As per case facts, Hindustan Steelworks Construction Limited (HSCL) was contracted by NOIDA for flyover construction. The work was suspended due to cost inflation concerns, leading to a Supplementary MoU ...
No Acts & Articles mentioned in this case
Arbitration Appeal No.219 of 2022
1.
Neutral Citation No. - 2023:AHC:184463-DB
A.F.R
Reserved
Case :- APPEAL UNDER SECTION 37 OF ARBITRATION AND
CONCILIATION ACT 1996 No. - 219 of 2022
Appellant :- Hindustan Steelworks Construction Limited
Respondent :- New Okhla Industrial Development Authority
Counsel for Appellant :- Varad Nath, Agarwal Archi Piyush
Counsel for Respondent :- Kaushalendra Nath Singh
Hon'ble Manoj Kumar Gupta,J.
Hon'ble Vikram D. Chauhan,J.
(Per Manoj Kumar Gupta, J.)
1.The instant appeal has been filed under Section 13 of the
Commercial Courts, Commercial Division and Commercial Appellate
Division of High Courts Act, 2015 read with Section 37 of the
Arbitration and Conciliation Act, 1996 (for the sake of brevity
hereinafter referred to as 'the Act') challenging the order of the
Commercial Court, Gautam Budh Nagar dated 23.5.2022 in Arbitration
Case No. 13 of 2015, setting aside the Arbitral Award dated 15.12.2014,
by the Sole Arbitrator, in a dispute between the parties.
BACKGROUND
2. In the year 2002, the New Okhla Industrial Development
Authority (NOIDA), the respondent herein, entered into negotiation
with U.P. State Bridge Corporation Limited for construction of two
flyovers with clover leaves and allied work at M.P. Road No.3 Express
Highway near Amity School and at T-junction near Film City, Gautam
Arbitration Appeal No.219 of 2022
2.
Budh Nagar. It submitted a proposal of Rs.106.10 crores for execution
of the Project on turnkey basis, including centage charges but which
was not accepted.
3.The appellant herein, i.e. Hindustan Steel Works Construction
Limited (HSCL), is a Government of India Undertaking, registered
under the Companies Act, 1956. It also gave proposal to NOIDA to
execute the Project at the same cost of Rs.106.10 crores. The offer of
HSCL was accepted by NOIDA and the parties entered into a formal
contract- a Memorandum of Understanding (MoU) on 27.03.2003. The
work under the contract was to be completed by the HSCL within 27
months from the date of start, which was to be counted from 30 days
after the receipt of deposit advance from NOIDA or from the date of
possession of land, which ever is earlier. The HSCL was obliged to
submit performance security equivalent to 5% of the contract value in
shape of bank guarantee. NOIDA was under obligation to pay interest
free deposit advance of 15% of project cost secured by the bank
guarantee (excluding centage charges) within thirty days from the date
of award of work. The advance so paid was to be adjusted in the
subsequent demand of funds on the basis of actual work executed by
HSCL. The subsequent demand was to be submitted after utilization of
75% of the deposit advance released as above. Under Clause 7, HSCL
was entitled to price variation in cost of building material as per NHAI
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3.
guidelines and formula for computing the same was provided for in the
General Conditions of Contract (GCC) executed between the parties in
addition to the MoU. Clause 11 stipulated that if the work is
temporarily suspended due to any reason which is not attributable to
HSCL, suitable extension of time shall be granted by the NOIDA on the
request of HSCL. In case the work is delayed due to reasons
attributable to HSCL, it was made liable to penalty at the rate of 5% per
month of centage charges to NOIDA. The period for which extension
would be granted is provided in the GCC. The GCC also provided for
compensation to HSCL in case of suspension of work exceeding 30
days in certain circumstances. Clause 14 made the agreement
irrevocable till the expiry of defect liability period unless there has been
breach of any terms and conditions of the MoU. Clause 22 contained an
arbitration clause for resolution of disputes or differences between the
parties, arising out of the contract. It reads thus: -
“In the event of any question, dispute or difference not being
settled in between the parties the matter shall be referred to
Chairman/C.E.O. NOIDA for nominations of an arbitrator, whose
decision shall be final and binding on the both of the parties.”
4.The General Conditions of Contract (GCC) contained specific
provisions relating to – Extension of Time (Clause 2); Interest Free
Mobilization of Advance (Clause 7B); Payment due to increase/
decrease in prices (Price Escalation) after receipt of contract for works
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and the manner of calculation thereof (Clause 8); Foreclosure of
Contract Due to Abandonment or Reduction in Scope of Work (Clause
11); Cancellation of Contract in Full or Part (Clause 12); Suspension of
Work and payment of compensation to the contractor in cases where
such suspension is not attributable to any default on part of the
contractor (Clause 13) etc.
5. In terms of the agreement, HSCL started work since 7.04.2003.
6. On 6.09.2003, the State Government directed for holding of
enquiry, suspecting that contract value was highly inflated. On
19.09.2003, the NOIDA addressed a communication to HSCL
informing it that a Review Committee had been constituted by it to
review the cost of the project. HSCL was required to submit all
drawings and other relevant details before the said Committee. It was
also directed to slow down the project till it is cleared by the Review
Committee.
7. It seems that thereafter the Review Committee got the costing
done by M/s SOWil Limited, a project planning and appraisal company
and Indian Institute of Technology (IIT) Delhi. According to the report
of M/s SOWil, the cost was on higher side by around 40 crores. The
report of IIT, assesses the costing to be inflated by 60 crores.
Consequently, on 22.09.2003, the appellant was directed to stop all
work with immediate effect. The work, therefore, came to a standstill
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and remained suspended for 928 days.
8.Under Clause 13 (iii) of GCC, if work remains suspended for
more than four months, HSCL had the option to treat it as ‘foreclosure
of contract’ under Clause 11 of GCC and thereby entitling it to
payment for the work already executed, cost of building material lying
at the construction site or its stores and reasonable compensation.
NOIDA would not be entitled to recovery, if any done against
Mobilisation Advance. Any retention money held had to be released.
All Bank Guarantees would stand discharged forthwith.
9. However, HSCL chose not to invoke Clause 11 of GCC and it
continued to negotiate with NOIDA for resumption of work. Series of
meetings were held between the parties. NOIDA insisted on revision
of rates, but which was not agreed to by HSCL.
10.The Chief Executive Officer, NOIDA in a communication dated
12.10.2004 addressed to the Special Secretary, U.P. Government,
Lucknow disclosed that NOIDA had taken legal advice, according to
which it would be exposed to monetary claim of damages, besides cost
escalation, in case the contract is terminated and that would not be in
the public interest and therefore it should make effort for a negotiated
settlement with HSCL. It was also brought to the notice of the
Government that HSCL was, by that time, paid Rs.49.98 crores and
according to report of experts, the value of work executed was Rs.20
Arbitration Appeal No.219 of 2022
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crores only. Thus, there was excess payment of around Rs.30 crores.
Therefore, he suggested that NOIDA should be permitted to proceed
with the contract, subject to re-negotiation of price and HSCL agreeing
to the amendments in the original contract.
11.In response, the State Government by letter dated 11.03.2005
permitted NOIDA to go ahead with the contract, subject to re-
negotiation of the terms of MoU to make the contract value
competitive.
12. According to HSCL, at that time, it was under acute financial
distress because of abrupt suspension of work. It was unable to meet its
financial obligations. It therefore agreed to give up its right to claim
damages and price escalation during the period work remained
suspended by its letters dated 29.04.2005 and 10.05.2005.
13.The parties executed a Supplementary MoU dated 22.03.2006.
The letters dated 29.04.2005 and 10.05.2005 of HSCL, wherein it
agreed to forego its claim towards damages and price escalation during
the period contract remained suspended, were made part of the
Supplementary MoU. The Supplementary MoU stipulated that the
appellant would complete the project at the original cost of Rs.106.10
crores and not claim compensation and price escalation on account of
suspension of work.
Arbitration Appeal No.219 of 2022
7.
14. The parties signed the Supplementary MoU on 22.03.2006 and
the contract period was extended. The parties also agreed that subject to
any contrary term in the Supplementary MoU, the provisions contained
in the earlier MoU would continue to govern the rights of parties.
15. On 8.04.2006, HSCL re-commenced the work at the site and
completed the work on 30.04.2008.
16. On 25.02.2008, just before completion of work, HSCL made
claims towards price variation under Clause 8 of GCC. It referred to
Clause (1) of Supplementary MoU in contending that Clause 8 of GCC
would not stand suspended by execution of Supplementary MoU. It
was emphasised that HSCL only waived price escalation during
suspension period. The price escalation provision for the period after
recommencement of work remained binding on the parties and
therefore NOIDA should honour its claim towards price escalation.
Again on 10.04.2008, HSCL send another communication to NOIDA,
emphasising that price escalation Clause 8 of GCC remained suspended
as per terms of Supplementary MoU only during period of suspension
of work. It would stand revived for the period post recommencement of
work. Therefore, its bills towards price escalation for the said period be
honoured forthwith. To the same effect were the letters dated
23.05.2008 and 16.09.2008.
Arbitration Appeal No.219 of 2022
8.
17.It is noteworthy that during all this period, HSCL never made any
claim towards damages on account of suspension of work, either under
Clause 13(ii)(b) of GCC nor under any other provisions of the Contract
being conscious of the fact that vide Clause 3 of Supplementary MoU,
it had agreed to forego all claims in respect thereof.
18.However, vide a letter dated 16.02.2009, almost one year after
completion of work, HSCL made a claim of Rs.37.12 crores towards
damages during suspension period relying on Clause 13(ii)(b) of GCC.
It also claimed Rs.23.9420 crores towards price escalation for the
period – prior to and post recommencement of work and Rs.42.00 lakhs
towards extra work, apart from interest i.e. total sum of Rs.76.8316
crores. HSCL also invoked Clause 22 of the MoU dated 27.03.2003 and
requested NOIDA to refer the dispute to arbitration. It made the same
request vide letter dated 20.03.2009. However, NOIDA vide letter
dated 17.06.2009 rejected all the claims relying on Clause 3 of the
Supplementary MoU and refused to refer the matter to arbitration.
REFERENCE TO ARBITRATOR
19. On 7.9.2009, HSCL approached this Court under Section 11 of
the Act for appointment of arbitrator. In para 9 of the said application,
HSCL for the first time alleged undue influence and coercion on part of
NOIDA in obtaining Supplementary MoU containing clause relating to
waiver of the right of HSCL to claim damages/liquidated damages
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under Clause 13(ii)(b) of GCC during the suspension period. It also
raised other claims. This Court allowed the application under Section
11 of the Act and referred the matter to a sole arbitrator.
ARBITRATION PROCEEDINGS
20.HSCL filed its Statement of Claim (SOC) before the Arbitral
Tribunal under nine different heads. There were two major claims. The
first major claim (Claim No.1) of Rs.23.9420 Crores was in respect of
escalation of price while work was in progress i.e. excluding the period
when work remained suspended. It was based on Clause 7 of MoU read
with Clause 8 of GCC. The other major claim was Claim No.2 towards
damages allegedly suffered on account of suspension of work. The said
claim was based on Clause 13(ii)(b) of GCC for a sum of Rs.35.92
Crores. The detail of all the claims is as follows :-
Claim Head of Claim Amount Claimed
Claim 1On account of Price VariationRs. 2394.20 Lakhs
Claim 2On account of Suspension of
Work
Rs. 3592.00 Lakhs
Claim 3On account of delayed
payment IRA 3 and 4
Rs. 388.68 Lakhs
Claim 4Damages on account of extra
Bank Guarantee Charges
Rs. 27.44 Lakhs
Claim 5Damages on account of
expected loss of profit
Rs. 1060.00 Lakhs
Claim 6On account of cost of
Arbitration
Rs. 25 Lakhs
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10.
Claim 7On account of InterestRs. 5666.34 Lakhs
Claim 8On account of Pendente lite
Interest
12% on Awarded
Amount
Claim 9Extra items of work Rs. 36.18 Lakhs
Claim 10On account of Final BillRs. 48.85 Lakhs
TOTAL 9677.61 Lakhs
21.The NOIDA denied the claims of HSCL by filing Statement of
Defence (SOD). It specifically pleaded therein that the claims relating
to escalation/price variation (Claim No.1) and compensation owing to
suspension of work (Claim No.2) are not sustainable in view of HSCL
having unequivocally agreed to forego these claims during process of
re-negotiation and also while entering into the Supplementary MoU. It
also pleaded that HSCL had not alleged any coercion or duress at the
time of entering into Supplementary MoU nor till the completion of
work in pursuance of Supplementary MoU. The plea of duress and
coercion was taken for the first time before the arbitrator and thus not
sustainable in law. It contended that in a commercial bargain, plea of
coercion and duress is unsustainable, particularly in the instant case,
where HSCL is a Government of India Undertaking and had at its
disposal best of legal advise and also the option to treat the suspension
of work to be foreclosure of contract and in which event, it would have
Arbitration Appeal No.219 of 2022
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been paid value of the work executed and other amounts as envisaged
under Clause 11 of GCC.
22. The parties filed documentary evidence and also various
affidavits in support of their respective cases. By order dated
17.05.2012, the Arbitral Tribunal permitted the parties to lead oral
evidence, but no oral evidence was led by any party. The tribunal
framed as many as twenty (20) issues. It ultimately passed a final award
on 15.12.2014 in favour of HSCL awarding a sum of Rs.97.10 crores,
inclusive of the cost of arbitration, alongwith pendente lite and future
interest.
23.The issues framed by the Arbitral Tribunal are as follows:-
1.Whether the purported question, dispute and or
difference regarding execution of Supplementary MOU is
immoral, one sided, wholly unconscionable, unilateral,
induced by 'Undue Influence', obtained under duress,
without free will and consent, under coercion etc. as
contained in paragraphs 7 and 8 of the Statement of Facts
and Claims is the subject matter of reference to arbitration
before the arbitral Tribunal for adjudication?
2. Whether the arbitral Tribunal has jurisdiction to
decide and declare the validity of Supplementary MOU in
view of allegations of coercion, duress, undue influence
etc.?
3. Whether the Supplementary Memorandum of
Understanding is vitiated by the purported contentions of
coercion, duress, undue influence, economic pressure,
immoral and unreasonable?
4.Whether the Claimant's proposal of Rs. (sic Rest.)
106,09,91,236/- for the Work was accepted by the
Respondent on a lump sum turnkey basis?
5. Whether the GCC are the part of the Claimant's
proposal or the Respondent's letter of acceptance and or the
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MOU or the Supplementary MOU?
6. Whether the purported claims of the Claimant are
barred by limitation?
7. Whether the Claimant had made a request for
foreclosure of contract?
8. Whether the Claimant offered and agreed to continue
left over work on grant of extension of time at a fixed cost
of Rs. 106.10 crores?
9. Whether the Claimant agreed not to pursue its claims
pertaining to escalation and compensation due to
suspension of Work?
10. Whether the suspension of Work was due to reasons
beyond the control of New Okhla Industrial Development
Authority?
11.Whether the Claimant has complied the pre-requisite
conditions in respect of the purported disputes before
seeking reference to the arbitration.
12.Whether the costing/ estimation done by IIT, Delhi
for referred in Reports/Letters is acceptable or not?
13. Whether the Claimant is entitled to an amount on
account of price variations? If so, what amount?
14. Whether the Claimant is entitled to an amount on
account of Clause 13(b) of GCC? If so, what amount?
14 (A). Whether the Claimant is entitled to any amount on
account of nonpayment of 4" RA Bill in time? If so what
amount.
15. Whether the Claimant is entitled to damages on
account of extra Bank guarantee charges? If so, what
amount?
16. Whether the Claimant is entitled to damages on
account of loss of profit? If so, what amount?
17. Whether the Claimant did extra items? If so, what are
such items and what amount the Claimant is entitled in
respect thereof.
18. Whether the claim for extra items is maintainable? If
so, what amount the Claimant is entitled.
19.Whether the Claimant is entitled on account of final
bill? If so, what amount?
20. Whether the Claimant is entitled to interest? If so,
what amount and at what rate and for what period.
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13.
23 (a).Issues no.1, 2 and 3 were decided together. The tribunal
held that the issue relating to undue influence and coercion was well
within the scope of reference; that it had jurisdiction to decide the
validity of Supplementary MoU on basis of allegations of coercion,
duress and undue influence and that duress and undue influence was
played upon HSCL in obtaining Supplementary MoU, NOIDA being in
a dominating position.
