No grounds found for interference in the matter of an arbitral award: Delhi High Court

 IN THE HIGH COURT OF DELHI AT NEW DELHI FAO(OS)96 2020 & CM.APPL. 18980 2020 UNION OF INDIA AND ANR M S ANNAVARAM CONCRETE PVT LTD Respondent Date of decision: 31st August 2021 Appellants Through: Ms. Geetanjali Mohan Through: Mr. R.K. Sanghi Senior Advocate with Mr. Satjendar Kumar Advo and Mr. Sanghi Advocate. HON BLE MR. JUSTICE SIDDHARTH MRIDUL HON BLE MR. JUSTICE ANUP JAIRAM BHAMBHANI J U D G M E N T ANUP JAIRAM BHAMBHANI J. The present appeal under section 13 of the Commercial Courts Act 2015 read with section 10 the Delhi High Court Act 1966 and section 37 of the Arbitration & Conciliation Act 1996 has been filed by the Union of India Ministry of Railways and North Eastern Railwaysimpugning judgment dated 27.02.2020 rendered by the learned single Judge of this court in O.M.P.No. 112 2020 whereby the learned single FAO(OS)96 2020 Judge has upheld arbitral award dated 08.02.2011made by the learned Sole Arbitrator in arbitral proceedings between the Railways and M s Annavaram Concrete Pvt Ltd. Hyderabad The Railways had filed a petition under section 34 of the A&C Act challenging arbitral award dated 08.02.2011 in which award the learned Sole Arbitrator had directed the Railways to refund to the sum of Rs. 1 22 38 125 which had been deducted withheld by the Railways as ‘liquidated damages’ imposed upon Annavaram for alleged breach of the terms and conditions of a tender bearing No. CS 160 2007 pursuant to which a Letter of Acceptance dated 15.09.2008was issued by the Railways to Annavaram for supply of 10000 Pre Stressed Concrete Sleepers ‘sleepers’) by 14.01.2009. By the impugned judgment the learned single Judge has upheld the arbitral award and has also awarded interest for the delay in payment of the awarded sum. Briefly disputes arose between the Railways and Annavaram in to alleged non performance and non compliance by Annavaram with the terms of the 1st LoA. As per the record after issuance of the 1st LoA vidé its letter dated 22.12.2008 Annavaram requested the Railways for an additional order representing that their capacity was to manufacture 25000 sleepers per month whereupon vidé a Second Letter of Acceptance dated 27.01.2009the Railways ordered an increased quantity of 150000 (COMM) 96 2020 thousand) sleepers to be supplied by Annavaram by 14.07.2009 which order was accepted by Annavaram. It is the Railways’ contention that Annavaram failed to supply even a single sleeper within the stipulated time nor did they obtain any extension of time for making such supply whereupon the contract comprised in the 1st LoA and 2nd LoA lapsed by efflux of time on 14.07.2009. Consequently it is the contention of the Railways that as per IRS Condition 0702 the Railways imposed liquidated damages to the tune of Rs. 1 22 38 125 upon Annavaram on 27.05.2009. It is further contended that on grounds of non performance on 08.04.2010 the Railways also terminated the contract with Annavaram. Disputes having arisen between the parties on 21.06.2010 the learned Sole Arbitrator came to be appointed and entered upon reference. Rs. 1 22 38 125 in favour of Annavaram and against the Railways which sum was directed to be refunded within 03 months from the date of the award. For completeness it may be mentioned that the Railways had also preferred a counter claim in the sum of Rs. 10 00 000 against Annavaram in the arbitral proceedings. It is the contention of the Railways that the 1st LoA was amended by the 2nd LoA whereby apart from increasing the quantity of sleepers FAO(OS)96 2020 to be supplied by Annavaram clause 1.0 and clause 1.1 were amended and a new clause 1.2 was inserted in the terms and conditions of the contract. Clauses 1.1 and 1.2 as amended inserted by way of the 2nd LoA read as under: “1.1 The supply against this order shall be completed by 1.2 On finalisation of the new tender the ordered quantity in CS 160 2007 shall be reduced to the number of sleepers manufactured till the date of issue of LoA for the new contract. If the rate accepted in the new tender is higher than the updated rate of CS 160 2007 on the date of issue of LoA and the manufactured quantity is less than the pro rata quantity then the supplier will have to recoup the short fall in the quantity on the same rate terms & conditions. This updat ed rate will be frozen on the date of issue of LoA for the shortfall quantity.” emphasis supplied) 7. Ms. Geetanjali Mohan learned counsel appearing on behalf of the Railways submits that the learned single Judge has erred in failing to appreciate that under clause 1.1 aforesaid Annavaram was obligated to complete the supply of the originally ordered 10000 sleepers by 14.07.2009 which it failed to do and thereby the Railways were entitled to impose liquidated damages in accordance with the contractual terms. Accordingly it is counsel’s contention that the impugned judgment as also the arbitral award require to be set aside. FAO(OS)96 2020 8. On the other hand Mr. R. K. Sanghi learned senior counsel appearing for Annavaram contends that by inserting clause 1.2 a new condition came into effect whereby the parties agreed that the quantity of sleepers ordered under the original tender stood “ ... reduced to the number of sleepers manufactured till the date of issue of LoA for the new contract ...” and it is contended that as a result there was no obligation on Annavaram to supply 10000 sleepers by 14.07.2009. Consequently it is argued the Railways were not justified in imposing any liquidated damages upon Annavaram. A perusal of the arbitral award indicates that though the award may have other infirmities insofar as the merits of the factual controversies between the parties are concerned what has weighed with the learned Sole Arbitrator is the following essential premise as set out in para 12 of the arbitral award: “Hence as per the acceptance letter pre condition 1.2 respondent has to cancel reduce remaining quantity of the tender CS 160. In this case the respondent has closed the tender as it where is basis sic as is where is) in place of terminating the contract.” 