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Executive Engineer, Public Works Department, National Highways Division, Mangalore v/s Durga Constructions (P) Ltd., Tamil Nadu


Company & Directors' Information:- ENGINEER CONSTRUCTIONS PRIVATE LIMITED [Active] CIN = U70102PB2012PTC036147

Company & Directors' Information:- MANGALORE CONSTRUCTIONS PRIVATE LIMITED [Active] CIN = U45201KA1982PTC005065

Company & Directors' Information:- EXECUTIVE CONSTRUCTIONS LIMITED [Strike Off] CIN = U45201MP1986PLC003483

    M.F.A. Nos. 7768 & 7769 of 2015

    Decided On, 21 October 2016

    At, High Court of Karnataka

    By, THE HONOURABLE MR. JUSTICE JAYANT PATEL & THE HONOURABLE MR. JUSTICE S.N. SATYANARAYANA

    For the Appellant: Vasanth Pernandes, HCGP. For the Respondents: V. Padmanabha Mahale, Sr. Counsel, Hareesh Bhandari, Advocate.



Judgment Text

(Prayer: MFA No. 7768/2015 is Filed U/S.37(1) of The Arbitration Act, Against The Judgment And Decree Dated:06.07.2015 Passed In A.S.No.2/2011 On The File Of The 6th Additional City Civil And Sessions Judge, Bengaluru City, Dismissing The Appeal Filed U/Sec.34 of Arbitration And Conciliation Act.

MFA No.7769/2015 is Filed u/s. 37(1) of The Arbitration Act, Against The Judgment And Decree Dated: 06.07.2015 Passed In A.S.No.1/2011 on The File of The 6th Additional City Civil And Sessions Judge Bengaluru City, Dismissing The Appeal Filed U/Sec.34 of Arbitration And Concillation Act.)

1. These two appeals arise out of separate judgments rendered in AS.Nos.1 and 2 of 2011 on the file of VI Additional City Civil and Sessions Court, Bangalore.

2. Brief facts leading to these appeals are as under; Appellant is PWD National Highways Division, represented by its Executive Engineer of Mangalore Division. First respondent is the claimant before the Arbitral Tribunal and respondent Nos.2 to 4 are the members of the Tribunal, who adjudicated the dispute between the appellant and first respondent. The dispute which was referred to the arbitral proceedings is with reference to execution of contracts entered into between the appellant and first respondent. So far as Agreement No.53/2007 which was subject matter ofAS.No.1/2011 is with reference to "improvements to riding quality in Km 237.00 to 248.00 of NH 48 (Shiradi Ghat of Western Ghat) - Bangalore - Mangalore Section (Excluding rigid pavement reaches)" and so far as Agreement No.54/2007 which was subject matter of AS.No.2/2011 is with reference to "improvements to riding quality in Km 248.00 to 264.00 of NH 48 (Shiradi Ghat of Western Ghat) - Bangalore - Mangalore Section (Excluding rigid pavement reaches)".

3. Though there were two agreements entered into between the appellant and first respondent, in sum and substance the terms of contract with reference to price, nature of work, payment condition and all other aspects pertaining to the contract between the parties are one and the same, except with reference to stretch of the road. It is stated that the value of contract with reference to Agreement No.53/2007 is Rs.9,04,30,994/- and with reference to Agreement No.54/2007, it is Rs.8,56,74,083/-. Both the agreements were entered on 3.1.2008 and the period fixed for completion of said work was 12 months (excluding monsoon).

4. The scope of work in Agreement No.53/2007 is as under;

1) rebuilding of crust on narrow curves,

2) Asphalt works in the existing surface and

3) Widening of culverts, construction of retaining wall, channel drain, pitching of the shoulder and concrete block interlocking.

5. The scope of work in Agreement No.54/2007 is as under;

1) Asphalt works in the existing surface,

2) Construction of channel drain and

3) Pitching of the shoulders.

6. It is stated that the execution of contract work was commenced and when the carriage way was completed, the road was thrown open for use on 12.6.2008. It is stated that after completion of carriage way the contractor, first respondent herein stopped the work with reference to construction of drain as well as shoulder work. The earth which was dumped was also not removed resulting in obstruction for free flow of water in rainy season. It is stated that inspite of repeated letters, the contractor, first respondentherein did not attend to the rectification of the damages caused in the execution of contract work resulting in a notice being issued on 6.11.2008 by PWD, the appellant herein.

