Delhi District Court
Union Of India vs Reva Industries Ltd on 21 July, 2025
IN THE COURT OF SH. SACHIN SOOD,
DISTRICT JUDGE - 01, CENTRAL, TIS HAZARI COURTS, DELHI.
ARB No. 584151/2016
CNR No DLCT01-000179-2015
Union of India
Through its
Chief Administrative Officer
Central Organisation for Modernisation of workshop (COFMOW)
Railway Office Complex, Tilak Bridge,
New Delhi-110002. ...............Petitioner
Versus
M/s Reva Industries Ltd
Through:
Sh Balraj Goel,
Managing Director,
Plot No 28, Sector-25,
Faridabad-121004,
Haryana ............Respondent
Date of institution : 03.09.2015
Date of decision : 21.07.2025
JUDGMENT
1. (i) That the petitioner is an organization called COFMOW established
under the Ministry of Railways by the Government of India for
modernizing Indian Railways workshops and act on behalf of President
of India, the controller of stores, Central Organization for Modernization
of Workshops, New Delhi, India.
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(ii) That the present petition is being filed under Section 34 of Arbitration
and Conciliation Act 1996 for setting aside the Arbitral award dt
02.07.2015 passed by Sh R P Bhasin, Ld Sole Arbitrator (Retired Disrict
& Sessions Judge) in case no 41/14.
2. Brief facts of the case:
(a) That the petitioner had invited a tender for procurement of EOT
Cranes vide tender bearing no. COFMOW/OP-1891 which was
opened on 22.12.2009. The petitioner issued acceptance letter dated
27/28.04.2011 to the respondent. The contract was given to the
respondent for supply of cranes alongwith tools and tackles and
maintenance spares on 10.06.2011 and thereafter a contract has been
executed between the parties. The total value of the cranes were of
Rs. 34,51,442/-. The contract alongwith terms and conditions was
forwarded to the respondent vide letter dt 10.06.2011 and the same
was accepted by the respondent and as such the contract is having
binding effect upon both the parties. The respondent was to supply 2
number of cranes, one at Burdwan Diesel Shed, West Bengal which
falls under the jurisdiction of DME(Diesel), Eastern Railway,
Burdwan Diesel Shed, West Bengal and the other crane at Ajmer
which falls under the jurisdiction of SSE/WRS (Loco), Ajmer, NWR.
(b) The respondent was supposed to supply the cranes as per the
specification and terms and conditions of the contract. It is stated
that, as per an additional special condition of Bid Document for EOT
Cranes for reference of tenderers (Bid Document Part II), the
respondent was supposed to obtain approval of the GA Drawing
within six weeks + grace period of 15 days from the submission of
GA Drawings and deliver the material within 6 months from the dateARB No 584151/2016 Union of India Vs M/s Reva Industries Ltd Page No 2/33
of approval of GA Drawings. But the GA drawings were submitted
by the respondent for Crane No. 02/03/09 on 11.08.2012, which was
to be submitted by 09.07.2012 and as such there was a delay of
approximately one month in the submission of GA Drawings. For
crane No. 05/03/09 the respondent submitted the GA Drawings on
19.05.2011 and same got approved on 14.12.2011 and as such there
was a delay of 5 Months approx. in approval of GA Drawings. As
such the period of delay in submission and in approval of the GA
Drawing will be counted for the purpose of levy of L.D. Charges @
1/4 % of the value of the contract for each week of delay subject to a
ceiling of 2% of the value of the contract. Accordingly the petitioner
is within its rights to deduct 2% LD (Liquidated Damages) from the
value of contract as per additional special condition of bid documents
for EOT Cranes for reference of tenderer as per bid document part-II.
The cranes were required to be supplied by 04.05.2013 and
13.05.2012, but the same were supplied on 01.06.2013 and
17.08.2012, respectively and as such, there was a delay of 1 month
and 3 months respectively, in supplying the cranes. As such, the
petitioner is within its rights to deduct 2% and 6% LD (Liquidated
Damages) from the total value of the contract, as per clause 1002 of
the General Conditions of Contract of bid documents, part 1.
(c) That as per the petitioner clause 3200 of General Condition of
Contract bid documents part-I which provided that “In the event of
any question, dispute or differences arising under the conditions or
instructions of tenderer the same was to be referred to sole arbitration
to the gazetted railway officer to be appointed by the Chief
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Administrative Officer of COFMOW, New Delhi, India and no other
person could be appointed as the Arbitrator.
(d) That the respondent supplied the goods/material as per the contract
and raised an invoice and since the contractual obligation were not
fulfilled within stipulated time period, the petitioner at the time of
clearing the amount towards the invoice, deducted liquidated
damages and made payment as per provision of clause 1002 of GCC
bid document part-I.
(e) That the respondent without first raising a dispute or invoking the
arbitration clause as per clause 3200 of GCC, the respondent on
03.07.2014 directly approached to Micro and Small Enterprises
Facilitation Council of Haryana under Section 18(1) of the MSMED
Act, 2006. However a notice of the same was issued on 16.07.2014 to
the petitioner wherein the petitioner was directed to appear before the
council on 07.08.2014. Accordingly, the petitioner put appearance
before the council on 07.08.2014 and the petitioner moved an
application u/s 18 (3) of MSMED Act 2006 challenging the
jurisdiction of the Council and prayed for reference of the matter to
the Ld Sole Arbitrator to be appointed by the railways in terms of
clause 3200 of the GCC. The said application was disposed off vide
order dt 08.09.2014 and noting the fact that the respondent company
was not interested in any kind of conciliation, the matter was referred
to empanelled arbitrator. It is worth noting that vide order dt
08.09.2014, it was held that the facilitation council had the
jurisdiction to act as an arbitrator or conciliator in accordance with
the provisions of Section 18 (4) of MSMED Act 2006 and
Facilitation Council after holding that the Railways are not interested
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in any kind of conciliation accordingly referred the matter to
empanelled Arbitrator.
(f) That on 14.10.2014, the petitioner received a letter dated 09.10.2014
from Sh. R.P Bhasin, Ld. Arbitrator intimating therein that he has
been appointed as an arbitrator by the competent authority for
adjudicating the dispute between petitioner and respondent and date
of hearing was fixed as 27.11.2014.
(g) That the aggrieved from the decision passed by Micro and Small
Enterprises Facilitation Council of Haryana with regard to appointing
of arbitrator to Sh. R.P Bhasin as a Ld. Arbitrator, CW(P) no. 277 of
2015 titled The Chief Administrative Officer, COFMOW vs. The
Micro and Small Enterprises Facilitaiton Council of Haryana and
ors. was filed before the Hon’ble Punjab and Haryana High Court
which was dismissed vide order dated 09.01.2015 by holding that
applicability of the MSME Act cannot be excluded in view of the non
obstante clause provided under Section 18 of the MSME Act. In view
of the dismissal of the said Writ Petition by the Hon’ble Punjab and
Haryana High Court, the application as filed by the Petitioner
Railways seeking adjournment in view of the pendency of the writ
petition was rendered infructuous.
