Delhi District Court
Union Of India vs Reva Industries Ltd on 9 June, 2025
IN THE COURT OF SH. SACHIN SOOD,
DISTRICT JUDGE - 01, CENTRAL, TIS HAZARI COURTS, DELHI.
ARB No. 584281/2016
CNR No DLCT01-003091-2015.
Union of India
Through its
Chief Adminstrative 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 : 22.08.2015
Date of decision : 09.06.2025
JUDGMENT
1. The present petition has been filed under Section 34 of the Arbitration
and Conciliation Act, 1996 against the award dated 02.07.2015 bearing
no. TS/HMSEFC/CASE NO.-29 of 14 pleading inter alia as under :-
i. That the petitioner is an organization called COFMOW established
under the Ministry of Railways by the Government of India forARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 1/29
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.
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 29/14.
2. Brief facts of the case:
(a) That the petitioner had invited a tender for procurement of EOT
Cranes vide tender bearing no. COFMOW/1625/06 which was
opened on 18.01.2008. The petitioner issued letter of acceptance
dated 08.05.2008 to the respondent. A formal contract dt 19.08.2008
was issued by the petitioner to the respondent under which the
respondent was to supply 2 cranes at Hubli, Karnataka alongwith
tools and tackles and maintenance spares. The total value of the
cranes was of Rs. 46,09,669/-. The respondent signed the same on
28.08.2008 vide their letter bearing no. R O 6637 signed by Ish
Gupta, GM Contracts on behalf of the respondents as such the
contract is binding upon both the parties.
(b) That the respondent was supposed to supply 2 number of cranes as
per the specification and terms and conditions of the contract. As per
clause 1.10 of the contract the respondent was supposed to deliver the
2 cranes within 6-8 months from the date of approval of GA
Drawings. The GA drawings were submitted by the respondents on
14.06.2008 and the same was approved by the consignee on
27.06.2008 and 02.07.2008 respectively. As per the terms of the
contract the 2 cranes were required to be supplied by 26.02.2009 and
ARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 2/29
01.03.2009 but the same were supplied on 18.03.2009 hence there
was a delay of 19 days and 16 days in supplying the material. Hence
as per the petitioner it became entitled to deduct 2% liquidated
damages of the total value of the contract as per clause 1002 of GCC
bid documents part-I.
(c) As per the petitioner under clause 3200 of General Condition of
Contract bid documents part-I “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 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 an amount of Rs.
78,858/- towards 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 approached to Micro and Small Enterprises Facilitation
Council of Haryana under Section 18(1) of the MSMED Act, 2006
seeking recovery of an amount of Rs. 78,858/- togetherwith interest
calculated at Rs. 2,34,450/- w.e.f 07.04.2009 upto 30.06.2014 in
terms of Section 16 of the MSME Act. It was specified in the
application that as per the terms of the payment 80% payment of
invoice value against MRC (material receipt certificate) was to be
ARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 3/29
made by the petitioner herein and 20% of the invoice value was to be
made against completion of the E&C (PTC) plus service charge. The
facilatation council issued notice dt 16.07.2014 to the petitioner
wherein the petitioner was directed to appear before the council on
07.08.2014. The petitioner filed an application u/s 18 (3) of MSMED
Act 2006 challenging the jurisdication of the Council and prayed for
reference of the matter to the Ld Sole Arbitrator to be appointed by
the raliways 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 empaneled 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 aggreived 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.
(h) That the petitioner herein filed its reply to the claim as preferred by
the respondent herein vide which it was contended that the raliways
ARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 4/29
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. 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
raliways. 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.
(i) 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 herein and awarded an
amount of Rs 78,858/- (withheld amount) togetherwith the costs
calculated at Rs 64,200/- and has awarded interest @ 14% per annum
on withheld amount for the period commencing w.e.f. 17.04.2009 to
02.07.2015 i.e. the date of pronouncement of the award. The Ld Sole
Arbitrator has also granted furture interest @ 18% per annum from
the expiry of 45 days from the date of the award to the date of
payment. While awarding the aforesaid amounts the Ld Sole
Arbitrator has discussed at length the provisions of the micro, small,
medium enterprises development Act, 2006 and also has discussed at
length the provisions of Section 73 & 74 of the Indian Contract Act
and has also discussed the celibrated judgment passed in the matter
of Fateh Chand Vs Bal Kishan Das (1964) 1 SCR 515, Maula Bux
ARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 5/29
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.
