Full Judgment Text
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ FAO (OS) 393/2015
Reserved on: 07.07.2017
Date of decision: 18.07.2017
IN THE MATTER OF:
M/S TELECOMMUNICATION CONSULTANTS INDIA LIMITED
..... Appellant
Through: Mr. Anil Sapra, Senior Advocate with
Mr. P.K. Bansal, Ms. Piyusha Singh, Mr. Kartik
Bhardwaj and Mr. Jaideep Singh, Advocates
versus
M/S CATVISION LTD ..... Respondent
Through: Mr. Amit Bansal, Advocate with
Ms. Seema Dolo and Mr. Akhil Khulshrestha,
Advocates
CORAM:
HON'BLE MS. JUSTICE HIMA KOHLI
HON'BLE MS. JUSTICE DEEPA SHARMA
HIMA KOHLI, J.
1. The appellant, a Government of India Undertaking, has filed the
present appeal under Section 37(1) of the Arbitration and Conciliation Act,
1996 (hereinafter referred to as „ A&C Act ‟), questioning the legal tenability
of the judgment dated 17.03.2015 passed by the learned Single Judge on a
petition filed by the respondent/company under Section 34 of the A&C Act
(OMP 1076/2012), assailing an Arbitral Award dated 28.09.2012, published
by the learned Sole Arbitrator.
FAO(OS)393/2015 Page 1 of 16
2. It is considered expedient to recapitulate the factual matrix of the
case. The Organizing Committee of the Commonwealth Games (CWG)
awarded a contract to the appellant for providing Cable Access Television
Services (CATV) for the CWG. The appellant in turn issued a purchase
order dated 08.07.2010 in favour of the respondent for providing CATV
services for the CWG, 2010 for a total sum of Rs.1,38,89,548/-. The contract
executed between the parties contained an arbitration clause. On completing
the work, the respondent raised an invoice dated 10.03.2011 on the appellant
for payment of Rs.1,94,09,685.76 paise. However, the said bill was
processed by the appellant and cleared for payment of Rs.1,93,32,798/-.
Before the said amount was released, the appellant received a letter dated
04.04.2011 addressed to it by Mr. Rajesh Kukreja, Vice President-Sales in
the respondent/company, stating inter alia as below:-
“Dear Sir,
With reference to the subject we wish to state as under:
1. According to us there is a disputed amount of
Rs.100000/- only due from us to TCIL on account of an earlier
project done for us by TCIL. You may deduct that amount from
the payment immediately due to us on account of the above-
referred Purchase Order and retained it with you until we
reach a mutual settlement of the old disputed amount. In case
the disputed amount is settled for an amount more than
Rs.100000/- the difference may be recovered from the
remaining payment due to us against the above-referred PO.
2. As per the payment terms of the above-referred PO an
amount of 90% of contract value is due to us since this is the
amount TCIL has received from the Organizing Committee of
the Common Wealth Games, 2010. You are requested to release
this payment to us after deducting Rs.100000/- as stated in (1)
above.
FAO(OS)393/2015 Page 2 of 16
We look forward to your kind and favourable action in this
matter.
Thanking you,
Yours truly,
(Rajesh Kukreja)
VP – Sales”
3. On 18.04.2011, the appellant wrote to the respondent informing it
that a sum of Rs.11,43,674/- was payable to it for an earlier project, namely,
the Rourkela Steel Plant CATV Project with effect from 14.06.1996 and that
the said amount would be deducted from the amounts payable “from your
present and future dues”. On the very same day, the respondent lodged a
protest against the aforesaid deduction and informed the appellant that the
captioned letter dated 04.04.2011 was not issued under its authority and
since it did not owe any amount under the earlier project, the said deduction
will be illegal/unauthorised.
4. Despite the aforesaid protest, the appellant proceeded to deduct
amounts from the agreed amount payable in respect of the CWG, 2010
CATV project and cleared a final bill for a sum of Rs.1,54,66,238/-. In other
words, 20% of the amount due and payable to the respondent was deducted
by the appellant under the following heads:-
(a) On account of 10% deduction of TDS .... Rs.19,33,280/-
(b) On account of liquidated damages ..... Rs.8,17,284/-
(c) On account of old dues of the..... ..... Rs.11,43,674/-
CATV Rourkela Project
(d) On account of interest calculated ..... Rs.22,42,329/-
@ 13.25% on the sum of Rs.11,43,674/-
w.e.f. 14.06.1996 to 24.05.2011. ____________
Total = Rs.61,36,567/-
____________
FAO(OS)393/2015 Page 3 of 16
After deducting the aforesaid amount, as per the appellant, only a sum
of Rs.93,29,671/- was to be payable to the respondent.
