THE STATE OF JHARKHAND vs. M/S HSS INTEGRATED SDN

1 NON­REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION SPECIAL LEAVE TO APPEAL (C) No. 13117 of 2019 The State of Jharkhand & Ors. .. Petitioners Versus M/s HSS Integrated SDN & Anr. .. Respondents J U D G M E N T M. R. Shah, J. 1. Aggrieved   by   the   impugned   judgment   and   order   dated 30.01.2019 passed by the High Court of Jharkhand at Ranchi in Commercial Appeal No. 01 of 2018, by which the High Court has dismissed the said appeal   preferred by the petitioners herein under Section 37 of the Arbitration and Conciliation Act, 1996 (for short ‘the Arbitration Act’) and has confirmed the award declared by the learned Arbitral Tribunal, confirmed by the First Appellate Court, 2 the   original   appellants   have   preferred   the   present   special   leave petition.     2. This special leave petition arises out of the contractual dispute between the petitioners­State and the respondents in relation to a consultancy   agreement   over   construction   of   six­lane   Divided Carriage Way of certain parts of Ranchi Ring Road.   Respondent Nos. 1 and 2 acted as a consortium for providing such consultancy and supervisory services.  An agreement was entered into between the parties on 28.08.2007.   The original work period under the said agreement was for 36 months, i.e. from 01.10.2007 to 30.09.2010. There   was   a   dispute   with   respect   to   the   non­performance   and unsatisfactory   work   done   by   the   respondents.       However,   the respondents were granted extension of contract twice.   Thereafter, a letter dated 25.11.2011 was issued by the Executive Engineer to the respondents and other contractors entrusted with the task of construction, granting a second extension of time of contract for construction work.     The respondents were called upon to make compliances with the issues pointed out, at the earliest.  In the said communication   dated   25.11.2011,   it   was   stated   that   if   the deficiencies are not removed and/or complied with, in that case, 3 there   shall   be   suspension   of   payment   under   Clause   2.8   of   the General   Conditions   of   Contract   (for   short   ‘the   GCC’).         On 05.12.2011,   a   review   meeting   was   held   between   the   parties, followed by a letter dated 07.12.2011 issued by the respondents­ original claimants in reply/compliance of the aforesaid letter dated 25.11.2011.  It was the case on behalf of the respondents­original claimants that without properly considering the said letter of the respondents­original   claimants   dated   07.12.2011,   petitioners herein issued letter dated 12.12.2011 invoking Clause 2.8 of the GCC for suspension of payment, alleging certain deficiencies.     It was the case on behalf of the respondents­original claimants that by letter dated 27.12.2011, they replied to the suspension notice and   complied   with   the   deficiencies.       In   reply   to   the   aforesaid letters,   the   petitioners   issued   letters   dated   23.12.2011   and 28.12.2011   asking   the   claimants   to   ensure   compliance   of   the pending issues.   That by letter/communication dated 09.02.2012, the petitioners served a notice upon the respondents terminating the contract with effect from 12.03.2012.   The said termination notice was issued under Clause 2.9.1(a) and (d) of the GCC. The respondents­original   claimants   replied   to   the   said   termination notice by letters dated 16.02.2012 and 24.02.2012 and requested 4 the petitioners to re­consider the matter.   However, the dispute between the parties was not resolved.   The respondents­original claimants served a legal notice dated 10.03.2012 and invoked the arbitration clause 2.9.1(a).     Pursuant to the order passed by the High Court, the Arbitral Tribunal was constituted.   2.1 The   Arbitral   Tribunal   comprised   of   nominees   of   the   rival parties and a retired Judge of the Jharkhand High Court as the Presiding Arbitrator.  The respondents­original claimants claimed a total sum of Rs.5,17,88,418/­ under 13 different heads, excluding interest.     The   petitioners   also   filed   a   counter­claim   for Rs.6,00,78,736/­   under   five   heads.       The   claim   of   the   original claimants primarily involved the unpaid amount in respect of the work   executed   under   the   contract,   loss   of   profit   and   over­head charges,   apart   from   other   consequential   claims   arising   out   of termination.     It was the specific case on behalf of the original claimants that the termination was absolutely illegal and not being in according with the terms of the contract.  The counter­claim filed by   the   petitioners­State   was   for   reimbursement   on   account   of unsatisfactory performance by the respondents.     2.2 That,   on   appreciation   of   evidence,   the   learned   Arbitral Tribunal gave a specific finding that the termination of the contract 5 was illegal and without following the procedure as required under the contract (paras 17 to 36).    That, thereafter the learned Arbitral Tribunal proceeded to consider the claims on merits and ultimately allowed the claims to the extent of Rs.2,10,87,304/­ under different heads as under:

