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ARBITRATIONCASE LAWSLEGAL AFFAIRS

SEC 30 & 33 ARBITRATION ACT

Atlanta Limited Thr. Its Managing Director v. Union of India Represented By Chief Engineer Military Engineering Service, SC 2022

FACTS – On 16th November, 1988, the appellant-claimant, a construction company, entered into a contract with the respondent-Union of India for construction of a runway and allied works at the Naval Air Station, Arakonam for a total contract price of โ‚น19,58,94,190/. As per the contract, the work was to be completed within a period of 21 months from the date of the commencement, ending on 23rd August, 1990. It is the stand of the respondent-Union of India that the site was handed over to the appellant-claimant on 24th November, 1988 and reckoned from the said date, the date of completion of the contract would have expired on 23rd August, 1990. On the contrary, theappellantโ€™s stand is that it could commence the work only on 1st January, 1989, since the site was heavily waterlogged due to the rainy season. During the course of execution of the work, the appellant-claimant sought extension of time for completion of the project for 45 fortnights w.e.f. 15th July, 1992 as the probable target date. The respondent-Union of India granted extension of time thrice, firstly upto 31st December, 1990, then upto 30th June, 1991 and lastly upto 31st March, 1992. By Mid-March, 1992, the appellant-claimant claims to have completed the substantial work of construction of the runway and taxi track to the extent of 72%. Since the respondent-Union of India proposed to have the runway inaugurated by the then President of India on 11th March, 1992, the appellant-claimant had to hand back the site on 9th March, 1992 whereafter, for security reasons, the station became a restricted area. As a result, the appellant-claimant had to request the respondent-Union of India to issue passes for its staff, operators and labourers to complete the balance work. But no entry passes were issued. Instead, vide letter dated 2nd April, 1992 the contract was terminated with immediate effect by the Chief Engineer, who declined to extend the time any further for completion of the work which was otherwise to expire on 31st March, 1992.

Aggrieved by the aforesaid termination order, the appellant- claimant invoked the Arbitration Clause in the contract executed by the parties and a Sole Arbitrator was appointed to adjudicate the disputes between them. Several claims were raised by the appellant-claimant before the learned Sole Arbitrator. The respondent-Union of India also raised counter claims. The learned Sole Arbitrator framed as many as 33 issues and on evaluating the evidence and hearing the parties pronounced a detailed Award dated 24th June, 1999, running into 506 pages, wherein a sum of โ‚น25,96,87,442.89p was awarded in favour of the appellant-claimant, inclusive of interest upto 31st May, 1999. Further, future interest was directed to be paid by the respondent-Union of India from 1st June, 1999 at the rate of 18% per annum on the principal amount of โ‚น14,12,50,907.55p., till realization. As regards the counter-claim of the respondent-Union of India, the learned Sole Arbitrator awarded a sum of โ‚น1,42,255/- in its favour in respect of Claim No. 6 along with future interest

Aggrieved by the Award dated 24th June, 1999, the respondent- Union of India moved a petition under Section 30 read with Section 33 of the 1940 Act, which was dismissed by the learned Single Judge vide order dated 19th January, 2009 and a decree was passed in terms of the Award holding that the appellant-claimant herein would be entitled to interest at the rate of 12% per annum on the principal amount from the date of the decree, i.e., 19th January, 2009, till the date of payment.

The judgment dated 19th January, 2009 was challenged in an intra-court appeal filed by the respondent-Union of India. By the impugned judgment, the Division Bench has set aside the amount awarded in favour of the appellant-claimant towards idle hire charges and the value of the tools and machineries. Further, the findings returned in the Award in respect of the extension of time and illegal termination of the contract on the part of the respondent-Union of India, were also set aside.

CAUSEJudgment and order dated 20th July, 2010 passed by the Division Bench of the High Court of Madras partly allowing the appeal preferred by the respondent-Union of India under Section 39 of the Arbitration Act , 1940 and interfering with the order dated 19th January, 2009 passed by the learned Single Judge in 1999, a petition filed by the respondent-Union of India under Sections 30 and 33 of the 1940 Act against the arbitral Award dated 24th June, 1999.

