IN THE HIGH COURT OF HIMCHAL PRADESH SHIMLA. Arbitration Appeal No. 6 of 2003. Judgment reserved on: 17.11.2008 Date of Decision: November 24 , 2008 _________________________________________________________ M/s Amar Nath & sons …appellant(s) Versus. .The State of H.P. …respondent(s) Coram: The Hon’ble Mr. Justice Deepak Gupta, Judge. The Hon’ble Mr. Justice V.K.Ahuja, Judge. Whether approved for Reporting?No. For the Appellant(s): Mr. J.S.Bhogal, Sr. Advocate with Mr. Suneet Goel, Advocate. For the Respondent(s): Mr. R.M.Bisht, Deputy Advocate General with Mr. Rajesh Mandhotora, Deputy Advocate General. ___________________________________________________________ Deepak Gupta, J. This appeal is directed against the order of a learned Single Judge of this Court dated 28.2.2003 passed in OMP(M) No. 15 of 2002 whereby he has partly allowed the objections filed by the State. Briefly stated the facts of the case are that part of the work of ‘up-gradation and improvement of ‘Swarghat Nalagarh Maranwala road’ was awarded by the State of H.P. to the appellant, hereinafter referred to - 2 - as the Contractor. A dispute regarding certain claims arose between the parties which were referred to the Arbitrator i.e. the Superintending Engineer, Arbitration. The arbitrator made his award on 16.3.2001 and allowed certain claims of the contractor. Objections to the said claims were filed by the State of H.P. Two of the objections filed by the State were allowed by the learned Single Judge. The first objection of the State which was allowed was that according to the State the contractor himself had agreed to a rate of Rs.475/- per 10 sq. mtrs. for the substituted item of laying built up spray grout. The contractor in his claim had claimed the rate of Rs.630.82 paise per 10 sq. mtrs. whereas the department had only allowed the rate at Rs.475/- per 10 sq. mtrs. The arbitrator came to the conclusion that since the Executive Engineer–in-charge of the work has recommended rate of Rs. 604.82 per 10 sq. mtrs. and nobody had objected to this rate, therefore, the contractor was entitled to the rate of Rs.604.82 paise per 10 sq. mtrs. for the said work. The argument raised on behalf of the State was that in fact the contractor himself had agreed to the rate of Rs. 475/- per 10 sq. mtrs. for this item and, - 3 - therefore, the arbitrator could not have awarded the higher item of rate. It is not in dispute that the arbitrator had initially recommended the rate of Rs.604.82 paise per 10 sq. mtrs. in the year 1995. This rate was never awarded as such. In the year 1996, the contractor was informed vide letter dated 17.6.1996 that he would be given the rate of Rs.475.52 paise per 10 sq. mtrs. The contractor replied to this letter on 10.2.1997 and accepted the fact that the rate for this additional item was Rs. 475.52 paise per 10 sq. mtrs. Therefore, the learned Single Judge held that merely because the Executive Engineer-in-charge had earlier recommended the higher rate would not mean that the contractor was entitled to the higher rate. The learned arbitrator has totally disregarded the letter sent by the contractor in the year 1997. Shri J.S.Bhogal learned senior counsel for the appellant has strenuously argued that the learned Single Judge has gravely erred in re-appreciating the evidence and that he had no right or authority to interfere in the award of the arbitrator. He submits that the award of the learned arbitrator, even if it is wrong, cannot be interfered with. - 4 - The apex Court in Oil & Natural Gas Corporation Ltd. versus Saw pipes Ltd. (2003) 5 SCC 705, had interpreted the phrase “public policy of India” as under:- "…….. "Public policy, however, is not the policy of a particular government. It connotes some matter which concerns the public good and the public interest. The concept of what is for the public good or in the public interest or what would be injurious or harmful to the public good or the public interest has varied from time to time.” It is thus obvious that any award which is patently illegal and the illegality goes to the root of the matter is against public policy. An award can be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. In para 31 of the aforesaid judgment, the apex Court held as follows:- “31. Therefore, 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 administration of justice. Hence, in our view in addition to narrower meaning given to the term `public policy' in - 5 - 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 the 