1 APPEAL NO.306/2008 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL NO.306 OF 2008 IN ARBITRATION PETITION NO.202 OF 2007 M/s.Monarch Erectors Pvt.Ltd. .. Appellant (Org.Respondent) V/s Bhiwandi Nizampur City Municipal Corporation .. Respondent (Org.Petitioner) Mr.Subodh Dharmadhikari, Sr.Advocate, with Mr.Deven Chauhan, Mr.Kartik Shukul, Mr.Filji Frederick and Ms.Suvarna Joshi i/by FF & Associates for the Appellant. Mr.R.S.Apte, Sr.Advocate with Mr.N.R.Bubna for the Respondent. CORAM: D.K.DESHMUKH & R.G.KETKAR, JJ. DATE: 11th August, 2011. JUDGMENT: (Per R.G.Ketkar, J.) 1. This appeal is preferred by M/s.Monarch Erectors Pvt.Ltd., hereinafter referred to as the claimant, challenging the judgment and order dated 16.04.2008 passed by the learned Single Judge in Arbitration Petition No.202 of 2007. That Arbitration Petition was preferred by the Municipal Corporation of the City of 2 APPEAL NO.306/2008 Bhiwandi Nizampur, hereinafter referred to as the Corporation, under section 34 of the Arbitration and Conciliation Act, 1996 (for short ‘Act’) challenging the award dated 21.12.2006 as corrected on 14.02.2007 of the learned Arbitrator. 2. By that award the learned Arbitrator held that the claimant is entitled to Rs.11,55,00,000/- (Eleven Crores Fifty Five Lakhs Rupees only) together with interest @ 9% p.a.on that sum from 01.04.2004 till actual date of payment, plus costs of Rs.7 lakhs to the claimant and the Corporation to bear its own costs. 3. The facts and circumstances, leading to the filing of the present appeal, briefly stated are as under:- On 11.02.2003 Corporation issued 3rd re-tender notice inviting offers for appointment of agents for octroi collection. The claimant submitted its offer, which was accepted by the General Body of the Corporation under Resolution No.34 passed on 28.02.2003. The approval to the said Resolution from the Government of Maharashtra was accorded on 07.03.2003. Pursuant to this, the Corporation issued letter of acceptance on 10.03.2003. The agreement was entered into between the claimant and the Corporation on 21.03.2003 and the offer of the claimant 3 APPEAL NO.306/2008 for collection of the octroi of the amount of Rs.71,74,57,285/- (Seventy One Crores Seventy Four Lacs Fifty Seven Thousand Two Hundred Eight Five Rupees only) for the period from 22.03.2003 to 28.02.2004 was accepted by the Corporation. The agreement interalia provided that the claimant shall work within the framework of and comply with and bound by all the provisions of (i) the Bombay Provincial Municipal Corporation Act, 1949 and the Rules framed thereunder; (ii) the Maharashtra Municipalities (Octroi) Rules 1968 (for short Rules); (iii) resolutions passed by the then Municipal Council of Bhiwandi and now the Corporation and (iv) any other authorities or bye-laws in respect of the imposition, levy and assessment and recovery of octroi and the matters incidental thereto. 4. The agreement further provided that the claimant will be at liberty to appoint his own employees for collection of octroi, who shall be entitled to perform all the duties and functions of Octroi Officers and the Superintendent of Octroi as defined under the 4 APPEAL NO.306/2008 Rules with respect to levy and collection of octroi. Rule 3 of the Rules provides that subject to the provisions of the Maharashtra Municipalities Act, 1965 and the Rules & Byelaws made thereunder, the octroi shall be leviable in respect of several goods specified in Schedule I. Rule 5 thereof provided that every Council shall by resolution passed at the special meeting convened within 60 days, from the date of coming into force of the Rules, fix the rates at which the octroi shall be levied on different goods specified in Schedule I. The description of the goods at Sr.No.61 reads as under:- 61. Piece goods of wool, silk, linen, hemp, cotton, artificial and synthetic materials and articles made up purely or partly of any of the above materials not otherwise specified, and readymade articles of the same. 5. It is the case of the claimant that it was given to understand that it is authorised to collect octroi on different goods entering the city limits of the Corporation for use, sale and consumption at the rate specified in Schedule I of the Rules. Clause 8 of the agreement also provided that the claimant shall collect the entire octroi as per the existing rates, rules, Government/Municipal Corporation’s order, for a period of one year. The Corporation deputed services of as many as 171 employees of the Corporation who worked 5 APPEAL NO.306/2008 with the claimant during the contract period. During the course of working, the number of 171 employees was reduced to 120 for the remainder of the contract period with the claimant. Because of the total strike by the