Case Note & Summary
The judgment concerns two petitions under Section 34 of the Arbitration and Conciliation Act, 1996, challenging an arbitral award dated 01.07.2019. The dispute arose from a construction contract between M/s.NRP Projects Pvt. Ltd. (contractor) and M/s.Chennai Petroleum Corporation Ltd. (employer). The contractor claimed various amounts for work done, refund of EPF/ESI deductions, and challenged liquidated damages imposed by the employer. The arbitrator awarded certain claims in favor of the contractor, including refund of EPF/ESI withheld amounts and part of liquidated damages deducted. Both parties filed petitions: the contractor sought to set aside the award regarding rejection of certain claims and liquidated damages, while the employer sought to set aside the award directing refund of EPF/ESI amounts and part of liquidated damages. The court examined the grounds of patent illegality and public policy. It held that the award of refund of EPF/ESI amounts was based on evidence and not patently illegal. However, the rejection of the employer's claim for liquidated damages on change order No.1 was found to be perverse and without proper reasoning, amounting to patent illegality. The court set aside that part of the award and remitted it to the arbitrator for fresh consideration. The court also upheld the interest rates awarded. The petitions were disposed of accordingly, with the employer's petition partly allowed and the contractor's petition dismissed.
Headnote
A) Arbitration - Section 34 Challenge - Public Policy - Patent Illegality - The court examined whether the arbitral award was liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996 on grounds of patent illegality or being against public policy. The court held that the award of refund of EPF/ESI withheld amounts was not patently illegal as the arbitrator had considered the evidence. However, the rejection of liquidated damages was found to be perverse and remitted for reconsideration. (Paras 1-43) B) Contract Law - Liquidated Damages - Change Order - The court considered the claim for liquidated damages on change order No.1. The arbitrator rejected the claim without proper reasoning. The court held that the rejection was patently illegal and remitted the issue to the arbitrator for fresh consideration. (Paras 20-30) C) Interest - Rate of Interest - Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 - The court upheld the arbitrator's award of interest at 12.35% p.a. on the principal amount from the date of cause of action till the date of award and future interest at 14.35% p.a., finding no patent illegality. (Paras 31-35)
Issue of Consideration
Whether the arbitral award suffers from patent illegality or is against public policy under Section 34 of the Arbitration and Conciliation Act, 1996, particularly regarding the award of refund of EPF/ESI withheld amounts and the rejection of liquidated damages claim.
Final Decision
The court partly allowed O.P.No.110 of 2021 (employer's petition) by setting aside the part of the award rejecting the liquidated damages claim on change order No.1 and remitted it to the arbitrator for fresh consideration. The court dismissed O.P.No.810 of 2019 (contractor's petition). The interim application was disposed of.
Law Points
- Section 34 of the Arbitration and Conciliation Act
- 1996
- Public Policy
- Patent Illegality
- Liquidated Damages
- EPF/ESI Deductions
- Interest Rate
