Dismissed

M/S Ncc Limited v. M/S Mangalore Electric Supply Co. Ltd.

Karnataka HC2 Jul 2021MFA/2832/2015

Case brief

AI extract

What is this about?

This is an appeal against an order dismissing a petition challenging a construction contract award. The High Court held that the contract's clause barring 'any other taxes' included future service tax liabilities, thus rejecting the appellant's claim for reimbursement.

What did the court decide?

The appeal filed under Section 37(1)(c) of the Arbitration and Conciliation Act, 1996 stands dismissed with no interference in the impugned order.

M/S Ncc Limited Vs M/S Mangalore Electric… — Contract and Commercial Disputes | Karnataka HC (2021)

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 2^ND DAY OF JULY, 2021

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PRESENT

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THE HON’BLE MRS.JUSTICE S.SUJATHA

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AND

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THE HON’BLE MR. JUSTICE E.S.INDIRESH

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M.F.A.No.2832 /2015 (AA)

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BETWEEN :

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M/S NCC LIMITED (FORMERLY NAGARJUNA CONSTRUCTION CO. LTD.) REP BY ITS EXECUTIVE VICE PRESIDENT-LEGAL, AND COMPANY SECRETARY MR. M.V. SRINIVAS MURTHY PLOT NO.41, NAGARJUNA HILLS, PUNJAGUTTA, HYDERABAD-560082

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...APPELLANT

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(BY SMT AYUSSHI AGARWAL, ADVOCATE FOR SRI AJAY J NANDALIKE, ADVOCATE)

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AND :

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M/S MANGALORE ELECTRIC SUPPLY CO. LTD. CORPORATE OFFICE, PARADIGM PLAZA MANGALORE 575001

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REP BY SUPERINTENDENT ENGINEER(ELECL) (TECHNICAL)

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M/S CHAMUNDESHWARI ELECTRICITY SUPPLY CORPORATION LTD. NO.1633, ANNAPOORNESHWARI COMPLEX, I CROSS, ANIKETHANA ROAD, (NORTH), P & T BLOCK, KUVEMPUNAGAR,

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MYSORE-570023 REP BY ITS MANAGING DIRECTOR

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THE MANAGING DIRECTOR MANGALORE ELECTRICITY SUPPLY CO. LTD. CORPORATE OFFICE, PARADIGM PLAZA, MANGALORE 575001.

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…RESPONDENTS

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(BY SRI H V DEVARAJU, ADVOCATE FOR R1 TO R3)

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THIS M.F.A. IS FILED UNDER SECTION 37(1)(b) OF THE ARBITRATION AND CONCILIATION ACT, 1996 R/W SECTION 104 OF THE CPC 1908, AGAINST THE JUDGMENT AND DECREE DATED 12.12.2014 PASSED IN ARBITRATION SUIT NO.7/2011 ON THE FILE OF THE I ADDITIONAL DISTRICT & SESSIONS JUDGE, D.K., MANGALORE, DISMISSING THE ARBITRATION SUIT FILED U/SEC 34 OF THE ARBITRATION AND CONCILIATION ACT.

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THIS APPEAL COMING ON FOR FINAL HEARING, THIS DAY, S. SUJATHA, J ., DELIVERED THE FOLLOWING:

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J U D G M E N T

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This appeal is filed under Section 37(1)(c) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the Act’ for short) challenging the order dated 12.12.2014 passed in Arbitration Suit No.7/2011 on the file of the I Additional District Judge, Dakshina Kannada, Mangalore, (hereinafter referred to as the ‘Trial Court’ for short), whereby the petition filed by the

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appellant herein under Section 34 of the Act, has been dismissed.

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The appellant M/s Nagarjuna Construction

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Company Limited is a Company inter alia engaged in the business of Engineering, Construction, Execution of turnkey projects etc., and is carrying on business in such projects. Pursuant to the bids invited for the execution of APDRP work in the towns of Mysore, Hunsur, Mandya, Pandavapura and Chamarajanagara O & M Divisions on the total turnkey basis by respondent No.1, the appellant’s bid was accepted and the letter of award of contract dated 04.11.2003 was issued later modified and a letter of award dated 12.11.2003 was re-issued. The parties entered into the agreement dated 19.11.2003. It transpires that on 10.09.2004, the notification was issued under the Finance Act, 1994, thereby enlarging the scope of Service Tax to include the services provided by the

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construction industry and electrical contracts under the ambit of the Service Tax under the Finance Act, 1994. Thereby the services provided by the appellant to the first respondent were made amenable to service tax as per the provisions of the Finance Act, 1994. Pursuant to which the appellant had discharged the service tax liability and thereafter sought for reimbursement of the service tax paid for the period 08.06.2005 to 09.01.2008 amounting to Rs.9,62,172/with interest at Rs.6,77,317/- from the respondents.

