NTPC LIMITED vs. MARATHON ELECTRIC MOTORS INDIA LTD.

* IN THE HIGH COURT OF DELHI AT NEW DELHI

% Judgment Reserved on: July 18, 2012
Judgment Pronounced on: July 31, 2012

+ FAO(OS) No.416/2007

NTPC LIMITED ..... Appellant
Represented by: Mr.R.P. Bhatt, Sr.Advocate
instructed by Mr.Mohit Kumar
and Mr.Tungesh, Advocates

versus


MARATHON ELECTRIC MOTORS INDIA LTD.
..... Respondent
Represented by: Mr.T.K. Ganju, Sr.Advocate
instructed by Ms.Kumkum
Sen, Mr.Prantik Hazarika and
Mr.Aditya Ganju, Advocates

CORAM:
HON'BLE MR. JUSTICE PRADEEP NANDRAJOG
HON'BLE MR. JUSTICE MANMOHAN SINGH

MANMOHAN SINGH, J.
1. This appeal under Section 37 (1)(b) of the
Arbitration and Conciliation Act, 1996 (in short, called “The
nd
Act”) is directed against the order dated 22 August, 2007
passed by the learned Single Judge in OMP No.331/2006
whereby the objections preferred by the appellant to the
th
additional award dated 29 May, 2006 were dismissed.
2. Relevant facts are that the appellant invited bids for
the erection, testing and commissioning of four units of
Turbine Generators, each of 210 MW for the Kahalgaon Super
Thermal Power Project in the District of Bhagalpur, State of
Bihar. The respondent submitted their bid which was accepted.
The appellant thereafter issued a letter of award in favour of
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the respondent for erection, testing and commissioning of four
units of turbine generator each of 210 MW for the Kahalgaon
th
Super Thermal Power Project on 6 June, 1989.

3. Thereafter, a formal agreement was entered into
th
between NTPC and the respondent on 20 March, 1990 and
st
the contract was signed by the parties on 21 May, 1990. The
value of the work was quantified at ` 2,34,43,503.92. The
th
contract completion date was fixed as 6 August, 1992.
4. A letter of award was issued also in respect of High
th
Pressure Piping contract on 20 July, 1992 for the same project
th
and a formal agreement was signed on 20 November, 1992.
th

5. As a consequence of closure of the contract on 6
October, 1998, the appellant wrote a letter to the respondent
stating that it had become entitled to recovery of a sum of
` 62,69,282.79 from the respondent. The appellant thereafter
called upon the respondent by way of communication dated
th
24 September, 1999 to pay the said amount.
th

6. The respondent vide notice dated 12 September,
2001, under clause 25.1 of the General Conditions of Contract,
requested the appellant to nominate an engineer and refer the
matter pertaining to its claim for decision by the engineer.
The appellant found that none of the claims of the respondent
were tenable and information in this regard was given by vide
rd
letter dated 3 October, 2001.
7. The respondent by a notice under clause 25.6 read
st
with clause 25.4 dated 1 November, 2001, asked the
appellant to refer its dispute for settlement to arbitration in
accordance with clause 25.6 of General Conditions of Contract
and also nominated its Arbitrator. The appellant also
nominated former Law Secretary to the Government of India
as its Arbitrator. The President of Institution of Engineers
FAO(OS) No.416/2007 Page 2 of 18


