IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE R.BASANT & THE HONOURABLE MR. JUSTICE K.SURENDRA MOHAN WEDNESDAY, THE 1ST JUNE 2011 / 11TH JYAISHTA 1933 Arb.A.No. 31 of 2010() -------------------------------- OP(ARB)NO.97/2009 of DISTRICT & SESSIONS COURT,TRIVANDRUM .................... APPELLANT -------------------- MOHAMMED MAMDOUH MATWALLY GHALI.PROPRIETOR, M/S.FAST POWER FOR INDUSTRIAL CARS AND MOTORCYCLES, THE IST FLOOR,THE 3RD ZONE,JIZA, EGYPT,AND M/S. GHALY SONS IMPORT AND EXPORT COMPANY, SADAT CITY, FIRST ZONE, PART 37 PROFESSIONAL, DAKAHILA,(PRESENTLY STAYING AT ROOM.NO.302,YOURANI HOTEL,ERNAKULAM) BY SRI.O.V.RADHAKRISHNAN, SENIOR ADVOCATE BY ADV. SMT.K.RADHAMANI AMMA SRI.K.RAMACHANDRAN (THYKOODAM) RESPONDENT(S): ---------------------------- KERALA AUTOMOBILES LTD, REPRESENTED BY ITS MANAGING DIRECTOR, ARALUMOODU, TRIVANDRUM- 695123 BY ADV. SRI. K ANAND THIS ARBITRATION APPEALS HAVING BEEN FINALLY HEARD ON 01/06/2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: sts ARB.APPEAL NO.31/2010 APPENDIX PETITIONER'S ANNEXURES: ANNEX A-1: COPY OF THE ORDER DATED 18/06/2008 IN AR NO.15 OF 2008 OF THIS HON'BLE COURT. RESPONDENT'S ANNEXURES: NIL /TRUE COPY/ P.S.TO.JUDGE sts R. BASANT & K. SURENDRA MOHAN, JJ. ------------------------------------------------- Arb. Appeal No. 31 of 2010-G ------------------------------------------------- Dated this the 1st day of June, 2011 JUDGMENT Basant,J. (i) Are the findings of the Arbitrator (a) that the claimant is not bound by the stipulation No.7 in Ext.C10 and (b) that the claimant can take advantage of the other stipulations in Ext.C10 correct and justified? (ii) Can those findings be held to be illegal perverse, unjust or immoral? (iii) Can the award passed by the Arbitrator be consequently held to be opposed to the public policy of India? (iv) Are those vices sufficient to justify the interference by the District Court with the award of the Arbitrator under Section 34 (2) (b) (ii) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as `the Act')? Arb. Appeal No. 31 of 2010 -: 2 :- These questions are thrown up for consideration in this appeal. 2. A brief resume of the events that have led to this appeal appears to be necessary. The appellant (hereinafter referred to as `the claimant') and the respondent Kerala Automobiles Ltd. (hereinafter referred to as `the company') had entered into an agreement under which the company had agreed to supply automobiles manufactured by it to the claimant, a foreign national. There is no dispute that they had agreed that disputes between them if any must be resolved by arbitration. Purchase order was placed for 144 vehicles. 48 of them were supplied by the company. When the consignment of 48 vehicles reached the claimant at Egypt, he raised an objection that they were defective, unusable and not roadworthy. Disputes thus arose between the company and the claimant. They attempted to settle their disputes by direct negotiation. Parleys were held between the officials of the company on the one hand and the claimant on the other. Ultimately they appear to have settled their disputes. The terms of the agreement/settlement were reduced to writing in the form of minutes. Ext.C10 dated 03.11.2007 is admittedly the minutes of such meeting in which parties settled their disputes. It is not disputed that the minutes Arb. Appeal No. 31 of 2010 -: 3 :- were earlier recorded, were typed later and were presented for signature of the parties. On the next day after the meeting, minutes were signed by the company and the claimant. On the side of the company, officers of the company signed the minutes. On the side of the claimant, claimant himself as also RW1, an advocate, who was representing the claimant and who was present with him throughout the negotiation, signed the minutes. 3. Within a week of signing Ext.C10, the claimant issued Ext.C11 letter dated 09.11.2007 expressing his intention not to abide by clause 7 of Ext.C10. This was followed by Ext.C12 formal notice issued by the claimant on 09.02.2008. 4. The claimant staked a claim for huge amounts by way of compensation for the defective/not roadworthy automobiles that were supplied to the claimant. The dispute was ultimately referred for arbitration by an order of a designated Judge of this Court. The learned Arbitrator entered upon reference. Before the Arbitrator, the claimant proved Exts.C1 to C26. PWs 1 to 3 were examined on the side of the claimant. PW1 is the claimant. PW2 is the consultant of PW1 and PW3 is a representative of the shipping agent. We shall later refer to the relevant documents in Exts.C1 to C26. 