- 1 - IN THE HIGH COURT OF JUDICATURE AT BOMBAY O.O.C.J. APPEAL NO. 799 OF 2004 IN ARBITRATION PETITION NO.493 OF 2003 ... Patel Engineering Company Ltd. ...Appellant v/s. Konkan Railway Corporation Ltd. ...Respondent ... Mr.Aspi Chinoy, Sr.Counsel with Mr.Z.Andhyarujina i/b M/s.Munim & Co. for the Appellant. Mrs.Kiran Bagalia with Ms.Asha Bhambwani with Ms.Latika Panakshari for the Respondent. ALONGWITH - 2 - CROSS-APPEAL (L) NO.3 OF 2005 Konkan Railway Corporation Ltd. ...Appellant v/s. Patel Engineering Company Ltd. ...Respondent ... Mrs.Kiran Bagalia with Ms.Asha Bhambwani with Ms.Latika Panakshari for the Appellant. Mr.Aspi Chinoy, Sr.Counsel with Mr.Z.Andhyarujina i/b M/s.Munim & Co. for the Respondent. ... CORAM: D.K.DESHMUKH & A.A.SAYED,JJ. DATED: 29th April, 2009 JUDGMENT:( PER D.K.DESHMUKH, J.) - 3 - 1. The Appeal and the cross-objection take exception to the order dated 19th August, 2004 passed by the learned single Judge of this court in Arbitration Petition No.493 of 2003. That petition was filed by the Respondent in the Appeal i.e. Konkan Railway Corporation Ltd. under Section 34 of the Arbitration & Conciliation Act, 1996 ( herein after referred to as the "Arbitration Act") to set aside the award dated 19th May, 2003 passed by the arbitral tribunal in respect of disputes and differences between the parties. The award held that the Appellant-Patel Engineering Co.Ltd. is entitled to recover a sum of Rs.3,04,71,013.06 with interest thereon at the rate of 18% p.a. 2. In this judgment, Patel Engineering Company Ltd. shall be referred to as the Appellant and Konkan Railway Corporation Ltd. shall be referred to as the Respondent. 3. Brief facts giving rise to the disputes between the parties are, the Respondent invited bids for the construction of a tunnel in connection with one of its projects. The Appellant’s tender was accepted and agreement in writing dated 27th November, 1991 - 4 - for execution of the work for a total contractual cost of Rs.6,81,02,517/- was entered into between the parties. The work was to be carried out in accordance with the said agreement, the schedule annexed thereto and in confirmity with the printed schedule of rates, Special Conditions and the General Instructions which were incorporated therein by clause 5. These documents in turn incorporated other documents including the General Conditions of Contract for works. . The date of commencement of the work was 29th October, 1991 and the scheduled date of completion thereof was 28th April, 1994. The work was not completed by the scheduled date. It was substantially completed on 30th September, 1995. The Respondent issued a certificate dated 14th March, 1996 which specified the date of completion as 10th March, 1996. 4. The Appellant contended that despite its having completed the work satisfactorily the Respondent failed to pay various amounts due to it under the contract and made unauthorised deductions from its final bill. The Respondent having failed to settle - 5 - the final bill the Appellant by its letter dated 1st July, 1998 requested the Respondent to refer the disputes to arbitration in accordance with clause 63 of the General Conditions of Contract. The Respondent having failed to respond to this request the Appellant filed Arbitration Petition No.321 of 1998 in this Court under section 11 of the Arbitration Act. By the order dated 24th December, 1998 two of the arbitrators were appointed. The two arbitrators then proceeded to appoint the presiding arbitrator. That is how the arbitral tribunal was constituted. 5. The Respondent applied to the arbitral tribunal to hear its objection regarding the validity of the constitution of the arbitral tribunal as a preliminary issue. The arbitral tribunal by its order dated 8th October, 2002 rejected the objection and proceeded with the hearing of the reference on merits and made its award dated 19th May, 2003 holding that the Appellant is entitled to recover an amount of Rs.3,04,71,013.06 together with interest at 18% p.a. from the Respondent. 6. Feeling aggrieved by that award the Respondent - 6 - filed Arbitration Petition No.493 of 2003 in this Court. In that petition, the Respondent also challenged the order dated 8th October, 2002 passed by the Arbitral tribunal rejecting its preliminary objection. The Arbitration Petition was decided by the learned single Judge by order dated 19th August, 2004. Apart from challenging the order on the preliminary issue, the Respondent challenged the award in respect of Claim No.1, Claim No.2, Claim No.7, Claim No.8( item No.5) and Claim No.10. The award for awarding interest was also challenged. The learned single Judge rejected the challenge to the order of the arbitral tribunal on preliminary objection. The learned single Judge, however, upheld the challenge in respect of Claim No.1, Claim No.2( I Part), Claim No.7, Claim No.8 (item No.5) and Claim No.10. As a consequence the learned single Judge set aside the award to the extent he upheld the challenges raised to the award. 7. In the Appeal filed by the Appellant they are challenging the order of the learned single Judge in so far as it upholds the challenge raised to the award by the Respondent and in the cross-objection the Respondent challenges the order of the learned - 7 - single Judge upholding the order of the arbitral tribunal rejecting the preliminary objection, the order of the learned single Judge upholding the award of the learned arbitral tribunal in relation to interest as also the order of the learned single Judge rejecting the challenge in relation to claim No.2( I Part). We have heard the learned Counsel appearing for both sides. We have also perused the record. 