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.” In the present case, it is apparent from the reading of the letter sent by the contractor that he had agreed to the rate finally approved by the Executive Engineer-in- charge. Therefore, the learned Single Judge was right in holding that the arbitrator had no right to award a higher rate in favour of the contractor. The award was against the public policy, inasmuch as, it is patently illegal and against the evidence on record. The learned Single Judge also held that the arbitrator had no jurisdiction to arbitrate on the compensation levied under clause 2 of the agreement. - 6 - It has been urged on behalf of the contractor that the decision in Vishwanath Sood v. Union of India and another, AIR 1989 Supreme Court 952, is not at all applicable to the present case. According to Shri Bhogal, in the present case, the decision was not taken by the Superintending Engineer whose decision was final and binding but by the Engineer-in-charge. Shri Bhogal has placed reliance on the following observations of the apex Court in para 8 of the judgment in Vishwanath Sood’s case (supra):- “…………. But it will be appreciated that in practice the amount of compensation will be initially levied by the Engineer-in-charge and the Superintending Engineer comes into the picture only as some sort of revisional or appellate authority to whom the contractor appeals for redress. As we see, it, clause 2 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 to between the parties. The decision of the Superintending Engineer, it seems to us, is in the nature of a considered decision which he has to arrive at after considering the various mitigating circumstances that may be pleaded by the contractor or his plea that he is not liable to pay compensation at all under this clause. In our opinion the question regarding the amount of compensation leviable under clause, 2 has to be decided only by the Superintending Engineer and no one else.” On the basis of the aforesaid observations, it is contended that what is binding on the parties and not - 7 - arbitrable is the decision of the Superintending Engineer and not the decision of the Executive Engineer. We are unable to accept this argument. The apex Court in Vishwanath Sood’s case (supra) further went on to hold as follows:- ………….. "If that be not so, the words "except where otherwise provided in the contract" would become meaningless. We are therefore inclined to hold that the opening part of clause 25 clearly excludes matters like those mentioned in clause 2 in respect of which any dispute is left to be decided by a higher official of the Department. Our conclusion, therefore, is that the question of awarding compensation 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.” The apex Court held in no uncertain terms that the question of awarding compensation under clause 2 of the contract is outside the purview of the arbitrator and that the compensation determined under clause 2 either by Engineer-in-charge or on further reference by the Superintending Engineer will not be capable of being called in question before the arbitrator. The observations made in para 8 of the aforesaid judgment have to be read in light of what has been held in para 9 quoted - 8 - hereinabove. The conclusion of the apex Court is contained in para 9 of the judgment. This decision clearly holds that even the decision of the Engineer-in- charge is not capable of being called in question before the Arbitrator. Reliance has been placed by Shri Bhogal on a judgment of a learned Single Judge of this Court in OMP(M) No. 1 of 2000, titled State of H.P. v. Suresh Bist, decided on 1.11.2000. We are of the considered opinion that the said judgment does not lay down the correct law since the learned Single Judge only considered a portion of para-8 of the judgment of the apex Court and did not consider the ratio of the apex Court contained in para 9 of the aforesaid judgment wherein it has been clearly held that the decision taken under clause 2 whether by the Executive Engineer or the Superintendent Engineer cannot be the subject matter of arbitration. We have already decided a matter on similar lines being Arbitration Appeal No. 1 of 2008 titled H.P .Housing & Urban Development Authority versus. Statish Chhiber, decided on October 30, 2008. - 9 - In view of the above discussion, we find no merit in this appeal which is accordingly dismissed with no order as to costs. ( Deepak Gupta ), J. November 24, 2008 ( V.K.Ahuja ), J. s.