Allowed

M/s Indu Project Ltd. v. Nmdc (a Government of India Enterprise) and another

Telangana HC4 Nov 2022COMCA/47/2021

Case brief

AI extract

What is this about?

The High Court of Telangana allowed an appeal against an impugned order passed by the Special Court for Trial and Disposal of Commercial Disputes, holding that the trial court exceeded its jurisdiction under Section 34 of the Arbitration and Conciliation Act, 1996 by modifying the arbitral award instead of setting it aside and remitting the matter.

What did the court decide?

The impugned order of the Special Court dated 17-08-2021 was set aside. The appeal was allowed without costs, and the matter was remanded to the Special Court for adjudication afresh on merits.

M/s Indu Project Ltd. Vs Nmdc (a Government of India… — Arbitration | Telangana HC (2022)

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IN THE HIGH COURT FOR THE STA^TE OF TELANGANA AT HYDERABAT)

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FRIDAY ,THE FOURTH DAY C'F NOVEIVIBER TWO THOUSAND AND TWENTY TWO

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PRESENT

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THE HONOURABLE SRI JUSTICE P. NAVEEN RAO AND THE HONOURABLE SRI JUSTICE.,,. SREENIVAS RAO

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COMMERCIAL COURT APPEAL NO: 47 OF 2021

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Between:

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M/s Indu Project Ltd, Having its registered office at 1009, lndu Fortune Fields, 1 3th Phase KPHB Colony, Kukatpally, Hyderabad - 500072 Represented by its authorised signatory (Law), Mr. Ramana Murthy S/o Mr. K.P.Sastry, Aged about 50 years, R/o. 1009, lFF, ICPAB Colony, Hyderabad. ...APPELLANT

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AND

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NMDC (A Government of lndia Enterprise) , 10-3-3'1^'llA, Castle Hills, Masab Tank, Hyderabad - 500028 Represented by its Authorised Signatory Shri. Lokanath Mahapatra, DGM (Civil)

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Justice (Retd) Gopala Krishna Tamada, Learned Sole Arbitrator, Resident of Flat no. F804, Trend Set - Winz Apartments, Nanakramguda, Hyderabad - 8 (Respondent No. 2 is not a necessary party) ...RESPONDENTS

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Commercial Court Appeal Under Section^'13 of Commercial Courts Act read with Section 37 of Arbitration and Conciliation Act,^'1996 praying that this Hon'ble Court may be pleased to set aside the order dated 17-08-2021^passed in C.O.P. No. 215 of 2017 by the Special Court for trial and disposal of Commercial Disputes at Hyderabad by confirming the award dated 20-05-2017 passed by the learned sole arbitrator .

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lA NO: 1 OF 2021

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Petition under Section 151 CPC^praying that in the circumstances stated in the affidavit filed in support of the^petition, the High Court may be^{pleased to} suspend the operation of the order daled 17-08-2021 in COP No.215 of 2017 passed by the Special Court for Trial and Disposal of Commercial Disputes at Hyderabad, until disposal of the present COMCA.

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Counsel for the Appellant: SRl. VIVEK JAIN

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Counsel forthe Respondent: SRI K. RAGHAVA CHARYULU

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The Court made the following: ORDER

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HONOURABLE SRI JUSTICE P. NAVEEN RAO AND HONOURABLE SRI JUSTICE J.SREENIVAS RAO

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COM.CA.No. 47 OF 2O2L

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JUDGMENT: I^{rt'er tfu ,{on'6tc ,9i Justte!..SreenioasQpo} I

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Heard Sri V.Vivek Jain, learned counsei for the appellant and Sri K.Raghava Chan'ulu, learned counsel for the first respondent. 2. The appellant herein, M/s.indu Projects Limited, represented by its authorised signatory (Larv), Sri Ramana Murthy filed this appeal under section 13 of Commercial Courts Act, read r,r,ith Section 37 of Arbitration and Cor.rciliation Act, 1996 aggrieved by the order dated 17-O8-2O21 passed in C.O.P.No.215 of 2Ol7 on the file of the Court of Special Court for Trial and Disposal of Commercial Disputes, Hyderabad, allowing the petition filed by NMDC (A Government of India Enterprisc), l{yderabad / first respondent ald setting aside the award passed by the learned Arbitrator/ second respondent except the finding on claim No.1 is set aside and directcd the parties to commence the arbitration proceedings again from the stage of appointment of the Arbitrator in respect of claim No.S of the appellant and the counter-claim of rhe first respondent. While allowing the petition with costs, the learned trial Judge held that if the first respondent herein is successful in proving its counter-claim, it can plead set-off in respect of claim No. 1 of the appellant to the extent allowed by the learned Arbitrator.

