1. The petitioner has filed the present petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereafter ‘the Act’) for setting aside the Arbitral Award dated 03.02.2018 (hereafter ‘the impugned award’) delivered by the Arbitral Tribunal consisting of Mr Justice B.P. Singh (Retired), Mr Justice Mukul Mudgal (Retired) and Mr Justice Gorigay Bikshapathy (Retired). The impugned award was rendered by the majority with Justice Gorigay Bikshapathy (Retired) entering a dissenting opinion. The controversy between the parties arises in relation to an agreement dated 13.08.2012 – captioned ‘Sub-Contract Agreement’ (hereafter ‘the Agreement’) – entered into between the parties for construction of dwelling units in Maldives. In terms of the Agreement, the petitioner was required to furnish two bank guarantees – one for securing an advance ( hereafter ‘ABG’) and the other for securing the performance of the contract (hereafter ‘PBG’) – each for a sum equivalent to 10% of the contract value of Rs. 126 Crores. Although, the petitioner furnished the bank guarantees, the same were found to be forged. Accordingly, the respondent terminated the Agreement by a notice dated 11.01.2013. In the aforesaid context, the petitioner raised several claims – seventeen in number – in respect of alleged expenditure/loss incurred by the petitioner in relation to the contract between the parties. In addition, apart from costs of arbitration and interest, the petitioner also raised a claim for loss of profits expected by the petitioner from execution of the contract.
2. By the impugned award, the Arbitral Tribunal (by majority) found that the termination of the Agreement was not wrongful and rejected all claims made by the petitioner.
3. Mr Brij Bhushan Gupta, learned Senior Counsel appearing for the petitioner does not contest the decision of the Arbitral Tribunal in rejecting the petitioner’s claim that termination of the Agreement was wrongful; he, however, contends that the petitioner would be entitled to its claims for the expenditure incurred in terms of Sections 64 and 65 of the Contract Act, 1972 (hereafter ‘the Contract Act’). He referred to the impugned award and submitted that the petitioner’s claims were rejected only on the ground that the expenditure in question was incurred prior to the parties entering into the Agreement or the issuance of the Letter of Intent (LOI). He contended that rejection of the petitioner’s claims on this ground was not sustainable.
4. In view of the above, the only controversy that falls for consideration of this Court is whether in terms of Section 64 and 65 of the Contract Act, 1972 the petitioner is entitled to the claims made in respect of the expenditure incurred by the petitioner in connection with or in relation to the contract.
5. The respondent was awarded a contract by the Government of Maldives for construction of 485 dwelling units out of which 385 units were to be constructed at a place called Hulhumale and 100 dwelling units were to be constructed at a place named Thinadoo. The respondent and the Government of Maldives also entered into a contract dated 26.01.2012 in respect of the aforesaid works.
6. Thereafter, the respondent sought offers from various entities to sub-contract the work for construction of the dwelling units in terms of the contract awarded to it by the Government of Maldives. After the parties had held negotiations and discussions, the respondent issued a Letter of Intent (LOI) dated 27.06.2012 expressing its intention to award the contract for sub-contracting the work of designing and building the housing project at Maldives. The total price of the contract was fixed at Rs. 126 crores and the project was to be completed within a period of sixteen months from the Commencement date. The LOI further indicated that it was contingent upon the petitioner developing designs and obtaining approvals from the Ministry of Housing and Environment Republic of Maldives.
7. Thereafter, the parties entered into the Agreement on 13.08.2012. The Agreement expressly provided that the Commencement date to be as under:-
'E Commencement Date:
The Commencement date shall be the date on which Advance Payment has been released by OIA to ASPRIL. OIA Shall release advance payment after receipt of both Advance Bank Guarantee and Performance Bank guarantee from ASRIPL, each being 10% value of Contract price.'
8. Further in terms of the Agreement, the project was to be completed within five hundred days from the Commencement date.
9. The petitioner claims that the bank guarantees (ABG and PBG) were arranged by one Mr K. K. Menon, who was an employee of the respondent at the material time. The petitioner further claims that Mr K. K. Menon had agreed to arrange the bank guarantees in question for a consideration of `2,50,00,000/- out of which a sum of Rs. 1.65,00,000/- was remitted by the petitioner into the bank account of Mr K. K. Menon on 26.10.2012 and a further sum of Rs. 35,00,000/- was paid by the petitioner in cash.
10. At a meeting held on 17.12.2012, the petitioner was informed that the bank guarantees furnished pursuant to the Agreement were not genuine.
11. On 11.01.2013, the respondent sent a notice terminating the Agreement.
12. Thereafter, the petitioner issued a notice dated 25.03.2013, which ultimately led to the commencement of the arbitral proceedings and constitution of the Arbitral Tribunal.
