IN THE HIGH COURT OF HIMACHAL PRADESH AT SHIMLA Arb. Case No. 45 of 2004 Reserved on : 21st October, 2008 Date of Decision: 5th November, 2008 Executive Engineer, Roads and Bridges Department, Municipal Corporation, Shimla Petitioner Versus Rakesh Seth Respondent Coram The Hon’ble Mr. Justice Sanjay Karol,J. Whether approved for reporting1? Yes. For the petitioner : Mr.Shrawan Dogra, Advocate. For the respondent: T.R.Sharma, Advocate. Sanjay Karol, J. The present objection under Section 34(2) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act) has been filed on behalf of Municipal Corporation, Shimla, assailing the Arbitrator’s award dated 7.6.2004 passed by Shri B.S.Parmar, Superintending Engineer (Retired). For the purpose of convenience, the objector herein is referred to as the Municipal Corporation and the respondent is referred to as the Contractor. Whether the reporters of Local Papers are allowed to see the Judgment? 2 The Arbitrator, as against the Objector’s claim of Rs.63,57,162/- has awarded a sum of Rs.4,40,245/- and as against the counter claim filed by the Municipal Corporation of Rs.1,66,503 plus interest @ 24%, awarded a sum of Rs.1,13,221/- (Rs.83,251 + Rs.29970 interest). After making adjustments, a total sum of Rs.3,27,024/- has been awarded in favour of the Contractor, which shall bear interest @ 8% per annum. The Municipal Corporation for the purpose of carrying out the works of “construction of 3 stage lift from Revoli Bus Stand to Ridge (Civil Works)” invited tenders. On 13.1.1997 the work was finally awarded to the Contractor. The total amount for tendered work was Rs.47,23,114/- and the duration for completion of the same was one year. The Contractor was carrying on the works, when the Municipal Corporation vide Resolution dated 29.9.1999 resolved to shelve the project for the reason that due to technical reasons the structural design of the lift was not approved by the Executive Engineer, Roorkee University. Consequently, the Contractor was asked to stop the work and the project was abandoned. Certain disputes having arisen between the parties, Clause 25 of the agreement containing the Arbitration clause was invoked and consequently by a reference made by this Court on 9.5.2002 (subsequent memo dated 10.1.2003) in Arbitration Case No.5 of 2002 , the disputes between the parties were referred to the Arbitrator. The Contractor’s claims were six in number. In the reply to the claim petition while admitting that the work had been stopped as the project had to be shelved for technical reasons the Municipal Corporation took the defence that payments for all the works carried out by the 3 Contractor, as per the approved bills, were cleared and nothing was due to him. The Arbitrator afforded adequate opportunity to the parties to plead and prove their case. Appreciating the material on record, the Arbitrator allowed the claims as stated hereinabove. The challenge to the award is on the ground that the award is opposed to public policy of India; claims at Sl.Nos. 1 and 2 of claim No.1 did not arise out of the contract and were, therefore, beyond the scope of arbitration; the closure of the contract was amicable and the contractor having received the payments to its satisfaction, it was not open for the Arbitrator to have awarded the amount, which was contrary to the agreed terms between the parties. On 10.3.2005, this Court framed the following issues:- 1. Whether the impugned award is opposed to the Public Policy India? 2. Relief. I have the learned counsel for the parties and also perused the record. From the record following undisputed facts emerge. The Municipal Corporation had awarded contract to the Contractor for the construction of the specified work; (2) the Contractor had commenced the work; (3) work was being executed to the satisfaction of the Municipal Corporation as there was no grievance raised by any person at any point in time with regard to the same; (4) the Municipal Corporation unilaterally took a decision of shelving the project and stopping the work; 4 and (5) a sum of Rs.19,20,371/- stood paid to the Contractor for various works executed by him. The Arbitrator has held that pursuant to the award of the work, the Contractor had been executing the work to the satisfaction of all concerned. The Contractor did not breach any of the terms and conditions of the Contract and no penal action either under Clause (2) or clause (3) of the Contract was taken against the Contractor. The breaches, if any, had been committed by the Municipal Corporation. In the reply filed by the Municipal Corporation, it has been stated as under:- As far as the matter