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Karnataka Vidyuth Karkhane Limited V/S Gemini Power Systems

    M.F.A. No. 9224/2013 (AA)

    Decided On, 10 March 2020

    At, High Court Of Karnataka At Bengaluru

    By, THE HONORABLE JUSTICE: ALOK ARADHE AND THE HONORABLE JUSTICE: MAHESHAN NAGAPRASANNA

    For Petitioner: Sriranga S., Advocate And For Respondents: Ramesh Ananthan, Advocate.



Judgment Text


1. This appeal under Section 37(1)(b) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act' for short) has been filed against the judgment dated 30.07.2013 passed by the trial court, by which the suit preferred by the appellant under Section 34 of the Act has been dismissed. In order to appreciate the appellant's challenge to the impugned order, few relevant facts need mention, which are stated infra:

2. The appellant is a public limited company incorporated under the Companies Act, 1956 and is an undertaking of Government of Karnataka. The appellant participated in the tenders of Accelerated Power Development Program Projects (hereinafter referred to as 'the APDP' for short) floated by Karnataka Power Transmission Corporation Ltd., (hereinafter referred to as 'the KPTCL' for short) pertaining to upgradation of distribution network including metering and energy auditing in Mysore, O & M and other divisions. The respondent approached the appellant on 08.06.2001 to discuss with regard to rendering technical and commercial consultations for execution of the project. The respondent offered its services at 2.5% of the value of the project. Thereafter, by a letter dated 09.06.2001, the appellant appointed the respondent as Consultant for all the Accelerated Power Development Program Projects floated by KPTCL. It was clearly mentioned in the aforesaid letter that a detailed order indicating the services and other conditions would be sent separately. On 09.08.2001, in the Board Meeting of the appellant, in which a representative of respondent was present, an offer was made to be a Consultant on service charges of 2% of the net value of the project subject to the acceptance of payment terms that may be decided by the Management.

3. The appellant thereafter floated tenders for appointment of consultants in accordance with Karnataka Transparency in Public Procurements Act, 1999 vide tender Notification dated 01.07.2001 and 03.07.2001. The respondent submitted a bid in response to the aforesaid tender notifications and was appointed as Techno Commercial Consultant vide letter of appointment dated 18.08.2001, which culminated into an agreement dated 30.08.2001. Under the terms of the agreement, the respondent was entirely responsible for the execution of all works relating to APDP projects under the supervision, coordination, assistance and control of the company. As per Clause 5 of the agreement, the respondent was entitled for total service charges of Rs. 1.75% of the net value of the project. Under Clause 6 of the agreement, the respondent was bound to ensure the quality of work and complete the project as per the schedule.

4. After completion of the project, the appellant paid a sum of Rs. 1.48.50 Lakhs to respondent as service charges as prescribed under the agreement dated 30.08.2001. After expiry of two years, the respondent issued a notice dated 19.09.2003 seeking payment of sum of Rs. 8,15,000/- at the rate of Rs. 5,000/- in respect of 163 bids. A meeting of the board was convened on 25.06.2004, in which recommendation was made to pay a sum of Rs. 2,000/- per bid. However, in a subsequent meeting held on 18.04.2005 (Ex. C62), the board of the appellant resolved not to make any payment towards preparation of the bids.

5. The respondent filed a petition under Section 11 of the Act seeking appointment of Arbitrator in terms of Clause 38 of the agreement, which was allowed and an arbitrator was appointed to adjudicate the disputes raised by the respondent. The respondent made a claim of Rs. 5,08,39,817/- along with future interest at the rate of 15% on the amount from the date of award till date of payment. The appellant filed its statement of objections and resisted the claim. The appellant also submitted a counter claim to the tune of Rs. 25,14,56,000/- against the respondent. The arbitral Tribunal by an award dated 18.12.2008 allowed the claim of respondent for a sum of Rs. 25,72,620/-. Being aggrieved, the appellant filed objections under Section 34 of the Act. The trial court by an order dated 30.07.2013 rejected the objections preferred by the appellant. In the aforesaid factual background, this appeal has been filed.