ARGUMENTSMs. Meenakshi Arora, learned Senior Advocate appearing for the appellant-claimant assailed the impugned judgment and submitted that it was for cogent reasons that the learned Sole Arbitrator had ruled in favour of the appellant-claimant in respect of the claim relating to reasonableness of the extension of time granted by the respondent Union of India for completing the project and a related claim pertaining to the validity of the decision taken by the respondent-Union of India to terminate the contract. The claim of the appellant-claimant in respect of idle hire charges and the value of the machinery and its equipment lying at the site was also awarded in its favour for justified reasons and has been erroneously turned down by the Division Bench. It was canvassed that the Appellate Court has erred in re-appreciating the evidence led by the parties which was duly scrutinized and evaluated by the learned Sole Arbitrator and upheld by the learned Single Judge. Learned senior counsel contended that the scope of interference by courts in arbitral Awards made under the old Act, viz., the Arbitration Act, 1940, is fairly limited. Courts do not sit in appeal over an Award passed by the learned Arbitrator, nor do courts interfere with the Award only on the ground that the Arbitrator has taken a possible view, though a different view could have been taken on the very same evidence. Stating that the present case is not one where the Award suffers from any patent perversity or an error of law; nor has the learned Sole Arbitrator mis-conducted himself on the proceedings, learned senior counsel submitted that the Appellate Court has exceeded its jurisdiction by substituting its own opinion in place of the conclusions arrived at by the learned Sole Arbitrator.

Mr. Sanjay Jain, learned Additional Solicitor General appearing for the respondent-Union of India, supported the impugned judgment and submitted that the Appellate Court had every reason to set aside the Award in respect of the findings returned by the learned Sole Arbitrator on the aspect of reasonableness of extension of time, validity of the termination of the contract by the respondent-Union of India as also the claim of idle cost of the machinery and plant awarded in favour of the appellant-claimant. He submitted that the issues relating to reasonableness of extension of time and validity of termination of the contract were โ€œexcepted mattersโ€ in terms of Clauses 7, 11, 54 and 70 of the contract governing the parties, which aspects were completely overlooked by the Sole Arbitrator; that the issue relating to the validity of termination of the contract on the part of the respondent-Union of India was also covered under โ€œexcepted mattersโ€ by virtue of Clauses 54 and 70 of the contract and that the Sole Arbitrator had travelled beyond the terms of the contract by allowing the claim for idling cost of plant and machinery in favour of the appellant-claimant.

It was submitted on behalf of the respondent-Union of India that allowing idling charges in favour of the appellant-claimant amounted to a patent illegality in the Award for the reason that in a separate proceeding initiated by the appellant-claimant, the High Court had permitted it to lift its material from the site, post termination of the contract, an option which it elected not to exercise, for reasons best known to it.

ISSUE – (i) reasonableness of the extension of time and validity of the termination of the contract on the part of the respondent-Union of India and (ii) the amount that was awarded in favour of the appellant-claimant on account of idle hire charges and the value of its machinery and equipment lying at the site, that has been set aside in the impugned judgment.

DECISION – Before dealing with the submissions made on behalf of the parties, it is considered apposite to examine the scope of interference by courts in arbitral Awards passed under the Arbitration Act, 1940. The consistent view taken in several judicial pronouncements is that the Court does not sit in appeal over an Award passed by an Arbitrator and the only grounds on which it can be challenged are those that have been specified in Sections 30 and 33 of the Arbitration Act, namely, when there is an error on the face of the Award or when the learned Arbitrator has mis-conducted himself or the proceedings as was held in the case of Kwality Manufacturing Corporation v. Central Warehousing Corporation.

