The Andaman And Nicobar Administration v. M/S Bhibhu Sales And Services
IN THE HIGH COURT AT CALCUTTA
CIVIL APPELLATE JURISDICTION APPELLATE SIDE [CIRCUIT BENCH AT PORT BLAIR] PRESENT: THE HON'BLE JUSTICE HARISH TANDON And THE HON'BLE JUSTICE SHIVAKANT PRASAD FMAT/1/2020 The Andaman and Nicobar Administration and others ...
Appellants Vs.
M/s Bibhu Sales and Services ...
Respondent For the appellants : Mr. Ajay Kr. Mandal, Advocate For the respondent : Mr. Gopala Binnu Kumar, Advocate Heard on : September 14, 2021 Judgment on : September 20, 2021 HARISH TANDON, J.
It is an appeal at the behest of the Administration under section 37 of the Arbitration and Conciliation Act, 1996 assailing an order of the District Judge passed on 28th June, 2019 in Other
suit No.4 of 2018 by which an application under section 34 of the said Act was dismissed.
Bearing in mind the scope of section 34 of the said Act and the ground for challenge enumerated therein, the salient features of the case is required to be assimilated to ascertain the real disputes involved in the instant case.
The tender was floated on 25th March, 2015 by the Director Shipping Services, Port Blair for supply of non-metallic water lubricated elastomeric polymer bearing of a particular specification and the make for the vessels MVF Austin-II, III, IV and V. The claimant respondent participated in the said tender process and was declared as LI and a supply order was issued on 19th May, 2015 which was received by the claimant respondent on 21st May, 2015 with clear stipulation that such supply should be effected within 60 days to the inspection cell of Marine Stores premises at Port Blair.
On 10th August,2015 the claimant respondent through a letter sought for extension of time for three days as the material was not available in India market and has to be purchased from South Africa or Canada. The appellant authorities extended the
time for three days subject to the levy of the late delivery charges in terms of the contract. On 18th August, 2015 the supply order was cancelled on the ground of non-supply of the items. On 1s September, 2015 a further letter was caused by the claimant respondent for extension of one day time intimating that the materials are available with them and which can be supplied immediately. It appears from the record that a show cause notice was issued on 24th July, 2015 inviting the reply from the claimant respondent within 17 days from the date of receipt thereof and admittedly the reply has not been filed. It is also the specific case of the appellant authorities that the extension was granted even after the issuance of show cause notice but the supply could not be made and ultimately the said supply order was cancelled by the authorities.
The dispute was thereafter referred to an arbitrator in terms of the arbitration agreement contained in the said tender process as well as the supply order. The claimant respondent challenged the purported action of the appellant in terminating the contract when the several clauses contained in the tender and the supply order does not envisage cancellation thereof. In other words it has been contended by the claimant respondent that in absence of any specific clause of termination/cancellation of the
contract, the action of the appellant authorities in cancelling the contract is outside the purview thereof. It is further contended that the validity period of the supply order/contract was for a period of one year which would be evident from the said agreement and therefore, the cancellation within the validity period is per se illegal.
It is thus contended that as per clause 4 of the tender document late delivery charges at the rate of .25% with a maximum cap of 10% can be charged by the appellant within the validity period of the contract and therefore, the time was never the essence of the contract as claimed by the appellants. On the conspectus of the aforesaid facts the arbitral tribunal framed three issues or points for determination. Firstly, whether the appellant authorities are within their authority to cancel the supply order in absence of any clause in this regard as well as the existence of clause imposing late delivery charges at the specified rate and therefore, the cancellation order dated 24th July,2015 is valid and justified or not. Secondly, whether the force majeure clause can be attracted in the present fact and circumstances and, thirdly, whether the claimant respondent is entitled to a relief claimed in the statement of claim.
So far as the second point of determination is concerned the arbitral tribunal held the same in favour of the appellant as it does not attract the force majeure clause in the attending facts and circumstances. However, the first point is answered by the arbitral tribunal after considering the various documents including the terms and conditions governing the contract and held that the action of the appellant authority in canceling the contract is contrary to the said agreement.
