Full Text
HIGH COURT OF DELHI
Date of Order: 21st February, 2023
UNION OF INDIA ..... Petitioner
Through: Mr. Manish Mohan, CGSC with Mr. Jatin Teotia, Advocates
Through: Mr. Rajiv Kataria and Ms. Debjani Das P., Advocates
CHANDRA DHARI SINGH, J (Oral)
JUDGMENT
1. The instant petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter “the Act”) has been filed on behalf of the petitioner seeking the following reliefs: “(i) Set aside the impugned arbitral Award dated 20.05.2019 passed by the Sole Arbitrator, Sh. Girish Joshi in the arbitration proceedings to the extent under challenge before this Hon'ble Court in the present objection petition;
(ii) Allow claims of the Petitioner and award the amounts claimed under the Statement of Claims with respect to the Claims No. 1,8, 10 & 11; and
(iii) Pass any such other orders as deemed to be fit and appropriate in the facts and circumstances of the present case.”
2. Mr. Manish Mohan, learned CGSC for the petitioner submitted that the Sole Arbitrator while deciding the issue of delay/prolongation of contract held 'delay attributable to both the parties' and further while deciding the issue of wrongful cancellation of contract held 'the cancellation of contract as illegal'.
3. It is submitted that the impugned Award is contrary to law and public policy in as much as the perusal of the impugned Award shows apparent contradictions in the reasoning given by the Sole Arbitrator while awarding the amount against the individual claims.
4. It is stated that the Sole Arbitrator observed that time was essence of the contract and was voidable at the option of the Promisee in conformity with Section 55 of Indian Contract Act, 1872. Further, the Sole Arbitrator specifically concluded that the extension of time of 463 days, as against 365 days for the contract period, was reasonable for completing the work. It is also stated that the Arbitrator has observed that there was enough evidence to show that the Accepting Officer was right on the grounds of merit in cancelling the contract under the powers vested in him through contract conditions. Therefore, the cancellation of contract cannot be termed as illegal.
5. It is submitted that the Sole Arbitrator awarded past interest @ 9% from 12.01.2014 to 18.07.2016, pendente-lite interest @ 9% from 19.07.2016 to 20.05.2019 and future interest @ 9% from the date of receipt of the Award till the implementation of the Award and 12% beyond the period of 90 days from the receipt of the impugned Award, in favour of the Respondent, however, the same was denied to the Petitioner despite the observations of the Arbitrator having concluded the delay/prolongation of contract attributable to both the parties. Therefore, it is submitted that the Arbitrator ought to have at least granted the statutory limitation period of 120 days to the Petitioner for complying with the impugned Award, as a matter of right.
6. It is further submitted that in view of the glaring contradictions in the impugned Award as well as the same being contrary to law and public policy, the Award passed by the Sole Arbitrator merits to be set aside.
7. Per contra, learned counsel for the Respondent submitted that there is no basis whatsoever to the challenges being leveled by the petitioner against the impugned Award.
8. It is submitted that the Respondent was entrusted with the work of providing external water supply and sewerage disposal for five different sites at (1) Tigris Road (2) Sumaran Road (3) Rangpuri (4) Hiran Kudna (5) Nau Sena Bagh; all these sites were quite apart from each other, but were contained in a single contract. Simultaneously, three separate contractors were working at the same site and all three contractors were under three different departmental agencies.
9. It is submitted that the Sole Arbitrator has held that time was not the essence of the contract, and took into consideration the totality of facts while taking a reasonable view of the matter. The Sole Arbitrator further held that the Petitioner was at fault while cancelling the contract, hence, the Respondent is entitled to receive his claims along with other reliefs.
10. It is further submitted that having accepted to allow the contractor to work under compensation and there being no extreme urgency to complete the work, since the associated main building works and works related to supply of electricity to the accommodation were not close enough to completion, the petitioner was legally wrong and unreasonably harsh in cancelling the contract. Therefore, the claim was held legally untenable and hence, the Sole Arbitrator awarded 'NIL' amount to the petitioner against claim No.1.
