4 Whether This Case Involves A ... Vs Simplex Infrastructure Limited On 9 June, 2017

4 Whether This Case Involves A ...
vs Simplex Infrastructure Limited on 9 June, 2017
Gujarat High Court

4 Whether This Case Involves A ... vs Simplex Infrastructure Limited on 9 June, 2017
C/FA/618/2017 CAV JUDGMEN
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
FIRST APPEAL NO. 618 of 2017

With
FIRST APPEAL NO. 778 of 2017
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE M.R. SHAH Sd/−

and
HONOURABLE MR.JUSTICE B.N. KARIA Sd/−
=========================================
1 Whether Reporters of Local Papers may be allowed to see Yes the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the

judgment ?
4 Whether this case involves a substantial question of law as
to the interpretation of the Constitution of India or any order made thereunder ?
=====[========================================
GUJARAT MINERAL DEVELOPMENT CORPORATION LTD....Appellant(s) Versus
S I M P L E X I N F R A S T R U C T U R E L I M I T E D . . . . D e f e n d a n t ( s )
============================================= Appearance:
F I R S T A P P E A L N o . 6 1 8 o f 2 0 1 7
MR. S.N. SOPARKAR, LD. SR ADV WITH GURSHARAN H VIRK, ADVOCATE for
t h e A p p e l l a n t ( s ) N o . 1
MR. PERCY C KAVINA, LD. SR ADV WITH MS. GARIMA MALHOTRA WITH
MR.BHASH H MANKAD, CAVEATOR for the Defendant(s) No. 1 FIRST APPEAL No.778 of 2017
MR. PERCY C KAVINA, LD. SR ADV WITH MS. GARIMA MALHOTRA WITH
M R . B H A S H H M A N K A D f o r t h e a p p e l l a n t
MR. S.N. SOPARKAR, LD. SR ADV WITH GURSHARAN H VIRK, ADVOCATE for the defendant
=============================================
CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE B.N. KARIA
Date : 09 /06/2017 CAV JUDGMENT HC-NIC Page 1 of 53 Created On Sun Aug 13 04:15:17 IST
2017 (PER : HONOURABLE MR.JUSTICE M.R. SHAH) 1.0.
As both these appeals arise out of the impugned judgment and order passed by the learned
Indian Kanoon - http://indiankanoon.org/doc/82784235/ 1

Commercial Court, Ahmedabad passed in Commercial Civil Miscellaneous Application No.

52 of 2016, one preferred by the original applicant and another by the
original respondent, both these appeals are decided and disposed
of together by this common judgment and order.
2.0. Feeling aggrieved and dissatisfied with the impugned judgment and order passed by
t h e l e a r n e d C o m m e r c i a l C o u r t ,
Ahmedabad passed in Commercial Civil Miscellaneous Application
No. 52 of 2016, passed under Section 34 of the Arbitration Act, the original respondent −
Gujarat Mineral Development Corporation Limited (hereinafter referred to as "the
GMDC") has preferred present First Appeal No. 618 of 2017 under Section 13(1) of the
Commercial Court Act r/w Section 37(1)(c) of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as "Arbitration Act") [.
2.1. Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the
learned Commercial Court, Ahmedabad passed in Commercial Civil Miscellaneous Application
No. 52 of 2016, passed under Section 34 of the Arbitration Act, the original applicant − Simplex
I n f r a s t r u c t u r e L i m i t e d ( h e r e i n a f t e r
referred to as "SIL") has preferred present First Appeal No. 778 of HC-NIC Page 2 of 53 Created On
Sun Aug 13 04:15:17 IST 2017 2017 under Section 13(1) of the Commercial Court Act r/w Section
37(1)(c) of the Arbitration and Conciliation Act, 1996.
3.0. The facts leading to the present First Appeals in nutshell are as under:
3.1. That the GMDC invited and issued tender notice for
execution of general, civil and architectural work for 2 x 125 MW
Akrimota Thermal Power Project. That the said contract came to be
awarded to the original applicant − SIL vide letter of intent dated
27.11.2001. That the work order came to be issued by the GMDC
on dated 07.02.2002. That total estimated value of the work was
Rs.5,80,71,292/− with firm price and no escalation clause. That as
per the clause 4.0 of the work order / contract time was essence of the contract and the entire
w o r k w a s r e q u i r e d t o b e c o m p l e t e d
within 22 months from the date of issuance of letter of intent. It
also further provided tow months grace period and as per the said
clause, the accepted rates will be valid for a further period of two months grace period. Since
the letter of intent was issued on 27.11.2001, the work was to be completed by
27.11.2003 including two months' grace period. That according to the SIL,
there was a delay on the part of the GMDC in releasing drawing
works and due to non providing the fronts / drawings and details of drawings by the GMDC
from the very beginning, the construction could not be completed within the time prescribed in
the work order. According to the SIL, prior to schedule completion date, SIL wrote a letter
dated 23.10.2003 giving notice of its HC-NIC Page 3 of 53 Created On Sun Aug 13 04:15:17
IST 2017 intention to claim compensation for the work which may be

executed beyond the contract period in the form of escalation and extra costs and
p u r s u a n t t h e r e t o , S I L r a i s e d s e v e n p e r i o d i c a l b i l l s
pertaining to the escalation and extra costs. According to the SIL,
after a period of one year of the schedule date of completion, the
work order came to be amended by the GMDC vide its letter dated
24.11.2004 and the value of the work almost reached double from
rs. 5,80,71,292/− to Rs. 10,78,21,292/−. According to the SIL, vide its reply dated 24.11.2004
to the GMDC, SIL expressed its intention with regard to the conditions stipulated in
the amendment that the rates would be firmed and no escalation
would be allowed, which was not acceptable to the SIL as it was
practically impossible to execute the work at the rate determined prior thereto. That thereafter,
t h e S I L c o m p l e t e d t h e w o r k o n
30.09.2006. Since the request of the SIL seeking the payment of escalation and over stay were
n o t c o n s i d e r e d b y t h e G M D C a n d
GMDC failed to make payment towards escalation and additional costs, the dispute arose
between the parties and therefore, SIL invoked the arbitration. The Arbitral Tribunal
came to be constituted consisting of sole Arbitrator. The SIL submitted the
statement of claim before the Arbitrator as under:
(1)Claim for an amount of Rs.6,87,014/ on account of work done

as mentioned in the 28th RA/final bill;
(2) Claim for an amount of Rs.1,28,30,519/on account of escalation;
(3) Claim for an amount of Rs.2,01,16,402/towards extra costs incurred due to overstay;
HC-NIC Page 4 of 53 Created On Sun Aug 13 04:15:17 IST 2017

(4) Claim for an amount of Rs.76,36,090.52 towards service tax;
(5) Claim for an amount of Rs.10,00,000/towards damages for mental agony;
(6) Claim for an amount of Rs.20,00,000/towards damages on

account of loss of reputation;
(7) Claim for an amount of Rs.7,50,000/towards costs of arbitration; and

(8) Claim for interest on the claim amount at the rate of 18% p.a.
from the due date till the date of realization.
3.2. That the learned Tribunal disallowed the claim nos.

3,4,5,6 and 7 i.e. claim with respect to escalation and extra costs; damages towards mental
agony; loss of reputation and cost of arbitration.
3.3. Feeling aggrieved and dissatisfied with the award passed by the learned Arbitrator
in disallowing the claim nos. 3,4,5,6 and 7, SIL submitted the application before the
learned District Court under Section 34 of the Arbitration Act being Civil

Miscellaneous Appeal No. 1018 of 2012. That on establishment of Commercial Court at

A h m e d a b a d u n d e r t h e p r o v i s i o n s o f
Commercial Court Act, the said Section 34 application came to be transferred to the Commercial
C o u r t , w h i c h w a s n u m b e r e d a s
Commercial Civil Miscellaneous Application No. 52 of 2016. That
the SIL claimed following reliefs in the application under Section 34 of the Act;
"(a) modify/set aside the impugned award dated HC-NIC Page 5 of 53 Created On Sun Aug 13
04:15:17 IST 2017 December 9, 2011 to the extent it relates to the rejection of the applicant's
claims for escalation and extra costs incurred on account of overstay at
the Project as contained in paragraphs 13 to 27 and the last paragraph of the Award;
(b) allow the Applicant's aforesaid claims for

e s c a l a t i o n a n d e x t r a c o s t s i n c u r r e d o n a c c o u n t o f
overstay at the Project on the basis of the materials
on record along with interest thereon at the rate of 12% p.a. from the due date till the date
of realization as determined by the Ld. Arbitrator in paragraph 32 of the Award;
OR remit the matter to a different arbitrator with experience in construction matters

for fresh adjudication of the Applicant's claims for
escalation and extra costs incurred on account of overstay at the Project; "
3.4. That the said Commercial Miscellaneous Application was vehemently opposed by GMDC.
3.5. That by impugned judgment and order the learned Judge Commercial Court,
A h m e d a b a d h a s p a r t l y a l l o w e d t h e
Section 34 application and has quashed and set aside the award
declared by the learned Arbitrator with respect to the claim no.3
i.e. claim for escalation and has allowed the entire claim no.3 as
per the Claim Statement lodged before the learned Sole Arbitrator.
Rest of the award declared by the learned Arbitrator in disallowing
the claim nos. 4,5,6 and 7 came to be confirmed by the learned
Judge, Commercial Court, Ahmedabad.
the learned Commercial Court, Ahmedabad in so far as allowing the claim no.3 i.e.
claim for HC-NIC Page 6 of 53 Created On Sun Aug 13 04:15:17 IST 2017
escalation, the original opponent GMDC has preferred present First Appeal No.618 of 2017.
t h e l e a r n e d C o m m e r c i a l C o u r t ,
Ahmedabad in so far as confirming rest of the award passed by the
learned Arbitrator disallowing the claim nos. 4, 5, 6 and 7, the SIL
has preferred present First Appeal No.778 of 2017.

