Delhi High Court
Center For Research Planning And Action vs National Medicinal Plants Board … on 8 January, 2025
Author: Yashwant Varma
Bench: Yashwant Varma, Dharmesh Sharma
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on : 03 December 2024
Judgment pronounced on: 08 January 2025
+ FAO (COMM) 161/2022
CENTER FOR RESEARCH PLANNING AND ACTION
.....Appellant
Through: Mr. Suryavansh Vashisth, Mr.
Jayant Upadyay and Mr.
Akshay Srivastava, Advs.
versus
NATIONAL MEDICINAL PLANTS BOARD MINISTRY OF
AYUSH GOVERNMENT OF INDIA ....Respondent
Through: Mr. Ruchir Mishra and Mr.
Mukesh Kumar Tiwari, Advs.
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA
HON'BLE MR. JUSTICE DHARMESH SHARMA
JUDGMENT
1. The appellant has preferred this appeal under Section 13(1) of
the Commercial Courts Act, 2015 [―CC Act‖], read with Section 37 of
the Arbitration and Conciliation Act, 1996 [―The Act‖], assailing the
impugned order dated 03.06.2022 passed by the learned Single Judge
in O.M.P.(Comm.) 79/2020 titled ―National Medicinal Plants Board
v. Center for Research, Planning & Action”, whereby the learned
Single Judge has set aside the arbitral award dated 11.02.2020.
FACTUAL BACKGROUND:
2. Shorn of unnecessary details, the appellant is engaged in
providing services related to data collection, organization, and
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analysing. The respondent, established by the Government of India,
coordinates activities concerning medicinal plants and supports
policies and programs for their trade, export, conservation, and
cultivation. The genesis lies in the Government of India amending the
Drugs and Cosmetic Rules, 1945 vide a Gazette Notification dated
09.07.2008 that inter alia required licensed manufacturers of
Ayurveda, Sidha and Unani [―ASU‖] drugs to maintain records of raw
materials used in manufacturing and submit them to the State Drug
Licensing Authorities, the respondent or its nominated agencies, in the
prescribed format Schedule TA of the Notification.
3. In accordance with the said Notification, the respondent issued
a public advertisement dated 15.02.2012, inviting Expression of
Interest [―EOI‖] or Terms of Reference [―TOR‖] for the engagement
of an agency to oversee the maintenance of records pertaining to raw
materials utilized by ASU-licensed drug manufacturers. The
consultancy’s stated objective encompassed the inclusion of
approximately 8,000 ASU pharmacies nationwide in the study. The
EOI elaborated on various terms and conditions, including the scope
of work, tenure, and payment provisions.
4. The respondent, vide letter dated 05.12.2012, proposed
engaging the appellant at a base price of Rs. 225/- per unit for the
scope of work detailed in the EOI, with the consultancy objectives
forming part of the agreement. By way of the letter dated 03.07.2013,
the respondent outlined a payment plan, quoting an annual
consultancy fee of Rs. 22,50,000/- per annum. Subsequently, via letter
dated 26.09.2013, the respondent approved the project at the same cost
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for the first year and directed the appellant to furnish a bank guarantee
of Rs. 2,25,000/-, which was duly complied with and the parties
entered into the First Agreement dated 17.08.2013 on 21.10 2013. The
First Agreement explicitly stipulated that the former consultant, i.e.,
M/s Datamation had failed to cover all the pharmacies for the year
2010-2011 and the tenure of the consultancy of the appellant was
extendable up to December 2014 based on its performance.
5. The appellant quoted a basic rate of Rs. 225/- per unit per year
based on representations by the respondent. It was assured that data
collection would be required annually, subject to performance, and
initial start-up expenses would be offset by guaranteed annual revenue
of Rs. 22,50,000/-. The respondent also undertook to provide a list of
8,000 units with relevant details for immediate commencement of
work and emphasized that the data submission by all units was
mandatory under a special enactment, with non-compliance leading to
fines and other consequences.
6. However, it was later discovered that the respondent had not
maintained a list of ASU units, compelling the appellant to expend
significant time and resources in compiling a list of approximately
31,000 prospective units identified through directories and internet
sources, including traders, marketers, collectors, and users of ASU
products. This resulted in an additional financial burden on the
appellant. Furthermore, it was observed that the Drugs and Cosmetics
Rules, 1945, as amended by the Notification dated 09.07.2008, which
formed the basis of the project, excluded the State Licensing
Authorities from exercising any jurisdiction in the subject matter of
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the said enactment, eliminating the element of compulsion for ASU
units to provide data. Consequently, the ASU units showed no
willingness to share information on raw material usage, despite
multiple meetings held by the Secretary, Ministry of AYUSH, with
State Licensing Authorities and the Drug Controller at New Delhi.
7. The appellant has averred that the First Agreement became non-
operational as the respondent required all the bills raised by the
appellant to be routed through the State Licensing Authorities. The
appellant stated that in certain States, multiple licensing authorities
existed thus identification of the appropriate authority being left
ambiguous. Secondly, the State authorities were not party to the
contract, and therefore, neither did they have locus standi nor did they
have the requisite knowledge about the Project requirements. As a
consequence of the above, the State authorities were not in a position
to approve the bills.
8. It was thus the case of the appellant that since the
commencement of the project, it faced significant challenges,
particularly in collecting data for the 8000 ASUs specified in the EOI,
which were communicated to and acknowledged by the respondent. In
a letter dated 18.12.2014, the appellant detailed these challenges,
proposing terminating the project and highlighting that no payment
had been made by the respondent despite the appellant incurring
substantial expenses.
9. The respondent acknowledged the non-workability of the First
Agreement by executing a Second Agreement on 22.07.2015, which
was necessitated as most of the 8000 ASU pharmacies identified by
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the appellant were either closed, non-operational, or unresponsive.
