ORDER
F.I. Rebello, J.
1. The petitioners, by the present Petition, impugn the Award dated 26th December 1998. It is not necessary to go into all the controversies considering the challenges to the award. Though the arbitral clause was invoked before coming into force of the Arbitration and Conciliation Act, 1996 (for short, “the said Act”) and as the arbitral clause was same and/or similar to the clause interpreted by the Apex Court in the case of Thysesen Stahlunim GNHB v. Steel Authority of India, , the Petitioners have invoked the provisions of the said Act. Consequently, the challenges are restricted to those as contained in Section 34 of the said Act. After arguments on behalf of the petitioners, written arguments have been filed. The claims and the counter-claims were the subject-matter of submission to arbitration by the parties. The Arbitral Tribunal has decided only claims and counter-claims which were submitted for decision.
2. The first challenge, as raised by the petitioners, is to the rejection of their counter claim. It is contended on behalf of the petitioners that considering Clause 2 read with Clause 25 of the Arbitration Agreement, the decision as to imposition of penalty would be falling within the decision of the Superintending Engineer. Once that be the case, the Arbitrator had no jurisdiction. For that purpose, reliance is placed on the judgment of the Apex Court in the case of Viskwanath Sood v. Union of India and Anr. . On the other hand, on behalf of the respondents, it is contended that the petitioners themselves had referred the matter for decision of the Arbitral Tribunal. In other words, though Clause 25 of the Arbitration Agreement provided that the decision of the Superintending Engineer would be final, the petitioners having called upon the Arbitral Tribunal to decide the claim, they have waived their right, if at all under Clause 25. Learned Counsel has relied, for that purpose, on the judgment of the Apex Court in the case of Food Corporation of India v. Sreekanth Transport .
In the instant case, under Clause 2, the contractor was bound to complete the work strictly as per the time schedule. On failure to complete the work in time schedule, an amount equal to 1% or such smaller amount as the Superintending Engineer may decide, would be levied, which would not exceed 10% of the estimated cost of the work as shown in the tender. The decision of the Superintending Engineer was to be final. It is an admitted position that, in fact, the Superintending Engineer, in the course of work, did not impose such penalty, but that penalty was levied subsequently by letter of 16-7-1992. The time for completion was extended upto 30-11-1991. It is in this context that the challenge of the petitioners will have to be considered. The learned Counsel for the petitioners contends that the challenge would fall under Section 34(2)(a)(iv) and/or (v) and/or it would fall under Section 34(2)(b)(ii) of the said Act. To understand this argument, it will be necessary to first consider the authorities relied upon, to find out whether that contention, as raised, is sustainable. In the case of Vishwanath Sood (supra), the Appellant therein had claimed certain damages. A counter claim to that effect was filed by the Union of India i.e. the respondent therein in respect of those damages. The Arbitrator awarded an amount in the sum of Rs. 20,000/- which was a lesser amount than claimed by the respondents. The Award, as passed, was the subject-matter of challenge. Learned Judge, insofar as the amount awarded as compensation in favour of the respondents, held that it was not open for the Arbitrator to have entered upon a reference as reading of Clause 25 with Clause 2 it was only the Superintending Engineer or the Development Commissioner who could have adjudicated upon that dispute. In Appeal, that order was set aside by the Division Bench. In Appeal to the Apex Court, the question was whether the compensation awarded under Clause 2 is excluded from the scope of arbitration under Clause 25. The Apex Court observed that such clause in the contract provided a kind of penalty in the form of compensation to the Department for default in adhering to the time schedule. The Court also noted that Clause 2 therein contains a complete machinery for determination of the compensation which can be claimed by the Government on the ground of delay on the part of the contractor in completing the contract as per the time schedule agreed between the parties. The decision of the Superintending Engineer was in the nature of a considered decision, which he arrives at after considering the various mitigating circumstances that may be pleaded by the contractor or his plea that he is riot liable to pay compensation at all under the clause. In the light of that, the Court observed as under :–
“Our conclusion, therefore, is that the question of awarding compensating under Clause 2 is outside the purview of the arbitrator and that the compensation determined under Clause 2 either by the Engineer-in-charge or on further reference by the Superintending Engineer will not be capable of being called in question before the arbitrator.”
