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TMI Blog2020 (8) TMI 871X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent, referred the matter to arbitration, making a claim under various heads as follows: (a) unpaid amount against 5th Running Account Bill (RA Bill) for Rs. 28,43,727/-, (b) loss of business opportunity and profits at the rate of 15% of the entire contract value pursuant to a so-called arrangement between the claimant, the petitioner and a third party, namely, KEC, amounting to Rs. 33,34,226/-, (c) refund of Works Contract Tax, (d) damages, and (e) interest. 4. On the other hand, the present petitioner took several defences, thereby contesting the claims, and also made a counter claim for damages. 5. Ultimately, the learned Arbitrator, pursuant to the reasoning given in the impugned award, allowed the claim on the 5th RA Bill to the tune of Rs. 28,43,727/-. Since the claimant had not claimed entitlement to the amount raised by the 1st to 4th RA Bills, the claimant was not granted any amount on such bills. 6. It was further held by the learned Arbitrator that the amount, specified above, was payable by the respondent to the claimant with interest at the rate of 15% per annum for the respective periods calculated in the following manner: (a) On the amount of 5th RA Bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t there was no contemporaneous letter regarding defective works, is perverse as several documents in respect of such contention, allegedly disclosed in the arbitration, were overlooked. Exhibit R8 (letter dated October 16, 2007) in particular, and several other letters were referred to in this regard. As such, it is argued that non-consideration of such material evidence strikes at the root of the decision-making process and vitiates the award, being perverse and contrary to public policy. 11. Learned counsel for the petitioner submits that such perversity would fall squarely within the scope of judicial review under Section 34 of the 1996 Act, as laid down in Associated Builders vs. Delhi Development Authority, reported at (2015) 3 SCC 49 (paragraph nos. 31 to 33), which was further approved in Ssangyong Engineering and Construction Company Limited vs. National Highways Authority of India (NHAI) reported at (2019) 15 SCC 131 (paragraph 41). It is argued that although Associated Builders (supra) arose from an appeal under Section 37 of the 1996 Act, the principle which emerges from paragraph 31 of the said decision would apply to this case, since it involves complete non-considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ull-fledged evidence was led by both parties, the petitioner placed reliance on the decision [M/s Utility Powertech Limited vs. M/s. Amit Traders], in particular paragraph no. 19 thereof. Counsel further relied on an unreported decision of a coordinate bench of this court dated February 7, 2019 passed in G.A. 2522 of 2016 (C.S. 213 of 2016), in the matter of J.K. Engineering Pvt. Ltd. vs. ANE Industries Pvt. Ltd., placing particular reliance on paragraph no. 7(i) of the said judgment. 17. It is further argued on behalf of the petitioner that the learned Arbitrator granted interest upon interest several times over. Further interest was granted not only on the original principal amount but on the capitalized/compounded sum, which was granted for the pre-reference period, already with interest. Such interest was granted for the pendente lite period. The third interest was granted for the post-award (till realization) period, calculated on the amount compounded in terms of the previous compounded amount and not on the principal sum. In fact, a fourth interest was granted on such compounded amount as lastly mentioned above, in the event of non-payment of the awarded amount within three ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neer (RE) of the petitioner company at site within next ten days and payment therefor was to be realised within thirty days from the date of submission of the bill. Such clause of the contract had never been modified or agreed to be departed from. The learned Arbitrator further found that there was no evidence to the effect that the 5th RA Bill was not verified by the RE stationed at site, nor was there any evidence of any adverse report of the petitioner's RE regarding shortcomings in the 5th RA Bill or defect in the work executed. 25. The TDS certificate (exhibit A20) was considered by the learned Arbitrator. The petitioner company had deducted tax at source under Section 194C(2) of the Income Tax Act, 1961 in respect of the 5th RA Bill (for the period ended March 31, 2008) and only after depositing the said tax in the bank on May 30, 2008, the petitioner issued the said TDS certificate to the claimant, which is evident from the exhibit itself. Such deduction necessarily implies that the entire amount of the RA Bill had been credited to the account of the claimant, even if not actually paid till date. In view of such circumstances, the petitioner company is now estopped from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue no. 7 in paragraph no. 9 of the award, learned counsel for the respondent submits that 15% interest on the awarded amount on 5th RA Bill was awarded for the pre-reference period and also on the total sum for the pendente lite period. On the entire sum calculated above, interest at the same rate of 15% was awarded for the post-award period till realization. Such rates, as well as interest on cost on non-payment within the directed period, as deemed reasonable by the arbitrator, was lawful under the 1996 Act, since not excluded by or provided otherwise in the agreement between the parties. 32. Ssangyong Engineering and Construction Company Limited (supra), in particular paragraph no. 78 thereof, is relied on by the respondent, wherein the Supreme Court was pleased to allow pre-reference and pendente lite interest "compounded monthly". 