State of Jharkhand v. Webel Technology Limited, having its registered Office at Webel Bhawan, Salt Lake

Judgment

1. 2. Heard the learned counsel for the parties. This arbitration appeal has been filed under Section 37 of Arbitration and Conciliation Act, 1996 against the order dated 16.06.2009 passed by learned Subordinate Judge I, Ranchi in Misc. Case No.54 of 2007, whereby the learned court below has refused to interfere with the award dated 23.07.2007 passed by the learned sole Arbitrator under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act of 1996). The learned Arbitrator has directed the appellant to pay Rs.17,05,00,000/- to the claimant/respondent with interest @ 12 percent per annum from April, 2004 till the date of the award and has directed that if the said amount is not paid within the period of 30 days from the date of the award, the appellant shall pay the same with interest @ 14% from the date of the award till the date of payment. The learned Arbitrator has also awarded the cost of arbitration amounting to Rs.1,56,000/-. The learned Arbitrator, however, rejected the counter-claim appellant amounting Rs.7,61,25,000/- against claimant/respondent. 3. The case of appellant, in brief, is that the appellant (Department of Information and Technology, Govt. of Jharkhand) has decided to provide Computer Education in 500 Schools in Jharkhand. M/s. Webel Technology Ltd. (claimant -respondent) made an offer to the Department to undertake Computer Literacy Programme in association with IBM in 500 Schools in the State of Jharkhand under scheme Build, Own, Operate 2 and Transfer (BOOT) basis. The parties entered into an agreement on 2nd April, 2003. The broad terms of the agreement are that the respondent shall provide Computer Education Services in 500 Schools selected by the I.T. Deptt. (appellant) at the cost of Rs. 105/- per month per student. Payment to be made by the School authorities or by any other nodal agency to be identified by the information Technology Ministry. The Duration for the contract shall be for 5 years commencing from the date of signing the contract or commencement of operation in Schools whichever is later. There is a clause which provides for termination of the contract. 4. It is the case of the appellant-state that the claimant-respondent made an offer in the month of September, 2002 to undertake Computer Literacy Programme in 500 schools in the State of Jharkhand under the scheme “Build, Own, Operate and Transfer (BOOT) basis”. As per the BOOT model of implementation of any project, the government accords permission to the concessionaire to undertake the work relating to the project normally on the site owned by the government and the state has no financial liability on the project. It is the concessionaire who was to build the project, operate it and recover its investment and profit through charging from the services and after an agreed period, transfer the project to the State. The claimant had submitted a draft of agreement for implementation of the aforesaid project approved by the Government of Jharkhand and agreement between the parties was executed on

02.04.2003. As per the agreement, the aforesaid work was to be done in 500 schools at the cost of Rs.105/- per student for total of 500 students per school. On 30.04.2003, the claimant intimated the State that it was ready to start with the computer education in 100 school by 31.05.2003 and requested to furnish the list of schools. In response, vide letter dated

30.04.2003 the claimant was informed that the list of the schools will be given shortly. It is further case of the State that before issuance of letter dated 30.04.2003, no approval of the government was taken and the authority who had issued the letter dated 30.04.2003 was the Secretary of Department of Information and Technology of the State and he was not competent to make any commitment to reimburse cost of learning services and thereby fasten any financial liability on the Government of Jharkhand and therefore, the said letter was not binding on the State. 5. All along the project was to be done on BOOT basis and therefore, there was no question of making any payment by the State. Consequently, the State wanted to clarify this doubt with the claimant and 3 issued letter dated 05.08.2003 specifying that the Government of Jharkhand would not pay for the learning services as project was to be implemented on BOOT basis. Thereafter, meeting took place between the State and the claimant and in presence of the Chief Secretary, some points as raised in letter dated 05.08.2003, were discussed. After the meeting, the claimant issued letter dated 13.08.2003 agreeing that the fees for learning services will be collected from the students directly by the claimant. They also agreed that the compensation clause needed to be deleted as the same was one sided. The letter was not found sufficient to clarify the clause in the agreement dated 02.04.2003 and consequently, modification of the agreement became necessary and the draft of the modified agreement was sent to the claimant for acceptance vide letter dated 14.08.2003. The claimant informed that the agreement will be put before the meeting of the Board of Directors on 19.08.2003. The claimant vide letter dated