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For the sake of convenience, the parties hereinafter will be - referred to as "petitioner" and "respondents", AS they were arrayed before the Special Court for^'['rial and Disposal of Commercial Disputes at Hyderabad

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The relevant facts, which have bearing on the issues raised by the parties and which emerge from thc pleadings and documents filed by the parties a-re as follows :

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That petitioner-NMDC called tenders for construction of studio type apartments comprising of 22O flats and shopping complex in Chowkawada Village in Chattisgarh State and the first respondent/ contractor was awarded the contract on 22-06-2021 and the value of the contract is Rs.28,36,96,197 l- and the stipulated time for completion of work was 12 months and the first respondent has to complete the construction by 21-06-2012. The first respondent has not completed the work within the stipulated time and sought extension on four occasions and the^petitioner considered arrd granted extension. In spite of the same, the first respondent has not completed- the work and the petitioner issued several letters^to complete the work but the first respondent did not attend the^work within the stipulated time. Ultimately the petitioner issued letter of termination on 14-07-2015. Thereafter, the Iirst respondent^has invoked arbitration clause and^made nine claims^before the^learned

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' Arbitral Tribunal f -,' an amount of Rs.32,83,33,562/-. The learned Arbitrator has disailowed seven claims and partly allowed claim No.1 and claim No.5 u,irs allowcd in total. The petitioner-NMDC made a counter-claim and the learned Arbitral^'lribunal did not take any decision on it on tfrc ground that the causc of action dicl not arise for the <:ounter-claim. Questioning the award passed by the second respondcnt/Arbitr;Ltor. dated 20 05-2017, thc pctitioner NMDC filed C.O.P.No.2l5 of 20 l7 before the Special Court.

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The learrLecl counsel for the appcllant/first respondent vehernentll,contendcd that the learned Arbitrator after considering the contcnlions rais:d tr,y both parties and after considering the entire oral and do<:umcntar-v evidence; namely, Ex.C-1 to Ex.C 27 and Ex.R- 1 to Ex.R 67 u,as pl:ased to pass the award, allowed the claim No.S and directed the first respondent to refund the sccuritl, amount of Rs.2,83,69,700,'. ;rnd also partly allowed thc claim No. I and directed the appe llant/first respondent to pay an amount of Rs. 1,58,000/together with irrtt'rest @ 18% p.a. within a period of four weeks by assigning cogerLt lindings and there is no illegality committed by the learned Arbitratol rvhile passing the award. The learned trial Judge without consid,:ring the scope of section 34 of the Arbitration and Conciliation A<:t, 1996 passed the impugned orcler modifying the award passed try .\ the second respondent/Arbitrator, which is contrary

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and against the settled proposition of law by the Hon'ble Supreme Court as well as High Court.

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The learned counsel lor the appellant/first respondent further contended that the learned trial Judge while upholding the findings in respect of claim No.1, on the other hand, set aside the award passed by the Arbitrator in respect of claim No.5 and dirccted the parties to commence Arbitration proceedings again from the stage of appointment of Arbitrator. The order passed by the learned trial Judge is contrary to the law and without jurisdiction.

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In support of his contention, the learned counsel for the appellant/ first respondent relied upon thc judgmcnt of the Hon'ble SupTeme CouTt in NATIONAL HIGHWAYS AUTHORITY OF INDIA V/s. P NAGARAJU @ Cheluvaiah & ANR]., wherein it u,as held at Para Nos. 26 and 27 as follows :

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Under the scheme of the Act 1996 it would not be permissible to modify the award passed by the learned Arbitrator to enhance or reduce the compensation based on the material available on record in procecding emanating from Section 34 of Act, 1996. The option would be to set aside the award and remand the matter. In this regard it would be apposite to take note of the observation in^M. Hakeem (supra), as hereunder -

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"42. It can therefore be said that this question has now been settled finallu ba dt least 3 decis.oas o/^this Cou/7. Eten othentise, to stote that the^judicial lrend appears to fauour ai interpretatlon that uould^read

