Full Judgment Text
$~52
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ FAO(OS) 227/2017 & CM No.28576/2017
th
% Reserved on : 4 September, 2017
th
Date of decision : 18 September, 2017
MAHANAGAR TELEPHONE NIGAM LTD. ..... Appellant
Through : Mr. Abhinav Vashisht, Sr. Adv.
With Ms. Tanmishtha Singh,
Ms. Priya Chauhan and Ms.
Rishita Mall, Advs.
versus
FINOLEX CABLES LIMITED ..... Respondent
Through : Mr. Atul Chitale, Sr. Adv, with
Mr. Nitin Tambwekar, Mr.
Gurjyot Sethi, Ms. Shivangi
Khanna and Ms. B.S. Rai,
Advs.
CORAM:
HON'BLE THE ACTING CHIEF JUSTICE
HON'BLE MR. JUSTICE C.HARI SHANKAR
JUDGMENT
GITA MITTAL, ACTING CHIEF JUSTICE
1. The present appeal, filed under Section 37 of the Arbitration
and Conciliation Act, 1996 read with Section 10 of the Delhi High
Court Act, 1966 by the Mahanagar Telephone Nigam Limited
th
(‘MTNL’ hereafter) , challenges the order dated 11 April, 2017 passed
by the ld. Single Judge on the original side of this court accepting
objections filed by the Finolex Cables Limited (‘FCL’ hereafter)
FAO(OS)No.227/2017 Page 1 of 21
th
against the arbitral award dated 18 August, 2009 passed by the sole
arbitrator in a dispute between FCL and MTNL.
To the extent necessary, we first note the facts giving rise to the
present appeal.
th
2. MTNL had entered into a contract dated 11 July, 1990 with
FCL for supply of following four sizes of Jelly Filled Cables (JFCs) :
S.No. Items Unit Price Total Price
1. 20/6 Armoured U/s
Jelly Filled Cable
65,102.00 9,76,530.00
2. 50/6 Armoured U/s
Jelly Filled Cable
1,08,8520.50 10,88,525.00
3. 400/6 Armoured U/s
Jelly Filled Cable
5,84,820.00 23,29,280.00
4. 2400/4 Armoured
U/s
Jelly Filled Cable
12,93,946.72 3,23,48,668.00
th
3. Pursuant to the said contract, a purchase order dated 20
December, 1990 was placed upon FCL. The date of delivery of the
th
aforesaid goods was 20 May, 1991. The entire quantity was to be
supplied to the Delhi/Bombay unit with the consignee being specified
as “MTNL Delhi/Bombay” .
4. There is no difficulty with regard to the supply of three sizes of
cables which were duly supplied in accordance with the delivery
schedule. However, the fourth size was a unique type of cable
requiring approval of the Telecom Engineering Centre (‘TEC’
hereafter) , which admittedly could not be supplied by FCL by the
specified date. There also appears to have been an error in the
description of the said cable, which had to be amended subsequently.
FAO(OS)No.227/2017 Page 2 of 21
5. In terms of the contract, FCL had furnished performance bank
th
guarantee dated 5 December, 1990 in the sum of Rs.18,37,650/-
6. Clause 9.2 of the purchase order/Contract stated that the MTNL
reserved the rights to cancel the balance quantity of the order if the
supply was not made within the delivery period or extended delivery
th
period (i.e., by 20 May, 1991). Clause 10.3 stipulated that delivery
of the cable would be supplied strictly as per specifications supplied
by the TEC/CGM(QA), Bangalore.
7. In clause 14.3, reasonable quantities were to be offered for
inspection to DET (QA) and the invoices raised by the supplier were
to be accompanied by certificates of inspection stating that the stores
conformed to the specifications offered and were accepted.
8. We extract hereunder clause 17 which provided for liquidity
damages and reads as follows:
"17. Liquidated Damages
17.1 The date of delivery of the stores stipulated in the
acceptance of Purchase Order should be deemed to be the
essence of the contract and delivery must be completed not
later than the dates specified therein. Extension will not be
given except in exceptional circumstances. Should, however,
deliveries be made after expiry of the contract and be
accepted by the Consignee, such deliveries will not deprive
the Purchaser of his right to recover liquidated damages
under Clause 17.2 below, where, however, supplies are made
within 21 (twenty one) days of the contracted original delivery
period, the consignee may accept the stores and in such cases
the provisions of clause 17.2 will not apply.