4.0. Shri S.N.Soparkar, learned Senior Advocate has

appeared on behalf of the original opponent− GMDC and Shri Percy
Kavina, learned Senior Advocate has appeared on behalf of the SIL in respective appeals.
First Appeal No. 618 of 2017 5.0. Shri S.N. Soparkar, learned counsel appearing on
behalf of the GMDC has vehemently submitted that in the facts and circumstances of the case
t h e l e a r n e d C o m m e r c i a l C o u r t h a s
materially erred in modifying the award declared by the learned sole Arbitrator and in allowing
the claim no.3 i.e. claim with respect to escalation, which was disallowed by the
learned Arbitrator and that too, in exercise of powers under Section 34 of the Arbitration Act.
5.1. It is further submitted by Shri Soparkar, learned

counsel for the GMDC that while passing the impugned judgment
and order insofar as allowing the claim no.3 which was disallowed by the learned Arbitrator,
t h e l e a r n e d C o m m e r c i a l C o u r t h a s
exceeded in its jurisdiction under Section 34 of the Arbitration Act.
HC-NIC Page 7 of 53 Created On Sun Aug 13 04:15:17 IST 2017 5.2. It is further submitted by
Shri Soparkar, learned counsel for the GMDC that though the Arbitrator had nowhere held
GMDC solely responsible for delay, the learned Commercial Court
has materially erred in holding that such was the finding of the Arbitrator.

counsel for the GMDC that while passing the impugned judgment
and order, the learned Commercial Court has substituted its own
view for an entirely possible view of the Arbitrator.
5.4. It is further submitted by Shri Soparkar, learned counsel for the GMDC that even
learned Commercial Court has substituted the standard of evidence and has
re−appreciated the evidence which is not permissible while considering the application
under Section 34 of the Arbitration Act.

counsel for the GMDC that as such learned Commercial Court has
passed the impugned order and has exercised the jurisdiction as if
learned Commercial Court was exercising the appellate jurisdiction over the award declared by
t h e l e a r n e d A r b i t r a t o r . I t i s f u r t h e r
submitted by Shri Soparkar, leaned counsel for the GMDC that as
per the catena of decisions of the Hon'ble Supreme Court as well as this Court, in exercise of
p o w e r s u n d e r S e c t i o n 3 4 o f t h e
Arbitration Act is not siting as an Appellate Court over the award.
5.6. It is further submitted by Shri Soparkar, learned counsel for

the GMDC that learned Commercial Court has as such allowed the HC-NIC Page 8 of 53 Created On

Sun Aug 13 04:15:17 IST 2017 claim no.3 and has decided the matter on equity and fairness and
has ignored the contract altogether.

counsel for the GMDC that the learned Commercial Court has as
such caused a novation of contract at the stage of adjudication of
disputes, which is not permissible.
5.8. It is further submitted by Shri Soparkar, learned counsel for the GMDC that
l e a r n e d C o m m e r c i a l C o u r t h a s
materially erred in not properly appreciating the fact that as per the
contract between the parties and as per the terms and conditions of
the work order, there was no provision for escalation even for the period beyond the time
prescribed under the contract, more particularly, with respect to the extended period of
time. It is further submitted by Shri Soparkar, learned counsel for the GMDC
that therefore, though the escalation was alien to the contract, the
learned Commercial Court has awarded escalation in violation of contractual provisions.
5.9. It is further submitted by Shri Soparkar, learned counsel for the GMDC that
though in the award learned sole Arbitrator though not given any findings that the
delay was attributable to GMDC and though even Simplex did not make such allegation in its
correspondence, learned Commercial Court has materially erred in coming to the
conclusion that delay was attributable to the GMDC.
5.10. It is vehemently submitted by Shri Soparkar, learned HC-NIC Page 9 of 53 Created On

Sun Aug 13 04:15:17 IST 2017 counsel for the GMDC that as per the catena of decisions of the
Hon'ble Supreme Court as well as this Court the scope of judicial
intervention while considering the application under Section 34 of
the Arbitration Act is very narrow and the merits, factual findings,
reasonings, consideration of evidence and the final view taken by
the learned Arbitrator are not required to be interfered with by the
Court in exercise of powers under Section 34 of the Arbitration Act.
5.11. It is vehemently submitted by Shri Soparkar, learned counsel for the GMDC that Section
37 of the Act is co−terminus with the narrow scope and limited expanse of the power of
the Commercial Court under Section 34 of the Act.
5.12. It is vehemently submitted by Shri Soparkar, learned counsel for the GMDC that in the
present case though not permissible and while allowing the claim no.3 with respect
to escalation, the learned Commercial Court has re−appreciated the
evidence and as such has passed an order on equity and fairness
ignoring the contractual provisions.

5.13. Shri Soparkar, learned counsel for the GMDC has

heavily relied upon the decision of the Hon'ble Supreme Court in the case of Associate Builders
v . D e l h i D e v e l o p m e n t A u t h o r i t y ,
reported in (2015) 3 SCC 49 in support his elaborate submissions with respect to scope and
ambit of judicial intervention by the Court, while exercising the powers under Section
34 of the Arbitration Act. Shri Soparkar, learned Counsel for the GMDC has
also relied upon the decision of the Hon'ble Supreme Court in the
case of NHAI v. ITD Cementation India Ltd. reported in (2015) 14 HC-NIC Page 10 of 53 Created
On Sun Aug 13 04:15:17 IST 2017 SCC 21 as well as another decision of the Hon'ble Supreme Court
in the case of Swan Gold Mining Ltd. v.Hindustan Copper Ltd.
reported in (2015) 5 SCC 739. He has also relied upon the decision
of the Division Bench of the Delhi High Court in the case of Puri Construction Pvt. Ltd. & Ors.
v. Larsen & Toubro Ltd. & Anr. rendered in FAO (OS) 21/2009.
5.14. It is vehemently submitted by Shri Soparkar, learned counsel for the GMDC that as the
view taken by the learned Arbitrator was correct view and even if the Commercial Court was
of the opinion that the another view is possible, in that case also,
learned Commercial Court is not justified in rigors in the finding of
the award declared by the learned Arbitrator with respect to the claim no.3 − claim for escalation.
5.15. It is vehemently submitted by Shri Soparkar, learned counsel for the GMDC that the
l e a r n e d C o m m e r c i a l C o u r t h a s
materially erred in allowing the claim for escalation by treating the computation rendered by SIL
a s a v a l i d c o m p u t a t i o n , w i t h o u t
either calling upon GMDC to rebut the computation, or verifying the authenticity of the claim
or manner of computation, or appreciating the evidence based on which the claim
appears to have been allowed. It is submitted that, therefore, the learned Commercial
Court has erred in summarily granting a claim and
reversing the reasoned view of the Arbitrator.
5.16. It is vehemently submitted by Shri Soparkar, learned

counsel for the GMDC that while allowing the escalation claim, the learned Commercial Court
has not properly appreciated the HC-NIC Page 11 of 53 Created On Sun Aug 13 04:15:17 IST
2017 following facts and events.
(1). Prior issuance of the Work Order by GMDC to Simplex, the

issue of escalation already stood decided;
(2). Simplex had, originally, vide its letter dated 21.07.2001

submitted its bid with an escalation clause for work done beyond
the contractual date of completion;
(3). GMDC, vide its letter dated 10.08.2001, categorically rejected

any provision for escalation and requested Simplex to submit a bid

with firm rates without escalation;
(4). Simplex had, therefore, by its letter dated 18.08.2001, withdrawn its deviation in
respect of escalation and had clearly submitted to firm contractual rates;
(5). Therefore, the work order dated 07.02.2002 was awarded to Simplex. Clause 3 of the Work
Order (pg. 19) clearly mandated that the prices under the contract were firm and no
escalation would be allowed. It was also clarified that the rates would remain
firm (without escalation) without any upper ceiling limit;
(6). The letters dated 23.10.2003 (pg. 25) and 17.08.2004 (pg.
30) addressed by Simplex demanded escalation. However, it is

pertinent to note that Simplex has never alleged any delay on part of GMDC. These letters,
t h e r e f o r e , u s e t h e p h r a s e " . . . d u e t o
different reasons not attributable to us...". However, no evidence is
adduced nor correspondence addressed by Simplex to contend that
any delay was attributable to GMDC;
HC-NIC Page 12 of 53 Created On Sun Aug 13 04:15:17 IST 2017 (7). Even during course
of argument before this Hon'ble Court, Simplex does not contend that delay was ONLY
attributable to GMDC. Therefore, at best, the case of Simplex is that delay was allegedly
attributable to both parties. However, there is no
evidence in support of the said baseless contention of Simplex;
(8). By its letter dated 24.11.2004 (pg. 31) and 22.02.2007 (pg.
38), GMDC categorically rejected Simplex's demand for escalation

and clearly, in no uncertain terms, stated that the rates under the contract would remain firm;
(9). Even otherwise, neither the Hon'ble Arbitrator nor the Hon'ble Commercial Court
h a v e e n g a g e d i n t o t h e e x e r c i s e o f
computing the claims or verifying their authenticity or arithmetic accuracy;
(10) Inasmuch as issue no. 1 (liquidated damages of Rs. 5,39,106/−) is concerned,

Simplex has attempted to utilise the Arbitrator's direction to GMDC to refund the said
amount in its favour. However, it is pertinent to note that the issue of refund of
liquidated damages (LD) has no bearing on the other issues for the following reasons:
(10.1). The Arbitrator did not reject GMDC's claim for LD on merits.
(10.2). It was only on account of GMDC's procedural lapse in

not issuing a notice upon Simplex (as is the statutory requirement under section 74 read with
s e c t i o n 5 5 o f t h e C o n t r a c t A c t ) t h a t