6. Learned counsel for the appellant submitted that the trial court ought to have appreciated that the arbitral Tribunal has misconstrued the terms of the contract and has acted in excess of jurisdiction in awarding the claim towards consultancy charges for rendering pre tender services. It is further submitted that the arbitral Tribunal failed to appreciate that pre-contract negotiations and documents cannot be read as part of the service agreement and therefore, the claim of the respondent for consultancy charges for pre tender services was not tenable. It is pointed out that under Clause 5 of the agreement; the respondent was entitled to service charges at the rate of 1.75% of the net value of the amount claimed from KPTCL through the bills towards the work executed excluding tax and excise duties. It is argued that the arbitrator erred in holding that documents referred to in the agreement have to be read as a whole and not in piecemeal and thus, has exceeded his jurisdiction while passing the award. It is urged that the arbitrator as well as trial court appreciated that the appellant had never agreed to pay 0.25% of the net value of the project towards services rendered towards preparing and submitting the documents. It is argued that arbitrator being creature of the agreement between the parties has to operate within four corners of the agreement and cannot ignore specific terms of the agreement. It is contended that the trial court erred in holding that arbitrator has rightly concluded that service charges reduced to 1.75% only for the charges of service work and the court has erred in holding that balance 0.25% is for pre tender service charge, which is not a separate and independent contract but is a continuation of the post tender service. It is also urged that the court erred in holding that service charges, which was accepted by the appellant in its board meeting is only for the service rendered during execution of the project work and balance 0.25% service charges quoted in tender by the respondent and accepted by the appellant is for pre tender service charges and therefore, the same is within the terms of the contract. It is further contended that arbitrator as well as trial court have misconstrued the terms of the contract and have acted in excess of jurisdiction in awarding claims towards consultancy charges towards pre tender service. It is also argued that the arbitral Tribunal erroneously rejected the counter claim of the appellant. In support of aforesaid submissions, reliance has been placed on decision of the Supreme Court in 'BHARAT COKING COAL LTD. VS. ANNAPURNA CONSTRUCTION' : 2003 (8) SCC 154 AND FOOD CORPORATION OF INDIA VS. CHANDU CONSTRUCTION AND ANOTHER' : 2007 (4) SCC 697.

7. On the other hand, learned counsel for respondent submitted that in pursuance of an order of appointment dated 09.06.2001, the respondent was appointed as Techno Commercial Consultant for all the APDP projects floated by M/s. KPTCL and respondent provided all technical and commercial consultancy, which included preparation of technical and commercial bid documents and other pre-tendering works in respect of 16 tenders of various APDP projects consisting of five divisions in Mysuru Circle, four in Belgaum Circle, three in Bijapur Circle and 4 in Hubli Circle. It is further submitted that due to meticulous services provided by respondents all the documents submitted by the appellant were accepted and appellant issued a certificate dated 30.06.2001 and confirmed that services rendered by respondent is to their satisfaction. It is also pointed out that appellant initially received orders in respect of five divisions of Mysuru circle, one division each in Belgaum and Hubli Circle and the appellant was under an obligation to pay 1.25% of the value of the order received by them. However, no payment was made to the respondent. Subsequently, in the board meeting the appellant accepted to reimburse the expenses incurred by the respondent in respect of Chikkodi division and make payment in respect of 11 tenders at Rs. 50,000/- per bid. It was also pleaded that there is a clinching evidence to prove that service charges towards pre tendering activities are payable by the appellant to the respondent since, service charges in this regard are not included in the service agreement.

8. It is also contended that arbitrator has considered all the claims of the appellant and has passed the award, which is just and proper. It is further submitted that the letter of appointment dated 09.06.2001 has neither been withdrawn nor has been terminated or included in service agreement dated 30.08.2001. It is further submitted that as per Clause 38 of the service agreement, the award of the arbitrator is final and binding and the respondent has been unnecessarily dragged into the litigation. Lastly, it is submitted that since, arbitrator as well as the trial court have held in favour of the respondent therefore, the appeal filed by the appellant is liable to be dismissed.

