In FAO(OS)(COMM) 77/2022-DEL HC- Arbitration being matter of contract, parties are entitled to fix boundaries to limit jurisdiction and legal authority of Arbitrator: Delhi HC Justices Mukta Gupta & Neena Bansal Krishna [03-06-2022]

Read Order: DELHI STATE INDUSTRIAL AND INFRASTRUCTURE DEVELOPMENT CORPORATION LTD Vs. M/S H.R. BUILDERS 

Mansimran Kaur

New Delhi, June 6, 2022: The Delhi High Court has held that the scope of interference under Sections 34 and 37 of the Arbitration & Conciliation Act, 1996 is extremely confined and is justified in cases wherein an award is in conflict with the public policy of India, which includes cases of fraud, breach of fundamental policy of Indian law and breach of public morality or is patently illegal.

Discussing the law relating to arbitration, the Division Bench of Justice Mukta Gupta and Justice Neena Bansal Krishna said, “ Arbitration being a matter of contract, the parties are entitled to fix the boundaries so as to confer and limit the jurisdiction and legal authority of the arbitrator. An arbitration agreement can be comprehensive and broad to include any dispute or can be confined to specific disputes. The scope of arbitrators jurisdiction invariably arises when the disputes that are arbitrable are enumerated or the arbitration agreement provides for exclusions as in case of excepted matters which are the matters where the parties expressly exclude certain disputes to be referred to arbitration in respect of which the Arbitral Tribunal may not have jurisdiction to adjudicate such disputes.”

The facts relevant for adjudication of the present appeal were that the Government of National Capital Territory of Delhi launched a project for Refurbishment and Upgradation of 198 schools run by the GNCTD. The implementation of the part project was assigned to DSIIDC.  Consequently, DSIIDC invited tenders for the entire work including electric and civil work for 25 schools which were part of the project. In pursuance of the same, the bid of HRB was accepted and the Letter of Acceptance was issued awarding the work of Integrated Infrastructure Development of Delhi Govt. Schools under the subhead Improvement and Up gradation of 25 Government Schools Buildings in North West. 

There was considerable delay in completion of the work and it was eventually completed after a delay of 478 days.  Subsequently, DSIIDC withheld the part payment of final bills and also made certain recoveries from the amount payable to the HRB on account of delay, which according to DSIIDC was attributable to the respondent. Also, the executed work was found to be faulty and damages were sought.  These facts caused the dispute between the parties and called for invoking the Arbitration Clause. The Arbitral Tribunal allowed the HRB to pursue its Claim No.9 in regard to the costs but declined the amendment of first claim to enhance the claim value.

In view of the same, HRB filed a petition before the present Court under Article 227 of the Indian Constitution. While the petition was lying sub – judice, the Arbitral Tribunal rendered the impugned award whereby DSIIDC was directed to pay Rs 3,04,91,623 to the respondent and dismissed the counterclaim of DSIIDC in the sum of Rs 20,05,00,000. Consequently, HRB withdrew its petition o with liberty to agitate its grievances in its petition under Section 34 of the Act 1996. The objections were filed under Section 34 of the Act, 1996 in respect of the order dated September 27, 2017 wherein the amendment to first claim was disallowed.  In view of the same, DSIIDC filed separate objections under Section 34 assailing the award dated April 13, 2018.  The Single Judge, after considering the submissions of both the parties, dismissed the objections under Section 34 of the Act, 1996. Aggrieved by the same, the present appeal was instituted under 37 (1) (c) of the Act, 1996. 

On the question of delay/prolongation and consequent compensation being not arbitrable, the Court opined that this aspect was explained in the decision of Vidya Drolia Vs. Durga Trading Corporation  decided by the Hon’ble Supreme Court. It was observed that non-arbitrability is basic to arbitration as it relates to the very jurisdiction of the Arbitral Tribunal, the Court noted.  Referring to Clause 2, the Bench opined that it was clearly stipulated that the authority as specified under Schedule F of the Agreement is empowered to calculate the compensation payable at the specified rate if the contractor fails to complete the work and clear the site as agreed. The decision of the specified Authority in regard to the computation of compensation was final and complete and was excluded from the scope of the arbitration clause. However, the compensation becane leviable only on account of delay, the Court stated. 

Further the argument raised by the DSIIDC that the claim of the petitioner fell in an excepted manner and could not have been adjudicated by Arbitral Tribunal was found to be an after-thought and not supported by the pleadings and the Bench held that it was rightly upheld by the Arbitral Tribunal’s decision to award a sum of Rs 1, 04,60,700 to HRD which was recovered by DSIIDC in the Final Bill. The conclusion arrived at by the Single Judge that the question of determination of delay was not an excepted matter and was based on the evidence and pleadings and did not suffer from any patent illegality, the Court noted. It was also held that the Arbitral Tribunal’s decision to allow the M/s H.R. Builderss claim for Labour Cess @ 1% and DVAT @ 3% of the amount of work done did not call for any interference.

The other contention of the DSIIDC was in regard to the escalation awarded in favour of the M/s H.R. Builders, which was claimed to be patently illegal, in view of the  same, the observed that the Single Judge again upheld the conclusion of the Arbitral Tribunal as well reasoned and had considered the indices adopted by Director General, CPWD to be more appropriate and had accordingly moderated the amount claimed by the HRB considering the time for completion of work far exceeded the initial period as contemplated under the Agreement, the Arbitral Tribunals decision to award escalation on the basis of indices published by CPWD were held to be not perverse or unreasonable. Reliance was placed on the Apex Court judgments in the cases,  McDermott International Inc. Vs. Burn Standard Co. Ltd ,  Dyna Technologie(P) Ltd. Vs. Cromption Greaves Ltd and  National Highway Authority of India vs. M. Hakeem. In light of the aforesaid observations, the Court concluded that there was no merit in the present appeal filed under Section 37 and accordingly dismissed the same.