The State Of Jharkhand vs M/S Hss Integrated Sdn

The State of Jharkhand & Ors. .. Petitioners

Versus

M/s HSS Integrated SDN & Anr. .. Respondents

JUDGMENT

M. R. Shah, J.

1. Aggrieved by the impugned judgment and order dated

30.01.2019 passed by the High Court of Jharkhand at Ranchi in

Commercial Appeal No. 01 of 2018, by which the High Court has

dismissed the said appeal preferred by the petitioners herein under

Section 37 of the Arbitration and Conciliation Act, 1996 (for short

‘the Arbitration Act’) and has confirmed the award declared by the

learned Arbitral Tribunal, confirmed by the First Appellate Court, 2

the original appellants have preferred the present special leave

petition.

2. This special leave petition arises out of the contractual dispute

between the petitioners­State and the respondents in relation to a

consultancy agreement over construction of six­lane Divided

Carriage Way of certain parts of Ranchi Ring Road. Respondent

Nos. 1 and 2 acted as a consortium for providing such consultancy

and supervisory services. An agreement was entered into between

the parties on 28.08.2007. The original work period under the said

agreement was for 36 months, i.e. from 01.10.2007 to 30.09.2010.

There was a dispute with respect to the non­performance and

unsatisfactory work done by the respondents. However, the

respondents were granted extension of contract twice. Thereafter,

a letter dated 25.11.2011 was issued by the Executive Engineer to

the respondents and other contractors entrusted with the task of

construction, granting a second extension of time of contract for

construction work. The respondents were called upon to make

compliances with the issues pointed out, at the earliest. In the said

communication dated 25.11.2011, it was stated that if the

deficiencies are not removed and/or complied with, in that case, 3

there shall be suspension of payment under Clause 2.8 of the

General Conditions of Contract (for short ‘the GCC’). On

05.12.2011, a review meeting was held between the parties,

followed by a letter dated 07.12.2011 issued by the respondents­

original claimants in reply/compliance of the aforesaid letter dated

25.11.2011. It was the case on behalf of the respondents­original

claimants that without properly considering the said letter of the

respondents­original claimants dated 07.12.2011, petitioners

herein issued letter dated 12.12.2011 invoking Clause 2.8 of the

GCC for suspension of payment, alleging certain deficiencies. It

was the case on behalf of the respondents­original claimants that

by letter dated 27.12.2011, they replied to the suspension notice

and complied with the deficiencies. In reply to the aforesaid

letters, the petitioners issued letters dated 23.12.2011 and

28.12.2011 asking the claimants to ensure compliance of the

pending issues. That by letter/communication dated 09.02.2012,

the petitioners served a notice upon the respondents terminating

the contract with effect from 12.03.2012. The said termination

notice was issued under Clause 2.9.1(a) and (d) of the GCC. The

respondents­original claimants replied to the said termination

notice by letters dated 16.02.2012 and 24.02.2012 and requested 4

the petitioners to re­consider the matter. However, the dispute

between the parties was not resolved. The respondents­original

claimants served a legal notice dated 10.03.2012 and invoked the

arbitration clause 2.9.1(a). Pursuant to the order passed by the

High Court, the Arbitral Tribunal was constituted.

2.1 The Arbitral Tribunal comprised of nominees of the rival

parties and a retired Judge of the Jharkhand High Court as the

Presiding Arbitrator. The respondents­original claimants claimed a

total sum of Rs.5,17,88,418/­ under 13 different heads, excluding

interest. The petitioners also filed a counter­claim for

Rs.6,00,78,736/­ under five heads. The claim of the original

claimants primarily involved the unpaid amount in respect of the

work executed under the contract, loss of profit and over­head

charges, apart from other consequential claims arising out of

termination. It was the specific case on behalf of the original

claimants that the termination was absolutely illegal and not being

in according with the terms of the contract. The counter­claim filed

by the petitioners­State was for reimbursement on account of

unsatisfactory performance by the respondents.

2.2 That, on appreciation of evidence, the learned Arbitral

Tribunal gave a specific finding that the termination of the contract 5

was illegal and without following the procedure as required under

the contract (paras 17 to 36). That, thereafter the learned Arbitral

Tribunal proceeded to consider the claims on merits and ultimately

allowed the claims to the extent of Rs.2,10,87,304/­ under different

heads as under:

Claims Amount Allowed Comments Claim 1A – Claim 53,37,294 50,59,957 Partly allowed Unpaid Bills from 1/11/2011 to 28/2/2012 Claim 1B – Claim 79,04,819 67,07,032 Partly allowed Due/Unpaid against Bills from Oct 2007 to Oct 2011 Claim 1C – Claim 8,30,000 8,30,000 Allowed against Design of Bridges Total Claim 1 1,40,72,11 1,25,96,98 3 9 Claim 2 – Invoice for 11,05,954 11,05,954 Allowed the month of March, 2012 (month of termination) Claim 3 – Claim 1,57,000 ­ Disallowed towards Shifting of Office from Ranchi to site Claim 4 – Claim 4,41,000 ­ Disallowed towards Laboratory set up at site Claim 5 – 5,00,000 ­ Disallowed Demobilisation of staff Claim 6 – Bank 33,730 ­ Disallowed Guarantee charge for extended period 6

