Full Judgment Text
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision : 24.08.2017
+ O.M.P. (COMM) 76/2016
GE T&D INDIA LIMITED . ..... Petitioner
Through Mr.Tejas Karia, Mr.Surjendu Sankar
Das & Mr.Siddhanth Kochhar,
Advocates
Versus
RELIABLE ENGINEERING PROJECTS ..... Respondent
Through Dr.Amit George, Advocate ( Amicus
Curiae )
CORAM:
HON'BLE MR. JUSTICE JAYANT NATH
JAYANT NATH, J.(ORAL)
1. The present petition is filed under Section 34 of the Arbitration and
Conciliation Act, 1996 ( hereinafter referred to as „Act‟ ) seeking to impugn
the award of the arbitral tribunal dated 22.11.2015.
2. Some of the relevant facts are that the Government of India awarded
the work of installation of the Jhajjhar Power Plant to Aravali Power
Company Pvt. Ltd ( in short “APC” ) a joint venture between NTPC and
other two companies. APC awarded a turnkey project for erection and
commissioning of Power Transformer Package to the petitioner. On
08.09.2009, the petitioner issued a purchase order to the respondent for a
contract for value of Rs.1,20,00,000/- for certain works being part of the
work awarded to the petitioner by APC. On 27.11.2012, it is stated by the
petitioner that due to change in their SAP system, the purchase order was re-
O.M.P. (COMM) 76/2016 Page 1 of 25
issued against the balance/remaining works. The said purchase order issued
in favour of the petitioner was amended subsequently on two occasions. The
petitioner states that the respondent failed to complete its obligation.
3. It is further pointed out that on 18.12.2013 the respondent sent a letter
to APC making various allegations against the petitioner. It was contented
by the respondent that the petitioner was liable to pay to the respondent a)
Extra claim of Rs.26,00,000/-; b) Overrun charges of Rs.1,38,00,000/-; and
c) Compensation against damage of testing and other equipments in fire.
4. On 20.02.2015, the respondent is said to have filed a claim petition
before the Facilitation Council constituted under the Micro, Small and
Medium Enterprises Development Act, 2006 (hereinafter referred to as the
MSME Act) claiming a) Rs.26,29,375/- towards extra dragging work; b)
Rs.1, 38,00,000/- towards additional expenses for services provided in the
extended period of the project; and c) Compensation for damage of
equipments in fire of Rs.30,00,000/-.
5. Under Section 18 of the MSMED Act, a party to a dispute with regard
to any amount due under Section 17 of the Act may make a reference to the
Micro and Small Enterprises Facilitation Council (hereinafter referred to as
Council). The Council may thereafter either itself or through an institution
or centre conduct conciliation proceedings in terms of Section 65 to 81 of
the Arbitration and Conciliation Act, 1996. Under Section 18(3) of the
MSME Act where conciliation is not successful or stands terminated without
any settlement, the Council can either itself or through an institution take up
the dispute for arbitration and the provisions of the Arbitration and
Conciliation Act, 1996 would apply.
6. The Facilitation Council on 20.02.2015 registered the claim of the
O.M.P. (COMM) 76/2016 Page 2 of 25
respondent, and passed an order recording filing of the claim by the
respondent for conciliation proceedings. On 10.03.2015 the Facilitation
Council was pleased to direct the parties to attempt settlement of the matter
and issued notice to the petitioner. On 25.03.2015, the petitioner
acknowledged the receipt of the notice dated 10.03.2015 and requested for
two weeks time for appropriate representation. The request of the petitioner
was accepted by the Council on 10.04.2015. Thereafter proceedings took
place before the Council on 11.05.2015. The petitioner on 06.06.2015 sent a
detailed representation under Section 65 of the Act including a challenge to
its jurisdiction.
7. On 29.06.2015, the Council chose to terminate the conciliation
proceedings for claim No.1 against the petitioner pertaining to payment of
Rs.26,29,375/-. Noting that the petitioner has not appeared nor filed its
written statement, the Council chose to proceed with the proceedings under
Section 25 of the Arbitration and Conciliation Act and passed an award for
Rs.26,29,375/- in favour of the respondent plus interest keeping the balance
two disputes open for conciliation. The Award made on 29.06.2015 was
signed on 18.10.2015.
8. On 01.07.2015, the petitioner wrote a letter to the Council reiterating
its challenge to the jurisdiction of the Council. Various other objections of
the petitioner were stated. It was also pointed out to the Council that the
order dated 29.06.2015 has been passed without giving an opportunity to the
petitioner to present its case in violation of the principles of natural justice.
On 14.07.2015, the respondent filed its para wise rejoinder to the
petitioner‟s representation dated 06.06.2015. On 16.07.2015, the Council
took cognizance of an affidavit filed by the respondent seeking a
O.M.P. (COMM) 76/2016 Page 3 of 25
consolidated award of Rs.1,94,81,875/- and retained its decision made on
29.06.2015.
