TaxTMI 
TaxTMI 
2014 (11) TMI 1114
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....D. Bali to arbitrate the present dispute. 3. We are concerned here with claims 9, 10, 11 and 15, for these claims have been allowed by the Arbitrator and the DDA's objections have been dismissed by the learned Single Judge of the High Court of Delhi. The Division Bench in an appeal under Section 37 of the Arbitration Act, 1996 has stepped in to set aside the judgment of the Single Judge and negative these claims. We are also concerned with claims 12 and 13 which have been scaled down by the Division Bench. 4. Claims 9, 10, 11 and 15 read as follows: "Claim No.9: Claimants claim Rs. 20,950/- on account of hire charges of centering shuttering due to delay in laying of conduiting. a) That the respondents had granted certain work of electrification but the said agency did not lay the conduit resulting in delay in removing the shuttering and causing hire charges. This fact was reported to the respondents vide claimant's letter dated 30.10.92 followed by reminders and also found place in hindrance register. b) That this is the actual expenditure incurred and thus the claimant is entitled for its refund. c) That the detailed break-up of this claim has been appended s....
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....ntered during execution of the work resulting delay in execution of the work for a period of 25 months. b) It is further stated that the claimants incurred unproductive after stipulated date of completion. c) It is further stated that during prolongation there had been steep rise in cost of material and labour. d) That the claim of 20% is also lent support from the cost index as issued by the competent authority and only applicable on the work which was executed during prolongation. e) That as per cost index it comes to more than 30% whereas the claimants had claimed 20 & being highly rational and just. f) That the claimants had appended the details of this claim separately based on cost index to show that the claimant had actually incurred this additional expenditure due to the respondents. Copy of the hindrances encountered during the execution of the work at the hands of the respondents has been enclosed. g) That the respondents had committed breach and thus liable for damages. h) It is further stated that the cost of material issued by the department has been deducted by assessing the cost. Claim No. 13: Claimants claim Rs. 97,5000/- being the extra at 3....
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.... c) That the respondents had agreed in principle to pay the increase which was prevailing in the market. d) That the detailed break-up of this claim has been appended separately. e) It is further stated that the claimant was not instrumental for increase in cost but due to the interference of the Hon'ble Supreme Court. And the said increase has been taken into account till the stipulated completion dated 23.2.93. f) That the claimant is entitled for recovery of the said increase. Claim No. 4: Claimants claim Rs. 12,922/- payable by virtue of clause 10-C of the agreement and up to the stipulated period a) That there was steep rise in cost of steel and the claimant was exposed and the respondents were liable to pay the increase in steel. b) That the detailed break-up of this claim has been prepared and appended. 6. The Arbitrator by a reasoned award dated 23rd May, 2005 held that the entire delay of 25 months in the execution of the project was thanks to the DDA, none of this delay being attributable to the contractor. The learned Arbitrator found: "That all the above four claims are inter linked being related to the overhead expenses and therefore dealt to....
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....s set out had been duly recorded 733 to 739 and M.A.S. register pages from 747 to 768 as highlighted by the Claimants. The Claimants also relied upon certain documents of MAS Register supplied by the Respondents. That the Claimants further stated that the Claimants had also filed reasons for delay and hold up of the work various defaults of the Respondents in Annexure pages 740 to 746. The Claimants also highlighted the correspondence made by the Claimants with Respondents. That the Claimants further stated that the said hindrances were avoidable but the Respondents did not take timely steps. That the Claimants also referred the contents of the letter dated 10.7.95 (page 885) wherein it was observed that the Superintending Engineer appreciated the working of the Claimants and also observed that there was no fault of the contractor and they have successfully completed the work. The Claimants further stated that, they had incurred heavy expenditure on overheads of the lapses and default of the Respondents. As against this the Respondents stated that there was poor planning of the claimants and also contended that since the compensation has been levied under Clause 2 of th....
