* IN THE HIGH COURT OF DELHI AT NEW DELHI + OMP NO. 16/2003 Reserved on : November 14, 2008 Date of Decision : April 17, 2009 National Thermal Power Corporation Ltd. .....Appellant Through : Mr. R.P. Bhat, Sr. Advocate, with Mr. Chirag M. Shroff, Advocate. Versus Wig Brothers Builders and Engineers Ltd. .....Respondent Through : Mr. P.V. Kapoor, Sr. Advocate, with Mr. Jeevesh Nagrath, Advocate. CORAM: HON'BLE MR. JUSTICE MUKUL MUDGAL 1. Whether the Reporters of local papers may be allowed to see the judgment? Yes 2. To be referred to the Reporter or not? Yes 3. Whether the judgment should be reported in the Digest? Yes JUDGMENT : MUKUL MUDGAL ,J . 1. These are objections filed under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the Act’) read with Sections 12, 13, 16, 18, 28(3) and 31 of the Act by the petitioner-National Thermal Power Corporation (for short ‘NTPC’) against the Awards of the Arbitral Tribunal dated 13th September, 1999 and 25th June, 2002. 2. The disputes between the parties arose from a lump sum contract for 4 Cooling Towers of reinforced cement concrete 120 Metres high along with RCC basin for collection of cooled water and arrangement of RCC channels and AC Pipes provided horizontally for sprinkling of hot water through nozzles over layers of PVC serrated sheets, for the purpose of cooling of hot water from 43 Degree C. to 32 Degree C. through natural draft created in the towers. However, the supply of hot water and distribution of cold water from the basin was outside the scope of the contract. 3. The contract, inter-alia, provided for foreign collaborators and their design for structural and thermal attributes of the Cooling Towers, for supply of cement and steel free of cost by NTPC, for variation in the quantity of such cement and steel on certain prescribed consideration and for recovery from the contractor for excess consumption of cement and steel, for price adjustment of materials, labour and fuel linked with price indices, for foreign exchange rate protection and other usual conditions found in building and engineering contracts. 4. A completion schedule was stipulated for making ready the cooling towers. A schedule was also fixed for carrying out the trial operation within a specific period fixed separately for each tower and completion of miscellaneous works was fixed after two weeks thereafter. A Performance Guarantee (hereinafter referred to as the ‘PG’) test was also one of such terms. A provision was made in the contract for Bank Guarantee for 10% of the contract sum for non-recoverable initial advance and 5% progressive payment for the stages of trial run and commissioning. The validity period for the various guarantees was stipulated in the contract. The performance guarantee was to be valid till the expiry of the guarantee period of one year after trial operation and 90 days thereafter. The guarantee for initial advance was to be valid till 90 days after trial operation, and that for progressive payments for trial run and commissioning till after completion of the PG Test. A further provision in the contract provided that the cooling towers were to be taken over by NTPC after completion of all the tests. Provisions were also made for force majeure and extension of time. Levy of liquidated damages for delay in completion as well as in shortfall in achieving the stipulated temperature of 32 Degree C. was also prescribed. 5. The case of the respondent/claimant set up before the Arbitrator was that: - a. The bid of the respondent contractor M/s. Wig Brothers (Builders & Engineers) Limited was accepted by NTPC on 07th November, 1988 for the lump sum of Rs.13,63,22,750.00. A performance guarantee bond was submitted by the contractor as per the contract requirement valid for a stipulated period of one year after trial operation + 90 days and keeping to the initial prescribed schedule this bond was valid up to 30th June, 1993 as specifically mentioned in the letter of award of the contract. b. The last of the four cooling towers was handed over to NTPC on 10th July, 1995. Apparently, on 25th July, 1996 the respondent-contractor submitted its pre-final bill for an amount of Rs.26,05,21,598. NTPC, by its letter dated 9th August, 1996 denied payment of the said bill and that resulted in a dispute between the parties. NTPC once again communicated its refusal to clear the pre-final bill to the Respondent by letter dated 16th August, 1996. c. The respondent by its letter dated 11th November, 1997 invoked the arbitration clause and since, according to the respondent, no Engineer had been appointed by the petitioner in terms of Clause 3 of the Contract, the respondent called upon the petitioner to appoint