IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA Arb. Case No. 32 of 2003 Reserved on: 03.09.2010 Date of decision: 30.09.2010 M/S Martin Lottery Agencies Ltd. … Petitioner Versus The Director, Directorate of State Lotteries … Respondent Coram : The Hon’ble Mr. Justice V.K. Ahuja, Judge. Whether approved for reporting?1 No. For the petitioner: Mr. Bhupinder Gupta, Senior Advocate with Mr. Neeraj Gupta, Advocate. For the respondent: Mr. Ashwani K. Sharma, Advocate. V.K. Ahuja , J.: This judgment shall dispose of the application filed under Section 34 of the Arbitration and Conciliation Act, 1996, for setting aside the award dated 31.12.2002 passed by Arbitrator Shri Avay Shukla, rejecting the claim of the applicant/claimant for refund of the earnest money of Rs. 40 Lakhs. 2. Briefly stated, the facts of the case are that the respondent issued a short term tender notice inviting bids for appointment of agent/distributor for the sale of tickets of Himachal Pradesh state Lotteries (2 digit and/or 3 digit) The said tender notice was published in leading English newspapers on 15th and 16th July, 1999. The applicant is a company engaged in the business of organizing lotteries floated by various State Governments 1Whether reporters of Local Papers may be allowed to see the judgment? Yes. 2 as their sole selling agent/distributor. The said tender notice was also sent to the applicant by the respondent. The salient features of the said tender notice were as under:- (A) the contract should be valid for a period of two months and a half (or so), which can be extended further, if the State Government so decides; (B) the bidders to quote a guaranteed revenue to the State Government for a turnover (face-value) of up to Rs.2000 Crores; (C) there would not be more than 210 lotteries in a week; (D) the bidders were to pay an earnest money of Rs. 40 Lakhs by Demand Draft and furnish performance security of Rs. 6 Crores.” 3. At the time the respondent floated the tender, the General Elections were also announced and the Model Code of Conduct announced by the Election Commission came into force. While submitting the bid alongwith the earnest money, the representative of the applicant sought clarification on the right and power of the respondent to float the tender and award contract to the successful bidders. The clarification was sought as the applicant was to furnish a bid security of Rs.40 Lakhs and another performance security of Rs. 6 Crores in the event of the bid submitted by the applicant was found to be the highest. It was alleged that The respondent however failed to give any such assurance on its right to award the contract to the successful bidder. 4. At the time of tender, the applicant quoted the highest bid of Rs. 100 Crores and accordingly, the applicant was to be awarded the contract, as per terms of tender documents. The respondent sought various information from the applicant and certain 3 clarifications and the same were furnished to the respondent. After collecting the information and assuring itself about the applicant’s ability to work as a sole selling agent to sell the lottery tickets under the schemes to be floated in terms of said tender. 5. In terms of said notice, the respondent issued a letter of intent dated 24.7.1999 to the applicant thereby engaging the applicant as a sole selling agent of H.P. state Lotteries. It was further alleged that vide letter of intent dated 24.7.1999, the respondent asked the applicant to furnish performance security amounting to Rs. 6 Crores on the said date, that is, 24.7.1999. It was further alleged that the applicant requested for extension of time and the respondent asked the applicant vide letter dated 24.7.1999 to furnish the said security deposit as well as the price security amounting to Rs.26.85 Crores latest by 27.7.1999 worked out on a turn over of Rs.2000 Crores. It was also alleged that the respondent unilaterally proponed the launch date for the said lotteries to 6.8.1999 from 10.8.1999. It was alleged that the applicant explained in detail the difficulties being faced by him tofurnish the requisite guarantees and securities in view of bank holidays. Thereafter, a show cause notice dated 26.7.1999 was also issued. The respondent sought reply of the applicant to the said show cause notice by 6.00 P.M. on the same date i.e. 26.7.1999. The applicant sent a message to the respondent seeking further time and furnished its detailed reply to the show-cause notice vide letter date 27.7.1999. It was also alleged that the respondent did not make any comment on the applicability of Model Code of conduct and the applicant had sought the clarification vide his letter dated 27.7.1999. However, inspite of objection raised and 4 clarification sought by the applicant, respondent vide letter dated 28.7.1999 informed the applicant that the tender committee had considered the reply of the applicant and had rejected the reply and they also informed the applicant about State Government’s decision that the applicant’s bid was rejected and that the earnest money was also forfeited. 