9. We have considered the submissions made on both the sides and have perused the record. The issue which arises for consideration in this appeal is whether the arbitral tribunal, which is a creature of contract between the parties in the facts of the case as traveled beyond the contract and thus, has acted without jurisdiction. The Supreme Court in 'RAJASTHAN STATE MINES & MINERALS LTD. VS. EASTERN ENGINEERING ENTERPRISES' : 1999 (9) SCC 283 has held that in order to determine whether the arbitrator has acted in excess of jurisdiction, the issue which is required to be examined is whether the claimant could raise a claim before the arbitrator. It has further been held that if there is a specific term in the contract or in law, which does not permit or give the arbitrator the power to decide the dispute raised by the claimant, the award passed by the arbitrator would be in excess of jurisdiction. It has also been held that an award made by the arbitrator disregarding the terms of the reference or the arbitration agreement, would be a jurisdictional error. Similar view has been taken in BHARAT COKING COAL LTD. supra and it has been held that an arbitrator cannot travel beyond the contract and if he does so he would be acting without jurisdiction. In 'MD, ARMY WELFARE HOUSING ORGANISATION VS. SUMANGAL SERVCIES (P) LTD. : 2004 (9) SCC 619 it has been held that jurisdiction of an arbitrator being confined to four corners of the agreement, it can only pass such an order which may be subject matter of reference. The aforesaid principles were reiterated in 'OIL AND NATURAL GAS COPORATION LIMITED VS. OFF-SHORE ENTERPRISES INC : 2011 (14) SCC 147 and in 'ONGC VS. WESTERN GECO INTERNATIONAL LTD.' : 2014 (9) SCC 263 AND 'ASSOCIATE BUILDERS VS. DELHI DEVELOPMENT AUTHORITY : 2015 (3) SCC 49. and in SHARMA AND ASSOCIATES CONTRACTORS (P) LTD. V. PROGRESSIVE CONSTRUCTIONS : 2017 (3) SCC 743.

10. In the backdrop of aforesaid well settled legal principles, facts on hand may be examined. Before proceeding further, it is pertinent to take note of Ex. C3, which is an order dated 09.06.2001 by which the respondent was appointed as Techno Commercial Consultant, the relevant extract of letter of appointment as consultant, relevant extract of resolution passed by the board dated 09.08.2001 and the relevant clauses viz., Clause (5) and Clause (38) of the service agreement dated 05.07.2002, which is reproduced below for the facility of reference:

"Letter of Appointment: We take pleasure in informing you that you have been appointed as Techno/Commercial Consultant' for all the "Accelerated Power Development Programme [APDP] Projects floated by M/s. Karnataka Power Transmission Corporation Limited.

We look forward to your co-operation and assistance in ensuring that KAVIKA successfully implements the various projects under the above scheme.

The detailed appointment order indicating the services and other conditions will be sent to you separately."

Resolution dated 09.08.2001

"M/s. Gemini Power Systems have reduced their quotation from 2% to 1.75% flat rate. Both M/s. Gemini Power Systems and M/s. Mecon Limited will charge 5% Service Tax on the service charges payable.

Considering all the above factors, the Management recommends the appointment of M/s. Gemini Power systems, Bangalore as "Techno Commercial Consultants" for the execution of the works by KAVIKA under APDP Projects."

"Clause 5. The Consultant shall be entitled for the total service charges of 1.75 (one and three fourth) percent of the net value of the project. The net value means, only the material and labour charges claimed from the KPTCL through the bills of the Company excluding Excise Duty and Taxes. This service charges will include all the expenditures which will be incurred, including all promotional, developmental and other service expenses and also includes all transport expenses incurred by the Consultant and their representatives. The details of service charges payable by the Company to the Consultant is as per Annexure-III annexed to this agreement.

Clause 38. Any dispute that arise with regard to the terms and conditions of the arrangement or with regard to the execution of the project, notwithstanding his liability for any delays etc. shall be referred to arbitration by an arbitrator to be appointed by the company. The award of the arbitrator shall be final and binding."