11. It is stated that the Sole Arbitrator observed that since the main building works would not have got over by around 10.10.2013, as evident from the dates of completion of the works and the external electrification work for all worksites, without which the constructed facilities would not have been usable, was also completed in March 2015, there was no pressure on the petitioner for completion of associated works under the subject contract by 31.10.2013. The Petitioner would have, therefore, determined reasonability of period of extension considering the time delay in execution not attributable to the contractor and the time required to complete balance works keeping in mind hindrances at site.
12. It is submitted that the time for completing was set at large and did not remain the essence of the contract. Had the contract been cancelled on 01.01.2013, sanctity of time being essence of the contract would have been maintained. The petitioner's action of cancelling the contract on 11.01.2014 was, accordingly, held to be bad in law. The Sole Arbitrator therefore, reached the conclusion that cancelling of the contract was wrongful on ground of illegality.
13. In view of the aforesaid, it is submitted that the instant petition being devoid of merits is liable to be dismissed.
14. Heard learned counsels for the parties and perused the record.
15. The petitioner has raised challenge to certain findings and the Award thereto passed by the learned Sole Arbitrator and has not assailed the validity of the entire Award.
16. The main ground taken by the learned senior counsel for the petitioner while assailing the Arbitral Award is that the impugned Arbitral Award is erroneous and contrary to law and public policy. The law regarding patent illegality and public policy of India is no more res integra and has been authoritatively clarified by the Hon’ble Supreme Court in a number of judicial pronouncements.
17. The petitioner has invoked Section 34 of the Act, which is reproduced hereunder:-
20. In the instant case, the petitioner has invoked Section 34 of the Act contending that the Award in question is against the public policy, is in violation of the principles of law and thus is patently illegal. Upon a perusal of the pleadings and hearing the arguments on behalf of the parties, it is clear that the petitioner is aggrieved by only a few of the findings of the learned Sole Arbitrator.
21. The petitioner has raised the ground of contravention of public policy of India to assail the impugned Award. The scope of the expression has been explained by the Hon’ble Supreme Court in Ssangyong Engineering & Construction Co. Ltd. vs. NHAI, (2019) 15 SCC 131, as under:-
cannot be permitted post amendment. However, insofar as principles of natural justice are concerned, as contained in Sections 18 and 34(2)(a)(iii) of the 1996 Act, these continue to be grounds of challenge of an award, as is contained in paragraph 30 of Associate Builders (supra). ***
25. Thus, it is clear that public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as understood in paragraphs 18 and 27 of Associate Builders (supra), or secondly, that such award is against basic notions of justice or morality as understood in paragraphs 36 to 39 of Associate Builders (supra). Explanation 2 to Section 34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) was added by the Amendment Act only so that Western Geco (supra), as understood in Associate Builders (supra), and paragraphs 28 and 29 in particular, is now done away with.
26. Insofar as domestic awards made in India are concerned, an additional ground is now available under subsection (2A), added by the Amendment Act, 2015, to Section 34. Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law. In short, what is not subsumed within “the fundamental policy of Indian law”, namely, the contravention of a statute not linked to public policy or public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality.
27. Secondly, it is also made clear that re-appreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award.
28. To elucidate, paragraph 42.[1] of Associate Builders (supra), namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Paragraph 42.[2] of Associate Builders (supra), however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award. ***
30. What is important to note is that a decision which is perverse, as understood in paragraphs 31 and 32 of Associate Builders (supra), while no longer being a ground for challenge under “public policy of India”, would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse.”
22. The petitioner has also raised the ground of patent illegality while challenging the Award. The Hon’ble Supreme Court in Associate Builders vs. DDA, (2015) 3 SCC 49, while interpreting the same has observed as under:-
This last contravention must be understood with a caveat. An arbitral tribunal must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair minded or reasonable person could do.”