Should the tenderer fail to deliver the stores or any
consignment thereof within the period prescribed for delivery,
FAO(OS)No.227/2017 Page 3 of 21
the Chairman Cum Managing Director, MTNL, shall be
entitled to recover ½% of the undelivered stores value of the
Order placed; for each week of delay or part thereof, subject
to a maximum of 10% of the value of the Order placed.”
th
9. It appears that FCL submitted a sample to the TEC on 18 May,
th
1991, i.e., two days before the expiry of the dead line on 20 May,
th
1991. This type approval was granted ultimately only on 5 August,
1991. According to the FCL, after the type approval was granted by
TEC, which evidently was after the stipulated delivery period, MTNL
time and again wanted the FCL to extend the delivery period. It is an
admitted position that FCL obliged and kept extending the
performance bank guarantee from time to time. MTNL would point
out that FCL raised no objection to the extension of the performance
bank guarantee.
10. It was the case of the MTNL, in the arbitration proceedings, that
time continued to essence of the contract, and that, even after
th
obtaining the approval of the TEC on 5 April, 1991, FCL did not
supply a single meter of the ordered cable. It is interesting to note that
there is no exchange of correspondence during this period between
MTNL and FCL. It is apparent that MTNL did not make a single
request to the FCL to supply the cable.
Interestingly, without once calling upon the FCL to deliver the
cable for a period of over nine years, MTNL asked the FCL to extend
the PBG. Thus the PBG for the sum of Rs. 18,37,650/- was extended
15 times.
FAO(OS)No.227/2017 Page 4 of 21
11. It would appear that FCL presumed that requirement of the
supply of cable did not exist anymore. Mr. Atul Y. Chitale, ld. Senior
Counsel for the FCL (respondent in the present matter) has drawn our
th
attention to the letter dated 7 April, 1992 addressed by the FCL
requesting MTNL to short close the balance portion of the purchase
order without any commercial implications, on account of there being
no follow up by the MTNL.
12. MTNL has contended that, by keeping the PBG alive as and
when demanded by MTNL, there was an implied consent by FCL to
keep the purchase order alive.
13. Another pertinent fact which needs to be noted is that FCL had
th
addressed a letter dated 26 September, 2001, to the Department of
Telecommunication (DoT) “ for induction of Foam Skin Cables
th
(‘FOC’) in telecom network ”. TEC’s reply dated 14 December, 2001
is important whereby TEC wrote the following :
“The proposal for induction of Foam Skin Cables (FSC) in
Telecom network has been considered. The proposal appears
to be good but BSNL is trying to reduce the use of
underground PIJF cable by using more and more other
modern technology like WLL, DLC and HDSL etc. in its
network. Further BSNL has issued instructions to the field
units to shift from concentrated switching to distributing
switching by use of more and more RSUs/RLUs so that large
sizes of primary cables are reduced in the network. There is
no plan of BSNL to try a new type of Foam Skin Cable in its
network at present.
In view of the above we are not interested for presentation on
advantages of Foam Skin Cables at this stage.”
(Emphasis supplied)
FAO(OS)No.227/2017 Page 5 of 21
14. It is pointed out on behalf of FCL that MTNL therefore was not
really interested in the supply of the fourth cable as it was using more
modern technology as is evident from the above.
th
15. It is in this factual background, that on the 29 of January 2004,
MTNL wrote a letter addressed to the Central Bank of India invoking
the PBG furnished by the FCL as guarantee towards the contract.
th
16. The basis for the invocation is disclosed in a letter dated 24
February, 2004 addressed by MTNL to FCL wherein it was stated as
follows :
“Sir,
Regarding the above mentioned purchase order, you did not
supply 2400//4 mm. diameter wire without covering (25 km
length). Due to this reason contract has been terminated. The
loss due to termination of contract is calculated is
Rs.40,70,756/- out of the Rs.18,37,650.00 bank cheque/DD
has been encashed. Balance Rs.22,23,106.00 has to be
recovered , the said amount within seven days of receipt of this
notice, please give bank draft in favour of MTNL at office of
undersigned. In this much amount has not been deposited
within this period, this amount will be deducted from any of
your bills or any other bank guarantee.”