6. It was further alleged that the tender committee of the respondent suo motu contacted the officials of the applicant claiming that they have reconsidered their earlier decision and communicated to the applicant on 7.8.1999 that they have revoked their earlier letter dated 28.7.1999. They further asked the applicant to reach Shimla on 9.8.1999 to sign the agreement and to bring in performance security in accordance with various communications issued by the respondent. Thus, the respondent revoked the show cause notice issued to the applicant and accepted the reply. However, vide letter dated 9.8.1999, the applicant once again informed its inability to bring in the performance security in view of intervening holidays and requested the respondent to obtain necessary clearance from the Election Commission. However, the respondent failed to give a categorical reply to the applicant in this regard on its request and simply stated that necessary steps had been taken in this regard. The applicant again sought clarification from the respondent vide its letters dated 13.8.1999 and 17.8.1999. The applicant however went ahead to perform its obligation under the proposed contract and has initiated work about printing of lottery tickets etc. The respondent again asked the applicant vide its letter dated 25.8.1999, to reach Shimla to sign the agreement on 28.8.1999. It was alleged that the respondent 5 employed intimidating tactics to browbeat the applicant to submit to its wishes and demands. It was further alleged that the applicant sought refund of the earnest money vide letter dated 25.8.1999 and the respondent took a different stand stating that the targeted turnover of Rs. 2000 Crores was per annum and not for the contract period of two and a half months. It was alleged that the respondent unilaterally changed the terms of the tender. The applicant was required to furnish performance guarantee and price security for a proportionate amount only and not for the amounts as demanded by the respondent vide its various communications. The applicant vide its letter dated 17.8.1999, demanded refund of the earnest money of Rs. 40 Lakhs since it became apparent that the respondent has no eligibility to enter into the contract with the applicant in view of the Model Code of Conduct and failed to refund the earnest money, but withheld the same and insisted the applicant to sign a contract and to furnish performance guarantee for Rs. 6 Crores. Signing of any agreement would have been contrary to the Model Code of Conduct declared by the Election Commission of India. It was alleged that the respondent failed to perform its obligations and failed to award the contract to the applicant and also did not return the earnest money to the applicant. Thus, the applicant had become entitled to refund of Rs. 40 Lakhs alongwith interest at the rate of 3% per month. 7. It was further alleged that the respondent failed to pay the amount and did not refer the dispute to arbitration nor replied to the said notice. The applicant approached this Court for appointment of an Arbitrator and this Court was pleased to direct the Chief Secretary, to appoint a sole Arbitrator to adjudicate upon 6 the disputes between the parties. It was further alleged that Shri Avay Shukla was appointed as sole Arbitrator to adjudicate upon the disputes between the parties. The applicant filed its statement of claim before the learned Arbitrator and the respondent filed its reply as well as its counter claim against the applicant. The learned Arbitrator framed the issues on the disputes raised by the parties and the parties led their evidence by filing affidavits. The learned Arbitrator vide his award dated 31.12.2002 held that the claim of the claimant was not justified in demanding refund of the earnest money because of breach of performance of obligations by the respondent and it was not entitled to the interest also. The applicant/claimant filed objections under Section 34 of the Arbitration and Conciliation Act, 1996, hereinafter referred to as the Act. 8. Reply to the objections was filed by the respondent/State. Rejoinder was filed. 9. On the pleadings of the parties, the following issues were settled by this Court on 10.11.2003:- 1. Whether the award of the Arbitrator is liable to be set aside on the grounds stated? OPP 2. Whether the objection petition is bad for non- joinder of necessary parties? OPP 3. Relief. 10. Parties led their evidence by way of affidavits. 11. I have heard the learned counsel for the parties on the issues and have gone through the record of the case. My findings on these issues are as under. 7 Issue No. 1: 12. There is no dispute that short term tenders were called for appointment of a sole selling agent for Himachal Lotteries and the two applicants came forward and the applicant was the highest bidder for Rs. 100 Crores. The respondent had called the applicant for signing the agreement, but in view of the facts as brought on record, the agreement was not signed leading to the forfeiture of the earnest money by the respondent. A perusal of the record shows that main grievances of the applicant are as referred to in Ext. AW1/6 dated 23.7.1999 addressed to the Director, Himachal Pradesh State Lotteries. A perusal of the same shows that they have taken the ground that Managing Director of the Company was in Sikkim and cannot answer queries raised by the Department during unearthly hours. They also mentioned their financial base and their capacity to start the lotteries. They also alleged that they will furnish the security of Rs. 6 Crores as and when they received a letter of acceptance of their offer and they also alleged of the conspiracy between the lowest bidder and the officers incharge. A perusal of the tender document Annexure R-1 shows that the terms and conditions of the tender for the sale of Himachal Pradesh Government Lottery tickets (2nd digit and/or 3rd digit) have been clearly laid down, which tender was to be opened on 21.7.1999. Commercial bids of only those bidder(s) was to be accepted who were found eligible on the basis of their past record/experience indicated in the eligibility claim. A perusal of the impugned award shows that the learned Arbitrator had reproduced the salient chronology in regard to the correspondence that ensued between the claimant and the respondent mentioning date wise, notices issued, reply given etc. The 8 parties had led evidence by means of affidavits and accompanying documents and the director, Himachal Pradesh Lotteries was also cross-examined by the claimant on his affidavit as is clear from perusal of the impugned award. A perusal of the chronological events also shows that by a letter dated 28.7.1999 respondent informed the claimant about the rejection of his bid and forfeiture of the earnest money. However, on 7.8.1999, the claimant was informed that his case has been reconsidered and advised the latter to reach Shimla by 9.8.1999 for signing the agreement. But on 9.8.1999, the claimant expressed his inability to reach and sought clearance of the contract from Election Commission of India. They also asked the claimant to reach Shimla by 28.8.1999, failing which, his bid would be rejected and earnest money forfeited. According to Clause (8) of the tender document, the earnest money could have been legally forfeited before signing of any agreement. 