regarding non-application of mind by the Municipal Corporation is concerned, there was no intention of the respondent not to execute the work. In fact some of the work was executed by the contractor and payment was also released. But the project had to be shelved for technical reasons. During excavation, some sinking strata was encountered and accordingly the opinion of the Geologist & Experts were obtained before going further with the project.” I have gone through the record and taking into account the reply filed by the Municipal Corporation to the claim petition as also its Resolution dated 29.9.1999, it is apparent that the Municipal Corporation unilaterally decided to shelve the project and stop the work. Therefore, I find no fault with the findings of the Arbitrator on this account. In Bharat Coking Coal Ltd. vs. Annapurna Construction, (2003) 8 SCC 154, it has also been held as under:- “Only because the respondent has accepted the final bill, the same would not mean that it was not entitled to raise 5 any claim. It is not the case of the appellant that while accepting the final bill, the respondent had unequivocally stated that he would not raise any further claim. In absence of such a declaration, the respondent cannot be held to be estopped or precluded from raising any claim.” Whenever waiver is pleaded it is for the party pleading the same to show that an agreement waiving of some compromise came into being. [Krishna Bahadur v. Purna Theatre and others, (2004) 8 SCC 229]. Waiver is the abandonment of a right which normally, everybody is at liberty to waive. A waiver is nothing unless it amounts to a release. It signifies nothing more than an intention not to insist upon the right. It may be deduced from acquiescence or may be implied. [Waman Shriniwas Kini vs. Ratilal Bhagwandas and Co. AIR 1959 SC 689] In Sikkim Subba Associates vs. State of Sikkim, (2001) 5 SCC 629, it has been held as under:- “Waiver involves a conscious, voluntary and intentional relinquishment or abandonment of a known, existing legal right, advantage, benefit, claim or privilege, which except for such a waiver, the party would have enjoyed. The agreement between parties in this case is such that its fulfilment depends upon the mutual performance of reciprocal promises constituting the consideration for one another and the reciprocity envisaged and engrafted is such that one party who fails to perform his own reciprocal promise cannot assert a claim for performance of the other party and go to the extent of claiming even damages for non- performance by the other party. He who seeks equity must do equity and when the condonation or acceptance of belated performance was conditional upon the future good conduct and adherence to the promises of the defaulter, the 6 so-called waiver cannot be considered to be forever and complete in itself so as to deprive the State, in this case, of its power to legitimately repudiate and refuse to perform its part on the admitted fact that the default of the appellants continued till even the passing of the Award. So far as the defaults and consequent entitlement or right of the State to have had the lotteries either foreclosed or stopped further, the State in order to safeguard its own stakes and reputation has continued the operation of lotteries even undergoing the miseries arising out of the persistent defaults of the appellants. The same cannot be availed of by the appellants or used as a ground by the Arbitrator to claim any immunity permanently for being pardoned, condoned and waived of their subsequent recurring and persistent defaults so as to deny or denude forever the power of the State as other party to the contract to put an end to the agreement. The conclusion to the contrary that the State has committed breach of the contract is nothing but sheer perversity and contradiction in terms. Moreover, the principles enshrined in Section 54 in adjudicating the question of breach and Section 73 of the Contract Act incorporating the principles for the determination of the damages, are found to have been observed more in their breach.” In the present case, there is no such material from which it could be deduced that the claimant had acquiesced impliedly or directly for waiving his right. In Damodar Valley Corporation v. K.K.Kar, AIR 1974 SC 158, it is held that : “The question whether there had been a full and final settlement of a claim under the contract was itself a dispute arising ‘upon’ or ‘in relation to’ or ‘in connection with’ the 7 contract. A claim for damages was a dispute or difference which arose between the respondent and the appellant and was ‘upon’ or ‘in