w w w . L a w y e r S e r v i c e s . i n



Natioanl Highways Authority of India v/s Shiva Tractors

    First Appeal From Order No. 747 of 2015

    Decided On, 17 July 2015

    At, High Court of Judicature at Allahabad

    By, THE HONOURABLE MR. JUSTICE KRISHNA MURARI & THE HONOURABLE MR. JUSTICE PRATYUSH KUMAR

    For the Appellant: R.K. Gupta, Devendra Kumar, S.F.A. Naqvi, Advocates. For the Respondent: K.K. Tiwari, Advocate.



Judgment Text

Krishna Murari, J.

1. Heard Sri Syed Farman Ali Naqvi, learned counsel for the appellant and Sri K.K. Tiwari, learned counsel appearing for the respondent.

2. Shorn of unnecessary details facts, relevant for the purposes of the case, are as under:

"The appellant, herein, vide "Bid Invitation Notice" dated 06.01.2005 invited offers from parties for collection of toll fee on behalf of Government of India at Km. 34, Village Baretha, Tehsil Mania, District Dholpur (Rajasthan) for Km.8.00 to Km. 51.00 Km on Agra-Dholpur Section of NH No. 1. The offer submitted by the respondent, herein, having been accepted, the parties entered into a contract dated 28.03.2006 for the said purpose. On the basis of certain alleged complaints and alleged in-house investigation into the same, the appellant vide its letter dated 27.07.2006 terminated the contract. The respondent challenged the termination of the contract before the High Court of Madhya Pradesh which was disposed of vide order dated 08.08.2006 directing the appellant to issue fresh show cause notice to the respondent after supplying copy of the inquiry report. Thereafter a fresh notice dated 22.08.2006 was issued to the respondent and vide order dated 14.11.2006, the contract was terminated with immediate effect and invoking Clause 18 and 34(2) of the agreement, penalty forfeiting the performance security to the tune of Rs. 1,43,87,651/- was imposed. The bank guarantee was also invoked."

3. The respondent challenged the termination order dated 14.11.2006 by filing writ petition No. 63761 of 2006 before this Court. Vide order dated 22.11.2006, the said writ petition was disposed of by making the following order:

"There is an agreement clause in the agreement, the correctness of the enquiry report is a factual question and can be appropriately gone into arbitration proceedings.

In the facts and circumstances of the case, it is not a fit case for exercise of discretion under Article 226 of the Constitution.

The writ petition is dismissed. However, the respondent, herein, is at liberty to invoke arbitration clause."

4. The respondent instead of invoking arbitration clause challenged the order by preferring a Special Leave Petition being SLP (C) 19948 of 2006. Special Leave Petition was disposed of vide judgement and order dated 18.07.2008 by making following observation :

"In view of the above, leaving all questions and contentions, this petition is disposed of by appointing Shri Justice M.N. Rao as a sole arbitrator by consent to decide the said dispute. Having regard to the nature of case, we request the arbitrator to give his award expeditiously. The parties have assured cooperation for early decision."

5. Subsequently, an application for clarification of the order dated 18.07.2008 filed by the respondent was disposed of, vide order dated 12.05.2009 clarifying the earlier order, with following observations:

"The matter was disposed of by order dated 18.07.2008. The petitioner has filed an application for clarification.

The order clearly provides that only the disputes relating to forfeiture of performance security amounting to Rs. 1,43,87,751/- and enforcement of the performance of bank guarantee for Rs. 1,43,87,751/- shall be referred to arbitration. Therefore, as agreed between the parties, the arbitrator can only proceed with those two disputes (with issue of interest) and no other dispute.

Therefore, I.A. No. 4 is disposed of as redundant."

6. After the aforesaid clarification, the arbitrator framed the following issues :

"1. Whether the encashment of bank guarantee and performance guarantee by the respondent was justified?

2. Whether the claimant is entitled for the claim amount of Rs. 1,43,87,651/- with interest arising out of the encashment of bank guarantee of Rs. 1,43,87,651/- by the respondent?

3. Whether the claimant is entitled for the claim amount of Rs. 1,43,87,651/- with interest arising out of the encashment of performance security of Rs. 1,43,87,651/- by the respondent?"

7. The arbitrator after considering the case of the parties and hearing them made an award which was published on 29.04.2010. The aforesaid three issues framed by the arbitrator were decided as under :

"For the foregoing reasons the issues are answered as follows :

Issue No. 1.

The encashment of bank guarantee and performance guarantee are not justified.

Issue No. 2.

The claimant is entitled for the claim amount of Rs. 1,43,87,651/-arising out of the encashment of the bank guarantee of Rs. 1,43,87,651/- with interest at the rate of 8% from the date 15.11.2006 till realization.

Issue No. 3.

The claimant is entitled for the amount of Rs. 1,43,87,651/- arising out of the encashment of performance security of Rs. 1,43,87,651/- with interest at the rate of 8% from the date 14.11.2006 till realization."

8. The claimant is also entitled to the costs which are quantified at Rs. 5,00,000/- and the same will carry interest at the rate of 8% from the date of award till realization.

9. Aggrieved by the aforesaid award, the appellant preferred an objection under Section 34 of the Arbitration and Conciliation Act, 1996 (for short the "1996 Act"). Vide impugned judgment and order dated 03.02.2015, the District Judge, Agra dismissed the objection.

