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Judgment
As far as claims No.2 & 6 are concerned, learned counsel for respondent-Union of India argued that those claims are founded on alleged breach o contract whereas according to Union of India, it has not breached the contract. The Union of India filed application for setting aside the award to th extent it held the Union of India responsible for breach of contract but the Commercial Court has wrongly rejected the application and it is the case o respondent-Union of India that it did not commit breach of contract which issue has been raised by the Union of India in its Arbitration Appeal No.4 of 2017 separately. Last submission of learned counsel for the respondent-Union of India is that in any case, the Commercial Court could not quantify even if every submission of the appellant- Ms. Univabs Ltd. is accepted, as it could only set aside the Award. In support of the submission, reliance has been placed on Mcdermott International Inc. Vs. Burn Standard Co. Ltd. (2006) 11 SCC 181.
- If answered in favour of the appellant- Union of India, is Union of India entitled to liquidated damages under the agreement ?
(D) Whether the Arbitrator's finding on Claimant's claim No.4, 5, 7 & 10 warrants interference under Section 34 of the Act ?
(E) Whether the Commercial Court, having held that Claimant's claims No.1, 3, 8 (a) (b) and 11 ought to be adjudicated by the Arbitrator and that for breach of contract Claimant/supplier was entitled to damages, had jurisdiction to modify the Award by granting compensation and also independently examining the merits of claims No.1, 3, 8 (a) (b) and 11 instead of setting aside the Award and leaving the parties to again approach the Arbitrator ?
Consideration on Issue -—A”
Before adverting to various submissions made and grounds raised by learned counsel for the respective parties, we consider it appropriate to first delineate the ambit and scope of judicial interference under Section 34 of the Act of 1996. Section 34 of the Act of 1996 exhaustively provides for the grounds on which an application for setting aside an arbitral award could be made, which reads as under:
“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
(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;
(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.”;
(2A) 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 re appreciation of evidence.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:
Provided that if the court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.
(4) On receipt of an application under sub-section (1), the court may, where it is appropriate and it is so requested by a party, 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 arbitral tribunal will eliminate the grounds for setting aside the arbitral award.
“(5) An application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement.
(6) An application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub-section (5) is served upon the other party.
It is important to notice from the language of sub-section (2) of Section 34 of the Act of 1996 that an arbitral award may be set aside by the Court only when any of the grounds stated in that part are made out. Use of emphatic word “only” is of utmost importance and indicative of legislative intention not to allow judicial intervention except on the grounds stated in the provision herein-above. This means, the grounds enumerated in the aforesaid provision are exhaustive. As a corollary, it can be interpreted to mean that Award would not be susceptible to challenge on grounds other than those enumerated in the aforesaid provision.
It is extremely relevant to note that the provisions contained in Section 34 of the Act of 1996 were amended by Amendment Act of 2015 which came into force from 23rd October 2015. A comparative reading of Section 34, before and after amendment, reveals that Explanation to sub-clause
(ii) of clause (b) of sub-section (2) of Section 34 has been substituted by two new Explanations. Further, new sub-section (2-A) has also been added which was not there in the unamended provision. Moreover, two new sub-sections (5) and (6) have also been added.
The Explanation clause appended to sub-clause (ii) as described earlier, explains as to when an award could be said to be in conflict with public policy of India. Without prejudice to the generality of sub-clause (ii) and for the avoidance of any doubt, the explanation clause reads that an Award is in conflict with the public policy of India if the making of the Award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81.
