J&K Economic Reconstruction Agency vs M/S Tarmac Road And Roof Builders

Reserved on: 27.02.2023 Pronounced on: 03.08.2023 J&K Economic Reconstruction Agency .........Petitioner(s)

Through: Mr Ilyas Nazir, GA

Versus

M/s Tarmac Road and Roof Builders .........Respondent(s)

Through: Mr Fayaz Ahmad Lone, Advocate

CORAM: HON'BLE MR JUSTICE VINOD CHATTERJI KOUL, JUDGE

JUDGEMENT

1. This petition is preferred under Section 34 of the J&K Arbitration and

Conciliation Act, 1997 (for brevity "Act of 1997") for setting-aside the

Award dated 30th November 2020, passed by the Arbitrator in

Arbitration Application titled as J&K Economic Reconstruction

Company v. M/s Tarmac Road and Roof Builders, to the extent it

rejected the claims of petitioner and allowed the claims of respondent-

contractor.

2. The grounds of challenge, inter alia, taken by petitioner, are that

Arbitrator has held respondent-contractor to be entitled to the claim of

price escalation/variation for extension in time of completion beyond

completion period of twelve months provided in the contract; that the

Page 1 Arb. P. no.03/2021 parties to the contract were strictly governed by the terms and

conditions the general conditions of the contact and the particular

conditions of the contract; that the said general conditions of contract

and/or particular conditions of contract nowhere provide for a price

escalation clause in favour of respondent-contractor; that in fact

petitioner vehemently pleaded before the Arbitrator that in view of

clause 13.8, i.e., adjustments for change in cost, was applicable only if

table of adjustment data is provided in the appendices, but no such data

is provided in the appendices in the contract, the clause was not

applicable; that the Arbitrator on the basis of an opinion of the Team

Leader, PMC, for MRIRJK (ADB LOAN -2151 -IND) has held the

respondent entitled to additional payments on account of increase in

cost of material and labour for balance work beyond period of original

of completion of one year not attributable to the contractor; that

thereafter the Arbitrator has himself in the summary of arbitral award

provided the standard price adjustment formula, even though the same

was neither pleaded nor argued before the Arbitrator even otherwise the

Arbitrator has not quantified any specific amount, which otherwise he

was supposed to; that Arbitrator held respondent-contractor entitled to

reduce liquidated damages to be charged by petitioner by reducing

number of days of delay attributable to respondent from 131 days to 92

days and as such, the Arbitrator has held that liquidated damages

chargeable to the claimant is Rs.1685552.00 as against Rs 2400079.00

as had been assisted by petitioner, but the Arbitrator has not provided

any cogent reason as to why delay attributable to respondent has been

reduced from 131 days to 92 days, in fact at page 3.11 of Chapter VIII

Page 2 Arb. P. no.03/2021 (Conclusion and Award) the Arbitrator has clearly stated that the

claimant's pace of work reflects purely on his performance; that

Arbitrator has also erred in directing that in case the award is not settled

beyond December 2020, the same shall carry interest @ 6% per annum

on the award; that claimant/respondent, even though wrongly directed

to submit revised claim on the basis of formula referred to by Arbitrator,

did not submit any revised claim to petitioner-ERA, as such, any delay

beyond December 2020, which was attributable to respondent-

contractor ought to have been taken care of by the award; that once

Arbitrator has held claimant liable for delay of 92 days, it was obvious

that supervisory staff of Consultant and Staff associated with PIU

JKERA had been kept idle solely on account of omission of respondent-

contractor to complete the work within time granted.

3. On the other hand, it is contention of respondent-contractor in his

objections that the work was to be completed within 365 days with no

specific provision for price adjustment, which was, however,

completed within 1731 days with most of the delay on the part of

petitioner inasmuch as petitioner has admitted in its statement of

defence filed before the Arbitrator that out of 136 days of delays, 1235

days of delays were not attributed to respondent. In arbitral award, it

has been made clear that petitioner, in statement of defence filed before

the Arbitrator, admitted that in view of very long delay, the Project

Manager (Transport), in charge of the contracted project proposed for

inclusion of the price adjustment clause in the contract agreement and

tender approval committee. The Apex Body in petitioner's organization

Page 3 Arb. P. no.03/2021 in its meeting held on 20th December 2012 deliberated the said issue,

appreciated justification for price adjustment due to long delays not

attributable to respondent.