GMDC was required to refund the amount so deducted by GMDC HC-NIC Page 13 of 53 Created On
Sun Aug 13 04:15:17 IST 2017 as per the prescriptions under the Contract.
5.17. Shri Soparkar, learned counsel for the GMDC has

further submitted that even otherwise while exercising the powers
under Section 34 of the Arbitration Act learned Commercial Court
was only empowered to set aside the award and could not have modified the award.
In support of his above submissions, Shri Soparkar, learned

counsel for the GMDC has heavily relied upon the decision of the
Hon'ble Supreme Court in the case of McDermott International Inc.
v.Burn Standard Co. Ltd., (2006) 11 SCC 181 as well as decision of
the Bombay High Court in the case of Pushpa P. Mulchandani &
Ors. v. Admiral Radhakrishan Tahiliani & Ors. rendered in Appeal No. 981/2001 dated
4 . 1 0 . 2 0 0 7 ; d e c i s i o n o f t h e A l l a h a b a d H i g h
Court in the case of U.P. State Handloom Corporation v. Asha Lata
Talwar & Anr. reported in (2009) 76 ALR 233 as well as decision of
the Delhi High Court in the case of Puri Construction Pvt. Ltd. &
Ors. v. Larsen & Toubro Ltd. & Anr. rendered in FAO (OS) 21/2009 dated 30.04.2015.
5.18. It is vehemently submitted by Shri Soparkar, learned counsel for the GMDC that neither
the Arbitrator nor the Commercial Court have engaged into the exercise of computation
of the claim for escalation.
5.19. It is submitted that the basis of escalation claim is

neither certified by GMDC, nor verified by any judicial forum. That the manner of computation
or the content and basis of the HC-NIC Page 14 of 53 Created On Sun Aug 13 04:15:17 IST
2017 calculation has never been subjected to judicial scrutiny, and
rightly so, since the contract did not provide for escalation in the
first place. It is submitted that therefore, learned Commercial Court
has erred in allowing a claim that was completely unverified.
5.20. It is vehemently submitted by Shri Soparkar, learned counsel for the GMDC that the
learned Arbitrator arrived at a conclusion that since SIL did not become eligible to
claim escalation or extra−cost in the first place, inter alia, on account of lack of evidence to
establish its said claims, the question of engaging into the exercise of computing the
said claims was unnecessary and redundant. Therefore, the learned Arbitrator had
no occasion to consider the escalation claim on merits and more particularly with respect to the
computation made by the SIL of escalation claim.
5.21. It is vehemently submitted by Shri Soparkar, learned counsel for the GMDC that
as such neither learned Commercial Court while exercising the powers under Section 34
of the Arbitration Act nor even this Court while exercising the power
under Section 37 of the Arbitration Act can remand the matter to

the learned Arbitrator to consider the escalation claim on merits afresh.
5.22. It is vehemently submitted by Shri Soparkar, learned counsel for the GMDC that
a s s u c h t h e i s s u e o f r e m a n d i n g t h e
matter was considered by the learned Commercial Court, however
both the parties refused for remanding the matter to the learned
Arbitrator and therefore, the matter is not required to be remitted HC-NIC Page 15 of 53 Created
On Sun Aug 13 04:15:17 IST 2017 to the learned Arbitrator. It is submitted that even
otherwise remanding the matter to the learned Arbitrator by the Court while exercising the
powers under Section 34 of the Arbitration Act is
wholly impossible as once the learned Arbitrator has declared the
award thereafter the learned Arbitrator becomes the functus officio.
5.23. Shri Soparkar, learned counsel for the GMDC has further submitted that it would
be pointless to remit the matter back to the Commercial Court as the Commercial
Court cannot adduce additional evidence in the present matter, lack of which is
the reason for even considering remittance in the first place.
5.24. It is further submitted that even otherwise the SIL

cannot be permitted to have second innings in the matter wherein
it could fill in the blanks, produce additional evidence, and remove
all obstacles, to make a fresh claim for escalation and over−stay.
Making above submissions and relying upon the above decisions, it is requested to
a l l o w t h e A p p e a l p r e f e r r e d b y t h e
GMDC and quash and set aside the impugned judgment and order passed by the learned
C o m m e r c i a l C o u r t i n s o f a r a s a l l o w i n g
claiming no.3 while modifying the award declared by the learned Arbitrator.
F i r s t A p p e a l N o s . 6 1 8 o f 2 0 1 7 & 7 7 8 o f 2 0 1 7 6 . 0 .
Shri P.C. Kavina, learned counsel for the original applicant −
SIL has vehemently submitted that in the facts and circumstances
of the case, the learned Commercial Court has not committed any error in modifying the award
declared by the learned Arbitral HC-NIC Page 16 of 53 Created On Sun Aug 13 04:15:17 IST
2017 Tribunal thereby granting claim of escalation to original applicant.
6.1. It is further submitted by Shri Kavina, learned counsel for the SIL that it is an
admitted position that as per the work order / contract between the parties the work
was to be completed by 27.11.2003 including two months grace period. It is submitted that
it was the obligation of the GMDC to provide drawings / fronts.
However, SIL was not provided with the fronts/ drawings / details
of drawings by GMDC from the very beginning. As a consequence,
the construction plan was jeopardized from the very beginning and
the execution of the work was delayed. It is submitted that SIL

wrote various letters to GMDC from time to time, requested for use
of the drawings and work fronts and pointing out the delay on the
part of the GMDC. However, GMDC never replied to such letters or
otherwise controverted the delay alleged by the SIL. It is submitted
that thus, the GMDC accepted that SIL was not responsible for the delay.
6.2. It is further submitted by Shri Kavina, learned counsel

for the SIL that as such vide communication dated 17.08.2004 the SIL categorically informed
G M D C t h a t i t i s g o i n g t o r a i s e t h e
escalation bills as per the formula which was provided at the time of bid offer. It is submitted
t h a t p u r s u a n t t h e r e t o S I L r a i s e d 7
periodical bills for escalation and two interim bills for extra costs. It is submitted the despite
t h e a b o v e , t h e G M D C m a i n t a i n e d t h e
complete silence and the work was accepted by the GMDC without protest or demur.
It is submitted that after about one year from the schedule HC-NIC Page 17 of 53 Created On Sun
Aug 13 04:15:17 IST 2017 date of completion, the original work order came to be amended vide
GMDC's letter dated 24.11.2004 and the value of the work
was almost doubled from Rs. 5,80,71,292/− to Rs.10,78,71,292/−. It is submitted that the said
l e t t e r c o n t a i n e d a s t a n d a r d c l a u s e
providing that the prices shall remain firm and no escalation shall
be allowed. It is submitted that the aforesaid letter of the GMDC
was replied to by the SIL on the very same day i.e. 24.11.2004,
wherein it was categorically mentioned that condition stipulated in
the amendment that the rates are firm and no escalation will be
allowed is not acceptable as it was practically impossible to execute
the work at fixed rates. It is submitted that therefore, SIL requested GMDC to make payments
f o r t h e w o r k e x e c u t e d b e y o n d t h e
contractual completion period as per the escalation formula already submitted by the SIL. It is
submitted that communication dated 24.11.2004 was neither replied by the GMDC nor
rejected the escalation and extra costs bills submitted by SIL. It is submitted that in
fact the GMDC continued to accept the work from SIL without any demur or protest
a n d a l s o t h r o u g h i t s v a r i o u s
representatives assured SIL that GMDC would look into the matter
and make provision for appropriate payments and requested SIL to
continue execution of work. It is submitted that the aforesaid is evident from the letter dated
22.2..2007 issued by the GMDC wherein it had recapitulated the discussions in a
meeting held between the representatives of the parties on the said date. It is submitted that
with respect to escalation and overstay, it was
submitted that these points will be taken into consideration during
the contract closure along with penalty, liquidated damages etc. as
per contract. It is submitted that at that time even the SIL replied to HC-NIC Page 18 of 53 Created
On Sun Aug 13 04:15:17 IST 2017 the said letter vide its letter dated 6.3.2007 stating that the points
of penalty and liquidated damages raised by GMDC were

unwarranted, irrelevant and against the spirit of the contract, since

the work had already been completed to GMDC's satisfaction. It is
submitted that thereafter also in various communications / letters
addressed by SIL, the SIL mentioned about assurance given by the
GMDC that pending issues will be looked into after completion of work and receipt of final bill
duly certified by GMDC's project office. It is submitted that the SIL completed the
work on 30.09.2006. It is submitted that therefore, considering the aforesaid facts and
c i r c u m s t a n c e s o f t h e c a s e w h e n t h e l e a r n e d
Commercial Court has modified the award declared by the learned Arbitrator and has awarded
e s c a l a t i o n / c l a i m , t h e s a m e i s n o t
required to be interfered with by this Court in exercise of powers
under Section 37 of the Arbitration Act.
6.3. It is further submitted by Shri Kavina, learned counsel for the

SIL that the bills raised by the SIL about escalation price were as
per the formula already submitted by the SIL, which were never disputed by the GMDC
and the escalation bills were as per the formula and as per actual expenses incurred, the
learned Commercial Court has rightly awarded entire claim no.3 as per the
statement of claim submitted by the SIL. It is further submitted that
for the aforesaid as such no further evidence was required to be led
and the formula suggested by SIL was already on record and the
claim submitted by the SIL with respect to the escalation was as per
the formula already submitted by the SIL.
HC-NIC Page 19 of 53 Created On Sun Aug 13 04:15:17 IST 2017 6.4.

It is further submitted by Shri Kavina, learned counsel
for the original applicant that in the facts and circumstances of the
case, as the learned Arbitrator ignored the evidence on record and
thereby rejected the claim of the claimant with respect to escalation
and learned Commercial Court is justified in interfering with the
award passed by the learned Arbitrator in exercise of powers under Section 34 of Act.
6.5. Shri Kavina, learned counsel for the SIL has submitted that the considering the aforesaid
f a c t s a n d c i r c u m s t a n c e s a n d t h e
material on record, the decision of the Hon'ble Supreme Court in
the case of McDermott International Inc. v.Burn Standard Co. Ltd.,
(2006) 11 SCC 181 and the decision of the Delhi High Court in the
case of Puri Construction Pvt. Ltd. & Ors. v. Larsen & Toubro Ltd. &
Anr. rendered in FAO (OS) 21/2009 shall not be applicable to the facts of the case on hand.
6.6. Shri , learned counsel for the SIL has heavily relied upon the
decision of the Madras High Court in the case of Gaytri Vs. ISG
Novasoft Technologies Ltd. rendered in MANU/TN/2293/2014 in
support of his submission that in the facts and circumstances of the

case, the learned Commercial Court has rightly modified the award declared by the learned
Tribunal in exercise of powers under Section 34 of the Arbitration Act.
Making above submission and relying upon the above decision, it is requested to
dismiss the appeal preferred by the GMDC.

