IN THE HIGH COURT OF JUDICATURE AT PATNA Miscellaneous Appeal No.689 of 2008 1. The Project Engineer on behalf of the State of Bihar Construction Cell, Science and Technology Department, Technology Bhawan, Patna. 2. The State of Bihar through the Secretary, Science and Technology Department, Technology Bhawan, Patna. …………….Opp.Parties petitioners-Appellants Versus 1. Sri G.M.Sahay, General Manager-cum- Chief Engineer, Bihar State Electricity Board (Rtd.), 29-A, Shri Krishnapuri, Patna, the sole arbitrator appointed by the Patna High Court in Request Case No.8/2003. ………………. Arbitrator Opp.Parties Respondent Ist set. 2. M/s. N.R. Construction Pvt. Ltd., Sector 12A, Quarter No.1051, P.O. + P.S. Bokaro Steel City, District-Bokaro, Jharkhand. ……………Claimants opp. parties respondents IInd Set. ---------------------------------- For the appellant: Mr. Shailendra Kumar Singh, Advocate For the Respondents: Mr. Nand Kishore Singh, Mr. Shailendra Kumar, Advocater ------------------ 11. 21.12.2011 Heard learned counsel for the appellants State and learned counsel for respondent No.2. The present appeal arises out of an order dated 29.9.2008 passed by the Subordinate Judge–Ist, Patna in Misc. Case No.9/2006, by which he has dismissed the case filed by the appellant and has confirmed the award dated 21.12.2005 passed by Shri G.M. Sahay, General Manager- cum- Chief Engineer, Bihar State Electricity Board (Rtd.), in an arbitration proceeding arising out of Request Case No.8 of 2 2003. On the basis of a tender invited by the Government of Bihar for the construction of Technology Bhavan, Patna in the year 1994, the bid made by respondent No.2, M/s. N.R. Construction Pvt. Ltd. was accepted by memo dated 21.5.1995 for a contract price of Rs. 2,08,60,857/-. The same was formalized into a contract in the year, 1995 through memo No.3/ 1995-96. As per the stipulation in the contract, the work was to be completed by 5.1.1997 and extension of four months was granted but the work was completed after a further delay of a month in June, 1997. On account of delay in completion of the work an amount of Rs. 1,01,093/- was deducted from the bills of the respondent No.2. Since the administrative approval was granted by the State for Rs. 154 lacs only, the work for Rs. 177 lacs alone was performed in terms of the said approval as not exceeding 15% above the amount approved. Again on 4.6.1998, a revised administrative approval was given by the State Government for completing the work of Rs. 2, 71, 76, 700/- resulting in further work of Rs. 96 lacs to be done by the respondent No.2. An Addendum to Agreement No.3 of 1995-96 was issued on 31.7.1998 under which the work was to be completed by 30.9.1998, but the 3 work was finally completed by 31.3.1999, for which a request was made for extension of time that was granted post-facto on 8.10.1999 subject to the condition that no escalation amount shall be paid on account of grant of extension of time. The final bill of Rs. 3, 15,161/- was submitted by respondent No.2 on 8.10.1999 but the payment was not made on the ground that he had failed to comply with the terms and conditions of the agreement for maintaining and completing the work for a period of six months. A dispute was raised by respondent No.2 on various issues in 1999 by its letter dated 2.8.1999 but the claims made were not accepted by the appellants. Finally respondent No.2 invoked clause 67 of the agreement for adjudication of the claim through arbitration proceedings raising 9 claims. Request Case No.8 of 2003, thereafter, was filed by respondent No.2 and the matter was referred to arbitration by this Court. The Arbitrator by his award dated 12.12.2005 allowed 8 claims out of nine claims. Aggrieved by the same, the appellants filed Misc. Case No. 9 of 2006 in the Court of Subordinate Judge- Ist, Patna under Section 34 (2) of the Arbitration and Conciliation Act, 1996, but the same was dismissed by the impugned order dated 29.9.2008 of the 4 learned Subordinate Judge holding that under the ingredients of Section 34 of the Act, the petition to set aside the award is not tenable in the eye of law. Learned counsel for the appellants has sought to re-argue the entire matter as though the appeal has been preferred against the award of the Arbitrator assailing each and every finding recorded by the Arbitrator with respect to the eight claims allowed by him. Such manner of submission fails to take into consideration the fact that a challenge to the award under Section 34 (2) before the Civil Court can only be on the limited grounds laid down therein and even before the Subordinate Judge what was being argued was not an appeal against the award itself but merely an application for setting aside the same on the limited grounds. In fairness to learned counsel for the State- appellant, however, it must be stated that he has sought to rely in this regard upon three decisions of the Supreme Court on the point of law with regard to the grounds on which the award of Arbitral Tribunal can be challenged and set aside by the Court. The first such decision is the case of Oil & Natural Gas Corporation Limited vs. Saw Pipes Ltd.: (2003) 5 SCC 5 705, in paragraph Nos. 13, 15, 31, 54 and 55 of which it has been held as follows: “13. The question, therefore, which requires consideration is- whether the award could be set aside, if the Arbitral Tribunal has not followed the mandatory procedure prescribed under