The Executive Engineer v. C.V.Thomas

IN THE HIGH COURT AT CALCUTTA

CIVIL APPELLATE JURISDICTION APPELLATE SIDE [CIRCUIT BENCH AT PORT BLAIR] PRESENT: THE HON'BLE JUSTICE DEBANGSU BASAK AND THE HON'BLE JUSTICE JAY SENGUPTA FMAT/4/2019 The Executive Engineer ...

Appellant Vs.

C. V. Thomas ...

Respondent For the appellant : Mr.Arul Prasanth, Advocate For the respondent : Mr.Gopala Binnu Kumar, Advocate Heard on : December 09, 2021 Judgment on : December 14, 2021 DEBANGSU BASAK, J.

1.

The appeal under Section 37 of the Arbitration and Conciliation Act, 1996 is directed against the judgement and order dated October 17, 2019 passed by the learned District Judge on an application under Section 34 of the Act of 1996.

2.

Learned advocate appearing for the appellant has submitted that, the respondent lodged seventeen claims with the Arbitrator. Out of such seventeen claims, the Arbitrator had allowed ten claims and disallowed seven of them. Out of the ten claims that the Arbitrator had allowed, the appellant has challenged four of them. The appellant has challenged the grant of award by the Arbitrator in respect of claim numbers 1, 2, 7 and 15.

3.

Learned advocate for the appellant has submitted that, the learned District Judge affirmed the award of the Arbitrator. Learned District Judge had negated all contentions with regard to claim Nos. 1, 2, 7 and 15 advanced on behalf of the appellant. 4.

Referring to the claim No. 1, learned advocate appearing for the appellant has submitted that, the Arbitrator held that time was not the essence of the contract. According to him, the Arbitrator misconstrued and misapplied the relevant clause of the contract. The learned District Judge had erred in not over turning the award in respect of the claim No. 1 of the Arbitrator. He has submitted that, the agreement between the parties had stipulated that the rates of all items shall be considered as exclusive of pumping or bailing out of water if required for which no extra payment whatever will be made. He has also referred to additional condition No. 3 of the contract. According to him, reading additional

condition Nos. 3 and 5 and the contract clause No. 5, it has to be held that time was the essence of the contract and that, additional work done by the contractor for the exigency of the contract does not prevent imposition of penalty as levy of the compensation. He has contended that the clause 10CC of the contract has no manner of the application in respect of the claim No. 1. 5.

Referring to the claim No. 2, learned advocate appearing for the appellant has submitted that such claim ought to have been turned down by the Arbitrator as well also by the District Judge. He has submitted that, the Arbitrator failed to take into consideration that the department sanctioned 470 days of extension of time without levy of compensation. Therefore, the Arbitrator ought not to have allowed the claim No. 2 for total period of 31 days in view of the appellant extending the time without any levy of compensation.

6.

Referring to the claim No. 7 which relates to coffer dam, learned advocate appearing for the appellant has submitted that, the construction of a coffer dam was beyond the scope of the contract. The respondent may have constructed such coffer dam. The appellant cannot be held to be liable to pay for the same. He has referred to the schedule of quantities to contend that construction of coffer dam was not part of the Agreement. Moreover, the appellant did not sanction construction of coffer dam

as an extra item. According to him, there was no necessity of building a coffer dam as the work was for construction of sea wall only. He has referred to the finding of the learned Arbitrator in this regard in the award and submitted that, the Arbitrator allowed such claim on presumption without any proof of the claim. 7.

Referring to claim No. 15, learned advocate appearing for the appellant has submitted that the respondent is not entitled to any cost of escalation in view of clause 10CC of the condition of contract. In any event, clause 10CC is not applicable in the facts of the present case.

8.

Learned advocate appearing for the appellant has also commented upon the rate of interest imposed by the learned Arbitrator. He has submitted that the interest at the rate of 15% awarded by the learned Arbitrator and upheld by the learned District Judge, is harsh and burdensome. None of the fora has any material before them so as to award interest at the rate of 15% per annum.

9.

In such circumstance, learned advocate for the appellant has submitted that the claim Nos. 1, 2, 7 and 15 of the impugned award be set aside and the impugned judgement of the learned District Judge to such extent be also set aside.

10.

Learned advocate appearing for the respondent has relied upon 2021 SCC Online 695 (Delhi Airport Metro Express Pvt. Ltd. vs. Delhi Metro Rail Corporation Ltd.) and 2021 SCc Online 1056 (Punjab State Civil Supplies Corporation Limited and another vs. M/s Ramesh Kumar and Company and others). He has submitted that given the scope and ambit of challenge under Section 34 of the Act of 1996, the learned District Judge did not err in law or in fact to dismiss the challenge to the award. He has highlighted the scope of enquiry under Section 37 of the Act of 1996. He has submitted that, the present proceeding be dismissed. 11.

