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Nicco Corporation Ltd. v/s Simplex Infrastructure Ltd.

    A.P.O. No.321 of 2010, G.A. 2529 of 2010 & A.P. 705 of 2009

    Decided On, 19 May 2011

    At, High Court of Judicature at Calcutta


    For the Appearing Parties: --------

Judgment Text

K.J. Sengupta, J.

1. The instant appeal has been preferred against the judgment and order of the learned single Judge dated 23rd June 2010 whereby and whereunder the appellant’s application under Section 34 of Arbitration and Conciliation, 1996(hereunder referred to as the said Act), has been rejected. The said application under Section 34 of the said Act, was made challenging the award passed by the learned Sole Arbitrator dated 4th September 2009.

The short fact leading to filing of this application is set out hereunder:

The appellant above-named entered into a contract with one M/s. Ciaren Energy Pvt. Ltd, (hereinafter principal Contractor) for construction of a 79 meter diameter double deck floating roof crude oil storage tank at Ravva in the state of Andhra Pradesh., the said contract was awarded on 5th September 2000, however formal documentation was executed on 16th October 2000 (hereinafter principal Contract). Thence the appellant in its turn awarded to the respondent Simplex Infrastructure Ltd. a sub-contract for installation of granular pile foundation, tank pad and associated works. On negotiation between the parties the terms and conditions were finalized and incorporated in the minutes of meeting held on 19th September 2000. Following the same a Letter of Intent (LoI) was issued on 19th /21st September 2000. The said LoI provided total lump sum value of the contract would be 2,85,00,000/-. Shortly after issuance of the said LoI respondent was asked to start work, pending execution of formal work order which was issued on 18th February 2001. In the LoI it was stipulated that time of completion had been agreed as four months which may be extended by another 15 days.

Thereafter, the claimant/respondent completed the works of installation of the stone column including the initial testing. Thereafter final testing was done on 24th September 2001 preceded by routine testing done on 4th July 2001. On phase-wise completion of the works, from time to time bills were raised and payments were also made accordingly. However, at the time of final payment the appellant herein deducted a sum of Rs. 28,50,000/- on account of liquidated damages from the respondent’s dues. Hence, disputes and difference arose between the parties at the time of final settlement of accounts between them. In terms of the agreement the appellant herein had appointed the learned Arbitrator for adjudication and resolution of the disputes between the parties. The parties herein filed their respective pleadings before the learned Arbitrator and made their respective claims therein. The respondent/ claimant in its statement of claim claimed an aggregate sum of Rs. 83,90,662.00 on various heads of claims including the said deducted amount of Rs. 28,50,000/-. The claimant/respondent also claimed interest at the rate of 18 per cent per annum and the cost of the arbitration. In the counter-statement the appellant herein apart from defending and contesting the claims made by the respondent/claimant, had also made counter-claim aggregating to Rs. 5,30,33,900/-. The said claim was made on two counts, one of them is the amount of Rs.3,50,00,000/-withheld by their principal employer in terms of the principal contract on account of damages imposed upon them because of loss of goodwill and reputation and loss of business.

The learned Arbitrator thereafter invited the parities to adduce evidence either by witness action or by filing documentary evidence. On receipt of the same the learned Arbitrator held as many as 60 sittings. After considering the claim and contention and rival claim and contention and taking into consideration the evidence adduced by the parties mutually and reading the terms and conditions of the contract and LoI awarded a sum of Rs. 5,77,9700 out of the claim of Rs. 83,90,662/- and the same was directed to be paid within 60 days from the date of award failing which the appellant herein had to pay interest at the rate of 12 per cent per annum from the date of the award on a sum of Rs. 34,80,000/- from the date of the award till date of payment or realization. The counter-claims put forward by the appellant herein was rejected as the learned Arbitrator has found that there was no foundation or basis for the respondent to make such claim. It was observed by the learned Arbitrator the said counterclaim was farfetched, vague and speculative. It appears from the records that almost at the end of arbitration sitting an application under Section 16 of the said Act was made by the appellant herein contending that there exists no arbitration agreement and Arbitrator had no jurisdiction to proceed or to pass award. The learned Arbitrator rejected the said application holding that there has been valid arbitration agreement hence the said application under Section 16 of the said Act was misconceived and afterthought.

