HIGH COURT OF HIMACHAL PRADESH AT SHIMLA Arb.C. No.: 15 of 2005. Reserved on: 3.8.2009 Decided on: 15.10.2009 State of H.P. and another ………Objector/Petitioners. Versus Gian Parkash ………Claimant/Respondent. Coram: The Hon’ble Mr.Justice V.K. Ahuja, Judge. Whether approved for reporting? No. For the petitioners: Ms.Shubh Mahajan, Deputy Advocate General, with Mr.J.S. Guleria, Assistant Advocate General. For the respondent: Mr.J.S. Bhogal, Senior Advocate, with Mr.Suneet Goel, Advocate. V.K. Ahuja, J: This judgment shall dispose of the objections under Section 34(3) of the Arbitration and Conciliation Act filed by the Objector against the award, dated 22.11.2004, passed by the Arbitrator Shri Parkash Chandra, Chief Engineer (Retired), HPSEB, in the matter of arbitration in between the contractor/respondent and State of H.P./petitioner in regard to the work for reconstruction of a foot bridge over River Beas at Kullu on down stream of damaged Tapu Bridge. _________________________________ Whether reporters of local newspapers may be allowed to see the judgment? Yes. - 2 - Brief facts of the case are that tenders were invited by the State Government/petitioner for the work of construction of sub structure of the Foot Bride over River Beas, Kullu at stream of damaged Tapu Bride on 24.12.1996. After evaluation of the tenders, letter of intent was issued on 10.1.1997 intimating the claimant that his claim was under consideration and he was requested to start the work immediately since the work was of urgent nature. The work was to be completed on time bound basis. The claimant started the work on 20.11.1997. The claimant was invited for negotiations and a letter was issued in his favour on 31.3.1997 and the cost of the work was Rs.14,15,035/-. Thereafter, an agreement was executed in between the parties and the work was to be completed within six months from the date of the award of the contract i.e. from 31.3.1997. The work was to be completed by 15th October, 1997. However, the work could not be completed in time and the claimant applied for extension of completion period since the work allegedly was delayed due to continuous rains and unprecedented flood in River Beas. The permission was granted for extension upto 30.11.1997 and subsequently upto 31.12.1998. However, the claimant was asked vide letter, dated 24.11.1997, verbally to stop the work and he informed vide his letter, dated 4.12.1997, that he has stopped the work. The verbal orders for stopping the work were confirmed subsequently vide letter, dated - 3 - 26.12.1997, and it was alleged that vide the said letter, it was conveyed by the Chief Minister on his visit to Kullu area who desired that instead of constructing foot bridge, a motorable bridge should be constructed on River Beas and the work of foot bridge had to be stopped. The petitioner asked the claimant to start the work vide letter, dated 15.6.1998 and the work was started. Substantial work was completed upto middle of October, 1998 and there were unprecedented flood on the night intervening 16-17th October, 1998 and the claimant informed the petitioners about the loss due to unprecedented flood. The agreement was ultimately closed vide letter dated 6.11.1998. Since there was a clause for arbitration in the agreement, a petition was filed in this Court, who passed an order with the consent of the parties referring the matter for arbitration. Shri Parkash Chandra was accordingly appointed as an Arbitrator, who entered into reference and gave his award on 22.11.2004. Objections have filed by the State of H.P. against the award. The grounds taken by the Objector are that the award passed by the Arbitrator is against the facts and circumstances and against the settled position of law. They also took up the plea that the Arbitrator has wrongly ignored the counter claim preferred by the Objector worth Rs.3,43,380/- and as such the award was against the public policy. The claimant/contractor had raised 5 claims - 4 - to the extent of Rs.20.00 lacs, whereas the counter claim of the Objector Department was to the extent of Rs.3,43,380/-. Out of the five claims preferred by the claimant, the claims were allowed by the Arbitrator as under: Claim No.1 - This claim consisted of five parts a) Un measured work worth Rs.4.00 lacs- It was held by the Arbitrator that since the claimant produced no documentary evidence to substantiate the claim, therefore, the claimant has failed to prove his point. Thus, nothing was held payable to the claimant on this account. b) Loss of account of washed away material stacked at work site- A sum of Rs.1,50,000/- was awarded in favour of the claimant. c) Loss of account of idle labour- A sum of Rs.1,50,300/- was awarded as compensation under this head in favour of the claimant. d) Loss of profit- The claimant was awarded Rs.31,540/- under this head being the 10% of Rs.3,15,416/-, which is the cost of balance work. e) Claim of interest- 12% interest on security amount of Rs.45,691/- withheld was allowed from 8.12.1998 to actual date of payment. - 5 - Claim No.2 - Loss sustained in flash floods: A sum of Rs.1,12,350/- was awarded against this head of claim. Claim No.3 - Loss of profit: Nothing was awarded against this item of claim. Claim No.4 - Damages for prolongation of work: Compensation of Rs.1,83,052/- was allowed against this item of claim. Claim No.5 - Interest past, pendente lite and future: The same was disallowed. Thus, an award under all claims totaling Rs.6,72,933/- was directed to be paid by the State to the claimant within a period of 3 months from the date of the award, failing which, the State was held liable to pay interest at the rate of 12% per annum till realization. Reply to the objections was filed by the respondent/claimant. On the basis of the objections and the reply, this Court had framed the following issues: “1. Whether the award given by the Arbitrator is against the public policy of India, as alleged? OPO 2. Whether the award given by the Arbitrator is beyond the claim submitted by the contractor? OPO 3. Whether the contractor is not entitled for the damage of material as the same was due to an act of God? OPO 4. Whether the award given by the Arbitrator is not liable to be set aside as