G.K. GRANITES LTD. v. PAT-BEL JV

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE C.T.RAVIKUMAR** ## **&** **THE HONOURABLE MR.JUSTICE N.NAGARESH** **THURSDAY, THE 13TH DAY OF JUNE 2019 / 23RD JYAISHTA, 1941** **Arb.A.No. 4 of 2016** **AGAINST THE ORDER IN OP(ARB) 111/2010 of THE III ADDITIONAL DISTRICT COURT, ERNAKULAM DATED 13-11-2015** ## **APPELLANT/PETITIONER/CLAIMANT BEFORE THE ARBITRAL TRIBUNAL:** **G.K.GRANITES LTD. HAVING ITS REGISTERED OFFICE AT KUREEKKAL, KIZHAKKAMBALAM P.O., ERNAKULAM DISTRICT.** **BY ADVS. SRI.S.SREEKUMAR (SR.) SRI.P.MARTIN JOSE SRI.P.PRIJITH SRI.THOMAS P.KURUVILLA** ## **RESPONDENT:** **PAT-BEL JV HAVING ITS OFFICE AT BHAGEERATHA ENGINEERING LTD, BAHGEERATHA RESIDENCY, SHANMUGAM ROAD, ERNAKULAM.** **BY ADVS. SRI.P.K.SURESH KUMAR (SR.) SRI.K.P.SUDHEER** **THIS ARBITRATION APPEALS HAVING BEEN FINALLY HEARD ON 13.06.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **Arb.A.No. 4 of 2016** 2 ## **JUDGMENT** ## Ravikumar,J This appeal under Section 37 of the Arbitration and Conciliation Act (for brevity 'the Act') is directed against the order dated 13.11.2015 in OP(Arb)No.111/2010 passed by the Court of Additional District Judge-III, Ernakulam. The said Original Petition was filed under Section 34 of the Act against the Award dated 22.10.2009 passed by the Arbitrator. The District court found that the appellant herein/petitioner therein, had failed to bring out any ground falling within the scope of Section 34(2) of the Act and consequently dismissed the Original Petition. It is in the said circumstances that the captioned appeal has been preferred. 2. The facts in succinct are as follows:- The appellant was the claimant before the Arbitrator. It is a Public Limited Company incorporated under the Companies Act, engaged in the business of quarrying, crushing and supply of aggregates of different specifications used in construction industry. The respondent herein is a joint venture comprising of a Malaysian Company namely M/s.Pati Sdn Bbd registered under the laws of Malaysia and an Indian Company viz., Bhageeratha **Arb.A.No. 4 of 2016** 3 Engineering Ltd and the joint venture is functioning in the name and style of M/s.Pati-Bel JV. An agreement was executed between the State of Kerala and M/s.Pati-Bel JV, the respondent in respect of KSTP-1 project. Consequently, the respondent herein gave Work Order on 04.06.2003 and thereafter, Annexure C1 agreement was executed between the appellant and the respondent on 14.07.2003. Virtually, the appellant was approached for supply of aggregates, rubble GSB and thereafter, the quarry land was identified by the respondent and then, for purchase and for developing the land so identified, the respondent offered Rs.80,00,000/-. According to the appellant, the respondent has given certain specific offers for getting the consent of the appellant for the supply of aggregates, rubble GSB etc, to the ## aforesaid project. - "1) The claimant would be awarded the Sub Contractor Status of the KSTP 2. The respondent would supply 2 Hydraulic Drilling Machines of Rs.70 lakhs each, one for rental and the other by enabling Customs and Excise duty exemptions for the use of the proposed mine to be constructed by the petitioner. 3) If the petitioner succeeded in built up a mine and crushing plant as per the norms and specifications of World Bank and RITES, the supervision Consultant of KSTP and once the KSTP approves the claimant as an approved source for the quarrying products for the above project, the **Arb.A.No. 4 of 2016** 4 respondent would take the entire products for the above said project from the petitioner, and 4) The petitioner would be given a sum of Rs.80 lakhs as advance for the purchase of mine and development of land." 3. According to the appellant, after executing Annexure C1 agreement Rs.15,00,000/- was given as advance by the respondent. Under Annexure C1 contract, more particularly, clause 17.2, the respondent was to supply 2 Hydraulic Drilling Machines for Rs.70,00,000/-, one on rental basis and the other to be purchased by the appellant with Excise and Customs duty exceptions . The appellant raised violation of clause 17.2 by the respondent. That apart, it is their claim that it had to spent more than 6.5 lakhs for purchasing the mine land. It is also their contention that during the course of business the Work Contract obtained by the respondent was terminated on 04.12.2006. According to the appellant, the said fact was not at all informed to it and in such circumstances, it had to invest an amount of more than Rs.6,74,92,296/- in the project. In such circumstances, a total claim of Rs.7,41,42,440/- was made before the Arbitrator. The existence of arbitration clause is not in dispute. The sole Arbitrator was appointed by this Court and during the pendency of **Arb.A.No. 4 of 2016** 5 the arbitral proceedings a supplementary agreement was executed between the State Government and the respondent, to the main contract and according to the appellant the work contract was thus renewed. Different heads of claims were made before the Arbitrator by the appellant herein, as can be seen from paragraph 139 of the Award dated 22.10.2009. It reads thus:- - "139) The different heads of claim under which damages have been claimed are as under: - i. Claim for the unpaid cost of materials actually supplied. The