To buttress the aforesaid conclusion arrived by the tribunal it would be relevant to quote the relevant findings recorded therein. It has been held by the arbitral tribunal that the tender document and the supply order does not stipulate cancellation of the tender and reserved the clause for imposition of late delivery charges to be levied for each day's delay beyond the stipulated period. Clause 9 of the tender document clearly reflects the tenure of the agreement for a period of one year from the date of the acceptance and from the conduct of the appellants it is apparent that the time for delivery of the tender items was extended from time to time on the request of the claimant respondent. The tribunal further held that even after the issuance of the show cause notice the time was extended for delivery but subsequently the tender was cancelled on the basis of the show
cause notice. The arbitral tribunal was thus of the opinion that once the period of delivery was extended by the appellant authorities from time to time and the tenure of the contract was for a period of one year, the action of the authority in determining and/or cancelling the contract was unjustified. The appellants assailed the award under section 34 of the said Act before the District Judge, Port Blair. The contention of the appellants in the said application was that the delivery period was fixed for 60 days from the date of the receipt of the supply order and the same having not adhered to there was no option left to the appellants to cancel the contract.
It is further contended that even the time for delivery was extended but the supply could not be effected within the extended time and therefore the said contract was cancelled on 18th August, 2015. The point was further taken in the said application that the time was essence of the contract and in view of section 55 of the Indian Contract Act, if a party to the contract has failed to perform his obligation thereunder within the time, as indicated therein, the contract becomes voidable at the option of the either of the parties. In other words, it was contended that the time being essence of the contract, there is no illegality and/or infirmity on the part of the appellants in determining and/or cancelling the said contract.
The Court after considering the aforesaid aspect held that the time was never the essence of contract and therefore, the findings of the arbitral tribunal in this regard cannot be faulted with. The District Judge further held that the scope of section 34 of the Arbitration and Conciliation Act, 1996 is limited to the extent that it does not act as an court of appeal and must confine its scrutiny within the contour of the aforesaid provision. It is ultimately held that the appellant has miserably failed to make out any case within the purview of section 34 of the said Act and therefore, the application deserves to be dismissed. Mr.A.K.
Mandal, the learned advocate for the appellants submits before us that once supply order indicates that the supply is to be effected within 60 days of the service thereof it implies that the time was the essence of the contract. It is further submitted that even if the time was extended but such extended time is construed to be an essence of the contract and placed reliance upon judgment in the case of Colles Cranes of India Limited Vs.
321. It is further contended that the claimant respondent was never ready and willing to supply the tender items at any point of time and therefore, there is no illegality in terminating the contract.
On the other hand, Mr.Binnu Kumar, learned advocate appearing for the claimant respondent submits that both the arbitral tribunal as well as the District Judge have interpreted the contracts and its terms embodied therein that the time was not essence of the contract and therefore, this Court exercising the jurisdiction under section 37 of the said Act should not interfere therewith. It is further submitted that the scope under section 34 of the said Act is very limited as the District Judge does not act as an appellate court unless there has been a flagrant violation of the public policy of India or a case is made out within the stipulated eventuality reserved in the said section.
It is further submitted that the arbitral tribunal is the last court of interpretation of the contract and unless the finding is perverse or shocking to the conscience of the Court, the award cannot be set aside and placed reliance upon a judgment of the Supreme Court rendered in the case of Delhi Airport Metro Express Pvt. Ltd. Vs. Delhi Metro Rail Corporation Ltd. (Civil Appeal No.5627 of 2021) decided on September 09, 2021. It is thus submitted that the appeal deserves dismissal.
its enforceability in the country. The genesis of the said Act can be conceptualized and based upon the United Nations Commission on International Trade Law ( UNICITRAL) model law and the rules framed therein. It is aimed to minimize the supervisory and interference of the Court and the judicial authority which is envisaged in section thereof.
