Allowed

Union of India Represented by the General Manager v. Santosh Dodrajka

Jharkhand HC5 Dec 2023COM.APPEAL/2/2021

Case brief

AI extract

What is this about?

This court allowed the appeal and set aside the arbitral award and the lower court order that upheld it. The court held the award suffered patent illegality under Section 34(2-A) because the arbitrator applied the wrong law regarding termination and awarded damages without evidence.

What did the court decide?

The section 34 application was allowed. The impugned order upholding the award was set aside. The arbitral award was set aside to the extent of finding on termination, refund of security, and claims f

Union of India Represented by the General Manager Vs Santosh… — Arbitration | Jharkhand HC (2023)

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IN THE HIGH COURT OF JHARKHAND AT RANCHI

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Commercial Appeal No. 02 of 2021

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Union of India represented by the General Manager, South Eastern Railway, Garden Reach, Kolkata, 700043, West Bengal State as well as locally through namely Lalit Kumar Sahoo, aged about 36 years Dy. Chief Electrical Engineer (CON), Rourkela Divisional Electrical Engineer (Construction), South Eastern Railway, Chakradharpur Division, P.O & P.S: Chakradharpur, Dist: West Singhbhum, Jharkhand State … … Respondent/Applicant/ Appellant Versus Santosh Dodrajka, son of Late Kanhialal Dodrajka, by faith Hindu, by occupation business civil contractor, resident of Mohalla Bara Nimdih, P.O. & P.S: Chaibasa, Town Chaibasa, District West Singhbhum

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… … Claimant/Respondent/ Respondent ---

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CORAM: HON’BLE MR. JUSTICE SHREE CHANDRASHEKHAR HON'BLE MRS. JUSTICE ANUBHA RAWAT CHOUDHARY

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--For the Appellant : Mr. Pratyush Kumar, CGC For the Respondent : Mr. Arpan Mishra, Advocate

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JUDGMENT

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C.A.V. on 25^th July 2023 Pronounced on 5^th December 2023

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Per, Anubha Rawat Choudhary, J.

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This appeal has been filed challenging the order dated 17.03.2020 passed by the learned District Judge I – cum - Commercial Court, East Singhbhum, Jamshedpur in Arbitration Case No. 12 of 2019. By the impugned judgment, the petition filed by the appellant (hereinafter referred to as the Railways) for setting aside the arbitral award passed in favour of the respondent (hereinafter referred to as the claimant) has been dismissed. The arbitral award was signed on 08.05.2018.

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The matter was referred to the sole arbitrator vide order dated 10.03.2016 passed by this Court in Arbitration Application No.11 of 2015 under section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act of 1996). 3. The claimant is a contractor, inter alia , engaged in performing the works contract for planning and engineering and provides in house consultancy services, Rail electrical work, railway overhead electrification work and designing. The Railways published a “Notice

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Inviting Tender” on 06.06.2012 for a work named and styled as "Provision of OHE, RC, PSI, SCADA” to remove infringement for civil works (Ph-1) in connection with the third line between SiniAdityapur under Chakradharpur, South Eastern Railway (Construction) Division. The claimant submitted his tender and was declared successful. The claimant was issued a letter of Acceptance on 28.08.2012. The claimant deposited a sum of Rs.2,16,240/- as initial security deposit vide TDR No. 110633 dated 17.07.2012 of Central Bank of India, Chaibasa Branch and further a sum of Rs.7,67,000/- as performance guarantee in the shape of B.G. No. 43/02 dated 13.09.2012 of Central Bank of India, Chaibasa Branch. After submission of the aforesaid bank guarantee, an agreement was executed between the claimant and the Railways on 18.04.2013 for carrying out the work mentioned above. The scope of work included the casting of the foundation, erection of poles for the provision of overhead electrification of railway lines, and connection of fixtures and wires for conducting electricity for the purpose of running the railway system. It was the specific case of the claimant that the dispute was only in connection with the work of over-head electrification awarded to the claimant vide letter of Acceptance dated 28.08.2012 and agreement dated 18.04.2013 and the entire contract was governed by the general terms of the contract of Railways. The work could not be completed within the stipulated time and the dispute arose between the parties. The Railways terminated the contract vide termination notice dated 22.12.2014.

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It has been recorded in the award itself that the learned arbitrator entered into reference pursuant to the order passed by this Court in Arbitration Application No. 11 of 2015 under section 11(6) of the Act of 1996; upon entering into reference, notice was issued and the first date of arbitration was fixed on 27.08.2016 and the parties appeared on the said date and a proposal was made on behalf of the Railways to explore the possibilities of amicable settlement through mediation instead of proceeding with arbitration; the claimant accepted the proposal and with consent of the parties, the learned arbitrator directed the parties to exchange their respective statement

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of accounts before the learned arbitrator; the statement of account submitted by the claimant was accepted in part by the Railways and from a comparative analysis of the statement submitted by the claimant and the statement submitted by the Railways, it could be gathered that an amount of Rs. 17 Lakh (approximately) was admitted by the Railways. Since the entire claim of the claimant was not accepted, the dispute could not be resolved through mediation and the matter proceeded and the claimant filed a statement of claim on 26.04.2017 under different heads claiming a sum of Rs. 1,64,20,294.51 with interest.

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The Railways filed statement of defence on 21.08.2017 along with counter-claim. The claimant filed rejoinder on 04.09.2017 and thereafter, a reply to the said rejoinder was also filed. The claimant also filed an application on 10.10.2017 for treating certain documents as a part of the record of arbitral proceedings, which included the statement of account furnished by the Railways at the time of mediation and certain detailed progress reports and challans signed by the claimant as well as officers of the Railways.

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It has been recorded in the award that upon getting an opportunity to file an affidavit of acceptance/denial of documents, both the parties submitted before the learned arbitrator that since none of the documents were disputed, filing of such an affidavit was not required. Since the entire claim and the counter-claim of the parties were based on the documents, no oral evidence was adduced by either of the parties and the matter was posted for framing of issues. Both the claimant and the Railways filed their suggested issues and finally vide procedural order dated 12.09.2017 following issues were framed by the learned arbitrator for adjudication: -

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I. Whether the claims of the claimant are maintainable in its present form?

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II. Whether the parties are bound by the letter of acceptance/letter of intent and contract agreement?

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III. Whether the respondents are liable for committing fundamental breach of contract by not providing the claimant with the very platform for performing the

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work under the contract leading to non-completion of work?

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IV. Whether the respondents-Railways have most arbitrarily issued the notice of termination and forfeited the bank guarantees deposited by the claimant under the terms of the contract?

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V. Whether the counter-claim raised by the respondents is at all maintainable in the present form?

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The arguments of the claimant with respect to the claims have been mentioned in short in paragraph no. 33 of the award which is

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quoted as under :-

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“33. The claimant also argued on it's claims head-wise and pressed the same in support with the Daily Progress Reports (in short 'DPR'). It was stated that out of the total contract value of Rs. 1,53,34,946.00/- the contract was terminated after payment of Rs. 31,68,784.34/- and had the contract not been terminated, the claimant would have earned reasonable profit on the remaining amount. Regarding assessment of Loss of Profit, it was submitted by Sri Ray that in view of the judgment of Hon'ble Supreme Court in the matters on AT Brij Paul Singh v. State of Gujrat reported in (1984) 4 SCC 59 (paras 9-11); and Mc Dermott International Inc. Vs. Burn Standard Co. Ltd. Reported in (2006) 11 SCC 181 (Para 104,105) the tribunal need not enter into or access the actual damage and damages can be awarded on the basis of well recognized formulas. For calculating the damages on account of loss of profit, 15% profit from any work was standard rate that has been approved by the Hon'ble Supreme Court in various judgments including the above stated.”

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The arguments of the Railways while opposing the claims have been mentioned in short in paragraph no. 43 of the award which is

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quoted as under:

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“43 While categorically replying to each claim of the claimant the respondents submitted that so far as claims under Head-I and Head-II of the statement of claim are concerned, a sum of Rs. 15 Lakh against Head -I and Rs. 2 Lakh against Head-II are admitted. The rest of the claims have been denied. It was submitted that against Head-III, since no material were supplied by the claimant, the same is not acceptable. Regarding Head -IV, it was submitted that the same was outside the scope of the contract and hence not arbitrable. Head V was inadmissible as the claimant did not raise it's grievance of late handing over of sites during the contract period. Head VI according to the respondents was contradictory to Head V and hence inadmissible. Head VII was expressly barred by contract. Head VIII was inadmissible as the forfeiture of Bank Guarantees was provided for in contract and since the termination was valid, the claim on the said head was inadmissible.”