8. Claim No.7: Tunnel Hazards The Appellant had made this claim before the Arbitrators in respect of tunnel hazards. The Arbitrators in paragraph 7.5 of their award have observed thus: After going through all the relevant provisions in the contract agreement and the facts brought out by the Claimant and the Respondent during their written and oral submissions, we find that this claim does not fall under "Tunnel Hazards" as the procedure laid down in the agreement was not followed by the Claimant. As such the claimant’s - 8 - request for a mutually negotiated rate as provided under clause 50.2.5 can not be applied. However, we find that the Respondent has made deviations by not providing lining for most part of the tunnel and therefore the contractor was required to provide the smooth surface of the excavated tunnel profile. This could not have been envisaged by the contractor at the time of quoting his rates. Therefore, we are convinced that he had to put in extra efforts by way of removing intrusions from the excavated surface of the tunnel. This may be in our opinion the cause of excessive over breaks. We are unable to appreciate that the excess over breaks are the result of the improper survey made by the contractors especially in view of the appreciation of the quality of the work accorded by the Respondents as is evident from para 2.7 above. As about 90% surface of the tunnel is not lined or gunited, we hold that only 90% of the over breaks beyond 10% be paid. The total reconciled quantity of the over breaks beyond 10% is 15,127.00 Cubic meters. Out of - 9 - this, as per the details given on page 460 of the Respondents submissions, 3,952.74 Cubic meters is with contractor’s own equipment and 11,175.84 Cubic meters with imported machines. In our view the rate for such over breaks should not be higher than what is payable to the Claimant for 5 to 10% over breaks ( it may be seen that the claimant has also demanded this rate in his Claim No.8 item 6, page 12 for excavation with imported machine) and therefore we hold that the rate for these over breaks be as payable to the contractor under agreement for over breaks between 5% to 10% over breaks. The total amount payable to the Claimant for over breaks beyond 10% specified would be as under: a) 90% of 3,952.74 Cubic meters @ Rs.102.60 per Cub.meter Rs.3,64,996.00 b) 90% of 11,175.84 Cubic meters @ Rs.61.28 per Cub.meter Rs.6,16,379.00 - 10 - Total: Rs.9,81,366.00 We therefore hold that the Claimant be paid this amount for over-breaks beyond 10% specified provisions. As far as the payment of interest on this amount is concerned, we propose to deal with it separately. 9. The learned Counsel appearing for the Appellant submits that the learned single Judge has committed a patent error in setting aside the award relating to claim No.7 only on the basis of oral submission advanced on behalf of the Respondent at the hearing of the Petition, even though the arbitration petition makes no reference to Claim No.7 nor contains any ground/material fact for impugning the same, and despite the Appellant’s objection to such challenge being entertained. It was submitted that the Arbitration Petition does not refer to Claim No.7 or the amount awarded for the same, nor does it contain any ground challenging the same. It was submitted that in view of the provisions of Section 34 of the Act a challenge to an award in the absence of a specific ground being raised could not have been - 11 - entertained. It was submitted that all the grounds on which the award was sought to be set aside have to be taken in the petition itself and that having regard to the provisions of Section 34 of the Act a ground of challenge to the arbitral award cannot be entertained or added or introduced by way of amendment into a Petition filed under Section 34, after expiry of the period of limitation laid down by Section 34. The Appellant relied on the judgment of this court in the case of P.P.Mulchandani vs. Admiral R. Tahiliani, (2001) 1 BCR 592, as also another judgment of the Division Bench of this Court in the case of Vastu Invest & Holdings Pvt. Ltd. v/s. Gujarat Lease Financing Ltd., (2002) Supp. BCR 246. The learned Counsel refers to Rule 803(C) of the Original Side Rules of this Court and submits that unless the material fact in relation to a specific ground is stated in the petition, the challenge cannot be entertained. It was submitted that the Respondent had accepted that there is no reference in its Arbitration Petition to claim No.7 and it was contended that it can challenge the award made against Claim No.7 in view of ground (Q) in its petition. It was submitted that the ground (Q) merely contains a general statement that arbitrators - 12 - have ignored the mandate of the contract and reference is made in relation to claim No.1 and claim No.10 and there is no reference to claim No.7. It was contended that when oral submissions were made at the hearing of the petition in relation to ground No.7, it was pointed out by the Appellant that there is no ground in the petition challenging the award in relation to Claim No.7. Therefore, Notice of Motion No.1734 of 2004 for amendment of the petition by adding new ground (Z) was taken out. The learned single Judge dismissed the Notice of Motion and while dismissing the Notice of Motion the learned single Judge had said that if the challenge is covered by existing ground in the petition, the Respondent can argue it. It was submitted that the order of the learned single Judge holding that because of ground (Q) the Respondent can challenge the award made against claim No.7 is unsustainable. 