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2025 DIGILAW 1582 (KAR)

IDEB Projects Pvt. Ltd. v. Bangalore Metro Rail Corporation Limited

2025-12-03

C.M.POONACHA, VIBHU BAKHRU

body2025
JUDGMENT : [PER: HON'BLE MR. JUSTICE C.M. POONACHA] 1. The above appeal is filed under Section 13[1A] of the Commercial Courts Act , 2015 [ CC Act ] r/w Section 37 of the Arbitration and Conciliation Act , 1996 [ A&C Act ], calling in question the order dated 14.11.2024 passed by the LXXXVI Additional City Civil and Sessions Judge, Bengaluru [Commercial Court] in Com.A.P.No.172/2023, whereunder the application filed by the appellants under Section 34 of the A&C Act, challenging the arbitral award dated 05.08.2023 passed in A.C No.182/2018 was rejected. Vide the said arbitral award, the claim made by the appellants has been partly allowed. 2. The relevant facts in a nutshell leading to the present appeal are that appellant No.1 and respondent No.2 formed a joint venture in the name and style of appellant No.2. Respondent No.2-Bangalore Metro Rail Corporation Limited [ BMRCL ] floated a tender for construction of an elevated structure [Viaduct] for 5.1 KM. Appellant No.2 was the lowest bidder in the said tender and the bid of appellant No.2 was accepted vide letter of acceptance dated 07.11.2008. The project was to be completed within 27 months from the date of acceptance and the value of the contract was Rs. 209,57,03,089/- [Rupees Two Hundred Nine Crore Fifty-Seven Lakh Three Thousand Eighty-Nine Only]. 3. The claimants alleged that there was a delay in handing over the unencumbered working site, delay in clearing the obstructions including the dismantling of a sky-walk, delay in release of the drawings and various other aspects which were solely attributable to the BMRCL. 4. Disputes arose between the parties and arbitration proceedings were initiated by the appellants/claimants, wherein 20 claims were made, which were contested by the respondents/BMRCL. The Arbitral Tribunal allowed claim Nos.5, 16 and 20 in part; disallowed claim Nos.1, 3, 4, 12, 13, 14, 17, 18; dismissed claim Nos.6, 7, 8, 9, 10, 11 and 15; and dismissed claim Nos.2 and 19 as having become infructuous. 5. The appellants/claimants preferred an application under Section 34 of the A&C Act, calling in question the decision of the Arbitral Tribunal only insofar as claim Nos.5 and 19 are concerned. The Commercial Court vide order dated 14.11.2024 rejected the application. Being aggrieved, the claimants have filed the above appeal. 6. 5. The appellants/claimants preferred an application under Section 34 of the A&C Act, calling in question the decision of the Arbitral Tribunal only insofar as claim Nos.5 and 19 are concerned. The Commercial Court vide order dated 14.11.2024 rejected the application. Being aggrieved, the claimants have filed the above appeal. 6. It is clear from the aforementioned that the contentions urged by the appellants/ claimants in the above appeal are limited/restricted to claim Nos. 5 and 19. The details of the said claim Nos. 5 and 19 are as hereunder; i] A sum of Rs. 2,67,64,178.63 towards expenses incurred for setting up office, electrification of yards setting up casting yards, casting beds and so on. ii] A sum of Rs. 12,86,94,908.77 towards materials left at the site or the value thereof. Reg. Claim NO.5: 7. As noticed above, claim No.5 is made by the claimants for a sum of Rs. 2,67,64,178.63 towards expenses incurred for setting up of office, electrification of yards, setting up of casting yards, casting beds, etc., In this context, it is necessary to notice the relevant clauses in the contract between the parties. i] Clause 13.2.2 and 13.2.3 of the General Conditions of Contract [hereafter 'GCC'] reads as under: 13.2.2. The Engineer shall, as soon as possible after termination under Sub-Clause 13.2.1, determine and advise the Contractor of the value of the Construction and/or Manufacture Documents Plant Materials, Contractor's Equipment and works and all sums then due to the Contractor as at the date of termination. 13.2.3. After termination under Sub-Clause 13.2.1, the Employer shall be liable to make any further payments to the Contractor until the costs of Design of Temporary works, manufacture, execution, completion remedying of any defects, damages for delay in completion [if any], and all other costs incurred by the Employer, have been established. ii] Clause 1.2.6.1 of the scope of work reads as under: "BMRCL will make available free of cost, an area of about 7 Acres near Peenya, for the Casting Yard, GC Office and Construction depot of the contractor. It is located near Peenya as per the details given in Tender Drawing. The leveling of the area, making access roads and other roads/pathways in the yard, getting power, water supply etc. has to be carried out/arranged by the contractor at his own cost. It is located near Peenya as per the details given in Tender Drawing. The leveling of the area, making access roads and other roads/pathways in the yard, getting power, water supply etc. has to be carried out/arranged by the contractor at his own cost. After completion of work, site clearance and restoring the area to original condition [or leaving it as it is if the defence department approves] is the responsibility of the contractor and has to be done at his own cost. The contractor may visit the site before tendering." iii] Clause 1.1.6.9 of the Scope of Work defines temporary works as under: "Temporary Works" means all temporary and enabling works of any kind required for the execution and completion of the works and the remedying of any defect therein, and which subsequently be removed by the Contractor." iv] Clause 4.22 and 7.7 of the GCC reads as under: 4.22. "All temporary works necessary for the proper execution of the Works shall be provided and maintained by the Contractor at his cost and subject to the consent of the Engineer shall be removed by the Contractor at his own expenses when they are no longer required and in such manner as the Engineer shall direct. In case the Contractor fails to remove the temporary works on completion the Engineer is authorized to get the same removed and recover the cost thereof from the Contractor." 