IN THE HIGH COURT OF HIMACHAL PRADESH AT SHIMLA Arb. Case No. 43 of 2004 Reserved on : 3rd September, 2008 Date of Decision: 15th September, 2008 State of H.P. and another Objector Versus Naresh Kumar Vij Non-objector/contractor. Coram The Hon’ble Mr. Justice Sanjay Karol,J. Whether approved for reporting1? Yes. For the appellant: Mr.Vivek Thakur, Addl. Advocate General. For the respondent: Mr.S.R.Sharma, Advocate. Sanjay Karol, J. In these proceedings under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act), the State of Himachal Pradesh and another have assailed the Award dated 24.6.2004 passed by the Chief Engineer (Retired), awarding a sum of Rs.23,57,300/- alongwith interest @ 10% per annum to the contractor as against his claims of Rs.34,29,540/- alongwith interest @ 24% per annum. The State of Himachal Pradesh (hereinafter referred to as the State) issued notice inviting tenders for execution of certain works amounting to a sum of Rs.40,43,014/-. The qualified and eligible persons submitted their bids and the respondent (hereinafter referred to as the Whether the reporters of Local Papers are allowed to see the Judgment? Arb. Case No. 43 of 2004 2 Contractor) vide letter dated 13.3.2001 was awarded the contract for a sum of Rs.47,91,345. Essentially the contract was for “construction of Tata Devi – Totu- Nalagarh road Jubberhatti. Section 10/0 to 20/750 metalling and tarring including soling, wearing in extended portion providing kharanja drain and construction of parapet in Km. 15/0 to 19/540 (including length of 1.150 km. link road to Airport)”. The duration for carrying out the tendered work was six months commencing from 28.3.2001 to 27.9.2001. The work was successfully completed on 19.9.2001 and the final bills were prepared on 13.11.2001 and final payment received by the contractor on 6.4.2002 without any demur. The contract was for a sum of Rs.47,91,345/- and a total sum of Rs.48,95,491/- was paid to the Contractor for the works done. It appears that certain disputes were raised by the Contractor vide his notice dated 10.8.2002 for which he was called for amicable settlement, but when they failed arbitration Clause No. 25 of the Agreement was invoked by him and in Arbitration Case No. 83 of 2002 this Court on 26.12.2002 referred the disputes as under:- “Reply not filed despite opportunity granted. In the facts and circumstances on record, more specifically that there exists arbitration agreement between the parties and the arbitrator has not been appointed despite notice dated 10.08.2002 given by the petitioner-contractor within a period of 30 days, Sh. O.P.Mahajan, Chief Engineer (Retd.), H.P.S.E.B., Shankli, Shimla, is appointed as Arbitrator, who will adjudicate upon the disputes raised by the petitioner-contractor in accordance with law. The petition is disposed of.” Arb. Case No. 43 of 2004 3 The Claims were filed by the Contractor before the Arbitrator, but however, no counter-claims were filed by the State. Considering the material on record, the Arbitrator held that the State had delayed in making available the controlled items of material like cement, bitumen etc. and also not performed its obligation under the contract inasmuch as no site for quarrying was allotted and as such the Contractor had suffered losses and was entitled to compensation. In the Objection petition on 18.3.2005 this Court framed the following issues:- 1. Whether the Arbitration Award dated 24.6.2004 is beyond the term of the reference and liable to be set aside? OPA 2. Whether the Arbitrator has exceeded his jurisdiction while giving the Award dated 24.6.2004 and as such the Award is liable to be set aside? OPA 3. Whether the award given by the Arbitrator is against the public policy, as alleged and is liable to be set aside? OPA 4. Whether the Arbitrator has wrongly entertained the additional claim and whether the same is beyond the scope of the arbitration agreement and if so whether the Award is liable to be set aside on this ground? OPA. 5. Whether the Arbitrator was not competent to grant interest while passing the award and whether the interest awarded is on the higher side? OPA. 6. Relief. Later the Court found that since the Award was not reasoned, therefore, vide order dated 31.8.2005 directed the Arbitrator to state reasons with respect to the Award passed by him, which was so done by the Arb. Case No. 43 of 2004 4 Arbitrator in terms of letter dated 24.10.2005 received by the Registry of this Court on 27.10.2005. The same are being considered. The objection that the award is without any reasons has not been raised by the State in view of the fact that this Court had asked the Arbitrator to assign the same and no further objections after the receipt of the reasons have been filed by the State. Learned counsel for the parties agreed that all the aforesaid issues be clubbed together and decided claim-wise. As such, all the issues are clubbed together and decided claim-wise. As per the petition, the objections are on the following grounds:- 1. The Arbitrator has traversed beyond jurisdiction causing substantial injustice to the State, being against the public policy of India. 2. The Contractor having made only four claims allowing the amendment and permitting the additional claim to be adjudicated is against the law. 3. No extra, alternate or additional work was carried out by the Contractor, which is evident from the payment of final bills prepared on the basis of entries of MB received by the contractor without protest. Non-compliance of clause 12(v) by the Contractor disentitled him to the claims, if any. 4. The Arbitrator has arrived at erroneous conclusions as conditions No.2 and 43 of the Notice Inviting Tender was not correctly appreciated. 