The challenge to the said award essentially was on the following grounds:

(a) Award is contrary to the contract.

(b) There has been gross violation of principle of natural justice in the arbitrator coming to conclusions not on the basis of the case made out by the respondent or on the material brought by the parties before him;

(c) That the respondent had rendered the reference nugatory by submitting that parties were governed by LoI dated September 19,2000 not by the work order/agreement dated 8th February 2001.

(d) The learned Arbitrator without considering properly the plea raised by the appellant under Section 16 of the said Act.

Mr. Abhrajit Mitra learned Counsel for the appellant while assailing the said judgment and order of the learned Trial judge submits that though the learned Trial Judge has noted in detail the points urged by the appellant that the award has been passed in breach of principle of natural justice and also contrary to law, there has been no finding as to why the aforesaid grounds taken by the petitioner are not tenable. No reason has been reflected in the impugned judgment on the issues as follows:

(i) Whether an arbitration clause in agreement survives, even after the agreement is held by the learned Arbitrator to be impossible to perform and such impossibility is preexisting.

(ii) When a party disputes or disowns an arbitration agreement, the same party cannot rely on the same arbitration agreement for claiming an award in an arbitral reference.

(iii) Whether an award rendered not on the basis of the case made out by the parties or on the material brought by the parties is in breach of natural justice and liable to be set aside.

(iv) Whether the award is contrary to the said work order and especially the liquidated damages clause being clause 15.0 read with clause 14.0 at page 138 and 139 of the Paper Book and if so whether award is hit by Section 28 sub-section (3) of the said Act.

The appellant herein cited several judgments of High Courts and Supreme Court before the learned Trial Judge, though the same were noted in the judgment and the same were neither considered nor discussed at all. In fact there has been no finding as to why those judgments are not applicable in the present case.

Mr. Goutam Chakraborty, learned Senior Advocate appearing for the respondent, Simplex supports the award of the learned Arbitrator as well as the judgment of the learned Trial Judge. His contention is that the challenge to the said award has rightly been rejected and the said award does not suffer from any illegality or infirmity.

He submits that the contention of the appellant must fail as the same being wholly incorrect for the following reasons:

(a) The parties all along intended both the LoI and the work order would be treated as one cohesive agreement. Even in the LoI it was clearly written that the work order would follow immediately.

(b) The work order itself is based on the letter of intent only and incorporates virtually the same terms save and except liquidated damages.

(c) The Arbitrator himself had clearly spelt out in his award that the LoI did not say that four months time should run from September 19, 2000 when the LoI was being issued. It only provided that work of mobilization should start. The appellant knew very well that 75% of the work site was still to be filled up.

(d) There is adequate evidence in the statement of claim and the counter statement of claim that the parties all along accepted and admitted the fact there was a subsisting contract.

(e) The appellant itself accepted the contract and allowed the contract to be completed because admittedly the respondent has completed the job as entrusted to it by the contract. Therefore, it is not open to the appellant now to turn around and to say otherwise.

(f) Furthermore at no point of time the appellant has denied the existence of the agreement between the parties and therefore, the arbitration agreement is deemed to be in writing and subsisting as stated in 74(C) in the Arbitration & Conciliation Act 1996.

(g) It is true going by the records learned Counsel for the respondent contended, that there was no agreement between the parties but such contention was not accepted by the learned Arbitrator with reasons. Recording of contention and submission in the minutes of the several sittings of the arbitrator are of no consequence because all such observation have merged in the award and there is specific finding in the award to the effect that there is a contract and/or agreement by and between the parties. It is incorrect to contend Section 16 application was not considered by the learned Arbitrator. In paragraph 18 of the award the Arbitrator clearly ruled that such an application was made on the last date of the arbitration proceedings and it was rejected upon hearing.

He contends further that submission made by the appellant relates to question of evidence and factual aspect and the same cannot be reopened in an application for setting aside the award.

He reminded us the legal principle when an award can be interfered by the Court under Section 34 of Arbitration & Conciliation Act, 1996 with the support of a decision of the Supreme Court reported in (2003) 5 SCC 705.

He advances legal submission referring to the above decision that award can be set aside only when it is patently illegal and such illegality goes to the root of the matter and the award was unfair and unreasonable. In view of this position of law and the fact recorded by the learned Trial Judge as well as the learned Arbitrator there is no merit in the appeal and the same shall be dismissed.