Sections 24, 28 or 31 (3), which affects the rights of the parties. Under sub-section (1) (a) of Section 28 there is a mandate to the Arbitral Tribunal to decide the dispute in accordance with the substantive law for the time being in force in India. Admittedly, substantive law would include the Indian Contract Act, the Transfer of Property Act and other such laws in force. Suppose, if the award is passed in violation of the provisions of the Transfer of Property Act or in violation the Indian Contract Act, the question would be- whether such award could be set aside. Similarly, under sub-section (3), the Arbitral Tribunal is directed to decide the dispute in 6 accordance with the terms of the contract and also after taking into account the usage of the trade applicable to the transaction. If the Arbitral Tribunal ignores the terms of the contract or usage of the trade applicable to the transaction, whether the said award could be interfered. Similarly, if the award is non- speaking one and is in violation of Section 31 (3), can such award be set aside? In our view, reading Section 34 conjointly with other provisions of the Act, it appears that the legislative intent could not be that if the award is in contravention of the provisions of the Act, still however, it could not be set aside by the court. If it is held that such award could not be interfered, it would be contrary to the basic concept of justice. If the Arbitral Tribunal has not followed the mandatory procedure prescribed under the Act, it would mean that it has acted beyond its jurisdiction and thereby the award would be patently illegal which could be set aside under Section 34. 7 15. The result is- if the award is contrary to the substantive provisions of law or the provisions of the Act or against the terms of the contract, it would be patently illegal, which could be interfered under Section 34. However, such failure of procedure should be patent affecting the rights of the parties. What meaning could be assigned to the phrase “public policy of India”? 31. Therefore, in our view, the phrase “public policy of India” used in Section 34 in context is required to be given a wider meaning. It can be 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 8 affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term “public policy” in Renusagar Case, 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 award is opposed to public policy and is required to be adjudged void. 54. It is true that if the Arbitral Tribunal has committed mere error of fact or law in reaching its conclusion on the disputed question submitted to it for adjudication then the court 9 would have no jurisdiction to interfere with the award. But this would depend upon reference made to the arbitrator: (a) if there is a general reference for deciding the contractual dispute between the parties and if the award is based on erroneous legal proposition, the Court could interfere; (b) it is also settled law that in a case of reasoned award, the court can set aside the same if it is, on the face of it, erroneous on the proposition of law or its application; and (c) if a specific question of law is submitted to the arbitrator, erroneous decision in point of law does not make the award bad, so as to permit of its being set aside, unless the court is satisfied that the arbitrator had proceeded illegally. 55. In the facts of the case, it cannot be disputed that if contractual term, as it is, is to be taken into consideration, the award is, on the face of it, erroneous and in violation of the terms of the contract and thereby it violates Section 28 (3) of the Act. Undisputedly, reference to the Arbitral Tribunal was not with 10 regard to interpretation of the question of law. It was only a general reference with regard to claim of the respondent. Hence, if the award is erroneous on the basis of record with regard to the proposition of law or its application, the court will have jurisdiction to interfere with the same.” The other decision relied upon by learned counsel for the appellants is the case of Hindustan Zinc Ltd. vs. Friends Coal Carbonisation: (2006) 4 SCC 445, in which the aforesaid decision has been relied upon. Learned counsel also relies upon the case of P.R. Catering Company and another vs. Oil And Natural Gas Corporation Limited and others: (2008) 5 S.C.C. 272, in paragraph No.7 of which it has been held as follows:- “7. The Court accordingly concluded that the arbitrator had without any evidence presumed that the appellants had provided the necessary services w.e.f. 1.10.1991 itself and once again wound up its decision citing a large number of judgments 11 and observing that as the two letters and the common register were material documents which had not been considered by the arbitrator there was a manifest error apparent on the face of the record and having held above, remitted the case to the arbitrator for a fresh decision. Aggrieved thereby, the service provider is the appellant before us in this appeal.” Relying upon the aforesaid decisions, it is submitted by learned counsel that the award can be assailed if it is against the terms and conditions of the contract and it is urged that the award in the present matter has been passed against the terms and conditions of the contract and the court below ought to have set aside the same for the said reasons. Learned counsel also harped upon the fact that all the bills were