Additionally, routing the bills for the work performed through State
Drug Licensing authorities posed challenges, as these authorities were
not parties to the contract and lacked locus standi and project
knowledge. The Second Agreement extended the appellant’s
consultancy until 31.03.2016, with the possibility of further extension.
While it addressed some issues that frustrated the performance of the
First Agreement, it failed to account for the scale of the remaining
work and the time required for completion.
10. It appears that in the aforesaid backdrop, considering the
various components of work and the objectives achieved, the
respondent decided that it would be appropriate that the full budget for
each year be released in favour of the appellant. It is the case of the
appellant that despite all odds faced by it, the objectives outlined in
the TORs were met including the preparation of a detailed directory,
along with multiple sub-reports and presentations for meetings, both
internal and collaborative, involving Drug Controllers from across the
country so much so that these reports were utilized by the respondent
in various meetings, including two convened by the Secretary,
Ministry of AYUSH. Satisfied with the appellant’s work, the
respondent extended the project and requested additional data
collection for 2013-14 and 2014-15, reflecting confidence in the
Appellant’s performance. However, conducting the project in two
phases increased the appellant’s costs, as institutions had to be re-
approached to supply additional data, an expense not anticipated at the
project’s outset.
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11. The respondent, through a letter dated 02.03.2016, extended the
project tenure until 31.05.2016, directing the appellant to include all
schedules received up to 31.03.2016 in the final report. In compliance,
the appellant submitted three reports, totalling approximately 400
pages, in May 2016. However, by letter dated 30.06.2016, the
respondent requested revisions, altering the scope of work by
removing the MIS feature and requiring the inclusion of schedules
received after 31.03.2016. Following these directions, the appellant
submitted revised reports in 2017 and 2018.
12. It is the case of the appellant that it had been diligently adhering
to the terms of the EOI, the Second Agreement, and pursuant to the
respondent’s communications, submitted its consolidated findings in
February 2018 and on 19.01.2018, it raised an invoice of Rs.
12,73,986/- for payment related to 1097 Schedules TA and 2225 ASU
units that were non-existent, closed, or relocated. To the appellant’s
shock, the respondent rejected the claim, stating it was ineligible as
the Second Agreement had expired on 31.03.2016. The appellant,
having invested significant time and resources, was dismayed by the
respondent’s claim that the Second Agreement expired on 31.03.2016.
This was contradictory, as the respondent continued to request
modified reports and received submissions from the appellant between
2016 and 2018 without mentioning the expiration or non-extension of
the Agreement.
ARBITRAL PROCEEDINGS:
13. In a nutshell, the appellant via letter dated 02.04.2018,
demanded payment for two invoices totalling Rs. 16,43,506/-, dated
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04.04.2016 and 19.01.2018. Upon the respondent’s rejection of these
claims without valid justification, the appellant invoked the arbitration
clause under Clause (14) of the Second Agreement. The Respondent
subsequently appointed the Learned Arbitrator, and the dispute was
referred to arbitration vide letter dated 03.10.2018.
14. The learned Arbitrator, after reviewing the parties’ submissions
and hearing their arguments, determined the respondent’s liability on
merits and rendered an award of Rs. 47,48,350/- in favour of the
appellant on 11.02.2020. The learned Arbitrator held that the
respondent failed to provide necessary information regarding the Units
covered by M/s Datamation and misrepresented key project details in
the EOI leading to frustration of the contract. The learned Arbitrator
concluded that the terms of the EOI were impossible to be adhered to
due to the respondent’s concealment of relevant facts and data. The
Award includes a detailed explanation of the reasoning and the
calculation of the awarded amount. It would be apposite to reproduce
the reasoning and conclusions determined by the learned Arbitrator
hereunder: –
―14. REASONING AND CONCLUSIONS
(A) M/s CERPA has informed in writing twenty nine points
with regard to the project and its outcome and following issues
were raised:
a) CERPA was not paid for 2.5 years from the date of
commissioning of the project due to non-workability of the
contract dated 11.08.2013.
b) The rate was quoted based on the assumptions that it will get
22.5 lakhs per annum with some additions or deletions of total
amount with standard variation of 5-10% either side.
c) List with name/addresses and relevant details for 8000 units will
be provided by NMPB and work will be commenced immediately.
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d) All the 8000 units will submit required information with
reference to the notifications dated 09 July 2008.
e) NMPB misrepresented and misguided the actual manufacturing
units of ASU products.
f) Misrepresentation/misguidance created by NMPB, resulted into
increase of work load and increase in expenses incurred.
g) This has resulted in actual reduction of the project worth to less
than 50% of the actual cost the project, projected.
h) NMPB did not consider the additional work of building up a
directory as a part of contract, where as it is an ancillary to the
main project contracted.
i) CERPA vide its letter 18.11.2014, 04.12.2014 and 18.12.2014
submitted their experience and informed that they have incurred an
expenditure of Rs.88 lakhs till that time and not received any
amount from NMPB.
j) After hard work of 3 years it is realized that total number of units
functional is only 2887 and not 8000 units CERPA has informed
that the unit rate of Rs. 225 is not workable and it should be 750
per schedule as the volume of work is less than 30% of the total
volume.
k) On the basis of CERPAS’ efforts in making a non-viable project
into viable NMPB has extended the project beyond the specified
period for another two years i.e. 2013-14 and 2014-15 and
extended the contract which is not there in the EOI or in the
agreements.
l) Re-contracting is suggested by CERPA under the aegis of the
honourable Arbitrator and to extend the project till 31.12.2018 to
recover the losses.
m) In the end CERPA has submitted bills on dated 19.01.2018 for
Rs. 1273986.00 for consideration.
n) They also submitted a letter of compromising by stating that the
issue can be closed by making payments of Rs. 10,00,000 as final
payments for closing the project.
o). Prayer
To settle the issue by learned Arbitrator to allow payment
for each year against the sanctioned budget of Rs. 22.5 lakhs or as
appropriate and adequate keeping in view work performance and in
the light of cost incurred to the tune of Rs. 88 lakhs up to
18/12/2014 and additional after that or increase the unit rate to Rs.
