C.R. No. 443 of 2008 [1] IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. Date of Decision: September 11, 2009 1. C.R. No. 443 of 2008 Food Corporation of India …..Petitioner Vs. M/s J.V. Rice Mills and others …..Respondents 2. C.R. No. 444 of 2008 Food Corporation of India …..Petitioner Vs. M/s J.V. Rice Mills and others …..Respondents CORAM: HON’BLE MR. JUSTICE M.M.S. BEDI. -.- Present:- Mr. K.K. Gupta, Advocate for the petitioners. Mr.Amit Singla, Advocate for the respondents. -.- C.R. No. 443 of 2008 [2] M.M.S. BEDI, J. (ORAL) This order will dispose of two Civil Revision petitions bearing Nos. 443 and 444 of 2008, as common question of law and facts arise in the same. The petitioner- Food Corporation of India has approached the High Court by way of this revision petition under Article 227 of the Constitution of India for setting aside of the only observation by the Arbitrator that as District Manager, Hisar was not authorized to file the claim petition though the petitioner is entitled to recover Rs.167875/- from the respondent-miller besides a sum of Rs.12805/- as price of the rice less delivered by the miller to the petitioner. The petitioner Corporation had filed the claim against M/s J.V.Rice Mills Tohana. The Indian Council of Arbitration (ICA) had appointed Justice R.N. Mittal, Retd., as Arbitrator. The respondent Miler contested the claim of the petitioner, inter-alia on the ground that it had not been filed by duly a authorized person. Besides this a counter-claim for recovery of Rs.187275/- was filed by the miller against the petitioner Corporation being the milling charges, stitching charges and security. The Arbitrator vide award dated February 14, 2001 framed total 12 questions for determination. Though the claim of the petitioner Corporation for recovery of Rs.167875/- was allowed but while deciding question No.2, it was held that the Corporation could not claim the said amount as the District manager, Hissar, who had filed the claim petition was not authorized to file the claim as it was only Senior Regional Manager who had been given C.R. No. 443 of 2008 [3] powers to file claims before the Arbitrator. Simultaneously the counter- claim of the respondent miller was allowed holding that miller was entitled to recovery Rs.133910/- besides a sum of Rs.40000/- deposited as security. It appears that the respondent did not file any application under Section 34 of the Arbitration and Conciliation Act, 1996, (hereinafter referred to as ‘the Act’). The petitioner filed an application under Section 34 of the Act. Vide impugned order, the Additional District Judge dismissed the application holding that the Senior Regional Manager/ Regional Manager was competent to make a reference to the Indian Council of Arbitration of the dispute upto Rs.10 lacs and thereafter Zonal Manager was competent to make reference to the Arbitrator and to contest the claim before the Arbitrator as per circular Ex.P-5, dated August 11, 1994, letter annexure P-6 dated February 19, 1998, Ex.P-4 dated February 7, 1998 and Ex.P-3 notification dated June 10, 1980. The Additional District Judge, Hissar, had, relying on Ex.P-5, circular dated August 11, 1994 has observed that the Senior Regional Manager and Zonal Manager have been delegated with powers to sanction reference to the arbitration and to contest the claims before the Arbitrators through Indian Council of Arbitration. The said power has been delegated to Regional/ Zonal Manager by Board of Directors of the petitioner and that the said power cannot be re-delegated. The re-delegation of power by Senior Regional Manager to District Manager, Hissar, vide letter Ex.P-6, dated February 19, 1998 was against law. C.R. No. 443 of 2008 [4] Counsel for the petitioner has contended that Corporation vide resolution dated July 18, 2006 in a meeting of Board of Directors has resolved that reference of the dispute between the Food Corporation of India and M/s J.V. Rice Mills, Tohana, to the Indian Council of Arbitration (ICA), New Delhi, and further conducting the case before the Arbitrator through the District Manager, FCI, Hissar, as Principal Officer of the FCI, leading to the passing of the Award No.991 and 993 by the Arbitrator, stands ratified. Counsel for the petitioner has contended that in view of the said ratification, technical objection of the respondent stands nullified. Reliance has been placed on Punjab University Vs. V.N. Tripathi and another, 2002 SCC (L&S) 25, wherein it has been held that ratification can relate back in time when the action was taken by an authority without there being any authorization under the regulations. Similarly, reliance has also been placed on United Bank of India Vs. Naresh Kumar and others, (1996) 6 SCC 660 to contend that substantive rights should not be allowed to be defeated on technical ground of procedural irregularities so as to ensure that no injustice is done to any party. Counsel for the respondent has taken a preliminary objection that the revision petition is not maintainable. In support of his contention, he placed reliance on Punjab State Warehousing Corporation Vs. M/s Shiv Shankar Rice Mills and others, (2007-4) Punjab Law Reporter 399, to contend that only an appeal under Section 37 of the Act is maintainable before this Court. C.R. No. 443 of 2008 [5] I have heard counsel for the petitioner as well as counsel for the respondent. A perusal of