23. A bare perusal of the above-referred pronouncements make it evident that the phrases are not to be construed in their plain meaning and have to be given due caution and consideration while being invoked to assail any Arbitral Award. Therefore, to successfully challenge an Arbitral Award, the petitioner ought to satisfy this Court on the said grounds as provided in the Section 34 of the Act.
24. It is, therefore, clear that the decisive test is that first, the Sole Arbitrator had to adopt a judicial approach; second, the principles of natural justice have to be upheld; and third, the decision must not have been egregious, or rather, perverse.
25. Further in Ssangyong Engineering & Construction Co. Ltd. (Supra), the Hon’ble Supreme Court went on to say that re-appreciation of evidence cannot be permitted under the ground of patent illegality in a Section 34 petition under the Act. The relevant portion has been reiterated below:- “Secondly, it is also made clear that reappreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality on the face of award.”
26. This is so because the decision of the Arbitral Tribunal is final and this Court is not required to carry out an exercise of re-adjudicating the disputes. An Arbitral Award may be impeached on the ground of patent illegality but only under the conditions as explained by the Hon’ble Supreme Court in Delhi Airport Metro Express Pvt Ltd vs. Delhi Metro Rail Corporation (2022) 1 SCC 131, in the terms as reproduced hereunder:- "28. The limited grounds available to Courts for annulment of arbitral awards are well known to legally trained minds. However, the difficulty arises in applying the well-established principles for interference to the facts of each case that come up before the courts. There is a disturbing tendency of Courts of setting aside arbitral awards, after dissecting and reassessing factual aspects of the cases to come to a conclusion that the award needs intervention and thereafter, dubbing the award to be vitiated by either perversity or patent illegality, apart from the other grounds available for annulment of the award.
29. Patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the Arbitral Tribunal would not fall within the expression “patent illegality”. Likewise, erroneous application of law cannot be categorised as patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the scope of the expression “patent illegality”. What is prohibited is for Courts to reappreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as Courts do not sit in appeal against the arbitral award. The permissible grounds for interference with a domestic award under Section 34(2-A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one, or interprets a clause in the contract in such a manner which no fair-minded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression “patent illegality”."
27. A similar finding was earlier enunciated in State of Jharkhand v. HSS Integrated SDN, (2019) 9 SCC 798. The relevant paragraph of the judgment is reiterated below: "6.2. This Court has observed and held that the Arbitral Tribunal is the master of evidence and the findings of fact which are arrived at by the arbitrators on the basis of the evidence on record are not to be scrutinised as if the Court was sitting in appeal."
28. Having analysed the law applicable to the instant case, it is now pertinent to apply the same to the facts of this case.
29. Specific challenges have been made to the findings of the Sole Arbitrator qua the Claims No. 1, 8, 10 & 11 in the impugned Award. The same are being reproduced, perused and discussed hereunder for the convenience of reference.
30. Claim No. 1 pertained to an amount of Rs. 83,56,700/- towards payments against final bill of work done and material lying at the site as on cancellation of the Contract and the Sole Arbitrator in his observation and conclusion has awarded an amount to the tune of Rs. 1797731.56 and thus, the finding has been challenged by the petitioner herein.
31. Claim No. 8 pertained to the loss suffered on account of nonrelease of FDR submitted towards the standing security including Order for release of the FDR. Pertinent to this claim, the Sole Arbitrator has held as under: “(a) Since the cancellation has been found to be wrongful, there is no further reason for the UOI to withhold the FDR and the same should be immediately released to the Second Party. (b) No substantive and clear evidence with supporting documents was produced before the Arbitrator as to where the money, if released would have been invested/utilized to earn the claimed interest of 18%. Therefore, the interest given as per the prevalent rates by the bank on the TDR is considered as a just return and I award 'NIL' to the Second Party against this claim.”