total amount claimed is Rs.58,71,935.88 with interest at the rate of 12.7% per annum from 01.08.2006 to 31.10.2007 namely Rs.9,35,840/- amounting to Rs.68,07,775.88. - ii Loss of interest at 12.75% for 18 months on capital invested stated to be Rs.6,74,92,296/- for developing the mine, establishing the unit and arranging for all infrastructural facilities for producing the materials designated in Annexure C1. The total amount claimed under the head is Rs.1,29,07,902/- - iii Loss on account of prevented gains resulting from non purchase of balance quantity of materials after deducting the quantities already supplied. Total amount claimed as loss in terms of profits is shown as Rs.4,60,00,648/- - iv Loss caused on account of non fulfilment of the undertaking contained in clause 16 of the agreement. Total amount claimed is Rs.42,00,000/- - v Loss caused on account of increase in the cost of production of the materials as a result of non performing of the undertaking contained in clause 17.2 of the agreement. **Arb.A.No. 4 of 2016** 6 The total amount claimed is Rs.41,66,092/-. The amount represents the excess cost of production calculated at 33.33% of the cost of production. vi Loss suffered as a result of incurring bank charges for extension of bank guarantee at the request of the Respondent even after the termination of the agreement with the government, The total amount claimed is Rs.1,85,000/- " 4. As per Award dated 22.10.2009 the sole Arbitrator allowed claim Nos. 1 and 5 to the extent specifically mentioned in the Award and at the same time, claim Nos.2,3,4 and 6 and the counter claim made by the respondent herein were rejected. Under claim No.1 the Arbitrator awarded an amount of Rs.5,30,388/- with future interest at the rate of 12% per annum from the date of the Award till the realisation. Under claim No.5 an amount of Rs.6,57,205/- was awarded with future interest at the rate of 12% per annum from the date of the award till the realisation. It is in the said circumstances that the appellant herein filed OP(Arb)No.111/2010 seeking to set aside the said Arbitral Award dated 22.10.2009. Virtually, 32 grounds were raised in the said Original Petition to mount challenge against the award in support to the prayer to set it aside. In the counter statement filed by the respondent herein it is contended that, the arbitration **Arb.A.No. 4 of 2016** 7 appeal is not maintainable. Further more, it is contended that none of the grounds raised in the original petition would fall within the scope of Section 34 of the Act. That apart it is contended that , a perusal of the 32 grounds raised in the Original Petition would reveal that the claimants are only reiterating their contentions raised before the Arbitrator, in the Original Petition. The impugned order was passed by the District court after considering the rival contentions and the arbitral records. As noticed hereinbefore, after such consideration the District court arrived at the conclusion that the appellant herein had failed to bring out any ground which is falling within the scope of Section 34(2) of the Act and consequently, dismissed the Original Petition. A careful scrutiny of the impugned order passed by the District court would reveal that virtually only two out of the 32 grounds were pressed into service by the appellant before the District court. Violation of clause 17.2 was pressed into service besides the grievance to the effect that escalation of diesel price was not considered by the Arbitrator. At this juncture senior counsel appearing for the respondent submitted that such a specific claim relating escalation of diesel price was not raised in the claim and consequently, no contention **Arb.A.No. 4 of 2016** 8 relating the same was raised before the Arbitrator. As noticed hereinbefore, as per Award dated 22.10.2009 the Arbitrator allowed only claim Nos.1 and 5 to the aforesaid extent and claim Nos.2, 3, 4 and 6 as also the counter claim made by the respondent herein were rejected. Despite the said fact, indisputably pointed challenge was made before the District Court only against the finding under claim No.5. We will deal with that issue a little later. 5. As noticed hereinbefore, the learned senior counsel appearing for the respondent submitted that no claim based on the contention of escalation of diesel price was raised before the Arbitrator. On perusing paragraph 139 of the Arbitral Award it is evident that, no such claim which is referable to the escalation of diesel price was raised before the Arbitrator. When that be the indisputable position, we are at a loss to understand how such a contention can be raised in a petition under Section 34 of the Act for the first time. The fact is that, the District court considered that issue and ultimately answered it against the appellant. According to us, the said question was not at all available for consideration by the District court since no claim relating the said issue was **Arb.A.No. 4 of 2016** 9 raised before the Arbitrator. When that be the circumstances, in a petition under Section 34 of the Act, the District court ought not to have considered the said contention. Be that as it may, the fact is that even after its consideration it was answered against the appellant herein. 