5. The documents in support of the claim were fabricated and procured in collusion with third parties. Arb. Case No. 43 of 2004 5 Submissions of Mr. Vivek Thakur, learned Addl. Advocate General have also been dealt with while dealing the objection claimwise. Scope of Judicial Intervention The Arbitration and Conciliation Act, 1996 was enacted, as is evident from the objects and reasons, with a specific Parliamentary objective of minimizing the supervisory role of Courts in the arbitral process. As per Section 5 of the Act no judicial authority shall intervene in matters governing by Part I except where it is so provided. An arbitral award may be set aside by the Court only if one of the grounds set out in Clause (a) or (b) of Section 34(2) is established. The Apex Court in Olympus Superstructures Pvt. Ltd. vs. Meena Vijay Khetan and others, AIR 1999 SC 2102 and in Konkan Railway Corporation Ltd. vs. Mehul Construction Co., 2000(3) Arb.LR 162 (SC), has held that the Act as compared to the Arbitration Act, 1940 had limited the intervention of the Court with the arbitral process to the minimum and that in interpreting the provisions of the Act, it was not open to the Court to ignore the object and purpose of the enactment. Moreover, even though the expression “public policy” is recognized judicially as being an “elusive concept”, difficult to define and capable of interpretation both in narrow as well as in broad terms, that would not be a warrant for the Court to extend judicial intervention in arbitral awards beyond the restricted sphere envisioned by the Parliament. The expression “public policy” is a concept which relates to the public good and to public interest. In Renusagar Power Co. Ltd. vs. General Electric Co., AIR 1994 SC 860, the Supreme Court noted that the doctrine of public policy is somewhat open-textured and flexible and has Arb. Case No. 43 of 2004 6 comprehended a narrow view and a broad view. The narrow view is that Courts cannot create new heads of policy, while the broader view is that heads are not necessarily closed for judicial interpretation. The position in England was considered where the ground of public policy is held to be capable of being invoked where the enforcement of an award “would affront some moral principle the maintenance of which admits no possible compromise”, such as (i) where the fundamental conceptions of English justice and disregarded; (ii) Where English conceptions or morality are infringed; (iii) Where a transaction prejudices the interest of a nation or its good relations with foreign powers; (iv) where the foreign law or status offends English conception of human liberty and freedom of action. The Apex Court in Smita Conductors Ltd. vs. Euro Alloys Ltd., (2001) 7 SCC 728 and Oil & Natural Gas Corporation Ltd. vs. Saw Pipes Ltd., (2003) 5 SCC 705, held that the expression “public policy of India” would mean that a foreign award cannot be recognized or enforced if it is contrary to (i) the fundamental policy of Indian Law; (ii) the interests of India; (iii) justice or morality. Conscious as the Court must be of the varying content of the doctrine of public policy, it would be appropriate to regard a breach of public policy as involving a conflict with something so fundamental so as to constitute or lie at the root of legal principles in India. Similarly, something which is so unconscionable so as to be contrary to fundamental notions justice or morality may well be regarded as a breach of public policy. But, however, it would not be permissible for the judge to reappreciate the reasons underlying an arbitral award or for that matter to reappreciate the oral or documentary evidence on the record before the Arbitrator. Factual Arb. Case No. 43 of 2004 7 evaluation of an arbitral award is not permissible. The Court would not be justified in interfering with an arbitral award merely because in a given case, the interpretation which is sought to be placed on the terms of the contract by the Arbitrator does not accord with the interpretation which the Court would have placed. So long as the Arbitrator has acted within jurisdiction in interpreting the provisions of the contract, and has applied the law to his evaluation of the facts, the Court must rest with the decision of the Arbitrator unless the Court is satisfied that the arbitral award is in conflict with the public policy of India. [Municipal Corporation of Greater Mumbai & Ors. Vs. Jyoti Construction Company, 2003(3) Arb.LR 489 (Bombay)]. The arbitrator is a Judge appointed by both the parties after reaching a consensus and once it is found that the view of the Arbitrator is a plausible one, the Court cannot reverse it by interfering with the award. Moreover, the interpretation of a contract is a matter solely within the domain of the arbitrator. In case two views are possible, the Court is not justified in interfering with the award by adopting its own interpretation. Even if it could be proved that the arbitrator has committed some mistake while arriving at his conclusion, such a proof would not invalidate the award. Even if there is an error of construction of the agreement by the arbitrator, the same is not amendable to correction. The reasonableness of an award is not a matter for the Court to consider unless