32. Claim No. 10 pertained to the amount of interest and a request was made therein by the Petitioner to award past & pendente lite interest on Claims No 1 to 8 @ 12% from the date of cancellation of the contract till the date of publication of award and also future interest @12% till the date of realisation. It was held as under: "It is an established law that the interest is to be paid on any compensation resulting from breach of a contract by a party to a Contract, awarded to the other party. However, the amount wrt Claims 1 to 8 of UOI admitted by me has already been accounted for against deduction in the final bill or reduction in Claims of the Contractor. No interest is thus admissible. I therefore award 'Nil' against Claim No 10 of UOI."
33. Claim No. 11 pertained to the cost of the arbitral reference and it was prayed by the petitioner therein that rather than accepting the natural, contractual and legal claims of the petitioner, the respondent has dragged the petitioner to various litigations and arbitration proceedings, and therefore, the petitioner was entitled to the cost of the arbitration. It was held as under: "Since cancellation of the contract by UOI was wrongful leading to the current dispute and the contractor having to seek redressal through hon'ble Delhi High Court and arbitration, it is only fair that they themselves bear the costs of reference. Therefore, I award 'Nil' to UOI against Claim No 11."
34. As is a settled law, patent illegality should be an illegality that goes to the root of the matter. The learned counsel for the Petitioner has failed to satisfy this Court as to any gross illegality that is prima facie evident and that goes to the root of the matter. As such, there is no patent illegality in the face of the award itself. The petitioner, in the instant case, has failed to show that there was any patent illegality or error apparent on the face of record and also failed to show that the findings were in contravention to the public policy of India. Merely because a part of the final Award was not in the interest of the petitioner does not make the Award itself liable to be rendered illegal, erroneous or against public policy.
35. There is also no substantive case made out for violation of law and public policy.
CONCLUSION
36. The legislative intent behind enacting the Act is to make justicedelivery simple, inexpensive, party-led and time-bound as well as to take the burden of a big chunk of commercial cases off the conventional Courts. This being the motivation and expectation, the finality of the Arbitral Award gains enormous importance.
37. However, it is a deplorable fact that appealing the award granted by the Arbitrator/Arbitral Tribunal has become a routine practice for the aggrieved party whose claims are not allowed. Subsequently, the challenge petition becomes pending, further adding to the burden of the Courts and at the same time posing a looming threat to the finality of the Award, thus defeating the ends for which the Act had been legislated, and Arbitration as an Alternative Dispute Resolution mechanism has been introduced.
38. The remedy provided in Section 34 against an Arbitral Award is in any case not the same as an appeal. The intention behind incorporating Section 34 was to make the result of the annulment procedure prescribed therein potentially different from that in an appeal. In appeal, the decision under review not only may be confirmed, but may also be modified. In annulment, on the other hand, the decision under review may either be invalidated in whole or in part or be left to stand if the plea for annulment is rejected. Section 34 provides for annulment only on the grounds affecting legitimacy of the process of decision as distinct from substantive correctness of the contents of the decision.
39. As discussed in the foregoing paragraphs, the scope of interference and intervention by a Court in an Arbitral Award is limited in view of the legislative intent behind the enactment of the Act, and even if raised, a challenge to an Arbitral Award must satisfy the test laid down in the Arbitration Act as well as that interpreted by the Hon’ble Supreme Court.
40. In the case at hand, it is evident from the perusal of the impugned Award running into 103 pages that the Sole Arbitrator has appreciated the entire material produced as well as the oral proceedings conducted before it, and thereafter, passed the Award, wherein the findings have been made in the favour of the respondent, directing the petitioner to make necessary payment and reimbursement to the respondent.
41. Therefore, upon consideration of facts and circumstances, submissions made on behalf of the parties and observations and findings in the Award, this Court finds that there is no merit in the instant petition and the challenge therein to the impugned Award dated 20.05.2019.
42. Accordingly, the instant petition is dismissed for being devoid of merit.
43. Pending applications, if any, also stand dismissed.
44. The order be uploaded on the website forthwith.