Airport Authority of India v. Innovators Facade Systems Pvt. Ltd.

Delhi High Court · 07 Sep 2022 · 2022:DHC:3675

Anup Jairam Bhambhani

O.M.P. (COMM) 378/2022

2022:DHC:3675

civil petition_dismissed Significant

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The Delhi High Court dismissed the petition challenging the arbitral award allowing claims for increased wages and entry tax reimbursement, affirming limited judicial interference under Section 34 of the Arbitration & Conciliation Act.

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O.M.P. (COMM) 378/2022
HIGH COURT OF DELHI
Date of Decision: 07th September 2022

O.M.P. (COMM) 378/2022 & I.A. 14562-66/2022
AIRPORT AUTHORITY OF INDIA ..... Petitioner
Through: Mr. Kiran Kumar Patra, Advocate.

VERSUS

INNOVATORS FACADE SYSTEMS PVT. LTD. ..... Respondent
Through:

CORAM:

HON'BLE MR. JUSTICE ANUP JAIRAM BHAMBHANI

JUDGMENT

(Judgment released on 15.09.2022)
ANUP JAIRAM BHAMBHANI, J.
By way of the present petition under section 34 of the
Arbitration & Conciliation Act, 1996 (‘A&C Act’ for short), the petitioner/non-claimant impugns arbitral award dated 15.06.2020 rendered by the learned sole arbitrator on disputes that had arisen between the parties from Agreement dated 14.11.2011. The transaction between the parties as comprised in the agreement was for the respondent to undertake the work of ‘External ACP Cladding, Check in Island and Glass Canopy for the New Integrated Passenger
Terminal Building’ at Netaji Subhash Chandra Bose International
Airport, Kolkata.
2022:DHC:3675

2. Although several claims were raised in the arbitral proceedings, the principal points of challenge raised by the petitioner are that by way of the impugned arbitral award dated 15.06.2020, issues Nos.

(iii) and (iv), which related to claims Nos. 1 and 2 have been allowed against the petitioner, which were untenable; and the award is amenable to challenge under section 34 of the A&C Act on those counts, as detailed below.

3. Mr. Kiran Kumar Patra, learned counsel for the petitioner submits that insofar as issue No. (iii)/claim No. 1 towards increased wages for the extended contract period is concerned, the learned sole arbitrator has drawn an inference that is contrary to his own observations in the award. In support of this submission, it is pointed-out that the contract was extended in terms of letter dated 10.01.2014, which recited as under: “REF.1. AGREEMENT NO:AAI/KOL-PORJ/SME(C)/ACP- CANOPY/2011-12/01 DATED.03.10.2011.

2. Your letter No: AAI/JKOL/Proj/ACP-Canopy/Energy(C)/3984 Date.08.01.2014 Reference to captioned above, we hereby state that there shall not be any additional/ extra claim to AAI other than admissible as per contract/ agreement if extension of time is granted to us without any levy.) Further, you are requested to kindly arrange to release all withheld amount against EOT, Land security deposit and any other amount.” (emphasis supplied) It is the petitioner’s submission that the aforesaid letter makes it clear that in consideration of extension of time granted to the respondent to complete the works, the respondent had agreed not to make any additional/extra claims under the contract. However, the petitioner contends that despite having considered letter dated 10.01.2014 addressed by the respondent to the petitioner, the learned sole arbitrator has proceeded to award claim No. 1 as follows: “23. Therefore, when it is a case of payment of increased minimum wages to the labourers, the Claimant is bound to give effect to such welfare scheme and order and pay the increased minimum wages as per the rate fixed. The Claimant had also raised bills in that regard and a compilation of such bills total numbering sixteen are placed on record at pg. 239 of the Statement of the Claim amounting to the claimed amount of Rs.42,54,140.83 which is annexed as Annexure I to the IOC claim Bill dated 28.04.2014. Neither the veracity or validity of the R.A. bills numbering 16 or the claim filed before the Respondent for payment of the amount indicated in the said R.A. bills are challenged before us. The only ground taken is that the claim is time barred and the said amount is not payable since labour/material component is not mentioned in the agreement. The Respondent has nowhere disputed that such payment of increased minimum wages was not made by the Claimant to the labourers.” “24. This argument and defence of the Respondent is belied by the language of Clause 10C of the agreement which provides that in case of wages of labour increases as a direct result of coming into force of any fresh law or statutory rule or order then the amount of the contract shall be varied to the extent of accommodating the increase.”