3. That the petitioner herein filed its reply to the claim as preferred by the
respondent herein vide which it was contended that the railways have
suffered heavy loss for the failure of the claimant to supply the cranes
within the stipulated period as per the contract and the loss so suffered
cannot be quantified by taking into account loss of man hours and other
criteria. The Indian railways being the biggest organization which is
serving the nation 24X7 where services are to be run continuously
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inspite of failure of any supporting service contract by way of other
alternative arrangements has imposed the clause for pre-estimated
recovery by way of LD for delayed supply and the same was accepted by
the respondent. It was further specified that by the pre defined LD @ 2%
per month or part thereof for delay in supply and commissioning was
known in advance to the claimant and despite the same, the respondent
herein has entered into the contract with the railways. It was further
stated that the respondent herein has failed to supply the two cranes
within the stipulated delivery period and accordingly LD has been
levied. It was admitted that 2% liquidated damages have been deducted
and there is no provision/discretion for waiver of the deduction of LD in
accordance with Clause 1002 of the contract. It is pertinent to mention
that in the entire reply as filed by the Petitioner herein before the Ld Sole
Arbitrator, there is not even a whisper as to what is the quantum of
amount which has been withheld by the Petitioner herein towards
Liquidated Damages and neither any document was filed by the
Petitioner herein to this effect. The Petitioner herein further nowhere
denied the amount being claimed by the Respondent herein.
4. The Ld. Sole Arbitrator has passed the impugned award on 02.07.2015.
Vide the award dt 02.07.2015, the Ld Sole Arbitrator allowed the claims
as raised by the respondent and awarded an amount of Rs 2,05,567/-,
1,38,755/- (totalling Rs 3,44,322/-) withheld since 09.08.2012, Rs
54,129/-, 41,314/-, 9,168 (totalling Rs 1,04,611/-) withheld since
24.05.2013 & Rs 1,798/- withheld since 25.03.2014 from the bills of
the claimant by the respondent by way of liquidated damages and the
respondent has also awarded interest @ 14% per annum on withheld
amount of Rs 3,44,322/- from 09.08.2012 to 02.07.2015, Rs 1,04,611/-
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from 24.05.2013 to 02.07.2015 & Rs 1,798/- from 25.03.2014 to
02.07.2015. The Ld Sole Arbitrator has also granted future interest @
18% per annum from the expiry of 45 days from the date of passing of
the award. The Ld Sole Arbitrator granted Rs 25,000/- towards fees of
the arbitrator, (Rs 10,000/- towards lawyer’s fees for appearing before
the Chairman, HMSEFC and Rs 20,000/- before the tribunal) and Rs
1,300/- (Rs 100/- per date) is awarded by way of transportation charges
and Rs 3,500/- towards fees of arbitration application and Rs 100 by way
of incidental cost i.e. typing charges and other costs in relation to the
litigation and Rs 1,300 towards time spend in connection with the case.
The Ld Sole Arbitrator, while awarding the aforesaid amounts, has
discussed at length the provisions of the Micro, Small, Medium
Enterprises Development Act, 2006.
5. The Ld Sole Arbitrator on the basis of the pleadings of the parties after
having discussed the aforesaid legal provisions framed the following 3
points :
Point No. (1) Whether the tribunal had the jurisdiction to decide the
disputes referred by the Chairman, HMSEFC cum Director of
Industries and Commerce Haryana u/s 18 (3) of the MSMED Act
2006 or not.
The Ld Sole Arbitrator after examining the provision Section 18 and
Section 24 of the MSMED Act 2006 came to the conclusion that the
Ld Sole Arbitrator had the jurisdiction to decide the disputes referred
by the Chairman, HMSEFC cum Director of Industries and
Commerce Haryana u/S 18 (3) of the MSMED Act 2006. Since
MSMED Act 2006 is a special Act and would over ride any mutual
agreement by the parties. The Ld. Sole Arbitrator while returning theARB No 584151/2016 Union of India Vs M/s Reva Industries Ltd Page No 7/33
finding on the aforesaid issue had placed reliance upon the judgment
passed by the Hon’ble Punjab and Haryana High Court in the matter
of Welspun Corp Ltd vs. Micro and Small Medium Enterprises
Facilitation Council, Punjab and ors.
Point No. (2) Whether the arbitral tribunal had the jurisdiction to
conduct the arbitration proceedings or the case should be referred to
the railway authorities.
The Ld Sole Arbitrator after examining the relevant clause i.e. clause
3200 which provides for arbitration and also of the provision of
Section 18 of the MSMED Act 2006 after holding that disputes infact
have arisen between the parties since less payment has been made to
the respondent herein and in view of dismissal of the Writ petition
preferred by the petitioner herein before Hon’ble Punjab & Haryana
High Court being WPC No. 277/2015, held that the tribunal had the
jurisdiction to conduct the arbitration proceedings and the matter is
not required to be referred to Arbitrator in terms of clause 3200 of the
contract.
Point No. (3) Whether the respondent on account of late delivery of
goods/material by the claimant was/is legally justified to deduct the
amount (as actually deducted in this case) from the bills of the
claimant, by way of liquidated damages.
The Ld Sole Arbitrator noting the fact of an admitted delay in the
supply of the goods by the respondent to the petitioner herein noted
the fact that despite the delay, the goods had been accepted. It was
further held by the Ld. Sole Arbitrator that simply because there is a
clause of liquidated damages does not mean that the same has to be
recovered when even when no loss has been caused. It was furtherARB No 584151/2016 Union of India Vs M/s Reva Industries Ltd Page No 8/33
held that the petitioner herein had failed to establish as to what was
the loss which was actually caused. It was further held that it was not
the case where the loss allegedly suffered by the railways cannot be
quantified who could have easily assessed the actual loss by taking
into consideration loss of man hours and other criteria and since the
loss has not been quantified accordingly the railway authorities could
not have deducted the amount withheld from the bills of the claimant
by way of liquidated damages without any justification in order to
enrich itself. It was further held that as per the version of railways
authorities in their official record that there has been no loss/delay as
per the prove out test certificate (PTC), accordingly, rejected the
argument of the railways to the effect that irrespective of no loss and
no delay in terms of the PTC, the railway authority were justified to
withhold the payment by way of liquidated damages. The Ld Sole
Arbitrator noting the stand/version of the railway authorities to the
effect that there was no loss/delay having been caused to them held
that simply because there is a clause of liquidated damages would not
mean that the amount of liquidated damages has to be recovered even
when no loss has been caused. In view of the aforesaid, the Ld Sole
Arbitrator allowed the claims as raised by the respondent for
refunding the amount of Rs 4,50,731/- alongwith interest @ 14% per
annum from the period from 25.03.2014 to 02.07.2015, plus Rs
61,200/- by way of costs to the claimant. The Ld Sole Arbitrator has
also granted future interest @ 18% per annum from the expiry of 45
days from the date of the award to the date of payment.