(India) appointed Mr.Pradeep Chaturvedi, as the Presiding
Arbitrator.
8. The arbitral tribunal thereafter entered upon the
nd
reference on 2 April, 2002. The reference was concluded by
th
an award dated 14 December, 2005 delivered by the majority
nd
of two members as also an award dated 2 January, 2006
delivered by the learned dissenting arbitrator. The learned
dissenting arbitrator differed only with regard to one counter
claim of appellant for a sum of ` 5,07,000/- on account of the
value of Central Store Issue materials.
9. Thereafter, the appellant being aggrieved by the
majority of award, filed the objections under Section 34 of the
Arbitration and Conciliation Act, 1996. The said objections
numbered as OMP No.113/2006. After hearing, the same were
withdrawn with a liberty to approach the Arbitral tribunal
under Section 33 of the Act for correction of the Award. The
th
following order was passed on 24 March, 2006:
“OMP No.113/2006
IA No.3422/2006
Learned senior counsel for the petitioner
advanced submissions at length. After
hearing, learned senior counsel for the
petitioner seeks to withdraw the petition as
according to him appropriate remedy would
be to approach the Arbitral tribunal under
section 33 of the Arbitration and Conciliation
Act, 1996 to correct what is claimed to be a
typographical error/calculation mistake.
Liberty granted.
Dismissed as withdrawn.”


10. In view of the said order, the petitioner filed an
application under Section 33(1) of the said Act for correction,
the details of which were mentioned in the application. After
hearing both sides, the same was dismissed being without
FAO(OS) No.416/2007 Page 3 of 18


th
merit with cost by order dated 29 May, 2006. The Arbitral
tribunal by its additional award held that there is no
computation error, clerical/typographical error or any other
error of similar nature in the award on an apparently incorrect
premises that no evidence of the cost of acquisition of IPC
guide nozzle (like invoices of the company from where the
replacement was procured) was filed before the Arbitral
tribunal and therefore cost of acquisition could not be allowed
due to absence of appropriate evidence.
11. The appellant thereafter challenged the said
th
additional award passed on 29 May, 2006 by filing of the
objections under Section 34 of the Act which was numbered as
OMP No.331/2006. The appellant restricted his submissions in
respect to two aspects before the learned Single Judge, who,
after hearing both the parties, dismissed the objections by
nd
order dated 22 August, 2007 and held that there was no
merit in both aspects.

12. The present appeal has been filed against the said
nd
impugned order dated 22 August, 2007. Both parties have
made their respective submissions.

13. Mr. Bhatt, learned Senior advocate appearing on
behalf of the appellant has made his submissions only with
regard to claim Nos.2 and 3. In nut shell, his submission is
that as far as missing HPC nozzle is concerned, the Arbitral
tribunal in its award, accepted its replacement/procurement
cost amounting to a sum of `16,72,599.75, but for no
justifiable reasons, accepted the total value of missing IPC
Guide Apparatus at `7 lac as against its actual cost of
`27,33,683.00.
14. It is also submitted by the appellant that it was
possible for the Arbitrator to accept the cost of `27,33,633/-
FAO(OS) No.416/2007 Page 4 of 18


