# ASSOCIATE BUILDERS v. DELHI DEVELOPMENT AUTHORITY

- **Citation:** [2014] 13 S.C.R. 895
- **Court:** Supreme Court of India
- **Decided:** 2014-11-25
- **Case number:** Civil Appeal No.10531of2014
- **Bench:** RANJAN GOGOi, ROHINTON FALi NARIMAN
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/associate-builders-v-delhi-development-authority-29660
- **Pages:** 62

## Headnote

Arbitration and Conciliation Act, 1996:
A
B
ss. 5 and 34(2) and (3) - Arbitral award - Judicial C
intervention with - Scope of-Award of arbitrator- In favour
of the appellant-contractor- Upheld by Single Judge of High
Court -
Division Bench of High Court in exercise of
jurisdiction uls.34 setting aside the order of Single Judge
negating four of the claims of the contractor in toto and scaling D
down three of the claims - On appeal, held: An arbitration
award can be set qside only on the grounds mentioned u/
s.34(2) and (3) - None of the grounds contained in subclause 2(a) of the Act deal with the merits of the decision
rendered by the arbitral award - It is only when the award is in E
conflict with the public policy of India that the merits of an
arbitral award are to be looked into under specified
circumstances -
The Division Bench of High Court in
exercise of its jurisdiction u/s. 34 has exceeded its jurisdiction F
by interfering with the possible view of arbitrator on the facts
-Arbitral award is upheld.
'Public policy'- Meaning of, in the context of Arbitration
and Conciliation Act, 1996 - Discussed.
Words and Phrases- 'Justice' and 'morality' - Meaning G
of.
Allowing the appeal, the Court
HELD: 1. Section 34 in conjunction with s.5 of the
Arbitration and Conc.iliation Act, 1996, makes it clear that H
895
896
SUPREME COURT REPORTS
[2014] 13 S.C.R.
A an arbitration award that is governed by part I of the Act,
can be set aside only on the grounds mentioned under
Section 34 (2) and (~), and not otherwise. None of the
gnJunds conta'ined in sub-clause 2 (a) deal with the
merits of the decision rendered by an arbitral award. It
B is only when the award is in conflict with the public
policy of India that the merits of an arbitral award are to
be looked into under certain specified circumstances.
[Para 12][915-C-D; G-H; 916-A]
c
D
E
F
Renusagar Power Co. Ltd. v. General Electronic
Co. 1993 (3) Suppl. SCR 22: 1994Supp (1) SCC
644; ONGC v. Saw Pipes 2003 (3) SCR 691 :
2003 (5) SCC 705; Hindustan Zinc Ltd. v. Friends
Coal Carbonisation (2006) 4 SCC 445;
McDermott International Inc. v. Burn Standard Co.
Ltd. 2006 (2) Suppl. scR 409 : (2006) 11 sec
181; Centro trade Minerals & Metals Inc. v.
Hindustan Copper Ltd. 2006 (2) Suppl. SCR 146
: (2006) 11 SCC 245; ODA v. R.S. Sharma and
co. 2008 (12) scR 785: (2008} 13 sec 80; J.G.
Engineers (P) Ltd. v. Union of India 2011 (8)
SCR 486 : (2011) 5 SCC 758; Union of India v.
Col. L.S.N. Murthy2011 (13) SCR 295: (2012) 1
sec 718 - relied on.
2. Violation of the Foreign Exchange Act and
disregarding orders of superior courts in India would be
regarded as being contrary to the fundamental policy of
Indian law. The binding effect of the judgment of a
G superior court being disregarded would be equally
violative of the fundamental policy of Indian law. The
juristic principle of a "judicial approach" demands that
a decision be fair, reasonable and objective. On the
obverse side, anything arbitrary and whimsical would
H obviously not be a deter_mination which would either be
ASSOCIATE BUILDERS v. DELHI DEVELOPMENT
897
AUTHORITY
fair, reasonable or objective. The Audi Alteram Partem A
principle which undoubtedly is a fundamental juristic
principle in Indian law is also contained in Sections 18
and 34 (2) (a) (iii) of the Arbitration and Conciliation Act.
A decision which is perverse or so irrational that no
reasonable person would have arrived at the same, is B
. important and requires some degree of explanation. It is
settled law that where - a finding is based on no
evidence, or an arbitral tribunal takes into account
something irrelevant to the decision which it arrives at;
or ignores vital evidence in arriving at its decision, such c
decision would necessarHy be perverse. The other
ground on which an award may be set aside is that it is
contrary to the interest of India. [Para 12][925-C-D;
928-A-C; F-H; 931-A]
ONGC Ltd. v. Western Geco International Ltd.