Now, so far as appeal preferred by the SIL (First Appeal No.
778 of 2017) challenging the impugned judgment and order passed by the learned Commercial
C o u r t i n d i s m i s s i n g t h e C o m m e r c i a l
Civil Miscellaneous Application No. 52 of 2016 preferred by the SIL insofar as confirming the
award declared by the sole Arbitrator with respect to other claims are concerned, it is
vehemently submitted by Shri Kavina, learned counsel for the original applicant that in the
facts and circumstances of the case the learned Commercial Court has materially erred
in confirming the award declared by the learned sole Arbitrator insofar as rejecting
the other claims (except claim no.3).
7.1. It is further submitted by Shri Kavina, learned counsel for the SIL that the impugned
order passed by the learned Commercial Court to the extent it relates to claim no.4 (claim for
extra costs due to overstay) erroneously upholds the decision of the learned Tribunal in this
regard, which is unreasoned. It is submitted that there is no reference to copious evidence.
7.2. It is further submitted by Shri Kavina, learned counsel for the

SIL that the Arbitral award to the extent it relates to claim no.4 is
against the substantive law of India and is therefore, violative of
Section 28(1)(a) of the Arbitration Act and therefore, was liable to
be set aside/ modified under Section 34 of the Act. It is submitted that learned Commercial
Court has failed to give any reasons whatsoever as to why the observations of the
learned Arbitrator with regard claim no.4 are required to be upheld.
7.3. It is further submitted by Shri Kavina, learned counsel for the HC-NIC Page 21 of 53 Created
On Sun Aug 13 04:15:17 IST 2017 SIL that both the learned Arbitrator and the Commercial
Court have erroneously held that in the instant case, the delay is not attributable only
t o t h e G M D C a n d c l a i m a n t ( S I L ) w a s a l s o
responsible for delay in certain cases. It is submitted that there is
no any material on record that SIL is even partially responsible for
the delay. It is submitted that on the contrary, the SIL placed on
record various uncontroverted letters pointing out the delay on the part of the GMDC.
7.4. It is further submitted by Shri Kavina, learned counsel for

the SIL that while observing herein above, the learned Arbitrator as
well as learned Commercial Court have failed to appreciate and /
or consider the series of letters by the SIL to GMDC wherein SIL time and again brought
to the notice of GMDC that the work is being suffered and delay is caused due to

non−supply of drawings/fronts on part of GMDC. It is submitted that said letters were neither
rebutted nor protested on receipt by GMDC. It is submitted that even the same were
neither controverted by documentary or oral evidence even during the course of
Arbitration.

the original applicant that as such while dealing with the claim of escalation, learned Commercial
Court after taking into consideration the various letters by SIL to GMDC, rightly held that
the delay has been caused by reasons attributable to GMDC. It is
submitted that therefore, once the learned Commercial Court has HC-NIC Page 22 of 53 Created On
Sun Aug 13 04:15:17 IST 2017 come to the conclusion that the delay was caused by GMDC, the
natural corollary is that the entire period of overstay was due to reasons attributable to GMDC
and therefore SIL is entitled to expenditure incurred during the entire period of overstay.

the SIL that both learned Arbitral Tribunal and learned Commercial
Court failed to appreciate that SIL under the head of overstay has
sought reimbursement of expenses as per actuals and which were unavoidably incurred by SIL
o n l y o n a c c o u n t o f o v e r s t a y f o r
completion of work for GMDC such as labour Charges, Insurance
renewal charges. It is submitted that therefore, when the expenses
incurred were unavoidable and a natural consequence of extension
of work beyond contract period, the question of SIL proving any
efforts to mitigate the expenses did not arise. It is submitted that therefore, learned Commercial
Court has materially erred in upholding the observation made by the learned Arbitrator
with respect to claim no.4.

the original applicant that learned Arbitrator has materially erred in observing that as three
other construction works were being carried on by SIL at the same site and there is
no independent reliable evidence to show that only on account of this contract Simplex
had to incur further cost. It is submitted that while
observing the above, both, the learned Arbitrator and the learned Commercial Court have
completely overlooked the voluminous documents
filed by SIL in support of its claim for extra costs and HC-NIC Page 23 of 53 Created On Sun Aug 13
04:15:17 IST 2017 have not considered the various heads of extra costs claimed by SIL which show
that certain claims made by SIL such as towards renewal of bank guarantees &
i n s u r a n c e p o l i c y a n d h e a d o f f i c e
overheads would not be affected by the fact that SIL was executing
three other contracts at the same site.

the SIL that as such in the present case the GMDC in its written statement filed before the
learned Arbitrator in relation to the claim for extra costs due to overstay admitted

that sum of Rs. 31,58,299.55 was due and payable towards extra costs. It is
submitted that therefore, in view of such admission by the GMDC,
the same ought to have been considered by the learned Arbitrator and learned Commercial Court.
7.9. Shri Kavina, learned counsel for the SIL has submitted that as
such by not allowing the claim no.4 with respect to the extra costs due to overstay, both, the
learned Arbitrator as well as learned Commercial Court have disregarded the contractual
terms operating between the parties. It is submitted that clause no.4 of
the order dated February 7, 2002 provides that "prices are firm and
no escalation will be allowed during the currency of the contract period".
It is submitted that therefore, necessary corollary of the
same is that if SIL was required to undertake any work beyond the
contract period on account of reasons not attributable to SIL, the
prices would not be considered fixed. It is submitted that in such a
situation the fixed price clause or no−escalation clause would not
survive nor would be binding on SIL. It is submitted that clause 4 of HC-NIC Page 24 of 53 Created
On Sun Aug 13 04:15:17 IST 2017 the work order provides that the entire work shall be completed
within a period of twenty two (22) calendar months but the accepted rates will be
v a l i d f o r a f u r t h e r t w o ( 2 ) m o n t h s ' g r a c e
period. It is submitted that letter of intent was issued on November 27, 2001 and thus, the
t e n d e r r a t e s w e r e v a l i d f o r a p e r i o d o f
twenty four (24) months from the said date, i.e. up to November
27, 2003. It is submitted that therefore, both the learned Arbitrator
as well as learned Commercial Court have completely ignored the aforesaid contractual terms.
8. Now, so far as submission on behalf of the GMDC that while exercising powers under Section
3 4 o f t h e A r b i t r a t i o n A c t , t h e
Commercial Court has no jurisdiction to re−appreciate the evidence
on record and / or finding recorded by the learned Arbitrator is
concerned, Shri Kavina, learned counsel for the original applicant −
SIL has submitted that it is a settled law where a finding is based
on no evidence; or Arbitral Tribunal takes into account something irrelevant to the decision
w h i c h i t a r r i v e s a t ; o r i g n o r e d v i t a l
evidence in arriving at a decision, such decision would necessarily be perverse and therefore,
t h e C o u r t i n e x e r c i s e o f p o w e r s u n d e r
Section 34 of the Arbitration Act will be justified in interfering with such a perverse decision.
8.1. Now, so far as submission on behalf of the GMDC that assuming the Court under
S e c t i o n 3 4 o f t h e A c t C o u r t c a n
appreciate the evidence, however it has power to either accept the
award or set aside the award, but the Court cannot pass a decree,
but the parties shall have recourse to fresh arbitration is concerned, HC-NIC Page 25 of 53 Created
On Sun Aug 13 04:15:17 IST 2017 it is submitted by Shri Kavina, learned counsel for the SIL that by
such contention GMDC seeks to narrow the scope of jurisdiction of

the Courts under Section 34 of the Act to merely either act as a

Court of Approval or Dis−approval; to accept the award as it is or
set it aside the same and nothing more. It is submitted that if the
aforesaid contention of the GMDC is accepted, the same would lead to anomalous situations and
w o u l d n o t h i n g b e l e s s t h a n a
catastrophe of justice. It is submitted that in a case if the Arbitrator
rejects all the claims of a party and the Court under Section 34 of
the Act, only sets aside the award and as it could not modify the
same, the party shall have to be relegated back for fresh arbitration
and the said process would continue until the Party gets the desired
result. It is further submitted that further the matter would have to be sent to a new Arbitral
Tribunal as the old Arbitral Tribunal would have become functus officio
after rendering the award. It is submitted that therefore, if the contention of the GMDC
is accepted, it would render the very recourse under Section 34 of the
Act otiose and redundant. It would further defeat the very purpose
of having a cost effective and speedy alternate dispute resolution by way of Arbitration.
8.2. It is submitted that even the words "set aside" used in Section
34 of the Act need to be given "purposive interpretation" so as to
envisage that the power to set aside or confirm the Arbitral award
brings within its fold, the power to undo the miscarriage of justice caused by a perverse award
or an award vitiated by the grounds mentioned in Section 34 since the intention of the
legislature cannot be interpreted to mean that Courts are to turn a blind eye HC-NIC Page 26 of 53
Created On Sun Aug 13 04:15:17 IST 2017 despite the perversities and patent illegalities of
an order challenged before it. It is submitted that if such a narrow interpretation is
given effect to then the entire purpose behind
having a recourse of Section 34 of the Act shall be rendered futile
and would be nothing but a mere recourse on paper.
8.3. Shri Kavina, learned counsel for the SIL has submitted that
even in the present case Section 55 and 70 of the Contract Act shall squarely be applicable.
8.4. Shri Kavina, learned counsel for the SIL has submitted that
due to following facts the case of the SIL squarely falls within the
provisions of Section 55, Part III of the Contract Act:
"(a) Simplex putting GMDC at notice of its intention to claim

escalation and additional costs for overstay due to the delays vide its
letter dated October 23, 2003 as well as its subsequent letter dated
August 17, 2004 and various bills for escalation and additional costs
raised by Simplex; (b) no protest on part of GMDC to such letters and
bills, (c) no reply to the letter of Simplex refusing to accept the letter
dated 24.11.2004 addressed by GMDC (d) further acceptance of work
without any demur, and (v) assurances / studied silence on the part of

GMDC makes it apparent that the case of Simplex falls within Section 55 of the Contract Act
and GMDC is liable to pay Simplex the escalation and extra costs claimed by it."
8.5. It is further submitted by Shri Kavina, learned counsel for the original applicant−SIL that
even assuming though not admitting that Section 55 of the Contract
Act does not apply, as the work HC-NIC Page 27 of 53 Created On Sun Aug 13 04:15:17 IST 2017
executed by the SIL under the a commercial contract and the same was executed with no
i n t e n t i o n o f s a m e b e i n g a g r a t u i t o u s a c t ,
considering Section 70 of the Contract Act, for the work executed
by the SIL beyond the contractual period and with a specific notice
of claiming compensation in the form of escalation and extra−costs,
the SIL will be entitled to escalation price as well as extra costs due to overstay.
Making above submissions and relying upon the following decisions, it is requested to
d i s m i s s t h e a p p e a l p r e f e r r e d b y t h e
GMDC and allow the appeal preferred by the SIL and modify the
award declared by the learned Arbitrator rejecting the other claims
and consequently to allow other claims including claim no.3.
(1). General Manager, Northern Railways & Anr. V. Sarvesh