(Emphasis supplied)
th
17. On 9 March, 2004, FCL wrote a letter to MTNL stating, inter
alia, that as the requirement of the cable did not exist, financial burden
should not be imposed upon the FCL by encashing the bank guarantee.
FCL instead requested that charges deducted for the bank guarantee,
be reimbursed to it.
FAO(OS)No.227/2017 Page 6 of 21
18. MTNL claimed liquidated damages of Rs.40,70,756/- and
recovered Rs.18,37,650/- from the available performance bank
guarantee and called upon FCL to deposit Rs.22,33,106/- being the
balance amount.
th
19. On 18 March, 2004, MTNL also invoked a bank guarantee in
the sum of Rs.20,79,320/- furnished by FCL from the Central Bank of
India, Pimpri Branch, Pune which had been given in another contract,
appropriating the amount thereof towards the claimed damages in the
present contract.
20. It is also on record that, another bank guarantee for the sum of
Rs.1,56,100/- furnished by FCL towards another contract was also
encashed by MTNL and so appropriated.
We are noting this fact for the reason that MTNL has encashed
these bank guarantees and has appropriated this amount towards the
amount claimed by it as liquidated damages in the present case which
are the subject matter of the orders by the arbitrator with regard to
which the dispute was raised before the arbitral tribunal.
Arbitration proceedings
th
21. Aggrieved by the above action, by its letters of 6 November,
th
2005 and 24 December, 2005, FCL sought reference of the disputes
to arbitration. The Chairman- cum -Managing Director of MTNL
appointed Dr. S.M. Dewan, D.G., SCOPE as the sole arbitrator for
adjudication of the disputes between the parties. FCL filed the
statement of claim whereby it claimed an amount of Rs.40,70,756/- as
due and payable from MTNL along with interest @ 15% per annum
FAO(OS)No.227/2017 Page 7 of 21
from the date of invocation of the bank guarantees till the date of
repayment as well as cost of arbitration. Apart from filing its reply,
MTNL also raised a counter claim of Rs.6,28,44,266/- from FCL.
22. After consideration of the matter at length, the sole arbitrator
th
had passed an Award dated 18 August, 2009, inter alia, holding that
there was implied consent of both FCL and MTNL to keep the
purchase order alive. The Arbitrator notes that MTNL did not follow
up with the FCL to deliver the material for a period of 12 years; that
nevertheless, the delay of 12 years in supply of the ordered material
and lack of subsequent reminders by the FCL to supply the material
left no choice but to cancel the purchase order; that there is no
material to show that parties knew that the loss was likely to result
from non-delivery of the cables; that if the agreed liquidated damages
were to be enforced, it must be a result of some genuine pre-estimated
damages; that in view of the clause 7.4 of the purchase order, MTNL
was justified in invoking the bank guarantee and recovering the
liquidated damages up to maximum of 10% of the ordered value. i.e.,
Rs.36,75,300/-.
The Arbitrator has noted that except the bald averments and an
assumed loss of profit, there was no material at all on record to
substantiate the counter claim which was actually rejected. No
interest or costs were awarded.
23. This arbitral award was assailed by FCL under Section 34 of the
Arbitration Act by way of OMP No.746/2009. These objections were
considered and decided by the ld. Single Judge by way of the
th
judgment dated 11 April, 2017. The ld. Single Judge placed reliance
FAO(OS)No.227/2017 Page 8 of 21
on the pronouncement of the Supreme Court reported at (2015) 4 SCC
136, Kailash Nath Associates vs. Delhi Development Authority and
concluded that the sum of Rs.36,75,300/- as liquidated damages was
based on no evidence at all and consequently, invocation of the bank
guarantee by the MTNL was unjustified. It was also concluded by the
ld. Single Judge that conduct of both parties, i.e. of MTNL and FCL in
th
submitting the cable only on 18 May, 1991 for approval to the TEC
th
and that by the TEC granting approval only on 5 August, 1991,
th
resulted in the expiry of the original delivery period on 20 May, 1991
and that both the parties had accepted this reality. The ld. Single
Judge also observed that MTNL did not consider this as a breach of
contract and took no steps to terminate the contract for the failure of
FCL to adhere to the delivery period and nor did the FCL resist the
demands of MTNL from time and again for keeping the bank
guarantee alive for the period of 12 years. It was held by the ld.