23 (b). Issue no.4 was decided in favour of HSCL and it was held
that the contract price was lumpsum amount of Rs.106,09,236/- plus
price variation as per the contract.
23 (c).Issue no.5 has also been decided in favour of HSCL and it
is held that GCC was integral part of the main contract.
23 (d).The plea of NOIDA relating to the claims being barred by
time was decided vide Issue No.6. The plea was repelled and it was
held that HSCL had invoked the arbitration clause well within three
years and therefore the claims were not barred by time.
23 (e).Issue no.7 was decided in favour of HSCL.
23 (f). Issue no.8 was decided in favour of HSCL and it is held
that the term “fixed cost” is referable to the originally agreed amount
and does not preclude the claim in respect of price variation etc. in
accordance with the MoU, GCC and Supplementary MoU.
Arbitration Appeal No.219 of 2022
14.
23 (g). Issue no.9 has been decided in favour of HSCL and it has
been held that Clause 3 of the Supplementary MoU prohibited claim in
respect of escalation and compensation only from 22.9.2003 till
recommencement of the work. It did not preclude HSCL from making
claim in respect of compensation/escalation subsequent to re-
commencement of the work.
23 (h).Issue no.10 as to whether suspension of work was due to
reasons beyond control of NOIDA, was decided against NOIDA
holding that it was responsible for unnecessarily holding up the work
for a period of 928 days.
23 (i).Issue no.11 has been decided in favour of HSCL holding
that the claimant-appellant had complied with the pre-requisite
conditions before seeking reference to the arbitration.
23 (j).Issue no.12 as to whether costing/estimation done by IIT,
was acceptable or not, has been decided in favour of HSCL.
23 (k).Issue no.13 related to claim in respect of price variation -
post re-commencement of the work. The tribunal, after considering
various clauses of the MoU, GCC and Supplementary MoU made
distinction between claim in respect of price variation and
compensation under Clause 13(ii)(b) of GCC. It held that Price
Variation Clause in the original MoU (Clause 7) and GCC (Clause 8)
remained eclipsed only during work suspension period. Post
Arbitration Appeal No.219 of 2022
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recommencement of work, these clauses revived, and the claim of
Rs.23.94 crores towards price variation – post recommencement of
work, was fully admissible and was allowed.
23 (l).Issue no.14 in respect of damages @ Rs.4 lakh per day
during work suspension period has been decided in favour of HSCL
and a sum of Rs.35.92 crores has been awarded as liquidated damages
under Clause 13(ii)(b) of GCC.
23 (m).Issue no.14-A related to award of interest on account of late
payment of 4
th
RA bill. It has been decided in favour of HSCL and a
sum of Rs.1.66 crores has been awarded in its favour.
23 (n).Issue no.15 relating to claim on account of extra bank
guarantee charges was rejected.
23 (o). Issue no.16 relating to claim for damages on account of loss
of profit has been rejected.
23 (p).Issues no.17 and 18 pertaining to claim in respect of extra
work have also been decided against HSCL.
23 (q). Issue no.19 has been decided in favour of HSCL and it has
been awarded Rs.48.85 lakhs towards final bill.
23 (r). Issue no.20 has been decided in favour of HSCL and it is
held that HSCL is entitled to pendente lite and future interest on the
sums awarded.
Arbitration Appeal No.219 of 2022
16.
24. Claim No.1 – towards price escalation has been dealt with under
Issue No.13. It has been decided in favour of HSCL. The other major
Claim No.2 – towards damages @ Rs.4 lakh per day for the period
work remained suspended, also decided in favour of HSCL, is covered
under Issues No.1, 2, 3 and 14.
PROCEEDINGS BEFORE COMMERCIAL COURT (Sec. 34 of
the Act)
25.NOIDA, feeling aggrieved by the award, filed objections under
Section 34 of the Act before the Commercial Court, Gautam Budh
Nagar, which has been allowed by the impugned order dated
23.05.2022.
26. The Commercial Court did not find any perversity in respect of
the finding recorded by the tribunal on issue no.13 i.e. claim in respect
of price variation (Claim No.1). However, it has set aside the award of
Rs.35.02 crores towards damages on account of suspension of work for
period of 928 days (Claim No.2). It held that HSCL by signing the
Supplementary MoU had surrendered its right to compensation during
period of suspension of the contract. It also repelled the plea of
coercion, duress, undue influence and unequal bargaining power set up
by HSCL and the finding of the arbitral tribunal that Supplementary
MoU is void and unenforceable. The award of liquidated damages
under Clause 13(ii)(b) of GCC while deciding issue no. 14 is held to
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suffer from a patent illegality warranting exercise of power under
Section 34 of the Act.
27.The Commercial Court placed reliance on a judgement of Delhi
High Court in M/s Classic Motors Limited Vs. Maruti Udyog
Limited
1
, wherein four factors have been laid down to ascertain
whether any duress or coercion has been played upon any party in a
commercial contract. The factors are: (i) Did the party protest before or
soon after the agreement? (ii) Did the party took any step to avoid the
contract? (iii) Did the party has any alternative course of action or
remedy? and (iv) Did the party convey benefit of the independent
advice?
28. The Commercial Court held that the appellant failed to pass the
test laid down in the said judgement. It also placed reliance on the
judgement of the Supreme Court in Central Inland Water Transport
Corporation Ltd. Vs. Brojo Nath Ganguly
2
, judgement of Bombay
High Court in Balaji Pressure Vessels Ltd. Vs. Bharat Petroleum
Corporation Ltd.
3
and judgement of Andhra Pradesh High Court in
Government of Andhra Pradesh Irrigation Department Vs. G.
Kondala Rao
4
and held that the plea of coercion and undue influence
was after thought, “patently erroneous, perverse, in ignorance of vital
11997 (40) DRJ
21986 (3) SCC 156
32014 SCC OnLine, Bombay 1079
4(2004) 1 An WR 526 (WB)
Arbitration Appeal No.219 of 2022
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evidence on record, contrary to the terms of the Supplementary MoU
and in clear breach of public policy of India”.
29.The Commercial Court thereafter relying on Dakshin Haryana
Bijli Vitran Nigam Ltd. Vs. M/s Navigant Technologies Pvt. Ltd.
5
held that since in relation to some of the issues, the findings are
perverse, against public policy of India and covered by grounds
contained in sub-section (2) and (2-A) of Section 34 of the Act, the
award cannot be upheld in part as it would amount to modifying the
award. Accordingly, the award has been set aside in its entirety.
30.We have heard Sri Amit Saxena, Senior Advocate assisted by Sri
Varad Nath and Sri Pranay Agarwala, learned counsel for the appellant
and Sri Manish Goyal, Senior Advocate assisted by Sri Kaushalendra
Nath Singh and Ms. Anjali Goklani, learned counsel for the respondent
at great length and perused the material on record with the assistance of
learned counsel for the parties.
SUBMISSIONS OF LEARNED COUNSEL FOR THE
APPELLANT :
31.It is submitted on behalf of the appellant that the impugned order
of the Commercial Court is manifestly illegal and contrary to the well
established principles on which an award of an Arbitral Tribunal could
be set aside. The tribunal decided Issues No. 1, 2, 3 and 14 relating to
award of damages during suspension period in terms of Clause 13(ii)(b)
52021 (7) SCC 657
Arbitration Appeal No.219 of 2022
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of the GCC after taking into consideration the case of the parties,
evidence on record and the law laid down by the Supreme Court in
respect of fraud and coercion. The power of the court under Section 34
of the Act is limited one, circumscribed by the parameters laid down
under the said provision. To hold an award to be opposed to public
policy of India, the patent illegality should go to the root of the matter.
In deciding objections under Section 34 of the Act, the court does not
exercise the power of an appellate court and it cannot re-appreciate or
re-assess evidence. Once the tribunal had assessed the evidence before
it in detail, the court does not have jurisdiction to take another view
even if it is possible. The court has to examine whether the view taken
by the Arbitrator is a plausible view on the facts, pleadings and
evidence before it. Once the view taken is found to be a plausible view,
the court will not have power to substitute its findings in place of the
findings recorded by the Arbitral Tribunal. The extent of judicial
scrutiny under Section 34 is very limited.
32.It is urged that the Arbitral Tribunal had in great detail considered
the stipulations contained in the MoU, GCC and Supplementary MoU
as well as the communication exchanged between the parties during the
period contract remained suspended. It had also duly considered the
directions issued by the State Government which prompted NOIDA to
compel the appellant to enter into Supplementary MoU on terms
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dictated by it and thereafter arrived at a finding of fact that execution of
the Supplementary MoU by the appellant was a result of undue
influence and coercion. The appellant had no other option left with it
but to accept the conditions imposed upon it for resuming the work or
else the consequences would have been disastrous. It would have
resulted in termination of the contract; blacklisting of the appellant;
difference in cost of balance work got executed from third party being
realised from the appellant; invocation of bank guarantee of Rs.15.30
crores; non payment of unpaid dues of Rs.8.21 crores; loss of
reputation and incurring heavy amount in litigation. It is also urged that
the NOIDA was conscious of his imbalance in negotiating power and it
got legal opinion to compel the appellant to give up its right to claim
damages under the original MoU. The Supplementary MoU dated
5.04.2006 was prepared and drafted by NOIDA and the appellant was
directed to sign the same within 15 days. NOIDA had included in the
Supplementary MoU various terms which absolves it of its liabilities
arising out of its unilateral act of suspending the contract.
33. Even after resumption of work on 8.04.2006, NOIDA continued
to withhold payments due to the appellant for the works executed prior
to suspension of work until the work was completed and delivered by
the appellant Company on 30.04.2008. NOIDA failed to provide
completion certificate and also withheld the bank guarantee.
Arbitration Appeal No.219 of 2022
21.
34.After having successfully delivered the Project, the appellant was
in a position to invoke the arbitration machinery for seeking damages
under the MoU. It did so by way of its letter dated 20.03.2009 and
wherein it specifically made a claim for price variation (Rs.2394.20
lakhs) and damages for suspension of work (Rs.3712.00 lakhs). Again
in para 9 of the arbitration application filed by the appellant under
Section 11 of the ACA before this Court, the plea of coercion was
specifically taken.
35.It was thus contended that the plea of coercion and undue
influence was duly taken by the appellant at the first opportunity. The
Arbitral Tribunal was well within its jurisdiction to examine the said
plea and to record findings in favour of the appellant. The Commercial
Court has wrongly held that the plea of coercion and undue influence or
unequal bargaining power is not applicable in commercial contracts. In
support of the said contention, learned counsel for the appellant has
placed reliance on various judgements which will be discussed while
dealing with the contention.
36.The judgement of the Delhi High Court in Classic Motors was
wrongly treated by the Commercial Court as laying down public policy
of India. The said judgement was rendered by a Single Judge of Delhi
High Court while deciding objections under Section 34. The said
judgement does not consider various decisions of the Supreme Court on
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22.
the subject of coercion and undue influence. The Commercial Court has
also wrongly relied on the judgement in Central Inland Water
Transport Corporation Ltd. and Balaji Pressure Vessels Ltd.
37.The issue pertaining to coercion and duress is a pure question of
fact. It was decided by the Arbitral Tribunal after hearing both the
parties and considering all the material evidence on record. The view
taken by the Arbitral Tribunal in this behalf was a plausible view. The
Commercial Court erred in re-appreciating the evidence and giving its
own interpretation to the same.
38.The Supplementary MoU was drafted by NOIDA and the
appellant had no option but to agree to the conditions contained therein,
failing which, the appellant, who had already invested huge sum of
money in the Project, was bound to be sidelined, apart from being
visited with evil consequences provided under the original contract.
Consequently, there was no consensus ad idem between the parties.
39.The Supplementary MoU did not override or amend or delete
Clause 13(2)(b) of the GCC, either specifically or by necessary
implications. The Supplementary MoU does not even refer to Clause
13(ii)(b) of the GCC. The Commercial Court has relied upon the
intention and reasoning of executing the Supplementary MoU but
overlooked that no such intention was evident from the language of the
Supplementary MoU.
Arbitration Appeal No.219 of 2022
23.
40.The Arbitrator held that the Supplementary MoU did not amend
the MoU by deleting the Price Variation Clause. The Commercial Court
has upheld claim under Price Variation Claim. The same reasoning as
upheld by the Commercial Court in relation to the Claim awarded for
Price Variation would apply to the claim of Rs. 4 Lakhs per day under
Clause 13 (ii)(b) of the GCC.
41.The Commercial Court accepted the Award given by the
Arbitrator in relation to issue no. 13 i.e. with respect to Award of
Rs. 23.94 Cr on account of price variation. Despite having upheld the
award on that claim, the Commercial Court has wrongly held that since
there is no power to modify the award, "the entire award has to be set
aside", relying on a Supreme Court judgement in the case of Dakshin
Haryana Bijli Vitaran Nigam Ltd. vs M/s Navigant Technologies
(P) Ltd. (supra).
42.The Commercial Court has erred in law in proceeding on this
assumed legal position that where an award comprises several distinct
monetary claims being awarded on independent grounds, and award of
some of the monetary claims are interfered with under Section 34 then
the entirety of the award is set aside even though the award on other
claims was upheld.
Arbitration Appeal No.219 of 2022
24.
43.The judgement Dakshin Haryana Bijli Vitaran Nigam Ltd.'s
case relied upon in the impugned order, is distinguishable on facts. In
the said case, it was not really dealing with the issue of modification of
an Award by the court under Section 34 of the Arbitration Act,
however, it had relied upon the law laid down in the case of
McDermott International Inc vs. Burn Standard Co. Limited
6
to
decide the issue of relevance of a dissenting opinion.
44.In the present case, there were several distinct amounts awarded
by the Tribunal on independent reasonings, including, inter alia, an
amount of Rs. 23.94 Cr towards Price Variation and an amount of
Rs. 35.92 Cr under Clause 13 (ii)(b) of GCC. The Commercial Court
could not have set aside the entire Award because it found that the
Award of Rs. 35.92 Cr under Clause 13 (ii)(b) of GCC was against
public policy. The Court is fully empowered to set aside the award in
regard to particular claim only, while refusing to interfere with the
remaining portion of the Award.
SUBMISSIONS OF LEARNED COUNSEL FOR THE
RESPONDENT:
45.The award of the Arbitral Tribunal primarily flows from the
erroneous finding that the Supplementary MoU between the parties was
signed under coercion and duress. The said finding is not supported by
6 (2006) 11 SCC 181
Arbitration Appeal No.219 of 2022
25.
the evidence on record and hence amounts to a patent illegality as
envisaged under Section 34 of the Act.
46.It has to be ascertained whether the party alleging coercion
exercised a free will or not while entering into the Supplemental
Agreement. For this purpose there are several factors which need to be
looked into. They are (1) Did the party protest before or soon after the
agreement? (2) Did the party take any steps to avoid contract? (3) Did
the party have an alternative course of action or remedy? If so, did the
party pursue or attempt to pursue the same? (4) Did the party convey
benefit of independent advice?
47.If the aforesaid factors are applied on the present facts, the
Arbitral Tribunal failed to consider, that HSCL in their own wisdom
and being fully conscious of their legal rights and remedy, sent letters
dated 29.4.2005 & 10.5.2005 to NOIDA. In these letter(s) HSCL
expressly submitted to complete the contract at the fixed value of
Rs.106.10 crore and voluntarily agreed to claim no compensation or
price escalation at all under the contract. Those letters formed the part
of the Supplementary MoU and no prompt protest was lodged by
HSCL. Since 22.03.2006, when the Supplementary MoU was executed
and work was continued after recommencement, HSCL did not protest
to the execution of the Supplementary MoU, in any form or manner.
Almost after completion of the entire contract and reaping benefits
Arbitration Appeal No.219 of 2022
26.
under it, HSCL used the term coercion, in an attempt to create a false
dispute between the parties by going contrary to the conduct and
express agreement. The plea of coercion and undue influence was not
only sham and an afterthought, but also merely a cause to secure unjust
enrichment at the cost of public exchequer.
48.As regards the second and third factor to prove coercion, the
question remained as to whether HSCL took any step to avoid the
contract or did HSCL have an alternative course of action or remedy?
No steps were taken to either avoid the contract or pursue the rights and
remedies under the MoU or GCC. Despite being aware of its right both
under the Contract and GCC, HSCL conspicuously chose to remain
oblivious in exercising its right, to avoid execution of Supplementary
MoU under coercion or undue influence.
49.Fourth factor pertains to whether HSCL convey benefit of the
independent advice? It is undisputed that HSCL was an organization
which is regulated and controlled by the Government of India. By no
stretch of imagination, it can be assumed that the state entity i.e.