4. I have heard counsel for parties and considered the matter. I have

examined impugned Award, documents and pleadings of parties and

gone through the record on the file.

5. Perusal of the file reveals that J&K Economic Reconstruction Agency

- petitioner herein had on 5th November 2008 at the negotiated price,

awarded the contract in favour of respondent-contractor for

construction of 1x40 metres Span prestressed RCC Girder Bridge over

Maloori Nallah at Syedpora, Harwan, Srinagar - Package No.

Transport Srinagar/Bridge/43. In terms of contract, period of

completion was 12 months, but due to various reasons completion of

work delayed. Respondent-contractor was given nine times' extensions

and, thus, it took 1731 days to complete the work as against a period of

365 days. Ostensibly, as a sequel thereof, dispute arose between parties

concerning delay in completion of work beyond scheduled date, for

which respondent sought price escalation and other compensation,

which was not acceded to by respondents.

6. To settle the dispute, an application under Section 11 of the Act seeking

reference of dispute to arbitration had come up. Application, in view of

consensus of parties, was allowed. Mr Nazir Ahmed, Retired Chief

Engineer (Former Information Commissioner RTI) was appointed as

Sole Arbitrator vide order dated 16th May 2019.

Page 4 Arb. P. no.03/2021

7. As record would show that Arbitrator initiated proceedings on 6th July

2019. Statement of Claims (SOCs) was filed by respondent-contractor,

in which he sought and claimed Rs.6,75,48,268/- plus 10% interest

from the date of submission of statement of claim, i.e., 5th August 2019

till the date of award. Respondent-contractor also sought pendente lite

interest. Petitioner-ERA submitted it reply to claims of respondent-

contractor and also filed counter-claim. Rejoinder to Statement of

Defence of petitioner-ERA was filed by respondent-contractor. The

Arbitrator has allowed claim petition of respondent. Aggrieved thereof,

petitioner-ERA has filed instant petition under Section 34 of the Act.

8. It is contention of counsel for petitioner-ERA that Arbitrator has

misdirected itself while passing impugned Award inasmuch as

Arbitrator has not appreciated the facts and circumstances in its right

perspective.

9. It may be mentioned here that scope of enquiry under Section 34 of the

Act of 1997 is restricted to consideration whether any one of the

grounds mentioned in Section 34 (2) of the Act exists for setting aside

the award. Section 34 of the Act of 1997, which is pari materia to

Section 34 of the Arbitration and Conciliation Act 1996, is reproduced

hereunder:

"34. Application for setting aside arbitral award. --

(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3). (2) An arbitral award may be set aside by the Court only if--

(a) the party making the application furnishes proof that--

(i) a party was under some incapacity, or

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or

Page 5 Arb. P. no.03/2021

(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:

Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or

(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or

(b) the Court finds that--

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or

(ii) the arbitral award is in conflict with the public policy of India. Explanation. --Without prejudice to the generality of sub-clause

(ii) it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81.

(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:

Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter. (4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award."

10.Normally, the general principles are that Arbitrator is a Judge of the

choice of the parties and his decision unless there is an error apparent

on the face of the award which makes it unsustainable, is not to be set

aside even if the court as a court of law would come to a different

conclusion on the same facts. The court cannot reappraise the evidence

and it is not open to the court to sit in appeal over the conclusion of the

Page 6 Arb. P. no.03/2021 arbitrator. It is not open to the court to set aside a finding of fact arrived

at by the arbitrator and only grounds on which the award can be

cancelled are those mentioned in the Arbitration Act. Where the

arbitrator assigns cogent grounds and sufficient reasons and no error of

law or misconduct is cited, the award will not call for interference by

the court in exercise of the power vested in it. Where the arbitrator is a

qualified technical person and expert, who is competent to make

assessment by taking into consideration the technical aspects of the

matter, the court would generally not interfere with the award passed

by the arbitrator.

