Full Text
HIGH COURT OF DELHI
Date of Decision: 16.10.2019
U. P. SAINIK KALYAN NIGAM LTD. ..... Petitioner
Through Mr. Pratap S. and Mr. Rishu Aggarwal, Advocates.
Through Ms. Anjana Gosain and Ms. Himanshi, Advocates.
JUDGMENT
1. The present petition has been filed under Section 34 of the Arbitration and Conciliation Act, 1996 („Act‟) for modifying the Award dated 2.9.2009 passed by the Arbitrator in Arbitration Case No. 88/2008, whereby the Arbitrator has rejected Claim Nos. 1, 2, 5, 6, 7, 8 and 9 against the petitioner.
2. The petitioner is an Enterprise of the Government of Uttar Pradesh incorporated as a Company under the Companies Act. The petitioner entered into an agreement dated 16.1.1994 with the respondents for providing security services at the IGI Airport. The said agreement 2019:DHC:5310 was to remain in force initially for a period of two years, i.e. from 15.1.1994 to 14.1.1996. The same was however periodically extended from time to time without any break.
3. It is the case of the petitioner that as per the terms of the agreement the petitioner had to render security and watch and ward and surveillance services to the Authority at the International Cargo Terminal Import Warehouse and at other allied areas at the IGI Airport, New Delhi.
4. In terms of Article 17 of the Agreement, the petitioner was required to give a Bank Guarantee for an amount of Rs.2,00,000/- in lieu of the security deposit for compliance of the contract. The said Bank Guarantee was furnished for due performance by the petitioner.
5. It is the case of the petitioner that the petitioner and all its workforce performed all their obligations with dedication and to the satisfaction of the respondent. Despite this, the respondent abruptly informed the petitioner vide its letter dated 11.3.2002, that it had decided to induct a new security agency with effect from 14/15th March, 2002. This, according to the petitioner, was a breach of the contract. This created a huge turmoil and financial crises for the petitioner and about 500 employees were rendered jobless.
6. The petitioner vide its Letter dated 20.11.2002 raised a bill for an amount of Rs.22,64,083/- on account of one month‟s remuneration and requested for early payment. This amount was in lieu of the one month‟s notice which the respondent had failed to give before termination, in terms of the agreement. Several reminders sent by the petitioner elicited no response from the respondent.
7. It is the further case of the petitioner that in breach of the agreement the respondent withheld a sum of Rs.4,17,082.51/- which was in violation of Article 28 of the Agreement. As per the said clause 1% of the bill amount for the given month was payable to the petitioner, as reward, if no instance of pilferage/theft occurred at the cargo terminal during the said month. No bill was required to be preferred on this account. Payments were to made on six monthly basis.
8. According to the petitioner, respondent was also liable to refund certain telephone charges, illegally deducted by them, besides electricity bills. On account of the said and certain other disputes having arisen between the parties, the petitioner sent a Legal Notice dated 26.2.2005 to the respondents calling upon them to settle the disputes. Respondent was also called upon to appoint an arbitrator in accordance with Article 30 of the Agreement.
9. Getting no favourable response from the respondent, the petitioner approached this Court seeking appointment of a Sole Arbitrator and vide order dated 28.5.2008 this Court appointed a Sole Arbitrator for adjudicating the disputes between the parties. The petitioner filed its statement of claim raising the following claims: “CLAIM NO. 1: Rs. 22,64,083.00 which is due and payable in terms of the Claimant‟s Bill No. 3817/UP PSKN Ltd/2002-03 dated 20.11.2002.
CLAIM NO. 2: Rs. 4,17,082.51 being the amount withheld by the Respondent which is due to the Claimant on account of award for no theft and pilferage.
CLAIM NO.4: Rs. 62,458.27 on account of deductions wrongly made from the Salary and Wages Bills towards Electricity Charges.
CLAIM NO. 7: Interest @ 18% per annum on claims 1 and 2 from 22.11.2002 and 28.5.2003 respectively till the date of payment. Interest @ 24% on claims 3,4,[5] and 6 with effect from 19.6.002, 19.6.2002, 25,5,2003 and 15.9.2002 respectively.
CLAIM NO. 8: Rs. 10,00,000.00 as damages for wrongful acts and willfully causing financial loss, damage, harassment, unwanted administrative problems and suffering.
10. The Arbitrator rendered an Award dated 2.7.2015 allowing Claim Nos. 3 and 4, but rejected the remaining claims of the petitioner.