10. Upon a meaningful reading of the arbitral award based upon his understanding of the feasibility of performance of the contract and on the basis of the amendments carried out by the 2nd LoA to the terms and conditions of the 1st LoA the learned Sole Arbitrator concludes as “8… This is very important condition of letter of acceptance. The period of acceptance was extended from 14.01.2009 to 14.7.2009 FAO(OS)96 2020 i.e. approximately for 06 months. It should be noted that completion period for 10 000 sleepers was given 4 months and for the remaining 1 40 000 sleepers the completion period was given 6 months which is against the principle of natural justice. “11.... Production details number of sleepers per month produced by factory in CS 156 submitted by the claimant and respondent was also examined and it was found that average 5 000 Nos. sleepers per month can only be produced and maximum 9976 Nos. sleepers per month was produced in August 2006 by the old plant. There is no difference between the claimant and respondent regarding the old lay out and new lay out plan submitted. “17. I carefully examined the claim of both the parties and not convinced with the arguments of the respondents that they have rightly and legally imposed the LD of Rs. 1 22 38 125 as above stated. Counter claim submitted by respondents is not genuine. In counter claim salary of ten officers staff involved in defending the arbitration & other expenses etc. has been mentioned to the tune of Rs. 10 00 000so other claim of the claimant is also not to be considered. The above amount will be refunded to the claimant within three months of publication of the 11. The aforementioned factual inferences and conclusions drawn and the interpretation given to contractual clauses by the learned Sole Arbitrator have been accepted by the learned single Judge. In his assessment of the arbitral award the learned single Judge has opined as under: FAO(OS)96 2020 “13. Ms. Mohan is right in submitting that the reasoning offered by the arbitrator in the impugned award is somewhat sketchy. Howev er it is in my view adequate to discern the basis upon which the arbitrator has arrived at his conclusion. The operative portion of the award refers to the contract being closed on as is where is basis which is essentially the arbitrator s interpretation of clause 1.2 of the contract read with clause 1.2.1 of CS 162 2008 12. Furthermore considering the delay occasioned by reason of the challenge filed by the Railways to the arbitral award the learned single Judge has also awarded simple interest at 6% per annum from the time that the amount became refundable namely 03 months from 08.02.2011 i.e. from 08.05.2011 till the date of refund. FAO(OS)96 2020 13. Before proceeding further with the matter we remind ourselves of the limited scope and ambit of a challenge under sections 34 and 37 of the A&C Act which are pithily set out inter alia in the following recent decision in PSA SICAL Terminals Pvt Ltd vs. Board of Trustees of V.O. Chidambranar Port Trust Tuticorin & Ors. 1 in which the Hon ble Supreme Court reiterates its view in MMTC Limited v. Vedanta Limited 2 and holds as follows : “41. It will be relevant to refer to the following observations of this Court in the case of MMTC Limitedi.e. if the award is against the public policy of India. As per the legal position clarified through decisions of this Court prior to the amendments to the 1996 Act in 2015 a violation of Indian public policy in turn includes a violation of the fundamental policy of Indian law a violation of the interest of India conflict with justice or morality and the existence of patent illegality in the arbitral award. Additionally the concept of the “fundamental policy of Indian law” would cover compliance with statutes and judicial precedents adopting a judicial approach compliance with the principles of natural justice and Wednesbury 1 K.B. 223 reasonableness. Furthermore “patent illegality” itself has been held to mean contravention of the substantive law of India contravention of the 1996 Act and contravention of the terms of the contract. 1 2021 SCC Online SC 508 24 SCC 163 FAO(OS)96 2020 the findings of 12. It is only if one of these conditions is met that the Court may interfere with an arbitral award in terms of Section 34(2)(b)(ii) but such interference does not entail a review of the merits of the dispute and is limited to situations the arbitrator are arbitrary capricious or perverse or when the conscience of the Court is shocked or when the illegality is not trivial but goes to the root of the matter. An arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts. 3 SCC 49 :2 SCC 204]. Also see ONGC Ltd. v. Saw Pipes Ltd. ONGC Ltd. v. Saw Pipes Ltd. 5 SCC 705] Hindustan Zinc Ltd. v. Friends Coal Carbonisation Hindustan Zinc Ltd. v. Friends Coal Carbonisation 4 SCC 445] and McDermott International Inc. v. Burn Standard Co. Ltd. 11 SCC 181]) 13. It is relevant to note that after the 2015 Amendment to Section 34 the above position stands somewhat modified. Pursuant to the insertion of Explanation 1 to Section 34(2) the