IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA. Arb.Appeal No.2 of 2007 With Arb.Appeals No.1, 3, 4, 5, 18 & Cross Objections No.252 of 2007 & Arb.Appeal No.3 of 2008. Judgment reserved on:August 31, 2009. Decided on: December 30, 2009. 1. Arbitration Appeals No.1, 2, 3, 4, 18 of 2007: M/s.SAB Industries Ltd. ...Appellant. Versus H.P.State Electricity Board ...Respondent. For the appellant: Mr.P.S.Rana with Mr.Karan Singh Kanwar, Advocates. For the respondent: Mr.J.S.Bhogal, Sr.Advocate with Mr.Suneet Goel, Advocate and Mr.K.D.Sood, Advocate. 2. Arbitration Appeal No.5 of 2007: H.P.State Electricity Board ...Appellant. Versus M/s.SAB Industries Ltd. ..Respondent. For the appellant: Mr.J.S.Bhogal, Sr.Advocate with Mr.Suneet Goel, Advocate For the respondent: Mr.P.S.Rana with Mr.Karan Singh Kanwar, Advocates. 3. Arbitration Appeal No.3 of 2008: H.P.State Electricity Board ...Appellant. Versus M/s.SAB Industries Ltd. ..Respondent. 2 For the appellant: Mr.K.D.Sood, Advocate. For the respondent: Mr.P.S.Rana with Mr.Karan Singh Kanwar, Advocates. Coram Hon’ble Mr.Justice R.B.Misra, Acting Chief Justice. Hon’ble Mr.Justice Rajiv Sharma, Judge. Whether approved for reporting?1 R.B.Misra, Acting Chief Justice: This judgment shall dispose of Arbitration Appeal No.2 of 2007 (SAB Vs. HPSEB) and Arbitration Appeal No.5 of 2007 (HPSEB Vs. SAB) in Case No.67 of 2003 relating to Award dated 16.6.2003 passed by Mr.S.C.Mahajan, the sole Arbitrator; Appeal No.3 of 2007 (SAB Vs. HPSEB) passed in Case No.1 of 2002 relating to Award dated 6.11.2001 passed by Mr.S.R.Khitta, the sole Arbitrator; Arbitration Appeal No.4 of 2007 (SAB Vs. HPSEB) passed in Case No.2 of 2002 relating to Award dated 12.11..2001 passed by Mr.S.R.Khitta, the sole Arbitrator; Arbitration Appeal No.18 of 2007 (SAB Vs. HPSEB) passed in Civil Review No.3 of 2007 reviewing Judgment dated 9.1.2007 passed in Case No.2 of 2002; Arbitration Appeal No.3 of 2008 (HPSEB Vs. SAB) filed after order dated 21.9.2007 passed in Civil Review No.3 of 2007 in Case No.2 of 2002 relating to Award dated 12.11..2001 passed by Mr.S.R.Khitta, the sole Arbitrator; Arbitration Appeal No.1 Whether the reporters of the local papers maybe allowed to see the judgment? 3 of 2007 (SAB Vs. HPSEB) and Cross-Objection No.252 of 2007 (HPSEB Vs. SAB) in Case No.15 of 2000 relating to Award dated 7.9.99 passed by Mr.Labh Singh, the sole Arbitrator and all these appeals / cross-objections filed by respective parties being aggrieved against common judgment dated 9.1.2007 passed by learned Single Judge. 2. In order to deal with these Arbitration Appeals and Cross objections, it is necessary to go into the background of the cases giving rise to these matters. It appears an agreement No.1/89 dt.6.2.1989 was entered into between S.A. Builders, later re-named as SAB Industries Ltd., (hereinafter referred to as the ‘Contractor’) and H.P.State Electricity ‘Board’ (hereinafter referred to as the ‘‘Board’’) for execution of Civil work of Gaj Hydel Project. The contractual period for completion of work was three years i.e. up to 7.3.1992 starting from 8.3.1989. It appears the work could not be completed within stipulated contractual period of three years, as such, necessary time extensions were granted by the ‘‘Board’’ from time to time up to 30.9.1995, however, the work actually could be completed on 25.3.1996 when the extension from 1.10.1995 up to 31.3.1996 was pending before the ‘Board’. 3. Various disputes had been arising between the parties at different stages of the execution of work and in order to settle the same, different Chief Engineers as technical experts of the ‘Board’ were appointed by the ‘Board’ as Arbitrators as per arbitration clause contained in 4 the contract agreement. An Award dated 7.9.99 was passed by Mr.Labh Singh, a sole Arbitrator, An Award dated 6.11.2001 was passed by Mr.S.R.Khitta, the sole Arbitrator, An Award dated 12.11.2001 was passed by Mr.S.R.Khitta, the sole Arbitrator and an Award dated 16.6.2003 was passed by Mr.S.C.Mahajan, the sole Arbitrator. 4. The ‘Board’, however, has challenged all the aforesaid awards by filing objections under section 34 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as the ‘Act’). Learned Single Judge vide a common judgment dated 9.1.2007 under challenge in these Arbitration Appeals and cross objections, was pleased to dispose of all the four objection petitions filed by the ‘Board’. 5. Before dealing with the individual cases and the various contentions raised by the parties it would be pertinent to mention that the objections in all the cases have been filed under the Act. An application for setting aside the arbitral award can be filed under Section 34 of the ‘Act’ and the grounds for setting aside the arbitral award are set out in sub-section (2) of the aforesaid Section which reads as below: “34.Application for setting aside arbitral award.