750/- as requested in the letter prior to engaging into the agreement
dated 22/7/2015.
(B) Accordingly the sole arbitrator gave the award as follows:
NMPB so far has processed and considered payments of
12,075 schedules till March 2016 against minimum assured 30,000
schedules as per terms and conditions of the EOI. It is ordered toSignature Not Verified
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pay amount remaining 17.925 schedules as per the approved slab
rates on yearly basis as per the letter dated A-11019/53/2011-
NMPD (FTS), dated 26/0/2013.‖PROCEEDINGS BEFORE THE LEARNED SINGLE JUDGE:
15. Being aggrieved by the Award, the respondent preferred a
petition under Section 34 of the Act, seeking to set aside the Award,
alleging it was patently illegal, contained errors apparent on the face
of the record, violated substantive Indian law and principles of natural
justice, and contradicted the express provisions of the Contract. The
respondent contended that the learned Arbitrator failed to consider its
submissions adequately.
16. Suffice it to state that the respondent argued before the Learned
Single Judge that the Arbitral Tribunal, while allowing the appellant’s
claims, failed to consider the respondent’s submissions, misinterpreted
the contract terms, and issued an Award of Rs. 47,48,350/- without a
speaking order. Conversely, the appellant, relying on a series of
judgments, contending that the powers of a court under Section 34 of
the Act are narrow and limited. The appellant avers that since the
Award was supported by cogent reasoning, it did not warrant
interference. The impugned order was passed and the Arbitral Award
was set aside. The operative portion of the impugned judgment/order
dated 03.06.2022 of the learned Single Judge is reproduced below: –
―29. The award shows that the Arbitrator had highlighted the
failures and limitations experienced by the respondent while
working on the project, who had alleged that the petitioner failed to
resolve / clarify the issues raised at the time of finalization of
agreement which resulted into delay for more than one year;
petitioner had no authority / jurisdiction over the State Drug
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8000 ASU Licence Manufacturing Units; for 03 years
documentation as per the EOI and agreement, projected budget was
Rs. 67.50 lakhs, while the respondent already incurred an
expenditure of Rs. 88.00 lakhs, which included posting of
registered letters to more than 10000 units, salaries to the staff,
rent, hiring of experts etc; it had informed the petitioner that it
would not be feasible for it to work in the light of reduced work
load to less than 40% and requested it to increase the rate to Rs.
750/- per unit and fix the terminal date as 31.03.2015 with
marginal extension of time by not including new schedules into
data sheet as on 28.02.2015 but it is equally settled law that the
Arbitrator and the parties are bound by the terms of the agreement /
contract, which clearly provided that the payment was to be made
as per clause 9 & 10 of the agreement. As evident from the record,
the petitioner had made the payment on the commutative
performance on the approved rates against the bills / invoices
raised by the respondent from time to time.
30. In the impugned award, the Arbitrator has discussed the
stand of the respondent to the various issues and the cause of
dispute, which finds mention that the respondent had submitted
invoice vide letter dated 02.04.2018 requesting the petitioner to
release payments in respect of two invoices dated 04.04.2016 and
19.01.2018 for Rs. 3,69,520/- and Rs. 12,73,986/- respectively; the
petitioner had agreed to release the pending payment of Rs.
3,69,520/- against the invoice raised for the period from February
2016 to March 2016 subject to the acceptance of the final report
and Directory, it had however refused to consider the payments of
Rs. 12,73,986/- alleging that the schedules were received after
31.03.2018 i.e. closure of contract.
31. Question now arises, when the dispute was over the
payment of Rs. 12,73,986/- against the schedules received after
31.03.2018, then on what basis, the Arbitrator made the
calculations as seen in Para 15. He took the number of schedules as
6000 for all the years i.e. 2010-11 to 2014-15 without verifying the
schedules / work executed by the respondent. In para 14 (B) of the
award, he has observed that the petitioner has so far processed /
considered the payment for 12075 schedules till March 2016
against minimum assured schedules as per the terms & conditions
of EOI. He accordingly directed to pay the amount for the
remaining 17925 schedules as per the approved slab rates on yearly
basis. The agreement entered by the parties nowhere provided the
minimum assured 30000 schedules. In the impugned award, the
Arbitrator did not assign any cogent reason for making this
assessment/ calculation, which is against the consonance of Section
34 of the Act being perverse and arbitrary. It is patently illegal
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going to the root of the matter. It has been held in the case of
Associate Builders Vs. Delhi Development Authority, (2015) 3 SCC
49 that the award can be set aside if it is so unfair and unreasonable
that it shocks the conscience of the Court. Such award is opposed
to the public policy and is required to be adjudged void.
32. It may be true that the petitioner did not take any
administrative / legal action against the respondent nor
imposed any fine despite, when it did not fulfill the contract,
rather, made the payments; ideally, the project should have
been closed and fresh bid should have been called for the
future work, and it extended the period of data collection of
another two years i.e. 2013-14 & 2014-15 by granting extension
upto 31.03.2016 by entering into fresh agreement on 22.07.2015
but it was for the petitioner to decide whether to close the
contract or extend the contract or enter into fresh agreement
and no interference is called for.
33. On perusal, I find that in the impugned award, the
Arbitrator has discussed the doctrine of frustration under
Section 56 of the Indian Contract Act. In the instant case, both
the parties were at fault. This might have been the reason for
the petitioner not claiming any compensation. The agreements
were signed by the parties on mutually agreed terms after
assessing the scope of work without any compulsion. The
petitioner had extended the time period. After the first
contract, the parties had entered into another contract. There
is nothing on record to show that the respondent was forced to
sign the contract as alleged. I am not in agreement with the
contention of the petitioner that there was no performance on
the part of the respondent or the purpose of the study got
frustrated. Had it been so, what made the petitioner extend the
contract or enter into another contract with the respondent.
