LE Correspondent

New Delhi, April 5, 2022: Clarifying that the scope of interference on the ground of patent illegality under Section 34(2A) of the Arbitration & Conciliation Act, 1996,  does not extend to re-appreciating the material before the Arbitral Tribunal and re-adjudicating the disputes, the Delhi High Court has dismissed a Petition challenging an Arbitral award.

In this case, the East Central Railway entered into an agreement with the petitioner-Ircon International to execute the work pertaining to construction of steel superstructure and other ancillary work for the project Rail-cum-road Bridge across river Ganga. Thereafter, Ircon had sub let the work of fabrication of steel  bridge girders for new rail-cum road bridge over river Ganga.  The respondent came out to be the lowest bidder and consequently Ircon issued a ‘Letter of Award’ to the respondent in order to execute the contract at a total cost of Rs. 135.59 crores.  Thereafter the parties entered into another contract referred to as ‘Erection Contract’ at a cost of Rs 107.08 crores. 

The dispute arose with respect to the time period assigned for completion of the “Erection Contract’ as the same was completed after eighty six months but the stipulated time period to complete the contract was forty- five months from the date of its commencement. 

The respondent claimed that there was a delay in completion of the works under the Contracts for reasons attributable to Ircon as a result of which, it had suffered financial hardships and incurred heavy losses. However both the parties arranged a meeting to resolve the claims and a NO Claim certificate was issued by the respondent to Ircon, hence restraining  respondent  from  raising  any further claims. 

The cause of action in the present matter arose, when the resplendent in spite of settling its claim and issuing “NO Claim Certificate” raised claims by its letter dated March 27, 2018. The respondent claimed an amount of Rs 50,95,18,949 in respect of the Fabrication Contract and an amount of  Rs 35,26,10,345 under the Erection Contract. The Arbitral Tribunal partially allowed the claims of the respondent and the same was being challenged by Ircon in the present petition. 

The Bench of Justice Vibhu Bakhru reaffirmed the settled law that the question as to interpretation of a clause of a contract falls within the jurisdiction of an arbitral tribunal. The decision of the arbitral tribunal cannot be interfered with unless the same is found to be patently illegal or in conflict with the Public Policy of India.

According to the Court, the Arbitral Tribunal had examined various facets of the disputes and had taken an informed decision. “The scope of interference on the ground of patent illegality under Section 34(2A) of the A&C Act does not extend to re-appreciating the material before the Arbitral Tribunal and re-adjudicating the disputes”, said the Bench.

Justice Bakhru also held that the contention that the impugned award was vitiated by patent illegality as it was based on no evidence, was unmerited.  “It is necessary to bear in mind that the Indian Evidence Act, 1872 and the strict rules of evidence are inapplicable to arbitral proceedings. The Arbitral Tribunal is required to render a decision after evaluating the material placed before it,” he added.

On the issue of the Chartered Accountant’s Certificate, the Bench mentioned that  Certificate indicated that it was accompanied by Statement of Administrative and other Overhead Expenses. Further, the concerned Chartered Accountant had also certified that he had examined the same from various books and accounts maintained by the respondent including vouchers, bank statements, bills, invoices, as well as other relevant supporting records and documents maintained by the respondent. The Arbitral Tribunal had also accepted the said Certificate. Although, the author of the said Certificate was not examined, the concerned officer of the respondent had produced the said Certificate and duly affirmed the quantification. 

Justice Bakhru asserted, “…strict rules of evidence do not apply to arbitral proceedings and there is considerable discretion available with the Arbitral Tribunal to take a view on the quality and the sufficiency of evidence. The contention that the impugned award is required to be set aside on the ground that quantification of certain claims awarded in favour of the respondent is without any material, is unmerited.”

As per the Bench,the contention that the impugned award was vitiated by patent illegality as the Arbitral Tribunal had awarded claims on account of delay in completion of the works despite holding that the respondent was partly responsible for the same,was unmerited.

The Bench also found no infirmity in  the Tribunal’s view that given that the parties had contributed to certain delays, it was essential to apply the principle of apportionment. After evaluating the reasons for the delay, the Arbitral Tribunal concluded that half of the delay could be apportioned to both Ircon and the respondent. However, for the remaining half, Ircon was solely responsible for the same. Therefore, only half of the claim made by the respondent on account of idling costs was allowed by the Arbitral Tribunal.

Holding that the impugned award did not require any interference in this proceeding, the Court dismissed the Petition.

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