- (1)xxxxxxxxxx (2)An arbitral award may be set aside by the Court only if— (a)the party making the application furnishes proof that— (i)a party was under some incapacity; or 5 (ii)the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or (iii)the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (iv)the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or (v)the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or (b) the Court finds that— (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or (ii) the arbitral award is in conflict with the public policy of India. Explanation.- Without prejudice to the generality of sub-clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was 6 induced or affected by fraud or corruption or was in violation of section 75 or section 81.” Section 31(3) of the Act of 1996 provides as follows: “31,Form and contents of arbitral award.- (1)&(2) xxxxxxxxxx (3)The arbitral award shall state the reasons upon which it is based, unless---- (a)the parties have agreed that no reasons are to be given, or (b)the award is an arbitral award on agreed terms under section 30.” In reference to the Arbitration Act, 1940 an award of the Arbitrator could be set aside on the grounds mentioned in Section 30 of the Act which reads as follows: “30. Grounds for setting aside award.-Any award shall not be set-aside except on one or more of the following grounds, namely:- (a)that an arbitrator or umpire has misconducted himself or the proceedings; (b)that an award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under section 35; (c) that an award has been improperly procured or otherwise invalid.” It appears that both under the Arbitration Act, 1940 as well as under Arbitration and Conciliation Act, 1996 for setting aside the award, non mentioning of reason is not available as a ground but only stating of reasons in section 30 of Arbitration Act, 1996 is provided as “Form and contents of Arbitral award” . 7 6. Various judgments have been referred in the impugned order of learned Single Judge wherein some of the judgments relate to the Act of 1940 and some them relates to the Act of 1996. However, the verdict in every such case is applicable both in ‘Act’ of 1940 and ‘Act’ of 1996. Learned Single Judge has noticed following judgments in the impugned order:- (a) In K.P. Poulose v. State of Kerala and another, AIR 1975 SC 1259, the apex Court while considering the scope of the term of mis-conduct in Section 30 of the Act of 1940 held as follows: “6.Under Section 30(a) of the Arbitration Act an award can be set aside when an Arbitrator has misconducted himself or the proceedings. Misconduct under Section 30(a) has not a connotation of moral lapse. It comprises legal misconduct which is complete if the Arbitrator on the face of the award arrives at an inconsistent conclusion even on his own finding or arrives at a decision by ignoring very material documents which throw abundant light on the controversy to help a just and fair decision. It is in this sense that the Arbitrator has misconducted the proceedings in this case……” (b) In Indian Oil Corporation Ltd. vs. Indian Carbon Ltd. (1988) 3 SCC 36 = AIR 1988 SC 1340, the apex Court was dealing with the question as to what is meant by the phrase ‘reasoned award’. Under the 8 1940 Act has observed that it was not incumbent for the Arbitrator to give a reasoned award. (c) In Vishwanath Sood vs. Union of India and another, AIR 1989 SC 952, the apex Court held that under the Act of 1940 it was not necessary to give reasons for the award. (d) In Associated Engineering Co., vs. Government of Andhra Pradesh and another, AIR 1992 SC 232, the apex Court while considering the scope of interference held as follows: “….Where it is apparent not by construction of the contract but by merely looking at the contract that the umpire travelled totally outside the permissible territory and thus exceeded his jurisdiction in making the award, it is an error going to the root of his jurisdiction…. ….The arbitrator cannot act arbitrarily, irrationally, capriciously or independently of the contract. He has no power apart from what the parties have given him under the contract. If he has travelled outside the bounds of the contract, he has acted without jurisdiction. But if he has remained inside the parameters of the contract and has construed the provisions of the contract, his award cannot be interfered with unless he has given reasons for the award disclosing an error apparent on the face of it. A conscious disregard of the law or the provisions of 9 the contract from which he has derived his authority vitiates the award. ……If the arbitrator commits an error in the construction of the contract, that is an error within his jurisdiction. But if he wanders outside the contract and deals with matters not allotted to him, he commits a jurisdictional error. Such error going to his jurisdiction can be established by looking into material outside the award. Extrinsic evidence is admissible in such cases because the dispute is not something which arises under or in