The Explanation contained in sub-clause (ii), as it stood prior to Amendment of 2015, came up for consideration and interpreted by the Supreme Court in series of decisions. In one of those decisions in Associate Builders (supra), the development of law with regard to scope of interference under the statutory scheme of Section 34 of the Act of 1996 was considered and principles, judicially evolved in earlier judgments, were re-stated. One of the earliest decisions rendered in the case of ONGC Ltd. Vs. Saw Pipes Ltd (2003) 5 SCC 705, on the scope of interference by the Court against an award of Arbitrator, was referred to as below :
“19. When it came to construing the expression "the public policy of India" contained in Section 34 (2) (b) (ii) of the Arbitration Act, 1996, this Court in ONGC v. Saw Pipes, 2003 (5) SCC 705, held-
Therefore, in our view, the phrase "public policy of India" used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term "public policy" in Renusagar case [1994 Supp (1) SCC 644] it is required to be held that the award could be set aside if it is patently illegal. The result would be - award could be set aside if it is contrary to:
(a) Fundamental policy of Indian law; or
(b) The interest of India; or
(c) Justice or morality, or
(d) in addition, if it is patently illegal.
Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. Such award is opposed to public policy and is required to be adjudged void.
In the result, it is held that:
(A) (1) The court can set aside the arbitral award under Section 34(2) of the Act if 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.
(2) The court may set aside the award:
(i)(a) if the composition of the Arbitral Tribunal was not in accordance with the agreement of the parties,
(b) failing such agreement, the composition of the Arbitral Tribunal was not in accordance with Part I of the Act.
(ii) if the arbitral procedure was not in accordance with:
(a) the agreement of the parties, or
(b) failing such agreement, the arbitral procedure was not in accordance with Part I of the Act.
However, exception for setting aside the award on the ground of composition of Arbitral Tribunal or illegality of arbitral procedure is that the agreement should not be in conflict with the provisions of Part I of the Act from which parties cannot derogate.
(c) If the award passed by the Arbitral Tribunal is in contravention of the provisions of the Act or any other substantive law governing the parties or is against the terms of the contract.
(3) The award could be set aside if it is against the public policy of India, that is to say, if it is contrary to:
Such patent illegality, however, must go to the root of the matter. The public policy, indisputably, should be unfair and unreasonable so as to shock the conscience of the court. Where the arbitrator, however, has gone contrary to or beyond the expressed law of the contract or granted relief in the matter not in dispute would come within the purview of Section 34 of the Act. a "judicial approach" in the matter. The duty to adopt a judicial approach arises from the very nature of the power exercised by the court or the authority does not have to be separately or additionally enjoined upon the fora concerned. What must be remembered is that the importance of a judicial approach in judicial and quasi-judicial determination lies in the fact that so long as the court, tribunal or the authority exercising powers that affect the rights or obligations of the parties before them shows fidelity to judicial approach, they cannot act in an arbitrary, capricious or whimsical manner. Judicial approach ensures that the authority acts bona fide and deals with the subject in a fair, reasonable and objective manner and that its decision is not actuated by any extraneous consideration. Judicial approach in that sense acts as a check against flaws and faults that can render the decision of a court, tribunal or authority vulnerable to challenge.
Securities (P) Ltd., (2012) 1 SCC 594, this Court held:
be against public policy, for public policy covers political, social and economic ground of objection. Decided cases and authoritative text-book writers, therefore, confined it, with every justification, only to sexual immorality. The other limitation imposed on the word by the statute, namely, "the court regards it as immoral", brings out the idea that it is also a branch of the common law like the doctrine of public policy, and, therefore, should be confined to the principles recognized and settled by Courts. Precedents confine the said concept only to sexual immorality and no case has been brought to our notice where it has been applied to any head other than sexual immorality. In the circumstances, we cannot evolve a new head so as to bring in wagers within its fold.
This last contravention must be understood with a caveat. An arbitral tribunal must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair minded or reasonable person could do.
In McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181, this Court held as under:
It is trite that the terms of the contract can be express or implied. The conduct of the parties would also be a relevant factor in the matter of construction of a contract. The construction of the contract agreement is within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and they cannot be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. It is also trite that correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of
law. (See Pure Helium India (P) Ltd. v. ONGC [(2003) 8 SCC 593] and D.D. Sharma v. Union of India [(2004) 5 SCC 325]).
Once, thus, it is held that the arbitrator had the jurisdiction, no further question shall be raised and the court will not exercise its jurisdiction unless it is found that there exists any bar on the face of the award.
