IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA Arbitration Case No. 30 of 2006. Reserved on.28.6.2010. Date of Decision: September 14,2010. _______________________________________________ State of H.P. ….Petitioner. Versus. Electronic Corporation of India Ltd. ….Respondent. Coram: Hon’ble Mr. Justice Dev Darshan Sud, J. Whether approved for reporting1? Yes. For the petitioner :Mr.Ankush Dass Sood, Addl. Advocate General. For Respondent. :Mr. Tek Chand Sharma, Advocate. ____________________________________________ Dev Darshan Sud,J The State challenges the award granting a sum of Rs. 51,72,593.00 against the State of Himachal Pradesh. Secretary, Transport to the Govt. of Himachal Pradesh, Sh Avay Shukla was called upon to adjudicate the claims of the respondent-claimant and the State. 2. In brief, the facts for consideration of the Arbitrator were that the respondent-claimant entered into two agreements with the department of Education, Government of Himachal Pradesh on 8.5.2001 and 17.7.2001 to provide Whether reporters of the Local papers are allowed to see the judgment?yes . 2 Information Technology Education in 2006 in Senior Secondary Schools in the State of Himachal Pradesh. Subsequently, the number of schools where equipment was to be supplied was reduced to 219. Both the agreements (Annexures P-1 and P-2) contained details of the contracts and the conditions of execution. These were valid for three years i.e. up to 31.3.2004. Respondent-claimant was asked to furnish two irrevocable bank guarantees on 8.5.2001 and 11.7.2001 amounting to Rs.55,25,000/- to secure the performance of the terms of the contract. This was in addition to deposit of earnest money of Rs. 2,00,000/- with the State by the respondent-claimant at the time of the submission of the bids. 3. Disputes arose between the parties during the execution of the contract which ultimately prompted the State to revoke the bank guarantees on 18.11.2004. The respondent-claimant served notice(s) on 24.11.2004 invoking Clause 4.12.1. of the Agreements and Section 11(4) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ‘Act’) seeking resolution of the dispute(s) through the process of arbitration. The respondent-claimant pleaded that it is entitled to a sum of Rs. 132.57 lakhs for the wrongful termination of the contract etc. The State filed a counter claim initially claiming Rs. 99.80 lakhs which was later on amended on 27.9.2005 and reduced to Rs.81.75 lakhs. While adjudicating the claims finally on 3.7.2006 the Arbitrator holds: 3 “2.In all 16 hearings have been held in this case. The petitioner has submitted a claim amounting to Rs.132.57 lakhs. The respondent has resisted the claim of the petitioner and had originally submitted a counter-claim of Rs.99.80 lakhs. However, on 27.9.2005 the respondent submitted an application for amending their pleadings/reply/counter-claim which was allowed on 26.10.2005. By virtue of this amendment the counter-claim of the respondent was reduced to Rs.81.75 lakhs. 3. On 27.7.2005 the undersigned fixed the Arbitrator’s fees at Rs.100,000/- and costs/clerkage at Rs.10,000/-both to be shared equally between the petitioner and respondent. Whereas the petitioner deposited his share of the fee/costs on the next date of hearing i.e. on 31.8.2005, the respondent till date has failed to deposit his share in spite of in numerable opportunities. A final opportunity was given to the respondent on 6.1.2006. Since the amount was not deposited even thereafter, on 21.1.2006 it was ordered that the counter claim of the respondent would be deemed to be suspended under Section 38(2) of the Arbitration and Conciliation Act 1996 unless respondent deposited his share by the next date. Respondent did not avail of this final opportunity and therefore the order was confirmed on 10.4.2006 and it was directed that the counter claim of the respondent would remain suspended. It has, however, been intimated by the respondent that the mater is under the consideration of the Government. I have deliberated on this matter deeply and on the semi-assurance given by the Director of Education. The Government represents the public interest and should, therefore, be allowed some latitude in complying with the directions of this Tribunal. Secondly, it is common knowledge that governmental procedures are slow and time consuming. Thirdly, public moneys are involved in this case and cannot be sacrificed because of laxity on the party of the respondent. Fourthly, the counter claim of the respondent also constitutes his defence against the claim of the petitioner, and it is difficult to separate his defence from the counter claim. And Finally, issues have already been struck, and disregarding the counter claim would 4 mean reviewing and revising the issues, which is not adviseable. Therefore, taking a lenient view, I am also considering the counter claim of the respondent as incorporated in the issues. However, I shall retain a lien on this Award qua the respondent till such time as he deposits the fees and costs……………………..” 