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....supported with reasons. The Arbitrator is the sole judge of the quality and quantity of evidence before him and he has decided on that evidence. No errors of law arise from the award and the award has, therefore, been wrongly set aside. 11. Mr. Amarendra Sharan, learned Senior Advocate appearing on behalf of the DDA has relied strongly on clause 10C and clause 22 to support the judgment of the Division bench and has further argued that there has been duplication so far as certain claims are concerned. He argued that an award in the teeth of clause 10C and clause 22 would be a jurisdictional error which would vitiate the award. 12. In as much as serious objections have been taken to the Division Bench judgment on the ground that it has ignored the parameters laid down in a series of judgments by this Court as to the limitations which a Judge hearing objections to an arbitral award under Section 34 is subject to, we deem it necessary to state the law on the subject. Section 34 of the Arbitration and Conciliation Act reads as follows- "Application for setting aside arbitral award.-(1) Recourse to a Court against an arbitral award may be made only by an application for sett....
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....ths 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." This Section in conjunction with Section 5 makes it clear that an arbitration award that is governed by part I of the Arbitration and Conciliation Act, 1996 can be set aside only on grounds mentioned under Section 34 (2) and (3), and not otherwise. Section 5 reads as follows: "5. Extent of judicial intervention.-Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part." It is important to note that the 1996 Act was enacted to replace the 1940 Arbitration Act in order to provide for an arbitral procedure which is fair, efficient and capa....
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....e stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term "public policy" in Renusagar case [1994 Supp (1) SCC 644] it is required to be held that the award could be set aside if it is patently illegal. The result would be - award could be set aside if it is contrary to: (a) Fundamental policy of Indian law; or (b) The interest of India; or (c) Justice or morality, or (d) in addition, if it is patently illegal. Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. Such awar....
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.... in case of failure to deliver the goods within the period fixed for such delivery in the schedule, ONGC was entitled to recover from the contractor liquidated damages as agreed; (iii) it was also explicitly understood that the agreed liquidated damages were genuine pre-estimate of damages; (iv) on the request of the respondent to extend the time-limit for supply of goods, ONGC informed specifically that time was extended but stipulated liquidated damages as agreed would be recovered; (v) liquidated damages for delay in supply of goods were to be recovered by paying authorities from the bills for payment of cost of material supplied by the contractor; (vi) there is nothing on record to suggest that stipulation for recovering liquidated damages was by way of penalty or that the said sum was in any way unreasonable. (vii) In certain contracts, it is impossible to assess the damages or prove the same. Such situation is taken care of by Sections 73 and 74 of the Contract Act and in the present case by specific terms of the contract." The judgment in ONGC v. Saw Pipes has been consistently followed till date. In Hindustan Zinc Ltd. v. Friends Coal Carbonisation, (20....
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....(1) SCC 644] , added another ground thereto for exercise of the court's jurisdiction in setting aside the award if it is patently arbitrary. 59. Such patent illegality, however, must go to the root of the matter. The public policy violation, indisputably, should be so unfair and unreasonable as to shock the conscience of the court. Where the arbitrator, however, has gone contrary to or beyond the expressed law of the contract or granted relief in the matter not in dispute would come within the purview of Section 34 of the Act. However, we would consider the applicability of the aforementioned principles while noticing the merits of the matter. 60. What would constitute public policy is a matter dependent upon the nature of transaction and nature of statute. For the said purpose, the pleadings of the parties and the materials brought on record would be relevant to enable the court to judge what is in public good or public interest, and what would otherwise be injurious to the public good at the relevant point, as contradistinguished from the policy of a particular Government. (See State of Rajasthan v. Basant Nahata [(2005) 12 SCC 77].)" In Centrotrade Minerals & Metals....
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....h reference to the terms of the agreement duly executed by both parties." J.G. Engineers (P) Ltd. v. Union of India, (2011) 5 SCC 758, held: "27. Interpreting the said provisions, this Court in ONGC Ltd. v. Saw Pipes Ltd.[(2003) 5 SCC 705] held that a court can set aside an award under Section 34(2)(b)(ii) of the Act, as being in conflict with the public policy of India, if it is (a) contrary to the fundamental policy of Indian law; or (b) contrary to the interests of India; or (c) contrary to justice or morality; or (d) patently illegal. This Court explained that to hold an award to be opposed to public policy, the patent illegality should go to the very root of the matter and not a trivial illegality. It is also observed that an award could be set aside if it is so unfair and unreasonable that it shocks the conscience of the court, as then it would be opposed to public policy." Union of India v. Col. L.S.N. Murthy, (2012) 1 SCC 718, held: "22. In ONGC Ltd. v. Saw Pipes Ltd. [(2003) 5 SCC 705] this Court after examining the grounds on which an award of the arbitrator can be set aside under Section 34 of the Act has said: (SCC p. 727, para 31) "31. ... However, the a....