10. On the other hand, on behalf of the Respondent it is submitted that on bare reading of Section 34, an aggrieved party can approach the Court by an application for setting aside the award. There is no prescribed format for this application. After having made an application the Court will set aside the - 13 - award only if grounds under sub-clauses 1 to 5 of sub-section 2(a) are proved to exist. As soon as an application is made, the Award is under scrutiny of the Court and on such scrutiny, if the party is able to prove that any of the grounds mentioned in sub-Section 2(a) exists, the court may set aside the Award. It is not necessary for the party to apply to the Court in any particular form. The learned Counsel for the Respondent further submits that whenever, under any statute there is a provision of a superior authority supervising the power exercised, it is not necessary that full factual gamut is placed before the Court. The reason for it is, the entire building up of the case i.e. pleadings, issues, contentions, evidence has to be laid before the authority which holds the first trial. On the conclusion of the trial, both the parties are fully aware as to their respective pleas and the defences raised. When the order in the trial is under scrutiny of the superior authority, unless an entirely new ground which is not taken in the trial is taken for the first time before such superior authority, there is no question of a surprise to the other party. Similarly, for the same reason there is no question of violation of the principle of natural - 14 - justice. When a plea in the nature of grounds mentioned in Sub-Section 2(a)(i) to (v), is raised during the initial trial and negatived, the other party is deemed to have a notice that it would be challenged in the application under Section 34. Procedural Rules framed by the High Court requiring statement of material facts, would not have the effect of altering the scope of Section 34. Further, even if the party is unable to furnish proof in support of grounds i) to v) under Sub-Section 2(a) of Section 34, if, on the perusal of the proceedings placed before the Court, if the Court finds existence of grounds 1 and 2 of Sub-Section 2(d) of Section 34, it can set aside the award. Once the matter is before the Court and if even in the absence of the parties, the Court finds that grounds I and II, of Sub-Section 2(d) exists, the Court can set aside the award. The learned Counsel further submits that it is true that Section 34 begins with recourse to the Court by an application and also provides a limitation for making an application. Therefore existence of an application is a sine-qua-non for the Court being seized of the matter. However, once the matter is under is under the Court’s scrutiny, there is nothing to indicate in the language of Section 34 - 15 - requiring elaborate dilation of facts and circumstances leading to the grounds under clause i) to v) of Section 34 (2)(a). 11. The learned single Judge has dealt with this objection raised on behalf of the Appellant to the consideration of challenge to the award made against claim No.7 in paragraphs 112, 113 and 114 of the order. Paragraphs 112, 113 and 114 read as under:- 112. Mr.Chinoy had submitted that no ground had been made in the Petition challenging the award relating to tunnel over-breaks and that the ground relied upon in the petition viz. ground (q) was merely a general ground not adequate to entitle the Petitioner to challenge the award in this regard. He further submitted that the material facts regarding this ground of challenge have not been pleaded. He, therefore, submitted that the Petitioner was not entitled; to challenge the award in respect of Claim No.7. The submission is unfounded. 113. The Petitioner had taken out a Notice - 16 - of Motion being Notice of Motion No.1734 of 2004 for amendment of the Petition. I dismissed that Notice of Motion on the ground that if the amendments sought constituted a new challenge it was barred by limitation in view of the judgment of this Court in Pushpa N. Mulchandani v. Admiral R. Tahiliani (2001) LJ Soft 74. On the other hand, if it was covered by an existing ground or was merely an amplification of an existing ground, the Petitioner would be at liberty to urge the same. I had made it clear to the Respondent that they were at liberty to deal with this ground of challenge including by filing a further affidavit or fresh documents. The Respondent however did not choose to file any further affidavit or documents. In ground (q) the Petitioner had expressly taken the ground that the arbitrators had while making the award ignored the mandate of the contract. It was further stated that the same amounted to re-writing the contractual terms which they had no power to do. The Respondent, thereafter, illustrated this contention by - 17 - furnishing two examples. The examples pertained to Claim No.1 and Claim No.10. The illustrations were prefaced with the words: "This amounts to re-writing of contract terms which no Court has the power e.g. (emphasis supplied). It is thus clear that the challenge on this ground was not restricted to Claim No.1 and Claim No.10. 