Challenge under Section 34 to an arbitral award in a construction contract dispute. The court rejected arguments that the award dealt with matters beyond the scope of submission, was perverse, or lacked reasons, and dismissed the petition.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
O.P.No.153 of 2015
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on: 07.12.2020
Delivered on: 23.12.2020
CORAM:
THE HONOURABLE Mr.JUSTICE M.SUNDAR
O.P.No.153 of 2015
M/s. NCC Ltd.,
Represented by its Senior Manager Mr.P.Narasimhan,
No.190 A, 8 th Floor,
Pettukola Towers,
Kilpauk, Chennai – 600 010. ... Petitioner
Vs.
1. M/s. Indian Institute of Technology, Madras,
Represented by its Director,
Chennai - 600 036.
2. Mr.K.V.Rupchand,
Hon'ble Sole Arbitrator,
No. 7 B, 'Govind I'
Kannapa Nagar Extension,
Thiruvanmiyur, Chennai – 41. ... Respondents
Prayer: Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 praying to set aside the award dated 09.07.2014 passed by the second respondent.
For Petitioner : Mr.P.J.Sri Ganesh for Mr.P.J.Rishikesh For Respondent : Mr.P.Neelakantan 1/27
O.P.No.153 of 2015
of M/s.Menon Karthik Mukundan Neelakantan (Law Firm)
ORDER
Captioned 'Original Petition' (hereinafter 'OP' for the sake for
brevity) is an application under Section 34 of 'The Arbitration and Conciliation Act, 1996 (Act No.26 of 1996)' which shall hereinafter be referred to as the 'A and C Act' for the sake of brevity. Captioned OP has been filed assailing an 'arbitral award dated 09.07.2014' (hereinafter 'impugned award' for the sake of convenience) made by an 'Arbitral Tribunal' ('AT' for the sake of brevity) constituted by a sole arbitrator.
Respondent No.2 in the captioned OP, but when the captioned OP was
taken up for final disposal with the consent of learned counsel on both
sides, it was submitted in unison by learned counsel on both sides or in other words it was submitted by learned counsel on both sides without any disputation or disagreement that the sole Arbitrator, who constituted
the AT, need not continue to be in the array of parties in the captioned OP owing to the nature of challenge to the impugned award. Therefore,
vide proceedings / orders dated 06.10.2020, this Court deleted from the 2/27
O.P.No.153 of 2015
array of respondents the sole Arbitrator (who constituted the AT) and who had been arrayed as Respondent No.2. Therefore, there is a sole petitioner and a lone respondent in captioned OP now. 'Sole petitioner' and the 'lone respondent' shall hereinafter be referred to as 'contractor' and 'IIT' respectively for the sake of convenience and clarity.
09.07.2009, GCC and SCC' shall hereinafter be compendiously and collectively referred to as 'said contract' for the sake of convenience and clarity. There is also no disputation or disagreement that Clause 14.1 of
GCC is an arbitration clause and the same serves as an arbitration agreement between the Contractor and IIT being an 'arbitration
agreement' within the meaning of Section 2(1)(b) read with Section 7 of A and C Act. Captioned OP is a challenge under Section 34 of the A and
C Act qua impugned award and therefore, short facts shorn of elaborate 3/27
O.P.No.153 of 2015
details / particulars or in other words, factual matrix in a nutshell containing essential facts imperative for appreciating instant order will suffice.
was claimed towards material / labour and it is to the tune of 7.80 crores; that the deduction of LD and claim of additional sum of Rs.7.80 crores
towards material and labour based on price variation clause in said contract became the bone of contention between contractor and IIT; that Rs.7.80 Crores additional claim is made up of a claim of Rs.3.24 crores 4/27
O.P.No.153 of 2015
and Rs.4.58 crores towards labour and material; that two pronged bone of contention, i.e., deduction of LD and additional claim of Rs.7.80 crores (posited on price variation clause in said contract) lead to aforementioned arbitration agreement being triggered; that vide letter dated 12.04.2012, IIT appointed a sole Arbitrator; that the sole Arbitrator entered upon reference and after full contest made the impugned award on 09.07.2014; that vide the impugned award, AT scaled down the LD deduction from Rs.52.66 lakhs to Rs.47 lakhs and rejected the Rs.7.80 crores additional claim of the contractor (based on price variation clause in said contract); that IIT accepted the impugned award and paid the differential i.e., scaled down portion of LD to the contractor; that the contractor has chosen to lay challenge to the impugned award vide captioned OP.
