Plausible View Taken By Arbitrator Based On Facts Of Case Cannot Be Interfered With U/S 34 Of Arbitration Act: Delhi High Court

Brief Facts

This is a petition under section 34 of the Arbitration and Conciliation Act, 1996 seeking setting aside of the impugned Arbitral Award dated 04.08.2007 passed by the respondent no. 2, i.e. the learned Arbitrator.

The court removed the name of the arbitrator from the array of parties.

The work for “Construction of NSIT Complex (Phase-III) Part II at Sector 3, Dwarka, New Delhi-110045. SH: Extension of Library Building & Computer Centre at NSIT, Sector-3, Dwarka” was awarded by the petitioner to the respondent(which was a partnership firm at the time of entering in the contract but is now a sole proprietorship firm) vide Agreement dated 29.08.2003.

Since the respondent did not adhere to provisions of the contract and the work was not completed within time (including the extended period), the contract was rescinded by the petitioner on 09.05.2005. It is stated that the work got done at the risk and cost of the respondent from M/s. Pt Munshiram & Associates (Pvt.) Ltd. The disputes between the parties were referred to arbitration before learned Sole Arbitrator.

The learned Arbitrator vide Impugned Award dated 04.08.2007 allowed the claims of the respondent and rejected the counter claims of the petitioner on the ground that the rescission of the contract by the petitioner was unjust and unwarranted and that the work mainly got delayed on account of late issue of the structural drawings by the petitioner.

Contentions

The petitioner submitted that the work was not completed within scheduled time period due to which the contract was rescinded. It was further contended that revised drawings were issued time to time but they were in the form a minor clarifications and in no way hindered the execution of the work. It was further submitted that rather the delay was attributable to the respondent which is supported by the fact that it did not have adequate manpower due to which only one floor in three and a half months could be completed instead of four floors in five months.

That the finding of the learned arbitrator that the rescission was unjust is incorrect. The site was at complete stalemate due to the inaction and delay of the contractor/respondent and therefore clause 14 of GCC which permitted petitioner to recover expenditure incurred by the petitioner from monies due to respondent/contractor was invoked

That the respondents could have finished/completed the work within reasonable time, therefore there is no question of payment of loss of expected profits. The contract was rescinded on account of slow pace of work of the respondent and was done in accordance with the terms of the contract, hence the Arbitrator erred in not appreciating the non-fulfilment of obligations by the respondents and therefore an award of 2% on balance work is patently perverse.

That the amount of Rs. 7,29,088/- was awarded on account of shutter finish of RCC surface against item 3.5 of BOQ (Bill of Quantity), however since the objective of shutter finish was not achieved, the extra payment could not have been made.

That the claim and awarded amount for escalation in steel price is contrary to clause 10C of the GCC and the same is only permissible if the increase is a direct result of any fresh law, statutory rule or order (but not due to any change in sales tax) and such increase exceeds 10% of the price and or wage prevalent at the time of last stipulated date of receipt of tender including the extension.

Per contra, the respondent submitted that the petitioner is intending to conduct a fishing and roving enquiry, which does not fall under the purview of „patent illegality,' as envisaged under the Arbitration and Conciliation Act, 1996.

That the drawing register of the petitioner clearly shows that multiple revisions of drawings on various crucial aspects were made from time and time. Additionally, there is nothing on record to show that only minor clarifications were required and the same were cleared by the Engineerin-charge, present on the site, verbally and in real time.

That the learned Arbitrator has rightly interpreted the term „order‟ under the clause 10C. Reliance is placed on the judgment of the Supreme Court in Consolidated Coffee Limited v Coffee Board (1980) and that interpretation of terms of contract falls within the domain of the learned Arbitrator and the principle of contra proferentum is applicable to interpret such term against the drafter of the Agreement, if the contractual term were ambiguous.

That under clause 5 of the contract, the Superintending Engineer was required to take a decision on extension of time considering the reasons for delay. A bare perusal of the termination letter shows that there is a total non-consideration of the reply of the respondent to the showcause notice and there is total non-consideration of the petitioner‟s own lapses which caused delay in completion of the project.

