IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA Arb. Case No. 9 of 2004 Reserved on: 03.09.2010 Decided on: 30.09.2010 M/S K. & Co. … Petitioner Versus State of Himachal Pradesh and another … Respondents Coram : The Hon’ble Mr. Justice V.K. Ahuja, Judge. Whether approved for reporting?1 Yes. For the petitioner: Mr.Rakesh K.Khanna, Senior Advocate with Mr.Mohan Singh, Advocate. For respondents: Mr.Ashwani K. Sharma, Advocate. V.K. Ahuja , J.: This judgment shall dispose of the petition filed under Section 34 of the Arbitration and Conciliation Act, 1996, for setting aside the award dated 3.1.2004 passed by Arbitrator Hon’ble Mr.Justice Roop Singh Thakur (Retd.), 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, dated 17.7.1999, inviting bids for appointment of agent/distributor for the sale of tickets of 1Whether reporters of Local Papers may be allowed to see the judgment? Yes. 2 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 petitioner is a company engaged in the business of organizing/distributing government lotteries since the year 1979. The salient features of the said tender 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.40.00 lacs by Demand Draft and furnish performance security of Rs.6 crores.” 3. According to Clause 8 of the tender document, if the short-listed bidder does not turn up for signing the agreement within the time limit prescribed by the Director, his earnest money was to be forfeited and the bid of the next bidder was to be accepted after conducting negotiations, if necessary. It was alleged that the power of forfeiting of the earnest money was available viz. a viz. successful short-listed first bidder. In the event of successful bidder not turning 3 up, the respondents were to enter into negotiations with the next bidder, if necessary. It was alleged that, however, this clause does not at all contemplate that the earnest money of the second bidder with whom negotiations will be entered into can also be forfeited. 4. It was further alleged that in response to the said tender notice, only two bids were received by respondent No.2. Upon scrutiny of the bids, the Tender Committee short-listed M/s Martin Lotteries Limited as their offer was the best, who had offered a sum of Rs.100 crores per annum plus Rs.0.56 crores on account of unclaimed prizes as against the offer of Rs.16.00 crores plus Rs.6.00 crores for the unclaimed prizes offered by the petitioner. 5. It was further averred that the offer of appointment as lottery agent was issued by the respondent to the short-listed successful bidder i.e. M/s Martin Lotteries Limited requiring them to enter into agreement and furnish the bank guarantee and security deposits. However, the said Company did not come forward to enter into an agreement nor furnished the requisite guarantees and securities and therefore, their earnest money of Rs.40.00 lac was forfeited by the respondent. It was alleged that thereafter the respondent called upon the petitioner to come forward for negotiations with the Tender Committee vide their letter dated 28.7.1999. It was further alleged that on 4 29.7.1999 representative of the petitioner visited the office of respondent No.2 and handed over a letter dated 29.7.1999 wherein it was reiterated that its offer of Rs.22.00 crores is final and the offer is valid only if respondent No.2 starts its lottery from 6.8.1999. On 30.7.1999, the petitioner received a telephonic message from the office of respondent No.2 for meeting with the members of the Tender Committee and a representative of the petitioner went to attend the said meeting. During the course of discussion, the petitioner revised its offer of guaranteed revenue from Rs.22.00 crores to Rs.24.00 crores and as such vide letter, dated 30.7.1999, a revised offer was given to respondent No.2. It was reiterated that it was very important for respondent No.2 to start its lottery draws from 6.8.1999. It was further alleged that on 30.7.1999, a copy of the draft agreement was given to the petitioner and the petitioner was to suggest changes, if any. A representative of the petitioner Company reached the office of respondent No.2 alongwith suggestions/changes. A fresh draft agreement was supplied to the petitioner which was entirely different from the one which was supplied to the petitioner earlier and the contents of the second draft agreement were contrary to the discussions which the petitioner had with the Tender Committee. Thus, it was alleged that due to disagreement with the Tender Committee in regard to some of the 5 clauses and failure of negotiations, no concluded contract was arrived at between the petitioner and respondent No.2. In view of the disagreement on some vital issues pertaining to the agreement and the printers had also expressed their inability to meet the required deadline for printing of tickets of lottery draws which was to be held on 6.8.1999, the petitioner was not in a position to accept the distributorship of H.P. State Lotteries. Thus, no concluded, valid and binding contract could be arrived at in between the petitioner and respondent No.2. In view of the fact that no agreement was executed between the parties, there was no question of breach of terms and conditions of such proposed agreement. The petitioner vide his letter dated 12.8.1999 asked respondent No.2 to refund its earnest money and to revoke the lien on FDRs of Rs.6.00 crores which had been furnished by the petitioner. Respondent No.2 vide its letter dated 12.8.1999 informed the petitioner that they have forfeited the earnest money of the petitioner amounting to Rs.40.00 lacs. The petitioner filed an application for appointment of an Arbitrator and accordingly this Court appointed Hon’ble Mr.Justice R.S. Thakur (Retd.) as sole Arbitrator. The petitioner filed his claim petition before the learned Arbitrator. Respondents filed reply and the petitioner also filed rejoinder- 6 affidavit and the learned Arbitrator passed the award dated 3.1.2004 rejecting the claim of the petitioner. 