It is also a well-settled principle of law that challenge cannot be laid to the Award only on the ground that the Arbitrator has drawn his own conclusion or failed to appreciate the relevant facts. Nor can the Court substitute its own view on the conclusion of law or facts as against those drawn by the Arbitrator, as if it is sitting in appeal.

As long as the Arbitrator has taken a possible view, which may be a plausible view, simply because a different view from that taken in the Award, is possible based on the same evidence, would also not be a ground to interfere in the Award.

We are of the opinion that once the learned Sole Arbitrator had interpreted the clauses of the contract by taking a particular view and had gone to great length to analyse several reasons offered by the appellant-claimant to justify its plea that it was entitled for extension of time to execute the contract, the Division Bench of the High Court ought not to have sat over the said decision as an Appellate Court and seek to substitute its view for that of the learned Arbitrator.

In the instant case, having gone through the Award, we find that the learned Sole Arbitrator was lucid in his reasoning for taking a particular view on the interpretation of the terms and conditions of the contract between the parties. It was for this very reason that the learned Single Judge had forbore from interfering with the arbitral Award and dismissed the petition filed by the respondent-Union of India under Sections 30 and 33 of the 1940 Act. By going into the minute details of the evidence led before the learned Sole Arbitrator with a magnifying glass and the findings returned thereon, the Appellate Court has clearly transgressed the limitations placed on it. In any case, we are of the opinion that the reasons offered for taking such a view, are neither justified nor called for for interfering with the arbitral Award.

We accept the findings returned by the learned Sole Arbitrator endorsed by the learned Single Judge that there was sufficient justification for the appellant-claimant to have sought extension of time for completing the work and that the decision of the respondent-Union of India to terminate the contract, was not for legitimate reasons.

The second argument concerns the amount that was awarded in favour of the appellant-claimant on account of idle hire charges and the value of its machinery and equipment lying at the site, that has been set aside in the impugned judgment.

Premised on the said formula of the Court Commissioner for valuing the tools and machinery and premised, sum of โ‚น6,77,41,386/- was awarded in favour of the appellant-claimant towards idle hire charges of machineries and equipment with interest payable @ 18% p.a. and a sum of โ‚น2,72,95,000/- was granted to the appellant-claimant towards the value of the tools and machineries totalling to a sum of โ‚น15,35,40,785/-inclusive of interest.

The Appellate Court has set aside the aforesaid claim by taking a view that the learned Sole Arbitrator lost sight of the fact that once the High Court had passed an order granting permission to the appellant- claimant to remove the equipment and machineries from the site in the proceedings initiated by it and still they were not removed, then it has none else to blame but itself for the situation. Holding that the learned Sole Arbitrator had misconducted himself by observing that the claimant โ€œmay be correctโ€ in not taking the machineries without an inventory when they were available at the site, the Appellate Court held that the appellant-claimant was not entitled to any amount towards the value of the tools and machineries, having been awarded idle hire charges for the very same equipments.

The aforesaid conclusion drawn by the Appellate Court is manifestly erroneous and flies in the face of the settled legal position that the Arbitrator is the final arbiter of the disputes between the parties and it is not open to a party to challenge the Award on the ground that he has drawn his own conclusions or has failed to appreciate certain facts. It is beyond the jurisdiction of the Appellate Court to assign to itself, the task of construing the terms and conditions of the contract and its provisions and take a view on certain amounts awarded in favour of a party.

The submission made on behalf of the respondent-Union of India that the learned Sole Arbitrator had misconducted himself, is also unmerited. On the contrary, the conclusions are consistent with his findings and the records reveal that material documents were thoroughly examined by the learned Sole Arbitrator in the correct perspective.

We therefore reject the submission made on behalf of the respondent-Union of India that the learned Sole Arbitrator had misconducted himself. In view of the discussion above, the impugned judgment dated 20th July, 2010 passed by the Division Bench of the High Court cannot be sustained and is quashed and set aside, while restoring the judgment dated 19th June, 2009 passed by the learned Single Judge and upholding the decree granted in favour of the appellant-claimant in terms of the Award along with interest.

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