7.7 "Each item of Plant and Material shall become the property of the Employer, when it is delivered to Site or payment thereof, either in part or full, has been made. The Contractor shall however continue to bear the risk in respect of such items which continue to remain is his custody." 8. The Arbitral Tribunal, noticing the relevant clauses held that if the contractor fails to remove the temporary works, the engineers were required to get the same removed and recover the cost of removal from the contractor. Hence, it is not open to BMRCL to resist return of the material used in erecting the temporary structure. 9. It was further noticed that BMRCL has allowed the contractor [claimants] to remove and take material worth Rs. 13.83 lakhs. Hence, claim No.5 was allowed in a qualified manner by directing BMRCL to return all the materials used by the claimants/ contractors in setting up the casting yards and raising the temporary structure. 9. It was further noticed that BMRCL has allowed the contractor [claimants] to remove and take material worth Rs. 13.83 lakhs. Hence, claim No.5 was allowed in a qualified manner by directing BMRCL to return all the materials used by the claimants/ contractors in setting up the casting yards and raising the temporary structure. The cost of removal of the materials/structure was to be borne by the claimants. It was further ordered that if BMRCL desires to retain any of the material, they can do so by paying the value of the said material as per the comprehensive valuation report [Ex.R59]. The claimants were required to clear the casting yard and restore the same to its original condition. For the said purpose, the Arbitral Tribunal required BMRCL to intimate either its no objection for removal or its intention to retain any material by paying the cost of the same. 10. The Commercial Court while considering the aspect regarding claim No.5, noticed that as per the comprehensive valuation report [Ex.R59], the cost of erecting the temporary structure was Rs. 76,56,032.90 and the cost of setting up the casting yard was Rs. 61,52,651.66/-; thereby being a cumulative sum of Rs.1,38,08,684.56. It was further noticed that clause 1.2.6.1 of the scope of work required the claimants to restore the casting yard to the original condition after completion of work. The claimants did not complete the work as agreed and BMRCL terminated the contract, which termination was held to be valid. The claimants have not questioned the correctness of the comprehensive valuation report. Hence the contention of the claimants that they were required to pay the actual value of the works without referring to the comprehensive valuation report was held to be untenable. Further, the Commercial Court held that the Arbitral Tribunal, while directing BMRCL to return the goods of the claimants or pay the cost of the same after retaining what is required by them, has not exceeded its jurisdiction. Hence, the Commercial Court affirmed the findings with regard to claim No.5. 11. In terms of clause 1.2.6.1 of the scope of work, BMRCL was to make available, free of cost, an extent of 7 acres for the use of the claimants towards casting yard, GC office and construction depot. Hence, the Commercial Court affirmed the findings with regard to claim No.5. 11. In terms of clause 1.2.6.1 of the scope of work, BMRCL was to make available, free of cost, an extent of 7 acres for the use of the claimants towards casting yard, GC office and construction depot. The levelling of the area, making access roads, getting power, water supply, etc., in the yard was to be carried out by the claimants at their own cost. After completion of the work, the claimants were required to clear the site and restore the area to its original condition at its own cost. Clause 1.1.6.9 of the scope of work defines temporary works as all works required by the claimants for execution and completion of the contract work. Further, in terms of clause 4.22 of the GCC, the claimants were required to provide and maintain at its cost all the temporary works necessary for execution of the contract work and with the consent of BMRCL, remove the same at the cost of the claimants. It is further stipulated that in case the claimants failed to remove the temporary work, BMRCL was entitled to remove the same and recover the cost from the claimants. Clause 7.7 of the GCC also stipulated that each item of plant and machinery shall become the property of BMRCL when it is delivered to the site, or if payment [either in full or part] has been made. 12. As noticed by the Tribunal, the cost of erecting the temporary structure and setting up the casting yard as per the comprehensive valuation report [Ex.R59] was a total sum of Rs. 1,38,08,684.56/-. Admittedly, the claimants have already removed material worth Rs. 13.83 lakhs. Hence, with regard to the balance temporary works, the Tribunal had rightly directed BMRCL to return all the materials used by the claimants in setting up the casting yard and temporary structure after intimating the claimants if BMRCL intended to retain any of the said material by paying the cost of the same as per the valuation report [Ex.R59].The Tribunal further rightly ordered that the cost of the removal of the structure was to be borne by the claimants. The Commercial Court upon noticing the relevant factual aspects of the matter affirmed the finding of the Arbitral Tribunal regarding claim No.5. The Commercial Court upon noticing the relevant factual aspects of the matter affirmed the finding of the Arbitral Tribunal regarding claim No.5. We concur with the findings recorded by the Tribunal and Commercial Court regarding claim No.5. Reg: Claim No.19: 13. Vide claim No.19, the claimants sought for return of material more fully described in the Annexures XVII-A, B and C appended to the claim petition. Annexure XVII-A was shuttering materials of value of Rs.15,83,235/-; Annexure XVII-B was steel and cement of value of Rs.12,63,07,761.17/-; and Annexure XVII-C was store materials of value of Rs.8,03,912.60. Thus, the cumulative value of material left behind at the site as per the averments of the claimants is a sum of Rs.12,86,94,908.77/-. 