6. Now, reverting to the question of claim No.5 it is based on violation of clause 17.2 of Annexure C1 agreement. The Arbitrator found that though the respondent herein was under an obligation to supply two Hydraulic Drilling Machines, one on rental basis and other to be purchased by the appellant with Excise and Customs duty exceptions, the respondent had failed to comply with the same. But, at the same time, the Arbitrator held that no evidence whatsoever was adduced by the appellant herein to establish the damages it suffered therefor. It is to be noted that, for quantification of damages/compensation no specific method for ascertaining the same was included specifically in the contract. Even in the absence of evidence of actual damages, the Arbitrator assessed the compensation and awarded an amount of Rs.6,57,205/- with future interest at the rate of 12% per annum from the date of award till realisation. The learned counsel for the **Arb.A.No. 4 of 2016** 10 appellant submitted that the expectations of the appellant ought to have been taken into consideration by the Arbitrator while quantifying compensation under claim No.5. The failure on the part of the Arbitrator in that regard escaped the attention of the District court and therefore the order passed by the District court is liable to be interfered with. While considering the said contention it is only apposite to refer to the decision of the Hon'ble Apex Court in **McDermott International Inc. v. Burn Standard Co. Ltd. And others** reported in [(2006) 11 SCC 181]. Going by the dictum laid down therein in the absence of any specific method of computation of damages in the contract if appropriate formula was followed by the arbitrator for quantifying damages/compensation, it is not available for interference. On the question whether the Court could consider the expectations as a reason for interference with an Award, it was answered in the negative. The Apex Court in an unambiguous terms held that while quantifying damages/compensation, court must consider only the strict legal obligations and not the expectations, however, reasonable it is. We have already taken note of the fact that in the Award the Arbitrator has specifically stated that, in that regard no **Arb.A.No. 4 of 2016** 11 evidence whatsoever was adduced by the appellant herein. Thus it was not at all disputed by the appellant herein even in the proceedings before the District court and needless to say that there is no dispute with respect to the issue even in this appeal. Therefore, when the undisputed position is that the appellant had failed to adduce any evidence to establish the actual damages we have no hesitation to hold in the light of the decision of the Hon'ble Apex Court in **McDermott International Inc** ' case (supra) that the finding on the same is not available for interference by this court. Rightfully, the District court had declined to interfere with the same as per the impugned order. Though a feeble attempt was made by the learned counsel to contend that the Award is patently illegal, contrary to justice, morality and fundamental policy of India, a perusal of the impugned order passed by the District court would reveal that the said contention was not specifically pressed into service before the District court. Even though it was not pressed into service we have carefully gone through the grounds raised in the appeal. What exactly is the patent illegality? How the Award is contrary to justice, morality and fundamental policy of India?. Those aspects were not **Arb.A.No. 4 of 2016** 12 specifically raised in the appeal. In this context it is also relevant to note that the appellant herein had not taken any specific ground to establish that the Award is against the public policy of India. When that be the circumstances, the appellant cannot be permitted to raise such contentions. Though ground No.6 was raised before the District court contending that the Award to the extent it went against the interest of the petitioner, is patently illegal, contrary to justice, morality and the public policy of India, such a contention was seen not pressed into service. At any rate, no ground was raised by the appellant even in this appeal to interfere with the order passed by the District court as also the Award passed by the Arbitrator on those grounds. There can be little doubt with respect to the position that the scope of interference under Section 34 of the Act is minimal . In that context it is only worthy to refer to paragraph 33 of the decision of the Hon'ble Apex Court in **P.R SHAH SHARES AND STOCK BROKERS PRIVATE LTD. v. B H H SECURITIES PRIVATE LTD. AND OTHERES** reported in 2012(1) SCC 594. The Apex Court held therein thus:- "A court does not sit in appeal over the award of Arbitral **Arb.A.No. 4 of 2016** 13 Tribunal by re-assessing or re-appreciating the evidence. An award can be challenged only under the grounds mentioned in Section 34(2) of the Act." In the said circumstances, when once the District court found that the appellant herein had failed to bring out the case within the scope of Section 34(2) of the Act, when we found no reason to disagree with the said findings, absolutely there is no scope of interference under Section 37 of the Act. Upshot of the discussion is that, appeal must fail and consequently, it is dismissed. ## **Sd/-** ## **C.T.RAVIKUMAR** ## **JUDGE** **Sd/-** **N.NAGARESH** dlk/14.06.19 **JUDGE**