Full Judgment Text
$~10
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision: 08.05.2024
+ FAO(OS) (COMM) 200/2022
MUNICIPAL CORPORATION OF DELHI
(ERSTWHILE NORTH DELHI MUNICIPAL
CORPORATION) ..... Appellant
Through: Ms Garima Prashad, Senior Advocate
with Ms Renu Gupta, Advocate.
versus
M/S IJM CORPORATION BERHAD ..... Respondent
Through: Mr Arun Kumar Varma, Senior
Advocate with Mr Shambhu Sharan,
Mr Yamandeep Kumar, Mr Ankit
Jain and Ms Sabah I. Siddique,
Advocates.
CORAM:
HON'BLE MR. JUSTICE VIBHU BAKHRU
HON'BLE MS. JUSTICE TARA VITASTA GANJU
VIBHU BAKHRU, J. ( Oral )
1. Municipal Corporation of Delhi (hereafter MCD ) has filed the present
intra-court appeal under Section 37(1)(c) of the Arbitration and Conciliation
Act, 1996 (hereafter the A&C Act ) impugning an order dated 26.04.2022
(hereafter the impugned judgment ) passed by the learned Single Judge of
this Court in OMP (COMM) 185/2022 captioned North Delhi Municipal
Corporation v. IJM Corporation Berhad.
2. North Delhi Municipal Corporation (which has since merged with
MCD) had filed the aforementioned application under Section 34 of the
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A&C Act praying that the Arbitral Award dated 03.07.2021 (hereafter the
impugned award ) rendered by an Arbitral Tribunal comprising of a Sole
Arbitrator (hereafter the Arbitral Tribunal ), be set aside.
3. The impugned award is a partial award rendered in the context of the
disputes that had arisen between the parties in connection with an agreement
dated 21.05.2005 (hereafter the Agreement ) entered into between the parties
for construction of a Civic Centre at Jawahar Lal Nehru Marg, Minto Road,
New Delhi (hereafter the Project ). The respondent was awarded the contract
for executing the Project in terms of a Work Order dated 25.04.2005
(hereafter the Work Order ) for a contract value of ₹545,54,46,309/-. The
th
Project was to be executed within a period of thirty-six months from the 10
day of the issuance of the Work Order, that is, on or before 04.05.2008.
4. The execution of the Project was delayed and MCD granted several
extensions of time to complete the Project terming the same as “provisional”
while reserving the right to impose liquidated damages. The Project was
completed during the period extended by MCD (albeit provisionally). MCD
seeks to claim damages on account of delay in execution of the Project. It,
inter alia , claims that it is entitled to levy liquidated damages in terms of
Clause 2 of the Agreement.
5. One of the areas in dispute that has arisen between the parties
involves the question whether the grant of provisional extension of time for
completion of the contract is in conformity with the terms of the Agreement
between the parties. The Arbitral Tribunal had framed several issues, which
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included a specific issue in respect of the aforesaid dispute – Issue no.3. The
said issue is set out below:
“Issue No.3
Whether the action of the Respondent/PMC in granting
provisional extension of time is in conformity with the terms
of the agreement?”
6. The impugned award is a partial award that finally adjudicates the
said issue. The Arbitral Tribunal has decided the issue in the negative; that
is, in favour of the respondent and against MCD. The Arbitral Tribunal has
held that in terms of the Agreement, MCD did not have an option to issue
provisional extension of time to complete the Project. It could either give a
fair and reasonable extension of time to complete the works (hereafter EoT)
or declare that the Contractor (respondent) would not be eligible for
consideration for EoT in terms of Clause 5.3 of the Agreement.
7. According to MCD, the said conclusion is erroneous. MCD claims
that notwithstanding that the Agreement between the parties did not
expressly provide for issuance of any provisional EoT, it was common usage
in trade to extend the time for completion of the works on a provisional
basis (provisional EoT), pending consideration of request for EoT. MCD
also challenges the impugned award on the ground that it forecloses MCD’s
claim for liquidated damages in respect of which a separate issue – Issue
no.5 was framed by the Arbitral Tribunal.
8. Issue no. 5 as framed by the Arbitral Tribunal is reproduced below:
“Issue No.5
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Whether the actions of the Respondent/PMC in imposing
liquidated damages/compensation for delay with
retrospective effect is inconformity with the terms of the
agreement?”
9. The learned Single Judge concurred with the view of the Arbitral
Tribunal and held as under:
“25. I am in complete agreement with the view taken by the
Arbitral Tribunal in deciding Issue no.3 and in holding that
only two options were available to the competent authority,
i.e. (i) either to grant a fair and reasonable extension in terms
of Clause 5.4 even in case where there is no application by
the contractor; or (ii) to declare that the contractor is not
eligible for consideration for extension of time.