6. With respect to the cost, the Ld Sole Arbitrator placing reliance upon
the judgment passed by Hon’ble Apex court in the matter of Salem
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Advocate Bar Association, TN Vs Union of India 2005 (6) SCC 344 has
held that costs can be granted u/s 35 (2) CPC which have to be actual
reasonable costs and accordingly the Ld Sole Arbitrator granted Rs
25,000/- towards fees of the arbitrator, Rs 10,000/- towards lawyer’s
fees for appearing before the Chairman, HMSEFC and before the
tribunal at Rs 20,000/- and towards Rs 1,300/- each by way of
transportation charges and Rs 3,500/- towards fees of arbitration
application and Rs 100 towards incidental cost i.e. typing charges and
other costs with relation to the litigation and Rs 1,300/- towards time
spend in connection with the case.
7. The present petition u/s 34 of the Arbitration and Conciliation Act, 1996
has been filed by the petitioner/railways on the following grounds:-
a) That the respondent herein did not have any legal authority to
approach Micro & Small Enterprises Facilitation Council of Haryana
in view of the specific provision in chapter V and as per provision of
section 15 of MSMED Act, 2006 according to which the respondent
can approach to the Facilitation Council only in case of delayed
payment but in this case neither any payment has been delayed by the
petitioner nor it has been claimed by the respondent in his application
dated 03.07.2014. As such the Facilitation Council of Haryana was
not having jurisdiction to entertain the application dated 03.07.2014
as such all the proceeding initiated by HMSEFC & Notice dated
16.07.2014 issued by Member Secretary on behalf of Chairman,
HMSEFC is null and void and has no force in the eye of law. As such
the proceeding initiated by HMSEFC is liable to be declared as null
and void.
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b) That the impugned Award is liable to be set aside in view of the
provision of section 28 (3) of Arbitration and Conciliation Act, 1996
since the arbitral tribunal has to decide the issues in accordance with
the terms of the contract. The Ld Sole Arbitrator while passing the
impugned award has not considered the terms of the contract with
respect to the deduction of the liquidated damages and also with
respect to the interest. The appointment of Ld Sole Arbitrator is not in
accordance with the agreement of the parties since the contract
provided that the arbitrator should be a railway gazetted officer. Thus,
the award passed is against the public policy in India in view of the
judgment passed in the matter of ONGC vs. Saw Pipes which
provides that the composition of arbitral tribunal has to be in
accordance with the agreement of the parties. Hence, the award as
passed by Ld Sole Arbitrator is liable to be set aside being in violation
of the contract i.e. clause 3200 of the General Conditions of Contract
Bid Document Part I.
(c) The award as passed by the Ld. Sole Arbitrator is liable to be set
aside since the Ld. Arbitrator was not possessed of requisite
qualifications i.e. was not a gazetted railway officer.
d) That the impugned award is liable to be set aside in view of the fact
that the same is against the public policy of India and as per the
provision of clause 1002 of the GCC if a supplier fails to submit the
GA Drawings within 4 weeks of the date of order or to have the GA
Drawings approved as per the contract within the stipulated period of
time, then the purchaser reserves its right to levy the LD, and the
period of delay in submitting the drawing will be counted for the
purpose of levying LD Charges @ 1/4 % of the value of the contract
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for each week of delay, subject to a ceiling of the value of the
contract. It is further stated that as per the provision of clause 1002 of
GCC, if the supplier fails to supply the material as per the contract
within the stipulated period of time or within the extended delivery
period, then the purchaser reserves its right to deduct 2% of
Liquidated Damages per month or part thereof, subject to Maximum
limit of 10%. In this case, the respondent was supposed to submit the
GA Drawings of Burdwan Consignee on 08.07.2012 but the same was
submitted on 18.08.2012. As such, the petitioner is within its right to
deduct LD @ 2%. It is further submitted that the respondent was
supposed to get their GA Drawings approved for Ajmer Consignee on
15.07.2011, but they failed to do so within the stipulated time period.
As such, the petitioner is within its right to deduct LD @ 2%. It is
further submitted that the respondent was supposed to supply the
goods up to 04.05.2013 and 13.05.2012, but they failed to supply the
same. Consequently, the respondent made a request for an extension
of the delivery period, vide his letter bearing no Cont No. 3180 dated
06.05.2013 for Burdwan Crane and Cont No. 3180 dated 04.07.2012
for Ajmer Crane and accordingly after considering the request of the
respondent the delivery period was extended up to 05.06.2013 and
24.10.2012 respectively subject to condition that Liquidated Damages
shall be recovered for delayed supplies vide letter bearing No.
COFMOW/IR/S-4483/09/OP-1891 dated 22.05.2012 and 24.07.2012
signed by Sh. G.C.P. Gupta, Assistant Materials Manager and G.K.
Gupta, Sr. Materials Manager respectively. The material was supplied
on 01.06.2013 and 17.08.2012 within extended delivery period.
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e) That the impugned award is liable to be set aside on the ground
that the Ld. Arbitrator has illegally allowed the claim of respondent
for refunding the amount of Rs. 4,50,731/- which was deducted on
09.08.2012, 24.05.2013 & 25.03.2014 on account of Liquidated
damages & also allowed 14% interest on the amount of Rs 3,44,322
for the period 09.08.2012 to 02.07.2015, Rs 1,04,611/- for the period
24.05.2013 to 02.07.2015, Rs 1,798/- for the period 25.03.2014 to
02.07.2015 contrary to clause 2003 of GCC Bid Document Part-I
vide which the contractor has no right to claim for interest and
damages whatsoever on this account or any other ground in respect of
any sum of money withheld or retained under this clause and duly
notified as such to the contractor. So as per the provision of Ld.
Arbitrator ought not to have awarded the interest on the retained
amount of Rs. 4,50,731/- on account of Liquidated Damages.
However, the petitioner has deducted the amount of Rs 3,90,825/- on
account of Liquidated Damages.
(f) That the impugned award is liable to be set aside on the ground
that the Ld. Arbitrator has also awarded the amount of Rs. 61,200/- on
account of cost of the litigation with regard to the arbitration
proceeding which is prima-facie illegal because the respondent M/s.
Reva Industries Ltd. has not claimed any cost of Litigation in his
claim dated 03.07.2014 and it is well settled law that without seeking
any relief either in the body of the petition or in the prayer clause no
relief can be granted. It is stated that the Ld. Arbitrator has referred
the provision of section 35 (2) of C.P.C. while awarding the cost
despite the fact that CPC is not applicable to the proceeding of
arbitration. As such the Ld. Arbitrator ought not to have awarded the
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cost of Rs. 61,200/- even otherwise the said award has been passed
ignoring the provision of clause 2400 of GCC Bid Document Part-I.