5. As disputes and differences arose between the parties with regard to
the amount payable, the respondent invoked Clause 9(a), the Arbitration
Clause governing the parties and the disputes were referred to a Sole
Arbitrator, who was an officer of the appellant. The respondent preferred
seven claims in the arbitration proceedings. However, for purposes of
deciding the present appeal, we are only concerned with the findings
returned by the learned Single Judge in respect of claim No.1, relating to
deduction of a sum of Rs.11,43,674/- made by the appellant on account of
the alleged dues of the earlier project together with interest calculated as
Rs.22,42,329/- and claim No.2, regarding wrongful deduction of liquidated
damages on the part of the appellant. Arguments were addressed by both
sides only on the aforesaid claims.
6. Coming first to claim No.1, the learned Sole Arbitrator observed that
the arbitration clause permitted him to adjudicate upon disputes relating to
any previous contract between the parties and accordingly, held that the
respondent is liable to pay an amount of Rs.11,43,674/- to the appellant
alongwith interest, which it had wrongly withheld towards the past dues. It
was argued by the counsel for the respondent before the learned Single
Judge that the Sole Arbitrator could not have examined the aspect of the
liability of the respondent in respect of the past dues relating to the Rourkela
Steel Plant CATV Project as the said issue was completely beyond the scope
of the arbitration proceedings and furthermore, the amount sought to be
recovered by the appellant in respect of the aforesaid project was patently
barred by limitation as it related to the years 1994-95. The said
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submission found favour with the learned Single Judge, who concluded that
the Sole Arbitrator had misconstrued the arbitration clause governing the
parties and thereby committed a serious error by holding that the appellant
was entitled to deduct past dues under the Rourkela Steel Plant CATV
Project from the amounts payable to the respondent in respect of the CWG,
2010 project. It was also observed that the letter dated 04.04.2011 relied
upon by the appellant could not be construed as a consent given by the
respondent for deduction of the aforesaid amount from the final bill.
7. Accordingly, the findings returned by the Sole Arbitrator in respect of
claim No.1 were set aside in the impugned judgment and the appellant was
directed to pay to the respondent, the sums deducted by it from the approved
amount of the final bill together with simple interest @ 9% per annum from
28.06.2011 (the date on which the final bill was payable), till the date of
payment.
8. Assailing the above findings, Mr. Sapra, learned Senior Advocate
appearing for the appellant had argued before us that the learned Single
Judge failed to appreciate that the letter dated 04.04.2011 was an
acknowledgement of debt on behalf of the respondent, arising from the
Rourkela CATV Project and as it failed to keep its promise of settling the
said debt, the appellant was entitled to deduct the entire amount from the
amount payable to the respondent under the final bill. He urged that the
learned Single Judge had fallen into an error by holding that the Sole
Arbitrator had wrongly assumed that the arbitration clause permitted him to
examine the aspect of the liability of the respondent in respect of the
previous contract between the parties, whereas the scope of the said clause
was wide enough to include the earlier dispute as well.
FAO(OS)393/2015 Page 5 of 16
9. In the alternate and without prejudice to the above submission, it was
stated on behalf of the appellant that if the learned Single Judge was of the
opinion that the Sole Arbitrator had exceeded his jurisdiction, then at best,
the findings returned in the impugned award approving the deductions made
by the appellant could have been set aside but no order could have been
passed thereafter, directing payment of any amount that was deducted by the
appellant, much less with interest awarded in favour of the respondent. To
substantiate the said submission, reliance was placed on the following
decisions:-
(i) McDermott International Inc. vs. Burn Standard Co. Ltd. and
Ors.; (2006) 11 SCC 181
(ii) Nussli Switzerland Ltd. vs. Organizing Committee
Commonwealth Games, 2010; 2015 (1) R.A.J. 676 (Del.)