26. The competent authority would not be empowered to treat
the extension of time granted as provisional and thereafter
reduce the period after the period is itself over.”
10. The learned Single Judge did not accept MCD’s contention that the
impugned award forecloses the controversy in regard to Issue no.5. The
learned Single Judge held that both the issues (Issue nos.3 and 5) were
independent of each other although there may be some overlap. However,
the learned Single Judge also held that if the Arbitral Tribunal came to the
conclusion that the work was not completed within the period as stipulated
in the Agreement or within the extended date, it would be open for the
Arbitral Tribunal to decide Issue no.5 accordingly. The relevant extract of
the impugned judgment is set out below:
“27. Further, contention of learned Senior Counsel for the
petitioner that issue No. 3 could not have been decided in
isolation, dehors decision on issue No. 5 is also not
sustainable for the reason that both the issues are independent
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of each other, though, there may be some overlap.
28. Issue No.5 pertains to imposition of liquidated damages
/compensation for delay. Clause 2 of the contract prescribes
for imposition of damages in case the work is not completed
within the contractual period and the extended period. Issue
No. 3 is as to whether the extension of time is provisional or
not.
29. Even if there is some overlap in the said issues, there is
no error committed by the Tribunal in deciding them
separately, particularly when there is no error in the findings
returned in respect of issue No.3. The view taken by the
arbitral tribunal is a plausible view.
30. If in the facts of the case, the tribunal was to come to a
conclusion that the work was not completed within the period
of the contract or the extended date of completion then it
would be open to the Arbitral Tribunal to decide issue No.5
accordingly.”
11. The learned Single Judge did not accept that the impugned award was
in conflict with the public policy of India and therefore, dismissed MCD’s
application [OMP(COMM) 185/2022] under Section 34 of the A&C Act.
S UBMISSIONS
12. The learned counsel appearing for MCD has assailed the impugned
award as well as the impugned judgment on, essentially, three fronts. First,
she submits that the Arbitral Tribunal had grossly erred in proceeding to
hold that it is not open for the MCD/ PMC to grant provisional EoT and the
same was not in conformity with the Agreement. She submits that it is
common practice for the employers to grant provisional EoT for completion
of contract while reserving the right to levy liquidated damages based on
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further analysis whether EoT for completion of the contract is justified.
13. Second, she contends that the decision in regard to Issue no.3 also
forecloses the dispute, whether MCD could impose liquidated
damages/compensation for delay. She submitted that the Arbitral Tribunal
had framed a specific issue in respect of the said dispute – Issue no.5 –
which has not been specifically addressed. But the impugned award in
respect of Issue no.3 effectively forecloses any controversy in regard to the
dispute relating to MCD’s right to levy liquidated damages.
14. Third, she submitted that the learned Single Judge had exceeded the
jurisdiction under Section 34 of the A&C Act in directing that the Arbitral
Tribunal could decide Issue no.5 only after it came to the conclusion that the
Project was not completed within the period as stipulated in the Agreement
or the extended date of completion. In particular, she referred to paragraph
no. 30 of the impugned judgment as is set out above.
15. Mr Arun Varma, learned senior counsel appearing for the respondent
countered the aforesaid submissions. He submitted that a plain reading of
the impugned judgment indicates that the learned Single Judge had decided
to the contrary. He referred to paragraph 27 of the impugned judgment (as is
set out above) and contended that the Arbitral Tribunal had clarified that
Issue nos.3 and 5 were independent issues and though there may be some
overlap, they were required to be adjudicated separately.
R EASONS AND C ONCLUSION
16. We have heard the learned counsel for the parties.
17. At the outset, it is material to note that the impugned award is
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rendered in an ‘international commercial arbitration’ as defined under
Section 2(1)(f) of the A&C Act as the respondent is an entity incorporated
overseas. An arbitral award cannot be set aside or interfered with except on
the limited grounds as set out in Section 34 of the A&C Act. But, as the
impugned award is rendered in an international commercial arbitration, it
cannot be set aside on the ground that it is vitiated by patent illegality
[Section 34(2A) of the A&C Act].
18. Admittedly, none of the grounds as set out in Clause (a) of Sub-
section (2) of Section 34 of the A&C Act are raised. It is also not MCD’s
case that the impugned award is in respect of a dispute that is incapable of
being settled in arbitration [Section 34(2)(b)(i) of the A&C Act]. Thus,
MCD’s challenge to the impugned award is required to examined on the
anvil of whether it is in conflict with the public policy of India [Section
34(2)(b)(ii) of the A&C Act].