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The learned arbitrator arrived at the following

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conclusions/findings: -

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“53. On careful examination of the case of each party, issues nos. I to V are decided in favour of the claimant and against the respondents for the following reasons: -

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i.The claimant entered into the agreement and started the work. The signatures of the railway authorities of the DPRs as well as the minutes of meeting dated 30.10.2014 show that some extent of the work was satisfactorily done by the claimant.

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ii.It was fundamental duty of the respondent to provide the work site to the claimant free from all kinds of hindrances so that the claimant could work without any issue.

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iii.I find from the record that the last pre-termination meeting between the parties was held on 30.10.2014, when all the issues were discussed and the parties agreed to certain terms.

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iv. The minutes of meeting dated 30.10.2014 reveal that the issues being faced by the claimant were considered by the respondents, which shows that the same were admitted by the respondents to be genuine.

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v.Having considered the issues, it was agreed by the respondents on 30.10.2014 that the claimant would be given opportunity to complete the work. Since the said meeting was the last pre-termination meeting, the intention of the parties on the said date is important to note. I find that the railways have agreed to grant further time to the claimant to complete the work, the respondents acquiesced to the problems of the claimant and waived it's right under the contract to question the delay in completion. However, despite of having done so, the termination notice was issued by the respondents on 22.12.2014, without sticking to their own resolution taken during the meeting dated 30.10.2014. I am thus unhesitant to hold that in terms of the resolutions taken on 30.10.2014, the respondents were stopped from doing so and the termination notice was issued in haste arbitrarily, thus is bad in law. Since the termination has been held to be wrong therefore forfeiture is also rendered wrongful and thus claim under Head-IX is admissible. The respondents are liable to return the amount covered by the Bank Guarantees furnished as Security Deposit and Performance Guarantee.

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vi.At an advanced stage of arbitration proceeding, when the parties have already completed their arguments, the respondents had prayed for a joint verification of the work site to which the claimant has objected. On perusal of material on record, I find substance in the submission in the argument of the claimant to the effect that after elapse of such a long time between termination and application for joint survey, the same was not possible. The matter was also referred to Railway Vigilance but it has expressed it's inability to conduct and enquiry. Under such circumstances, the Tribunal is bound by the documentary evidences adduced by the parties.

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vii.So far as the claims made under Head I and II are concerned, same are matters of evidence and I find that the same have been substantiated by annexing DPRs to the statement of claim. The respondents have also admitted a part of the claim made under these heads and have only disputed the quantum. Although the respondents have disputed the entries in DPR, nothing has been brought on record or no evidence has been adduced that would prove that the entries made in the DPRs are surplus. Needless to stated, all the DPRs have been signed by the respondents' authorities and none of the signatures have been denied. Although Mr. Toppo has, at one point of time, denied his signature on the challan dated 22.12.2014, he has subsequently admitted his signature. The respondents could not produce the original copy of the DPRS, which as per contract was supposed to be with them. Earlier, the respondents informed this tribunal that the same were not found on record and thus the claimant should be directed to hand over notarized copies of the same. Later,

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they submitted that the claimant ought to have delivered that original copies to the respondents, which they did not do. I find that the respondents have varied their stand from time to time to establish and justify that they were not in possession of the DPRs and other documents regarding the supply of materials and progress of work, however I find that it was the responsibility of the respondents to keep record of all the materials supplied and work done. If the respondents dispute the quantum of work done by the claimant, they should have adduced sufficient evidence to that effect. In absence of concrete evidence in that respect, and the fact that the DPRs have been admitted by the respondents, I hold that the claimant is entitled to get its claim against whatever has been recorded in the DPRs. It may be stated that although the respondents have stated that the claimant has manipulated the entries in the DPRs, I find that no action at an earlier stage was taken against the claimant which would support the said contention of the respondents. Due care should have been exercised on the part of railway authorities to preserve the original copies of DPRs before contending that claimant has altered the entries thereof.

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viii.The respondents have also raised a counter claim vide annexure F to their 'Statement of Defence and Counter Claim'. However, the same is not substantiated by any documentary evidence.

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ix.After careful examination of all the documents on record, I allow the claimant's claim to the extent mentioned hereinafter and reject the counter claim of the respondents being unsupported by any documentary evidence.”

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10. The award can be placed in a tabular form as under: -

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Sl.	Head of claim as	Amount in Rs.	Claims allowed/rejected
No.	detained in the schedule of claim
1	Head-I - Supply Items	Rs.41,24,051.18 Allowed in full	Allowed to the extent of Rs. 41,24,051.18/- as substantiated by the DPRs submitted by the claimant.
2	Head-II - Erection Items	Rs.6,93,133.28 Allowed in full	Allowed to the extent of Rs. 6,93,133.28/- as substantiated by the DPRs submitted by the claimant.
3	Head-III- Material Ready for Supply	Rs.17,75,610.90 Disallowed	Disallowed as the materials have not been supplied in actual.
4	Head-IV- Value of Work Progressed but not billed	Rs.1,91,580.00 Allowed in full	Allowed to the extent of Rs. 1,91,580.00/- as substantiated by the Documents submitted by the claimant.
5	Head-V- Establishment Cost	Rs.3,44,000.00

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	incurred due to		Against Head-V & VI of claim-
	delay in providing work site		Partly allowed to the extent of Rs. 5,00,000.00/- as a
6	Head-VI- Payment of idle wages for delay in providing work site.	Rs.2,88,750.00	reasonable amount against the claim of Rs. 6,32,750.00/-.
7	Head-VII- Interest on claim amount of Rs. 1,53,34,946 @ 18% P.A. for two years	Rs.43,46,548.81 Disallowed	Disallowed in view of the Judgment of the Hon'ble Supreme Court in the case of Sri. Chittaranjan Maity Vs. Union of India (Civil Appeal 15545-15546 of 2017).
8	Head-VIII- Loss of Profit on Rs. 1,53,34,946 @ 15%	Rs.23,00,241.90 Partly Allowed to the extent of 15% of the remaining value of the contract.	Allowed to the extent of Rs. 18,24,924.25/- as the reasonable loss of profit caused to the claimant on the balance value of contract [ 15% of Total Contract Value minus Amount paid by the Railways to the claimant i.e. 15% of (Rs.1,53,34,946.00 - Rs.31,68,784.34 = Rs. 1,21,66,161.66)] in view of the Hon’ble Supreme Court Judgment in the case of AT Brij Paul Singh v. State of Gujrat reported in (1984) 4 SCC 59.
9	Head-IX- Due of Security, Performance Guarantee & Amount deducted from CC/1 Bill	Rs.23,56,379.44 Allowed in full	Allowed to the extent of Rs. 23,56,379.44/- in view of the finding that the Termination letter dated 22.12.2014 is arbitrary and bad in law.
10 11	cost of arbitration proceedings incurred by the claimant Total	As per actuals	Rs. 2,02,500.00/- Rs.98,92,568.15/-

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Further observations and directions with respect to interest etc. were

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mentioned in the award as under: -

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“Since the respondents have not paid the fees of this tribunal since the very first date of proceeding till the end (including secretarial charge), the claimant is directed to deposit an amount of Rs. 2,02,500.00/- which is the arrears of fees of this tribunal (including secretarial charges) within 7 days from the receipt of this award, which it shall be entitled to recover from the respondents as a part of this award, which it shall be entitled to recover from the respondents as a part of this award and in addition to the claim awarded to it, along with an interest @12% P.a. from the date of payment till the date or recovery, along with the claim. The respondents are thus directed to pay the sum of Rs. 98,92,568.15/within a period of 30 days from the date of award, failing which they shall pay 12% simple interest per annum on the awarded sum calculated from the 31^st day till the date of actual payment and additionally the respondents are directed to pay a sum of Rs. 2,02,500/(which constitutes the arrears of fees of this tribunal) to the claimant along with simple interest @ 12% per annum from the date of deposit of said amount with this tribunal, till the date it is paid by the respondents to the claimant.

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This award is engrossed on stamp paper of value of Rs. 100/- being the Stamp Duty Paid. The parties are directed to get the award value and pay/supply the deficit stamp duty within 10 weeks from the date of the Award.”

