Delhi High Court: In a petition filed by the petitioner under Section 34 of the Arbitration and Conciliation Act, 1996 raising objections to the arbitral award dated 07-10-2019 corrected on 18-12-2019 seeking to set aside the majority Award passed by Retired Justice B. P. Jeevan Reddy and Sh. K.K. Madan to the extent that it allows the claims of the respondent and rejected Counter-Claims. Chandra Dhari Singh, J., sets aside the impugned award as it does not set forth the reasons for the grant of award of additional costs of Rs. 60 Crores in favour of the respondent and against the petitioner.
Factual Background
The petitioner proposed a Hydro Electric Project on river Chenab and invited fresh bids for the work which was divided into two packages, an Upstream Area Work and a Downstream Area Work. The Joint Venture of Jaiprakash Industries Limited and Statkraft Anlegg AS, subsequently amalgamated with Jaypee Cement Limited and came to be known as Jaiprakash Associates Limited, the respondent herein. JP Associates were awarded the work for the two packages and the parties entered a Contract, wherein the scope of work awarded was delineated including the time for completion of the work.
However, due to certain hindrances, the respondent was not able to complete the work within the stipulated term of 33 months inspite of time extensions, the certificate of completion was eventually issued to the respondent. Accordingly, the final bill for the two packages was also furnished by the respondent claiming a total amount of Rs. 360.56 Crores, which was rejected by the petitioner on certain grounds. Thus, the respondent invoked arbitration clause and an Arbitral Tribunal was constituted comprising three Arbitrators, including a Presiding Arbitrator, and arbitration proceedings were initiated between the parties. The Tribunal passed the Minority and Majority Award which stands impugned in the present petition.
Issue 1: Whether the findings of the Arbitral Tribunal qua additional costs are based on no evidence or no reasons?
The Court noted that the principle of no evidence and no reasons emanate from Section 31 of Arbitration Act, stating that there is an obligation on the arbitral tribunal to state reasons for its award unless the parties have expressly agreed to the contrary or if the parties have settled their disputes and the arbitration proceedings are terminated as a consequence. It is hence incumbent, as provided under the provision, that the arbitral tribunal concerned passes an award that is supported by reasons.
Placing reliance on Associate Builders v. DDA, (2015) 3 SCC 49 the Court further noted that perusal of the relevant portion of the award shows that the respondent failed to produce any material basis which the quantum of the award could be arrived at. In the absence of any material substantiating the claim of the respondent, which was originally of more than 300 Crores, was decided to be fixed at 60 Crores. Thus, without any reasons or fixing responsibility of payment of compensation, a significant amount of Rs. 60 Crores, without any basis, has been levied upon the petitioner.
The Court held that there is nothing in the language of the award that shows any reasonable considerations being given before passing the award, thus, the case of the petitioner falls under the principle of no evidence. The Arbitral Tribunal has failed to delineate and specify any reason for fixing the amount of Rs. 60 Crores as an additional cost in favour of the respondent and against the petitioner.
Issue 2: Whether the Arbitral Tribunal was barred in terms of the Act and the Contract between the parties to pass the Award based on equity and good conscience?
The Court noted that Section 28(2) of the Act refers to the legal principle of ‘ex aequo et bono’ which in its literal translation means ‘according to the right and good’, which places an express bar on the Tribunal to act and award anything solely based on equity. The law prevailing shall be applied justly, duly and impartially, before reaching a conclusion and granting monetary relief of compensation to a party.
The Court further observed that when the respondent herein failed to produce any material before the Tribunal to substantiate its claims of costs and the quantum thereof, which has been categorically observed by the Tribunal in its findings, the Tribunal proceeded with granting an award based on estimates and equity after taking note of the absence of any evidence or material. Neither in the contract nor by way of any communication has it been shown that the Tribunal was authorized to act based on equity. Therefore, the Tribunal was barred from granting an award ex aequo et bono.
Decision
The Court held that keeping in view the aforesaid facts, circumstances, contentions raised on behalf of the parties, arguments advanced, law reiterated, and analysis made, the grant of additional cost must not survive. The impugned Award does not set forth the reasons for the grant of award of additional costs of Rs. 60 Crores in favour of the respondent and against the petitioner. There was no material on record to substantiate the quantum of the additional costs claimed and at the second stage and was not within the scope of the Arbitral Tribunal to grant an award based on estimates made on equity.
[NHPC v J P Associates Limited, 2023 SCC OnLine Del 3294, decided on 26-05-2023]
Advocates who appeared in this case :
Mr. Gauhar Mirza, Mr. Prakhar Deep and Ms. Purnima Mathur, Advocates for the Petitioner;
Mr. Lovkesh Sawhney, Sr. Advocate with Mr. R. K. Mishra, Mr. Rohit Kumar and Ms. Navita Gupta, Advocates for the Respondent.