By incorporating section 34 by the said Act the scope of challenge to an arbitral award has been restricted and/or limited to the eventualities incorporated therein as it was experienced that the Court or the judicial authority were interfering with the arbitral award substituting their own findings while interpreting the contract. There has been a sea-change in the said section in the year 2015 and received an amendment through Arbitration and Conciliation (Amendment) Act, 2015 necessitated in view of the interpretation of the provisions of the Arbitration of Conciliation Act, 1996 by the Courts which resulted in delayed disposal of the arbitral proceedings and a tendency to interfere with the arbitral award against the spirit of the 1996 Act.
The amended provision stood thus:- "34. Application for setting aside arbitral awards.(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if-- (a) the party making the application 1[establishes on the basis of the record of the arbitral tribunal that]-- (i) a party was under some incapacity, or (ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or (iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or (v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or (b) the Court finds that--
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or (ii) the arbitral award is in conflict with the public policy of India.
1[Explanation 1.--For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,-- (i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or (ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2.--For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.] 2[(2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award: Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.]
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.
(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award. 3[(5) An application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement.
(6) An application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub-section
(5) is served upon the other party.]"
The remarkable change between the unamended provision and amended provision can be seen upon the comparison thereof, more particularly, the extended provision in the explanation appended thereto restricting the contour of the public policy of India and the incorporation of Sub Section 2A. The explanation 1 clearly postulates that the public policy of India should not be construed in a broader sense but for the reasons that the award is induced having affected by fraud or corruption or in violation of
Section 75 or Section 81 and in contravention to the Fundamental Policy of Indian law or in conflict with the most basis notions of morality or justice. Even explanation 2 makes it more clear that the test for considering a contravention with the Fundamental Policy of Indian law should not be confused to entail a review on the merits of the dispute. Sub Section 2A postulate that an arbitral award other than the international commercial arbitration may be set aside, if the Court finds that the award is vitiated by patent illegality appearing on the face of the record and not on the ground of erroneous application of law or by reappreciation of evidence.
By introduction of the amendment under Section 34 of the Act, the scope has further been squeezed while considering an award to be in conflict with the public policy of India and on the ground of morality or justice.
In Ssangyong Engineering and Construction Company Limited vs National Highways Authority of India (NHAI) reported in (2019) 15 SCC 131the Apex Court has succinctly jotted down the limited areas of judicial interference in terms of the said amended provision and held that the expression public policy of India would now mean a Fundamental Policy of Indian law which no longer ordained the interference with an award
simpliciter that the arbitral tribunal has not adopted a judicial approach, however, principal of natural justice continue to occupy within the said provision. So far as a interference on the ground of morality and justice is concerned the same has to be understood in view of the explanation appended thereto to be most basic notion of morality or justice. It is further held that mere erroneous application of law cannot be a ground for setting aside the award unless there has been a patent illegality on the face of the record which should not be confused with the reappreciation of the evidence.
It would be apposite to quote the relevant exerts from the said judgement which runs thus:- "37 Insofar as domestic awards made in India are concerned, an additional ground is now available under sub-section(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.
38 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. ... ... ...
41.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." In case of Delhi Airport Metro Express Private Limited (Supra), the Apex Court has held that the patent illegality must be of a wider magnitude going to the root of the matter as every error of law would not come within the ambit thereof. It is held that perversity should also be construed to such extent when arbitral tribunal have failed to appreciate the relevant evidence or omitted to consider the relevant documents and not for the purpose of reappreciation of the evidence. The relevant portion of the judgement is quoted as under:
"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 reappreciateevidencetoconcludethattheawardsuffersfromp atentillegality appearing on the face of the award, as courts do notsitinappealagainstthearbitralaward.Thepermissiblegr oundsforinterferencewithadomestic 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 arbitratorcommitsanerrorofjurisdictionbywanderingoutsi dethecontract 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. Section34(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 the1996Act,ifitisincontravention with the fundamental policy of Indian law or if it is in conflict with the most basic notion so or 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.
27. In Renusagar(supra),this Court observed that violation of the Foreign Exchange RegulationAct,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."
