Award Suffers From Patent Illegality When Adjudication Is Done Without Giving Any Reasons: Himachal Pradesh High Court

Facts:

The petitioner was awarded a contract to carry out certain construction activities on Chilladhar-Bihar road and Jibhi-Bahu road by Respondent No. 2 (R-2) vide award letter dated 29.06.2002. The total consideration of the contract was Rs. 1.10 cr. The completion date of the contract was 13.04.2004. However, the work was completed on 31.10.2005. The petitioner (claimant) raised certain disputes and invoked the arbitration clause in the contract. The petitioner raised six claims before the Arbitrator, out of which only one was allowed, i.e. Claim No. 2 Sub Claim no. (i): On Account of unauthorized recovery of material. The Arbitrator also reduced the rate of interest from 24%, as prayed by the claimant, to 7.5%. The petitioner, therefore, approached the Court u/s 34 of the A&C Act to set aside the arbitral award.

Submissions:

The petitioners made the following submissions:

• The award to the extent of Claim No.2, Subclaim No(ii), and Claim No.3 suffers from patent illegality appearing on the face of the award.
• The Superintending Engineer (SE) had imposed a penalty of 5% of the entire contract amount, which was assailed by the claimant threefold before the arbitration. Firstly, the levy should have been for the balance work remaining and not the total amount of the contract; secondly, any levy could only be made on the amount of work allowed to be executed; thirdly, the discretion exercised by the SE in levying the penalty was unreasonable.
• The arbitration, without going into the merits, rejected the claim of the contract by merely placing reliance on Vishwanath Sood v. Union of India and Anr. [AIR 1989, SC 952]. The Arbitrator did not appreciate the non-applicability of the said judgment to the facts of the given case.
• Clause 2 of the GCC allows the discretion of SE to levy compensation on the contractor in case of delay in the execution of work. The SE levied the compensation at the rate of 5% of the total contract cost. The claimant raised various issues concerning the levy of the compensation by the SE from the date the delay was to be constituted. The aspects, such as the amount which was to be construed as a contract amount and the involvement of disputed questions of facts, could not have been decided by the SE.

Analysis of the Court:

The bench observed that the Arbitrator's findings with respect to Claim No. 2(ii) suffer from patent illegality. Firstly, the Arbitrator did not take into consideration the facts of the case; secondly, the judgment in Vishwanath Sood was applied without going into the aspect of applicability of the said judgment to the facts of the case; and lastly, no reasoning has been given for arriving at the said conclusion. In Vishwanath Sood, the SE did not impose the compensation despite the contract containing a clause allowing the SE to impose such compensation. Clause 2 of the contract agreement is similar to that of Vishwanath Sood. However, in this case, the SE has imposed compensation on the claimant/petitioner. In Vishwanath Sood, the employer, for the first time, had raised the claim of compensation before the arbitral tribunal, and it was in that context the claim was held to be non-arbitrable. In this case, the SE had levied compensation, but the contractor had raised the issue before the tribunal, questioning its legality. The Supreme Court in J.G. Engineers Private Limited v. Union of India & Anr. (2011) has held that disputes to jurisdictional facts, including the authority of the SE to levy compensation, cannot be held non-arbitrable by the arbitral tribunal. In the present case, the Arbitrator was bound to decide the disputes on merits.

The finding of the Arbitrator with respect to Claim No. 3 is crippled with the same problem as that of Claim No. 2(ii). The Arbitrator, without going into the merits of the dispute, invoked the excepting clause by making references to Clauses 12 and 13 of the GCC. Clause 13 reserves the right of the Governor of Himachal Pradesh to alter the scope of the awarded work after its commencement. With respect to such reduction or alteration of the scope of work, the contractor is barred from seeking compensation. The condition precedent is that the SE would give in writing regarding the reduction or alteration to the contractor. In the present case, neither the scope of work was reduced nor the SE gave it in writing to the contractor. The fact that a part of the awarded work had already been executed by the respondents from some other sources was an admitted fact. While the contractor claimed a reduction of ₹35,64,132 for this executed work, the respondents acknowledged its value at ₹9,27,694. However, the impugned award does not discuss the factual aspects and the applicability of Clause 13 of the GCC to the facts of the case.

The Supreme Court in Delhi Metro Rail Corporation Limited v. Delhi Airport Metro Express Private Limited (2024) has held that an award rendered without reasons would suffer from patent illegality. The impugned award was rendered without any reasoning with respect to the adjudication on Claim No.2, Subclaim No. (ii), and Claim No.3. The Arbitrator's view while adjudicating the claims was irrational and ignorantignorant of vital evidence on record. The Court cannot exercise power u/s 34(4) of the A&C Act, as the petitioner has made no submission or prayers regarding this point.

The bench allowed the petition and the award was set aside.

Case Title: Ashok Thakur v. State of Himachal Pradesh and Anr.

Case Number: Arb. Case No. 18 of 2012

Counsel for the Petitioner: Mr. Sumit Raj Sharma, Advocate.

Counsel for the Respondent: Mr. Sidharath Jalta, Deputy Advocate General