TMI Blog2023 (8) TMI 1227X X X X Extracts X X X X X X X X Extracts X X X X ..... sible view, that was reasonable and fair-minded in approach. The principle of interpretation of contracts adopted by the Division Bench of the High Court that when two constructions are possible, then courts must prefer the one which gives effect and voice to all clauses, does not have absolute application. The said interpretation is subject to the jurisdiction which a court is called upon to exercise. While exercising jurisdiction under Section 37 of the Act, the Court is concerned about the jurisdiction that the Section 34 Court exercised while considering the challenge to the Arbitral Award. The Division Bench of the High Court committed an error in setting aside the concurrent findings of the Arbitral Tribunal and the Single Judge of the High Court. The Award of the Arbitral Tribunal and the decision of the Single Judge of the High Court under Section 34 of the Act cannot be termed as perverse or patently illegal as concluded by the Division Bench of the High Court. The decision of the Arbitral Tribunal is a plausible view, and the Single Judge refrained from interfering with it under Section 34 of the Act - the Division Bench should not have interfered with these orders. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt under Section 37 of the Act, and the Division Bench of the High Court, by the order impugned herein, partly allowed the appeal in the following manner. The Division Bench, while dismissing the appeal with respect to Dispute I, allowed the appeal with respect to the remaining two disputes (Disputes III and IV), and thereby set aside the concurrent findings as regards these disputes. As there is no controversy with respect to Dispute I, we are called upon to examine the legality of the order with respect to Disputes III and IV. 5. The facts relevant for Dispute III are as follows: The contract in favour of the Respondent was entered into on 24.11.2004. At that time the Notification of the Government of Jammu and Kashmir dated 19.12.2003 exempted Entry Tax on earth-moving instruments. However, during the execution of the contract, on 25.01.2008, the Government of Jammu and Kashmir withdrew the exemption notification. Consequently, the Respondent raised claims for reimbursement of Rs. 1,32,29,771/- incurred on account of payment of Entry Tax. 6. In so far as Dispute IV is concerned, it relates to reimbursement of Toll Tax on machinery and materials. As per the extant policy in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , increase in taxes/any other levies/tolls etc. except the payment/recovery for overall market situation shall be made as per price variation clause given below. Clause 7.1.2 No cognizance shall be given for any sort of fluctuations in taxes and other market conditions etc. for any individual item for the purpose of making adjustments in payments. The contract shall, however, be governed by the general price variation clause as under. 7.2. Clause 11.7, in Chapter 11, titled Schedule of Items, Rates Quantities - Bill of Quantities , is as follows: Clause 11.7 The rates and prices tendered in the priced Bill of Quantities, shall except in so far as it is otherwise provided under the contract, include all construction plant, labour, supervision, materials, all temporary works, false works, all leads and lifts, erection, specified finishes, maintenance, establishment and overhead charges, insurance, profits, foreign taxation and levies, taxes, royalties and duties together with all general risks, liabilities and obligations set out or implied in the contract and including remedy of any defects during the Defects Liability Period. 8. The Decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 34 of the Act to interfere with the findings of the Arbitral Tribunal. 10. Decision of the Division Bench under Section 37 of the Act: The Division Bench of the High Court, while considering the appeal under Section 37 of the Act, proceeded to reinterpret the contractual clauses and arrived at a distinct conclusion. The Division Bench rejected the Arbitral Tribunal s and the Single Judge s interpretation of Clause 5.1.2 of the contract and came to the conclusion that the said clause will also include indirect taxes such as service tax, GST, Works Contract Tax, etc. While doing so, the Division Bench applied the principle of ejusdem generis to include even Entry Tax in Clause 5.1.2. The Division Bench of the High Court reversed the conclusion of the Arbitral Tribunal and the Single Judge of the High Court on the ground that they had simply assumed that the tax liability of items forming part of the Bill of Quantities was inbuilt in the quoted costs and that no evidence was supplied to substantiate the same. The Division Bench also noted that reimbursement on account of increase in toll taxes was specifically provided for in Clause 5.1.2 of the contract, and hence, clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prices mentioned in the Bill of Quantities are inclusive of all costs that are liable to be incurred in the execution of the contract. 12.2 Further, they also submitted that the Arbitral Tribunal holistically interpreted Clauses 5.1.2, 7.1.1 and 7.1.2 of the contract to opine that individual tax claims would not be reimbursed by the Appellant-Corporation. The Arbitral Tribunal held that Clause 5.1.2 operates in a separate field, i.e., it operates in the field of taxes directly payable by the Corporation to the Contractor. They further added that the mention of toll tax and octroi in Clause 5.1.2 is only incidental, and does not render the recovery of taxes by the Contractor implicit. On the other hand, the fluctuations in price of entries in the Bill of Quantities (or for mobilisation of construction material and machinery) was recoverable only as per the scheme of Price Variation in Clauses 7.1.1 and 7.1.2, which expressly exclude cognizance of fluctuations in price of individual items. 