9. Thereafter, on 13.08.2015 the Council decided to terminate the
conciliation proceedings with regard to the second claim regarding extra
work done amounting to Rs.1,38,52,500/- on the same basis as done vide
order dated 29.06.2015. It passed an award in favour of the respondent for
payment of the second claim of Rs.1,38,52,500/- plus interest keeping the
third dispute regarding the claim of the respondent for recovery of Rs.30
lakhs open for conciliation. The order made on 13.08.2015 was also signed
on 18.10.2015. Hence, including interest a total award of Rs.72,10,891/- +
Rs.3,62,75,954/- has been passed in favour of the respondent and against the
petitioner. The fate of the third dispute for recovery of Rs.30 lakh is not
known.
10. I may note that under Section 19 of the MSME Act, no application for
setting aside a decree or award made by the Council shall be entertained by
any court unless the appellant has deposited 75% of the amount in terms of
the Award. On the issue of applicability of Section 19 of the said Act, this
court on 15.02.2017 passed a judgment negating the plea of the petitioner
that MSME Act does not apply and directed the petitioner to deposit 75% of
the awarded amount in court. In compliance of the said directions, the
payment has been deposited in court by the petitioner.
11. I have heard learned counsel for the parties.
12. Learned counsel for the petitioner has taken me through various
orders passed by the Council to contend that after having closed the
conciliation proceedings, the Council has without affording an opportunity
to the petitioner has on that date itself passed an award against the petitioner
O.M.P. (COMM) 76/2016 Page 4 of 25
on two of the disputes. He submits that having closed the conciliation
proceedings, the Council was obliged to afford an opportunity to the
petitioner to file a reply and documents to the claim petition and to submit
its defence and make submissions to the Tribunal before any award could
be passed. He has also taken me through the two documents relied upon in
the Award, namely, the Minutes of the meetings held between the parties on
01.05.2013 and 28.12.2013 to contend that the entire assumption in the
award that the claim of the respondent is not disputed is erroneous, as a
reading of the Minutes of the two meetings does not show any admission by
the petitioner. Hence, he submits that the award is liable to be set aside
having been passed without an opportunity to the petitioner. He relies upon
the judgment of the Bombay High Court in the case of Maharashtra State
Road Transport Corporation vs. M/s Super Fine Extrusions Pvt. Ltd.,
2016 SCC OnLine Bom 9615 to support his contention.
13. Learned Amicus Curiae appearing for the respondent has however
submitted that on the facts of the case, it is apparent that there was no
dispute or controversy regarding the amount payable to the respondent as
stipulated in the award. He stresses that the Council has merely noted that
there is no dispute about the fact that the said payment is payable to the
respondent and has noted the stand of the petitioner that unless the principal,
namely, APC makes the payment, no payment could be released to the
respondent. He further submits that in light of these facts, no prejudice was
caused to the petitioner by the procedure followed by the Council. He relies
upon the judgment of the Supreme Court in the case of Sohan Lal Gupta &
Ors. Vs. Asha Devi Gupta & Ors., (2003) 7 SCC 492 to support his
submissions.
O.M.P. (COMM) 76/2016 Page 5 of 25
14. The main plea raised by the petitioner is that it was not given an
opportunity to file its defence or documents and make its submission in the
arbitration proceedings. I may first see the manner in which the Council has
conducted the proceedings. Pursuant to the filing of the claim petition by the
respondent on 20.02.2015, the Council passed an order registering the claim.
On 10.03.2015, the Council was pleased to direct the parties to attempt a
settlement. On 25.03.2015, the petitioner wrote a communication to the
Council seeking two weeks‟ time for filing appropriate representation. On
10.04.2015, the Council granted time to the petitioner. On 29.04.2015, the
Council on the request of the petitioner fixed 11.05.2015 for Conciliation
Proceedings. On 11.05.2015, the Council recorded the arguments of the
respondent and hence, directed the petitioner to invite the respondent for
mutual disposal of the case by Conciliation and to inform the Council
accordingly.
15. The translated copy of the order dated 11.05.2015 reads as follows:-
“ Petitioner Sh. Virender Kumar Verma and learned counsel Sh.
Ashish Gupta for opposite party are present. Sh. Gupta submitted the
application that they shall submit their Vakalatnama before next
meeting. The office informed the council that on the bases of
conciliation application of opposite party dated 20.02.2015, the case
has been enlisted for conciliation today. The opposite party has
present before council without conciliation proposal.
Petitioner informed that opposite party had supplied the
transformer to NTPC and had handed over the extra work of dragging
to petitioner, for which payment of Rs. 26.00 lac is pending on
opposite party. Besides this, Rs. 1.38 crores is outstanding on opposite
party no. 1, for which opposite party has to make back-to-back
payment to petitioner after receiving it from NTPC, i.e. when NTPC
shall clear the payment of opposite party, then opposite party shall
release the payment of the petitioner. Petitioner has also signed a
M.O.M. with opposite no.1 in the meeting, which is not followed by
O.M.P. (COMM) 76/2016 Page 6 of 25
the opposite party. Petitioner informed the council that copy of
M.O.M. has been filed alongwith the reference.