11. Learned counsel for the petitioner submits that as per Clause 1 of the agreement between the parties, respondent was liable to give a 30 days‟ notice to the petitioner before terminating the contract. In any case the termination was illegal as the contract was extended from time to time without any break upto 14/15th March, 2002 and there was no cause of complaint against the petitioner. The letter for further extension dated 7.1.2002 was under consideration of the Competent Authority. Though the contract was arbitrarily and abruptly terminated, respondent availed of the services of the petitioner beyond March 2002, without any formal extension. The petitioner is thus entitled to Rs.22,64,083/- in lieu of one month‟s mandatory notice, which the respondent failed to give, prior to the illegal termination.
12. Learned counsel for the petitioner next contends that Claim No. 2 has been erroneously rejected. Article 28 of the Agreement between the parties clearly stipulates that if no incidence of pilferage or theft occurred at the cargo terminal then 1% of the Contract amount would be given for that month as reward, payable in six months. The Arbitrator has erroneously rejected the claim on the ground that there were instances of pilferage and theft, without appreciating that the petitioner claimed reward for only those months in which no such incident occurred.
13. Learned counsel contends that a sudden termination of the agreement created unwarranted turmoil and financial crises for the petitioner and the Arbitrator ought to have allowed Claim No. 8 which was for an amount of Rs.10,00,000/- towards damages.
14. Learned counsel for the petitioner has, on instructions, submitted that he does not press Claim No. 6 with respect to the Bank Guarantee charges. With respect to interest under Claim No. 7 and cost of arbitration under Claim No. 9, learned counsel has feebly argued that the same ought to have been granted by the Arbitrator, as it was the respondent who had forced the petitioner into litigation.
15. Per contra, learned counsel for the respondent has submitted that the claims of the petitioner were barred by time, not having been raised within three years from the date of the expiry of the agreement. The claim with respect to non-payment of 1% of the monthly bills as reward amount was never raised before the respondent and is only by way of an after thought before the Arbitrator. The respondent also denies that there was no theft or pilferage and contends that in fact under Article 27 of the Agreement, respondent was entitled to levy penalty charges on the pilferage and theft.
16. Learned counsel for the respondent further contended that it is wrong for the petitioner to argue that the respondent was required to give 30 days‟ notice before terminating the agreement. The agreement commenced from 15.1.1994 and was to remain in force only till 14.1.1996. It is true that under Article 1 of the Agreement, either party could terminate the agreement by giving one month‟s written notice. The workmen of the petitioner, in fact, had filed a case before this Court in a writ petition seeking regularization of their services wherein a stay had been granted. Due to the said interim order, the Contract was extended from time to time. The last letter of extension was dated 17.7.2001, by which extension was given from 15.06.2001 to 14.12.2001 and it was clearly mentioned that the contract was extended on the existing terms or till the disposal of the case by the High Court, whichever was earlier. The said petition was decided on 21.10.2001 and the stay was vacated. No extension was granted thereafter and thus there was no requirement of giving a 30 days‟ notice.
17. The learned Arbitrator had framed the following issues:
18. An additional issue was also framed, which is as under: “1. Whether the Counter Claim of the respondent is „dehors‟ the contract and not maintainable? (OPC)”
19. Both parties had led their respective evidence, oral and documentary.
20. Insofar as the objection of the respondent that the claims were time barred was concerned, the same was decided against the respondent and the Arbitrator held that the invocation of Arbitration was within three years from the termination of the Contract. The respondent has not assailed this part of the Award and this issue has attained finality between the parties.
21. I have heard the learned counsels for the parties and considered there rival contentions.
22. As regards Issue No. 1, the Arbitrator has held that respondent was not required to give 30 days‟ notice before terminating the Contract. In my view, there is no error in this finding of the Arbitrator. The agreement between the parties was for a period of two years from 15.1.1994 to 14.1.1996. There was no extension of the said agreement in writing by mutual consent of the parties. The respondent had to continue extending the agreement on account of a stay order granted by this Court in a writ petition filed by the workman of the petitioner. It was purely on account of this stay order that the respondent continued with the services of the petitioner. In fact, as rightly held by the Arbitrator when the last letter of extension was issued on 17.7.2001 it was clearly mentioned that the extension was on account of the High Court order and once the petition was decided on 21.10.2001, the respondent was under no obligation to grant any further extension.
23. Once the Contract had come to an end by an efflux of time in 1996 itself and the extensions were purely till this Court decided the matter, there was no requirement for the respondents to give the 30 days‟ notice contemplated under Article 1 of the Agreement. Needless to state that a termination notice of 30 days can only be given in a situation where the contract is subsisting between the parties. There is thus no merit in this contention of the petitioner.