D
2014 (9) SCC 263; H.B. Gandhi, Excise and

## Text

_Characters 0–39,083 of 104,518. This is a partial read: ask again with offset=39083 for what follows._

[2014] 13 S.C.R. 895
ASSOCIATE BUILDERS
v.
DELHI DEVELOPMENT AUTHORITY
(Civil Appeal No.10531of2014)
NOVEMBER 25, 2014.
[RANJAN GOGOi AND ROHINTON FALi NARIMAN, JJ.]
Arbitration and Conciliation Act, 1996:
A
B
ss. 5 and 34(2) and (3) - Arbitral award - Judicial C
intervention with - Scope of-Award of arbitrator- In favour
of the appellant-contractor- Upheld by Single Judge of High
Court -
Division Bench of High Court in exercise of
jurisdiction uls.34 setting aside the order of Single Judge
negating four of the claims of the contractor in toto and scaling D
down three of the claims - On appeal, held: An arbitration
award can be set qside only on the grounds mentioned u/
s.34(2) and (3) - None of the grounds contained in subclause 2(a) of the Act deal with the merits of the decision
rendered by the arbitral award - It is only when the award is in E
conflict with the public policy of India that the merits of an
arbitral award are to be looked into under specified
circumstances -
The Division Bench of High Court in
exercise of its jurisdiction u/s. 34 has exceeded its jurisdiction F
by interfering with the possible view of arbitrator on the facts
-Arbitral award is upheld.
'Public policy'- Meaning of, in the context of Arbitration
and Conciliation Act, 1996 - Discussed.
Words and Phrases- 'Justice' and 'morality' - Meaning G
of.
Allowing the appeal, the Court
HELD: 1. Section 34 in conjunction with s.5 of the
Arbitration and Conc.iliation Act, 1996, makes it clear that H
895
896
SUPREME COURT REPORTS
[2014] 13 S.C.R.
A an arbitration award that is governed by part I of the Act,
can be set aside only on the grounds mentioned under
Section 34 (2) and (~), and not otherwise. None of the
gnJunds conta'ined in sub-clause 2 (a) deal with the
merits of the decision rendered by an arbitral award. It
B is only when the award is in conflict with the public
policy of India that the merits of an arbitral award are to
be looked into under certain specified circumstances.
[Para 12][915-C-D; G-H; 916-A]
c
D
E
F
Renusagar Power Co. Ltd. v. General Electronic
Co. 1993 (3) Suppl. SCR 22: 1994Supp (1) SCC
644; ONGC v. Saw Pipes 2003 (3) SCR 691 :
2003 (5) SCC 705; Hindustan Zinc Ltd. v. Friends
Coal Carbonisation (2006) 4 SCC 445;
McDermott International Inc. v. Burn Standard Co.
Ltd. 2006 (2) Suppl. scR 409 : (2006) 11 sec
181; Centro trade Minerals & Metals Inc. v.
Hindustan Copper Ltd. 2006 (2) Suppl. SCR 146
: (2006) 11 SCC 245; ODA v. R.S. Sharma and
co. 2008 (12) scR 785: (2008} 13 sec 80; J.G.
Engineers (P) Ltd. v. Union of India 2011 (8)
SCR 486 : (2011) 5 SCC 758; Union of India v.
Col. L.S.N. Murthy2011 (13) SCR 295: (2012) 1
sec 718 - relied on.
2. Violation of the Foreign Exchange Act and
disregarding orders of superior courts in India would be
regarded as being contrary to the fundamental policy of
Indian law. The binding effect of the judgment of a
G superior court being disregarded would be equally
violative of the fundamental policy of Indian law. The
juristic principle of a "judicial approach" demands that
a decision be fair, reasonable and objective. On the
obverse side, anything arbitrary and whimsical would
H obviously not be a deter_mination which would either be
ASSOCIATE BUILDERS v. DELHI DEVELOPMENT
897
AUTHORITY
fair, reasonable or objective. The Audi Alteram Partem A
principle which undoubtedly is a fundamental juristic
principle in Indian law is also contained in Sections 18
and 34 (2) (a) (iii) of the Arbitration and Conciliation Act.
A decision which is perverse or so irrational that no
reasonable person would have arrived at the same, is B
. important and requires some degree of explanation. It is
settled law that where - a finding is based on no
evidence, or an arbitral tribunal takes into account
something irrelevant to the decision which it arrives at;
or ignores vital evidence in arriving at its decision, such c
decision would necessarHy be perverse. The other
ground on which an award may be set aside is that it is
contrary to the interest of India. [Para 12][925-C-D;
928-A-C; F-H; 931-A]
ONGC Ltd. v. Western Geco International Ltd.