on the basis of set of documents filed by the appellant
before the Arbitrator but still, the learned Single Judge did not
allow the claim to compensate the appellant for the said loss
and erroneously accepted the total value of IPC guide
apparatus at `7 lac against its actual procurement cost
although it accepted the procurement cost of HP C Sector guide
apparatus. Thus, in the present case, the court below has
accepted two different approaches on the same set of
documents.
15. It is also alleged that the learned Single Judge did
not appreciate that the actual recoveries are only `15.62 lac
under the contract, there was no supporting evidence in favour
of claim of `26.40 lac, the same was granted without any
basis. Court below erred by not considering that as the result
of rejection of overheads of `12,53,856.34 without there being
any adverse finding as well as account of calculation error
from the actual cost. As per contract value of thrust has
restricted the recovery to `300000/- without any reason.
No submission with regard to allowing claim No.1
was made by the appellant similarly with respect of cost of
`77500/- imposed by the Arbitral Tribunal while dismissing the
application under Section 33 of the Act.
Scope of Appeal
16. We have gone through the pleading as well as all
the orders passed by trial Court in the above matter and
considered the rival submissions of both sides. The present
matter has been filed by the appellant under Section 31(1)(b)
of the Act. It is settled law that the Appellate Court should not
interfere with the exercise of the discretion under appeal
solely on the ground that if it had considered the matter at the
trial stage, it may have come to a contrary conclusion. In
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case, the discretion has been exercised by the trial Court
reasonably and in judicial matter, the Appellate Court would
not take different view by interfering with the Trial Court’s
exercise of discretion, unless, it is found that in exercising its
discretion, the trial Court has acted unreasonably and
capriciously or has ignored relevant facts, then it could be
open to the Appellate Court to interfere with the trial Court’s
exercise of discretion. Reliance can be placed upon the case
reported in AIR 1967 SC 209, Uttar Pradesh Co-operative
Society vs. Sundar Bros.
17. The scope of judicial interference against the
arbitral award which has time and again came up before the
courts for consideration, wherein the view of the Courts
including this Court are consistent that the Court while
deciding Section 34 objection cannot culminate into the
appellate Court to decide every legal and factual issue. It is
only those errors of patent illegality, without jurisdiction or
biasness or against the public policy where in the awards
seems to be unsustainable, the Courts are empowered to
interfere and not in all other cases to correct errors committed
by the Arbitrator.
18. In 2003 (5) SCC 705, Oil and Natural Gas
Corporation vs. Saw Pipes Ltd., the Supreme Court has
considered the scope of interference in Arbitral Award on the
ground of Public Policy in great detail and observed that the
phrase 'public policy of India" is required to be given a wider
meaning so as to prevent frustration of legislation and justice,
the Supreme Court has held thus:
“31. Therefore, in our view, the phrase
"public policy of India" used in Section 34 in
context is required to be given a wider
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meaning. It can be stated that the concept of
public policy connotes some matter which
concerns public good and the public interest.
What is for public good or in public interest or
what would be injurious or harmful to the
public good or public interest has varied from
time to time. However, the award which is, on
the face of it, patently in violation of statutory
provisions cannot be said to be in public
interest. Such award/judgment/decision is
likely to adversely affect the administration of
justice. Hence, in our view in addition to
narrower meaning given to the term "public
policy" in Renusagar case 1994 Supp. (1) SCC
644 it is required to be held that the award
could be set aside if it is patently illegal. The
result would be – award could be set aside if it
is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality, or
(d) in addition, if is patently illegal.
Illegality must go to the root of the
matter and if the illegality is of trivial
nature it cannot be held that award is
against the public policy. Award could
also be set aside if it is so unfair and
unreasonable that it shocks the
conscience of the Court. Such award is
opposed to public policy and is required
to be adjudged void.”
19. The reappraisal of evidence by the Courts is not
permissible. In AIR 2001 SC 2516, Ispat Engineering and
Foundry Works v. Steel Authority of India Ltd., their Lordships
of the Apex Court referring to various other judgments of the
Apex Court, have held that the Court had no jurisdiction to
investigate into the merits of the case or to examine the
documentary and oral evidence in the record for the purposes
of finding out whether or not the Arbitrator has committed an
FAO(OS) No.416/2007 Page 7 of 18


error of law. The Court as a matter of fact, cannot
substitute its own evaluation and come to the
conclusion that the Arbitrator had acted contrary to the
bargain between the parties. (Emphasis Supplied).
20. Holding that intervention of Court is envisaged in a
few circumstances, like in case of fraud or bias by Arbitrators,
violation of natural justice etc., in 2006(2) Arb.L.R.498 (SC)
Mc Dermott International INC. v. Burn Standard Co. Ltd. and
Ors., the Supreme Court has held as follows:
“55. The 1996 Act makes provision for the
supervisory role of Courts, for the review of
the arbitral award only to ensure fairness.
Intervention of the Court is envisaged in few
circumstances only, like, in case of fraud or
bias by the Arbitrators, violation of natural
justice, etc. The Court cannot correct errors
of Arbitrators. It can only quash the award
leaving the parties free to begin the
arbitration again if it is desired. So, scheme
of the provision aims at keeping the
supervisory role of the Court at
minimum level and this can be justified
as parties to the Agreement makes a
conscious decision to exclude the
Court's jurisdiction by opting for
arbitration as they prefer the
expediency and finality offered by it. ”
( Emphasis Supplied )