10. The objection was filed by the appellant on the allegations that award is against law and terms of the contract and is also against the public policy of India. Arbitrator has failed to appreciate that the termination of contract being not the dispute referred to him, he could not go into the circumstances leading to termination of the contract and the arbitrator has committed gross error in venturing beyond the reference of the dispute and the issues, which were settled by the Hon'ble Supreme Court, were only confined to the forfeiture of performance security and enforcement of the bank guarantee.

11. The District Judge after considering the rival contentions of the parties has returned a finding that the appellant National Highways Authority of India has failed to show that the arbitral tribunal has exceeded jurisdiction. It has been held that on perusal of award, it is clear that the arbitrator has given the finding only on the terms of reference and the appellant has failed to show any of the grounds which are mentioned in Section 34 of the 1996 Act existed on the basis of which the award can be set aside. It has further held that the appellant have failed to demonstrate as to how the award was against the public policy of India so as to bring it within the four corners of Section 34 of 1996 Act.

12. Learned counsel for the appellant very vehemently contended that the District Judge was wrong in overlooking the fact that arbitrator failed to appreciate that the termination of contract being not the dispute referred to him, he could not have gone into the circumstances leading to termination of the contract. The District Judge failed to appreciate that the arbitrator clearly travelled beyond the dispute referred to him for adjudication and has gone into the merits of termination. It is further submitted that the only issues before the arbitrator as directed by the Hon'ble Supreme Court were whether the enforcement of bank guarantee and performance guarantee was justified in accordance with the provisions of contract agreement. By entering into the merit of the termination of contract, while considering the issue of forfeiture of performance security, the arbitrator committed misconduct which fact has been miserably ignored by the District Judge while deciding the objection under Section 34 of the 1996 Act. It is also submitted that once the termination order could not have been subject matter of adjudication, the legal and natural consequences which flow from the termination is forfeiture of performance security and bank guarantee which do not suffer from any invalidity and this fact has been ignored by the arbitrator as well as District Judge. The finding of the arbitrator that the bank guarantee could not have been encashed as it was furnished against loss and damage caused or suffered or would be caused or suffered by reason of the contract in question and since the National Highways Authority of India did not suffer any loss or damage, the invocation of the bank guarantee was not justified, has wrongly been affirmed by the District Judge against the record. It is also submitted that since award was illegal, against the provisions of law hence was opposed to public policy. The District Judge has illegally held that appellant failed to set out any grounds in that regard though specific grounds were taken that award was against the contract and law.

13. Learned counsel for the respondent on the other hand submitted that arbitrator has confined himself to the issues as directed by the Supreme Court and has not travelled beyond the scope of reference. He has not entered into the validity of the contract, as alleged on behalf of the appellant. The arbitrator only considered the reasons contained in the termination of contract in order to adjudicate upon whether there was any valid and justifiable reason to invoke the performance security for terminating the contract leading to forfeiture of bank guarantee. It is further submitted that none of the grounds enumerated in Section 34 of the 1996 Act was found to be established hence the District Judge rightly dismissed the application.

14. We have considered the rival contentions advanced by the learned counsel for the parties and perused the record.

15. Before proceeding to deal with the arguments raised before us, it may be relevant to quote section 34 of the 1996 Act, relevant part whereof 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 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. - Without prejudice to the generality of sub-clause (ii) it is hereby declared, for the avoidance of any doubt, 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."

16. The language of Section 34 is plain and unambiguous. The use of words "only if" by the legislation suggests a positive mandate that award can be set aside by the court if it is satisfied about the existence of any of the grounds set out in sub-section (2) of said section and no other ground. Thus, an arbitral award can be challenged on very limited grounds specified in section 34 of 1996 Act.

17. While considering the scope and ambit of Section 34 of the 1996 Act, Hon'ble Apex Court in the case of Fiza Developers and Inter-Trade P. Ltd. Vs. AMCI (I) Pvt. Ltd. and Another, (2010) 3 CompLJ 617 : (2009) 5 CTC 65 : (2009) 12 JT 519 : (2009) 11 SCALE 371 : (2009) 17 SCC 796 : (2009) 12 SCR 1 has observed as under :

"10. We may therefore examine the question for consideration, by bearing three factors in mind. The first is that the Act is a special enactment and Section 34 provides for a special remedy. The second is that an arbitration award can be set aside only upon one of the grounds mentioned in Sub-section (2) of Section 34 exists. The third is that proceedings under Section 34 requires to be dealt with expeditiously.

11. The scope of enquiry in a proceeding under Section 34 is restricted to consideration whether any one of the grounds mentioned in Sub-section (2) of Section 34 exists for setting aside the award. We may approvingly extract the analysis relating to 'Grounds of Challenge' from the Law & Practice of Arbitration and Conciliation by Shri O.P. Malhotra [First Edition, Page 768, Para (I) 34-14]:

Section 5 regulates court intervention in arbitral process. It provides that notwithstanding anything contained in any other law for the time being in force in India, in matters governed by Part I of this Act, the court will not intervene except where so provided in this Part. Pursuant to this policy, Section 34 imposes certain restrictions on the right of the court to set aside an arbitral award. It provides, in all, seven grounds for setting aside an award. In other words, an arbitral award can be set aside only if one or more of these seven grounds exists. The first five grounds have been set forth in Section 34(2)(a). In order to successfully invoke any of these grounds, a party has to plead and prove the existence of one or more of such grounds. That is to say, the party challenging the award has to discharge the burden of poof by adducing sufficient credible evidence to show the existence of any one of such grounds.

