IN THE HIGH COURT OF GUJARAT AT AHMEDABAD FIRST APPEAL No 2016 of 2001 with Civil Application No.4986 of 2001 For Approval and Signature: Hon'ble MR.JUSTICE M.H.KADRI and Hon'ble MR.JUSTICE H.H.MEHTA ============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements? 2. To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- INDIACOM DIRECTORIES LTD. Versus BHARAT SANCHAR NIGAM LTD. -------------------------------------------------------------- Appearance: Mr. P.M. Thakkar, Senior Advocate for M/S THAKKAR ASSOC. for Petitioner No. 1 MR DN PATEL for Respondent No. 1 RULE SERVED for Respondent No. 2 RULE UNSERVED for Respondents No. 3-4 -------------------------------------------------------------- CORAM : MR.JUSTICE M.H.KADRI and MR.JUSTICE H.H.MEHTA Date of decision: 15_/02/2002 C.A.V. JUDGEMENT (Per : MR.JUSTICE M.H.KADRI) 1. First Appeal No.2016 of 2001 is filed by the appellant under Section 37 of the Arbitration and Conciliation Act, 1996 ('Act' for short) read with Section 96 of the Code of Civil Procedure, 1908 ('Code' for short), challenging the judgment and order dated March 27, 2001 passed by the learned Judge, Court No.12, City Civil Court, Ahmedabad, in Arbitration Application No.310 of 2000, by which judgment and order, the learned City Civil Judge has set aside the award dated November 16, 1999 passed by the respondent No.2 (sole arbitrator) by holding that the award was unreasonable, without jurisdiction and bad in the eye of law. Civil Application No.4986 of 2001 is filed by the applicant-appellant to stay the implementation, operation and execution of judgment and order dated March 27, 2001 passed by the learned Judge, Court No.12, City Civil Court, Ahmedabad, in Arbitration Application No.310 of 2000. 2. The General Manager, Ahmedabad Telecom District, had issued a tender on March 25, 1994 for printing and supply of English Telephone Directory with yellow pages on turn key basis. The bids were opened on April 29, 1994 in which the appellant-original claimant had also participated. After evaluation of the tenders, it was decided by the Ahmedabad Telecom District to award contract to the appellant. An agreement was entered into between the General Manager, Ahmedabad Telecom District, Ahmedabad, and the President of Sesa Seat Information System Limited (appellant) on September 15, 1994. As per the said agreement, the appellant was to procure papers, collect advertisement, print, bind and supply number of copies of Telephone Directory to the General Manager, Ahmedabad Telecom District, for five years, i.e. 1994 to 1998 with yellow pages and supplementary directory for each issue except for the year 1994. As per the said agreement, the appellant was to supply to the Department free of cost following number of printed telephone directory during the period of contract. -------------------------------------------------------- Year of Issue Number of Copies -------------------------------------------------------- 1994 2,00,000 1995 2,30,000 1996 2,64,500 1997 3,03,900 1998 3,49,400 -------------------------------------------------------- The above figures were tentative and had been arrived at by 15% increase on DEL's (Direct Exchange Lines) demand and the appellant was to be intimated by the General Manager, Ahmedabad Telecom District, in advance before commencement of work of each issue. Thus, the appellant was to supply telephone directory as per the terms and conditions stated in the agreement and as consideration the appellant was allowed to procure advertisement and to print them on yellow pages to the main telephone directories as specified under the general terms and conditions of the agreement. Further, the appellant was allowed to procure and print super bold entries, strip advertisement, and cover pages advertisement as per the terms and conditions mentioned in the agreement. In return, the appellant agreed to pay a fixed amount towards royalty, as mentioned hereinbelow:- -------------------------------------------------------- A) Amount of Royalty Year of Issue Amount 1994 Rs.3 lakhs 1995 Rs.63 lakhs 1996 Rs.153 lakhs 1997 Rs.207 lakhs 1998 Rs.285 lakhs ------------ Rs.711 lakhs B) Revenue Share from Super Bold entries Year of Issue Amount in percentage 1994 1% 1995 3% 1996 5% 1997 10% 1998 20% ----------------------------------------------------- Thus, as per the agreement, the aforesaid amount was payable in the form of cash or demand draft from the date of completion of delivery of the printed directories as per the time schedule mentioned in the Schedule "A" of the agreement irrespective of the income from the advertisement. As per the agreement, the appellant was to furnish a bank guarantee for a sum of Rs.60 lakhs for the entire period of agreement plus one year thereafter. Thus, it appears from the agreement that the