In MSK Projects (I) (JV) Ltd. v. State of Rajasthan, (2011) 10 SCC 573, the Court held:
If the arbitrator commits an error in the construction of the contract, that is an error within his jurisdiction. But if he wanders outside the contract and deals with matters not allotted to him, he commits a jurisdictional error. Extrinsic evidence is admissible in such cases because the dispute is not something which arises under or in relation to the contract or dependent on the construction of the contract or to be determined within the award. The ambiguity of the award can, in such cases, be resolved by admitting extrinsic evidence. The rationale of this rule is that the nature of the dispute is something which has to be determined outside and independent of what appears in the award. Such a jurisdictional error needs to be proved by evidence extrinsic to the award. (See Gobardhan Das v. Lachhmi Ram [AIR 1954 SC 689], Thawardas Pherumal v. Union of India [AIR 1955 SC 468], Union of India v. Kishorilal Gupta & Bros. [AIR 1959 SC 1362], Alopi Parshad & Sons Ltd. v. Union of India [AIR 1960 SC 588], Jivarajbhai Ujamshi Sheth v. Chintamanrao Balaji [AIR 1965 SC 214] and Renusagar Power Co. Ltd. v. General Electric Co. [(1984) 4 SCC 679 : AIR 1985 SC
1156] ).
In Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran, (2012) 5 SCC 306, the Court held:
In any case, assuming that Clause 9.3 was capable of two interpretations, the view taken by the arbitrator was clearly a possible if not a plausible
one. It is not possible to say that the arbitrator had travelled outside his jurisdiction, or that the view taken by him was against the terms of contract.
That being the position, the High Court had no reason to interfere with the award and substitute its view in place of the interpretation accepted by the arbitrator.
The legal position in this behalf has been summarised in para 18 of the judgment of this Court in SAIL v. Gupta Brother Steel Tubes Ltd. [(2009)
10 SCC 63: (2009) 4 SCC (Civ) 16] and which has been referred to above. Similar view has been taken later in Sumitomo Heavy Industries Ltd. v. ONGC Ltd. [(2010) 11 SCC 296: (2010) 4 SCC (Civ) 459] to which one of us (Gokhale, J.) was a party. The observations in para 43 thereof are instructive in this behalf.
This para 43 reads as follows: (Sumitomo case [(2010) 11 SCC 296 : (2010) 4 SCC (Civ) 459] , SCC p. 313)
... The umpire has considered the fact situation and placed a construction on the clauses of the agreement which according to him was the correct one. One may at the highest say that one would have preferred another construction of Clause 17.3 but that cannot make the award in any way perverse. Nor can one substitute one's own view in such a situation, in place of the one taken by the umpire, which would amount to sitting in appeal. As held by this Court in Kwality Mfg. Corpn. v. Central Warehousing Corpn. [(2009) 5 SCC 142 : (2009) 2 SCC (Civ) 406] the Court while considering challenge to arbitral award does not sit in appeal over the findings and decision of the arbitrator, which is what the High Court has practically done in this matter. The umpire is legitimately entitled to take the view which he holds to be the correct one after considering the material before him and after interpreting the provisions of the agreement. If he does so, the decision of the umpire has to be accepted as final and binding.
Authoritative pronouncement of the Supreme Court in the case of Associate Builders (supra) was then followed by legislative response in bringing about an exhaustive amendment in Section 34 of the Act of 1996, particularly Explanations appended to sub-clause (ii) of clause (b) of Section 34 which we have reproduced herinabove. The legislative change apparently is in response to the Law declared by the Supreme Court in the case of Associate Builders (supra), whereby the judicially evolved principles, explaining as to when an Award is in conflict with the Public Policy of India, were incorporated by way of specific provision under two Explanations and a new sub-section (2-A). The proviso to sub-section (2-A) of Section 34 reads that an Award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciation of evidence.