27.08.2003 informed the State that their Board had approved revised draft agreement with certain modifications and they also forwarded the revised draft agreement to the State. The draft agreement approved by the State was sent to the claimant requesting them to authorize and depute a person who could sign the revised agreement, but vide letter dated 20.10.2003, the claimant informed the State that they were withdrawing the earlier modified draft which they had sent to the Government. The offer received from the claimant on 31.10.2003 for implementation of the project on trial basis, was not acceptable to the State and such view was communicated to the claimant vide letter dated 04.11.2003 and the State clarified that agreement dated 02.04.2003 had not yet come into effect and therefore, the question of compensation did not arise. The State again requested the claimant to sign the revised agreement, but the claimant was not willing to sign the same and informed the Government that they were willing to start the programme in one school. 6. It is further case of the State that starting the Computer Literacy Programme in one school as pilot programme was meaningless and ultimately, the claimant lodged their claim for compensation in terms of liquidated damages as well as unliquidated damages for an amount of Rs.15.75 crores with interest @ 18% vide letter dated 15.04.2004. Prior to that, one letter dated 09.01.2004 was issued by the claimant asking to give list of schools where the project was to be implemented, but the State vide letter dated 30.01.2004 clearly informed the claimant that the issue of signing of revised agreement remained pending and unless it was resolved, 4 it would not be possible to start the project. It is further case of the State that on account of wrongful and illegal acts and omission on the part of the claimant, Government of Jharkhand could not start the Computer Literacy Programme and as such the State suffered huge loss in terms of time and loss of opportunity for students in getting the computer education. In spite of repeated letters issued by the State, the claimant did not sign the revised agreement and the project itself did not take off. 7.

Some differences and disputes arose between the parties and the respondent moved before the Hon’ble High Court for appointment of an Arbitrator invoking the arbitration clause of the agreement dated

02.04.2003. The appellant contested the case regarding appointment of arbitrator on various grounds. However, the Hon’ble High Court passed order appointing a Former Hon’ble Justice of the High Court as Arbitrator. Thereafter, State Government/ appellant filed a writ petition against the order of Hon’ble High Court. The Hon’ble High Court vide order dated

24.8.05 dismissed the writ petition holding inter alia that any question regarding jurisdiction of learned Arbitrator to enter into arbitration may be considered by the learned Arbitrator himself on objection being raised by any of the parties. Thereafter, I.T. Deptt./appellant filed Special Leave Petition before the Hon’ble Supreme Court against the order of Hon’ble High Court which was dismissed. The learned Arbitrator entered into the proceeding and after hearing both parties on their claim and counter claim published his award on 23rd July, 2007. 8. Submissions of Appellant A. The learned Advocate General appearing on behalf of the appellant has submitted that the award suffers from patent illegality and is against the public policy. It also suffers from non-consideration of the objection raised by the appellant to the revised claim which was submitted by the claimant. The learned Advocate General has further submitted that the provisions of Sections 53, 73, 74 and 62 of the Indian Contract Act have not been properly appreciated by the learned Arbitrator while pronouncing the Award. B. The learned Advocate General has, in particular, submitted that there was no concluded contract on 02.04.2003 and correspondences between the parties would clearly show that the terms and conditions of the contract were yet to be finalized. He has submitted that merely because the parties had put a signature on the written agreement dated 02.04.2003, the same was not 5 sufficient to hold that there was any concluded contract between the parties. The learned Senior counsel has also submitted that the parties were exchanging draft agreements and admittedly none of the draft agreements forwarded by either party to each other reached at any concluded agreement between the parties. C. The learned Advocate General by referring to the Award has submitted that on the point as to whether there was a concluded contract between the parties or not, the learned Arbitrator has wrongly recorded that the parties have admitted that the contract is lawful and binding upon them. He submits that the Issue No.(i) was, whether the agreement dated 02.04.2003 executed between the claimant and the respondent is a lawful agreement leading to a binding contract between the parties, to which in para-15 of the Award, it has been recorded as follows – “The parties admit that the contract is lawful and binding on the parties.” D. The learned Advocate General has further submitted that the petition under Section 16 of the Arbitration and Conciliation Act, 1996 was filed and contested by the parties. The learned Arbitrator had framed two issues – (a) Whether there was a valid and concluded contract between the claimant and the respondent on

