Fakhruddin Memorial Cghs LTD vs. M/S Mahalakshmi Infraengineers PVT LTD & Anr.

Facts

The petitioner, Fakhruddin Memorial CGHS Ltd., filed a petition under Section 34 of the Arbitration and Conciliation Act to set aside an arbitral award dated December 23, 2023, clarified on February 8, 2024. The petitioner challenged the arbitrator's findings on several claims, including the non-payment of the final bill (Claim 1), release of security deposit (Claim 2), and payment for alleged extra work (Claims 3 and 5). The petitioner also challenged the award of interest and the dismissal of its counter-claim. The petitioner argued that Claim 1 was awarded without reasons and against evidence, Claim 2 should not have been awarded as the respondent admitted unfinished work, and there was no evidence for extra work claims. The respondent, M/s Mahalakshmi Infraengineers Pvt Ltd, contended that the security deposit was to be released only after the entire work was completed and the defect liability period expired, which the claimant failed to do.

Held

The Court held that the arbitral award was well-reasoned and did not suffer from illegality or perversity. Regarding Claim 1, the Court noted the arbitrator's finding that the final RA bill was pending payment, but the amount included extra work, escalation, and security deposit claimed separately. After deducting these, the arbitrator awarded a balance amount for work done, accepting the claim but rejecting the amount in Claim 1. The Court found no breach of the fundamental policy of Indian law. For Claim 2, the arbitrator found that the security deposit was Rs. 22,49,164/- as per the 10th RA Bill and that the defect liability period expired on 10.12.2019, making the deposit due. The arbitrator also noted the absence of any counterclaim for defects. The Court found that the award demonstrated application of mind, adherence to principles of natural justice, and was not perverse. The Court cited principles from cases like Renusagar Power Co. Ltd. v. General Electric Co., ONGC Ltd. v. Saw Pipes Ltd., McDermott International Inc. v. Burn Standard Co. Ltd., and Associate Builders vs. DDA, emphasizing that an award can be set aside for patent illegality, perversity, or breach of the fundamental policy of Indian law, which includes the requirement for reasoned decisions and adherence to natural justice. The Court found no such breach in the impugned award. The petition was dismissed.

Key Issues

1. Whether the arbitral award granting Claim (1) for the non-payment of the final bill dated 10.06.2019 is liable to be set aside for being awarded without reasons and against the evidence on record, as argued by the petitioner? 2. Whether the arbitral award granting Claim (2) for the release of the security deposit is valid, considering the respondent's admission of unfinished work and the petitioner's argument that the claimant breached the agreement, as contended by the petitioner? 3. Whether the arbitral award granting Claims (3) and (5) for payment on account of alleged extra work is sustainable in the absence of evidence, as argued by the petitioner? 4. Whether the award of interest at 9% per annum from 10.06.2019 on equitable grounds is impermissible, as submitted by the petitioner? Petitioner's Arguments: The petitioner contended that the arbitrator failed to provide reasons for awarding Claim 1 and that the award was against the evidence. Regarding Claim 2, the petitioner argued that the respondent admitted unfinished work, making the release of the security deposit improper. The petitioner also asserted a lack of evidence for extra work claims (Claims 3 and 5) and challenged the awarded interest. The petitioner relied on the arbitrator's own findings regarding the fabrication and lack of validity of the final bill. Revenue/State's Arguments: The respondent argued that the security deposit was to be released only upon completion of work and expiry of the defect liability period, and that the claimant had unilaterally left the site without completing obligations, thus breaching the agreement and forfeiting the right to the security deposit. The respondent also contended that the final bill included extra work and escalation already claimed separately, leading to double counting. The respondent did not explicitly argue on Claims 3 and 5 or the interest awarded.