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IN THE HIGH COURT OF JHARKHAND AT RANCHI
HON'BLE THE ACTING CHIEF JUSTICE SHREE CHANDRASHEKHAR, HON'BLE MRS. JUSTICE ANUBHA RAWAT CHOUDHARY, J.
Executive Engineer, Water Ways Division No.1, Chakradharpur, Water Resources Department - Appellant
Versus
M/s Modi Project Ltd. - Respondent
Commercial Appeal No. 10 of 2020
Decided On : 08-01-2024
[ARBITRATION] - [DISPUTE RESOLUTION] - [Arbitration and Conciliation Act, 1996, Section 34] - [The court analyzed the provisions of the Arbitration and Conciliation Act, 1996, particularly Section 34, which allows for setting aside an arbitral award on specific grounds such as patent illegality and violation of public policy. The court emphasized the need for the arbitrator to operate within the terms of the contract and highlighted the importance of evidence in claims for loss of profit. The court found that the arbitrator's award was based on a fundamental breach of contract that was not substantiated by the material clauses of the agreement, leading to the conclusion that the award was perverse and thus set aside.]
Fact of the Case:
The appellant challenged the arbitral award in favor of the respondent concerning a construction project for the Jharjhara Reservoir. The claimant alleged that the appellant failed to provide hindrance-free land, which prevented the execution of the contract. The arbitrator ruled in favor of the claimant on multiple claims, including compensation for idle labor and loss of profit, leading to the appellant's appeal under Section 34 of the Arbitration and Conciliation Act, 1996.
Finding of the Court:
The court found that the arbitrator's award was based on a fundamental breach of contract by the appellant for failing to provide necessary land. However, the court determined that the arbitrator ignored critical clauses of the contract that limited the claimant's ability to claim compensation for delays caused by the appellant's actions. The court concluded that the award was perverse and not supported by evidence, leading to its invalidation.
Issues: 1. Whether the arbitration proceeding was maintainable for the reliefs claimed? 2. Whether a breach of contract was committed by the appellant rendering the performance of the contract non-performable by the claimant? 3. Whether the claimant was entitled to any claims for compensation for expenditures incurred due to the appellant's failure to provide hindrance-free land?
Ratio Decidendi: The court held that the arbitrator must operate within the terms of the contract and that claims for loss of profit must be substantiated by credible evidence. The failure to consider material clauses of the contract that denied compensation for delays led to the conclusion that the arbitrator's findings were perverse and constituted a patent illegality under Section 34(2-A) of the Arbitration and Conciliation Act, 1996.
Final Decision: The court set aside the arbitral award and the impugned order of the Commercial Court, allowing the appeal under Section 34 of the Arbitration and Conciliation Act, 1996.
JUDGMENT :
Anubha Rawat Choudhary, J.
This appeal has been filed challenging the judgment dated 27.01.2020 passed by the learned District Judge I – cum - Commercial Court, East Singhbhum, Jamshedpur in Original Suit No. 09 of 2018. By the impugned judgment, the petition filed by the appellant for setting aside the award passed in favour of the respondent (hereinafter referred to as the claimant) has been dismissed; the Arbitral Award was signed by the learned Arbitrator on 08.02.2017.
2. The matter was referred to the sole Arbitrator vide order dated 18.10.2013 passed by this Court in Arbitration Application No. 24 of 2010 under section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act of 1996).
3. The following chart gives the summary of the claims of the claimant and the extent to which each one of them was allowed/disallowed by the learned Arbitrator :
| Claims of the Claimant | Claims allowed/rejected |
| Claim no. 1- Claim for final bill for the amount of Rs.21,83,789/-. | Allowed to the extent of Rs.20,00,090/- |
| Claim No. 2- claim for compensation regarding idling of survey team in readiness for work, but not allowed to be utilized due to public hindrance - Rs.6,83,000/-. | Allowed in full to the extent of Rs.6,83,000/- |
| Claim No. 3- claim for compensation for expenditure incurred onsite and offsite beyond 23.08.2007 (i.e. beyond the original stipulated period of completion) up to 23.08.2009 i.e. for two years -Rs.42,00,000/-. | Allowed in full to the extent of Rs.42,00,000/-. |
| Claim No. 4 - Claim for loss of profit @15% of balance value of Agreement for which execution of work under the Agreement was prevented Rs.7,12,62,945/-. | Allowed in full to the extent of Rs.7,12,62,945/-. |
| Claim No. 5- Claim for compensation for expenditure incurred in keeping performance Guarantee valid including compensation for cost incurred in providing bank guarantee in lieu of mobilization advance. - Rs.11,51,868/- And Claim No. 8A – Claim for compensation for bank guarantee commission paid to the bank in the wasteful extension of validity of performance B.G. - Rs.8,00,000/- The appellant had revised the claim concerning compensation for the bank guarantee commission paid to the bank. | Allowed to the extent of Rs.27,26,903/- |
| Claim No. 6- claim for refund of Interest deducted from on A/C bills in lieu of Mobilization Advance- Rs.16,17,301/- | Allowed in full to the extent of Rs.16,17,301/- |
| Claim no. 7- claim for compensation for loss of reputation of the company- Rs.1,00,00,000/- | NIL (Disallowed) |
| Claim No. 8B- claim for refund of security deposit balance with the department- Rs.18,91,496/- | Allowed in full to the extent of Rs.18,91,496/- |
| Claim no. 9 – claim for interest @ 18% on the amount claimed under claims nos. 1-8B to be calculated from 24.08.2007 which was the originally stipulated period of completion of work, till 10.11.2010 when the last demand notice was served upon the Claimant by the Respondent. | Claim no. 09 as allowed vide internal page 123 of the award – “Accordingly, claim under claim no. 9 and 10 are allowed. Under claim no. 9 and 10 the interest calculated on total amount of Rs.8,43,81,735/- awarded against claim no. 1- 8B @ 15% from 24.08.2009 (being the first date of notice for resolution of dispute issued by the Claimant) till 10.11.2010 (being the date previous of the last date notice) and thereafter from 11.10.2010 to the date of Award, is allowed. The total interest calculated on the aforesaid amount is Rs.9,42,87,919/-. Thus, an amount of Rs.9,42,87,919/- is payable by the Respondent to the Claimant towards interest till date of award.” “Accordingly, claim under claim no. 9 and 10 are allowed. Under claim no. 9 and 10 the interest |
An arbitrator's award can be set aside if it is based on a fundamental breach of contract that ignores material clauses of the agreement, leading to a finding that is perverse and constitutes a paten....
(1) Setting aside arbitral award – Claim for damages, whether general or special, cannot as a matter of course result in an award without proof of claimant having suffered injury.(2) Binding Preceden....
The need for evidence to establish loss of profits and the court's discretion to modify the interest rate as agreed upon by the parties.
The court affirmed the limited scope of review under Section 34 of the Arbitration and Conciliation Act, allowing for setting aside awards only on grounds of patent illegality or if the award is perv....
The Court emphasized the limited scope of jurisdiction under Section 34 of the Act and the need for evidence to support claims for loss of profit.
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