relation to the contract or dependent on the construction of the contract or to be determined within the award. The dispute as to jurisdiction is a matter which is outside the award or outside whatever may be said about it in the award. The ambiguity of the award can, in such cases, be resolved by admitting extrinsic evidence. The rationale of this rule is that the nature of the dispute is something which has to be determined outside and independent of what appears in the award. Such jurisdictional error needs to be proved by evidence extrinsic to the award.” (e) In Jajodia (Overseas) Pvt.Ltd. vs. Industrial Development Corporation of Orissa Ltd. (1993) 2 SCC 106, the apex Court was considering the question as to what is meant by a speaking or reasoned award. The Court held as follows: 10 “8.If we think necessary, first, to clear some cobwebs. A speaking or reasoned award is one which discusses or sets out the reasons which led the arbitrator to make the award. Setting out the conclusions upon the questions or issues that arise in the arbitration proceedings without discussing the reasons for coming to these conclusions does not make an award a reasoned or speaking award. The arbitrator has in the award before us only answered the issues that were framed. He has not discussed or set out the reasons for the answers. The award is, therefore, not a speaking or reasoned award.” (f) In Tarapore & Co. vs. State of M.P., (1994) 3 SCC 521, the Apex Court has observed as follows: “An arbitrator cannot travel beyond the contract, if an arbitrator acts beyond jurisdiction, the same would amount to misconduct because of which the award would become amenable of being set aside by a court……. If an authority would lack jurisdiction in the sense that the subject-matter is not amenable at all to its decision, i.e. the case be of patent lack of jurisdiction acquiescence of the parties would not be material inasmuch as by agreement jurisdiction cannot be conferred….. If a challenge is made to the award on the ground that the arbitrator has no jurisdiction, the only way to test the correctness is to look into the agreement itself because the jurisdiction of the arbitrator flows from the 11 reference and a reference can be only with regard to such disputes which are contemplated by the agreement…… Payment of wages as per the rates fixed under the Minimum Wages Act being statutory obligation and the terms of the contract being silent about payment of minimum wages, as the relevant term speaks of “fair wages”, which concept is different from minimum wages, it must be held that insofar as increased payment on account of rise in the rates of minimum wages is concerned, the parties were not in any sort of agreement—express or implied to reimburse the same. The appellant-contractor paid as per these rates not pursuant to any term of the contract but because of the mandate of law…..” (g) In Rajasthan State Mines & Minerals Ltd. vs. Eastern Engineering Enterprises and another, (1999) 9 SCC 283, the apex Court summarized the entire law with regard to the objectives of 1940 Act in the following terms: “44.From the resume of the aforesaid decisions, it can be stated that: (a) It is not open to the court to speculate, where no 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 prove 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 12 disputed question submitted or 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 a 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 a 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. The arbitrator acting beyond his jurisdiction is a different ground from the error apparent on the face of the award. (g) In order to determine whether the 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 13 the arbitrator in respect thereof would be in excess of jurisdiction. (h) The award made by the arbitrator disregarding the terms of the reference or the arbitration agreement or the terms of the contract would be a jurisdictional error which requires ultimately to be decided by the court. He cannot award an amount which is ruled out or prohibited by the terms of the agreement. Because of a specific bar stipulated by the parties in the agreement, that claim could not be raised. Even if it is raised and referred to arbitration because of a wider arbitration clause such claim amount cannot be awarded as the agreement is binding between the parties and the arbitrator has to adjudicate as per the agreement. This aspect is absolutely made clear in Continental Construction Co. Ltd. vs. State of M.P. (1988) 3 SCC 82, by relying upon the following passage from Alopi Parshad v. Union of India, AIR 1960 SC 588, which is to the following effect: (SCC p.88, para 5) “There it was observed that a contract is not frustrated merely because the circumstances in which the contract was made, altered. The Contract Act does not enable a party to a contract to ignore the express covenants thereof, and to claim payment of consideration