captures the trajectory of the matter thus far and as to how the captioned OP which has now been taken up for final disposal in a virtual hearing on a video conferencing platform with the consent of learned counsel on both sides reached this virtual Court.
before this virtual Court i.e., web hearings on a video conferencing platform Mr.P.J.Sri Ganesh, learned counsel representing the counsel on https://www.mhc.tn.gov.in/judis/ 5/27
O.P.No.153 of 2015
record for the contractor (sole petitioner) and Mr.P.Neelakantan of M/s.Menon Karthik Mukundan Neelakantan (Law Firm) on behalf of IIT
(lone respondent now) are before this virtual Court.
submissions.
a) Impugned award contains decisions beyond the scope of submission to arbitration and is therefore, liable to be set aside under Section 34(2)(a)(iv) of A and C Act. This submission is posited on the point that 'Extension of Time' ('EOT' for the sake of brevity) was not the issue submitted for arbitration, but levy of LD was the issue;
b) Impugned award is liable to be set aside as being
in conflict with public policy of India as it is perverse. This
submission was predicated on the argument that contractor's claim for additional sum of Rs.7.80 Crores
based on price variation clause in the said contract has been
negatived solely on the ground of delay, whereas EOT or
correctness of EOT was never an issue before the AT.
6/27
O.P.No.153 of 2015
as follows:
a) All EOTs were provisional and while granting each
EOT, IIT had preserved its rights to claim LD. This has been made clear in every EOT letter and therefore, it cannot be gainsaid that LD ought not to have been levied;
b) It is not tenable to say that the claim of additional sums
of money towards material and labour on the basis of price variation clause was negatived by AT solely on the ground of delay as AT has looked into other material placed before it in this regard.
10.To be noted, IIT raised the issue of arbitrability qua price variation clause alone, but this was negatived by AT, however IIT has accepted this verdict of AT is also learned counsel's say.
now proceeds to discuss the rival submissions and give its dispositive reasoning for arriving at a conclusion qua the prayer in captioned OP.
that the first point that falls for consideration is whether the impugned
award contains decisions beyond the scope of submission to arbitration. 7/27
O.P.No.153 of 2015
In this regard, letter dated 12.04.2012 from IIT inter alia to the contractor (Ex.No.42 before AT) is of relevance. Owing to the nature of the argument, this Court deems it appropriate to scan / reproduce the entire letter and the same is as follows:
8/27
O.P.No.153 of 2015
necessary to have clarity on what the expression 'submission to arbitration' occurring in Section 34(2)(a)(iv) of the A and C Act means. This expression 'submission to arbitration' is made up of three facets i.e., a) dealing with a dispute not contemplated by the terms of submission to arbitration, b) dealing with a dispute not falling within the terms of submission to arbitration and c) containing decision on matters beyond the scope of submission. In the instant case, it was made clear by the learned counsel for petitioner that 34(2)(a)(iv) argument is predicated on the third limb. Hon'ble Supreme Court, in the recently rendered elaborate Ssangyong judgment i.e., Ssangyong Engineering and Construction Company Limited Vs. National Highways Authority of India reported in [(2019) 15 SCC 131] has explained the expression 'submission to arbitration' by endorsing commentaries in standard text books and English case laws. The most relevant portion of Ssangyong
case law which is elucidative and instructive in this regard is contained in Paragraph 58 of the SCC Online report and that relevant portion reads as follows:
'The ground of challenge under Section 34(2)(a)(iv)
58. So far as this defence is concerned, standard
9/27
O.P.No.153 of 2015
textbooks on the subject have held that the expression “submission to arbitration” either refers to the arbitration agreement itself, or to disputes submitted to arbitration, and that so long as disputes raised are within the ken of the arbitration agreement or the disputes submitted to arbitration, they cannot be said to be disputes which are either not contemplated by or which fall outside the arbitration agreement. The expression “submission to arbitration” occurs in various provisions of the 1996 Act. Thus, under Section 28(1)(a), an Arbitral Tribunal “...shall decide the dispute submitted to arbitration....”. Section 43(3) of the 1996 Act refers to “...an arbitration agreement to submit future disputes to arbitration...”. Also, it has been stated that where matters, though not strictly in issue, are connected with matters in issue, they would not readily be held to be matters that could be considered to be outside or beyond the scope of submission to arbitration.'