Single Judge that finding of the ld. Arbitrator that there was “ an
implied consent of both the claimants and the respondent to keep the
purchase order alive ” was a correct assessment of what transpired
between them.
This judgment stands assailed by MTNL before us.
24. We have heard Mr. Abhinav Vashisht, ld. Senior Counsel for
MTNL and Mr. Atul Chitale, ld. Senior Counsel for FCL at length. In
th
the judgment dated 11 April, 2017, ld. Single Judge has noted that by
th
the letter dated 7 April, 1992 by the FCL to the MTNL seeking short
closure was understandable. The ld. Single Judge has extracted from
this letter the submission by FCL which had made arrangement “ for
FAO(OS)No.227/2017 Page 9 of 21
procurement of raw material for development of this item and within a
period of 8-9 months we were able to offer the cable for proto testing
and finally we got type approval ”. FCL had offered short closure
without any commercial implication. MTNL did not permit the short
closure but also neither did it, in response, allege any breach of
contract nor claimed any liquidated damages.
25. We may extract the observations of the Supreme Court reported
at (2008) 1 SCC 503 Bharat Petroleum Corporation Ltd. v. The
Great Eastern Shipping Co. Ltd. which reads as follows:
“19. It is, no doubt, true that the general rule is that an offer
is not accepted by mere silence on the part of the offerree,
yet it does not mean that an acceptance always has to be
given in so many words. Under certain circumstances,
offerree’s silence, coupled with his conduct, which takes the
form of a positive act, may constitute an acceptance an
agreement sub silentio. Therefore, the terms of a contract
between the parties can be proved not only by their words
but also by their conduct.”
26. In these facts, the conclusion of the ld. Single Judge that in view
of the fact that for a period of 14 years after the original purchase
th
order dated 20 December, 1990, neither party made a move for
closure of the contract and consequently time was not the essence of
the contract from the point of view of either party cannot be faulted.
This conclusion is also supported by the decisions reported at
Keshavlal Lallubhai Patel & Ors. v. Lalbhai Trikumlal Mills Ltd.
and AIR 1958 SC 512; AIR 1999 SC 3804 Arosan Enterprises Ltd. v.
Union of India .
FAO(OS)No.227/2017 Page 10 of 21
27. The ld. Single Judge has rightly also concluded from the letter
th
dated 14 December, 2001 that probably MTNL did not need the
cable anymore. From the above discussion, it is apparent that the hard
reality is that neither party considered time as being of essence to the
contract.
Whether the encashment of the bank guarantees and appropriation
of the amounts of the liquidated damages was justified?
28. Before examining the findings of the ld. Single Judge on this
issue, we may usefully consider the applicable legal principles. The
ld. Single Judge has placed reliance on the law laid down in para 43 of
the Kailash Nath which summed up the legal position qua the claim
of liquidated damages in the following terms :
“43. On a conspectus of the above authorities, the law on
compensation for breach of contract under Section 74 can be
stated to be as follows:
43.1. Where a sum is named in a contract as a liquidated
amount payable by way of damages , the party complaining of
a breach can receive as reasonable compensation such
liquidated amount only if it is a genuine pre-estimate of
damages fixed by both parties and found to be such by the
Court. In other cases, where a sum is named in a contract as
a liquidated amount payable by way of damages, only
reasonable compensation can be awarded not exceeding the
amount so stated. Similarly, in cases where the amount fixed
is in the nature of penalty , only reasonable compensation can
be awarded not exceeding the penalty so stated. In both
cases, the liquidated amount or penalty is the upper limit
beyond which the Court cannot grant reasonable
compensation.
FAO(OS)No.227/2017 Page 11 of 21
43.2. Reasonable compensation will be fixed on well known
principles that are applicable to the law of contract, which
are to be found inter alia in Section 73 of the Contract Act.
43.3. Since Section 74 awards reasonable compensation for
damage or loss caused by a breach of contract, damage or
loss caused is a sine qua non for the applicability of the
Section.
43.4. The Section applies whether a person is a plaintiff or a
defendant in a suit.
43.5. The sum spoken of may already be paid or be payable in
future.
