PNP 1 ARBAP178.07=26.8 IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O. C. J. ARBITRATION APPLICATION NO.178 OF 2007 M/s. Aarohee Estate Developers Pvt. Ltd. ..Applicant. Vs. Indian Oil Corporation Limited ..Respondent. .... Mr. R.D. Dhanuka with Ms. Vaishali Chaudhary i/b Mrs. A.R. Dhanuka for the Applicant. Mr. Chirag Mody with Anushka Sharda i/b DSK Legal for the Respondent. ..... CORAM : DR.D.Y.CHANDRACHUD, J. 26 August 2010. P.C. : 1. In pursuance of an arbitration agreement which was arrived at between the Applicant and the Respondent on 7 April 1999 there was a reference to a sole arbitrator under the provisions of the Arbitration and Conciliation Act, 1996. The disputes and differences between the parties arose out of a works contract dated 2 September 1996 in respect of sand blasting and painting of verticlar CR/FR tanks at Hazira Terminal of the Indian Oil Corporation Ltd. The sole arbitrator made his award on 19 June 2002 directing the Respondent PNP 2 ARBAP178.07=26.8 to pay to the claimant an amount of Rs.19.82 lacs together with interest. The set off and counter claim sought by the Respondent was dismissed. In an arbitration petition under Section 34, a Learned Single Judge of this Court by a judgment dated 18 August 2004 set aside the arbitral award. The judgment of the Learned Single Judge was confirmed in appeal by the Division Bench on 31 March 2005 and the Special Leave Petition was dismissed by the Supreme Court. The Applicant has invoked the powers of the Learned Chief Justice under Section 11(6) of the Arbitration and Conciliation Act, 1996 for seeking a fresh reference to arbitration on the ground that the arbitration agreement continues to subsist. 2. On behalf of the Applicant it has been submitted that the award of the sole arbitrator was set aside by the Learned Single Judge only on the ground that the counter claim of the Respondent had been rejected in violation of the principles of natural justice and because the award was based on a consideration of material which was incapable of being considered by the arbitrator. The arbitrator PNP 3 ARBAP178.07=26.8 had relied upon a report of Project and Development India Limited though it had not been admitted in evidence. The arbitrator was in the circumstances found to have relied upon material which could not have been alluded to since it was not admitted in evidence. Moreover, despite the fact that no oral evidence was led by the Applicant herein in response to the counter claim, the arbitrator had considered the oral submissions as if they constitute evidence on the part of the Applicant. The Learned Single Judge held that the arbitrator, apart from considering irrelevant material and omitting from consideration relevant material, had misdirected himself in recording findings in favour of the Applicant herein in rejecting the counter claim submitted by the Respondent. Having said this, the Learned Single Judge held that if the finding of the arbitrator on the counter claim was to be set aside, the entire award directing payment to the Applicant on the final bill could not be sustained because consideration of the claim and the counter claim has to be at the “ same time . The Learned Single Judge held as follows : ” If that finding is to be set aside, in my opinion, the award “ made by the Ld. Arbitrator for making payment to the PNP 4 ARBAP178.07=26.8 respondent no.1 as per the final bill can also not be sustained, because consideration of the claim and the counter claim has to be at the same time. The Arbitration Act, does not have a provision for remand, therefore, I put it to the Ld. Counsel appearing therefore, for both sides that in this situation, if the parties agreed the matter can be sent to the Arbitrator for reconsideration. While the petitioner agreed to this suggestions, the respondent no.1 has not agreed and therefore, the only option available to me is to set aside the award.” 3. In appeal the Division Bench affirmed these findings of the Learned Single Judge and came to the conclusion that the finding that the award suffered from complete non-application of mind was justified. The judgment of the Division Bench also comes to the conclusion that the rejection of the counter claim of the Respondent was improper. 4. From the judgments of the Learned Single Judge and of the Division Bench it is evident that the award of the arbitrator was set aside on the ground that the rejection of the counter claim of the Respondent was vitiated as a result of the fact that the arbitrator had misdirected himself in relying upon a document which had not been PNP 5 ARBAP178.07=26.8 admitted in evidence. Moreover, though the Respondent had led evidence in support of its counter claim and the Applicant had not led any evidence, the counter claim had been rejected merely on the basis of the submissions which were urged on behalf of the Applicant. The award, insofar as it allowed the claim of the Applicant, was consequently set aside not on merits, but on the ground that the claim and the counter claim had to be considered together. 5. Now the question which arises before the Court is as to whether the arbitration agreement can be said to subsist so as to warrant recourse to the powers under Section 11(6) of the Act. This issue is not res integra. In its decision in Mc Dermott International Inc. v. Burn Standard Co. Ltd.1 the Supreme Court observed as follows : The 1996 Act makes provision for the supervisory role of “ courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice, etc. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to being the 1(2006) 11SCC 181. PNP 6 ARBAP178.07=26.8 arbitration again if it is desired. So, the scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court s’ jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it. (emphasis supplied) ” 6. The same view was taken in a judgment of a Division Bench of this Court in Pushpa Mulchandani v. Admiral Radhakishan Tahliani (Retd.)2. Subsequently a Full Bench of this Court in R.S. Jiwani v. Ircon International Ltd.3 set aside the judgment in Mulchandani s. case to the extent to which it had held that an award ’ cannot be modified even by segregating that part which can be upheld, once it is found that a part of the award is liable to be set aside. The observations of the Division Bench in Pushpa Mulchandani s’ case noted above, however, continue to reflect the correct position in law since that was not an issue which was referred to or decided by the Full Bench. That apart, as noted earlier the judgment of the Supreme Court in Mc Dermott clearly contemplates that an award being quashed would leave the parties free to begin an arbitration again if it is so desired. A similar view has been taken by 2 2008(7) L J SOFT 161. 3 2010(1) Bom. C.R. 529. PNP 7 ARBAP178.07=26.8 a Learned Single Judge of this Court, Mr. Justice S.J. Vazifdar in Arbitration Application 18 of 2007 which was decided on 8 July 2010. In a situation such as the present where the arbitral award has been set aside not on merits but because the rejection of the counter claim was held to be vitiated by a breach of the principles of natural justice, by a failure of the arbitrator to consider evidence and because of the arbitrator having considered a document which was not admitted in evidence, the right of recourse to the arbitration agreement under Section 11(6) is not barred. It is open to the Applicant to invoke the provisions of Section 11(6) and to seek a reference to arbitration. In the circumstances, the Arbitration Application is allowed. The disputes and differences between the parties, insofar as they arise out of the works contract dated 2 September 1996 (as more particularly referred to in the articles of agreement dated 7 April 199, Exhibit B to the Application) are referred to the sole arbitration of Dr. Justice B.P. Saraf, Former Judge of this Court. The Prothonotary & Senior Master is directed to transmit a copy of this order, together with the Memorandum of address of the parties to the Learned Arbitrator forthwith. (Dr. D.Y.Chandrachud, J.)