Delhi District Court
M/S H.S Oberoi Buildtech Private … vs Union Of India on 4 March, 2025
IN THE COURT OF GORAKH NATH PANDEY
DISTRICT JUDGE (COMMERCIAL COURT-08),
CENTRAL DISTRICT, TIS HAZARI COURTS: DELHI.
OMP (COMM.) 75/2021
CNR NO.DLCT01-013762-2021
M/S. H. S. OBEROI BUILDTECH PVT. LTD.,
B-11/9, DLF PHASE -V, SECTOR - 54,
GURGRAM HARYANA
THROUGH ITS DIRECTOR MR. H. S. OBEROI.
.....PETITIONER
VS.
UNION OF INDIA
(EARLIER IMPLEADED AS ORGANIZING
COMMITTEE COMMON WEALTH GAMES
2010)
THROUGH THE SECRETARY DEPARTMENT OF SPORTS
MINISTRY OF YOUTH AFFAIRS AND SPORTS
SHASTRI BHAWAN, NEW DELHI.
....RESPONDENT
Date of Institution : 23.10.2021
Date of final arguments : 03.02.2025
Date of decision : 04.03.2025
Decision : Allowed.
J U D G E M E N T:
–
1. Vide this judgment, I shall decide the present petition
under Section 34 of the Arbitration & Conciliation Act, 1996
filed by petitioner for challenging the impugned award dated
05.03.2019 in case titled as “Union of India Vs. M/s. H. S.
Oberoi Building Pvt. Ltd.” (hereinafter called as impugned
award) whereby Ld. Arbitrator has passed the following award:
OMP (COMM.) 75/2021 Page no.1/25
M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA
(i) Rs.13,70,440/- towards DVAT which was deposited on
behalf of the respondent.
(ii) Rs.27,40,880/- towards penalty calculated @ 4% p.a. on
the total payment of Rs.6,85,22,008/- received by the respondent.
(iii) Rs.30,83,490/- towards interest calculated @ 15% p.a.
(iv) Pendentelite and future interest @ 10% per annum from
the date of filing of the claim i.e. 08.07.13 till the payment.
(v) Rs.2 lacs towards cost of arbitral proceedings and the
lawyers fee.
2. The brief facts as stated in the petition are as below:
Vide letter of acceptance dated 02.09.2018 of the
respondent, the respondent was awarded work of carrying out
interiors at the office of 5th and 6th Floor, NDCC Phase-II,
Building of NDMC, Opposite Jantar Mantar, Connaught Place,
New Delhi for total amount of Rs.7,66,88,778/- to be completed
within three months from the date of commencement which was
15th day from the date of letter (i.e. 17.09.2018). In furtherance of
the letter of acceptance, an agreement dated 16.09.2018 was
signed and executed between the parties.
On 20.06.2009, the petitioner informed the respondent to
take the premises as the work was complete though the work
could not be completed in stipulated time due to the reasons
attributed to the respondent. The respondent took over the
possession of the premises on 18.08.2009. The petitionerOMP (COMM.) 75/2021 Page no.2/25
M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA
submitted the final bill of Rs.7,26,54,745/- for the work done by
it. Against the said bill, the respondent made payment of
Rs.6,85,22,008/- and withheld the remaining payment on
frivolous grounds.
Vide letter dated 22.02.12, the respondent intimated
regarding the notice under Section 59 of DVAT Act from Govt. of
NCT of Delhi to the effect that TDS under DVAT has not been
deducted in view of Section 36 of the Act and asked for the
relevant documents from the petitioner. Vide letter dated
25.02.12, the petitioner requested the respondent to furnish the
details of the notice. Vide letter dated 01.10.2012, the petitioner
was asked to pay Rs.13,70,740/- towards DVAT; vide letter dated
14.12.12, the respondent invoked the arbitration clause and
appointed Sole Arbitrator.
The respondent herein filed claim before the Ld. Arbitrator
on 29.07.13 contending receipt of the letter/notice dated 29.11.12
from the DVAT Officer, Govt. of NCT of Delhi stating that the
respondent has not deducted DVAT @ 2% or 4% from the
payment to registered and unregistered dealers. The respondent
further claimed that the notice was replied. Notice dated 28.02.12
was again receipt seeking explanation as to why DVAT was not
deducted on the payment made. Vide order/notice dated 13.03.12,
VATO held that the respondent failed to explain the reasons for
not deducting the DVAT against the payment made to the
contractor which was the statutory duty of the respondent,
directed the respondent to pay the due amount. Upon filing of the
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M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA
objections by the respondent, the Commissioner vide order dated
13.03.12 modified the order dated 01.02.13. Rectified demand of
Rs.84,02,079/- towards DVAT and penalty was raised and the
respondent vide challan dated 25.03.2023 deposited
Rs.44,37,214/- towards DVAT. The claimant prayed for
following reliefs in the claim petition before the Ld. Arbitrator as
under:
(1) Award an amount of Rs.13,70,440/- towards TDS
calculated @ 2% on the total payment of Rs.6,85,22,008/- made
to the respondent.