D
2014 (9) SCC 263; H.B. Gandhi, Excise and
Taxation Officer-cum-Assessing Authority v. Gopi
Nath & Sons 1992 Supp (2) SCC 312; Ku/deep
Singh v. Commr. of Police 1998 (3) Suppl.
SCR 594: (1999) 2 SCC 10 - relied on.
E
3. If an award is against justice or morality, it is
against public policy. An award can be said to be against
justice only when it shocks the conscience of the court.
Morality, in the context of an arbitral award would mean
the enforcement of an award say for specific F
performance of a contract involving prostitution.
"Morality" would, if it is to go beyond sexual morality
necessarily cover such agreements as are not illegal but
would not be enforced given the prevailing mores of the
day. However, interference on this ground would also G
be only if something shocks the court's conscience.
[Para 12][931-C-D; 934-E-G]
Gherulal Parekh v. Mahadeo Dass Maiya 1959
Supp (2) SCR 406 - referred to.
H
898
SUPREME COURT REPORTS
[2014] 13 S.C.R.
A
4. 'Patent illegality' would also fall under public
policy. 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
B 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. The 'patent illegality'
principle contains three sub heads: (a) a contravention
C 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 is a
0 contravention of Section 28(1 )(a) of the Act; (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
sect.ion 31 (3) of the Act, such award will be liable to be
E set aside; and (c) a contravention of Section 28 (3) of the
Arbitration Act. This last contravention must be
understood with a caveat that 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.
F 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
G
H
could do. (Para 12)(934-G-H; 935-A, 937-C-H; 938-B·D]
McDermott International Inc. v. Bum Standard Co.
Ltd. 2006 (2) Suppl. SCR 409: (2006) 11 sec
181; MSK Projects (/) (JV) Ltd. v. State of
Rajasthan 2011 (9) SCR 402 : (2011) 10 SCC
573; Rashtriya /spat Nigam Ltd. v. Dewan Chand
ASSOCIATE BUILDERS v. DELHI DEVELOPMENT
AUTHORITY
Ram Saran 2012 (4) SCR 1 : (2012) 5 SCC 306
-relied on.
R v. Northumberland Compensation Appeal
Tribunal. Ex Parte Shaw 1952 1 All ER 122;
Champsey Bhara Company v. The Jivraj Ba/loo
Spinning and Weaving Company Ltd. AIR 1923
PC 66 - referred to.
5. When a court is applying the "public policy" test
899
A
B
to an arbitration award, it does not act as a court of
appeal and consequently errors of fact cannot be C
corrected: A possible view by the arbitrator on facts has
necessarily to pass muster as the arbitrator is the
ultimate master of the quantity and quality of evidence
to be relied upon when he delivers his arbitral award.
Thus an award based on little evidence or on evidence D
which does not measure up in quality to a trained legal
mind would not be held to be invalid on this score. Once
it is found that the arbitrator's approach is not arbitrary
or capricious, then he is the last word on facts.
[Para 12][929-F-H; 930-A]
E
P.R. Shah, Shares & Stock Brokers (P) Ltd. v.
B.H.H. ·Securities (P) Ltd. 2011 (16) SCR
87 : (2012) 1 sec 594- relied on.
6. ·In the present case, the Division Bench while F
considering claim Nos. 9, 10, 11 and 15, found fault with
the application of Hudson's formula which was set out
by the Arbitrator in order to arrive at the claim made under
these heads. The Division Bench said that it was not
possible for an Arbitrator to mechanically apply~ certain G
formula, however well understood in the trade. This itself
is going outside the jurisdiction to set aside an award u/
s.34. The Division Bench has exceeded its jurisdiction
in interfering with a possible view of the Arbitrator on
facts, forgetting that the Arbitrator is the sole Judge of H
900
SUPREME COURT REPORTS
[2014] 13 S.C.R.
A the quantity and quality of evidence before him and
unnecessarily bringing in facts which were neither
pleaded nor proved and ignoring the vital completion
certificate granted by the DOA itself. The Division Bench
also went wrong in stating that as the work completed
B was c>nly to the extent of Rs. 62,84,845/-, Hudson's
formula should have been applied taking this figure
into account and not the entire contract value of
Rs.87 ,66,678/- into account. To apply this formula one
has t.o take into account the contract value that is
C awarded and not the work completed. [Paras 15, 16, 18,
20][941-G-H; 942-A; 945-D; 948-C-E; 949-A]
McDermott International Inc. v. Burn Standard Co.
