Case No: APO No. 349/2017 and GA No. 2170/2017
Case Name: State of West Bengal vs. Bharat Vanijya Eastern Private Limited
Quorum: Justice Sanjib Banerjee and Justice Kausik Chandra
“Reasons are the links between the fact and the conclusion and they reveal the application of mind to the matters in issue and trace the journey from the narrative to the directive. Reasons are the lifeblood of any acceptable process of adjudication and, as to whether an award or an order is reasoned or not, it depends more on the quality than the quantity of the words expended.”
The Calcutta High Court has set aside an arbitral award that it found to be bereft of proper reasoning and application of mind and has asked the claimant party to pursue his claim afresh, in accordance with the law.
In December 1991 the State awarded a contract in favour of the contractor for the construction of the Falakata to Pundari stretch of NH 31 in Cooch Behar. The contract envisaged the construction of the 22 km stretch to be completed within three years at a cost of just under Rs.10 crore. The State says that though the contractor was paid more than double the contract price over the nearly 10 years that the contractor laboured over the work, only 18 km out of the 22 km stretch had been completed by such time. The State, at the end of its tether, terminated the contract in March 2001.
- It is necessary to notice how the State presents its case and the simultaneous objection of the contractor in such regard as, according to the contractor, the grounds of challenge to the award stand circumscribed by the undertaking furnished on behalf of the State following a contempt notice issued by the Arbitration Court upon finding a false case run by the State in its challenge to the award.
- The contractor maintains that upon a substantial part of the petition filed under Section 34 of the Act for being expunged under the order of the Arbitration Court, the wind was taken out of the sails of the State’s challenge to the award and the appeal has to be pursued by the State on such truncated grounds.
- The contractor submits that the two principal grounds left for the State to challenge the arbitral award or to defend the limited order that it obtained are the grounds of the perceived lack of reasons in the award and the award otherwise being opposed to public policy.
Contention from Petitioner:
- The State says that even the Comptroller and Auditor General had questioned the State allowing the contractor’s claim on account of additional expenses and, despite a substantial portion of the work not being completed ten years after the award of the contract, the contractor purported to lodge a claim and, ultimately, obtained an award for a sum above Rs.15 crore.
- In particular, the State claims that even after the records of the arbitral proceedings were brought to this court under the direction of the Arbitration Court, the State was not aware of any notes of the argument having been submitted to the arbitrator by the parties to the reference.
- According to the State, it was only upon the paper-books being prepared in these appeals that the notes of argument submitted by the contractor before the arbitrator came to be discovered; and, with it, the fact that arbitral award of August 26, 2011, was a substantial reproduction of the notes submitted by or on behalf of the contractor, complete with typographical errors and mistakes as contained in the notes.
Contention from Respondent:
- The contractor, on the other hand, blames the State for the delay in the work and says that the land was not made available to the contractor within reasonable time for the work to be completed within the time stipulated in the contract. The contractor says that it was the State which was to blame for the delay in the work and the failure in the completion thereof some ten years after the work commenced.
- The contractor says that adequate reasons have been indicated in the award and the matter must be assessed in the context of the veritable lack of defense to the contractor’s claim as carried to arbitration. The contractor objects to the State’s narrative.
- The contractor suggests that since this is not a public interest litigation, it does not be hove the State to criticize the agent that is appointed to represent it in the suit and the arbitral reference, nor to claim that it did not have access to the papers used in the reference since the records had been summoned to this court and the notes of argument submitted on behalf of the contractor before the arbitrator was a part of such records.
- The contractor submits that in the light of the retraction of a substantial part of the State’s case as originally run in its petition under Section 34 of the Act of 1996, it is no longer open to the State to insinuate any kind of misconduct on the part of the arbitrator or to run an underlying case of corruption or immorality to challenge the arbitral award.
Calcutta High Court said that both the parties have referred to the case (Associate Builders v. Delhi Development Authority) for varying purposes as to the extent of the authority available to a court in this jurisdiction and the scope of the enquiry and assessment under Section 34 of the Act. Clearly, the arbitral award in this case falls well short of what was required of it by the governing statute as and by way of reasons. The bases of the claims under the individual heads are not alluded to in any discussion, whether as to the issues or as to the heads of claim.
In a few cases the subjective satisfaction of the arbitrator is revealed in the use of the expression “fair estimate” without any objective grounds indicated for such subjective satisfaction. The award cannot stand on the ground that it does not provide any reasons in support of any head of claim. Such a ground also amounts to the award being opposed to public policy within the meaning of the relevant expression in Section 34 of the Act.
As a consequence, the judgment and order impugned dated January 4, 2017 is set aside. The entirety of the arbitral award dated August 26, 2011 is set aside. The contractor is left free to pursue the claim afresh by reviving its suit, if that is possible, or by any other means that may be available to the contractor in accordance with law.
The contractor will pay and bear the expenses of the proceedings before the arbitrator and in the court of the first instance and this appeal assessed at Rs.5 lakh. Such costs, if not tendered within a month from date, will carry simple interest at the rate of 6 per cent per annum and will be adjusted first out of any amount that may be awarded in favour of the contractor if it seeks to pursue its claim and is successful therein.
Since the contractor has obtained payment of a substantial amount covered by the award, to the tune of Rs.17 crore, inclusive of interest, the contractor should refund the entire amount received together with interest thereon at the simple rate of 6 per cent per annum from the date of receipt of the payment till the date of refund, within four weeks from date, failing which the State will be entitled to recover the entire amount in accordance with law together with interest at the simple rate of 9 per cent per annum from the date of payment till recovery.
Edited by Vartika Gajendra Singh
Approved & Published – Sakshi Raje
SUBMITTED BY: SOMA SINGH
EDITED BY: VARTIKA GAJENDRA SINGH