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IN THE HIGH COURT AT CALCUTTA
SOUMEN SEN, J.
MBL Infrastructures Ltd. - Petitioner
Vs.
Ircon International Ltd. - Respondent
A.P. 923 of 2015
Decided On : 19-12-2016
ARBITRATION - Setting aside of award - Grounds - Public policy of India - Fundamental Policy of Indian Law - Compliance with statutes and judicial precedents - Arbitral tribunal bound to show fidelity to judicial approach - Arbitral tribunal not to act in an arbitrary, capricious or whimsical manner - Arbitral tribunal required to follow principles of natural justice - Audi alteram partem principle - Decision to be fair, reasonable and objective - Wednesbury reasonableness - Arbitral tribunal to decide in accordance with terms of contract - Construction of terms of contract primarily for arbitrator to decide - Arbitrator cannot wander outside contract and deals with matters not forming subject matter or allotted to him - Arbitrator's approach not arbitrary or capricious - Arbitrator is last word on facts - Award can be said to be against justice or morality only when it shocks conscience of Court - Patent Illegality - Contravention of substantive law of India or if award is based in contravention of Arbitration and Conciliation Act, 1996 - Contravention of terms of contract - Arbitrator must decide in accordance with terms of contract but if arbitrator construes term of contract in reasonable manner, it would not mean that award can be set aside on this ground - Construction of terms of contract is primarily for arbitrator to decide unless arbitrator construes contract in such way that it could be said to be something that no fair minded or reasonable person would do - Arbitrator cannot wander outside contract and deals with matters not forming subject matter or allotted to him as in that case he would commit jurisdictional error - Award based on little evidence or on evidence which does not measure up in quality to trained legal mind would not be held to be invalid on this score - Once it is found that arbitrators' approach is not arbitrary or capricious then he is last word on facts.
Fact of the Case:
Petitioner, a contractor, entered into a contract with the respondent, IRCON International Ltd., for earth work, GSB, WMM and other civil works between 129 KM. to 145 KM. on the National Highway-2 in Uttar Pradesh. Disputes arose with regard to performance of contract and IRCON claimed refund of mobilization advance, damages for breaches of contract, risk and cost expenses and further risk and cost. The petitioner raised issues of foreclosure of contract, mobilization advance not realizable and no loss and damage suffered by respondent. The arbitrator found no amicable foreclosure of contract, awarded refund of mobilization advance, allowed damages for abandonment and held that respondent had not suffered any loss and damage. The petitioner challenged the award on various grounds.
Finding of the Court:
The Court held that the award was not perverse or based on no evidence. The arbitrator had disbelieved that the petitioner's representative was not authorized to represent the company. The Measurement Book was the best evidence of the work executed under the Contract. The petitioner had abandoned the contract and the respondent had begun to construct the road itself. The petitioner's claim that it had amicably foreclosed its contract with the respondent was rejected. The arbitrator had arrived at a finding that there was not even any written record of formal acceptance by IRCON of the terms of the minutes of 29th April, 2002 including partial foreclosure of the contract with the respondent of Division II B- K.M. 138 to K.M. 145. The arbitrator had also recorded that only 2.65% work was executed by the petitioner. The arbitrator had declined to give damages on account of risk and cost until January, 2003 when the notice of 14 days required under Clause 63(1) of the Conditions of Contract was actually served upon the petitioner. The respondent had not been able to prove the exact amount of expenses incurred after the respondent's abandoned the work and for which it was entitled to reimbursement for the works executed by it under the Risk and Cost Clause. The petitioner had committed breaches of the terms and conditions of the contract with the respondent and the respondent was entitled to recover the amount of performance guarantee given by the petitioner.
Issues: Whether the award was perverse or based on no evidence; Whether the petitioner had amicably foreclosed its contract with the respondent; Whether the respondent had suffered any loss and damage; Whether the arbitrator had erred in law in quantifying damages.