Claim 7 – Claim 1,28,500 ­ Disallowed towards cost incurred to submit record to EE in person Claim 8 – Loss of 1,18,54,639 19,75,733 Partly allowed profit (for 24 months extension period) Claim 9 – Claim 14,08,765 13,90,000 Partly allowed against Encashment of BG Claim 10 – Claim 3,06,200 towards solicitor and advocates payments Claim 11 – Claim 10,00,000 10,00,000 Partly allowed towards arbitration cost Claim 12 – Staff 17,97,084 ­ Disallowed maintenance fee (3 months notice pay only)

Claim 13 – Claim 50,00,000 ­ Disallowed towards inability to bid for projects bad reputation Interest claimed as 1,39,89,633 30,18,588 Interest @ 12% per contract beyond from the date 60 days of Invoice when Tribunal submission got constituted. TOTAL OF CLAIMS 5,17,94,61 2,10,94,30 & ALLOWED (Indian 8 4 Rupees) % amount allowed 40.71

2.3 In view of the finding arrived at by the learned Arbitral

Tribunal that the termination of the contract was illegal and

without following due procedure as required under the contract and 7

in view of allowing the claims of the claimants partly, the Arbitral

Tribunal dismissed the counter claims submitted by the petitioners.

2.4 The award declared by the learned Arbitral Tribunal has been

confirmed by the First Appellate Court in a proceeding under

Section 34 of the Arbitration Act. The same has been further

confirmed by the High Court by the impugned judgment and order

in an appeal under Section 37 of the Arbitration Act.

2.5 Feeling aggrieved and dissatisfied with the impugned

judgment and order passed by the High Court dismissing the

appeal under Section 37 of the Arbitration Act and consequently

confirming the award passed by the learned Arbitral Tribunal, the

original respondents­State and others have preferred the present

special leave petition.

3. Learned counsel appearing on behalf of the petitioners has

vehemently submitted that the High Court has materially erred in

dismissing the appeal under Section 37 of the Arbitration Act and

has materially erred in not properly appreciating the fact that the

arbitral award was passed contrary to the materials on record.

3.1 It is vehemently submitted by the learned counsel appearing

on behalf of the petitioners that the High Court has materially erred 8

in not properly considering that the suspension under the

agreement was not the suspension of work per se, rather was

suspension of all payments to the consultants and therefore there

was no question of dilution/go­bye of the suspension letter. It is

further submitted by the learned counsel appearing on behalf of the

petitioners that the High Court has not properly

appreciated/considered the scheme of the contract. It is submitted

that in case of non­performance of the contract satisfactorily, the

first step was suspension of payment and if the failure in

performance is not remedied, then the consequence which follows is

the next step that being notice of termination by issuing 30 days’

notice. It is submitted that suspension is either operative or

revoked by resuming the payments, for, suspension is suspension

of payment and not suspension of work/contract. It is submitted

that therefore the High Court has materially erred in confirming the

findings recorded by the learned Arbitral Tribunal that the

termination of the contract was illegal and without following due

procedure as required under the contract.

4. While opposing the present special leave petition, learned

counsel appearing on behalf of the respondents­original claimants 9

has vehemently submitted that, as such, there are concurrent

findings of fact recorded by all the Courts below on the illegal

termination of the contract. It is submitted that, on appreciation of

evidence, the learned Arbitral Tribunal (in paragraphs 17 to 36)

gave the specific findings by giving cogent reasons that the

termination of the contract was illegal and without following due

procedure as required under the contract. It is submitted that once

the findings recorded by the learned Arbitral Tribunal are on

appreciation of evidence and considering the materials on record,

the same is rightly not interfered with by the Courts below in the

proceedings under Sections 34 and 37 of the Arbitration Act.

4.1 Making the above submissions and relying upon the decisions

of this Court in the cases of Associate Builders v. DDA (2015) 3

SCC 49, NHAI v. Progressive­MVR (2018) 14 SCC 688 and

Maharashtra State Electricity Distribution Co. Ltd. v. Datar

Switchgear Ltd. (2018) 3 SCC 133, it is prayed to dismiss the

present special leave petition.

5. Heard learned counsel appearing on behalf of the respective

parties at length.

10

6. The main controversy is with respect to the termination of the

contract vide letter/communication dated 09.2.2012 terminating

the contract with effect from 12.03.2012 invoking Clause 2.9.1(1)

and (d) of the GCC. That, on appreciation of evidence and

considering the various clauses of the contract, the learned Arbitral

Tribunal has observed and held by giving cogent reasons that the

termination of the contract was illegal and contrary to the terms of

the contract and without following due procedure as required under

the relevant clauses of the contract. The said finding of fact

recorded by the learned Arbitral Tribunal is on appreciation of

evidence. The said finding of fact has been confirmed in the

proceedings under Sections 34 and 37 of the Arbitration Act.