The rest two grounds are contained in section 34(2)(b) which provides that an award may be set aside by the court on its own initiative if the subject matter of the dispute is not arbitrable or the impugned award is in conflict with the public policy of India.

The grounds for setting aside the award are specific. Therefore necessarily a petitioner who files an application will have to plead the facts necessary to make out the ingredients of any of the grounds mentioned in Sub-section (2) and prove the same. Therefore, the only question that arises in an application under Section 34 of the Act is whether the award requires to be set aside on any of the specified grounds in Sub-section (2) thereof. Sub-section (2) also clearly places the burden of proof on the person who makes the application. Therefore, the question arising for adjudication as also the person on whom the burden of proof is placed is statutorily specified. Therefore, the need for issues is obviated. Framing of issues is necessary only where different types of material propositions of fact or law are affirmed by one party and are denied by the other and it is therefore necessary for the court to identify the issues and specify the party on whom the burden to prove the same lies. When this exercise has already been done by the statute, there is no need for framing the issues. In other words, an application under Section 34 of the Act is a single issue proceeding, where the very fact that the application has been instituted under that particular provision declares the issue involved. Any further exercise to frame issues will only delay the proceedings. It is thus clear that issues need not be framed in applications under Section 34 of the Act."

18. We now proceed to examine the contentions raised on behalf of the parties. In order to appreciate rival contention of the parties, it may be relevant to refer certain facts relevant for the purpose. Clause 17 of the contract prescribes for performance security which reads as under :

"17. PERFORMANCE SECURITY

(a) The Contractor has furnished a security deposit towards Performance Security consisting of (a) a demand draft drawn on any Public Sector Bank of India amounting to Rs. 5987751/- lakhs (an amount equal to first three (3) months' agreed remittance) in favour of "National Highways Authority of India", payable at Gwalior (M.P.) Bank Draft 976456, 976457, 976458, 976459 dated 07/02/2006 from Union Bank of India a Public Sector Bank of India, payable at Gwalior (M. P) submitted as Bid Security and adjusted as per the request of the Contractor and (b) a bank guarantee as per the format prescribed by National Highway Authority of India from any Public Sector Bank of India for Rs. 14387751/- (an amount equal to first three (3) months' agreed remittance), valid for a period of 15 months.

(b) The said performance Security including the Bid Security, shall not bear any interest except when the collection is not started within 120 days of signing of the contract for the reasons not attributable to the Contractor. In such a case, interest @6% p.a. Shall be paid for the period beyond the 120 days and for the period till the collection starts. Performance Security shall be refunded within 90 days after settlement of all the accounts by the Contractor and upon issuance of No Dues Certificate by the Project Director. No Dues Certificate shall be issued not later than and within 7 days immediately after settlement of accounts.

(c)(i) The Authority shall also be competent to utilize the said Performance Security against any loss or damage caused to the property of the Authority by any act of omission and/or commission by the Contractor or its agents and servants or adjust it towards any claim of the Authority.

(ii). The Contractor undertakes that, in case of any default on its part to perform and observe any of the covenants, conditions or provisions contained in this Contract, it shall be lawful for the Authority in its absolute discretion to forfeit the whole or any part the said Performance Security, without prejudice to any other remedy that the Authority may have against the Contractor under this Contract or under general law for such breach.

(d). The amounts lying with the Authority towards the performance security shall not be adjusted towards instalments due to the Authority from the Contractor including the instalment for the last month of the initial period of one year or extended period."

19. Clause 34 of the Agreement provides for termination thereof. The said clause reads as under :

"34. TERMINATION :

(1) The Authority shall be entitled to terminate this Contract at any time without assigning any reason(s) after giving notice to the Contractor as under in writing and in that event, the Contractor shall not be entitled to any claim, or any compensation whatsoever on account of such termination.

(i) By giving fourteen (14) days prior notice in writing,

(ii) By giving ninety (90) days prior notice in writing, the Contractor may terminate the Contract.

(2) Notwithstanding anything contained in clause (1) above, the Authority may terminate the Contract for breach or non-observance of any of the terms and conditions of this Contract or for any misconduct on the part of Contractor or his employee/staff/personnel or for overcharging of fee from a user, or for harassment of any user."

20. Clause 18 of the agreement provides for Penalty for charging excess fee. The said clause reads as under :

"18. PENALTY FOR CHARGING EXCESS FEE :

(a) In case, it is observed and/or established to the satisfaction of the Authority that the Contractor has charged fee in excess of the prescribed rate, the Authority may terminate the contract forthwith and/or may impose a penalty of Rs. One Lakh or an amount equivalent of one day's fee receivable by the Authority, which ever is higher and may provide the Contractor another opportunity of continuing the Fee Collection. However, in no case, the Authority shall afford more than one opportunity to the Contractor.

