Madras High Court
M/S.Thirumala Traders vs R.Anbalagan on 8 February, 2022
Author: M.Sundar
Bench: M.Sundar
Arb O.P.(Com. Div.)No.33 of 2022
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated : 08.02.2022
Coram
THE HONOURABLE MR. JUSTICE M.SUNDAR
Arb O.P.(Com. Div.)No.33 of 2022
and
A.No.362 of 2022
M/s.Thirumala Traders
Represented by Mr.A.D.S.Giri
No.227, Thirumala Complex
G.N.T.Road
Kavarapetti, Gummidipoondi
Thiruvallur District. ... Petitioner
vs.
1. R.Anbalagan
Son of T.Rajamani
Partner of AJS Contractors
No.52/2, Babu Street
Vellala Teynampet
Chennai-600 086.
2. R.Sekar
Son of S.Ramachandran
Partner AJS Contractors
No.6/3, Babu Street
Vellala Teynampet
Chennai-600 096.
3. AJS Contractors
Represented by its Managing Partner
R.Sekar
1/22
https://www.mhc.tn.gov.in/judis
Arb O.P.(Com. Div.)No.33 of 2022
Old No.40/3, New No.16/3
Vellala Teynampet
Chennai - 600 086.
4. G.Jayakumar
Son of V.P.Gopalakrishnan
Partner of M/s.AJS Contractors
No.70, Venugopal Street
Premier Towers, 2nd Floor
Flat No.S-A, Mogappair West
Chennai-600 037. ... Respondents
Arbitration Original Petition filed under Section 34 of the Arbitration
and Conciliation Act, 1996, to set aside the award passed by the Sole
Arbitrator Hon'ble Mr.Justice G.Rajasuria, Judge (retired) dated 27.02.2020.
For petitioner : Mr.C.Jagadish
For respondents : Mr.V.Kannan
for Caveator
ORDER
In the captioned main 'Arbitration original petition' [hereinafter 'OP' for the sake of brevity], an 'arbitral award dated 27.02.2020' [hereinafter 'impugned award' for the sake of convenience and clarity] made by an 'Arbitral Tribunal' [hereinafter 'AT' for the sake of convenience and clarity] constituted by a sole arbitrator {a former Hon'ble Judge of this Court} has been assailed.
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2. Captioned main OP is listed under the cause list caption 'FOR ADMISSION'.
3. In this regard, at the outset it is necessary to set out that 'The Madras High Court (Arbitration) Rules, 2020' [hereinafter 'MHC Arbitration Rules' for the sake of convenience and clarity] kicked in on and from 17.03.2021. Rule 8(i) and Clause 8.5 of Practice Directions of MHC Arbitration Rules are of relevance and the same read as follows:
'8. Procedure in relation to petitions under Section 34 of the Act:
(i) Every petition under Section 34 shall be posted for admission before the Court. On hearing a petition under Section 34 for admission, the Court may-
(a) admit and order notice to the respondent, or
(b) direct the petitioner to issue notice along with the petition and documents to the respondent before the matter is heard for admission, or
(c) dismiss the petition, with or without costs.' '8. Challenge to an award under Section 34 of the Act:
8.1...............
8.2..............
8.3.............
8.4..............3/22
https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.33 of 2022 8.5. Proceedings under Section 34 of the Act shall be disposed of by a summary procedure.'