34. To sum up, on a careful consideration on the touchstone of
the provisions under Section 34 of the Act, I am of the opinion that
the Arbitrator exceeded his jurisdiction. He went beyond the terms
& conditions of the contract and passed the award without giving
any cogent reason, which is against the fundamental policy of
India. I am in agreement with the contention of the petitioner that
the Arbitrator erroneously awarded the amount on presumption /
assumptions.
35. Admittedly, the award has been passed by an expert being a
Medical Superintendent but no expertise was required for passing
this award. It was mainly based on the contract.
36. As regards the contention that the contract was closed
retrospectively, record reveals that in the meeting held on
14.05.2015, the respondent was granted time upto 31.03.2016
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There is nothing on record to indicate that the contract was closed
retrospectively. Since, in the instant case, there was no extension of
contract, the contract was treated as closed on 31.03.2016.
37. In the light of what has been stated above, I am of the view
that the award passed by the Arbitrator is perverse and patently
illegal being in contravention of the principles of natural justice
and settled principles of law as provided under Section 34 of the
Act.
38. The impugned award dated 20.11.2019 is therefore set
aside under Section 34 (2) (a) (iii) and Section 34 (2A) of the Act
being vitiated by patent illegality appearing on the face of the
award, as elicited in details herein above. The petition is
accordingly allowed. The parties are left to bear their own costs.‖
SUBMISSIONS ADVANCED AT THE BAR:
17. Learned counsel for the appellant has mainly urged that the
arbitral award has been rendered by a mutually appointed expert
arbitrator with specialized knowledge in the field of medicine and the
subject project, which is well-reasoned and based on the material
evidence on record. It was urged that the arbitrator’s expertise and
impartiality, coupled with the procedural agreement between the
parties, mandated deference to the Award, which the Learned Single
Judge failed to observe. Furthermore, the Learned Single Judge
erroneously concluded that the Award was patently illegal,
overlooking the detailed reasoning provided by the arbitrator and
disregarding the settled legal principle that an arbitral award issued by
an expert in the field is not to be scrutinized as strictly as a decision by
a legally trained adjudicator. Consequently, it is submitted that the
Impugned Order setting aside the Arbitral Award is erroneous,
unsustainable in law and liable to be set aside.
18. Learned counsel for the appellant has placed reliance on the
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Company Ltd. v. National Highways Authority of India1 and
which underscores the limited scope of judicial interference under
Section 34 of the Act. The Apex Court emphasized that an award
rendered by a technically expert arbitrator, relying on its specialized
knowledge and experience in the subject matter, should not be lightly
interfered with by appellate courts. Contrary to this well-settled
principle, the learned Single Judge, in paragraph (35) of the impugned
judgment, disregarded the expertise of the Arbitrator by stating,
“Admittedly, the award has been passed by an expert being a Medical
Superintendent, but no expertise was required for passing this award.”
Such an observation undermines the arbitrator’s specialized role and
the parties’ mutual agreement to appoint an expert arbitrator.
ANALYSIS AND DECISION:
19. We have given my thoughtful consideration to the submissions
advanced by the learned counsel for the parties at the bar and we have
also perused the relevant record of the case.
20. First things first, it would be apposite to refer to the provisions
of Section 34 & 37 of the Act, which provisions read as under:
―34. Application for setting aside arbitral award. -(1) Recourse
to a Court against an arbitral award may be made only by an
application for setting aside such award in accordance with sub-
section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if-
(a) the party making the application establishes on the basis of the
record of the arbitral tribunal that-
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law to which
the parties have subjected it or, failing any indication thereon,
under the law for the time being in force; or1 (2024) 2 SCC 613
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(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 1.–For the avoidance of any doubt, it is clarified that
an award is in conflict with the public policy of India, only if,-
(i) the making of the award was induced or affected by fraud or
corruption or was in violation of Section 75 or Section 81; or
(ii) it is in contravention with the fundamental policy of Indian law;
or
(iii) it is in conflict with the most basic notions of morality or
justice.
Explanation 2.–For the avoidance of doubt, the test as to whether
there is a contravention with the fundamental policy of Indian law
shall not entail a review on the merits of the dispute.
(2-A) An arbitral award arising out of arbitrations other than
international commercial arbitrations, may also be set aside by
the court, if the court finds that the award is vitiated by patent
illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the
ground of an erroneous application of the law or by
reappreciation of evidence.
(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:
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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.
37. Appealable orders.–(1) (Notwithstanding anything contained
in any other law for the time being in force, an appeal) shall lie
from the following orders (and from no others) to the court
authorised by law to hear appeals from original decrees of the
Court passing the order, namely:–
((a) refusing to refer the parties to arbitration under Section 8;
(b) granting or refusing to grant any measure under Section 9;
(c) setting aside or refusing to set aside an arbitral award under
Section 34.)
(2) An appeal shall also lie to a court from an order of the arbitral
tribunal–
(a) accepting the plea referred to in sub-section (2) or sub-section
(3) of Section 16; or
(b) granting or refusing to grant an interim measure under Section
17.
(3) No second appeal shall lie from an order passed in appeal under
this section, but nothing in this section shall affect or take away
any right to appeal to the Supreme Court.‖
[Bold Emphasis Supplied]
21. On a careful perusal of Section 34 of the Act, it is clear that an
arbitral award can only be set aside by moving an application on
grounds mentioned under sub-section (2) and sub-section (3) of
Section 34 of the Act. An award can be interfered with where it is in
conflict with the public policy of India, i.e., if the award is induced or
affected by fraud or corruption or is in contravention of the
fundamental policy of Indian law, or if it is in conflict with basic
notions of morality and justice.