power loom owners and the operators in India as also because of the proposal of the Finance Minister in the Budged Speech to impose textile duty on Textile Industry, there was hardly any collection of octroi till about end of May 2003. The normal collection of octroi started by the end of May 2003 when the claimant realised that the employees of the Corporation on deputation by the claimant were not charging octroi on gray cloth imported from the areas of village panchayats adjoining the city of Bhiwandi Nizampur. The claimant made enquiries with the employees, who informed that they were not collecting octroi of gray cloth being imported from the areas of village panchayats adjoining the city of Bhiwandi Nizampur and those villages were Savanda, Kariwali, Sonale, Katai, Khuni & Selar. 6. The claimant immediately wrote a letter on 07.06.2003 intimating the Commissioner of the Corporation about this aspect and asserted that it was entitled to the compensation. This was 6 APPEAL NO.306/2008 followed by reminders dated 01.07.2003 and 01.08.2003. In view of this situation, the claimant moved the Secretary of Urban Development Department, (for short UDD), Mumbai under clause 23 of the terms and conditions of the contract by filing the statement of claim dated 27.08.2003 claiming an amount of Rs. 07,90,00,000/- being an amount of octroi duty lost because of non collection of gray cloth/ fabric @ Rs.5 lakhs per day for 158 number of days from 22.02.2003 till 26.08.2003 together with interest. On 22.09.2003 the Secretary, UDD directed the Municipal Commissioner to take oral decision in the matter. The Municipal Commissioner by communication dated 10.10.2003 to the claimant informed that the gray cloth was dutiable and the Corporation never prevented the claimant from collecting octroi on gray cloth coming from the power looms adjoining the city of Bhiwandi Nizampur. 7. Aggrieved by the decision of the Secretary, UDD, dated 22.09.2003, the claimant preferred an appeal before the State Government under clause 23 of the terms and conditions of the contract on 31.12.2003. It is the case of the claimant that by communication dated 10.10.2003, the Commissioner informed 7 APPEAL NO.306/2008 that the Corporation had never prevented the claimant from recovering the octroi on gray cloth. The claimant started collection of octroi on gray cloth from the areas of village panchayats adjoining the city of Bhiwandi Nizampur and this fact was informed by the communication dated 14.10.2003. On 18.10.2003 the General Body of the Corporation discussed the subject of collection of octroi on gray cloth imported from the areas of adjoining village panchayats. In that meeting the Mayor of the Corporation asked the Commissioner to stop collection of octroi on gray cloth imported within the city limits from the adjoining areas. The Commissioner accordingly issued letter dated 18.10.2003 to the claimant prohibiting collection of octroi on gray cloth being imported from the areas of six village panchayats adjoining the city of Bhiwandi Nizampur. 8. It appears that on 08.01.2004 the Secretary, UDD, directed to carry out sample survey of quantity of gray cloth being imported within the city limits from the area adjoining six village panchayats for a period of seven days, i.e.from 11.01.2004 to 17.01.2004 through the employees of the Corporation other than those belonging to Octroi Department. Accordingly, under the 8 APPEAL NO.306/2008 supervision of Ward Officer the survey was conducted for seven days and during that period of seven days, 3,97,615 bundles / takas of gray cloth were imported from adjoining village panchayats. 9. The Chief Minister of Government of Maharashtra made an award on 24.03.2004 and awarded compensation of around Rs. 7.70 crores. The said award was challenged by the claimant by filing Arbitration Petition No.279 of 2004 under section 34 of the Act. The Arbitration Petition was disposed of on 04.10.2005. The matter was remitted to the Arbitral Tribunal. The order of this Court was challenged before the Apex Court. The Apex Court set aside the award of the Chief Minister dated 24.03.2004 and appointed Hon’ble Mr.Justice A.A.Halbe (Retired) as the sole Arbitrator to adjudicate and determine the following questions: “(a) Whether the octroi agent (Respondent No.1) had not collected octroi on grey cloth imported within the octroi limits of Bhiwandi Nizampur Municipal Corporation from areas of village panchayats adjacent to Bhiwandi (which are six in number i.e.Savanda, Sonale, Karivali, Katai, Khoni and shelar) after 18.10.2003 till 30.03.2004? (b) Whether any amount can be claimed by the Respondent No.1 from the appellant- Corporation and if so what amount? “ 10.The Apex Court directed that the learned Arbitrator will give