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2019 Supreme(Mad) 2345
IN THE HIGH COURT OF JUDICATURE AT MADRAS
SENTHILKUMAR RAMAMOORTHY, J.
M/s. Kamarajar Port Limited – Petitioner
Versus
M/s. G.A. Projects Private Limited – Respondent
O.P. No. 679 of 2019 & A.No. 6379 of 2019
Decided On : 05-12-2019
For the Petitioner:G. Rajagopalan, Additional Solicitor General assisted by P. Chandrasekaran, Advocate.
For the Respondent:Amalraj, Advocate.
The court emphasized the importance of considering vital evidence and contractual clauses in arbitration proceedings, highlighting the violation of public policy and patent illegality under Section 34(2A) of the Arbitration Act.
Headnote:
Arbitration - Construction Contract - Arbitration and Conciliation Act, 1996 - Section 34
Fact of the Case:
Dispute arose from a construction contract for a road within the premises of the Petitioner. The Respondent completed the work, but the Petitioner alleged deficiency in quality, leading to arbitration. The Arbitral Award directed the Petitioner to pay a sum to the Respondent and rejected all other claims.
Finding of the Court:
The court found that the Arbitrator disregarded vital evidence and the contract's defect liability clause, leading to a violation of public policy and patent illegality under Section 34(2A) of the Arbitration Act. The court set aside the Arbitral Award and the Supplementary Award, granting leave for de novo arbitration proceedings.
Issues: Quality of work, adherence to contract terms, violation of defect liability clause, disregard of vital evidence, violation of public policy, patent illegality
Ratio Decidendi: The court's decision was influenced by the Arbitrator's disregard of vital evidence and the contract's defect liability clause, leading to a violation of public policy and patent illegality under Section 34(2A) of the Arbitration Act.
Final Decision: The Arbitration Award and Supplementary Award were set aside, and both parties were granted leave to initiate de novo arbitration proceedings.
JUDGMENT :
(Prayer: Original Petition is filed under Section 34 of the Arbitration and Conciliation Act, 1996 to set aside the Award passed on 26.03.2018 and Supplementary Award passed on 18.05.2018 and to order costs to the Petitioner.)
1. The respondent in the arbitration is the Petitioner herein. The dispute arises out of a contract for the construction of a two lane concrete road connecting the main gate road and the west gate road within the premises of the Petitioner, Kamarajar Port Limited. The Respondent was the successful bidder pursuant to the tender and the total contract value was Rs.12,45,13,136/-. The period of contract was 18 months from the date of commencement, i.e. from 28.10.2014 to 27.04.2016. The Petitioner made recoveries from RA Bills 10 to 13 (final bill) in respect of alleged deficiency in quality. Meanwhile, a substantial portion of the work was completed on 26.04.2016. Shortly thereafter, by letters dated 02.05.2016, 04.06.2016 and 01.07.2016, the Petitioner insisted on conducting core tests and the Respondent refused on the ground that such tests were conducted satisfactorily during the execution period. In these circumstances, the Petitioner conducted the core tests and informed the Respondent by letter dated 22.11.2016 that the core tests established that there was deficiency in quality. Therefore, a dispute ensued and the Respondent invoked the arbitration clause by notice dated 12.08.2016. In the Arbitration, the Respondent made 12 claims towards payment of with held amounts, expenditure incurred in conducting core tests, additional work claims, release of performance of bank guarantee and interest claims. The Petitioner filed a statement of defence and a statement of counter claim. In the statement of counter claim, the Petitioner made 8 counter claims for an aggregate sum of Rs.13,62,12,146/-. Upon completion of pleadings, the learned Arbitrator framed 11 issues (Paragraph 7 of the Award). Thereafter, the Petitioner adduced oral evidence through its Resident Engineer but the Respondent did not adduce any oral evidence. The documentary evidence was in the form of Exhibits C-1 to C-50, as regards the Respondent, and Exhibits R-1 to R-103 as regards the Petitioner. Thereafter, the learned Arbitrator pronounced the Arbitral Award dated 26.03.2018 (the Award). In the said Award, the Petitioner was directed to pay a sum of Rs.1,43,18,479/- towards the amount retained in I.P.C. Nos.1 to 12 with interest thereon at 9% per annum from 08.02.2017 till the date of payment; a sum of Rs.1,00,000/- towards the expenses incurred by the Respondent for conducting core test with interest thereon at 9% per annum from 08.02.2017 till the date of payment; and a declaration was made that the performance bank guarantee for Rs.62,25,657/- is not liable to be enforced by the Petitioner and that the original bank guarantee shall be returned to the Central Bank of India, Egmore Branch, Chennai. All the other claims of the Respondent were rejected and all the counter claims of the Petitioner were also rejected.
2. Subsequently, both parties filed Applications under Section 33 of the Arbitration Act, whereby the Petitioner requested the Arbitral Tribunal to clarify as to whether the Respondent is bound to honour the agreement conditions and rectify the defects in work whereas the Respondent filed an Application claiming an additional sum of Rs.73,59,614/-. By Supplementary Award dated 18.05.2018, a further sum of Rs.66,90,000/- was directed to be paid by the Petitioner in respect of claim No.6 with interest thereon at 12% per annum from the date of Award. The said Awards are impugned herein under Section 34 of the Arbitration and Conciliation Act, 1996(the Arbitration Act).
3. I heard the learned Additional Solicitor General on behalf of the Petitioner and Mr.Amalraj, the learned counsel appearing on behalf of the Respondent.
4. The learned ASG submitted that the project pertains to the construction of a two lane concrete road