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As the request was not acceded to, the appellant approached this Court by filing CMP No.26/2008 seeking orders for appointment of an Arbitrator. This Court by its order dated 11.03.2010 appointed the Arbitrator, Managing Director, MESCOM to resolve the dispute in accordance with the Act. Accordingly, claim petition was filed by the appellant before the Arbitrator. Both the parties appeared before

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the Arbitrator and on the pleadings made by the parties, the following issues were framed for consideration by

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the learned Arbitrator:

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On whom does the incidence of taxation fall in this case?

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Whether the Claimant is entitled for reimbursement of the Service Tax Rs.9,62,712/- and if so whether the Claimant is entitled to interest Rs.6,77,317/- as claimant in the claim petition?

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What Order?

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On analyzing the matter in extenso, the learned arbitrator rejected the claim of the appellant. Being aggrieved, the appellant preferred the petition under Section 34 of the Act, which came to be dismissed. Hence the present appeal.

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Learned Counsel for the appellant vehemently

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argued that the vital aspect of change in law inasmuch as the amendment brought into the Finance Act, 1994

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in enlarging the scope of service tax to include the services provided by the construction industry and electrical contracts under the ambit of service tax has not been properly appreciated by the learned Arbitrator as well as the Trial Court. As per the clause 1.8.00.00 of the bid document what is relevant is “applicable taxes and duties”. Therefore, as on the date of the issuance of bid, service tax was not made applicable to the Project and as such, no taxes made applicable subsequent to entering into the agreement would come within the ambit of clause 1.1 of the letter of award dated 12.11.2003. As per the letter of award, the intention of the parties would be gathered. It is clear from the clauses of the letter of award that in case of a future contingency, the first respondent had to bear the liability. Referring to the judgments of M/s.Bhagwati Security Services Vs. Union of India and Others 2013 SCC OnLine Allahabad 14518 and Central Warehousing Corporation Vs. Aqdas Maritime

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Agency Pvt. Ltd. 2019 SCC OnLine Bom 1004 , the

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learned Counsel stoutly submitted that denial of reimbursement of the service tax merely for the reason that the same was not contemplated in the service agreement is wholly untenable.

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Learned Counsel appearing for the respondents supporting the orders of the learned Arbitrator confirmed by the Trial Court submitted that clause 3.00.00 of the bid document would be relevant to gather the intention of the parties inasmuch as “Taxes and Duties” liable to be paid by the Contractor. Further inviting the attention of the Court to Schedule II and III of the purchase order dated 22.11.2004 submitted that enhanced statutory duties, levies and taxes etc., if any is to the account of the contractor only, since the prices are firm. Such prices are firm throughout the period of Contract and extended period if any. The contract was executed between the parties with the stipulation of

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time of nine months for the completion of the project. As the same was not completed within the stipulated period, time was extended due to which the respondents are forced to bear the losses. In the event of change in law during the subsistence of the contract, the terms and conditions of the contract has to be given primacy. Having regard to these aspects, no interference under Section 37 of the Act, is warranted against the well reasoned order passed under Section 34 of the Act, which could be invoked only on the limited grounds provided under Section 34(2)(b)(ii) of the Act.

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We have given our anxious consideration to the arguments advanced by the learned Counsel for the parties and perused the material on record. Adverting to the arguments advanced by the learned Counsel for

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the parties, the points that arise for consideration are:

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Whether the impugned order passed under Section 34 of the Act is justifiable?

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Whether the award passed by the learned Arbitrator warrants any interference?

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Since both the points are interlinked, we

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proceed to analyse on these aspects having regard to the terms and conditions of the contract. As per the Schedule II of the purchase order dated 22.11.2004, Schedule of Taxes and Duties would indicate as under:

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“ 2.1 The Unit prices for each item of Work indicated in price schedule are inclusive of all applicable taxes, duties, levies, work contract tax, income tax, any other tax, freight and insurance charges and MESCOM is not liable to pay any taxes, duties, work contract tax and any other tax and also charges towards freight and insurance.

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2.2 Income tax, work contract tax and other statutory deductions of the state and central Government, as applicable from time to time shall be deducted from the Contractors’ bills and directly remitted to concerned department by the MESCOM.