What can be culled out from the aforesaid proposition of law enunciated from the aforesaid report that the court while entertaining an application under Section 34 of the Act is not permitted to reappreciate the evidence in the guise of the patent illegality nor should substitute its own finding which is normally done while exercising the power of appellate court. The patent illegality can only be construed when the view taken by the arbitrator is not a possible view or the interpretation of the clauses is made in such a way that no fair minded or reasonable person would arrive thereat. The patent illegality can also be assumed when the tribunal has exceeded the peripheral of the contract and usurp the jurisdiction in dealing with the matter not contemplated therein.
It is beyond cavil of doubt the interpretation of contract is within the exclusive domain of the
arbitrator, however, such interpretation must be plausible or a possible one and does not shock the conscience of a Judge. Many a times the clauses in the contract may invite two possible interpretation and if the arbitral tribunal has accepted one even if judge feels that the other interpretation is also possible cannot substitute the same in exercise of the powers conferred under Section 34 of the Act. The Fundamental Policy of India is also be extended to a situation where the dispute is incapable of being adjudicated through an arbitration or where the award is patently in conflict with the Fundamental Policy of India.
On the anvil of law as enunciated in the aforesaid decision, let us see whether the appellant has been able to make out any case within the four corners thereof. The arbitrator interpreted the various clauses of the contract and held that the tenure of the contract was one year from the date of receipt of the supply order. It is further held that even if the supply was directed to be made within sixty days from the date of the receipt of the supply order but the appellant extended the period of supply. It is also undisputed that the contract contains an specific clause that in the event of the delay in supplying the tendered item the authorities can the charge late delivery charges at a specified rate
of percentage which thus leads no ambiguity that time was not the essence of the contract.
The case relied upon by the appellants in Colles Cranes of India Limited (supra) that the extension of time does not dilute or destroy the basic fabric of the time being the essence of the contract. In the said report the delivery order clearly stipulates that the supply shall be effected within ten days therefrom which was duly accepted by the supplier. In the aforesaid perspective it is held:- "(8) ISSUE No.(1):- The first issue raises the question whether time was of the essence of this contract. In support of this issue the plaintiff has relied on the purchase order appearing at page 3 of Ex.A. It is dated the 1st May, 1964. It is numbered 1330. At the end of this purchase order, under the clause 'deli-very' this is what appears: "delivery: Should be supplied within ten days or earlier".
Even in the defendant's letter of offer dated the 28th April, 1964 appearing at page 1 in Ex.A it was expressly stated by the defendant that "delivery will be effected within ten days from the date of the receipt of the order. "This was repeated in a continuation letter dated the 1st May, 1964 appearing at page 2 in Ex.A, where the defendant said: "delivery shall be effected as already stated in our abovementioned quotation within ten days from the date of the receipt of your order." After these two letters of the defendant, the formal purchase order followed with the clause which I have quoted.
(9) FROM this it follows that when the contract was made, time was of the essence of the contract. The clause "ten days or earlier" shows that ten days was the ultimate limit and the words "or earlier" show the urgency of the time within which it had to be completed.
(10) FROM this I can only construe and interpret the contract as showing a clear intention both on the part of the defendant as well as of the plaintiff that time was to be regarded as the essence of the contract. I should, therefore, answer the first issue in the affirmative holding that time was of the essence of this contract."
There is no specific stipulation in the instant case that while issuing the supply order indicating the time limit within which the supply has to be made. There is no categorical stipulation that the time should be the essence of the contract. The validity of the contract was one year and even if the time to supply was shown as 60 days which was later on extended from time to time does not ipso facto make the time the essence of the contract.
In the said case, there was no clause pertaining to the imposition of the late delivery charges and the time limit therein was static one. It is held even if the authorities have extended it does not dilute other basic fabric of the time being the essence of the contract.
We do not find from that judgment can be of any assistance to the appellant for the simple r eason that there has been a specific clause for imposition of late delivery charges and the termination was effected within the tenure of the contract.
We, thus, do not find any ground warranting the interference with the impugned order.
The appeal sans substance. The appeal is hereby dismissed. However, there shall be no order as to costs. ( Harish Tandon, J. ) I agree.
( Shivakant Prasad, J. )