43.6. The expression "whether or not actual damage or loss
is proved to have been caused thereby" means that where it
is possible to prove actual damage or loss, such proof is not
dispensed with. It is only in cases where damage or loss is
difficult or impossible to prove that the liquidated amount
named in the contract, if a genuine pre-estimate of damage
or loss, can be awarded.
43.7. Section 74 will apply to cases of forfeiture of earnest
money under a contract. Where, however, forfeiture takes
place under the terms and conditions of a public auction
before agreement is reached, OMP No. 746 of 2009 Page 22
of 23 Section 74 would have no application.”
(Emphasis by us)
29. It is trite that under Section 74 of the Contract Act, that to claim
liquidated damages even where liquidated damages may be specified,
the party so claiming, is entitled only to “ reasonable compensation ”
not exceeding the amount specified. Even in a contract, where it is
difficult to prove the actual damage or loss, proof thereof is not
FAO(OS)No.227/2017 Page 12 of 21
dispensed with to arrive at “ reasonable compensation ”. It is only in
cases where damages or loss was impossible to prove, that the amount
named in the contract as liquidated damages, if it is a genuine pre-
estimate of damage or loss, can be so awarded.
30. It has been held by the ld. Single Judge therefore, that even
assuming that clause 7.4 signifies a genuine pre-estimate of damages,
MTNL was not relieved of showing that it had suffered some loss.
Both legally and factually, this is the correct position.
31. On application of the above well settled principle, there can be
no manner of doubt, that it was incumbent on MTNL to prove before
the Arbitrator that it had suffered some loss, even though it may not
have to prove the actual loss.
32. In the present case, the ld. Single Judge has noted that the ld.
Arbitrator has found, that MTNL suffered no loss whatsoever.
33. We may extract the findings of the Arbitrator in this regard
which read as follows :
“On perusal of the records furnish by MTNL we do not
find any proof or details of any loss incurred by the
respondent that can be attributed directly due to non-
availability of the said cables. No mention of any risk
purchase has been made. Comparison of the price of the
cables claim to have been used by MTNL with the ordered
cable is not provided.
It is an accepted fact that if agreed liquidate damages
are to be enforce, it must be the result in genuine pre-
estimate of damages and they do not include a sum fixed in
terrorem covering a breach of contract.
Assumed loss of revenue to the tune of approx Rs.6.28
Cr is mentioned by the respondent without any supporting
FAO(OS)No.227/2017 Page 13 of 21
details of breakup. Details are the same as stated in counter
claims by the respondent. It has many presumptions firstly
on the number of pair in a cable assumed 90% loading of
cable, assumed 5 km length of primary cable and assumed 24
months period till alternate arrangement of cable was made
through new tender. No mention of new tender quality
specification rates etc are given. Average revenue per user
for 1992-93 at Rs.10765.61 is not supported by any
document.”
th
34. In para 43 of the impugned judgment dated 11 April, 2017, the
ld. Single Judge has noted that the MTNL has not challenged this
finding.
35. Despite the above conclusion in the Award, the Arbitrator holds
as follows :
“In view of the reasons stated in the previous pages
and going by the terms of the contract at clause 7.4, the
respondent is justified in invocation f the bank guarantee and
recovery of liquidity damages upto a maximum of 10% of the
total value of the order i.e. Rs.36,75,300/- only.
36. On a consideration of the material of the record of the arbitral
tribunal, the ld. Single Judge has noted that “ absolutely no material
was placed on record by the MTNL that it suffered an iota of loss on
account of non-supply of cables ”.
37. The ld. Single Judge has further returned the finding that even if
MTNL had proved it that it had suffered some loss, the Arbitrator as
the adjudicatory body, was required to award only a “ reasonable
sum ”. What would be the reasonable sum is to depend on the facts and
FAO(OS)No.227/2017 Page 14 of 21
circumstances of every case. In the present case, the ld. Single Judge
has observed that the arbitrator has awarded the maximum amount
specified under Clause 7.4. As noted above, MTNL led no evidence of
loss. The ld. Single Judge has found that the Award of the amount is
without any explanation at all as to how the maximum liquidated
damages anticipated by the said clause was actually a “ reasonable
sum ” in the facts and circumstances of the case. This is legally
impermissible.