(2) Award an amount of Rs.27,40,880/- towards penalty
calculated @ 4% on the total payment of Rs.6,85,22,008/- made
to the respondent.
(3) Awards an interest of Rs.30,83,490/- calculated @ 15% on
TDS plus penalty for the period of five years.
(4) Award pendentelite and future interest on the aforesaid
amount.
(5) Award cost of proceedings. (6) Award any other relief.
The petitioner herein also filed reply to the claim petition
filed by the respondent herein before the Ld. Arbitrator. Ld.
Arbitrator passed the award dated 05.03.2019 in favour of the
respondent. Hence the present petition.
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M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA
3. The impugned award is challenged by the petitioner on the
grounds as mentioned below:
(i) Ld. Sole Arbitrator has passed the impugned award in a
very mechanical manner without considering the facts and
pleadings on record and ignoring the provisions of law;
(ii) Impugned award and entire arbitral proceedings are
vitiated since there is violation of Section 12 of the Act and the
appointment of Ld. Arbitrator is vitiated;
(iii) Impugned award is patently illegal and against the public
policy of Indian Law as the same arbitrator has been appointed in
arbitration by the same party i.e. Organising Committee of
Commonwealth Games;
(iv) Award is in conflict with public policy of India and is
patently illegal;
(v) Ld. Sole Arbitrator has failed to appreciate that the
respondent has never complied with any of the conditions of the
contract executed between the parties and violated the terms of
the contract;
(vi) Ld. Arbitrator failed to appreciate that the claim of the
respondent is against the provision of Order II Rule 2 CPC as the
respondent has filed two claims arising out of the same very
contract which is impermissible in law;
(vii) Ld. Arbitrator failed to appreciate that the terms of contract
relied upon by the respondent is contrary to law i.e. DVAT Act
and is void and not enforceable;
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M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA
(viii) Ld. Arbitrator erred in making the award and same is
defeating the provision of law;
(ix) Ld. Arbitrator failed to appreciate the established principle
of law that no one would pay the cost of act and negligence of
other. In the present case, the respondent was liable to obtain
TAN number and also liable to deduct the requisite amount of
DVAT from the bills of contractor and deposit the same with the
department and issue certificate thereof but the respondent failed
to do so and shifted the burden of it on the petitioner.
In view of these circumstances, it is claimed that the award
passed by the Ld. Arbitrator is not sustainable in the eyes of law
and the same is liable to be set aside.
4. The respondent did not file reply to the petition.
5. I have heard the final arguments addressed by Ld. Counsel
for both the sides and gone through the written submissions filed
on their behalf. I have also gone through the arbitral records.
Following judgments relied by the counsel for the petitioner in
support of contentions as below:
(1) UOI Vs. Reliance Industries Ltd. & Ors., FAO (OS)
(Comm.) 201/2023 decided on 14.02.2025 by Hon’ble High
Court of Delhi.
(2) Organizing Committee Commonwealth Games, 2010 Vs.
PICO Deepali Overlays Consortium and Anr, OMP (Comm) No.
30/2015 decided by Hon’ble Delhi High Court on 08.03.2016;
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M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA
(3) State of Chhatisgarh Vs. M/s. Sal Udyog (P) Ltd. decided
on 08.11.2021 by Hon’ble Supreme Court of India;
(4) Delhi Metro Rail Corporation Ltd. Vs. Simplex
Infrastructure Ltd., 2011 VII AD Delhi 230;
(5) Sunil Kukreja Vs. North West Sales & Marketing Ltd.,
OMP (Comm) 456/2017 decided by Hon’ble Delhi High Court
on 24.04.2018.
The Ld. Counsel for the respondent vehemently argued
that the petition is liable to be dismissed and the award is entitled
to be upheld being passed as per the facts of the case. The
respondent in the written submissions relied upon the judgments
as below in support of contentions:
(1) Puri Construction Pvt. Ltd. vs. UOI, AIR 1989 SC 777;
(2) Indu Engineering & Textiles Ltd. Vs. DDA, 2001 SLT 190;
(3) Allen Berry & Co. Pvt. Ltd. Vs. UOI, AIR 1971 SC 696;
(4) Associate Builders Vs. DDA, (2015) 3 SCC 49.
(5) Union of India Vs. Popular Construction Co., 2001 SCC 8
470.
6. Alongwith the petition, an application under Section 5 read
with Section 14 of the Limitation Act was filed by the petitioner
to condone the delay of 26 days in filing the petition. As
contended, after the award was passed, it was challenged before
the Competent Court at Patiala House Courts. The petition was
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M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA
returned on the ground of jurisdiction and again filed before this
court. I have considered the records. The impugned dated
05.03.2019 was challenged before the Competent Court at Patiala
House and it was returned to the petitioner vide order dated
17.09.21. There is no dispute that the award was challenged
before the Competent Court at Patiala House, New Delhi within
time. The petition was filed before this court on 18.10.2021. It is
contended by the petitioner that it took time in getting the
certified copy after the petition was returned on the ground of
jurisdiction. The certified copy of the order is stamped dated
07.10.2021. In view of the sufficient reasons explained by the
petitioner, the delay in filing the petition is condoned and the
application is disposed off.