19. The scope of the expression ‘in conflict with the public policy of
India’ has been further explained in Explanations to Section 34(2)(b) of the
A&C Act. The said Explanations are set out below:
“Explanation 1.—For the avoidance of any doubt, it is
clarified that an award is in conflict with the public policy
of India, only if,—
(i) the making of the award was induced or affected by
fraud or corruption or was in violation of section 75 or
section 81; or
(ii) it is in contravention with the fundamental policy of
Indian law; or
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(iii) it is in conflict with the most basic notions of morality
or justice.
Explanation 2.—For the avoidance of doubt, the test as to
whether there is a contravention with the fundamental
policy of Indian law shall not entail a review on the merits
of the dispute.”
20. There is no allegation that the impugned award is induced or affected
by fraud. We also find no ground in the present appeal challenging the
impugned award on the ground that it offends the most basic notions of
morality or justice.
21. Thus, the remit of the Court in considering the challenge as laid by
MCD is confined to determining whether the impugned award is in
contravention of the fundamental policy of Indian law.
22. It is at once clear from the nature of the challenge raised by MCD that
it does not fall within the scope of the aforesaid ground.
23. Conflict with the fundamental policy of Indian law does not refer to
violation of any statute or misconstruction of any clause of a contract. The
fundamental policy of law is a substratal policy on which the edifice of law
is founded. It is the basic legal values that instruct laws in India. Thus, an
arbitral award would fall foul of the fundamental policy of India if it offends
the basic policy underlying Indian law.
24. In the present case, the dispute, essentially, relates to interpretation of
Clause 5 of the Agreement. The same is set out below:
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“CLAUSE 5
Time and Extension for Delay
The time allowed for execution of the work as specified in
the ‘Schedule F’ or the extended time in accordance with
these conditions shall be the essence of the Contract. The
execution of the works shall commence from the 10th day
or such time period as mentioned in Letter of Award after
the date on which the Engineer-in-Charge issues written
orders to commence the work or from the date of handing
over of the site whichever is later. If the Contractor
commits default in commencing the execution of the work
as aforesaid MCD shall without prejudice to any other right
or remedy available in law, be at liberty to forfeit the
earnest money and performance guarantee absolutely.
5.1 As soon as possible after the Contract is concluded the
Contractor shall submit a Time & Progress Chart for each
milestone and get it approved by the Department. The Chart
shall be prepared in direct relation to the time stated in the
Contract documents for completion of items of the works. It
shall indicate the forecast of the dates of commencement
and completion of various trades of sections of the work
and may be amended as necessary by agreement between
the Engineer-in-Charge and the Contractor within the
limitations of time imposed in the Contract documents, and
further to ensure good progress during the execution of the
work, the contractor shall in all cases in which the time
allowed for any work, exceeds one month (save for special
jobs for which a separate programme has been agreed upon)
complete the work as per milestones.
5.2 If the work(s) be delayed by :-
(i) force majeure, or
ii) abnormally bad weather, or
(iii) serious loss or damage by fire, or
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(iv) civil commotion, local commotion of workmen, strike
or lockout, affecting any of the trades employed on the
work, or
(v) delay on the part of other contractors or tradesmen
engaged by Engineer-in-Charge in executing work not
forming part of the Contract, or
(vi) any other cause which, in the absolute discretion of the
authority mentioned in Schedule ‘F’ is beyond the
Contractor’s control.
then upon the happening of any such event causing delay,
the Contractor shall immediately give notice thereof in
writing to the Engineer-in-Charge but shall nevertheless use
constantly his best endeavours to prevent or make good the
delay and shall do all that may be reasonably required to the
satisfaction of the Engineer-in-Charge to proceed with the
works.
5.3 Request for rescheduling of Milestones and extension of
time, to be eligible for consideration, shall be made by the
Contractor in writing within fourteen days of the happening
of the event causing delay on the prescribed form. The
Contractor may also, if practicable, indicate in such a
request the period for which extension is desired.
5.4 In any such case the authority mentioned in Schedule
‘F’ may give a fair and reasonable extension of time and
reschedule the milestones for completion of work, such
extension shall be communicated to the contractor by the
Engineer-in-Charge in writing, within 3 months of the date
of receipt of such request. Non application by the contractor
for extension of time shall not be a bar for giving a fair and
reasonable extension by the Engineer-in-Charge and this
shall be binding on the contractor.”