Another Bench of the Apex Court in the case of Food Corporation of India (supra) was considering the issue of excepted matters. There also the situation was similar and the clause therein expressly provided that adjudication shall be effected by a Senior Regional Manager, whose decision shall be final and binding on the contractor. On observing the pleadings, the court noted that the F.C.I, wanted adjudication of the claims by the Civil Court rather than relying on the adjudicating process available. It is in that context that the clause was examined. The Court observed that it is being for the benefit of the Governmental Authorities, it could have been waived or abandoned. The Court observed as under:–
“There is as a matter of fact, thus on the state of facts, as above, appears to be a positive relinquishment or abandonment of a right so far as the adjudication of the excepted matters are concerned by the Appellant-Corporation since the Corporation itself wanted to have it adjudicated by a Civil Court.”
From the above judgment, it is clear that though under the contract it was the Superintending Engineer, who had to impose the amount, yet it would be open to the petitioners however to waive the right by reference of their claim for adjudication to the Arbitrator. The penalty would be in the nature of a damage. This will also have to be considered having regard to Section 4 of the Act of 1996. Under Section 4, it is provided that a party who knows that (a) any provision of this Part from which the parties may derogate, or (b) any requirement under the arbitration agreement has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time limit is provided for stating that objection, within that period of time, shall be deemed to have waived his right to so object. Though the provisions of Section 4 may not be itself available, yet it supports the proposition for waiver of the finality clause insofar as the claim of the petitioners in respect of an accepted item is concerned. See Narayan Prasad Lohia v. Nikunj Kumar Lohia and Ors., . In the instant case, though the decision of the Superintending Engineer was to be final, yet the respondents by referring the claim for decision of the Arbitral Tribunal as a counter claim, waived their right and left it for decision of the Arbitral Tribunal. Once having so referred, it is not open for the petitioners herein to contend that the Arbitral Tribunal had no jurisdiction. The matter was submitted for decision of the Arbitral Tribunal. It was within the terms of submission and, therefore, would have been the subject-matter of a decision. Hence, considering both, the judgment of the Apex Court in the case of Food Corporation of India (supra) and Section 4 of the Arbitration and Conciliation Act, 1996, the challenge on that count must be rejected. The judgment in Vishwanath Sood (supra) in the facts of the case would be clearly distinguishable. The other aspect of the matter is that the Arbitrator has considered the matter in extenso and has held that the petitioner has not placed any evidence as to any notice having been issued by the Superintending Engineer under the provisions of Clause 2, delaying a reasonable extended date of performance and levy compensation thereafter relying on the judgment of the Apex Court in Vishwanath Sood (supra) when the Apex Court observe), that it is something which the Engineer in-charge enforces from time to time. It is not a power to impose a lump sum after the contract was concluded. It is not necessary for this Court to go into the issue of public policy considering what has been said above. The challenge in that Court is rejected.
One other aspect may also be noted. It was open to the Respondents under Section 16 of the Act of 1996 to raise an objection to the jurisdiction of the Arbitral Tribunal to decide the counter-claim, even if it was referred by the petitioners themselves. No such objection was raised by the petitioners herein. There other aspect is that the clause empowering the named authority under the contract to deduct the amount is in the nature of a penalty. See Fatechand v. Balkishan Dass ; Union of India v. Raman Iron Foundry ; O.N.G.C v. Macqrequor and Navire Port Equipment and Ors. . Having left the issue for determination of the Arbitral Tribunal, the respondents cannot now be permitted to raise the issue, more so as the deduction was in the nature of the penalty and further had to be deducted in the course of the progress of the work and after giving an effective opportunity to the respondents to cure the defect. That was not done. The case is definitely not a case of want of jurisdiction. See West Bengal State Electricity Board v. Calcutta Electric Supply Corporation Ltd. .