10. Per contra, Mr. Amit Bansal, learned counsel for the respondent
supported the findings returned in the impugned judgment in respect of
claim No.1 and states that on a bare reading of clause 9(a), i.e. the
arbitration clause governing the parties, it is apparent that the learned
Arbitrator could not have adjudicated upon any dispute between the parties
relating to a previous contract and he ought to have confined himself to the
disputes subject matter of the present contract alone.
11. Before considering the rival submissions advanced by the counsels for
the parties, as recorded above and referring to the case law cited by them, a
glance at the language used in clause 9(a) of the arbitration clause governing
the parties is considered imperative. Clause 9(a) reads as under:-
“9(a). In the event of any dispute arising between TCIL and the
Supplier in any matter covered by this contract or arising
directly or indirectly there from or connected or concerned
FAO(OS)393/2015 Page 6 of 16
with the said contract in any manner of the implementation of
any terms and conditions of the said contract , the matter shall
be referred to the Chairman & Managing Director, TCIL who
may himself act as sole arbitrator or may name as sole
arbitrator an officer of TCIL notwithstanding the fact that such
officer has been directly or indirectly associated with this
contract and the provisions of the Indian Arbitration
Conciliation Act, 1996 shall apply to such arbitration. The
supplier expressly agrees that the arbitration proceedings shall
be held at New Delhi.” (emphasis added)
12. Indubitably, construction of the terms of a contract is primarily in the
domain of the Arbitrator, even on the questions of law. In the case of
McDermott International (supra) relied upon by the appellant, the Supreme
Court had made the following observations:-
“112. It is trite that the terms of the contract can be express or
implied. The conduct of the parties would also be a relevant
factor in the matter of construction of a contract. The
construction of the contract agreement is within the jurisdiction
of the arbitrators having regard to the wide nature, scope and
ambit of the arbitration agreement and they cannot be said to
have misdirected themselves in passing the award by taking
into consideration the conduct of the parties. It is also trite that
correspondences exchanged by the parties are required to be
taken into consideration for the purpose of construction of a
contract. Interpretation of a contract is a matter for the arbitrator
to determine, even if it gives rise to determination of a question
of law.[See: Pure Helium India (P) Ltd. vs. Oil & Natural Gas
Commission; (2003) 8 SCC 593 and D.D. Sharma vs. Union of
India; (2004) 5 SCC 325 ].
113. Once, thus, it is held that the arbitrator had the jurisdiction,
no further question shall be raised and the court will not
exercise its jurisdiction unless it is found that there exists any
bar on the face of the award.
FAO(OS)393/2015 Page 7 of 16
114. The above principles have been reiterated in Chairman and
MD, NTPC Ltd. vs. Reshmi Constructions, Builders &
Contractors; (2004) 2 SCC 663 ; Union of India vs. Banwari
Lal& Sons (P) Ltd.; (2004) 5 SCC 304 ; Continental
Construction Ltd. vs. State of U.P.; (2003) 8 SCC 4 ; State of
U.P. v. Allied Constructions (2003) 7 SCC 396 .”
13. Although interpretation of a contract is to be determined by the
Arbitrator, if he travels beyond the contract and interprets the same in such a
manner which that cannot be termed as one that a reasonable person would
construe, then it shall amount to a “patent illegality” and can be remedied by
the court. On this aspect, the Supreme Court had held in MSK Projects India
(JV) Ltd. vs. State of Rajasthan and Another reported as (2011) 10 SCC
573 , as follows:-
“17. If the arbitrator commits an error in the construction
of the contract, that is an error within his jurisdiction. But
if he wanders outside the contract and deals with matters
not allotted to him, he commits a jurisdictional error.
Extrinsic evidence is admissible in such cases because the
dispute is not something which arises under or in relation to the
contract or dependent on the construction of the contract or to
be determined within the award. The ambiguity of the award
can, in such cases, be resolved by admitting extrinsic evidence.
