An arbitral award can only be set aside under Section 34 of the Arbitration and Conciliation Act, 1996 if the appellant establishes that the award is in conflict with the public policy of India, is patently illegal, or is in contravention of the terms of the contract.

JUDGMENT :

Ravindra Maithani, J.

This is an appeal against the judgment and order dated 15.05.2008 passed in Civil Misc. Case No. 15 of 2007, Chairman and Managing Director, THDC and another v. Mahmood Hassan, by the court of District Judge, Tehri Garhwal at New Tehri (“the case”). By the impugned judgment and order, an application filed under Section 34 of the Arbitration and Conciliation Act, 1996 (for short, “the Act”) for setting aside an arbitral award dated 07.04.2007 given by the sole Arbitrator has been rejected and the arbitral award upheld.

2. The facts necessary to resolve the controversy, briefly stated are as follows. The Tehri Hydro Development Corporation (“THDC” – hereinafter referred to as “the appellant”) is a joint venture of Government of India and the State of Uttar Pradesh, formed to execute the mega project of construction of Tehri Dam. As a result of construction of the Dam, huge area was to be submerged. The affected persons were to be rehabilitated. The task of rehabilitation was to be carried out by the appellant. In order to construct 110 EWS category houses at different sites, tenders were floated by the appellant. The tender submitted by the respondent was accepted. On 16.10.1995, a contract agreement was executed between the appellant and the respondent (“the contract agreement”). The work was to be completed on or before 12.09.1996. The period of completion of work was mentioned as essence of the contract. The work was to commence on the date of the agreement itself. The total value of the work was Rs. 59,84,735.43.

3. The record reveals that subsequent to the execution of the contract agreement, the displaced persons opted for compensation in cash instead of houses to be constructed under the agreement. The matter was, therefore, referred to the Central Government. A High Powered Committee was constituted, which gave its recommendation in the month of November, 1997. It was recommended that instead of constructing the houses, compensation, in cash, be paid to the displaced persons. It is for this reason that the requirement to construct the EWS category houses was no longer felt necessary. In the meanwhile, the rehabilitation work was transferred to the State of Uttar Pradesh. But, again after the creation of the State of Uttarakhand, the task of rehabilitation was handed over to the State of Uttarakhand by a communication dated 02.01.2001 issued by the Ministry of Power, Government of India. On 30.05.2003, the State of Uttarakhand took a decision that the work, under the agreement in question, was to be supervised by the appellant.

4. On 07.02.2001, the Executive Engineer, Tehri Dam, Block 22, wrote a letter to the Assistant Engineer disclosing the facts as to why construction of 110 EWS category houses could not be undertaken and even 12 other houses proposed to be constructed could not be completed (It may be noted here that initially when 110 EWS category houses could not be constructed, a decision was taken that instead of EWS category houses, some other work may be undertaken from the respondent, but that could also not be completed). According to this letter, as approved by the Manager (Urban Rehabilitation) THDC, the unfinished work may be got completed from the contractor. And further, in order to save the department of the liability to pay compensation to the Contractor at the rate of 5% of the total value of the contract, he be entrusted with the work of construction of eight type-III houses at 9-B extension site (near Geeta Bhawan). This work was also not completed.

5. Thereafter, a dispute arose between the parties with regard to the contract and the payment that was to be made to the respondent. The respondent served a notice on 12.09.2003 and another notice on 14.08.2004 requiring the appellant to invoke arbitration clause. Thereafter, the respondent approached this Court under Sec