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22. A plain reading of Section 34 reveals that the scope of
interference by the Court with the arbitral award under Section 34 is
very limited, and the Court is not supposed to travel beyond the
aforesaid scope to determine whether the award is good or bad. Even
an award that may not be reasonable or is non-speaking to some extent
cannot ordinarily be interfered with by the Courts. It is also well
settled that even if two views are possible, there is no scope for the
Court to reappraise the evidence and take a different view from that
taken by the arbitrator.
23. It is also a well settled proposition in law that the jurisdiction of
the Court under Section 34 of the Act is neither in the nature of an
appellate remedy or akin to the power of revision. It is also well
ordained in law that an award cannot be challenged on merits except
on the limited grounds that have been spelt out in sub-sections (2), (2-
A) and (3) of Section 34 of the Act, by way of filing an appropriate
application.
24. There is no gainsaying that the impugned arbitral award has
been set aside by the learned Single Judge in terms of the explanation
clause to sub-section (2-A). The view taken by the arbitrator is
normally acceptable and ought to be allowed to prevail. Insofar as
Section 37 of the Act is concerned, it provides for a forum of
appeal against the order setting aside or refusing to set aside an
arbitral award under Section 34 of the Act. There is no gainsaying that
the scope of appeal is naturally akin to and limited to the grounds
enumerated in Section 34 of the Act.
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25. Avoiding a long academic discussion, the Supreme Court in the
case of MMTC Ltd. v. Vedanta Ltd.2, outrightly rejected the plea
that the appellate court would be competent to arrive at a different
conclusion based on the evaluation of evidence placed on the record.
It was held that the court cannot undertake an independent assessment
of the merits of the award, and must only ascertain that the exercise of
power by the court under Section 34 has not exceeded the scope of the
provision. Further, in the case of NHAI v. M. Hakeem3, the Supreme
Court held that there is no power vested with the Court under Section
34 of the Act to modify an award. It was emphasized that including
the power to modify an award in Section 34 of the Act would cross
the Lakshman Rekha and result in doing what, according to the justice
of the case, ought not to be done. It was held that the Parliament very
clearly intended that no power of modification of an award should be
recognised to exist in Section 34 of the Act.
26. That being the scope and ambit of the powers of this Court, we
may further briefly elaborate on how the expression ―the public policy
of India‖ contained in Section 34(2)(b)(ii) of the Act is to be
construed. The Supreme Court in the case of ONGC Ltd. v. Saw
Pipes Ltd.4 had explained that expression as under:
“31. Therefore, in our view, the phrase ―public policy of India‖
used in Section 34 in context is required to be given a wider
meaning. It can be stated that the concept of public policy connotes
some matter which concerns public good and the public interest.
What is for public good or in public interest or what would be
injurious or harmful to the public good or public interest has varied2
(2019) 4 SCC 163
3 (2021) 9 SCC 1
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from time to time. However, the award which is, on the face of
it, patently in violation of statutory provisions cannot be said to
be in public interest. Such award/judgment/decision is likely to
adversely affect the administration of justice. Hence, in our view
in addition to narrower meaning given to the term ―public policy‖
in Renu Sagar case [Renu agar Power Co. Ltd. v. General Electric
Co., 1994 Supp (1) SCC 644] it is required to be held that the
award could be set aside if it is patently illegal. The result would be
— award could be set aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality; or
(d) in addition, if it is patently illegal. [EMPHASIS SUPPLIED]
27. Again, avoiding a long academic discussion, the said expression
came to be discussed in a recent decision of the Supreme Court in
S.V. Samudram v. State of Karnataka5, approving its earlier
decision in Associate Builders v. DDA6 (two-Judge Bench), wherein
it was held that an award can be said to be against the public policy of
India, inter alia, in the following circumstances:
―42.1. When an award is, on its face, in patent violation of a
statutory provision.
42.2. When the arbitrator/Arbitral Tribunal has failed to adopt a
judicial approach in deciding the dispute.
42.3. When an award is in violation of the principles of natural
justice.
42.4. When an award is unreasonable or perverse.
42.5. When an award is patently illegal, which would include an
award in patent contravention of any substantive law of India or in
patent breach of the 1996 Act.
42.6. When an award is contrary to the interest of India, or against
justice or morality, in the sense that it shocks the conscience of the
Court.‖5
(2024) 3 SCC 623
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28. Coming to the main issue as to what constitutes a patent
illegality, the Supreme Court in the case of Delhi Airport Metro
Express (P) Ltd. v. DMRC7, held as under:
“29. Patent illegality should be illegality which goes to the root of
the matter. In other words, every error of law committed by the
Arbitral Tribunal would not fall within the expression ―patent
illegality‖. Likewise, erroneous application of law cannot be
categorized as patent illegality. In addition, contravention of law
not linked to public policy or public interest is beyond the scope of
the expression ―patent illegality‖. What is prohibited is for Courts
to reappreciate evidence to conclude that the award suffers from
patent illegality appearing on the face of the award, as Courts do
not sit in appeal against the arbitral award. The permissible
grounds for interference with a domestic award under Section
34(2-A) on the ground of patent illegality is when the arbitrator
takes a view which is not even a possible one, or interprets a clause
in the contract in such a manner which no fair-minded or
reasonable person would, or if the arbitrator commits an error of
jurisdiction by wandering outside the contract and dealing with
matters not allotted to them. An arbitral award stating no reasons
for its findings would make itself susceptible to challenge on this
account. The conclusions of the arbitrator which are based on no
evidence or have been arrived at by ignoring vital evidence are
perverse and can be set aside on the ground of patent illegality.
Also, consideration of documents which are not supplied to the
other party is a facet of perversity falling within the expression
―patent illegality‖.
