FACTS
The Respondent had acquired 710 hectares of land for setting up
"(i) Package-I: Contract for civil works for
On 03.12.2004, the Respondent accepted the bids of the Appellant and a Letter of Intent was issued. The Contract amounts decided were as follows:
"Package-I: Contract Amount
Formal work orders were put in place dated
Thereafter, the Deputy Commissioner on
The Respondent was, in the Letter sent by the Chief Conservator of Forests, directed to acquire sand, shingles and boulders from Government approved quarries in adjoining areas.
The said direction led to the Appellant and the Respondent organizing a meeting on
In light of a dispute with regard to final rate payable for transportation of sand and boulder, the Appellant suggested to refer the same to the arbitration panel of the Respondent.
The Respondent simultaneously issued fresh invitation for bids for transportation of boulders, sand from government approved quarries to the project site which was challenged by the Appellant under three writ petitions, which were dismissed.
The Appellant got an interim order imposing a stay on the Invitation for bid under the writ appeals filed. The Respondent challenged the interim order under a Special Leave Petition before the Supreme Court wherein the Court allow to issue fresh bids.
Finally, after another challenge before the
Thereafter, the parties were referred to 3 separate arbitrations on
"Whether the rate for extra lead for transportation of sand and boulder from Government approved quarries to work site for Package-I under KaHEP shall be decided in terms of Clause 33(ii)(a) or Clause 33(iii) of Part-III, Vol. I, Conditions of Contract of Book-II of Contract Agreement No. NEEPCO/ED/QP/C&P/R/C/ KaHEP/560 of 2004-05 dated 17.12.2004."
The said clause 33(ii)(a) is as under:
" 33. DEVIATIONS (I) The Engineer-in-Charge shall have power to make any deviations in the original specifications or drawings or designs of the works or any part thereof that are in his opinion, necessary at the time of or during the course of execution of work. In the aforesaid purpose or for any other reason, if it shall in the opinion of the Engineer-in-Charge be desirable he will also have the powers to make deviations, such as:
(a) variations, (b) extra item, (c) additions/omissions, (d) alterations or substitutions of any kind.
No such deviations in the specifications or drawings or designs or Bill of Quantities, as aforesaid shall in any way vitiate or invalidate the contract and any such deviations which the contractor may be directed to do shall form integral part of the contract as if originally provided therein and the contractor shall carry out the same on the same conditions in all respect on which he agreed to do the works under the contract.
(II) The rates for such items of works as are required to be executed due to deviations as stated in sub-clause shall be payable in the manner as stated hereunder:
- The rates already provided in the Bill of Quantities and as per the procedure mentioned above under sub-clause 33 of this part shall apply in respect of the same item(s) of work to be executed due to variations.
- ..."
An arbitral award was passed with respect to the 3 Packages in favour of the Appellant i.e. the extra lead of transportation of sand and boulders shall be decided in terms of Clause 33(ii)(a) of the Contract.
Pursuant to which, the Respondent filed applications under Section 34 of the Arbitration & Conciliation Act, 1996 ("the Act") challenging the three awards. The applications were rejected by the Additional Deputy Commissioner (Judicial) which thereafter, went in appeal under Section 37 of the Act where the
"We are also of the considered view that the Arbitral Award which would potentially result in unjust enrichment of the respondent to the extent of about
The Appellant had approached the Supreme Court challenging the judgment of the
"the judgment of the
The said review petitions were also dismissed by the
ISSUE BEFORE THE SUPREME COURT
The following issue were considered by the
Whether the SLP is maintainable or not?
Whether the
OBSERVATION
The Petitioner placed reliance on the case of
"Article 136 of the
Whereas the Respondent submitted that the appeal is not maintainable against the order rejecting the application for review relying on the case of
"16. This Court in
However, the Court refused to go into the question of maintainability preferred against the order rejecting review once the main
The Appellant submitted that the
Whereas, the Respondent submitted that during the earlier SLPs, the effect of the amendment to Section 34 of the Act was also considered and thereafter the SLPs were dismissed and the Appellant cannot reagitate the matter by filing a review petition stating the order of the
The Court observed the case of BCCI v.
Therefore, the Court opined that the provisions of the Amendment Act would apply to the instant case as the arbitral awards were dated
Further, the Court discussed upon the ground of patent illegality as a ground to set aside a domestic arbitral award and interpretation of 'public policy of
"...an award would be "patently illegal", if it is contrary to the substantive provisions of law; or, provisions of the 1996 Act; or, terms of the contract."
In the case of
- a contravention of the substantive law of
India ; - contravention of the Act itself; and/or
- contravention of Section 28(3) of the Arbitration Act, which reads as under:
- Rules applicable to substance of dispute.- (3) In all cases, the arbitral tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction.
Therefore the Court laid down that;
"This last contravention must be understood with a caveat. An arbitral tribunal must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair minded or reasonable person could do."
A reference was made to the 246th Law Commission Report for insertion of sub-clause (2A) in Section 34 of the Act to add 'patent illegality' as a ground for setting aside an award which was subsequently given statutory force under the Act.
In the case of
CONCLUSION
The Court states that the present matter concerns a domestic award and the ground of patent illegality is a ground available against domestic awards provided the findings of the Tribunal is perverse and irrational and no reasonable person shall arrive on such conclusion.
The Court further delved into the interpretation and discussions of the
"The learned Arbitrator has taken into account various factors irrelevant in coming to the decision and has ignored vital clauses of the tender documents like Clause 2 and various Sub-clauses i.e. Sub-clauses 2.1 to 2.8.7 under Clause 2 and Clause 3 and various Sub-Clauses i.e. Sub-clauses 3.1 to 3.7 under Clause 3 of the BoQ, Clause 2 and various Sub-clauses i.e. Sub-clause 2.1 to 2.17.7 under Clause 2 and Clause 3 and various Sub-clauses i.e. Sub-clause 3.1 to 3.10.5 under Clause 3 of "Particular Technical Specifications", Vol. 2, Part II. The learned Arbitrator has taken into consideration an irrelevant fact that while making provisional payment, the initial lead of 3.0 km has been deducted and that this shows that Clause 2.7 and 3.4 of the BoQ are applicable.
... The findings of the learned Arbitrator having been arrived at by taking into account irrelevant factors and by ignoring vital clauses, the same suffers from vice of irrationality and perversity."
Therefore, the Court held that the
Therefore, the Court upheld the order of the
AMLEGALS REMARKS
No matter how independent arbitration as a mechanism may seem, the Courts in
The Court herein without going into the interpretation of the terms of the contract, discussed the basis of the conclusion reached by the
Hence, the Court has held that;
"26. Even though the
Originally published
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