The rationale of this rule is that the nature of the dispute is
something which has to be determined outside and independent
of what appears in the award. Such a jurisdictional error needs
to be proved by evidence extrinsic to the award. [See:
Gobardhan Das vs. Lachhmi Ram and Others; AIR 1954 SC
689 , Thawardas Pherumal and Another vs. UOI; AIR 1955 SC
468 , UOI vs. Kishorilal Gupta and Bros.; AIR 1959 SC 1362 ,
M/s Alopi Parshad and Sons Ltd. vs. UOI; AIR 1960 SC 588 ,
Jivarajbhai Ujamshi Sheth and Others vs. Chintamanrao Balaji
and Others; AIR 1965 SC 214 and Renusagar Power Co. Ltd.
vs. General Electric Company and another; AIR 1985 SC
1156 ].” (emphasis added)
FAO(OS)393/2015 Page 8 of 16
14. In the case of Numaligarh Refinery Ltd. vs. Daelim Industrial Co.
Ltd. reported as (2007) 8 SCC 466 , the Supreme Court had made the
following pertinent observations on the aspect of modification of the award:-
“17. We have considered the rival submissions of the parties.
So far as the legal proposition as enunciated by this Court in
various decisions mentioned above, it is correct that Courts
shall not ordinarily substitute their interpretation for that of
the arbitrator. It is also true that if the parties with their eyes
wide open have consented to refer the matter to the
arbitration, then normally the finding of the arbitrator should
be accepted without demur. There is no quarrel with this legal
proposition. But in a case where it is found that the Arbitrator
has acted without jurisdiction and has put an interpretation on
the clause of the agreement which is wholly contrary to law
then in that case there is no prohibition for the Courts to set
things right..... ” (emphasis added)
15. In the present case, on going through the arbitration clause reproduced
hereinabove, we do not find any infirmity in the findings returned by the
learned Single Judge to the effect that the Sole Arbitrator had patently
misconstrued the arbitration clause. Use of the expression, “directly or
indirectly” in the aforesaid clause was only in the context of the present
contract governing the parties, namely, CATV services for the CWG, 2010.
By no stretch of imagination could the scope of the above clause be enlarged
to include the claims of the appellant against the respondent in respect of the
previous contract. Evidently, the Sole Arbitrator has travelled beyond the
scope of the contract and dealt with matters that were outside his
jurisdiction, thereby committing a jurisdictional error.
16. Furthermore, we do not find any merit in the submission made on
behalf of the appellant that the letter dated 04.04.2011 issued by the Vice
FAO(OS)393/2015 Page 9 of 16
President-Sales of the respondent permitting the appellant to deduct an
amount of Rs.1 lakh from the payments due under the subject contract, was
an acknowledgement of the previous debt and since the respondent had
failed to abide by its promise of settling the amount, the Sole Arbitrator had
rightly held that the appellant was entitled to deduct the amount due in
respect of the previous contract from the amount payable in terms of the
final bill, subject matter of the present contract. Besides the view expressed
above that the learned Arbitrator had travelled beyond the scope of the
contract and dealt with matters which were not allotted to him, even
otherwise, the tone and tenor of the letter dated 04.04.2011 addressed by the
Vice President-Sales of the respondent to the appellant does not support the
version of the appellant. All that was stated in the said letter was that an
amount of Rs.1 lakh only was payable by the respondent to the appellant on
account of the earlier project and that the said amount could be deducted
from the final bill and retained till the parties “reach a mutual settlement of
the old disputed amount” . The said letter had gone on to clarify that in the
event the disputed amount is settled for an amount over and above Rs.1 lakh,
then the difference may be recovered from the remaining amounts payable
by the appellant to the respondent against the present contract.
17. It being an undisputed position that ultimately, no mutual settlement
could be arrived at between the parties in respect of the disputed amount
relating to the Rourkela CATV Project, the appellant could not have taken
benefit of the aforesaid letter for deducting any amount from the final bill
payable to the respondent under the present contract. We are therefore of the
opinion that there is no error in the findings returned in the impugned
judgment in respect of claim No.1.
FAO(OS)393/2015 Page 10 of 16
18. Dovetailed with the aforesaid argument was the submission of the
learned counsel for the appellant that on setting aside the findings of the
Sole Arbitrator in respect of claim No.1, the learned Single Judge ought to
have left the matter at that point for the aggrieved party to commence fresh
proceedings, if so advised, but any direction issued to the appellant to pay
the respondent the amount deducted together with simple interest @ 9% per
annum, amounts to correcting an error committed by the Sole Arbitrator,
which is impermissible.