4. This part of the proceedings has been reproduced and highlighted to show that despite the cavalier attitude of the petitioner-State, the Arbitrator has still adjudicated on the claims as submitted by the State. 5. Fifteen issues were framed by the Arbitrator. The first issue relates to as to whether the penalty of Rs.22,87,749/- could be levied by the State. While considering this claim, the Arbitrator holds that according to the respondent-State, the justification for levying the penalty was two fold, namely, that the entire amount so sought to be recovered from the respondent-claimant was not in the nature of penalty, some fixed payments have been withheld for non-performance and secondly, some amount which pertains to penalty has been imposed in accordance with the agreement. The Arbitrator then holds: “………………………According to the petitioner this has been imposed as a penalty, unauthorisedly and illegally. The respondent has given two defences: firstly, that the total amount is not penalty, some of it is payments withheld for non- performance, and secondly, that the amount which pertains to penalty has been imposed in accordance with the Agreement. This is a convoluted argument which needs closer examination. Let us first examine respondent’s claim that some of the amount withheld is not penalty It is a fact that there are, according to the agreement, certain charges which the school 5 heads could deduct from the collected fees (telephone and electricity charges) as long as the petitioner used the school’s connections, before obtaining his own independent connections. However, it was incumbent upon the respondent to have produced a statement of accounts, school-wise, showing the amount deducted under these heads out of the total withheld amount of Rs.24,05,803.00. In the absence of documented proof that any part of this amount has been deducted on account of legitimate charges as per the Agreement it would be natural to presume that the entire deductions have been made as penalty, which is the contention of the petitioner. It cannot legitimately be expected of the petitioner to produce this account because the schools are not under his administrative control and he has no access to their records, and the deductions are solely within the knowledge of the respondent who has never conveyed the details to the petitioner. No such statement has been produced before me either and I have no other option but to draw an adverse inference against the respondent and conclude therefore that the entire withheld amount of Rs.24,05,803.00 has been deducted as penalty………………...” (Emphasis Supplied) 6. I was reluctant to quote from the award of the Arbitrator lest it be assumed that this Court is not examining the claim of the State on the merits urged before me but what I find is that even before the Arbitrator the case of the State has been based on practically no evidence. This is further fortified by the fact that under the same issue, the Arbitrator holds that not even one copy of notice issued by school for imposition of penalty after 21.2.2003 has been produced, the arbitrator then continues: “……………..Nor has even one copy of any notice issued by any school for imposition of penalty after 21.2.2003 been produced before me. In the absence of any evidence by the 6 respondent justifying the legality of the penalty of Rs.22,87,749.00, I am compelled to arrive at the conclusion that only the penalty of Rs.3.29 lakhs can be held to be valid as it is a documented figure and since it was imposed before 21.2.2003 the respondent was not required to issue any prior notice to ECIL in terms of the Agreement. The entire remaining amount withheld by the respondent as penalty has been wrongly withheld. The petitioner, therefore, is entitled to refund of Rs.20,66,803.00 out of the amount withheld by the respondent. This issue is decided accordingly”. 7. In these circumstances the Arbitrator holds that the respondent-claimant is entitled to a refund of Rs. 20,66,803/- of the amount which according to the petitioner (claimant) was wrongfully withheld by the respondent. Under the same issue, the Arbitrator also awards a sum of Rs. 3,39,000/- to the State. On issues No. 2 and 3 which related to the number of computers installed by the respondent- claimant, the Arbitrator on consideration of the material before him holds that the respondent-claimant was entitled to the return of 482 surplus computers as on 31.3.2004. The Arbitrator then holds that these very computers were put to use by successive I.T. Firm(s), who took over imparting education and these machines were used by them. Considering the entirety of the facts on record including use and obsolescence, the Arbitrator directs the petitioner entitled to Rs. 48,20,000/- after assessing that the cost of computers loaded with hardware would be between Rs.25,000/- to Rs.35,000/-. Two other issues i.e. issue Nos. 4 and 5 relating to the fact as to what was the number of computers which 7 required repairs/rectification at the time of the expiry of the agreement and the costs of such rectification, the Arbitrator awards a sum of Rs. 17,14,210/- to the State. On the other issues, the Arbitrator has given his findings in detail. 