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Before the learned Commercial Court, the Railways had questioned the findings of the learned arbitrator with respect to termination of the contract by raising the plea that the terms of the contract have been ignored by the learned arbitrator. The Railways also referred to introduction of section 29-A in the Act of 1996 vide 2015 Amendment, to submit that the award having been passed beyond the prescribed period was not sustainable in the eyes of law. However, all such pleas have been rejected. The Railways had also raised objection to each and every claim allowed in favour of the claimant. The findings of the learned Commercial Court with regard to the merits of the objection to the awarded amount are as under: -

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“11-c. In this regard I find enough merit in the contention of learned counsel of the opposite party is that application U/s 34 of the CPC are summary proceeding. The object of the Act which was to provide an expeditious alternative binding dispute resolution process with minimal court intervention or interference in matters relating to arbitration and sense of urgency shown with reference to arbitration matters brought to court, requiring promptness in disposal. In the instant case the applicants have failed to bring the case within the ambit of Section 34 of the Act. Even though, the petitioner/Claimant has taken several grounds for setting aside the award but the basic ground taken by the objectors is that the impugned Award has been passed without any reasonable and sufficient ground and against the principles of natural justice and gross mistake has been committed by the learned Arbitrators which is against

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the law and against the documentary evidence and in violation of the policy and contrary to the provision of the terms of the policy. However, no effort has been made to show as to how the award is again the policy.

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13. In view of the different citation/ judicial pronouncements discussed above it is manifestly clear that this court is not sitting in appeal against the award passed by the Arbitral Tribunal and the court is not required to re-appreciate or re- evaluate the evidence led before the arbitrator. The ld Counsel for the Objector has also asserted that the learned Arbitrator has not considered the objections of the objectors and published the award without considering the objections. The objection that the award is bad and illegal, it is contrary to the terms and conditions of public policy and in conflict with the provision of the public policy are not sustainable in view of the Judgment of the Hon'ble Apex Court. The claimant has made manipulated the entries in DPRs and on the basis of alleged altered entries in DPRs, the learned arbitrator allowed huge amount in Head-I Supply Items of Rs. 41,24,051.18 and Head-II Erection Items of Rs. 6,93,133.28. In the instant case admittedly the claimant deposited a sum of Rs. 2,16,240/- as earnest money, and claimant also submitted performance guarantee amounting to Rs.7,66,750.00 in the shape of Bank Guarantee no. 43 of 2002 dated 1309-2012, but learned arbitrator has been allowed very huge amount without any basis in the Head IX- Security, Performance guarantee & amount deducted from CC/1. bill of Rs. 23,56,379.44. Even though, the petitioner/Claimant has taken several grounds for setting aside the award but the basic ground taken by the objectors is that the impugned Award has been passed without any reasonable and sufficient ground and against the principles of natural justice and gross mistake has been committed by the learned Arbitrators which is against the law and against the documentary evidence and in violation of the terms of the policy and contrary to the provision and condition of the public policy.

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14. Although, I find that some merit in the contention of learned counsel of the applicant/ respondent is that (a) some manipulation in the entries in DPRs not ruled out (b) On the basis of alleged altered entries in DPRs, the learned arbitrator allowed huge amount in Head-I Supply Items of Rs. 41,24,051.18 and Head-II Erection Items of Rs. 6,93,133.28 (c) admittedly the claimant deposited a sum of Rs. 2,16,240/- as earnest money, and claimant also submitted performance guarantee amounting to Rs.7,66,750.00 in the shape of Bank Guarantee no. 43 of 2002 dated 13-09-2012, but learned arbitrator has been allowed very huge amount without any basis or reasoned in the Head IX- Security, Performance guarantee & amount deducted from CC/1 bill of Rs. 23,56,379.44, but in view of the judgment refereed above by the claimant/ OP in which Hon'ble court held that "even if two views are possible, reappraisal of material on record by the Court and substituting its own view in place of Arbitrator's view is not permissible in absence of perversity. Once the Arbitrator has applied his mind to the matter before him, Court cannot reappraise the said matter as if it were in appeal'. Further relying upon Navodaya Mass Entertainment Limited Vs. J. M. Combines, Sutlej Construction Limited Vrs. Union Territory of Chandigarh, Rastriya Ispat Nigam Limited Vrs. Diwan Chand Ramsaran and Associate Builders Versus Delhi Development Authority (Supra) the Hon'ble Apex Court has held ‘an award cannot be set aside. The arbitrator is a Judge chosen by the parties and his decision is final. The court is precluded from reappraising the evidence. Even in a case where the award contains reasons, the interference therewith would still be not available within the jurisdiction of the court unless, of course, the reasons are totally perverse or the judgment is based on a wrong proposition of law’ The Hon’ble Apex Court further observed that "the jurisdiction is not appellate in nature and an award passed by an arbitrator cannot be set

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aside on the ground that it was erroneous. It is not open to the Court to interfere with the award merely because in the opinion of the court, another view is equally possible. It is only when the court is satisfied that the arbitrator had misconducted himself or the proceedings or the award has been improperly procured or is otherwise invalid that the court may set aside such award." Then Hon'ble Apex Court further observed that " It must also be borne in mind that a court does not sit as one in appeal over the award of the arbitrator and if the view taken by the arbitrator is permissible, no interference is called for on the premise that a different view was also possible." The Hon'ble Apex Court further observed that "Even if on the assessment of material, the court while considering the objections under section 34 is of the view that there are two views possible and the Arbitral Tribunal has taken one of the possible views which could have been taken on the material before it, the court would be reluctant to interfere."

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15. A perusal of impugned Award clearly shows that the learned Arbitrator has dealt with the matter and after considering the material on the record, the impugned Award has been passed. Hence this court is not required to re-appreciate and re-evaluate the findings given by the Tribunal. Therefore, in view of the above said discussion and after considering the contentions of the learned counsels for the parties and in view of the authoritative pronouncements discussed above and also as this court is not sitting in appeal against the impugned award the court is not required to re-appreciate or re-evaluate the evidence led before the Arbitral Tribunal, I find that the Respondent/ Applicant herein has failed to make out a case for any interference with the impugned award dated 08-05-2018 passed by the Arbitral Tribunal, U/s. 34 of the Arbitration and Conciliation Act.”

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Arguments of the parties and the judgments relied upon

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The learned counsel for the Railways has referred to the written arguments filed before the learned Commercial Court and has submitted that the points raised therein have not been properly considered. On the other hand, the learned counsel for the claimant has submitted that neither there is any illegality nor there is any perversity in the impugned order as well as in the award passed by the learned arbitrator and has submitted that the appeal be dismissed. The parties have referred to and relied on the following judgments:

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I. “Tata Sons Private Limited (Formerly Tata Sons Limited) v. Siva Industries and Holdings Limited & Ors.” (2023) 5 SCC 421

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II. “Delhi Airport Metro Express Private Limited v. Delhi Metro Rail Corporation Limited” (2022) 1 SCC 131

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III. “Benarsi Krishna Committee & Ors. v. Karmyogi Shelters Private Limited” (2012) 9 SCC 496

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IV. “State of Maharashtra & Ors. v. ARK Builders Private Limited” (2011) 4 SCC 616

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V. “Dakshin Haryana Bijli Vitran Nigam Limited v. Navigant Technologies Private Limited” (2021) 7 SCC 657

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VI. “McDermott International Inc. v. Burn Standard Co. Ltd. & Ors.” (2006) 11 SCC 181

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VII. “Avitel Post Studioz Limited & Ors. v. HSBC PI Holdings (Mauritius) Limited” (2021) 4 SCC 713

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Findings of this Court.

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The findings of this Court are divided into following heads: - A. Alleged violation of sections 29-A(1), (3) and (4) of the Act of 1996.

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B. Applicable law in connection with grounds available for setting aside arbitral award.

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C. Termination of contract.

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D. Claims and counter-claim in the light of the provisions of the Act of 1996.

