Punjab-Haryana High Court
M/S Guru Teg Bahadur Rice Mill vs Punjab State Co Operative Supply And ... on 24 February, 2023
Author: Avneesh Jhingan
Bench: Avneesh Jhingan
Neutral Citation No:=2023:PHHC:034864
FAO No. 8500 of 2018 [1]
IN THE HIGH COURT OF PUNJAB & HARYANA
AT CHANDIGARH
FAO No. 8500 of 2018 (O&M)
Date of decision: 24th February, 2023
M/s Guru Teg Bahadur Rice & General Mill
Appellant
Versus
Punjab State Cooperative Supply and Marketing Federation Ltd. & another
Respondents
CORAM: HON'BLE MR. JUSTICE AVNEESH JHINGAN
Present: Mr. Ivan Singh Khosa, Advocate for the appellant.
Mr. PIP Singh, Advocate for the respondents.
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AVNEESH JHINGAN, J (Oral):
1. This appeal under Section 37 of the Arbitration & Conciliation Act, 1996 (for short, 'the Act') is filed aggrieved of dismissal of objections under Section 34 of the Act.
2. The brief facts are that there was an agreement for custom milling between the parties for the crop year 2009-10. The paddy was delivered by the respondents and milled rice supplied to FCI. On physical verification, it was found that 50,369 bags of paddy were converted into rice by the petitioner in an unauthorized manner. The respondents filed a claim. The petitioner had raised an issue of limitation which was rejected and vide award dated 6.5.2015, the respondents were held entitled to recover Rs.4,28,105/- for late delivery of rice milled along with interest @ 12% from 31.5.2010 till the recovery. The objections under Section 34 of the Act filed by the appellant were dismissed on 5.9.2018.
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3. Learned counsel for the appellant submits that the award is non-speaking. Reliance is placed upon the decision of this Court in FAO No. 8073 of 2017-- Lakha Singh through LRs and others v. Sub Divisional Magistrate and others, decided on 31.1.2023.
4. Learned counsel for the respondents defends the impugned order.
5. There is no quarrel on the proposition that scope of interference under Sections 34 and 37 of the Act is limited only to the ground available under Section 34 of the Act. One of the ground for interference is patent illegality. The contravention of a substantive law including the provisions of the Act brings the case within the ambit of patent illegality.
6. It would be gainful to cite following decisions.
In Tamilnadu Electricity Board v. M/s Bridge Tunnel Constructions, 1997(4) SCC 121, the Supreme Court observed:
"The Parliament has expressed the legislative judgement that the award shall state reasons upon which it is based unless parties have agreed otherwise or the award is covered on agreed terms under Section 30 of the new Act.
Thus, the law on the award, as governed by the new Act, is other way about of the pre-existing law; it mandates that the award should state the reasons upon which it is based. In other words, 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 of the new Act, the award should state the reasons in support of determination of the liability/non-liability. Thereby, legislature has not accepted the ratio of the Constitution Bench in the Chokhamal Contractor's case that the award, being in the private law field, need not be a speaking award even where the award relates to the contact of private parties or between person and 2 of 8 ::: Downloaded on - 03-03-2023 05:44:52 ::: Neutral Citation No:=2023:PHHC:034864 FAO No. 8500 of 2018 [3] the Government or public sector undertakings. The principle is the same, namely the award is governed by Section 31(3)."
6.1. The Supreme Court in Oil & Natural Gas Corporation Ltd. v. SAW Pipes Ltd., 2003(5) SCC 705 held:
"Similarly, if the award is non-speaking one and is in violation of Section 31(3), can such award be set aside? In our view, reading Section 34 conjointly with other provisions of the Act, it appears that the legislative intent could not be that if the award is in contravention of the provisions of the Act, still however, it could not be set aside by the court. If it is held that such award could not be interfered, it would be contrary to basic concept of justice. If the arbitral tribunal has not followed the mandatory procedure prescribed under the Act, it would mean that it has acted beyond its jurisdiction and thereby the award would be patently illegal which could be set aside under Section 34."
6.2 In M/s Som Datt Builders Ltd. v. State of Kerala, 2009(10) SCC 259, the Supreme Court held:
"25. The requirement of reasons in support of the award under Section 31(3) is not an empty formality. It guarantees fair and legitimate consideration of the controversy by the arbitral tribunal. It is true that arbitral tribunal is not expected to write judgment like a court nor it is expected to give elaborate and detailed reasons in support of its finding/s but mere noticing the submissions of the parties or reference to documents is no substitute for reasons which the arbitral tribunal is obliged to give. Howsoever brief these may be, reasons must be indicated in the award as that would reflect thought process leading to a particular conclusion. To satisfy the requirement of Section 31(3), the reasons must be stated by the arbitral tribunal upon which the award is based; want of reasons would make such award legally flawed. In what we have discussed above, it cannot be said that High Court was 3 of 8 ::: Downloaded on - 03-03-2023 05:44:52 ::: Neutral Citation No:=2023:PHHC:034864 FAO No. 8500 of 2018 [4] wrong in observing that no reasons have been assigned by the arbitral tribunal as to whether the period of completion extended by the employer for 18 months was due to reasons not attributable to the claimant. However, in our view, the High Court ought to have given the arbitral tribunal an opportunity to give reasons."