14. BMRCL had filed an application before the Arbitral Tribunal seeking to return 19 items of plant, machinery and computer systems in satisfaction of claim Nos.2, 3, 4 and 19 made by the claimants. The Arbitral Tribunal vide order dated 17.03.2021 had accepted the request made by BMRCL vide the said application and permitted the claimants to take possession of the said 19 items sought to be returned by BMRCL under an inventory and Mahazar. The Tribunal clarified that whether returning of the 19 items tantamounted to satisfaction of claims as sought by BMRCL would be decided at the time of the Award. Admittedly, in terms of the order dated 17.03.2021 passed by the Arbitral Tribunal, the claimants had taken the return of the said items from BMRCL. In the Award, while adjudicating upon claim No.19, the Tribunal held that since the material was returned by BMRCL, nothing survived for consideration in the said claim. 15. The Commercial Court noticed the 19 items returned in the chart set out at para No.21 of its judgment. The claims made by the claimants vide claim No.19 towards shuttering material [Annexure XVII-A to the claim petition], Steel and cement [Annexure-XVII-B to the claim petition] and store materials [Annexure XVII-C to the petition] have been noticed by the Commercial Court at para No.19 of the judgment. It was also noticed that the items claimed were not part of the items returned by BMRCL. Hence, the Commercial Court held that the finding of the Arbitral Tribunal with regard to claim No.19 was erroneous. It was also noticed that the items claimed were not part of the items returned by BMRCL. Hence, the Commercial Court held that the finding of the Arbitral Tribunal with regard to claim No.19 was erroneous. However, it was held that although the finding on claim No.19 was erroneous, the same did not tantamount to a patent illegality requiring the Commercial Court to exercise its jurisdiction under Section 34 of the A&C Act. 16. It is the contention of the respondent that the Tribunal, having recorded a finding that no material is left behind at the site, the Commercial Court misconstrued in observing that BMRCL was required to return further material to the claimants. However, since the Commercial Court did not interfere with the arbitral award on the ground that the same did not tantamount to a patent illegality, the respondents not being aggrieved by the final outcome of the proceedings of the Commercial Court, did not challenge the said observation of the Commercial Court with regard to claim No.19. 17. It is pertinent to note that clause 7.7 of the GCC stipulates that each item of plant and material shall be the property of BMRCL. 18. The Tribunal vide its order dated 17.03.2021 while permitting return of 19 items had specifically ordered that the question whether the return of 19 items would tantamount to satisfaction of claim No.19 was required to be adjudicated at the time of passing of the Award. However, admittedly, the Tribunal has not adjudicated upon claim No.19 while passing the award. 19. The Commercial Court held that although the finding of the Tribunal regarding claim No.19 was erroneous, the same did not tantamount to a patent illegality requiring the Commercial Court to exercise its jurisdiction under Section 34 of the A&C Act. 20. At this juncture, it is pertinent to notice the judgment of the Supreme Court in the case of DELHI AIRPORT METRO EXPRESS (P) LTD., V. DMRC: (2022) 1 SCC 131 . 29. 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”. 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 reappreciate 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”. 21. It is also relevant to note that the Supreme Court in the case of SSangyong Engineering & Construction Co.Ltd., v. National Highways Authority of India (NHAI): (2019) 7 SCR 522, after referring to its decision in the case of Associate Builders [ 2015 (3) SCC 49 ] , held as under: 30. ................... 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. 22. 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. 22. The Tribunal even without appreciating the case of the parties while considering claim No.19, merely held that since items were already returned, nothing survived for consideration in claim No.19. The finding of the Tribunal is patently illegal which ought to have been interfered with by the Commercial Court in exercise of the jurisdiction of Section 34 of the A&C Act. The Arbitral Tribunal has not adjudicated the said claim. In this view, the impugned award to the extent it relates to claim No.19 is required to be set aside. The parties may take fresh steps for adjudication of this claim. 23. In view of the aforementioned discussion, the finding of the Arbitral Tribunal and Commercial Court with regard to claim No.5 requires no interference by this Court in these proceedings. The impugned award with regard to claim No.19 is set aside. The above appeal is disposed of in the aforementioned terms.