38. We are unable to fault with the findings of the ld. Single Judge
that having found no loss whatsoever as having been suffered by the
MTNL, there was no warrant or explanation at all for the Arbitrator
awarding the maximum i.e. 10% of the total value of the contract
being the sum of Rs.36,75,300/-. The finding of the ld. Single Judge
in the impugned judgments, that the Arbitral award was based on no
evidence at all and was contrary to the well settled legal position, thus
has to be upheld.
Scope of Section 34 of the Arbitration Act
39. The ld. Single Judge has held that an award which was
inconsistent with the law laid down by the decision of the Supreme
Court would be opposed to the fundamental policy of the India and
would attract the invalidation under Section 34(2)(b)(ii) of the
Arbitration and Conciliation Act, 1996.
40. The extent of jurisdiction of the court while dealing with the
challenge to an arbitral award, by now, stands authoritatively
examined by a plethora of pronouncements of the Supreme Court,
FAO(OS)No.227/2017 Page 15 of 21
which travel from the judgment reported at 1994 Supp (1) SCC 644,
Renusagar Power Co. Ltd. v. General Electric Co. to (2015) 3 SCC
49, Associated Builders v. DDA. On an analysis of all the said
decisions, this court has, in a recent judgment reported at
MANU/DE/2699/2017, NHAI v. Hindustan Construction Co. Ltd.,
delineated the following propositions :
“ 36. Associated Builders v. DDA, MANU/SC/1076/2014 :
(2015) 3 SCC 49 , may justifiably be christened as the high
watermark in the law relating to Section 34 of the Act, and any
attempt to paraphrase the decision is fraught with the risk of
mutilation. The decision is, almost entirely, definitively
authoritative, and brooks no ambiguity or anomaly.
Nonetheless, in view of the proliferation of litigation,
challenging arbitral awards, in recent times, we have, in a
recent decision, dated 10th August 2017, in Shiam Cooperative
Group v Kamal Construction Co. Ltd., extracted, in extenso, the
relevant paragraphs from the said decision, and respectfully
culled, therefrom, the following clear principles:
(i) The four reasons motivating the legislation of the Act,
in 1996, were
(a) to provide for a fair and efficient arbitral
procedure,
(b) to provide for the passing of reasoned awards,
(c) to ensure that the arbitrator does not transgress his
jurisdiction, and
(d) to minimize supervision, by courts, in the arbitral
process.
(ii) The merits of the award are required to be examined only
in certain specified circumstances, for examining whether
the award is in conflict with the public policy of India.
FAO(OS)No.227/2017 Page 16 of 21
(iii) An award would be regarded as conflicting with the
public policy of India if
(a) it is contrary to the fundamental policy of Indian
law, or
(b) it is contrary to the interests of India,
(c) it is contrary to justice or morality,
(d) it is patently illegal, or
(e) it is so perverse, irrational, unfair or unreasonable
that it shocks the conscience of the court.
(iv) An award would be liable to be regarded as contrary to
the fundamental policy of Indian law, for example, if
(a) it disregards orders passed by superior courts, or
the binding effect thereof, or
(b) it is patently violative of statutory provisions, or
(c) it is not in public interest, or
(d) the arbitrator has not adopted a "judicial
approach", i.e. has not acted a fair, reasonable
and objective approach, or has acted arbitrarily,
capriciously or whimsically, or
(e) the arbitrator has failed to draw an inference
which, on the face of the facts, ought to have been
drawn, or
(f) the arbitrator has drawn an inference, from the
facts, which, on the face of it, is unreasonable, or
(g) the principles of natural justice have been violated.
(v) The "patent illegality" had to go to the root of the
matter. Trivial illegalities were inconsequential.
(vi) Additionally, an award could be set aside if
(a) either party was under some incapacity, or
(b) the arbitration agreement is invalid under the law,
or
FAO(OS)No.227/2017 Page 17 of 21
(c) the applicant was not given proper notice of
appointment of the arbitrator, or of the arbitral
proceedings, or was otherwise unable to present
his case, or
(d) the award deals with a dispute not submitted to
arbitration, or decides issues outside the scope of
the dispute submitted to arbitration, or
(e) the composition of the Arbitral Tribunal was not in
accordance with the agreement of the parties, or in
accordance with Part I of the Act, or
(f) the arbitral procedure was not in accordance with
the agreement of the parties, or in accordance with
Part I of the Act, or
(g) the award contravenes the Act, or
(h) the award is contrary to the contract between the
parties.