21. Let us now examine the present case in light of
settled law. In the present case, admittedly, the original award
th
was passed by the Arbitral Tribunal on 14 December, 2005.
The objections to the said award were filed by the appellant
under Sections 28(3), 31(3), 33, 34(2)(a)(iv) and 34(2)(b)(ii) of
the Act read with Section 151 CPC being OMP No.113/2006.
No doubt, the objections with regard to the decision on claim
Nos.2 & 3 were also raised by the appellant but, after hearing,
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FAO(OS) No.416/2007 Page 9 of 18

FAO(OS) No.416/2007 Page 10 of 18

FAO(OS) No.416/2007 Page 11 of 18


under Section 33 of the Act for correction of
typographical/error/calculation mistake.
31. In the application filed before the Arbitral Tribunal it
was alleged that there were certain errors in the award dated
th
14 December, 2005 which needed to be corrected by the
Tribunal as the Arbitral Tribunal was wrongly taken the cost of
IPC nozzles at ` 7 lac instead of actual amount of ` 27,33,683.64
resulting in deduction of ` 20,33,683.64. The Arbitral Tribunal
had also wrongly taken the cost of thrust wring at ` 3 lac as
against actual cost of ` 3,49,982.78 resulting in deduction of
` 49,982.78 and failed to consider ` 12,53,856.54 as claimed
being overhead.
Besides these, the appellant had given details of
the following claims :

A) As against the actual cost of Russian
materials of ` 62,69,282.71 as a result of
implied rejection of overheads of
` 12,53,856.54, the recovery will stand
reduced to ` 50,15,426.17. Besides a wrong
deduction is made of ` 49,982.78 from the
actual cost of Thrust Pads of ` 3,49,982.78.
` 7,00,000/- is taken towards cost of IPC
Guide Apparatus as against total actual
value of ` 27,33,683.64.

B) Though NTPC is entitled to the following
amounts, it has been directed to pay to the
respondent an amount of ` 30,11,711/- with
interest @10% per annum from 01.11.2001
till the date of payment.

i) ` 20,33,683.00 on account of IPC guide
apparatus.
ii) ` 49,982.78 on account of wrong
deduction for Thrust Pads.
iii) ` 4,28,520.00 on account of
overpayment of contractual dues only on
the basis of the legal notice.
FAO(OS) No.416/2007 Page 12 of 18


iv) ` 12,53,856.54 implied rejection of
overheads.
_______________
` 37,66,042.32 Actually Recoverable by NTPC”

32. Prayer made in the application was that they are
entitled to ` 42,73,042.32 as the Arbitral Tribunal by majority
view allowed counter claim of ` 5,07,000/- and after adjustment
on account of encashment of bank guarantee of ` 32,53,971/-,
the appellant would be actually entitled to ` 10,19,071.32 along
with interest @ 10% per annum from the date of reference i.e.
st
1 November, 2001.
33. The Arbitral Tribunal after considering the grounds
taken by the appellant in the application under Section 33 of
th
the Act vide additional award dated 29 May, 2006. The
Arbitral Tribunal not only decided the matter on merit but also
opined that the said application under Section 33(1) of the Act
filed by the appellant was barred by limitation and therefore
was not maintainable.
34. The Arbitral Tribunal in its additional award in paras
24 and 26 to 29 still dealt with grounds on merit taken in the
application under Section 33(1) of the Act. Extract of the same
are reproduced :-
“24. We may now deal with each errors as
alleged by the respondent/applicant. The first
error indicate is the “taking the cost of IPC
Nozzle at ` 7,00,000/- instead of actual of
` 27,33,683.64 resulting in deduction of
` 20,33,683.64.” At the outset it may be stated
that there is no error in the aforesaid
calculation. It is stated in paragraph No.73 of
the award that the respondents have written
a letter No.Kha:092:RMCC:Ins./GEC-6/1197
rd
dated 3 November, 1992 to the United India
Insurance Company stating the anticipated
loss of about ` 7 lakhs (page 93, Vol. 11, R-23).
FAO(OS) No.416/2007 Page 13 of 18