02.04.2003? and (b) whether the contract dated 02.04.2003 is legally enforceable? He submits that the point of enforceability of the contract was kept to be decided later as it was opined by the learned Arbitrator that it could not be decided as a preliminary issue. The learned Advocate General submits that the learned Arbitrator has decided the point of enforceability but has not considered the conduct of the parties, the communications between the parties although the specific case of the appellant was that the contract was not enforceable and the learned Arbitrator was of the view that enforceability of the agreement could not be decided as a preliminary issue. The learned Advocate General has referred to the clause of the agreement to submit that the contract was to remain in force for a period of five years commencing from the date of signing of the contract or commencement of operations in the schools, whichever was later. The learned counsel submits that the operation in schools never commenced and, therefore, the contract was not enforceable. He submits that the order passed by the 6 learned Arbitrator disposing off the petition under Section 16 of the Act of 1996 deciding on the aforesaid preliminary issues is also not sustainable in the eyes of law and calls for interference under Section 34 of the Act of 1996. E. The learned Advocate General has further submitted that the learned Arbitrator has recorded a finding that the agreement was not a BOOT (i.e. build, own , operate and transfer) agreement, although on the face of the agreement dated 2nd of April, 2003 it was clearly stipulated that there was a proposal for BOOT agreement and the claimant had accepted to provide the said services in the schools as per the rate mentioned in the contract for the contract period of five years commencing from the date of signing of the contract or commencement of operations in the schools, whichever was later. The learned Advocate General submits that the finding of the learned Arbitrator that it was not a BOOT agreement is ex facie perverse. The learned Advocate General has further submitted that as per the scheme of the BOOT agreement, the State was not to incur any financial liability and every liability was to be borne by the claimant and consequently there was no breach from the side of the appellant. He has further submitted that the clauses of the agreement particularly with regard to the minimum commitment as well as the termination were yet not finalized and, therefore, any of the claim of the claimant could not have been granted by referring to the termination clause or minimum commitment clause. The learned Advocate General has submitted that there was novation of agreement in view of the fact that at one stage the claimant had communicated that they were agreeable to the proposed changes in the terms of the agreement but subsequently the claimant backed out from the same by stating that their Board of Directors had modified the terms of agreement. The learned Advocate General submits that since the agreement did not take off, so there was no question of any termination of agreement or any claim of damages arising from the agreement. The learned Advocate General submits that it is an admitted fact on record that not even one student was benefited out of the entire gamut of affairs between the parties and this was due to the fact that the agreement itself did not take off and consequently, there was no occasion to grant any relief to the claimant arising out of the 7 agreement. He has emphasized that there was no concluded contract between the parties. The learned Senior counsel has also referred to the various communications between the parties which have been referred to in the award and submits that upon construction of various communications it was clear that there was no concluded contract between the parties. F. The learned Advocate General further submits that the claimant had raised a claim of Rs.15,75,00,000/- on account of liquidated damages and an amount of Rs.22.00 Crores on account of un- liquidated damages, both were claimed with interest @ 18% p.a. He submits that there was a revised claim made by the claimant and the appellant had filed objection to the revised claim which has been annexed along with the memo of appeal and it is not in dispute that the appellant had filed objection to the revised claim, but the learned Arbitrator has not at all considered such objection and, therefore, the Award of the learned Arbitrator is perverse on that count. G. The learned Advocate General has submitted that the damages have been claimed under Sections 73 and 74 of the Contract Act. It is submitted that the condition precedent for grant of damages has not been satisfied. He has further submitted that there was no formal termination of contract either from the side of the appellant or from the side of the respondent at the time when the claim was made and even till the time the