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2022 DIGILAW 29 (JK)

Union of India v. Mohammad Yousuf Mir

2022-02-08

JAVED IQBAL WANI

body2022
ORDER : Javed Iqbal Wani, J.-The appellant through the medium of the instant appeal filed under Section 37 of the J&K Arbitration & Conciliation Act, 1997 (for brevity ‘the Act’) has thrown challenge to the order dated 27.05.2015 (for brevity ‘impugned order’) passed by learned Principal District Judge, Srinagar (for brevity ‘court below’) passed in File No. 08/Arb. titled “Ab. Salam Mir vs. Union of India and others”. 2. It is pertinent to mention here that during the pendency of the appeal the original contractor/respondent herein, namely, Abdul Salam Mir died and consequently, his legal heirs came to be substituted as respondents 1 to 5. 3. Before adverting to the grounds of challenge, a brief description of the facts is summarized as under:- i) That upon issuance of a NIT by the Chief Engineer HQ 31 Zone, C/o 56 APO /appellant herein, a contract bearing No. CESZ-33/93-94 came to be awarded for provision of Security Wall, Fencing, Watch Towers and Security Lights at Khundru station to the contractor/ predecessor-in-interest of the respondents herein. Post issuance of letter of award, the contractor claimed to have mobilized his men, machinery, equipment and other resources for speedy execution of the contract work within the stipulated time, being 18 months prescribed in the tender from the date of commencement of the contract which however, got delayed and consequently, resulted into prolongation in the period of contract. ii) That the said delay in completion of the contract was attributed to the acts of omission and commission on the part of the department/appellant herein as the period of completion had been extended without levy of any compensation. iii) That despite the aforesaid delay during the currency of the contract various disputes arose in connection with the subject contract between the department/appellant herein and the contractor and upon pressing into service the arbitration clause, an arbitrator, namely, Sh. iii) That despite the aforesaid delay during the currency of the contract various disputes arose in connection with the subject contract between the department/appellant herein and the contractor and upon pressing into service the arbitration clause, an arbitrator, namely, Sh. Krishan Kumar (Chief Engineer) from amongst the panel of arbitrators (Pune) came to appointed by the Engineer-in-Chief in terms of of condition 70 of the IAFW-2249, forming part of the contract agreement; iv) That the arbitrator so appointed entered upon the reference, adjudicated upon the disputes and passed an arbitral award on 25.09.2002; v) That during the pendency of the proceedings before the arbitrator the contractor had sought adjudication of various disputes including the one pertaining to the damages sustained on account of “Prolongation of Contract” which claim in the estimation of the department/appellant herein was not open to the arbitration, however, the arbitrator on the strength of the provisions contained under Section 16 of the Act, opined that the claims raised are capable of being adjudicated before the arbitrator. vi) That the contractor had sought adjudication of 18 claims out of which 06 claims came to be granted partially by the arbitrator. A brief description of the claims made and allowed by the arbitrator for brevity and convenience are detailed out hereunder:- C. No. Nature of Claim Amount Claimed Amount allowed by Arbitrator Claim No. 1 Change in place of issue of schedule “B” Stores Es. 1,44,000 Es. 24,600 Claim No. 2 Drastic changes in alignment of security Wall/ Fencing and Extra approaches by providing retaining walls and change of GE’S Office Rs. 8,36,500 Rs. 83,600 Claim No. 3 Damages sustained due to disallowing dismantling of existing fencing Rs. 1,40,825 Rs. Nil Claim No. 4 Damages sustained due to third party interference Rs. 19,18,000 Rs. 2,54,000 Claim No. 5 Extreme restriction at site Rs. 18.76,363 Rs. Nil Claim No. 6 Damages sustained due to non issue of water Rs. 16,20,000 Rs. 1,84,012 Claim No. 7 Complete stoppage of work by FAD Rs. 69,940 Rs. 8,000 Claim No. 8 Drastic Change in scope of work Rs. 13,68,510 Rs. Nil Claim No.9 Damages sustained due to theft of materials Rs. 1,06,400 Rs. Nil Claim No. 10 Reimbursement of Rocks encountered by Excavation in lieu of Soil Rs. 5,74,562 Rs. 1,05,000 Claim No. 11 Stepping ordered in the wall in steep hill slopes Rs. 69,940 Rs. 8,000 Claim No. 8 Drastic Change in scope of work Rs. 13,68,510 Rs. Nil Claim No.9 Damages sustained due to theft of materials Rs. 1,06,400 Rs. Nil Claim No. 10 Reimbursement of Rocks encountered by Excavation in lieu of Soil Rs. 5,74,562 Rs. 1,05,000 Claim No. 11 Stepping ordered in the wall in steep hill slopes Rs. 2,50,000 Nil Claim No. 12 Entire Excavation done in toots of trees and cutting in jungle Rs. 5,00,544 Nil Claim No. 13 Barbed wire fixed in a manner other than specific as in CA Rs. 2,00,000 Rs. 20,000 Claim No. 14 Damages sustained due to delay in interim payments Rs. 1,50,000 Rs. 1,37,500 Claim No. 15 Cost of escalation of material duel and labour on the amount of claim Not indicated Rs. 1,43,500 Claim No.16 Interest not indicated A) 12% on claim No.1,2,4,6,7,10,13 & 15 from 