24. With respect to the claim on account of reward equivalent to 1% of the Bill amount due to there being no incidences of pilferage/theft, in certain months, the Arbitrator has examined the claim as well as the evidence led by the petitioner. The Arbitrator has recorded that under Article 28 of the Agreement, a procedure was prescribed whereby cases of theft/pilferage were to be examined through a signed joint statement and only thereafter, the reward could be determined. This process required the petitioner to prefer a claim for the reward and only then the respondent could determine the reward payable. The Arbitrator has noted that the witness of the petitioner Wing Commander T.K. Kabu, CW-1 had admitted that there were joint reports and these indicated instances of theft and pilferage throughout the tenure of the petitioner except for three months viz. June 2001, September 2001 and February 2002. Insofar as the said three months were concerned, the Arbitrator notes that no evidence had been led by the petitioner to show that any amounts were claimed for these months or any joint statements were prepared.
25. Having examined the reasoning of the Arbitrator, which is based on the procedure prescribed under Article 28 of the Agreement, as well as the evidence led before the Tribunal, this Court does not find any perversity in the finding rendered by the Tribunal calling for interference in the rejection of this claim. Once the procedure required joint statements of the parties to be prepared and the said statements revealed theft or pilferage, the petitioner could not be rewarded for the said months. As rightly held by the Tribunal, the petitioner failed to substantiate by evidence that Bills were submitted for the remaining three months, and thus the claim could not have been allowed.
26. Insofar as the claim for interest is concerned, the Tribunal has held that two claims had been allowed under Issue Nos. 7 and 8. The Contract came to an end on 14/15.03.2002 and the arbitration was invoked on 26.02.2005. Petition under Section 11 of the Act was filed only in 2008 and the statement of claims was filed on 04.01.2009. The interest has been declined by the Arbitrator for the period before filing of the claim as the delay during the entire period was on the part of the petitioner. The Tribunal has however granted interest on the amounts awarded at the rate of 18% per annum from the date of filing the statement of claim till the date of the Award as well as future interest in terms of Section 31(7)(b) of the Act. This part of the Award is in accordance with the settled law and there is no perversity in the same.
27. The scope of judicial review under Section 34 of the Act is extremely limited as held by the Apex Court in the case of Associate Builders vs. Delhi Development Authority (2015) 3 SCC 49, relying upon McDermott International Inc. vs. Burn Standard Co. Ltd. & Ors.
36. The third ground of public policy is, if an award is against justice or morality. These are two different concepts in law. An award can be said to be against justice only when it shocks the conscience of the court. An illustration of this can be given. A claimant is content with restricting his claim, let us say to Rs 30 lakhs in a statement of claim before the arbitrator and at no point does he seek to claim anything more. The arbitral award ultimately awards him Rs 45 lakhs without any acceptable reason or justification. Obviously, this would shock the conscience of the court and the arbitral award would be liable to be set aside on the ground that it is contrary to “justice”.
42. In the 1996 Act, this principle is substituted by the “patent illegality” principle which, in turn, contains three subheads:
42.1. (a) A contravention of the substantive law of India would result in the death knell of an arbitral award. This must be understood in the sense that such illegality must go to the root of the matter and cannot be of a trivial nature. This again is really a contravention of Section 28(1)(a) of the Act, which reads as under: “28.Rules applicable to substance of dispute.—(1) Where the place of arbitration is situated in India— (a) in an arbitration other than an international commercial arbitration, the Arbitral Tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India;”
42.2. (b) A contravention of the Arbitration Act itself would be regarded as a patent illegality — for example if an arbitrator gives no reasons for an award in contravention of Section 31(3) of the Act, such award will be liable to be set aside.
42.3. (c) Equally, the third subhead of patent illegality is really a contravention of Section 28(3) of the Arbitration Act, which reads as under: “28.Rules applicable to substance of dispute.— (1)-(2)*** (3) In all cases, the Arbitral Tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction.” 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.
43. In McDermott International Inc. v. Burn Standard Co. Ltd. [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181], this Court held as under: (SCC pp. 225-26, paras 112-13) “112. It is trite that the terms of the contract can be express or implied. The conduct of the parties would also be a relevant factor in the matter of construction of a contract. The construction of the contract agreement is within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and they cannot be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. It is also trite that correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law. [See Pure Helium India (P) Ltd. v. Oil and Natural Gas Commission [(2003) 8 SCC 593: 2003 Supp (4) SCR 561] and D.D. Sharma v. Union of India [(2004) 5 SCC 325].]