in SCC online report) of Ssangyong case law after referring to English and Irish case laws as also Mansfield’s commentary on the subject, Hon'ble Supreme Court has made it clear that there is a presumption that the AT has acted within its mandate and the onus of establishing otherwise rests on the party seeking to set aside the award on this ground.
10/27
O.P.No.153 of 2015
(protagonist of the captioned OP) to dispel this presumption. In other
words, going by Ssangyong principle, the onus is on the contractor who
is the protagonist of captioned OP to demonstrate that AT has wandered. In this regard, the campaign of the learned counsel for contractor is predicated on the five issues framed by AT, which is contained in Paragraph 3 of the impugned award which reads as follows:
' 3. Subsequently, in Meeting No.3 held on 27.08.2012,
11/27
O.P.No.153 of 2015
Issues were framed with the consent of both the parties as follows, to facilitate the adjudication of the dispute between the parties:
1. Extension of Time : Application and Grant
2. Grant of Extension of Time under Clause 5
3. Levy of Compensation
4. Interest on Compensation
5. Claim No.3 – Reworded as 'Arbitrability of Claim
No.3' in Meeting No.4.'
impugned award reads as follows:
'7.1(d) Tribunal's ruling
1. Clause 5.2 of the Contract (p.67/T1) lists 8 events which may cause delay in the works. Clause 5.3 of the Contract (p.68/T1) states 'Request for rescheduling of milestones and extension of time, to be eligible for consideration, shall be made by the contractor in writing within fourteen days of the happening of the event causing delay on the prescribed form. The contractor may also, if practicable, indicate in such a request the period for which extension is desired'. There are three requirements for considering EOT, viz. (i) Request for rescheduling of milestones, (ii) request for extension of time and (iii) request shall be made in the prescribed form. Requirement (ii) has to be preceded by requirement (i) according to the sequence of these clause of terms under Clause 5.3. It is found from (c) above that none of these three requirements has been
12/27
O.P.No.153 of 2015
complied with by Claimant while applying for EOT on all the ten occasions.
2. Clause 5.4 of the Contract (p.68/T 1) states 'In any such case the Engineer in Charge may give a fair and reasonable EOT and reschedule the milestone for completion of work...Non application by the contractor for EOT shall not be a bar for giving a fair and reasonable extension by the Engineer-in-Charge and this shall be binding on the contractor'. In this contract, no rescheduling of milestone has been done. Claimant has given a suo-moto extension (p. 179/C 1) for the work as a whole, whereas some works had been completed much earlier in August 2010(c. 8 above). This is mentioned as provisional extension. Claimant states that “By their very expression, the term provisional itself means that it was not final. Further Clause 5 also mentions, 'final EOT' thereby implying that there can be provisional EOTs (c. 13 above)”. The work 'provisional' connotes something which is in a nascent stage, to be confirmed later and hence, cannot qualify to be used for a shifting date of completion. At best, such provisional extensions but only extensions as per clauses 5.3 & 5.4.
3. Held that Application for EOTs by Claimant and Grant of EOTs by respondent do not conform to the provisions in the contract.
7.2(d) Tribunal's ruling
Grant of EOT under clause 5 does not conform to the provision in the contract.'