an 9 APPEAL NO.306/2008 opportunity to the parties to lead evidence and after hearing them shall make an award and the arbitration shall be governed by the provisions of the Act. 11.Pursuant to this order, the claimant submitted the statement of claim dated 12.03.2006 and claimed Rs.18,74,46,600/- being an amount of octroi not permitted to be collected on gray cloth imported from the areas of village pahchayats. In support of the statement of claim before the learned Arbitrator, the claimant relied upon 25 annexures. The Corporation filed its reply dated 05.04.2006 resisting the statement of claim. In Paragraph No.19 of the reply it was specifically contended that the survey between 11.01.2004 & 17.01.2004 was carried out under the supervision and control of the claimant. The said survey report is manipulated got up document to suit the claim of the claimant. The claimant was aware that its alleged claim of damages was specifically to be based on the said survey report and therefore, the claimant manipulated the survey report. The said survey report is therefore not proper and binding on the Corporation. It was further averred that had the claimant strictly followed the provisions of the Rules, the question of carrying out survey or the calculation of alleged 10 APPEAL NO.306/2008 damages would not have arisen. 12.In support of respective cases, the parties led voluminous oral as well as documentary evidence on record. As noted earlier, the learned Arbitrator awarded compensation of Rs.11,55,00,000/- together with interest @ 9% from 01.04.2004 till the actual date of payment as also the costs quantified at Rs.7 lakhs. 13.Aggrieved by this award, the Corporation filed Arbitration Petition No.202 of 2007 under section 34 of the Act. By the impugned judgment and order dated 16.04.2008 the learned Single Judge allowed the petition and set aside the award dated 21.02.2006. it is against this order the claimant has preferred this appeal. 14.We have herd Mr.Subodh Dharmadhikari, learned Senior Counsel in support of this appeal and Mr.R.S.Apte, learned Senior Counsel on behalf of the Respondent Corporation at length. Mr.Dharmadhikari submitted that the learned Single Judge committed grave error in allowing the petition. The learned Single Judge failed to appreciate the scope of section 34 of the Act. In support of this proposition he relied upon following judgments:- (1)(2006) 11 SCC 181 – McDermoti International Inc V/s.Burn Standard Co.Ltd. & Ors., 11 APPEAL NO.306/2008 (2)2008 (3) Arbi.L.R. 362 (S.C.) - Delhi Development Authority V/s.R.S.Sharma & Co., (3)(2009) 10 SCC 63 – Steel Authority of India Ltd., V/s.Gupta Brothers Steel Tubes Ltd., (4)(2010) 1 SCC 409 – Ravindra Kumar Gupta & Co., V/s.Union of India, (5)2001 (3) Bom.C.R.652 – Vijaya Bank V/s.Maker Development Services. 15.Inviting our attention to the aforesaid judgments, Mr.Dharmadhikari submitted that the award can 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; (d) in addition, if it is patently illegal. The illegality must go to the root of the matter and if the illegality is of trivial nature, it cannot be said that the award is against the public policy. The award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the Court. 16.Mr.Dharmadhikari also relied upon the following judgments for the purpose of quantification of damages; (i) AIR 1959 AP 551 – Y.C.Rattayya & Another V/s.Donepudi Venkataramayya and Others, (ii) AIR 1983 Allahabad 329 – Manager, Hardware and Tools Ltd., V/s. Saru Smelting Pvt.Ltd., 12 APPEAL NO.306/2008 (iii) AIR 1999 SC 1031 – Dwarka Das V/s.State of M.P. 17.Per contra Mr.Apte, submitted that the learned Arbitrator has awarded compensation of Rs.11,55,00,000/- without their being any evidence led by the claimant to substantiate the claim. He submitted that the learned Single Judge was perfectly justified in setting aside the award which was clearly contrary to the fundamental policy of Indian Law as also the award is against the public interest. The learned Arbitrator awarded the claim when there was no legal evidence and the illegality committed by the learned Arbitrator goes to the root of the matter and consequently, the award is against the public policy. 18.The learned counsel appearing for the parties took us through the material on record. With the assistance of the learned counsel, we have gone through the record as also the original registers during the survey period tendered across the bar by the learned counsel appearing for the claimant. After going through the material on record as also the judgments cited at the bar and after hearing learned counsel for the parties, we are of the opinion that the appeal is devoid of any substance and deserves to be dismissed. 