6. The petitioner, being aggrieved by the award passed by the learned Arbitrator, preferred the petition on the grounds that the learned Arbitrator had failed to appreciate Clause 8 of the tender document. The clause for forfeiture was applicable to the short- listed bidder, who does not turn up to sign the agreement. The State Government was free to accept the bid of the next highest bidder upon conducting negotiations. The said clause nowhere provides that the State Government can forfeit the earnest money of the second bidder who has been invited to negotiate with the State Government. Thus, the Arbitrator had failed to appreciate Clause 8 vide which the State Government had no powers to forfeit the earnest money deposited by any bidder other than the first short-listed bidder. The award of the Arbitrator was challenged on these grounds being illegal and beyond the condition of the tender document and as such the petitioner filed the objections. 7. Reply to the objections was filed by the respondent. On the pleadings of the parties, following issues were settled by this Court: “1. Whether the Arbitration Tribunal traveled beyond the scope and ambit of clause 8 of the tender documents by holding it as an expressly 7 agreed term when confiscation of earnest money was ordered, if so its effect? O.P. Objector 2. Whether the objections filed against the impugned award are not maintainable under Section 34 of the Arbitration and Conciliation Act, 1996, if so its effect? O.P. Non-Objectors 3. Relief.” 8. Parties filed affidavits in support of their claims. No prayer for cross examination of the deponents was made. 9. I have heard the learned counsel for the parties and have gone through the record of the case. Issues No.1 and 2: 10. The submissions made by the learned counsel for the petitioner were that talks in between the parties had failed on first August and as such no agreement was signed in between the parties. It was submitted by the learned counsel for the petitioner that the short-listed bidder means the highest bidder whose bid has been accepted by the State Government. It was further submitted that the contract in question was not complete till it was signed by the parties and the forfeiture of the earnest money is, therefore, against the terms of contract. It was submitted that since the negotiations had failed and the agreement in question had not been signed in between the parties, the State Government could not have lawfully forfeited the amount of earnest money and as such the findings of the learned Arbitrator 8 disallowing the claim of the petitioner are liable to be set aside. 11. On the other hand, the submissions made by the learned counsel for the respondents were that the provisions of Clause 8 of the agreement were attracted to the present facts when the invitation was sent to the short-listed bidder i.e. the petitioner for signing an agreement. It was further submitted that since the petitioner had made the revised offer and was also given the draft agreement and since he failed to execute the agreement in support of the revised offer, the earnest money deposited by him was liable to be forfeited. It was also submitted that the award in question cannot be said to be illegal and the Arbitrator had considered the terms of the agreement and there cannot be reappraisal of the evidence by this Court since the scope of this Court is limited in considering the award of the Arbitrator. 12. The learned counsel for the petitioner in support of his submissions relied upon the following decisions. In Amravati District Central Cooperative Bank Limited versus United India Fire and General Insurance Company Limited, (2010) 5 Supreme Court Cases 294, it was reiterated that the duty of the Court is to interpret the words in which contract is expressed by parties and not otherwise. The terms of the agreement have to be construed strictly. 9 13. The decision in Oil & Natural Gas Corporation Ltd. versus Saw Pipes Ltd., (2003) 5 Supreme Court Cases 705, shows that in interpreting the term ‘public policy’, it was observed as under: “(3) The award could be set aside if it is against the public policy of India, that is to say, if it is contrary to: (a) fundamental policy of Indian law; or (b) the interest of India; or (c) justice or morality; or (d) if it is patently illegal. (4) It could be challenged: (a) as provided under Section 13(5); and (b) Section 16(6) of the Act.” 14. The decision in Bharat Coking Coal Ltd. versus Annapurna Construction (2003) 8 Supreme Court Cases 154, shows that following observations were made in paras 14, 19, 20 and 22: “14. The question as to whether the claim of the contractor is dehors the rules or not was a matter which fell for consideration before the arbitrator. He was bound to consider the same. The jurisdiction of the arbitrator in such a matter must be held to be confined to the four corners of the contract. He could not have ignored an important clause in the agreement; although it may be open to the arbitrator to arrive at a finding on the materials on record that the claimant’s claim for additional work was otherwise justified. 19. So far as these items are concerned, in our opinion, the learned sole arbitrator should have taken into consideration the 10 relevant provisions contained in the agreement as also the correspondences passed between the parties. The question as to whether the work could not be completed within the period of four months or the extension sought for on one condition or the other was justifiable or not, are relevant facts which are required to be taken into consideration by the arbitrator. 20. It is now well settled that the arbitrator cannot act arbitrarily, irrationally, capriciously or independent of the contract. 22. There lies a clear distinction between an error within the jurisdiction and error in excess of jurisdiction. Thus, the role of the arbitrator is to arbitrate within the terms of the contract. He has no power apart from what the parties given him under the contract. If he has traveled beyond the contract, he would be acting without jurisdiction, whereas if he has remained inside the parameters of the contract, his award cannot be questioned on the ground that it contains an error apparent on the face of the record.” 