the provisions of Section 34 of the Arbitration and Conciliation Act are not attracted in this case? OPR 5. Relief. - 6 - Both the parties were given time to file affidavits in support of the above issues. Evidence by way of affidavits was filed by the Objector as well as the respondent. I have heard the learned counsel for the parties and have gone through the record of the case. During the course of arguments, the learned Assistant Advocate General for the Objector submitted that claims No.3 and 5 were disallowed and accordingly, no cross objections have been filed in regard to these claims. The objections filed by the Objector are in regard to the claims No.1, 2 and 4. The details of the claim under different heading have already been enumerated above. The submissions were made by the learned Assistant Advocate General in regard to all these three claims separately. In regard to claim No.1, it was submitted that there was a counter claim of the State but no amount has been awarded which deserves to be awarded in favour of the objector. In regard to this claim which was under sub heads (a) to (e), it was submitted that Rs.4.00 lacs were awarded. It was submitted that the reasoning for delay is linked to flood and though the time was extended, but according to the terms of the contract, the claimant had not been able to finish the work within time, the amount of award under this head was against the public policy and against the terms of the contract. It was - 7 - submitted that the claimant had already been informed of the change in the nature of the bridge and there was no question of labour sitting idle as claimed by the claimant since it was for him to send back the labour once he had been informed about the directions to stop the work. Thus, it was submitted that the award of the claim under this head was against the agreement and the Arbitrator exceeded his jurisdiction in this regard. In regard to the claim under Claim No.1(d) for loss of profit, it has been wrongly interpreted by the Arbitrator since the work was stopped and there was no loss of profit or breach on the part of the State. In regard to claim of interest under claim No.1(e), the learned Assistant Advocate General submitted that no interest was payable since the security was to be adjusted when the counter claim was dismissed by the Arbitrator and hence the claimant was not entitled to any interest. In regard to Claim No.2, it was submitted that the amount has been awarded wrongly as the area was prone to flood. In regard to Claim No.4, it was submitted that since the work was not finished in time and enhanced rate had been given in bills, therefore, the claimant was not entitled to any further amount. In regard to the counter claim, it was submitted that it was wrongly disallowed by the Arbitrator - 8 - and equal opportunity had to be given to both the parties to put forward their claims which was not given to the Objector. To substantiate his submissions in this regard, the learned Assistant Advocate General had relied upon the decision in Oil & Natural Gas Corporation Ltd. versus Saw Pipes Ltd., (2003) 5 Supreme Court Cases 705. The observations made in paras 13 and 28 are relevant which were relied upon by the learned Assistant Advocate General and are being reproduced as under: “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 of 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 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 - 9 - 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 couldn’t 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. 28. From this discussion it would be clear that the phrase “public policy of India” is not required to be given a narrower meaning. As stated earlier, the said term is susceptible of narrower or wider meaning depending upon the object and purpose of the legislation. Hence, the award which is passed in contravention of Sections 24, 28 or 31 could be set aside. In addition to Section 34, Section 13(5) of the Act also provides that constitution of the Arbitral Tribunal could also be challenged by a party. Similarly, Section 16 provides that a party aggrieved by the decision of the Arbitral Tribunal with regard to its jurisdiction could challenge such arbitral award under Section 34. In any case, it is for parliament to provide for limited or wider jurisdiction to the court in case where award is challenged. But in such cases, there is no reason to give narrower meaning to the term “public policy of India” as contended by the learned Senior Counsel Mr.Dave. In our view, wider meaning is required to be given so as to prevent frustration of legislation and justice. This Court in Rattan Chand Hira Chand v. Askar Nawaz Jung observed thus: (SCC pp.76-77, para 17)”. - 10 - On the other hand, the learned counsel for the respondent/claimant submitted that this Court was not sitting in appeal as against the award passed by the Arbitrator and the court cannot substitute its own judgment and there could be no reappraisal of evidence by this Court. It was also submitted that the interpretation of the contract is within the domain of the Arbitrator as well as sufficiency of evidence is also within the domain of the Arbitrator. It was further submitted that the Act has been amended and the provisions of Section 34 of the Act only provide for interference by this Court if there is violation of public policy and these provisions have been amended and the jurisdiction of this Court is limited so as to minimize the interference by the Court in the awards passed by the Arbitrator. It was further submitted that once the time was extended by the Objector for completion of the work due to unprecedented rains/floods, it is clear that the time was extended since the objectors were aware of the fact that there was necessity of extension of time and there was no fault of the contractor. It was submitted that the provision of loss due to floods does not include the term unprecedented flood and as such, the respondent was entitled to the revised rates. - 11 - To substantiate his plea, the learned counsel for the respondent had placed reliance upon the decision in McDermott International Inc. versus Burn Standard Co.Ltd. and others, (2006) 11 Supreme Court Cases 181. The observations made in paras 46, 48, 52, 58, 59 and 60 are relevant which are being reproduced below: “In terms of the 1996 Act, a departure was made so far as the jurisdiction of the court to set aside an arbitral award is concerned vis-à-vis the earlier Act. Whereas under Sections 30 and 33 of the 1940 Act, the power of the court was wide, Section 34 of the 1996 Act brings about certain changes envisaged thereunder. Section 30 of the Arbitration Act, 1940 did not contain the expression “error of law….”