The counsel for opposite party produces the statement that they
have not received any direction from the company and they are
desirous of conciliation in this suit. The council ordered the opposite
party to invite the petitioner for the mutual disposal of case by
conciliation and inform the council.
The office also inform the council that opposite party no. 3 New
India Insurance Company submitted an application in which it has
requested to provide addition time of four weeks for submitting the
written statement. The council accepted the application of the opposite
party no. 3 and directed that it should submit the written
statement/objection within two weeks alongwith affidavit and also send
copy to other parties. The certified copies of this order should be
dispatched to each party for the compliance. ”
16. Thereafter, the petitioner on 06.06.2015 gave a detailed representation
under Section 65 of the Act putting forth its contention that the Council does
not have the jurisdiction to enter into the claim or counter claim of the
petitioner and to adjudicate it. The representation further states that with
regard to any proposal by the respondent in relation to the conciliation
proceedings, the petitioner is willing to take instructions and comply with
the orders of the Council.
17. Thereafter, the order of 29.06.2015 was passed by the Council. There
are two documents prepared pursuant to the proceedings held on 29.06.2015.
One is record of the proceedings that took place on the said date. Second
document is an award which is dated 29.06.2015 but is signed on
18.10.2015. The record of the proceedings held on the said date records the
presence of Sh.Arun Mehta and one other person on behalf of the petitioner.
It also records that Sh.Mehta has prayed that Council may provide more
time to try out conciliation, which request was rejected by the Council. The
O.M.P. (COMM) 76/2016 Page 7 of 25
said document then records that the Council has heard the statements of the
respondent in detail. The petitioner had not produced any suitable proposal
for conciliation nor submitted any written statement/objection. Hence, it
notes that the Council has decided to issue an award with respect to the
liability of the Rs.26,29,375/- for extra digging work.
18. The second document dated 29.06.2015 is the Award dated
29.06.2015/18.10.2015 which holds that none has appeared for the petitioner
for the conciliation proceedings and no written statement has been filed by
any of the parties. Accordingly, it chooses to terminate the conciliation
proceedings for claim No.1 for extra work of dragging of power
transformers and keep the other two claims open for conciliation. It framed
three issues. On jurisdiction, the Council holds that the Council at Kanpur
has jurisdiction. On the second issue, it notes the Minutes of the meetings
between the parties dated 01.05.2013 and 28.12.2013 and concludes that the
petitioner does not appear to have taken steps to realise the money from
NTPC and hence has violated Section 15 of the MSME Act, 2006. It also
concludes that there is no dispute about the liability of the petitioner to pay
the amount. It passes an award in favour of the respondent for
Rs.26,29,375/- plus interest of Rs.45,81,516/- under Section 16 of the
MSME Act being a total of Rs. 72,10,891/-. As noted above, the Award is
dated 29.06.2015 but was signed on 18.10.2015. On 22.11.2015 another
document is signed based on the some calculation made by the Additional
Statistical Officer which shows that the total award amount is Rs.
72,10,891/-.
19. On receipt of the aforesaid communication, the petitioners has
protested in its communication dated 01.07.2015 where apart from other
O.M.P. (COMM) 76/2016 Page 8 of 25
grievances, it was pointed out that on 29.06.2015, the petitioners had entered
appearance through an authorised proxy counsel as the arguing counsel was
unable to attend since he was out of station on account of court vacation.
The representation further notes that refusal to grant an adjournment and the
decision to adjudicate claim No.1 without giving an opportunity to the
petitioner to submit its defence renders the order illegal as it is passed in
violation of the principles of natural justice. There has been no effective
hearing.
20. On 16.07.2015 the Council on a petition submitted by the respondent
praying for a composite award reiterates that the Council retains its Award
dated 29.06.2015. Thereafter, the matter was fixed before Council on
13.08.2015 where again similar type of proceedings were held namely on
claim No.2 of the respondent, the Council terminated the Conciliation
Proceedings and on the same date, without intimation or an opportunity to
the petitioner stating that arbitration proceedings have commenced and that
it may file its defence passed an award terming it as Award Part-II. The
Council in the award after noting some of the facts terminated the
conciliation proceedings with regard to the claim for payment of
Rs.1,38,52,500/- of the respondent keeping the third dispute i.e. the claim of
the respondent regarding payment of Rs.30 lakhs open. It framed four
issues. On issue No.1 pertaining jurisdiction, the Council held that it would
proceed with the matter. On issue No. 2 as to whether the petitioner is liable
to make the payments, the Council again relied upon the Minutes of the
meetings dated 01.05.2013 and 28.12.2013 to conclude that there is no
dispute regarding the liabilities of the petitioner and the petitioner is liable
to pay Rs.1,38,52,500/- plus interest. The interest was quantified at
O.M.P. (COMM) 76/2016 Page 9 of 25
Rs.2,24,23,454/-. An award for a total Rs. 3,62,75,954/- was passed on
13.08.2015 though signed on 18.10.2015. There is another signed page dated
22.11.2015 giving calculation by the Additional Statistical Officer
quantifying the award for claim No.2 at 3,62,75,954/- including interest.