13. The submissions made by the learned counsel for the claimant were that no sufficient time was given to the claimant to apply for security amount and the respondent was in haste to start the lotteries and they did not clarify on the plea raised by the claimant in regard to the clearance from the Election Commission of India. It was submitted that once the order of forfeiture had been passed by the tender committee and it had been subsequently withdrawn, there cannot be any unilateral decision and there is nothing as to whether the subsequent order was passed by the tender committee or by the State Government. It was also submitted that it was the act of the respondent, which had made the execution of the agreement an impossibility. It was also submitted that there is nothing on record to show that whether the order for forfeiture was passed 9 by the tender committee or the Director and there is no reference in the notice. It was also submitted that there cannot be automatic forfeiture unless there was a misconduct on the part of the claimant. 14. On the other hand, the submissions made by the learned counsel for the respondent were that the general elections had already been announced when the tender document was issued in the newspapers and this fact was very much clear to the claimant from day one. It was submitted that there was no objection to the Election Commission to start of the lottery business, which is clear from the reply filed by the respondent and, therefore, there was no basis for this objection raised by the applicant who actively participated in the bid knowing fully well that the elections had already been announced. My attention was drawn to the reply of the respondent wherein at Page-19, it had been clearly reiterated that the applicant had not agitated the capacity of the respondent to enter into a contract in his letter dated 27.7.1999. It was also reiterated that the respondent had clarified to the applicant time and again that the Model Code of Conduct had no applicability in finalizing the tender of lotteries by the State Government since it did not amount to announcement of any financial grants, laying of foundation stones, making of promises of new roads etc. 15. It was further submitted by the learned counsel for the respondent that since there was no perversity in the award and the reasonableness of the reasons given in award cannot be looked into by the Court within the purview of the objections raised to the award under Section 34 of the Act. It was also submitted that the findings of fact recorded on the basis of the affidavits of both the parties, the documents furnished cannot be reconsidered by this 10 Court as if it was sitting in appeal against those findings. It was submitted that the learned Arbitrator had concluded at Page 32 in the award that the claimant’s conduct after 28.7.1999 was legally and contractually untenable and indefensible. He was given a second chance and sought clarifications which were promptly supplied. The findings recorded by the learned Arbitrator may be reproduced as under:- “While submitting his bid the claimant had never imposed any condition about the Govt. seeking prior clearance from the Election Commission of India to the signing of the Agreement. His attempt to impose it ex- post facto was merely an attempt to find an alibi and an excuse for not signing the Agreement. But this is not sufficient reason for not performing his obligations, especially when his concern for the time frame had been suitably taken care of by respondent. It is quite clear from the exchange of communications and especially from the tenor of claimant’s letters after 9.8.1999 that he no longer wished to go ahead with this particular contract, and was looking for a way out. The point about Election Commission approval raised for the first time so late in the day, appears to have been intended to provide the legal exit route. Unfortunately for claimant, however, it suffers from too many infirmities and cannot succeed.” 16. Thereafter, the learned Arbitrator had concluded that the claimant was in breach of contract and failed to perform his contractual obligations, as a result of which, the agreement could not be signed and the respondent was, therefore, entitled to forfeit his earnest money under Clause (8) of the Tender Document. 17. Coming to the objection raised by the learned counsel for the petitioner during the arguments as to whether the decision was 11 taken by the tender committee or by the Director or who had taken to decision to forfeit the earnest money, these questions have also been answered by the learned Arbitrator in its impugned award. It had considered the question as to whether the Director and the tender committee are covered within the words ‘State Government’ and he had referred to the statement of the Director Lotteries during his cross-examination that this decision was taken by the tender committee constituted by the Government and headed by the Director Lotteries. The tender committee/Director had conveyed the decision to the claimant on behalf of the tender committee. A perusal of the impugned award also shows that even though the earnest money was forfeited by an order passed