3. The next challenge by the petitioners is to the awarding of claim No. 3 viz. extra royalty. It was contended that considering Clause 17 of the Notice inviting Tender and Clause 38 of the Conditions of Contract, the Arbitrator acted without jurisdiction in awarding the amount claimed. The claim was the subject-matter of a submission. Assuming so, the Arbitral Tribunal, it is contended, could still decide whether it falls within the terms of the contract. The Arbitral Tribunal has recorded its findings. It has been reiterated here that the amount claimed was in the nature of a tax or at any rate considering Clause 17 read with Clause 38, the amount could not be claimed. The Arbitrator has awarded the amount as set out in the Award. Clause 17 of the contract provides that sales tax or any other tax shall be paid by the contractor. Clause 38 provides that sales tax or any other tax on material in respect of the contract shall be payable by the contractor and Government shall not entertain any claim whatsoever in this respect. Clause 38(2) provides that if pursuant to or under any law, notification or order any royalty, cess, fee or the like becomes payable by the Government of India and does not at any time become payable by the contractor to the State Government/Local Authorities in respect of any material used by the contractor on the works, then in such a case, it shall be lawful for the Government of India and it will have the right and be entitled to recover the amount paid in the circumstances as aforesaid from the dues of the contractor. Royalty, admittedly, is not a tax. Clause 17 therefore would not be attracted. The question is whether the award is liable to be set aside for any ground under Section 34 of the Act. The matter was for consideration as a submission before the Arbitrator. It was not a claim which was not submitted. The Arbitrator has given his decision on the said reference/claim. What has been awarded is only increase in royalty. There is no specific clause including Clause 10(cc) which bars claim from extra royalty. Clause 38 was up for consideration. Considering that, to my mind, it would not fall within any of the predicates under Section 34 of the Act of 1996. It is no doubt true that on behalf of the petitioners, their learned Counsel had drawn attention of the Court to the judgment of the Apex Court in the case of Steel Authority of India Ltd. v. J.C. Budharaja, Government and Mining Contractor . In that case, the issue was an Award under the Arbitration Act, 1940. Considering the law, as it then stood, the Apex Court had once again reiterated that an Award passed in disregard of express terms of the contract would be arbitrary capricious and without jurisdiction. In order to succeed in the Arbitration and Conciliation Act, 1996, a challenge must be available or made out under Section 34. Assuming there is an error of law, the error of law must be apparent on the face of the Award. A cogent reading of Clauses 17 and 38 shows that what cannot be claimed is tax. Under Clause 38(2) if the Government pays royalty it is entitled to deduct the same from the contractor. That does not mean that if the royalty is increased, the contractor was barred from so claiming. The issue was in issue and has been answered. To such a finding, there is no challenge available. To the same effect, is the judgment of the Apex Court in the case of Associated Engineering Co. v. Government of Andhra Pradesh and Anr. . A reference was also made to the judgment of a Division Bench of the Delhi High Court in the case of Delhi Development Authority v. U. Kashyap reported in 1999(2) Raj 91 (Del). All those judgments having been delivered under the Arbitration Act, 1940, they really would not be of assistance. A mere error of law would not fall under the ground of public policy. See Vijaya Bank v. Maker Development Services Pvt. Ltd., 2001(3) BCR 652. To challenge an award or part of the award a challenge must be available under Section 34 of the new Act i.e. Arbitration and Conciliation Act, 1996.
4. That brings us to the next challenge, namely, the claim awarded in terms of Claim No. 5. The amount claimed under Claim No. 5 was a statutory increase in P.O.L. prices. The objection raised on behalf of the respondents was that the claim was extra contractual and not tenable. The learned Arbitrator, after considering the contentions of both the parties and referring to clause 33.8.3.2, held that it is applicable only to a building work where P.O.L. component is very small. After considering and referring to various judgments including observations of the Apex Court in the case of Tarapore and Co. v. Cochin Shipyard Ltd., Cochin, an Award was passed in the sum of Rs. 98,500/-. To my mind, this is purely a finding of fact. That being so, the predicates of Section 34 of the said Act would not be attracted. That ground must also be rejected.
5. Lastly, the challenge was to Claim No. 8. It was contended that considering Clause 10(cc), the Arbitrator exceeded his jurisdiction in awarding the amount beyond the period of the contract. On the other hand, on behalf of the respondents, their learned Counsel has drawn attention to letter dated 16th July 1992 which forms part of the record. By that letter, it is clearly set out that extension of time for completion of the above-mentioned work was granted by the Engineer-in-Chief upto 30th November 1991 without prejudice to the rights of the Government to recover liquidated damages in accordance with the provisions of Clause 2 of the Arbitration Agreement. Clause 10(cc), therefore, would not be attracted as the amount awarded is within the period of the contract. Once that be so, Section 34 of the said Act would not be attracted. In the circumstances, the challenge as raised in this petition must be rejected.
Nothing further survives in the petition, which is accordingly dismissed. There will be no order as to costs.
6. The learned Counsel for the petitioners seeks a stay of this order. The order has been passed after hearing parties. There is no question therefore of staying the order. In the light of that, the application for stay is rejected. The respondents had given a Bank Guarantee at the time of withdrawal of the amount deposited. Considering that the challenges as raised by the petitioners are rejected, the Prothonotary and Senior Master is directed to return the Bank Guarantee to the respondents after a period of 30 days from today.