Delhi Airport Metro Express Pvt. Ltd. (supra) has construed the provisions of Section 34 of the Act of 1996 and the scope of challenge thereunder. The relevant portions are as follows:- "24. This Court has in several other judgments interpreted Section 34 of the 1996 Act to stress on the restraint to be shown by courts while examining the validity of the arbitral awards. 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 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. This approach would lead to corrosion of the object of the 1996 Act and the endeavours made to preserve this object, which is minimal judicial interference with arbitral awards.

arbitral awards are set aside by categorising them as perverse or patently illegal without appreciating the contours of the said expressions.

25. 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 re-appreciate 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'.

26. Section 34 (2) (b) refers to the other grounds on which a court can set aside an arbitral award. If a dispute which is not capable of settlement by arbitration is the subject-matter of the award or if the award is in conflict with public policy of India, the award is liable to be set aside. Explanation (1), amended by the 2015 Amendment Act, clarified the expression 'public policy of India' and its connotations for the purposes of reviewing arbitral awards. It has been made clear that an award would be in conflict with public policy of India only when it is induced or affected by fraud or corruption or is

in violation of Section 75 or Section 81 of the 1996 Act, if it is in contravention with the fundamental policy of Indian law or if it is in conflict with the most basic notions of morality or justice. In Ssangyong (supra), this Court held that the meaning of the expression 'fundamental policy of Indian law' would be in accordance with the understanding of this Court in Renusagar Power Co. Ltd. v. General Electric Co. In Renusagar (supra), this Court observed that violation of the Foreign Exchange Regulation Act, 1973, a statute enacted for the 'national economic interest', and disregarding the superior courts in India would be antithetical to the fundamental policy of Indian law.

Contravention of a statute not linked to public policy or public interest cannot be a ground to set at naught an arbitral award as being discordant with the fundamental policy of Indian law and neither can it be brought within the confines of 'patent illegality' as discussed above. In other words, contravention of a statute only if it is linked to public policy or public interest is cause for setting aside the award as being at odds with the fundamental policy of Indian law. If an arbitral award shocks the conscience of the court, it can be set aside as being in conflict with the most basic notions of justice.

The ground of morality in this context has been interpreted by this Court to encompass awards involving elements of sexual morality, such as prostitution, or awards seeking to validate agreements which are not illegal but would not be enforced given the prevailing mores of the day." 12.

In Punjab State Civil Supplies Corporation Limited and another (supra)the Supreme Court has observed that the jurisdiction in a first appeal arising out of a decree in a civil suit is distinct from the jurisdiction of the High Court under Section 37 of the Act of 1996 arising from the disposal of application challenging an Arbitral award under Section 34 of the Act of 1996. 13.

The respondent had entered into an agreement with the appellant on February 20, 2008 for "construction of sea wall at

Champin village in Nancowrie for the length of 230.00 meters." The respondent had executed the work under the contract and completed the same on November 17, 2009. The appellant had issued completion certificate on September 27, 2010 certificating that the respondent had completed the contract satisfactorilyand in accordance with the terms of the contract. The respondent had from time to time raised bills upon the appellant. The appellant had made payments to the respondent from time to time. The respondent had also done additional / extra works for which the respondent had raised bills upon the appellant. The contract dated February 20, 2008 had an arbitration clause. Disputes and differences had arisen between the respondent and the appellant in respect of the contract dated February 20, 2008. The respondent had referred such disputes and differencesto arbitration in terms of the arbitration clause contained in the contract dated February 20, 2008.

14.

The Chief Engineer of the appellant had appointed an Arbitrator to adjudicate the disputes and differences arising between the parties.In such arbitration, the respondent had lodged seventeen claims. The Arbitrator had passed an award dated March 16, 2014. In such award, out of the seventeen claims that the respondent had lodged in the arbitral proceeding,the Arbitrator had passed award in respect of ten of them and disallowed seven of

them. Out of the ten items of claim which the Arbitrator had allowed by the award dated March 16, 2014,the appellant challenged four of them in an application under Section 34 of the Act of 1996 being OSR 1 of 2014. Such application had been rejected by the impugned judgement and order dated October 17, 2019. The appellant has filed the present appeal under Section 37 of the Act of 1996 against the judgement and order dated October 17, 2019.

15.

In this appeal under Section 37 of the Act of 1996 the appellant has primarily contended that the arbitral award in respect of award offour of the items namelyclaim Nos. 1,2,7 and 15, suffers from patent illegality and perversity. Same contention had been raised by the appellant in the petition under Section 34 of the Act of 1996.

16.

An arbitral award can be set aside under Section 34 of the Act of 1996, inter alia, on the ground of the impugned award or any portion of it being perverse or being visited by patent illegality. Patent illegality has been explained by the Supreme Court in Delhi Airport Metro Express Pvt. Ltd. (supra). It has held that it is prohibited for the Court to re-appreciate the evidence to concludethat the award suffers from patent illegality appearing on the face of the award as the Court does not sit in appeal against

the arbitral award. It has also observed that conclusion of the Arbitrator which was based on no evidence or being arrived at by ignoring vital evidence is perverse and can be set aside on account of patent illegality.

17.

The respondent had claimed expenditure per month in respect in claim No. 1, levy recovered for 31 days in claim No. 2, expenses for coffer dam in claim No. 7 and payment of escalation payable in claim No. 15. The appellant has raised contentions with regard to these claims.