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A. Alleged violation of sections 29-A(1), (3) and (4) of the Act of 1996

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Case of respective parties with regard to section 29-A 14. It is the specific case of the Railways that the learned arbitrator has failed to comply with the provisions of sections 29-A(1),(3) & (4) of the Act of 1996. The award was required to be made within 12 months from the date the learned arbitrator entered into reference, that is, 02.08.2016 which the parties with consent could extend for a further period not exceeding 6 months. It is their case that the award having not been passed within the prescribed period, the mandate of the arbitrator terminated as there is no order of the Court extending the period under sub-section 4 of section 29-A of the Act of 1996. It has been submitted that this aspect of the matter has not been properly considered by the learned Commercial Court while passing the impugned order. On the other hand, the claimant denied the contention raised by the Railways by stating that the learned arbitrator had fixed the date of preliminary hearing on 27.08.2016 and at the instance of the Railways a prayer was made to refer the matter for conciliation between the parties in terms of section 30 of the Act of 1996 and upon receipt of failure report of conciliation, the statement of claim could be submitted only on 26.04.2017 by the claimant. Thereafter, the Railways submitted its statement of defence and counter-claim and subsequently the pleadings

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were completed and the matter was heard by the learned arbitrator who reserved the pronouncement of award after concluding the hearing on 20.01.2018 which was well within the prescribed period under section 29-A of the Act of 1996 and the award was passed on 08.05.2018. The claimant also stated that if there was any objection, the Railways could have approached the competent Court of law for termination of the mandate of learned arbitrator soon after expiry of twelve months’ period as prescribed under law and having not done so, the said ground was no more available to the Railways as it was barred by the principles of acquiescence, waiver and estoppel.

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Findings of this Court with regard to section 29-A

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It is apparent that the claimant invoked arbitration clause vide letter dated 15.05.2015 which was prior to coming into force of Act 3 of 2016 amending the Act of 1996 (hereinafter referred to as the 2015 Amendment) . Section 29-A was introduced vide 2015 Amendment. In terms of section 21 of the Act of 1996, the arbitral proceedings commence on receipt of the notice invoking arbitration clause. Thus, the arbitral proceeding in the present case commenced immediately upon receipt of the letter dated 15.05.2015. The Railways has not mentioned the date of receipt of the letter dated 15.05.2015 invoking arbitration clause.

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The learned Court below considered the above aspect of the matter and has recorded its findings at paragraph 9-D of the impugned order, wherein the learned Court below has taken note of the fact that the amendment in the Act of 1996 was inserted with effect from 23.10.2015 and recorded a finding that the arbitral proceedings in the present case was initiated by issuance of notice under section 21 of the Act of 1996 dated 15.05.2015 which was prior to 23.10.2015 and, therefore, the provisions of section 29-A were not at all applicable to the proceedings. 17. The learned counsel for the Railways has relied on paragraph no. 24 of the judgment reported in 2023 SCC OnLine 23 (Tata Sons Private Limited Vs. Siva Industries and Holdings Limited) wherein it has been held that the provisions of section 29-A, as originally introduced into the statute, mandated that all awards shall be made within a period of twelve months from the date on which the Arbitral

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Tribunal enters upon the reference and that the Explanation clarified when the Arbitral Tribunal would be deemed to have entered upon the reference, namely, the date on which the arbitrator has received written notice of the appointment. It has also been held that section 29-A(1) is of mandatory nature and in terms of section 29-A(4), in case the arbitral award was not rendered within the twelve or eighteen-month period as the case may be, the mandate of the arbitrator(s) would stand terminated, unless, on an application made by any of the parties, the Court extended time on sufficient cause being shown.

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However, in the same judgment of Tata Sons (supra) , the Hon’ble Supreme Court has held in paragraph no.31 of the report that the provisions of section 29-A, as introduced by Act 3 of 2016, was prospective in nature by virtue of section 26 of the Amendment Act and it applied to all arbitration proceedings that commenced on or after 23.10.2015. Section 26 of the Amendment Act has also been quoted in the said paragraph which clearly provides that nothing in the Amendment Act shall apply to the arbitral proceedings commenced in accordance with the provisions of section 21 of the principal Act before the commencement of the Amendment Act unless the parties otherwise agree but the Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of the Amendment Act. The Hon’ble Supreme Court has also taken note of the judgment passed in the case of Board of Control for Cricket in India Vs. Kochi Cricket Pvt. Ltd . Paragraphs nos. 30 to 33 of the judgment of Tata Sons (Supra) are quoted as under:

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“30. Having clarified that the 2019 Amendment Act has excluded international commercial arbitrations from the statutorily prescribed mandatory time limits, the question arises whether the amended Section 29-A would apply prospectively or retrospectively.

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31. The provisions of Section 29A, as introduced by Act 3 of 2016, were prospective in nature by virtue of Section 26 of the 2015 Amendment Act. In terms of Section 26, Section 29-A was introduced with effect from 23-10-2015 and applied to all arbitration proceedings that commenced on or after 23-10-2015. Section 26 of the 2015 Amendment Act read as follows:

¶92

“ 26. Act not to apply to pending arbitral proceedings . —Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of Section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree but this Act shall apply in relation to

¶93

¶94

arbitral proceedings commenced on or after the date of commencement of this Act.”

¶95

32. In Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd. a two-Judge Bench of this Court while dealing with the construction and applicability of Section 26 of the 2015 Amendment Act in relation to arbitration proceedings and/or legal proceedings in connection with such arbitration proceedings, inter alia, observed in a footnote that Section 29A was procedural in nature. However, this Court stated that Section 29A created new obligations in respect of a proceeding which had already commenced since it laid down a strict timeline for rendering an arbitral award for the first time in the framework of the Arbitration Act (emphasis supplied). This Court clarified :

¶96

“Section 29A of the Amendment Act provides for timelimits within which an arbitral award is to be made. In Hitendra Vishnu Thakur v. State of Maharashtra, (1994) 4 SCC 602 at 633, this Court stated : “(iii) Every litigant has a vested right in substantive law but no such right exists in procedural law. (iv) A procedural statute should not generally speaking be applied retrospectively where the result would be to create new disabilities or obligations or to impose new duties in respect of transactions already accomplished. (v) A statute which not only changes the procedure but also creates new rights and liabilities shall be construed to be prospective in operation, unless otherwise provided, either expressly or by necessary implication.”

¶97

It is, inter alia, because timelines for the making of an arbitral award have been laid down for the first time in Section 29-A of the Amendment Act that parties were given the option to adopt such timelines which, though procedural in nature, create new obligations in respect of a proceeding already begun under the unamended Act. This is, of course, only one example of why parties may otherwise agree and apply the new procedure laid down by the Amendment Act to arbitral proceedings that have commenced before it came into force.”

¶98

33. Procedural law establishes a mechanism for determining rights and liabilities of a party and a machinery for enforcing them. Generally, procedural laws are presumed to be retrospective, unless there is a clear indication that such was not the intention of the legislature, or the procedural law imposes new obligations qua transactions already concluded or creates new rights or liabilities. [Hitendra Vishnu Thakur v. State of Maharashtra, (1994) 4 SCC 602 : 1994 SCC (Cri) 1087] ”

¶99

This Court finds that in view of section 21 of the Act of 1996, the arbitral proceedings in the instant case commenced prior to coming into force of 2015 Amendment. Accordingly, section 29-A has no applicability to the present proceedings. The learned Court below has rightly considered the submissions of the parties and decided this issue against the Railways.

¶100

¶101

B. Applicable law in connection with grounds available for setting aside

¶102

arbitral award.

¶103

The Hon’ble Supreme Court in the case of “Ssangyong Engg. & Construction Co. Ltd. v. National Highways Authority of India” (2019) 15 SCC 131 has dealt with the position of law as it stood prior to 2015 Amendment and also post 2015 Amendment. It has been held in paragraph 19 of the judgment that fundamental changes have been made in law by virtue of the 2015 Amendment and the expression ‘public policy of India’ as understood in “ ONGC Vs. Saw Pipes Limited” (2003) 5 SCC 705 and “ ONGC Vs. Western Gego International Ltd” (2014) 9 SCC 263 has been done away with, and a new ground of ‘patent illegality’ with inbuilt exceptions has been introduced. The Hon’ble Supreme Court has declared that section 34, as amended, will apply only to section 34 applications that have been made to the Court on or after 23.10.2015 irrespective of the fact that the arbitration proceedings may have commenced prior to that date.

¶104

In the present case, the arbitral award is dated 08.05.2018 and thus it will be governed by the 2015 Amendment so far as the grounds for setting aside the award under section 34 of the Act of 1996 are concerned. The changes made by the 2015 Amendment have been dealt with in paragraph no. 20 onwards of the aforesaid judgment. It has been ultimately held in paragraph nos. 35 to 41 of the judgment in the case of

¶105

Ssangyong Engg. (Supra) as under:

¶106

A. In paragraph no. 35 it has been held that it is important to notice that the ground for interference insofar as it concerns the “interest of India” has since been deleted, and therefore, no longer obtains.