8. Learned Additional Advocate General has urged with vehemence that the award is against the public policy of India and the Arbitrator is biased and that the decision on the issues as renders the award irrational as at one point of time the Arbitrator also holds that the respondent-claimant has violated the agreement. In particular he refers to issue No.11 to substantiate this argument. 9. Before considering the submissions made on behalf of the State, I must note that this Court exercising jurisdiction under Section 34 of the ‘Act’ cannot be converted into a Court of appeal. The only question which requires to be considered is one of perversity. Of course, the other parameters on which the award can be voided are that there must be material on the record to establish that it is against the public policy of India or is covered by the other grounds as enumerated under Section 34 of the ‘Act’. 10. Adverting to the first submission that the award is against public policy of India, I cannot persuade myself to accept this submission. Merely because the award was made against the State cannot by itself constitute a ground to hold that the award is against the public interest. 8 11. The question of public policy has been considered by the Supreme Court in Oil and Natural Gas Corporation Ltd. Vs. Saw Pipes Ltd., AIR 2003 S.C. 2629, holds: “31. Therefore, in our view, the phrase ‘public policy of India’ used in S.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 fact 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 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 root 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.” (PP 2643 & 2644) 12. I have reproduced some portions of the award before considering the case to show the casual attitude of the State before the Arbitrator, who despite the fact that the State chose to obstruct the proceedings at every stage, proceeded to consider its counter claim and awarded a sum of Rs. 20,53,210/-, namely, on account of penalty under issue 9 No.1 Rs.3,39,000/- and on account of repairs of computers etc. Rs.17,14,210/- 13. Coming to the question of bias, even ignoring the fact that the Arbitrator had to be challenged under Section 13 of the ‘Act’ which has not been done. This ground cannot be urged by the State for the reason that the Arbitrator himself not only considers the entire claims of the respondent but also awards part of the counter claims merged by the State. The first point of the award reproduced above discloses it anything the bias of the Arbitrator towards the state where the Arbitrator gives four reasons to entertain the claim of the State and adjudicate its claim(s) without invoking the provisions of the proviso to Sub section 2 of Section 38. 14. Adverting to the submission made by the learned Additional Advocate General on issue No.11 to the finding is destructive of the very logic on which the award has been made and that once it was found that the respondent was responsible for breach, no award could have been made, the Arbitrator holds: “………………Therefore this issue is decided in the following terms: Some of the hardware/software supplied by the petitioner were not of the specifications provided in the tender document. However, petitioner was permitted by the respondent at various times to relax some of these specifications, therefore it cannot be said that hardware which conforms to the lower permitted specifications are violative of the contract agreement. However, it is also a fact that some of the equipment supplied by the petitioner (Ext.R-10) do not conform even to the relaxed specifications, and these would constitute a violation of the agreement.” 10 15. This cannot be construed as a perversity requiring the intervention of this Court. Considering the ambit and scope of interference under Section 34 of the Act, the Supreme Court in M/s Sumitomo Heavy Industries Limited Vs. Oil & Natural Gas Commission of India, 2010 (7) Scale 279, holds: “35................................. As recently reiterated by this Court in Steel Authority of India Limited versus Gupta Brothers Steel Tubes Limited reported in (2009) 10 SCC 63 if the conclusion of the arbitrator is based on a possible view of the matter, the court is not expected to interfere with the award. The High Court has erred in so interfering. 