According to which the contractor shall at his own expense, either
settle any dispute or conduct any litigation that may arise therefrom.
(g) Because the impugned award has been passed in a mechanical
manner.
(h) The impugned award has wrongly been passed as Ld Sole
Arbitrator has not applied his mind while directing the petitioner to
return the amount of Rs 4,50,731/- which has been withheld by the
petitioner from the bills of the respondent on account of liquidated
damages.
i) Because the impugned award has wrongly been passed by the Ld
Sole Arbitrator by ignoring the fact that MSMED Act does not have
overridding effect upon the Arbitration agreement between the
parties.
j) That the impugned award is unfair and unreasonable and has been
passed on incorrect legal propositions and hence the same is patently
legal.
8. The respondent had filed its detailed reply contending that no
compliance has been made to Section 19 of the MSMED Act 2006 and
accordingly the present petition is liable to be dismissed summarily.
9. On Merits, it has been submitted that the present petition is beyond the
scope of Section 34 of the Arbitration and conciliation Act and in
exercise of powers u/s 34 the court does not act as an appellate court. It
has further been contended that the view taken by the Arbitral Tribunal
is a plausible view and the court cannot substitute its views in place of
the interpretation accepted by the Arbitral Tribunal. It has further been
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contended that the petitioner has supressed the fact of having preferred a
Writ petition being CWP NO 277 of 2015 wherein all the issued raised
in the present petition with respect to the proceedings before the
facilitation council has been conclusively dealt with. It has further been
submitted that since liquidated damages have arbitrarily been deducted
by the petitioner hence the respondent was within its rights to approach
Haryana Micro & Small Enterprises Facilitation Council u/s 18 (4) of
the MSMED Act 2006. It has further been submitted that the petitioner
has arbitrarily deducted liquidated damages without submitting any
proof qua the suffering of damages or quantification thereof in violation
of Section 74 of the Indian Contract Act. It has further been contended
that in view of the specific provisions of Section 18 (1) of the MSMED
Act 2006 the arbitrator has been validly appointed since Section 24 of
the MSMED Act 2006 would over ride the provisions of any other law
for the time being enforce. Thus as per the petitioner not only the
arbitrator has been validly appointed but also the well reasoned award
has been passed in consonance with the public policy with requires no
interference.
10. I have heard the arguments from both the parties throughly and have
perused the arbitral award.
11. Section 34 of the Arbitration and Conciliation Act, 1996, prior to
amendment effected vide Act No. 3 of 2016 with retrospective effect
from 23.10.2015, reads as under:
“Section 34 of the Arbitration Act provides 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
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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, or (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.
(3) An application for setting aside may not be made after three months
have elapsed from the date on which the party making that application
had received the arbitral award or, if a request had been made under
section 33, from the date on which that request had been disposed of by
the arbitral tribunal: Provided that if the Court is satisfied that the
applicant was prevented by sufficient cause from making the
application within the said period of three months it may entertain the
application within a further period of thirty days, but not thereafter. (4)
On receipt of an application under sub-section(1),the Court may, where
it is appropriate and it is so requested by a party, adjourn the
proceedings for a period of time determined by it in order to give the
arbitral tribunal an opportunity to resume the arbitral proceedings or to
take such other action as in the opinion of arbitral tribunal will
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eliminate the grounds for setting aside the arbitral award.”
12. Ld. counsel for the petitioner during the course of the hearing has
primarily raised the following four contentions as follows :-
(a) It has firstly been contended by Learned counsel for the Petitioner
that the respondent did not have any authority to approach Micro &
Small Enterprises Facilitation Council of Haryana in view of the
specific provision in chapter V and as per provision of section 15 of
MSMED Act, 2006 according to which the respondent can approach to
the Facilitation Council only in case of delayed payment but in this
case neither any payment has been delayed by the petitioner nor it has
been claimed by the respondent in his application dated 03.07.2014. As
such the Facilitation Council of Haryana was not having jurisdiction to
entertain the application dated 03.07.2014 as such all the proceeding
initiated by HMSEFC & Notice dated 16.07.2014 issued by Member
Secretary on behalf of Chairman, HMSEFC is null and void and has no
force in the eye of law. As such the proceeding initiated by HMSEFC is
liable to be declared as null and void.
(b) On first contention, the Ld Sole Arbitrator after having elaborately
discussed the legal provisions of Section 18 and Section 24 of the
MSMED Act 2006 who came to the conclusion that the Ld Sole
Arbitrator had the jurisdiction to decide the disputes referred by the
Chairman, HMSEFC cum Director of Industries and Commerce
Haryana u/s 18 (3) of the MSMED Act 2006 since MSMED Act 2006
is a special Act and would over ride any mutual agreement by the
parties. It is pertinent to mention that the petitioner herein challenged
the reference made by the Chairman, HMSEFC cum Director of
Industries and Commerce Haryana before the Hon’ble High Court for
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the States of Punjab and Haryana at Chandigarh vide W P No 277/2015
which vide order dt 09.01.2015 was dismissed in view of the non
obstante clause contained in Section 18 of the MSMED Act 2006 and it
was held that the appointment of Arbitrator was validly appointed, it
being an additional method of appointment of an arbitrator and cannot
exclude the application of the provisions of the MSMED Act 2006.
Thus the Ld Sole Arbitrator has rightly returned the finding that the
Arbitral tribunal had the jurisdiction to decide the dispute as referred to
it by the Chairman, HMSEFC cum Director of Industries and
Commerce Haryana.
(c) Moreover the contention of petitioner to the effect that the dispute
itself was not referable to the Facilitation council under the provisions
of MSMED Act 2006, the same is clearly an after thought as the
applicability of MSMED Act 2006 was not objected to before Ld Sole
Arbitrator. However under the provision of Section 15 to 18 of
MSMED Act 2006 it is the liability of the buyer to make the payment
to the supplier and in case the buyer fails to make the payment of the
amount to the supplier he shall be liable to pay compound interest and
any party with respect to amount due under section 17 is within its
rights to approach the MSMED facilitation council who has been
vested with the jurisdiction to act as an arbitrator under Section 18 of
the Act provided that the supplier is located with its jurisdiction.
(d) The aforesaid jurisdiction of MSMED facilitation council is
notwithstanding anything contained in any other law for the time being
enforced. Thus the petitioner having not been successful in challenging
the jurisdiction of MSMED Act 2006 at the time of its reference before
the Hon’ble High Court for the states of Punjab and Haryana at
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Chandigarh vide W P No 277/2015 and after having been participated
in Arbitral proceedings cannot be permitted to turn around and say that
the dispute itself was not referable to the facilitation council under the
provisions of MSMED Act 2006, the same is clearly an after thought as
the applicability of MSMED Act 2006 was not objected to before Ld
Sole Arbitrator. Accordingly, the present contention as raised by the
counsel for the petitioner being misconceived is rejected.