21. It is quite clear that the said award has been passed without the
written statement or defence of the petitioner on record.
22. We may first look at the procedure for conciliation under the
Arbitration Act which is contained in Chapter III. Sections 65 and 67 of the
Act reads as follows:-
“65. Submission of statements to conciliator.—
(1) The conciliator, upon his appointment, may request each
party to submit to him a brief written statement describing the
general nature of the dispute and the points at issue. Each party
shall send a copy of such statement to the other party.
(2) The conciliator may request each party to submit to him a
further written statement of his position and the facts and
grounds in support thereof, supplemented by any documents and
other evidence that such party deems appropriate. The party shall
send a copy of such statement, documents and other evidence to
the other party.
(3) At any stage of the conciliation proceedings, the conciliator
may request a party to submit to him such additional information
as he deems appropriate. Explanation.—In this section and all the
following sections of this Part, the term “conciliator” applies to a
sole conciliator, two or three conciliators as the case may be.”
“67. Role of conciliator.—
(1) The conciliator shall assist the parties in an independent and
impartial manner in their attempt to reach an amicable settlement
of their dispute.
(2) The conciliator shall be guided by principles of objectivity,
fairness and justice, giving consideration to, among other things,
the rights and obligations of the parties, the usages of the trade
O.M.P. (COMM) 76/2016 Page 10 of 25
concerned and the circumstances surrounding the dispute,
including any previous business practices between the parties.
(3) The conciliator may conduct the conciliation proceedings in
such a manner as he considers appropriate, taking into account
the circumstances of the case, the wishes the parties may express,
including any request by a party that the conciliator hear oral
statements, and the need for a speedy settlement of the dispute.
(4) The conciliator may, at any stage of the conciliation
proceedings, make proposals for a settlement of the dispute. Such
proposals need not be in writing and need not be accompanied by
a statement of the reasons therefor.”
Hence, the conciliator may request each party to submit brief written
statement describing the general nature of the disputes and points at issues.
He has to assist the parties thereafter in reaching an amicable settlement.
23. Section 76 of the Act deals with termination of the conciliation
proceedings which reads as follows:-
“76. Termination of conciliation proceedings.—The conciliation
proceedings shall be terminated—
(a) by the signing of the settlement agreement by the parties on
the date of the agreement; or
(b) by a written declaration of the conciliator, after consultation
with the parties, to the effect that further efforts at conciliation
are no longer justified, on the date of the declaration; or
(c) by a written declaration of the parties addressed to the
conciliator to the effect that the conciliation proceedings are
terminated, on the date of the declaration; or
(d) by a written declaration of a party to the other party and the
conciliator, if appointed, to the effect that the conciliation
proceedings are terminated, on the date of the declaration.”
24. Hence, a conciliator may terminate the proceedings by a written
declaration of the conciliator stating that conciliation is no longer justified.
25. Section 23 of the Arbitration Act reads as follows:-
O.M.P. (COMM) 76/2016 Page 11 of 25
“23. Statement of claim and defence.—
(1) Within the period of time agreed upon by the parties or
determined by the arbitral tribunal, the claimant shall state the
facts supporting his claim, the points at issue and the relief or
remedy sought, and the respondent shall state his defence in
respect of these particulars, unless the parties have otherwise
agreed as to the required elements of those statements.
(2) The parties may submit with their statements all documents
they consider to be relevant or may add a reference to the
documents or other evidence they will submit.
(3) Unless otherwise agreed by the parties, either party may
amend or supplement his claim or defence during the course of
the arbitral proceedings, unless the arbitral tribunal considers it
inappropriate to allow the amendment or supplement having
regard to the delay in making it.”
26. Hence, after the Arbitrator enters reference within the time period
either agreed by the parties or determined by the Arbitral Tribunal, the
respondent will state his defence. The parties may also submit all their
documents which they consider to be relevant along with their defence. It is
manifest that the Arbitral Tribunal would have to in the absence of any
agreement to the contrary grant sufficient time to the parties/respondent to
states its defence/file documents in support of its defence.
27. The curious procedure followed by the Council in the present case
shows that the Council has on both the dates when it passed the Award i.e.
29.06.2015 and 13.08.2015 chosen to terminate the conciliation proceedings
and on the same date, has chosen to commence and conclude the arbitration
proceedings and pass an award in favour of the respondent. It is clear that
the Council has not followed the procedure as provided under Section 23 of
the Act. Without giving an opportunity to the petitioner to file its statement
of defence for the arbitration proceedings and to file its documents in
O.M.P. (COMM) 76/2016 Page 12 of 25
support of its defence or giving an opportunity to make its submissions, the
Council has passed an award against the petitioner. Clearly grave prejudice
was caused to the petitioner by the procedure followed by the Council and
the undue haste shown by it to pass an Award.
28. Reference may also be had to Section 18 and Section 34 of the
Arbitration Act which read as follows:
“18. Equal treatment of parties.—The parties shall be treated
with equality and each party shall be given a full opportunity to
present his case.”