4. Short facts shorn of elaboration or in other words facts that are imperative for appreciating this order are that the petitioner in captioned main OP was awarded a contract by the Public Works Department [PWD]; that the 'contract/agreement dated 24.02.2014' [hereinafter 'said contract' for the sake convenience and clarity] was entered into between PWD and petitioner; that said contract is for approximate value of 6.95 Crores; that said contract is for work of Rehabilitation of Thandarai Anicut under Cheyyar - Killiyar Sub Basin in Cheyyar Taluk of Tiruvannamalai District; that respondents 1, 2 and 4 in the captioned main OP joined together and formed a partnership firm which goes by name AJS Contractors which is third respondent before this Court; that AJS Contractors is a partnership firm which shall hereinafter be referred to as 'sub-contractor' for the sake of convenience and clarity; that sub-contractor, a partnership firm was formed in and by partnership deed dated 13.03.2014; that on the very same day, sub-contractor entered into a memorandum of understanding [MOU] with contractor/petitioner [Ex.C5], which shall hereinafter be referred to as 'said MOU' for the sake of 4/22 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.33 of 2022 convenience and clarity; that in said MOU, clause 10 is the arbitration clause or in other words, clause 10 of said MOU serves as an Arbitration Agreement between the contractor and sub-contractor i.e., 'Arbitration Agreement' within the meaning of Section 2(1)(b) read with Section 7 of 'The Arbitration and Conciliation Act, 1996 (Act No.26 of 1996)', which shall hereinafter be referred to as 'A and C Act' for the sake of brevity; that the arbitration agreement between the parties was triggered with AT made by a sole arbitrator, who is a former Hon'ble member of Bench of this Court (as already alluded to supra); that arbitral dispute arose between the contractor and sub- contractor; that the crux and gravamen of arbitral dispute is that sub- contractor owes money to the contractor in terms of work done qua said contract; that the work qua said contract had to be done in three milestones namely, milestones 1, 2 and 3; that arbitral dispute primarily turns on Bank guarantee and Value Added Tax [VAT]; that before AT, contractor was first respondent; that interestingly and intriguingly, one of the partners of sub- contractor did not join his partners as co-claimants and he was arrayed as second respondent before AT; that AT entered upon the exercise of adjudicating arbitral disputes between the parties; that the impugned award came to be made; that there was a counter claim before AT; that this Court is 5/22 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.33 of 2022 informed that there is no independent challenge qua counter claim; that the contractor, who was the first respondent before AT has now assailed the impugned award vide captioned OP.
5. Mr.C.Jagadish, learned counsel for contractor (petitioner in captioned main OP) notwithstanding very many grounds and very many averments in captioned main OP made pointed submissions and they are as follows:
(a) Impugned award is hit by Section 34(2)(b)(ii) read with Clause (iii) of Explanation 1 of A and C Act, as it is opposed to public policy and is in conflict with the most basic notions of morality and justice;
(b) The impugned award is hit by patent illegality within the meaning of Section 34(2A) of A and C Act;
(c) The impugned award has been given a go-by to Section 28(3) of A and C Act. To be noted, it is an auxiliary argument which was made in the course of submissions before this Court;
{Elaboration on above points will be captured elsewhere infra in the latter part of this order} 6/22 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.33 of 2022
6. In the light of Rule 8(i) of MHC Arbitration Rules and Clause 8.5 of Practice Directions of MHC Arbitration Rules (extracted and reproduced supra elsewhere in this order), this Court deems it appropriate to embark upon the exercise of testing the matter for admission. To be noted, a caveat has been lodged by sub-contractor and two of his partners (respondents 1 to
3) in the captioned main OP.
7. Elaborating his submission on the aforesaid three points, learned counsel contended that Ex.R2 to Ex.R4 which relate to conditions of contract including Clause 7 relating to prohibition concerning sub contract of the work, statement of accounts of first respondent in Karnataka Bank and statement of accounts in State Bank of India, Anna Nagar West had not been considered though noticed by Hon'ble AT. It was also argued that Hon'ble AT has proceeded on the basis that it is not a suit for accounts and therefore that by itself is good enough to dislodge the impugned award. As already alluded to supra, as an auxiliary argument, reference was made to Section 28(3) of A and C Act and it was contended that AT has not taken into account the terms of the contract and trade usages applicable to the transaction. 7/22 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.33 of 2022
8. This Court carefully considered the submissions made and tested the matter for admission. This Court comes to the conclusion that this case is not good enough for admission and for issue of a notice. This considered view is based on the case file, submissions made by learned counsel and analysis of the same. The discussion and dispositive reasoning leading to this considered view or in other words, the reasons for this considered view are as follows:
(a) Law is well settled that Section 34 of A and C Act is neither an appeal nor a revision. It is not even a full-fledged judicial review, but it is a very limited judicial review within the slots adumbrated in Section 34 of A and C Act which have been described as pigeon holes by this Court in earlier orders. This takes us to the question as to what would be the nature of proceedings under Section 34 of A and C Act if it is neither an appeal nor a review and not even a full-fledged judicial review. The answer is, it is a mere challenge to an arbitral award within the limited legal landscape i.e., limited legal perimeter of Section 34 of A and C Act.