¶107

B. In paragraph no. 35 it has also been held that the ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the “most basic notions of morality or justice”. This again would be in line with paragraph nos. 36 to 39 of Associate Builders , as it is only such arbitral awards that shock the conscience of the Court that can be set aside on this ground.

¶108

C. In paragraph no. 36 it has been held that it is clear that the public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as understood in paragraph nos. 18 and 27 of Associate Builders , or secondly, that such award is against basic notions of

¶109

¶110

justice or morality as understood in paragraph nos. 36 to 39 of Associate Builders . Explanation 2 to Section 34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) were added by the Amendment Act only so that Western Geco , as understood in Associate Builders , and paragraph nos. 28 and 29 in particular, is now done away with.

¶111

D. In paragraph no. 37 it has been held that insofar as domestic awards made in India are concerned, an additional ground is now available under sub-section (2-A), added by the Amendment Act, 2015, to section 34. Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law. In short, what is not subsumed within “the fundamental policy of Indian law”, namely, the contravention of a statute not linked to public policy or the public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality.

¶112

E. In paragraph no. 38 it has been held that it has been made clear that reappreciation of evidence, which is what an appellate Court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award.

¶113

F. In paragraph no. 39 it has been elucidated that paragraph 42.1 of Associate Builders , namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award.

¶114

G. In paragraph no. 39 it has been elucidated that Para 42.2 of Associate Builders , however, would remain, for if an arbitrator gives no reasons for an award and contravenes section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award.

¶115

H. In paragraph no. 40 it has been held that the change made in section 28(3) by the Amendment Act really follows what is stated in paragraph nos. 42.3 to 45 in Associate Builders , namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair-minded or reasonable person would; in short, that the arbitrator’s view is not even a possible view to take. Also, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under section 34(2-A).

¶116

I. In paragraph no. 41 it has been noted that a decision that is perverse as understood in paragraph nos. 31 and 32 of Associate Builders , while no longer being a ground for challenge under “public policy of India”, would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award that ignores vital evidence

¶117

¶118

in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such a decision is not based on evidence led by the parties, and therefore, would also have to be characterized as perverse.

¶119

It is apparent that the concept of public policy of India has been constricted and an additional ground is now available under section 34(2-A) as introduced by 2015 Amendment whereby in order to setaside an arbitral award there must be patent illegality appearing on the face of the award which refers to such illegality as goes to the root of the matter, but does not amount to mere erroneous application of law. Further reappreciation of evidence cannot be permitted under ground of patent illegalities appearing on the face of the award. It has been held that the construction of the terms of contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair-minded or a reasonable person would; in short, the arbitrator’s view is not even a possible view to take. It has also been held that if the arbitrator wanders outside the contract and deals with matter not allotted to him, he commits an error of jurisdiction and this ground of challenge will not fall within the new ground added vide section 34(2-A). It has been further held in paragraph no. 41 of Ssangyong Engg. (Supra) that a decision which is perverse as understood in paragraph nos. 31 and 32 of “ Associate Builders versus DDA” (2015) 3 SCC 49 while no longer being a ground for challenge under public policy of India would certainly amount to a patent illegality appearing on the face of the award and thus a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision, would be perverse and liable to be set-aside on the ground of patent illegality.

¶120

Paragraph nos. 31 and 32 of the judgment in Associate Builders

¶121

(supra) are quoted as under:

¶122

31. The third juristic principle is that a decision which is perverse or so irrational that no reasonable person would have arrived at the same is important and requires some degree of explanation. It is settled law that where:

¶123

(i) a finding is based on no evidence, or

¶124

(ii) an Arbitral Tribunal takes into account something irrelevant to the decision which it arrives at; or

¶125

¶126

(iii) ignores vital evidence in arriving at its decision,

¶127

such decision would necessarily be perverse.

¶128

32. A good working test of perversity is contained in two judgments. In Excise and Taxation Officer-cum-Assessing Authority v. Gopi Nath & Sons [1992 Supp (2) SCC 312] , it was held: (SCC p. 317, para 7)

¶129

“7. … It is, no doubt, true that if a finding of fact is arrived at by ignoring or excluding relevant material or by taking into consideration irrelevant material or if the finding so outrageously defies logic as to suffer from the vice of irrationality incurring the blame of being perverse, then, the finding is rendered infirm in law.”

¶130

In Kuldeep Singh v. Commr. of Police [(1999) 2 SCC 10 : 1999 SCC (L&S) 429] , it was held: (SCC p. 14, para 10)

¶131

“10. A broad distinction has, therefore, to be maintained between the decisions which are perverse and those which are not. If a decision is arrived at on no evidence or evidence which is thoroughly unreliable and no reasonable person would act upon it, the order would be perverse. But if there is some evidence on record which is acceptable and which could be relied upon, howsoever compendious it may be, the conclusions would not be treated as perverse and the findings would not be interfered with.”

¶132

Paragraph nos. 41 to 45 of the judgment in Ssangyong Engg.

¶133

(supra) are quoted as under:

¶134

“41. What is important to note is that a decision which is perverse, as understood in paras 31 and 32 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , while no longer being a ground for challenge under “public policy of India”, would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse. Once the award has been found to be perverse and suffering from patent illegality, the award cannot be sustained by stating it to be a plausible or possible view of the learned arbitrator.”

¶135

42. In the 1996 Act, this principle is substituted by the “patent illegality” principle which, in turn, contains three subheads:

¶136

42.1. (a) A contravention of the substantive law of India would result in the death knell of an arbitral award. This must be understood in the sense that such illegality must go to the root of the matter and cannot be of a trivial nature. This again is really a contravention of Section 28(1)(a) of the Act, which reads as under:

¶137

“ 28. Rules applicable to substance of dispute .— (1) Where the place of arbitration is situated in India—

¶138

(a) in an arbitration other than an international commercial arbitration, the Arbitral Tribunal shall decide the dispute submitted to arbitration in

¶139

¶140

accordance with the substantive law for the time being in force in India;”

¶141

42.2. (b) A contravention of the Arbitration Act itself would be regarded as a patent illegality — for example if an arbitrator gives no reasons for an award in contravention of Section 31(3) of the Act, such award will be liable to be set aside.

¶142

42.3. (c) Equally, the third subhead of patent illegality is really a contravention of Section 28(3) of the Arbitration Act, which reads as under:

¶143

“ 28. Rules applicable to substance of dispute .—(1)-(2) * * (3) In all cases, the Arbitral Tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction.”

¶144

This last contravention must be understood with a caveat. An Arbitral Tribunal must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair-minded or reasonable person could do.

¶145

43. In McDermott International Inc. v. Burn Standard Co. Ltd., this Court held as under: (SCC pp. 225-26, paras 112-13)

¶146

“112. It is trite that the terms of the contract can be express or implied. The conduct of the parties would also be a relevant factor in the matter of construction of a contract. The construction of the contract agreement is within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and they cannot be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. It is also trite that correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law. [See Pure Helium India (P) Ltd. v. Oil and Natural Gas Commission and D.D. Sharma v. Union of India.]

¶147

113. Once, thus, it is held that the arbitrator had the jurisdiction, no further question shall be raised and the court will not exercise its jurisdiction unless it is found that there exists any bar on the face of the award.”

¶148

44 . In MSK Projects (I) (JV) Ltd. v. State of Rajasthan, the Court held: (SCC pp. 581-82, para 17)

¶149

“17. If the arbitrator commits an error in the construction of the contract, that is an error within his jurisdiction. But if he wanders outside the contract and deals with matters not allotted to him, he commits a jurisdictional error. Extrinsic

¶150

¶151

evidence is admissible in such cases because the dispute is not something which arises under or in relation to the contract or dependent on the construction of the contract or to be determined within the award. The ambiguity of the award can, in such cases, be resolved by admitting extrinsic evidence. The rationale of this rule is that the nature of the dispute is something which has to be determined outside and independent of what appears in the award. Such a jurisdictional error needs to be proved by evidence extrinsic to the award. (See Gobardhan Das v. Lachhmi Ram, Thawardas Pherumal v. Union of India, Union of India v. Kishorilal Gupta & Bros., Alopi Parshad & Sons Ltd. v. Union of India, Jivarajbhai Ujamshi Sheth v. Chintamanrao Balaji and Renusagar Power Co. Ltd. v. General Electric Co.)”