“34. Application for setting aside arbitral award. —
(1) Recourse to a Court against an arbitral award may be made
only by an application for setting aside such award in
accordance with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if—
(a) the party making the application furnishes proof that—
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which
the parties have subjected it or, failing any indication thereon,
under the law for the time being in force; or
(iii) the party making the application was not given proper
notice of the appointment of an arbitrator or of the arbitral
proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by
or not falling within the terms of the submission to arbitration,
or it contains decisions on matters beyond the scope of the
submission to arbitration:
Provided that, if the decisions on matters submitted to
arbitration can be separated from those not so submitted, only
that part of the arbitral award which contains decisions on
matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral
procedure was not in accordance with the agreement of the
O.M.P. (COMM) 76/2016 Page 13 of 25
parties, unless such agreement was in conflict with a provision
of this Part from which the parties cannot derogate, or, failing
such agreement, was not in accordance with this Part; or
(b) the Court finds that—
(i) the subject-matter of the dispute is not capable of settlement
by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of
India.
Explanation. —Without prejudice to the generality of sub-
clause (ii) it is hereby declared, for the avoidance of any doubt,
that an award is in conflict with the public policy of India if the
making of the award was induced or affected by fraud or
corruption or was in violation of section 75 or section 81.
......”
29. The Supreme Court in the case of Associate Builders vs. DDA, AIR
2015 SC 620 held as follows:
Fundamental Policy of Indian Law
“Coming to each of the heads contained in the Saw Pipes
judgment, we will first deal with the head "fundamental policy of
Indian Law". It has already been seen from the Renusagar
judgment that violation of the Foreign Exchange Act and
disregarding orders of superior courts in India would be regarded
as being contrary to the fundamental policy of Indian law. To this
it could be added that the binding effect of the judgment of a
superior court being disregarded would be equally violative of
the fundamental policy of Indian law.”
xxx
“It is clear that the juristic principle of a "judicial approach"
demands that a decision be fair, reasonable and objective. On the
obverse side, anything arbitrary and whimsical would obviously
not be a determination which would either be fair, reasonable or
objective.
The Audi Alteram Partem principle which undoubtedly is a
O.M.P. (COMM) 76/2016 Page 14 of 25
fundamental juristic principle in Indian law is also contained in
Sections 18 and 34(2)(a)(iii) of the Arbitration and Conciliation
Act.”
30. Reference may also be had to the judgment of the Calcutta High Court
in the case of Agriculture Finance Co. Ltd. vs. Micro & Small Enterprises
Facilitation Council, 2013 SCC OnLine Cal. 22786. That was also a case
in which there was an allegation that the Council had acted in violation of
the principles of natural justice. That was also a case where the Council had
terminated the conciliation proceedings but no notice was issued to the
petitioner therein that the council would arbitrate upon the disputes between
the parties and publish the award.
“9. If the Council took the petitioner‟s silence in the matter
following the meeting of January 2, 2011 to be the petitioner‟s
refusal to accept the conciliation, the Council ought to have
issued a notice to the petitioner indicating the Council would take
upon itself to arbitrate upon the disputes between the parties. In
the Council not having adopted such procedure, there has been a
complete violation of the principles of natural justice and the
petitioner‟s right to be heard in the matter.”
31. Reference may also be had to the judgment of the Supreme Court in
the case of Oil and Natural Gas Corporation Ltd. Vs. Western Geco
International Ltd., AIR 2015 SC 363 where the Supreme Court held as
follows:-
“28. Equally important and indeed fundamental to the policy of
Indian law is the principle that a Court and so also a quasi-
judicial authority must, while determining the rights and
obligations of parties before it, do so in accordance with the
principles of natural justice. Besides the celebrated 'audi alteram
partem' rule one of the facets of the principles of natural justice is
that the Court/authority deciding the matter must apply its mind
O.M.P. (COMM) 76/2016 Page 15 of 25
to the attendant facts and circumstances while taking a view one
way or the other. Non-application of mind is a defect that is fatal
to any adjudication. Application of mind is best demonstrated by
disclosure of the mind and disclosure of mind is best done by
recording reasons in support of the decision which the Court or
authority is taking. The requirement that an adjudicatory
authority must apply its mind is, in that view, so deeply
embedded in our jurisprudence that it can be described as a
fundamental policy of Indian Law.
32. Reference may also be had to the judgment of the Division Bench of
this court in the case of Power Grid Corporation of India Ltd. Vs.