earlier on 28.7.1999, but again it was reconsidered and opportunity was given to the claimant to enter into an agreement and deposit the performance security. To start the State Lotteries, it was clear to the claimant for one day that the State Government intended to start lotteries at the earliest, may be because of the competition or the decision taken by the state Government and it was for him to have arranged for performance security or entered into an agreement at the earliest during the time given by the respondent. Once these facts were clear to the claimant from the day one in regard to in floating the lotteries or the short period during which the agreement was to be finalized, it cannot be concluded that sufficient time was not given to the claimant to perform his part of the contract. All these points have been considered by the learned Arbitrator in the impugned award and have been duly answered and this Court is not sitting in appeal to these findings so recorded by the learned Arbitrator. 12 18. Coming to the question as to the scope of interference by this Court, the learned counsel for the respondent has referred to some decisions in this regard. Reliance was placed upon the decision in Bharat Coking Coal Ltd. Vs. L.K. Ahuja, (2004) 5 Supreme Court Cases 109. The observations made in Pra-11 are relevant and are being reproduced below:- “There are limitations upon the scope of interference in awards passed by an arbitrator. When the arbitrator has applied his mind to the pleadings, the evidence adduced before him and the terms of the contract, there is no scope for the court to reappraise the matter as if this were an appeal and even if two views are possible, the view taken by the arbitrator would prevail. So long as an award made by an arbitrator can be said to be one by a reasonable person no interference is called for. However, in cases where an arbitrator exceeds the terms of the agreement or passes an award in the absence of any evidence, which is apparent on the face of the award, the same could be set aside.” 19. The decision in Oriental Insurance Company Vs. M/S. Auto Comps India Limited, 2010 (1) Shim. LC 400, shows that it was a decision of Single Judge of this Court (me) which was relied upon, in which in Paras 16 and 18, the following observations were made, which are relevant and are being reproduced below:- “16. The decision in Mc Dermott International Inc. v. Burn Standard Company Ltd. and others, (2006) 11 Supreme Court Cases 181, shows that the provisions of Section 34 of the Act were compared with the provisions of Sections 30 and 33 of the Arbitration Act, 1940.It was observed that the 1996 Act makes provision for supervisory role of the Courts and for the review of the arbitral award only to ensure fairness. This 13 supervisory role has to be kept at a minimum level and interference is envisaged only in cases of fraud or bias, violation of natural justice etc. it was held that interference on the ground of “patent illegality” is permissible if the same goes to the root of the matter and the Public Policy violation should be so unfair and unreasonable as to shock the conscience of the Court. What would constitute public policy is a matter dependent upon the nature of the transaction and the statute. 18. The other decision relied upon was in Rajasthan State Road Transport Corporation v. Indag Rubber Ltd., (2006) 7 Supreme Court Cases 700, which shows that it was observed that the Court cannot sit as a Court of appeal and disturb the finding of fact recorded by the arbitrator after considering all the materials on record. “ 20. Reliance was placed upon the decision in Ravindra Kumar Gupta and Company Vs. Union of India, (2010) 1 Supreme Court Cases 409. A perusal of Para-9 of the judgment shows that it was observed as under:- “The law with regard to scope and ambit of the jurisdiction of the courts to interfere with an arbitration award has been settled in a catena of judgments of this Court.” 21. Thereafter a reference was made to judgment in State of Rajasthan Vs. Puri Construction Co. Ltd., (1994) 6 SCC 485. In Para-10 of the judgment, a reference was made to the decision in Arosan Enterprises Ltd. Vs. Union of India, 1999 (9) SCC 449, and it was reiterated as under:- “36. Be it noted that by reason of a long catena of cases, it is now a well-settled principle of law that reappraisal of evidence by the court is not permissible 14 and as a matter of fact exercise of power by the court to reappraise the evidence is unknown to proceedings under Section 30 of the Arbitration Act. In the event of there being no reasons in the award, question of interference of the court would not arise at all. In the event, however, there are reasons, the interference would still be not available within the jurisdiction of the court unless of course, there exist a total perversity in the award or the judgment is based on a wrong proposition of law. In the event however two views are possible on a question of law as well, the court would not be justified in interfering with the award.” 22. The observations made in Para-37 are relevant and are being reproduced below”- “The common phraseology ‘error apparent on the face of the record’ does not itself, however, mean and imply closer scrutiny of the merits of documents and materials on record. The court as a matter of fact, cannot substitute its evaluation and come to the conclusion that the arbitrator had acted contrary to the bargain between the parties. If the view of the arbitrator is a possible view the award or the reasoning contained therein cannot be examined.” 23. A reference was made to some other decisions of the Apex Court and it was observed in Para-14 as under:- “Needless to record that there exists a long catena of cases through which the law seems to be rather well settled that the reappraisal of evidence by the court is not permissible.” 15