge referred to the power to modify or correct an award under Section 15 of the Arbitration Act, 1940 in para 29 of the judgment. Thereafter, a number of judgments of this Court were referred to in which awards were modified by this Court, presumably under the powers of this Court under Article 142 of the Constitution of India. In para 34, the learned Single Judge referred to para 52 in McDermott case [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] and then concluded that since the observations made in the said para were not given in answer to a pointed question as to whether the court had the power under Section 34 to modify or vary an award, this judgment cannot be said to have settled the answer to the question raised finally”

48. 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.” (Emphasis added)

31. Thus, the settled position is that, while dealing with a Petition under section 34 of the Arbitration Act, the Court can set aside the award but cannot modify the award by substituting it. However, it is also settled law that in the peculiar facts of a given case, the Court can, after setting aside the award, leave it to the parties, or to one particular party, to adopt such remedies as are available to them in law, including arbitration.

32. For the reasons which we have recorded earlier, the award as well as the additional award are illegal and therefore the same deserve to be set aside. Consequently, the impugned Judgment and Order of the learned Single Judge will have to be set aside. However, considering the findings which we have recorded as regards the counter claim, as held by the Apex court in the case of Mcdermott, the Appellant will have to be given an option to again begin the arbitration confined to the counter claim.

33. Hence the Appeal succeeds. We pass the following Order.

(i) The impugned Judgment and Order dated 8th March 2006 passed by the learned Single Judge in Arbitration Petition No. 18 of 2003 is quashed and set aside and Arbitration Petition No. 18 of 2003 is allowed in terms of this judgment;

(ii) The Award dated 11th September 2002 and the additional Award dated 9th September 2005, by the Arbitrator passed on the claim filed by Respondent are set aside. The Claim made by the Respondent is dismissed;

(iii) The Award dated 11th September 2002 and the additional Award dated 9th September 2005 made by the sole Arbitrator on the Counter Claim of the Appellant is quashed and set aside. However, the Appellant is at liberty to begin the arbitration again confined to his counter claim;

34. The present Appeal is allowed on the above terms, with no order as to costs. (Gauri Godse, J) (G. S. Patel, J)

SIDDHARAM MASHAL