Clause 18 Of Vivad Se Vishwas-II Scheme Is Mandatory If Claim Satisfies Twin Test: Orissa High Court

The bench of Justice Sanjeeb K. Panigrahi observed that once a contractor chooses to settle under such terms, the procuring entity cannot deny the claim without violating the legitimate expectation generated by the scheme.

Factual Matrix:

A tender for Railway works was invited by the Appellant, and the Respondent submitted its tender on 30.11.2013. The letter of Award dated 4.12.2014 was issued in favour of the Respondent. The work was scheduled to be completed by 04.04.2016. The parties entered into the contract dated 01.06.2015, specifying the terms and conditions concerning the Railway work.

The Respondent sought an extension of time, which was provided till 30.03.2017. The Appellant terminated the contract vide letter dated 04.04.2017, as the work was not completed within the extended period. The Respondent invoked the arbitration clause. The Ld. Sole Arbitration awarded ₹13.66 crores in favour of the Respondent.

The Appellant challenged the award u/s34 of the A&C Act, which was dismissed while observing that the Award was not in violation of the public policy of India, and did not have any patent illegality on the face of the record. The Appellant then filed the present appeal u/s 37 of the A&C Act. During the pendency of the appeal, the Respondent filed a Writ Petition seeking directions against the Appellant to accept the proposal they submitted in pursuance of the Vivad se Vishwas II (contractual disputes) scheme.

Submissions:

The counsel for the Appellant made the following submissions:

• The Section 34 Court has disposed of the matter in a lackadaisical manner with complete non-application of mind. The impugned judgment is contrary to settled propositions of law.
• The Section 34 Court did not consider the alleged errors in facts committed by the Ld. Sole Arbitrator.

The counsel for the Respondent made the following submissions:

• The scope of interference of the Section 37 Court is extremely limited, and the Court cannot reappreciate evidence at this stage. Also, the Section 34 Court has considered all the material aspects.
• Clause 18 of the scheme envisions reducing the burden of litigation by ensuring that smaller disputes are concluded without unnecessary prolongation. A contrary interpretation would defeat the object of the scheme. Therefore, the proposal dated 03.08.2023 ought to be accepted by the Appellant.

Analysis of the Court:

The bench at the outset observed that on perusal of the impugned judgment and Award, it was clearly demonstrated that the Ld. Sole Arbitrator relied upon the pleadings to determine and quantify the claims. The Section 34 Court in the impugned judgment reiterated the scope of power u/s 34 of the A&C Act. The Section 34 Court had applied its mind. It was after taking into consideration the entire record that the Section 34 Court concluded that the Ld. Sole Arbitrator had arrived at the findings after due consideration of the record.

Therefore, the Section 37 Court does not find that the impugned judgment or the Award is perverse or suffers from patent illegality which requires interference.

Regarding the nature of Clause 18 of the scheme, the bench observed that the clause provides that where the claim amount is ₹500 crore or less, the entity “will have to accept” the claim if the same is covered following the guideline. The essence of the scheme is such that once a claim in compliance with the parameters is made, the procuring entity does not have the discretion to reject it.

The policy mandates that where the claim amount is below ₹500 crore, the claim is to be accepted. The statutory compulsion removes the discretion in the decision-making process of public undertakings. Following the principles of administrative law, an instrument of the State cannot act arbitrarily. Since the scheme stipulates that certain claims "will have to be accepted," there is a binding obligation. If these claims were to be rejected, it would be contrary not only to the scheme but also to the doctrine of fairness under Article 14 of the Constitution.

The bench further observed that the scheme resulted from contractors frequently succeeding in arbitration and litigation against the State, resulting in higher financial liabilities with interest. There was a legislative wisdom to settle at a reduced figure upfront. If a contractor chooses to settle the dispute in accordance with the terms of the scheme, the procuring authority is duty-bound to accept the claim. Furthermore, the doctrine of legitimate expectation is of utmost relevance, as the Contractor reading the scheme would believe that if awards are within the stipulated parameters, a final settlement could be obtained. The fixed timelines in the scheme impose a duty on the procuring entities to act with expedition.

The bench observed that the obligation created by the scheme is mandatory in nature. Once the twin conditions are satisfied, firstly, the Award is monetary, and secondly, it is below ₹500 crores, the procuring entity shall accept the claim. The language of the scheme leaves no room for discretion.

Per the above discussion, the Court dismissed the Section 37 appeal. While dismissing the Writ Petition, the Court gave directions to the Appellant to disburse the claim amount if the proposal made by the Respondent is made in accordance with the scheme.