29. At this juncture, it is pertinent to mention that in the case of
Delhi Airport Metro Express (P) Ltd. (supra), the Supreme Court
addressed the issue wherein the expert members of the Arbitral
Tribunal had concluded that the defects were not cured by the DMRC,
a view later interfered with by the High Court in an application under
section 34 of the Act. The Supreme Court held that the members of
the Arbitral Tribunal, nominated in accordance with the agreed
7 (2022) 1 SCC 131
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procedure between the parties, are engineers, and their award is not
meant to be scrutinized in the same manner as one prepared by legally
trained minds. It was further held that, in any event, it cannot be said
that the view of the Tribunal was perverse. The Supreme Court set
aside the High Court’s decision that the Tribunal’s award on the
legality of the termination notice was vitiated by the vice of
perversity.
30. In another case the Supreme Court in the context of an arbitral
award passed by expert personnel as arbitrators in the case of
Hindustan Construction Co. Ltd. v. NHAI8, held that:
“24. It is quite evident that in most cases, the view of DRPs and
tribunals, and in two cases, majority awards of tribunals, favoured
the arguments of contractors, that composite embankment
construction took place, as a result of which measurement was to
be done in a composite, or unified manner. Dissenting or minority
views, wherever expressed, were premised on separate
measurements. This opinion was of technical experts constituted as
arbitrators, who were versed in contractual interpretation of the
type of work involved; they also had first-hand experience as
engineers who supervised such contracts. When the predominant
view of these experts pointed to one direction i.e. a composite
measurement, the question is what really is the role of the court
under Section 34 of the Act.
25. This Court in Voestalpine Schienen GmbH v. DMRC
[Voestalpine Schienen GmbH v. DMRC, (2017) 4 SCC 665:
(2017) 2 SCC (Civ) 607] commenting on the value of having
expert personnel as arbitrators, emphasised that ―technical aspects
of the dispute are suitably resolved by utilising their expertise
when they act as arbitrators‖. Such an approach was commended
also in Delhi Airport Metro Express (P) Ltd. v. DMRC [Delhi
Airport Metro Express (P) Ltd. v. DMRC, (2022) 1 SCC 131 :
(2022) 1 SCC (Civ) 330] wherein this Court held that : (Delhi
Airport Metro Express case [Delhi Airport Metro Express (P)
Ltd. v. DMRC, (2022) 1 SCC 131 : (2022) 1 SCC (Civ) 330] , SCC
p. 155, para 41)8 (2024) 2 SCC 613
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―41. … The members of the Arbitral Tribunal, nominated
in accordance with the agreed procedure between the
parties, are engineers and their award is not meant to be
scrutinised in the same manner as one prepared by legally
trained minds. In any event, it cannot be said that the view
of the Tribunal is perverse. Therefore, we do not concur
with the High Court’s opinion [DMRC v. Delhi Airport
Metro Express (P) Ltd., 2019 SCC OnLine Del 6562] that
the award of the Tribunal on the legality of the termination
notice is vitiated due to the vice of perversity.‖
26. The prevailing view about the standard of scrutiny — not
judicial review, of an award, by persons of the disputants’
choice being that of their decisions to stand — and not
interfered with, (save a small area where it is established that
such a view is premised on patent illegality or their
interpretation of the facts or terms, perverse, as to qualify for
interference, courts have to necessarily choose the path of least
interference, except when absolutely necessary). By training,
inclination and experience, Judges tend to adopt a corrective
lens; usually, commended for appellate review. However, that
lens is unavailable when exercising jurisdiction under Section
34 of the Act. Courts cannot, through process of primary
contract interpretation, thus, create pathways to the kind of
review which is forbidden under Section 34. So viewed, the
Division Bench’s approach, of appellate review, twice removed, so
to say (under Section 37), and conclusions drawn by it, resulted in
displacing the majority view of the tribunal, and in many cases, the
unanimous view, of other tribunals, and substitution of another
view. As long as the view adopted by the majority was plausible —
and this Court finds no reason to hold otherwise (because
concededly the work was completed and the finished embankment
was made of composite, compacted matter, comprising both soil
and fly ash), such a substitution was impermissible.
27. For a long time, it is the settled jurisprudence of the courts in
the country that awards which contain reasons, especially when
they interpret contractual terms, ought not to be interfered with,
lightly. The proposition was placed in State of U.P. v. Allied
Constructions [State of U.P. v. Allied Constructions, (2003) 7 SCC
396] : (SCC p. 398, para 4)
―4. … It was within his jurisdiction to interpret Clause 47
of the Agreement having regard to the fact-situation
obtaining therein. It is submitted that an award made by an
arbitrator may be wrong either on law or on fact and error
of law on the face of it could not nullify an award. The
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award is a speaking one. The arbitrator has assigned
sufficient and cogent reasons in support thereof.
Interpretation of a contract, it is trite, is a matter for the
arbitrator to determine (see Sudarsan Trading Co. v. State
of Kerala [Sudarsan Trading Co. v. State of Kerala,
(1989) 2 SCC 38] ). Section 30 of the Arbitration Act,
1940 providing for setting aside an award is restrictive in
its operation. Unless one or the other condition contained
in Section 30 is satisfied, an award cannot be set aside.
The arbitrator is a Judge chosen by the parties and his
decision is final. The Court is precluded from reappraising
the evidence. Even in a case where the award contains
reasons, the interference therewith would still be not
available within the jurisdiction of the Court unless, of
course, the reasons are totally perverse or the judgment is
based on a wrong proposition of law.‖
28. This enunciation has been endorsed in several cases
(Ref. McDermott International Inc. v. Burn Standard Co.
Ltd. [McDermott International Inc. v. Burn Standard Co. Ltd.,
(2006) 11 SCC 181] ). In MSK Projects (I) (JV) Ltd.v. State of
Rajasthan [MSK Projects (I) (JV) Ltd. v. State of Rajasthan, (2011)
10 SCC 573 : (2012) 3 SCC (Civ) 818] it was held that an error in
interpretation of a contract by an arbitrator is ―an error within his
jurisdiction‖. The position was spelt out even more clearly
in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC
49 : (2015) 2 SCC (Civ) 204] , where the Court said that :
(Associate Builders case [Associate Builders v. DDA, (2015) 3
SCC 49 : (2015) 2 SCC (Civ) 204] , SCC p. 81, para 42)
―42. … 42.3. … if an arbitrator construes a term of the
contract in a reasonable manner, it will not mean that
the award can be set aside on this ground.
