*THE HON’BLE SRI JUSTICE GHULAM MOHAMMED AND THE HON’BLE SRI JUSTICE K.G. SHANKAR +Writ Petition Nos.5615 & 5863 of 2008 %09.09.2011 W.P.No.5615 of 2008: Between: #Union of India, rep.by the General Manger, South Central Railway, Secunderabad, and another … Petitioners Vs. $Ch. Gopalakrishna Murthy … Respondent W.P.No.5863 of 2008: Union of India, rep.by the General Manager, South Central Railway, Secunderabad, and another … Petitioners Vs. Ch. Gopalakrishna Murthy and another … Respondents ! Counsel for the petitioner: S.R. Ashok Counsel for the Respondents: A. Ramalingeshwar Rao <Gist: >Head Note: ? Cases referred: 1. (2007) 4 SCC 221 2. (2005) 7 SCC 605 3. (2003) 8 SCC 311 4. (2008) 2 SCC 660 5. 2004 (4) ALT 367 (D.B.) 6. AIR 2005 SC 3575 7. 2006 (5) ALD 694 8. AIR 1958 AP 533 THE HON’BLE SRI JUSTICE GHULAM MOHAMMED AND THE HON’BLE SRI JUSTICE K.G. SHANKAR Writ Petition Nos.5615 & 5863 of 2008 Date: 09.09.2011 W.P.No.5615 of 2008: Between: Union of India, rep.by the General Manager, South Central Railway, Secunderabad and another .. Petitioners AND Ch. Gopalakrishna Murthy .. Respondent W.P.No.5863 of 2008: Union of India, rep.by the General Manager, South Central Railway, Secunderabad and another .. Petitioners AND Ch. Gopalakrishna Murthy and another .. Respondents THE HON’BLE SRI JUSTICE GHULAM MOHAMMED AND THE HON’BLE SRI JUSTICE K.G. SHANKAR Writ Petition Nos.5615 & 5863 of 2008 COMMON ORDER (per Hon’ble Sri Justice K.G. Shankar): The petitioners filed W.P.No.5615 of 2006 seeking a Writ of Mandamus to declare the order and decree dated 11.02.2008 in I.A.No.1067 of 2007 in O.P.No.2 of 2005 on the file of the Lok Adalat, City Civil Court, Secunderabad and the Award dated 07.04.2007 in O.P.No.2 of 2005 as illegal, arbitrary and void and to set aside the same. Further direction is sought to be issued to the Lok Adalat, City Civil Court, Secunderabad to return O.P.No.2 of 2005 to the file of the III Senior Civil Judge, City Civil Court, Hyderabad for adjudication. The petitioners also filed W.P.No.5863 of 2008 challenging the order of the Lok Adalat bench in I.A.No.1062 of 2007 in O.P.No.1 of 2005 passed on the same date on 07.04.2007. 2. The circumstances in which the writs are filed may briefly be stated at this stage: a) An agreement was entered into between the second petitioner representing the South Central Railway and the sole respondent on 31.10.1981. The agreement was to construct a building for the usage of the Railway Recruitment Board, Secunderabad. The agreement value was Rs.3,92,946/-. The work was to be executed by the respondent within six months from the date of agreement. It would appear that the time was extended at the request of the respondent. The work was completed on 31.03.1984. The respondent received Rs.3,70,411/- in full satisfaction of the execution of the works by him. b) However, on 07.12.1994 the respondent preferred five claims for reference to the Arbitrator. The General Manager of the South Central Railway rejected three of the claims and communicated the same to the respondent-Contractor on 07.10.1996. Two of the claims, however, were referred to an Arbitrator. On 02.12.1996, the sole arbitrator passed an award for a sum of Rs.2,14,106/- as against the claim for Rs.2,50,000/- in respect of item No.1. The Arbitrator also issued further directions. The trial Court, however, set aside the award passed by the sole arbitrator. In C.M.A.No.465 of 1999 on the file of this Court, the order of the trial Court was set aside. The award of the sole arbitrator dated 02.12.1996 was made the Rule of the Court through judgment dated 15.10.2009. The South Central Railway paid Rs.3,39,000/- and Rs.24,642/- including interest to the respondent- contractor in December, 1999 in terms of the award dated 02.12.1996. c) While the award passed by the Arbitrator was before the trial Court, the respondent-contractor raised three more claims through letter dated 14.06.1998. The General Manager was requested to refer the three claims for adjudication by the Arbitrator. On 13.02.2002, the General Manager rejected the request of the respondent-contractor. The respondent- contractor consequently filed O.P.No.4 of 2002 seeking for the appointment of an Arbitrator. The trial Court passed orders on 13.10.2004 appointing another arbitrator (second Arbitrator, for short) as the sole arbitrator for the adjudication of the disputes. d) Before the second arbitrator, the respondent-contractor preferred seven claims. The learned second arbitrator allowed claims 5 and 7 only and rejected the rest of the claims through the award dated 16.08.2005. The learned second arbitrator allowed the claim to a tune of Rs.58,74,383/- together with interest at 18% per annum from 01.01.2000 till the date of realization. The total value of the award of 2005 as on today