¶152

45. In Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran, the Court held: (SCC pp. 320-21, paras 43-45)

¶153

“43. In any case, assuming that Clause 9.3 was capable of two interpretations, the view taken by the arbitrator was clearly a possible if not a plausible one. It is not possible to say that the arbitrator had travelled outside his jurisdiction, or that the view taken by him was against the terms of contract. That being the position, the High Court had no reason to interfere with the award and substitute its view in place of the interpretation accepted by the arbitrator.

¶154

44. The legal position in this behalf has been summarised in para 18 of the judgment of this Court in SAIL v. Gupta Brother Steel Tubes Ltd. and which has been referred to above. Similar view has been taken later in Sumitomo Heavy Industries Ltd. v. ONGC Ltd. to which one of us (Gokhale, J.) was a party. The observations in para 43 thereof are instructive in this behalf.

¶155

45. This para 43 reads as follows: (Sumitomo case, SCC p. 313)

¶156

‘43. … The umpire has considered the fact situation and placed a construction on the clauses of the agreement which according to him was the correct one. One may at the highest say that one would have preferred another construction of Clause 17.3 but that cannot make the award in any way perverse. Nor can one substitute one’s own view in such a situation, in place of the one taken by the umpire, which would amount to sitting in appeal. As held by this Court in Kwality Mfg. Corpn. v. Central Warehousing Corpn. the Court while considering challenge to arbitral award does not sit in appeal over the findings and decision of the arbitrator, which is what the High Court has practically done in this matter. The umpire is legitimately entitled to take the view which he holds to be the correct one after considering the material before him and after interpreting the provisions of the agreement. If he does so, the decision of the umpire has to be accepted as final and binding.’”

¶157

¶158

The Hon’ble Supreme Court in the case of “Delhi Airport Metro Express (P) Ltd. Vs. DMRC” (2022) 1 SCC 131 has explained the meaning and scope of the term “patent illegality” as used in section 34 (2-A) of the Act of 1996 in paragraph no. 29 of the report which is quoted as under: -

¶159

“29. Patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the Arbitral Tribunal would not fall within the expression “patent illegality”. Likewise, erroneous application of law cannot be categorised as patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the scope of the expression “patent illegality”. What is prohibited is for Courts to reappreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as Courts do not sit in appeal against the arbitral award. The permissible grounds for interference with a domestic award under Section 34(2-A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one, or interprets a clause in the contract in such a manner which no fair-minded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression “patent illegality.”

¶160

C. On the point of termination of contract

¶161

As recorded in the award itself, the stipulated time for completing the work was 27.08.2013. Vide letter dated 26.08.2013 the Railways granted suo-moto extension up to 27.08.2014 but the claimant issued letters dated 26.05.2014, 27.05.2014 and 19.07.2014 showing difficulties in completion of work. The Railways issued a notice dated 31.07.2014 and the claimant issued a letter dated 02.08.2014 requesting the authorities to resolve the issues. Another notice of seven days was issued by Railways on 15.10.2014. It was the specific case of the claimant, as recorded in paragraph no. 30 of the award, that a meeting was held on 30.10.2014, and as per the minutes of the meeting, the Railways had advised the claimant to apply for an extension of time and assured that post facto extension would be granted. As per the minutes, 106 foundations were required to be casted out of which 38 were already casted by the claimant and it was also resolved that the mast erection will start from 07.11.2014. The grievance of the claimant was that in

¶162

¶163

spite of the minutes of the meeting dated 30.10.2014, the termination notice dated 22.12.2014 was issued to the claimant and fresh NIT for the same work was issued on 08.12.2014. It has also been recorded in the award that a 48-hour notice dated 17.11.2014 was issued by the Railways and ultimately a termination notice dated 22.12.2014 rescinding the contract in terms of clause 62 of the General Conditions of Contract was issued. It was the case of the Railways that due to noncooperation by the claimant the work could not be completed and the contract was terminated in terms of clause 62 of the General Conditions of Contract.

¶164

Paragraphs nos. 30 to 32 of the award record the case of the claimant in connection with termination of the contract which are quoted as under: -

¶165

“30. It is submitted by Sri Ray from the minutes of the meeting held on 30.10.2014 (at page 189 of the statement of claim), it would be apparent that the Railways advised the contractor to apply for extension of time and assured that Post Facto extension would be granted. The minutes also acknowledged that as per the programme, 106 numbers of foundations were required to be casted, out of which 38 numbers of foundations had already been casted by the claimant. It was also resolved that as per the flow, site marking of foundation will be given and accordingly, casting will be done by the contractor. In the said meeting, it was also resolved that the work of mast erecting will start from 07.11.2014 and erection of cantilever etc. will be started on 10.11.2014.

¶166

31.It was submitted that even after prompt resolution having been taken during the meeting aforesaid, a fresh NIT concerning the same work was issued on 08.12.2014 a copy of which has been handed over to this Tribunal during the course of argument and it was submitted that being a public document in terms of Section 74 of the Evidence Act, the said NIT dated 08.12.2014 may be taken into consideration, although the same does not form part of the record/pleadings.

¶167

32. It was further argued that despite of the meeting held on 30.10.2014, the claimant was issued with the termination letter straightaway on 22.12.2014, which date itself is after the date of issuance of fresh NIT in connection with the same work. Therefore, it was submitted that the aforesaid facts and series of events clearly suggest that malafide on the part of the respondent authorities and renders the termination notice dated 22.12.2014 as arbitrary, illegal bad in law and liable to be interfered with.”

¶168

There is neither any mention nor it was the case of the claimant that the claimant ever filed any application for extension of the contract pursuant to minutes of meeting dated 30.10.2014, much less a case that, in spite of any such application for extension, the Railways terminated

¶169

¶170

the contract without considering the same. The finding recorded in the award in paragraph no.53(v), as quoted above, reflects that the learned arbitrator has completely overlooked the fact that even as per the claimant, the claimant was asked to apply for an extension. The learned arbitrator recorded that the Railways had agreed to grant further time and had waived their right to question delay in completion of the work and solely on such grounds, the learned arbitrator held that the termination was arbitrary and bad in law.

¶171

In the present case, the extension of time for completion of work is governed by the clauses of the contract and specific reference has been made to clauses 17-A and 17-B of the contract dealing with the extension of time for completion of work. Clause 17-A deals with the extension of time for the delay due to Railways and clause 17-B deals with the extension of time for delay due to contractor. The learned arbitrator has not considered any of the clauses of the contract in the matter of extension of time for completion of the work. The Railways had terminated the contract by invoking clause 62 of the contract dealing with the determination of contract owing to default of contractor. While holding that the termination of contract was arbitrary and bad in law the learned arbitrator has completely overlooked the vital fact that even as per the case of the claimant an application for extension was to be filed by the claimant and further the learned arbitrator has completely ignored the terms of the contract dealing with extension of time in completion of work. There is no doubt that the interpretation of the terms and conditions of the contract is essentially within the domain of the arbitrator, but the arbitrator cannot ignore the terms and conditions of the contract governing the extension of time and the termination of the contract.

¶172

Applying the principle of law as laid down by the Hon’ble Supreme Court in the case of Associate Builders (Supra), Ssangyong Engg. (Supra) and Delhi Airport Metro Express (P) Ltd. (Supra) in the light of the provisions of section 34(2-A) of the Act of 1996 to the aforesaid facts of this case, this Court is of the considered view that the findings recorded by the learned arbitrator that the termination of the contract by the Railways was illegal, suffers from patent illegality on the

¶173

¶174

face of the award and is covered within the meaning of ‘patent illegality’ under section 34 (2-A) of the Act of 1996. The learned arbitrator has taken a view which is not even a possible one when seen in the light of the case of respective parties and while doing so, the learned arbitrator has completely ignored the terms of the contract and also the case of the claimant himself that he was required to apply for an extension of time to the Railways. The conclusions of the arbitrator that the Railways had waived their right to question delay in completion of the work is neither based on any evidence nor any such plea of waiver was ever raised by the claimant before the learned arbitrator. The aforesaid aspects of the matter have not been properly considered by the learned Commercial Court and it has failed to apply the principles of law as laid down in the aforesaid judgments to the facts of this case.

¶175

¶176

Claims and Counter-Claim

¶177

Counter-Claim

¶178

The counter-claim of the Railways has been rejected by the learned arbitrator by stating that no evidence was produced in support of counter-claim. No grievance has been raised by the Railways in connection with rejection of counter-claim and, therefore, no further deliberation is required.