Construction of the terms of a contract is 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.‖ {Bold portions emphasized}
31. In view of the aforesaid proposition of law, reverting to the
instant matter, we are unable to persuade ourselves to agree with the
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of the impugned arbitral award dated 11.02.2020 would show that the
arbitration was conducted by the Medical Superintendent of the
CGHS9 Ayurvedic Hospital, appointed in terms of the contract
between the parties. The Arbitral Tribunal, after considering the
respective contentions of parties, found that in the first place the
respondent was clearly at fault. This was because, under the terms of
agreement dated 17.08.2013 and entered into on 21.10.2013, the work
order was issued on 05.12.2013, just 25 days prior to the expiry of the
project during its extendable period and without adhering to the terms
and conditions laid down in the EOI.
32. In other words, although the EOI extension beyond March 2013
was subject to performance based quarterly reviews, the same could
not be exercised because of an unviable EOI. It was determined that,
as per the agreement dated 17.08.2013, the validity of the contract was
for a period of one year, i.e., October 2014, and extendable up to
December 2014, contingent on performance reviews conducted
quarterly,) as per the terms and conditions outlined in the NMPB10
letter dated 26.09.2013. Although this contradicted the EOI specified
tenure period, the work was performed by the appellant. It was
observed by the Arbitral Tribunal that the appellant submitted its first
bill dated 30.09.2014 for Rs. 6,25,452/- and till 18.12.2014 the
appellant received 3457 schedule T-1 for 2010-11, 2011-12, 2012-13
and 2013-14 from 1257 ASU manufacturing units.
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33. The crux of the matter is that despite there being no official
communication from NMPB stating their intention to extend the
period of the contract beyond 31.03.2014 or providing for grace
period till the end of December, 2014, the benefit of the work
performed by the appellant was taken by the respondent. The position
came to be expressed in the letter to the NMPB dated 18.12.2014
wherein inter alia it was pointed out that for three years of
documentation as per the EOI and agreement as against projected
budget of Rs. 67.50 lacs, the appellant had already incurred
expenditure of Rs. 88 lacs, which were intimated to the NMPB
through its letter.
34. At the cost of repetition, the benefit of the work performed by
the appellant was evidently taken by the NMPB for its official
businesses. As a matter of fact, it was observed that NMPB had not
taken any administrative or illegal action against the appellant and had
also paid Rs. 10,76,325/- to the appellant on 31.03.2015 without
adhering to the procedure laid down in the agreement.
35. Consequently, the Arbitral Tribunal, presided over by an
experienced Medical Officer-cum-Administrator, found, based on the
evidence, that by 30.04.2015, the appellant had received 4,498
schedules from 1,601 manufacturing units. Furthermore, 17 Drug
Controllers had shared the contract details of ASU manufacturers. It
was clearly established that the appellant was compelled to continue
with the project despite numerous irregularities and delays on the part
of the respondent. Accordingly, the Arbitral Tribunal determined the
respondent’s liability based on the merits, noting the following effect:
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―13. Determination of the liability of the Respondent based on
merit:
NMPB has not provided information to CERPA regarding how
many firms were covered by M/s Datamation during the year 2010-
11 and how many were not covered as per the EOI and signed
agreements. Data available suggests that not even one single
schedule was provided by DATAMATION to CERPA through
NMPB as per EOI. NMPB has not provided real inputs in the EOI
thus misrepresented and misguided the bidder ie. CERPA. NMPB
did not consider the additional work of building up a director as a
part of contract, where as it is an ancillary to the main project
contracted. It has put conditions in the EOI which are frustrating
and an act impossible in itself is void. This is the reason NMPB has
not penalised the consultant CERPA rather in appreciation it has
not only extended the project duration but also increased the period
of data collection for 2 more years. This is in violation of EOI,
Signed agreement and GFR rules 160 (x) and (xii). NMPB has also
not taken care of the GFR Rules 167, 170. Rather the consultant
M/s CERA has helped, full filed and delivered result in accordance
with the Rule 170 to NMPB.
CERPA was not only given time during the first agreement period
(to collect schedules till Dec.2013 related to the financial year
2012-13 meant for upto 31-3-2013) but also granted time period
upto March 2014 for furnishing the data base of information and
submission of reports and also considered the payments after
completion of the validity. NMPB has extended the project beyond
March 2014 and granted time period upto March 2016 and also
desired to collect data for two more years ie. 2013-14 and 2014-15
by CERPA. This action has forced CREPA to do all the exercise
what it has done till 2014 as one more time repeat. This has led to
additional expenditure to CREPA by way of contacting the firms,
writing letters to firms and posting letters to firms. The evidence
was provided to the arbitrator in the form of bundles of speed post
receipts posted during December 2015 and January 2016. The
opportunistic cost incurred for this work by CREPA is much more
than the price per unit offered by the NMPB. CERPA was of the
opinion that like in first phase the second phase work will also be
considered and payments will be made accordingly. But
unfortunately NMPB has decided other wise and terminated the
contract on 31-3-2016 retrospectively on 19-2-2018 almost after
the expiry of 2 years short of 22 days.
opinion that like in first phase the second phase work will also be
considered and payments will be made accordingly. But
unfortunately NMPB has decided other wise and terminated the
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contract on 31-3-2016 retrospectively on 19-2-2018 almost after
the expiry of 2 years short of 22 days.