(b) The Authority also, reserves the right to estimate the excess collection of fee made by the Contractor and recover the same, which will be over and above the penalty imposed and to be recovered from the Contractor.

(c) The termination under this clause shall make the Contractor liable for unconditional forfeiture of the Performance Security."

21. Under the terms of the contract, performance guarantee could have been forfeited on two counts (i) against any loss or damage caused to the property of the authority by any act or omission by the Contractor or its agents; (ii) failure on the part of the Contractor to perform/observe any of the covenants, conditions or provisions contained in the contract.

22. The arbitrator has returned a finding that no evidence has been brought on record to substantiate the damage or loss suffered by NHAI due to any act or omission or commission. In the absence of any such evidence, the forfeiture of performance guarantee under Clause 18 cannot be said to be justified.

23. Under sub-clause (ii) the performance security could also be forfeited in the event of default on the part for Contractor to perform and observe any of the conditions of the contract. The foundation for taking action against respondent and cancellation of contract is overcharging of user fee and investigation conducted by an independent agency which submitted a report of not only of overcharging but also of misbehaviour by the employees and harassment of the user by them.

24. Under clause 34 (2) the contract was liable to be cancelled not only for any breach of terms and conditions of the contract but also for any misconduct on the part of the contractor or his employees/staff/personnel or for overcharging of fee from a user or for harassment of any user.

25. It may be relevant to extract following paragraphs from the notice of termination :

"And whereas the overcharging by you from the users of the said stretch of National Highway is established from the documents on record. The fact that you have also disputed the genuineness of the receipts which have been issued at the toll plaza during the on field investigation conducted by an independent investigation agency confirms that you are in full knowledge of issue of the alleged fake and fabricated receipts and have also been submitting wrong information to the Project Director."

"And whereas besides complaints of overcharging, it had also been alleged that the users of the said stretch of National Highway are being misbehaved with the harassed at the Toll Plaza. In fact, in your replies also you have not specifically denied the said allegation levelled against you. Your assurance that the same shall not be repeated itself is an admission on your part of the allegation levelled. The harassment of the users is also confirmed by the independent investigation agency."

"And whereas in the premises and upon consideration of all the material on record and in the facts and circumstances of the case, the Authority is satisfied that you have charged fee in excess than the prescribed rates under the Contract and the users are being subject to harassment. Your aforesaid acts amount to breach of the provisions of the Contract and makes you liable for action under the provisions of Clause 18 and sub-clause (2) of Clause 34 of the Contract."

26. Again one of the foundation for taking action under clause 18 and 34 (2) is charging of fee in excess of the prescribed rate. The arbitrator found that in the absence of any evidence concerning the charge of excess fee, the performance security cannot be forfeited.

27. With regard to misbehaviour by the employees with users of the Toll Plaza, an adverse inference was drawn against the contractor since he has mentioned in the reply that he was not aware of the same and if the same exists it could be rectified in future. This formed the sole basis for coming to the conclusion that the allegations in this regard are acceptable to the Contractor. The arbitrator rightly held that it did not amount to any admission of the allegations and per se cannot be a ground for initiating action for termination of the contract. Nothing has been brought to our knowledge that except for the above, there existed any other material either before the NHAI or brought on record of arbitration proceedings to take a contrary view. Thus, again we find no flaw with the finding returned by the arbitrator.

28. The next question which arises for consideration is invocation of bank guarantee. The bank guarantee in the prescribed format for a sum of Rs. 1,43,87,651/- was furnished under clause 17 of the Contract. The Bank guarantee was against any loss or damage caused to or suffered or would be caused or suffered by reason of breach by the said Contractor by any of the terms and conditions contained in the said contract. In the notice/order dated 14.11.2006 terminating the contract, there is absolutely no reference of invocation of bank guarantee due to loss or damage suffered or caused on account of any breach by the contractor. What has been mentioned in the subsequent order dated 15.11.2006 by which the bank guarantee was enforced reads as under :

"That the undersigned being the Project Director of NHAI hereby invokes the aforesaid Bank Guarantee for and on behalf of NHAI claiming the amount mentioned in the Bank Guarantee on account of the loss and/or damage caused to or would be caused to or suffered by NHAI due to the breach of the terms and conditions by the Contractor contained in the contract."

29. As language itself goes to show that there is no allegation about loss or damage caused to or suffered but merely phraseology in the contract of bank guarantee has been repeated. There was no plea as to loss or damage set up by NHAI. In this regard also, the arbitrator has returned a finding that in the absence of any evidence in regard to actual loss or damage caused, merely use of phraseology of the agreement, NHAI cannot justify the action of enforcing bank guarantee.

30. The forfeiture of performance security and enforcement of the bank guarantee has to be in accordance with the terms of contract between the parties and in order to validate the action there must be evidence justifying such violation. The arbitrator has clearly recorded a finding that NHAI failed to bring on record any evidence to substantiate the violation of the contract so as to justify the forfeiture of performance security and enforcement of the bank guarantee. Nothing has been pointed out to us to the contrary to vitiate the finding. In case the report of the alleged independent agency regarding overcharging and misbehaviours and harassment of users at toll plaza was not proved in accordance with law, it was inadmissible in evidence and the arbitrator rightly did not place any reliance on the same. Further, in view of the finding that no evidence was led by NHAI to establish the loss actually suffered by it, the conclusion by the arbitrator that forfeiture of performance guarantee and invocation of bank guarantee cannot be held to be justified cannot be faulted with.