appellant was to pay a fixed amount towards royalty from the yellow pages. It was to be increased every year. The appellant had brought out 1994-1995 and 1995-1996 directories with yellow pages as per the agreement. So far as the remaining two years 1997 and 1998 are concerned, the appellant had not brought out any directory as per the agreement and, by representation dated April 13, 1996, it was requested by the appellant for reduction of amount of royalty from yellow pages. Thereafter, the appellant had approached the High Court by way of filing Special Civil Application No.10658 of 1996. The High Court, after hearing the parties, had passed an order directing the appellant to make representation afresh to the Principal General Manager, Ahmedabad Telecom District, for redressal of its grievances and the Principal General Manager was directed to decide and dispose of the representation in accordance with law as early as possible. The aforesaid Special Civil Application was accordingly permitted to be withdrawn. Thereafter, in pursuance of the above order passed by the High Court, the appellant made representation on January 6, 1997 for review of the terms and conditions of the telephone directory agreement and prayed for reduction of royalty payable by the appellant from Rs.153 lakhs to Rs.92 lakhs for the year 1996 (3rd) issue, from Rs.207 lakhs to Rs.119 lakhs for the year 1997 (4th) issue, and from Rs.285 lakhs to Rs.171 lakhs for the year 1998 (5th) issue. The appellant further made a request in the said representation that the appellant may be permitted to supply 85% of copies of directory required for the respective remaining issues and the remaining 15% of copies of directory will be supplied to the Department free of cost if the demand is placed by the Department. The representation made by the appellant was turned down by the Department by its reply dated January 29, 1997 having found that whenever there is a long term agreement, the parties to the agreement must have considered the changes taking place in the society which may include liberalisation of economy, opening of telephone sector for private operators, interpretation of various laws and their implementation and also after considering other relevant aspects of the agreement. It was found that there was no justification whatsoever to review the terms and conditions of the agreement dated September 15, 1994 and the appellant was again requested to bring out the 3rd issue of telephone directory. 3. Thereafter, the appellant served a legal notice dated January 27, 1998 to the Department of Telecommunication, New Delhi, and requested for the appointment of an arbitrator with reference to the agreement dated September 15, 1994, with a request for reduction of royalty of each of the respective years beginning from 1996 to 1998. Thereafter, the appellant approached the High Court by way of Arbitration Application No.14 of 1998 for the appointment of an arbitrator under section 11 of the Act. The High Court by order dated August 28, 1998 referred the dispute to the sole arbitrator i.e. respondent No.2, with direction to give a decision as expeditiously as possible and the arbitrator was also directed that he may give reasons in support of the decision. Thereafter, the appellant had submitted his claim under section 23(1) of the Act before the sole arbitrator, i.e. respondent No.2 herein. The Department filed objections against the above claim petition and stated that there is no dispute pending and that the claim of the appellant for reduction of royalty is not justifiable. It was also contended on behalf of the Department that there was no condition in the agreement and/or assurance on behalf of the Ahmedabad Telecom District that the appellant would be the only person for procuring advertisements for publication of yellow pages and there was no assurance whatsoever that no other person would come out with yellow pages. The appellant had also filed counter reply to the objections filed by the Ahmedabad Telecom District. 4. Thereafter, the sole arbitrator had passed award dated November 16, 1999 to the effect that the appellant shall publish and supply 2,31,000 copies of directory of the year 1999 (4th issue) and 2,70,000 copies of directory of year 2000 (5th issue) free of cost. It was further ordered that the Ahmedabad Telecom District shall purchase the remaining copies from the appellant at the cost price of each copy, i.e. the actual price of publishing of each copy. It was further ordered that royalty of 1 lakh each year shall be paid by the appellant to the Ahmedabad Telecom District and also passed an order that out of the white pages revenue 80% shall be the share of the appellant and 20% that of the Ahmedabad Telecom District and the sole arbitrator has further ordered that royalty for the year 1996-97 shall be modified from Rs.153 lakhs to Rs.92 lakhs. 