13. The Ld counsel for the petitioner has next contented that Ld Sole
Arbitrator has wrongfully allowed the claim of the respondent and
directed for the refund of an amount of Rs 4,50,731/- deducted by the
petitioner on account of liquidated damages dehors the contractual
provisions. It was further contended by Ld counsel for the petitioner that
the petitioner was within its legal rights to deduct 2% liquidated damages
as per the contract entered into between the parties whereby the
respondent has unconditionally accepted the extension of the delivery
period with the condition of imposition of liquidated damages. It has
further been contended that vide the impugned award, a premium is put
upon the dishonesty since the respondent failed to supply the cranes
within the stipulated period and therefore the imposition of the liquidated
damages was justified.
14. The Ld Sole Arbitrator vide the detailed award dt 02.07.2015 had
accepted the claim petition of the respondent and awarded a sum of Rs
2,05,567/-, 1,38,755/- (totalling Rs 3,44,322/-) withheld since
09.08.2012, Rs 54,129/-, Rs 41,314/-, Rs 9,168 (totalling Rs 1,04,611/-
withheld since 24.05.2013 & Rs 1,798/- withheld ever since 25.03.2014
from the bills of the claimant by the respondent by way of liquidated
damages and had also granted interest @ 14% per annum on withheld
ARB No 584151/2016 Union of India Vs M/s Reva Industries Ltd Page No 19/33
amount of Rs 4,50,731/-. Beside the aforesaid the Ld Sole Arbitrator had
also granted further interest @ 18% per annum from the date of the
award till the date of the payment in case the payment of the awarded
amount is not made within 45 days from the date of passing of the
award. While awarding the aforesaid amounts the Ld Sole Arbitrator has
discussed at length the provisions of Section 73 & 74 of the Indian
Contract Act in the connected main petition and has also discussed the
celebrated judgment passed in the matter of Fateh Chand Vs Bal Kishan
Das (1964) 1 SCR 515, Maula Bux Vs Union of India (1969) 2 SCC
554 and also the judgment in the matter of Union of India Vs Ramaniron
Foundry (1974) 2 SCC 231 to uphold the legal principle that it is the
duty of the court not to enforce the penalty clause but only to award
reasonable compensation has been held to be statutorily imposed upon
courts by section 74 of the contract act. The court just has to adjudge in
every case, reasonable compensation for breach of contract having
regard to the conditions which existed on the date of the breach [ref:
Fateh Chand case (supra)]. An aggrieved party cannot claim that it is
still entitled to liquidated damages without, at least, proving a
semblance of loss.
15. The Ld Sole Arbitrator after dealing with all the contention as raised by
the petitioner and reproduced herein before has held that since the
railways has clearly mentioned that there was no loss suffered by them it
cannot be said that simply because the presence of the clause of
liquidated damages, the same has to be recovered even when no loss has
been caused. The Ld Sole Arbitrator after taking into account the totally
of the facts and circumstances distinguished the present matter by
holding that in the present the actual loss could easily have been assessedARB No 584151/2016 Union of India Vs M/s Reva Industries Ltd Page No 20/33
and which has not been assessed who accordingly came to the
conclusion that liquidated damages could not have been imposed for
want of the proof of any loss having been caused to the railways and
accordingly held that the amount of Rs 4,50,731/- could not have been
withheld from the bills of the respondent. The aforesaid conclusion
reached by Ld Sole Arbitrator does not call for any interference since in
the present case the actual loss/damages could have been computed and
which have not been computed.
16. Although Ld counsel for the petitioner has contended that the present
case is squarely covered by the judgment passed by Ld Apex Court in the
matter of Oil & Natural Gas Corporation Ltd Vs Saw Pipes Ltd (AIR
2003 SC 2629) however perusal of the same goes to show that even in
the said judgment the Hon’ble Apex court has held that in contract where
it would be difficult to prove the exact loss or damage which the parties
suffer because of the breach thereof and in such a case where the parties
have pre-estimated such loss after clear understanding it would be totally
unjustified to arrive at the conclusion that the party who has committed
breach of the contract is not liable to get compensation. The Hon’ble
Apex Court summarized the following principles vide para 67 as
follows:
(1) Terms of the contract are required to be taken into
consideration before reaching the conclusion whether the party
claiming damages is entitled to the same;
(2) If the terms are clear and unambiguous stipulating the
liquidated damages in case of the breach of the contract, unless it
is held that such estimate of damages/compensation is
unreasonable or is by way of penalty, the party who has committed
the breach is required to pay such compensation, and that is what
is provided for in Section 73 of the Contract Act
(3) Section 74 is to be read together with Section 73 and,
therefore, in every case of breach of contract, the person
ARB No 584151/2016 Union of India Vs M/s Reva Industries Ltd Page No 21/33
aggrieved by the breach is not required to prove actual loss or
damage suffered by him before he can claim a decree. The Court is
competent to award reasonable compensation in case of breach
even if no actual damage is proven to have been suffered as a
consequence of the breach of a contract.
(4) In some contracts, it would be impossible for the Court to
assess the compensation arising from the breach, and if the
compensation contemplated is not by way of penalty or
unreasonable, the Court can award the same if it is genuine, pre-
estimated by the parties as the measure of reasonable
compensation.
17. The Ld Sole Arbitrator duly taking into consideration the fact that the
railway authorities in their official record have stated that there was no
loss/delay held that merely because there is a clause of liquidated damages
would not mean that liquidated damages has to be recovered when no loss
has been caused. The Ld Sole Arbitrator also held that the petitioner herein
who was competent to assess the actual loss could not establish that loss
was actually caused to it and accordingly held that the amount of Rs
4,50,731/- withheld from the bills of the claimant/ respondent herein by
way of liquidated damages being not permissible has to be refunded.
18. Recently the Hon’ble High Court of Delhi in the matter of Sedershan
Kumar Bhayana Vs Vinod Seth 2023 Livelaw (Del) 924 has held as
follows:
“39. In Kailash Nath Associates v. Delhi Development Authority
& Anr.2, the Supreme Court had referred to Section 74 of the
Indian Contract Act, 1872 and has held as under:
“43. On a conspectus of the above authorities, the law on
compensation for breach of contract under Section 74 can be
stated to be as follows:
43.1. Where a sum is named in a contract as a liquidated amount
payable by way of damages, the party complaining of a breach
can receive as reasonable compensation such liquidated amount
only if it is a genuine pre-estimate of damages fixed by both
parties and found to be such by the court. In other cases, where a
sum is named in a contract as a liquidated amount payable by
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way of damages, only reasonable compensation can be awarded
not exceeding the amount so stated. Similarly, in cases where the
amount fixed is in the nature of penalty, only reasonable
compensation can be awarded not exceeding the penalty so
stated. In both cases, the liquidated amount or penalty is the
upper limit beyond which the court cannot grant reasonable
compensation.