31. The argument advanced on behalf of the appellant that the arbitrator entered into the validity of the contract hence exceeded its jurisdiction as it was not within the realm of the arbitration proceedings in view of the judgment of the Hon'ble Apex Court is without any force. From a perusal of award, we find that arbitrator himself was conscious of the fact that the validity of the termination of the contract between the parties was not the terms of reference and he himself observed that validity of the termination order cannot be gone into by him. On further perusal of the award, we find that he has actually not entered into question of termination of contract and the observation made by him that in order to adjudicate upon the terms of reference i. e. forfeiture of performance security and invocation of bank guarantee, it was necessary to find out the genuine link between the reasons for termination of the contract and the consequential action taken are superfluous and have no adverse effect since he factually and actually did not enter into the validity of the termination of contract.

32. The second argument raised by the appellant was that award is against "Public Policy of India". Under Clause (ii) of sub-section 34, the Court can set aside the award if it is conflict with the "Public Policy of India". The phrase "Public Policy of India" is not defined under the Act., The said term is to be given meaning in the context and also considering the purpose of the section and scheme of the Act. It has been repeatedly stated by various authorities that expression 'public policy' does not admit of precise definition and may very from generation to generation and from time to time.

33. Hon'ble Supreme Court had occasioned to consider the phrase "Public Policy of India" in the case of Oil and Natural Gas Corporation Ltd. Vs. SAW Pipes Ltd., AIR 2003 SC 2629 : (2003) 2 ARBLR 5 : (2003) 3 CompLJ 1 : (2003) 4 JT 171 : (2003) 4 SCALE 92 : (2003) 5 SCC 705 : (2003) 44 SCL 89 : (2003) 3 SCR 691 : (2003) 2 UJ 1035 , wherein it has been observed as under :

"30. 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's case (supra) it is required to be held that the award could be set aside if it is patently illegal. 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."

34. In the objection filed by the appellant though it has been stated that award is opposed to public policy of India but it failed to demonstrate that as to how and in what manner it was against the public policy of India or against the fundamental policy of Indian law. There existed no material whatsoever to establish that it was in violation of any public law or was injurious or harmful to public good or public interest or patently illegal in any manner. In the absence of any facts and circumstances justifying that the award was against the public policy of India or against the fundamental policy of Indian law or injurious or harmful to public good or patently illegal or against legal provisions, a mere objection to the effect in the pleading has rightly been found by the District Judge to be baseless and not established and we do not find any illegality or error in the said finding.

35. Arbitration is intended to be a faster and less expensive alternative to the courts. If this is the intention and expectation then the finality of arbitral award assumes much importance. The remedy provided under Section 34 of the 1996 Act is in no sense an appeal. In the case of P.R. Shah, Shares and Stock Broker (P) Ltd. Vs. B.H.H. Securities (P) Ltd. and Others, AIR 2012 SC 1866 : (2011) 4 ARBLR 128 : (2011) 12 JT 290 : (2012) 4 RCR(Civil) 379 : (2011) 11 SCALE 668 : (2012) 1 SCC 594 : (2012) AIRSCW 2317 : (2011) 7 Supreme 249 it has been held by Hon'ble Apex Court that a court does not sit in appeal over the award of an arbitral tribunal by reassessing or re-appreciating the evidence and an award can be challenged only upon grounds mentioned under Section 34 (2) of the 1996 Act and in the absence of any such ground it is not possible to re-examine the facts to find out whether a different decision can be arrived at. The legal position is no longer res integra that the arbitrator having made final arbiter of resolution of dispute between the parties, the award is not open to challenge on the ground that arbitrator has reached a wrong conclusion.

36. From the above facts and discussions, none of the contentions raised on behalf of the appellant constitute a challenge to the arbitral award on the grounds permitted. Thus, the District Judge committed no error or illegality in rejecting the application made by the appellant under Section 34 of the 1996 Act.

37. We, accordingly, do not find any merit in this appeal and the same accordingly stands dismissed in limine. However, there shall be no order as to cost.

Pratyush Kumar, J.

38. I agree with the opinion recorded by my senior brother and I arrived at the same conclusion that the instant appeal is devoid of merits and deserves to be dismissed but before parting I would like to add some reasons in support of the conclusion arrived at by us.

39. The factual matrix giving rise to the present appeal and contentions raised by the counsel for the parties, have been lucidly placed on record by my senior brother and I need not repeat the exercise. Thence, I proceed to the areas which require deliberation to resolve all aspects of the present controversy.

40. Three clauses namely 25, 26 and 35 of the contract bear relevance to the present purpose, for the sake of ready reference they are quoted as below:--

"25. Matters non-arbitrable:--Any disputes or differences between the parties in regard to the matters covered under Clauses 3,7,8, 10, 14, 18 and 19 shall be referred to the Project Director of the Authority, Project implementation Unit/Gwalior (M.P.) whose decision shall be final.