Ltd. 2006 (2) suppl. scR 409: (2006) 11 sec
o
181 - relied on.
7. The Division Bench has interfered wrongly with
the arbitral award on several counts. It had no business
to enter into a pure question of fact to set aside the
Arbitrator for having applied a formula of 20 months
E instead of 25 months. The Division Bench found that an
adjustment would have to be made with claims awarded
under claim Nos.2, 3 and 4 which are entirely separate
and independent claims and have nothing to do with
claim Nos.12 and 13. The formula then applied by the
F Division Bench was that it would itself do "rough and
ready justice". This cannot be done by any court under
the jurisdiction exercised under Section 34 of the
Arbitration Act. The expression "justice" when it comes
G to setting aside an award under the public policy ground,
can only mean that an award shocks the conscience of
the court. It cannot possibly include what the court thinks.
is unjust on the facts of a case for which it then seeks to
substitute its view for the Arbitrator's view and does what
H it considers to be "justice. The Division Bench lost sight
ASSOCIATE BUILDERS v. DELHI DEVELOPMENT
901
AUTHORITY
of the fact that it is not a first appellate court and cannot A
interfere with errors of fact. [Para 22][951-E-H; 952-A·C]
8. The Arbitrator considered clause 1 OC of the
agreement in detail and only awarded amounts under
this clause in excess of 10 percent as required by the 8
clause, when it came to awarding amounts under claim
Nos.2, 3 and 4, which fell within the ambit of clause 1 OC.
The arbitrator has not applied the said clause to claim
Nos.9, 10, 11 and 15, as no occasion for applying the
same arose. The award cannot be faulted on this c
ground.[Paras 24, 25][954-B-E]
9. Clause 22 of the agreement does not operate
automatically. It only operates if an objection is taken
stating that part of the site is not available for any reason.
Nowhere has the ODA stated which part of the site is not D
available for any reason. The object of this clause is that
no claim for extras should be granted only if there is an
unavoidable delay. The delay was entirely avoidable and
caused solely by the DOA itself. [Para 26][955-B-C]
KochharConstruction Works v. DOA &Anr. (1998)
2 Arb. LR 209; Harsha Constructions v. Union of
India & Ors. (2014) 9 SCC 246- referred to.
E
10. There has not been a duplication of claims
·awarded. None of the claims are overlapping. They are F
all contained under separate heads. [Paras 27, 28]
[955-0; 956-B]
Case Law Reference:
1993 (3) Suppl. SCR 22
relied on
Para 12
G
2003 (3) SCR 691
relied on
Para 12
(2006) 4 sec 445
relied on
Para 12
2006 (2) Suppl. SCR 409
relied on
Para 12
H
902
SUPREME COURT REPORTS
[2014] 13 S.C.R.
A
2006 (2) Suppl. SCR 146
relied on .
Para 12
2.008 (12) SCR 785
relied on
Para 12
2011 (8) SCR 486
relied on
Para 12
2011 (13) SCR 295
relied on
Para 12
B
2014 (9) sec 263
relied on
Para 12
·1992 Supp (2) sec 312
relied on
Para 12
1998 (3) Suppl. SCR .594
relied on
Para 12
c
2011 (16) SCR 87
relied on
Para 12
1959 Supp (2) SCR 406
referred to Para 12
1952 1 All ER 122
referred to
Para 12
AIR 1923 PC 66
referred to
Para 12
D
2006 (2) Suppl. SCR 409
relied on
Para 12
2011 (9) SCR 402.
relied on
Para 12
2012 (4) SCR 1
relied on
Para 12
E
(1998) 2 Arb. LR 209
referred to
Para 26
(2014) 9 sec 246
referred to
Para 26
CIVIL APPELLATE JURISDICTION: Civil Appeal No.
10531 of2014.
F
From the Judgment and Order dated 08-02-2012 of the
High Court of Delhi at New Delhi in FAO (O.S.) No. 667 of
2006.
M.L. Varma, Sr. Adv., Sc:itvik Varma, Abhishek, Ambar
Qamaruddin, Ad vs. with him for the Appellant.
.
G
A. Sharan, Sr. Adv., Ms. Binu Tamta, Pankaj Pandy, Dhruv
Tamta, Advs. with him for the Respondent.