13/27
O.P.No.153 of 2015
otherwise of EOT was submitted to arbitration. Correctness or otherwise of EOT may not have been set out with specificity, but it is certainly not something which falls outside the dynamics and dimensions of LD. It is a certain determinant qua LD/price escalation as it is an inseparable facet of LD / price escalation as it is so intertwined with LD / price escalation
that to disentangle the same would tantamount to missing the wood for the trees. The reason is LD was levied owing to delay, price escalated
owing to time delay and EOT was subject to LD.
being inextricably dovetailed) as in every single EOT letter given by IIT,
IIT has made it clear that it is without prejudice to the rights of IIT to
levy LD. A typical EOT reads as follows:
14/27
O.P.No.153 of 2015
expression 'submission to arbitration' has been explained, this explanation of Hon'ble Supreme Court is elucidative, instructive and
15/27
O.P.No.153 of 2015
when this Court respectfully applies the same to the case on hand, the argument of learned counsel for petitioner fails as the petitioner has not been able to dispel the presumption and discharge the onus qua wandering ground. It follows as a sequitur that on the facts and circumstances of instant case, going by the Ssangyong principle, it cannot be gainsaid that it is not a matter connected with matters in issue and therefore, it cannot be held to be beyond the scope of submission to arbitration. This answers the first argument/issue regarding impugned award containing decisions beyond the scope of submission to arbitration. In other words, this Court finds for IIT in this regard.
the LD of Rs.52.66 lakhs levied by IIT to Rs.47 lakhs and this differential amount of little over Rs.5 lakhs has also been duly paid to the contractor by IIT by accepting the impugned award.
O.P.No.153 of 2015
It would be evident from paragraphs supra in this order (where rival submissions have been captured by way of summations) that this argument turns on a very acute and narrow curve. That acute and narrow curve is whether AT has decided this issue of additional claim solely on the ground of delay. To put differently, the simple question is whether AT has negatived this additional claim of the contractor solely on the ground of delay in execution of said work.
to light that the additional claim of Rs.7.80 crores made by the contractor on the basis of price variation clause has not been negatived by AT solely
on the ground of delay. This is clear inter alia from the following two portions of the award:
' 5. Provisions in Clause 10 C are crystal clear.
Claimant has failed to comply with the conditions set forth in clause 10 C, viz. giving notice to Engineer-in-Charge, maintain book of Accounts and producing proof of having actually incurred increased expenditure on account of increase in the wages of labour and cost of materials. There is absolutely no scope to arrive at the increase in expenditue made, if any, by any other method, such as the hypothetical calculations resorted to by Claimant. As Claim No.3 is not maintainable, the consequential interest payment does not arise.
17/27
O.P.No.153 of 2015
(d) Tribunal's Ruling
1. ........
2. Statutory Minimum Wages of labour increased from Rs.102 on 07.10.2009 to Rs.203 on 18.12.2009 (7.5.a.4 above). Claimant should have 'woken up' then and there and initiated action to stake his claim due to increased wages as per the terms of the contract. Claimant simply kept quiet till 06.09.2011 i.e., for more than 20 months and made this claim for the first time, that too without following the provisions in the contract. It is unbelievable that Claimant bid time for such a long period to allow the claim to 'brew', to its ultimate quantum of nearly Rs.8 Crores. The elaborate working sheets which Claimant has produced in support of Claim No.3 can, at best, be termed as a good 'theoretical exercise' bringing forth absolutely no benefit to Claimant.
'31. The third juristic principle is that a decision which is perverse or so irrational that no reasonable person would have
18/27
O.P.No.153 of 2015
arrived at the same is important and requires some degree of explanation. It is settled law that where:
(i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into account something irrelevant to the decision which it arrives at; or
(iii) ignores vital evidence in arriving at its decision,
such decision would necessarily be perverse.
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)
“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.”
In Kuldeep Singh v. Commr. of Police [(1999) 2 SCC 10 : 1999 SCC (L&S) 429] , it was held: (SCC p. 14, para 10)
“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
19/27
O.P.No.153 of 2015
conclusions would not be treated as perverse and the findings would not be interfered with.”