NOIDA can exercise coercion and undue influence on an entity which
is under control of the Government of India. There is no reason to
assume, that HSCL being regulated by Central Government of India,
didn't have able resources or means to have independent legal advice to
determine the rights under the contract and were forced to enter into a
Arbitration Appeal No.219 of 2022
27.
transaction on exercise of coercion and undue influence.
50.The power to set aside only part of the award is conferred on
court by Section 34 only in one contingency which is to be found in
Clause (iv) of sub-section (2) of Section 34 of the Act. In all other
cases, if the court finds that only a part of the award is affected by
illegality which is pointed out to the court, the court cannot itself
modify the award, but if a party to the petition applies to the court in
exercise of its power under sub-section 4 of Section 34, the court can
direct the arbitral tribunal to resume the proceedings and take such
action to eliminate the ground for setting aside the award. The
placement of the proviso under sub-clause (iv) of clause (a) of sub-
section 2 is crucial as it limits the application of the proviso to the said
sub-clause alone. This position cannot be overlooked to extend the
application of the proviso to the entire sub-section (2).
POINTS FOR DETERMINATION:
51.Two points which arise for determination are:
(A) Whether award of damages during the period of suspension
of contract (Claim No.2), by the arbitral tribunal falls within the
clutches of sub-section (2) or (2-A) of Section 34 of the Act, so as
to warrant interference by the Court.
(B) Whether the Court, in proceeding emanating from Section 34
Arbitration Appeal No.219 of 2022
28.
of the Act has power to sever bad part of the award from good
part even in situations not covered under the proviso to Section
34 (2) (a) (iv) of the Act?
ANALYSIS
Point No.1:
52.Section 34 of the Act specifies the grounds on which arbitral
award can be set aside by the court. It is noteworthy that Section 34
was amended by Act No.3 of 2016 w.e.f. 23.10.2015. The application
in the present case was filed post amendment and would therefore be
governed by the amended provisions. The relevant part of Section 34 is
as follows:-
34.Application for setting aside arbitral award. (1)
Recourse to a Court against an arbitral award may be made
only by an application for setting aside such award in
accordance with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if--
(a) the party making the application furnishes proof that -
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law to
which the parties have subjected it or, failing any indication
thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper
notice of the appointment of an arbitrator or of the arbitral
proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated
by or not falling within the terms of the submission to
arbitration, or it contains decisions on matters beyond the
scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to
arbitration can be separated from those not so submitted,
only that part of the arbitral award which contains decisions
on matters not submitted to arbitration may be set aside; or
Arbitration Appeal No.219 of 2022
29.
(v) the composition of the arbitral tribunal or the arbitral
procedure was not in accordance with the agreement of the
parties, unless such agreement was in conflict with a
provision of this Part from which the parties cannot
derogate, or, failing such 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 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 ground of an erroneous application of the law or by
reappreciation of evidence.”
Precedents on scope of Section 34 :
53.In Ssangyong Engineering and Construction Company Ltd.
Vs. National Highways Authority of India (NHAI)
7
, the Supreme
Court considered the scope of Section 34 as amended. The Supreme
7(2019) 15 SCC 131
Arbitration Appeal No.219 of 2022
30.
Court also noted the amendments carried out simultaneously in Section
48, which deals with 'foreign awards', so as to bring the said provision
in line with the amendments made in Section 34.
54.The Supreme Court explained that the phrase “public policy of
India” used in Section 34 and 48 would now mean the “fundamental
policy of Indian Law” as explained in paras 18 and 27 of Associate
Builders. Therein reliance was placed on the meaning assigned to the
aforesaid expression in Renu Sagar. Para 18 and 27 of Associate
Builders reads thus:-
18. In Renusagar Power Co. Ltd. v. General Electric Co.3, the
Supreme Court construed Section 7(1)(b)(ii) of the Foreign
Awards (Recognition and Enforcement) Act, 1961:
7. Conditions for enforcement of foreign awards. (1) A foreign
award may not be enforced under this Act-
(b) if the Court dealing with the case is satisfied that-
(ii) the enforcement of the award will be contrary to the public
policy."
In construing the expression "public policy" in the context of a
foreign award, the Court held that an award contrary to
(i) The fundamental policy of Indian law,
(ii) The interest of India,
(iii) Justice or morality,
would be set aside on the ground that it would be contrary to the
public policy of India. It went on further to hold that a
contravention of the provisions of the Foreign Exchange
Regulation Act would be contrary to the public policy of India in
that the statute is enacted for the national economic interest to
ensure that the nation does not lose foreign exchange which is
essential for the economic survival of the nation (see SCC p. 685,
para 75). Equally, disregarding orders passed by the superior
courts in India could also be a contravention of the fundamental
Arbitration Appeal No.219 of 2022
31.
policy of Indian law, but the recovery of compound interest on
interest, being contrary to statute only, would not contravene any
fundamental policy of Indian law (see SCC pp. 689 & 693, paras
85 & 95).
27. Coming to each of the heads contained in Saw Pipes
judgment, we will first deal with the head "fundamental policy of
Indian law". It has already been seen from Renusagar³ judgment
that violation of the Foreign Exchange Act and disregarding
orders of superior courts in India would be regarded as being
contrary to the fundamental policy of Indian law. To this it could
be added that the binding effect of the judgment of a superior
court being disregarded would be equally violative of the
fundamental policy of Indian law.
55.While holding that the test laid down in Renu Sagar would hold
good even in respect of the amended provision, the wider interpretation
given to the expression in ONGC Limited Vs. Western Geco
International Ltd
8
is held not to lay down the correct position of law.
Thus, under the guise of interfering with an award on the ground that
the Arbitrator has not adopted a judicial approach, the courts'
intervention would be on the merits of the award, which is held to be
the impermissible post-amendment.
56.The Supreme Court also noted that interference with the award on
the ground that it concerns “interest of India” has since been deleted
and, therefore, no longer available for setting aside an award. It is also
clarified that the ground for interference on the basis that it is in
conflict with justice or morality is now to be understood as a conflict
with “most basic notions of morality or justice”. Thus, the public policy
8(2014) 9 SCC 263
Arbitration Appeal No.219 of 2022
32.
of India is held to be confined to (a) the fundamental policy of Indian
Law as understood in paragraphs 18 and 27 of Associate Builders; (b) if
it is against basic notions of justice or morality as understood in paras
36 to 39 of Associate Builders. It is held that with the insertion of sub-
section (2-A) to Section 34, an additional ground has been made
available under Section 34 i.e. “patent illegality appearing on the face
of the award”. The proviso clarifies that the patent illegality should be
such as goes to the root of the matter. It should not merely be confined
to an erroneous application of law. It also does not permit re-
appreciation of evidence. The addition of the said ground does not
mean that what is not subsumed within the fundamental policy of India,
namely, the contravention of Statute not linked to public policy or
public interest, can be brought in by the backdoor when it comes to
setting aside of an award on the ground of patent illegality.
57.Before proceeding further, it would be advantageous to note
paragraphs 36 and 37 of Associate Builders, which have been
approved in Ssangyong Engineering:-
36. The third ground of public policy is, if an award is against
justice or morality. These are two different concepts in law. An
award can be said to be against justice only when it shocks the
conscience of the court. An illustration of this can be given. A
claimant is content with restricting his claim, let us say to Rs 30
lakhs in a statement of claim before the arbitrator and at no point
does he seek to claim anything more. The arbitral award
ultimately awards him Rs 45 lakhs without any acceptable reason
or justification. Obviously, this would shock the conscience of the
Arbitration Appeal No.219 of 2022
33.
court and the arbitral award would be liable to be set aside on the
ground that it is contrary to "justice".
37. The other ground is of "morality". Just as the expression
"public policy" also occurs in Section 23 of the Contract Act,
1872 so does the expression "morality". Two illustrations to the
said section are interesting for they explain to us the scope of the
expression "morality":
"(j) A, who is B's Mukhtar, promises to exercise his influence, as
such, with B in favour of C. and C promises to pay 1000 rupees
to A. The agreement is void, because it is immoral.
(k) A agrees to let her daughter to hire to B for concubinage. The
agreement is void, because it is immoral, though the letting may
not be punishable under the Indian Penal Code (45 of 1860)."
58. In paragraphs 38 and 39 (Associate Builders), it has been
explained that the concept of morality as envisaged under Section 23 of
the Contract Act is confined to sexual immorality and not to any other
case. As regards construction of the terms of a contract, it has been held
that it is primarily for an arbitrator to decide unless the arbitrator
construes the contract in a manner that no fair minded or respectable
person would construe it. In other words, interference with an
interpretation given by the arbitrator to the terms of the contract is not
warranted if it is a possible view.
59.In para 41 of the Law Report, it has been held that 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. Likewise, an evidence taken behind the
back of the party and a decision based on it would also fall in the same
Arbitration Appeal No.219 of 2022
34.
category, as such a decision would not be a decision based on evidence
led by the parties.
60. More recently in Delhi Airport Metro Express Pvt Ltd Vs.
Delhi Metro Rail Corporation Ltd
9
, the Supreme Court again
considered the scope of interference by the Court with an award under
Section 34 in context of the interpretation given by the Arbitral
Tribunal to the terms of the contract. In the said judgement again, the
test of “possible view” laid down in previous judgements has been
reiterated as laying down the correct position of law. The expression
“patent illegality” in Section 34 (2-A) has been explained thus:-
29. Patent illegality should be illegality which goes to the root of
the matter. In other words, every error of law committed by the
Arbitral Tribunal would not fall within the expression “patent
illegality”. Likewise, erroneous application of law cannot be
categorised as patent illegality. In addition, contravention of law
not linked to public policy or public interest is beyond the scope
of the expression“patent illegality”. What is prohibited is for
courts to re-appreciate evidence to conclude that the award
suffers from patent illegality appearing on the face of the award,
as courts do not sit in appeal against the arbitral award. The
permissible grounds for interference with a domestic award under
Section 34(2-A) on the ground of patent illegality is when the
arbitrator takes a view which is not even a possible one, or
interprets a clause in the contract in such a manner which no fair-
minded or reasonable person would, or if the arbitrator commits
an error of jurisdiction by wandering outside the contract and
dealing with matters not allotted to them. An arbitral award
stating no reasons for its findings would make itself susceptible to
challenge on this account. The conclusions of the arbitrator which
are based on no evidence or have been arrived at by ignoring vital
evidence are perverse and can be set aside on the ground of patent
illegality. Also, consideration of documents which are not
9(2022) 1 SCC 131
Arbitration Appeal No.219 of 2022
35.
supplied to the other party is a facet of perversity falling within
the expression “patent illegality”.
61.In para 31 of the Law Report, the Supreme Court placing reliance
on the interpretation given in Ssangyong Engineering reiterated the
legal position that “contravention of a Statute not linked to a public
policy or public interest” cannot be a ground to set at naught an arbitral
award as being discordant with the fundamental policy of Indian Law
and neither it can be brought within the confine to “patent
illegality.... .”
62.In Municipal Corporation of Delhi Vs. Jagan Nath Ashok
Kumar and another
10
, the Supreme Court held that the Arbitrator is
“the sole judge of the quality as well as quantity of evidence and it will
not be for this Court to take upon itself the task of being a judge of the
evidence before the arbitrator. It may be possible that on the same
evidence the Court might have arrived at a different conclusion than the
one arrived at by the arbitrator but that by it self is no ground in our
view for setting aside the award of an arbitrator.”
63.In State of Jharkhand and others Vs. HSS Integrated SDN
and another
11
, the Supreme Court placing reliance on NHAI Vs.
Progressive -NVR (JV)
12
reaffirmed the “possible view” theory -
“In Progressive-MVR (supra), after considering the catena of
10(1987) 4 SCC 497
11(2019) 9 SCC 798
12(2018) 14 SCC 688
Arbitration Appeal No.219 of 2022
36.
decisions of this Court on the scope and ambit of the proceedings
under Section 34 of the Arbitration Act, this Court has observed
and held that even when the view taken by the arbitrator is a
plausible view, and/or when two views are possible, a particular
view taken by the Arbitral Tribunal which is also reasonable
should not be interfered with in a proceeding under Section 34 of
the Arbitration Act.”
64.In Maharashtra State Electricity Distribution Co. Ltd. Vs.
Datar Switchgear Ltd
13
, it is held that the Arbitral Tribunal is the
master of evidence and the findings of fact recorded by an Arbitral
Tribunal on basis of the evidence on record are beyond scope of
scrutiny under Section 34 of the Act. It is observed as follows:-
“The proposition of law that the Arbitral Tribunal is the master of
evidence and the findings of fact which are arrived at by the
arbitrators on the basis of evidence on record are not to be
scrutinised as if the Court was sitting in appeal now stands settled
by a catena of judgments pronounced by this Court without any
exception thereto.”
Application to the facts of the case :
65.Keeping in mind the above principles, we now proceed to
examine whether the Commercial Court acted within the bounds of its
jurisdiction in setting aside the award in respect of Claim No.2 towards
liquidated damages on account of suspension of work. The said claim
of Rs.35.92 crores was made under Clause 13 of GCC.
66.Clause 13 of GCC confers power upon the Engineer-in-Chief to
suspend progress of the works or any part thereof for such time and in
such manner as he may consider necessary. When suspension of work
13(2018) 3 SCC 133
Arbitration Appeal No.219 of 2022
37.
is for reasons enumerated in sub-para 13(i)(b) or (c), it would entitle the
contractor to damages at the rate of Rs. 4 lakhs per day for the period
exceeding 30 days. If suspension is prolonged for more than four
months, it gives further option to treat such suspension as foreclosure
of contract due to abandonment or reduction in scope of work. As the
entire controversy hinges on the interpretation and scope of the said
Clause, therefore, it is reproduced below for convenience of reference:-
CLAUSE 13
Suspension of Work
(i)The Contractor shall, on receipt of the order in writing of
the Engineer-in-Charge whose decision shall be final and binding
on the Contractor) suspend the progress of the works or any part
thereof for such time and in such manner as the Engineer-In-
Charge may consider necessary so as not to cause any damage or
injury to the work already done or endanger the safety thereof for
any of the following reasons: -
(a) on account of any default on the part of the Contractor or;
(b)for proper execution of the works or part thereof for reasons
other than the default of the Contractor; or
(c)for safety of the works or part thereof.
The Contractor shall, during such suspension, properly protect
and secure the works to the extent necessary and carryout the
instructions given by the Engineer-In-Charge.
(ii)lf the suspension is ordered for reasons (b) and (c) in sub-
para (i) above.
(a)the Contractor shall be entitled to an extension of time
equal to the period of every such suspension PLUS 25% for
completion of the item or group of items of work for which a
separate period of completion is specified in the contract and of
which the suspended work forms a part, and;
(b)if the total cumulative period of all such suspensions in
respect of an item or group of items if work for which a separate
period of completion is specified in the contract exceeds thirty
days, the Contractor shall in addition to (a) above, be entitled to
@ Rs. 4,00,000/- (Rupees Four Lakh) per day for the period
exceeding 30 days.
Arbitration Appeal No.219 of 2022
38.
(iii) If the works or part thereof is suspended on the orders of
the Engineer-In- Charge for more than four months at a time,
except when suspension is ordered for reason (a) in sub-para (i)
above, the Contractor may treat such suspension under clause 11.
i.e. foreclosure of Contract due to abandonment or reduction in
scope of work.”
67.The Arbitral Tribunal, while deciding issue no.10, has held that
suspension of work was for reasons attributable to the respondent
(NOIDA). The reason for suspension of work, thus, does not fall under
sub-para (a) of Clause 13 (i) of GCC. In such an event, three situations
are contemplated with different consequences -
(i)the contractor would be entitled to extension of time equal
to the period of every such suspension, as also, 25% for
completion of the item or group of items of work for which a
separate period of completion is specified in the contract and of
which suspended work forms a part;
(ii)if the period of suspension exceeds 30 days, the contractor
would in addition to above, be entitled to Rs. 4 lakh per day for
the period exceeding 30 days; and
(iii)if the period of suspension exceeds four months at a time,
as in the instant case, the contractor had the option to treat such
suspension as ‘fore closure of contract’ under Clause 11 of GCC.
68. Clause 11 of GCC contemplates payment of compensation to the
contractor in the event there is foreclosure of work. It also provides for
Arbitration Appeal No.219 of 2022
39.
the manner of calculation of compensation. It reads thus : -
CLAUSE 11:
Foreclosure Of Contract Due To Abandonment Or Reduction In
Scope Of Work.