Chopra reported in (2002) 4 SCC 45.
(2). K.N. Sathyapalan V. State of Kerala reported in (2007) 13 SCC 43.
(3). P.M. Paul V. Union of India reported in 1989 Suppl(1) SCC
368. (4). Food Corporation of India V. A.M. Ahmed and Co reported in (2006) 13 SCC 779.
First Appeal No. 618 of 2017 9.0. Heard the learned advocates for the respective parties at
length.
HC-NIC Page 28 of 53 Created On Sun Aug 13 04:15:17 IST 2017 9.1. At the outset, it is
required to be noted that present First Appeal is an appeal under Section 37 of the
Arbitration Act, challenging the impugned judgment and order passed by the learned
Commercial Court, Ahmedabad, by which, learned
Commercial Court in exercise of powers under Section 34 of the Arbitration Act has partially
m o d i f i e d t h e a w a r d p a s s e d b y t h e
learned Arbitral Tribunal and has allowed the claim for escalation
in favour of the SIL, however has confirmed the rest of the award declared by the learned
Arbitral Tribunal confirming the award declared by the learned Arbitral Tribunal
confirming the award declared by the learned Arbitral Tribunal rejecting other claims.
9.2. At this stage, it is required to be noted that before the learned

Arbitral Tribunal and as per the statement of claim submitted by the SIL, the SIL claimed as under:

Sr No. Particulars Amount (Rs)

1 Liquidated Damages 5,39,106/−
2 Claim under RA Bill NO. 28 6,87,014/−
3 Escalation 1,28,30,519/−
4 Extra Cost on account of overstay 1,36,64,532/−
5 Payment of Service Tax. 76,36,090.52
6 Mental Agony 10,00,000/−
7 Loss of Reputation 20,00,000/−
8 Interest (at 18%)
9 Cost
That the learned Arbitral Tribunal rejected all the claims. In

an application submitted by the SIL submitted before the learned HC-NIC Page 29 of 53 Created On
Sun Aug 13 04:15:17 IST 2017 Commercial Court, submitted under Section 34 of the Arbitration
Act, by impugned judgment and order, the learned Commercial
Court has allowed the claim no.3 i.e. with respect to the escalation and confirmed the award
d e c l a r e d b y t h e l e a r n e d T r i b u n a l w i t h
respect to claim no.4 viz. extra costs on account of overstay. At this
stage, it is required to be noted that so far as claim nos. 5 to 9 are concerned and the SIL
c h a l l e n g e d t h e a w a r d d e c l a r e d b y t h e
learned Arbitral Tribunal rejecting the claim nos. 3 and 4 i..e with respect to escalation and
claim with respect to extra costs on account of overstay. As observed herein above, by
impugned judgment and order, the learned Commercial Court has allowed the
claim no.3 in toto i.e. Rs. 1,28,30,519/− and view of the learned Arbitrator has been reversed.
B y i m p u g n e d j u d g m e n t a n d o r d e r ,
the learned Commercial Court has confirmed the award declared
by the Arbitral Tribunal with respect to the claim no.4 viz. extra costs on account of overstay.
Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the
learned Commercial Court in allowing the claim no.3 i.e. escalation and reversing the
view of the learned Arbitrator, the GMDC has
preferred present First Appeal No. 618 of 2017. Feeling aggrieved
and dissatisfied with the impugned judgment and order passed by
the learned Commercial Court in confirming the award declared by
the learned Arbitral Tribunal in rejecting claim no.4 viz. extra costs
on account of overstay, the SIL has preferred present First Appeal No. 778 of 2017.
10. Therefore, the first and foremost thing which is required to

be considered is the scope and ambit of the learned Commercial HC-NIC Page 30 of 53 Created On
Sun Aug 13 04:15:17 IST 2017 Court under Section 34 of the Arbitration Act and the scope and
ambit of present First Appeals under Section 37 of the Arbitration Act.
10.1. In the recent decision in the case of Associate Builders

(Supra) the Honble Supreme Court had an occasion to consider the

scope and ambit of challenge to the award under Section 34 of the

Arbitration Act and when in exercise of powers under Section 34 of the Arbitration Act the
findings of fact recorded in the arbitral award can be interfered with by the Court. In
the aforesaid decision, the Honble Supreme Court had also an occasion to
consider the grounds on which the arbitral award may be assailed. In the aforesaid decision, it
is observed and held that it is only when the award is in conflict with the public
policy of India as prescribed in Section 34(2)(b)(ii) of the Arbitration Act, that the merits of an
arbitral award are to be looked into under certain specified circumstances. In
paragraph nos.13 to 17 the Honble Supreme Court has observed and held as under;
13. In as much as serious objections have been taken to the

Division Bench judgment on the ground that it has ignored the
parameters laid down in a series of judgments by this Court as to the limitations
which a Judge hearing objections to an arbitral award under Section 34 is
subject to, we deem it necessary to state the law on the subject.
14. Section 34 of the Arbitration and Conciliation Act reads as follows− "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− HC-NIC Page 31 of 53 Created
On Sun Aug 13 04:15:17 IST 2017
(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.
HC-NIC Page 32 of 53 Created On Sun Aug 13 04:15:17 IST 2017 (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."
15. This Section in conjunction with Section 5 makes it clear

that an arbitration award that is governed by part I of the
Arbitration and Conciliation Act, 1996 can be set aside only on grounds mentioned under
Section 34 (2) and (3), and not otherwise. Section 5 reads as follows:
"5. Extent of judicial intervention.−Notwithstanding

anything contained in any other law for the time being
in force, in matters governed by this Part, no judicial
authority shall intervene except where so provided in this Part."

16. It is important to note that the 1996 Act was enacted to replace the 1940 Arbitration Act in
order to provide for an arbitral procedure which is fair, efficient and capable of meeting
the needs of arbitration; also to provide that the
tribunal gives reasons for an arbitral award; to ensure that the
tribunal remains within the limits of its jurisdiction; and to
minimize the supervisory roles of courts in the arbitral process.
17. It will be seen that none of the grounds contained in sub−

clause 2 (a) deal with the merits of the decision rendered by an
arbitral award. It is only when we come to the award being in
conflict with the public policy of India that the merits of an arbitral award are to be looked
into under certain specified circumstances.

What can be said to be against the public policy of India has been
discussed by the Honble Supreme Court in the said decision.
At this stage, it is required to be noted that it is not the case on

behalf of the appellants that the award declared by the learned Arbitral tribunal is in conflict
w i t h t h e p u b l i c p o l i c y o f I n d i a . U n d e r t h e
circumstances, the same is not required to be dealt with any further.
Thereafter, the Honble Supreme Court has considered the fourth

head namely patent illegality. While considering what can be said to be
patent illegality the Honble Supreme court has observed in paragraph nos.40 to 45 as under;
Patent Illegality
40.We now come to the fourth head of public policy namely, patent illegality.
It must be remembered that under the explanation to section 34 (2) (b), an
award is said to be in conflict with the
public policy of India if the making of the award was induced or
affected by fraud or corruption. This ground is perhaps the earliest
ground on which courts in England set aside awards under English
law. Added to this ground (in 1802) is the ground that an arbitral award would be
set aside if there were an error of law by the arbitrator. This is
explained by Lord Justice Denning in R v.
Northumberland Compensation Appeal Tribunal. Ex Parte Shaw.,
1952 1 All ER 122 at page 130:
"Leaving now the statutory tribunals, I turn to the awards of

the arbitrators. The Court of King's Bench never interfered
by certiorari with the award of an arbitrator, because it was
a private tribunal and not subject to the prerogative writs. If the award was

not made a rule of court, the only course

available to an aggrieved party was to resist an action on
the award or to file a bill in equity. If the award was made a
rule of court, a motion could be made to the court to set it
aside for misconduct of the arbitrator on the ground that it
was procured by corruption or other undue means: see the
statute 9 and 10 Will. III, c. 15. At one time an award could
not be upset on the ground of error of law by the arbitrator
because that could not be said to be misconduct or undue
means, but ultimately it was held in Kent v. Elstob, (1802)
3 East 18, that an award could be set aside for error of law HC-NIC Page 34 of 53
Created On Sun Aug 13 04:15:17 IST 2017 on the face of it. This was regretted
by Williams, J., in Hodgkinson v. Fernie, (1857) 3 C.B.N.S. 189, but is now
well established."
41. This, in turn, led to the famous principle laid down in Champsey
Bhara Company v. The Jivraj Balloo Spinning and
Weaving Company Ltd., AIR 1923 PC 66, where the Privy Council
referred to Hodgkinson and then laid down:
"The law on the subject has never been more clearly stated than by Williams, J.
in the case of Hodgkinson v. Fernie (1857) 3 C.B.N.S. 189.
"The law has for many years been settled, and remains so at this day,
that, where a cause or matters in difference are referred to an arbitrator a
lawyer or a layman, he is constituted the sole and final judge of all questions
both of law and of fact ...... The only exceptions to that rule are cases
where the award is the result of corruption or fraud,
and one other, which though it is to be regretted, is now, I think firmly
established viz., where the question of law necessarily arises on the face of the
award or upon some paper accompanying and
forming part of the award. Though the propriety of
this latter may very well be doubted, I think it may be considered as established."
"Now the regret expressed by Williams, J. in Hodgkinson v. Fernie has

been repeated by more than one learned Judge, and it is certainly not to be
desired that the exception should be in any way
extended. An error in law on the face of the award
means, in their Lordships' view, that you can find in the award or a document
actually incorporated thereto, as for instance, a note appended by the
arbitrator stating the reasons for his judgment, some
legal proposition which is the basis of the award and which you can then say is
erroneous. It does not mean that if in a narrative a reference is made to a
contention of one party that opens the door to seeing

first what that contention is, and then going to the

contract on which the parties' rights depend to see if
that contention is sound. Here it is impossible to say,
from what is shown on the face of the award, what
mistake the arbitrators made. The only way that the learned judges have arrived
at finding what the mistake was is by saying: "Inasmuch as the
Arbitrators awarded so and so, and inasmuch as the
letter shows that then buyer rejected the cotton, the HC-NIC Page 35 of 53 Created
On Sun Aug 13 04:15:17 IST 2017 arbitrators can only have arrived at that result
by totally misinterpreting Cl.52." But they were entitled to give their own
i n t e r p r e t a t i o n t o C l . 5 2 o r a n y
other article, and the award will stand unless, on the face of it they have tied
themselves down to some special legal proposition which then, when examined,
appears to be unsound. Upon this point, therefore, their Lordships think
that the judgment of Pratt, J was right and the conclusion of the learned Judges of
the Court of Appeal erroneous."
This judgment has been consistently followed in India to test

awards under Section 30 of the Arbitration Act, 1940.
42. In the 1996 Act, this principle is substituted by the 'patent

illegality' principle which, in turn, contains three sub heads − 42.1 (a) a
contravention of the substantive law of India would result in the death
knell of an arbitral award. This must be
understood in the sense that such illegality must go to the root of
the matter and cannot be of a trivial nature. This again is a really a contravention
of Section 28(1)(a) of the Act, which reads as under:
"28. Rules applicable to substance of dispute.−(1) Where

the place of arbitration is situated in India,−
(a) in an arbitration other than an international commercial arbitration,

the arbitral tribunal shall decide the dispute submitted to arbitration in
accordance with the substantive law for the time being in force in India;"
42.2 (b) a contravention of the Arbitration Act itself would be

regarded as a patent illegality− for example if an arbitrator gives no
reasons for an award in contravention of section 31(3) of the Act,
such award will be liable to be set aside.
42.3 (c) Equally, the third sub−head of patent illegality is really a

contravention of Section 28 (3) of the Arbitration Act, which reads as under:

"28. Rules applicable to substance of dispute.− (3) In all cases, the arbitral
tribunal shall decide in accordance with the terms of the contract and
shall take into account the usages of the trade applicable to the
transaction."
This last contravention must be understood with a caveat. An

arbitral tribunal must decide in accordance with the terms of the
contract, but if an arbitrator construes a term of the contract in a reasonable
manner, it will not mean that the award can be set HC-NIC Page 36 of 53
Created On Sun Aug 13 04:15:17 IST 2017 aside on this ground. Construction of
t h e t e r m s o f a c o n t r a c t i s
primarily for an arbitrator to decide unless the arbitrator construes
the contract in such a way that it could be said to be something
that no fair minded or reasonable person could do.
43. In McDermott International Inc. v. Burn Standard Co. Ltd.,

(2006) 11 SCC 181, this Court held as under:
"112. It is trite that the terms of the contract can be express or implied. The
conduct of the parties would also be a
relevant factor in the matter of construction of a contract. The construction of
the contract agreement is within the jurisdiction of the arbitrators having
regard to the wide nature, scope and ambit of the arbitration agreement and
they cannot be said to have misdirected themselves in
passing the award by taking into consideration the conduct
of the parties. It is also trite that correspondences exchanged
by the parties are required to be taken into consideration for
the purpose of construction of a contract. Interpretation of a
contract is a matter for the arbitrator to determine, even if
it gives rise to determination of a question of law. (See Pure
Helium India (P) Ltd. v. ONGC [(2003) 8 SCC 593] and
D.D. Sharma v. Union of India [(2004) 5 SCC 325]).
113. Once, thus, 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."
44. In MSK Projects (I) (JV) Ltd. v. State of Rajasthan, (2011) 10

SCC 573, the Court held:
"17. If the arbitrator commits an error in the

construction of the contract, that is an error within his jurisdiction. But if he
wanders outside the contract and deals with matters not allotted to him,

he commits a jurisdictional error. Extrinsic evidence

is admissible in such cases because the dispute is not something which arises under
or in relation to the contract or dependent on the construction of the
contract or to be determined within the award. The ambiguity of the award can,
in such cases, be resolved by admitting extrinsic evidence. The
rationale of this rule is that the nature of the dispute
is something which has to be determined outside and independent
of what appears in the award. Such a jurisdictional error needs to be proved
by evidence extrinsic to the award. (See Gobardhan Das v.
Lachhmi Ram [AIR 1954 SC 689], Thawardas Pherumal v. Union of India

[AIR 1955 SC 468], HC-NIC Page 37 of 53 Created On Sun Aug 13 04:15:17 IST
2017 Union of India v. Kishorilal Gupta & Bros. [AIR 1959 SC 1362], Alopi
P a r s h a d & S o n s L t d . v . U n i o n o f
India [AIR 1960 SC 588], Jivarajbhai Ujamshi Sheth v. Chintamanrao Balaji [AIR
1965 SC 214] and Renusagar Power Co. Ltd. v. General Electric Co.
[(1984) 4 SCC 679 : AIR 1985 SC 1156] )."
45. In Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran,

(2012) 5 SCC 306, the Court held:
"43. In any case, assuming that Clause 9.3 was

capable of two interpretations, the view taken by the arbitrator was clearly a
possible if not a plausible one. It is not possible to say that the arbitrator had
travelled outside his jurisdiction, or that the view
taken by him was against the terms of contract. That
being the position, the High Court had no reason to interfere with the award and
substitute its view in place of the interpretation accepted by the arbitrator.
44. The legal position in this behalf has been

summarized in para 18 of the judgment of this Court
in SAIL v. Gupta Brother Steel Tubes Ltd. [(2009) 10
SCC 63: (2009) 4 SCC (Civ) 16] and which has been
referred to above. Similar view has been taken later in Sumitomo Heavy
Industries Ltd. v. ONGC Ltd. [(2010) 11 SCC 296: (2010) 4 SCC (Civ) 459] to
which one of us (Gokhale, J.) was a party. The
observations in para 43 thereof are instructive in this behalf.
45. This para 43 reads as follows: (Sumitomo case

[(2010) 11 SCC 296 : (2010) 4 SCC (Civ) 459] ,
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. v. Central
Warehousing Corpn. [(2009) 5 SCC 142 : (2009) 2 SCC (Civ) 406] 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 HC-NIC Page 38 of 53 Created On Sun Aug 13 04:15:17 IST
2017 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."
10.2. Applying the law laid down by the Hon'ble Supreme Court in
the aforesaid decisions, this Court is required to examine and / or consider whether the learned
C o m m e r c i a l C o u r t i s j u s t i f i e d i n
modifying the award declared by the learned Arbitral Tribunal and
in allowing the claim no.3 i.e. claim with respect to the escalation
which was rejected by the learned Tribunal, in exercise of powers
under Section 34 of the Arbitration Act ? This Court is also required to consider whether in the
facts and circumstances of the case learned Commercial Court is justified in rejecting
Section 34 application in so far as confirming the award declared by the
Arbitral Tribunal rejecting the claim no.4 i.e. claim with respect to
extra costs on account of overstay ?
11. Now, so far as the claim no.3 with respect to escalation price
is concerned, at the outset, it is required to be noted that in the contract/ agreement / work
o r d e r , i t w a s s p e c i f i c a l l y m e n t i o n e d t h a t
prices are "firm and no escalation will be allowed during the currency of the contract period."
However, subsequently SIL insisted for escalation price even at the time when the period of
contract was extended. However, GMDC did not agree for the same and therefore, SIL at the
relevant time did not pursue their insistence for escalation
clause. It is true that thereafter the SIL continued the work and complete the work within the
extended HC-NIC Page 39 of 53 Created On Sun Aug 13 04:15:17 IST 2017
period. It is also true that subsequently when the SIL submitted the
invoices, the same were with escalation price as per formula earlier
suggested by it but was not accepted by the GMDC. However, it
was the case on behalf of the SIL that in the communication dated
22.02.2007 the GMDC agreed to consider their claim of escalation
price. It appears that entire claim of the escalation by the SIL was
based on the premise that GMDC did not object to their letter dated
17.08.2004 written by the SIL and that if allowed the claimant to
proceed with the work. It was also the case on behalf of the SIL

that officer of the GMDC assured that the escalation price would be
paid. However, in absence of any specific evidence with respect to time and name of the officer
b y w h o m s u c h r e p r e s e n t a t i o n w a s
made and in absence of any evidence led by SIL with respect to
such assurance, learned Arbitrator did not accept the case of the
SIL. At this stage, it is required to be noted that as such SIL had not
led any oral evidence. From the reasons and the findings recorded by learned Arbitral Tribunal,
i t a p p e a r s t h a t t h e l e a r n e d A r b i t r a l
Tribunal rejected the claim no.3 i.e. claim with respect to escalation on the ground that (1)
C l a i m n o t s u p p o r t e d b y d o c u m e n t a r y
evidence; (2) GMDC specifically denied escalation; (3) No evidence
/ corroborative as regards delinquent or officer of the GMDC (4)
Section 55 of the Indian Contract Act shall not be applicable.
11.1. However, the learned Commercial Court has reversed

the finding recorded by the learned Arbitral Tribunal by observing that parties had chosen not
t o l e a d a n y o c u l a r e v i d e n c e a n d
therefore, the submission on behalf of the GMDC that document in question
have not been proved by the SIL by way of leading oral HC-NIC Page 40 of 53 Created On Sun Aug
13 04:15:17 IST 2017 evidence do not find any force. However, it is required to be noted
that by the aforesaid conduct, the requirement of proving case was
not done away and still the SIL was required to prove its case by leading evidence. Under the
c i r c u m s t a n c e s , l e a r n e d C o m m e r c i a l
Court has materially erred in reversing the finding recorded by the
learned sole Arbitrator and that too in exercise of powers under Section 34 of the Arbitration Act.
11.2. Now, so far as the letter dated 22.02.2007 which was heavily relied upon by the SIL and
i n w h i c h , a c c o r d i n g t o t h e S I L , t h e
GMDC stated that question of escalation will be considered by it, it is required to be noted that
i n t h e s a i d c o m m u n i c a t i o n d a t e d
22.02.2007 there does not appear to be any such assurance given
by the GMDC to consider the claim regarding escalation. What is stated is that "Mr. U.B.Singh
has also raised points regarding escalation & over run of contract. It is informed that
during contract closure these points alongwith penalty, liquidated
damages etc. as per contract will be taken in consideration as per the Contract". The learned
A r b i t r a t o r h a s o b s e r v e d t h a t t h e
communication/ letter dated dated 22.02.2007 cannot be said to be acceptance of escalation
price. However, the learned Commercial Court has reversed the finding recorded by the learned
Arbitral Tribunal in relation to the letter dated 22.02.2007 by observing that "even
a s s u r a n c e s g i v e n b y t h e r e s p o n s i b l e a n d
authorized representative of the respondent cannot be given a go−
bye as it emerges from the correspondence appears to have been HC-NIC Page 41 of 53 Created On
Sun Aug 13 04:15:17 IST 2017 find force and, therefore, no cogent reasons even has been adduced
by the respondent for not believing the same." From the aforesaid,

it appears that learned Commercial Court has therefore, materially

erred in reversing the finding recorded by the learned Arbitrator in
relation to the letter dated 22.02.2007 and in considering and / or treating the letter dated
2 2 . 0 2 . 2 0 0 7 a d d r e s s e d b y t h e G M D C t o
Simplex as acceptance of claim in relation to escalation.
11.3. It is required to be noted that the SIL heavily relied upon