Electrical Mfg. Co. Ltd. And NTPC Ltd., 153(2008) DLT 440 where the
Division Bench held as follows:-
“17. Considering the above backdrop, we are of the view that the
Arbitrators have unnecessarily acted in haste in concluding the
arbitral proceedings. Once the appellant had appeared before
them, the least they should have done was to afford some
reasonable time to the appellant to file its objections to the
statement of claim filed by the respondent EMC. The Arbitrators
also could have given a peremptory notice to the appellant before
proceeding ex parte against them. Even after proceeding ex-parte
against the appellant the Arbitrators still could have called upon
them to cause appearance in the matter. Although, the
applicability of the principle of audi alteram partem depends on
the facts of each case and in a given case the parties may be
required to show as to what prejudice has been caused to its
rights due to non-observance of principles of natural justice, yet
keeping in view the sanctity and primacy of this basic and
equitable principle, it is expected of every judicial and quasi
judicial authority to always give due primacy and make a serious
endeavour that the sacrosanct principles of audi alteram partem
are duly observed in letter and spirit. The mechanism of
arbitration came to be evolved for providing speedier justice to
the parties, especially in commercial transactions where
monetary stakes of the parties are sometimes very high and an
O.M.P. (COMM) 76/2016 Page 16 of 25
inordinate delay in the disposal of arbitration matters could prove
fatal and ruinous. However, at the same time the cardinal
principle of giving a fair opportunity to the parties should not
have been lost sight of by the adjudicatory body. The appellant
had appeared on 9th April, 1993 as well as on 20th April, 1993,
but they were not allowed to participate in the proceedings and
thereafter within four days i.e. from 21.4.1993 to 25.4.1993 the
same were concluded. We do not find any justification on the
part of the Arbitrators to have rushed through the matter to
conclude the proceedings without examining the version of the
other side.
xxx
23. For Constituting a reasonable opportunity, the following
conditions are required to be observed:
1. Each party must have notice that the hearing is to
take place.
2. Each party must have a reasonable opportunity to be
present at the hearing, together with his advisers and
witnesses.
3. Each party must have the opportunity to be present
throughout the hearing.
4. Each party must have a reasonable opportunity to
present evidence and argument in support of his own
case.
5. Each party must have a reasonable opportunity to
test his opponent's case by cross-examining his
witnesses, presenting rebutting evidence and
addressing oral argument.
6. The hearing must, unless the contrary is expressly
agreed, be the occasion on which the parties present the
whole of their evidence and argument.
18. Indisputably, the arbitrators would in law neglect their duty if
they do not listen to one party who might be interested either in
controverting or who is legally entitled to controvert the claim of
the party approaching them. Similarly, the person who is to be
O.M.P. (COMM) 76/2016 Page 17 of 25
affected by the evidence ought to be present to hear it so that he
would be able to meet and answer it. The arbitrator is ordinarily
free from the fetters of procedural law but that does not make
him free from the fundamental principles of justice. Though the
arbitrator may not strictly follow the rules and procedures as
observed by the Civil Court but at the same time it would not
imply that the Arbitrary Tribunal can ignore or circumvent the
principles of natural justice and fair procedure. The omission in
giving notice to a party before proceeding ex-party is a serious
irregularity in the procedure and amounts to misconduct. It is a
salutary principle of natural justice that nobody should be
condemned unheard.
19. In Halsbury's Laws of England, Fourth Edition, Vol. 2 Page
590 page 306 it has been stated as under:
Where the arbitrator proposes to proceed with the
reference notwithstanding the absence if one of the
parties, it is advisable that he should give that party
distinct notice of his intention to do so. If reasonable
excuse for not attending the appointment can be
shown, the court will set aside an award made by an
arbitrator who has proceeded ex parte.
20. In Russell on Arbitration, Nineteenth Edition page 271 the
following passage appears.
Notice of intention to proceed ex parte:
In general, the arbitrator is not justified in proceeding
ex parte without giving the party absenting himself due
notice. It is advisable to give the notice in writing to
each of the parties or their solicitors. It should express
the arbitrator's intention clearly, otherwise the award
may be set aside. An ordinary appointment for a
meeting with the addition of the word" "Peremptory"
marked on it is, however, sufficient.
If the arbitrator declines to proceed on the first failure
to attend a peremptory appointment, and gives another
appointment, he is not authorised to proceed ex-parte at
O.M.P. (COMM) 76/2016 Page 18 of 25
the second meeting, unless the appointment for it was
also marked "peremptory" or contained a similar
intimation of his intention.
21. The elementary Principle of Natural Justice implies a duty to
act fairly i.e., fair play in action. The Principle of Natural Justice
is not dogmatic in character and a duty is cast upon on every
adjudicatory body be it judicial or quasi judicial to strictly adhere
to the Principle of Natural Justice unless such adherence is
dispensed with under any particular Statute. The Rules of Natural
Justice are although not embodied Rules, but the same afford
minimum protection to the rights of any person against the
arbitrariness of any authority be it judicial, quasi judicial or
administrative whose decision involves any civil consequences or
can affect the rights of an individual. The aim of Rules of Natural
Justice is to secure justice or to put it in the negative to prevent
miscarriage of justice.”
33. It is clear that the impugned award has been passed contrary to the
principles of natural justice without affording any reasonable opportunity to
the petitioner to file its defence and make its submissions on the merit of the
case. Acting with undue haste, the Council has chosen to terminate the
conciliation proceedings and on the same date chosen to start the arbitration
proceedings and without calling upon the petitioner to file its defence has
concluded the arbitration proceedings on the same day. The procedure
adopted by the Council is completely illegal and stands vitiated being
contrary to the provision of the Arbitration Act and the principles of natural
justice.