M/s Shiv Shankar Rice Mills case (supra) indicates that this Court relying upon M/s Essar Constructions Vs. N.P. Rama Krishna Reddy, 2000 (3) RCR (Civil) 281, held that though an appeal is maintainable under Section 37 of the Act against an order dismissing the objections under Section 34 of the Act but since the revision petition also lies before the High Court, in the interest of justice, the revision petitions were converted into appeals. Rules are the hand-maiden of justice. The circumstances of the present case warrant that the revision petitions may be treated as appeals, as this Court has got jurisdiction under Section 37 of the Act to hear an appeal against the impugned order. Another point which has been raised in the present case is that the Arbitrator did not have jurisdiction to decide a counter claim. Since the said legal point has not been pressed seriously at the time of arguments, therefore, the controversy whether the Arbitrator has got an authority to decide a counter-claim without the same having been referred to it is left open but the fact remains that the counter-claim of the respondent for recovery of money has been allowed pursuant to the same claim petition which has been held to be not maintainable on account of District Manager having no jurisdiction. It is a settled principle of law that the substantive rights should not be allowed to be defeated on technical grounds on procedural irregularities, so as to ensure that no injustice is done to any party. Before adverting to the merits of the case, it will be relevant to take C.R. No. 443 of 2008 [6] into consideration the scope of Section 34 of the Act, which reads as follows:- “34: Application for setting aside arbitral award. – (1) Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and subsection (3). (2) An arbitral award may be set aside by the court only if- (a) The party making the application furnishes proof that- (i) A party was under some incapacity, or (ii) The arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or (iii) The party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (iv) The arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains C.R. No. 443 of 2008 [7] decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or (v) The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or (b) The court finds that- (i) The subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or (ii) The arbitral award is in conflict with the public policy of India. (3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had C.R. No. 443 of 2008 [8] been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal: Provided that if the court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter. (4) On receipt of an application under sub-section (1), the court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award.” Scope of Section 34 of the Act came up for consideration before Hon’ble Supreme Court in the case of Oil and Natural Gas Corporation Ltd. Vs. Saw Pipes Ltd., 2003 (5) SCC 705 wherein it was held that an award can be set aside if the Arbitral tribunal has not followed the mandatory provisions of law. It was held that award can be set aside if it is contrary to : (a) fundamental policy of Indian Law; or (b) the interest of India; or C.R. No. 443 of 2008 [9] (c) justice or morality; and (d) In addition, if it is patently illegal. Relevant portion of the Saw Pipe’s case (supra) reads as follows:- “The question, therefore, which requires consideration is - whether the award could be set aside, if the arbitral tribunal has not followed the mandatory procedure prescribed under Sections 24, 28 or 31(3), which affects the rights of the parties ? Under sub-section (1)(a) of Section 28 there is a mandate to the arbitral tribunal to decide the dispute in accordance with the substantive law for the time being in force in India. Admittedly, substantive law would include the Indian Contract Act, the Transfer of Property Act and other such laws in force. Suppose, if the award is passed in violation of the provisions of the Transfer of Property Act or in violation of the Indian Contract Act, the question would be - whether such award could be set aside ? Similarly, under sub-section (3), arbitral tribunal is directed to decide the dispute in accordance with the terms of the contract and also after taking into account the usage of the trade applicable to the transaction. If arbitral tribunal ignores the terms of the contract or usage of the trade applicable to the transaction, whether the said award could be C.R. No. 443 of 2008 [10] interfered ? Similarly, if the award is non-speaking one and is in violation of Section 31(3), can such award be set aside ? In our view, reading Section 34 conjointly with other provisions of the Act, it appears that the legislative intent could not be that if the award is in contravention of the provisions of the Act, still however, it couldn't be set aside by the Court. If it is held that such award could not be interfered, it would be contrary to basic concept of justice. If the arbitral tribunal has not followed the mandatory procedure prescribed under the Act, it would mean that it has acted beyond its jurisdiction and thereby the award would be patently illegal which could be set aside under Section 34.” “……. In our view, the phrase `Public Policy of India' used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the C.R. No. 