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r) 2022 SCC ONLTNE SC-864

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inlo i(.lro| 34 cr pr>uter to modifu, reuise or ua4l the aruor ) Luortld be to ignore the preuious law cotia^Led il tlr( ,94(t Act; as also to ignore the fact that the 1996 A.t uto-\ etlacted based on the UNCITRAL Mod.el Law ott btt( rnanbnal Corrtmercial Arbitration, 19BS which, a:: h,t: beert pointed out in Redfem and^I tunter o lt tert(,tton.Ll Arbttration, ntakes it clear Lhctt, given the litnrt< tl lutlicirtl interkrence on ertrenelA limited gtoutr,'.s tlt,l deating tuith the nlents of ai dward, tlv "l,rniral remed11" utder Section 34 rs c(,lerrr rrorls- lrilh the "limtted ight', natneLy, eilher to -s,,1^{n-s,dean awaftlor remand the matterunderlhe} crr.uxrsrances metitoned in Section 34 of the Arbil,t)tton Act, I99(;.'

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ln lhe ;rbovc backdrop, the contention relating to 'patent ilbgalit..,' in an arvard in terms of Section 34(24) of Act 1996 as put lorth by the learned Additionat Solicitor General needs consideration. On such consideration, only if the award passed in the instant case falls foul of any such requirement so as 1o lrrrng it within the power of review under Section 34 of /'ct 1996, the interference would be warranted. As noted, strc,rrg reliance is placed by the learned Additional Solicitcr⁽ⁱ⁽ nclal to the decision in the case of State of Chhattisgirrh (supra) to contend with regard to the different facets rf l).tent illegality in an award inctuding violation of requirement under Section 2812J. and 31(3) ofAct 1996.

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4⁽ . ! lr]lt beirtg the fact situation and also the position ,rl l.1u) being cLeqr that it llould not be open for the 'ot):1 r't ll1e proceeditgs under kction 34 or in the \tpertl^{utrcler SectiotL37 to modifythe award, the} 4)pr( !)iate^{courseto be adopted.in such eLentis to set} lsik. tlrc euJard and remit the matter lo the leartTed \tbtlt(tLot n temts of Section 34(4) to. keep in uieu, ,hesp .rspects of the tnatter dnd. euen if the notificatiorL .latxl 28.03.2016 relied upon is justified since we h(u e oadtc.tted thor the same could be relied. upon, the funfu'r^dspects with^{regard. to} the^{appropridte market} ual;Le .faed under the soid notirtcation Ior the land.s ruh'cir is the subject matt r of the acquisition or contpcrabk: lands .s lo be made based on appropriate pri,llrc auaiLable belore it and on assigniag reasons for^{llecoicluston} lo be reacled bg the^leamed Arlttl"etor. In that regard, all contentions of th,e pdrlies ar. left open to be put fotth before the learned Arbttretor-

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B. It-t PROJECT DIRECTOR, NATIONAL IIIGHWAYS No.45E & 22O

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_.{

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NATIONAL HIGHWAYS AUTHORITY OF INDIA V/s. M. IIAKEEN AND ANR2., it

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was held at Para Nos. 14 and 15 as follows :

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What is important to note is that, far from Section Q!^{being in the nature of an appellateprovision, it provides} only for setting aside awards on very limited grounds, such grounds being contained in sub-sections (2) and (3) of Section 34. Secondly, as the marginal note ofSectron 3l^{indicates, "recourse"to a court against an arbitralaward} may be madc only by an application for setting aside such award in accordance with sub'sections (2) and^(3). "Recourse" is defined by P Ramanatha Aiyar's Advanced l,aw Lexicon (3rd Edition) as the enforcement or mcthod of enforcing a right. Where the right is itself truncated, enforcement of such truncated right can also be only limited in nature. What is clear from a reading of the said provisions is that, given the limited grounds of challenge under sub sections (2) and (3), an application can only be made to set aside an award. This becomes even clearer when we see subsection (4) under which, on receipt of an application under sub- section (1) of Section 34, the court may adjourn the Section 34 proceedings and^give the arbitral tribunal an opportunity to resurne the arbitral proceedings or take such action as will eliminate the grounds for setting aside the arbitral award. Here again, it is imporiant to note that it is the opinion of the arbitral tribunat which counts in order to eliminate the grounds for setting aside the award, which may be indicated by the court hearing the Section 34 appli( ation.