5. On the side of the Company, R.W.1 who had signed Arb. Appeal No. 31 of 2010 -: 4 :- Ext.C10 minutes was examined. R.W.2 a person who had been deputed by the company to proceed to Egypt was also examined. Exts.R1 to R11 were marked on the side of the company. Annexure-A1 is the list of vehicles found by the Arbitrator during his inspection to the factory of the company on 15/11/08. 6. The learned Arbitrator by the award dated 4/3/09 came to the conclusion that the company is liable to pay Rs.47,83,720/- or its equivalent 1,22,000 U.S. Dollars to the claimant. Alternative directions were also issued. 7. The crucial findings on which the Arbitrator came to a decision against the company are: (1) The claimant is not bound by Clause (7) of Ext.C10 to which he had admittedly subscribed his signature. (2) The claimant is entitled to take advantage of all other stipulations in Ext.C10. 8. Aggrieved by the award of the Arbitrator, the company approached the District Court, Thiruvananthapuram, with O.P. (Arb.) No.97/09. It was prayed that the award may be set aside under Sec.34 of the Act. It is unnecessary to advert to the various contentions raised by the company before the District Judge. Suffice it to say that it was contended that the award is Arb. Appeal No. 31 of 2010 -: 5 :- liable to be set aside under Sec.34(2)(b)(ii) of the Act. 9. The learned District Judge by the impugned order came to the conclusion that the award of the Arbitrator is liable to be set aside under Sec.34(2)(b)(ii). Accordingly, the learned District Judge proceeded to pass the impugned order. The Arbitrator's award was set aside. 10. It would be apposite straightaway to mention that the company had raised a counter claim. That counter claim was rejected by the Arbitrator. The rejection of the counter claim was not interfered with by the learned District Judge. No Appeal or Cross-Appeal has been preferred by the company against the rejection of the counter claim. 11. Arguments have been advanced before us. We have heard the learned counsel for the rival contestants. On the arguments advanced before us, the 4 points raised in paragraph-1 of this judgment arise for consideration. 12. We shall now proceed to consider the grounds of challenge. I3. It shall be appropriate at the very outset to note the nature and quality of the jurisdiction of this Court under Sec.37 (1)(b) of the Act. An appeal lies from the order of the District Court. This appellate jurisdiction is co-extensive and co- Arb. Appeal No. 31 of 2010 -: 6 :- terminus with the jurisdiction of the first court. We shall therefore consider this appeal as if the entire matter is before us for consideration. 14. Objections have been raised about the want of pleadings. We have been taken through the petition under Sec.34 filed before the District Court. Significantly though the award is challenged, it is not specifically stated that the arbitral award is in conflict with the public policy of India which is the specific ground available under Sec.34(2)(b)(ii) of the Act. The learned counsel for the claimant contends that in the absence of specific pleadings, the attempt made now to justify the order of the District Court under Sec.34(2)(b)(ii) is not sustainable. 15. `Forms we may have buried but they still rule us from the grave'. The necessity of pleadings has to be understood realistically. Proper pleadings are necessary not as a matter of ritual or as a fetish. The law of pleadings has its foundation on the principles of natural justice that the adversary must be notified of the precise nature of the challenge raised and given the opportunity to make his defence. The insistence of the law on pleadings is not to repeat the words of the statute. Notwithstanding the fact that a specific plea that the award is in conflict with the public policy of India is not raised in the petition Arb. Appeal No. 31 of 2010 -: 7 :- filed under Sec.34, a total and holistic reading of the petition must eloquently convey that the challenge raised is on that ground also. In these circumstances, the laborious attempt made to assail the findings of the District Court on the ground that the findings are not supported by pleadings cannot be accepted. 16. The learned counsel for the Company Sri.Anand points out that the semantics employed by the legislature in Sec.34(2) (a) and (b) is in this context of crucial relevance. Sec.34(2)(a) and (b), we extract below: “34. Application for setting aside arbitral award.