4. The next challenge to the award is in relation to issue No. (iv)/claim No. 2, which was also decided in favour of the respondent, awarding against the petitioner reimbursement of entry tax of Rs.4,54,339/-, that was paid by the respondent to the West Bengal Government under the West Bengal Tax on Entry of Goods Into Local Areas Act,

2012. It is the petitioner’s contention that the respondent was exempt from payment of entry tax; and even if the respondent had paid such tax, the respondent should have sought refund thereof from the State Authorities. Mr. Patra points-out that this claim is discussed by the learned sole arbitrator in the following words:

“28. This claim relates to payment made by the claimant towards Entry Tax. My attention was invited to the provision of Clause 38(iii) of the contract document which inter-alia provides that the contractor would within a period of 30 days of the imposition of any such further tax or levy pursuant to the constitution of (46 Amendment Act 1982) give a written notice thereof to the Engineer in-charge that the same is given pursuant to this condition together with necessary information relating thereto. The West Bengal Tax on Entry of Goods into Local Area (sic) Act, 2012 was implemented w.e.f. 01.04.2012. Such a notice was given by the contractor to the Engineer in-charge regarding Entry Tax on 04.05.2012. On receipt of the same, the respondent should have verified the claim and given its opinion on the same. The claimant has also placed on record a statement showing Entry Tax details which is dated 28.04.2014. That statement indicates that payment has been made by the claimant towards Entry Tax between 01.04.2012 to 31.03.2013 and the amount shown paid by the claimant in the statement towards Entry Tax is Rs. 4,54,339/-. Therefore, payment towards Entry Tax was deposited by the claimant which is proved from the records as the respondent issued a letter dated 04/07.03.2015 advising the claimant to take up the matter with the State Government for refund of the Entry Tax paid as according to them Govt. of West Bengal has withdrawn the Entry Tax subsequently with retrospective effect. Thus such payment of the amount is also admitted by the Respondent.”

5. Mr. Patra contends that it was neither the petitioner’s responsibility, nor was it possible for the petitioner, to seek refund of entry tax paid by the respondent; and that therefore, the claim ought not to have been awarded in favour of the respondent/claimant. Counsel for the petitioner impugns the manner in which this issue has been dealt with by the learned sole arbitrator, who decided it in the following words:

“29. Further stand of the respondent that it is not duty of the Respondent to take refund from Government Authorities. Having considered the documents on record and the stand taken by the respondent, I find that the stand of the respondent is very unreasonable and unacceptable. It is established from the records that an amount of Rs. 4,54,339/- is paid by the claimant to the Tax authorities towards Entry Tax. In terms of the provisions of contract the same is required to be reimbursed. The Respondent even refused to appoint the Disputes Resolution Committee to settle the claim. It

is settled law that the initial cost incurred by the contractor due to change of law is an amount payable by the employer. If the amount already paid and deposited by the claimant is to be refunded by the State Govt. the same could be done through the joint effort of both claimant and the respondent and the respondent cannot wash its hands off. If the payment in terms of the aforesaid claim was made by the respondent then it would be responsibility of the respondent to get the refund with joint effort of both the claimant and the respondent. Therefore it is directed that an amount of Rs. 4,54,339/be paid to the claimant by the respondent as the said amount is shown to have been deposited by the claimant. After payment of the same, if any amount is to be taken refund from the State authorities it should be done through the joint effort of both the claimant and the respondent and then the refunded amount would go to the respondent.”

6. Now, in the considered opinion of this court, firstly, the award of claim No. 1 is purely a decision on the merits of the disputes, in which this court would not interfere in a petition under section 34 of the A&C Act. Furthermore, in any event, on a fair and objective reading of letter dated 10.01.2014 issued by the respondent to the petitioner in relation to the extension of time for completion of the works, it is seen that in the said letter the respondent said that “…there shall not be any additional / extra claim to AAI other than admissible as per contract/ agreement if extension of time is granted…”. However, on a plain reading of clause 10C of the General Guidelines for Tender dated 01.09.2011 governing the agreement entered into between the parties on 14.11.2011, it is seen that the said clause specifically covers increase in wages payable by the respondent in the following words: “ If after submission of the tender, the price of any material incorporated in the works (excluding the materials covered under Clause 10CA and not being a material supplied from the Engineer-in-charge’s stores in accordance with Clause 10 thereof) and/or wages of labour increases as a direct result of the coming into force of any fresh law or statutory rule or order (but not due to any changes in sales tax/VAT) beyond the prices/wages prevailing at the time of last stipulated date for receipt of the tenders including extensions, if any, for the work, during contract period including the justified period extended under the provisions of the Clause 5 of the Contract without any action under Clause 2, then the amount of the contract shall accordingly be varied and provided further that any such increase shall be limited to the price/wages prevailing at the time of stipulated date of completion or as prevailing for the period under consideration, whichever is less…” ] It is therefore seen, that claim No. 1 towards increased wages for the extended contract period was expressly admissible as per the contract; and this claim was therefore outside the purview of the waiver of additional/extra claim by the respondent, as referred to in letter dated 10.01.2014.