relation to’ or ‘in connection with’ the contract, and the reference to the arbitrator by the respondent was not barred. The question whether the termination was valid or not and whether damages were recoverable for such wrongful termination did not affect the arbitration clause, or the right the respondent to invoke it for appointment of an arbitrator. (1942) AC 356 and AIR 1959 SC 1362, rel. on: ILR (1972) 1 Cal 28, Affirmed. A repudiation by one party alone does not terminate the contract. As the contract subsists for the determination of the rights and obligations of the parties, the arbitration clause also survives. This is not a case where the plea is that the contract is void, illegal or fraudulent etc., in which case, the entire contract along with the arbitration clause is non est, or voidable. Where the dispute between the parties is that the contract itself does not subsist either as a result of its being substituted by a new contract or by rescission or alteration that dispute cannot be referred to the arbitration as the arbitration clause itself would perish if the averment is found to be valid.” To the same effect is ratio of law in Jayesh Engineering Works vs. New India Assurance Co. Ltd. (2000) 10 SCC 178 and Union of India and another vs. M/s L.K.Ahuja and Co. (1988) 3 SCC 76. While deciding Claim No.I covering items from Sl.Nos. 1 to 10, the Arbitrator has rejected claim pertaining to items from Sl.No.3 to 10 for the reason that the same were not arbitrable and as such no amount was awarded towards the same. 8 Items at Sl.Nos. 1 and 2 pertain to construction of office, room accommodation and temporary press room for which a sum of Rs.41,050/- and Rs.28,480/-, was claimed as nothing was paid for the same. In reply, the Municipal Corporation while admitting that the work was executed as per consent of both the parties stated that the payment for the same was, however, made to the claimant. Importantly, the Arbitrator has held that neither the construction nor the amount spent has been disputed and, therefore, contractor’s claim was awarded. The Arbitrator found that in fact no payment was made towards the same. Even here nothing was shown to substantiate the same. It has come on record that items at Sl.Nos. 1 and 2 were carried out only to facilitate the execution of the work and performance of the contract. Since the Municipal Corporation itself had consented to the same, therefore, the submission of Mr. Dogra, learned counsel for the Municipal Corporation that the said item is not part of the contract needs to be rejected. The Municipal Corporation itself treated it to be part of the contract. It had power to change specification, alter works and deviate from tendered work. In State of Orissa vs. Asis Ranjan Mohanty, (1999) 9 SCC 249, the Apex Court upheld the Arbitrator’s award passed in relation to new disputes raised before the Arbitrator on the ground that the disputes were already in existence at the time of invocation of the Arbitration clause and, therefore, within the scope of the arbitration clause and reference. Claim No.II: In regard to the claim of interest amount of Rs.8,26,815/-. Nothing has been awarded by the Contractor under Claim No.II. Claim No.III: Refund of Security Rs.1,00,000/-. 9 The contract having been unilaterally rescinded by the Municipal Corporation, I am of the view that the Arbitrator has correctly held that the security deposit wrongly withheld by the Corporation had to be refunded. The Arbitrator was right in directing refund of security deposit. No fault can be found on this account. Claim No.IV: On account of loss of profit Rs.7,08,467/-. The Arbitrator held that the contract was unilaterally rescinded and the contractor having executed works valuing only Rs.19,21,371/- was entitled to profits on the remaining amount of Rs.28,01,743/-, and thus he awarded profits @ 7%, being Rs.1,96,122/-. That the Municipal Corporation committed material breach of the terms of the contract now stands conclusively adjudicated. That the Contractor was in a ready state of preparedness, ready to perform his part of the reciprocal contractual obligation also stands proved. In this view of the matter, the contractor’s entitlement to the profits for breach of the terms of the contract is undisputed. [M/s A.T.Brij Paul Singh and Bros. Vs. State of Gujarat, AIR 1984, Supreme Court, 1703]. In M/s A.T.Brij Paul Singh and Bros. Vs. State of Gujarat, AIR 1984, S.C.C., 1703, the Apex Court has held that measure of profits to be awarded would depend upon the facts and circumstances of each case. Even though, reasonable expectation and profit is implicit in the works