Ratio Decidendi: The Court held that the award was not perverse or based on no evidence. The arbitrator had disbelieved that the petitioner's representative was not authorized to represent the company. The Measurement Book was the best evidence of the work executed under the Contract. The petitioner had abandoned the contract and the respondent had begun to construct the road itself. The petitioner's claim that it had amicably foreclosed its contract with the respondent was rejected. The arbitrator had arrived at a finding that there was not even any written record of formal acceptance by IRCON of the terms of the minutes of 29th April, 2002 including partial foreclosure of the contract with the respondent of Division II B- K.M. 138 to K.M. 145. The arbitrator had also recorded that only 2.65% work was executed by the petitioner. The arbitrator had declined to give damages on account of risk and cost until January, 2003 when the notice of 14 days required under Clause 63(1) of the Conditions of Contract was actually served upon the petitioner. The respondent had not been able to prove the exact amount of expenses incurred after the respondent's abandoned the work and for which it was entitled to reimbursement for the works executed by it under the Risk and Cost Clause. The petitioner had committed breaches of the terms and conditions of the contract with the respondent and the respondent was entitled to recover the amount of performance guarantee given by the petitioner.
Final Decision: The Court dismissed the petition and held that the award was valid and enforceable.
Soumen Sen, J.
This is an application for setting aside of an award under Section 34 of the Arbitration and Conciliation Act, 1996.
2. The respondent (IRCON International Ltd.) was awarded the contract by National Highway Authority of India (NHAI) for four laning and strengthening of the existing two lanes highway section from 115 KM. to 158 K.M. on the National Highway-2 in Uttar Pradesh.
3. The respondent entered into a contract with the petitioner for earth work, GSB, WMM and other civil works between 129 KM. to 145 KM. The original contract price was Rs.14,69,53,061/- and the same was subsequently reduced to Rs.10,76,96,821/-.
4. The petitioner as required under the contract had furnished three Bank Guarantees to the respondent as follows:-
i. Bank Guarantee dated 7th February, 2002 towards mobilization advance for Rs.73,47,654/-;
ii. Bank Guarantee dated 8th February, 2002 for Rs.4,77,598/- on account of interest towards the aforesaid mobilization advance;
iii. Bank Guarantee dated 28th December, 2001 for Rs.73,47,654/- towards performance guarantee;
5. The first two Bank Guarantees lapsed and so far as the third bank guarantee is concerned, by order of Court dated 17th November, 2003, an amount of Rs.73,47,654/- was deposited with the Registrar, Original Side, High Court, Calcutta.
6. The dispute arose with regard to the performance of the contract.
7. IRCON contended that the petitioner did not perform the contract. The petitioner had abandoned a part of the contract in the month of May, 2002 followed by abandonment in the rest of contract in the month of October, 2002. In view of failure to complete the work, IRCON issued risk and cost notice under Clause 63(1) of the contract on 20th January, 2003.
8. In the arbitration proceeding IRCON has claimed refund of mobilization advance towards unexecuted work quantified at Rs.71,33,261/- together with interest, damages for breaches of contract, risk and cost expenses under Clause 63(1) of the contract amounting to Rs.6.5 crores approximately and further risk and cost amounting to Rs.6.8 crores approximately.
9. The petitioner in the arbitration proceeding has principally raised three issues.
10. Firstly, there has been a foreclosure of contract whereby the parties have agreed to absolve themselves of all liabilities.
11. Secondly, the claim towards mobilization advance is not realizable in view of the agreement reached by and between the parties in a tripartite meeting held on 29th April, 2002.
12. Thirdly, since the principal employer of the respondent did not impose any liquidated damage for the execution of the work in the extended period and allowed escalation charges to the respondent, the respondent, in fact, had not suffered any loss and damage and, accordingly, no claim on account of damages could be awarded in favour of the claimant/respondent.
13. The arbitrator considered each of the issues in his own inimitable style. The arbitrator has come to a finding that there has been no amicable foreclosure of the contract and, accordingly, the contention of the petitioner that by reason of amicable foreclosure, no amount is due and payable either on account of mobilization advance or otherwise is not sustainable.
14. The arbitrator has relied upon the measurement book duly signed by the parties from which it would appear that only 2.65% of the work executed by the petitioner and after adjustment has awarded the refund of mobilization advance for a sum of Rs.71,33,261/- together with interest.
15. The claimant on account of damages suffered due to the abandonment by the petitioner was allowed on the ground that the petitioner has committed breach of contract and it is irrelevant whether the principal employer has allowed the claim towards escalation charges or did not levy liquidated damage.
16. Mr. Abhrajit Mitra, the learned Senior Counsel appearing on behalf of the petitioner submits that with the introduction of a third party, namely, M/s. Millith Karvee, the petitioner was abs
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