H
ASSOCIATE BUILDERS v. DELHI DEVELOPMENT
903
AUTHORITY
The Judgment of the Court was delivered by
A
R. F. NARIMAN, J. 1. Leave granted.
2. The appellant herein was awarded a certain
construction work contract by the DOA vide a letter of award
dated 141h May, 1992. DOA was building a colony consisting
B
of 7 ,000 houses in Trilok Puri in the trans-Yamuna area. 168
Middle Income Group houses and 56 Lower Income Group
houses, Grade-A Pocket- !3 (balance work) was awarded for
the tendered amount of Rs.87 ,66,678/-. The contract was to
be completed in 9 months. Admittedly, it was ultimately C
completed only in 34 months, the contractor completing 166
Middle Income Group houses and 36 Lower Income Group
houses. The total value of work that was done amounted to
Rs.62,84,845/-. As many as 15 claims were made by the
contractor and the High Court of Delhi appointed one Shri K.D.
D
Bali.to arbitrate the present dispute .
. 3: We are concerned here with claims 9, 10, 11 and 15,
for these claims have been allowed by the Arbitrator and the
DDA's objections have been dismissed by the learned Single
E
Judge of the High Court of Delhi. The Division Bench in an
appeal u~der Section 37 of the Arbitration Act, 1996 has
stepped in to set aside the judgment of the Single Judge and
negative these claims. We are also concerned with claims 12
and 13 which have been scaled down by the Division Bench.
F
4. Claims 9, 10, 11 and 15 read as follows:
"Claim No.9: Claimants claim Rs. 20,950/- on account
of hire charges of centering shuttering due to delay in
laying of conduiting.
G
a) That the respondents had granted certain work of
electrification but the said agency did not lay the conduit
resulting in delay in removing the shuttering and causing
hire charges. This fact was reported to the respondents
H
904
SUPREME COURT REPORTS
(2014] 13 S.C.R.
A
vide claimant's letter dated 30.10.92 followed by
reminders and also found place in hindrance register.
b) That this is the actual expenditure incurred and thus
the claimant is entitled for its refund.
B
c) That the detailed break-up of this claim has been
appended separately.
c
D
E
F
G
H
Claim No.10: Claimants claim Rs.33,450/- being the hire
charges of shuttering due to stoppage of work in block
no.100and 101.
a) That the department had virtually stopped the work in
block 100 & 101 on 20.7.93 and it continued up to
26.2.94. During this period no work was allowed to be
executed in these two blocks resulting in blockade or
centering and shuttering in the said two blocks.
b) That by stoppage of work in these two blocks the
claimants had suffered hire charges of shuttering due to
respondent's lapses and defaults.
·
c) It is further stated that there was no justification for
stoppage of work ar:id the action was arbitrary and totally
unjust.
d) That the detail of this claim has been outlined and
appended separately and the same shall from part of
the statement of facts.
Claim No. 11: Rs.2.00.000/- payable as damages on
account of hire charges of tools & plants and scaffolding.
a) That due to prolongation of the contract on account of
the respondents the claimants had to maintain tools &
plants, scaffolding etc, during the prolongation of the
contract resulting in expenditure forthe same.
ASSOCIATE BUILDERS v. DELHI DEVELOPMENT
905
AUTHORITY [R. F. NARIMAN, J.]
b) That the said articles remained at site beyond the A
stipulated period and the claimants suffered loss due to
the said prolongation.
Claim No. 15: Claimants claim damages Rs.6,25,979/-
on account of establishment due to prolongation of the
8
contract.
a) That the claimants had contemplated maintenance of
establishment during stipulated period of completion but
the work was prolonged due to various delays and
defaults on the part of the respondents.
C
b) It is further stated that the claimants had to pay the
establishment payment during prolongation and the said
expenditure was unproductive and un contemplated.
c) It is further stated that the claimants had maintained D
establishment beyond the stipulated completion due to
the respondent's breach and thus entitled for payment.
d) That the respondents were also aware that the claimant
.has maintained regular establishment and thus, incurred
E
expenditure and the claimants had also made several
representations."
Claims 12 a.nd 13 read as follows:
"Claim No. 12: Claimants claim Rs. 7. 12.394/- as F
damages @20% for execution of the work.
a) That the work was delayed because of the
Respondents for the reasons as set out in the letter
indicating hindrances encountered during execution of ·
the work resulting delay in execution of the work for a G
period of 25 months.
b) It is further stated that the claimants incurred
unproductive after stipulated date of completion.
H
906
A
B
c
D
E
F
G
H
SUPREME COURT REPORTS
[2014].13 S.C.R.
c) It is further stated that during prolongation there had
been steep rise in cost of material and labour.
d) That the claim of 20% is also lent support from the
cost index as issued by the competent authority and only
applicable on the work which was executed during
. prolongation.
e) That as per cost index it comes to more than 30%
whereas the claimants had claimed 20 & being highly
rational and just.