7. In the meanwhile, the contractor also issued a notice on 29.9.2008 demanding payment with reference to the items of variation to the original contract and deadline was set as 15.10.2008. It was also stated in said notice that if payment is not made within the time specified, the same would lead to breach of the terms of contract resulting in termination of contract. Meanwhile, a notice was also issued by PWD, the appellant herein on 22.11.2008 requesting the contractor, first respondent herein to be present at the site on 29.11.2008 for taking final measurement. Since the contractor, first respondent herein did not turn-up, PWD, the appellant herein terminated the contract, which resulted in a dispute being raised between the parties and referring the same to arbitrators, namely respondents 2 to 4 herein.

8. It is seen that with reference to two contracts, two separate arbitration proceedings were initiated, wherein the Arbitrators after securing the expert opinion on behalf of theparties and based on said expert opinion as well as the other material available on record, proceeded to partially allow the claim made by the contractor, first respondent herein in both the proceedings.

9. Insofar as Agreement No.53/2007 pertaining to road stretch between kms., 237 to 248 of NH.48 there were in all eight claims and two counter claims by the PWD, respondent before the Arbitral Tribunal. So far as claim No.1, the same was not considered. With reference to claim No.2 which is with reference to variation in work was allowed to the tune of Rs.88,74,106/-; claim No.3 which was with reference to final bill including the work done as well as past interest towards delayed payment was allowed to the tune of Rs.1,94,67,415/-; claim No.4 which was with reference to termination of contract was held to be invalid; claim No.5 which was with reference to loss of turnover by the claimant was rejected; claim No.6 which was with reference to loss of profit was also rejected as not maintainable; and claim No.7 which was with reference to interest was allowed. So far as counter claim Nos.1 and 2 by PWD were also rejected. Further, with reference to claim No.8which was with reference to cost, it was ordered that both the parties will have to bear their respective cost.

10. Similar claims were considered in arbitral proceedings pursuant to Agreement No.54/2007 with reference to road stretch between Km 248 to 264 of NH.48. In this also, claim No.1 was not considered. So far as claim No.2 is concerned, a sum of Rs.1,18,85,745/- was awarded; with reference to claim No.3, Rs.2,24,27,575/- was awarded which includes work done as well as past interest towards delayed payment; and claim Nos.4, 5, 6 and as well as counter claim Nos.1 and 2 of the PWD were rejected. So far as claim No.7, a sum of Rs.68,87,524/- was awarded and so far as claim No.8, the cost was directed to be incurred by both the parties.

11. The aforesaid two awards dated 4.10.2010 were the subject matter of Arbitration Suits in AS.Nos.1 and 2 of 2011 before the Arbitral Court, wherein the Arbitral Court after going through the pleadings and the material available on record has dismissed the aforesaid suits filed by the PWD, respondent before the Arbitral Tribunal. Being aggrieved by the same, PWD has come up in these two appeals.

12. Heard the learned counsel appearing for the parties. Perused the judgment impugned, award of the Arbitral Tribunal and the other material available on record. After going through the same, it is seen that though several grounds are urged with reference to the award passed by the Arbitral Tribunal and the same was not considered by the Arbitral Court, in the light of various judgments rendered by the Apex Court the scope of arbitration is very limited.

13.Section 34of the Arbitration andConciliation Act, 1996, is reproduced 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; 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 I: 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 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 my not be made after three months have elapsed from the date on which the partly making that application had received the arbitral award or, if a request had been made undersection 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 order party.]

14. As could be seen from the aforesaid provision of law, the arbitral award can be set aside by the Court only if the party to the proceedings challenging the award is able to furnish proof of the violation of any of the provisions of 2(a)(i) to

(v) and 2(b)(i) and (ii) of the Arbitration andConciliation Act, 1996.