7. Section 34 of the Arbitration and Conciliation Act, 1996
deals with setting aside of an arbitral award. The scope and ambit
of the jurisdiction under Section 34 was dealt and explained in
detail by Hon’ble Apex Court in Delhi Airport Metro Express
Pvt. Ltd. Vs. Delhi Metro Rail Corporation Ltd., (2022) 1 SCC
131 wherein it is held as under:
“20. The 1996 Act was enacted to consolidate and
amend the law relating to domestic arbitration,
international commercial arbitration and enforcement of
foreign arbitral awards and also to define the law relating
to conciliation and for matters connected therewith, by
taking into account the United Nations Commission on
International Trade Law (UNCITRAL) Model Law on
International Commercial Arbitration and the
UNCITRAL Conciliation Rules. One of the principal
objectives of the 1996 Act is to minimize the supervisory
role of courts in the arbitral process. With respect to Part
I of the 1996 Act, Section 5 imposes a bar on interventionOMP (COMM.) 75/2021 Page no.8/25
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by a judicial authority except where provided for,
notwithstanding anything contained in any other law for
the time being in force. An application for setting aside
an arbitral award can only be made in accordance with
provisions of Section 34 of the 1996 Act. Relevant
provisions of Section 34 (as they were prior to the
Arbitration and Conciliation (Amendment) Act, 2015)
read as under:-
“34. Application for setting aside arbitral award.-
(1) Recourse to a Court against an arbitral award
may be made only by an application for setting
aside such award in accordance with sub-section
(2) and sub-section (3).
(2) An arbitral award may be set aside by the Court
only if –
(a) the party making the application furnishes
proof that –
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the
law to which the parties have subjected it or,failing
any indication thereon, under the law for the time
being in force; or
(iii) the party making the application was not given
proper notice of the appointment of an arbitrator or
of the arbitral proceedings or was otherwise unable
to present his case; or
(iv) the arbitral award deals with a dispute not
contemplated by or not falling within the terms of
the submission to arbitration, or it contains
decisions on matters beyond the scope of the
submission to arbitration:Provided that, if the
decisions on matters submitted to arbitration can
be separated from those not so submitted, only that
part of the arbitral award which contains decisions
on matters not submitted to arbitration may be set
aside; or
(v) the composition of the arbitral tribunal or the
arbitral procedure was not in accordance with the
agreement of the parties, unless such agreement
was in conflict with a provision of this Part from
which the parties cannot derogate, or, failing such
agreement, was not in accordance with this Part;or
(b) the Court finds that –
(i) the subject-matter of the dispute is not capable
of settlement by arbitration under the law for the
time being in force, orOMP (COMM.) 75/2021 Page no.9/25
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(ii) the arbitral award is in conflict with the public
policy of India.
Explanation.–Without prejudice to the generality
of sub-clause (ii), it is hereby declared, for the
avoidance of any doubt, that an award is in conflict
with the public policy of India if the making of the
award was induced or affected by fraud or
corruption or was in violation of section 75 or
section 81….”
22. A cumulative reading of the UNCITRAL Model Law
and Rules, the legislative intent with which the 1996 Act
is made, Section 5 and Section 34 of the 1996 Act would
make it clear that judicial interference with the arbitral
awards is limited to the grounds in Section 34. While
deciding applications filed under Section 34 of the Act,
courts are mandated to strictly act in accordance with and
within the confines of Section 34, refraining from
appreciation or re-appreciation of matters of fact as well
as law. (See: Uttarakhand Purv Sainik Kalyan Nigam
Limited. v. Northern Coal Field Limited. 2, Bhaven
Construction Through Authorised Signatory Premjibhai
K. Shah v. Executive Engineer Sardar Sarovar Narmada
Nigam Ltd. and Another and Rashtriya Ispat Nigam
Limited v. Dewan Chand Ram Saran).