'
f) That the claimants had appended the details of this
claim separately based on cost index to show that the
claimant had actually incurred this additional expenditure
due to the respondents. Copy of the hindrances
encountered during the execution of the work at the hands
of the respondents has been enclosed.
g) That the respondents had committed breach and thus
liable for damages.
h) It is further stated that the cost of material issued by
the department has been deducted by assessing the cost.
Claim No. 13: Claimants claim Rs.97.5000/- being the
extra at 35% for the work executed in block 100 & 101
effective from 28.2.94 till actual completion.
a) It is further stated that due to delayed execution of the
work of these two blocks the claimants had to incur extra
expenditure as the stoppage of work was utterly arbitrary.
b) That the detailed break-up of this claim is appended
with the statement of facts."
5. Though the challenge to claims 2, 3 and 4 were given
up before the Division Bench, they are also relevant and read
as follows:
\..
ASSOCIATE BUILDERS v. DELHI DEVELOPMENT
907
AUTHORITY [R. F. NARIMAN, J.]
"Claim .No.2: Claimants claim Rs.1 ,62,387/- being the A
reimbursement of statutory increase in labour under
clause 10-C
a) That the claimants submitted the tender on 6.2.92
and said 9ffer was accepted on 14.5.92. The date of 8
commencement was to be reckoned from 24.5.92. The
date of stipulated completion was 9 months i.e. 23.2.93
but the work could be completed on 28.3.95.
b) It is further stated that the claimants had submitted the
bill for the value to the extent the work was executed till
C
4.10.94 for a sum of Rs.1,12,067/-as per the formula
applicable.
c) That the respon~ents however, did not make a single
payment though, the work was executed after submission
D
of the said bill.
d) That however, a consolidated bill was furnished the
respondents for a sum of Rs. 1,62,287/-. Even the said
payment has not been liquidated so far.
E
e) That the claimants advised the statutory increase as
and when enforced and the claimants also submitted the
labour reports indicating the nature of the labour
employed at site.
f) That the respondents had also certified on the bill that
F
the labour payment has been made as per the. labour
rate.
g) That it is further stated that since it is a statutory
increase, the same is payable by the respondents. Copy G
of the both the bills attached. And thus the claimants be
awarded a sum of Rs. 1,62,287/-to the claimants.
Claim No.3: Claimants claim Rs.1.49.862/- being the
increase in cost of stone grit on account closure of the
quarrv by the order of the Supreme Court.
H
908
A
B
c
SUPREME COURT REPORTS
[2014] 13 S.C.R.
a) That it is stated that the claimants had submitted the
tender on the basis of the rate prevailing but due to the
Hon'ble Court's directions for closure of the stone quarry
resulting in shortage of stone chips in the market and
consequently rates increased.
· b) That the claimants informed the quantum of the
increase on 22.6.92 and followed by reminders.
c) That the respondents had agreed in principle to pay
the increase which was prevailing in the market.
d) That the detailed break-up of this claim has been
appended separately.
e) It is further stated that the claimant was not instrumental
for increase in cost but due to the interference of the
D
Hon'ble Supreme Court. And the said increase has been
taken into account till the stipulated completion dated
23.2.93.
E
F
G
H
f) That the claimant is entitled for recovery of the said
increase.
Claim No. 4: Claimants claim Rs.12.922/- payable by
virtue of clause 10-C of the agreement and up to the
stipulated period
a) That there was steep rise in cost of steel and the
claimant was exposed and the respondents were liable
to pay the increase in steel.
b) lhat the detailed break-up of this claim has been
prepared and appended.
6. The Arbitrator by a reasoned award dated 23'd May,
2005 held that the entire delay of 25 months in the execution
of tho project was thanks to the ODA, none of this delay being
attributable to the contractor. The learned Arbitrator found:
ASSOCIATE BUILDERS v. DELHI DEVELOPMENT
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"That all the above four claims are inter linked being
A
related to the overhead expenses and therefore dealt
together.
That the date of commencement of work was 24.5.92
and the period for completion was 9 months and
B
therefore, the disputed date of completion was 23.2.93
but the work could be actually completed on 28.3.95.
That there was delay of 25 months in completion of the
work beyond the stipulated date of completion.