443 of 2008 [11] administration of justice. Hence, in our view in addition to narrower meaning given to the term `public policy' in Renusagar's case (supra) it is required to be held that the award could be set aside if it is patently illegal. Result would be - award could be set aside if it is contrary to :- (a) fundamental policy of Indian law; or (b) the interest of India; or (c) justice or morality; or (d) in addition, if it is patently illegal. Illegality must go to the roof of the matter and if he illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the Court. Such award is opposed to public policy and is required to be adjudged void.” Similar is the ratio of Hindustan Zinc Ltd. Vs. M/s Friends Coal Carbonisation, 2006 (2) SLJ (SC) 1143, wherein it was held that award contrary to the substantive provisions of law or the provisions of the Arbitration and Conciliation Act, 1996 or against the terms of the contract, would be patently illegal and if it affects the rights of the parties, is open to interference by Court under Section 34 (2) of the Act. Following the ratio of judgment of Saw Pipes Ltd. case (supra) and Hindustan Zinc Ltd. read in context to the provisions of Section 34 (2) of the Act, I am of the opinion that where any observation is contrary to the C.R. No. 443 of 2008 [12] substantive principles of law or patently illegal effecting the rights of the parties, is open to be interfered by the Courts under Section 34 (2) of the Act. The Lower Court has wrongly held in order dated March 20, 2006 that there is nothing in the award of the Arbitrator which is against the substantive law. Though this Court is not expressing any opinion regarding the procedure of decision of counter-claim adopted by the Arbitrator but it not out of place to observe here that in Bharat Barrel and Drum Mgd. Co. (P) Ltd. Vs. Indian Oil Corporation and another, 84 CWN 672, it was held as follows:- “A cross-claim cannot be entertained by an arbitrator in a reference unless there is a dispute in existence. The absence of a dispute regarding a claim means complete absence of jurisdiction of the arbitrator to try such claim. In the instant case, the counter claim cannot be entertained by the arbitrator and the managing director of respondent No.1 had no authority to direct the arbitrator to consolidate the claim and the counter-claim and to proceed with the arbitration, as directed by him.” Once the Indian Council of Arbitration had sent the reference to the Arbitrator and the parties had submitted to the jurisdiction of the Arbitrator, the principle of estopple would debar the respondent to challenge the authority of the District Magistrate at whose claim the matter had been referred. In the present case, the principle of estopple would debar the respondents to question the maintainability of the claim by District C.R. No. 443 of 2008 [13] Magistrate. Be that as it may, it is important to note that vide resolution dated July 18, 2008 in a meeting of Board of Directors, the authority with District Magistrate, FCI, Hissar, to file claim before the Indian Council of Arbitration and referring the dispute stands ratified. The relevant portion of the resolution is reproduced hereunder:- “Resolved that the reference of the dispute between the Food Corporation of India and M/s J.V. Rice Mills, Tohana, to the Indian Council of Arbitration (ICA), New Delhi, and further conducting the case before the Arbitrator through the District Manager (re-designated as Area Manager), FCI, Hissar, as Principal Officer of the FCI, leading to the passing of the Award No.991 and 993 by the Arbitrator, stands ratified.” I agree with the counsel for the petitioner that in view of the ratification the technical objection of the respondent stands ratified. In this context reliance can be placed on Punjab University Vs. V.N. Tripathi and another, 2002 SCC (L&S) 25. In the said case, the Registrar of the Punjab University, though a representative of the University, under Section 21 of the Punjab University Act had no authority to institute a suit or file appeal but he had filed certain suits and appeals. The said action of the Registrar had been ratified by Senate of the University by a resolution on the recommendation of the Syndicate. It was held that the retrospective authorization to file an appeal under the regulations of Punjab University stood ratified. C.R. No. 443 of 2008 [14] Following the ratio of the said judgment, I am of the opinion that the administrative action of the District Manager, Hisar, in making a reference to the Arbitrator and putting forth a claim before the Arbitrator stood ratified by the subsequent resolution of Board of Directors. In view of the said event, the finding of the Arbitrator that the claim had not been forwarded by a duly authorized person, would not prejudice the rights of the petitioner to claim the benefit of the award passed in favour of the petitioner (appellant) as the revision petitions have been converted into appeals. The over-all award of the Arbitrator is upheld but the observation under question No.2 that the District Manager, Hisar, has not been authorized to file the claim petition is declared illegal and not binding on the rights of the petitioner. The appeal is allowed to that extent only. The impugned order passed under Section 34 of the Act is set aside, on question No.2. September 11, 2009 (M.M.S.BEDI) sanjay JUDGE