Bombay High Court Upholds Arbitral Award In Favour Of TCS; Rejects UP Assembly's 'Frustration' Claim Over Cancelled Recruitment Exam

The Bombay High Court dismissed a petition filed by the Uttar Pradesh Legislative Assembly Secretariat under section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) thereby upholding an arbitral award passed in favor of Tata Consultancy Services Ltd. (TCS) concerning the conduct of an online recruitment examinations for Review Officers and Assistant Review Officers.Justice Sandeep V. Marne held that the cancellation of the recruitment examination by the Speaker of the UP Assembly was a self induced act and the Secretariat could not invoke doctrine of frustration to avoid payment for the services rendered by the TCS. The TCS was contracted to conduct an online recruitment exams for over 7,000 candidates at ₹350 per candidate per session under an agreement executed in 2015. The examination was held in December, 2015 and the TCS raised invoices of ₹3.11 crore. However, the principal secretary of the assembly terminated the agreement in 2016 on the ground of alleged irregularities in a separate Railway Recruitment Exam (RRB) conducted by the TCS and declined payment. After failed correspondence and the appointment of arbitrator under section 11 of the Arbitration Act, the arbitration commenced. The award was passed in favor of the TCS terming the termination illegal. The UP Assembly had challenged the award under section 34 of the Arbitration Act before the High Court. The Secretariat submitted that there was no arbitration agreement with the State of Uttar Pradesh as the contract was signed only with the Legislative Assembly Secretariat. It was further argued that the exam became useless when the Speaker cancelled it thereby attracting doctrine of frustration. It was further contended that even if section 56 did not apply, the TCS was only entitled to reimbursement for work done and not the full contract amount. The court held that for enforcement purposes, the Secretariat cannot be considered distinct from the State Government. Citing the Supreme Court's judgment in Pashupati Nath Sukul, it observed that “thus the term 'Government' cannot be limited only to Executive and would include even the legislature. In the present case decision to cancel the examination and to terminate the contract is taken by Speaker of UPLA. In that view of the matter, I do not find any serious error in impleadment of UPLA Secretariat through the State of UP. For the purposes of enforcement of the Award, UPLA cannot be treated as a separate entity from State of UP.” Rejecting the contention that the exam became useless and impracticable after cancellation, hence the contract was frustrated under section 56 of the Indian Contract Act, the court observed that the TCS had already completed its services by conducting exams. Only administrative approval for result publication was pending. It further noted that no wrongdoing was found in the conduct of the exam. A STF report further cleared the TCS of involvement in the alleged malpractice in RRB exam. The court relied on the Supreme Court's judgment in Boothalinga Agencies where it was held that self induced frustration cannot absolve contractual duties. Since the cancellation was an election made by the Secretariat and not caused by external event, section 56 did not apply, the court said. It held that “the provision would not apply in a case where act contemplated under Section 56 of the Contract Act is already complete. In the present case, the act of conducting examination was not rendered impossible at the time when Speaker of the Assembly took a decision for cancellation of examination. The examination was already conducted and the Arbitral Tribunal has recorded a finding of fact that all services under the Agreement were performed by the Respondent. The case therefore does not attract Section 56 of the Contract Act.” The court further observed that the TCS was entitled to full contract price and not merely a reimbursement of expenses. Since TCS had performed essential services and was awaiting a confirmation from the Secretariat to publish results, the payment obligation was triggered. The court further rejected argument related on section 70 holding that it applies only where no contract exists. But in the present case, a concluded commercial contract governed the relationship between the parties. The court observed that “in the present case, Section 70 of the Contract Act would have no application as the services performed by the Respondent are in pursuance of express written contract between the parties. As observed above, provisions of Section 70 of the Contract Act are pressed into service by the Petitioner as sequitur to the main argument of frustration of contract under Section 56 of the Contract Act. Since theory of frustration of contract is rejected, there is no question of applying provisions of Section 70 of the Contract Act to the present case.” Accordingly, the court dismissed the petition holding that since cancellation of...

Bombay High Court Upholds Arbitral Award In Favour Of TCS; Rejects UP Assembly's 'Frustration' Claim Over Cancelled Recruitment Exam

Mohd Malik Chauhan

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