¶179

Claim Head-IX -Refund of security amount etc.

¶180

Claim Head-IX-	Rs.23,56,379.44	Allowed to the extent of
Due of Security,	Allowed in full	Rs. 23,56,379.44/- in view of the
Performance		finding that the termination letter dated
Guarantee &		22.12.2014 is arbitrary and bad in law.
Amount deducted
from CC/1 Bill

¶181

Upon perusal of the award, this Court finds that the only ground that has been cited to allow the claim for refund of the security deposit etc. to the claimant has been recorded in paragraph no. 53(v) of the award in view of the finding that the termination letter dated 22.12.2014 was arbitrary and bad in law. The learned arbitrator has allowed the entire amount of the claim relating to the refund of security deposit etc. only on the ground that since the termination of the contract was

¶182

¶183

arbitrary and illegal, the claimant is entitled to the claim relating to the refund of security deposit, etc. Since the aforesaid finding in connection with the termination of the contract has been held to be suffering from patent illegality, consequently, award relating to refund of the security, performance guarantee, and amount deducted from the bills cannot be sustained and, is accordingly, set-aside.

¶184

The learned Court below has failed to consider the aforesaid aspect of the matter and has rejected the petition filed under section 34 of the Act of 1996 by referring to the principle that the Court is not required to reappreciate and re-evaluate the findings given by the Tribunal and also on the principle that once the arbitrator takes a possible view which could have been taken on the material before it, the Court would be reluctant to interfere.

¶185

In view of the aforesaid findings given by this Court in connection with the termination of contract and in connection with claim no. IX dealing with refund of the security, performance guarantee, and amount deducted from the bills, the order impugned by the learned Court below on the aforesaid aspects of the matter is not sustainable.

¶186

Claim under Head-I, II and IV

¶187

Head-I - Supply	Rs.41,24,051.18	Allowed to	the extent	of	Rs.
Items	Allowed in full	41,24,051.18/- DPRs submitte	as substantiated d by the claimant.	by	the
Head-II - Erection	Rs.6,93,133.28	Allowed to	the extent	of	Rs.
Items	Allowed in full	6,93,133.28/- DPRs submitte	as substantiated d by the claimant.	by	the
Head-IV- Value	Rs.1,91,580.00	Allowed to	the extent	of	Rs.
of Work	Allowed in full	1,91,580.00/-	as substantiated	by	the
Progressed but not billed		documents sub	mitted by the clai	mant	.

¶188

The records of the case reveal that no objection was raised in connection with the maintainability or the arbitrability of the dispute under claim Heads-I, II and IV much less any objection in terms of section 16 of the Act of 1996.

¶189

It has been recorded in the arbitral award itself at paragraph no.52 that the claims of the claimant were admitted to the extent of Rs.17,00,000/- (Rupees Seventeen Lakhs) but the rest were disputed. It

¶190

¶191

further appears from the award that the application for joint verification of the work done at the site was also moved and ultimately it was agreed between the parties that the matter could be referred to Railway’s Vigilance for investigation at the site. A letter dated 12.12.2017 was issued by the learned arbitrator requesting the Railway’s Vigilance Department to take over the investigation of the matter and submit a report. However, vide letter dated 17.01.2018, the Railway’s Vigilance informed the learned arbitrator that it was not competent to take up an investigation independently and thereafter, the matter regarding on-thespot survey/investigation was closed. The learned arbitrator found substance in the argument of the claimant to the effect that after elapse of such a long time between termination and application for joint survey, the same was not possible and even Railway’s Vigilance had expressed its inability to conduct an enquiry and under such circumstances, the Tribunal was bound by the documentary evidences adduced by the parties. The learned arbitrator considered the documentary evidence vide paragraph 53(vii) of the award as quoted above.

¶192

There is no scope to re-appreciate the materials and come to a different finding under section 34 of the Act of 1996 much less under appeal under section 37 of the Act of 1996. The Commercial Court has considered this aspect of the matter and has recorded a finding in paragraph no.14 of the impugned judgment as already quoted above and refused to interfere in connection with the aforesaid claims.

¶193

However, the learned arbitrator has recorded in the award that all the issues framed by him were co-related and has considered all the issues together. The learned arbitrator had allowed certain claims after holding that the termination was illegal. In the aforesaid paragraph, this Court has set-aside the finding of the learned arbitrator in connection with the termination of contract. This Court is of the considered view that termination of contract has direct bearing on the claims of the claimant and different consequences flow arising out of illegality or validity of the termination of contract and each situation is further governed by the terms and conditions of the contract. In such circumstances, the award in connection with the claims under Head-I, II, and IV is not severable.

¶194

¶195

Claim Head no. V and VI – Establishment Cost and payment of idle

¶196

wages for delay i	n providing wor	k site.
Head-V-	Rs.3,44,000.00
Establishment Cost
incurred due to		Against Head-V & VI of claim- Partly
delay in providing		allowed to the extent of Rs.
work site		5,00,000.00/- as a reasonable amount
Head-VI- Payment	Rs.2,88,750.00	against the claim of Rs. 6,32,750.00/-.
of idle wages for
delay in providing
work site.

¶197

This Court finds that the learned arbitrator has not referred to any material or evidence in connection with quantification of the claims in the name of Establishment Cost incurred due to delay in providing work site under claim Head-V and Payment of idle wages for delay in providing work site under claim Head-VI and has allowed a consolidated amount of Rs. 5,00,000.00/- as a reasonable amount against the claim of Rs. 6,32,750.00/-. This Court is of the considered view that award of amount by stating it to be a reasonable amount without any discussion and without any basis to arrive at such awarded amount is ex-facie perverse on the face of the award and also non-speaking and against the mandate of section 31(3) of the Act of 1996. Accordingly, the award of Rs. 5,00,000.00/- as lump sum amount under claim Head no. V and VI by referring such amount as a reasonable amount is set-aside being ‘patently illegal’ within the meaning of section 34(2-A) of the Act of 1996 and also against the provisions of section 31(3) of the Act of 1996 which casts an obligation upon the arbitrator to pass a speaking award. Moreover, the Establishment Cost and Payment of wages for idle period are essentially based on actual cost which was certainly required to be proved by the claimant by producing evidence which has not been done at all in the instant case. In the present case the amount has been awarded merely on ipsi dixit without giving any reason and basis for awarding the amount of damages on account of the Establishment Cost and Payment of wages for idle period. The aforesaid aspects of the matter have not been properly considered by the learned Commercial Court while passing the impugned order.

¶198

¶199

Claim Head no. VIII-Loss of Profit.

¶200

Head-VIII- Loss	Rs.23,00,241.90	Allowed to the extent of
of Profit on	Partly Allowed to	Rs. 18,24,924.25/- as the reasonable
Rs.1,53,34,946 @	the extent of 15%	loss of profit caused to the claimant on
15%	of the remaining value of the contract.	the balance value of contract [ 15% of Total Contract Value minus Amount paid by the Railways to the claimant i.e. 15% of (Rs.1,53,34,946.00 -
		Rs.31,68,784.34 = Rs. 1,21,66,161.66)]
		in view of the Hon’ble Supreme Court Judgment in the case of AT Brij Paul Singh v. State of Gujrat reported in (1984) 4 SCC 59.

¶201

An amount of Rs. 18,24,924.25 has been allowed as the reasonable loss of profit caused to the claimant on the balance value of the contract [15% of the total contract value minus the amount paid by Railways to the claimant i.e. 15 % of [Rs. 1,53,34,946.00 – Rs. 31,68,784.34 = Rs.1,21,66,161.66] by citing the judgment of the Hon’ble Supreme Court in the case of “ AT Brij Paul Singh Vs. State of Gujarat” (1984) 4 SCC 59.

¶202

As is apparent from paragraph no. 33 of the award quoted above, it was the specific case of the claimant regarding the assessment of ‘Loss of Profit’ that the Tribunal need not enter into or assess the actual damage and damages can be awarded on the basis of well-recognized formulas and for calculating the damage on account of ‘Loss of Profit’, 15% profit from any work was standard rate that has been approved by the Hon’ble Supreme Court in various judgments including those reported in “ AT Brij Paul Singh Vs. State of Gujarat” (1984) 4 SCC 59 (paragraph nos. 9-11) and “McDermott International Inc. v. Burn Standard Co. Ltd.” (2006) 11 SCC 181 (paragraph nos. 104 and 105) .