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2.3 Enhanced statutory duties, levies and taxes etc., if any, is to the account of the contractor only, since prices are firm.”

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(emphasis supplied)

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Clause 1.1 of the letter of award reads thus:

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“ 1.1 The above Contract Price is inclusive of all taxes and Duties levies, Works Contract Tax, freight and insurance, Entry Tax and any other taxes, MESCOM will not pay any taxes, whatsoever in respect of this contract.”

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(emphasis supplied)

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Similarly bid document at 1.8.00.00

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contemplates about Taxes and Duties as under:

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“The Bidders have to quote their Unit Prices for each item of work indicated in Price Schedule, which includes both supply & erection. These Prices shall also be inclusive of all applicable Taxes & Duties. No payment separately towards Taxes & Duties other than the quoted price for each items of work shall be payable by the

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ESCOM. Income Tax and Works contract Tax and other statutory deductions of the State & Central Govt., as applicable from time to time shall be deducted from the Contractor’s bills & directly remitted to concerned Department by the ESCOM. The Entry Tax portion has to be borne by the Contractor and the same will not be reimbursed by ESCOM.

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However it may be noted that all taxes, duties, levies, work contract tax etc., are to be included in the unit/total contract price and ESCOM is not liable to pay any taxes, duties, levies over and above the contract value. Also the contractor has to include all types of freight and insurance charges in the unit/total contract value and ESCOM is not liable to pay any charges towards insurance or freight.”

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A comprehensive reading of these clauses makes it clear that the contract price is inclusive of the taxes and duties, levies, works contract tax, freight and insurance, Entry Tax and any other taxes. MESCOM will not pay any taxes whatsoever in respect this contract. Language employed in the contract relating to

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“any taxes” and “any other taxes” would play a significant role. “Any other taxes” would certainly include service tax. Similarly “any taxes” would include future taxes also, in the context of “whatsoever in respect of this contract” as mentioned in clause 1.1 of the letter of award of contract.

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In Shri Balaganesan Metals vs. M.N. Shanmugham Chetty & Ors., (1987) 2 SCC

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707 , the word "any" came up for consideration before the Hon'ble Apex Court. It was held that the word "any" indicates "all" or "every" as well as "some" or "one" depending on the context and the subject matter of the statue. Black's Law Dictionary was cited with approval.

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In Black's Law Dictionary (sixth Edition) the word 'any' is defined (at p.94) as under:-

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"Any. Some; one out of many; an indefinite number. One indiscriminately of whatever kind or quantity.

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One or some (indefinitely).

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"Any" does not necessarily mean only one person, but may have reference to more than one or to many.

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Word "Any" has a diversity of meaning and may be employed to indicate "all" or "every" as well as "some" or "one" and its meaning in a given statute depends upon the context and the subject matter of the statute.

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It is often synonymous with "either", "every", or "all". Its generality may be restricted by the context; thus, the giving of a right to do some act "at any time" is commonly construed as meaning within a reasonable time; and the words "any other" following the enumeration of particular classes are to be read as "other such like," and include only others of like kind or character."

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The word 'any' may have one of the several meanings, according to the context and the circumstances. It may mean 'all'; 'each'; 'every'; 'some'; or 'one or many out of several'. The word 'any' may be used to indicate the quantity such as 'some', 'out of many', 'an

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infinite number'. It may also be used to indicate quality or nature of the noun which it qualifies as an adjective such as 'all' or 'every'. (See the Law Lexicon, P. Ramanatha Aiyar, Second Edition, at p.116). Principles of Statutory Interpretation by Justice G.P.Singh (9th Edition, 2004) states (at p.302) "When a word is not defined in the Act itself, it is permissible to refer to dictionaries to find out the general sense in which that word is understood in common parlance. However, in selecting one out of the various meanings of a word, regard must always be had to the context as it is a fundamental rule that "the meanings of words and expressions used in an Act must take their colour from the context in which they appear". Therefore, "when the context makes the meaning of a word quite clear, it becomes unnecessary to search for and select a particular meaning out of the diverse meanings a word is capable of, according to lexicographers".

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The learned Arbitrator has interpreted the

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contract having regard to the intention of the parties at the time of entering into the contract.

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Section 28(3) of the Act during the relevant period reads thus:

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“ 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.”

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The said provision makes it clear that the

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Arbitrator has to adjudicate the dispute strictly in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction as per the pre-amendment provision which is relevant for the purposes of this case.

