Arbitration Appeal No. 18 of 2016 (Arb.A. No. 18/2016) - High Court of Kerala at Ernakulam

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR.JUSTICE K.HARILAL** **& THE HONOURABLE MR. JUSTICE RAJA VIJAYARAGHAVAN V** **THURSDAY, THE 30TH DAY OF MARCH 2017/9TH CHAITHRA, 1939** ## **Arb.A.No. 18 of 2016 () ------------------------** **AGAINST THE ORDER IN OPARB.247/2014 of ADDITIONAL DISTRICT COURT-IV, KOZHIKODE DATED 14-10-2015** ## **APPELLANTS/ PETITIONERS:** **-----------------------** **1. THE DEPUTY GENERAL MANAGER, TRANSMISSION PROJECT, BHARAT SANCHAR NIGAM LIMITED, ERNAKULAM.** **2. THE DIVISIONAL ENGINEER, TRANSMISSION PROJECT, BHARAT SANCHAR NIGAM LIMITED, MICROWAVE BUILDING, TELEPHONE BHAVAN, VALLAYIL, GANDHI ROAD, KOZHIKODE.** **BY ADV. SRI.MATHEWS K.PHILIP,SC, BSNL** ## **RESPONDENT/RESPONDENT:** **----------------------** **K.RAMESH BABU, S/O PADMANABHAN, CONTRACTOR, RESIDING AT PADMA NIVAS, PUTHOOR AMSOM, CHENDAYAD DESOM, CHENDAYAD, PANOOR, THALASSERY TALUK.** **BY ADV. SRI.K.P.HAREENDRAN** **THIS ARBITRATION APPEALS HAVING BEEN FINALLY HEARD ON 30-03-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ## **OKB** K.HARILAL & RAJA VIJAYARAGHAVAN V., JJ. --------------------------Arbitration Appeal No.18 of 2016 --------------------------Dated this the 30[th] day of March, 2017 ## JUDGMENT ## Harilal, J. The appellants are the petitioners in Arbitration O.P. No.247/2014 on the files of the Additional District Court, Kozhikode. The parties are referred to as in the impugned order. 2. The respondent herein is a contractor who had obtained contract for supply of RCC plain slabs in favour of the petitioners as per the agreement dated 30.9.2007. As per the tender dated 12.1.2007 the respondent was entrusted with the supply of RCC plain slabs in favour of the petitioners and the agreement was executed on 30.9.2007 between the respondent and the petitioners incorporating the terms and conditions of supply. Thereafter the respondent remitted an amount of Rs.1,06,600/- as EMD and Rs.1,06,600/- as security deposit. As per clause 6.41 of the tender, the rate quoted should not Arb.A.18/16 **:2:** be varied during the validity of the contract, including the extension period. As per clause 6.65 of the tender, without prejudice to any remedy for breach of contract, the petitioners can, by written notice of default to the contractor, terminate the contract in whole or in part and on such termination the entire amount of EMD and security deposit shall be forfeited to the petitioners. The respondent had agreed to supply 50,000 RCC plain slabs to the petitioners and the petitioners placed the order for supply of 13,800 RCC slabs. But the respondent supplied only 1818 slabs and the value of the same was paid to the respondent. Since the respondent committed breach of terms of tender and agreement the petitioners issued show cause notice to the respondent on 29.4.2008 and the respondent issued a reply dated 6.5.2008 expressing his difficulty to supply slabs. Since the respondent committed breach of contract the petitioners terminated the contract with the respondent as per notice dated 16.4.2010 and forfeited the entire EMD and security deposit and also Arb.A.18/16 **:3:** barred the respondent from participating in future tender for a period of six months from the date of order. 3. According to the petitioners, due to breach of contract by the respondent, the petitioners had conducted a fresh tender and granted contract in favour of another supplier for higher rate and thereby suffered a loss of Rs.2,28,960/-. Aggrieved by the said decision, the respondent filed O.S.No.734/2012 before the Sub Court, Kozhikode for realising EMD and security deposit from BSNL and in that suit the petitioners herein filed an application to refer the matter for arbitration. The court below allowed the said application and an Arbitrator was appointed. After considering the documents and evidence adduced by both parties, the Arbitrator passed an Award as given below: 1. BSNL shall retain an amount of Rs.50,000/- (Rupees fifty thousand only) from the cash security deposit of Rs.106600/- paid by Sri.Ramesh Babu K., the contractor to compensate for the losses incurred by it due to the breach of contract by the contractor. 2. BSNL shall pay back the balance of cash security Arb.A.18/16 **:4:** deposit, Rs.56600/- (Rupees fifty six thousand and six hundred only) to Sri.K.Ramesh Babu, Contractor, Padmanivas, P.O.Chendayad and release the performance bank guarantee provided by him within 45 days from the date of this Award. 4. Aggrieved by the Award, the petitioners preferred Arbitration O.P. and after reappreciating the evidence on record the District Court passed the impugned order dismissing the Arbitration O.P. on a finding that there is no ground to interfere with the award in favour of Section 34 of the Arbitration and Conciliation Act, 1996. This Arbitration Appeal is filed challenging the legality and propriety of the aforesaid finding. 5. Heard the learned counsel for the appellants and the learned counsel appearing for the respondent. 6. This Arbitration Appeal was filed challenging the award directing the petitioners to pay an amount of Rs.56,600/- to the respondent by retaining the balance amount only in security deposit and to release performance Bank guarantee provided by him within 45 days from the Arb.A.18/16 **:5:** date of Award. 