15. In the instant case, the grounds which are urged seeking to set aside the arbitral award as well as the finding of the Arbitration Court in the proceedings in AS.Nos.1 and 2 of 2011 are as under;

a) that the expert opinion and the report thereof is not properly considered by the Arbitrators;

b) that the termination of contract being unilateral and that the same was when the contractor-claimant before the Arbitral Tribunal was called upon to set right the deficiency in the work done, is not considered;

c) that the prayer for damage which is attributable to non completion of work, is not properly considered;

d) that non cooperation of contractor - claimant before the Arbitral Tribunal in not participating in spot inspection when he was called up to set right the deficiency in the execution of contract work, was not properly considered.

In that view of the matter, the finding of the Arbitral Tribunal in allowing the claim made by the first respondent herein is erroneous and that, rejection of the counter claim by the appellant herein is due to improper consideration of the material on record. Hence, the finding of the Arbitral Court is also erroneous as it has not properly reappreciated the aforesaid aspects while passing the impugned judgment and therefore, the same is requires to be interfered with in these appeals.

16. Though the aforesaid grounds are raised, on re- appreciation of the award as well as the judgment rendered in the arbitral suits, it is seen that there is no merit in the grounds that are urged in these appeals. Further, the deficiency in the work, if any, is considered attributable to the defective design furnished by the appellant to the first respondent for execution of the work entrusted to them under Agreement Nos.53 and 54 of 2007 as clearly established in the report submitted by Dr.C.E.G.Justo and also in the further report secured by the Arbitrators. It is also seen that when deficiency in the work is attributable to the defect in the design, which is the basis for execution of work, the allegation that first respondent, claimant before Arbitral Tribunal ought to have rectified the same, does not stand to reason. In fact, the Arbitral Tribunal has in detail gone into all the relevant material on record placed before it and has given its finding in the award while partially allowing the claim made by the first respondent herein and consequently, rejecting the counter claim of the appellant.

17. However, it is required to be placed on record, that the grounds urged in these appeals are required to be considered in the light of the judgment rendered by the Apex Court in the matter ofFiza Developers and Inter-Trade Private Limited -vs- AMCI (India) Private Limited and Another, reported in (2009) 17 SCC 796, the appellant - PWD has not made out any ground to interfere either with the finding of the Arbitral Tribunal or the judgment of the Arbitral Court, more particularly for the reasons as enumerated in the aforesaid judgment at paragraphs 28 and 29, which are reproduced as hereunder;

"28. Before concluding, there is a need to clarify the observation by the High Court that a proceeding under Section 34 may not be in the nature of adversarial proceedings. In an adversarial process, each party to a dispute presents its case to the neutral adjudicator seeking to demonstrate the correctness of his own case and the wrongness of the other. (See P.Ramanatha Iyer's advanced Law Lexicon, 3rd Edn., Vol. I, p.152.) While an applicant in an application under Section 34 is interested in getting an order setting aside an award, his opponent is equally interested in ensurin

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g that it is not set aside, but upheld. While an applicant presents his case to the judge to prove that the award is liable to be set aside, the respondent puts forth his case to refute the claim of the applicant that the award is liable to be set aside. An application under Section 34 in that sense is adversarial in nature. But proceedings under Section 34 differ from regular civil suits in a significant aspect. 29. In a regular civil suit, in the event of failure to file a defence, it will be lawful for the court to pronounce the judgment on the basis of facts contained in the plaint [vide Order 8 Rule 5(2) of the Code]. But in an application under Section 34, even if there is no contest, the court cannot, on the basis of the averments contained in the application, set aside the award. Whether there is contest or not, the applicant has to prove one of the grounds set out in Sections 34(2)(a) and (b). Even if the applicant does not rely upon the grounds under clause (b), the court, on its own initiative, may examine the award to find out whether it is liable to be set aside on either of the two grounds mentioned in Section 34(2)(b). It is perhaps in this sense, the High Court has stated that the proceedings may not be adversarial. Be that as it may. 18. In the light of the aforesaid discussion, we are of the opinion that the appellant has not made out any ground to interfere with the award of the Arbitral Tribunal with reference to Agreement Nos.53 and 54 of 2007, which is confirmed in judgment dated 6.7.2015 passed in AS.Nos.1 and 2 of 2011. Accordingly, these appeals are dismissed as bereft of merit. In view of the dismissal of appeals, IA.I/2015 in both the appeals filed seeking stay do not survive for consideration.
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