paid by the appellants and only after two and half years of the final bill, fresh claims have been raised by respondent No.2. On the other hand, learned counsel for respondent No.2 submits that the award does not contain any factual or legal infirmity and is in accordance with the terms and 12 conditions of the contract. It is strenuously urged that it is wrong to submit that fresh claims have been made only after two and half years of the submission of final bill, whereas in 1999 itself, the respondent No.2 has raised his claim, which has already been responded to by the Executive Engineer by his letter dated 2.8.1999. It is further submitted that the award is also in terms of the claims of the parties and under substantive law of the land and based on the documents of the appellants. Moreover, no specific ground under Section 34 of the Act is made out by the appellants. The award is a decision of the forum of choice and the parties are bound to accept the same. The Court should not substitute its own view for that of the Arbitrator. Since the appellants have sought to assail each of the findings on the 8 claims out of 9 claims allowed by the Arbitrator, I may briefly refer to the same. Claim No.1 was for payment of final bill of Rs. 3, 15, 161/-. It is the submission of the appellants that the payment was not made as per clause 49 of the general conditions of the Agreement. The claimant was bound to maintain the building for a period of six months after the completion of work, i.e., till the end of September 1999, but it 13 failed to carry out its obligation and thus the certificate of maintenance was not issued and the payment of bill was withheld. The Arbitrator has met the aforesaid objections by taking into account the fact that the building was handed over in 1999 and the security amount was also refunded which must have been done on removal of the defects that may have been pointed out and thus there was no reason to withhold the final bill. I find that under clause 49.4 of the Agreement, the remedy on the contractor’s failure to carry out the maintenance work has been provided which states that if the contractor shall fail to do any such work of repair, etc. during the period of maintenance as required by the Engineer, the employer shall be entitled to employ and pay other persons to carry out the same and all expenses consequent thereon or incidental thereto shall be recovered from the contractor by the employer or may be deducted from any money due or which may become due to the contractor. No material was ever placed before the Arbitrator showing as to what amounts were spent on repair and maintenance by the State during the six months maintenance period and whether any such claim was raised against the respondent No.2; merely on the allegation that 14 repair in terms of the agreement was not carried out by the contractors during the six months period and, therefore, the maintenance certificate was not issued, the amount was sought to be withheld. Thus, there does not appear to be any patent illegality in the award of the Arbitrator in this regard. Claim No.2 relates to escalation price of Rs. 15 lacs claimed by respondent No.2 but allowed to the extent of Rs. 12,52,960/- by the Arbitrator. The contention of the appellants before the Arbitrator was that there was no question of payment of escalation price as the second phase of the work was to be completed within four months and the extension has been granted by the Chief Engineer on 8.10.1999 with the condition that no escalation price shall be paid for the same. The Arbitrator, however, found that under the main Agreement the escalation price for variation of escalation price had been paid for the first phase of the Agreement and the addendum to the main Agreement dated 31.7.1998 made every clause of the Agreement operative for the increased value of the agreement and the appellants are liable to pay escalation price under the specific terms of the Agreement. The terms of the bilateral agreement could not be altered unilaterally by the Chief Engineer. The escalation 15 price for the first phase was to the extent of 17.16% of the work done. Hence for the balance amount, the claim of 11.97% by respondent No.2 was reasonable but for the sake of prudence he allowed 10 % escalation only on the balance work. Learned counsel for the appellants here makes a further submission that even if escalation is to be allowed, there being a clear-cut formula in clauses 27.1, 27.2 and 27.3 of the Agreement, the Arbitrator could not have allowed 10% escalation contrary to the specific terms of the Agreement. So far as the claim for escalation allowed by the Arbitrator is concerned, this Court does not find any patent illegality in the same as he has done so on the basis of the addendum to the main agreement and for the same it cannot be held that he has committed any error of law in this regard. This Court would not substitute its own view over the view of the Arbitrator in the matter. However, since the Agreement itself has laid down a specific formula for working out the escalation price, it was not open to the Arbitrator to have allowed the same on mere surmises and conjectures but to have done that on the basis of the formula laid down in clauses 27, 27.1, 27.2, 27.3 and 27.4 of the Agreement. The 16 award to this extent is evidently contrary to the terms and conditions of the contract. Thus, in view of the