Non-Adjudication Upon An Issue Going To The Root Of The Matter Would Make The Arbitral Award Opposed To 'Public Policy': Delhi High Court

The bench of Justice Chandra Dhari Singh held that once the tribunal duly notes the submissions of a party on an issue central to the dispute but renders no finding on such submission/contentions, it would result in violation of principles of natural justice.

The Court also held that an award would become suspect to setting aside under Section 34 of the Act when the tribunal makes an award inherently contradictory.

Facts

The Petitioner (National Highway Authority of India -NHAI) invited bids for construction of Highway in Madhya Pradesh. The bid of the Respondent (Ssangyong Engineering) was accepted and a letter of award dated 30.12.2005 was issued in its favour. Pursuant thereto, the parties entered into a package agreement dated 12.04.2006 (Subject Agreement).

Clause 67 of the agreement provided for resolution of dispute through arbitration. Clause 60.1 of the agreement provided for monthly payments through Interim Payment Certificates (IPC) for the work executed in the previous month after due verification/measurement by the Independent Engineer in accordance with Clause 56.1 & 57.1 of the agreement. Clause 60.9 granted Engineer, the discretion to revise the IPCs in cases of an inadvertent error.

Clause 48.1 of the agreement provided for 'Taking over Certificate' which could be issued by the Engineer after the contractor had completed substantial work. In terms of Clause 60.10, the Contractor, within 84 days of issuance of taking over certificate, had to provide the Engineer with the Statement of Completion which would include details about the value of work, sum due, etc. Clause 62.1 provided for issuance of 'Defect Liability Period' which would confirm that the contractor had completed the project work.

Clause 60.11 of the agreement provided that within 56 of issuance of Defect Liability Certificate, the respondent would submit a 'Draft Final Settlement' to the engineer proving details about the total value of the work done and the amount due, if any, under the agreement for verification by the Engineer. If the parties mutually agreed on the amount, the contractor would then have to give a 'Written Discharge'. Thereafter, the Engineer could issue a Final Payment Certificate under Clause 60.13. If there remained any dispute between the parties with respect to the amount due under the Draft Final Settlement, it had to resolved as per Clause 67 and till the issue was resolved, only an interim payment with respect to the admitted amount could be made through an IPC.

In terms of the agreement, the Engineer issued a TOC on 06.04.2013. Thereafter, the respondent submitted a Statement of Completion on 28.05.2013. Pursuant thereto, the Engineer directed payment of 90% claimed amount through an IPC. Thereafter, the Engineer issued a Defect Liability Certificate to the respondent on 04.04.2014. Accordingly, the respondent submitted the Draft Final Statement to the Engineer on 24.06.2014 claiming an amount of Rs. 160,71,89,930/- as amount due under Final Payment Certificate. However, the Engineer approved only a payment of Rs. Rs.14,24,50,311 vide a payment certificate dated 31.08.2014.

A dispute arose between the parties with respect to the payment due, accordingly, the respondent invoked arbitration. Before the arbitral tribunal, the respondent, as claimant, filed its statement of claim.

The petitioner filed its statement of defence and also preferred counter-claims. It contended that the payment certificate dated 31.08.2014 was only an IPC and there were certain errors in it which stood cured by the Engineer vide revised payment certificates dated 13.07.2017 and 31.12.2017.It also contended that certificate dated 31.08.2014 cannot be considered to be final payment certificate since the same could only be issued when prerequisites of 'written discharge' was completed and no dispute existed between the parties. It contended that since a dispute existed between the parties, the agreement provided only for an IPC till the time disputes were resolved under Clause 67.

The arbitral tribunal held that the certificate dated 31.08.2014 was a 'Final Payment Certificate' and the amount as admitted therein is due to the respondent. It accordingly awarded the amount in favour of the respondent.

Aggrieved thereby, the Petitioner preferred a challenge under Section 34 of the Act.