In a very recent decision rendered after the Amendment of 2015, in the case of M.P. Power Generation Co. Ltd. Vs. Ansaldo Energia SPA (2018 SCC Online SCC 385), the principles laid down in earlier decision in the cases of Renusagar Power Co. Ltd. Vs. General Electric Co. (1984) 4 SCC 679, Saw Pipes (supra), R.S. Sharma (supra), Western Geco International Co. Ltd (supra) and Associate Builders (supra) were again restated as below:
“23. It is necessary to refer to the settled law on the scope of Sections 34 of the Act. In this case we are concerned with the point as to whether an arbitral award can be set aside for being in conflict with the public policy of India. An arbitral award can be set aside if it is contrary to (a) fundamental policy of Indian law, or (b) the interest of India, or
(c) justice or morality. (Renusagar Power Co. Ltd. v. General Electric Co.1 ) Patent illegality was added to the above three grounds in ONGC v. Saw Pipes Ltd.2. Illegality must go to the root of the matter and incase the illegality is of trivial nature it cannot be held that the award is against the public policy. It was further observed in the said judgment (ONGC v. Saw Pipes (supra)) that an award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the Court. In Delhi Development Authority v. M/s. R.S. Sharma & 1 (1994) Supp.1 SCC 644 2 (2003) 5 SCC 705 Co.3 it was held that an award can be interfered with by the Court under Section 34 of the Act when it is contrary to :
a) substantive provisions of law; or b) provisions of the 1996 Act; or
c) against the terms of the respective contract; or d) patently illegal; or
The text and tenor of the aforesaid letter, therefore, shows that the Arbitrator was requested to start arbitration proceedings as per the Act of
1996. The Arbitrator was requested to “.....pronounce your decision excepting matters, which fall under EXCEPTED MATTERS as per t agreement........”. Further, what is important to note is that the claim, as preferred by the Contractor as well as claim preferred by the Railways were also specified in two annexures appended with the said letters. Annexure “A” referred to the claim made by the Contractor and Annexure - —B” referred to the counter claim made by the Railways. agreed"" and also add to or amend the counter claim, "unless otherwise agreed". In short, unless the arbitration agreement requires the Arbitrator to decide only the specifically referred disputes, the respondent can file counter claims and amend or add to the same, except where the arbitration agreement restricts the arbitration to only those disputes which are specifically referred to arbitration, both the claimant and respondent are entitled to make any claims or counter claims and further entitled to add to or amend such claims and counter claims provided they are arbitrable and within limitation.
As held in the case of Indian Oil Corporation Ltd. vs. Amritsar Gas Service and Ors. (1991) 1 SCC 533 , refusal to consider the claim only for that reason is a patent illegality being an error of law apparent on the face of Award. (Para-15 of the aforesaid report has already been referred to hereinabove, contained in para-31 of the Judgment in the case of Praveen Enterprises.) Therefore, the finding of the Commercial Court in this regard does not warrant any interference.
Consideration on Issue- “C”
As far as Arbitrator's finding regarding breach of contract is concerned, learned counsel for Union of India vehemently argued before this Court that while arriving at the finding, the Arbitrator has not taken into consideration that the only contractual obligation on the part of Union of India was to sponsor primary and then, secondary source of supply of special cement and not to ensure the supply of special cement. If, for some reason, the source of supply could not make full supply, it could not be treated to be a breach of agreement by the Railways. It was also the case of Union of India that the reason for short supply of sleepers was not linked to short supply of cement but reduction of production capacity which was reduced from three shifts to two shifts. In this regard, clause (3) of the their reply was not considered. Further argument of learned counsel for Union of India is that even if the sponsored primary or secondary source, for some reason, failed to supply special cement, it would not be a case of breach of contract by Union of India.
After going through the Award, we find that the Arbitrator has meticulously examined this aspect relating to alleged breach, by taking into consideration the submissions as also oral and documentary evidence on record, affording full opportunity to both the parties. The finding in this regard is recorded while examining the claim No.2. The Arbitrator has taken into consideration, the provision contained in clause 4.2 of the contract relating to source and rate for procurement of special cement. It has taken into consideration the claim of the Claimant that there was short and erratic supply of special cement required for manufacturing of sleepers during January 2006 to August 2006 and May 2007 to August 2007 and that because of shortage of supply of special cement from primary and secondary source appointed by the respondent, the contractor was forced to slow down production resulting in losses on three accounts, namely, rise in price of the inputs, higher transportation charges as also idling charges of labour, establishment, machinery. It has taken into consideration the factual aspect of the case that as both the source nominated by Railways could not supply cement as per requirement, a third source of supply was nominated.