18.

In the arbitral award dated March 16, 2014, the Arbitrator had considered the fact that there was a delay in the completion of the work under the contract. The Arbitrator had taken into consideration the fact that the original period for completion of work under the contract was 120 days and that the appellant had extended the time period for completion of work under the contract without any levy for liquidated damages for 470 days. The Arbitrator had considered the aspect of extension of time to complete the contract without levy of liquidated damage and the claims made by the respondent. The Arbitrator has taken the view that the work of construction of sea wall was executed in a small remote Island which did not have proper jetty. The respondent had to bring labour from mainland as local labour was not available.

The island had been under the occupation of aboriginal tribe and that the labour could be brought into the island only after getting tribal pass. Building materials had to be transported from different localities and brought to the site with the help of pontoons. The Arbitrator had noted non availability of building materials including cement. The Arbitrator had also noted the users of heavy machineries, the requirement of remobilization of labour and machinery and other factors. The Arbitrator had thereafter allowed a portion of the claim No. 1 that is to say out of a claim sum of Rs 1,65,73,080/-, a sum of Rs. 40,58,100/- was allowed. 19.

In respect of claim No. 2,the learned Arbitrator had noted that the initial period allowed for completion of work under the contract was only four months and that in fact it took 620 days to complete the work. The Arbitrator had noted the initial time given for completion of the contract was unrealistic given the fact that the monsoon was started in the month of May. The Arbitrator had noted that the appellant had allowed the work to prolongfor 620 days thereby showing the intention of the appellant that it was not serious about the completion period. The Arbitrator had noted the extension of time of 470 days without levy of compensation and 31 days with levy of compensation. In such factual matrix, the Arbitrator had held that the time was not the essence of contract

and therefore proceeded to award a sum of Rs. 1,93,364/- in favour of the respondent.

20.

In respect of claim No. 7, being a claim on account of coffer dam for a sum of Rs. 20,16,000/-, thelearned Arbitrator had noted that the sea wall required to be constructed was very close to the sea and that sea water levelwould vary depending upon the tidalcondition. The Arbitrator had noted the foundation work was to be done in the slushy soil in water logged condition. According to the Arbitrator, the earthen bund coffer dam was required to keep sea water from gushing in till the concrete was laid and set. The Arbitrator had proceeded to award a sum of Rs. 9,94,140/- out of the claim of Rs. 20,16,100/-.

21.

In respect of claim No. 15, the Arbitrator had construed clause 10CC of the contract and held that the delay in the work was dueto reasonsnot attributable to the respondent. The Arbitrator had thereafter proceeded to award sum of Rs. 5,39,691 out of the claim of Rs. 12,00,926/-.

22.

So far as interest claim is concerned, the Arbitrator had awarded interest at the rate of 9% from the date of the reference to the actual date of payment provided payment was made before May 31, 2014, the Arbitrator hadproceed to award interest at the rate

of 15% for the period beyond May 31, 2014, in the event no payment was made.

23.

The learned District Judge in the impugned judgment and order dated October 17, 2019 had considered the relevant portions of the award. Learned District Judge had noted that a challenge under Section 34 of the Act of 1996 does not entail review on merits or reappreciation of evidence. The learned District Judge had found that there was nothing to show that the Arbitrator had acted arbitrary, irrationally, capriciously or beyond the terms of the agreement. The learned District Judge had proceeded to reject the challenge under Section 34 of the Act of 1996. 24.

As has been noted in Punjab State Civil Supplies Corporation Limited and another (supra), the jurisdiction of the High Court under Section 37 of the Act of 1996 is distinct from a jurisdiction exercised in a first Appeal. The High Court exercising jurisdiction under Section 37 of the Act of 1996 has not been called upon to reappreciate the evidence led before the First Court and substitute its findings. In our view, a High Court exercising powers under Section 37 of the Act of 1996 is required to examine as to whether the Court passing the order under Section 34 has acted within the contours of Section 34 of the Act of 1996 or not.

25.

In the facts of the present case, the award of the Arbitrator is well reasoned. It has allowed each of the claims by assigning a reason thereof. The reason per se cannot be said to be perverse. The view taken by the Arbitrator in allowing the impugned claim Nos. 1, 2, 7 and 15 is a plausible view which can be taken on the basis of materials placed before the Arbitrator. The impugned award cannot be said to be perverse. Consequently, there was no ground for the learned District Judge to interfere with the impugned portions of the award as contended on behalf of the appellant. The learned District Judge has, therefore, correctly rejected the application under Section 34 of the Act of 1996. 26.

There being no illegality in the impugned judgment of the learned District Judge and no material being placed to substantiate that the learned District Judge has failed to exercise powers under Section 34 of the Act of 1996 correctly, interference under Section 37 of the Act of 1996 is not called for. 27.

FMAT/4/2019 is dismissed. There will be, however, no order as to costs. Lower Court records be sent down forthwith. (DEBANGSU BASAK, J.) 28.

I agree.

(JAY SENGUPTA, J.)