To state with more specificity, if a challenge to an arbitral award snugly fits into any of the pigeon holes under Section 34 of A and C 8/22 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.33 of 2022 Act there can be interference and if it is not so, there could be none;
(b) As already alluded to supra, first of the arguments is predicated on Section 34(2)(b)(ii) read with Clause (iii) of Explanation 1 thereto. Therefore, this Court has to test as to whether the impugned award is in conflict with public policy of India leading to conflict with basic notions of morality or justice. Elucidation of the expression 'public policy' was first made in Renusagar case [Renusagar Power Co., Ltd., Vs. General Electric Co., reported in 1994 Supp (1) SCC 644] and Saw Pipes case [Oil & Natural Gas Corporation Ltd., Vs. Saw Pipes Ltd., reported in (2003) 5 SCC 705] even before it was statutorily explained on and from 23.10.2015 when A and C Act was amended. Relevant paragraph as captured in Saw Pipes case is paragraph No.31 and the same is as follows:
'31. Therefore, 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 9/22 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.33 of 2022 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 case [1994 Supp (1) SCC 644] 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 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.'
(c) Thereafter, the expression public policy of India has been explained in a long line of case laws. An illustrative list is Western Geco case [ONGC Ltd. v. Western Geco International Ltd., 10/22 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.33 of 2022 reported in (2014) 9 SCC 263], Associate Builders case [Associate Builders Vs. Delhi Development Authority reported in (2015) 3 SCC 49] and Ssangyong principle [Ssangyong Engineering and Construction Company Limited Vs. National Highways Authority of India reported in (2019) 15 SCC 131]. In paragraph Nos.28 and 29 of Associate Builders case, paragraph Nos.35 and 38 to 40 of Western Geco case were extracted and reiterated. Therefore, paragraph Nos.28 and 29 of Associate Builders case are extracted hereunder and the same read as follows:
'28. In a recent judgment, ONGC Ltd. v. Western Geco International Ltd. [(2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] , this Court added three other distinct and fundamental juristic principles which must be understood as a part and parcel of the fundamental policy of Indian law. The Court held: (SCC pp. 278- 80, paras 35 & 38-40) “35. What then would constitute the ‘fundamental policy of Indian law’ is the question. The decision in ONGC [(2003) 5 SCC 705 : AIR 2003 SC 2629] does not elaborate that aspect. Even so, the expression must, in our opinion, include all such fundamental principles as providing a basis for administration of justice and enforcement of law in this country. Without meaning to exhaustively enumerate the purport of the expression 11/22 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.33 of 2022 ‘fundamental policy of Indian law’, we may refer to three distinct and fundamental juristic principles that must necessarily be understood as a part and parcel of the fundamental policy of Indian law. The first and foremost is the principle that in every determination whether by a court or other authority that affects the rights of a citizen or leads to any civil consequences, the court or authority concerned is bound to adopt what is in legal parlance called a ‘judicial approach’ in the matter. The duty to adopt a judicial approach arises from the very nature of the power exercised by the court or the authority does not have to be separately or additionally enjoined upon the fora concerned. What must be remembered is that the importance of a judicial approach in judicial and quasi-judicial determination lies in the fact that so long as the court, tribunal or the authority exercising powers that affect the rights or obligations of the parties before them shows fidelity to judicial approach, they cannot act in an arbitrary, capricious or whimsical manner. Judicial approach ensures that the authority acts bona fide and deals with the subject in a fair, reasonable and objective manner and that its decision is not actuated by any extraneous consideration. Judicial approach in that sense acts as a check against flaws and faults that can render the decision of a court, tribunal or authority vulnerable to challenge.
***
38. Equally important and indeed fundamental to the policy of Indian law is the principle that a court and so also a 12/22 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.33 of 2022 quasi-judicial authority must, while determining the rights and obligations of parties before it, do so in accordance with the principles of natural justice. Besides the celebrated audi alteram partem rule one of the facets of the principles of natural justice is that the court/authority deciding the matter must apply its mind to the attendant facts and circumstances while taking a view one way or the other. Non-application of mind is a defect that is fatal to any adjudication. Application of mind is best demonstrated by disclosure of the mind and disclosure of mind is best done by recording reasons in support of the decision which the court or authority is taking. The requirement that an adjudicatory authority must apply its mind is, in that view, so deeply embedded in our jurisprudence that it can be described as a fundamental policy of Indian law.