-- (1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3). (2) An arbitral award may be set aside by the Court only if--- (a) the party making the application furnishes proof that--- (i) x x x x x (ii) x x x x x (iii) x x x x x (iv) x x x x x (v) x x x x x (b) the Court finds that-- Arb. Appeal No. 31 of 2010 -: 8 :- (i) x x x x x (ii) the arbitral award is in conflict with the public policy of India.” (emphasis supplied) 17. The attempt of the learned counsel is to impress upon the court the fact that while grounds under Sec.34(2)(a) must be proved by the party making the application, the legislature consciously deviated and employed different semantics while enacting Clause (b). The requirement of Clause (b) is only that the court must find the two grounds to exist. 18. We find the contention to be interesting and acceptable. It is idle to assume that the legislature did not employ the language of Clauses (a) and (b) of Sec.34(2) without proper application of mind. While an award can be set aside under Clause (a) only if the applicant `furnishes proof' of the relevant ground, it is enough under Clause (b) if `the court finds' existence of the relevant ground. Every finding of the court may also have to be on the basis of pleadings and evidence; but that by itself cannot persuade us to ignore the different semantics employed by the legislature in Clauses (a) and (b) of Sec.34(2). It appears to us that a paramount duty is imposed on the court to ensure that the award is not vitiated by either of the two grounds mentioned in Clause (b); whereas the grounds under Clause (2) Arb. Appeal No. 31 of 2010 -: 9 :- (a) are to be established by a person making the application to assail the arbitral award. Though the language of Sec.34(2)(b) will not justify a court acting without pleadings and evidence altogether, the argument appears to be acceptable that the burden to plead and prove is lesser when it comes to a ground under Clause (b) and that different language has been employed by the legislature definitely as a result of the perception of the legislature that the court has a duty to ensure that the award does not conflict with the public policy of India. The process of settlement of disputes by arbitration commands greater sanctity under the Indian law now after introduction of Sec.89 of the Code of Civil Procedure. The purity and credibility of the process have to be maintained. That appears to be the only object of the different semantics employed. Additional/greater burden is laid on the shoulders of the court to ensure that the awards are not vitiated by the vices under Clause (b). Considering the object to be achieved and the language employed by the legislature, purely technical pleas founded on the law of pleadings and burden of proof cannot claim primacy when a court considers the ground under Sec.34(2)(b) urged to set aside an award. 19. Contentions have been raised about the law relating to Arb. Appeal No. 31 of 2010 -: 10 :- the attempt of a party to avoid one stipulation alone in an agreement/contract. We feel it unnecessary to advert to the various precedents cited. When a person enters into an agreement and signs the same it must be assumed that such person has entered into such agreement after necessary and full application of mind. The attempt of a person to avoid one inconvenient stipulation alone in an agreement containing various stipulations should always be viewed by a prudent person with the requisite care and caution. Different may be the situation when one stipulation is contrary to law or unenforceable. In a case where parties after detailed mutual negotiations come to an agreement and reduce the same into writing it will be an uphill task for one of the parties to contend that one stipulation alone was entered into without proper application of mind or without properly understanding the stipulation. Though various precedents have been cited at the Bar in support of this proposition we think it sufficient to advert to paragraph-6 of Gasim Industries Ltd., v. Agarwal Steel (2010 (1) SCC 83) which we extract below: “In our opinion, when a person signs a document, there is a presumption, unless there is proof of force or fraud, that he has read the document properly and Arb. Appeal No. 31 of 2010 -: 11 :- understood it and only then he has affixed his signatures thereon, otherwise no signature on a document can ever be accepted. In particular, businessmen, being careful people (since their money is involved) would have ordinarily read and understood a document before signing it. Hence the presumption would be even stronger in their case. There is no allegation of force or fraud in this case. Hence it is difficult to accept the contention of the respondent while admitting that the document, Ext.D-8 bears his signatures that it was signed under some mistake.” We note that on facts that was also an identical case where the Arbitrator permitted a party to avoid one stipulation in an admitted document accepting the plea that he subscribed his signautre under a mistake. That was not approved by the Supreme Court. 