In its finding recorded in clause (g) onwards, the Arbitrator has not only taken into consideration the correspondences wherein the Claimant was consistently representing against short supply of cement but also respondent's letter indicating failure of cement supply, addressed to the Cement Supplier, expressing their serious concern. The Arbitrator has also taken into consideration the admitted facts flowing on the surface of the case that nomination, one after the other, were being made to sponsored source of supply but that they were failing to supply cement in requisite quantity. The Arbitrator has taken into consideration the contractual requirement of supply of sleepers, corresponding quantity of special cement required for manufacture of sleepers, approximation in terms of time for manufacture of sleepers with maintained supply of particular quantity of cement, statement of daily progress mechanism, daily production records, provision contained in clause 15.2 of the contract and statement submitted by respondent including records of receipt of total cement as also supply of sleepers, to come to the conclusion that the Contractor could not manufacture the sleepers due to such short supply of cement from nominated source which fell short by 77583 sleepers, on account of disruption of cement supply.
The respondent-Union of India (Railways) completely oblivious of fact that it had become impossible for the Claimant- Supplier to maintain supply of requisite number of sleepers within the time stipulated for want of short supply of cement from sponsored source, it proceeded to cancel the contract.
On the aforesaid factual premise, oral and documentary evidence led by the parties, finding of the Arbitrator can neither be said to be suffering from any patent illegality or perversity or that it is in conflict with public policy of India. Explanation-2 appended to Section 34 (2) (b) (ii) provides that the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail review on the merit of dispute. The finding with regard to breach of contract is essentially a finding fact and in the absence of permissible ground of review, exercise of supervisory jurisdiction, as elaborately held by their Lordships in the Supreme Court in the case of Associate Builders (supra), the impugned order of the Commercial Court refusing to interfere with the Arbitrator's finding on the aspect of breach of contract by the respondent, warrants no interference.
Consideration on Issue-—D”
The Arbitrator has rejected claims No.4,5,7 &10 raised by the contractor. Learned Commercial Court on this aspect has not interfered with the finding of the Arbitrator in this regard. Claim No.4 (claim on account of erroneous and faulty price variation formula) is essentially based on negation and denial of specific condition of contract regarding price variation clause as contained in clause — 14 of the agreement between the parties. The entire claim of the Claimant in this regard is based on the submission that the price variation clause itself is not just, proper, fair and reasonable and against similar price variation clause in other agreements. According to the Claimant, the price variation formula, as contained in the agreement itself was erroneous as it does not adequately compensate the parties in the event of rise or fall in the market price of the material component to be used for the manufacture of sleepers. According to the Claimant, price variation clause suffered from certain inherent defect and on account of such faulty valuation in the price variation formula, the impact of variation of the components is not truly compensated in the updated rates of sleeper and the formula derives unreliable and irregular rates. The part of claim No. 4, as contained in statement of claim, proceeds only on such reasoning which only seeks to deny the contractual obligation. In other words, the claim is based not on the agreed terms and condition of price variation formula but based on a claim for price fixation, in complete contravention and deviation from the specific, clear and unambiguous price variation clauses contained in agreement and therefore, the Arbitrator in recording that such a claim would not be tenable, does not suffer from any perversity or patent illegality much less against any juristic principles. It has been an argument advanced on behalf of the Claimant that such a clause is otherwise unfair, arbitrary and unreasonable. We are afraid, in a commercial dispute, be it between the State and individual, such a ground could at all be pressed into service to wriggle out of the contractual terms and condition. Present is not a case where this Court is called upon to examine the reasonability or fairness of the terms of agreement in public law domain on account of contractual dispute having arisen between the State on one hand and a private individual on the
other. It being a case of contractual dispute, the rights and obligations of the parties are required to be determined strictly in accordance with the terms of the contract and the applicable laws of contract.