. The same was added by judicial interpretation. While interpreting Section 30 of the 1940 Act, a question had been raised before the courts as to whether the principle of law applied by the arbitrator was (a) erroneous or otherwise, or (b) wrong principle was applied. If, however, no dispute existed as on the date of invocation, the question could not have been gone into by the arbitrator. The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice, etc. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, the scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified - 12 - as the parties to the agreement make a conscious decision to exclude the court’s jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it. The arbitral award can be set aside if it is contrary to (a) fundamental policy of Indian law; (b) the interests of India; (c) justice or morality; or (d) if it is patently illegal or arbitrary. Such patent illegality, however, must go to the root of the matter. The public policy violation, indisputably, should be so unfair and unreasonable as to shock the conscience of the court. Lastly, where the arbitrator, however, has gone contrary to or beyond the expressed law of the contract or granted relief in the matter not in dispute, would come within the purview of Section 34 of the Act. What would constitute public policy is a matter dependant upon the nature of transaction and nature of statute. For the said purpose, the pleadings of the parties and the materials brought on record would be relevant to enable the court to judge what is in public good or public interest, and what would otherwise be injurious to the public good at the relevant point, as contradistinguished from the policy of a particular Government.” It is, therefore, clear from the above discussion that the jurisdiction of this Court is limited while considering the award under Section 34 of the Arbitration and Conciliation Act, 1996. It is clear that supervisory role of the court has been kept at a minimum level and interference is envisaged only in cases of fraud or bias, violation of the principles of natural justice - 13 - etc. The interference on the ground of “patent illegality” is permissible only if the same goes to the root of the matter and the public policy violation should be so unfair and unreasonable as to shock the conscious of the court. What would constitute public policy is a matter dependant upon the nature of the transaction and the statute. I have gone through the evidence filed by the parties, which are only in support of the objections/ reply and since submissions have been made in this regard by the learned counsel for both the parties, they are being considered and these affidavits do not further substantiate the case except supporting the assertions made in the objections/reply. I have considered the above submissions made by the Assistant Advocate General for the Objector/State as well as the submissions of the learned counsel for the respondent. It is clear that all these submissions have been made, which are in regard to the interpretation of the terms of the agreement or the findings recorded by the Arbitrator in awarding damages etc. and these were submitted to be illegal or against the public policy. I have already mentioned above the case law wherein it has been clearly held that the question of interpretation of the terms of the contract is within the domain of the Arbitrator and no such findings have been challenged specifically to show that these were against the - 14 - terms of the contract. The question as to whether the reasons for delay were linked to unprecedented floods/rains was for the Arbitrator to consider on the basis of the facts of the case and the evidence led by the parties. The question as to for how much time the labourers were sitting idle since the contractor was asked to stop the work in view of the observations of the then Chief Minister to change the nature of the bridge from foot bridge to otherwise and accordingly it was for the Arbitrator to consider the period for how much time the labourers were sitting idle and to what extent the contractor was to be compensated. The question of awarding of interest is also within the domain of the Arbitrator and this Court cannot substitute its judgment in place of the Arbitrator in this regard. The question as to whether there was delay on the part of the Contractor in finishing the work was also to be considered and this fact cannot be lost sight of that the time was extended by the State for completion of the work due to unprecedented floods/rains for which the claimant cannot be held liable. Therefore, all these questions are questions of fact which were required to be considered by the Arbitrator, which had been considered by him in detail while allowing the claims or disallowing the claims under different heads. I have gone through the reasoning given by the Arbitrator and there cannot be any reappraisal of the evidence led before the Arbitrator and this Court - 15 - cannot substitute its own judgment in place of the Arbitrator. In regard to the counter claim being not allowed by the Arbitrator preferred by the Objector, nothing substantial was brought on record to show that the claim was wrongly disallowed by the Arbitrator or that his reasoning is against the public policy. On appraisal of all these facts and the consideration of submissions, I am of the opinion that there is no merit in the objections filed by the Objector, which are dismissed and accordingly all the issues i.e. issues No.1 to 4 are decided against the Objector and in favour of the claimant/ respondent. There is no order as costs. October 15, 2009. (V.K. Ahuja), (TILAK) Judge.