15.09.2014. The test for perversity as well as irrationality is Wednesbury
principle of reasonableness but it is clear as daylight that the impugned award has not negatived contractor's claim for additional sum (predicated on price variation clause in said contract) solely on the basis of delay as AT has considered the evidence before it to come to the conclusion that contractor has not produced adequate material much less adequate material in the form of evidence and in accordance with said contract to be entitled to claim monies under price variation clause. Therefore, it cannot be gainsaid that impugned award does not pass the rigour of Wednesbury test of reasonable. In other words, it passes the rigour of Wednesbury principle of reasonableness. This puts an end to the
campaign of the petitioner with regard to price variation clause.
contractor that the Arbitral Tribunal has not given reasons for justifying LD and for negativing the claim posited on price variation clause. There
is no disputation or disagreement that the case on hand does not fall
20/27
O.P.No.153 of 2015
under either sub-clause (a) or sub-clause (b) of sub-section (3) of Section 31 of the A and C Act. In other words, there is no disputation or
disagreement that the case on hand is not one where the parties have agreed that no reasons have to be given and the impugned award is not an award on agreed terms within the meaning of Section 30 of A and C Act. Therefore, it follows as a sequitur that AT has to give reasons, but in the considered view of this Court, AT has given reasons in the impugned award. The relevant portions regarding LD and price variation as contained in the impugned award have been extracted and reproduced elsewhere supra in this order. As already alluded to initially in factual matrix and later delineated in discussion / dispositive reasoning supra, the LD sum of Rs.52.66 lakhs levied by IIT has been reduced to Rs.47 lakhs by the AT after discussion and by giving dispositive reasoning.
Likewise, AT has given the reason that material placed before it by the contractor is not good enough to substantiate its claim for additional sums on price variation clause. Relevant paragraphs from the impugned award of AT in this regard have also been extracted and reproduced supra. Therefore, Som Datt Builders Limited Vs. State of Kerala reported in (2009) 10 SCC 259 pressed into service by learned counsel
for contractor with regard to reasons not being given does not come to https://www.mhc.tn.gov.in/judis/ 21/27
O.P.No.153 of 2015
the aid of the petitioner as in Som Datt Builders was a matter where the contractor took the stand that seeking of extension of time qua loss itself was on account of strike by various local unions, bundh and interference by police, other authorities and a delay upto 18 ½ months was held to be attributable to the claimant, but no reasons were given. It is in this context that in Som Datt Builders case Hon'ble Supreme Court considered it an appropriate case where the High Court could have given opportunity to the AT i.e., an opportunity to resume the arbitral proceedings and eliminate this ground for setting aside by giving reasons. To be noted, even in Som Datt Builders, Hon'ble Supreme Court has held that an AT is not expected to write judgment like a Court and it is not expected to give elaborate and detailed reasons in support of its findings. Som Datt Builders was a case where the submissions were merely noticed and reference to the documents were made. It was held that noticing submissions and making reference to documents is not a substitute for reasons which the AT is obliged to give. In the case on hand, relevant portions of discussion and reasons, as contained in the
impugned award particularly, paragraphs 7.1(d), 7.2(d) have been extracted and reproduced supra, a plain reading of these paragraphs leaves this Court with the view that the reasons do have the trappings of https://www.mhc.tn.gov.in/judis/ 22/27
O.P.No.153 of 2015
dispositive reasoning and therefore, this Court is unable to see any infarct of sub-section (3) of Section 31 of A and C Act, much less an infarct which vitiates the impugned award.
