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NRP Projects Private Limited, Royapettah, Chennai v/s Bharat Petroleum Corporation Limited, Chennai & Another

    O.S.A. (CAD) No. 52 of 2021

    Decided On, 11 August 2021

    At, High Court of Judicature at Madras

    By, THE HONOURABLE CHIEF JUSTICE MR. SANJIB BANERJEE & THE HONOURABLE MR. JUSTICE P.D. AUDIKESAVALU

    For the Appellant: Manoj Menon for M/s. Menon, Karthik, Mukundan, Neelakantan, Advocates. For the Respondents: Krishna Srinivasan, Advocate.



Judgment Text

(Prayer: Appeal under Section 13(1) of the Commercial Courts Act, 2015 against the judgment and order dated 23.1.2020 passed by the learned Single Judge on O.P.No.737 of 2016.)

Sanjib Banerjee, CJ.

1. The claimant in an arbitral reference is in appeal against a judgment and order dated January 23, 2020 passed under Section 34 of the Arbitration and Conciliation Act, 1996. By the impugned order, the arbitration court refused to interfere with a condition attached by the arbitral tribunal to the present appellant’s right to receive a sum due from the employer.

2. The appellant herein was engaged by the first respondent for carrying out earth-filling and levelling activities at a site to be used by the first respondent. The appellant says that there were two items of work that had to be executed and the two items were clearly indicated in the purchase order dated December 2, 2010. The first item of work, for which a separate rate was provided in the purchase order, required the supply and filling of earth upon it being obtained from approved quarries or equivalent. The second item of work, which provided for an altogether different rate, required the earth to be levelled and neatly dressed as per the specifications and directions of the site engineer.

3. The appellant points out that the first item of work in the purchase order indicated a rate which expressly included “all royalties, taxes, handling and transportation to site” and the like. The appellant refers to the second item of work to point out that there was no express reference to any royalties or taxes or the like in such item of work and the rate quoted therefor has to be seen limited to earth being filled and spread and the site being neatly dressed. It is the submission of the appellant that the distinction between what the prices indicated in the purchase order for the two items of work included was stark; that while the first item included all imposts, the second item was concerned only with the specific activity required to be undertaken by the appellant contractor and nothing else.

4. The disputes arose upon the Government of Andhra Pradesh raising claims on account of royalty on the appellant herein for the earth excavated from elsewhere and claiming seigniorage charges on account of the earth removed from one part of the site to another in course of levelling the same from the respondent employer. The appellant says that while the appellant dutifully discharged its obligation to pay the royalty charges demanded, the employer purported to pass on the burden on account of the seigniorage charges levied by the State to the appellant. The appellant is quick to point out that the law under which seigniorage charges had been imposed required either the lessee or the lessor of the land to pay the same. The appellant contends that since it was the employer who was the owner of the land and the appellant herein was neither the lessee nor the lessor in respect thereof, the liability to pay the seigniorage charges fastened to the employer in its status as owner of the land and could not, by virtue of the work undertaken by the appellant, be passed on to the appellant.

5. The appellant says that against the seigniorage claim of about Rs.72 lakh raised by the State of Andhra Pradesh, the employer purported to withhold bills of value in excess of Rs.64 lakh and not release the payment in respect thereof to the appellant. It was in such circumstances that the appellant was constrained to invoke the arbitration clause and seek a reference.

6. A preliminary ground that is urged by the appellant is that the arbitrator in this case was an employee of the respondent employer and, as such, not qualified to discharge the duties of the arbitrator, particularly since the appellant herein, as the claimant in the reference, had not waived any objection in such regard. The appellant relies on Section 12(5) of the Act and places the Seventh Schedule to the Act to suggest that the first item therein disqualified the arbitrator from taking up the reference. It is also fairly submitted on behalf of the appellant that though a ground in such regard was taken in the petition under Section 34 of the said Act, the relevant aspect may not have been specifically raised in course of the hearing before the arbitration court. However, it is the appellant’s further submission that if the arbitrator suffered from any legal incapacity, the disqualification would go to the root of the matter and, in such a scenario, the appellant herein would be entitled to urge the ground even if it is not specifically taken in the petition filed under Section 34 of the Act or expressly urged at the final hearing of such petition.

7. It is such ground that has to be dealt with first before the merits of the challenge on the more substantial ground can be addressed.

