The Union Of India v. C Palaniswamy
IN THE HIGH COURT AT CALCUTTA
CIVIL APPELLATE JURISDICTION [CIRCUIT BENCH AT PORT BLAIR] PRESENT: THE HON'BLE JUSTICE DEBANGSU BASAK AND THE HON'BLE JUSTICE AJAY KUMAR GUPTA FMAT (ARBAWARD)/3/2024 UNION OF INDIA ... APPELLANT VS.
C.PALNISWAMY ...
RESPONDENTS For the Appellant :
Mr. V.D.Sivabalan For the Respondents :
Mr. Tapan Kumar Das Heard on :
February 18, 2026 Delivered on :
February 18, 2026 DEBANGSU BASAK, J.
1.
The appeal under Section 37 of the Arbitration and Conciliation Act, 1996 is directed against order dated December 27, 2023 passed by the Learned District Judge, Port Blair in Other Suit No. 08 of 2018.
2.
By the impugned judgment and order, learned Trial Judge, dismissed the challenge of the appellant under Section 34 of the
Arbitration and Conciliation Act, 1996 against the award dated February 28, 2018.
3.
Learned Advocate appearing for the appellant submits that, the award of the arbitrator, is incorrect since, arbitrator ignored the terms of the contract. He refers to amended clause 10CC of the General Conditions of Contract which deals with payment due to increase and decreases in prices / wages after receipt of tender for work. He contends that, in terms of such amended clause, no escalation was payable for work executed in extended period of the contract even if extension of time was granted without any action for liquidated damages.
4.
Learned Advocate appearing for the appellant submits that, the contract is of 2007. Date of completion of the contract was May 23, 2008. Actual date of completion was October 10, 2012. Consequently, the respondent is not entitled to any escalation for the period from May 23, 2008 till October 10, 2012 in view of clause 10 CC of the amended General Conditions of Contract. He contends that, learned arbitrator failed to take into account to such terms of the contract. 5.
On the issue of limitation, learned advocate appearing for the appellant makes two fold submissions. He submits that, the claim of the respondent before the arbitrator was barred by limitation since, the date of completion of the contract was October 10, 2012. He points out that, the claim was raised on February 25, 2016.
Consequently, the claim was raised more than three years subsequent to the date of completion of the contract. 6.
On the issue of limitation, learned advocate appearing for the appellant contends that, the counter claim of the respondent was rejected on the ground of such claim being barred by limitation. He submits that, the learned Arbitrator could not dismiss the counter claim of the appellant purely on the ground of limitation since, the appellant filed its counter statement of claim on January 16, 2017 well within the period of limitation.
7.
Learned Advocate appearing for the respondent submits that, the scope and ambit of an inquiry under section 37 of the Act, 1996 is limited. He contends that, section 37 Court is to consider whether or not, the section 34 Court acted within the parameters of law. He submits that in the facts and circumstances of the present case, the learned Trial Judge, gave adequate reasons for arriving at the conclusions as recorded. He also submits that, the award is well reasoned. Learned Arbitrator dealt with each and every aspect of the claim made by the respective parties and rightly allowed the claims of the respondent.
8.
Learned Advocate appearing for the respondent submits that, amended clause 10CC of the General Conditions of Contract is not attracted to the facts and circumstances of the present case. Learned Arbitrator, duly dealt with such contentions in the award.
9.
Appellant awarded a contract to the respondent for construction of police out post building at Ram Krishnapur-19 for Police Department at Hutbay on May 16, 2007. Contract stipulated a period of completion to be 12 months from the stipulated date of commencement. The date stipulated for completion was May 23, 2008. However, the work was completed on October 10, 2012. 10.
The respondent raised disputes with regard to the contract in question. Disputes were referred to arbitration for the arbitrator as recorded in the award is February 26, 2016. In the impugned order of the learned Trial Judge, it is recorded as February 25, 2016. 11.
In the arbitration proceedings, respondent as the claimant raised 13 claims. The appellant filed a statement of defence along with a counter claim. Of the 13 claims raised by the respondent, learned arbitrator allowed 10 of the claims and rejected 03. 12.
The counter claim of the appellant was rejected by the learned Arbitrator on the ground of limitation. According to the learned arbitrator and as recorded in the award, since the work was completed on October 10, 2012, period of limitation for raising counter claim on liquidated damages expired on October 09, 2015, and therefore, the counter claim was barred by limitation. 13.
Final bill between the parties was admittedly paid on May 8, 2016 with the respondent invoking arbitration on February 25, 2016 and the statement of defence containing the counter claim being filed on January 16, 2017.
14.
We perused the counter claim of the appellant filed before the arbitral tribunal. We find that the counter claim is based on the claim for liquidated damages. The appellant claimed that it suffered damages due to the delay in execution of the project. It quantifies the liquidated damages. It went onto say that a major portion of the liquidated damages was adjusted from various bills and security deposit lying with the appellant in respect of the respondent. 15.
One of the adjustment shown in the counter claim is from the final bill. As noted above, the final bill was paid on May 8, 2016. Respondent accepted payment of the final bill on May 8, 2016. Therefore till May 8, 2016, parties before us acknowledged their jural relationship. Adjustment of the counter claim was made from various bills including security deposit made by the respondent in respect of the contract. Contract contains reciprocal obligations to be discharged by the parties. Therefore, in our view, learned arbitrator erred in holding the counter claim to be barred by limitation. This is moreso when the arbitrator accepted that, the claim of the respondent was within limitation since the final bill was paid on May 8, 2016 that is subsequent to the initiation of the arbitration proceeding. On the parity of the same reasoning, the learned arbitrator erred in holding the counter claim to be barred by limitation.
16.
Claim and counter claim are intertwined inextricably in the facts and circumstances of the present case. Both claim and counter
claim arises out of one contract. A decision on a claim will sound on the counter claim and vice versa. It is not possible to severe the claim and counter claim into two separate jackets and hold that one portion of the award is correct while the other portion is wrong. 17.
In such circumstances, in our view, the award stands vitiated on the ground of patent illegality as it failed to recognize and apply the law of limitation to the facts and circumstances of the case. The decision of the learned arbitrator on the issue of limitation with regard to the counter claim, is patently illegally. Since the claim and the counter claim cannot be severed from each other, in the facts and circumstances of the present case, the entire award stands vitiated. 18.
The arbitral award was accepted by the learned Judge exercising jurisdiction under section 34 of the Act of 1996. A Court exercising powers under section 34 of the Act of 1996 is to evaluate an award assailed before it, inter alia, on the ground whether or not, the award was patently illegal. If an award is demonstrated to be against a statute prevailing in India, then, the award will be termed as patently illegal.
19.
In the facts of the present case, the counter claim of the appellant was rejected purely on the ground of limitation as noted above, which is patently illegal.
20.
In view of the discussions above, the learned Trial Judge, did not apply the principles of section 34 of the Act of 1996 correctly evaluating the award under challenge.
21.
The impugned order dated December 27, 2023 is set aside. The challenge made by the appellant under Section 34 of the Act of 1996 to the award dated February 28, 2018 is sustained. The Award dated February 28, 2018 is set aside.
22.
FMAT (ARBAWARD)/3/2024 is disposed of without any order as to costs.
(DEBANGSU BASAK, J.)
23. I agree.
(AJAY KUMAR GUPTA, J.)