20. Arguments have been advanced on the question of severability of an agreement and the option available to the court to accept the remaining stipulations after holding one stipulation to be not binding or void. Our attention has been drawn to the texts as also precedents which stipulate that a Arb. Appeal No. 31 of 2010 -: 12 :- person cannot be permitted to approbate or reprobate. There can be no serious controversy on this aspect also. An agreement containing different stipulations must be holistically read. It is difficult in the absence of better evidence to come to a definite conclusion as to the impact which each stipulation had in the mind of the contracting parties. Under the doctrine of severability there can certainly be instances where one stipulation which is found to be illegal, contrary to public policy or unenforcible can be severed from the rest of the stipulations. It is certainly not the law that no agreement would be severable at all. But the facts and circumstances of each case will have to be considered in detail to decide whether the attempt to wriggle out of the obligation under one stipulation and to place reliance on the other stipulations is justified or not. 21. We shall now consider the ground of conflict with public policy of India which is a ground recognized under Sec.34 (2)(b)(ii) to set aside an award passed by the Arbitrator. We read Sec.34(2)(b)(ii) again: “34. Application for setting aside arbitral award.-- x x x x x x x x x x x x x x x x x x Arb. Appeal No. 31 of 2010 -: 13 :- (b) the Court finds that-- (i) x x x x x x (ii) the arbitral award is in conflict with the public policy of India.” 22. As to when an award can be held to be in conflict with the public policy of India, the law is now well settled. Disputes, if any, can be only on the application of the law which is well settled. It will be apposite in this context to refer to the decision in Renusagar Power Co. Ltd., v. General Electric Co. (1994 Supp (1) SCC 644). The question arose in Renusagar while considering the relevant provisions of the Foreign Awards (Recognition and Enforcement) Act1961. Summarizing the law relating to public policy as a ground for avoiding an arbitral award, the learned Judges in paragraph-66 stated the law thus: “Applying the said criteria it must be held that the enforcement of a foreign award would be refused on the ground that it is contrary to public policy if such enforcement would be contrary to (i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality.” Arb. Appeal No. 31 of 2010 -: 14 :- 23. Later, a two Judge Bench of the Supreme Court had occasion to consider the ambit and sweep of the expression “in conflict with the public policy of India” in Sec.34(2)(b)(ii). After referring to the decision in Renusagar (supra), the learned Judges felt the need to assign a wider meaning for the expression “public policy of India” for the purpose of Sec.34(2) (b)(ii). In paragraph-31 of ONGC Ltd., v. Saw Pipes Ltd., [(2003) 5 SCC 705] the Bench after referring to the need to assign a wider meaning for the said expression declared the law thus: “The 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. Arb. Appeal No. 31 of 2010 -: 15 :- Such award is opposed to public policy and is required to be adjudged void.” 24. The law on the point has thus been succinctly held. We are conscious of the fact that this judgment had attracted criticism from various quarters. But, be that as it may, a later two Judge Bench of the Supreme Court in McDermott International INC v. Burn Standard Co. Ltd., [(2006) 11 SCC 181] in paragraphs-62 to 64 observed thus: “62. We are not unmindful that the decision of this Court in ONGC [(2003) 5 SCC 705] had invited considerable adverse comments but the correctness or otherwise of the said decision is not in question before us. It is only for a larger Bench to consider the correctness or otherwise of the said decision. The said decision is binding on us. The said decision has been followed in a large number of cases. (See The Law and Practice of Arbitration and Conciliation by O.P. Malhotra, 2nd Edn., p. 1174). 