scope of contravention of Indian public policy has been modified to the extent that it now means fraud or corruption in the making of the award violation of Section 75 or Section 81 of the Act contravention of the fundamental policy of Indian law and conflict with the most basic notions of justice or morality. Additionally sub section has been inserted in Section 34 which provides that in case of domestic arbitrations violation of Indian public policy also includes patent illegality appearing on the face of the award. The proviso to the same states that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence. FAO(OS)96 2020 the court cannot undertake an 14. As far as interference with an order made under Section 34 as per Section 37 is concerned it cannot be disputed that such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. In other words assessment of the merits of the award and must only ascertain that the exercise of power by the court under Section 34 has not exceeded the scope of the provision. Thus it is evident that in case an arbitral award has been confirmed by the court under Section 34 and by the court in an appeal under Section 37 this Court must be extremely cautious and slow to disturb such concurrent findings.” 14. We are therefore conscious that so long as the view taken by an arbitrator which in this case has also been upheld by the learned single Judge is a possible view based on facts it is irrelevant whether this court would or would not have taken the same view on the merits of the matter and the arbitral award is required to be upheld. In view of the foregoing discussion and being of the opinion that the view taken by the learned Sole Arbitrator as upheld by the learned single Judge is certainly a possible view based on facts in relation to the merits of the disputes we find no ground to interfere in the arbitral award or the impugned judgment. 16. Accordingly we uphold impugned judgment dated 27.02.2020. 17. Consequently Annavaram shall be entitled to receive from the Railways the amount directed to be refunded in the arbitral award namely Rs. 1 22 38 125 along FAO(OS)96 2020 with simple interest at 6% per annum calculated from 08.05.2011 till the date of payment as per the impugned judgment within 04 weeks of this judgment. The amount deposited in court in these proceedings be paid over to Annavaram accordingly. The balance due if any from the Railways to Annavaram be paid within 04 weeks as 18. Subject to the above directions the appeal is dismissed 19. Other pending applications if any also stand disposed of. 20. There shall be no order as to costs. AUGUST 31 2021 SIDDHARTH MRIDUL J ANUP JAIRAM BHAMBHANI J FAO(OS)96 2020 

Summary:  In a separate suit filed in the Delhi High Court, under the purview of Arbitration and Conciliation Act 1996, the judges opined that in the matters of arbitral awards, there should not interference of the court. The above statement was opinionated in the case of Union of India &amp; Anr. v. M/S Annavaram Concrete Pvt Ltd [FAO (OS) (COMM) 96/2020 &amp; CM. APPL. 18980/2020] which was presided by a double judge bench, consisting of Justice Siddharth Mridul  and Justice Anup Jairam Bhambani on August 31st 2021. The facts of the case are as follows. The Railway Board of India filed a petition with regards to challenging an arbitral award, in which the learned Sole Arbitrator had directed the Railways to refund to Annavaram the sum of Rs. 1,22,38,125/-, which had been deducted/withheld by the Railways as ‘liquidated damages’ imposed upon Annavaram for alleged breach of the terms and conditions of a tender. In the pursuance of above, a letter of acceptance was issued by the Indian Railway Board to Annavaram for supply of Pre-Stressed Concrete Sleepers. The counsel on the behalf of the Railways submitted that Annavaram hasn’t met the part of the agreement by not supplying even a single sleeper. Many cases were referred during the arbitral proceedings but major emphasis was laid on the findings from PSA SICAL Terminals Pvt Ltd vs. Board of Trustees of V.O. Chidambranar [2021 SCC Online SC 508], Port Trust Tuticorin &amp; Ors, MMTC Limited v. Vedanta Limited [(2019) 4 SCC 163], etc. The sole arbitrator, upon hearing both the sides, held the award in the favour of Annavaram: In view of the fact narrated above Rs. 1,22,38,125/- will be refunded to the claimant. The contract has to be closed as it where as basis (sic, as-is-where-is basis), so other claim of the claimant is also not to be considered. The above amount will be refunded to the claimant within three months of publication of the award.” The above arbitral award was challenged in the Delhi High Court wherein the single judge bench also upheld the decision of the sole arbitrator. In a pursuance of the further challenge, the case moved to a division bench which also upheld the decision of the sole-arbitrator and held that “In view of the foregoing discussion, and being of the opinion that the view taken by the learned Sole Arbitrator, as upheld by the learned single Judge, is certainly a possible view based on facts in relation to the merits of the disputes, we find no ground to interfere in the arbitral award or the impugned judgment.” The court also held that “Annavaram shall be entitled to receive from the Railways the amount directed to be refunded in the arbitral award namely Rs. 1,22,38,125/- (Rupees One Crore Twenty-two Lacs, Thirty-eight Thousand, One Hundred and Twenty-five Only) along with simple interest at 6% per annum calculated from 08.05.2011 till the date of payment as per the impugned judgment, within 04 weeks of this judgment.”