IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA Arb.Case No.33 of 2004. Judgment reserved on:4.7.2008. Decided on: August 13, 2008 Union of India …Applicant. VERSUS M/s.Kundan Construction Co. …..Respondent. Coram The Hon’ble Mr. Justice Kuldip Singh, Judge. Whether approved for reporting?1 No For the Applicant: Mr.Janesh Mahajan, Central Govt. Counsel. For the Respondent: Mr.Ashutosh Burathoki, Advocate. Kuldip Singh, Judge. This is a petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the Act’) for setting aside the award dated 25.5.2004 passed by sole Arbitrator Brig. Subhash Babbar. 2. The facts, in brief, are that a dispute had arisen between M/s.Kundan Construction Co. and Union of India regarding contract for “Provn of Md Accn for Ors at Dharamshala” under contract agreement Number CE UZ-15 of 94-95 which included arbitration agreement vide clause 70 1 Whether the reporters of the local papers may be allowed to see the Judgment? Yes …2… of IAWF-2249 forming part of the contract. Brig. R.B.Singh was appointed on 22.10.2002 as arbitrator who resigned as arbitrator on 28.11.2003. The dispute continued between the parties, therefore, Brig. Subhash Babbar was appointed sole arbitrator on 20.1.2004 to adjudicate the dispute between the parties. The learned Arbitrator entered into reference on 31.1.2004. The respondent reiterated the claims, pleas and relied documents which were filed and presented by respondent before earlier arbitrator Brig. R.B.Singh. The petitioner also reiterated the defence, claims and relied documents which were filed and presented before earlier arbitrator R.B.Singh. 3. The following are the amounts claimed and awarded by the arbitrator as per the impugned award:- (A) CLAIMS OF M/s.KUNDAN CONSTRUCTION Co. (a) Claim No.1: Amount claimed Amount awarded On account of wok done including escalation and deviation orders agreed by the Accepting Officer: Rs.10,14,392.50 Rs.8,10,661.00 (b) Claim No.2: Refund of Cash Reserve held by the Department. Rs.5,35,882.61 Rs.5,35,882.61 (c) Claim No.3: Release of STDR deposited by GE(KH) Yol to CDA (NC) on behalf of Claimant: Rs.2,10,000.00 Rs.2,10,000.00 (d) Claim No.4: …3… Release of Bank Guarantee in lieu of reserve In custody of Chief Engineer Pathankot Zone: Rs.3,00,000 Rs.3,00,000 (e) Claim No.5: Extra work carried out for provision of Continuous Lintel Bank: Rs.1,75,218.61 Nil (f) Claim No.6: Extra work carried out for provision of Sheet Metal Meter Fixing Boards: Rs.21,328.00 Rs.13,766.51 (g) Claim No.7: Extra work carried out for provision of increase in Depth of Foundations: Rs.1,70,134.18 Rs.1,55,679 (h) Claim No.8: Escalation payable on Claim No.5, 6 and 7: Rs.2,34,910.75 Rs.1,08,555.74 (i) Claim No.9: On account of Tools, Plant, Machinery and Construction equipment confiscated by the Department: Rs.4,77,000.00 Rs.5,913.63 (j) Claim No.10: Loss of overheads and profits due to Prolongation of contract: Rs.56,91,041.82 Rs.2,90,000 (k) Claim No.11: Idling of resources, Plant and Machinery: Rs.7,10,000 Rs.50,000 (l) Claim No.12: Interest Interest @ 24% per annum with quarterly rests: (1) Simple interest @ 10% p.a. allowed to contractor on the amounts awarded against claims No.1,2 and 6 to 11 w.e.f. 27.10.2001 to the date of publishing of award. …4… (2) A grace period of 90 days allowed to Union of India from the date of award to pay the amount due (including interest thereon) to the Contractor, in default Union of India shall pay on the amount due on the date of award, future interest from a day after the award to the actual date of payment @ 6% simple interest per annum. (B) CLAIMS OF UNION OF INDIA: (a) Claim No.1: Amount claimed Amount awarded Claim on account of Non- completion of work and getting the balance work done through other agency at the Risk and cost of Contractor: Rs.26,08,660.01 Rs.2,24,334.00 (b) Claim No.2: Non-return of surplus/deficient Schedule ‘B’ stores not returned by respondent: Rs.20,223.00 Rs.34,159.00 (c) Claim No.3: Amount due from respondent on account of compensation to be recovered from them for Non-completion of work: Rs.7,50,000.00 Nil (d) Claim No.4: Losses and damages suffered by users on account of non- completion of work by respondent. Rs.25,92,000.00 Nil (e) Claim No.5: Interest Interest on claim No.1 to 4 @ 18% per annum, Pendentelite and Simple interest @ 10% p.a. award to Union of India on amounts due to them w.e.f. 27.10.2001 to the actual date of …5… future. payment against their claims No.1 and 2. (f) Claim No.6: Cost of Reference to Arbitration: Rs.50,000.00 Nil 4. The petitioner has assailed the impugned award mainly on the ground that the claims allowed by the learned Arbitrator were beyond the terms and conditions of the contract agreement. The Arbitrator has accepted the claims of the respondent on the basis of a few letters which were internal correspondence of the department. The geographical condition actually existing on the site has been overlooked. The claims of the respondent have been blindly accepted whereas detailed measurements recorded by petitioner were ignored. The huge amount paid by the petitioner to the Contractor has been overlooked. The claims of the petitioner were not seriously considered. The learned Arbitrator allowed the claims on surmises and conjectures and while awarding various amounts the learned Arbitrator has violated express provisions of contract agreement. The award is full of illegalities and mistakes. The method adopted by the Arbitrator for calculating the award in favour of contractor is wrong and is not based upon the actual position on the ground. The learned Arbitrator has allowed amounts on the …6… lesser side towards the claims of petitioner and in many cases the learned Arbitrator has wrongly awarded Nil amount towards the claims of Union of India. 5. The petition has been contested by respondent by filing reply to the objections by taking preliminary objections that the objections are not maintainable, objections have not been filed by competent person. The objections are beyond the scope of Section 34 of the Act. The respondent while opposing the objections has supported the impugned award. The petitioner has filed rejoinder and contested the reply filed by the respondent while reiterating the stand taken in the objections. On the pleadings of the parties, following issues were framed:- 1. Whether the award is partially beyond the scope of arbitral agreement between the parties, as alleged? 