Scope of Section 33 Power Cannot Extend to Re-Adjudication or Review of Consciously Declined Claims

Engineering Projects India Limited (EPI) entered into a back-to-back arrangement with Associated Construction Company (ACC/EMR Chowdary) for excavation work at a coal project in Andhra Pradesh.

The arrangement was initiated via a Minutes of Meeting (MoM) dated 03.10.2003

and formalized by a Work Order on 14.05.2004

Due to ACC’s persistent failure to meet production targets, the scope was reduced by 50% in June 2004

Eventually, the main employer (SCCL) terminated the contract with EPI, leading EPI to terminate ACC on 08.10.2004

Arbitral proceedings followed, resulting in an award dated 05.04.2017 and a modified award dated 19.08.2017 under Section 33 of the Act. Both parties filed cross-objections under Section 34 of the Arbitration and Conciliation Act, 1996

1. Whether a binding contract existed between EPI and ACC based on the MoM and subsequent Work Order.

2. Whether the Arbitrator exceeded his jurisdiction under Section 33 by awarding a previously declined counterclaim (Counter-Claim No. 4) in the Modified Award.

3. Whether the imposition of penalties and differential costs on a "back-to-back" basis was patently illegal or perverse.

4. Whether the rejection of ACC's claims for loss of machinery and workmen was based on no evidence.

The court applied Section 34 of the Arbitration and Conciliation Act, 1996, emphasizing the restricted meaning of "public policy" and "patent illegality" as defined in OPG Power Generation Pvt. Ltd. v. Enexio Power Cooling Solutions and Associate Builders v. DDA.

It relied on Section 28(3) regarding adherence to contract terms and Section 31(3) regarding reasoned awards

Furthermore, it applied Section 33 of the Act, which limits modifications to clerical, computational, or similar errors, and prohibits a merits-based review or re-adjudication of claims

The Court upheld the Arbitrator’s finding that a binding contract existed, noting that ACC acted upon the MoM and Work Order for months without protest and essentially "approbated and reprobated" the transaction by filing counterclaims based on those same documents

Regarding the penalties, the Court found that the Arbitrator correctly interpreted the "mutatis mutandis" clause, which incorporated the owner's (SCCL) performance targets and penalty clauses into the EPI-ACC agreement

The rejection of ACC’s counterclaims for losses was held to be a "possible view" because the evidence provided (unsigned cash vouchers and contradictory workmen lists) was found to be suspicious or fabricated

However, the Court found a "patent illegality" in the Modified Award; the Arbitrator had originally declined Counter-Claim No. 4 as sub judice, but later awarded it under Section 33. The Court held this was a substantive re-adjudication exceeding the narrow scope of correcting clerical errors

It partly allowed EPI’s petition (OMP 408/2017) by setting aside the award of Rs. 10,08,949/- under Counter-Claim No. 4, ruling that its inclusion in the Modified Award was beyond the scope of Section 33

The conditional nature of the awards under Claims 1 and 8 (contingent on EPI's actual liability to the owner) was upheld as equitable and consistent with the back-to-back contract