5. Being aggrieved with the aforesaid award dated November 16, 1999, the Ahmedabad Telecom District filed Arbitration Petition No.IAAP/3/2000 in the High Court. The aforesaid petition came up for hearing before the Honourable the Chief Justice, and the Honourable the Chief Justice on March 31, 2000 passed the following order:- "There is a preliminary objection raised on behalf of the respondents that this application under Section 34 of the Arbitration and Conciliation Act, 1996 is not maintainable in this Court. The objection is sustained. The application under Section 34 of the Act has to be filed before the Principal Civil Court within whose jurisdiction cause of action arises. In these circumstances, the application is disposed of as not maintainable before the Chief Justice of this Court. The petitioner is, however, given liberty to approach the appropriate Civil Court and as and when the application is filed, the Civil Court shall take it up for decision within a reasonable time." 6. After passing of the order dated March 31, 2000 by the Honourable the Chief Justice in Arbitration Petition No.IAAP/3/2000, Bharat Sanchar Nigam Limited and the Directory Officer of the Bharat Sanchar Nigam Limited filed Arbitration Application No.310 of 2000 in the City Civil Court, Ahmedabad, to set aside the award of the arbitrator dated November 16, 1999, on various grounds mainly being that the arbitrator had travelled beyond the scope of the reference and had virtually modified the terms and conditions of the agreement dated September 15, 1994. The application for setting aside the award was contested by the appellant, inter alia, contending that, at the time of entering into the agreement, both the Department and the appellant were aware that the appellant would be having a monopolistic right to collect the advertisement for yellow pages in Ahmedabad, which view was supported by the decision of the Division Bench of the Bombay High Court in the case of Tata Press vs. Mahanagar Telephone Limited, reported in AIR 1995 Bombay 107. It was contended that, in view of the decision of the Division Bench of the Bombay High Court, as referred to above, the appellant had offered handsome royalty figures to the Bharat Sanchar Nigam Limited. Thereafter, the appellant had satisfactorily performed the agreement for the year 1994-1995 and had issued directories along with yellow pages as per the terms and conditions of the agreement. It was contended that the decision of the Bombay High Court was challenged before the Supreme Court and the Supreme Court, in an appeal filed by the Tata Press, in the reported decision in AIR 1995 Supreme Court 2438 [Tata Press vs. Mahanagar Telephone Limited], had allowed the appeal by setting aside the decision of the Division Bench of the Bombay High Court by holding that it was not necessary that the official contractor of telephone directory would have the prerogative of collecting and printing advertisement for yellow pages. It was submitted that rights of the contractor were held not to be monopolistic and such rights were held to be against the fundamental right of Article 19(1)(a) of the Constitution of India. It was, therefore, contended by the appellant before the City Civil Court that the said ruling of the Supreme Court had a gigantic impact on the agreement dated September 15, 1994 in as much as it converted the monopolistic status of the appellant to a competitive one and, on account of the said judgment, the future part of the agreement dated September 15, 1994 became impossible to perform in fact and in law. It was submitted by the appellant that, as soon as the implications of the said judgment were realised, the appellant made a representation to the Department, i.e. Department of Telecommunication, in order to modify certain conditions of the said agreement in order to make it performable. It was contended that the Department of Telecommunication had rejected the said representation and, thereafter, the appellant had approached the High Court by filing Special Civil Application No.10658 of 1996 wherein the High Court had directed the appellant to make a detailed representation before the authority concern and, accordingly, a detailed representation was made, but the Department did not consider the said representation in the true spirit. It was further submitted that, in spite of the same, the appellant had printed the third issue, i.e. 1996, of the directory, while reserving necessary rights for resolving the said dispute as per the law. It was contended that, as the appellant was left with no other alternative but to refer the dispute to the arbitration as per the clause 21 for arbitration contained in the agreement dated September 15, 1994. The Honourable the Chief Justice by order dated August 28, 1998, in Arbitration Petition No.14 of 1998, had appointed respondent No.2 as sole arbitrator by referring the dispute to him. It was denied that the respondent no.2, sole arbitrator, who is General Manager of Department of Telecommunication, had modified the award beyond the scope of the terms of the reference. It was stated that the sole arbitrator had decided the claim put forward by the appellant in accordance with law and, therefore, it was prayed by the appellant that the application for setting aside the award be dismissed. 