In so far as claim No.5 i.e. the claim for deduction on account of VAT component of special cement is concerned, the said claim has been denied taking into consideration the specific clause 4.2 of the agreement. The Arbitrator has recorded finding that as per clause 4.2 of the agreement, the respondent is authorized to nominate the source of supply of cement for manufacturing of sleepers. The Claimant's claim in this regard appears to be based on the premise that the present contract was opened before the implementation of VAT system of tax by all the State Govt. in the country and under the new tax regime, if manufacturer procures special cement from outside the State for its manufacturing unit, he has to pay central sales tax for which there is no reimbursement and is added loss to him. As per statement of claim, clause 14.4 in the contract providing for VAT credit per sleeper to be passed on to the purchaser termed as “V”, would be applicable only in case the input material is procured from within the State.
Because in such cases, the manufacturer is reimbursed towards VAT applicable on the special cement. The claim, however is based, again, on the submission that the formula provided in clause 14.4 of the agreement for calculation of VAT credit per sleeper on account of special cement, does not justify the intention of the contract and in its operation, computes the VAT credit on special cement on a far higher value.
It would, thus, be seen that the entire claim in this regard is based not on any alleged breach of any contract but the claim itself is in breach of contractual terms and condition. This benefit claimed by the Claimant could not be granted unless the tax formula, as provided in clause 14.4. of the agreement, itself is altered and modified. The finding recorded by the Arbitrator in this regard, which essentially are based on construction of the clause of agreement, do not warrant any interference in the absence of any ground of patent illegality or perversity made out. In the case of National Highways Authority of India Vs. ITD Cementation India Limited (2015) 14 SCC 21, it has been authoritatively pronounced that the construction of terms and condition of contract is for Arbitrator to decide even if it gives rise to determination of a question of law and that Arbitrator is entitled to take the view which it holds to be correct. Where the Arbitrator construes terms and condition of contract in a reasonable manner, there will be no occasion to set aside the Award. The interference of the Court would be called only in case of perverse interpretation i.e. one which is construed as something that no fair minded or reasonable person could do.
The Court exercising jurisdiction under Section 34 of the Act are certainly not invested with the power to act as a Court of appeal to re-appreciate the merits of the case even when it relates to construction of terms and conditions of contract.
We take exception to the manner in which the Arbitrator has dealt with this claim No.7. The claim for faulty demand of demurrage charges is essentially based on computation of allotted time for loading sleepers in a rake by respondent. According to Claimant, respondent have wrongly classified the loading process “mechanized”, thereby allotting only six hours for loading and have also not given this loading time in each placement of the part-rake and have alloted time for the full rake.
According to the Claimant, the loading process has to be considered as “manual” loading owing to the processes to be followed as per clause 10.2 of the Contract as specified drawing of the contract and the specified drawing, requiring wooden battens to be placed between sleepers, all of which necessitated the use of manual labour. The Claimant has further sought to fortify his claim on the premise that use of gantries (cranes) for lifting as well as placement of sleeper on Railway Wagons requires manual labour. In support of this claim, the Claimant has heavily relied upon a certificate issued by the Commercial Department of the respondent which considers loading of sleepers in the Claimant's unit “Manual” providing loading time of seven hours for each placement in sleeper plants.
To this, Respondent denial is based on clause 10.3 of the agreement under which the responsibility is entirely on the Claimant to arrange for prompt loading. Clause 10.3 of the agreement, as it reads, does not specify that the loading time would be 6 hours or that the process of loading in the present case was invariably to be treated as mechanical and not manual. The relevant clause 10 of the agreement reads as below :
“10. Dispatch:
10.1. The consignee instructions and booking orders will be given by the Executive Director, Track (M) Ministry of Railways (Railway Board ) or his nominee.