25. The learned Arbitral Tribunal had in the context of the aforesaid
clause concluded that the EoT on provisional basis was not contemplated
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under the terms of the Agreement. The operative part of the impugned award
in this regard is set out below:
“ Decision on Para 14 above by the undersigned
Arbitrator
The clause of the contract do not mention about
“Provisional” extension. The Respondent with their
arguments could not establish that under the contract,
the Respondent can grant Provisional extension of time.
So, I decide that granting provisional extension of time
was not in conformity with the terms of the agreement.
15. DECISION OF the UNDERSIGNED
ARBITRATOR ON ISSUE NO. 3
After going through all the documents, references,
copies of the relevant judgements of the Court Cases
and oral submissions etc as submitted by the parties,
relevant portions of the SOC, SOD and Rejoinder of the
Claimant, Written Synopsis of the Claimant, Written
Submissions of the Respondent on Issue No. 3 as
recorded and discussed by the undersigned Arbitrator
in detail at above, I have come to the conclusion of this
Issue No. 3 and accordingly decide that granting
provisional extension of time is not in conformity with
the terms of the agreement”
26. It is also relevant to refer to the findings of the Arbitral Tribunal as
culled out in the impugned judgment. The same are reproduced below:
“16. Referring to clauses 5.3 and 5.4, the Arbitral Tribunal
has held as under :-
"Thus, in case where the contractor does not make a request
for rescheduling of milestone and EOT within the period of
fourteen days, only two alternatives are left to the
Respondent (EIC) / competent authority, namely: -
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i)To give a fair and reasonable extension (as per clause 5.4)
even, in spite of, non-application by the contractor, or,
ii)To declare that the contractor is not eligible for
consideration for EOT, after ensuring that such declaration
would be fair and reasonable, as per clause 5.3.
There is no third choice available to the Respondent under
the contract.
Thus, in the present case, after considering the contractor as
eligible for EOT, question of any further default of the
contractor, on the provisions of Clause No. 5.3, does not
arise.”
27. It is clear that in the present case, MCD’s challenge is based on the
interpretation of contractual clauses. This is not a ground that falls within
Section 34(2)(b)(ii) of the A&C Act.
28. It is also relevant to refer to Explanation 2 to Section 34(2)(b) of the
A&C Act, which amply clarifies that the test whether there is any
contravention to the fundamental policy of Indian law would not entail a
review on the merits of the dispute. In the present case, this is precisely what
MCD invites the Court to do. It seeks a judicial review of the Arbitral
Tribunal’s interpretation of terms of the Agreement, on merits.
29. It is also clear from a plain reading of the relevant Clauses that the
Arbitral Tribunal’s decision in regard to construction of the relevant Clauses
is clearly a plausible one.
30. A dispute regarding the interpretation of a contract falls within the
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1
jurisdiction of the Arbitral Tribunal and unless the interpretation is not a
plausible one and amounts to rewriting the bargain between the parties, the
same would not warrant any interference under Section 34 of the A&C Act.
2
In Assam SEB & Ors. v. Buildworth (P.) Ltd . , the Supreme Court had
observed that “matters relating to the construction of a contract lie within the
province of the Arbitral Tribunal” and are not amenable to review on merits
unless, the interpretation is not a possible one.
31. Although the ground of patent illegality is not available to MCD, it is
also clear that the impugned award could not be set aside on that ground,
even if the same was available. Thus, even if the impugned award was
rendered in an arbitration other than an international commercial arbitration,
it would not be liable to be set aside as vitiated by patent illegality.
32. The Arbitral Tribunal’s decision regarding interpretation of the terms
of the Agreement for deciding Issue no.3 as framed may have a bearing on
other issues. It may be dispositive of other disputes as well. But that is no
ground to set aside the impugned award. MCD’s challenge in this regard is
misconceived.
33. Insofar as MCD’s grievance that the observations of the learned
Single Judge have pre-determined other issues that are currently pending
before the Arbitral Tribunal is concerned, we need only clarify that the
Arbitral Tribunal will examine the dispute in relation to other issues that are
pending consideration before the Arbitral Tribunal uninfluenced by any
1
MSK Projects (I) (JV) Ltd. v. State of Rajasthan: (2011) 10 SCC 573
2
Assam SEB & Ors. v. Buildworth (P) Ltd.: (2017) 8 SCC 146
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observations made by the learned Single Judge or by this Court in these
proceedings.
34. The appeal is unmerited and is, accordingly, dismissed.
VIBHU BAKHRU, J
TARA VITASTA GANJU, J
MAY 08, 2024
RK
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