7. It is also contended that the Arbitrator has not considered the claim of the petitioners that they have suffered a loss of Rs.2,28,960/- due to the purchase of slabs, after the termination of the contract with the respondent. 8. We have gone through the impugned Award passed by the Arbitrator. We find that on failure of the respondent, the tender was terminated and EMD/SD forfeited as per the tender clause No.6.65 of the Tender Conditions, in order to appropriate the loss incurred due to the failure of the supply at the tendered rate. It is not disputed that the agreement was made on 13.9.2007 to supply 50,000 slabs, purchase order was issued for 13,800 slabs; but supplied 1818 slabs only. Thus, the respondent failed to meet the obligations imposed upon him by the contract. In view of the power granted to the petitioner under clause 6.65 of the Tender Conditions, the petitioners have terminated the contract. Arb.A.18/16 **:6:** 9. But, the Arbitrator found that even though the respondent has intimated his inability to supply slabs on 6.5.2008, the petitioners have given purchase order for slabs only on 9.10.2009 and there is an inordinate delay in the process by the petitioners. Hence the respondent cannot be made solely responsible for the loss due to increase in the rate of the slabs, which are purchased after a long period. But, the petitioners have lost some time and money due to non supply of the items in time by the respondent. It is discernible from the finding that the petitioners were also found responsible for the loss and in that reasoning the petitioners were allowed to retain Rs.50,000/- only from the cash security deposit of Rs.1,06,600/- paid by the respondent. 10. The petitioners could not point out any illegality or conflict with public policy or denial of natural justice in the impugned award. After examining the award and documents produced by the parties, the court below found that the Arbitrator has considered all the documents in its Arb.A.18/16 **:7:** correct perspective and arrived at just and proper findings. 11. Going by the impugned order, we find that the court below has rightly understood the scope and extent of jurisdictional power of the District Court in appeal under Section 34 of the Arbitration and Conciliation Act. We are satisfied that the court below has meticulously examined the grounds raised in the memorandum of original petition in view of each ground enumerated under Section 34 of the Arbitration and Conciliation Act and arrived at a finding that none of the grounds raised in the Original Petition would come under Section 34 of the Arbitration and Conciliation Act. Further, the court below has relied on the decision of the Apex Court in **Associate Builders v. Delhi** **Development Authority [AIR 2015 SC 620]** , wherein it is held that: “In McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181, this Court held: “58. In Renusagar Power Co. Ltd. v. General Electric Co. (1994 Supp. (1) SCC 644) this Court laid down that the arbitral award can be set aside if it is contrary to (a) fundamental policy of Indian law; (b) Arb.A.18/16 **:8:** the interests of India; or (c) justice or morality. A narrower meaning to the expression “public policy” was given therein by confining judicial review of the arbitral award only on the aforementioned three grounds. An apparent shift can, however, be noticed from the decision of this Court in ONGC Ltd.v. Saw Pipes Ltd. ((2003) 5 SCC 705) (for short “ONGC”). This Court therein referred to an earlier decision of this Court in Central Inland Water Transport Corpn. Ltd. v. Brojo Nath Ganguly ((1986) 3 SCC 156 : 1986 SCC (L&S) 429 : (1986) 1 ATC 103) wherein the applicability of the expression “public policy” on the touchstone of Section 23 of the Indian Contract Act and Article 14 of the Constitution of India came to be considered. This Court therein was dealing with unequal bargaining power of the workmen and the employer and came to the conclusion that any term of the agreement which is patently arbitrary and/or otherwise arrived at because of the unequal bargaining power would not only be ultra vires Article 14 of the Constitution of India but also hit by Section 23 of the Indian Contract Act. In ONGC ((2003) 5 SCC 705) this Court, apart from the three grounds stated in Renusagar (1994 Supp (1) SCC 644) , added another ground thereto for exercise of the court's jurisdiction in setting aside the award if it is patently arbitrary. 59. Such patent illegality, however, must go to the root of the matter. The public policy violation, Arb.A.18/16 **:9:** indisputably, should be so unfair and unreasonable as to shock the conscience of the court. Where the arbitrator, however, has gone contrary to or beyond the expressed law of the contract or granted relief in the matter not in dispute would come within the purview of Section 34 of the Act. However, we would consider the applicability of the aforementioned principles while noticing the merits of the matter.” 12. In the light of the scope and extent of interference under Section 34 of the Act, prescribed in the above decision, we find that the grounds raised in the Arbitration O.P. are not sufficient to interfere with the Arbitration Award and the court below is justified in dismissing the Original Petition. Hence this Arbitration Appeal is dismissed. **Sd/-** K.HARILAL, Judge. **Sd/-** RAJA VIJAYARAGHAVAN V., Judge. okb.