1/10/2000 to date of award. B) Future interest awarded on all awarded claims of contractor inclusive (A) above. Interest will be calculated from 1/03/2003 onwards till date of actual payment, as simple interest at 10% (Ten Percent) per annum Claim No.17 Cost of reference Rs. 50,000 Nil Claim No.18 Prolongation of contract period Rs. 82,97,430 Rs. 7,50,000 Claims of Union of India C. No. Nature of claim Amount claimed Amount allowed by Arbitrator Claim No. 1 Cost of reference Rs. 50,000 Rs. Nil 4. Post passing of the award by the arbitrator dated 25.09.2002, the department/appellant herein instead of questioning the legality and validity of the same under Section 34 of the Act, filed objections/counter claims before the court below inter alia on the following counts:- “a) That the arbitrator appointed by the petitioner/department has mis-conducted the proceedings. b) That the amount awarded by the by the arbitrator was unjustified and exaggerated. c) That the award is not reasoned and there is no proof of proper application of mind by the arbitrator. d) That the award passed in favour of the contractor is without jurisdiction and barred by limitation. e) That the award is indefinite, vague inoperative, as such liable to be dismissed. f) That the award would result in substantial miscarriage of justice. g) That the award passed is not in accordance with the terms and conditions of the contract. h) That arbitrator could not have granted interest on the sum awarded.” 5. e) That the award is indefinite, vague inoperative, as such liable to be dismissed. f) That the award would result in substantial miscarriage of justice. g) That the award passed is not in accordance with the terms and conditions of the contract. h) That arbitrator could not have granted interest on the sum awarded.” 5. As against the aforesaid pleas raised by the appellant herein, the contractor sought dismissal of the objections/counter claims before the court below inter alia on the following counts:- “i) That in terms of provisions contained under Arbitration and Conciliation Act, the interference of the courts has been minimized as is provided under Section 5 of the Arbitration and Conciliation Act, therefore, count has to be loath in interfering with the award unless the grounds urge fall within the parameters laid down under Section 34 of Arbitration and Conciliation Act. ii) That non-filing of the application under Section 34 of the Arbitration and Conciliation Act, for calling in question the legality and validity of the award, would entail the dismissal of the so called objections/counter claims filed by the petitioner/department. The scheme of the Act does not at all envisage or provide for filing of objections instead an application needs to be filed as provided under Section 34 of Arbitration and Conciliation Act. iii) That the scope and power of the courts have been limited under the Act, none of the grounds urged by the department in their objections can be construed as a valid ground falling within the parameters as envisaged under Section 34 of Arbitration and Conciliation Act. iv) That the court dealing with legality of award under Section 34 cannot sit as a court of appeal, as such, it is not open for the court to evaluate and analyze the material considered by the arbitrator, even if the arbitrator has recorded an erroneous or wrong finding of fact, or resorted to erroneous interpretation of documents, there is no scope for the court to interfere with under Section 34 of Arbitration and Conciliation, Act in disturbing the findings of the arbitrator. v) That the constitution of the arbitral tribunal having been done by the petitioner/department, therefore, it is not open for the petitioner/department to question the fairness and objectivity of the arbitrator.” 6. v) That the constitution of the arbitral tribunal having been done by the petitioner/department, therefore, it is not open for the petitioner/department to question the fairness and objectivity of the arbitrator.” 6. That the court below while considering the objections/counter claims filed by the department/appellant herein and the pleas raised by the contractor passed the impugned order upholding the validity of the award as having been passed in accordance with law. 7. The appellant herein in the memo of appeal has thrown challenge to the impugned order inter alia, on the grounds that the court below without considering the claim and grounds urged before it rejected the same and did not mention reasons for not accepting the objections submitted by the department/appellant herein and that the impugned order is bad in law inasmuch as, the court below while passing the impugned order wrongly observed that it cannot sit as a Court of appeal, overlooking the position that the award passed by the arbitrator is not only perverse, but against the public policy as well, and ignored that the arbitrator while passing the award had not followed the principle of natural justice, having not provided sufficient opportunity of hearing to the appellant herein and that it also did not consider that the arbitrator while passing the award did not record reasons while deciding various claims. Heard learned counsel for the parties and perused the record. 