the award is preposterous or absurd. [Heera Singh vs. State of Rajasthan and others, 2008(1) R.A.J. 457 (Raj)] In Bhagwati Oxygen Ltd. vs. Hindustan Copper Ltd., (2005) 6 SCC 462, the Apex Court has held as under:- Arb. Case No. 43 of 2004 8 “An Arbitrator is a Judge appointed by the parties and as such the award passed by him is not to be lightly interfered with. The court while exercising the power under Section 30, cannot re-appreciate the evidence or examine correctness of the conclusions arrived at by the Arbitrator. The jurisdiction is not appellate in nature and an award passed by an Arbitrator cannot be set aside on the ground that it was erroneous. It is not open to the court to interfere with the award merely because in the opinion of the court, other view is equally possible. It is only when the court is satisfied that the Arbitrator had misconducted himself or the proceedings or the award had been improperly procured or is `otherwise' invalid that the court may set aside such award. In Mcdermott International Inc. vs. Burn Standard Co. Ltd. and another, (2006) 11 SCC 181, the Apex Court has held that “correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law. Once it is held that the arbitrator had the jurisdiction, no further question shall be raised and the court will not exercise its jurisdiction unless it is found that there exists any bar on the face of the award”. In Pure Helium India (P) Ltd. vs. Oil & Natural Gas Commission, (2003) 8 SCC 593, the apex Court has approved the ratio of law laid down in its earlier decision in Rajasthan State Mines & Minerals Ltd. v. Eastern Engg. Enterprises, (1999) 9 SCC283, as under:- “35. In Rajasthan State Mines & Minerals Ltd. (supra) whereupon Mr. Rohtagi placed strong reliance, this Court held that the dispute to the arbitrator could not be termed as Arb. Case No. 43 of 2004 9 without jurisdiction but proceeded to consider the question as to whether he will have authority or jurisdiction to grant damages or compensation in the teeth of the stipulation providing that no escalation would be granted and that the contractor would only be entitled to payment of the composite rate as mentioned and no other or further payment of any kind or item whatsoever shall be due and payable by the Company to the contractor. 36. It was concluded : (SCC pp 309-10, para 44) "44 (a) It is not open to the Court to speculate, where on reasons are given by the arbitrator, as to what impelled the arbitrator to arrive at his conclusion. (b) It is not open to the Court to admit to probe the mental process by which the arbitrator has reached his conclusion where it is not disclosed by the terms of the award. (c) If the arbitrator has committed a mere error of fact or law in reaching his conclusion on the disputed question submitted for his adjudication then the Court cannot interfere. (d) If no specific question of law is referred, the decision of the Arbitrator on that question is not final, however much it may be within his jurisdiction and indeed essential for him to decide the question incidentally. In a case where specific question of law touching upon the jurisdiction of the arbitrator was referred for the decision of the arbitrator by the parties, then the finding of the arbitrator on the said question between the parties may be binding. (e) In a case of non-speaking award, the jurisdiction of the Court is limited. The award can be set aside if the arbitrator acts beyond his jurisdiction. (f) To find out whether the arbitrator has travelled beyond his jurisdiction, it would be necessary to consider the agreement between the parties containing the arbitration clause. Arbitrator acting beyond his jurisdiction is a different ground from the error apparent on the face of the award. Arb. Case No. 43 of 2004 10 (g) In order to determine whether arbitrator has acted in excess of his jurisdiction what has to be seen is whether the claimant could raise a particular claim before the arbitrator. If there is a specific term in the contract or the law which does not permit or give the arbitrator the power to decide the dispute raised by the claimant or there is a specific bar in the contract to the raising of the particular claim then the award passed by the arbitrator in respect thereof would be in excess of jurisdiction." Public Policy in the eyes of the Supreme Court. In Centrotrade Minerals & Metals Inc. vs. Hindustan Cooper Ltd., (2006) 11 SCC 245, Section 34 which refers to "challenge to arbitral award" strives to balance between the party autonomy and judicial control of the arbitral result with the object of speed and efficiency. The balance has to come down strongly in favour of finality, and against judicial review, except in few circumstances. So, the main object of the provision is to determine whether the award has become final and binding or not. Thus, the section depicts a position whereby an arbitral award can be challenged for the purpose of setting aside of the same at the first instance without much delay. The Court would set aside the award only on certain circumstances. Thereby, it is the legislative intention that such a matter is settled without much delay or much intervention of court. So, the finality of the challenged award would be decided by Court under section 34 of the 1996 Act and appeals are allowed against certain orders of courts or tribunals on certain grounds under Section 37 of the Act.” “The expression “public policy” in India has been used for three different