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....ely or additionally enjoined upon the fora concerned. What must be remembered is that the importance of a judicial approach in judicial and quasi-judicial determination lies in the fact that so long as the court, tribunal or the authority exercising powers that affect the rights or obligations of the parties before them shows fidelity to judicial approach, they cannot act in an arbitrary, capricious or whimsical manner. Judicial approach ensures that the authority acts bona fide and deals with the subject in a fair, reasonable and objective manner and that its decision is not actuated by any extraneous consideration. Judicial approach in that sense acts as a check against flaws and faults that can render the decision of a court, tribunal or authority vulnerable to challenge. 38. Equally important and indeed fundamental to the policy of Indian law is the principle that a court and so also a quasijudicial authority must, while determining the rights and obligations of parties before it, do so in accordance with the principles of natural justice. Besides the celebrated audi alteram partem rule one of the facets of the principles of natural justice is that the court/authority decidi....
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....nciple in Indian law is also contained in Sections 18 and 34 (2) (a) (iii) of the Arbitration and Conciliation Act. These Sections read as follows: "18. Equal treatment of parties.- The parties shall be treated with equality and each party shall be given a full opportunity to present his case. 34. Application for setting aside arbitral award.- (2) An arbitral award may be set aside by the Court only if - (a) the party making the application furnishes proof that- (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; " The third juristic principle is that a decision which is perverse or so irrational that no reasonable person would have arrived at the same is important and requires some degree of explanation. It is settled law that where- 1. a finding is based on no evidence, or 2. an arbitral tribunal takes into account something irrelevant to the decision which it arrives at; or 3. ignores vital evidence in arriving at its decision, such decision would necessarily be perverse. A good working test of perversity is contained in two judgm....
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.... Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts. In P.R. Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H. Securities (P) Ltd., (2012) 1 SCC 594, this Court held: "21. A court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or reappreciating the evidence. An award can be challenged only under the grounds mentioned in Section 34(2) of the Act. The Arbitral Tribunal has examined the facts and held that both the second respondent and the appellant are liable. The case as put forward by the first respondent has been accepted. Even the minority view was that the second respondent was liable as claimed by the first respondent, but the appellant was not liable only on the ground that the arbitrators appointed by the Stock Exchange under Bye-law 248, in a claim against a non-member, had no jurisdiction to decide a claim against another member. The finding of the majority is that the appellant did the transaction in the name of the second respondent and is therefore, liable along with the second respondent. Therefore, in the absence of any ground under Section 34(2) of the Act, it is not possible to....
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....of pious obligation of sons to discharge their father's debts and contends that what the Hindu Law considers to be immoral in that context may appropriately be applied to a case under s. 23 of the Contract Act. Neither any authority is cited nor any legal basis is suggested for importing the doctrine of Hindu Law into the domain of contracts. Section 23 of the Contract Act is inspired by the common law of England and it would be more useful to refer to the English Law than to the Hindu Law texts dealing with a different matter. Anson in his Law of Contracts states at p. 222 thus: "The only aspect of immorality with which Courts of Law have dealt is sexual immorality........... ." Halsbury in his Laws of England, 3rd Edn., Vol. 8, makes a similar statement, at p. 138 : "A contract which is made upon an immoral consideration or for an immoral purpose is unenforceable, and there is no distinction in this respect between immoral and illegal contracts. The immorality here alluded to is sexual immorality." In the Law of Contract by Cheshire and Fifoot, 3rd Edn., it is stated at p. 279: "Although Lord Mansfield laid it down that a contract contra bonos mores is illegal,....
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.... has been brought to our notice where it has been applied to any head other than sexual immorality. In the circumstances, we cannot evolve a new head so as to bring in wagers within its fold." This Court has confined morality to sexual morality so far as section 23 of the Contract Act is concerned, which in the context of an arbitral award would mean the enforcement of an award say for specific performance of a contract involving prostitution. "Morality" would, if it is to go beyond sexual morality necessarily cover such agreements as are not illegal but would not be enforced given the prevailing mores of the day. However, interference on this ground would also be only if something shocks the court's conscience. Patent Illegality We now come to the fourth head of public policy namely, patent illegality. It must be remembered that under the explanation to section 34 (2) (b), an award is said to be in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption. This ground is perhaps the earliest ground on which courts in England set aside awards under English law. Added to this ground (in 1802) is the ground that an arb....