8. Learned counsel for the appellant herein while making his submissions reiterated the contentions raised and grounds urged in the memo of appeal, whereas the counsel for the contractor/ respondent herein while controverting and resisting the submissions made by the counsel for the department/appellant would seek dismissal of the instant appeal. 9. Before proceeding further in the matter a reference hereunder to the judgment of the Apex Court passed in case titled as MMTC Limited vs. Vedanta Limited, reported in 2019 (4) SCC 163 , would be relevant and germane herein, wherein at Paras 10, 11, 12 13 and 14 following is observed:- 10. Before proceeding further, we find it necessary to briefly revisit the existing position of law with respect to the scope of interference with an arbitral award in India, though we do not wish to burden this judgment by discussing the principles regarding the same in detail. Before proceeding further, we find it necessary to briefly revisit the existing position of law with respect to the scope of interference with an arbitral award in India, though we do not wish to burden this judgment by discussing the principles regarding the same in detail. Such interference may be undertaken in terms of Section 34 or Section 37 of the Arbitration and Conciliation Act, 1996 (for short, “the 1996 Act”). While the former deals with challenges to an arbitral award itself, the latter, inter alia, deals with appeals against an order made under Section 34 setting aside or refusing to set aside an arbitral award. 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 reasonableness. Furthermore, “patent illegality” itself has been held to mean contravention of the substantive law of India, contravention of the 1996 Act, and contravention of the terms of the contract. 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. 13. It is relevant to note that after the 2015 Amendment to Section 34, the above position stands somewhat modified. An arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts. 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, subsection (2A) 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. 14. As far as interference with an order made under Section 34, as per Section 37, is concerned, it cannot be disputed that such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. In other words, the Court cannot undertake an independent assessment of the merits of the award, and must only ascertain that the exercise of power by the Court under Section 34 has not exceeded the scope of the provision. Thus, it is evident that in case an arbitral award has been confirmed by the Court under Section 34 and by the Court in an appeal under Section 37, this Court must be extremely cautious and slow to disturb such concurrent findings.” 10. Perusal of the record indisputably tends to show that the appellant herein while throwing challenge to the arbitral award did not file proceedings in terms of Section 34 of the Act, but filed objections/counter claims before the court below praying therein for setting aside of the award and making of a fresh reference to an independent arbitrator for deciding the disputes afresh in accordance with law. Even though, in opposition to the aforesaid proceedings instituted by the appellant herein before the court below, the contractor/ respondent had raised a preliminary objection that the said proceedings have not been filed as per the recourse provided under the Act, yet the court below having regard to the fact that the matter has remained pending for more than a decade, proceeded to examine the merits of the pleas taken in the objections/counter claims filed by the appellant herein instead of rejecting the proceedings on a technical ground that the same are not filed in tune with Section 34 of the Act. The course so adopted by the court below in the facts and circumstances of the case can safely said to have been taken in the interest of justice and court below cannot be said to have faulted in this regard. 11. Further perusal of the record demonstrates that the court below has rightly opined that the objector/appellant herein for making out a case for setting aside of the award has to have a case in line with the grounds referred in Section 34 of the Act, and that the objector/appellant herein has not pleaded that it was under some incapacity or the agreement which is genesis in arbitral proceedings, was not capable of enforcement or was otherwise invalid. The Court below has rightly noticed that the objector/appellant herein had not pleaded that it was not given proper notice by the arbitrator during the arbitration proceedings. 12. Perusal of the record further reveals that the court below while examining the validity or otherwise of the award has considered the fact that the arbitrator has returned finding on 18 issues of variance between the parties, even though only 11 claims are termed to be bad by the objector/appellant herein being issue Nos. 1, 2, 4, 6, 10, 13, 14, 15, 16 and 18. The court below rightly, while referring to the ambit and scope of the Act, has opined that it restricts the scope of the appeal against an arbitral award, as the objective of such restriction is to avoid wastage of time by once again looking into the merits of the case and re-appreciate the evidence and to ensure finality of an arbitral award. This Court while considering the instant appeal filed under Section 37 of the Act, cannot hold a different view in this regard in the matter and concur with the finding returned by the court below. It needs to be reiterated that the power of the Court under Section 34 of the Act is limited and Courts are not to expand their powers granted by the statute and any such attempts by the Court while exercising power under Section 34 of the Act shall frustrate the purpose of the Act itself. 