If at any time after acceptance of the offer, NOIDA shall decide
to abandon or reduce the scope of the works for any reason
whatsoever and hence not require the whole or any part of the
works to be carried-out, the Engineer-In-Charge shall give notice
in writing to that effect to the Contractor and the Contractor shall
act accordingly in the matter. The Contractor shall have no claim
to any payment of compensation or otherwise whatsoever, on
account of any profit or advantage which he might have derived
from the execution of the works in full but which he did not
derive in consequence of the foreclosure of the whole or part of
the works.
The Contractor shall be paid at contract rates full amount for
works executed at site and in addition, a reasonable amount as
certified by the Engineer-In-Charge for the items hereunder
mentioned which could not be utilized on the works to the full
extent in view of the foreclosure.
i)Any expenditure incurred on preliminary site work,
e.g. temporary access roads, temporary labour huts, staff
quarters and site office. Storage accommodation and water
storage tanks.
ii) NOIDA shall have the option to take over
Contractor's materials or any part thereof either brought to
site or of which the Contractor is legally bound to accept
delivery from suppliers (for incorporation in or incidental to
the work) provided however, NOIDA shall be bound to take
over the materials or such portions thereof as the Contractor
does not desire to retain. For materials taken over or to be
taken over by NOIDA cost of such materials shall be paid.
The cost, shall, however, take into account purchase price,
cost of transportation and damage which may have been
caused to materials whilst in the custody of the Contractor.
Arbitration Appeal No.219 of 2022
40.
iii)Reasonable compensation for transfer of T&P from
site to Contractor's permanent stores or to his other works,
whichever is less on actuals. If T&P are not transported! to
either of the said places, no cost of transportation shall be
payable.
iv) Reasonable compensation for repatriation of
Contractor's site staff and imported labour to the extent
necessary.
The Contractor, shall, if required by the Engineer-In-Charge
furnish to him books of account wage books, time sheets
and other relevant documents and evidence as may be
necessary to enable him to certify the reasonable amount
payable under this condition.
v)Recovery if any due, against Mobilisation Advance
will not be effected. Any retention money held shall be
released. All Bank Guarantees submitted to NOIDA shall be
discharged forthwith.
The reasonable amount of items on (i), (iii) and (iv) above shall
not be in excess of 4% (Four Percent) of the cost of the work
remaining incomplete on the date of closure, i.e. total stipulated
cost of the work as per accepted tender less the cost of work
actually executed under the contract and less the cost of
Contractor's materials at site taken over by the NOIDA as per
item (ii) above.
69.It is an admitted position that even after expiry of four months of
suspension, HSCL did not exercise its right of foreclosure. The parties
kept negotiating with each other to break the deadlock. A number of
meetings were held between them. Ultimately, HSCL by letter dated
29.4.2005 prayed for (i) revocation of the order suspending the work;
(ii) extension of time in terms of Clause 13 and Clause 22 of GCC; and
(iii) agreed not to make any claim towards escalation in prices or any
Arbitration Appeal No.219 of 2022
41.
kind of compensation during suspension period. The letter dated
29.4.2005 is reproduced below: -
HINDUSTAN STEELWORKS CONSTRUCTION LTD .
(A Govt. of India Undertaking) 118 Vandhana 11 Tolstoy Marg,
New Delhi-110001
Ref. HSCL/DGM/ND/NOIDA – Flyover/2005-2240
Dt. 29.04.2005
The Chief Executive Officer,
New Okhla Industrial Development Authority.
Main Administrative Building.
Sector-VI, NOIDA,
Distt. Gautam Budh Nagar – 201301.
Sub: - NOIDA Board Special Meeting held on 26 April 2005 for
the Construction of Flyovers in NOIDA vide Letter No.
NOIDA/CPE/2005/191, Dated 15 April 2005.
Dear Sir,
Pursuant to the discussion held at the Special Meeting of
NOIDA BOARD on 26 April 2005, it has been decided to
commence the unfinished work of "Noida Flyovers" which was
Suspended by the NOIDA Authority on 22 September 2003. It is
submitted that we started the work of the "NOIDA FLYOVERS"
and carried out the same till the work was suspended, with utmost
sincerity, diligence and commitment and at no point of time, there
was any breach or default on our part.
However, in the interest of Social Justice and Public
Interest, it has been decided by us to complete the work at a Cost
of Rs. 106.10 Crores. Further, we also agree not to pursue any
escalation and compensation claim for abrupt Suspension of work
with effect from 22 September 2003, as desired in the meeting.
Since considerable time has elapsed from the date of
suspension of work, we request, in the interest of justice, for
extension of time, in terms of Clause 13 and Clause 2.2 of
General Conditions of Contract. Further, you may please
appreciate the financial crunch we have undergone due to sudden
and long suspension of work, therefore it is requested to kindly
release the large pending amount immediately to meet the market
liabilities and also to enable us to remobilise.
Arbitration Appeal No.219 of 2022
42.
At the end, we would like to submit that the balance work
in regard to the present assignment shall be completed in
accordance with the existing Design/ Drawings which were
already submitted, on the basis of which work has been executed
so far.
In view of the foregoing, NOIDA Authority may kindly
revoke the Suspension Order at the earliest to enable us to
commence The work after Remobilisation of our resources which
may take around a month from the date of revocation of the
Suspension Order/release of pending payments.
Thanking you.
Yours faithfully,
For Hindustan Steelworks Construction Ltd.
(V.K. Singh)
Dy. General Manager.
70.HSCL reiterated its above stand that it would complete the
remaining work at agreed cost of Rs. 106.10 crores and not claim any
compensation for the suspension period by another letter dated
10.5.2005, which is as follows:-
HINDUSTAN STEELWORKS CONSTRUCTION LTD.
(A Govt of India Undertaking) 118, Vandhana. 11 Tolstoy Marg,
New Delhi-110001
Ref.HSCL/DGM/ND/NOIDA-Flyover/2005-2252.
Dt:10.05.2005
To
The Chief Executive Officer, New Okhla Industrial Development
Authority.
Main Administrative Building.
Sector-VI, NOIDA, District. Gautam Budh Nagar-201 301.
Sub: Construction of Two No. Flyovers in NOIDA
Ref: Our Letter No-HSCL/DGM/ND/NOIDA - Flyovers/2005-
2240, dated 29.04.2005 and clarifications on 09.05.2005 to
NOIDA Boards Query.
Dear Sir,
Further to our above referred letter and clarifications to NOIDA Board
on 09.05.2005, we inform that suitable extension of time may kindly
Arbitration Appeal No.219 of 2022
43.
be granted as per clause 11 of the M.O.U. for this work.
We further inform that in public interest, we will complete the work
within our agreed scope at a fixed cost of Rs.106.10 crores and will
not pursue escalation and compensation claim for past abrupt
suspension of work.
In addition, we submit that considering the prevailing trend of price
increase for construction material, NOIDA Authority may kindly
revoke the suspension orders at the earliest and kindly release the
large pending amount immediately to meet the market liabilities to
enable us to commence the work after remobilization of our resources
which may take about a month from the revocation of the Suspension
Order / Release of payments, considering all the Practical aspects.
Your immediate and kind response in the above matter is solicited.
Thanking You,
Yours Faithfully.
for Hindustan Steelworks Construction Ltd.
(V.K. SINGH)
Dy. General Manager
71.On the above assurance of HSCL, NOIDA, after seeking
approval of the Government, revoked the suspension by letter dated
8.3.2006, subject to the parties executing a supplementary MoU
containing specific clause that HSCL would not claim any escalation or
compensation on account of suspension of work.
72.Thus, after several rounds of meetings and deliberations, the
parties entered into a supplementary MoU on 22.3.2006, which is as
follows: -
1. Except in so far this Supplementary Memorandum of
Understanding otherwise provides the earlier Memorandum
of Understanding between the parties hereto for the
construction of the aforesaid Flyover shall continue to
remain in full force.
Arbitration Appeal No.219 of 2022
44.
2. In accordance with Clause 11 of the earlier Memorandum
of Understanding NOIDA has granted extension of time at
the request of HSCL. HSCL shall resume further
construction of the Flyover within 30 days allowed for
remobilisation, from the date of issue of recommencement
letter No. Noida/CPE/Flyover/2006/177 dt. 08.03.2006.
3. In accordance with the letter No.-HSCL/DGM/ND/
NOIDA-Flyover/2005-2240dt. 29.04.2005 and letter No.-
HSCL/DGM/ND/NOIDA-Flyover/2005-2252
dt.10.05.2005 and subsequent meetings between the officer
of NOIDA and HSCL, HSCL unequivocally agrees to
complete the work on the original fixed cost of Rs. 106. 10
crores and not demand any escalation or any compensation,
whatsoever on account of suspension of work during the
period from 22.09.2003 till its recommencement. The letter
dt. 29.04.2005 and 10.05.05 shall be deemed to be part of
this Supplementary Memorandum of Understanding.
4 NOIDA has granted extension. Accordingly, the
remaining works of the project shall be completed within
stipulated period as per MOU, considering suspension
period i.e. from 22.09.2003 to recommencement, so that
HSCL still gets a total period of 27 months to complete the
project as stipulated in the earlier Memorandum of
Understanding.
5. Subject to the aforesaid clauses, all other terms and
conditions as set out in the earlier MOU shall continue to
govern the terms and conditions of the contract between the
parties hereto for construction of Flyover with cloverleaves
M.P. Road 3 and Express Highway and allied work near
Amity School and Construction of Flyover and allied works
at T-Junction near Film City in District Gautam Budh
Nagar.
73.The effect of Clause 1 of Supplementary MoU was that matters
specifically provided therein would have an overriding effect, leaving
remaining matters to be governed by the original contract. Under
Clause 3, it was stipulated that as agreed by HSCL in its letters dated
29.4.2005 and 10.5.2005, it ‘will not demand any escalation or any
Arbitration Appeal No.219 of 2022
45.
compensation, whatsoever on account of suspension of work during the
period from 22.9.2003 till its recommencement’. These letters were
made part of Supplementary MoU. Accordingly, in terms of Clause 1 of
Supplementary MoU, Clause 13(ii)(b) of GCC, making provision for
liquidated damages for period of suspension of contract, stood
superseded. HSCL was precluded from making any claim towards
damages for the suspension period.
74.Despite the same, arbitral tribunal allowed Claim No. 2 of Rs.
35.92 crores towards liquidated damages under Clause 13(ii)(b) of
GCC, after declaring Supplementary MoU to be void and
unenforceable on ground of coercion, undue influence and duress,
having been exercised by NOIDA upon HSCL in obtaining the same.
The relevant findings from the award are extracted below:-
182. The Ld. Counsel for the Respondent has again
reiterated his submissions and case law and set out in a
chronological order the factors leading to the signing of the
Supplementary MOU. He argued that the Supplementary
MOU is a well thought out document which was also acted
upon by the parties and as such the same cannot be
challenged now as being vitiated by undue influence etc.
The same case law was again referred.
183. On the other hand, the Claimant has reiterated the
submissions made with regard to issue No.2 and pointed
out that the bills worth Rs.8.21 crores were held up, bank
guarantees worth Rs.20 crores were with the Respondent
and that there was a threat of cancellation of the contract
and awarding the balance work at his risk and cost.
Claimant has also stated that various senior lawyers
re-consulted by the Respondent felt that the Claimant
should be "compelled" to sign the Supplementary MOU, he
Arbitration Appeal No.219 of 2022
46.
also argued that the idling of the resources were costing the
Claimant very heavily and cancellation of the contract and
consequent awarding the same at the Claimant's risk and
costs would lead to the heavy litigation.
184. It is also evident that the Claimant has also set-up a
case that what was obtained under duress and coercion is
the clause that prohibited escalation and compensation and
not the entire agreement. The letters obtained by the
Respondent from various senior lawyers (Volume C - 1)
show that their intention was to compel the Claimant to
sign the MOU.
185. The points of both the parties were summarized in the
written briefs filed with regard to issues No.2 & 3.
186. In view of the above including the long period of
suspension, the opinions of the lawyers, the held up
amounts etc., I find force in the contention of the Claimant
that the Supplementary agreement has not been signed out
of freewill.
187. Thus on issues 1 to 3 I hold that the issue of coercion
is a matter to be decided by the tribunal, that the tribunal
has the jurisdiction to decide the validity of the same and
that the Supplementary MOU was not in fact signed by the
Claimant out of free will.
(emphasis supplied)
75.The commercial court held the aforesaid finding to be patently
illegal and violative of public policy of India.
Plea of unequal bargaining power in a commercial contract :
76. One of the findings of the Commercial Court is that plea of
unequal bargaining power, which has been accepted by the arbitral
tribunal in holding Supplementary MoU to be void and unenforceable,
does not apply to a commercial transaction. In coming to the said
conclusion, Commercial Court placed reliance on the judgement of the
Arbitration Appeal No.219 of 2022
47.
Supreme Court in Central Inland Water Transport Corporation
(supra) and of Bombay High Court in Balaji Pressure Vessels Ltd.
(supra).
77.In Central Inland (supra), the Supreme Court was examining the
terms of contract of employment between employer and employee. In
that context, it examined the issue as to whether a particular term of the
contract which was unconscionable could still be enforced. A large
number of decisions of the Courts of United States, United Kingdom
and France were noticed and thereafter it was concluded that all legal
systems permit judicial review of a contractual transaction in certain
circumstances. The Courts will not enforce an 'unfair and unreasonable
contract', or an 'unfair and unreasonable clause in a contract', entered
into between the parties who are not equal in bargaining power. By way
of illustration, it is noted that one such case would be where there is
great disparity in the economic strength of the contracting parties. The
second would be “where a man has no choice, or rather no meaningful
choice, but to give his assent to a contract or to sign on the dotted line
in a prescribed or standard form or to accept a set of rules as part of
the contract, however unfair, unreasonable and unconscionable a
clause in that contract or form or rules may be”. An exception to the
above will be a case “where the bargaining power of the contracting
parties is equal or almost equal. This principle may not apply where
Arbitration Appeal No.219 of 2022
48.
both the parties are businessmen and the contract is a commercial
transaction”. However, it is also observed that “in today's complex
world of giant corporations with their vast infra-structural
organizations and with the State through its instrumentalities and
agencies entering into almost every branch of industry and commerce,
there can be myriad situations which result in unfair and unreasonable
bargains between parties possessing wholly disproportionate and
unequal bargaining power. These cases can neither be enumerated nor
fully illustrated. The court must judge each case on its own facts and
circumstances”.
78.In Balaji Pressure Vessels Ltd. (supra) the petitioner, which
raised the plea of coercion, was manufacturer of cylinders which were
used by the oil industries for liquid petroleum gas. The petitioner
supplied oil cylinders in pursuance of purchase orders issued in its
favour by the Oil Companies. The initial purchase order dated
1.05.1999 stipulated a provisional price of Rs. 678.77. The terms and
conditions of the purchase order, inter alia, envisaged a formula for
price escalation/de-escalation, according to which, final price would be
fixed by the respondents and communicated to the petitioner. The
provisional price fixed on 1.04.1999 was amended by letter dated
30.07.1999. The controversy between the parties arose when the
respondents issued a Circular letter dated 31.10.2000 stating that as per
Arbitration Appeal No.219 of 2022
49.
report of Industry Task Force, they had decided to revise the
provisional price to Rs.645 w.e.f. 1.07.1999 and the differential amount
would be realised by adjustment in future bills. The plea of coercion
raised by the petitioner was repelled by holding that there was nothing
on record to show that any illegitimate pressure was exerted on the
petitioner so as to pressurize it to enter into contract against its will. It
was held that as a matter of fact on 28.06.1999 when the petitioner was
informed that the final price would be fixed after review by Industry
Task Force, there was no question of the petitioner accepting depressed
price under any economic compulsion. It willingly accepted the
conditions contained in the letter dated 28.06.1999. The Court noticed
that in fact the petitioner accepted the provisional price expecting that
the final price would be higher than the provisional price.
Consequently, the plea that the petitioner had no choice left in the
matter or any coercion was exercised on it, has been repelled.
78(a). In concluding part of the judgment, it has been observed that
the plea of unequal bargaining power was hardly open to the petitioner.
