Arbitral awards must adhere to contractual terms; deviations render them unsustainable and violate public policy.

JUDGMENT :

1. This is an appeal under Section 37 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as the ‘Act’) filed by the Union of India through Garrison Engineer AF (hereinafter referred to as the ‘Applicant’) against the order dated January 12, 2012 passed by District Judge, Agra in Arbitration Case No. 406 of 2006 under Section 34 of the Act.

FACTS

2. I have laid down the factual matrix leading to the instant appeal below:

a. M/s Yauk Engineers (hereinafter referred to as the ‘Respondent’) entered into a contract with the Applicant for providing 33KV transformer (Independent Feeder) vide letter dated May 16, 1995 for an amount of Rs.1,00,86,922.26/-. Work was to be completed within 18 months with effect from June 06, 1995. The work order was issued on May 29, 1995. The work was finally completed on August 09, 1997 and completion certificate was issued on August 14, 1997.

b. As per clause 39 and 39.1 of the Contract between the parties and condition 46 of IAFW 2249 General Conditions of Contract (hereinafter referred to as the ‘GCC’), entire installation was deemed to be guaranteed by the Respondent for efficient performance for 12 months from the date of completion of work. The Respondent had also given specific undertaking in this regard vide its letter dated October 1, 1997.

c. The Transformer provided by the Respondent became defective in June, 1998 and accordingly, the Respondent was asked by the Applicant to rectify the defects. The Respondent rectified the defects, and claimed reimbursement of Rs.6,28,268/-incurred by it in the rectification of defects. Since, the Applicant contended that based on the guarantee provided by the Respondent it was not liable to reimburse any cost incurred towards rectification of defects, disputes arose between the parties which were referred to arbitration.

d. The Arbitrator vide its award dated July 31, 2006, among other things, awarded a sum of Rs.6,22,268/- along with interest at the rate of 12% p.a. from February 2, 1998 to July 31, 2006 and at the rate of 8% p.a. from August 1, 2006 till the date of actual payment in favour of the Respondent.

e. The arbitral award dated July 31, 2006 was challenged by the Applicant under Section 34 of the Act before the District Judge, Agra (Arbitration Case No. 406 of 2006). Vide its order dated January 12, 2012, the District Judge, Agra dismissed the application filed by the Applicant and upheld the arbitral award dated July 31, 2006 in its entirety.

f. Aggrieved by the order dated January 12, 2012 passed by the District Judge, Agra, the Applicant filed the instant appeal under Section 37 of the Act before this Court on May 4, 2012.

CONTENTIONS OF THE APPLICANT

3. Although several claims that were allowed by the Arbitrator and affirmed by the District Judge are under challenge in this appeal, learned ASG of India has confined his arguments to the reimbursement of Rs.6,22,268/-. The other grounds of appeal have not been pressed by him and are accordingly dismissed in limine. With regards to the claim of reimbursement of Rs.6,22,268/-, Sri Gopal Verma, counsel has made the following arguments:

i. As per clause 39 and 39.1 of the contract between the parties, and condition 46 of IAFW 2249 GCC, entire installation was deemed to be guaranteed by the Respondent for efficient performance for 12 months from the date of completion of work and in case of any default arising during that period, the Respondent was required to rectify/replace the same at its own cost. The Respondent had further specifically given a guarantee vide its letter dated October 1, 1997.

ii. The Arbitrator without considering the oral and written submissions as well as documentary evidence illegally awarded Rs. 6,22,268/- in favour of the Respondent.

iii. The issue regarding the undertaking given by the Respondent for 1 year from August 9, 1996, and further extended vide its letter dated October 1, 1997, in terms of clause 39 of the contract between the parties was specific