43.2. Reasonable compensation will be fixed on well known
principles that are applicable to the law of contract, which are to
be found inter alia in Section 73 of the Contract Act.
43.3. Since Section 74 awards reasonable compensation for
damage or loss caused by a breach of contract, damage or loss
caused is a sine qua non for the applicability of the section.
43.4. The section applies whether a person is a plaintiff or a
defendant in a suit.
43.5. The sum spoken of may already be paid or be payable in
future.
43.6. The expression “whether or not actual damage or loss is
proved to have been caused thereby” means that where it is
possible to prove actual damage or loss, such proof is not
dispensed with. It is only in cases where damage or loss is
difficult or impossible to prove that the liquidated amount named
in the contract, if a genuine pre-estimate of damage or loss, can
be awarded.
43.7. Section 74 will apply to cases of forfeiture of earnest money
under a contract. Where, however, forfeiture takes place under
the terms and conditions of a public auction before agreement is
reached, Section 74 would have no application.”
“40. The aforesaid principles have been reiterated and followed
in several decisions of this Court.
“41. It is well settled that there are three essential ingredients
that are required to be pleaded and established by a party
claiming damages. First, that there is a breach of the Contract by
the counter party. Second, that the party complaining of such
breach has suffered an injury as a result of the breach of the
contract by the counter party. And third, that the injury suffered is
proximate and a direct result of the breach committed.
“42. In the present case, the Owners had in their Statement of
Claims pleaded as under: “11. That when the builder failed to
complete the building within the stipulated period and even after
the expiry of about 18 months the owner had no alternative but to
ARB No 584151/2016 Union of India Vs M/s Reva Industries Ltd Page No 23/33
invoke the clauses 7 and 12 of the Agreement and forfeited the
Earnest Money as well as the Compensation Money as stated in
the foregoing paras.”
“43. It is material to note that the Owners had not made any
categorical averments that the delay had resulted in them
suffering any damages. There is no averment that the Owner’s
incurred costs, which were higher than the value of the second
floor of the reconstructed building.
“44. Absent any pleadings that the owners had suffered damages
or incurred loss on account of the delay in construction of the
work, a claim of damages would not be sustainable. In addition,
as noted above, admittedly there is no evidence or material on
record to establish that the owners had suffered any loss or the
quantum of such loss. The owners have simply relied on Clause 7
of the Collaboration Agreement. It is material to note that there is
also no averment that the penalty as contemplated under Clause
7 of the Collaboration Agreement is a genuine pre-estimate of
damages.
“46. In Hindustan Petroleum Corporation Ltd., Mumbai v.
Offshore Infrastructure Ltd., Mumbai, the Bombay High Court
following the decision of the Supreme Court in Kailash Nath
Associates v. Delhi Development Authority & Anr. had observed
that “Unless loss is pleaded and proved, where it capable of
being proved, it cannot be recovered. There cannot be any
windfall in favour of the respondent to recover liquidated
damages even if no loss is suffered or proved.”
“47. The Division Bench of this Court in Hindustan Petroleum
Corporation Ltd. v. M/s Dhampur Sugar Mills had upheld the
decision of the learned Single Judge setting aside an arbitral
award awarding damages on the basis of a penalty clause. In the
aforesaid context, the Division Bench of this Court had observed
as under: “11.2. A careful perusal of the same would show that
the appellant claimed “penalty”. Penalty is generally construed
as a sum stipulated in terrorem. On the other hand, damages,
liquidated or unliquidated, when awarded, have a compensatory
flavour to it. Liquidated damages are awarded by a court only if
it construed as a genuine pre-estimate of the loss that is caused in
the event of breach. It is no different from unliquidated damages
i.e., it cannot be granted if there is no loss or injury. Where
parties have agreed to incorporation of a liquidated damages
clause in the contract, the Court will grant only reasonable
ARB No 584151/2016 Union of India Vs M/s Reva Industries Ltd Page No 24/33
compensation, not exceeding the sum stipulated. Liquidated
damages does away with proof where loss or damage cannot be
proved, but not otherwise. Thus, the party suffering damages can
be awarded only a reasonable compensation, which would put
such party in the same position, in which the party would have
been had the breach not been committed. The appellant’s
pleadings are woefully deficient in this regard. Unless loss is
pleaded and proved, where it capable of being proved, it cannot
be recovered.”
19. Thus, in view of the finding returned by the Ld. Sole Arbitrator on the
merits of the case and also in view of the settled legal position as stated
in the foregoing paras, the present contention of the counsel for the
petitioner too is rejected.
20. Ld counsel for the petitioner next submits that MSME facilitation
council had no jurisdiction to appoint the arbitrator as the said arbitrator
had to be appointed in accordance with the agreement of the parties and
was against the specific terms of the arbitral agreement. It is further the
contention of Ld counsel for the petitioner that the award as passed by
Ld Sole Arbitrator is a nullity since the arbitrator in terms of the arbitral
agreement could have been legally appointed in accordance with the
provisions of Clause 3200 of the General Condition of the Contract as
agreed between the parties and could not have been appointed by
Member Secretary, HMSEFC. It is further the contention of Ld counsel
for the petitioner that since the Ld Sole Arbitrator appointed by Member
Secretary, HMSEFC was not the gazetted Railway officer hence he was
not possessing the qualifications agreed to by the parties. It is further
contended by Ld counsel for the petitioner that the Ld Sole Arbitrator in
as much as passing the impugned award has wrongly returned a finding
that MSMED Act 2006 has an overriding effect over the arbitration
agreement which itself is an independent agreement between the parties
ARB No 584151/2016 Union of India Vs M/s Reva Industries Ltd Page No 25/33
to resolve the dispute. It is further contended by Ld counsel for the
petitioner that Ld Sole Arbitrator has passed the impugned award dehors
the agreement reached between the parties and is thus liable to be
interfered since the same is based upon the erroneous application of the
correct legal position and is thus patently illegal.
21. Per Contra, Ld counsel for the respondent has supported the award as
passed by Ld Sole Arbitrator who submits that the Ld Sole Arbitrator
was validly appointed who thus has passed the award within the statutory
parameters of law. It is further submitted that the petitioner had
challenged the reference made by the Chairman, HMSEFC cum Director
of Industries and Commerce Haryana under the provision of MSMED
Act 2006 before the Hon’ble High Court the states of Punjab & Haryana
in CPW No 277/2015 wherein the said very objections had been taken
by the petitioner and which writ petition had been dismissed by the
Hon’ble High Court the states of Punjab & Haryana vide order dt
09.01.2015 in view of non obstantic laws u/s 18 of MSMED Act 2006.