is more than Rs.1,50,00,000/-. e) The South Central Railway challenged the award of the second arbitrator through O.P.No.1 of 2005 on the file of the III Additional Senior Civil Judge, Secunderabad. The respondent- contractor in his turn filed O.P.No.2 of 2005 on the file of the same Court seeking to make the Award the Rule of the Court. While so, on 15.09.2005, the respondent addressed a letter to the South Central Railway seeking for a negotiated settlement. A similar letter was addressed by him to the Principal Chief Engineer, South Central Railway, Secunderabad on 14.11.2006 for outside the Court settlement. f) The file was circulated to the General Manager on 16.01.2007. The respondent-contractor addressed a letter to the negotiation committee on 01.03.2007 offering to reduce the rate of interest. It is the case of the petitioner that the note circulated to the General Manager on 29.03.2007 unfortunately contained an incorrect notation that the negotiations concluded. On 29.03.2007, the then General Manager of South Central Railway accepted the terms and conditions of the negotiations for an agreement of settlement outside the Court. g) An agreement of settlement outside the Court was entered into between the parties on 05.04.2007. Consequent upon the agreement of settlement outside the Court, the Lok Adalat bench, City Civil Court, Secunderabad passed separate awards in O.P.Nos.1 and 2 of 2005 on the file of the III Additional Senior Civil Judge, Secunderabad. O.P.No.1 of 2005 was dismissed and O.P.No.2 of 2005 was decreed in terms of the compromise in view of the settlement outside the Court. h) The petitioners later considered that the compromise accepted by the South Central Railway was on account of fraud played upon the General Manager, South Central Railway by its employees and that the acceptance of the compromise as recorded in O.P.No.2 of 2005 by the Lok Adalat bench was hit by fraud. Consequently, the South Central Railway filed I.A.No.1067 of 2007 in O.P.No.2 of 2005 and I.A.No.1062 of 2007 in O.P.No.1 of 2005 on the file of Lok Adalat, Secunderabad to recall the awards dated 07.04.2007 in two separate petitions. The Lok Adalat bench, City Civil Court, Secunderabad passed the impugned orders dated 11.02.2008 rejecting the request of the South Central Railway to recall the two awards. 3. Consequently, the South Central Railway filed one of the present writ petitions in WP No.5615 of 2008 to set aside the award dated 07.04.2007 in O.P.No.2 of 2005. The South Central Railway also laid another Writ in W.P.No.5863 of 2007 which is also disposed of through this common order, seeking for setting aside of the award dated 07.04.2000 in O.P.No.1 of 2005. 4. It is the case of the writ petitioners that when the basis of the Lok Adalat Award was fraud and where the relief that can be sought against a Lok Adalat Award is by way of a writ only, the two writ petitions seeking Writ of Mandamus to declare the orders in O.P.Nos.1 & 2 of 2005 dated 11.02.2008 are bad and for a direction that O.P.Nos.1 and 2 of 2005 shall be restored to the file of III Additional Judge, City Civil Court, Secunderabad for disposal according to law would lie. Thus, the contention of the petitioners is two fold, viz., that the basis of the compromise was fraud and that the redressal of the grievance of the petitioners can be only through the special extraordinary jurisdiction of the High Court under Article 226 of the Constitution of India. 5. On the other hand, Sri D. Ramalingeshwara Rao, learned counsel for the respondent-contractor claimed that when the award was passed by the Lok Adalat after the conscious consent by both sides, the award cannot be set aside and that if the consent was given by the South Central Railway on account of fraud by his own employees, the South Central Railway would be able to redress grievance through a civil suit and not through a Writ of Mandamus. 6. Sri S.R. Ashok, learned Senior Counsel representing the petitioners contended that the employees of the second petitioner South Central Railway played fraud on the General Manager of the South Central Railway and obtained consent of the General Manager, South Central Railway for settlement of the dispute outside the Court. He further pointed out that a compromise as entered into would never have been reached by a conscious consent since while the agreed value of the contract itself was about Rs.3,43,000/-, the award was for a sum over Rs.58,74,383/- together with interest and that the awarded amount would be about Rs.1,50,00,000/- as on today. He tried to expose the absurdity of the difference between the agreed value of the works and the amounts for which the award was passed by the learned second Arbitrator. He further contended that once the matter was referred to the arbitration and had been resolved, the very reference to the second arbitrator would be bad and that the then General Manager signed the terms and conditions of the agreement in view of the fraud played upon him or he was misled to believe the validity of the second arbitral proceedings. 