8. Section 12(5) of the Act was incorporated by way of an amendment that came into effect on October 23, 2015. It is the admitted position that the arbitrator in this case was appointed by or about March, 2015. What the inserted provision mandates is that a person who fell into one of the categories referred to in the Seventh Schedule to the Act “shall be ineligible to be appointed as an arbitrator”. The Proviso to such amended provision permits the appointment to be made by an express agreement in writing. There is no doubt that there was no subsequent agreement in writing executed by the parties, accepting or acquiescing in the appointment of the concerned arbitrator. However, what cannot be missed is that the embargo in terms of the provision is on the appointment and not on the continuation of the arbitrator to function as such. In this case, the act of appointment was complete long before sub-section (5) to Section 12 was inserted into the Act of 1996 by way of the amendment carried out in 2015. Thus, there is no merit in the appellant’s contention that the arbitral tribunal was improperly constituted or that by virtue of the arbitrator’s relationship with the first respondent herein, the arbitrator stood disqualified and could not have rendered the impugned award. Further, authoritative judicial pronouncements that governed the field prior to the relevant amendment to the statute instructed that if the arbitration agreement between the parties indicated the mechanism for appointing the arbitrator, or constituting the arbitral tribunal, the mere fact that the arbitrator, or any member appointed on the arbitral tribunal, was an employee of one of the parties would be of no relevance.

9. It is not necessary, in such context, to address the second part of the same objection, that despite a ground as to the arbitrator’s disqualification not being taken in the petition under Section 34 of the Act or such ground not being urged in course of the hearing of the petition under Section 34 of the Act, the party objecting to the award would be entitled to urge the ground in appeal. Since the objection in such regard has been dealt with on merits, it is left for another occasion for such aspect to be addressed: of the effect of seeking to urge a legal ground that may not have been expressly urged before the Court of the first instance.

10. As to the substance of the limited challenge to the arbitral award, the appellant’s argument has to be appreciated to be that one item of work specified that the royalty and other charges in connection therewith would be borne by the contractor, whereas the other item of work was silent on such matter. In the award dated June 30, 2016, the arbitrator referred to Clause 17 of the General Conditions of Contract that governed the relationship between the parties. The arbitrator found that such Clause 17 of the General Conditions of Contract obliged the contractor to take care of all charges in connection with the work assigned to the contractor and interpreted the relevant clause from the General Conditions to imply that the additional cost incurred to meet a demand on account of any levy or impost by the State would have to be borne by the contractor.

11. The corollary to the appellant’s principal submission on such aspect is that if there is any conflict between the clauses of a special contract and the terms of the general conditions governing the contract, the contents of the special contract would prevail. The appellant suggests that in the first item of work expressly specifying that royalty and taxes would be to the account of the contractor and the second item of work not specifying anything in such regard, any impost that may have been attracted qua the second item of work would be payable by the person liable therefor in accordance with law and not necessarily passed on to the contractor.

12. The appellant asserts that Clause 17 of the General Conditions of Contract was at variance with the special contract which defined and described the two items of work. As a consequence, the appellant submits, the issue as to who would be liable to take care of the seigniorage charges would have to be decided in favour of the appellant herein, since the pricing pertaining to the second item of work did not include any impost or tax, whereas the first item of work specifically included the same.

13. For such purpose, the appellant relies on a judgment reported at (2009) 7 SCC 636 (M.K.Abraham and Company v. State of Kerala) and places paragraph 21 of the report. The Supreme Court instructs, in the relevant passage placed from the report, that in the event of any inconsistency between the terms of the special contract and terms of the general conditions governing the relationship between the parties, the terms of the special contract would prevail. It is best to see what has been laid down at paragraph 21 of the report:

“21. If a contract consists of a printed form with cyclostyled amendments, typed additions and deletions and handwritten corrections, an endeavour shall be made to give effect to all the provisions. However, in the event of apparent or irreconcilable inconsistency, the following rules of construction will normally apply:

(i) The cyclostyled amendments will prevail over the printed terms;

(ii) The typewritten additions will prevail over the printed terms and cyclostyled amendments;

(iii) Handwritten corrections will prevail over the printed terms, cyclostyled amendments and typewritten additions.

The above rules have evolved from the well-known maxim of construction that “written, stamped or typed additions, when inconsistent with the printed terms, would normally prevail over the printed terms”and proceeds on the assumption that the printed form contained the original terms, and changes thereto were incorporated by the cyclostyled amendments, followed by changes by typewritten additions and lastly the handwritten additions. The logical explanation for such assumption is this: the printed form contains standardised terms to suit all contracts and situations. It is not drafted with reference to the special features of a specific contract. When such a standard form is used with reference to a specific contract, it becomes necessary to modify the standard/general terms by making additions/alterations/deletions, to provide for the special features of that contract. This is done either by way of an attachment of an annexure to the standard printed form, incorporating the changes, or by carrying out the required additions/alterations/ deletions in the standard form itself. Such additions/ alterations/deletions are done by typing/stamping/ hand.”