23. For a better understanding of the role ascribed to
courts in reviewing arbitral awards while considering
applications filed under Section 34 of the 1996 Act, it
would be relevant to refer to a judgment of this Court in
Ssangyong Engineering and Construction Company
Limited v. National Highways Authority of India (NHAI)
5 wherein R.F. Nariman, J. has in clear terms delineated
the limited area for judicial interference, taking into
account the amendments brought about by the 2015
Amendment Act. The relevant 2 (2020) 2 SCC 455 3
2021 SCC OnLine SC 8 4 (2012) 5 SCC 306 5 (2019) 15
SCC 131 passages of the judgment in Ssangyong (supra)
are noted as under: –
“34. What is clear, therefore, is that the expression
“public policy of India”, whether contained in
Section 34 or in Section 48, would now mean the
“fundamental policy of Indian law” as explained in
paras 18 and 27 of Associate Builders [Associate
Builders v. DDA, (2015) 3 SCC 49: (2015) 2 SCC
(Civ) 204] i.e. the fundamental policy of Indian lawOMP (COMM.) 75/2021 Page no.10/25
M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA
would be relegated to “Renusagar” understanding of
this expression. This would necessarily mean that
Western Geco [ONGC v. Western Geco International
Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12]
expansion has been done away with. In short,
Western Geco [ONGC v. Western Geco International
Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] ,as
explained in paras 28 and 29 of Associate Builders
[Associate Builders v. DDA, (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204] , would no longer obtain,
as under the guise of interfering with an award on
the ground that the arbitrator has not adopted a
judicial approach, the Court’s intervention would be
on the merits of the award, which cannot be
permitted post amendment. However, insofar as
principles of natural justice are concerned, as
contained in Sections 18 and 34(2) (a)(iii) of the
1996 Act, these continue to be grounds of challenge
of an award, as is contained in para 30 of Associate
Builders [Associate 24 | P a g eBuilders v. DDA,
(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] .
35. It is important to notice that the ground for
interference insofar as it concerns “interest of India”
has since been deleted, and therefore, no longer
obtains. Equally, the ground for interference on the
basis that the award is in conflict with justice or
morality is now to be understood as a conflict with
the “most basic notions of morality or justice”. This
again would be in line with paras 36 to 39 of
Associate Builders [Associate Builders v. DDA,
(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , as it is
only such arbitral awards that shock the conscience
of the court that can be set aside on this ground.
36. Thus, it is clear that public policy of India is now
constricted to mean firstly, that a domestic award is
contrary to the fundamental policy of Indian law, as
understood in paras 18 and 27 of Associate Builders
[Associate Builders v. DDA, (2015) 3 SCC 49:
(2015) 2 SCC (Civ) 204], or secondly, that such
award is against basic notions of justice or morality
as understood in paras 36 to 39 of Associate Builders
[Associate Builders v. DDA, (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204]. Explanation 2 to Section
34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii)
was added by the Amendment Act only so thatOMP (COMM.) 75/2021 Page no.11/25
M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA
Western Geco [ONGC v. Western Geco International
Ltd., 25 | P a g e(2014) 9 SCC 263 : (2014) 5 SCC
(Civ) 12] ,as understood in Associate Builders
[Associate Builders v. DDA, (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204] , and paras 28 and 29 in
particular, is now done away with.
37. Insofar as domestic awards made in India are
concerned, an additional ground is now available
under sub-section (2-A), added by the Amendment
Act, 2015, to Section 34. Here, there must be patent
illegality appearing on the face of the award, which
refers to such illegality as goes to the root of the
matter but which does not amount to mere erroneous
application of the law. In short, what is not
subsumed within “the fundamental policy of Indian
law”, namely, the contravention of a statute not
linked to public policy or public interest, cannot be
brought in by the backdoor when it comes to setting
aside an award on the ground of patent illegality.
38. Secondly, it is also made clear that reappreciation
of evidence, which is what an appellate court is
permitted to do, cannot be permitted under the
ground of patent illegality appearing on the face of
the award.
39. To elucidate, para 42.1 of Associate Builders
[Associate Builders v. DDA, (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204] , namely, a mere
contravention of the substantive law of India, by
itself, is no longer a ground available to set aside an
arbitral award. Para 42.2 of Associate Builders
[Associate Builders v. DDA, (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204] , however, would remain,
for if an arbitrator gives no reasons for an award and
contravenes Section 31(3) of the 1996 Act, that
would certainly amount to a patent illegality on the
face of the award. 40. The change made in Section
28(3) by the Amendment Act really follows what is
stated in paras 42.3 to 45 in Associate Builders
[Associate Builders v. DDA, (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204] , namely, that the
construction of the terms of a contract is primarily
for an arbitrator to decide, unless the arbitrator
construes the contract in a manner that no fair-
minded or reasonable person would; in short, that the
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arbitrator’s view is not even a possible view to take.
Also, if the arbitrator wanders outside the contract
and deals with matters not allotted to him, he
commits an error of jurisdiction. This ground of
challenge will now fall within the new ground added
under Section 34(2-A).
41. What is important to note is that a decision
which is perverse, as understood in paras 31 and 32
of Associate Builders [Associate Builders v. DDA,
(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , while
no longer being a ground for challenge under “public
policy of India”, would certainly amount to a patent
illegality appearing on the face of the award. Thus, a
finding based on no evidence at all or an award
which ignores vital evidence in arriving at its
decision would be perverse and liable to be set aside
on the ground of patent illegality. Additionally, a
finding based on documents taken behind the back of
the parties by the arbitrator would also qualify as a
decision based on no evidence inasmuch as such
decision is not based on evidence led by the parties,
and therefore, would also have to be characterised as
perverse.”