7. Thus, the fundamental contention of the learned senior counsel for the petitioners is that the employees of the second petitioner-South Central Railway played fraud upon the General Manager of the South Central Railway, so much so, the General Manager entered into a settlement before the Lok Adalat bench, Secunderabad in view of fraud played upon by its employees. On the other hand, Sri A. Rmalingeshwar Rao, learned counsel for the sole respondent contended that there is no proof of fraud on the part of the respondent and that assuming that, there was fraud, the petitioner can redress the same through a civil suit and not through a Writ of Mandamus to recall the orders of the Lok Adalat. This is the basic controversy. Two questions arise from this controversy viz., i) whether the General Manager, South Central Railway entered into settlement with the respondent on account of fraud played upon him and ii) whether fraud is played or not, can the petitioners seek for the recalling of the orders passed by the Lok Adalat recording settlement in O.P.Nos.1 of 2005 and 2 of 2005 on the file of the III Senior Civil Judge, City Civil Court, Secunderabad. 8. The learned senior counsel for the petitioners contended that unless fraud was played upon him, the General Manager would not have entered into settlement outside the Court with the respondent herein. He drew our attention to the fact that the dispute was initially referred to arbitration on 07.12.1992. The sole arbitrator passed award for a sum of Rs.2,14,106/- on 02.12.1996. The Court set aside the award when the South Central Railway impugned the award of the Arbitrator before the Court. In C.M.A.No.465 of 1999 preferred by the respondent, this Court reversed the order of the trial Court, confirmed the award of the sole arbitrator and made the award of the sole arbitrator the rule of the Court through orders dated 15.10.1999. The South Central Railway paid Rs.3,39,24,642/- under the two claims adjudicated by the sole arbitrator. The arbitral proceedings came to an end in December 1999 when the South Central Railway paid the monies covered by the arbitral award including interest to the respondent. Thus far, there is no controversy. 9. The learned senior counsel for the petitioners contended that the actions taken by the South Central Railway are incorrect which were actuated by the fraud played upon the General Manger of the South Central Railway by the employees of the South Central Railway. The respondent raised three claims on 14.06.1998 and 16.10.2001 and sought for referring of the same to arbitration. It may be noticed that the references sought by the respondent was after the disposal of the award by the sole arbitrator on 02.12.1996. Indeed, the General Manager of the South Central Railway rejected the demand of the respondent to refer the additional claims to arbitration through proceedings dated 13.02.2002. However, O.P.No.4 of 2002 was filed by the respondent before the trial Court seeking for the appointment of arbitrator and the trial Court passed orders on 13.10.2004 appointing the learned second Arbitrator to adjudicate the claims. 10. It is from this stage that the controversy started. When the learned second Arbitrator was appointed through the intervention of the Court, the South Central Railway was expected to prefer proceedings against the orders in O.P.No.4 of 2002 and to take steps for the setting aside of the order appointing the second arbitrator. It would appear that the South Central Railway did not take such legal step. It would also appear that the South Central Railway participated in the second arbitral proceedings before the learned second arbitrator. However, the learned senior counsel for the petitioners cannot and perhaps did not suggest that these steps are fraudulent and that the award is liable to be set aside as induced by fraud. The case of the petitioners relating to fraud is with reference to agreeing for out of settlement before the Lok Adalat bench, Secunderabad. 11. When the award was passed by the learned second arbitrator, the Standing Counsel for the South Central Railway opined on 22.08.2005 that it was a fit case to challenge the award. The South Central Railway consequently filed O.P.No.1 of 2005 before the III Senior Civil Judge, City Civil Court, Secunderabad to set aside the award. In his turn, the respondent filed O.P.No.2 of 2005 before the same Court to make the award the rule of the Court. Again, it is not the case of the petitioners that there was fraud in between the date of the second award and filing of petitions by the South Central Railway and the respondents seeking for the setting aside of the award and making the award the rule of the Court respectively. 