¶203

The learned arbitrator has not entered into any assessment of damage on account of ‘Loss of Profit’ and has awarded 15% of the remaining value of the contract by only referring to the judgment of the Hon’ble Supreme Court reported in (1984) 4 SCC 59(supra).

¶204

¶205

The Railways had raised serious objection to the award in connection with ‘Loss of Profit’ by alleging, inter alia , that no reason has been stated and the findings of the learned arbitrator are in contravention to section 31(3) of the Act of 1996; no damage or compensation could be claimed as it was an ‘excepted matter’ and that there was no evidence to substantiate the actual loss although the onus was upon the claimant to prove his claim on account of ‘Loss of Profit’. The arguments of the claimant as recorded in paragraph no.33 of the award clearly reflect that the claimant did not choose to adduce any evidence on account of ‘Loss of Profit’ and only relied on the aforesaid Supreme Court judgments and the learned arbitrator also allowed the claim on account of ‘Loss of Profit’ by only referring to the aforesaid judgment of the Hon’ble Supreme Court.

¶206

This Court is of the considered view that the approach of the learned arbitrator with regards to the award on account of ‘Loss of Profit’ is ex-facie perverse as it is based on no evidence and this aspect of the matter is apparent on the face of the award with regards to ‘Loss of Profit’. This aspect of the matter has not been considered by the learned Commercial Court while passing the impugned order. The law relating to the computation and award of damages arising out of loss of overheads and profits has been considered in detail in the judgment passed by the Hon’ble Supreme Court in the case of “ Batliboi Environment Engineers versus Hindustan Petroleum Corporation Ltd and another” vide judgment dated 21^st of September 2023 passed in Civil Appeal No. 1968 of 2012 and it has been held that the foundational basis for a claim on account of damages arising out of loss of overheads and profits is required to be established by the claimant and amount cannot be awarded merely on ipsi dixit without giving any reason and basis for awarding the amount. In another judgment in the case of “M/s Unibros Vs. All India Radio” decided on 19^th October 2023, in SLP (Civil) No. 8791 of 2020 the Hon’ble Supreme Court has dealt with the earlier judgments dealing with the claim for ‘Loss of Profit’. In the case of M/s Unibros (supra), the arbitral award was set aside to the extent it related to ‘Loss of Profit’ which was affirmed in appeal under section 37 of the Act of 1996. The claimant was the appellant before the Hon’ble

¶207

¶208

Supreme Court challenging the deletion of the award to the extent it related to ‘Loss of Profit’ and reliance was placed by the claimant, inter alia , on the judgments reported in (1984) 4 SCC 59 (Supra) and also (2006) 11 SCC 181 (Supra) . On the other hand, the respondent before the Hon’ble Supreme Court argued that there can be no material application of Hudson’s formula in the matter of award on account of ‘Loss of Profit’ without the aggrieved party leading any evidence as a condition precedent for application of the said formula. It was argued that in the absence of cogent evidence substantiating a genuine ‘Loss of Profit’ or opportunity, it would be unjustifiable to permit the contractor to capitalize solely on the application of a formula. The issue was decided vide paragraphs nos. 9 to 21 of the judgment in M/s Unibros (supra), the relevant portions of which for the purposes of the present case are quoted as under:

¶209

“9. The contentions advanced on behalf of the appellant takes us to resolve a recurring issue which, while not unprecedented, has consistently confronted the courts leading it to navigate various circumstances under which a claim for loss of profit may be allowed in cases of delay simpliciter in the execution of a contract.

10. ………….

11…………….

12………….

13……………..

14……………

15. Considering the aforesaid reasons, even though little else remains to be decided, we would like to briefly address the appellant’s claim of loss of profit. In Bharat Cooking Coal (supra), this Court reaffirmed the principle that a claim for such loss of profit will only be considered when supported by adequate evidence. It was observed:

¶216

“24. It is not unusual for the contractors to claim loss of profit arising out of diminution in turnover on account of delay in the matter of completion of the work. What he should establish in such a situation is that had he received the amount due under the contract, he could have utilised the same for some other business in which he could have earned profit. Unless such a plea is raised and established, claim for loss of profits could not have been granted. In this case, no such material is available on record. In the absence of any evidence, the arbitrator could not have awarded the same.”

¶217

16. To support a claim for loss of profit arising from a delayed contract or missed opportunities from other available contracts that the appellant could have earned elsewhere by taking up any, it becomes imperative for the claimant to substantiate the presence of a viable opportunity through compelling evidence. This evidence should convincingly demonstrate that had the contract has been executed promptly, the contractor could have secured supplementary profits utilizing its existing resources elsewhere.

¶218

17. One might ask, what would be the nature and quality of such evidence? In our opinion, it will be contingent upon the facts and circumstances of each case. However, it may generally include independent contemporaneous evidence such as other potential projects that the

¶219

¶220

contractor had in the pipeline that could have been undertaken if not for the delays, the total number of tendering opportunities that the contractor received and declined owing to the prolongation of the contract, financial statements, or any clauses in the contract related to delays, extensions of time, and compensation for loss of profit. While this list is not exhaustive and may include any other piece of evidence that the court may find relevant, what is cut and dried is that in adjudging a claim towards loss of profits, the court may not make a guess in the dark; the credibility of the evidence, therefore, is the evidence of the credibility of such claim.

¶221

18. Hudson’s formula, while attained acceptability and is well understood in trade, does not, however, apply in a vacuum. Hudson’s formula, as well as other methods used to calculate claims for loss of offsite overheads and profit, do not directly measure the contractor's exact costs. Instead, they provide an estimate of the losses the contractor may have suffered. While these formulae are helpful when needed, they alone cannot prove the contractor's loss of profit. They are useful in assessing losses, but only if the contractor has shown with evidence the loss of profits and opportunities it suffered owing to the prolongation.

¶222

19. The law, as it should stand thus, is that for claims related to loss of profit, profitability or opportunities to succeed, one would be required to establish the following conditions: first, there was a delay in the completion of the contract; second, such delay is not attributable to the claimant; third, the claimant’s status as an established contractor, handling substantial projects; and fourth, credible evidence to substantiate the claim of loss of profitability. On perusal of the records, we are satisfied that the fourth condition, namely, the evidence to substantiate the claim of loss of profitability remains unfulfilled in the present case.

¶223

20. The First Award was interfered with by the High Court for the reasons noted above. The Arbitrator, in view of such previous determination made by the High Court, could have granted damages to the appellant based on the evidence on record. There was, so to say, none which on proof could have translated into an award for damages towards loss of profit. A claim for damages, whether general or special, cannot as a matter of course result in an award without proof of the claimant having suffered injury. The arbitral award in question, in our opinion, is patently illegal in that it is based on no evidence and is, thus, outrightly perverse; therefore, again, it is in conflict with the “public policy of India” as contemplated by section 34(2)(b) of the Act.

¶224

21. For the reasons aforesaid, we find no merit in this appeal. The same stands dismissed. However, cost awarded by the learned Single Judge is made easy.”

¶225

As already mentioned above, in the present case the award on account of ‘Loss of Profit’ has been made without any evidence, much less any evidence referred to in paragraph no.16 of the aforesaid judgment in the case of M/s Unibros (Supra). The award to the extent on account of ‘Loss of Profit’ being based on no evidence is ex-facie perverse and accordingly suffers from ‘patent illegality’ appearing on the face of the award and is covered by the grounds mentioned under section 34(2-A) of the Act of 1996 as introduced vide the 2015 Amendment in the Act of 1996. This is in view of paragraph nos. 31 and 32 of Associate Builders (supra) read with paragraph no. 41 of Ssangyong Engg. (supra) .

¶226

¶227

As a cumulative effect of the aforesaid findings, the impugned order upholding the award is set aside. Section 34 application is allowed. Consequently, the arbitral award passed by the learned arbitrator is also set-aside. This appeal is allowed in the aforesaid terms.

¶228

Pending Interlocutory application, if any, is closed.

¶229

(Shree Chandrashekhar, J.)

¶230

I Agree.

¶231

(Shree Chandrashekhar, J.)

¶232

(Anubha Rawat Choudhary, J.)

¶233

Jharkhand High Court, Ranchi Dated: 5^th December 2023. Pankaj/Mukul A.F.R

Union of India Represented by the General Manager v. Santosh Dodrajka

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Union of India Represented by the General Manager v. Santosh Dodrajka

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