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....repeated by more than one learned Judge, and it is certainly not to be desired that the exception should be in any way extended. An error in law on the face of the award means, in their Lordships' view, that you can find in the award or a document actually incorporated thereto, as for instance, a note appended by the arbitrator stating the reasons for his judgment, some legal proposition which is the basis of the award and which you can then say is erroneous. It does not mean that if in a narrative a reference is made to a contention of one party that opens the door to seeing first what that contention is, and then going to the contract on which the parties' rights depend to see if that contention is sound. Here it is impossible to say, from what is shown on the face of the award, what mistake the arbitrators made. The only way that the learned judges have arrived at finding what the mistake was is by saying: "Inasmuch as the Arbitrators awarded so and so, and inasmuch as the letter shows that then buyer rejected the cotton, the arbitrators can only have arrived at that result by totally misinterpreting Cl.52." But they were entitled to give their own interpretation to Cl. 52 or an....
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....cDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181, this Court held as under: "112. It is trite that the terms of the contract can be express or implied. The conduct of the parties would also be a relevant factor in the matter of construction of a contract. The construction of the contract agreement is within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and they cannot be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. It is also trite that correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law. (See Pure Helium India (P) Ltd. v. ONGC [(2003) 8 SCC 593] and D.D. Sharma v. Union of India [(2004) 5 SCC 325]). 113. Once, thus, it is held that the arbitrator had the jurisdiction, no further question shall be raised and the court will not exercise its jurisdiction unless it is found that there exists any bar on the fac....
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....6 : (2010) 4 SCC (Civ) 459] , SCC p. 313) "43. ... The umpire has considered the fact situation and placed a construction on the clauses of the agreement which according to him was the correct one. One may at the highest say that one would have preferred another construction of Clause 17.3 but that cannot make the award in any way perverse. Nor can one substitute one's own view in such a situation, in place of the one taken by the umpire, which would amount to sitting in appeal. As held by this Court in Kwality Mfg. Corpn. v. Central Warehousing Corpn. [(2009) 5 SCC 142 : (2009) 2 SCC (Civ) 406] the Court while considering challenge to arbitral award does not sit in appeal over the findings and decision of the arbitrator, which is what the High Court has practically done in this matter. The umpire is legitimately entitled to take the view which he holds to be the correct one after considering the material before him and after interpreting the provisions of the agreement. If he does so, the decision of the umpire has to be accepted as final and binding." 13. Applying the tests laid down by this Court, we have to examine whether the Division Bench has exceeded its jurisdict....
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.... received judicial support in many cases, it has been criticised principally because it adopts the head office overhead percentage from the contract as the factor for calculating the costs, and this may bear little or no relation to the actual head office costs of the contractor. (b) Emden Formula: In Emden's Building Contracts and Practice, the Emden Formula is stated in the following terms: "Head office overhead and profit x Contract sum x Period of delay" 100 Contract period Using the Emden Formula, the head office overhead percentage is arrived at by dividing the total overhead cost and profit of the contractor's organisation as a whole by the total turnover. This formula has the advantage of using the contractor's actual head office overhead and profit percentage rather than those contained in the contract. This formula has been widely applied and has received judicial support in a number of cases including Norwest Holst Construction Ltd. v. Coop. Wholesale Society Ltd. [Decided on 17-2-1998, [1998] EWHC Technology 339], Beechwood Development Co. (Scotland) Ltd. v. Mitchell [ Decided on 21-2- 2001, (2001) CIL....
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....s to whether damages should be computed by taking recourse to one or the other formula, having regard to the facts and circumstances of a particular case, would eminently fall within the domain of the arbitrator." 16. Obviously, the Division Bench has exceeded its jurisdiction in interfering with a possible view of the Arbitrator on facts. 17. The Division Bench then went on to hold: "17. There is admittedly no evidence that the contractor i.e. the respondent had a central establishment. It appears to be a case where the contractor is petty contractor and the only expenses incurred are at the site. The claim is towards hire charges paid for centering and shuttering, hiring tools, plants and scaffoldings i.e. the claim is not for the contractor's own equipment lying idle. There is just no evidence that the contractor paid charges as claimed by him. Not a single bill raised by the alleged person who let on hire the equipment to the contractor has been filed nor any evidence adduced for the payment made. Except for listing a 10 HP Water Pump, 4 number 1 HP water pump, 3 mixers, 250 scaffolding bamboos, 150 ballis and 2 vibrators in Annexure-J to the Statement of Claim, no doc....