34. Apart from the fact that no opportunity was given or notice was issued
to the petitioner to inform that the arbitration proceedings has commenced,
another curious feature appears from the record of the arbitration
O.M.P. (COMM) 76/2016 Page 19 of 25
proceedings . A perusal of the award dated 29.06.2015 shows that the
hearing on 29.06.2015 records that none has appeared for the opposite party
and no written statement has been filed and seeks to proceeded under
Section 25 of the Arbitration Act and pass an award. The award dated
29.06.2015 records as follows:-
“Despite sufficient service of notices on the opposite
parties inviting them for conciliation by amicable settlement
between them, none appeared. No written statement has been
filed by any of the opposite parties. Minutes of meeting
dated 28.12.2013 Annexure-3 reveals that opposite party No.
1 was present in that meeting.
In the Circumstances we feel that we should take up the
matter step by step. The chances of conciliation are bleak.
However keeping in mind that swift Justice in the form of
Arbitration should kept open ended. It should not be
be
unresponsive to cannons of Justice and Fair play. We,
therefore, t erminate conciliation for the basic claim against
Alstom opposite party No.1 for 66 extra dragging of
Transformers only and keep rest of the two claims still open
for conciliation. We accordingly take up dispute for payment
of Rs.26,29,375/- for Arbitration to present in the particular-
circumstances of this case.
As none of the opposite party has appeared before us, nor
filed any written statement, we proceed u /s 25 of the
Arbitration and conciliation Act 1996 to decide the matter
on merits.”
35. The Council has also issued a summary of proceedings that took place
on 29.06.2015. The proceedings record that Sh.Arun Mehta, Advocate has
appeared for the petitioner and has prayed for time to try conciliation.
Relevant portion of the said document issued by the Council reads as
O.M.P. (COMM) 76/2016 Page 20 of 25
follows:-
“The above case has been submitted before the council
today on date 29.06.2015. The Petitioner Sh. Virender Kumar
Verma and two others are present. Learned counsel Sh. Arun
Mehta and one other are present for opposite party no. 1
(ALSTOM T & D India Limited). Sh. Mehta prayed the council
to provide more time to try for the conciliation, in the sequence
of conciliation letters, which is rejected by the council.
Council perused the file. The opposite party, after
compliance of notice, submitted the application for conciliation
dated 25.03.2015 and 20.04.2015. In the last hearing, it was
questioned from the present counsel for opposite party
Sh.Ashish Gupta about the progress of conciliation, then Sh.
Gupta informed that he has not received any directions from the
company. On this statement of Sh. Gupta, it was directed to the
opposite party that they should invite the petitioner for the
mutual disposal of case by conciliation and inform the result to
the council, but opposite party did not ensure the compliance of
above orders and today also, the opposite party is present before
council without any conciliation proposal.(Emphasis added)
xxx
The council heard the statements of petitioner in detail.
The opposite party has neither produced any suitable proposal
for conciliation nor submitted any written statement/objection.
Taking the delay in disposal of reference into account, council
has decided to issue award under the provisions of Act 2006 in
relation to liability payment of Rs.26,29,375/- for „Extra
Digging Work‟. The copies of this order should be dispatched
to parties.”
36. The Award on the face of it is recording erroneous facts regarding the
presence of the petitioner. It makes a categorical statement that despite
service of notice on the petitioner inviting them for conciliation, none has
appeared and no written statement has been filed. In contrast, in the record
O.M.P. (COMM) 76/2016 Page 21 of 25
of the proceedings that has took place on 29.06.2015 which is the date on
which the Award is purportedly passed though signed subsequently on
18.10.2015, the record categorically states the presence of Sh. Arun Mehta,
Advocate for the petitioner. It also records his submission for giving some
more time to finalize the conciliation proceedings. It is also a matter of fact
that on 06.06.2015 a detailed representation has been filed by the petitioner
under Section 65 of the Act in response to the conciliation proceedings
initiated by the Council which was on record. There is no reference to this
document/reply filed by the respondent.
37. The Award dated 29.06.2015/18.10.2015 is factually incorrect as it
ignores the presence of the petitioner and proceeds erroneously under
Section 25 of the Act. It is quite clear that the Council has passed the order
with undue haste without following a fair procedure.
38. The other important aspect is the reliance of the Council in the Award
on the Minutes dated 01.05.2013 and 28.12.2013. The two minutes reads as
follows:-
“Minutes of Meeting held between Alstom and M/s. Reliable
Engineering Projects and Marketing on 01.05.2013 at Alstom
Naini Works
M/s. Alstom M/s. Reliable Engineering
1) Raja Ram 1) Vijendra Verma
2) S.K.Swami 2) Amit Kumar
3) Harsh Kapil Verma
Following were discussed and agreed;
1. Payment of app. Rs.5 lacs against rework of 8 MVA (ST-1)
and others has been processed and sent to finance will be
released within a month time.