This is a clear admission by the Respondent/
Applicant about the loss suffered by it.
Therefore, the Arbitral tribunal has taken the
value of the loss suffered by it. Therefore, the
Arbitral tribunal has taken the value of the IPC
Nozzle as `7,00,000/-. Further, no evidence, of
the cost of acquisition of the said IPC Nozzle
(like invoices of the company from where the
replacement was procured) was filed before
the Arbitral tribunal. Thus, cost of acquisition
of the IPC Nozzle could not be allowed to the
respondent/applicant due to the absence of
the appropriate evidence. It is no doubt that
in the case of HPC Nozzle the Arbitral tribunal
has allowed replacement cost. The reason was
that in the case of HPC Nozzle there was no
evidence on record to establish the loss
suffered by the Respondent/ Applicant. In the
case of HPC Nozzle the only evidence
available on record was as to the replacement
cost. The Arbitral tribunal has taken a
conscious decision to allow loss suffered in the
case of IPC Nozzle and replacement cost in
the case of HPC nozzle in accordance with the
evidence available on record. In the garb of
seeking the co7rrection of typographical/
calculation error the respondent/applicant
cannot be allowed to challenge the said
finding and say that the Arbitral tribunal
should have allowed a sum of `27,33,683.64.

26. The Second error indicates at page 3 of
the application is “taking cost of thrust ring at
`3,00,000 as against actual cost of
`3,49,982.78 resulting in reduction of
49,982.78”. It is clearly stated in paragraph
95 of the Award that on account of Thrust
Rings the respondents have recovered a sum
of `3,49,982.78 from the Claimants. This fact
is not disputed by the Respondent/Applicant.
Out of the aforesaid sum of `3,49,982.78 the
Claimant has claimed a refund of only
`3,00,000. The said claim of the claimant has
been rejected. Thus, the amount of
`3,49,982.78 which had already been
recovered by the respondents remained with
FAO(OS) No.416/2007 Page 14 of 18


the respondents. Thus, we do not find any
computation error, any clerical or
typographical error or any other error of a
similar nature in the Award. In any case, the
Respondent/Applicant did not press this issue
during the hearing.

27. The third error indicated at page 3 of
the application is “omitting to consider
`12,53,856.54 being overhead”. The
Respondent/Applicant has contended that in
the case another claim overhead has been
allowed. Therefore, the overhead should have
been allowed in the case of this claim also.

28. Firstly, there is no rule that if
“overheads” have been allowed on one item,
they should be allowed on all the other items.
Further, the Respondent/Applicant had not
filed any details of overheads. “Overheads” is
a very vague word. It may include anything
and everything. In the absence of any details
as to how the aforesaid amount has been
arrived at or what are the contents of the
overheads, it was not possible to consider this
claim. In any case, in paragraph 109(E) of the
Award it is clearly stated that all claims and
counter claims not specifically allowed shall
be treated as rejected. Thus, the claim for
overheads also stands rejected.

29. It will not be out of place to refer the
observation made by the Respondent/
Applicant in paragraph No.7 at page 5 of the
Application. It is stated therein that “the claim
of `555,500/- on claim No.1 of the respondent
is beyond the terms of contract and has to be
disallowed”. In the first instance, it may be
stated that it was the claim of the claimant
and not of the Respondent as alleged. Further,
by this statement the Respondent/ Applicant
has questioned the findings of the Arbitral
tribunal. It is not a question of correction of
any computation error, any clerical or
typographical error or any other error of a
similar nature in the Award. In any case, the
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Respondent/Applicant did not press this issue
during the hearing.”