22. The Ld Sole Arbitrator after elaborately examining the relevant clause
i.e. clause 3200 which provides for arbitration and also of the provision
of Section 18 of the MSMED Act 2006 held that the tribunal had the
jurisdiction to decide the disputes referred by the Chairman, HMSEFC
cum Director of Industries and Commerce Haryana u/s 18 (3) of the
MSMED Act 2006. While holding that the tribunal had the jurisdiction
to decide the disputes u/s 18 (3) of the MSMED Act 2006 Ld Sole
Arbitrator relied upon the decision rendered by the Hon’ble Punjab &
Haryana High Court passed in CWP No 23016/ of 2011 (O& M) in the
matter of Welspun Corp Ltd Vs Micro and Small, Medium Enterprises
facilitation council and Punjab & Ors. The Ld Sole Arbitrator in
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accordance with the decision rendered by the Hon’ble Punjab & Haryana
High Court passed in CWP No 23016/ of 2011 (O& M) accordingly held
that :-
“If section 18 of the Act, 2006 provides for a mode of resolution of a
dispute wherein this council is to adjudicate acting as an arbitrator in
terms of the Act, 1996, it would not be open for any party to overrule the
said jurisdiction of this council, which has been vested in terms of
section 18 (3) of the Act, 2006 merely by creating a mutual agreement.
The agreement cannot override the provisions of the Act, 2006 in view of
the aforesaid fact.”
23. The Hon’ble Supreme Court of India in the matter of Gujarat State Civil
Supplies & Anr Vs Mahakali Food Pvt Ltd (Unit 2) & Ors
MANU/SC/1408/2022 has put all the contentions as raised by Ld
counsel for the petitioner at rest. The Hon’ble Apex Court elaborately
discussed the provisions of the MSMED Act 2006 including the over
riding effect of the provisions of Section 15 to 23 of MSMED Act 2006.
The Hon’ble Apex court has authoritatively answered the question with
respect to the precedence of MSMED Act 2006 over the provisions of
the Arbitration Act it was held vide para 25 & 26 that –
“25. Thus, the Arbitration Act, 1996 in general governs the law of
Arbitration and Conciliation, whereas the MSMED Act, 2006
governs specific nature of disputes arising between specific
categories of persons, to be resolved by following a specific
process through a specific forum. Ergo, the MSMED Act, 2006
being a special law and Arbitration Act, 1996 being a general law,
the provisions of MSMED Act would have precedence over or
prevail over the Arbitration Act, 1996. In Silpi Industries case
(supra) also, this Court had observed while considering the issue
with regard to the maintainability and counter claim in arbitration
proceedings initiated as per Section 18(3) of the MSMED Act,
2006 that the MSMED Act, 2006 being a special legislation to
protect MSME’s by setting out a statutory mechanism for the
payment of interest on delayed payments, the said Act would
override the provisions of the Arbitration Act, 1996 which is a
ARB No 584151/2016 Union of India Vs M/s Reva Industries Ltd Page No 27/33
general legislation. Even if the Arbitration Act, 1996 is treated as a
special law, then also the MSMED Act, 2006 having been enacted
subsequently in point of time i.e., in 2006, it would have an
overriding effect, more particularly in view of Section 24 of the
MSMED Act, 2006 which specifically gives an effect to the
provisions of Section 15 to 23 of the Act over any other law for the
time being in force, which would also include Arbitration Act,
1996.”
“26. The court also cannot lose sight of the specific non obstante
clauses contained in Sub-section (1) and Sub-section (4) of Section
18 which have an effect overriding any other law for the time being
in force. When the MSMED Act, 2006 was being enacted in 2006,
the Legislative was aware of its previously enacted Arbitration Act
of 1996, and therefore, it is presumed that the legislature had
consciously made applicable the provisions of the Arbitration Act,
1996 to the disputes under the MSMED Act, 2006 at a stage when
the Conciliation process initiated Under Sub-section (2) of Section
18 of the MSMED Act, 2006 fails and when the Facilitation
Council itself takes up the disputes for arbitration or refers it to
any institution or centre for such arbitration. It is also significant
to note that a deeming legal fiction is created in the Section 18(3)
by using the expression ‘as if’ for the purpose of treating such
arbitration as if it was in pursuance of an arbitration agreement
referred to in Sub-section (1) of Section 7 of the Arbitration Act,
1996. As held in K. Prabhakaran v. P. Jayarajan
MANU/SC/0025/2005 : (2005) 1 SCC 754, a legal fiction
presupposes the existence of the State of facts which may not exist
and then works out the consequences which flow from that state of
facts. Thus, considering the overall purpose, objects and scheme of
the MSMED Act, 2006 and the unambiguous expressions used
therein, this Court has no hesitation in holding that the provisions
of Chapter-V of the MSMED Act, 2006 have an effect overriding
the provisions of the Arbitration Act, 1996.”
24. Thus, in view of the findings returned by the Ld. Sole Arbitrator and also
the authoritative pronouncement of the judgment by the Apex Court, the
present contention of the Ld. Counsel for the petitioner too is rejected
and the award thus cannot be assailed on this ground.
25. It is next contended that the impugned award is liable to be set aside
ARB No 584151/2016 Union of India Vs M/s Reva Industries Ltd Page No 28/33
since the Ld. Arbitrator has illegally allowed 14% interest on the amount
of Rs. 4,50,731/- contrary to clause 2003 of GCC Bid Document Part-1
vide which the contractor has no right to claim for interest and damages.
The Ld. Sole arbitrator vide the award has granted 14% interest per
annum on the withheld amount drawing strength from Section 16 and 17
of MSME Act. As stated in the foregoing paras, the contention of the
counsel for the petitioner to the effect that no interest could have been
awarded since the same is not provided in the contract as entered into
between the parties is clearly misconceived in view of the judgment
rendered by the Hon’ble Apex Court in the matter of Gujarat State Civil
Supplies & Anr Vs Mahakali Food Pvt Ltd (Unit 2) & Ors
MANU/SC/1408/2022 whereby it has been held that the provisions of
Section 15 to 23 of the MSME Act would have an overriding effect over
any other law for the time being in force, which would also include
Arbitration Act, 1996.” It was held that the provisions of Chapter-V of
the MSMED Act, 2006 would override the provisions of the Arbitration
Act, 1996 being a special legislation to protect MSME’s by setting out a
statutory mechanism for the payment of interest on delayed payments.
Accordingly, no infirmity can be said to have crept in the impugned
award merely because the contract between the parties does not permit
the payment of interest. Accordingly, the award cannot be set aside on
this ground also.