23/27
O.P.No.153 of 2015
this regard, in Ssangyong case law, the impact of 23.10.2015
amendment on perversity as understood in Associate Builders case law has been set out. In this case, as captioned OP is governed by pre 23.10.2015 regime, perversity as understood and elucidated in paragraphs 31 and 32 of the oft-quoted Associate Builders case (extracted and reproduced supra) can be safely relied upon.
the form of patent illegality, but it is not necessary to dilate much on this aspect of the matter. Applying the principles set out in paragraphs 31 and 32 of oft-quoted Associate Builders case, this Court is unable to come to the conclusion that the view taken by the AT in the impugned award is implausible and that it is a view which no reasonable person would take on the facts and circumstances of the case. As all EOTs have
been given by IIT with a rider that it is without prejudice to the rights of IIT qua LD, this Court is also coming to the conclusion that EOT facet is
inseparably intertwined with deduction of LD. Before winding up this matter, for the purpose of capturing what unfurled in the hearing with
completeness, this Court deems it appropriate to record that learned counsel for IIT placed before this Court Jagan Nath Ashok Kumar case
24/27
O.P.No.153 of 2015
[ Municipal Corporation of Delhi Vs. Jagan Nath Ashok Kumar and another reported in (1987) 4 SCC 497 ], Tiwari Road Lines case [ Iron and Steel Co.Ltd., Vs. Tiwari Roadlines reported in (2007) 5 SCC 703 ] and Motorola India case [ Bharat Sanchar Nigam Limited and another Vs. Motorola India Privae Limited reported in (2009) 2 SCC 337 ].
Jagan Nath Ashok Kumar case was relied on for the principle that there shall be no re-appreciation of the matter and learned counsel for contractor submitted that this is under the old Act and it cannot be applied. In the light of the discussion and dispositive reasoning thus far, it is not necessary to go into this aspect and it is best left at that. The same applies to Tiwari Road Lines case, which was placed before me regarding the procedure for arbitration point and learned counsel for contractor said it was distinguishable as Tiwari Road Lines was rendered
under Section 11 proceedings. Likewise, Motorola India case was pressed into service qua deduction of LD, but learned counsel for contractor said it is distinguishable as that was a case coming within the scope of excepted matters qua liability of supplier regarding LD. It was
pointed out that this is not a case of expected matter. Similar to Jagan
Nath Ashok Kumar case and Tiwari Road Lines, Motorola India case
25/27
O.P.No.153 of 2015
laws also do not compel discussion in this order as the discussion and dispositive reasoning thus far itself clinches the captioned OP in favour of IIT.
Owing to all that have been set out supra, this Court finds for the
respondent and therefore captioned OP is dismissed. There shall be no
order as to costs.
23.12.2020
Speaking Order: Yes
Index: Yes
gpa
26/27
O.P.No.153 of 2015
M.SUNDAR, J.
gpa
order in
O.P.No.153 of 2015
23.12.2020
27/27
3 issues framed by the court
Whether the arbitral award contains decisions beyond the scope of submission to arbitration under Section 34(2)(a)(iv) of the Arbitration and Conciliation Act, 1996?
Whether the award is perverse or contrary to public policy in rejecting the contractor's price variation claim solely on the ground of delay?
Whether the arbitral tribunal failed to give reasons for its findings on liquidated damages and the price variation claim?
Colour shows how this judgement treated each authority
Associate Builders Vs. Delhi Development AuthorityApplied¶156
(2015) 3 SCC 49 · Who else cites this
ONGC v. Western Geco International Ltd.Referred¶194
(2014) 9 SCC 263 · Who else cites this
Som Datt Builders Limited Vs. State of KeralaDistinguished¶187
(2009) 10 SCC 259 · Who else cites this
Municipal Corporation of Delhi Vs. Jagan Nath Ashok Kumar and anotherReferred¶209
(1987) 4 SCC 497 · Who else cites this
Iron and Steel Co.Ltd., Vs. Tiwari RoadlinesReferred¶209
(2007) 5 SCC 703 · Who else cites this
Bharat Sanchar Nigam Limited and another Vs. Motorola India Privae LimitedReferred¶209
(2009) 2 SCC 337 · Who else cites this
5 provisions across 1 enactments
M/s. NCC Ltd.
M/s. Indian Institute of Technology, Madras
Mr.K.V.Rupchand
M.Sundar
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