O.M.P. (COMM) 76/2016 Page 22 of 25
2. Against retention bills documents as per annexure-1 required
to be submitted by Reliable. Considering the case
sympathetically 50% amt. Apprx. 12.5 lacs will be released by
Alstom, for balance 50% documents required to be submitted by
Reliable.
3. Extra dragging charges will be processed as per existing rate
Rs.875/- meter based on certification by Site Engineer and
Project Manger within next 15 days time.
4. Total outstanding of Alstom appx. Rs 9.00 Crs is yet to be
collected from NTPC, against ETC work and retention. M/S
reliable to complete all the pending works as per various
correspondence with NTPC.
5. List of documents as per annexture-1 to be submitted by
Reliable max within next 15 days time at one time to proceed
further.
6. Claim for over run charges shall be submitted jointly by
REPM and Alstom to NTPC after completion of work.”
39. “Minutes of Meeting held between Alstom and M/s Reliable
Engineering Projects and Marketing on 28.12.2013 at Alstom
Naini work
M/s. Alstom M/s. Reliable Engineering
1) Raja Ram 1) Vijendra Verma
2) S.K.Swami 2) Amit Kumar
3) Harsh Kapil Verma
th th
1. M/s. Reliable visited Alstom Naini works on 27 to 28 Dec.
2013 regarding settlement of payments against work carried out
at NTPC Jhajjar Site.
2. Contract of Rs.120 lacs (Taxes and duties extra) was placed on
Reliable. Payment of Rs.11910000/- already made to Reliable.
Uploading of One ICT carried out by Alstom from its transporter.
Rs.90000/- on this account was adjusted from Reliable Account.
All the payments which was due according to contract has been
O.M.P. (COMM) 76/2016 Page 23 of 25
released on M/s. Reliable. Reconciliation statement is attached as
per Annexure 1
3. In addition to above payment of Rs.3.33 lacks and Rs.15
Thousands were also made against rework at site.
4. M/s. Reliable has claimed for Over Run Charges of Rs.138
lacs, extra dragging of Rs.26 lacs and also against insurance
claim of Rs.30 lacs. Which can be considered only on “back to
back” basis with NTPC/Insurance Company.
5. During the meeting it is decided that M/s Reliable and Alstom
will approach NTPC for realization of above payment. Alstom
will raise the invoice to NTPC for over run and Extra Dragging
claim.”
40. The Council in its two Award dated 29.06.2015 and 13.08.2015 which
are signed on 18.10.2015 has relied heavily on the above two minutes to
interpret them as if the same tantamount to an admission of dues by the
petitioner. In fact the learned Amicus Curiae who had appeared for the
respondent relying upon the judgment of the Supreme Court in the case of
Sohan Lal Gupta & Ors. Vs. Asha Devi Gupta & Ors.(supra) has pleaded
that in view of these admissions by the petitioner, no prejudice was caused to
the petitioner by the procedure that has been followed by the Council and an
Award has been rightly passed by the Council.
41. In my opinion, the plea is misplaced. In Sohan Lal Gupta & Ors. Vs.
Asha Devi Gupta & Ors.(supra), the Supreme Court has merely noted that
the principles of natural justice cannot be put in a straight jacket formula. A
reading of the minutes dated 28.12.2013 and 01.05.2013 cannot lead to any
conclusion that the petitioner admits its liability.
42. Accordingly, it is clear that the Award suffers from manifest error and
O.M.P. (COMM) 76/2016 Page 24 of 25
is against the fundamental policy of Indian law. It is passed in complete
breach of principles of natural justice without giving an appropriate
opportunity to the petitioner. It is passed in violation of Sections 18 and 23
of the Act. It is passed without following the principles of natural justice. I
quash the Award Part I and Part II.
43. It is true that the respondent is a small enterprise and has to suffer on
account of the manner in which the proceedings have been conducted by the
Council. In addition, it appears that the respondent has paid stamp duty of
Rs.4.38 lacs on the award, which is a needless burden on the respondent. In
the peculiar facts and circumstances of the case, I direct that the parties shall
share the cost of the said arbitration proceedings. The share of the cost of the
respondent is quantified at Rs.4 lakhs.
44. Liberty is granted to the respondent to take steps as per law for fresh
adjudication of the disputes. The respondent will be entitled to the benefit of
Section 43(4) of the Act
45. In terms of the order of this court dated 15.02.2017, the petitioner has
already deposited 75% of the amount awarded by the Council in court. The
petitioner shall be entitled to release of the amount with accumulated interest
after deduction of Rs.4 lakhs which sum shall be paid to the respondent. The
court would also like to place on record its appreciation for the efforts of
Dr.Amit George, Advocate-Amicus Curiae in the matter.
46. The petition stands disposed of as above. All pending applications, if
any, also stand disposed of.
JAYANT NATH, J.
AUGUST 24, 2017/v/rb
O.M.P. (COMM) 76/2016 Page 25 of 25