(vii) "Perversity", as a ground for setting aside an arbitral
award, has to be examined on the touchstone of the
Wednesbury principle of reasonableness. It would include
a case in which
(a) the findings, in the award, are based on no
evidence, or
(b) the Arbitral Tribunal takes into account something
irrelevant to the decision arrived at, or
(c) the Arbitral Tribunal ignores vital evidence in
arriving at its decision.
(viii) At the same time,
(a) a decision which is founded on some evidence,
which could be relied upon, howsoever
compendious, cannot be treated as "perverse",
(b) if the view adopted by the arbitrator is a possible
view, it has to pass muster,
(c) neither quantity, nor quality, of evidence is open to
re-assessment in judicial review over the award.
FAO(OS)No.227/2017 Page 18 of 21
(ix) "Morality" would imply enforceability, of the agreement,
given the prevailing mores of the day. "Immorality",
however, can constitute a ground for interfering with an
arbitral award only if it shocks the judicial conscience.
(x) For examining the above aspects, the pleadings of the
parties and materials brought on record would be
relevant.
(x) The court cannot sit in appeal over an arbitration award.
Errors of fact cannot be corrected under Section 34. The
arbitrator is the last word on facts."
41. It is apparent, therefore, that, while interference by court, with
arbitral awards, is limited and circumscribed, an award which is
patently illegal, on account of it being injudicious, contrary to the law
settled by the Supreme Court, or vitiated by an apparently untenable
interpretation of the terms of the contract, requires to be eviscerated.
In view thereof, the decision of the ld. Single Judge that reasoning of
the arbitral award in this regard was based on no material and was
contrary to the contract, cannot be said to be deserving of any
interference at our hands under Section 37 of the Act. In a
pronouncement reported at MANU/DE/0459/2015, MTNL v. Fujitshu
India Pvt. Ltd. (FAO(OS) No.63/2015), the Division Bench of this
court has held that “ an appeal under Section 37 is like a second
appeal, the first appeal being to the court by way of objections under
Section 34 ”. Being in the nature of a second appeal, this court would
be hesitant to interfere, with the decision of the learned Single Judge,
unless it is shown to be palpably erroneous on facts or in law, or
FAO(OS)No.227/2017 Page 19 of 21
th
manifestly perverse. The impugned judgment dated 11 April, 2017
of the ld. Single Judge cannot be said to suffer from any such
infirmity.
Conclusion
42. It is to be noted that the arbitral tribunal rejected the counter
claim of the MTNL, yet proceeded to award liquidated damages. We
are unable to agree with Mr. Abhinav Vasisht, ld. Senior Counsel for
the appellant - MTNL that the contract was of such nature that it was
not possible to evaluate the damages and therefore, that 10% of the
amount quantified in the contract between the parties as liquidated
damages had to be treated as being reasonable award of damages.
43. It is clearly stated in para 43.6 of Kailash Nath that in case
where damages are difficult or impossible to prove, the claimants
would be entitled to the liquidated damages if they were a genuine
pre–estimate of the damage. No material at all in this regard was
produced before the arbitral award. MTNL has not even asserted that
it had suffered loss.
44. The Arbitrator has not even examined the challenge by the FCL
to the encashment of the bank guarantees furnished by FCL to MTNL
for other contracts and permitting amount thereof to be applied
towards liquidated damages claimed by MTNL in the present case. In
any case, keeping in mind the view taken by the ld. Single Judge qua
the Award of the liquidated damages for which these two bank
guarantees were encashed, there is no justification at all for
encashment of these two bank guarantees.
FAO(OS)No.227/2017 Page 20 of 21
th
45. In view of the above discussion, the judgment dated 11 April,
2017 passed by the ld. Single Judge cannot be assailed on any legally
tenable grounds.
Result
46. The present appeal is completely devoid of merit and is hereby
dismissed with costs which are quantified at Rs.50,000/-.
ACTING CHIEF JUSTICE
C.HARI SHANKAR , J
SEPTEMBER 18, 2017
mk
FAO(OS)No.227/2017 Page 21 of 21