That the Claimants urged that there had been various C
delays in the execution of work due to the lapses and
defaults of the Respondents from the very
commencement of work. The progress was held up time
and again and the claimants therefore, as back as D
17.2.93 advised the Respondents (C-9page167)that
the Claimants are not interested to execute the work
beyond the stipulated date of completion and therefore,
their contract be finalized on the stipulated date of
completion as the Claimants shall be exposed to incur E
heavy expenditure in overheads for maintaining
establishment watch and ward and tools and plants and
other shuttering material but the Respondents did not
refute. The chief reasons for delay are highlighted below:-
1) Delay in supply of structural and architectural drawings.
F
11) That out of 9 Blocks 2 blocks are abnormally delayed
as the site of the said 21 blocks was made available in
piecemeal which stretched till 26.2.94 whereas the
stipulated completion was 23.2.93.
Ill) Delay in laying the conduit by the electrical agency
resulting in delay in casting of RCC slab and plastering
work besides development work. The said hindrance
was removed lastly on 28.3.95.
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A
IV) Abnormal delay in making availability of the alignment
sketch for electrical cables.
V) Inordinate delay in supply of stipulated material such
as cement, steel and pipes.
B
VI) Delay in decision of finishing· work in kitchen and
bath rooms.
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VII) There was inordinate delay in making availability.of
colour scheme.
VIII) That the Respondents also abnormally delayed the
supply of door shutters which were to be supplied by the
Respondents. The same were supplied as late as
8.11.94.
IX) Inordinate delay in writing in the electrical conduits
resulting in delay in completion offinishing work:
X) Suspension of work by the Respondents for the period
17.1.94 to 25.2.94 and from 7.8.94 to 22.3.95 because
of non-removal of hindrances.
XI) Delayed payment due to non-sanction of
Administrative Approval and Expenditure Sanction.
That all the delays as set out had been duly recorded
733 to 739 and M.A.S. register pages from 747 to 768
as highlighted by the Claimants. The Claimants also
relied upon certain documents of MAS Register supplied
by the Respondents.
That the Claimants further stated that the Claimants had
also filed reasons for delay and hold up of the work
various defaults of the Respondents inAnnexure pages
740 to 746. The Claimants also highlighted the
correspondence made by the Claimants with
Respondents.
ASSOCIATE BUILDERS v. DELHI DEVELOPMENT
911
AUTHORITY [R. F. NARIMAN, J.]
That the Claimants further stated that the said hindrances A
were avoidable but the Respondents did not take timely
steps.
That the Claimants also referred the contents of the letter
dated 10. 7 .95 (page 885) wherein it was observed that B
the Superintending Engineer appreciated the working
of the Claimants and also observed that there was no
fault of the. contractor and they have successfully
completed the work. The Claimants further stated that,
they had incurred heavy expenditure on overheads of the c
lapses and default of the Respondents.
As against this the Respondents stated that there was
poor planning of the claimants and also contended that
since the compensation has been levied under Clause
2 of the agreement therefore, claim of the claimants D
deserves to be rejected.
That on record it .is conclusively proved that the
Respondents committed breach of contract as they failed
to discharge their obligations in time resulting in E
prolongations did not deny the deployment of the tools
and plants and machinery at site besideswatch and ward
during the prolongation."
7. It is important to note that before the Division Bench,
F
the learned counsel for the DDA conceded that this being a
pure finding of fact, he would not be challenging it before the
Division Bench.
8. Of the total claim of Rs.37.28 lakhs, the learned
Arbitrator awarded an amount of Rs.23.39 lakhs. Further, the G
learned Arbitrator has laboriously gone through all the evidence
and answered each claim giving reasons forthe same .
•
9. By a judgment dated 3rd April, 2006, the learned Single
Judge of the High Court of Delhi dismissed the objections of .
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A the ODA and upheld the award. In an appeal filed under Section
37 of the Arbitration Act, vide the impugned judgment dated
8th February, 2012, a Division Bench of the High Court of Delhi
set aside the judgment of the Single Judge on claims 9, 10, 11
and 15, and negatived these claims in toto. Further, claims 12
B and 13 were scaled down doing "rough and ready justice".
Resultantly, the awarded amount of Rs.7,20,000/-was scaled
down to Rs. 5,57, 137.50/-.
10. We have heard learned counsel forthe parties. Shri
c M. L. Verma, learned Senior Advocate appearing on behalf of
the appellant, submitted that the Division Bench has lost sight
of the law laid down by this Hon'ble Court when it comes to
challenges made to arbitral awards under Section 34 of the
Act. He has submitted that the Division Bench has acted as if
o this was a first appeal from the award and has further submitted
that the Division Bench has taken into account facts which were
neither plead~d nor proved before the learned Arbitrator in
order to negative certain claims. He further submitted that it is
not possible for a Bench hearing an objection against an arbitral
E award to do "rough and ready justice" - it is bound by the law
laid down by this Hon'ble Court. In particular, he argued that
the conceded position is that 25 months delay was due to the
DDA alone. The award read as a whole is just, fair and
reasonable as only certain claims have been granted and every
F claim granted has been supported with reasons. The Arbitrator
is the sole judge of the quality and quantity of evidence before
him and he has decided on that evidence. No errors of law
arise from the award and the award has, therefore, been
wrongly set aside.