its Arbitrator within 60 days from the receipt of the said notice. The respondent also made a request to the President of the Institute of Engineers to appoint the third Arbitrator in terms of the Arbitration Agreement contained in the Contract. By the said letter the respondent made it clear that the reference of disputes to arbitration was not confined to those contained in pre-final bill. d. The petitioner by its letter dated 29th December, 1997 informed the respondent that its letter dated 16th August, 1996 was a decision of the Engineer appointed under the Contract and since more than 30 days had lapsed from such date the decision of the Engineer had become final and binding and there was no dispute which could be referred for arbitration in terms of the Contract. The petitioner thus declined to appoint its nominee arbitrator. e. The respondent by its letter dated 9th January, 1998 disputed the stand taken by the petitioner and once again called upon the petitioner to appoint the arbitrator. By a separate letter dated 9th January, 1998 the respondent appointed Shri A.P. Paracer, Additional Director General (Retd.), CPWD as its nominee arbitrator and once again requested the petitioner and the President, Institution of Engineers to appoint their nominee arbitrators. f. The President, Institution of Engineers appointed Shri P.P. Dharwadker, Former Chairman and Managing Director, NBCC as the third arbitrator. Since, the petitioner had not appointed its nominee arbitrator, even after the expiry of 150 days, the respondent by its letter dated 31st March, 1998 requested the President of the Institution of Engineers to nominate an arbitrator on behalf of the Petitioner in accordance with the arbitration agreement. g. The Petitioner by its letter dated 13th April, 1998 claimed, that while it had no objection for the appointment of arbitrator on the request of the respondent as contained in its letter dated 31st March, 1998, it was objecting to the appointment of arbitrator on the ground that there was no arbitrable dispute as the decision of the Engineer had become final. h. On the request of the respondent, the President of the Institution of Engineers by his letter dated 6th May, 1998 appointed Shri Balbir Singh, Former Director General, CPWD as the nominee arbitrator on behalf of the petitioner. i. On 10th June, 1998 the petitioner filed an application under Sections 12 and 13 of the Arbitration and Conciliation Act, 1996 (‘the Act’) before the Arbitral Tribunal challenging its constitution on several grounds. The Arbitral Tribunal rejected the said application on 18th August, 1998. The petitioner challenged the said decision of the Arbitral Tribunal before this Court under Section 34 of the Act. That challenge was also dismissed on 17th September, 2001. A further appeal to the Division Bench of this Court was also dismissed on 18th January, 2002. Thereafter, the Petitioner participated in the proceedings of the Arbitral Tribunal, under protest. 6. It appears that at the 6th hearing of the Arbitral Tribunal held on 3rd February, 1999, the petitioner again questioned the jurisdiction of the Arbitral Tribunal averring as under: - “i. If claims (Part-I) were a dispute, they were first required to be referred to the Engineer and only thereafter the arbitration clause could be invoked. Since there was no dispute regarding claims (Part-I) and arbitration was never sought on these claims, there could be no reference for arbitration. In the absence of any reference the Tribunal had no jurisdiction to adjudicate in respect of these claims. ii. The reference commenced only on 11th November, 1997 and this was clear from the Claimants’ letter dated 11th November, 1997 invoking arbitration clause in respect of disputes resulting from the non-acceptance of the pre-final bill by the NTPC. This reference made no mention of release of Bank Guarantees and consequently claims were beyond the jurisdiction of the Tribunal. iii) The issues regarding release of Bank Guarantees to be adjudicated upon by the Tribunal are the same as those pending before the Court. The matter was, therefore, sub-judice and the Tribunal had no authority to proceed with the same.” 7. By its order dated 13th September, 1999 the Arbitral Tribunal rejected the said objections. 8. On 25th June, 2002 the Arbitral Tribunal rendered a unanimous Award awarding the Respondent a sum of Rs.4,75,41,411/-. The Arbitral Tribunal observed that in case the net amount awarded is paid within 30 days of the Award no future interest would be payable but if the petitioner failed to do so, the net amount awarded shall carry an interest of 18% per annum up to the date of actual payment by the petitioner. The Arbitral Tribunal awarded a sum of Rs.6,36,450/- in favour of the Petitioner. However, having regard to the fact that the Petitioner had already taken a credit of Rs.3,76,950/- in the final bill and the fact that the Arbitral Tribunal reduced the final bill by a sum of Rs.2,00,000/- only a sum of Rs.59,500/- was awarded to the petitioner. 