19.Before we consider the merits of the case, it would be 13 APPEAL NO.306/2008 advantageous to make reference to some of the provisions of the Rules as it is common ground that the levy and collection of the octroi is according to the provisions of the Rules. Rule 2(c), (d), (e), (f), (g), (h) and (i) define respectively the expressions “Dutiable Goods”, “Entrance Naka”, “Exit Naka”, “Export”, “Form”, “Import” and “Importer”, and they read thus:- Section 2. In these rules, unless the context otherwise requires:- (c) “Dutiable Goods” means the goods specified in Schedule I; (d) “Entrance Naka” means the Octroi Naka at which the goods arrive for the purpose of their import; (e) “Exit Naka” means the Octroi Naka at which the goods arrive for the purpose of their export; (f) “Export” means taking out or movement of any goods from any place within the octroi limits of a Council to any place outside such limits; (g) “Form” means a form appended to these rules; (h) “Import” means bringing or entry of any goods into the octroi limits of a Council from any place outside such limits; (i) “Importer” means the person who imports any goods, and includes any person who owns the goods at the time of the import; 20.Rule 3 provides that the octroi shall be leviable in respect of several goods specified in Schedule I. Rule 4 thereof provides that the goods specified in Schedule II, subject to the conditions or 14 APPEAL NO.306/2008 exceptions, if any, are exempted from payment of octroi, or the octroi is payable at lower rate. Rule 11(1) provides that as soon as any dutiable goods are brought within the octroi limits, the importer or the person incharge of such goods shall take them to the nearest entrance naka, to be dealt with in accordance with the rules. Rule 11 (2) provides that the octroi officer may check any goods at anyh place within the octroi limits, so as to ascertain whether they have been brought from outside octroi limits and if so, whether octroi on such goods has been paid. If, on examination it is found that the importer has not paid any octroi or has paid less than the amount of octroi assessed on such goods under Rule 15, the octroi officer may require the said importer or the person incharge of the goods to pay on the spot the octroi payable in respect of such goods, unless the articles or the part of the goods imported by him has been deposited under Rule 15(2), and if he refuses to make payment on the spot, may require him to take the goods to the nearest octroi naka or the central octroi office at his own expense for the recovery of octroi in accordance with the provisions of the rules. Rule 12 thereof obligates every driver of a vehicle or conveyance of any nature whatsoever, to 15 APPEAL NO.306/2008 stop his vehicle or conveyance at the octroi naka to enable the octroi staff to ascertain whether the said vehicle or the conveyance carries any goods liable to octroi. Every person bringing goods within the octroi limits shall likewise stop at the octroi naka to enable the octroi staff to ascertain whether the goods in his possession are liable to octroi. 21.Rule 14 thereof provides that on arrival of any dutiable goods at the octroi naka, the octroi officer shall call upon the importer or the driver of the vehicle or the conveyance - (a) to make declaration in Form-1 in respect of the goods imported for consumption, use or sale in the municipal area, unless the importer or as the case may be, the driver or the person incharge is prepared to accept the assessment made by the octroi officer and pay the amount of octroi as so assessed; (b) to make declaration-cum-application in Form-2 in respect of the goods intended for immediate export; (c) to present the application in Form 3 in respect of the goods intended for temporary detention in the bonded warehouse, if any, maintained by the Council and eventual export; (d) to make declaration in Form 4 in respect of the goods 16 APPEAL NO.306/2008 intended for temporary detention with himself and eventual export; (e) to make declaration in Form 5 in respect of the goods imported by, or on behalf of, any person, merchantile, firm or body, which has been permitted by the Council to keep current account under section 142 of the Maharashtra Municipal Councils Act, 1965; (f) to give description, number, quantity, weight and measure of the goods, and where the octroi is leviable ad-valorem, to state the value of the goods. Thus, the provisions of the rules are exhaustive and lay down the procedure for levy and collection of octroi. 