12. On 15.09.2005, it would appear that the respondent addressed a letter seeking for a negotiated settlement. On 14.11.2006, the respondent addressed the Principal Chief Engineer, South Central Railway, Secunderabad seeking for the outside the Court settlement. The respondent pointed out that earlier he wrote a letter on 24.09.2006 for settlement outside the Court and that the respondent was again requesting for settlement of the dispute outside the Court. The respondent wrote a lengthy and detailed letter to the General Manager, South Central Railway on 03.01.2007. He sought for the examination of his claim in accordance with the agreement conditions and release of the monies due to him forthwith. In the meanwhile, the South Central Railway circulated the earlier request of the respondent dated 14.01.2006 for a settlement outside the Court. In point No.3 of the note dated 10.01.2007, it was recorded that many cases were settled outside the Court through settlement and that in the absence of such settlement outside the Court, litigation would have no quietus. It was also noted that one of the options open was to contest the award (by way of continuing the proceedings in O.P.Nos.1 of 2005 and 2 of 2005 on the file of the III Senior Civil Judge, City Civil Courts, Secunderabad). On 16.01.2007 the General Manager would appear to have agreed for an outside the Court settlement and directed the concerned to fulfil the necessary formalities so as to place the matter before the negotiation committee to negotiate the dispute. On 01.03.2007 the respondent addressed a letter to the negotiation committee offering to reduce the rate of interest claimed by him from 18% to 14% per annum on the awarded amount of nearly Rs.59,00,000/- with effect from 01.01.2000. The case of the learned senior counsel is that from this stage onwards, mischief and fraud was played upon the General Manager, South Central Railway by its employees. 13. The office note dated 29.03.2007 of the General Manager points out various parameters of the arbitral award and records that the second award was a speaking award. The note also pointed out that courts generally do not interfere with the speaking arbitral awards. There was no reference to the negotiation and what transpired as the result of the negotiation. Surprisingly, at the end of the note, after Point No.10, it was recorded “In view of the above reasons General Manager may accept as negotiated”. 14. This noting is the point on which the learned Senior counsel for the petitioners heavily relies upon to show that the noting was incorrect and deliberate fraudulent feeding to the General Manager. As can be seen from the noting, while as many as 10 points were recorded, evidently, there was no reference to any negotiation before the negotiation committee. On 01.03.2007, the respondent addressed letter to the negotiation committee offering to receive interest at 14% only. However, the end portion of the noting read as if the negotiation committee had already negotiated and the General Manager might consider accepting the negotiation. The General Manager endorsed on the note file on 29.03.2007 that he was accepting the subject as negotiate. In other words, what he was accepting was the negotiation which was accepted and not the process of negotiation. 15. Thereafter other legal incidences moved swiftly. The Lok Adalat was informed on 05.04.2007 about the settlement. The Lok Adalat passed the award on 07.04.2007. However, the incorrect noting which was allegedly on account of fraud was detected by the Finance Department in its note dated 19.04.2007. The Finance Department recorded that the claims were inflated by the respondent, that the South Central Railway ought not to have agreed for the negotiation and the consent award and that the South Central Railway should contest the matter in a Court. The then General Manager endorsed on 09.05.2007 on the note file that appropriate legal action should be initiated. It is the contention of the learned senior counsel for the petitioners that the agreement on behalf of South Central Railway before the Lok Adalat was on the basis of the approval of the General Manager on the note file on 29.03.1997 and that the General Manager passed orders on the note file on the basis of the incorrect noting that the negotiation had already taken place. Thus, it is the contention of the learned senior counsel for the petitioners that factually the negotiation had not taken place. 16. However, the respondent has not figured anywhere in the negotiation, the question is whether the respondent was party to the fraud. In A.V. Papayya Sastry v. Govt. of A.P.