33. Hence, learned counsel for the respondent submits that this court ought not to interfere under Section 34 of the 1996 Act in the facts and circumstances of the case. 34. In order to adjudicate the present challenge, it is necessary to examine the parameters of interference under Section 34 of the 1996 Act. Paragraphs 31 to 33 of Associated Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comes to setting aside an award under the public policy ground, can only mean that an award shocks the conscience of the court. It cannot possibly include what the court thinks is unjust on the facts of a case for which it then seeks to substitute its view for the arbitrator's view and does what it considers to be "justice". Such approach was deprecated by the Supreme Court. 38. In paragraph no. 41 of Ssangyong Engineering and Construction Company Limited (supra), relied on by the petitioner, it was held that the decision which is perverse, as understood in paragraphs 31 and 32 of Associated Builders (supra), while no longer being a ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. 39. However, paragraph no. 41 of Ssangyong Engineering and Construction Company Limited (supra) cannot be read in isolation. The view of the Supreme Court, as comprehensively reflected in paragraphs 40 and 42 of the same re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h agreement, was not in accordance with this Part; or (b) the Court finds that-- (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or (ii) the arbitral award is in conflict with the public policy of India. Explanation 1. --For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if, - (i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or (ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice. Explanation 2.-For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute. (2-A) An arbitral award is arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award: Provided that an award shall not be set aside merely on the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was not possible to state that the arbitral award would be beyond the scope of submission of arbitration if otherwise misinterpretation, (which would include going beyond the terms of the contract), could be said to have been fairly comprehended as "disputes" within the arbitration agreement. It would be a jurisdictional error if the arbitrator wandered outside the contract and dealt with matters not allotted to him, which could be corrected on the ground of "patent illegality" in domestic arbitrations. To bring in by the backdoor grounds relatable to Section 28(3) of the 1996 Act to be matters beyond the scope of submission to arbitration under Section 34(2)(a)(iv) would not be permissible as this ground must be construed narrowly and must refer only to matters which are beyond the arbitration agreement for reference. 43. The expression "most basic notions of ... justice" finds mention in Explanation-1 to sub-clause (iii) of Section 34(2)(b). Here again, what is referred to is, substantially or procedurally the same fundamental principle of justice which has been breached and which shocks the conscience of the court. "Public policy", as a ground for setting aside or refusal to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34 of the 1996 Act, as settled by the previous judgments of the Supreme Court, cited by the petitioner itself. 47. As far as the unreported judgment of the learned Single Judge of this court, dated February 7, 2019, in J.K. Engineering Pvt. Ltd. (supra), is concerned, the same related to an adjudication of an application for judgment on admission made by the plaintiff in a suit for a money claim and fell within the scope of Order XII Rule 6 of the Code of Civil Procedure. 48. It was held, inter alia, upon a discussion of Section 194C of the Income Tax Act that a TDS certificate is evidence that a person is liable for the amounts raised by a contractor for work done and that a jural relationship exists between the parties. One can even go to the extent of saying that, based on the act of a person depositing tax at source, the existence of a debt is admitted to the contractor concerned; but the quantum of debt to a contractor can only be ascertained from a conjoint reading of the balance sheets of the respective parties. 49. On such considerations, the learned Single Judge was pleased to hold that there was other circumstantial evidence, including an e-mail and working notes, sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our of "sum" for which the award is made. 53. There is also justification in the argument of the respondent that in paragraph no. 78 of Ssangyong Engineering (supra), the Supreme Court itself was pleased to allow pre-reference and pendente lite interest "compounded monthly". 54. The logic of the learned Arbitrator, as reflected from the award impugned herein, gives clear justification for the interest as awarded. It was entirely within the bounds of logic and reason to divide the award into several time-periods, being the pre-award, pendente lite and post-award periods, each of which would have to focus on interest on the sum due at that stage. As such, since the principal awarded carried interest for the pre-litigation period, there is no bar in considering the principal sum, for the purpose of interest pendente lite at the next stage to be the sum total of the pre-litigation interest added to the interest thereon. By similar logic, each of the stages entitled the award-holder to interest and the interest component, along with the principal, of each previous stage would be taken as the principal "sum" for the purpose of levying interest for the next. 55. Hence, there is no just ..... X X X X Extracts X X X X X X X X Extracts X X X X
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