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It is well settled that the arbitrator is the

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master of the quality and quantity of evidence and any construction of contract made by the Arbitrator cannot

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be held to be untenable unless it shocks the conscience of the court coming within the parameters of the terrain set out in Section 34(2)(b)(ii) of the Arbitration and Conciliation Act, 1996 coupled with the judicial pronouncements.

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In the judgment of Sssangyong

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Engineering and Construction Company Limited Vs. National Highways Authority of India (NHAI)

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reported in (2019)15 SCC 131 the Hon'ble Apex Court has categorically explained the parameters of public policy of India and the scope of Section 34 prior to the amendment and post-amendment, the tests for setting aside the arbitral award under Section 34 of the Act have been propounded. In this regard, the Hon'ble Apex Court has held as under:

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“40. The change made in Section 28(3) by the Amendment Act really follows what is stated in paragraphs 42.3 to 45 in Associate Builders reported in (2015)3 SCC 49,

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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(2A).”

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17. In Associate Builders Vs. Delhi

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Development Authority reported in (2015)3 SCC 49

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the Hon'ble Apex Court has held that when any of the heads/sub-heads of test of “public policy” is applied to an arbitral award, the court does not act as court of appeal. Interference would be permissible only when findings of Arbitrator are arbitrary, capricious or perverse, or when conscience of court is shocked, or when illegality is not trivial but goes to the root of the

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matter not merely if another view is possible. The heads

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of “Public Policy of India” has been envisaged as:

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I. Fundamental Policy of Indian Law:

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(i) Compliance with statutes and judicial precedents;

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(ii) Need for judicial approach;

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(iii) Natural justice compliance;

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(iv) Wednesbury reasonableness;

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II. Interest of India;

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III. Justice or Morality; and

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IV. Patent illegality

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18. In para 35 of Ssangyong Engineering ,

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supra, it is held that the ground for interference insofar as it concerns “interest of India” has since been deleted, and therefore, no longer available. Equally, the ground of 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”. It is held that this again would be in line with paras 36 to 39 of Associate Builders , as it is only such

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arbitral awards that shock the conscience of the court that can be set aside on this ground. Be that as it may, in the present case we are not concerned with this aspect.

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As aforesaid, the provisions of Section 34 prior to its amendment being applicable to the facts of the case, the matter has to be strictly examined within the four corners of the contract scrupulously adhering to the terms of the contract which indeed has been rightly exercised by the learned arbitrator having regard to the law applicable during the relevant period and the same has been rightly confirmed by the Trial Court.

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The main argument of the learned counsel

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for the appellant that the unforeseen service tax liability could not be imposed on the contract since the service tax is an indirect tax collectable from the service recipient, no doubt appears to be attractive in the general sense, but the same has to be considered in the

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light of the terms and conditions of the contract entered into between the parties. Though there is no legal prohibition for the service provider to collect and pay taxes but ultimate analysis depends on the written contract which binds both the parties. Judgments relied upon by the learned counsel appearing for the appellant are rendered in the context of the contract entered into between the parties.

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Corporation , supra, para (i) of Clause XII of the Contract reads thus:

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“(i) All the taxes/levies/fees/charges payable to any Government body/Local body shall be paid by the contractor and no claim what so ever shall be against the corporation on this account.”

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22. In the case of Bhagwati Security Services ,

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supra, only reason given for denial of service tax is that

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the same was not contemplated in the service agreement.

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However, in the present case there is a

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written contract and the tender document would indicate the intention of the parties.

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As discussed above, the phrase ‘any’

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employed in the present contract would include service tax also notwithstanding such levy has been made applicable by virtue of an amendment brought subsequent to entering of the contract. Hence, the said judgments would be of no assistance to the appellant in the present case.

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Further, the scope of Section 37 has to be

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borne in mind in analysing the challenge made to the order under Section 34 of the Act in the light of the principles laid down by the Hon'ble Apex Court in Associate Builders and Ssangyong Engineering ,

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supra. We do not see any such patent

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illegality/perversity in the order impugned. Even if there are two views possible in the construction of an agreement, if one view is not beneficial to the contractor, the same cannot be held to be perverse.

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For the reasons aforesaid, we find no grounds to

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interfere with the order impugned.

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In the result, the appeal stands dismissed.

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Sd/JUDGE

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Sd/JUDGE

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JT/Dvr:

M/S Ncc Limited v. M/S Mangalore Electric Supply Co. Ltd.

Case brief

What is this about?

What did the court decide?

M/S Ncc Limited v. M/S Mangalore Electric Supply Co. Ltd.

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

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Parties & counsel

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