Even in the said case, after noticing the legal position expounded in
Atlas Express Ltd. vs. Kafco (Importers & Distributors) Ltd.,
14
, it
was held that a plea of economic duress, if taken, has to be examined
on the basis of principles laid down by the Privy Council in Pao On
14 QBD (1989) 1 All ER 641
Arbitration Appeal No.219 of 2022
50.
and others vs. Lau Yiu Long and others
15
. The relevant extract from
the said judgment is as follows: -
12. In Altas Express Ltd. (supra), we find a good deal of
discussion on economic duress as a factor which vitiates a
consent. A litany of judgments has been noted, where English
judges have acknowledged the existence of this concept, and
applied it to a variety of situations. The passages from the
Judgment of Lord Scarman in Pao On v. Lau Yiu quoted therein
succinctly bring out the meaning of economic duress. Duress,
whatever form it takes, is a coercion of the will so as to vitiate
consent, notes the learned judge, but explains that in a contractual
situation commercial pressure on a party alone is not enough.
There must be some factor "which could in law be regarded as a
coercion of his will so as to vitiate his consent". In such cases, it
may be material to enquire whether the person alleged to have
been coerced did or did not protest; whether, at the time he was
allegedly coerced into making the contract, he did or did not have
an alternative course open to him such as an adequate legal
remedy; whether he was independently advised; and whether
after entering the contract he took steps to avoid it. Simple
commercial pressure is not good enough. The pressure so as to
constitute duress must be such that the victim must have entered
the contract against his will, must have had no alternative course
open to him, and must have been confronted with coercive acts
by the party exerting the pressure. In other words, the pressure
exercised by the other party must be such as the law would not
regard legitimate. After a review of various authorities on the
point, the necessary ingredients of a plea of economic duress as a
ground for avoiding a contract are stated by the Delhi High Court
as follows:
“(a) Pressure which is illegitimate;
(b) Its effect on the victim i.e. that the pressure must be a
significant cause inducing the Claimant to enter into the contract;
(c) Lack of reasonable alternative i.e. that the practical effect of
the pressure was that there is compulsion on, or a lack of practical
choice for, the victim."
79.In a recent judgment in Gas Authority of India Ltd Vs. Indian
15 22 (1979) 3 All ER 65 (PC)
Arbitration Appeal No.219 of 2022
51.
Petrochemicals Corporation Ltd and others
16
, the Supreme Court in
case of a commercial contract between M/s Gas Authority of India Ltd.
(for short 'GAIL'), a Government of India undertaking and Indian
Petrochemicals Corporation Ltd. (for short 'IPCL'), formerly a public
sector undertaking, upheld the plea of unequal bargaining power while
striking down certain conditions of a contract between them.
79(a).The plea of IPCL that it had no choice but to enter into
contract accepting the conditions stipulated by GAIL, in view of its
unequal bargaining powers was accepted, observing thus :-
22.On a basic principle, it cannot be doubted that once
GAIL has laid down the pipeline, it is entitled to structure
in its cost in the contract. However, the issue is not simply
that. We are faced with a scenario where two public sector
enterprises entered into a contract in pursuance of the
allocation made by the MOPNG. There was also a time
constraint for IPCL. After incurring a heavy expenditure in
the construction of the Gandhar Plant, IPCL had very little
choice but to enter into the contract. What is of most
significance is that IPCL was bound to follow the allocation
terms provided by the principal authority, i.e., MoPNG.
Thus, as pleaded by IPCL, they were faced with a
"Hobson's choice", where they had to either give up the
contract or accept the clauses levying transportation
charges. On a conspectus of the above factors, it can be said
that GAIL exercised an unequal bargaining power at the
time of signing the contract.
(emphasis supplied)
80.In a more recent judgment in Kalpraj Dharamshri & Others vs.
Kotak Investment Advisors Ltd. & Others,
17
the Supreme Court
applied the principles laid down in Central Inland (supra) in striking
16(2023) 3 SCC 629
17 2021 (10) SCC 401
Arbitration Appeal No.219 of 2022
52.
down unconscionable clause in a commercial transaction. The relevant
extract is as follows: -
115. We are, therefore, of the view, in light of the law laid down
in Central Inland Water Transport Corpn. Ltd., KIAL cannot
be held to be bound by such unconscionable clause in the letter,
which is in a prescribed format.
(emphasis supplied)
81.None of the above judgments envisage a complete bar in
examining the plea of economic duress in a contract between two
business entities. However, as observed in Central Inland (supra),
each case must be judged on its own facts and circumstances.
82.We now proceed to discuss the judgments cited on behalf of
HSCL in support of its plea that economic duress had vitiated the
supplementary memorandum of understanding executed between the
parties on 22.03.2006. The first case cited is by the Supreme Court in
National Insurance Company Limited vs. Boghara Polycab Private
Limited
18
, where the High Court while disposing of the application
under Section 11 of the Act, left the issue relating to accord and
satisfaction of the claim to be decided by the arbitral tribunal. It has
been observed that the view taken by the High Court that it was prima
facie satisfied that the discharge voucher was not issued voluntarily and
the claimant was under some compulsion or coercion and that the
matter deserved detailed consideration by the arbitral tribunal, did not
18 (2009) 1 SCC 267
Arbitration Appeal No.219 of 2022
53.
require interference by the Apex Court. The said judgment is not of
much help to HSCL, except to the extent that in commercial
transactions, a plea relating to economic duress is not completely
barred and can be set up by a party and in which event, it would require
adjudication by the court or by the tribunal, as the case may be.
83.On the same line is the judgment of Supreme Court in K.
Ramachandra Rao vs. Union of India & Others,
19
wherein the
Supreme Court left open the issue relating to accord and satisfaction
based on no-dues certificate alleged to have been obtained under undue
influence, to be decided by the court below while disposing of
application under Section 20 of the Arbitration Act, 1940.
84.The next judgment is by the Delhi High Court in Supermint
Exports Private Limited vs. New India Assurance Company
Limited and Others
20
. In the said case, again a discharge voucher was
alleged by the claimant to have been obtained by the other side by
exercising undue influence and coercion. It has been held that such a
defence is permissible in law. Further in the facts of that case, it was
held that the finding returned by the arbitral tribunal that the discharge
voucher was obtained by coercion, did not suffer from any such
infirmity that may warrant interference by the court under Section 34 of
the Act.
19 1994 Supp (2) SCC 545 (2)
20 2021 SCC OnLine Del 5237
Arbitration Appeal No.219 of 2022
54.
85.Another judgment of the Delhi High Court in New India
Assurance Company Limited vs. Khanna Paper Mills Limited
21
was relied upon in contending that the finding of an arbitral tribunal on
the issue of duress and coercion in a particular case is a finding of fact
and cannot be interfered by the court. In this regard, reliance has been
placed on paragraph no. 81 of the judgment which is extracted below: -
81. In the present case, the learned Arbitral Tribunal has found,
on facts, that Khanna was under financial duress when it signed
the joint discharge voucher on 27th May 2013. These findings,
predicated on material on record, cannot be revisited under
Section 34 of the 1996 Act, as they cannot be said to suffer from
perversity, as understood in law. While this aspect of financial
duress is by itself sufficient to sustain the finding of the learned
Arbitral Tribunal that Khanna's claims did not stand extinguished
by accord and satisfaction, the additional fact that Khanna had
been made to sign a blank discharge voucher is of no little
significance. Getting an insured to sign a blank discharge voucher
is a practice which has been specifically deprecated by the
Supreme Court in Boghara Polyfabz. It partakes, even by itself,
of the nature of coercion. It cannot be expected that an insured
would, willy nilly, and of its own volition, sign a blank discharge
voucher, even before being told the amount which is being
released to it.
85(a). As would reveal from a bare perusal of the passage quoted
above, the court did not interfere with the finding of the arbitral tribunal
after reaching to a satisfaction that the said finding did not suffer from
perversity as understood in law. We are reluctant to read the aforesaid
observation as laying down that in no case, a finding relating to
coercion and duress returned by an arbitral tribunal, can be interfered
21 (2022) SCC OnLine Del 4269
Arbitration Appeal No.219 of 2022
55.
with under Section 34 of the Act. It would depend upon fact of each
case and if the finding suffers from a patent illegality or is covered by
any of the grounds stipulated under Section 34 of the Act, then it would
definitely be within the scope of interference by the Court.
86.In Associated Constructions vs. Pawanhans Helicopters Pvt.
Ltd.
22
, the contractor issued no-dues certificate, specifically mentioning
that insistence on part of the other side for issuance of such a certificate
as a condition precedent for clearing off the dues would amount to
economic duress. It is again based on facts of that case and would help
HSCL only to the extent that the plea of economic duress, if otherwise
proved, can be a valid defence to counter the plea of accord and
satisfaction. The relevant paragraphs are extracted below: -
26. The letter dated 9-12-1991 from Pawanhans to the contractor
shows that payment could be considered provided the contractor
submitted a “no-claim certificate”. It appears that such certificate
was indeed issued but with no result on which the contractor in
his letter dated 26-12-1991 in reply to the letter dated 9-12-1991,
once again submitted that the payments be released insofar as
they had been certified by the architects/consultants and if there
was a dispute regarding the other payments, they should be
referred to an arbitrator and in desperation further adds :
"However, if you want to hold us to economic duress
by not paying what you wish to pay, without 'no-claim
certificate’, we shall treat it as 'duress and issue you such a
certificate much against our willingness as we cannot afford
to liquidate our dues by such a certificate.
Please do not hold us to a ransom and arrange to pay.
In case you would still like to insist, let us know, so that we
could issue you such a certificate under duress as we have
serious financial problems"
22 2008 (16) SCC 128
Arbitration Appeal No.219 of 2022
56.
27. It appears that despite the pleading tone of the aforesaid letter,
no payment was made on which the contractor wrote yet another
letter dated 17-2-1992 in which it was submitted as under :
"In spite of our claim statements, you have insisted on
‘no-claim certificate’, we hereby give you this certificate
that we have ‘no-claims’ and hence you pay us what you
might have worked out as our ‘final dues’.
In case, you have a particular draft in which a 'no-
claim’ certificate needs to be issued to receive our dues of
our bill, please let us have the draft, or else this letter may
be treated as the certificate of no claim from our side.”
30. We have reproduced the correspondence in extenso to show
that the contractor was compelled to issue a "no-dues certificate"
and in this view of the matter, it could not be said that the
contractor was bound by what he had written. It is also clear that
there is voluminous correspondence over a span of almost 2 years
between the submission of the first final bill on 3-6-1991 and the
second final bill dated 2-2-1993 and as such the claim towards
escalation or the plea of the submission of a "no-dues certificate"
under duress being an afterthought is not acceptable.
87. The position which thus emerges is that there is no absolute bar in
raising plea of duress/coercion and unequal bargaining power in a
commercial contract between two business entities, albeit a heavy
burden lies on the party who raises it, to prove the same. Therefore, we
are of the opinion that finding of the arbitral tribunal that it was
competent to examine the plea of duress, coercion and unequal
bargaining power does not suffer from any such illegality as would
require interference under Section 34 of the Act.
Economic Duress :
88.The Commercial Court has also held, as noted above, that HSCL
had failed to prove the four factors specified in Classic Motors Ltd.
Arbitration Appeal No.219 of 2022
57.
(supra) and has therefore failed to prove duress and coercion.
89. It is noteworthy that the four factors stipulated in M/s Classic
Motors (supra) to adjudge whether any duress or coercion was played
on a party in a commercial contract, primarily relates to ascertainment
of the fact as to whether the party had raised any protest before or after
the agreement or took any step to avoid the contract or recourse to any
alternative course of action. The fourth factor is also inter-twined with
the above three factors and which relates to party aggrieved having
benefit of the independent advice.
90.It was vehemently contended by learned senior counsel appearing
for HSCL that the judgment in M/s Classic Motors was rendered by
the Delhi High Court while deciding objections under Section 34 of the
Act. Therefore, it cannot be placed at such high pedestal as to treat the
principles laid down therein as the public policy of India and set aside
the award by applying the aforesaid principles.
91.The argument though attractive at first blush, does not have any
substance. In fact, the judgment in M/s Classic Motors does not
formulate any new test or principles of law. It only reiterates the legal
position laid down in number of previous judgments. These judgments
elaborately take into account the statutory provisions, the view of the
Privy Council and the famous treatise on Contract by Chitty.
92.It is evident from para 31 of the Law Report in M/s Classic
Arbitration Appeal No.219 of 2022
58.
Motors that it places reliance on the judgment in Unikol Bottlers
Limited vs. Dhillon Kool Drinks
23
, wherein the aforesaid principles
have been noted after discussing the provisions of the Contract Act.
Para 31 from the Law Report in M/s Classic Motors is extracted
below: -
(31) The plea of the plaintiff that clause 21 is invalid because of
unequal bargaining power and duress and coercion also needs to
be examined at this stage. My attention is drawn to a decision of
this Court in Unikol Bottlers Ltd. Vs. Dhillon Kool Drinks,
reported in 1994 (28) DRJ 483. Paragraph 32 of the said
judgment being relevant for my purpose is extracted below:-
"For a valid contract it is essential that the parties have
given their free consent for it. Section 10 of the Contract
Act statutorily recognises the requirement of free consent
for a valid contract. Section 13 of the Contract Act defines
consent as follows:- `two or more persons are said to
consent when they agree upon the same thing in the same
sense'. Section 14 of the said Act defines `free consent' as
`consent is said to be free when it is not caused by :- (1)
Coercion, as defined in Section 15; (2) undue influence, as
defined in Section 16; or (3) fraud, as defined in Section 17
or (4) misrepresentation, as defined in Section 18; or (5)
mistake, subject to the provisions of Sections 20,21, and 22.
Consent is said to be so caused when it would not have
been given but for the existence of such coercion, undue
influence, fraud, misrepresentation or mistake, 'Section 15
& 16 define coercion and undue influence. What follows
from these statutory provisions is that an agreement to be
valid should be the result of free consent apart from other
requirements. While dealing with the question of
duress/coercion and unequal bargaining power one is really
concerned with the question of free will i.e. did the parties
enter into the agreement with a free will? It is the plaintiff
who has raised the question of its will being dominated by
the defendants and, therefore, not being a free agent.
Therefore, the plaintiff is on test. It has to be ascertained
whether the plaintiff exercised a free will or not while
231994 (28) DRJ 483
Arbitration Appeal No.219 of 2022
59.
entering into the Supplemental Agreement. For this purpose
there are several factors which need to be looked into. They
are - (1) Did the plaintiff protest before or soon after the
agreement? (2) Did the plaintiff take any steps to avoid the
contract? (3) Did the plaintiff have an alternative course of
action or remedy? If so, did the plaintiff pursue or attempt
to pursue the same? (4) Did the plaintiff convey benefit of
independent advice?"
93.The judgment in M/s Classic Motors also takes note of
paragraph 37 of the judgment in Unikol Bottlers Limited (supra)
which is pertinent to the controversy involved and is therefore extracted
below: -
(33) From the facts available before me, it is crystal clear that the
defendant did not exercise any duress on the plaintiff or that the
agreement was arrived at with the plaintiff without its free
consent. At paragraph 37 of the judgment in Unikol Bottlers Ltd.
(Supra.) it has been held thus:-
"The contracts are meant to be performed and not to be
avoided. Justice requires that men who have negotiated at
arm's length, be held to their bargains unless it can be
shown that their consent was vitiated by fraud, mistake or
duress. The real test is to first establish that the means
pursued were illegitimate in the sense of amounting to or
threatening a crime, tort or a breach of contract (though
possible not plausible breach of contract will suffice).
Secondly, one must establish that the illegitimate means
were a reason, though not necessarily the pre-dominate
reason for the victim's submission. Applying these tests to
the facts of the present case. I am unable to persuade myself
to hold that the consent of the plaintiff to enter into the
Supplemental Agreement was not free or was vitiated on
any of the grounds urged before me and discussed
hereinbefore."
94.In another judgment in Sara International Limited vs. Rizhao
Steel Holding Company Limited
24
, the same principles have been
242013 SCC OnLine 2236
Arbitration Appeal No.219 of 2022
60.
applied to determine the plea of economic duress. The jurisprudential
aspects based on the Commentary by Chitty on Contract and certain
judgments of the Privy Council and Court of Appeal were elaborately
considered. Chitty at 7-008 has observed that in a commercial
transaction, it is not uncommon that pressure and threats do take place,
but the two important factors which are to be considered are whether,
(i) the pressure or threat is legitimate; and (ii) its effect on the victim.
The relevant observations are extracted below: -
“a. 7-008 "Legitimacy of the pressure or threat. Once it is
accepted that the basis of duress does not depend upon the
absence of consent, but on the combination of pressure and
absence of practical choice, it follows that two questions become
all-important. The first is whether the pressure or the threat is
legitimate; the second, its effect on the victim. Clearly, not all
pressure is illegitimate, nor even are all threats illegitimate. In
ordinary commercial activity, pressure and even threats are
both commonplace and often perfectly proper...".