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It is important to remembei that Section 34 is modelled on the UNCITRAL Model Law on International Commercial Arbitration, 1985, under which no power to modify an award is given to a court hearing a challenge to an award. The relevant Dortion of the Model Law reads as follows:

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Article 34. Application for setliftg o.side os exclusiue recourse agdinst arbitral award ( 1 ) Recourse to a court

,)(2m1)ercr

eg')na;l ot1 arbttrel ouard meA be made onlg bA^att opltlt(litor ./'or setuttg dside tn accordance uith paragr.t)11. /2) and (2)ofthis article.

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-r-rr -L1-.r -r-u 14) The c.ourt, u,hen asked to set dside att aLt)erLl tnolt, wlLere appropiate and so requested bU Q p()rl.rl :trslgnd the setting aside proceediTgs for a perio.! .'f lme detotnined bA it in order to giDe tle arbtlral Lil)utLctl an opl)orlLuritA to resume the arbitrol pr )ce)tlnTgt or to Lqke such other dctiotl as in thc orbittql tribt^'tel's opiniotl will elimitate the grounds for *Utnq.tsidc.

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lll. Dlt tDa! of conlrest, uider Sections 15 and 16 oI the .A.l.ttrattotl Act, 1940, tlLe coutl is giuen the power lo m)dilil o, correct en atuard in the ciralnstances tnDul t)-r'd t,t S?ctntt 15. aparl Jrcm a poLuer lo remil the e,t, trd^,ulder S..tto,t 16 ds follous: -

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I ;. P.\rcr t)l Court to r odtfy auard

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T1e <:(,url nog bg rrder modtfg or coftect an award-

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(c,) ulr,te tt oppea$ thet o part of, the award is upon tt n.alt'?t t.]ot r<:.krred to arbitrdtion and such parl cart be szport terT liotn the otlrcr part and does not affecl tlp deci::tr,r ott llle noller referred; or

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l!))^{t | ,' :l;t: ttu,tLt L t\ uIllerjactur} l'ornL^{or cotrlauls} t,ntl r ]tt,tr tt:; t rrot utlrrch cai bc atnended LLtilhort ( llt\ i t s,r h rlec;srorr. or

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(') u,hre llte .tuot(l contains a clerical mistake or an

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t no ,,,isi,tolr<tm tt o, cidenlul slip or omis.srbn.

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'L^{rtttr to raatnilQtr/er(7}

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11)^{'lheC.()urt. rneA} Jro^{t time to timeremitthe awardor} ttrlu t:utltc'r relenerl to arbitration to the drbitrqtors or tlnq^ttte for teconsicleralioti upon such terms a-s it thinLs jit

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td) tL,tl<)re lhe aword l as left undeterntined dnV of the nolt.A ralerred t(, arbilralion, or where il delermines 1ILL.J ttlatter rLol reJefied to arbitration and such matter -at1:1()l be sel)arated uithovt affecting the 1et,'r'tvuttion of lhtl matters referred-; lrr

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(b) tptlpTp the audrd is so indeJinite ds to be i\capable t)r

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(2) Vhere an au,ard is remitted under sub- section (1) the^(:ortrl shal rt) the time within which the arbitrator or itpire shall submit his d.ecision to the Coutt:

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Prot)tded tlrat attu time so fixed mag be extencled by sul)sequent order (tf the Court.

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(3) t\tr ttward. retnitted under sub- sectiaft (1) shau be, n meⁱ oid on the lailure of the arbitrator or ufiLpire lo

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reconsider it and subrnit his decr'sion within the time ftxed.

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Tltus, under the scheme of the old Act, on aloard tneu be renLttted, modifted or othen ise set aside qiuetl ttrc qrounds contained in Section 30 of the 1940 Act, uhiclt are broader thdn the grounds contained iL S<:ction !J4 of the 1996 Act.

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As lras been pointed out bA us hereindboue, McDermott (supra) ho.s been foltoued bA this Coutt it1 Kinruii Mullick (supra). Also, in Dakshin Harua.na Biili Vitrai Nieltm Ad, u. 4luigtlr'Ll Technoloqies Put. Ltd 2021 SCC Online SC 157, a recent^judgtueit of this Court aLso fotlouecl Mctkrmott (supru) stating that there is no poluer to modifg an arbitral award urtrler Section 34 as Jollouts:

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U)^{In lau, whpre the Courl sets asideth.e anuard passed} bg the najoitg members of the tibunaL the uruJ.erlying dtsputes Luould require to be decided afresh in dn ap prop iate p rocee ding.