for performance of the contract at rates different from the stipulated rates, on some vague plea of equity. The parties to an executory contract are often faced, in the course of carrying it out, with a turn of events which they did not at all anticipate, a 14 wholly abnormal rise or fall in prices, a sudden depreciation of currency, an unexpected obstacle to execution, or the like. There is no general liberty reserved to the courts to absolve a party from liability to perform his part of the contract merely because on account of an uncontemplated turn of events, the performance of the contract may become onerous.” (i) The arbitrator could not act arbitrarily, irrationally, capriciously or independently of the contract. A deliberate departure or conscious disregard of the contract not only manifests the disregard of his authority or misconduct on his part but it may tantamount to mala fide action. (j) The arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks just and reasonable; the arbitrator is a tribunal selected by the parties to decide the disputes according to law.” (h) As far as the Act of 1996 is concerned the scope of interference by the Court in an arbitral award under Section 34 of the ‘Act’ has been the subject matter of a number of decisions. The leading decision on the point is Oil and Natural Gas Corporation Ltd. vs. SAW Pipes Ltd., AIR 2003 SC 2629, wherein after considering the entire law and all the provisions the apex Court held as follows: “30……….Further, for achieving the object of speedier disposal of dispute, justice in accordance with law cannot be sacrificed. In our view, giving limited jurisdiction to 15 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. 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 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 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 contract to:- (a) fundamental policy of India law; or (b) the interest of India; or © justice or morality, or (d) in addition, if it is patently illegal. 16 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.” 7. Learned Single Judge has analyzed the documents and the relevant provisions in respect of the claims of the contractor relating to Price Variation /Escalation allowed by all the Arbitrators. Learned Single Judge, while setting aside all the four awards, has observed that the Arbitrators were not justified in awarding escalation on the basis of notification dated 7.6.1995 issued by the ‘Board’ since the same was not a notification fixing minimum wages as per the Minimum Wages Act as laid down in M/S Hydel Construction Ltd. (supra). 8. Learned counsel for the ‘contractor’ has, however, submitted that all the four Arbitrators are ‘Technical Experts’ of the rank of Chief Engineer of the ‘Board’, appointed by the ‘Board’ itself to decide various technical and non technical aspects of disputes having arisen between the parties to the contract and the Arbitrators after considering entire material on record produced by both the parties and after affording full opportunity of hearing to both the sides have passed the awards which are final both 17 in law as well as in facts and are not open to challenge on merits in view of limited scope of Section 34 of the ‘Act’. Though the Arbitrators are not legal experts but being engineers of the rank of Chief Engineer have passed the awards by giving reasons and they are not required to give detailed reasons like judgment of civil Court, as such, the sufficiency of reasons as well as the reasonableness of the reasons while deciding the objection is not to be gone into while deciding the objections against the awards as such awards could not have been set aside by the learned Single Judge. Learned counsel for the contractor has relied upon the following judgments in support of above submissions given as under : 9. In Union of India versus Hakam Chand & Co., [2003 (Supplement) Arb.L.R.537 (Delhi)], in Paragraph-5 it has been noted as below:- “5. The Arbitration & Conciliation Act, 1996 has given a new dimension to the Arbitral proceedings and the Awards passed under the Act. It has enlarged the powers of the Arbitrators and reduced Courts intervention at various stages. Sections 30 and 33 of the Arbitration Act, 1940 which were very often exploited for delaying the fruits of an Award to a claimant, stand substituted by Section 34 of the new Act which has reduced and restricted the grounds on which an Arbitral Award may be challenged or set aside. According to Section 34 of the Act, an Arbitral Award may be set aside by the Court only if it is shown that a party applying for its setting aside was under some incapacity or the Arbitration agreement was not valid or no proper 18 notice was given of the appointment of Arbitrator or applicant was otherwise unable to present his case before the Arbitrator or that the Award deals with a dispute falling outside the terms of reference or it contains decisions on matters beyond the scope