[1], it was observed that fraud vitiates all judicial acts whether the actions were in respect o f rights in rem or right in personam and that a decree or order obtained by fraud is liable to be treated as non est and nullity. On the strength of this decision, it is contended by the learned senior counsel for the petitioners that the Lok Adalat award which was passed on account of fraud is liable to be set aside. The learned counsel for the respondent claimed that this decision has no application to the facts of the case on the ground that the decision is an authority regarding the fraud played upon the Court and not fraud played upon one party by his own men. In that case, the Special Officer and the Competent Authority under the Urban Land (Ceiling and Regulation) Act, 1976 passed award holding that the applicants were “non-surplus holders” and that the possession of the land was already handed over to the Port Trust Authority. When the Government later realized that possession was not taken from the earlier owner, Government of A.P., in exercise of its suo moto revision powers, set aside the orders of the Special Officer and Competent Authority. The applicants/land owners filed the writ petition before the High Court of Andhra Pradesh and obtained orders in their favour. The matter ultimately culminated in favour of the landowners till the Supreme Court stage. 17. The State of A.P. subsequently sought to recall the orders of the High Court on the ground that fraud was committed upon the Government and that material facts were suppressed by the landowners. The Supreme Court, as already pointed out, held that the decree or order obtained by fraud was non est. The contention of the learned counsel for the respondent that the decision is an authority on preposition that fraud vitiates proceedings if fraud is played upon the Court is not correct. In the present case, the landowners did not play any fraud upon the Court. The fraud was allegedly played upon the State Government. Consequently, this decision certainly is applicable to the present situation where admittedly there was no incidence of fraud by the respondents upon the Court. Nevertheless, so long as there is fraud, the decision of the Supreme Court in Papayya Sastry would apply. 18. The learned counsel for the respondent, however, contended that in Papayya Sastry’s case, fraud was played upon by one of the parties upon the other party and that in the present case, the alleged fraud was committed by the employees upon their General Manager and not by the respondent. He further pointed out that the respondent was not a beneficiary out of such a fraud and that the cited decision therefore has no application. 19. In Bhaurao Dagdu Paralkar v. State of Maharashtra[2], the Supreme Court observed that fraud in private law is not the same as fraud in pubic law and that fraud in relation to a statute must be a colourable transaction to evade the provisions of a statute. The Supreme Court further clarified that misrepresentation itself would be tantamount to fraud. It is contended by the learned senior counsel on behalf of the petitioners that the employees of the General Manager misrepresented to the General Manager through a note file that the negotiations had concluded and that the petitioners may act upon and that as it was a clear case of misrepresentation, the agreement of the General Manager to enter into a settlement outside the Court before the Lok Adalat was hit by fraud and becomes non est. He further pointed out that it is not merely as though the employees of the General Manager duped the General Manager to enter into an agreement with the respondent; it is his further case that the respondent was also a party to this fraud. In Ram Preeti Yadav v. U.P. Board of High School and Intermediate Education[3] relied upon by the learned senior counsel for the petitioners, there was fraud. The third respondent was the sole beneficiary of the fraud. The Supreme Court held that it would be presumed that the sole beneficiary was a party to the fraud. In the present case, the original amount of the works entrusted to the petitioner was for Rs.3,92,946/-. The second arbitral award was for Rs.51,74,383/- together with interest. If the same is accepted as a judgment outside the Court, it is the respondent who would be the sole beneficiary. We, therefore, consider that the respondent, as the sole beneficiary, was a party to the fraud played upon the General Manager, South Central Railway. Once it is presumed that the respondent played fraud upon the petitioner making him enter into agreement before the Lok Adalat, the primarily edifice of the case that the respondent cannot be punished for the fraud committed by employees of the petitioner upon the General Manager of the