3. 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 jurisdication 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 jurisdication 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 the
finding on the aforesaid issue had placed reliance upon the judgment
passed by the Hon’ble Punjab and Haryana High Court in the matterARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 6/29
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 relavant 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 noted by the Ld. Sole Arbitrator that the railways have
categorically stated in their official record that no loss/delay has been
suffered by the railways as per the prove out test certificate (PTC).
The Ld Sole Arbitrator accordingly, rejected the argument of the
railways to the effect that irrespective of no loss and no delay inARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 7/29
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 delay nor any loss 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. The Ld Sole Arbitrator held that the
respondent/petitioner herein had to establish that loss 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. In view of the aforesaid, the Ld Sole Arbitrator
orderded/awarded the refund of the withheld amount of Rs 78,858/-
by way of liquidated damages. The Ld Sole Arbitrator vide holding
that the statutory provisions of MSMED Act 2006 providing very
heavy rate of interest is arbitrary, in the totality of facts granted
interest @ 14% per annum w.e.f. 17.04.2009 to 02.07.2015 on the
withheld amount.
4. 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 Advocate
Bar Association, TN Vs Union of India 2005 (6) SCC 344 held that costs
can be granted u/s 35 (2) CPC which have to be actual reasonable costs.
Accordingly the Ld Sole Arbitrator granted Rs 25,000/- towards fees of
ARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 8/29
the arbitrator, Rs 10,000/- towards lawyers fees for appearing before the
Chairman, HMSEFC and before the tribunal at Rs 20,000/- and towards
Rs 2,600/- each by way of transportation charges and Rs 3,500/- towards
fees of arbitration application and Rs 500 towards incidental cost i.e.
typing charges and other costs with relation to the litigation.
5. The present petition u/s 34 of the Arbitration and Concillation Act, 1996
has been filed on the following grounds:-
a) That the respondent herein 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) 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
impuged award has not considered the terms of the contract with
respect to the deduction of the liquidated damages and also with
ARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 9/29
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 raliway 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 since in terms of
clause 1002 of the GCC in case a supplier fails to supply the material
as per the contract within the stipulated period of time or within the
extended delivery period, the petitioner was within its rights to deduct
2% Liquidated Damages per month or part thereof subject to
maximum limit of 10%. In this case the respondent was supposed to
supply the goods upto 27.02.2009 & 02.03.2009 but they failed to
supply the same even upto 08.03.2009 accordingly the respondent
made a request for extension of delivery period vide his letter bearing
no. 2272 dated 31.03.2009 and accordingly after considering the
request of the respondent the delivery period was extended upto
20.03.2009 subject to condition that Liquidated Damages shall be
recovered for delayed supplies vide letter bearing no. 1625 dated
ARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 10/29
31.03.2009. The material was supplied on 18.03.2009 within
extended delivery period. It is admitted case of both the parties that
goods have been supplied after original delivery period. Thus, in
terms of Clause 1201 of GCC Bid Document Part I, the petitioner has
the right to recover from the contractor, the liquidated damages on the
stores which the contractor has failed to deliver within the period
fixed for delivery.
e) That the impugned award is liable to be set aside since the Ld.
Arbitrator has illegally allowed the claim of respondent for refunding
the amount of Rs. 78,858/- which was deducted on 17.04.2009 on
account of Liquidated Damages. The Ld. Arbitrator has also allowed
the 14% interest on the amount of Rs. 78,858/- for the period
17.04.2009 to 02.07.2015 contrary to clause 2003 of GCC Bid
Document Part-1 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.
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. 64,200/-
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
ARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 11/29
arbitration. As such the Ld. Arbitrator ought not to have awarded the
cost of Rs. 64,200/- 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 mechnical
manner.
h) The impugned award has wrongly been passed by misconstruing
the case titled Fateh Chand Vs Bal Kishan Das 1965 SCR (1) 515
according to which in terms of Section 74 the petitioner was not
required to prove any actual loss or damage.
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
patentely legal.
6. The respondent had filed its detailed reply contending that the present
petition is beyond the scope of Section 34 of the Arbitration and
concillation 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 subsitute
its views in place of the interpretation accepted by the Arbitral Tribunal.