That since the contract was unjustly and illegally terminated, the respondent is liable to refund of its forfeited security amount on the principle of restitution.

Court's Analysis

The court, at the outset, referred to the Supreme Court judgment in State of Chhattisgarh v. SAL Udyog (P) Ltd., (2022) wherein the scope of interference under section 34 with an arbitral award was expounded.

In the above case, the court has held that patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the Arbitral Tribunal would not fall within the expression ―patent illegality‖. Likewise, erroneous application of law cannot be categorised as patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the scope of the expression ―patent illegality‖. What is prohibited is for Courts to reappreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as Courts do not sit in appeal against the arbitral award.

Finding on delay attributable to the petitioner

The court noted that the petitioner has stated that all the drawings were made available to the respondent in between 26.08.2003 to 17.11.2003 and minor revisions were made immediately by the Engineer-in-charge on site. The learned Arbitrator observed that the issue of structural drawings continued till 17.02.2005, long after the stipulated date of completion of work, i.e. on 23.12.2004.

The court while relying upon Drawing Entries Register noted that the learned Arbitrator has placed reliance on the chart made in this register and come to the conclusion that the petitioner was revising drawings till 17.02.2005. The same is evident from the last couple of entries in the above said chart. That being so, it was not possible for the respondent to complete the construction till 23.12.2004, i.e. the stipulated date of completion.

The court further noted that the petitioner has attempted to suggest that the revised drawings were just minor clarifications and had no effect of delaying the work since the respondent at no point raised the said issue. The above stand of the petitioner is belied in view of the letter dated 19.04.2005 issued by the respondent categorically highlighting the fact that non-issue of structural drawings has delayed the project.

Based on the above, the court noted that the learned Arbitrator perused the material on record and observed that it was the delay in issuance of drawings that precluded the advance planning for procuring of steel and thereby leading to delay in execution of the RCC framework of the structure. Therefore, the objection raised by the petitioner that the non-issue of drawings did not negatively impact the execution of the project is rejected.

With regard to submission that the work had come to a standstill in March 2005 since there was no cement on site, the court noted that the petitioner has relied upon the entries in the Cement Register to show that there was no cement stock between 17.03.2005 to 07.04.2005. The learned Arbitrator considered and rejected the said averment and observed that the entries in the cement register shows to the contrary and that the work was continuing in a subdued manner till first week of May, the court noted.

The court after perusing the cement register noted that though there was a „NIL‟ stock in the Cement Register in between 17.03.2005 to 07.04.2005, however on 07.04.2005 the daily balance of the cement stock was 200 bags. From thereon, there appears to have been regular issuance of additional cement bags, though in a limited quantity. Therefore, there is no infirmity in the observation of the learned Arbitrator pertaining to the cement register.

The petitioner has also alleged that false letters claiming that the bricks were not available were sent by the respondent. The court noted that this dispute on facts between the parties regarding the availability/non-availability of the machine moulded bricks was duly considered by the learned Arbitrator.

The court further noted that in para 2.9 of the Award, the learned Arbitrator came to the conclusion that the blame for late approval for the source of machine-moulded bricks has to be shared by both the parties. The learned Arbitrator considered the entire correspondence exchanged between the parties to arrive at the said finding.

Even otherwise, the argument of no shortage of bricks, etc are all arguments on factual matrix which cannot be entertained at this stage and in view of the judgment of the Hon‟ble Supreme Court in SAL Udyog (supra) wherein reliance is placed on Ssangyong Engg. & Construction Co. Ltd. v NHAI reappreciation of evidence is beyond the scope of enquiry under section 34 of the Arbitration and Conciliation Act, 1996, the court noted.