11. Thus, from perusal of the letter of appointment as well as the resolution passed by the Board, it is evident that conditions contained therein do not form part of service agreement dated 30.08.2001. It is also noteworthy that under Clause 38 only a dispute with regard to terms and conditions of the agreement or with regard to execution of the project notwithstanding his liability of any delays could have been referred to arbitration by an arbitrator appointed by the company. In other words, it is axiomatic that dispute arising in relation to terms and conditions of the service agreement dated 30.08.2001 or with regard to execution of the project alone could have been referred to arbitration. Besides this, it is pertinent to mention here that Clause 5 of the service agreement only entitles the respondent to claim consultation charges at the rate of 1.75%. It is also pertinent to note that the letter of appointment states that the respondent has been appointed as consultant yet its specifies that the detailed appointment order indicating the services and other conditions will be sent to you separately. Thus, from the offer submitted by the respondent read with the letter of appointment, no inference can be drawn that appellant has agreed to pay 2% of the service charges.

12. In the instant case, the arbitral Tribunal has relied on the letter of appointment of the respondent as consultant, resolution of the board and clauses contained in the service agreement and has held that the all the clauses have to be read in conjunction and not in isolation. It has further been held that service agreement has to be read along with the offer made by the respondent, which was deemed to have been accepted and it has to be inferred that it is continuation of the contract. It is further held that if all the clauses are read in conjunction, it is evident that the respondent is entitled for total consultation charges at the rate of 2% of the net value of the project. It has further been held that under the service agreement, the respondent was entitled to consultation charges at the rate of 1.75% and therefore, he is entitled to 0.25% of the net value of the project for the pre tender work viz., preparing and submitting the tender documents which was not paid to the claimant. Thus, it was held that the claimant is entitled to Rs. 20,36,630/- along with interest at the rate of 9% from the date of award till realization. The aforesaid order has been affirmed by the trial court inter alia on the ground that none of the grounds set out in Section 34 of the Act have been made out for interference with the award and the award is neither opposed to any law nor public policy and is also not contrary to the terms of the contract.

13. However, the arbitral Tribunal as well as trial court has failed to appreciate that the dispute arising with regard to terms and conditions of the agreement or with regard to execution of the project under Clause 38 of the service agreement alone could have been referred to arbitration. It is pertinent to mention here that neither the letter of appointment of respondent as consultant nor the resolution of the board forms part of service agreement. Thus, there is no provision in the agreement with regard to claim of the respondent in respect of payment of the amount of pre tender work viz., preparing and submitting the tender documents. In the absence of any provision in the agreement, the dispute pertaining to payment of bills for pre tender work i.e., preparing and submitting the tender documents could not have been referred for adjudication to arbitrator and in the absence of any stipulation in the agreement the arbi

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trator could not have awarded the claim of the respondent in this regard. The finding recorded by the arbitrator that the offer made by the respondent has to be read along with service agreement and is in continuation of the agreement is perverse. There is absolutely no clause either in the letter of appointment of the respondent as consultant, resolution of the board and service agreement, which permits him to claim any amount on account of services allegedly rendered by him for pre tender work or at the rate of 2% of the project cost. Thus in awarding the amount to the respondent for the pre tender period in the absence of any provision in the agreement, the arbitrator has traveled beyond the scope of the contract and has acted without jurisdiction. However, the aforesaid aspect of the matter has not been appreciated by the trial court Therefore, the trial court ought to have appreciated that ground for setting of award under Section 37(1)(b) of the Act was made out and should have set aside the award. The award passed by the arbitrator and the judgment passed by the trial court insofar as it decrees the claim of the respondent for pre tender work is clearly beyond the scope of service agreement, which contains arbitration clause and the dispute being outside arbitration clause could not have been referred for adjudication to the arbitrator. Even assuming that the same was an arbitral dispute, the claim of the respondent for payment of amount for the work done during the pre tender period could not have been decreed in the absence of any stipulation either in the letter of appointment, Resolution of the board or under any of the clauses of the service agreement. In view of preceding analysis, the impugned judgment and award is set aside with liberty to respondent to take recourse to such remedy as may be available to him with regard to pre tender services. Accordingly, the appeal is disposed of.
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