13. Submissions on behalf of the Respondents: Mr Darius Khambata, Senior Advocate, along with Mr Aveak Ganguly, Mr Manu Seshadri, Ms Pallavi Anand, Mr Abhijit Lal, Ms Soumya, Advocates and Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cavalier manner. The mere possibility of an alternative view on facts or interpretation of the contract does not entitle courts to reverse the findings of the Arbitral Tribunal. 3 In Dyna Technologies Private Limited v. Crompton Greaves Limited (2019) 20 SCC 1, this Court held: 24. There is no dispute that Section 34 of the Arbitration Act limits a challenge to an award only on the grounds provided therein or as interpreted by various courts. We need to be cognizant of the fact that arbitral awards should not be interfered with in a casual and cavalier manner, unless the court comes to a conclusion that the perversity of the award goes to the root of the matter without there being a possibility of alternative interpretation which may sustain the arbitral award. Section 34 is different in its approach and cannot be equated with a normal appellate jurisdiction. The mandate under Section 34 is to respect the finality of the arbitral award and the party autonomy to get their dispute adjudicated by an alternative forum as provided under the law. If the courts were to interfere with the arbitral award in the usual course on factual aspects, then the commercial wisdom behind o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor quotes a rate for an item of work, such rate will have various components like material cost, labour cost, fuel cost, overheads and profits. The contractor does not indicate the break-up of the various components that make up the quoted price. Obviously the rates so quoted, if it involves use of a material, will include the cost of the material plus any tax paid thereon; and if it involves use of some machinery/equipment, it will include the hire charges in respect of the machinery/equipment and any taxes thereon. It is clear from the contract that in regard to such components of a rate, claimant is not entitled to seek reimbursement of any increase in price or taxes and all that it will be entitled to, will be an increase that is permitted in accordance with the formula in the price variation clause. The price variation clause only provides for price variation in a general manner in accordance with a standardized price variation formula, and not reimbursement of the actual increases. That is why clause 11.7 of BoQ provides that the rates/prices shall include all taxes and clauses 7.1.1 and 7.1.2 clearly provide that rates quoted by the tenderer and accepted by the KRCL, shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded for reimbursement by the employer under clause 5.1.2. The arbitrator adopted the latter view. It cannot be said either that it is an unreasonable view or a view which is either impossible or which no fair and judiciously minded person would have taken. The award on this dispute, thus, does not merit any interference under Section 34 of the Act, having regard to the law stated by the Supreme Court in the case of Associate Builders (supra). 19. In appeal under Section 37 of the Act, the Division Bench of the High Court took a different position. It opined that the construction of the clauses by the Arbitral Tribunal was not even a possible view, and observed as follows: 30. ... What is more appropriate is the well-settled principle that if there are two constructions possible of a contract, then the one that gives effect and voice to all clauses will be preferred over the other that renders one of them otiose or nugatory [ Radha Sundar Dutta v Mohd Jahadur Rahim Ors, AIR 1959 SC 24 ]. There is some law to suggest that if an Award does not construe the contract as a whole then it is not a possible view and it is perverse [ South East Asia Marine Engineering and Constr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2020) 7 SCC 167 are concerned, in both the cases, this Court affirmed the interference by a court exercising jurisdiction under Section 37 of the Act, with the concurrent findings of the Arbitral Tribunal as well as the court under Section 34 of the Act, for good and valid reasons. In South East Asia Marine Engineering and Constructions Limited (supra), the Section 37 Court interfered with the Award as the Arbitral Tribunal allowed the claim for price escalation for High-Speed Diesel under the Change in Law clause, by construing the circular increasing the HSD price as having force of law . The Change in Law clause therein provided for reimbursement of any additional costs on account of change in or enactment of any law or interpretation of existing law . The High Court, exercising jurisdiction under Section 37 of the Act, and this Court, found that the Arbitral Tribunal incorrectly construed the Change in Law clause as akin to a force majeure clause and allowed the claims. This was held to not be a possible interpretation of the contract and hence, the Award was set aside. Similarly, in Patel Engineering Ltd.(supra), the Arbitral Award was found to be based on irreleva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 conclusions would not be treated as perverse and the findings would not be interfered with. 33. It must clearly be understood that when a court is applying the public policy test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score. (emphasis supplied) 24. Having considered the matter in detail, we are of the opinion that the Division Bench of the High Court committed an error in setting aside the concurrent findings of the Arbitral Tribunal and the Single Judge of the High Court. The Award of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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