Submissions of the Parties

The petitioner challenged the award on the following grounds:

• Findings in the impugned award are self-contradictory. As after noting that the pre-requisite for issuance of final certificate were not fulfilled, the tribunal treated the certificate as final, ergo, contradicting its own finding.
• The tribunal erred in treating certificate dated 31.08.2014 as final by ignoring the fact that no written discharge which was a mandatory pre-condition to the issuance of final certificate was given by the respondent.
• It also failed to appreciate that during pendency of a dispute, the agreement only provided for an IPC and not for a final certificate which could only be issued post settlement/adjudication on issues.
• The tribunal also erred in holding that certificate dated 31.08.2014 was not challenged by the petitioner by choosing to ignore the documents exhibited by the petitioner wherein explicit challenge was made to the certificate. Moreover, the tribunal failed to adjudicate the challenge by the petitioner to the certificate.
• The tribunal has also delivered contrary award as in a similar package agreement under the same contract, the tribunal has held that the certificate dated 30.08.2014 was not final. This indicates tribunal's inconsistent decisions on the same issue.

The respondent made the following counter-submissions:

• The Final Payment Certificate of August 31, 2014, was issued after the Engineer was satisfied with the work, and therefore, the petitioner cannot dispute it later.
• Since there was no dispute between the Engineer and the Contractor (the respondent), the Payment Certificate became final.
• The petitioner failed to challenge the Certificate as per the Contract, which amounts to acceptance of the amount due.

Analysis by the Court

At the outset, the Court reiterated that the scope of Court's interference under Section 34 of the Act is very narrow and the award can only be set aside if the grounds mentioned therein are met.

The Court observed that since the respondent is a foreign entity, the award is passed in an International Commercial Arbitration, ergo, it cannot be challenged on ground of 'Patent Illegality'.

The Court observed that in terms of the agreement, a final payment certificate could only be issued after the contractor had given a written discharge and not otherwise. It also observed that no final payment certificate could be issued when a dispute was pending between the parties w.r.t. the amount due under the agreement.

The Court held that the tribunal had initially observed that the respondent had not given the mandatory written discharge which was a pre-requisite to the issuance of final payment certificate, however, it later held that the certificate dated 31.08.2014 was a final since there was no dispute between the Engineer and the respondent qua the amount. Thereby, making a finding contrary to its own observations. It held that an award would become suspect to setting aside under Section 34 of the Act when the tribunal makes an award inherently contradictory.

The Court observed that the petitioner had challenged the certificate dated 31.08.2014 by contending that the engineer had incorrectly applied the price formula which stood corrected in the subsequent certificates/bills. Moreover, there were errors with respect to the price of materials put in by the respondent, the quantity of work executed, variation items, etc. However, on these objections, the arbitral tribunal did not render any finding. It held that the tribunal wrongly concluded that the amount was accepted by the petitioner without demur.

The Court held that non-adjudication, by the arbitral tribunal, on an issue that goes to the root of the matter would make the arbitral award opposed to public policy. It held that such an award would be set aside under Section 34 of the A&C Act.

The Court held that once the tribunal duly notes the submissions of a party on an issue central to the dispute but renders no finding on such submission/contentions, it would result in violation of principles of natural justice.

Next, the Court examined the issue of a contrary finding by the tribunal w.r.t. the finality of the certificate dated 31.08.2014 in a dispute under a different package agreement but under the same tender contract.

The Court observed that the tribunal in the other package agreement has held that same certificate to be not final. It held that the tribunal has given a completely contrary finding.

The Court relied upon the judgment of the Apex Court in NHAI v. Progressive-MVR JV^[1] wherein the Court held that in a situation wherein the arbitral tribunal has given conflicting awards on an identical issue involving the same parties and under the same agreement, the interest of justice would require the Court to decide the finality of the issue. It held that an award would be set aside when it creates such an anomaly.

Accordingly, the Court allowed the petition and set aside the award.

Case Title: NHAI v. M/s Ssangyong Engineering & Construction Co. Ltd

Citation: 2024 LiveLaw (Del) 463

Date: 08.04.2024

Counsel for the Petitioner: Mr. Ankur Mittal and Mr. Raushal Kumar, Advocates.

Counsel for the Respondent: Mr.Navin Kumar, Ms.Rashmeet Kaur, Ms.Aarti Mahto and Ms.Bhagya Ajith, Advocates

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[1] (2018) 14 SCC 688