Thus, there are concurrent findings of fact recorded by the learned

Arbitral Tribunal, First Appellate Court and the High Court that the

termination of the contract was illegal and without following due

procedure as required under the relevant provisions of the contract.

6.1 In the case of Progressive­MVR (supra), after considering the

catena of decisions of this Court on the scope and ambit of the

proceedings under Section 34 of the Arbitration Act, this Court has

observed and held that even when the view taken by the arbitrator

is a plausible view, and/or when two views are possible, a 11

particular view taken by the Arbitral Tribunal which is also

reasonable should not be interfered with in a proceeding under

Section 34 of the Arbitration Act.

6.2 In the case of Datar Switchgear Ltd. (supra), this Court has

observed and held that the Arbitral Tribunal is the master of

evidence and the findings of fact which are arrived at by the

arbitrators on the basis of the evidence on record are not to be

scrutinized as if the Court was sitting in appeal. In para 51 of the

judgment, it is observed and held as under:

51 Categorical findings are arrived at by the Arbitral Tribunal to the effect that insofar as Respondent 2 is concerned, it was always ready and willing to perform its contractual obligations, but was prevented by the appellant from such performance.

Another specific finding which is returned by the Arbitral Tribunal is that the appellant had not given the list of locations and, therefore, its submission that Respondent 2 had adequate lists of locations available but still failed to install the contract objects was not acceptable. In fact, on this count, the Arbitral Tribunal has commented upon the working of the appellant itself and expressed its dismay about lack of control by the Head Office of the appellant over the field offices which led to the failure of the contract. These are findings of facts which are arrived at by the Arbitral Tribunal after appreciating the evidence and documents on record. From these findings it stands established that there is a fundamental breach on the part of the appellant in carrying out its obligations, with no fault of Respondent 2 which had invested whopping amount of Rs 163 crores in the project. A perusal of the 12

award reveals that the Tribunal investigated the conduct of the entire transaction between the parties pertaining to the work order, including withholding of DTC locations, allegations and counter­allegations by the parties concerning installed objects. The arbitrators did not focus on a particular breach qua particular number of objects/class of objects. Respondent 2 is right in its submission that the fundamental breach, by its very nature, pervades the entire contract and once committed, the contract as a whole stands abrogated. It is on the aforesaid basis that the Arbitral Tribunal has come to the conclusion that the termination of contract by Respondent 2 was in order and valid. The proposition of law that the Arbitral Tribunal is the master of evidence and the findings of fact which are arrived at by the arbitrators on the basis of evidence on record are not to be scrutinised as if the Court was sitting in appeal now stands settled by a catena of judgments pronounced by this Court without any exception thereto [ See — Associate Builders v. DDA, (2015) 3 SCC 49 :

(2015) 2 SCC (Civ) 204 and S. Munishamappa v. B. Venkatarayappa, (1981) 3 SCC 260] .

As held by this Court in catena of decisions, the award passed by

the Arbitral Tribunal can be interfered with in the proceedings

under Sections 34 and 37 of Arbitration Act only in a case where

the finding is perverse and/or contrary to the evidence and/or the

same is against the public policy. (see Associate Builders v. DDA

(2015) 3 SCC 49 etc.) 13

6.3 In the present case, the categorical findings arrived at by the

Arbitral Tribunal are to the effect that the termination of the

contract was illegal and without following due procedure of the

provisions of the contract. The findings are on appreciation of

evidence considering the relevant provisions and material on record

as well as on interpretation of the relevant provisions of the

contract, which are neither perverse nor contrary to the evidence in

record. Therefore, as such, the First Appellate Court and the High

Court have rightly not interfered with such findings of fact recorded

by the learned Arbitral Tribunal.

6.4 Once it is held that the termination was illegal and thereafter

when the learned Arbitral Tribunal has considered the claims on

merits, which basically were with respect to the unpaid amount in

respect of the work executed under the contract and loss of profit.

Cogent reasons have been given by the learned Arbitral Tribunal

while allowing/partly allowing the respective claims. It is required

to be noted that the learned Arbitral Tribunal has partly allowed

some of the claims and even disallowed also some of the claims.

There is a proper application of mind by the learned Arbitral

Tribunal on the respective claims. Therefore, the same is not

required to be interfered with, more particularly, when in the 14

proceedings under Sections 34 and 37 of the Arbitration Act, the

petitioners have failed.

7. Once the finding recorded by the learned Arbitral Tribunal

that the termination of the contract was illegal is upheld and the

claims made by the claimants have been allowed or allowed partly,

in that case, the counter­claim submitted by the petitioners was

liable to be rejected and the same is rightly rejected. No

interference of this Court is called for.

8. In view of the above and for the reasons stated above, the

present special leave petition deserves to be dismissed and is

accordingly dismissed. However, in the facts and circumstances of

the case, there will be no order as to costs.

..................................J. (ARUN MISHRA)

...................................J. (M. R. SHAH) New Delhi, October 18, 2019.