24. This Court has in several other judgments
interpreted Section 34 of the 1996 Act to stress on the
restraint to be shown by courts while examining the
validity of the arbitral awards. The limited grounds
available to courts for annulment of arbitral awards are
well known to legally trained minds. However, the
difficulty arises in applying the well-established
principles for interference to the facts of each case that
come up before the courts. There is a disturbing tendency
of courts setting aside arbitral awards, after dissecting
and reassessing factual aspects of the cases to come to a
conclusion that the award needs intervention and
thereafter, dubbing the award to be vitiated by either
perversity or patent illegality, apart from the other
grounds available for annulment of the award. This
approach would lead to corrosion of the object of the
1996 Act and the endeavours made to preserve this
object, which is minimal judicial interference with
arbitral awards. That apart, several judicial
pronouncements of this Court would become a dead
letter if arbitral awards are set aside by categorising them
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as perverse or patently illegal without appreciating the
contours of the said expressions.
25. Patent illegality should be illegality which goes to the
root of the matter. In other words, every error of law
committed by the Arbitral Tribunal would not fall within
the expression ‘patent illegality’. Likewise, erroneous
application of law cannot be categorised as patent
illegality. In addition, contravention of law not linked to
public policy or public interest is beyond the scope of the
expression ‘patent illegality’. What is prohibited is for
courts to re-appreciate evidence to conclude that the
award suffers from patent illegality appearing on the face
of the award, as courts do not sit in appeal against the
arbitral award. The permissible grounds for interference
with a domestic award under Section 34(2-A) on the
ground of patent illegality is when the arbitrator takes a
view which is not even a possible one, or interprets a
clause in the contract in such a manner which no fair-
minded or reasonable person would, or if the arbitrator
commits an error of jurisdiction by wandering outside the
contract and dealing with matters not allotted to them. An
arbitral award stating no reasons for its findings would
make itself susceptible to challenge on this account. The
conclusions of the arbitrator which are based on no
evidence or have been arrived at by ignoring vital
evidence are perverse and can be set aside on the ground
of patent illegality. Also, consideration of documents
which are not supplied to the other party is a facet of
perversity falling within the expression ‘patent illegality’.
26. Section 34 (2) (b) refers to the other grounds on
which a court can set aside an arbitral award. If a dispute
which is not capable of settlement by arbitration is the
subject-matter of the award or if the award is in conflict
with public policy of India, the award is liable to be set
aside. amended by the 2015 Amendment Explanation (1),
Act, clarified the expression ‘public policy of India’ and
its connotations for the purposes of reviewing arbitral
awards. It has been made clear that an award would be in
conflict with public policy of India only when it is
induced or affected by fraud or corruption or is in
violation of Section 75 or Section 81 of the 1996 Act, if it
is in contravention with the fundamental policy of Indian
law or if it is in conflict with the most basic notions of
morality or justice. In Ssangyong (supra), this Court held
that the meaning of the expression ‘fundamental policy
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of Indian law’ would be in accordance with the
understanding of this Court in Renu Sagar Power Co.
Ltd. v. General Electric Co.6 In Renu Sagar (supra), this
Court observed that violation of the Foreign Exchange
Regulation Act, 1973, a statute enacted for the ‘national
economic interest’, and disregarding the superior courts
in India would be antithetical to the fundamental policy
of Indian law. Contravention of a statute not linked to
public policy or public interest cannot be a ground to set
at naught an arbitral award as being discordant with the
fundamental policy of Indian law and neither can it be
brought within the confines of ‘patent illegality’ as
discussed above. In other words, contravention of a
statute only if it is linked to public policy or public
interest is cause for setting aside the award as being at
odds with the fundamental policy of Indian law. If an
arbitral award shocks the conscience of the court, it can
be set aside as being in conflict with the most basic
notions of justice. The ground of morality in this context
has been interpreted by this Court to encompass awards
involving elements of sexual morality, such as
prostitution, or awards 6 1994 Supp (1) SCC 644 seeking
to validate agreements which are not illegal but would
not be enforced given the prevailing mores of the day”.
8. Permissible grounds for interference with an arbitration
award, in terms of Section 34 of the Arbitration and Conciliation
Act, 1996 (as amended upto date) which can be culled out from
the aforesaid observations of Hon’ble Supreme Court while read
in the light of the judgments of Hon’ble Supreme Court in
Ssangyog Engg. & Construction Co. Ltd. Vs. NHAI (2019) 1
SCC 131 and Associate Builders Vs. DDA (2015) 3 SCC 49 are:
1. A party to the agreement was under some incapacity; or
2. the arbitration agreement is not valid under the law; or
3. the party making the application was not given proper
notice of the appointment of an arbitrator or of the arbitral
proceedings or was otherwise unable to present his case; or
4. the arbitral award deals with a dispute not contemplated by
or not falling within the terms of the submission toOMP (COMM.) 75/2021 Page no.15/25
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arbitration, or it contains decisions on matters beyond the
scope of the submission to arbitration; or
5. the composition of the Arbitral Tribunal or the arbitral
procedure was not in accordance with the agreement of the
parties or, failing such agreement, was not in accordance with
this Part; or
6. the subject-matter of the dispute was not arbitrable under
law; or
7. the arbitral award is in conflict with the public policy of
India;
a) the making of the award was induced or affected by fraud
or corruption or was in violation of Section 75 or Section 81;
or
b) it is in contravention with the fundamental policy of
Indian law i.e.