35. The other finding of the Arbitral Tribunal in the
application under Section 33(1) of the Act filed by the
appellant in the additional award is that the application filed
by the appellant is barred by limitation and, therefore, not
maintainable. On merits, it was found by the Tribunal that the
present case is not a case of computation errors, any clerical
or typographical errors or any other error of a similar nature in
the award, thus, on this account the award needs no
correction.

36. Thereafter, the appellant’s objections under Section
34 of the Act were dismissed by the learned Single Judge by
nd
passing the reasoned order dated 22 August, 2007. Learned
Single Judge rejected the argument of the appellant by coming
to the conclusion that in view of the finding arrived at from
para 24 onward of the additional award, it was the conscious
decision taken by the Arbitral Tribunal to take the basis of the
anticipated loss claimed by the appellant to determine the
amount payable in respect of IPC nozzles which was
admittedly mislocated/lost. It was also observed in the
impugned order that in case of HPC nozzles in the absence of
any other evidence it is the replacement cost which has been
taken into account. The claim lodged with the insurance
company of ` 24.57 lac was not pursued by the appellant which
therefore could not be the basis as no determination took
place. Initial anticipated loss has been taken as basis by the
Arbitral Tribunal who took cognizance of a letter addressed by
rd
the appellant to the insurance company on 3 November,
1992 giving the anticipated loss of ` 7 lac.
FAO(OS) No.416/2007 Page 16 of 18



37. It is evident from the pleading of the appellant that
the appellant had raised the same claim in the arbitration
proceedings. It is also not in dispute that objections raised by
the appellant in its petition filed under Section 34 of the Act to
th
the additional award dated 29 May, 2006 are the same as
th
raised in the objections to the original award dated 14
December, 2005 and the same were withdrawn after hearing.
It is necessary to mention here, even in the application under
Section 33 filed by the appellant after withdrawal of objection
under Section 34 of the Act, same contentions were raised.
We feel that the Arbitral Tribunal rightly came to the
conclusion, a) that the application is not within the prescribed
period and b) the subject matter of the application does not
come within the preview of Section 33(1) of the Act as there
was no typographical/clerical error in the original Award. Still,
the Arbitral Tribunal again dealt with the contentions raised in
the application.

38. Premise of the appellant/ objector under Section 34
to the additional award delivered by the Arbitral Tribunal after
dismissal of application 33(1) of the Act are the same as filed
to the original award being OMP No.113/2006 which was
withdrawn after hearing. Under the aforesaid reasons, we are
of the considered view that there is hardly any ground raised
by the appellant in which any interference with the order
passed by the learned Single Judge is called for.
39. The scope of challenge to an award under Section
34 of the Act does not open to the parties to challenge the
ground that the arbitrator has reached at a wrong conclusion
or has failed to appreciate the facts. The appreciation of
evidence by the arbitrator is never a matter which the Court
considers in the proceedings under Section 34 of the Act, as
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the Court is not sitting in appeal over the adjudication of the
arbitrator.
40. In the present case, the learned Single Judge after
hearing the parties has accepted the reasons given in
paragraph 14 of the award and held that the arbitrator has
rightly taken the conscious decision on the basis of anticipated
loss claimed by the appellant to determine the amount
payable in respect of IPC Nozzles which was admittedly
mislocated/lost. The claim stated to be lodged with the
Insurance Company of ` 24.57 lac was admittedly not pursued
and thus could not be the basis as no determination took
place. The decisions referred by the appellant are not
applicable to the facts and circumstances of the present case,
as the facts in the present case are materially different.

41. The appeal is, therefore, dismissed.
42. No order as to costs.


(MANMOHAN SINGH)
JUDGE



(PRADEEP NANDRAJOG)
JUDGE

JULY 31, 2012/ka

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