(emphasis supplied)
Chitty, further elaborating, observed that : -
e. 7-031 "Reasonable alternative. It is certainly relevant whether
or not the victim had a reasonable alternative. The victim s lack
‟
of choice was emphasised by Lord Scarman in the Pao On and
Universe Sentinel cases and has clearly been an important factor
in those cases in which relief has been given..."
f. 7-034 "Protest.In the Pao On case it was said that it was
relevant whether or not the victim protested. This again seems to
be a question of evidence as whether or not the threat had a
coercive effect. It has been accepted for many years that when a
payment is made in order to avoid the wrongful seizure of goods,
protest "affords some evidence...that the payment was not
voluntarily made", but that the fact that the payment was made
without protest does not necessarily mean that the payment was
voluntary".
Arbitration Appeal No.219 of 2022
61.
g. 7-035 "Independent advice. Likewise in the Pao On case it was
said that it is relevant whether or not the victim had independent
advice. The relevance of this is perhaps less obvious: access to
legal advice, for example, will not increase the range of options
available to the victim, and lack of advice therefore cannot be an
absolute requirement. However, whether or not the victim
appreciated that he had an alternative remedy and what the
practical implications of following it would be are relevant to the
question of causation".
95.Privy Council in Pao On (supra) observed that "Duress,
whatever form it takes, is a coercion of the will so as to vitiate
consent.........in a contractual situation commercial pressure is not
enough. There must be present some fact 'which could in law be
regarded as a coercion of his will so as to vitiate his consent'. ...........In
determining whether there was a coercion of will such that there was
no true consent, it is material to inquire whether the person alleged to
have been coerced did or did not protest; whether, at the time he was
allegedly coerced into making the contract, he did or did not have an
alternative course open to him such as an adequate legal remedy;
whether he was independently advised; and whether after entering the
contract he took steps to avoid it. All these matters are relevant in
determining whether he acted voluntarily or not."
96.The Bombay High Court in Balaji Pressure Vessels (supra)
applied the same test laid down by Privy Council in Pao On (supra) in
adjudging whether economic duress had vitiated the contract between
Arbitration Appeal No.219 of 2022
62.
the parties or not. It has been concluded that simple commercial
pressure is not good enough to vitiate the consent. The pressure
exercised by the other party must be such as the law would not regard
legitimate.
97.The Supreme Court in GAIL Ltd. (supra) has virtually applied
the same principles to judge the plea of duress, coercion and unequal
bargaining power. It held that IPCL was put in a situation where it was
left with no meaningful choice. In such a case, not raising protest or not
taking steps to avoid the contract looses its significance.
98.It emerges from the above discussion that the factors specified in
M/s Classic Motors have their foundation in the basic jurisprudence
and have been recognized in large number of other judgments. These
principles have repeatedly been held to be guiding factors to adjudge
the sustainability of a plea of economic duress.
Whether any option or remedy was available to HSCL:
99.Now the all important question is whether HSCL was having any
meaningful choice after the work was suspended by NOIDA? Whether
there was any pressure or threat which was illegitimate so as to vitiate
consent to the new bargain i.e., Supplementary MoU?
100.The material on record reveals that the work was stopped as IIT
(Delhi) reported the contract value to be higher by 60 crores. Another
project appraisal and planning company estimated the value of contract
Arbitration Appeal No.219 of 2022
63.
to be inflated by about 40 crores. Undoubtedly, HSCL did not agree to
the proposal of NOIDA for revision of rates. At the same time, HSCL
also did not invoke the option of treating the contract to be a
'foreclosure', nor terminated the same and sue NOIDA for damages, as
in its economic wisdom, it felt that it would be more detrimental to it.
On the other hand, the stand of NOIDA was that the mobilization
advance and other amounts already paid to HSCL towards running
bills, i.e. a sum of Rs. 49.98 crores, if taken into account, there was
excess payment of about Rs. 20 – 30 crores, as compared to the work
executed by that time. The consistent legal opinion it received was that
determination of contract at the stage would be counter-productive and
also against public interest. Therefore, it should ensure that a negotiated
settlement takes place with HSCL. So, both the parties were vitally
interested in breaking the deadlock so that the work is resumed. To
achieve the said objective, they engaged themselves in several rounds
of negotiations and ultimately, the ice was broken with NOIDA,
accepting the stand of HSCL that there would be no reduction in
contract value and it would be granted reasonable time extension to
complete the project. In return, HSCL agreed to forego its claim for
damages for the suspension period. It was out and out a commercial
bargain by the parties, keeping their respective economic interests in
mind.
Arbitration Appeal No.219 of 2022
64.
101.Even if we assume for argument's sake that there was pressure on
HSCL to waive its right to claim damages for the suspension of work,
on basis of legal advice received by NOIDA, we find nothing
illegitimate in the same. In the words of Chitty - “Clearly, not all
pressure is illegitimate, nor even are all threats illegitimate. In
ordinary commercial activity, pressure and even threats are both
commonplace and often perfectly proper”.
102.HSCL understood the nuances of giving up its right to price
escalation and damages during the period work remained suspended. It
knew that it would not mean waiver of its right to claim price escalation
prior to suspension of work or post resumption of work but only
damages for the suspension period. This is evident from various
communications which took place between the parties, post resumption
of work:-
(a) On 25.02.2008 HSCL made a claim towards price variation
as per Clause 8 of the GCC. It emphasised therein that
Supplementary MoU ‘prohibits only escalation or any
compensation for suspension of work during the period from
22.09.2003 till its recommencement’. Therefore, its claim in
relation to price variation be accepted.
(b) It seems that NOIDA vide letter dated 5.02.2008 informed
HSCL that ‘no escalation payment will be made to you as per
term of revised MoU’.
(c) In response, HSCL vide letter dated 10.04.2008 emphasised
Arbitration Appeal No.219 of 2022
65.
that Clause 3 of Supplementary MoU only prohibited ‘escalation
or any compensation whatsoever on account of suspension of
work during the period from 22.09.2003 till its commencement’.
It was further emphasised that the claim for price escalation was
submitted excluding the suspension period. ‘The price variation
claims have been submitted covering the period from 7.04.2003
to 22.09.2003 i.e. till suspension and after recommencement till
date excluding the suspension period. Therefore our price
variation bills are fully justified and are tenable in all respect in
accordance with Clause 7 of original MoU, Clause 8 of General
Conditions of Contract which have neither been superseded nor
amended and Clause 3 of Supplementary MoU’.
103. Notably, the work was completed on 30.04.2008. HSCL, neither
during course of execution of work, nor after its completion, made any
claim towards damages during suspension period being fully conscious
of the implications of Clause 3 of Supplementary MoU whereunder it
had explicitly agreed not to demand ‘any compensation whatsoever on
account of suspension of work during the period from 22.09.2003 till
its recommencement’. The only claim it was making was towards price
escalation.
104.However, while giving notice dated 16.02.2009, HSCL invoked
the arbitration clause under the contract and submitted a list of disputes
and claims to be referred for arbitration. It, inter alia, included a claim
of Rs.37.12 crores towards damages for suspension of work under
Clause 13 of GCC. It was followed by another letter dated 20.03.2009
Arbitration Appeal No.219 of 2022
66.
to the same effect.
105.Even while making the above claim for liquidated damages
during suspension period under Clause 13(ii)(b) of GCC, it never
alleged any undue influence, duress or coercion having ever been
exercised over it in making it sign the Supplementary MoU.
106.HSCL, when it approached the High Court under Section 11 of
the Act for appointment of arbitrator, alleged for the first time that
Supplementary MoU was a result of undue influence, coercion and
duress upon it. The above chain of events lends full support to the view
taken by the court below that the claim in respect of damages for
suspension of work was 'afterthought and sham'.
107.Recently the Supreme Court in NTPC Ltd. Vs. SPML Infra
Ltd.
25
, was examining a plea of economic duress set up by SPML Infra
Ltd. in a case arising out of Section 11(6) of the Act. In the said case,
after issuance of a completion certificate by NTPC and release of final
payment, SPML issued no-demand certificate. Till that time, there was
no pending claim of any kind of SPML against NTPC. However, while
releasing final payment, NTPC withheld the bank guarantees on
account of certain pending disputes with regard to other projects
between the parties. SPML being aggrieved thereby, preferred a writ
petition in the jurisdictional high court for quashing of the order by
25 2023 SCC OnLine SC 389
Arbitration Appeal No.219 of 2022
67.
which the bank guarantees were retained by NTPC. An interim order
was passed in the said petition restraining NTPC from invoking the
bank guarantees. During pendency of the writ petition, the parties
entered into multiple discussions and thereafter arrived at settlement
agreement in writing dated 27.5.2020, whereunder NTPC agreed to
release the original bank guarantees while SPML agreed not to raise
any claim of any nature against NTPC pertaining to the contract. On
30.6.2020, NTPC released the bank guarantees in compliance of the
settlement agreement. SPML thereafter withdrew the writ petition. One
month later, on 10.10.2020, SPML filed petition under Section 11(6)
alleging coercion and economic duress in execution of the settlement
agreement. The application was resisted by NTPC on the ground that
there were no subsisting disputes between the parties in view of the
settlement agreement dated 27.5.2020 and the application for
arbitration was an afterthought and abuse of the process of law. The
Supreme Court firstly examined the scope of the power of the court to
decide the issue of non-arbitrability of a dispute. It relied on its
previous decision in Vidya Drolia & Others v. Durga Trading
Corporation,
26
, in holding that the scope of judicial review in such
matters is very limited, confined only to weeding out of manifestly ex
facie non-existent disputes. The important aspect considered in the
26 (2021) 2 SCC 1
Arbitration Appeal No.219 of 2022
68.
judgment, which is relevant for the case in hand, is the issue of
economic duress. Whether the allegations of coercion and economic
duress in the execution of settlement agreement between the parties
was at all made out? The Supreme Court noticed that the execution of
the settlement agreement led to the release of the bank guarantees.
After reaping the benefits of the settlement agreement, the writ petition
was withdrawn. SPML never alleged any economic duress while the
settlement agreement was being complied with by the parties. It was
only after one month of withdrawal of the writ petition in compliance
of the settlement agreement that SPML for the first time, raised the plea
of economic duress. In such backdrop, it was held that the plea lacked
bonafides and was ex facie frivolous and untenable. The relevant
observations in this behalf are as follows: -
47. The plea of coercion and economic duress must be seen in the
context of the execution of the Settlement Agreement not being
disputed, and its implementation leading to the release of the
Bank Guarantees on 30.06.2020 also not being disputed. Almost
three weeks after the release of the Bank Guarantees, a letter of
repudiation was issued by SPML on 22.07.2020. This letter was
issued about two months after the Settlement Agreement was
executed and in fact during the subsistence of the Writ Petition.
After reaping the benefits of the Settlement Agreement, the Writ
Petition was withdrawn on 21.09.2020. It is thereafter that the
present application under Section 11(6) of the Act was filed. The
sequence of events leads us to conclude that the letter of
repudiation was issued only to wriggle out of the terms of the
Settlement Agreement.
48. The foregoing clarifies beyond doubt that the claims sought to
be submitted to arbitration were raised as an afterthought.
Further, SPML's allegations of coercion and economic duress in
Arbitration Appeal No.219 of 2022
69.
the execution of the Settlement Agreement lack bona fide. They
are liable to be knocked down as ex facie frivolous and untenable.
108.In the instant case also, it has been rightly observed by the court
below that HSCL entered into Supplementary MoU after due
deliberation. It reaped the benefit of Supplementary MoU on basis
whereof the order of suspension of work was withdrawn and HSCL
succeeded in completing the project. It did not raise any protest while
executing the work in terms of the conditions stipulated in the
Supplementary MoU. As noted above, HSCL itself admitted in series of
communications that the effect of the Supplementary MoU is only
giving up of its right to claim compensation on account of suspension
of work. Its claim relating to price escalation for the period when work
was not on hold, would remain unaffected. Fully knowing the
implications of the fresh bargain between the parties, it completed the
project. At that time, the only dispute between the parties was with
regard to its claim relating to price escalation which in fact has also
been allowed by the tribunal and the court below. However, at no point
of time, it ever raised any plea of economic duress in acceding to the
demand of NOIDA to give up claims in respect of damages on account
of the suspension of work. Almost after an year, it raised the claim for
damages under Clause 13 of GCC and which has therefore been rightly
held to be afterthought and sham.
Arbitration Appeal No.219 of 2022
70.
109.In the above backdrop, the seminal question is whether there was
any meaningful choice available to HSCL or not. It is worthwhile to
reiterate that it had the option of foreclosure under Clause 11 of GCC.
Now, the said choice was a meaningful choice or not has to be
examined. It is contended by counsel for HSCL that at the relevant
time, HSCL was not in position to exercise the above options as it
would have ruined it financially on account of -
(a) pending unpaid dues of Rs. 8.21 crores;
(b) possibility of denial of extension of time;
(c) lack of option to terminate the contract;
(d) possibility of termination leading to disqualification /
blacklisting and costs of balance works being claimed by the
NOIDA;
(e) invocation of bank guarantees, and
(f) costs of litigation and loss of reputation.
110.The argument is specious and is to be rejected outright. In case of
exercise of option of foreclosure under Clause 11 of GCC,
compensation and damages payable to the contractor duly takes into
account unpaid dues, price of unused materials lying at the site and in
godowns and reasonable compensation for repatriation of contractors'
site staff and imported labour to the extent necessary. HSCL also had
the advantage of there being in place a prohibition in respect of
recovery of dues against mobilization advance. Additionally, NOIDA
Arbitration Appeal No.219 of 2022
71.
would have been under obligation to release retention money. All bank
guarantees would have got discharged automatically. Thus, there was
no possibility of any financial loss or loss in terms of reputation, nor
any possibility of blacklisting, as is tried to be projected. We have no
hesitation in accepting the contention of counsel for the respondent that
the plea taken in this behalf is non-evidentiary, speculative and without
any basis.
111.We also completely agree with the finding of the Commercial
Court that had HSCL not agreed to the new deal, NOIDA would not
have permitted HSCL to go ahead with the contract. In that event, the
only option left with HSCL was to sue for damages. Then, as observed
by court below, question would have arisen “why Respondent No. 1
(HSCL herein) waited for a period beyond 120 days and by applying
principles of mitigation of damages, Respondent No. 1 (HSCL) would
not have been able to get compensation @ Rs. 4 lakhs per day for 928
days. Thus, the intention, the circumstances at the time of signing of
Supplementary MoU clearly speaks of the ad idem of the parties at that
time and the findings of the Learned Arbitrator are contrary to the
specifically and expressly agreed, contractual terms between the
parties”.
Arbitration Appeal No.219 of 2022
72.
Unjust enrichment:
112.The contention of counsel for NOIDA that raising such a sham
claim as above was part of modus operendi of HSCL to unjustly enrich
itself at the cost of public exchequer, also has considerable force. It is
an admitted fact on record that HSCL had entered into a joint venture
agreement with M/s Navyug Engineering Company Ltd. (NECL) dated
25.3.2003. Any amount received under the contract was to be shared
between HSCL and NECL in proportion of 4.25% to 95.75%. Thus,
HSCL was getting hardly Rs. 5 crores under the contract as centage
charges and the entire remaining amount was to go to a private entity
(NECL). It is not a case where money would transfer hand from one
instrumentality of the State to another. It would essentially result in
unjust enrichment of NECL at the cost of public exchequer, which
would definitely be against public policy of India.
Conclusion :
113.We have no hesitation in upholding the finding of the court below
that by allowing Claim No.2, the arbitral tribunal had tried to rewrite
the terms of contract between the parties. The court below has also
rightly held that the finding of the arbitral tribunal that economic duress
had any role in the bargain, was based on conjectures and surmises,
without any material on record to sustain such findings, resulting in a
patent illegality, warranting interference under Section 34 of the Act.
Arbitration Appeal No.219 of 2022
73.
Consequently, award made in respect of Claim No. 2 has rightly been
held by the court below to be unsustainable in law.
Point No. 2
Whether arbitral award can be set aside in part?
114.This leads us to the second crucial question. What would be the
effect of turning down Claim No. 2 on the remaining part of the award?
Whether there was any impediment in setting aside part of the award
and upholding the remaining part which was found to be valid?