9. The petitioner questioned the said award under Section 34 of the Act on several grounds. The award has been challenged separately under Sections 12, 13, 16, 18, 28(3) and 31 of the Act. However, finally the petitioner’s Senior counsel, Sh. R.P. Bhat raised the following as the main grounds of challenge: - a. The appointment and constitution of the Arbitral Tribunal was illegal as it was not in accordance with the agreement between the parties; b. The PG Test was not done by the respondent which entitled the petitioner to deduct a sum of Rs.65,00,000/-. It was immaterial as to why the PG Test was not done. The conclusion of the Arbitral Tribunal that an adjustment of Rs.6,00,000/- is to be given for non-conductance of the PG Test is without any basis; c. The Arbitral Tribunal has awarded claims forming part of the pre-final bill even though some of them had not been included and claimed in the final bill; and d. In the meetings held between the parties on 10th September, 1993, 13th September, 1993 and 28th September, 1993, certain disputes had been settled and the parties had agreed that no claim would be made by either of them in respect of such disputes. Despite this the respondent made a claim in respect of those disputes that had been settled and the Arbitral Tribunal has wrongly adjudicated and allowed such claims of the respondent. 10. In proceedings to adjudicate the challenge to the award under Section 34, the Court has to bear in mind that it does not sit as a appeal court that has the jurisdiction to revisit the evidence and the arguments advanced before the arbitrator and then substitute its own views with those of the arbitrators. The Court will not set aside a decision of an Arbitral Tribunal merely for the reason that had it heard the matter in the first instance it would have come to a different conclusion or that the view it would have taken could have been a better view. So long as the view of the Arbitral Tribunal is a plausible view, the court will not interfere with the Award merely because it feels that the view of the court may have been different than the one taken by the Arbitral Tribunal. The jurisdiction of this Court is confined to the four corners of the Arbitration Act, in particular the provisions of Section 34, for determining whether an Arbitration Award is liable to be set aside or not. In this respect reference may be made, inter alia to the law laid down in the following decisions: - (i) (1987) 4 SCC 497 – [Municipal Corporation of Delhi vs. Jagan Nath Ashok Kumar & Anr. ]; (ii) 2002 (97) DLT 902 – [DDA vs. Sahdev Brothers & Anr.]; (iii) 2006 (1) AD Delhi 431 – [Union of India vs. Suchita Steels (India); (iv) 2004 (8) AD Delhi 1 – [Devika Mehra vs. Ameeta Mehra ]. 11. It is true that an Arbitral Award that is opposed to the public policy of India will be liable to be set aside as held by the Hon’ble Supreme Court in the case of Oil & Natural Gas Corporation Ltd. vs. Saw Pipes Ltd. 2003(5) SCC 705. Relying upon the said judgment of the Supreme Court, a Division Bench of this Court has in the case of Gian Chand Totu vs. Subhash Chand Kathuria delivered in FAO(OS) No. 1 of 2004 held that: “In our view, the pivotal principle laid down by the Hon’ble Supreme Court -------- while defining the scope for interference with awards on the grounds of public policy is that the award can be set aside if it is patently illegal but the illegality must go to the root of the matter and if the illegalities are of trivial nature it cannot be held that the award is against public policy. It was further held the award can also be set aside if it was so unfair and unreasonable so as to shock the conscience of the Court. (emphasis supplied)” 12. This Court, therefore, is required to assess the challenge made by the petitioner on the touchstone of the legal position enumerated above. 