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11. Mr. Amarendra Sharan, learned Senior Advocate
appearing on behalf of the DDA has relied strongly on clause
1 OC and clause 22 to support the judgment of the Division
bench and has further argued that there has been duplication
H so far as certain claims are concerned. He argued that an
ASSOCIATE BUILDERS v. DELHI DEVELOPMENT
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AUTHORITY [R. F. NARIMAN, J.]
award in the teeth of clause 1 OC and clause 22 would be a A
jurisdictional error which would vitiate the award.
12. 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 B
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.
Section 34 of the Arbitration and Conciliation Act reads
as follows-
"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
c
in accordance with sub-section (2) and sub-section (3). · D
(2) An arbitral award may be set aside by the Court only
if-
( a) the party making the application furnishes proof that-
(1) 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
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(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:
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SUPREME COURT REPORTS
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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 subclause (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.
(:~) 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
ASSOCIATE BUILDERS v. DELHI DEVELOPMENT
915
AUTHORITY[R. F. NARIMAN, J.]
application within the said period of three months it may A
entertain the ap~ication 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 8
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 c
arbitral award."
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 D
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 E
authority shall intervene except where so provided in this
Part."
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
F
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.
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It will be seen that none of the grounds contained in subclause 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
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[2014113 S.C.R.
A arbitral award are to be looked into under certain specified
circumstances.
In Renusagar Power Co. Ltd. v. General Electronic
Co., 1994 Supp (1) SCC 644, the Supreme Court construed
B Section 7 (1 )(b) (ii) of the Foreign Award (Recognition and
Enforcement)Act, 1961.
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· "7. Conditions for enforcement of foreign awards.-
(1) A foreign award may not be enforced under this Act-
(b) if the Court dealing with the case is satisfied that-
(ii) the enforcement of the award will be contrary to the
public policy"
In construing the expression "public policy" in the context
of a foreign award, the Court held that an award contrary to
1. The fundamental policy of Indian law
2. The interest of India
3. Justice or morality,
E
would be set aside on the ground that it would be contrary
to the public policy of India. It went on further to hold that a
contravention of the provisions of the Foreign Exchange
Regulation Act would be contrary to the public policy of India in
that the statute is enacted for the national economic interest to
F ensure that the nation does not lose foreign exchange which
is essential for the economic survival of the nation (see para
75). Equally, disregarding orders passed by the superior
courts in India could also be a contravention of the fundamental
policy of Indian law, but the recovery of compound interest on
G interest, being contrary to statute only, would not contravene
any fundamental policy of Indian law (see paras 85,95).
H
When it came to construing the expression "the public
policy of India" contained in Section 34 (2) (b) (ii) of the
ASSOCIATE BUILDERS v. DELHI DEVELOPMENT
917
AUTHORITY [R. F. NARIMAN, J.]
Arbitration Act, 1996, this Court in ONGC v. Saw Pipes, 2003 A
(5) sec 705, held-
"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 8
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 varied
from time to time. However, the award which is, on the c
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" D
in Renusagar case [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.
I/legality must go to the root of the matter and if the
illegality is of trivial nature it cannot be held that award
is against the public policy. Award could also be set
aside if it is so unfair and unreasonable that it shocks
E·
F
the conscience of the court. Such award is opposed to G
public policy and is required to be adjudged void.
7 4. In the result, it is held that:
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(A) (1) The court can set aside the arbitral award under
Section 34(2) of the Act if the party making the
application furnishes proof that:
(i) a party wa~ 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.
(2) The court may set aside the award:
(i)(a) if the composition of the Arbitral Tribunal was not
in accordance with the agreement of the parties,
(b) failing such agreement, the composition of the
Arbitral Tribunal was not in accordan~e with Part I of the
Act.
(ii) ifthe arbitral procedure was not in accordance with:
(a) the agreement of the parties, or
(b) failing such agreement, the arbitral procedure was
not in accordance with Part I of the Act.
However, exception for setting aside the award on the
ground of composition of Arbitral Tribunal or illegality
of arbitral procedure is that the agreement should not
ASSOCIATE BUILDERS v. DELHI DEVELOPMENT
AUTHORITY[R. F.