14. The appellant also refers to the discussion pertaining to the first issue in the award dated June 30, 2016 and the relief granted by the arbitrator as a consequence. The arbitrator noticed the claim of seigniorage charges of an amount in excess of Rs.72 lakh made by the State of Andhra Pradesh, through its Department of Mines and Geology, for minor minerals being excavated at the site in course of execution of the contract for levelling the site. The arbitrator noted the rival contentions, quoted Clause 17 of the General Conditions of the Contract and reasoned that since the contractor had the responsibility to be aware of the rules and regulations and address the same, the seigniorage charges would go to the account of the contractor. The arbitrator referred to a Supreme Court judgment on the issue of the intention of the parties and noticed the dictum therein that the intention of the parties had to be gleaned from the words used in the contract.

15. The award rendered by the arbitrator provided for the release of the sum in excess of Rs.64 lakh withheld by the employer against bills therefor raised by the appellant herein, subject to the appellant herein indemnifying the employer to the tune of Rs.72,99,600/- along with interest on account of seigniorage charges as claimed by the relevant State “by way of an indemnity bond supported by security for the same amount”.

16. Just for the purpose of completing the narration, it must be recorded that during the pendency of the challenge to the arbitral award, the appellant herein instituted proceedings for implementing the award to the extent that the award required the employer to pay a sum in excess of Rs.64 lakh to the appellant. The appellant obtained leave from the arbitration court to press its execution application. The relevant order of this court stayed the requirement of furnishing a security in terms of the award, but required an indemnity to be issued in lieu thereof, since the petition under Section 34 of the Act had not been conclusively decided. The appellant says that the indemnity has been furnished in writing, but complains that the payment has still not been forthcoming from the employer.

17. The principle has first to be appreciated before an assessment is made. The principle in such regard is that, in a commercial agreement, all terms of the contract, whether special or general, must be taken into account and given a meaning as a whole. The court has to avoid having to hold a particular term to be inconsistent with another if the two apparently conflicting terms can be reconciled and given a wholesome meaning. In other words, when a ground of conflict between the terms of the same agreement or repugnancy of one qua another is raised, the first duty of the court is to endeavour to reconcile the apparently conflicting clauses and, only if such exercise fails, the court would narrow down the extent of conflict or repugnancy and, after whittling down the area of conflict, make an assessment of the dispute.

18. When parties to an agreement have incorporated several clauses therein, whether in a special contract governed by some general terms or otherwise, courts would be slow in accepting a case of conflict between two clauses or of repugnancy unless the same cries out and is obvious. The dictum in M.K.Abraham and Company judgment does not enunciate any new legal proposition. Agreements, sometimes spread over complex documents, are executed these days pertaining to specialised areas, where the immediate document that is executed is confined to the specialised area of work and the general conditions governing other contracts awarded by the employer are incorporated by reference as an integral part of the relevant contract. More often than not, when the employer is a behemoth or is given to usually entering into contracts with a large number of persons like the Railways, for instance, a shorter specific contract pertaining to the work is executed and the incidental aspects are left to be governed by the General Conditions of Contract. It was so in the present case.

19. It is true that the words “royalties and taxes” are specifically referred to in the first item of work and the price for such item of work includes several variables. It is equally true that the price of work in respect of the second unit does not refer to any other variable and is confined to the exact work which is to be undertaken by the contractor. However, what is of importance is that there are no words of exclusion in the second item of work for the appellant to successfully contend that the appellant would not be liable for any royalty or tax or impost concerning the activity to be undertaken in terms of the second item of work.

20. It may even have been permissible for the appellant to urge the ground if the contract was not governed by the general conditions; for that would have implied the application of the principle that when something is expressly included in a comparable part and not included in the other, it would be deemed to have been excluded from the other. But that is not the case here, as the

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safety net of the General Conditions of Contract would govern the parties and their rights and obligations and, on a meaningful reading of Clause 17 of the General Conditions, it is possible to say that any hidden cost or expense incidental to carrying out the activity pertaining to the second item of work would be to the contractor’s account. 21. Herein lies the test. In proceedings under Section 34 of the Act, the court in seisin of an arbitral award does not exercise appellate authority. The grounds for challenging an arbitral award are limited and the scope for interference is restricted. If a clause is capable of two possible interpretations and one of them has been pressed into service by the arbitrator, that the other interpretation appeals slightly more to the court, may not be a ground to interfere with the award. The ultimate test is that when a plausible view, upon taking relevant considerations into account, has been rendered by an arbitral tribunal, the court will not interfere therewith. Such a challenge cannot be labelled as a challenge under the “in conflict with public policy”, or “patent illegality” grounds, nor would a challenge on such count shock the conscience of the court. 22. Indeed, the view expressed by the arbitrator appears to be eminently justified in the context of the applicability of Clause 17 to the special contract and there being no repugnancy or conflict between the description of the second item of work and Clause 17 of the General Conditions of Contract. 23. In the circumstances, the arbitration court was perfectly in order in not interfering with the reasoned award of June 30, 2016. The judgment and order impugned dated January 23, 2020 does not call for any interference. As a consequence, O.S.A.(CAD) No.52 of 2021 is dismissed. There will, however, be no order as to costs.
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