10.2. On placement of railway wagons or road vehicles as arranged by the purchaser at the works siding, the contractor will load the passed sleepers at his cost within the specified loading time. The loading pattern shall be as per drawing approved by the Purchaser. Hard wood battens of 50 x 50 mm section shall have to be provided free of cost by the contractor at both rail seats of each sleeper on every successive layers loaded in wagon or road vehicles, but contractor shall be at liberty to collect the wooden packing at destination at his own cost; and no claim shortage or damage would be entertained by the purchaser.
10.3. The contractor shall arrange loading promptly and any payment of demurrage charges on account of delay in loading shall be to the contractor's account. A dispatch certificate indicating the number of sleepers taken over, their category and batch number, etc. of sleepers loaded into wagones/vehicles may be obtained from the consignor authorized by the Executive Director, Track (M), Ministry of Railways(Railway Board) or his nominee. Such certificate shall be admitted for the purpose of payments.
10.4. The responsibility for damages or losses en route will be to the account of the purchaser only for consignment booked against clear RRs or against certificate as per clause 10.3 above.”
We do not find that there is any stipulation in the present case that loading would be treated as manual or mechanical or that the Claimant will have to apply mechanical process only nor is there any specific clause that only six hours would be provided for each rake loading. This essentially, therefore, was a matter for determination by the Arbitrator in the light of pleadings, oral and documentary evidence led by the parties firstly as to whether in the present case, the process of loading was manual or it was mechanized and secondly whether it was implied condition of the contract that the Claimant will have to undertake loading at the rate of six hours per rake. The Arbitrator, as we notice, has not decided anything. All that it has stated is that as per clause 10.3 of the agreement, it was entirely the responsibility of the Claimant to arrange for prompt loading and that the demurrage charges are levied as per extent rules of Commercial Department. Curiously enough, the Arbitrator further records as below:
...”Since matter involves policy issue related commercial department of Railway, it cannot be decided by the Tribunal. Tribunal therefore directs that “Claimant shall make the representation in detail & same shall be forwarded by Respondent to Commercial Department for deciding the issue on merits as per extend rules”
This kind of direction for decision of representation, if we may say so, was completely outside the jurisdiction of the Arbitrator. The Arbitrator was called upon to adjudicate the claim on the basis of pleadings, material and documentary evidence and the terms of contract between the parties and not to issue a direction for consideration of their representation. In our considered opinion, this is not only patently illegal but is a case where the Arbitrator has failed to decide the issue one way or the other and only conveniently brushed aside, certainly calling for interference in exercise of supervisory jurisdiction conferred on the Court. The finding recorded by learned Commercial Court on claim No.7, therefore, cannot be sustained in law.
As far as claim No.10, which relates to claim for supply beyond delivery period, is concerned, it has also not been decided only on the ground that payment for sleeper manufactured beyond original contract period has already been paid by the respondent and accepted by the Claimant without any objection. The finding in this regard cannot be said to be based on any material. On what basis the Arbitrator came to the conclusion that the payment for sleepers manufactured beyond original contract period, made by the respondent, was accepted without any demeanour or protest, is not contained anywhere in the Award. Finding that payment was accepted without any objection is perverse. Moreover, the Arbitrator had not examined the legal position with regard to tenability of the claim even when payment was accepted without any objection. The finding is not only perverse but suffers from patent illegality and jurisdictional flaw in as much as, conclusion has been arrived at without linked to any reason and material for such conclusion. The Arbitrator's finding on claim No.10, therefore cannot be sustained in law and is accordingly set aside.
Consideration on Issue- “E”
If fundamental breach is established the next question is what effect, if any, that has on the applicability of other terms of the contract. This question has often arisen with regard to clauses excluding liability, in whole or in part, of the party in breach. I do not think that there is generally much difficulty where the innocent party has elected to treat the breach as a repudiation, bring the contract to an end and sue for damages. Then the whole contract has ceased to exist, including the exclusion clause, and I do not see how that clause can then be used to exclude an action for loss which wil be suffered by the innocent party after it has ceased to exist, such as loss of the profit which would have accrued if the contract had run its full term...” (emphasis supplied)”