13. Further perusal of the record tends to show that the court below has rightly held the award to be reasoned and speaking one and not against any public policy, while holding that the arbitrator has rightly acted in fairness and objectively and returned finding in the award after providing proper and sufficient opportunity to the contesting parties. The court below has thus, rightly turned down the contention raised in the proceedings filed before it by the appellant herein in particular qua claim Nos. 1, 2, 3, 4, 6, 7, 10, 13 & 14. The plea raised before the court below about price escalation in claim No. 15 has also been rightly found to be without any force while taking into account the judgment referred thereto in the impugned order. The contention of the appellant before the court below that the arbitrator could not returned the findings on claim No. 18 has been rightly considered and decided by the court below. 14. Further law is settled that an error relatable to the interpretation of the contract by the arbitrator is an error within his jurisdiction not amendable to correction in view of Section 34 of the Act. Reassessment/ re-appreciation of the record before the Tribunal is not permissible as the court would not be examining the matter as appellant forum. 15. 14. Further law is settled that an error relatable to the interpretation of the contract by the arbitrator is an error within his jurisdiction not amendable to correction in view of Section 34 of the Act. Reassessment/ re-appreciation of the record before the Tribunal is not permissible as the court would not be examining the matter as appellant forum. 15. Record further would reveal that the issue of grant of interest by the arbitrator has also rightly been considered and decided by the court below, while taking placing reliance on the judgments referred to in the impugned order and the court below has rightly opined that in respect of the claim on account of interest, since no stipulation of the contract was relied upon or pressed into service by the department/appellant herein, before the arbitrator which would prohibit payment of interest by the arbitrator, therefore, the arbitrator relying upon the statutory mandate as envisaged under Section 31 (7) of the Act, has rightly proceeded to award the interest after recording his satisfaction that the contractor/respondent herein had been deprived of his rights to use the amount. The court below while considering the said issue raised by the department/appellant herein has rightly relied upon the judgment of the Apex Court in case titled as Secretary, Irrigation Department, Government of Orissa and others vs. Secretary to Government of Orissa and others, reported in 1992(1) SCC 508 , which though relatable to Section 31 of the Act of 1940, laid down a principle of law about the power of the arbitrator to grant interest. The said position recorded has been given statutory recognition under Section 31 sub-section (7) of the Act, which encompasses the power of the arbitral tribunal to grant interest and that there being no stipulation prohibiting the arbitrator from allowing payment of interest, no infirmity can be said to have been noticed in the award passed by the arbitrator and consequently, in the impugned order passed by the court below. 16. The position of law in view of judgment of the Apex Court passed in MMTC (supra), is no more res integra that the finding of fact as well as law as recorded by the arbitrator are not ordinarily amenable to interference either under Section 34 or Section 37 of the Act. 16. The position of law in view of judgment of the Apex Court passed in MMTC (supra), is no more res integra that the finding of fact as well as law as recorded by the arbitrator are not ordinarily amenable to interference either under Section 34 or Section 37 of the Act. The interference of the Court is permitted only where finding of the Tribunal is contrary to the contract or is perverse in nature. The final arbiter of facts as well as law and even errors, factual or legal which stop short of perversity cannot be looked either under Section 34 or Section 37 of the Act. Further the Court while exercising powers and determining validity or otherwise of an arbitral award cannot act as a court of appeal, as the power under Section 34 and 37 of the Act are circumspect. Furthermore, in terms of Section 5 of the Act, the scope of interference of civil Courts has been minimized in order to achieve the aims and objectives of the Act as an alternate dispute resolution forum and in terms of Section 37, the scope and interference gets further narrowed down. 17. Viewed in the context what has been observed, considered and analyzed hereinabove, the impugned order dated 27.05.2015 does not call for any interference by this Court and resultantly, the appeal fails and is, accordingly, dismissed.