Arbitration In IndiaEntire arbitration award need not be set aside due to the perversity in one specific claim or counter-claim

FACTS

The Delhi High Court in the case of Bawana Infra Development Pvt. Ltd vs. Delhi State Industrial & Infrastructure Development Corporation Ltd [2023 SCC Online Del 1569], held that the entire arbitration award need not be set aside due to the perversity in one specific claim or counter-claim.

Delhi State Industrial and Infrastructure Development Corporation Ltd. (hereinafter referred to as “the Respondent”) invited bids to vide advertisement for redeveloping, operating, and maintaining the infrastructure and utilities of the industrial area of the project are on Public Private Partnership basis. The consortium of the selected bidder was awarded the contract and a concession agreement (hereinafter referred to as “Agreement”) was executed. According to the Agreement, Bawana Infra Development Private Limited (hereinafter referred to as “the Petitioner”) was required to re-develop, construct, operate and maintain the Project Area for fifteen years. The first two years of this period were earmarked for the construction of Mandatory Capital Projects, whereas the remaining thirteen years were reserved for maintaining and operating the Project Area.

The Petitioner requested for the completion certificate. However, instead of the Petitioner, a third party issued a “Provisional Certificate” to the Respondent. The Respondent further abstained from issuing the completion certificate on the accord of the incomplete work of the Petitioner. It is alleged by the Respondent that the Petitioner tried to obtain the completion certificate from the third party without completing the consignment.

The impugned Award was passed without considering the clauses of the Agreement while adjudicating on the rate of interest to be granted. The appeal petition has been filed under Section 34 of the Arbitration and Conciliation Act, 1996.(the Act)

ISSUES BEFORE THE HIGH COURT OF DELHI

Whether the Arbitral Award can be modified by the Court within the ambit of the power enshrined under Section 34 of the Arbitration Act.

CONTENTIONS OF THE PARTIES

Contention of Petitioner

The Petitioner submitted that while awarding Claim, the learned Sole Arbitrator committed a grave error while ignoring the terms of the Agreement, which in no manner provides that the Petitioner was entitled to collect the maintenance charges from the annuity commencement date and respondent was liable to deposit the said amount in the Escrow Account. He further submitted that the learned Sole Arbitrator did not only ignore the contractual obligations of the Respondent but also the Respondent’s letter dated 7^th December 2011, whereby the Respondent had once again assured the Petitioner that “in case of non-payment of maintenance charges by the Industrial Plot Owners, DSIIDC owe the responsibility.” The said letter could not have been withdrawn on a later date by the Respondent and the Respondent was barred by the principle of “Promissory Estoppel”.

The Petitioner submitted that the Respondent promised to take responsibility of payment of maintenance charges vide letter dated 7th December 2011, in addition to the promise already expressed in the Agreement. The learned Sole Arbitrator in complete ignorance of the above-mentioned position and without appreciating the acute financial stress being faced by the Petitioner left the issue/ dispute open-ended, which not only resulted into making the entire Arbitral proceedings a sheer waste of time but also allowed the Respondent to take advantage of its own wrong and further delay the contractual entitlements of Applicant/Petitioner.

He further submitted that the Respondent had the necessary power and the authority under the Agreement as well as under the Delhi Industrial Development, Operational and Maintenance Act, 2010, to initiate action against the defaulters, however, Respondent chose not to act in terms thereof. Therefore, the impugned award in respect of rate of interest payable to the Petitioner for the delayed payment of annuity as well as other amounts is liable to be set aside by this Hon’ble Court.

Contention of Respondent

The Respondent submited that the project was completed within the stipulated period. The test works were incomplete based on the notice of the Petitioner dated 30^th August 2013 and a report dated 11th December 2013 and not up to the standards specified in the Agreement. The “Provisional Completion Certificate” was never issued to the Petitioner, as was ought to be done upon completion by the third-party Engineer in accordance to the Agreement. He further submitted that the letter dated 21st April 2014 showing the completion date as 15th March 2014 was issued to the Petitioner erroneously and inadvertently as the works were not completed. As per the clarification letter issued within 24 hours’ period, establishes that the aforesaid letter was issued erroneously.