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2.3 In   view   of   the   finding   arrived   at   by   the   learned   Arbitral Tribunal   that   the   termination   of   the   contract   was   illegal   and without following due procedure as required under the contract and 7 in view of allowing the claims of the claimants partly, the Arbitral Tribunal dismissed the counter claims submitted by the petitioners. 2.4 The award declared by the learned Arbitral Tribunal has been confirmed   by   the   First   Appellate   Court   in   a   proceeding   under Section 34 of the Arbitration Act.     The same has been further confirmed by the High Court by the impugned judgment and order in an appeal under Section 37 of the Arbitration Act.  2.5 Feeling   aggrieved   and   dissatisfied   with   the   impugned judgment   and   order   passed   by   the   High   Court   dismissing   the appeal under Section 37 of the Arbitration Act and consequently confirming the award passed by the learned Arbitral Tribunal, the original respondents­State and others have preferred the present special leave petition.    3. Learned counsel appearing on behalf of the petitioners has vehemently submitted that the High Court has materially erred in dismissing the appeal under Section 37 of the Arbitration Act and has materially erred in not properly appreciating the fact that the arbitral award was passed contrary to the materials on record.    3.1 It is vehemently submitted by the learned counsel appearing on behalf of the petitioners that the High Court has materially erred 8 in   not   properly   considering   that   the   suspension   under   the agreement   was   not   the   suspension   of   work   per   se ,   rather   was suspension of all payments to the consultants and therefore there was no question of dilution/go­bye of the suspension letter.    It is further submitted by the learned counsel appearing on behalf of the petitioners   that   the   High   Court   has   not   properly appreciated/considered the scheme of the contract.  It is submitted that in case of non­performance of the contract satisfactorily, the first   step   was   suspension   of   payment   and   if   the   failure   in performance is not remedied, then the consequence which follows is the next step that being notice of termination by issuing 30 days’ notice.     It   is   submitted   that   suspension   is   either   operative   or revoked by resuming the payments, for, suspension is suspension of payment and not suspension of work/contract.  It is submitted that therefore the High Court has materially erred in confirming the findings   recorded   by   the   learned   Arbitral   Tribunal   that   the termination of the contract was illegal and without following due procedure as required under the contract.  4. While   opposing   the   present   special   leave   petition,   learned counsel appearing on behalf of the respondents­original claimants 9 has   vehemently   submitted   that,   as   such,   there   are   concurrent findings  of   fact   recorded   by   all  the   Courts   below   on   the   illegal termination of the contract.   It is submitted that, on appreciation of evidence, the learned Arbitral Tribunal (in paragraphs 17 to 36) gave   the   specific   findings   by   giving   cogent   reasons   that   the termination of the contract was illegal and without following due procedure as required under the contract.  It is submitted that once the   findings   recorded   by   the   learned   Arbitral   Tribunal   are   on appreciation of evidence and considering the materials on record, the same is rightly not interfered with by the Courts below in the proceedings under Sections 34 and 37 of the Arbitration Act.   4.1 Making the above submissions and relying upon the decisions of this Court in the cases of  Associate Builders v. DDA  (2015) 3 SCC   49,   (2018)   14   SCC   688   and NHAI   v.   Progressive­MVR   Maharashtra State Electricity Distribution Co. Ltd. v. Datar Switchgear Ltd.   (2018) 3 SCC 133, it is prayed to dismiss the present special leave petition.  5. Heard learned counsel appearing on behalf of the respective parties at length.     10 6. The main controversy is with respect to the termination of the contract   vide   letter/communication   dated   09.2.2012   terminating the contract with effect from 12.03.2012 invoking Clause 2.9.1(1) and   (d)   of   the   GCC.     That,   on   appreciation   of   evidence   and considering the various clauses of the contract, the learned Arbitral Tribunal has observed and held by giving cogent reasons that the termination of the contract was illegal and contrary to the terms of the contract and without following due procedure as required under the   relevant   clauses   of   the   contract.   The   said   finding   of   fact recorded   by   the   learned   Arbitral   Tribunal   is   on   appreciation   of evidence.       The   said   finding   of   fact   has   been   confirmed   in  the proceedings   under   Sections   34   and   37   of   the   Arbitration   Act. Thus, there are concurrent findings of fact recorded by the learned Arbitral Tribunal, First Appellate Court and the High Court that the termination of the contract was illegal and without following due procedure as required under the relevant provisions of the contract. 6.1 In the case of   (supra), after considering the Progressive­MVR catena of decisions of this Court on the scope and ambit of the proceedings under Section 34 of the Arbitration Act, this Court has observed and held that even when the view taken by the arbitrator is   a   plausible   view,   and/or   when   two   views   are   possible,   a 11 particular   view   taken   by   the   Arbitral   Tribunal   which   is   also reasonable should not be interfered with in a proceeding under Section 34 of the Arbitration Act. 6.2 In the case of  (supra), this Court has Datar Switchgear Ltd.  observed   and   held   that   the   Arbitral   Tribunal   is   the   master   of evidence   and   the   findings   of   fact   which   are   arrived   at   by   the arbitrators on the basis of the evidence on record are not to be scrutinized as if the Court was sitting in appeal.   