The court further noted that the petitioner submits that the respondent/contractor took 3 and a half months to complete RCC just for one floor whereas as per the schedule the RCC work for all floors should have been completed within the said time frame. The learned Arbitrator has observed that no revised timeline was insisted upon by the petitioner from the respondents, therefore there was no intention of completion of project on the part of the petitioner and not the respondent. Having held there is no infinity in the finding that the delay was caused due to the acts of the petitioner, including non-supply of the drawings in time, the argument that RCC work of only one floor was completed in the extended period merits no consideration.

The court further noted that the argument of the petitioner that the entry in site order book dated 07.10.2003 reminded the respondent/contractor that there is delay in submitting approval of the design of the concrete mix was specifically rejected by the learned Arbitrator. The learned Arbitrator has duly perused the evidence on record and arrived at the above finding which is neither perverse nor contradictory to the material on record. The learned Arbitrator categorically held that the entry of 07.10.2003 in site order book was merely a reminder and not pointing out delay in execution of work due to the concrete mix not being approved.

The court while answering the first issue observed that the petitioner has failed to show any grounds for interference in the finding of delay.

Work done but not paid

The second issue before the court whether extra payment for shutter finish could have been given when the objective, in terms of item no. 3.5 of BOQ, was not achieved.

The court noted that the learned Arbitrator duly perused the same and concluded that the work done by the respondent was accepted and not rejected by the petitioner, hence the petitioner ought to pay for the exposed shutter finish. Thereafter, the learned Arbitrator quantified the amount and deduced a sum of 10% of the value of the work on the ground that the rubbing finish was not done. The reasoning of the learned Arbitrator is based on the fact that non-payment for unexecuted work by the petitioner is correct however payment for partially executed work shall be done.

The court further noted that the basis of its arguments stem from entries in the site-order book and photographs of the shutter finish work. An adjudication, as sought, on the basis of these entries and photographs will amount to reappreciation of not only the evidence but also of facts. The same is impermissible.

Refund of Security Deposit

The court noted that since the finding of the learned Arbitrator that the rescission of the contract by the petitioner was unjust and illegal has been upheld, I find no reason to interfere with the finding that the security/earnest money deposited by the respondent must be returned.

Award Of Damages

The court further with respect to award of damages noted that since the finding of the learned Arbitrator that the rescission of contract was unjust and illegal has been upheld, the respondent is within its right to receive damages suffered towards loss of materials, tools and plants, shuttering material etc as well as for its illegal confiscation. As regards the quantification, the submission that the learned Arbitrator has awarded amounts without due considerations is without merit especially since the learned Arbitrator has shown detailed quantification for the amounts arrived at.

Loss of Expected Profits

The court noted that since I am in agreement with the finding of the learned Arbitrator that the rescission of the contract by the petitioner was unjust, in view of the judgment of A.T. Brij Paul v State of Gujarat (supra), no fault can be found with the grant of 2% for the purpose of expected profits. The learned Arbitrator duly considered the stage of completion of the project that the respondent was at and did not grant the claim of 15% of expected profits. The learned Arbitrator was of the view that loss of profits would not be more than 2% of the work that remained to be done.

Wrongful Interpretation of terms of the contract between the parties

The court further noted that the petitioner has challenged the findings on account of alleged wrongful/erroneous interpretation of terms of the contract between the parties, being clause 10 C. The law with regard to interpretation is no longer res-integra. It is settled law that where the arbitrator has taken a possible/plausible view, the court would refrain from interfering with the Award under section 34 of the Arbitration and Conciliation Act, 1996.

The court further noted that the petitioner has challenged the interest awarded on account of the same being exorbitant. It is no longer res integra that the Arbitrator has the discretion to grant interest and the same cannot be modified/reduced by this court under the limited jurisdiction of section 34 of Arbitration and Conciliation Act, 1996.

Accordingly, the present petition was dismissed.

Case Title: Netaji Subhash Institute Of Technology Versus M/S Surya Engineers & Another

Case Reference: O.M.P. (COMM) 48/2020 & I.A. 1401/2024 along with OMP (ENF.) (COMM.) 8/2024

Judgment Date: 19/11/2024

Click Here To Read/Download The Order