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.... course by reducing it by 15%, but ignoring that final work executed was only in sum of Rs. 62,84,845/-." 18. Mr. Verma argued correctly that there is nothing on record to show that the contractor is a petty contractor and that the only expenses incurred are at the site. He has shown us that the contract itself required execution of the work by a Class-I contractor and has further shown us that Class-I contractors require to have certain stipulated numbers of works worth large amounts before they can apply for the tender and that their financial soundness has to be attested too by banker's certificate showing that their worth is over 10 crores of rupees. Further, he has pointed out from the statement of claims before the Arbitrator that there was evidence for claims 9, 10 and 11 laid before the Arbitrator which the Arbitrator has in fact accepted. Also establishment expenses were set out in great detail before the Arbitrator and it is only on this evidence that the Arbitrator ultimately has awarded these claims. Mr. Verma is also right in saying that the Division Bench was completely wrong in stating that the establishment expenses pertained to payments for a site at Mayur Vihar....
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....to be faulted. 21. In dealing with claims 12 and 13, the Division Bench stated: "19. Pertaining to Claim No.12 and 13, the learned Arbitrator has recompensed the contractor 20% price hike in the cost of material and labour noting, that there was a steep hike in the period in question when the contract got prolonged by 25 months. We highlight that though the Arbitrator has found the delay to be 25 months, recompense has been restricted to only 20 months. 20. As noted herein above, partial recompense under Clause 10C, has been granted to the contractor, but the same i.e. the Clause in question requiring applicability during contract stipulated period, it is apparent that the contractor would be entitled to full recompense for price hike during the extended 25 months period and not the 20 months to which the learned Arbitrator has restricted the recompense to. 21. But, for the benefit granted under Clause 10C wherein Rs. 1,62,387/-, Rs. 46,184/- and Rs. 12,922/- have been awarded under Claim Nos. 2, 3 and 4, said amounts have to be adjusted, but not in full, for the reason these include the amounts payable during the contract stipulated period. 22. The total of the thre....
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.... Sharan in support of the Division Bench judgment. The learned counsel strongly relied on clause 10C and clause 22. These two clauses are set out as below: Clause 10C of the agreement reads as follows: "If during the progress of the works, the price of any material incorporated in the works, (not being a material supplied from the Engineer-in-Charge's stores in accordance with Clause 10 hereof and/or wages of labour increases as direct result of the coming into force of any fresh law, or statutory rule or order (but not due to any changes in sales tax) and such increase exceed ten per cent of the price and/or wages prevailing at the time of receipt of the tender for the work, and contractor thereupon necessarily and properly pays in respect of the material (incorporated in the work) such increased price and/or in respect of labour engaged on the execution of the work such increased wages, then the amount of the contract shall accordingly be varied provided always that any increase so payable is not, in the opinion of the Superintending Engineer (whose decision shall be final and binding) attributable to delay in execution of the contract within the control of the contr....
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....use 22 reads as follows: "All sums payable by way of compensations under any of these conditions shall be, considered as reasonable compensation to be applied to this use of Delhi Development Authority without reference to the actual loss or damage sustained, and whether or not any damage shall have been sustained. Specifications and Conditions: 1. The contractor must get acquainted with the proposed site for the works and study specifications and conditions carefully before tendering. The work shall be executed as per programme approved by the Engineer-in-Charge. If part of site is not available for any reasons or there is some unavoidable delay in supply of materials stipulated by the Departments, the programme of construction shall be modified accordingly and the contractor shall have no claim for any extras or compensation on this account." 24. Clause 10C concerns itself with the price of material incorporated in the works or wage or labour increases. It has been seen that claims 9, 10 and 11 have nothing to do with either of the aforesaid subjects. In seeking to apply this clause to claim 15, the simple answer is that this clause will not apply when a claim for dam....