115.Section 32 of the Act deals with termination of arbitral
proceedings. It reads as follows :-
Termination of proceedings.-- (1) The arbitral proceedings shall
be terminated by the final arbitral award or by an order of the
arbitral tribunal under sub-section (2).
(2) The arbitral tribunal shall issue an order for the termination
of the arbitral proceedings where--
(a) the claimant withdraws his claim, unless the respondent
objects to the order and the arbitral tribunal recognises a
legitimate interest on his part in obtaining a final
settlement of the dispute;
(b) the parties agree on the termination of the proceedings;
or
(c) the arbitral tribunal finds that the continuation of the
proceedings has for any other reason become unnecessary
or impossible.
(3)Subject to Section 33 and sub-section (4) of Section 34, the
mandate of the arbitral tribunal shall terminate with the
termination of the arbitral proceedings.
Arbitration Appeal No.219 of 2022
74.
116.Thus arbitration proceedings stand terminated with the passing of
the final arbitral award or by an an order of the arbitral tribunal under
sub-section (2). Sub-section (2) envisages an order by the arbitral
tribunal to terminate the proceedings in the circumstances enumerated
therein. Sub-section (3) deals with two exceptions where the mandate
of the arbitral tribunal survives for limited purposes even after passing
of the final award. The first exception is for carrying out correction and
interpretation of award or make an additional award. The second
exception is provided under Section 34 (4) of the Act.
117.In earlier part of the judgment, we have discussed Section 34(2)
and (2-A) which specifies the grounds on which an arbitral award can
be set aside by the court. Sub-section (4) enable the arbitral tribunal to
eliminate the grounds which may result in an arbitral award, being set
aside. It is open to a party to request the court to adjourn the
proceedings for a period of time determined by it in order to give the
arbitral tribunal an opportunity to resume the arbitral proceedings or to
take such other action as in the opinion of the arbitral tribunal will
eliminate the grounds for setting aside the arbitral award. The said
power can be exercised by the court only on an application made by a
party and not suo motu. As the purpose is to afford opportunity to the
arbitral tribunal to eliminate the grounds on which there is possibility of
award being set aside, it automatically follows that the stage for
Arbitration Appeal No.219 of 2022
75.
exercising such a power is bestowed before the award is set aside and
not afterwards.
118.The power is not to be confused with an order of remand, as
understood in legal parlance, where a higher court after setting
aside/quashing the order under challenge, remands the matter back to
the court/tribunal to decide the proceedings afresh or in the light of the
observations made in the remand order. In clear distinction to an order
of remand sensu stricto, the power conferred by sub-section (4) of
Section 34 is with the purpose of permitting parties to take measures
which can eliminate the grounds for setting aside the arbitral award by
the court. In Kinnari Mullick and another vs. Ghanshyam Das
Damini
27
, the Supreme Court has lucidly explained the scope of
Section 34(4) as follows:-
15. On a bare reading of this provision, it is amply clear
that the Court can defer the hearing of the application filed
under Section 34 for setting aside the award on a written
request made by a party to the arbitration proceedings to
facilitate the Arbitral Tribunal by resuming the arbitral
proceedings or to take such other action as in the opinion of
Arbitral Tribunal will eliminate the grounds for setting
aside the arbitral award. The quintessence for exercising
power under this provision is that the arbitral award has not
been set aside. Further, the challenge to the said award has
been set up under Section 34 about the deficiencies in the
arbitral award which may be curable by allowing the
Arbitral Tribunal to take such measures which can
eliminate the grounds for setting aside the arbitral award.
No power has been invested by the Parliament in the Court
to remand the matter to the Arbitral Tribunal except to
27(2018) 11 SCC 328
Arbitration Appeal No.219 of 2022
76.
adjourn the proceedings for the limited purpose mentioned
in sub-section 4 of Section 34. This legal position has been
expounded in the case of McDermott International Inc.
(supra). In paragraph 8 of the said decision, the Court
observed thus:
“8…..parliament has not conferred any power of
remand to the Court to remit the matter to the arbitral
tribunal except to adjourn the proceedings as
provided under sub-section (4) of Section 34 of the
Act. The object of sub-section (4) of Section 34 of the
Act is to give an opportunity to the arbitral tribunal to
resume the arbitral proceedings or to enable it to take
such other action which will eliminate the grounds for
setting aside the arbitral award.”
16. In any case, the limited discretion available to the Court
under Section 34 can be exercised only upon a written
application made in that behalf by a party to the arbitration
proceedings. It is crystal clear that the Court cannot
exercise this limited power of deferring the proceedings
before it suo moto. Moreover, before formally setting aside
the award, if the party to the arbitration proceedings fails to
request the Court to defer the proceedings pending before
it, then it is not open to the party to move an application
under Section 34 (4) of the Act. For, consequent to disposal
of the main proceedings under Section 34 of the Act by the
Court, it would become functus officio. In other words, the
limited remedy available under Section 34 (4) is required to
be invoked by the party to the arbitral proceedings before
the award is set aside by the Court.
119.Chapter VIII comprises of two sections only. Section 35 attaches
finality to an arbitral award and Section 36 provides that after expiry of
time for making an application to set aside arbitral award under Section
34 or subject to provisions of sub-section (2) of Section 34, the arbitral
award would be enforced in accordance with the provisions of the Code
of Civil Procedure, 1908, in the same manner as if it were a decree of
court.
Arbitration Appeal No.219 of 2022
77.
120.Under the scheme of the Act, after passing of a final arbitral
award, only following possibilities are contemplated:-
(a) correction of computation errors, clerical or typographical
errors or errors of a similar nature [Section 33(1)(a)];
(b) give an interpretation of a specific point or part of the
award [Section 33(1)(b)];
(c) make an additional award as to claims presented in the
arbitral proceedings but omitted from the arbitral award, on
request of a party [Section 33(4)];
(d) give arbitral tribunal an opportunity to resume the arbitral
proceedings or to take such other action, as in the opinion of the
arbitral tribunal, will eliminate the grounds for setting aside the
arbitral award [Section 34(4)];
(e) setting aside of an award by a Court [Section 34(2)(2-A)] or
in an appeal [Section 37];
(f) commencement of fresh arbitration proceedings in cases
where an arbitral award is set aside, subject to limitation [Section
43(4)].
121.It is noteworthy that under the new Arbitration Act, the court has
not been conferred with any explicit power to modify arbitral award or
to remit it to the arbitrator unlike Sections 15 and 16 of the Arbitration
Arbitration Appeal No.219 of 2022
78.
Act, 1940 (hereinafter referred to as 'the old Act'). This has been
purposely done to minimize judicial interference by the courts in
arbitral awards. The courts have been given only supervisory role to
ensure fairness and strike at arbitrariness, violation of public policy of
India, patent illegalities appearing on the face of record, jurisdictional
error and the like (Section 34 (2) and (3)).
122.In McDermott International Inc. (supra), the Supreme Court
after comparing the provisions of the old Act with the new one held as
follows:-
52. The 1996 Act makes provision for the supervisory role
of courts, for the review of the arbitral award only to ensure
fairness. Intervention of the court is envisaged in few
circumstances only, like, in case of fraud or bias by the
arbitrators, violation of natural justice, etc. The court cannot
correct errors of the arbitrators. It can only quash the award
leaving the parties free to begin the arbitration again if it is
desired. So, scheme of the provision aims at keeping the
supervisory role of the court at minimum level and this can
be justified as parties to the agreement make a conscious
decision to exclude the court's jurisdiction by opting for
arbitration as they prefer the expediency and finality offered
by it.
123.The departure from the scheme of the old Act has been further
elaborated in Project Director, National Highways No.45 E and 220
National Highways Authority of India Vs. M. Hakeem and
another
28
as under:-
19. The statutory scheme under Section 34 of the
28(2021) 9 SCC 1
Arbitration Appeal No.219 of 2022
79.
Arbitration Act, 1996 is in keeping with the UNCITRAL
Model Law and the legislative policy of minimal judicial
interference in arbitral awards.
20. By way of contrast, under Sections 15 and 16 of the
Arbitration Act, 1940, the court is given the power to
modify or correct an award in the circumstances mentioned
in Section 15, apart from a power to remit the award under
Section 16 as follows: -
“15. Power of Court to modify award.- The Court
may by order modify or correct an award-
(a) where it appears that a part of, the award is upon a
matter not referred to arbitration and such part can be
separated from the other part and does not affect the
decision on the matter referred; or
(b) where the award is imperfect in form, or contains
any obvious error which can be amended without
affecting such decision; or
(c) where the award contains a clerical mistake or an
error arising from an accidental slip or omission.
16. Power to remit award.- (1) The Court may from
time to time remit the award or any matter referred to
arbitration to the arbitrators or umpire for
reconsideration upon such terms as it thinks fit-
(a) where the award has left undetermined any of the
matters referred to arbitration, or where it determines
any matter not referred to arbitration and such matter
cannot be separated without affecting the
determination of the matters referred; or
(b) where the award is so indefinite as to be incapable
of execution; or
(c) where an objection to the legality of the award is
apparent upon the face of it., (2) Where an award is
remitted under sub- section (1) the Court shall fix the
time within which the arbitrator or umpire shall
submit his decision to the Court:
Provided that any time so fixed may be extended by
subsequent order of the Court.
(3) An award remitted under sub- section (1) shall
become void on the failure of the arbitrator or umpire
to reconsider it and submit his decision within the
time fixed.”
21. As a result therefore, a judgment in terms of the award
is given under Section 17 of the 1940 Act which reads as
Arbitration Appeal No.219 of 2022
80.
follows: -
“17. Judgment in terms of award.- Where the Court
sees no cause to remit the award or any of the matters
referred to arbitration for reconsideration or to set
aside the award, the Court shall, after the time for
making an application to set aside the award has
expired, or such application having been made, after
refusing it, proceed to pronounce judgment according
to the award, and upon the judgment so pronounced a
decree shall follow and no appeal shall lie from such
decree except on the ground that it is in excess of, or
not otherwise in accordance with, the award.”
22. Thus, under the scheme of the old Act, an award may be
remitted, modified or otherwise set aside given the grounds
contained in Section 30 of the 1940 Act, which are broader
than the grounds contained in Section 34 of the 1996 Act.
124.The dictum in McDermott International Inc. (supra) quoted
above, was relied upon in holding that the court under Section 34 of the
new Act does not have power to modify an award. It has been held that
there would also be no power vested in the court to remit the matter to
the arbitrator except within the limited scope of sub-section (4) of
Section 34. It would be useful to take note of the relevant observations
made in this behalf:-
30.….......... Further, if the power to remit the matter to
the arbitrator is read into Section 34, it would render
inexplicable the deliberate omission by Parliament of a
provision analogous to Section 16 of the Arbitration Act,
1940 in the present Act. Section 16 of the 1940 Act
specifically armed courts with the power to remit the matter
to arbitration. Noticeably, the scope of remission under the
present Act is confined to that prescribed in sub-section (4)
of Section 34. .....
31. Thus, there can be no doubt that given the law laid
down by this Court, Section 34 of the Arbitration Act, 1996
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81.
cannot be held to include within it a power to modify an
award. ..........
125.Again, in National Highways Authority of India Vs P.
Nagaraju @ Cheluvaiah and another
29
, it has been reiterated that the
court in proceedings emanating from Section 34 does not have power to
modify the award; the only option would be to set aside the award-
26. 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 proceeding emanating
from Section 34 of Act, 1996. The option would be to set
aside the award and remand the matter. ...
126.We now come to Dakshin Haryana Bijli Vitran Nigam Ltd.
(supra) on which reliance has been placed by the court below in
holding that the law mandates that an arbitral award cannot be upheld
in part while setting aside the remaining part. In the said case, the main
issue before the Supreme Court was regarding the date from which
period of limitation for filing a petition under Section 34 of the Act
would commence. Would it be the date on which the draft award was
circulated to the parties or the date on which the signed copy of the
award was provided? The Supreme Court answered the said question
holding that the limitation for filing objections under Section 34 would
be reckoned from the date on which signed copy of the award was
made available to the parties. While arriving at the said conclusion, the
292022 SCC OnLine SC 864
Arbitration Appeal No.219 of 2022
82.
Supreme Court also observed that where the court set-asides the award,
the dispute between the parties has to be decided afresh, as there is no
power to modify an arbitral award. The relevant extract is quoted
below:-
“In law, where the Court sets aside the award passed by the
majority members of the tribunal, the underlying disputes
would require to be decided afresh in an appropriate
proceeding. Under Section 34 of the Arbitration Act, the
Court may either dismiss the objections filed, and uphold
the award, or set aside the award if the grounds contained in
sub-sections (2) and (2A) are made out. There is no power
to modify an arbitral award.”
127.None of the above judgments cited by Sri Manish Goyal, learned
Senior Counsel appearing for the respondent – NOIDA deals with
sevarability of award, but with power of the court to modify an arbitral
award. As discussed, that power is definitely not conferred on the
arbitral tribunal, unlike under the old Act.
128.Before we proceed further, we would like to take notice of few
more provisions of the Act which are relevant for deciding the
controversy.
129.As already noted, Section 34 defines the limited terrain in which
the court can exercise its supervisory role in setting aside an arbitral
award. It is crucial to understand the meaning of word 'award' under the
Act. As per Section 2(c), an award is an umbrella term that
encompasses a final award as well as an interim award. An interim
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83.
award is also a final award on matters covered thereby, but made at an
interim stage. This has been explained in McDermott International
Inc. (supra) as follows:-
68.The 1996 Act does not use the expression "partial
award". It uses interim award or final award. An award has
been defined under Section 2 (c) to include an interim
award. Sub-section (6) of Section 31 contemplates an
interim award. An interim award in terms of the said
provision is not one in respect of which a final award can
be made, but it may be a final award on the matters covered
thereby, but made at an interim stage.
130.Then there can be an additional award as to claims presented in
the arbitral proceedings but omitted from the arbitral award [Section 33
(4)]. Sub-section (7) of Section 33 extends the provisions of Section 31
to an additional award. Thus, an additional award has to strictly
conform to all the requirements of an 'arbitral award'. There is no
manner of doubt, keeping in view the scheme of the new Act, that an
award whether interim, final or additional, is subject to challenge
before a court of law only by an application and in the manner
contemplated under Section 34. Thus, in a given case, there could be
multiple awards. By way of illustration, we may gainfully refer to
McDermott International Inc. (supra) where there was an additional
award, a partial (interim) award and a final award. It is open to a party
to take recourse to independent proceedings under Section 34 in
challenging each award. Thus, there can be as many number of
Arbitration Appeal No.219 of 2022
84.
challenges under Section 34 as are the awards in a particular case. It is
also possible in a given case that one or more of these awards may go
in favour of a particular party and the remaining against it. Resultantly,
the party may prefer objections under Section 34 only against the award
which goes against it and may not challenge the other award(s) which
is/are in its favour. There is no provision under the Act which mandates
a party to advance a challenge to all the awards. Can the Court in such
a situation reject the objection under Section 34 holding it to be not
maintainable as all awards have not been challenged or while
considering challenge to only one of the awards also proceed to set
aside the remaining awards which are not under challenge before it?
131.In contrast, there can be a situation where the arbitral tribunal
deals with number of distinct and independent claims by passing a
single composite award. In such a case, there is also a possibility that
certain claims are allowed while the others are rejected. The party,
some of whose claims have been rejected, may challenge part of the
award by filing objections under Section 34 of the Act. Again, can the
court in such a case decline to examine the challenge on the ground that
the entire award being not under challenge, the objections would not be
maintainable as it is not having power to set aside only part of the
award? There can also be a case where several and distinct claims arise
out of the same contract at different point in time. This can give rise to
Arbitration Appeal No.219 of 2022
85.
more than one reference, there being no impediment in this regard.
Resultantly, it would result in multiple awards and which could give
rise to multiple challenges under Section 34 of the Act. In such a case,
it could result in some award(s) being upheld while other(s) being set
aside. The same fact situation can give rise to one reference, where a
party waits till the completion of contract and seeks reference
combining all the claims. In such a scenario, there may be one final
award dealing with separate and distinct claims. If we apply the law as
interpreted by the court below, it would result in apparent anomalies in
the ultimate outcome, dependent upon the fact situation. While in the
first case, where there are multiple awards and proceedings under
Section 34 of the Act arising out of same contract, the court under
Section 34 may set aside one of the awards while upholding the other
which is/are separate award(s). In the latter situation, as there is one
composite award, then notwithstanding that only part of the award
pertaining to one or more independent claims alone is under challenge,
the entire award would have to be set aside, as has been done in the
instant case.