11.The Supreme Court in Associate Builders Vs. Delhi Development

Authority, (2015) 3 SCC 49, has held that the interference with an

arbitral award is permissible only when the findings of the arbitrator are

arbitrary, capricious or perverse or when conscience of the Court is

shocked or when illegality is not trivial but goes to the root of the

matter. It has been held that once it is found that approach of arbitrator

is neither arbitrary nor capricious, no interference is called for on facts.

The arbitrator is ultimately a master of the quantity and quality of

evidence while drawing the arbitral award. Patent illegality must go to

the root of the matter and cannot be of trivial nature.

12.Again, in Ssangyong Engineering & Construction Co. Ltd. v. National

Highways Authority of India, 2019 SCC OnLine 677 , the Supreme

Court has held that under Section 34 (2) (a) of the Act, a decision which

is perverse while no longer being a ground for challenge under "public

policy of India", would certainly amount to a patent illegality appearing

Page 7 Arb. P. no.03/2021 on the face of award. A finding based on documents taken behind the

back of parties by arbitrator would also qualify as a decision based on

no evidence inasmuch as such a decision is not based on evidence led

by parties and, therefore, would also have to be characterized as

perverse. It has also been held that a finding based on no evidence at all

or an award which ignores vital evidence in arriving at its decision

would be perverse and liable to be set aside on the ground of patent

illegality.

13.The Supreme Court in Delhi Airport Metro Express Pvt. Ltd. Vs. Delhi

Metro Rail Corporation Ltd., Civil Appeal No. 5628 of 2021 has held

that: -

"Patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the Arbitral Tribunal would not fall within the expression 'patent illegality'. Likewise, erroneous application of law cannot be categorized as patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the cop of the expression 'patent illegality'. What is prohibited is for courts to re-appreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as courts do not sit in appeal against the arbitral award. The permissible grounds for interference with a domestic award under Section 34 (2-A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one, or interprets a clause in the contract in such a manner which not fair- minded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression 'patent illegality'."

14.In a judgment passed in a case of G. Ramchandra Reddy v. Union of

India (2009) 6 SCC 414, the Supreme Court asserted that courts should

Page 8 Arb. P. no.03/2021 not normally interfere with the award of an arbitrator, unless there was

a gross error apparent on the face of the record.

15.In Sudharshan Trading Co. v. Government of Kerala and another, 1989

AIR SC 890, the observations of the Supreme Court have been that

Court cannot substitute its own evaluation of the conclusion of law or

fact to come to the conclusion that the arbitrator had acted contrary to

the bargain between the parties. Whether a particular amount was liable

to be paid or damages liable to be sustained, was a decision within the

competency of the arbitrator in this case. By purporting to construe the

contract the court could not take upon itself the burden of saying that

this was contrary to the contract and, as such, beyond jurisdiction.

16.In Oil & Natural Gas Corporation Ltd v. Saw Pipes Ltd., (2003) 5 SCC

705, the Supreme Court considered the ambit and scope of Court's

jurisdiction under Section 34 of the Act. The Supreme Court discussed

the matter of arbitral procedure in terms of Section 24, 28, 31, and held:

"In our view, reading Section 34 conjointly with other provisions of the Act, it appears that the legislative intent could not be that if the award is in contravention of the provisions of the Act, still however, it couldn't be set aside by the Court. If it is held that such award could not be interfered, it would be contrary to basic concept of justice. If the arbitral tribunal has not followed the mandatory procedure prescribed under the Act, it would mean that it has acted beyond its jurisdiction and thereby the award would be patently illegal which could be set aside under Section 34".