13. The arbitral proceedings culminated in the impugned award.
Discussion and Conclusion
14. As noticed above, the only question to be addressed is whether the Arbitral Tribunal had erred in rejecting the claims made by the petitioner for the expenditure incurred by it in relation to the contract between the parties. Before the Arbitral Tribunal, the petitioner had filed its Statement of Claim claiming: (i) Rs. 63,00,000/- as expenditure incurred for preparation of initial drawings and bill of quantifies; (ii) Rs. 25,00,000/- for payment made to Team Ventures Private Ltd. for facilitating the contract with the respondent; (iii) Rs. 5,60,000/- incurred by the petitioner in engaging the services of a consultant to obtain approvals and Rs. 1,75,000/- for registration with the Ministry of Housing and Infrastructure, and approvals/license from the concerned Ministries of Government of Maldives; (iv) Rs. 1,25,000/- as expenditure incurred for registration with the Export Promotion Council of India; (v) Rs. 2,00,00,000/- paid to Mr K.K. Menon towards arrangement of bank guarantees; (vi) Rs. 8,12,000/- incurred towards travelling to India for procurement of material; (vii) Rs. 32,650/- being expenditure incurred for testing of material; (viii) Rs. 2,00,000/- for making advance payment for materials; (ix) Rs. 7,84,012/- being the expenditure incurred towards retrofitting existing tools and machinery for being exported to Maldives; (x) Rs. 6,46,657/- as expenditure for the visits of the petitioner to Mumbai; (xi) Rs. 2,35,000/- as expenditure for petitioner’s visits to Delhi; (xii) Rs. 3,00,940/- being the expenditure incurred for travelling to various ports for finalizations of logistics; (xiii) Rs. 76,33,000/- as overheads; (xiv) Rs. 9,00,000/- being expenditure for travelling of staff to Maldives; (xv) Rs. 10,30,000/- expenditure in respect of staff at Maldives; (xvi) Rs. 5,55,870/- as expenditure incurred for visiting China for procurement of machinery, furniture and tools for Maldives; (xvii) Rs. 5,00,000/- as loss of furniture procured from China; (xviii) Rs. 18,90,00,000/- as loss of profits; (xix) Cost of arbitration; and (xx) Interest at the rate of 24% p.a.
15. There is no dispute that the Bank Guarantees furnished to the respondent were forged and Mr Gupta has not assailed the decision of the Arbitral Tribunal rejecting the petitioner’s claim that termination of the Agreement was wrongful. The Arbitral Tribunal had also concluded that the controversy with regard to forged bank guarantees was a matter between the petitioner and Mr K.K. Menon and did not concern the respondent. The Arbitral Tribunal reasoned that the petitioner had entered into the alleged arrangement for procurement of the bank guarantees with Mr K. K. Menon acting in his private capacity and not as a representative of the respondent. Plainly, the question whether Mr K. K. Menon had defrauded the petitioner would be of little relevance while considering the question whether the Agreement had been validly terminated as there is no dispute that the bank guarantees (ABG and PBG) furnished on behalf of the petitioner were forged.
16. The Arbitral Tribunal (by majority) also rejected the other claims made by the petitioner as it held that the respondent was not liable for the expenditure claimed to have been incurred by the petitioner. It was observed that claim nos.1 & 2 related to work allegedly done prior to the issuance of LOI and, therefore, the respondent could not be held liable. Further, claim nos.3 & 4 were rejected by the Arbitral Tribunal by observing that 'sub contract agreement had not commenced in terms of Clause E.' Claim nos. 6, 7, 8 & 9, which related to the expenditure allegedly incurred for material procurement, were also rejected as the same were incurred prior to the project commencement date. Claim nos.10, 11, 12, 14 & 16 related to expenditure incurred on travelling of the petitioner’s Managing Director and its employees. The said claims were rejected by the Arbitral Tribunal by observing that there was no agreement between the parties for reimbursement of any such expenditure. Further, the Arbitral Tribunal also observed that 'the claims are lacking in particular and are extremely sketchy and have not been proved in any manner.'With regard to claim nos.13, 15 & 17, the Arbitral Tribunal observed that there is a possibility that some expenditure would have been incurred by the claimant in relation to the project but the conduct of the petitioner disentitled it for any relief towards any such expenditure. As noticed above, claim no.18 related to loss of profits which was rejected as the Arbitral Tribunal did not find that the termination of the Agreement to be wrongful.
17. Claim no.5 related to reimbursement of the amount paid towards obtaining of the bank guarantees. Clearly, there was no basis for seeking such relief and the same was rejected by the Arbitral Tribunal.
18. Mr Gupta relied on the provisions of Sections 64 and 65 of the Contract Act and earnestly contended that the petitioner was entitled to its claims.
19. At this stage, it is relevant to refer to Sections 64 & 65 of the Contract Act, which are reproduced below:-
'64. Consequences of rescission of a voidable contract.-When a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise therein contained in which he is the promisor. The party rescinding a voidable contract shall, if he had received any benefit thereunder from another party to such contract, restore such benefit, so far as may be, to the person from whom it was received.
65. Obligation of person who has received advantage under void agreement, or contract that becomes void.-When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to the person from whom he received it.'
20. It is obvious from a plain reading of the aforesaid provisions and the claims made by the petitioner do not fall within the scope of the aforesaid provisions. Thus, the contention that petitioner is to be compensated for or reimbursed the expenditure incurred by it is unmerited. Section 64 of the Contract Act provides that when a person at whose option a contract is voidable rescinds the contract, he is liable to restore such benefit as he may have received under the said contract. In terms of Section 65 of the Contract
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Act, any person who has received any benefit or advantage under a contract, which is discovered to be void or becomes void is obliged to restore the benefits received by him or to compensate the person from whom he has received such benefits. The focus of Sections 64 and 65 of the Contract Act is restoration of any advantage or benefit that has been obtained by any party in connection with a void contract or voidable contract that has been rescinded. A plain reading of the claims indicates that none of the claims made by the petitioner were for seeking restoration of any benefit received by the respondent. All claims – barring the claims for loss of profits, furniture, costs and interests – were for seeking reimbursement of expenditure incurred by the petitioner in either travelling or preparing itself for execution of the contract. It is obvious that none of such expenditure had translated to any benefit or advantage (either tangible or otherwise) to the respondent. Further, there is no pleading to the effect that the respondent had acquired any benefit or advantage from the expenditure incurred by the petitioner. Thus, plainly, the respondent cannot call upon to reimburse any of the said expenditure. 21. In view of the above, the petition is unmerited and is, accordingly, dismissed. The parties are left to bear their own costs.