114. In the circumstances, these grounds formed the basis of the challenge in respect of all the claims. It was not necessary for the Petitioner in such circumstances to set out the claim numbers. Having challenged all the claims on this ground, it was again not mandatory for the Petitioner to press its challenge in respect of all claims. Indeed, in the affidavit in reply to the petition there is no grievance of ground (q) being vague. Nor was the Petitioners in any manner called upon to specify the claims it intended to challenge. It often happens that various grounds are taken in pleadings, only some of which are finally pressed. - 18 - 12. Perusal of the above quoted paragraphs from the order of the learned single Judge shows that according to the learned single Judge he passed an order on Notice of Motion No.1734 of 2004 dismissing the Notice of Motion. We asked the parties to produce the order passed on Notice of Motion No.1734 of 2004. They informed us that they did not have a copy of order passed on Notice of Motion No.1734 of 2004. Therefore, we called for the original records. Perusal of the original record of Notice of Motion shows that the learned single Judge has not made any order on that Notice of Motion either dismissing it or allowing it. However, it is common ground before us that when that Notice of Motion was heard, the learned single Judge during the course of hearing had observed that if the challenge was covered by an existing ground, the Respondent would be at liberty to urge the same. The position as record stands, therefore, is that the Notice of Motion taken out by the Respondent for introducing a ground challenging the award made in respect of Claim No.7 was not disposed of by the learned single Judge by any order made on that Notice of Motion. However, if one goes by the judgment which is impugned in the petition, the learned single Judge dismissed the Notice of - 19 - Motion on the ground that if the amendment constituted new challenge, it was barred by the law of limitation laid down in Section 34 of the Act, and if it was covered by an existing ground, then the Respondent was free to argue it. Therefore, the question to be considered by us is whether the ground (q) of the petition of the Respondent was enough to comply with the requirement of law and was enough to give notice to the Appellant that by that ground the Respondent was challenging the award made by the arbitral tribunal in respect of Claim No.7. Ground (q) reads as under:- "q. The Arbitral Tribunal should have considered that as per the provisions of Section 28(3) of the Arbitration & Conciliation Act, the Arbitrators are under statutory obligation to decide in accordance with the terms of the contract. However, in the present award the Arbitrators either ignored the mandate of the contract clauses or interpreted in such a way to give benefit to the claimant contractor. This amounts to rewriting of contract terms which no court has the power e.g. In Claim No.1, as per - 20 - clause 42.1 of special Conditions of contract recovery of the scrap and unaccounted steel is permitted at twice the rate prevailing market rates- the arbitrators held that it is not just and equitable. Similarly, as per clause 10.4.8 of the Special Conditions of Contract, KRCL is not responsible for any power failure etc. and the contractors were advised to keep their own stand by DG set, however, the arbitrators ignored this clause and KRCL is held responsible for power failures." 13. So far as the Arbitration Act is concerned, the provisions that is relevant is contained in sub-section 1 and sub-section 2 of Section 34. It reads as under:- 34.Application for setting aside arbitral award. (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 furnishes proof that- - 21 - (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. Explanation.- Without prejudice to the generality of sub-clause (ii) it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was - 22 - induced or affected by fraud or corruption or was in violation of section 75 or section 81. 14. Perusal of the above quoted provisions shows that the award made by the arbitral tribunal can be challenged by making an application to the court for setting aside such award. The section itself does not give any form of the application. But sub-section 2 of Section 34 specifies the ground on which the award made by the arbitrator can be set aside by the court. This court has framed Rules under the Arbitration Act. Rule 803C (a) is relevant for the present purpose. It reads as under:- 803C(a) Every petition shall be divided into paragraphs numbered consecutively and shall contain a concise form of statement of the material facts relied on and the nature of the relief asked for and shall clearly specify the persons liable to be affected thereby. The original Arbitration Agreement or the Award or duly certified copy thereof, if any, shall whenever necessary be annexed to the petition. - 23 - 15. Perusal of the above quoted Rule shows that it is a