It has further been 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
ARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 12/29
before the facilatation counsel has been conclusively dealt with. It has
further been submitted that since liquidated damages have arbitraily have
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 arbitraily 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 interferance.
7. I have heard the arguments from both the parties throughly and have
perused the arbitral award.
8. Section 34 of the Arbitration and Conciliation Act, 1996 Act, 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 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
ARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 13/29
(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
eliminate the grounds for setting aside the arbitral award.”
9. 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 thisARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 14/29
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.
10. 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 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 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 valid, 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.
ARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 15/29
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, is clearly an after thought. 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. 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.
The aforesaid jurisdiction of MSMED facilitation council is
notwithstanding anything contained in any other law for the time being
in force. 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
Chandigarh vide W P No 277/2015 and after having 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 present contention 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.
11. The Ld counsel for the petitioner has next contented that Ld Sole
Arbitrator has wrongfully allowed the claim of the respondent and
ARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 16/29
directed for the refund of an amount of Rs 78,858/- 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.
12. 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
78,858/- (withheld amount), Rs 64,200/- (towards cost) and had also
granted interest @ 14% per annum on withheld amount of Rs 78,858/-
for the period w.e.f. 17.04.2009 to 02.07.2015 (pronouncement of
award). 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 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
ARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 17/29
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.
13. 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 assessed
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 78,858/- 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 in view of the findings returned
by the Ld Sole Arbitrator could have been computed and which have not
been computed.
14. 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
ARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 18/29
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 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.
15. 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
ARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 19/29
establish that loss was actually caused to it and accordingly held that the
amount of Rs 78,858/- withheld from the bills of the claimant/respondent
herein by way of liquidated damages being not permissible has to be
refunded.
16. Recently the Hon’ble High Court of Delhi in the matter of Sedershan
Kumar Bhayana Vs Vinod Seth 2023 FAO (OS) 132 of 2019 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 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 andARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 20/29
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 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 orARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 21/29
injury. Where parties have agreed to incorporation of a liquidated damages
clause in the contract, the Court will grant only reasonable 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.”
17. 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.
18. 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
as such the award passed by the Ld Sole Arbitrator is a nullity since the
appointment was not 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
ARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 22/29
that MSMED Act 2006 has an overriding effect over the arbitration
agreement which itself is an independent agreement between the parties
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.
19. 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 WP 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.
20. 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
ARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 23/29
matter of Welspun Corp Ltd Vs Micro and Small, Medium Enterprises
facilitation council and Punjab & Ors. The Ld Sole Arbitrator in
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.”
21. 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 vide para 25 & 26 as follows :
“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 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 givesARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 24/29
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.”
22. Thus, in view of the findings returned by the Ld. Sole Arbitrator and also
the authoritative pronouncement of the judgment by the Hon’ble 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.
23. It is next contended that the impugned award is liable to be set aside
since the Ld. Arbitrator has illegally allowed 14% interest on the amount
of Rs. 78,858/- for the period 17.04.2009 to 02.07.2015 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
ARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 25/29
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.
24. 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. 64,200/- 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
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, 2,600/-
(200/- per date towards cost of transportation charges) and Rs. 3,500/-
towards cost of fees of arbitration and Rs. 500/- towards incidental cost.
The aforesaid cost awarded cannot buy any stretch of imagination be
said to be unreasonable given the fact that the arbitral proceedings were
ARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 26/29
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.
25. 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.
26. In Associate Builders vs. Delhi Development Authority, (2015) 3 SCC
49 emphasized 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
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 Arbitration and Conciliation
Act, 1996 on the ground that the arbitrator’s approach was arbitrary or
capricious.
ARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 27/29
27. 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.”
28. 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.
29. 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 wisdomARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 28/29
behind opting for alternate dispute resolution would stand frustrated.”
30. 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
the exercise of power by the court under Section 34 has not exceeded the scope
of the provision.”…
31. 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.
32. Accordingly, the present petition is hereby dismissed.
33. File be consigned to record room after due compliance.
Digitally signed
by SACHIN
SACHIN SOOD
SOOD Date:
Announced in the open court (Sachin Sood)
2025.06.09
16:12:14 +0530
on 09.06.2025. DJ-01 (Central)
THC, Delhi.
ARB No 584281/2016 Union of India Vs M/s Reva Industries Ltd Page No 29/29