matter was referred to arbitration. Therefore, there was no occasion to refer to the termination clause. The condition precedent for claiming any damages in terms of termination clause was also not satisfied. The learned Advocate General further submits termination clause clearly stipulated that the contract could be terminated by the claimant with three months’ notice in writing on account of failure of Government of Jharkhand to reimburse the minimum monthly revenue and the Government would terminate this contract with three months’ notice in the event of any change of statute / any policy shift. The learned Advocate General submits that the condition precedent for termination of the agreement on behalf of the State as well as the claimant did not arise since no service was at all provided and no claim for reimbursement of any monthly committed revenue was placed by the claimant to the appellant. 8 Therefore, the condition precedent for attracting liquidated damages under the termination clause was also not satisfied. H. Without prejudice to the aforesaid submissions, it has been submitted that so far as liquidated damages are concerned, the same have been claimed by referring to the termination clause in the agreement dated 02.04.2003 and upon perusal of the said clause, it has been clearly stipulated that any amount payable thereunder was by way of compensation. He submits that once the damage is by way of compensation, it was for the claimant to prove the loss by leading positive evidence, but this exercise has not been done by the claimant and, therefore, on this count also, award of liquidated damages by the learned Arbitrator is against the public policy of India and suffers from patent illegality. I. The learned Advocate General has further submitted that the provisions of Section 73 / 74 of the Indian Contract Act has been subject-matter of consideration in various judgments passed by Hon’ble Supreme Court including in the cases of a. Fateh Chand Vs. Balkishan Dass reported in AIR 1963 SC 1405 (paras 9, 10 & 16), b. (1969) 2 SCC 554 Maula Bux Vs Union of India (paras 3, 4 and 5) c. (2011) 10 SCC 300 Phulchand Exports Limited Vs. O.O.O. Patriot (paras 10 and 35); d. (2015) 4 SCC 136; Kailash Nath Associates Vs. Delhi Development Authority and another (paras 30, 31, 32 33 and 44) e. (2015) 14 SCC 263; Construction and Design Services Vs. Delhi Development Authority (paras 2 and 14). f. (2003) 5 SCC 705 (paras 64, 67 and 68). J. The learned Advocate General submits that the claimant has based their claim only on termination clause and has not supported their claim by showing any actual loss suffered by them and, therefore, reasonableness of damage was also required to be seen when admittedly not even single computer was supplied by the claimant. This exercise has not been done by the learned Arbitrator and the objections raised by the appellant to the revised claim of the claimant have been totally ignored while awarding damages to the 9 claimant. The learned Advocate General has referred to the objection to the revised claim as annexed with the memo of appeal. K. The learned Advocate General has referred to Section 62 of the Contract Act to submit that it was a clear case of novation of contract and this aspect of the matter has not been properly considered by the learned Arbitrator. The learned Advocate General has also referred to Section 53 of the Contract Act to submit that the said provision of law, though relied upon by the appellant before the learned Arbitrator, has not been properly appreciated and at any point of time the claimant did not exercise any option under Section 53 of the Contract Act to avoid the contract and consequently claim damages. L. The learned Advocate General has referred to the various grounds urged before the learned Court below in the petition filed under Section 34 of the aforesaid Act of 1996 for setting aside the award and has submitted that the learned Court below has not dealt with the various grounds of challenge and has mechanically dismissed the petition by merely referring to the provisions of law and the limited scope of interference in the award as provided under Section 34 of the Act of 1996. The learned Advocate General has further submitted that the learned Arbitrator has misconstrued and misinterpreted the agreement dated 2nd of April, 2003. M. He has also submitted that the claimant had agreed that fee would be collected from the students and the fee would be debited, but subsequently, the claimant detracted and wanted to implement the project for only a few schools on trial basis which was not acceptable to the appellant and consequently the contract was never executed. N. The learned Advocate General has also submitted that the Award passed by the learned Arbitrator calls for interference by this Court, as the award is shocking. Admittedly, huge liability has been fastened upon the appellant without supply of even one computer.