26. Arbitration:--

(a) All disputes and/or difference except those which are mentioned in the matters non-arbitrable under Clause 25 above arising between the parties out of this Contract shall be settled by Arbitration under and in accordance with the provisions of the Arbitration and Conciliation Act, 1996. The Chairman of the Authority or his nominee shall be the sole Arbitrator. The award made and published in pursuance of such Arbitration proceedings shall be final and binding on both the parties.

(b) The proceedings of the Arbitration shall be held in English language and shall be held at such place as may be decided by the Chairman of the Authority or his nominee. The award of the Arbitration shall be final and binding on both the parties to the Contract.

(c) Pending resolution of any dispute pursuant to Arbitration, under all circumstances the Contractor shall continue to remit the agreed instalments of money to the Authority as prescribed in this contract including when the dispute is about the amount to be remitted.

35. Decision of Project Director: Final and Binding:--

Except where otherwise provided or specified in this Contract and subject also to such powers as may be delegated by the Central Government to any of the specific official of the Authority from time to time, any decision of the Project Director of the Authority on all questions and matters whatsoever arising out of or in relation to or in connection with this Contract or as to the interpretation of any of its conditions whether during the subsistence of this Contract or at any time thereafter, shall be final and binding on the parties to this Contract."

41. Clause 18 authorises the appellant to forfeit for performance security furnished by the respondent in pursuance of Clause 17 (a) and further authorises to forfeit the same in its sole discretion vide Clause 17(c)(i) & (ii) of the contract.

42. Clause 34 of the contract provides for termination of the contract by the appellant. Its sub-clause 2 further provides that the appellant may terminate the contract on the ground inter-alia for overcharging of fee from a user, or for harassment of any user.

43. It is the case of the appellant that for this reason, contract was terminated vide order dated 14.11.2006 and on the next day performance security was forfeited and bank guarantee was enforced.

44. The Hon'ble Apex Court vide its order dated 18th July, 2008 quoted hereinbefore, on the strength of joint submission of the counsel for the parties referred the matter for arbitration. This order was clarified by the Hon'ble Apex Court vide order dated 12th May, 2009, quoted herein-before by my senior brother that only the disputes relating to forfeiture of the performance security and enforcement of performance bank guarantee shall be referred for arbitration. The arbitrator can only proceed with two disputes and no other dispute.

45. Clause 25 of the contract expressly excludes any disputes or differences between the parties in regard to the matters covered under clause 18, from the applicability of clause 26 and makes them non-arbitrable and only referable to the Project Director, whose decision is to be final and binding on the parties under clause 35.

46. Here the question arises whether the dispute expressly made non- arbitrable by the contract, if referred by the Court for arbitration, would become arbitrable.

47. Bench of seven judges of the Hon'ble The Apex Court in the case of S.B.P. and Co. Vs. Patel Engineering Ltd. and Another, AIR 2006 SC 450 : (2005) 3 ARBLR 285 : (2005) 128 CompCas 465 : (2006) 2 CompLJ 7 : (2005) 5 CTC 302 : (2005) 9 JT 219 : (2005) 9 SCALE 1 : (2005) 8 SCC 618 : (2006) 1 UJ 156 : (2005) AIRSCW 5932 : (2005) 7 Supreme 610 while discussing scope of excise of such power has observed the following:--

"47. (iv) The Chief Justice or the Designated Judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. These will be his own jurisdiction to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators."

48. The Hon'ble Apex Court in the same judgement has dealt with the issue of competence of the arbitrator to rule upon its own jurisdiction and about the existence of arbitration clause under Section 16 of the 1996 Act. Relevant paras are quoted hereinbelow:--

"12. ......We are inclined to the view that the decision of the Chief Justice on the issue of jurisdiction and the existence of a valid arbitration agreement would be binding on the parties when the matter goes to the Arbitral Tribunal.....

20. Section 16 is said to be the recognition of the principle of Mompetenz Kompetenz. The fact that the Arbitral Tribunal has the competence to rule on its own jurisdiction and to define the contours of its jurisdiction, only means that when such issues arise before it, the Tribunal can, and possibly, ought to decide them. This can happen when the parties have gone to the Arbitral Tribunal without recourse to Section 8 or 11 of the Act. But where the jurisdictional issues are decided under these sections, before a reference is made, Section 16 cannot be held to empower the Arbitral Tribunal to ignore the decision given by the judicial authority or the Chief Justice before the reference to it was made. The competence to decide does not enable the Arbitral Tribunal to get over the finality conferred on an order passed prior to its entering upon the reference by the very statute that creates it. That is the position arising out of Section 11(7) of the Act read with Section 16 thereof. The finality given to the order of the Chief Justice on the matters within his competence under Section 11 of the Act, are incapable of being reopened before the Arbitral Tribunal."

49. In view of above, in nutshell, the arbitrator in the present matter had jurisdiction only to adjudicate two disputes as clarified by the Hon'ble Apex Court vide order dated 12.5.2009. Section 16(1) of the 1996 Act cannot be pressed into service by the arbitrator to enlarge the jurisdiction of the reference, arguments of the respondent contrary to it stands rejected.