situations, namely, under Sections 34(2)(b), 48 (2)(b) and 57(10(b). In the 1940 Act, there was no specific provision for setting aside the arbitration award Arb. Case No. 43 of 2004 11 on the ground that the same was in conflict with the public policy in India. Section 30(c) was held to be wide enough to cover the heads generally comprehended by the expression “public policy”.” “The expression” public policy” will have the same connotation in respect of an arbitration agreement or an award. The judicial intervention in such matters has never been free from difficulty. Whereas refusing enforcement of an arbitral award has been viewed with much scepticism, the English courts have more often than not refused to enforce a foreign award on public policy ground holding that common law recognizes that English public policy is paramount. In some jurisdictions even serious procedural defects in the arbitral proceedings had been held to provide for enough justification for refusal to afford foreign award. There is no reason as to why the Indian law should be held to be different.” “The doctrine of public policy must be held to be a ground for setting aside an arbitration agreement and consequently an award. Such patent illegality, however, must go to the root of the matter. The public policy, indisputably, should be so unfair and unreasonable so as to shock the conscience of the court. In the context of the 1996 Act, an arbitration agreement which would be contrary to the provisions of the laws governing the contract between the parties would be void being opposed to public policy. Further, where the arbitrator, has gone contrary to or beyond the expressed law of the contract or granted relief in the matter not in dispute would come within the purview of Section 34 of the Act.” In Oil & Natural Gas Corporation Ltd. (supra), it has been held as under:- Arb. Case No. 43 of 2004 12 “Therefore, if the award is contrary to the substantive provisions of law or the provisions of the Act or against the terms of the contract, it would be patently illegal, which could be interfered under Section 34. However, such failure of procedure should be patent affecting the rights of the parties. The phrase 'Public Policy of India' occurring in Section 34(2)(b) is not defined in the Act. The concept of “public policy” is concerned to be vague, susceptible to narrow or wider meaning depending upon the context in which it is used. Hence, it should be given meaning in the context and also considering the purpose of the section and scheme of the Act. In a case where the validity of award is challenged there is no necessity of giving a narrower meaning to the term 'public policy of India'. On the contrary, wider meaning is required to be given so that the 'patently illegal award' passed by the arbitral tribunal could be set aside. If narrow meaning is given, some of the provisions of the Arbitration Act would become nugatory. Section 28(2), 28(3) and 24 may be taken as illustrations of such provisions. Again, it is true that Legislature has not incorporated exhaustive grounds for challenging the award passed by the arbitral tribunal or the ground on which appeal against the order of the Court would be maintainable. But in Section 34(2)(b) the phrase “public policy of India” is not required to be given a narrower meaning. Hence, the award which is passed in contravention of Sections 24, 28 or 31 could be set aside. Moreover, Sections 13(5) and 16 enable a party to challenge the constitution of the Arbitral Tribunal or the arbitral award under Section 34. In any case, it is for Parliament to provide for limited or wider jurisdiction to the court in case where award is challenged. But in such cases, Arb. Case No. 43 of 2004 13 there is no reason to give narrower meaning to the term “public policy of India”. Giving a limited jurisdiction to the Court for having finality to the award and resolving the dispute by speedier method would be much more frustrated by permitting patently illegal award to operate. Patently illegal award is required to be set at naught, otherwise it would promote injustice. Therefore, the phrase 'Public Policy of India' used in Section 34 in context is required to be given a wider meaning. 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 face 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 addition to narrower meaning given to the term 'public policy' in Renusagar's case 1994 Supp (1) SCC 644, it has 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.” Arb. Case No. 43 of 2004 14 To the same effect is decisions of the Supreme Court in Hindustan Zinc Ltd. vs. Friends Coal Carbonisation, (2006) 4 SCC 445 and State of Rajasthan and others vs. Basant Nahata, (2005) 12 SCC 77 Jurisdictional error In Bharat Coking Coal Ltd. vs. Annapurna Construction, (2003) 8 SCC 154, it has been held as under:- “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 have given him under the contract. If he has travelled beyond the contract, he would be acting without jurisdiction, whereas if he has remained inside the parameter of the contract, his award cannot be questioned on the ground that it contains an error apparent on the face of the record.” Objections to the Award The Arbitrator has dealt with the claims of the Contractor itemwise, therefore, as requested by the learned counsel for the parties, I propose to deal in the same manner. The issues have been answered claimwise. Claim –A : Amount of loss incurred by the claimant due to idle stacking of machinery