22.Columns 2, 7 & 8 in Form 1 are to the following effect: Bill of Entry / Railway Receipt / Goods Transport Memo / Air Consignment Note No. Date Sender’s name and address in full Remarks (if any to be filled in by the office) 2 7 8 17 APPEAL NO.306/2008 Likewise Column 1, 6 & 7 in Form 2 are to the following effect: Bill of Entry / Railway Receipt / Goods Transport Memo / Air Consignment Note No. Date The full name and address of the consignor of the said goods The full name and address of the consignee to whom the goods are meant to be conveyed 1 6 7 Columns 1, 6 & 7 of Form 3 are to the following effect: No. and date of import document The full name and address of the consignor of the said goods Remarks 1 6 7 Columns 2, 7 & 8 of Form 4 are to the following effect: No. and date of import document Sender’s name and address in full Remarks 2 7 8 23.In support of the claimant’s case, it examined Jayraj Hiranand Kalayanji, Director of the claimant. He filed evidence of the affidavit dated 21.04.2006 and thereafter filed supplementary affidavit dated 06.10.2006. His cross-examination commenced in the 13th Meeting dated 08.10.2006 and was over in the 20th 18 APPEAL NO.306/2008 Meeting held on 30.10.2006. He was confronted with the registers of survey. The question and answer in that regard are to the following effect: Q: The registers of survey as maintained do not have any column for recording the import of grey cloth coming from adjoining village panchayat areas. What have you to say about it? A: It is not true. There is provided necessary column. It is column No.3. (3rd column – Owner’s and Importer’s full name and address). It is not true that the said column does not even remotely show that they grey cloth is coming from adjoining village panchayat areas. It is true that in the survey register, different columns are provided for recording different information. Column No.5 in the register under the heading ‘Takas imported within the area of Bhiwandi Corporation’. It is true that the said column does not show that it is for import of grey cloth or grey cloth coming from adjoining areas. This is similar in all 23 registers. It is not true that as per the working of the column all types of takas could be entered in that column. It is true that the notice pasted on the register page 1 is an unsigned notice. It is also true that this notice does not specify under whose authority it was issued. In para No.2 it is stated that only grey cloth imported within the area of Bhhiwandi Corporation was to be recorded. 24.His attention was also drawn to the declarations, as also some of the receipts, which was answered to the following effect: “My attention is drawn to the corresponding declaration form R-29 (1) No.255813 under dated 11/1/2004 of Anjur Phata and R-29 (2) No.226927 under dated 13/1/2004 of Bhadwad Naka. On seeing the xerox copies, I can say that they do not show they have come from the distant places. However, I would like 19 APPEAL NO.306/2008 to volunteer and state tht both these nakas have approaches from distant places. Both these nakas are connected with the highway. Consignment from adjoining areas can also come through these nakas. I have seen the original survey registers and I find that both these receipts and declarations are not entered in those registers. However, I cannot say whether they have been signed by our representative or manager in charge. Declarations are signed but I cannot identify the signatures. I believe that this amount must have been credited to out accounts. Although these declarations are signed by checker and clerk, I cannot say whether they are of our company. I cannot say whether I can deny these signatures of my employees. Those who are in charge of survey work has nothing to do with these receipts and declarations. It is possible that they might be my employees because at that time, we had engaged two types of persons, one from on deputation from the Corporation whereas one directly employed by us. These documents were handed over by us to the Corporation as documents maintained by us. In both these declarations original work was ‘cloth’ but ‘grey’ has been entered thereafter. My attention is drawn to R-30 (1), declaration form No.258735 under dated 13/1/2004, Anjur Phata. In that declaration I am unable to trace the place from where these goods were imported. Item No.1 is in respect of cloth. There is indeed some scoring prior to entry of cloth but it is not true that word which is scored out is ‘grey’. I would like to point out that none of the areas of those 6 village panchayats are adjoining this naka. In regard to the remaining 3 declarations, (R-30[2], R-30[3] and R-30[4]) it is true that the entry does not indicate that place from where the cloth was imported. In all these remaining declarations also some word is scored out before the word ‘cloth’, but this was not done by us when we handed over these declarations. The word was only ‘cloth’. I was not personally present on any of these dates when these declarations forms were received and the