9. Submissions of Claimant/Respondent I. The learned counsel for the claimant has provided a list of dates giving the sequence of events which has been discussed later in the finding portion of this judgement. II. The learned counsel appearing for the claimant-respondent has submitted that no specific provision of Section 34 of the Arbitration 10 and Conciliation Act, 1996 was mentioned in the petition under Section 34 of the Act of 1996 and, therefore, the petition for setting aside the Award was not in accordance with law. He submits that the provision of Section 34 is very clear and the law is well settled that unless the Award is fit to be set aside under the provisions of Section 34, no interference is called for. III. The learned counsel submits that there is no scope for re- appreciation of evidence in a proceeding under Section 34 of the Act of 1996. He has submitted that the Award passed by the learned Arbitrator is a well-reasoned award dealing with every aspect of the mater. The learned Arbitrator framed as many as 07 issues and dealt with each of them. IV. The learned counsel submits that the binding nature of agreement dated 02.04.2003 was already decided against the appellant vide order passed under Section 16 of the Arbitration and Conciliation Act, 1996 and the impugned Award has to be read along with the order passed under Section 16 of the aforesaid Act of 1996. He has submitted that it is not in dispute that both the parties had signed the agreement dated 02.04.2003 and, therefore, it is not open for the appellant to contend that the contract was not lawful or not binding on the parties. The learned counsel submits that there is no allegation of fraud, misrepresentation, etc. while entering into the contract dated 02.04.2003. The learned counsel has also submitted that the terms of the agreement have been interpreted to hold that the agreement was not a BOOT agreement . He has also submitted that the agreement is required to be read as a whole and the learned Arbitrator after appreciating the terms and conditions of the agreement has recorded a finding which does not call for any interference. He submits that the finding recorded by the learned Arbitrator that the Agreement was not a BOOT agreement, is a plausible view and as long as it is a plausible view, there is no scope of any interference. Such finding does not suffer from any perversity and does not fall within the scope of interference under Section 34 of the Act of 1996. V. The learned counsel has further submitted that so far as enforceability of the contract is concerned, the same has also been decided by the learned Arbitrator, though no specific issue as such was framed on the point of enforceability while passing the final 11 award. The learned counsel submits that the learned Arbitrator has held that the contract was enforceable. Such finding is based on interpretation of materials on record and, therefore, such finding does not call for any interference. He has also submitted that the contract was duly entered, it was a lawful contract, binding upon the parties and was also enforceable. The learned counsel also submits that the agreement was never novated or rescinded. VI. The learned counsel submits that there was clear breach from the side of the appellant in view of the fact that the claimant was throughout ready to perform his part of the contract, but the appellant did not perform its part by not providing the list of the schools where the computer literacy Programme was to commence. He submits that on account of such omission on the part of the appellant, the claimant suffered huge damages as the claimant had already taken steps for implementation of the agreement and placed orders with 3rd parties. On account of non-performance of the obligation on the part of the appellant, the goods were to be returned, contracts with third parties were cancelled followed by liability fastened upon the claimant by the 3rd parties. VII. The learned counsel has submitted that so far as the claim of un- liquidated damage of Rs.22.00 Crores is concerned, only a portion of the same has been allowed to the extent that the claimant had produced documents and accordingly the argument of the learned counsel for the appellant that there were no evidences of losses is not correct. The learned counsel submits that the amended claim was substantially reduced and was allowed only to the extent the claimant was able to prove the component of un-liquidated damage. VIII. So far as the claim of liquidated damages is concerned, he submits that the same was in terms of the termination clause which was never altered. He has placed the termination clause before this Court and has submitted that as per the termination clause, the claimant was entitled to minimum monthly committed revenue for six months and the same was duly calculated on the basis of the stipulations in the contract i.e. 500 schools with 500 children each at the rate of Rs.105/- per student for a period of six months. This was the contemplated compensation in terms of the termination clause. He has submitted that the compensation was duly fixed as 12 per the agreement by way of liquidated damages and the claimant was entitled to the same. IX. He has also submitted that it is an admitted fact that the appellant did not provide the name of even one school so as to enable the claimant to execute its part of the contract and consequently, not even a penny was collected from any student and, therefore, the entire amount of compensation which was calculated in terms of the termination clause was payable to the claimant which has been rightly allowed by the learned Arbitrator. X. The learned counsel submits that the claim of liquidated as well as un-liquidated damages was duly supported by materials on record and, therefore, it cannot be said that they are based on no evidence for the losses suffered on behalf of the claimant. XI. The learned counsel has also submitted a list of dates and he submits that all the documents mentioned in the list of dates have been duly considered by the learned Arbitrator. Some of the material documents which he has specifically referred is the agreement dated 02.04.2003, letter dated 30.04.2003 whereby the claimant had informed the Government that they were ready to start with computer education in 100 schools by 31.05.2003 and on