contract and its loss has to be compensated by way of damages if the other party to the contract is guilty of the breach of the contract. The Court observed that:- “Hudson’s Building and Engineering Contact (1970), tenth edition and observed that ‘in major contracts subject to competitive tender 10 on a national basis, the evidence given in litigation on many occasions suggests that the head-office overheads and profit is between 3 to 7% of the total price of cost’ which is added to the tender.” Contrary to what has been argued by the learned counsel for the Contractor, the Apex Court has not laid down the proposition that the expected/anticipated profits would be of 15%. Profits to the extent of 15% were construed to be just and reasonable in the facts and circumstances of that case for the reason that in relation to works of similar nature, between the same parties, 15% profit had already been upheld by the Court. The Contractor has not even filed the objections. Therefore, in my view, no fault can be found with the approach adopted by the Arbitrator in awarding profit to the extent of 7%. Claim No.V: Litigation charges amounting to Rs.4,50,000/- Nothing has been awarded against the above claim. Claim No.VI: Interest amount: Rs.8,26,815/-. The Arbitrator has awarded simple interest @ 8% on the claims adjudicated. The same is absolutely just, fair and reasonable. Counter-Claim of the respondent/Executive Engineer: The Arbitrator has, after considering the material on record awarded Rs.83,251/- towards recovery of 540 bags of cement, 220 CGI sheets, which were handed over by the Municipal Corporation to the claimant for construction. Importantly, the quantum of material is not in dispute and the Arbitrator has rightly held that the claim set up by the Municipal Corporation asking rates of double the amount than stipulated in 11 the contract agreement is not justified in law. In my view, the Arbitrator has rightly awarded the amounts based on the material on record. The Arbitrator is an expert and has perused the record before arriving at its conclusion. He has assigned the reasons. Under Section 34 of the Act, the scope of interference in an award passed by the Arbitrator is quite narrow. The expression “public policy” is a concept which relates to the public good and to public interest. In Renusagar Power Co. Ltd. vs. General Electric Co., AIR 1994 SC 860, the Supreme Court noted that the doctrine of public policy is somewhat open- textured and flexible and has comprehended a narrow view and a broad view. The narrow view is that Courts cannot create new heads of policy, while the broader view is that heads are not necessarily closed for judicial interpretation. The position in England was considered where the ground of public policy is held to be capable of being invoked where the enforcement of an award “would affront some moral principle the maintenance of which admits no possible compromise”, such as (i) where the fundamental conceptions of English justice and disregarded; (ii) Where English conceptions or morality are infringed; (iii) Where a transaction prejudices the interest of a nation or its good relations with foreign powers; (iv) where the foreign law or status offends English conception of human liberty and freedom of action. The Apex Court in Samita Conductors Ltd. Vs Euro Alloys Ltd. (2001) 7 SCC 728 and Oil & Natural Gas Corporation Ltd. Vs. Saw Pipes Ltd., (2003) 5 SCC 705, held that the expression “public policy of India” would mean that a foreign award cannot be recognized or enforced if it 12 is contrary to (i) the fundamental policy of Indian Law; (ii) the interests of India ; (iii) justice or morality. The arbitrator is a Judge appointed by both the parties after reaching a consensus and once it is found that the view of the Arbitrator is a plausible one, the Court cannot reverse it by interfering with the award. Moreover, the interpretation of a contract is a matter solely within the domain of the arbitrator. In case two views are possible, the Court is not justified in interfering with the award by adopting its own interpretation. Even if it could be proved that the arbitrator has committed some mistake while arriving at his conclusion, such a proof would not invalidate the award. Even if there is an error of construction of the agreement by the arbitrator, the same is not amendable to correction. The reasonableness of an award is not a matter for the Court to consider unless the award is preposterous or absurd. In Bhagwati Oxygen Ltd. vs. Hindustan Copper Ltd., (2005) 6 SCC 462, the Apex Court has held as under:- “An Arbitrator is a Judge appointed by the parties