13. The case as set up by the petitioner with respect to challenge under Sections 11 and 16 is as under: - i. The challenge to the Award under Sections 11 and 16 is founded on the ground that since the conditions precedent for the appointment of arbitrators had not been fulfilled, the Institution of Engineers did not have the power or authority under the Contract to proceed with the appointment of any arbitrator let alone the nominee arbitrator on behalf of the Petitioner as also the third arbitrator. According to the petitioner, in order that a dispute could be referred to arbitration, the Contract contemplated that at first the dispute would have to be referred to an “Engineer” in terms of clause 26 of the Contract. That once the Engineer rendered his decision it would become final and binding unless it was questioned by the party aggrieved by carrying the dispute to arbitration in terms of clause 27 of the Contract. In substance the petitioner questions the award on the ground that the composition of the Arbitral Tribunal was not in accordance with the agreement between the parties. ii. In support of its contentions the petitioner submitted that in this case the respondent had lodged its claim with the Engineer that was rejected by the Engineer by his letter dated 16th August, 1996. The said decision of the Engineer became final and binding between the parties since, the respondent did not initiate arbitration within the period of 30 days contemplated by clause 27 of the Contract. That once the period of 30 days stipulated in clause 27 of the contract had expired, the respondent lost its right to seek reference of the dispute to arbitration. According to the petitioner, once the stipulated period had expired there remained no arbitrable dispute between the parties that could be referred to arbitration. That in these circumstances when the respondent itself had lost the right to commence arbitration, the Institution of Engineers could not proceed to appoint arbitrators at the behest of the respondent/claimant. iii. Clauses 26 and 27 of the Contract in question read as under: - “26. SETTLEMENT OF DISPUTE 26.1 Except as otherwise specifically provided in the Contract all disputes concerning questions of fact arising under the Contract in the first instance shall be decided by the engineer, whose decision shall be final to the parties hereto. 26.2 Any dispute or difference including those considered as such by only one of the parties arising out of or in connection with the Contract shall be to the extent possible settled amicably between the parties. 26.3 If amicable settlement cannot be reached then all disputed issues shall be settled by arbitration as provided in clause 27 below. 27. ARBITRATION 27.1 If any dispute or difference of any kind whatsoever shall arise between the Owner and the contractor, arising out of the contract for the performance of the Works whether during the progress of the works or after its completion or whether before or after the termination, abandonment or breach of the Contract, it shall, in the first place, be referred to and settled by the engineer, who, within a period of thirty (30) days after being requested by either party to do so, shall given written note of his decision to the owner and the contractor. 27.2 Save as hereinafter provided such decision in respect of every matter so referred shall be final and binding upon the parties until the completion of the entire works under the contract and shall forthwith be given effect to by the contractor who shall comply with all such decisions with all due diligence, whether he or the owner requires arbitration as hereinafter provided or not. 27.3 If after the Engineer has given written notice of his decision to the parties, no claim to arbitration has been communicated to him by either party within thirty (30) days from the receipt of such notice, the said decision shall become final and binding on the parties. 27.4 In the event of the Engineer failing to notify his decision as aforesaid within thirty (30) days after being requested as aforesaid, or in the event of either the owner or the contractor being dissatisfied with any such decision, or within thirty (30) days after the expiry of the first mentioned period of thirty (30) days, as the case may be, either party may require that the matters in dispute be referred to arbitration as hereinafter provided. 27.5 all disputes or differences in respect of which the decision, if any of the Engineer has not become final or binding as aforesaid, shall be settled by arbitration in the manner hereinafter provided. 27.6.1 In the event of the Contractor being an Indian party, that is to say a citizen and/or a permanent resident of India, a firm or a company duly registered or incorporated in India, the arbitration shall be conducted by three arbitrators one each to be nominated by the contractor and the owner and the third to be name by the President of the Institution of Engineers, India. If either of the parties fails to appoint its arbitrator within 60 (sixty) days after receipt of a notice from the other party invoking the Arbitration clause, the President of the Institution of Engineers, India shall have the power at the request of either of the parties, to appoint the arbitrator. A certified copy of the order of the said President making such an appointment shall be furnished to both the parties. 