30.04.2003, the Secretary, Government of Jharkhand informed the claimant that the list of schools will be shortly given and the information furnished by the claimant that they had taken steps for implementation of their obligations. It is submitted that in spite of issuance of letter dated 30.04.2003 the appellant had issued a letter dated 05.08.2003 that the Secretary had issued the letter dated

30.04.2003 without any approval from the Government and thereby resiled Information Technology Ministry/Department would pay the fee to the claimant. The learned counsel has also submitted that though there was exchange of draft modified agreement between the parties but ultimately the same did not crystallize into a modified agreement and it remained in the realm of proposal and counter-proposal and thus, the agreement dated 02.04.2003 was never modified and it stood binding upon the parties. Learned counsel has also referred to the communication dated 30.01.2004 issued by the Government of Jharkhand informing the claimant that it was not possible to start the project unless the issue of revised agreement was resolved. The 13 State has been insisting upon the claimant to sign the revised agreement which was prepared by them, but the claimant ultimately did not agree to sign the revised agreement and sent its own revised agreement duly approved by the Board. Ultimately, the parties did not agree to any modified draft and consequently, the modification of the agreement did not materialize. The claimant vide letter dated

05.04.2004 reiterated the agreement dated 02.04.2003 and refused to sign any revised draft agreement and thereafter on 15.04.2004 the claimant raised demand before the Government of Jharkhand to compensate the losses – (a) liquidated damages to the extent of Rs.15.7 Crores with interest @ 18% and, (b) un-liquidated damages to the extent of Rs.22.00 Crores with interest @ 18% p.a. Thereafter, the arbitration clause was invoked and a Former Judge of Hon’ble Patna High Court was appointed as Arbitrator vide order dated 25.01.2005 in Arbitration Application No. 17 of 2004. The appointment of arbitrator was challenged in writ petition being W.P. (C) No. 1777 of 2005. The writ petition was dismissed on

28.04.2005 and ultimately the matter went up to the Hon’ble Supreme Court in S.L.P. (Civil) No. 14655 of 2005 and the Hon’ble Supreme Court dismissed the SLP on 08.05.2006 leaving it open to the Government to take required steps before the learned Arbitrator. Consequently, a petition under Section 16 of the Act of 1996 was filed and the same was decided against the appellant by a well-reasoned order holding that the agreement dated 02.04.2003 was valid and binding. So far as the enforceability is concerned, the same was to be decided later on and it was duly decided vide the impugned Award. It is submitted that the State of Jharkhand issued notice inviting tender dated 07.05.2005 whereby the state expressly repudiated the agreement dated 02.04.2003. XII. The learned counsel has relied upon the judgment passed by Hon’ble Supreme Court reported in- i. (2022) 3 SCC 237 (Haryana Tourism Ltd Vs Kandhari Beverages Ltd) and referred to paras 8 to 10 of the said judgment to submit that merit of the case cannot be gone into in a petition under Section 34 of the Arbitration and Conciliation Act, 1996. ii. iii. iv. 14 (2021) 9 SCC 1 (Project Director, NHAI Vs. M. Hakeem and Another) to emphasize upon the scope of interference under Section 34 of Act of 1996. (2022) 4 SCC 116 (UHL Power Company Ltd Vs. State of Himachal Pradesh) (Para 15 to 21). (2020) 7 SCC 167 (Patel Engineering Limited Vs North Eastern Electric Power Corporation Ltd) to submit that case will be guided by pre-amended provision as the petition under Section 34 was filed prior to 2015 Amendment and consequently, the judgment passed by the Hon’ble Supreme Court reported in (2015) 3 SCC 49 (Associate Builders Vs. Delhi Development Authority) (paras 17-29, 30-39) would be applicable. The learned counsel has also referred to judgments