17.The ground of public policy has also been discussed in detail in Oil &

Natural Gas Corporation Ltd v. Saw Pipes Ltd (supra) and the Supreme

Court has held as follows:

"Therefore, in our view, the phrase 'Public Policy of India' used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious

Page 9 Arb. P. no.03/2021 or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/ judgment/ decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term 'public policy' in Renusagar's case (supra), it is required to be held that the award could be set aside if it is patently illegal. Result would be award could be set aside if it is contrary to:

(a) fundamental policy of Indian law; or

(b) the interest of India; or

(c) justice or morality, or

(d) in addition, if it is patently illegal.

Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the Court. Such award is opposed to public policy and is required to be adjudged void."

18.The Supreme Court finally in Oil & Natural Gas Corporation Ltd v.

Saw Pipes Ltd (supra) has drawn the conclusion in the following

manner:

"CONCLUSIONS:

In the result, it is held that:

A. (1) The Court can set aside the arbitral award under Section 34 (2) of the Act if the party making the application furnishes proof that: -

i) a party was under some incapacity, or

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or

(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;

2) The Court may set aside the award:

(i) (a) if the composition of the arbitral tribunal was not in accordance with the agreement of the parties,

(b) failing such agreement, the composition of the arbitral tribunal was not in accordance with Part I of the Act.

(ii) if the arbitral procedure was not in accordance with:

(a) the agreement of the parties, or

(b) failing such agreement, the arbitral procedure was not in accordance with Part I of the Act.

However, exception for setting aside the award on the ground of composition of arbitral tribunal or illegality of arbitral procedure

Page 10 Arb. P. no.03/2021 is that the agreement should not be in conflict with the provisions of Part I of the Act from which parties cannot derogate.

(c) If the award passed by the arbitral tribunal is in contravention of provisions of the Act or any other substantive law governing the parties or is against the terms of the contract (3) The award could be set aside if it is against the public policy of India, that is to say, if it is contrary to:

(a) fundamental policy of Indian law;

(b) the interest of India; or

(c) justice or morality, or

(d) if it is patently illegal.

(4) It could be challenged:

(a) as provided under Section 13(5); and

(b) Section 16 (6) of the Act."

19.Adverting to case in hand, I have duly examined the grounds pleaded

in this petition in light of facts and circumstances of the case, legal

position and submissions of both the sides.

20.After considering the statement of claims and statement of defence, the

learned Arbitrator found that commencement date of work in terms of

agreement was fixed as 3rd January 2009 with 12 months as period of

completion, but claimant/respondent-contractor was kept engaged until

30th September 2013 and that claimant's/respondent-contractor's case

was well made out for escalation particularly when it was kept engaged

in the project for almost five years attributable to petitioner-ERA and

some other factors beyond the control of respondent-contractor. The

Arbitrator has also made reference to Tender Approval Committee's

(TAC's) decision and direction in the meetings held on 22 nd June 2012,

2nd July 2012, 20th December 2012 and 10th January 2013, to Design

Engineering Consultant (DSC)/Engineer and Project Manager (T) to

reexamine and reassess delays in light of contractor's submission and

put up the proposal for price escalation after getting consent of

contractor.

Page 11 Arb. P. no.03/2021

21.It is also borne out from perusal of record on file that Team Leader-

DSC/Engineer vide letter dated 14th March 2014 forwarded price

adjustment bill along with MB no.015 for second Bridge to PM(T),

J&K ERA, mentioning therein that in pursuance to direction of TAC,

the Team Leader DSC and Engineer for project made a

recommendation which clearly show that price escalation/variation

became payable and that no Delay Damage could be levied and it was

concluded that reasons for delay had been thoroughly reassessed from

reference of communication and elaborated and that reasons/causes for

delay were beyond the control of contractor/DSC/IV/PIU and that was

the case qualified for confirmation/regularization with nil delay

damages. It has been found by the Arbitrator that although there had

been delay aggregating to 11 months and 19 days, yet such delay was

not attributable to contractor and since completion period had gone

beyond agreement period of 12 months, therefore, contractor needed to

be compensated by way of allowing him one time hike in the rates for

items for balance work to be calculated on the basis of price indices

prevailing at that time in accordance with the Standard Price

Adjustment Formula. Taking into account the case set up by parties, the

Arbitrator has allowed claim petition of respondent-contractor and

rightly awarded following claims:

"7. Summary of Arbitral Award:

7.1 Payment of price adjustment for work done from January, 2010 onwards on the basis of Bill wise payment details (RA Bill No's 2nd, 3rd , 4th ,5th , 6th 7th and 12th) and Quarter wise payment given by claimant at page 87 to 93 [CD-41] of claim petition for "Construction of 1x40 Mtr Span Bridge over Maloori Nallah at Saidpora Srinagar" (which 07 pages have been admitted by respondent) on the basis of price indices prevailing at that time, in accordance with the Standard Price Adjustment Formula as under:

Page 12 Arb. P. no.03/2021 LABOUR:

VL = [0.75xPL/100 x R x (IL1 - ILO)/ILO] ILO = Base price for Labour shall be average of 1st Qtr. of 2010 (Jan-March), which is average consumer price index for industrial workers (whole sale prices) as published in RBI Journal/ Labour Bureau for Srinagar Centre.

IL1 = Final price for Labour which is average consumer price index for industrial workers (whole sale prices for the quarter of calendar year under consideration) as published in RBI Journal! Labour Bureau for Srinagar centre.

PL = %age of labour component - 30%.

B. MATERIAL:

VM = [0.75 x PM /100 x R x (IMI-IMO) /IMO] IMO = Base price for material shall be average wholesale price index for 1st Qtr. of 2010 (Jan-March) (all commodities) as published in RBI journal.

IM1 = Final price for material which is average wholesale price index (all commodifies) for the quarter of calendar year under consideration as published in RBI journal. PM = %age of material component -70%.

This price adjustment formula shall be applicable to BOQ items only.

VL & VM = Increase or decrease in cost during quarter under consideration.

R = Value of work done during quarter under consideration excluding cost of material supplied by the department.

7.2 Claimant shall submit revised claim on the basis of above formula within one month of issue of award to the respondent. The respondent shall verify details of payment RA Bill wise, Quarter wise as per official records and settle claim by end of December, 2020. Delay in settlement of award amount beyond December, 2020 shall carry interest at the rate of 6% (six per centum) per annum as per provision of section 31, Sub-section (7)(b) of J&K Arbitration and Conciliation Act, 1997.

7.3 The period of delay attributed to claimant, for whom Liquidated Damage is chargeable as per provision of contract agreement, "Sub clause 8.7, Delay Damages", is reduced from 131 to 92 days. Consequently, the amount of Liquidated damage chargeable to claimant now is Rs. Rs.16855521- as against Rs.2400079/- charged by Project Manager (1) ERA Kashmir vide his letter dated: 17.03.2016. The balance amount shall be reimbursed to Claimant."

22.In the opinion of this Court, the inferences are factual conclusions

arrived at by learned Arbitrator, which cannot be second-guessed by

this Court in exercise of its powers under Section 34 of the Act. Besides,

Page 13 Arb. P. no.03/2021 in the opinion of this Court, the factual conclusions are perfectly

rational, coherent and logical.

23.This Court is, accordingly, not persuaded to hold that the conclusions

drawn by the learned Arbitrator are such that no reasonable person

would reach. Suffice it to say that the view taken by the learned

Arbitrator is most certainly a "possible view", which calls for no

interference.

24.As a sequitur to the above discussion, this Court finds no ground to

interfere with the Award impugned, which is accordingly upheld.

Resultantly the instant petition is dismissed. Interim direction, if any,

shall stand vacated.

(Vinod Chatterji Koul) Judge Srinagar 03.08.2023 Ajaz Ahmad, PS Whether approved for reporting? Yes/No.

Page 14 Arb. P. no.03/2021