Section 55 of the Indian Contract Act as well as Section 62 of the Indian Contract Act.
Now, so far as reliance placed upon the 3rd part of the Section 55 of the Contract Act is
concerned, at the outset, it is required to be noted that in the facts and circumstances
narrated herein above, Section 55, more particularly, 3rd part of
Section 55 shall not be applicable and / or of any assistance to the
SIL. Merely because, time to complete the work was extended by the GMDC,
the SIL shall not be entitled to compensation for any
loss occasioned by the non performance of the promise at the time
of agreement. At this stage, it is required to be noted that as such learned Arbitrator did not go
into the merits, on who was responsible for delay.
11.4. Now, so far as reliance placed upon Section 62 of the

Contract Act is concerned, Section 62 shall be applicable in a case
where there was novation of contract and the original contract is entirely substituted. When new
contract comes into effect the original contract need not be performed at all. This was not the
case in the instant case. In the original contract only, the GMDC
granted extension of time. Therefore, the reliance upon Section 62
of the Contract Act was absolutely misplaced.
Considering the aforesaid facts and circumstances, it appears that learned Commercial Court
h a s m a t e r i a l l y e r r e d i n r e v e r s i n g
the finding recorded by the learned Arbitral Tribunal in relation to the escalation. The learned
Commercial Court has exceeded its jurisdiction in exercising the powers under Section
34 of the Arbitration Act as an Appellate Court, which is not permissible.
11.5. Even otherwise, the impugned judgment and order passed by

the learned Commercial Court in allowing the claim no.3 in toto and that too in exercise of
p o w e r s u n d e r S e c t i o n 3 4 o f t h e
Arbitration Act, cannot be sustained. Whatever the claim was made
by the claimant so stated in the statement of claim, the same has
been allowed by the Commercial Court. It is required to be noted
that as such SIL did not lead any oral evidence and therefore, did
not prove the claim and computation by leading evidence, its claim
in relation to escalation. At this stage, it is required to be noted that as such GMDC specifically
d e n i e d t h e c l a i m n o . 3 a n d e v e n
computation of claim no.3. Therefore, the same was required to be

proved by leading evidence, by SIL.
11.6. At this stage, it is required to be noted that in fact during the

course of the hearing, even the learned Commercial Court directed,
rather requested learned counsel for both the parties to avail the scope
of Section 34(4) of the Arbitration Act, instead of seeking
remittance of award under Section 16 of the Old Arbitration Act.

However, the same was not accepted by the learned counsel for the
respective parties and they requested for disposal of the application
under Section 34 of the Arbitration Act in accordance with law. At
this stage, it is required to be noted that even learned counsel for
the SIL submitted that while exercising the powers under Section
34(4) of the Arbitration Act both the issue pertaining to escalation
and extra costs incurred on account of overstay be referred to the Arbitrator. However the same
w a s n o t a m e n a b l e t o t h e l e a r n e d
counsel for the GMDC. Even the similar request was made by Shri
Kavina, learned counsel for the SIL to remand the matter to the learned Arbitrator, which is
vehemently opposed by learned counsel for the GMDC. Learned counsel for the GMDC
has vehemently submitted that remanding the matter to the learned
Arbitrator, by the Court in exercise of powers under Section 34/ 37 of the Arbitration Act is
not permissible. It is submitted by Shri Soparkar, learned counsel for the GMDC that
once the learned Arbitrator declares the award, thereafter learned Arbitrator becomes
functus officio and thereafter he has no authority to
continue with the arbitration proceedings.
11.7. Even otherwise it is required to be noted that there are no such powers of remand vested
w i t h t h e C o u r t e x e r c i s i n g t h e
powers either under Section 34 or Section 37 of the Arbitration Act.
The only power the Court possesses is under Section 34(4) of the Arbitration Act, which
is the repository of power invested in the Court. Section 34(4) of the Arbitration reads as under:
"34. .....
HC-NIC Page 44 of 53 Created On Sun Aug 13 04:15:17 IST 2017 (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."
11.7.1 Considering the aforesaid provision it is amply clear

that the Court can defer the hearing of the application filed under Section 34 of the Arbitration

A c t s e t t i n g a s i d e t h e a w a r d o n a
written request made by a party to the arbitration proceedings to facilitate the Arbitral Tribunal
by resuming the arbitration proceedings or to take such other action as in the opinion of the
Arbitral Tribunal will eliminate the grounds for setting aside the Arbitral Award. The
quintessence for exercising the the power under this provision is that the Arbitral Award
has not been set aside. The challenge to the said award has been set up under Section
34 of the Arbitration Act about the deficiencies in the Arbitral Award which may be
c u r a b l e b y a l l o w i n g t h e A r b i t r a l
Tribunal to take such measures which can eliminate the grounds
for setting aside the Arbitral Award. No power has been invested by
the Parliament in the Court to remand the matter to the Arbitral
Tribunal except to adjourn the proceedings for the limited purpose
mentioned in sub−section (4) of section 34. The view which we are expressing is supported by
the decision of the Hon'ble Supreme Court in the case of McDermott International Inc.
vs. Burn Standard Ltd. reported in (2006) 11 SCC 181.
HC-NIC Page 45 of 53 Created On Sun Aug 13 04:15:17 IST 2017 11.7.2

Even considering sub−section (4) of Section 34 of the
Arbitration Act, the limited discretion available to the Court under
sub−section (4) of Section 34 can be exercised only upon a written application made in that
behalf by a party to the arbitration proceedings. Even such a request can be made
before formally setting aside the award. Before formally setting aside the award, if
the party to the arbitration proceedings fails to request the Court to
defer the proceedings pending before it, then it is not open to a
party to move an application under sub−section (4) of Section 34 of the Arbitration Act. As
observed hereinabove, consequent to disposal of the main proceedings under Section 34
of the Arbitration Act by the Court, it would become functus officio.
Therefore, the limited remedy available under Section 34(4) of the Arbitration Act is required
t o b e i n v o k e d b y t h e p a r t y t o t h e
arbitration proceedings before the award is set aside by the Court.
At this stage it is required to be noted that in the present case

even without any formal application by either of the parties to the arbitration proceedings, the
l e a r n e d C o m m e r c i a l C o u r t g a v e a n
option to the original applicant to go before the Arbitral Tribunal under section 34(4) of the
A r b i t r a t i o n A c t . T h a t h o w e v e r , t h e
parties refused to the said suggestion and requested the Court to pass the order on merits.
Therefore, now, it is not open for the original applicant − SIL to request to remand
the matter to the learned Arbitral Tribunal.
Under the circumstances, the request made by Shri Kavina,

learned counsel for the SIL to remand the matter to the Arbitrator, HC-NIC Page 46 of 53 Created
On Sun Aug 13 04:15:17 IST 2017 canot be accepted.

11.8. Now, so far as reliance placed upon the decision in the case
of A.M. Ahmed and Co (supra) relied upon by Shri Kavina, learned
counsel for the SIL is concerned, at the outset, it is required to be
noted that in the said decision it was specific finding recorded by
the learned Arbitrator that there was a delay in execution of the contract due to the conduct of
F o o d C o r p o r a t i o n o f I n d i a a n d
therefore, Corporation was liable for the consequence of the delay
viz. increase in statutory wages. It is required to be noted that in the present case there is no
s u c h f i n d i n g g i v e n b y t h e l e a r n e d
Arbitrator and / or even learned Commercial Court that the delay
was attributable to the GMDC. The learned Arbitrator specifically
observed that in the facts and circumstances of the case, it is not
necessary to go into the merits of the rival contention as regards the reasons of delay
attributable to whom. Despite the above, learned Commercial Court has observed that
GMDC never appeared to have fulfilled its obligation of providing drawings and
work fronts in time resulting in delay in completion of the project.
Even in the reasoning assigned while disposing of the claim no.1, the learned Commercial Court
h a s o b s e r v e d t h a t d e l a y i s n o t
attributable to the claimant only. Therefore, what was required to
be thereafter considered was whether who was responsible for the
delay and to what extent was again required to be considered. As
observed herein above, the learned Arbitrator did not go into the merits of the rival contention
as regards reasons of delay attributable to whom. Under the circumstances, the
aforesaid decision shall not be applicable to the facts of the case on hand.

Now, so far as reliance placed upon the decision in the case of K.N.Sathyapalan (supra) relied
upon by Shri Kavina, learned counsel for the SIL is concerned, at the outset, it is required to be
noted that in the case before the Hon'ble Supreme Court there was
absence of of any price escalation clause in the original agreement
and even there was absence of specific prohibition to the contrary
in the supplemental agreement. In the instant case, in the original
agreement there is specific price escalation clause and it is stated
that there shall not be any escalation allowed and price will remain firm. Even in the
s u b s e q u e n t c o r r e s p o n d e n c e a l s o , G M D C n e v e r
agreed for price escalation even at the time when period of contract
was extended. Under the circumstances, the decision shall not be applicable to the facts of the case.
12. In view of the above and for the reasons stated above, we are
of the opinion that learned Commercial Court has materially erred in allowing claim no.3 which
was rejected by the learned Arbitrator, by reversing the finding recorded by the
learned Arbitrator, while exercising the powers under Section 34 of the
Arbitration Act. Under the circumstances, Appeal preferred by the
GMDC being First Appeal No. 618 of 2017 deserves to be allowed and is accordingly allowed.