i) the same is in contravention of the provisions of any statute
enacted to protect the national interest such as the Foreign
Exchange Regulation Act which is enacted to ensure that the
nation does not lose foreign exchange which is essential for
the economic survival of the nation.
ii) the same is passed while disregarding orders passed by the
superior courts in India.
iii) the same is passed disregarding the binding effect of the
judgement of a superior court.
c) it is in conflict with the most basic notions of morality
which in this context has been interpreted by Hon’ble Apex
Court to encompass awards involving elements of sexual
morality, such as prostitution, or awards seeking to validate
agreements which are not illegal but would not be enforced
given the prevailing mores of the day;
d) it is in conflict of most basic notions of justice i.e. it
shocks the conscience of the Court.
8. It is vitiated by patent illegality on the face of the award
which means-
i) if an arbitrator gives no reasons for an award; or
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ii) if he construes the terms of a contract in a manner that no
fair minded or reasonable person would i.e. the arbitrator’s
view is not even a possible view to take; or
iii) if the arbitrator wanders outside the contract and deals
with matters not allotted to him; or
iv) if he gives a finding based on no evidence at all; or
v) if he passes an award which ignores vital evidence in
arriving at its decision; or
vi) if he gives a finding based on documents taken behind the
back of the parties; or
vii) if he gives a finding based on documents copy of which
had not been supplied to the opposite party.
Similarly, what is not permissible for a Court in exercise of
powers under Section 34 of the Act, in the light of said judgments
can be summed up in the following manner:
i) What adjudicating whether an award is in conflict with
fundamental policy of law, the court shall not conduct review
on the merits of the dispute;
ii) an awards shall not be set aside merely on the ground of
an erroneous application of the law or by re-appreciation of
evidence;
iii) Contravention of a statute not linked to public policy or
public interest cannot be a ground to set at naught an arbitral
award as being discordant with the fundamental policy of
Indian law nor can it be brought within the confines of
“patent illegality”.
9. The agreement between the parties is not disputed. The
award is challenged by the petitioner on the ground of violation
of Section 12 of the Act. The impugned award itself contained
that the Ld. Arbitrator informed the parties regarding his
engagement as Arbitrator in other cases by the respondent herein
and also given opportunity to the petitioner to get the arbitrator
changed but no action was taken by the petitioner in this regard.
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The award also contained that the claimant has given no
objection to the Ld. Arbitrator to continue with the proceedings
as recorded vide order dated 26.09.16 and 27.10.2016. The
objection of the petitioner accordingly regarding violation of
Section 12 of the Act has no merit. It is further observed that the
arbitrator was appointed by the duly authorized person who was
looking after the affairs of the claimant/respondent herein.
I have gone through the claim filed by the respondent
herein before the Ld. Arbitrator. The respondent herein had paid
total amount of Rs.6,85,22,008/- to the petitioner for completion
of the work and also issued NOC. The respondent received the
notice under DVAT Act dated 29.12.2011 and after
correspondence with the appropriate authorities deposited total
amount of Rs.44,37,214/- and submitted relevant form DVAT
27(A) alongwith challan to the concerned VATO on 25.03.2013.
The respondent herein in rejoinder to the reply of the
petition before the Ld. Arbitrator admitted that the petitioner was
asked vide letter dated 01.10.12 to deposit amount of
Rs.13,70,440.16 only towards payment of VAT on the total
payment of Rs.6,85,22,008/-. As per the agreement entered into
between the parties, the taxes was to be paid by the petitioner
herein. As the petitioner not deposited the amount, the arbitration
clause was invoked. The relevant part of the agreement in respect
to payment of taxes as contained are below:
“8.5. The rates quoted by the tenderers shall be inclusive of all
applicable taxes including Service Tax, VAT, octroi and levies etc.
levied by Central/State Govt. and the contractor shall pay theOMP (COMM.) 75/2021 Page no.18/25
M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA
aforesaid taxes, levies, duties etc. directly to the Central/State Govt.
Organizing Committee, Commonwealth Games, 2010 will have no
liability whatsoever on any account to pay any taxes, levies, duties
etc. levied by Central/State Govt. pertaining to executive of work.
6.5 The rates for all items unless clearly specifies otherwise
cover all costs for proper execution of work including labour,
material, hires charges of machinery and other inputs involved
during execution of the work alongwith the cost of construction of
temporary arrangements. The rates should be inclusive of all
applicable taxes, direct or indirect including service Tax.”
10. The defence of the petitioner remained that it was the duty
of the respondent to deduct and deposit the DVAT before making
final payment to the petitioner as per law. The respondent failed
in its duty. The contention of the petitioner in this regard appears
to have substance and is also supported with the assessment order
by the concerned authorities i.e. VATO of Govt. of NCT of Delhi.