6.3 The Supreme Court in State of Chhattisgarh v. Sale Udyog Private Ltd., (2022) 2 SCC 275, held:
"14. The law on interference in matters of Awards under the 1996 Act has been circumscribed with the object of minimising interference by courts in arbitration matters. One of the grounds on which an Award may be set aside is "patent illegality". What would constitute "patent illegality" has been elaborated in Associate Builders v. Delhi Development Authority, where "patent illegality" that broadly falls under the head of "Public Policy", has been divided into three sub-heads in the following words:-
"...42. In the 1996 Act, this principle is substituted by the "patent illegality" principle which, in turn, contains three subheads:
42.1. (a) A contravention of the substantive law of India would result in the death knell of an Arbitral Award. This must be understood in the sense that such illegality must go to the root of the matter and cannot be of a trivial nature. This again is really a contravention of Section 28(1)(a) of the Act, which reads as under:
"28. Rules applicable to substance of dispute. - (1) Where the place of arbitration is situated in India-
(a) In an arbitration other than an international commercial arbitration, the Arbitral Tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India;"
4 of 8 ::: Downloaded on - 03-03-2023 05:44:52 ::: Neutral Citation No:=2023:PHHC:034864 FAO No. 8500 of 2018 [5] 42.2. (b) A contravention of the Arbitration Act itself would be regarded as a patent illegality - for example if an arbitrator gives no reasons for an award in contravention of Section 31(3) of the Act, such award will be liable to be set aside.
42.3. (c) Equally, the third subhead of patent illegality is really a contravention of Section 28(3) of the Arbitration Act, which reads as under:
"28. Rules applicable to substance of dispute. - (1) - (2) *** (3) In all cases, the Arbitral Tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction." [2015] 3 SCC 49 This last contravention must be understood with a caveat. An Arbitral Tribunal must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair-minded or reasonable person could do."
6.4 The Supreme Court in National Highways Authority of India v. Sri P. Nagaraju @ Chelluvaish and another, 2022(3) RCR (Civil) 604, held:
24. Leaving aside the facts in the instant case for a while, if in a matter as against the determination of the market value by the SLAO, the land loser had referred to the exemplar sale deeds and seeks higher compensation than prescribed in the guidance value, and in that circumstance, if no reasons are assigned by the learned Arbitrator for such determination and 5 of 8 ::: Downloaded on - 03-03-2023 05:44:52 ::: Neutral Citation No:=2023:PHHC:034864 FAO No. 8500 of 2018 [6] either approves the SLAO award or awards a lesser amount than the actual entitlement, in such circumstance the arbitration process which is thrust on the land loser should not be an impediment and limited interference should not be a reason to deny the just and fair compensation. In such cases while examining the award in the limited scope under Section 34 of Act, 1996, the Court is required to take note as to whether the evidence available on record has been adverted to and has been taken note by the Arbitrator in determining the just compensation failing which it will fall foul of Section 31(3) and amount to patent illegality. Therefore, while examining the award within the parameters permissible under Section 34 of Act, 1996 and while examining the determination of compensation as provided under Sections 26 and 28 of the RFCTLARR Act, 2013, the concept of just compensation for the acquired land should be kept in view while taking note of the award considering the sufficiency of the reasons given in the award for the ultimate conclusion. In such event an error if found, though it would not be possible for the Court entertaining the petition under Section 34 or for the appellate court under Section 37 of Act 1996 to modify the award and alter the compensation as it was open to the court in the reference proceedings under Section 18 of the old Land Acquisition Act or an appeal under Section 54 of that act, it should certainly be open to the court exercising power under Section 34 of Act, 1996 to set aside the award by indicating reasons and remitting the matter to the Arbitrator to reconsider the same in accordance with law. The said exercise can be undertaken to the limited extent without entering into merits where it is seen that the Arbitrator has on the face of the award not appropriately considered the material on record or has not recorded reasons for placing 6 of 8 ::: Downloaded on - 03-03-2023 05:44:52 ::: Neutral Citation No:=2023:PHHC:034864 FAO No. 8500 of 2018 [7] reliance on materials available on record in the background of requirement under RFCTLARR Act, 2013."
[Emphasis supplied]
7. The operational part of the award is reproduced below:
"10. That having regard to the evidences produced by the parties. I am inclined to hold that the claim of Markfed Punjab for recovery of Rs. 4,28,105/- as per details given in the accounts statement at annexure-16 to the claim petition as interest for late delivery of milled rice is fully justified and established, and the same is therefore allowed with 12% interest from 31.5.2010 till its recovery. It is observed that the subsequent withdrawal of cheque by respondent Rice Miller shows that his purpose of obtaining 'No Due Certificate' to get the work of other milling agency for next year was nothing short of hoodwinking the agencies."
8. To bring the award in consonance with Section 31(3) of the Act, it should contain reasons to support the conclusion arrived at unless otherwise agreed between the parties. There is nothing on record to show that parties agreed that no reasons are to be given in award. Non-recording of reasons to substantiate that the evidence available on record was adverted to, brings the case within the teeth of Section 34 of the Act and shall be a patent illegality.
9. From the perusal of the operational part of the award, it is evident that no reason was given by the arbitrator for allowing the claim of the respondents. The award is bereft of reasons. Consequently, the impugned order dated 5.9.2018 and award dated 6.5.20215 are set aside with liberty to the parties to pursue the remedies in accordance with law.
10. The appeal is allowed.
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11. Since the main appeal has been disposed of, pending application, if any, is rendered infructuous.
[AVNEESH JHINGAN] JUDGE 24th February, 2023 mk
1. Whether speaking/ reasoned : Yes / No
2. Whether reportable : Yes / No Neutral Citation No:=2023:PHHC:034864 8 of 8 ::: Downloaded on - 03-03-2023 05:44:52 :::