26. It is next contended that the impugned award is liable to be set aside
since the Ld. Sole arbitrator has granted cost of the proceedings to the
tune of Rs. 61,200/- to the respondent. The Ld. Sole arbitrator in view of
the judgment passed by the Hon’ble Supreme Court in the matter of
Salem Advocate Bar Association T N vs. UOI and also has granted the
ARB No 584151/2016 Union of India Vs M/s Reva Industries Ltd Page No 29/33
cost incurred by the respondent towards fees of the arbitrator @ Rs.
25,000/- besides lawyers fees @ Rs.10,000/- for appearance before the
chairman HMSEFC and before the Tribunal @ Rs. 20,000/-. The Ld.
Sole Arbitrator has further granted a consolidated amount of Rs. 1,300/-
(100/- per date towards cost of transportation charges) and Rs. 3,500/-
towards cost of fees of arbitration and Rs. 100/- towards incidental cost.
The aforesaid cost awarded cannot buy any stretch of imagination be set
to be unreasonable given the fact that the arbitral proceedings were
conducted under the provisions of MSME Act and not before the
arbitrator as appointed by the petitioner. Accordingly, the award is not
liable to be set aside merely by the fact that reasonable cost of the
proceedings have been awarded.
27. Before parting, it is apt to note that the powers of the Court under
Section 34 of the Act are very limited and an application under Section
34 of the Arbitration Act, 1996 is in the nature of summary proceedings
and not in the nature of a regular suit. It is a settled law that a Court
reviewing an award under Section 34 of the Act does not sit as an
appellate court over the award passed by the Arbitrator or to re-examine
or to re-appreciate the evidence as an Appellate Court if the view taken
by the Arbitrator is plausible in terms of the judgments passed in the
matter of Canara Nidhi Ltd. v/s M. Shashikala 2019 SCC Online SC
1244 and Associated Construction v/s Pawanhans Helicopters Ltd.
(2008) 16 SCC 128.
28. In Associate Builders vs. Delhi Development Authority, (2015) 3 SCC
4 emphasised that the public policy test to an arbitral award does not
give jurisdiction to the court to act as a court of appeal and consequently
errors of fact cannot be corrected. Arbitral tribunal is the ultimate master
ARB No 584151/2016 Union of India Vs M/s Reva Industries Ltd Page No 30/33
of quality and quantity of evidence. An award based on little evidence or
no evidence, which does not measure up in quality to a trained legal
mind would not be held to be invalid on this score. Every arbitrator need
not necessarily be a person trained in law as a Judge. At times, decisions
are taken acting on equity and such decisions can be just and fair should
not be overturned under Section 34 of the A&C Act on the ground that
the arbitrator’s approach was arbitrary or capricious.
29. Similarly in Sumitomo Heavy Industries Ltd. v. ONGC Ltd: The
observations in para 43 thereof are instructive in this behalf.
“(Sumitomo case 21, SCC p. 313) 43. … The umpire has considered the
fact situation and placed a construction on the clauses of the agreement
which according to him was the correct one. One may at the highest say
that one would have preferred another construction of Clause 17.3 but
that cannot make the award in any way perverse. Nor can one substitute
one’s own view in such a situation, in place of the one taken by the
umpire, which would amount to sitting in appeal. As held by this Court
in Kwality Mfg. Corpn. vs. Central Warehousing Corpn. (2009) 5 SCC
142, the Court while considering challenge to arbitral award does not
sit in appeal over the findings and decision of the arbitrator, which is
what the High Court has practically done in this matter. The umpire is
legitimately entitled to take the view which he holds to be the correct
one after considering the material before him and after interpreting the
provisions of the agreement. If he does so, the decision of the umpire
has to be accepted as final and binding.”
30. In McDermott International Inc. vs. Burn Standard Co. Ltd. (2006)
11 SCC 181, it was further noted that the interpretation of a contract is a
matter for the Arbitrator to determine, even if it gives rise to
determination of a question of law. Once, it is held that the arbitrator
had the jurisdiction, no further question shall be raised and the court will
not exercise its jurisdiction unless it is found that there exists any bar on
the face of the award.
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31. In Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd. [2019 SCC
Online SC 1656] laid down the scope of such interference. The Hon’ble
Supreme Court of India observed as follows:
“26. There is no dispute that Section 34 of the Arbitration Act limits a
challenge to an award only on the grounds provided therein or as
interpreted by various Courts. We need to be cognizant of the fact that
arbitral awards should not be interfered with in a casual and cavalier
manner, unless the Court comes to a conclusion that the perversity of
the award goes to the root of the matter without there being a
possibility of alternative interpretation which may sustain the arbitral
award.
Section 34 is different in its approach and cannot be equated with a
normal appellate jurisdiction. The mandate under Section 34 is to
respect the finality of the arbitral award and the party autonomy to get
their dispute adjudicated by an alternative forum as provided under the
law. If the Courts were to interfere with the arbitral award in the usual
course on factual aspects, then the commercial wisdom behind opting
for alternate dispute resolution would stand frustrated.”
32. In PSA SICAL Terminals (P) Ltd. v. Board of Trustees of V.O.
Chidambranar Port Trust Tuticorin, 2021 SCC OnLine SC 508, in
which the Hon’ble Supreme Court of India reiterated its view on
MMTC Limited v. Vendanta Limited, (2019) 4 SCC 163 wherein it was
observed that:
“As far as Section 34 is concerned, the position is well-settled by
now that the Court does not sit in appeal over the arbitral award and
may interfere on merits on the limited ground provided under Section
34(2)(b)(ii) …” “It is only if one of these conditions is met that the
Court may interfere with an arbitral award in terms of Section 34(2)
(b)(ii), but such interference does not entail a review of the merits of
the dispute, and is limited to situations where the findings of the
arbitrator are arbitrary, capricious or perverse, or when the
conscience of the Court is shocked, or when the illegality is not
trivial but goes to the root of the matter. An arbitral award may not
be interfered with if the view taken by the arbitrator is a possible
view based on facts.” “…the court cannot undertake an independent
assessment of the merits of the award, and must only ascertain that
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the exercise of power by the court under Section 34 has not exceeded
the scope of the provision.”…
33. Thus all the contentions as raised by Ld counsel for the petitioner in
view of the authoritative pronouncement by the Hon’ble Apex Court are
thus liable to be rejected. The interpretation of Section 18 (3) of
MSMED Act 2006 as made by the Ld Sole Arbitrator cannot be faulted
with and thus the award is not liable to be interfered on the aforesaid
contentions raised by Ld counsel for the petitioner in exercise of the
powers under Section 34 of the Arbitration and Conciliation Act.
34. Accordingly, the present petition is dismissed.
35. File be consigned to record room after due compliance.
Digitally
signed by
SACHIN
SACHIN SOOD
Announced in the open court (Sachin
SOOD Sood)Date:
2025.07.21
17:42:10
on 21.07.2025. DJ-01 (Central)
+0530
THC, Delhi.
ARB No 584151/2016 Union of India Vs M/s Reva Industries Ltd Page No 33/33