15. In MD Army Welfare Housing Organization versus Sumangal Services (P) Ltd. (2004) 9 Supreme Court Cases 619, their Lordships had considered the question also as to the interim order passed by the Arbitrator, apart from other questions. The question as to whether one party or the other was responsible for delay in causing completion of the contract job fell squarely for consideration before the Arbitrator. 16. The next decision relied upon was in Food Corporation of India versus Chandu Construction and another, 11 (2007) 4 Supreme Court Cases 697. The observations made in para 15 are relevant and are being reproduced below: “Therefore, it needs little emphasis that an arbitrator derives his authority from the contract and if he acts in disregard of the contract, he acts without jurisdiction. A deliberate departure from contract amounts to not only manifest disregard of his authority or a misconduct on his part, but it may tantamount to a mala fide action (also see Associated Engg. Co. v. Govt. of A.P.)”. 17. In ONGC Limited versus Garwarer Shipping Corporation Limited (2007) 13 Supreme Court Cases 434, the following observations were made in para 30: “There is no proposition that the courts could be slow to interfere with the arbitrator’s award, even if the conclusions are perverse, and even when the very basis of the arbitrator’s award is wrong……...”. 18. In Hindustan Zinc Ltd. versus Friends Coal Carbonisation, (2006) 4 Supreme Court Cases 445, their Lordships have relied upon the following observations made in ONGC Ltd. v. Saw Pipes Ltd. (2003)5 SCC 705: “…...in our view, the phrase ‘public policy of India’ used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public 12 good or public interest has varied from time to time. However, the award which is, on the fact of it, patently in violation of stato9tory 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 case, it is required to be held that the award could be set aside if it is patently illegal. The result would be – award could be set aside if it is contrary to: (a) fundamental policy of India 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.” 19. In Delhi Development Authority versus R.S. Sharma and Company, New Delhi, (2008) 13 Supreme Court Cases 80, their Lordships had reiterated the observations made in the above decision. 20. In the decision in PNB Finance Limited versus Commissioner of Income Tax I, New Delhi, (2008) 13 Supreme Court Cases 94, the question was in regard to compensation received by a banking company and it was 13 held that it was not taxable under Section 45 of the Income Tax Act. 21. The next decision relied upon was in National Highways Authority of India versus Ganga Enterprises and another, (2003) 7 Supreme Court Cases 410, in which also their Lordships had reiterated the principles in regard to interference with an Arbitrator’s award under Section 34(2) of the Act, as detailed above. On the facts of the case, it was observed as under: “11. ……. He submitted that even though the contract, if accepted, was to commence from 1.10.1997, the appellants had no accepted the offer till 20.11.1997 and thus the respondent had to withdraw his offer. He submitted that it has come on record that the toll plazas were not completed till March 1998. He submitted that the respondent was forced to withdraw his offer because of the inaction/negligence on the part of the appellant. He submitted that under these circumstances the respondent should not be penalized by forfeiture of his deposit. We are unable to accept this submission. The bid security was given to meet a specific contingency viz. non- withdrawal of the offer within 120 days. The contingency having arisen, the appellants were entitled to forfeit. It may only be mentioned that in the proposed agreement there is a clause which provides that if there is a delay 14 on the part of the appellants, which results in delay in the work of collection of toll, the amount payable by the respondent would be reduced pro rata. Thus by reason of the delay the respondent would not have suffered. Also, the respondent was well aware that 120 days would end on 28.11.1997. Thus the respondent was aware when he gave his offer, that acceptance could be delayed till 28.11.1997. Thus non-acceptance till 20.11.1997 was not a ground which would justify action of the respondent in withdrawing his offer.” Thus, it is clear that there was forfeiture of the amount of security and the non-acceptance was not a ground which could justify the action of the respondent in withdrawing his offer. 22. Another decision relied upon was in M/s Alopi Parshad & Sons Ltd. versus The Union of India, Supreme Court Reports [1960(2)] 793, which decision is mainly based upon the facts of that case. 23. The learned counsel for the respondents further submitted that the scope for interference in the award passed by the Arbitrator was very limited. This Court was not sitting in appeal to the findings of the learned Arbitrator, which could be set aside on the grounds or the reasons mentioned above. It was further submitted that there was nothing that any order was passed by the State Government beyond the terms of the agreement or the tender document and 15 if the short-listed bidder does not turn up, earnest money can be forfeited. In support of these submissions, the learned counsel for the respondents relied upon the following decisions. 24. 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 longs 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.” 25. The decision of a Single Judge of this Court (me) in Oriental Insurance Company Vs. M/S. Auto Comps India Limited, 2010 (1) Shim. LC 400, was relied upon, in which, in Paras 16 and 18, the 16 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 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 Rod 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.” 26. Reliance was placed upon the decision in Ravindra Kumar Gupta and Company Vs. Union of India, 17 (2010) 1 Supreme Court Cases 409. A perusal of Para-9 of the judgment shows that it was observed as under:- “The law withered 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.” 27. Thereafter a reference was made to the judgments 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 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. 18 37. 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.” 28. A reference was made to some other decisions