113. Once, thus, it is held that the arbitrator had the jurisdiction, no further question shall be raised and the court will not exercise its jurisdiction unless it is found that there exists any bar on the face of the award.”
44. In MSK Projects (I) (JV) Ltd. v. State of Rajasthan [(2011) 10 SCC 573: (2012) 3 SCC (Civ) 818], the Court held: (SCC pp. 581-82, para 17) “17. If the arbitrator commits an error in the construction of the contract, that is an error within his jurisdiction. But if he wanders outside the contract and deals with matters not allotted to him, he commits a jurisdictional error. Extrinsic evidence is admissible in such cases because the dispute is not something which arises under or in relation to the contract or dependent on the construction of the contract or to be determined within the award. The ambiguity of the award can, in such cases, be resolved by admitting extrinsic evidence. The rationale of this rule is that the nature of the dispute is something which has to be determined outside and independent of what appears in the award. Such a jurisdictional error needs to be proved by evidence extrinsic to the award. (See Gobardhan Das v. Lachhmi Ram [AIR 1954 SC 689], Thawardas Pherumal v. Union of India [AIR 1955 SC 468], Union of India v. Kishorilal Gupta & Bros. [AIR 1959 SC 1362], Alopi Parshad & Sons Ltd. v. Union of India [AIR 1960 SC 588], Jivarajbhai Ujamshi Sheth v. Chintamanrao Balaji [AIR 1965 SC 214] and Renusagar Power Co. Ltd. v. General Electric Co. [(1984) 4 SCC 679: AIR 1985 SC 1156] )”
45. In Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran [(2012) 5 SCC 306], the Court held: (SCC pp. 320-21, paras 43-45) “43. In any case, assuming that Clause 9.[3] was capable of two interpretations, the view taken by the arbitrator was clearly a possible if not a plausible one. It is not possible to say that the arbitrator had travelled outside his jurisdiction, or that the view taken by him was against the terms of contract. That being the position, the High Court had no reason to interfere with the award and substitute its view in place of the interpretation accepted by the arbitrator.
44. The legal position in this behalf has been summarised in para 18 of the judgment of this Court in SAIL v. Gupta Brother Steel Tubes Ltd. [(2009) 10 SCC 63: (2009) 4 SCC (Civ) 16] and which has been referred to above. Similar view has been taken later in Sumitomo Heavy Industries Ltd. v. ONGC Ltd. [(2010) 11 SCC 296: (2010) 4 SCC (Civ) 459] to which one of us (Gokhale, J.) was a party. The observations in para 43 thereof are instructive in this behalf.
45. This para 43 reads as follows: (Sumitomo case [(2010) 11 SCC 296: (2010) 4 SCC (Civ) 459], SCC p. 313) „43. … The umpire has considered the fact situation and placed a construction on the clauses of the agreement which according to him was the correct one. One may at the highest say that one would have preferred another construction of Clause 17.[3] but that cannot make the award in any way perverse. Nor can one substitute one's own view in such a situation, in place of the one taken by the umpire, which would amount to sitting in appeal. As held by this Court in Kwality Mfg. Corpn. v. Central Warehousing Corpn. [(2009) 5 SCC 142: (2009) 2 SCC (Civ) 406] the Court while considering challenge to arbitral award does not sit in appeal over the findings and decision of the arbitrator, which is what the High Court has practically done in this matter. The umpire is legitimately entitled to take the view which he holds to be the correct one after considering the material before him and after interpreting the provisions of the agreement. If he does so, the decision of the umpire has to be accepted as final and binding.‟”
56. ……… As has been held above, the expression “justice” when it comes to setting aside an award under the public policy ground can only mean that an award shocks the conscience of the court. It cannot possibly include what the court thinks is unjust on the facts of a case for which it then seeks to substitute its view for the arbitrator's view and does what it considers to be “justice”. With great respect to the Division Bench, the whole approach to setting aside arbitral awards is incorrect. The Division Bench has lost sight of the fact that it is not a first appellate court and cannot interfere with errors of fact.
28. Applying the touchstone of judicial review in view of the said law, this Court finds no grounds to interfere in the impugned award.
29. The learned Arbitrator has examined the contract as well as its provisions carefully. Evidence has been seen while arriving at the findings. The view taken on each of the claims is a plausible view.
30. There is no merit in the petition and the same is hereby dismissed.
JYOTI SINGH, J OCTOBER 16, 2019 rd