2. Relief. 6. I have heard learned counsel for the parties and gone through the record, my issue-wise findings are as follows: Issue No.1: The date of completion of the work of Phase-1 was 14.1.1995 and date of completion of the work of Phase- …7… II was 14.1.1997. The date of completion of work was extended up to 31.7.2001. The contractor could not complete the work, he rather rescinded the contract vide letter dated 27.10.2001 and the petitioner cancelled the contract w.e.f. 14.12.2001 vide letter dated 7.12.2001. The respondent has attributed delay to the petitioner. On the contrary, petitioner attributed delay on the part of the respondent. It has also been alleged that due to financial constraints of petitioner, certain quantities in the internal and external services were to be reduced, altered which resulted in restricting payments to the respondent on items executed in site clearance and protective works. The learned Arbitrator ultimately after appreciation of evidence has come to the conclusion that contract was breached by the petitioner and not by the respondent. 7. The learned counsel for the petitioner has submitted that once the contract was rescinded by the respondent and cancelled by the petitioner nothing was left for arbitration inasmuch as the arbitration clause will also go with the rescission and cancellation of the contract. He has submitted that the various claims awarded by the learned Arbitrator are beyond the scope of arbitral agreement. This contention of learned counsel for the petitioner is noticed only …8… to be rejected. The parties participated in the arbitral proceedings without taking specific objection that the claims before the Arbitrator were beyond the scope of arbitral agreement between them. Once the parties before the Arbitrator knowing fully well the case of the opposite side participated in the arbitration proceedings without any objection, rather the parties invited decision of the Arbitrator then later on the parties cannot raise the objection that the award is beyond the scope of arbitral agreement. The petitioner had also put claims before the Arbitrator. Therefore, this argument is not available to the petitioner that on rescission and cancellation of contract arbitration clause in the agreement will also perish with the contract. The perusal of the impugned award would show that no objection was taken by the petitioner before the Arbitrator that any claim of either side before the Arbitrator is beyond the scope of arbitral agreement between the parties. The Arbitrator under Section 16 of the Act has competence to decide its own jurisdiction, clause (a) of sub-section (1) of Section 16 makes it clear that an arbitration clause which forms part of the contract shall be treated as an agreement independent of the other terms of the contract. The submission of learned counsel for the petitioner that once the …9… contract has been rescinded and cancelled, the arbitration clause will also go has no force in view of sub clause(a), sub- section (1) of Section 16 of the Act. It is not the case of the petitioner that there was no arbitration clause in the contract agreement. The learned counsel for the petitioner has not shown from the record the contract agreement between the parties and the arbitration clause. In absence of proof of actual contract agreement and arbitral agreement in the present proceedings the petitioner cannot be permitted to raise the question that the award is partially beyond the scope of arbitral agreement between the parties. Therefore, contention of learned counsel for the petitioner that on rescission, cancellation of the contract agreement there was nothing left for arbitration between the parties is rejected. 8. The award can be assailed under Section 34 of the Act, sub-section (2) of the Act which is as follows:- “34.(1) xxx xxx (2) An arbitral award may be set aside by the Court only if- (a) the party making the application furnishes proof that- (i) a party was under some incapacity, or (ii) the arbitration agreement is not valid under the law to which the parties have …10… 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 failing 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- …11… (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 induced or affected by fraud or corruption or was in violation of section 75 or section 81.” The objections have not been filed under sub clause (i), (ii), (iii) of clause (a) of sub-section (2), similarly there is no objection with respect to sub clause (v). The award has also not been assailed on the ground that the award is against the public policy of India, nor an issue that the award is against the public policy of India was claimed by the petitioner. Now, sub clause (iv) of clause (a) of sub-section (2) and sub clause (i) of clause (b) of sub-section 2 are left for consideration. The petitioner has placed nothing on record to show that the award deals with dispute not contemplated by or not falling within the terms of submissions to arbitration. The petitioner has also not placed anything on record to show that the …12… award contains decisions on matters beyond the scope of submissions to arbitration. Similarly, there is nothing on record to show that the subject matter of dispute is not capable of settlement by arbitration under the law for the time being in force. The contract agreement including arbitration agreement has not been shown during hearing. The Arbitrator has considered the material on record claim- wise and the Arbitrator has given a reasoned award. This Court while considering the objections under Section 34 of the Act is not sitting in appeal. The petitioner has failed to bring objections within the ambit of Section 34 of the Act, nor the petitioner within the scope of objections has shown anything from record that the impugned award is hit by any relevant clause of Section 34 of the Act. The petitioner has failed to prove issue No.1. Accordingly, Issue No.1 is decided against the petitioner and in favour of the respondent. 9. The result of the above discussion, the petition is dismissed with no order as to costs. All pending applications shall also stand disposed of. (Kuldip Singh ) August 13, 2008(soni) Judge. …13…