In para 51 of the judgment, it is observed and held as under: Categorical   findings   are   arrived   at   by   the 51   Arbitral   Tribunal   to   the   effect   that   insofar   as Respondent 2 is concerned, it was always ready and willing to perform its contractual obligations, but was prevented by the appellant from such performance. Another   specific   finding   which   is   returned   by   the Arbitral Tribunal is that the appellant had not given the   list  of  locations   and,   therefore,  its   submission that  Respondent  2  had   adequate  lists   of  locations available but still failed to install the contract objects was   not   acceptable.   In   fact,   on   this   count,   the Arbitral Tribunal has commented upon the working of the appellant itself and expressed its dismay about lack of control by the Head Office of the appellant over the field offices which led to the failure of the contract. These are findings of facts which are arrived at   by   the   Arbitral   Tribunal   after   appreciating   the evidence   and   documents   on   record.   From   these findings   it   stands   established   that   there   is   a fundamental breach on the part of the appellant in carrying   out   its   obligations,   with   no   fault   of Respondent 2 which had invested whopping amount of   Rs   163   crores   in   the   project.   A   perusal   of   the 12 award   reveals   that   the   Tribunal   investigated   the conduct of the entire transaction between the parties pertaining to the work order, including withholding of DTC locations, allegations and counter­allegations by the   parties   concerning   installed   objects.   The arbitrators did not focus on a particular breach qua particular   number   of   objects/class   of   objects. Respondent   2   is   right   in   its   submission   that   the fundamental breach, by its very nature, pervades the entire contract and once committed, the contract as a whole stands abrogated. It is on the aforesaid basis that the Arbitral Tribunal has come to the conclusion that the termination of contract by Respondent 2 was in order and valid. The proposition of law that the Arbitral Tribunal is the master of evidence and the findings of fact which are arrived at by the arbitrators on   the   basis   of   evidence   on   record   are   not   to   be scrutinised as if the Court was sitting in appeal now stands settled by a catena of judgments pronounced by  this Court  without any  exception thereto  [ See —  Associate   Builders  v.  DDA ,   (2015)   3   SCC   49   : (2015) 2 SCC (Civ) 204 and  S. Munishamappa  v.  B. Venkatarayappa , (1981) 3 SCC 260] . As held by this Court in catena of decisions, the award passed by the   Arbitral   Tribunal   can   be   interfered   with   in   the   proceedings under Sections 34 and 37 of Arbitration Act only in a case where the finding is perverse and/or contrary to the evidence and/or the same is against the public policy.  (see  Associate Builders v. DDA (2015) 3 SCC 49 etc.) 13 6.3 In the present case, the categorical findings arrived at by the Arbitral   Tribunal   are   to   the   effect   that   the   termination   of   the contract  was  illegal  and   without  following   due  procedure  of  the provisions  of   the   contract.     The  findings  are  on appreciation of evidence considering the relevant provisions and material on record as   well   as   on   interpretation   of   the   relevant   provisions   of   the contract, which are neither perverse nor contrary to the evidence in record.   Therefore, as such, the First Appellate Court and the High Court have rightly not interfered with such findings of fact recorded by the learned Arbitral Tribunal. 6.4 Once it is held that the termination was illegal and thereafter when the learned Arbitral Tribunal has considered the claims on merits, which basically were with respect to the unpaid amount in respect of the work executed under the contract and loss of profit. Cogent reasons have been given by the learned Arbitral Tribunal while allowing/partly allowing the respective claims.  It is required to be noted that the learned Arbitral Tribunal has partly allowed some of the claims and even disallowed also some of the claims. There   is   a   proper   application   of   mind   by   the   learned   Arbitral Tribunal   on   the   respective   claims.     Therefore,   the   same   is   not required   to   be   interfered   with,   more   particularly,   when   in   the 14 proceedings under Sections 34 and 37 of the Arbitration Act, the petitioners have failed. 7. Once the finding recorded by the learned Arbitral Tribunal that the termination of the contract was illegal is upheld and the claims made by the claimants have been allowed or allowed partly, in that case, the counter­claim submitted by the petitioners was liable   to   be   rejected   and   the   same   is   rightly   rejected.     No interference of this Court is called for. 8. In view of the above and for the reasons stated above, the present   special   leave   petition   deserves   to   be   dismissed   and   is accordingly dismissed.  However, in the facts and circumstances of the case, there will be no order as to costs. ..................................J. (ARUN MISHRA) ...................................J. (M. R. SHAH) New Delhi, October 18, 2019.