50. Now according to the appellant's counsel the arbitrator had either no jurisdiction to examine the legality/existence of bonafide reason to terminate the contract under clause 34(2) of the contract or hold that forfeiture of performance security and resultantly enforcement of bank guarantee were unjustified.

51. We both individually have formed our opinions that the above ground is misconceived and without substance. Broadly speaking reasons given by senior brother are substantial and convincing but while delving upon the reasons, I find that the above ground though on the face of it is formidable but it has no substance. To elaborate my reasons first. I would like to refer clause 25 & 26 of the contract. Before joint submission these clauses as they stood then two disputes referred by the Hon'ble Apex Court vide orders dated 18.7.2008 and 12.5.2009 were non-arbitrable and termination of the contract was subject to arbitration.

52. The ground taken by the appellant is of diametrically opposed to the terms of the arbitration agreement arrived at between the parties. Thus there is need to further probe the matter. It look me to the joint submission made by the counsel for the parties before the Hon'ble Apex Court forming part of the order dated 18.7.2008. While taking into consideration its implications in the light of provisions contained in section 62 of the Contract Act. I find a substantial reason for such reference by the Hon'ble Apex Court. The section 62 of the Contract Act reads as under:--

"62. If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed."

53. In regard to applicability of section 62 of the Contract Act there is precondition that contract must be subsisting only then it can be substituted or modified. In the matter in hand main contract has been terminated on 14.11.2006. Under the old Arbitration Act, 1940 no novation or modification would have been possible but under the 1996 Act situation stands changed.

54. It is well settled that the arbitration clause of the contract under section 16 of the 1996 Act has been given status of an agreement independent of the main contract. It is also well settled that though such arbitration agreement may be part of the main contract, which stood terminated when the arbitration clause is invoked by any party, having its independent status it will survive and remain operative. The Hon'ble Apex Court in the case of Bharat Petroleum Corporation Ltd. Vs. The Great Eastern Shipping Co. Ltd., AIR 2008 SC 357 : (2007) 4 ARBLR 55 : (2008) 2 CLT 175 : (2007) 12 JT 76 : (2007) 12 SCALE 247 : (2008) 1 SCC 503 : (2007) 11 SCR 117 : (2007) AIRSCW 6945 : (2007) 7 Supreme 628 has made similar observation to this effect. Therefore, after termination of the contract, vide order dated 14.11.2006, when the Hon'ble Apex Court has passed its orders dated 18th July, 2008 and 12th May, 2009 the arbitration agreement will be deemed to be subsisting.

55. It is also well settled that the terms of the subsisting agreement, contract can be modified or altered by the mutual consent of the parties, provided there is consideration for both. This view gets forfeited from the conclusion drawn by the court of appeal in the case of Williams v. Roffey Bros. & Nicholls (Contractors) Ltd. 1990 (1) All ER or the All England Law Reports - 512 and the principle laid by the Calcutta High Court in the case of Lachmi Narayan Jute Manufacturing Co. Ltd. Vs. Dwip Narayan Singh, AIR 1956 Cal 65 : 59 CWN 1095 : (1957) 2 ILR (Cal) 916 , where the Calcutta High Court had dealt with the issue whether the alterations or modifications to the contract would have the effect to rescind the contract under section 62 of the Contract Act or whether it would not have such an effect. Paras 14 and 15 of the judgment in this regard are very illuminating, they read as under:--

"14. In the present case the modifications do not go to the very root of the first contract and do not change its essential character. The facts do not warrant the inference that the parties intended to rescind the contract, dated 10.8.1950. The April arrangement was entered into in response to pressing-demands for delivery under that contract and with a view to implement it. The arrangement has no independent contractual force, no meaning and content separately from and independently of the original contract."

"15. The effect of the alterations or modifications is that there is a new arrangement; in the language of Viscount Haldane in 1918 A.C. 1 at p.17 (A),

"a new contract containing as an entirety the old terms together with and as modified by the new terms incorporated."

56. The modifications are read into and become part and parcel of the original contract. The original terms also continue to be part of the contract and are not rescinded and/or superseded except in so far as they are inconsistent with the modifications. Those of the original terms which cannot make sense when read with the alterations must be rejected. In my view the arbitration clause in this case is in no way inconsistent with the subsequent modifications and continues to subsist.

57. In view of above, I considered the joint submission made before the Hon'ble Apex Court on 18.7.2008, it fulfils the precondition that at the time of modification the arbitration agreement was subsisting and it has been reduced to writing itself by the Hon'ble Apex Court. The only point requires deliberation is existence of consideration for the parties.

58. In the present case the appellant benefited, on the strength of the joint statement, by way of abandonment by the respondent his challenge to validity of termination of the contract and the respondent had the advantage of removal of bar of non-arbitrability of disputes arising out of clause 18 of the contract. Therefore, both the parties made modification for consideration.

59. After coming to this conclusion there remains no doubt that the disputes which were referred to the arbitrator by the Hon'ble Apex Court, were within the jurisdiction of the arbitrator and argument advanced on behalf of the appellant that the arbitrator had arbitrated on non-arbitrable matters appear to be without substance.

60. The other argument advanced by the learned counsel for the appellant that only disputes regarding forfeiture of the performance security and enforcement of bank guarantee were referred to the arbitrator and he was injuncted from arbitrating disputes other than those, therefore, he travelled beyond his jurisdiction when he entered into the reasons which led to the termination of the contract by the appellant.