7. The learned Judge, Court No.12, City Civil Court, Ahmedabad, after hearing the arguments of the respective parties at length, came to the conclusion that the arbitrator had travelled beyond scope of the reference and had modified the terms and conditions of the agreement by decreasing the amount of royalty. It was further observed by the learned trial Judge that, after conclusion of the arguments before the sole arbitrator, the appellant had tendered a fresh proposal on February 17, 1999, and the Arbitrator, while acting on the fresh proposal, had passed the award by directing the appellant to pay Rs.1 lakh as royalty for 4th and 5th issues of directory and directed the appellant to supply 1,42,000 copies of the 4th issue and 1,15,000 copies of the 5th issue free of cost and to supply the balance directory at the rate of Rs.126 per directory for 4th issue and Rs.144/per directory for 5th issue and also had reduced royalty from Rs.155 lakh to Rs.92 lakh for 3rd issue. The learned Judge, in light of the above facts, held that the Department was not given proper opportunity to present their case and in absence of any notice regarding arbitral proceedings they were otherwise unable to present their case and in light of Section 34 sub-clause 2(a)(iii) in such circumstances, the Court is empowered to set aside the arbitral award. The learned trial Judge has, further, held that the award passed by the respondent No.2, sole arbitrator, is beyond the scope of the agreement in view of the provisions contained in Section 34 sub-clause 2(a)(iv) read with Section 28 sub-clause 3 of the Act and, therefore also, the arbitral award requires to be quashed and set aside. On the basis of above-stated reasons, the learned trial Judge has allowed the application filed by the Department by setting aside the award dated November 16, 1999 passed by the respondent No.2, sole arbitrator, which has given rise to filing of this First Appeal by the appellant. 8. Learned Senior Advocate, Mr. P.M.Thakker for the appellant and learned Senior Standing Counsel, Mr. D.N.Patel, for the department have taken us through the entire record and proceedings of the First Appeal as well as the proceedings before the sole arbitrator. 9. It has been contended by learned Senior Advocate, Mr. P.M.Thakker, for the appellant that the application filed by the Department under Section 34 of the Act for setting aside the award of the sole arbitrator was barred by the period of limitation as provided under Section 34 sub-section (3) of the Act. He has submitted that the respondent No.2, the sole arbitrator, had passed his award on November 16, 1999 and a copy of the said award was received by the office of the Ahmedabad Telecom District on December 6, 1999. It has been submitted that the application, being Arbitration Application No. 310 of 2000, was filed by the Department for setting aside the award on April 28, 2000. It is submitted on behalf of the appellant that the application for setting aside the award was filed after lapse of period of four months from the date of receipt of the award and, therefore, the said application was time-barred and the learned Judge of the City Civil Court had erred in not rejecting the said application as time-barred. It has been further contended that, as far as the language of Section 34 of the Act is concerned, the crucial phrase 'but not thereafter' used in the proviso to sub-section (3) of Section 34 of the Act would amount to an express exclusion within the meaning of section 29(2) of the Limitation Act and would, therefore, bar the application of Section 5 of the Limitation Act. It has been contended that, in spite of the appellant taking specific contention in its application Exh.16 to the effect that the application was time-barred, the learned trial Judge had not taken into consideration the objection raised by the appellant and, therefore, on this ground alone, the appeal deserves to be allowed. Learned counsel for the appellant, in support of the above submission, has placed reliance on the decision of the Supreme Court in the case of Union of India vs. Popular Construction Company, reported in 2001 (3) Arbitration Law Reporter 354 (=2001 (7) Supreme 345). The Supreme Court, in Popular