19. We are unable to endorse the said submission. The moment the
impugned Award in respect of claim No.1 was set aside by the learned
Single Judge, it is axiomatic that the entire amount under the final bill, duly
cleared by the appellant for payment was to be released in favour of the
respondent, including the sums of Rs.11,43,674/- plus Rs.22,42,329/-, that
were deducted by it. A natural corollary thereto was the direction issued to
the appellant to pay simple interest @ 9% per annum on the amount so
withheld, from the date the final bill became due for payment i.e., from
28.06.2011, till the date of realization.
20. There is no quarrel with the legal proposition laid down in the case of
McDermott International (supra) that the A&C Act makes provisions for the
supervisory role of courts and review of the arbitral award is only to ensure
fairness and that the courts cannot correct errors of the Arbitrator but only
quash the award thereby leaving the parties free to begin the arbitration
again, if so desired. However, the appellant cannot be permitted to rely on
the aforesaid observations out of context and urge that in the present case,
once the learned Single Judge had set aside the findings returned by the Sole
Arbitrator in respect of claim No.1, he ought to have stopped at that point.
FAO(OS)393/2015 Page 11 of 16
Nor can reliance placed by the appellant on the decision of a Division Bench
of this Court in the case of Nussli Switzerland Ltd. (supra) would be of any
assistance. The decision in the said case was with regard to the entitlement
of a party that had lost before the Arbitral Tribunal and had no enforceable
claim under an award, and still sought an interim order against the winning
party under Section 9 of the A&C Act. The fact position of the present case
is entirely at variance. Here, there is no dispute between the parties with
regard to the exact amount payable by the appellant to the respondent in
respect of the final bill raised. The amount due and payable had already been
determined by the appellant and only thereafter, was a particular sum
deducted in respect of the previous contract. Once the deduction made by
the appellant in the final bill was declared as illegal and arbitrary, the logical
inference is that the appellant shall release the deducted amount to the
respondent and no further evidence was required to be led for arriving at the
said conclusion. Therefore, the question of the respondent having to
commence fresh arbitration proceedings to recover the deducted amount,
does not arise.
21. Nor can the respondent be compelled to commence any proceedings
for recovery of interest due on account of late payment of the deducted
amount as interest awarded under the impugned judgment is only to
compensate the respondent for the denial of its right to utilize the money due
to it and wrongfully withheld by the appellant. In any event, Section 31(7)
(b) of the A&C Act contemplates that where an arbitral award is for
payment of money, it shall carry interest and that too @ of 2%, higher than
the current rate of interest prevalent on the date of the award, till realisation.
The appellant has only been directed to pay simple interest @ 9% p.a.,
FAO(OS)393/2015 Page 12 of 16
which is far below the commercial rate of interest prevalent in the year
2011. It is not out of place to mention that in the case of McDermott
International (supra) and Krishna Bhagya Jala Nigam Ltd. vs. G.
Harischandra Reddy and Anr. reported as (2007) 2 SCC 720 , in order to
complete justice, the Supreme Court had modified the interest awarded by
the Arbitral Awards in the penultimate paras.
22. Coming next to the submission made by Mr. Sapra, learned Senior
Advocate appearing for the appellant that the learned Single Judge has erred
in setting aside the impugned Award in respect of claim No.2, we may note
that claim No.2 was preferred by the respondent with regard to wrongful
deduction of liquidated damages by the appellant. Counsel for the
respondent had argued before the learned Arbitrator that no delay in
completing the project was attributable to his client and that the delay that
had occurred was on account of the fact that the project order had to be
amended twice. The said submission was however, disputed by the counsel
for the appellant, who had stated before the learned Arbitrator that the
appellant is contractually empowered to levy liquidated damages under
clause 8 of the Purchase Order and as per clause 23, though the date of
completion of the project, fixed as 02.09.2010, it was actually completed on
29.09.2010. At the evidence stage, the appellant had filed e-mails that were
exchanged between the CWG, the respondent and the appellant alongwith
the commissioning and measurement reports of the CWG venues, the
delayed delivery challans and the liquidated damage calculation sheet.
Taking into consideration the pleadings, evidence and oral and written
arguments of both sides, the Sole Arbitrator has held that the appellant is
entitled to levy liquidated damages on the respondent and deduct the said
FAO(OS)393/2015 Page 13 of 16
amount from the payments due and payable to the latter. As a result, claim
No.2 preferred by the respondent was rejected under the Award.