36. Can the findings and the award in the present case be described as perverse? This Court has already laid down as to which finding would be called perverse. It is a finding which is not only against the weight of evidence but altogether against the evidence. This court has held in Triveni Rubber & Plastics vs. CCE AIR 1994 SC 1341 that a perverse finding is one which is based on no evidence or one that no reasonable person would have arrived at. Unless it is found that some relevant evidence has not been considered or that certain inadmissible material has been taken into consideration the finding cannot be said to be perverse. The legal position in this behalf has been recently reiterated in Arulvelu and Another vs. State Represented by the Public Prosecutor and Another (2009) 10 SCC 206. In the present case, the findings and award of the umpire are rendered after considering the material on record and giving due weightage to all the terms of the contract. Calling the same to be perverse is highly unfair to the umpire. The umpire has considered the fact situation and placed a construction on the clauses of the agreement which according to him was the correct one. One may at the highest say that one would have preferred another construction of clause 17.3 but that cannot make the award in any way perverse. Nor can one substitute one's own view in such a 11 situation, in place of the one taken by the umpire, which would amount to sitting in appeal. As held by this Court in Kwality Manufacturing Corporation versus Central Warehousing Corporation reported in (2009) 5 SCC 142, the court while considering challenge to arbitral award does not sit in appeal over the findings and decision of the arbitrator, which is what the High Court has practically done in this matter…………………...” (PP 291&292) 16. The reading of the award shows not only that the petitioner-State has with held important evidence to prove its case yet each and every submission made on behalf of the petitioner herein has been dealt with by the Arbitrator on its merit. This court cannot act as an appellate authority to reverse the findings of the Arbitrator. The submissions made by the petitioner that its claims are substantiated by the evidence on record, cannot be accepted in view of what has been held by the Arbitrator i.e. the State has not presented any tangible proof in support of its claim. Merely because the award grants a greater sum to the respondent-claimant and lesser amount to the State, cannot be termed as an award in conflict with the public policy of India within the parameters of what has been stated in Oil and Natural Gas Corporation’s case (supra). The very fact that the State has been awarded a sum of Rs. 20,53,210/-, on three issues, itself shows that the Arbitrator has delved deep into the material as also taken note of the submissions and the material placed by both the parties on the record. 17. Learned Additional Advocate General submits that the Arbitrator holds that relaxation was granted in terms of 12 the contracts/performance of contract and that this would amount to substitution of a new contract. This submission cannot be accepted. While dealing with this submission urged before him under issue No.10, the Arbitrator takes note of four different meetings held by the State with the respondent herein at which decisions to relax certain conditions were taken. These cannot be categorized as being basic to the contract destroying its fabric and requiring a new contract to be executed every time or substitution of the original contract as entered. The substratum of the contract has not been changed and remains the same. If during the performance of the contract it is found that certain conditions are required to be relaxed, it would not amount to a substitution of the fundamentals on the basis of which the contract was founded. The State has been satisfied without demur in accepting the performance of the contract by relaxation of only on one or two conditions. It now turns around and says that there is no valid contract in existence. This logic cannot be accepted. 18. To reiterate, I find that the Arbitrator has not only given adequate but more than adequate opportunity to both the parties and has even gone to the extent of accepting that the State acts in the public interest and, therefore, its claim/counter claims required to be dealt with in a lenient manner. I would not wish to add anything further but to say that this may not be the correct position in law. However, I find no illegality in the award passed by the Arbitrator. The 13 petition is accordingly dismissed. There shall be no order as to costs. (Dev Darshan Sud) Judge. September 14,2010(R)