Construction Company (supra), has held as under: "To hold that the Court could entertain an application to set aside the Award beyond the extended period under the proviso, would render the phrase 'but not thereafter' wholly otiose. No principle of interpretation would justify such a result." It has been further held as under: "Here the history and scheme of the 1996 Act support the conclusion that the time limit prescribed under Section 34 to challenge an Award is absolute and unextendable by Court under Section 5 of the Limitation Act. The Arbitration and Conciliation Bill, 1995, which preceded the 1996 Act stated as one of its main objectives the need 'to minimize the supervisory role of courts in the arbitral process' [4(v) of the Statement of Objects and Reasons of the Arbitration and Conciliation Act, 1996]. This objective has found expression in Section 5 of the Act which prescribes the extent of judicial intervention in no uncertain terms." 10. Learned Senior Standing Counsel, Mr. D.N.Patel who appeared on behalf of the Department, has contended that the application, being Arbitration Application No.3 of 2000, for setting aside the award of the sole arbitrator was filed inadvertently in the wrong forum, i.e. in the High Court, within the period of limitation and, when the said application was placed before the Honourable the Chief Justice on March 31 2000, the Honourable the Chief Justice had granted liberty to the Department to approach the competent Civil Court for filing application for setting aside the award and it was directed that, when such application was filed, the competent Civil Court shall take up the application for decision within reasonable time. Learned counsel has, therefore, submitted that the direction given by the Honourable the Chief Justice would make it clear that, when such application was filed, the Court was bound to consider it on merit. Learned counsel has strenuously urged that the arbitrator had travelled much beyond the scope of the terms of the reference and had, virtually, modified the terms of the agreement dated September 15, 1994. It has been submitted by the learned counsel for the Department, that the sole arbitrator had misinterpreted the decision of the Supreme Court in the case of Tata Press (supra). It is further submitted that the appeal preferred by Tata Press was decided by the Supreme Court on August 3, 1995 and the appellant for the first time made representation for modification of the agreement on January 6, 1997, after lapse of a long time. It is further submitted that it could not be contended by the appellant that there was mutual mistake of facts at the time of entering into the agreement for publishing telephone directory with yellow pages. It has been vehemently submitted that the Arbitrator while making the award by modifying the terms and conditions of the agreement had burdened the Department to heavy loss to the effect that they shall purchase the remaining copies from the appellant at the cost price of each copy and ignoring that the appellant was bound to supply copies as agreed to in the agreement. It has been strenuously urged that the sole arbitrator had readily accepted the revised proposal of the appellant of payment of royalty of Rs.1 lakh each year, i.e for the years 1999 and 2000, without giving any opportunity to the Department against the offer made by the appellant after conclusion of the hearing before the sole arbitrator. It has been submitted that the arbitrator had flagrantly violated the principles of natural justice and had passed the award arbitrarily by acceding to the offer made by the appellant without affording an opportunity to the Department to express their opinion about the offer made by the appellant which was made by its letter dated February 17, 1999 after the hearing was concluded by the arbitrator on February 5, 1999. In the light of the above facts and situation, it is contended by the learned counsel that the award of the arbitrator being ex-facie illegal and non-est is liable to be set aside and the learned trial Judge was justified in allowing the application filed by the Department by setting aside the award. The learned counsel has submitted that the award of the sole arbitrator cannot be called an award in the eye of law and no period of limitation will apply and, therefore, obviously, the decision of the Supreme Court in the case of Popular Construction Company (supra) will have no application to the facts and situation of the present case. It has been submitted that the award being non-est has to be ignored for all time to come and no period of limitation is prescribed for filing application to set aside such an award which is not an award in the eye of law or which is non-est. It has also been submitted that by the impugned award the sole arbitrator