law laid down by the Apex Court in the case of Oil and Natural Gas Ltd. (supra), the actual amount awarded towards escalation price worth Rs. 12,52,960/- by the Arbitrator is set aside and it is directed that the same shall be worked out afresh in terms of the formula Clauses 27, 27.1, 27.2, 27.3 and 27.4 of the special conditions of contract. Claim No.3 relates to refund of withheld amount of Rs. 1,01,093/- retained by the appellants due to delay in completion of the project which was disallowed by the Arbitrator and the same is not under challenge. Claim No. 4 relates to payment for carriage of stone chips, sands and bricks, which was subsequently confined to stone chips and Sone sand. The same has been allowed by the Arbitrator to the extent of Rs. 10, 63,200/- for carriage of stone chips and Rs. 3,31,500/- for sand, which comes to a otal of Rs. 13, 94,700/- The same has allowed by the Arbitrator in view of the rates quoted for carriage of stone chips and sand in Item No. 139 A & B of the original BOQ. The contention of the appellants is that in terms of the agreement, the item rate included carriage charges, etc. and 17 accordingly the bill was produced by the Contractor also, which was duly passed and paid by the appellants. It is further submitted that in the revised estimate passed on 9.12.1996, the carriage charges for 216 M3 of sand and 122 M3 of stone chips was deleted as the carriage of materials was already included in the revised estimate. This was the quantity mentioned under Item No.139 A & B of the original BOQ and for the other quantities of Sone sand and stone chips, there was no mention even in the original BOQ for payment of any carriage charges. Thus, according to learned counsel, the award of the Arbitrator allowing the claim in this regard is contrary to the terms of the agreement and accordingly, patently illegal and is fit to be set aside. The aforesaid submission of learned counsel for the appellants is not borne out by the Revised Estimate filed by him. I find that even in the Revised Estimate of Bill of quantities under Item No. 139A & B provision is made for carriage of construction materials beyond initial load, i.e., Sand ( 35 Km load) from Koelwar and stone chips (180 Km) from Sasaram and the quantities mentioned, 216 Cu m. of Sand and 122 Cu m of stone chips are the same as in the original BOQ. Thus there is no deletion in the revised estimate 18 as argued by learned counsel. The only difference is in the rate, for sand it is reduced from Rs.100 to Rs.84.30 per Cu m. while for stone chips from Rs. 400 to Rs. 383.00 per cu m. The revised estimate was produced before the arbitrator by the Respondent No.2 and it is also signed on each page by the contractor. Thus, it binds both the parties. However, the arbitrator has failed to note and take into consideration the downward revision of rates while making his calculation and to that extent his award is violative of the terms of contract between the parties. But so far as the actual quantity of the materials, sand and stone chips, used are concerned, he has made his calculations as per the work done shown in the measurement book using the table of conversions of the “Schedule of rates for National Highways Wing”. The same is thus not open to challenge in these proceedings. The amount, however, needs to be worked out afresh using the rate of Rs.84.30 per M3 of sand and Rs. 383.00 per M3 of stone chips. The award is thus set aside in this regard only to the said limited extent. Claim No.5 relates to payment for Chhaja work, which was allowed for Rs. 23,72,0 21/-. It is submitted by learned counsel for the appellants that the claim has been 19 allowed by wrongly calculating Chhaja work by including SIL slab work, the same is a separate item of work which could not have been allowed. In this regard, I find that the previous Arbitrator had appointed a retired Engineer Mr. R.B.Prasad of Bokaro Steel Ltd. who determined the quantity of Chhaja work, as there was a dispute between the parties as to the work done. The Engineer has submitted his report on the basis of the measurement recorded by the departmental Engineers. In the documents submitted by the appellants, I find enclosed a written comment made by the appellants on the measurement done by the Engineer. From the same, it appears that practically measurement made by the Engineer R. B. Prasad was admitted by the appellants. In any view of the matter since the arbitration award is based upon the report of Engineer R.B. Prasad, it cannot be held that any patent illegality has been committed by the Arbitrator in making the award with respect to the same. Claim No.6 relates to payment for idle labour and machinery charges for Rs. 88,09,000/- on the ground that when the claimant was ready to do the work, the appellants 20 did not provide the map and design of the building. They changed the design of the building after execution of the agreement. The Arbitrator considering that the Agreement has been executed on 20.9.1995 and the revised estimate itself was passed on 5.12.1996, allowed the claim at the rate of Rs.2,000/- per day for a period of 400 days, i.e., for Rs. 8,00,000/- Learned counsel for the appellants assails the said finding on the ground that the Arbitrator had himself disallowed the claim No.3 for refund of Rs. 1,01093/- retained by the appellants as liquidated damage due to delay in completion of the project by 5.5.1997