63. Before us, the correctness or otherwise of the aforesaid decision of this Court is not in question. The learned counsel for both the parties referred to the said decision in extenso. Arb. Appeal No. 31 of 2010 -: 16 :- 64. We, therefore, would proceed on the basis that ONGC [(2003) 5 SCC 705] lays down the correct principles of law.” 25. There can hence be no doubt that the declaration of law in ONGC assigning a wider meaning to the concept of an award being “in conflict with the public policy of India” has to be followed by us in the present case. 26. Precedents have been copiously cited before us about the narrow scope for judicial interference with an arbitral award. We are conscious of the fact that the jurisdiction which the court has under Sec.34(2)(b)(ii) is not appellate; nor even revisional. The nature and quality of the jurisdiction has to be alertly perceived. The court under Sec.34 of the Act cannot re- appreciate facts and law. It cannot choose to disagree with the Arbitrators and come to a more reasonable or more correct conclusion. The mere fact that a different view is possible cannot persuade a court to interfere with an award under Sec.34. That a better conclusion is possible or even the fact that the Arbitrator had erred in facts or in law is not sufficient to persuade a court to invoke the jurisdiction under Sec.34 of the Act. The court will have to be convinced that the illegality is patent and that it goes to the root of the matter. The court will Arb. Appeal No. 31 of 2010 -: 17 :- have to be satisfied that the award is so unfair and unreasonable that it should shock the conscience of the court. Only then can it be held that the award is opposed to public policy and consequently deserves to be adjudged void. 27. A question arises whether the vice of perversity would justify the conclusion that an award is patently illegal as to attract the 4th limb of the grounds mentioned in ONGC . It will be advantageous in this context to refer to the commentary by O.P. Malhotra on the question of perversity with which we completely agree. At page 1194 of `The Law and Practice of Arbitration and Conciliation' (Second Edition) by O.P. Malhotra the learned author observes thus: “Perversity, though not identical with an `error of law apparent on the face of award', is very much akin to it. Perversity, therefore, will have the same effect on an award, as an error of law apparent on the face of award. Even if it does not fit in any of the grounds listed in S.34(2)(a), it is well comprehended in the concept of the expression `in conflict with the public policy of India' in S.34(b)(ii) for annulling the award.” 28. Precedents have been cited before us in support of the Arb. Appeal No. 31 of 2010 -: 18 :- proposition that gross perversity will also vitiate the award leading to its avoidance under Sec.34(2)(b)(ii) of the Act. We accept that proposition of law without any doubt. 29. As to what is gross perversity in law, it is not necessary to advert to the precedents which have been citied at the Bar. The principle is stated thus: “Broadly speaking, if the reasons stated in the award on which it is based, reveal that the decision in it is based on no legal evidence at all; or in coming to its conclusion, the arbitrator has taken into account irrelevant and extraneous considerations not germane to the resolution of the dispute; or it has not taken the vital material into account, the award is perverse. It will be `an affront to the law which cannot be overlooked, and the order stands self-condemned even though it may be within jurisdiction.” (See at page 1193 of `The Law and Practice of Arbitration and Conciliation' Second Edition by O.P. Malhotra). 30. It is trite that courts have to alertly ascertain whether there is patent illegality to justify interference with an award on the ground available under Sec.34(2)(b)(ii) of the Act. It has to Arb. Appeal No. 31 of 2010 -: 19 :- be verified whether the award is vitiated by gross perversity as to justify interference on that ground. But if it is found that the award is so vitiated, we find no reason for a court not to invoke its powers under Sec.34. On this aspect we find it advantageous to refer to paragraph-28