The duty of the respondent to deduct the tax is also referred in
the impugned award but has been ignored by the Ld. Arbitrator
on the ground that petitioner has not deposited the taxes with the
authorities. The lapse on the part of the claimant is also referred
in the impugned award alongwith non payment of tax by the
petitioner.
11. I have gone through the letters/notices/correspondence
between the Tax Authorities of Govt. of NCT of Delhi alongwith
the claimant/respondent herein. As noted in letter dated
22.02.2012, in view of Section 36A of DVAT Act, the Organizing
Committee i.e. claimant itself was liable to deduct tax on source
@ 2% and 4% from the payment made to the registered and
unregistered contractors respectively. The relevant provisions of
36A of the DVAT Act is reproduced below in this regard:
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“Any person not being an individual or a Hindu, undivided family,
who is responsible for making any payment to any contractor
(hereinafter in his section referred to as “the contractor”) for
discharge of any liability on account of valuable consideration
payable for the transfer of property in goods (whether as goods or in
other some form) in pursuance of work contract for value exceeding
twenty thousand rupees or such amount as may be order in writing
published in official Gazette, he notified by the Commissioner from
time to time, shall at the time of credit of such amount in the account
of the contractor or at the time of payment thereof in cash or by any
other mode whichever is earlier, deduct tax thereon at the rate of two
percent”.
In discharge of the liability of the claimant in this
regard, notice under Section 59 (2) dated 28.02.12 was also
issued to the claimant by the office of Commissioner, Trade and
Tax Department, Govt. of NCT of Delhi for explaining reasons
for non deduction of TDS on amount of VAT at the time of
making payments to contractor which was the responsibility of
the claimant as per Section 36A of DVAT Act. The provisions of
the Act alongwith document on record itself shows the lack of the
part of the claimant in non deduction of TDS and payment before
the Competent Authorities. The petitioner can not be penalized
for any non performance of the duty of the claimant at all. The
duty of the claimant is further reiterated in the order dated
01.02.13 from the Spl. Commissioner, Department of Trade and
Taxes and objection of the claimant regarding sub-contract to
deposit the tax was set aside while passing the assessment order.
It was categorically held in the order that –
“10. Perusal of the cited provisions would show that the OC
(Organizing Committee) being responsible for payment to
contractors ought to have deducted the TDS at applicable rates and
deposited the same to the appropriate Head of Account at the time
of making the payments. The fact that under the agreement enteredOMP (COMM.) 75/2021 Page no.20/25
M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA
between OC and the sub-contractor, the responsibility to pay taxes,
levies and duties are on the sub-contractors can not be taken as an
excuse to ignore the liability to deduct TDS at the source/time of
making payments. The contractors have similar individual
responsibility to deposit applicable tax, file returns and other
necessary papers with the department as per law. The default shall
invite penalty as per the provisions cited above”.
12. The claimant for the first time in discharge of its
obligations under Section 36A of the DVAT Act referred above,
vide letter dated 01.10.12 asked the petitioner to deposit
Rs.13,70,440.16 else action shall be taken for the recovery of the
amount. Admittedly, the petitioner was liable to pay the tax of Rs.
13,70,440.16 only towards DVAT. The claimant has never asked
the petitioner to pay any penalty or interest as claimed in the
petition before Ld. Arbitrator nor is there ground for claim of
penalty from the petitioner. No such amount has been paid by
claimant to the tax authorities. Further the rectification order
dated 08.03.2013 imposed penalty and interest upon the claimant
under Section 86 of Delhi Value Added Tax Act, 2004 for non
deduction of TDS on the paid amount. The penalty was imposed
on the claimant due to failing in its duty which can not be passed
to the petitioner though no such penalty or interest has been paid
by the respondent/claimant. Even after the rectification order
dated 08.03.2013, the claimant has deposited only Rs.28,00,693/-
as tax and Rs.16,36,521/- as interest on 25.03.2013. In the claim
petition, the claimant itself mentioned that total amount of
Rs.44,37,214/- deposited by the claimant comprised only
Rs.21,78,151/- towards the share of the petitioner. Applying the
principle of Quasi Contract as well, the claimant can claim only
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M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA
amount deposited on behalf of the petitioner. The award of
Rs.27,40,880/- against the petitioner towards penalty and
Rs.30,83,490/- towards interest @ 15% p.a. has no basis at all.
The claimant can not be permitted unjust enrichment at the cost
of the petitioner despite the claimant failing in its duty to comply
with the relevant provisions of law. Needless to mention that the
petitioner was liable to pay the tax but it was the duty of the
claimant to deduct the tax on the amount paid to the petitioner
and deposit the tax with the authorities. Undoubtedly the
claimant failed in its duty. There is no basis of the claim of
penalty as well as interest from the petitioner at all. Moreover, no
such penalty or interest as claimed by the claimant has been paid
to any authority. The claimant can recover from the petitioner
only the amount which was due and payable on the paid amount
i.e. Rs.13,70,440/- towards TDS @ 2% on the total payment of
Rs.6,85,22,008/- as the petitioner failed to make the due payment
despite notice dated 01.10.2012.