The Respondent submitted that the Petitioner was not entitled to payment of annuity from 15th December 2013 since the work was incomplete and no Provisional Completion Certificate was issued. He further submitted that no such work of road restoration has been executed by the Petitioner and that the Petitioner vide its communication dated 17th April 2014 raised a claim for having executed road restoration work. The Petitioner was able to provide details for one of the work only vide communication dated 11th February 2015, for which the amount of Rs. 16,71,623/- was released, and gave up other claims for road restoration work.

The Respondent submitted that the Petitioner is not entitled to raise a claim of Rs. 3,92,19,430/- along with interest against Claim No. 5. Under Section 11.4(c) (ii) (aa) of the Agreement, the Concessionaire is authorized to suspend the provision of services being provided pursuant to the Agreement to the defaulting units upon the occurrence of a default in payment of maintenance charges and/or other charges to the concessionaire. Through communication dated 8^th June 2012, the provisional charges for CETP were fixed at an appropriate rate and actual charges could have been fixed only if the Petitioner submitted its audited expenditure.

He further submitted that the Petitioner failed to fulfill its obligations under the Agreement, and since September 2016, 10% of the maintenance charges collected from the unit owners were withheld. Additionally, he submitted that the Respondents have released 75% of the maintenance charges on the assurance that the petitioner would complete all the works and maintain the service standards as per the Agreement. There is no provision in the Agreement that allows the Petitioner to seek reimbursement from the Respondent with respect to Claim no. 9

The Respondent submitted that the delay in releasing of payments from the Designated Account to the Escrow account was solely due to the omissions and inaction on part of the Petitioner. He further submitted that in view of the foregoing submissions, the instant petition is liable to be dismissed.

DECISION AND FINDINGS

The Court stated that “A bare reading of Section 31 (7) (a) of the Act makes it evident that the Section applies only where there is no previous Agreement as to the rate of interest to be awarded. It is as plain as a pikestaff that the learned Arbitral Tribunal has gone beyond the contract and awarded an interest rate that is quite clearly not the rate the parties had previously agreed upon.” The Agreement between the parties expressly stipulated the rate of interest when there is a delayed payment.

The Court held that the Arbitral Tribunal may not resort to Section 31(7)(b), while awarding post-award interest when express provisions regarding the rate of interest are present in the Agreement. The rate of interest granted by the Arbitrator is the rate provided under Section 31(7)(b), and it is not in accordance with the provisions of the Agreement. It is thus transparent from the aforementioned reasons that claim with regard to the rate of interest shall be set aside as the same is contrary to the rate of interest agreed upon by the parties vide Agreement. Thus, the impugned Arbitral Award in terms of claim with regard to the rate of interest is not in consonance with Section 31(7)(a) of the Act.

The lack of adequate reasoning regarding the award and the deviation from the Agreement in fixing the rate of interest shows that there wasn’t adequate reasoning and the decision was perverse, respectively. The Court held the award of these claims is found to be patently illegal and contrary to the fundamental policies of India. The Court thus partly allowed the petition and set aside the award only with respect to certain claims which suffered from patent illegality.

AMLEGALS REMARKS

The Court may partly set aside an award based on the facts and circumstances of the case when hearing an application under Section 34 of the Act. Therefore, it would not be incorrect to say that each claim was distinct and separate in nature as determined by the arbitrator. But the arbitrator has not taken into the consideration the agreement well and the default on the part of the arbitrator in interpreting the clauses. If not, it would be unlawful, unfair, and inequitable and fail to uphold the principles of justice.

The Sole Arbitrator was required to take a judicial stance, the natural justice principles had to be maintained and the decision could not have been egregious or even perverse.

– Team AMLEGALS

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