132. The above paradox can be resolved if we keep in mind the
scheme of the Act noted above. In cases where there are separate and
distinct claims, not related or dependent upon other claims, then
irrespective of whether they are decided by the arbitral tribunal by an
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86.
interim award(s), final award or additional award, the decision of the
arbitral tribunal in respect of each such claim is an independent award
in the eyes of law. Thus, a final award can be an amalgamation or a
bundle of several awards given in respect of separate and distinct
claims. When Section 34 confers power in the court to set aside an
award, the power could be exercised to set aside any or all such awards,
whether composite, interim, final or additional. We cannot loose sight
of the fact that the new Act was enacted with the object of giving the
parties freedom to decide the forum through which they want their
disputes to be decided so as to facilitate ease of doing business. Albeit,
the Act prescribes timelines for various proceedings but it is matter of
common knowledge that the said object has not been achieved and it
takes long in getting the dispute decided even through the arbitral
tribunal. In case the view taken by the court below is upheld and
claims which have been found to be valid and enforceable, are set at
naught on misconception of law that the award has to be set aside as a
whole, it would result in grave injustice to such party apart from
forcing the parties to another round of litigation. Such an interpretation
if given, would be a complete antithesis to the objectives of the Act.
133.The view taken by the court below, if taken to its logical
conclusion, would result in a situation not contemplated under law.
Some of the claims allowed by the arbitral tribunal, have also been
Arbitration Appeal No.219 of 2022
87.
upheld by the court below. There is no occasion for this court to
interfere with the findings recorded in respect of these issues. These
claims are not dependent for their survival on the findings in respect of
claim relating to damages during the period of suspension of work
(Clause No.2 - Issue No. 14). Now if we are to uphold the operative
part of the order of the court below setting aside the entire award while
upholding the findings on various claims with which the court below
has not interfered and assuming a fact situation where the appellant,
subject to law of limitation, starts fresh arbitration proceedings, will
the arbitral tribunal be competent to record contrary findings in respect
of these issues. The principles of issue estopple will preclude the
parties from raising the issues already decided. Similarly, the principles
of res judicata will bind the arbitral tribunal to the finding recorded in
the initial round of litigation.
134. The Supreme Court in Secretary to Govt. Department of
Education (Primary) and others Vs. Bheemesh Alias Bheemappa
30
,
while interpreting a scheme of compassionate appointment of the Bank,
held that “a rule of interpretation which produces different results,
depending upon what the individuals do or do not do, is inconceivable.”
135.The golden rule of interpretation is to take a view which advances
the object of the Act, harmonises every provision of the statute and
30 2022 AIR (SC 402
Arbitration Appeal No.219 of 2022
88.
does not result in any inconsistency or absurdity. The view taken by us
that the award in the instant case is an amalgamation or bundle of
several awards in respect of separate and distinct claims rules out all
possibilities of inconsistencies and contradictions and also efficiently
achieves the object of the Act.
136.Thus there would be no difficulty in case a party prefers to assail
only a particular award and not the other one in a case where there are
more than one award or files objection only against part of the award
pertaining to an independent and separate claim which is severable
from the others, without affecting the decision in respect of the
remaining claims.
137.This would bring us the doctrine of severability, which in our
opinion is not foreign to the new Act. One such situation is
contemplated under the proviso to Section 34(2)(a)(iv) which provides
that if the decisions on matters submitted to arbitration can be separated
from those not so submitted, only that part of the arbitral award which
contains decisions on matters not submitted to arbitration may be set
aside.
138.The contention of counsel for the respondent that the doctrine of
severability is applicable only to the cases falling under the proviso
does not appeal to us. The situation contemplated under the proviso is
only an instance where the doctrine of severability has been explicitly
Arbitration Appeal No.219 of 2022
89.
made applicable by the legislature. It rather reinforces an interpretation
that power to sever bad from good, which inheres in every court
invested with power of judicial review, would also be available to a
court dealing with objections under Section 34 of the Act. The mere
fact that such a power is not specifically paraphrased in other clauses of
sub-section (2) and (2-A) of Section 34, will not detract from the legal
position noted above. We find support in our view in a number of
precedents which we note herein after.
139.The first case is precisely concerning the issue relating to
applicability of doctrine of severability of an arbitral award emanating
from a challenge under Section 34 of the Act. A Full Bench of Bombay
High Court is R.S. Jiwani (M/s.) Mumbai Vs. Ircone International
Ltd. Mumbai
31
, after a detailed consideration of doctrine of
severability, held that the new Act does not in any manner prohibit the
court to apply the said doctrine. The relevant observations are as
follows :-
30. If the principles of severability can be applied to a
contract on one hand and even to a statute on the other
hand, we fail to see any reason why it cannot be applied to
a judgment or an award containing resolution of the
disputes of the parties providing them such relief as they
may be entitled to in the facts of the case. It will be more
so, when there is no statutory prohibition to apply principle
of severability.
We are unable to contribute to the view that the power
vested in the Court under Section 34 (1) and (2) should be
31 2009 SCC OnLine Bom 2021
Arbitration Appeal No.219 of 2022
90.
construed rigidly and restrictedly so that the Court would
have no power to set aside an award partially. The word
"set aside" cannot be construed as to `only to set aside an
award wholly', as it will neither be permissible nor proper
for the Court to add these words to the language of Section
which had vested discretion in the Court. Absence of a
specific language further supported by the fact that the very
purpose and object of the Act is expeditious disposal of the
arbitration cases by not delaying the proceedings before the
Court would support our view otherwise the object of
Arbitration Act would stand defeated and frustrated.
31.Rival submissions have been made before us with
regard to operation and effect of proviso to sub-clause (iv)
of clause (a) of Section 34. According to the appellants the
proviso applies to the entire section while according to the
respondent, its operation is limited to sub-clause (iv) alone.
There seems to be some merit in the contention of the
respondent inasmuch as the language of the proviso is
directly referable to the section itself and, thus, must take
its colour from the principal section viz. 34(2)(iv). A
reading of the proviso shows that where severability is
possible, the court in the class of the cases falling under
sub-clause (iv) is expected to set aside the award partially.
In other words, a greater obligation is placed upon the court
to adopt such an approach when the case in hand is covered
under the provisions of sub-clause (iv). This contention will
not have any adverse effect on the interpretation and scope
of Section 34 as a whole. It is a settled rule of interpretation
that the statutory provision should be read as a whole to
find out the real legislative intent and that provision should
be read by keeping in mind the scheme of the Act as well as
the object which is sought to be achieved by the Legislation
while enacting such a law.
There is nothing in the proviso or in the language of
Section 34 which has an impact or effect to restrict the
power of the court as contemplated under Section 34 (1)
read with the opening words of sub-sections (2) and (4) of
Section 34 the Act. Est boni judicis ampliare jurisdictionem
is a settled canon of law courts should expand and amplify
jurisdiction to achieve the ends of justice and not
unnecessarily restrict its discretion particularly when the
Arbitration Appeal No.219 of 2022
91.
later approach would lead to frustrate the very object of the
Act.
32. The cases or illustrations indicated in the proviso in
fact, should be read to construe that in such other cases
where it is so necessary the court should exercise its
discretion and apply the principle of severability rather than
compel the parties to undergo the entire arbitration
proceedings all over again or be satisfied with the rejection
of their claim despite the fact that the Arbitral Tribunal has
upon due appreciation of evidence and in accordance with
law has granted relief to them. It will not only be
appropriate but even permissible to read the proviso to add
to the discretion and power of the court vested in it by the
Legislature by using the expression "may".
140.The Full Bench while taking the above view, duly took into
account the judgement of the Supreme Court in McDermott
International Inc. (supra) as well as the provisions of the Old Act and
observed as under :-
“35. The Supreme Court was primarily stating the
principles which have been kept in mind by the courts
while interfering with the award of the Arbitral Tribunal
that it was to outline the supervisory role of the courts
within the ambit and scope of section 34. It is true that the
court like a court of appeal cannot correct the errors of
arbitrator. It can set aside the award wholly or partially in
its discretion depending on the facts of a given case and can
even invoke its power under section 34(4). It is not
expected of a party to make a separate application under
section 34(4) as the provisions open with the language "on
receipt of application under sub-section (1), the court
may.........." which obviously means that application would
be one for setting aside the arbitral award to be made under
section 34(1)on the grounds of reasons stated in section
34(2) and has to be filed within the period of limitation as
stated as reply under section 34(3). The court may if it
deems appropriate can pass orders as required under section
34(4). In other words, the provisions of section 34(4) have
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92.
to be read with section 34(1) and 34(2) to enlarge the
jurisdiction of the court in order to do justice between the
parties and to ensure that the proceedings before the
Arbitral Tribunal or before the award are not prolonged for
unnecessarily. In our humble view, the Division Bench
appears to have placed entire reliance on para 52 by reading
the same out of the context and findings which have been
recorded by the Supreme Court in subsequent paragraphs. It
is also true that there are no pari materia provisions like
sections 15 and 16of the Act of 1940 in the 1996 Act but
still the provisions of section 34 read together, sufficiently
indicate vesting of vast powers in the court to set aside an
award and even to adjourn a matter and such acts and deeds
by the Arbitral Tribunal at the instance of the party which
would help in removing the grounds of attack for setting
aside the arbitral award. We see no reason as to why these
powers vested in the court should be construed so strictly
which it would practically frustrate the very object of the
Act. Thus, in our view, the principle of law stated by the
Division Bench is not in line with the legislative intent
which seeks to achieve the object of the Act and also not in
line with accepted norms of interpretation of statute.”
141. The Full Bench also considered the issue from the aspect of
hardship and inconvenience to the parties and observed thus :-
37. The interpretation put forward by the respondents is
bound to cause greater hardship, inconvenience and even
injustice to some extent to the parties. The process of
arbitration even under 1996 Act encumbersome process
which concludes after considerable lapse of time. To
compel the parties, particularly a party who had succeeded
to undergo the arbitral process all over again does not
appear to be in conformity with the scheme of the Act. The
provisions of section 34 are quite pari materia to the
provisions of Article 34 of the Model Law except that the
proviso and explanation have been added to section 34(2)
(iv). The attempt under the Model Law and the Indian Law
appears to circumscribe the jurisdiction of the court to set
aside an award. There is nothing in the provisions of the Act
and for that matter absolutely nothing in the Model Law
which can debar the court from applying the principle of
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93.
severability provided it is otherwise called for in the facts
and circumstances of the case and in accordance with law.
The courts will not get into the merits of the dispute. Thus,
the interpretation which should be accepted by the court
should be the one which will tilt in favour of the Model
Laws, scheme of the Act and the objects sought to be
achieved by the Act of 1996.
142. The Full Bench concluded as follows :-
1. The judicial discretion vested in the court in terms of
the provisions of section 34 of the Arbitration and
Conciliation Act, 1996 takes within its ambit power to set
aside an award partly or wholly depending on the facts and
circumstances of the given case. In our view, the provisions
of section 34 read as a whole and in particular section 34(2)
do not admit of interpretation which will divest the court of
competent jurisdiction to apply the principle of severability
to the award of the Arbitral Tribunal, legality of which is
questioned before the court.
The Legislature has vested wide discretion in the court to
set aside an award wholly or partly, of course, within the
strict limitations stated in the said provisions. The scheme
of the Act, the language of the provisions and the legislative
intent does not support the view that judicial discretion of
the court is intended to be whittled down by these
provisions.
143.In J.G. Engineers Pvt. Ltd. Vs. Union of India and another
32
the Supreme Court applied the doctrine of severability and upheld some
of the claims which were separate and distinct and did not suffer from
any infirmity while setting aside the remaining part of the award. The
relevant part is quoted below :-
It is now well- settled that if an award deals with and
decides several claims separately and distinctly, even if the
court finds that the award in regard to some items is bad,
32 (2011) 5 SCC 758,
Arbitration Appeal No.219 of 2022
94.
the court will segregate the award on items which did not
suffer from any infirmity and uphold the award to that
extent. As the awards on items 2, 4, 6, 7, 8 and 9 were
upheld by the civil court and as the High Court in appeal
did not find any infirmity in regard to the award on those
claims, the judgment of the High Court setting aside the
award in regard to claims 2,4,6,7,8 and 9 of the appellant,
cannot be sustained. The judgment to that extent is liable to
be set aside and the award has to be upheld in regard to
claims 2, 4, 6, 7, 8 and 9.
144.The Bombay High Court in National Highways Authority of
India Vs. The Additional Commissioner, Nagpur and others
33
,
reiterated that the doctrine of severability can be applied to an award
while dealing with the objections under Section 34 of the Act. Reliance
has also been placed on the judgement of the Supreme Court in J.G.
Engineers Pvt. Ltd. (supra). The relevant observation is as follows :-
(22) Thus, it becomes clear that in a given case, the Court,
while exercising power under Section 34 of the Act of
1996, can set aside an Award partly, depending upon the
facts and circumstances of the case. In this context,
reference can also be made to the judgment of the Supreme
Court in the case of J.G. Engineers Pvt. Ltd. Vs. Union of
India and another (2011) 5 SCC 758. (23) In the said case
also, the doctrine of severability was invoked and it was
held that when the Award deals with several claims that can
be said to be separate and distinct, the Court can segregate
the Award on items that do not suffer from any infirmity
and uphold the Award to that extent. Thus, it becomes clear
that the contention raised on behalf of the appellants in the
present case, that the PDJ ought to have set aside the
arbitral Award in its entirety, is not justified.
145.Once again in John Peter Fernandes Vs. Saraswati
33 2022(5) AIR Bom R 562
Arbitration Appeal No.219 of 2022
95.
Ramchandra Ghanate and others
34
the Bombay High Court relying
on Full Bench judgement in R.S. Jiwani (M/s) Mumbai (supra)
applied the principle of severability to an arbitral award in segregating
bad part from good part. It has been held as follows :-
16. Thus, the rival contentions need to be decided on the
touchstone of jurisdiction clarified as above. It is also
relevant to refer to the Full Bench judgement of this Court
in the case of R. S. Jiwani Vs. Ircon International Limited
(supra), for the reason that the respondents have specifically
invoked the position of law clarified therein, to claim that
the impugned award can be partly set aside, restricted to the
second direction issued to the respondents for refunding
specific amount with interest. It is submitted that the first
finding or direction in the impugned award rejecting the
prayer for specific performance made by Mr. Fernandes
deserves to be confirmed and sustained. The Full Bench of
this Court in the case of R. S. Jiwani Vs. Ircon International
Limited (supra) took into consideration judgement of the
Supreme Court in the case of McDermott International Inc.
Vs. Burn Standard Company Limited and others, (2006) 11
SCC 181, wherein it was laid down that a court under
Section 34 of the said Act can only quash an award, leaving
the parties free to begin arbitration again, if they so desire.
But the Full Bench of this Court in the said Judgement
found that the principle of severability could certainly apply
to arbitral awards, so long as the objectionable part could be
segregated. This Court is convinced that the respondents are
justified in invoking the said principle and contending that
if their contentions are accepted, the impugned award could
be partially set aside. This would not amount to
modification or correction of errors of the learned arbitrator.
In this backdrop, the arbitral award needs to be examined in
the light of the contentions raised on behalf of the rival
parties.
146.We have thus, no hesitation in holding that scheme of the Act
does not put any limitation on power of the court to apply the doctrine
34 2023 SCC OnLine Bom 676
Arbitration Appeal No.219 of 2022
96.
of severability to an arbitral award while considering the objections
under Section 34 of the Act. It is well within the power of court to
segregate, severe and set aside part of the award and uphold the
remaining part. The only restriction is (i) that while exercising the
power, the court cannot proceed to modify the findings returned on any
of the issues decided by the arbitral tribunal and (ii) the remaining part
is capable of surviving on its own.
147. Coming to the facts of the instant case, we find that Claim No. 2
of Rs.35.92 crores towards liquidated damages under Clause No. 13(ii)
(b) of GCC which has been held to be unsustainable, is separate and
distinct from the remaining claims found to be valid and lawful. The
claims found to be valid are capable of surviving on their own strength,
without in any manner getting affected by severance of Claim No.2
towards liquidated damages. Therefore, applying the doctrine of
severability, the award in respect of liquidated damages (Claim No. 2)
alone is set aside. Resultantly, the award of pendenti lite and future
interest in respect of Claim No. 2 would also stand set aside, leaving
the remaining award intact.
148.As a result, the appeal stands allowed in part.
149.No order as to costs.
Order Date :- 22.09.2023
SL/Jaideep/skv
(Vikram D. Chauhan, J.) (Manoj Kumar Gupta, J.)
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