27.6.2 The arbitration shall be conducted in accordance with the provisions of the Indian Arbitration Act, 1940 or any statutory modification thereof. The venue of arbitration shall be New Delhi, India. 27.7. …… 27.9 The arbitrator shall have full powers to review and/or revise any decision, opinion, directions, certification or valuation of the Engineer in consonance with the Contract, and neither party shall be limited in the proceedings before such arbitrators to the evidence or arguments put before the Engineer for the purposes of obtaining the said decision.” iv. In the alternative the petitioner further submitted that, if, as per the case set up by the respondent, the petitioner had not appointed an Engineer in terms of clause 3 of the contract, it was incumbent upon them to first call upon the petitioner to appoint the Engineer and thereafter refer the dispute to him. That in the absence of the respondent having followed that procedure, the dispute could not be referred to arbitration directly. 14. In response to this plea, counsel for the respondent firstly submitted that the contention of the petitioner that the respondent had made a claim before the engineer is factually incorrect because the petitioner had never appointed an Engineer in accordance with the contract and no such contractual entity existed in fact. According to the respondent, it had submitted its pre-final bill to the petitioner (and not to the Engineer) on 25th July, 1996 and it was that pre-final bill that was rejected by the petitioner by its letter of 9th August, 1996 as also by the letter of 16th August, 1996. The respondent further submitted that if the petitioner itself had failed and/or refused to appoint an Engineer in terms of the Contract, it was no part of the respondent’s duty to persuade the petitioner to appoint one so that the respondent could then refer their dispute to him. The respondent submitted that since there was no Engineer nominated by the petitioner, the respondent was well within its right within the contract to refer their dispute directly to the arbitrators. 15. A perusal of the letter of 9th August, 1996 shows that it is a letter written by the Petitioner’s officer, one Mr. A.K. Saxena, Manager (Township) which simply says “On our scrutiny, it has been observed that the bill in question is not tenable as per contract”. 16. There is, however, a second letter of 16th August, 1996 that the petitioner claims was the decision of the Engineer under clause 26 of the Contract. It is noteworthy that the letter of 16th August, 1996, though signed by a different person, is in fact a repetition of the letter of 9th August, 1996. 17. The learned counsel for the respondent submitted that under no circumstance could the letter dated 16th August, 1996 be regarded as a decision of the Engineer for the following reasons: - a. No engineer in terms of clause 3 of the Contract had ever been appointed in writing and no intimation of such appointment had ever been given to the respondent; b. The letter dated 16th August, 1996 was nothing but a mere reproduction of the petitioner’s letter dated 9th August, 1996 which contained neither any discussion nor any reasons as to why the claimant’s pre-final was being rejected as ‘not tenable’; c. The letter dated 16th August, 1996, gave no indication whatsoever that it was a decision of the Engineer. The gentleman who signed the letter, one Mr. Nikhil Kumar, signed it in his capacity as “MGR. CCD/INF” and the letter is written on the petitioner’s letterhead. The expression “Engineer” is significantly absent from the said letter. d. That in order for the Engineer to render his decision, the dispute should have been referred to him to enable him to invite respective submissions of the parties and apply his mind thereto. Since, no reference of any dispute had been made to the Engineer (since none had been appointed), the plea of the said letter dated 16th August, 1996 being his decision cannot be accepted. e. That in fact even the petitioner had admitted that the letters dated 9th August, 1996 and 16th August, 1996 were really the decisions of the petitioner and not of the Engineer. In this connection the respondent placed reliance on the petitioner’s letter dated 9th January, 1998 wherein the petitioner had stated, “Regarding your pre-final bill amounting the same had already been examined/checked by us. On our scrutiny it was found that the bill in question is not tenable and the same was to be conveyed to