61. Superficially this argument is attractive but when it is examined in the light of the terms of the contract, it transpires that clause 34 which empowered the appellant to terminate the contract, is not excluded from arbitration. Though original clause 25, containing the list of non-arbitrable matters clause excludes from arbitration, dispute of forfeiture of performance security.

62. After modification in arbitration agreement any terms inconsistent in the contract with the modification stand in operative so far as they still survive for the limited purpose of resolution of the disputes arising therefrom. Clause 34 does not bar arbitration in reference to disputes arising from termination of contract bar of non-arbitrability of disputes arising from clause 18 has been removed therefore but for order dated 12.5.2009 there remains no ground available to the appellant to object regarding arbitrability of termination of the contract vide communication dated 14.11.2006.

63. The arbitrator treated this dispute a closed matter and refrained himself to adjudicate upon it. However termination of the contract und

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er clause 34(2) had a direct nexus with sub-clause (c) of clause 18. Admittedly the arbitrator was required to arbitrate whether forfeiture of security was justified or not. If one were to examine this issue it has to seen whether forfeiture of performance security was rightly made under clause 18(c) or not. 64. The arbitrator rightly ruled his jurisdiction that though validity of termination of the contract and consequences arising therefrom were outside his scope but in order to arbitrate on the disputes referred to him to a limited extent i.e., validity of forfeiture of performance security and enforcement of bank guarantee he had to examine what culminated into termination of the contract. This course convinces me that the arbitrator did not arbitrate on termination of the contract as dispute but only for collateral purpose he had examined the reasons leading thereto. 65. Exercise undertaken by the arbitrator is a permissible one, this can be ascertained by other angle also to wit, had the termination order being simplicitor one the arbitrator would not have jurisdiction to enquire the reasons which were foundation of the termination of the contract. Thus, in the present context, reasons which led to the termination of the contract had such a nexus with the forfeiture of the performance security and enforcement of bank guarantee these two disputes could not be separated or dealt with in isolation. As the Hon'ble Apex Court has held in SBP and Company's case (supra), the arbitrator has the power to rule its jurisdiction provided he does not travel beyond the terms of the contract. In the present case, the arbitrator has not travelled beyond the terms and conditions of the contract and he has not adjudicated the matter which may be called i.e. 'excepted matter'. 66. The view formed by me and expressed hereinabove would have been acceptable without any demur but for the negative mandate contained in clarification order dated 12th May, 2009 of the Hon'ble Apex Court which compels me to deliberate further as to whether the said injunction was meant to be operative not for arbitrating any other dispute and giving an award thereon. Here the arbitrator very conscious of the limits prescribed for arbitration and within which he was required to carry out the arbitration proceeding, he took pains to clarify that existence of bonafide reasons to invoke power to terminate the contract under clause 34(2) of the Contract is necessary. There is no quarrel that administrative discretion is exercised on the basis of subjective satisfaction. Even then it is the subject to scrutiny whether it has been passed on extraneous reasons or on the basis of relevant material. The arbitrator under a well settled permissible way had scrutinized the said question. This exercise being collateral to the adjudication of the two disputes referred him did not amount to violation of injunction contained in order dated 12.5.2009. Why I am treating it to be collateral, is also required to be explained. Had the arbitrator set aside the termination order or directed the appellant to compensate him for the damages caused to the appellant for rest of the period of the contract during which the respondent could not collect the tolls in pursuance of the contract, the exercise undertaken by the arbitrator would have been in violation of the reference order but for deciding other controversies examination of the reasons leading to termination of the contract can safely be called a collateral exercise. 67. During the fag end of his arguments, learned counsel for the appellant submitted that the arbitrator had given the award in violation of provisions contained in section 74 of the Contract Act of 1872, therefore, it is in conflict with the public policy of India. He further submitted that the arbitrator had erred in law to hold that the appellant failed to prove actual loss or damage to justify forfeiture of performance security. According to the learned counsel in section 74, it is provided that the actual loss or damage needs not be proved. 68. This argument stands suitably replied for in the leading case of Fateh Chand Vs. Balkishan Das, AIR 1963 SC 1405 : (1964) 1 SCR 515 , where the Hon'ble Apex Court has observed that the section on the undoubtedly says that the aggrieved party is entitled to receive compensation from the party, who has broken the contract whether or not actual damage or loss is proved to have been caused by the breach. According to the Apex Court, it merely dispenses with the proof of "actual loss or damage", it does not justify the award of compensation when in consequence of the breach no legal injury at all has resulted because compensation for breach of contract can be awarded to make good loss or damage which naturally arose in the usual course of things or which the parties knew when they made the contract to be likely to result from the breach. 69. In view of the observation of the Hon'ble Apex Court, I feel this ground also lacks merit and deserves to be rejected. 70. Therefore, I think the learned arbitrator was within his jurisdiction when he examined the existence of bonafide reasons on the basis of which termination order dated 14th November 2006 was passed by the appellant by invoking clause 34(2) of the contract. As my senior brother has observed no fault can be found with the award as provided in Section 34 (2) of the 1996 Act, the appeal fails and is, hereby, dismissed.
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