NMPB has the right being the payee to the project to extend the
validity period at the existing terms and conditions, cancel the
contract or terminate the proceedings but will do as per the EOI or
signed agreement. With this authority NMPB has decided that no
further extension for the contract to be given to CERPA and the
same has communicated on 14th December 2016 and accordingly
processing of any schedule TA after 31st March 2016 are not
admissible to be paid. This is contrary to the agreement signed on
21/10/2013 where it has given considerable time and permission to
collect the schedules and to process the same, but still NMPB has
the prerogative to take decision as it wishes, but while taking the
decision only one condition cannot be picked and applied which
suits to them it has to consider other conditions laid down in the
agreements, which are applied to either party since it is written and
signed agreement on non Judicial stamp paper.
.
In the agreement of EOI under clause 10 Terms and Conditions sub
clause (v) the agency has to ensure 500 pharmacy schedules per
month which is equal to 5x12x500-30,000 schedules for 5 years. If
the agency fails to do this job there is penalty of Rs. 200 per month
per pharmacy. In other words NMPB ensures payment for
minimum 30,000 schedules at the end of the contract whether it is
there or not and accordingly the budgetary provisions are provided
in the contract. This clause is like the penalty clause between the
buyer and builder in case of a project where a house is to be
constructed. For delay in payments buyer will pay the penalty and
for delay in delivery time the contractor will pay the penalty as per
the terms and conditions of the agreement. In the instant case it is
ensuring the number of schedules or units between the parties is
one of the core terms and conditions of the agreement. The total
process of working on this project is deviated from the core terms
and conditions signed between the parties.‖
36. The Arbitrator finally accorded the following reasoning and
conclusions:
“14. REASONING AND CONCLUSIONS:
(A) M/s CERPA has informed in writing twenty nine points with
regard to the project and its outcome and following issues were
raised:
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a) CERPA was not paid for 2.5 years from the date of
commissioning of the project due to non workability of the
contract dated 17.08.2013.
b) The rate was quoted based on the assumptions that it
will get 22.5 lakhs per annum with some additions or
deletions of total amount with standard variation of 5-10%
either side.
c) List with name/addresses and relevant details for 8000
units will be provided by NMPB and work will be
commenced immediately.
d) All the 8000 units will submit required information
with reference to the notifications dated 09 July 2008.
e) NMPB misrepresented and misguided the actual
manufacturing units of ASU products.
f) Misrepresentation/ misguidance created by NMPB,
resulted into increase of work load and increase in
expenses incurred.
g) This has resulted in actual reduction of the project
worth to less than 50% of the actual cost the project,
projected.
h) NMPB did not consider the additional work of building
up a directory as a part of contract, where as it is an
ancillary to the main project contracted.
i) CERPA vide its letter 18.11.2014, 04.12.2014 and
18.12.2014 submitted their experience and informed that
they have incurred an expenditure of Rs.88 lakhs till that
time and not received any amount from NMPB.
j) After hard work of 3 years it is realized that total
number of units functional is only 2887 and not 8000 units
CERPA has informed that the unit rate of Rs. 225 is not
workable and it should be 750 per schedule as the volume
of work is less than 30% of the total volume.
k) On the basis of CERPAS efforts in making a non-viable
project into viable NMPB has extended the project beyond
the specified period for another two-years i.e. 2013-14 and
2014-15 and extended the contract which is not there in
the EOI or in the agreements.
l) Re-contracting is suggested by CERPA under the aegis
of the honourable Arbitrator and to extend the project till
31.12.2018 to recover the losses.
m) In the end CERPA has submitted bills on dated
19.01.2018 for Rs. 1273986.00 for consideration.
n) They also submitted a letter of compromising by stating
that the issue can be Closed by making payments of Rs.
10,00,000 as final payments for closing the project.‖
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37. A careful review of the aforenoted observations reveals that the
Arbitral Tribunal, appointed pursuant to Clause (14 )of the agreement
dated 22.07.2015, meticulously examined the entire record. The
Tribunal, comprising of an expert in the field found that despite
shortcomings on both parties and delays in completion of the contract
work beyond the period specified in the EOI, the appellant had
performed the requisite work. Based on the EOI/TOR for the years
2010-11, 2011-12, 2012-13, 2013-14, and 2014-15, the Tribunal
determined that the appellant was entitled to receive ₹51,00,000/-.
After deducting the excess amount paid (₹6,74,375/-), the final
payable amount was calculated to be ₹47,48,350/-.
38. In essence, the Arbitral Tribunal provided plausible reasons for
allowing the appellant’s claim. Although an alternative view could be
formed based on the evidence, particularly considering that the
agreement was not explicitly extended beyond December 2014, the
Tribunal’s decision was implicitly grounded on the principle of “unjust
enrichment”, the Tribunal held that the work executed by the
appellant, despite certain delays, fulfilled the respondent’s
requirements. To disregard this opinion and arrive at a different
conclusion, as done by the learned Single Judge of this Court, would
be equivalent to sitting in appeal over the Arbitral Tribunal’s decision,
which is not permissible. It cannot be said that the Arbitral Tribunal’s
decision was contrary to public policy or detrimental to the
administration of justice.
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39. In light of the foregoing discussion, we find that the impugned
award passed by the expert Arbitral Tribunal did not suffer from the
vice of patent illegality or unconscionability. Therefore, the impugned
Judgment dated 03.06.2022, passed by the learned Single Judge of this
Court, is flawed and cannot be sustained in law.
40. Accordingly, the impugned judgment dated 03.06.2022, passed
by the learned Single Judge in OMP (COMM) 79/2020, is hereby set
aside. Consequently, the award passed by the Arbitral Tribunal
on11.02.2020 is upheld and affirmed to be sustainable and executable
in law.
41. The present appeal under Section 37 of the Act is accordingly
allowed, and the appellant is held entitled to the reliefs as granted to it
by the Arbitral Tribunal.
42. In the peculiar facts and circumstances of the case, the parties
are left to bear their own costs.
YASHWANT VARMA, J.
DHARMESH SHARMA, J.
JANUARY08, 2025
Sadiq
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