13. The claimant itself averred that it was liable to deduct tax
at source from the payment made to registered/unregistered
contractors. The VATO also observed that the claimant has failed
to explain the reasons for non deduction of TDS on account of
VAT at the time of making payment to contractor. It is also noted
that the claimant had never asked the petitioner to pay any
penalty and only asked to deposit amount of Rs.13,70,440/- vide
letter dated 01.10.2012. The Special Commissioner also vide
order dated 01.02.2013 reiterated that the liability to pay tax,
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interest and penalty against the respondent/petitioner shall remain
on the claimant i.e. respondent herein. As the respondent failed in
its duty to make the payment, penalty was imposed vide order
dated 08.03.2013 for non deduction of TDS. Even after the said
order, the claimant has deposited only amount of Rs.21,78,151/-
qua the petitioner and accordingly, there is no basis of the
demand of other penalty or interest by the claimant against the
petitioner. The relevant para 17, 18 and 19 of the award is
reproduced as below:
“17. The claimant furnished details about deposit of the
requisite DVAT by four contractors except the respondent
and M/s. Russel Interior Pvt. Ltd and requested the
respondent and the other contractors to deposit an amount
of Rs.13,70,440.16 with the claimant by 10.10.2013 failing
which appropriate action for recovery of the said amount
will be taken against the respondent.
18. The department after taking into credit the payments of
DVAT made by four contractors recalculated the amount
and held the claimant liable to pay (including penalty of 4%
and interest) total Rs.44,37,214/- in respect of the two
contractors.
19.The claimant then had no option but to deposit the said
amount and submitted the proof to the department. The said
total amount comprises Rs.21,78,158/- as share of and as
payable by the respondent”.
The claimant can not be permitted to recover the amount
from the petitioner towards taxes more than what has been paid
towards the liability of the petitioner. It is not disputed that the
petitioner was under contractual obligation to pay all taxes to the
claimant pertaining to the execution of work but there is no
failure on the part of the petitioner for which the claimant was
directed to pay penalty and interest by the Tax Authorities. The
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M/S. H. S. OBEROI BUILDTECH PVT. LTD. VS. UNION OF INDIA
Tax Authorities had taken action against the claimant while
imposing penalty and interest due to the non-fulfillment of its
obligation which are not liable to be passed to the petitioner. It is
reiterated that the claimant while making the payment to the
petitioner towards the work done issued already No Due
Certificate.
It is not disputed that the petitioner has performed its part
of the contract and No Due Certificate was issued after
completion of the work. I have gone through the judgment of
Hon’ble Delhi High Court in Organizing Committee
Commonwealth Games (Supra) which dealt with similar issue
regarding imposing of penalty and interest for non payment of
taxes. Relevant para 70 of the said judgment is reproduced as
under:
“70. So far as interest and penalty are concerned it is
attributable to the delay on the part of the petitioner in
depositing the amount of cess if it was leviable. It was held
that the petitioner should have promptly deposited the amount
of cess and then recovered it from the claimant if the contract
and/or the law permitted it to do so. So far as the cess is
concerned, it was stated during the course of final hearing that
the petitioner was contesting the legality of the assessment
order as per law, both parties were to join the contest. It was
held that if the petitioner is exonerated from payment of
liability, the matter would end. No argument is addressed by
any of the counsel. Thus, the award is upheld on this issue
also”.
14. It is true that the re-appreciation and examination of
evidence led by the parties before Ld. Arbitrator is impermissible
under Section 34 of the Arbitration and Conciliation Act. In view
of the judgment UOI vs. Reliance Industries Ltd. & Ors. (Supra),
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the impugned award needs to be examined with respect to
arbitrariness, perversity or capriciousness thereby giving an
impermissible view which could not have been arrived at by any
person upon an ordinary application of mind. In the case in hand,
the impugned award is with respect to the penalty and interest
and there appears to be no basis for imposition of penalty and
interest upon the petitioner. It is reiterated that the claimant is
entitled for the recovery of the amount for which the petitioner is
liable and the amount can be recovered as per law. The
respondent can not be permitted to recover the amount which is
not due or which is imposed due to the fault of the respondent.
In view of the above referred provisions and law, in my
considered view the impugned award dated 05.03.2019 is liable
to be set aside.
In view of the aforesaid discussions, the present petition
under Section 34 of Arbitration and Conciliation Act, 1996 is
hereby allowed and the impugned award passed by the Sole
Arbitrator is hereby set aside.
15. The copies of the judgment be issued to all the parties to
the dispute through Electronic Mail. Judgment be also uploaded
on the server.
16. File be consigned to Record Room after necessary
Digitally signed by
GORAKH
compliance. NATH
GORAKH NATH
PANDEY
Date: 2025.03.06
PANDEY 15:43:31 +0530
Announced in the open court (GORAKH NATH PANDEY)
th
on 04 March, 2025. District Judge (Commercial Court-08)
Central, Tis Hazari Courts, Delhi.
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