and as such the award passed by him is not to be lightly interfered with. The court while exercising the power under Section 30, cannot re-appreciate the evidence or examine correctness of the conclusions arrived at by the Arbitrator. The jurisdiction is not appellate in nature and an award passed by an Arbitrator cannot be set aside on the ground that it was erroneous. It is not open to the court to interfere with the award merely because in the opinion of the court, other view is equally possible. It is only when the court is satisfied that the Arbitrator had misconducted himself or the proceedings or the award had been improperly procured or is `otherwise' invalid that the court may set aside such award. 13 In Mcdermott International Inc. vs. Burn Standard Co. Ltd. and another, (2006) 11 SCC 181, the Apex Court has held 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. Once 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 face of the award”. In Pure Helium India (P) Ltd. vs. Oil & Natural Gas Commission, (2003) 8 SCC 593, the apex Court has approved the ratio of law laid down in its earlier decision in Rajasthan State Mines & Minerals Ltd. v. Eastern Engg. Enterprises, (1999) 9 SCC283, as under:- “35. In Rajasthan State Mines & Minerals Ltd. (supra) whereupon Mr. Rohtagi placed strong reliance, this Court held that the dispute to the arbitrator could not be termed as without jurisdiction but proceeded to consider the question as to whether he will have authority or jurisdiction to grant damages or compensation in the teeth of the stipulation providing that no escalation would be granted and that the contractor would only be entitled to payment of the composite rate as mentioned and no other or further payment of any kind or item whatsoever shall be due and payable by the Company to the contractor. 36. It was concluded : (SCC pp 309-10, para 44) "44 (a) It is not open to the Court to speculate, where on reasons are given by the arbitrator, as to what impelled the arbitrator to arrive at his conclusion. 14 (b) It is not open to the Court to admit to probe the mental process by which the arbitrator has reached his conclusion where it is not disclosed by the terms of the award. (c) If the arbitrator has committed a mere error of fact or law in reaching his conclusion on the disputed question submitted for his adjudication then the Court cannot interfere. (d) If no specific question of law is referred, the decision of the Arbitrator on that question is not final, however much it may be within his jurisdiction and indeed essential for him to decide the question incidentally. In a case where specific question of law touching upon the jurisdiction of the arbitrator was referred for the decision of the arbitrator by the parties, then the finding of the arbitrator on the said question between the parties may be binding. (e) In a case of non-speaking award, the jurisdiction of the Court is limited. The award can be set aside if the arbitrator acts beyond his jurisdiction. (f) To find out whether the arbitrator has travelled beyond his jurisdiction, it would be necessary to consider the agreement between the parties containing the arbitration clause. Arbitrator acting beyond his jurisdiction is a different ground from the error apparent on the face of the award. (g) In order to determine whether arbitrator has acted in excess of his jurisdiction what has to be seen is whether the claimant could raise a particular claim before the arbitrator. If there is a specific term in the contract or the law which does not permit or give the arbitrator the power to decide the dispute raised by the claimant or there is a specific bar in the contract to the raising of the particular claim then the award passed by the arbitrator in respect thereof would be in excess of jurisdiction." In Bharat Coking Coal Ltd. vs. Annapurna Construction, (2003) 8 SCC 154, it has been held as under:- 15 “There lies a clear distinction between an error within the jurisdiction and error in excess of jurisdiction. Thus, the role of the arbitrator is to arbitrate within the terms of the contract. He has no power apart from what the parties have given him under the contract. If he has travelled beyond the contract, he would be acting without jurisdiction, whereas if he has remained inside the parameter of the contract, his award cannot be questioned on the ground that it contains an error apparent on the face of the record.” The Apex Court has examined the powers of the Arbitrator for awarding interest who has the authority to award interest for pre-reference period, interest from the period after entering upon reference