23. Before the learned Single Judge, learned counsel for the respondent
had argued that the appellant had arbitrarily reduced the period of delay on
the part of the respondent in handing over the sites to it by 50% and then
proceeded to calculate the liquidated damages by attributing the remaining
delay entirely to the respondent, which was a totally illegal method adopted
by it. In proceedings under Section 34 of the A&C Act, after noting the
reasons furnished in the impugned award for rejecting claim No.2 preferred
by the respondent, the learned Single Judge had observed that the Sole
Arbitrator had failed to discuss the evidence led in the matter including the
relevant chart and has proceeded to set aside the findings returned in respect
of claim No.2.
24. The scope of interference by the Court in exercising its review
jurisdiction under Section 34 of the A&C Act when it comes to testing an
arbitration award has been delineated in several judicial pronouncements. In
the case of Associate Builders vs. DDA reported as ( 2015) 3 SCC 49 ,
speaking for the Bench, Justice Rohinton Fali Nariman has observed as
follows:-
“33. It must clearly be understood that when a court is applying
the “public policy” test to an arbitration award, it does not act
as a court of appeal and consequently errors of fact cannot be
corrected. A possible view by the arbitrator on facts has
necessarily to pass muster as the arbitrator is the ultimate
master of the quantity and quality of evidence to be relied
upon when he delivers his arbitral award. Thus an award
based on little evidence or on evidence which does not
measure up in quality to a trained legal mind would not be
held to be invalid on this score. Once it is found that the
FAO(OS)393/2015 Page 14 of 16
arbitrators approach is not arbitrary or capricious, then he is the
last word on facts.” (emphasis added)
25. While expressing the above view, the Supreme Court had referred to
its earlier decisions on the same aspect, which included the decision in the
case of Kuldeep Singh vs. Commissioner of Police and Others reported as
(1999) 2 SCC 10 where it was held as follows:-
“10. A broad distinction has, therefore, to be maintained
between the decisions which are perverse and those which are
not. If a decision is arrived at on no evidence or evidence which
is thoroughly unreliable and no reasonable person would act
upon it, the order would be perverse. But if there is some
evidence on record which is acceptable and which could be
relied upon, howsoever compendious it may be, the
conclusions would not be treated as perverse and the
findings would not be interfered with. ” (emphasis added)
26. It is clear from the above that at the time of exercising its power of
review under Section 34 of the A&C Act, the court cannot sit in appeal over
the award of the Arbitral Tribunal by reassessing or re-appreciating the
evidence. The intention of the Legislature in bringing in Section 34 was to
lay a focus not on the correctness of the decision, but to examine whether
the decision taken by an Arbitral Tribunal was a result of a legitimate
process, irrespective of the errors and the application of law or the
determination of facts. An award can only be faulted on the grounds
mentioned in Section 34(2) of the A&C Act and in the absence of any
ground, it is not possible to re-examine the facts to find out whether a
different decision could be arrived at.
FAO(OS)393/2015 Page 15 of 16
27. In the instant case, the observations made in the impugned judgment
in respect of claim No.2 would tantamount to re-assessing and re-
appreciating the evidence, which is impermissible [Ref: Sumitomo Heavy
Industries Ltd. vs. Oil and Natural Gas Corporation Ltd.; (2010) 11 SCC
296 , Kwality Manufacturing Corporation vs. Central Warehousing
Corporation; (2009) 5 SCC 142 and P.R. Shah, Shares & Stock Brokers
Private Ltd. vs. B.H.H. Securities Private Ltd. and Others; (2012) 1 SCC
594 ].
28. Guided by the aforesaid legal principles, we are of the opinion that the
findings returned in the impugned judgment in respect of claim No.2 cannot
be sustained and are accordingly set aside. The relief granted in favour of
the appellant under the Arbitral Award in respect of claim No.2 is restored.
It is held that the appellant is entitled to levy liquidated damages on the
respondent and deduct the same from the payments due and payable under
the subject contract.
29. The appeal is partly allowed on the terms noted above, while leaving
the parties to bear their own expenses.
HIMA KOHLI, J
DEEPA SHARMA, J
JULY 18, 2017
rkb/ap
FAO(OS)393/2015 Page 16 of 16