We have heard the respective contention of the learned counsel for the parties and we have gone through the papers placed before us. The controversy in this appeal is as to whether the learned Trial Judge is justified in upholding the award passed by the learned Arbitrator within the jurisdiction exercisable under Section 34 of the Arbitration Act 1996. To what extent the Court can go to scrutinize the award passed under 1996 Act, has been illustrated in the decision of the Supreme Court in case of Oil and Natural Gas Commission Limited v. Simplex Private Limited reported in 2003 (5) SCC 705.

In the said authoritative pronouncement it is ruled that an award can be set aside only if it is patently illegal and such illegality goes to the root of the matter, and award was so unfair and unreasonable that it shocks the conscience of the Court.

Keeping in view of the aforesaid note of caution by the Supreme Court we are to examine this award as well as the judgment of the learned Trial Judge. It has been urged that the learned Arbitrator has passed the award without having any existence of the arbitration agreement. We are unable to accept this contention for the simple reason admittedly, the appellant itself has nominated and/or appointed learned Arbitrator for adjudication of the dispute and this arbitration agreement could be found in the contract which was executed before letter of intent was issued. Moreover, both the parties have filed their respective pleading before the learned Arbitrator making claim and counter claim without any reservation whatsoever. Even if it is assumed that in the agreement there has been no arbitration clause still then by virtue of the definition of Section 7(4)(c) of the Arbitration and Conciliation Act 1996 which is set out hereunder, the parties are deemed to have entered into arbitration agreement.

'Section 7(4)(c) – an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.'

It appears that the plea of existence of the arbitration agreement was raised by a separate application on the last date of the sitting of the arbitration hen arbitration was over. The learned Arbitrator in the award itself has rightly rejected such application with reasons which are acceptable under any circumstances.

We, therefore, do not find any force in the plea of nonexistence of the arbitration agreement. We are unable to accept the contention of the learned counsel for the appellant that learned Arbitrator has passed any portion of the award without any material or evidence. We have gone through the respective pleadings filed before the learned Arbitrator, and we have had the advantage of going through the most well reasoned and extremely well written award. It appears that learned Arbitrator has with full and clear application of mind addressed to the each and every issues. The preliminary issue raised before the learned Arbitrator with regard to the deduction and/or withholding of a sum of Rs.28,50,000/- on account of liquidated damages. Learned Arbitrator found upon interpretation of all the documents that the contract has to be read with the issuance of letter of intent followed by work orders and contract. Learned Arbitrator rejected the contention in the premise that the said clause of liquidated damages was not part and parcel of the contract but on factual score the learned Arbitrator found on considering argument of both the sides that such clause could not have been made applicable on account of delay. The plea of delay in execution of the work has been waived as delay occurred in completion of the work because of non-performance on the part of the appellant. On analysis of evidence and appreciation of fact when the learned Arbitrator concluded as above the Court within the province of Section 34 of the said Act cann

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ot write differently. It is settled position of law that the learned Arbitrator is the final arbiter of fact and interpretation of terms of contract, and also on interpretation of law unless it is patently absurd. The following are the authorities to support our above views: (2007) 2 Arb.L.R. 508 (Cal) at 516-518 (2010) 11 SCC 296. The learned Arbitrator has found on fact that the site in question was not delivered within the time hence plea of delay could not be allowed to be taken by the appellant. Accordingly, there was no justification to withhold the said liquidated damages on the one hand and further to put forward counter claim on account of the delay or liquidated damages said to have been suffered at the hands of the principal contractor. Learned Arbitrator has allowed the claim of the claimant of Rs.28,50,000/- which was wrongfully withheld, and further amount of Rs.57,59,700/- out of aggregate claim of Rs.83,30,662.00/-. It would be unjust to accept the contention that the learned Trial Judge did not deal with those issues. We have gone through the impugned judgment of the learned Trial Judge and learned Trial Judge has noted each and every point raised before His Lordship, and discussed the same in the way the learned Trial Judge could do best. The learned Trial Judge has gone through the award very minutely and found there is no infirmity or illegality within the scope of Section 34 of the Arbitration Act. Therefore, we do not find any merit in this appeal and the same is accordingly dismissed. There will be no order as to costs.