Award Can Be Set Aside On Grounds Of Patent Illegality If Decision Of Arbitrator Is Perverse Or Irrational: Madras High Court

The Madras High Court Bench of Justice C.Saravanan held that patent illegality as a ground for setting aside an Award is available only if the decision of the Arbitrator is found to be perverse or so irrational that no reasonable person would have arrived at the same or the construction of the contract is such that no fair or reasonable person would take or that the view of the Arbitrator is not even a possible view. Brief Facts The Award Debtor is a company established under the Government of India and operates under the Ministry of Heavy Industries, specializing in the manufacture of equipment for integrated power plants. In February 2009, the Award Debtor was awarded a contract by Mangalore Refineries and Petro Chemicals Limited (MRPL) for the establishment of a 1 x 220 MW CoGeneration Captive Power Plant at Mangalore, Karnataka. The Award Debtor divided the piping works into three distinct packages, namely Package A, Package B, and Package C. The Award Debtor thus floated a tender for sub-contracting the contracted work to various sub-contractors in respect of these packages. On 29.03.2012, the Award Debtor issued a Letter to the Award Holder laying out the scope of piping for Indian Boiler Regulation (IBR) System that was to be executed. On 26.04.2012, a detailed Letter of Intent was issued by the Award Debtor to the Award Holder, outlining the contractual terms, scope of work, rates, and payment schedule. During a meeting held on 25.07.2012, the Award Holder agreed to undertake the additional work, which was purportedly categorized under Package C and allegedly based on the understanding that suitable compensation arising out of the work would be addressed. Meanwhile, the Award Holder proceeded with the work, operating under the assumption that the Award Debtor would agree to the revised rates for the additional tasks, but was ultimately denied additional compensation after significant work was completed. Following unsuccessful attempts to resolve the matter amicably, the Award Holder initiated arbitration proceedings on 07.12.2015. Due to challenges in appointing a Sole Arbitrator, this Court constituted the Arbitral Tribunal and appointed Hon'ble Mr.Justice S.Rajeswaran (Retired) as the Arbitrator. Impugned Award dated 03.03.2019 passed by the Arbitral Tribunal allowed all the claims of the Award Holder. Contentions The award debtor (petitioner) submitted that the Award Holder completed the work only in January 2015, which was well beyond the contractual period of five months, and raised a final bill on 14.07.2015 for Rs.35,28,254/-. It was submitted that vide letter dated 20.07.2015, the Award Holder provided a detailed breakdown of the amounts claimed, totaling Rs.4,18,86,760/-, and categorically asserted that apart from the enumerated claims, it had no other claims against the Award Debtor.It was further submitted that the Award Debtor had the explicit right to vary the work as per its discretion, as provided in several clauses of the contract, including Note 2 of Clause 1.9.2 of the LOI, Chapter II, and the Bill of Quantities.It was further submitted that the contract terms specified that quantities were only approximate and could be varied based on design considerations, and the contractor had to perform the work as per site-specific requirements without any entitlement to additional payment.It was further submitted that the contract explicitly stated that no additional payment would be made for an increase in the quantum of welding or additional weld joints, as reiterated in the TCC and Clause 2.6 of the GCC.It was further submitted that the learned Arbitrator's conclusions regarding increased Inch-Dia and compensation were flawed, as they did not align with the contract terms and the actual executed work.It was further submitted that the claims for discrimination and compensation are unfounded as the Award Debtor offered the same compensation package to the Award Holder as to another bidder but the Award Holder did not meet the criteria for compensation. Per contra, the award holder (respondent) submitted that the Award Debtor has not demonstrated any valid grounds for setting aside the Award under Section 34 of the Arbitration and Conciliation Act, 1996. The learned counsel asserts that the Award is well-reasoned, consistent with the law, and has duly considered all evidence presented by both parties. They relied on the Supreme Court judgment in Delhi Airport Express Metro Line Vs. DMRC, (2022) wherein it was held that an erroneous application of law does not constitute a ground for setting aside an Award under Section 34 of the Arbitration and Conciliation Act, 1996.It was further submitted that an Arbitrator is not confined to a strict interpretation of contracts but has the liberty to grant relief based on the circumstances of each case. It was further...

Award Can Be Set Aside On Grounds Of Patent Illegality If Decision Of Arbitrator Is Perverse Or Irrational: Madras High Court

Mohd Malik Chauhan

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