7. Secondly, as regards the objection raised by the petitioner to the award of claim No. 2, on a plain reading of para 28 of the impugned award it is clear that the said sum of Rs.4,54,339/- was admittedly paid by the respondent to the West Bengal Government towards entry tax; and further, that vide letter dated 4/7.03.2015 the petitioner had itself advised the respondent to claim refund of entry tax paid, since according to the petitioner, the West Bengal Government had subsequently withdrawn the entry tax with retrospective effect.

8. From a perusal of para 29 of the impugned award, it is also seen that the learned sole arbitrator proceeded to decide this claim in a manner which is eminently fair and reasonable, holding that if refund is to be sought from the State Authorities, it should be done by joint efforts of both parties; and that the amount refunded would belong to the petitioner.

9. No other objection has either been raised or pressed, in challenge to the arbitral award.

10. At this point it would not be out of place to revisit the well-worn principles regarding the scope and ambit of objections under section 34 of the A&C Act, with a brief reference to the lucid exposition thereof by the Hon’ble Supreme Court in PSA SICAL Terminals Pvt Ltd vs. Board of Trustees of V.O. Chidambranar Port Trust Tuticorin & Ors.1, reiterating what was said in MMTC Limited vs. Vedanta Limited[2]. Some relevant paras of PSA SICAL are as follows:

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“41. It will be relevant to refer to the following observations of this Court in the case of MMTC Limited (supra): “11. As far as Section 34 is concerned, the position is well- settled by now that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited ground provided under Section 34(2)(b)(ii) i.e., if the award is against the public policy of India. As per the legal position clarified through decisions of this Court prior to the amendments to the 1996 Act in 2015, a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice or morality, and the existence of patent illegality in the arbitral award. Additionally, the concept of the “fundamental policy of Indian law” would cover compliance with statutes and judicial precedents, adopting a judicial approach, compliance with the principles of natural justice, and Wednesbury [Associated Provincial Picture Houses v. Wednesbury Corpn., [1948] 1 K.B. 223 (CA)] reasonableness. Furthermore, “patent illegality” itself has been held to mean contravention of the substantive law of

12. It is only if one of these conditions is met that the Court may interfere with an arbitral award in terms of Section 34(2)(b)(ii), but such interference does not entail a review of the merits of the dispute, and is limited to situations where the findings of the arbitrator are arbitrary, capricious or perverse, or when the conscience of the Court is shocked, or when the illegality is not trivial but goes to the root of the matter. An arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts. (See Associate Builders v. DDA [Associate Builders v. DDA, (2015) 3 SCC 49: (2015) 2 SCC (Civ) 204]. Also see ONGC Ltd. v. Saw Pipes Ltd. [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705]; Hindustan Zinc Ltd. v. Friends Coal Carbonisation [Hindustan Zinc Ltd. v. Friends Coal Carbonisation, (2006) 4 SCC 445]; and McDermott International Inc. v. Burn Standard Co. Ltd. [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181])

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

11. Applying the aforesaid settled legal position to the present case, in the considered opinion of this court, quite apart from the fact that the objections sought to be raised relate entirely to matters of merit of the disputes between the parties, which cannot be reviewed or revisited by this court in its jurisdiction under section 34 of the A&C Act; even otherwise, the arbitral award does not suffer from any infirmity or capriciousness or illegality, much less any perversity, as would be amenable to interference under section 34.

12. Accordingly, this court finds no merit in the petition; and the same is dismissed in-limine; without however, any order as to costs.

13. Pending applications, if any, also stand disposed of.

ANUP JAIRAM BHAMBHANI, J. SEPTEMBER 7, 2022

Airport Authority of India v. Innovators Facade Systems Pvt. Ltd.

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