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Ihlder Section 34 of lhe Arbitrotion Act, the Court nalt eirlEr drsrni.s.S the objecliotrs f.led., ancl uphold the euard, or set aside the auard if the grounds contanred in sub'secrions (2) and (2A) are made out.'lhere is no power to tnodify an arbitral a u.tard.

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The learned counsel for the appellant further relied on the judgments in RADHA CHEMICALS V/s. UNION OF INDIA3 ., KINNARI MULLICK AND ANR. V/s. GHANSYAM DAS DAMA⁴ ., DYNA TECHNOLOGIES (P) LTD. Vs. CROMPTON GREAVES LIMs., ASSOCIATE BUILDERS V/s. DELHI DEVELOPMENT AUTHORITY6., and SsANGYONG ENGG. & CoNSTRUCTION CO.LTD. V/s. NATIONAL HIGHWAYS AUTHORTTY OF rNDrA (NHAI;2.

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respondent/ petitioner contended that the court below while exercising

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r ) Civil Appeal No.l0386 of z)l8 aising out^{o{ SLP (C)} No.A34/20'lE I ) (2m6) 11 SCC_328 J ) (201 9) 20 5CC_1 ^)(201s)3SCC49 , ) p0r9) 1s scc-l31

its powers unde r scction 3'1 ol thc Act has rightly passed the impugned order and therc is no illegality or irregularity in the impugned order

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1i. In support of his <:onlenl,ion, the learned counsel relied upon the judgments in IDT.A.PARTHASARATHY & ORS. V/s. E. SPRINGS AVENUES PVT.L'ID. & ORSS. ernd NATIONAL HIGHWAYS AUTHORITY OF INDIA V/s. P.NAGARAJU ra CHELIMIAH AND ANR!'.

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The point that emerges for consideration rs:

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Luhether lhe or(l?r dated 17 0B 2021 passed bg the Special Court for Trial aml Disposcrl of Comnterctal Disputes in COP.No.215 of 2Ol7 is witlltt tlrc entbit of Section 34 of the Arbitrotion antd rLbrtciliation Acl ?

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During thr: course of hearing of the appeal, the learned counsel for the appellant, M/s. Indu Projects Private Limited, has drawn the attention of this Court and taken us predominantly to the provisions envisaged under Section 34 of the Arbitration and Conciliation Act 1996 (for brevity 'lhe Act\ and contended that the Special Court can either uphold or set aside the award passed by the learned Arbitrator, but is not having -lurisdiction to modify or a-lter the award passed by the learned Arbitrator.

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In this case. the Special Court has exercised its jurisdiction beyond the scope :rnd ambit of Section 34 of the Act, 1996 and passed

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, ) 2022 {t oN t.l N E sc.7r 9 c I 2022 SCC ON I .l N E Sc36,t

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the impugned ordcr in such a way setting aside the award exccpt the finding on claim No.1 and directed the parties to commencc tl-rc arbitration again from the stage of appointmcnt of the Arbitrator in respect of claim No.5 of the appellant herein and the counter claim of the first respondent herein and allowed the petition with costs and observed that il thr: first respondent is successful in proving its counter claim, it can plead set-off in respect of claim No.l of the appellant to the extcnt allou,ed by the learned Arbitrator.^'I'hus, tl're impugned order passed by thc Special Court amounts to modification ol the arvard passed by the learned Arbitrator, which is not permissible under lau,, especiaily in view of the law laid dovvn by the Honourable Suprcme Court in NATIONAL HIGHwAYS AUTHORITY OF INDIA V/s P.NAGARAJU @ Cheluvaiah & ANR., referred supra-^1.

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The learr-red counscl for the respondent also fairly conce dcs and he too also relied on the principles laid down in the decision^referred supra- 1 .

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In the above backdrop, without^going into^{the merits or demerits} of the appeal, we arc of the^{considered view that the order dated} 17-08-2021 passed by the learned Special^{Judge for trial and disposal} of commercial disputes in COP.No. 215 of^{2Ol7be and is hereby set-}

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aside and thc^{appeal is alloue d and rcmandcd to thc court belowfor} propcr adjudication

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In the resuLt, the appeal is ailorvcd r.l'ithout costs and the Special Court is directc<l to adjudicate COP.No.2l5 of 2017 afresh uninfluenced by an1' of the obscrvation made in this^judgment and dispose ol the sarnc on merits and in accordance with law as expeditiou sly as possible afier affording rcasonable opportunity to both parties

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