First Appeal No. 778 of 2017
13. Now, so far as First Appeal No. 778 of 2017 preferred by the SIL against the impugned
j u d g m e n t a n d o r d e r p a s s e d b y t h e
learned Commercial Court dismissing the application under Section
34 of the Arbitration Act and confirming the award declared by the HC-NIC Page 48 of 53 Created
On Sun Aug 13 04:15:17 IST 2017 learned Tribunal rejecting the claim no.4 i.e. claim with respect to
extra costs on account of overstay is concerned, at the outset, it is
required to be noted that as such there are concurrent findings of fact recorded by the learned
Arbitrator as well as learned Commercial Court. Therefore, the present Appeal which
will be under Section 37 of the Arbitration Act is concerned, the Court would have
very limited scope and the jurisdiction. As observed
and held by the Hon'ble Supreme Court as well as this Court in catena of decisions, against the
order passed by the learned Arbitrator even the first Court exercising the power under Section
34 of the Arbitration Act would have very limited scope and the jurisdiction and as observed
herein above, the Court while considering the application under Section 34/37 of the Act is not
sitting as an Appellate Court against the award declared by the learned Arbitrator.
T h e s c o p e a n d e x e r c i s e o f j u r i s d i c t i o n b y t h i s
Court in exercise of powers under Section 37 of the Arbitration Act by this Court will be
co−terminus with the scope of Section 34 of the Act and therefore,
u n l e s s a n d u n t i l t h e c a s e i s m a d e o u t f o r
interference as per law laid down by the Hon'ble Supreme Court in the case of Associate
Builders (supra), this Court would not be justified in interfering with the findings recorded by
the learned Arbitrator, confirmed by the learned Commercial Court.
13.1. It is required to be noted that so far as claim no.4 i.e.

with respect to extra costs on account of overstay is concerned, it
was the case on behalf of the SIL that as the SIL had to remain on the site for the period
b e y o n d t h e d a t e o f c o m p l e t i o n o f t h e
contract, on account of which, it had to incur extra costs. The same HC-NIC Page 49 of 53 Created
O n S u n A u g 1 3 0 4 : 1 5 : 1 7 I S T 2 0 1 7
came to be negatived and / or rejected by the learned Arbitrator by
giving specific finding that the SIL has failed to justify the claim by proving (1) that the entire
p e r i o d o f o v e r s t a y w a s d u e t o t h e
reasons attributable to the respondent; and (2) the SIL had made all possible efforts
t o m i t i g a t e t h e e x p e n s e s w h i c h i t m i g h t h a v e
incurred on account of overstay. Even the SIL also failed to prove
by way of producing cogent proof to show that during this entire
period of overstay only on account of this contract work, it had to incur further costs in
addition thereto to show that the extra expenses were incurred by the claimant during
the period of overstay. The learned Arbitrator while considering the aforesaid
claim specifically observed that at the very site where the particular
contract work was carried out, there were three other construction
works which were being carried on by the SIL. Even, SIL failed to

adduce any cogent evidence to prove the payment made towards maintenance of the site
machinery, manpower engaged and the payment made by them. Therefore, in absence
of any cogent evidence on record, the learned Arbitrator rightly rejected the said claim. The
aforesaid has been confirmed by the learned Commercial Court. Considering the
aforesaid facts and circumstances of the case and the findings recorded by the learned
Arbitrator recorded while rejecting the claim no.4 i.e. with respect to claim on account of extra
c o s t s i n c u r r e d d u e t o o v e r s t a y , i t
cannot be said that the same deserve any interference of this Court
in exercise of powers under Section 37 of the Arbitration Act. We are in complete agreement
with the view taken by the learned Arbitrator as well as learned Commercial Court.
14. Now, so far as submission made by Shri Kavina, learned

counsel for the SIL that in fact in the written statement of defence
filed by the GMDC of 30.01.2010 before the learned Arbitrator, the
GMDC admitted the claim in part, in respect to the amount payable
by the GMDC to SIL towards extra costs/ overstay is concerned, at the outset, it is required to
be noted that as such no such submissions were made either before the learned
Arbitrator or before the learned Commercial Court. Even considering, the written
statement of the SIL before the Commercial Court
submitted by the GMDC it does not appear that there was any such
admission. It is required to be noted that in the original written
statement filed by the GMDC, the GMDC had denied the claim of
overstay in toto. In fact, further written statement, which according to the SIL there is an
a d m i s s i o n , i t a p p e a r s t h a t t h e s a m e w a s
submitted to display the arithmetic and logical inaccuracy in SIL's
calculation and the same cannot be said to be in any way admission on the part of the GMDC.
14.1. As rightly observed by the learned Arbitrator as well as learned Commercial Court
merely because the SIL continued to carry on the work after a period of 22 months,
the SIL is not entitled to compensation for the overstay. The SIL was required to prove
that the overstay was due to the delay on the part of the
GMDC and that SIL was required to be adduced cogent evidence
with respect to the actual claim and the expenditure incurred.
14.2. Now, so far as reliance placed upon Section 70 of the

Contract Act is concerned, assuming that Section 70 of the Contract HC-NIC Page 51 of 53 Created
On Sun Aug 13 04:15:17 IST 2017 Act may be applicable in that case also, even while
claiming compensation, the SIL was required to prove that entire period of
overstay was due to the reasons attributable to the GMDC, that the SIL made all possible efforts
t o m i t i g a t e t h e e x p e n s e s w h i c h i t
might have incurred on account of overstay. Importantly even, SIL was required to prove by
p r o d u c i n g c o g e n t e v i d e n c e t h e a c t u a l

expenses / costs incurred/ made towards maintenance of the site

machinery, manpower engaged and the payment made to them.
14.3. Considering the aforesaid facts and circumstances and

the reasoning given by the learned Arbitrator as well as learned Commercial Court, we see no
reason to interfere with the impugned judgment and order passed by the learned Commercial
Court confirming the award declared by the learned Arbitrator with
respect to claim no.4 i.e. with respect to extra costs on account of
overstay. We are in complete agreement with the view taken by the
learned Arbitrator as well as learned Commercial Court.
14.4. Under the circumstances, the present First Appeal No. 778 of 2017 preferred by the SIL
deserves to be dismissed and is accordingly dismissed.
15. In view of the above and for the reasons stated above, First
Appeal No. 618 of 2017 preferred by the GMDC is hereby allowed and the impugned judgment
and order passed by the learned Commercial Court, Ahmedabad dated 28.12.2016 in
Commercial Civil Miscellaneous Application No. 52 of 2016 is hereby quashed and set aside in
so far as modifying the award declared by the learned Arbitrator and allowing the
claim no.3 with respect to HC-NIC Page 52 of 53 Created On Sun Aug 13 04:15:17 IST 2017
escalation.
15.1. In view of the above and for the reasons stated above,
First Appeal No. 778 of 2017 is hereby dismissed and the impugned judgment and order passed
by the learned Commercial Court, Ahmedabad dated 28.12.2016 in
Commercial Civil Miscellaneous Application No. 52 of 2016 rejecting Section 34
application and confirming the award declared by the learned Arbitrator with
respect to claim no.4 − with respect to extra costs on account of overstay is hereby confirmed.
In the facts and circumstances of the case, there shall be no order as to costs.
Sd/− (M.R. SHAH, J.) Sd/− (B.N. KARIA, J.) Kaushik HC-NIC Page 53 of 53 Created On
Sun Aug 13 04:15:17 IST 2017

4 Whether This Case Involves A ... Vs Simplex Infrastructure Limited On 9 June, 2017

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4 Whether This Case Involves A ... Vs Simplex Infrastructure Limited On 9 June, 2017

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4 Whether This Case Involves A ...

vs Simplex Infrastructure Limited on 9 June, 2017

Gujarat High Court

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

FIRST APPEAL NO. 618 of 2017

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE M.R. SHAH Sd/−

2 To be referred to the Reporter or not ?

3 Whether their Lordships wish to see the fair copy of the

4 Whether this case involves a substantial question of law as

to the interpretation of the Constitution of India or any order made thereunder ?

Indian Kanoon - http://indiankanoon.org/doc/82784235/ 1

Commercial Court, Ahmedabad passed in Commercial Civil Miscellaneous Application No.

Indian Kanoon - http://indiankanoon.org/doc/82784235/ 2

(1)Claim for an amount of Rs.6,87,014/ on account of work done

(2) Claim for an amount of Rs.1,28,30,519/on account of escalation;

HC-NIC Page 4 of 53 Created On Sun Aug 13 04:15:17 IST 2017

(6) Claim for an amount of Rs.20,00,000/towards damages on

(7) Claim for an amount of Rs.7,50,000/towards costs of arbitration; and

3.2. That the learned Tribunal disallowed the claim nos.

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Miscellaneous Appeal No. 1018 of 2012. That on establishment of Commercial Court at

(b) allow the Applicant's aforesaid claims for

OR remit the matter to a different arbitrator with experience in construction matters

Indian Kanoon - http://indiankanoon.org/doc/82784235/ 4

4.0. Shri S.N.Soparkar, learned Senior Advocate has

5.1. It is further submitted by Shri Soparkar, learned

5.3. It is further submitted by Shri Soparkar, learned

5.5. It is further submitted by Shri Soparkar, learned

5.6. It is further submitted by Shri Soparkar, learned counsel for

Indian Kanoon - http://indiankanoon.org/doc/82784235/ 5

5.7. It is further submitted by Shri Soparkar, learned

5.10. It is vehemently submitted by Shri Soparkar, learned HC-NIC Page 9 of 53 Created On

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5.13. Shri Soparkar, learned counsel for the GMDC has

5.16. It is vehemently submitted by Shri Soparkar, learned

(1). Prior issuance of the Work Order by GMDC to Simplex, the

(2). Simplex had, originally, vide its letter dated 21.07.2001

(3). GMDC, vide its letter dated 10.08.2001, categorically rejected

Indian Kanoon - http://indiankanoon.org/doc/82784235/ 7

with firm rates without escalation;

30) addressed by Simplex demanded escalation. However, it is

38), GMDC categorically rejected Simplex's demand for escalation

(10) Inasmuch as issue no. 1 (liquidated damages of Rs. 5,39,106/−) is concerned,

(10.2). It was only on account of GMDC's procedural lapse in

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5.17. Shri Soparkar, learned counsel for the GMDC has

In support of his above submissions, Shri Soparkar, learned

5.19. It is submitted that the basis of escalation claim is

Indian Kanoon - http://indiankanoon.org/doc/82784235/ 9

the learned Arbitrator to consider the escalation claim on merits afresh.

5.24. It is further submitted that even otherwise the SIL

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6.2. It is further submitted by Shri Kavina, learned counsel

Indian Kanoon - http://indiankanoon.org/doc/82784235/ 11

unwarranted, irrelevant and against the spirit of the contract, since

6.3. It is further submitted by Shri Kavina, learned counsel for the

HC-NIC Page 19 of 53 Created On Sun Aug 13 04:15:17 IST 2017 6.4.

Indian Kanoon - http://indiankanoon.org/doc/82784235/ 12

HC-NIC Page 20 of 53 Created On Sun Aug 13 04:15:17 IST 2017 7.0.

7.2. It is further submitted by Shri Kavina, learned counsel for the

7.4. It is further submitted by Shri Kavina, learned counsel for

Indian Kanoon - http://indiankanoon.org/doc/82784235/ 13

7.5. It is further submitted by Shri Kavina, learned counsel for

7.6. It is further submitted by Shri Kavina, learned counsel for

7.7. It is further submitted by Shri Kavina, learned counsel for