39. No less important is the principle now recognised as a salutary juristic fundamental in administrative law that a decision which is perverse or so irrational that no reasonable person would have arrived at the same will not be sustained in a court of law. Perversity or irrationality of decisions is tested on the touchstone of Wednesbury [Associated Provincial Picture Houses Ltd. v. Wednesbury Corpn., (1948) 1 KB 223 : (1947) 2 All ER 680 (CA)] principle of reasonableness. Decisions that fall short of the standards of reasonableness are open to challenge in a court of law often in writ jurisdiction of the superior courts but no less in statutory processes wherever the same are available.13/22
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40. It is neither necessary nor proper for us to attempt an exhaustive enumeration of what would constitute the fundamental policy of Indian law nor is it possible to place the expression in the straitjacket of a definition. What is important in the context of the case at hand is that if on facts proved before them the arbitrators fail to draw an inference which ought to have been drawn or if they have drawn an inference which is on the face of it, untenable resulting in miscarriage of justice, the adjudication even when made by an Arbitral Tribunal that enjoys considerable latitude and play at the joints in making awards will be open to challenge and may be cast away or modified depending upon whether the offending part is or is not severable from the rest.” (emphasis in original)
29.It is clear that the juristic principle of a “judicial approach” demands that a decision be fair, reasonable and objective. On the obverse side, anything arbitrary and whimsical would obviously not be a determination which would either be fair, reasonable or objective.'
(d) Most relevant paragraphs in Ssangyong case law in this regard are Paragraphs 34 to 36 which read as follows:
'34. What is clear, therefore, is that the expression “public policy of India”, whether contained in Section 34 or in Section 48, would now mean the “fundamental policy of Indian law” as explained in paras 18 and 27 of Associate Builders [Associate 14/22 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.33 of 2022 Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] i.e. the fundamental policy of Indian law would be relegated to “Renusagar” understanding of this expression. This would necessarily mean that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] expansion has been done away with. In short, Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 :
(2014) 5 SCC (Civ) 12] , as explained in paras 28 and 29 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , would no longer obtain, as under the guise of interfering with an award on the ground that the arbitrator has not adopted a judicial approach, the Court's intervention would be on the merits of the award, which cannot be permitted post amendment. However, insofar as principles of natural justice are concerned, as contained in Sections 18 and 34(2)(a)(iii) of the 1996 Act, these continue to be grounds of challenge of an award, as is contained in para 30 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] .
35. It is important to notice that the ground for interference insofar as it concerns “interest of India” has since been deleted, and therefore, no longer obtains. Equally, the ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the “most basic notions of morality or justice”. This again would be in line with paras 36 to 39 ofAssociate Builders [Associate 15/22 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.33 of 2022 Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , as it is only such arbitral awards that shock the conscience of the court that can be set aside on this ground.
36.Thus, it is clear that public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as understood in paras 18 and 27 of Associate Builders[Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , or secondly, that such award is against basic notions of justice or morality as understood in paras 36 to 39 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] . Explanation 2 to Section 34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) was added by the Amendment Act only so that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] , as understood in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , and paras 28 and 29 in particular, is now done away with.'
(e) What is of significance while testing an arbitral award on public policy aforementioned case laws which are instructive, one has to bear in mind that vide Explanation 2 to Section 34(2)(b)(ii) review on the merits of the dispute is impermissible. In the instant case, the above argument is dovetailed with the patent illegality 16/22 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.33 of 2022 ground. While testing for patent illegality, this Court has to bear in mind two facets of the matter stand excluded. One is mere erroneous application of law and second is re-appreciation of evidence. As public policy and patent illegality grounds are dovetailed, suffice to say that it is not for this Court to re-appreciate evidence more particularly, Ex.R1 to Ex.R4 and embark upon a legal drill of reviewing the matter on merits. Hon'ble Arbitrator has proceeded on the basis that partnership vide Ex.C4 has been formed only for the purpose of sub-contract. This is articulated in the impugned award and the excerpted portion reads as follows:
'My discussions supra unambiguously and unequivocally highlights that in this case the claimants as AJS Contractors knowingly entered into such sub contract as per sub contract agreement as per MOU and that to after forming a partnership as per Ex.C4 only for that sub contract purpose sand they agreed for R1 taking 5% of the entire amount receivable from the Government for the said project. As such they took up the risk and entered into such sub contract with R1 and that to through R2 who also one of the partners of the AJS contractors.' 17/22 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.33 of 2022
(f) As already alluded to supra, Hon'ble AT has noticed Ex.R2 to Ex.R5. This is clear as daylight from three paragraphs in the impugned award which read as follows:
'On the respondent's side Ex.R1 document relating to bidding of the contract was filed. Ex.R2 relates to the conditions of the contract which includes the clause 7 relating to prohibition concerning sub contract of the work.
Ex.R3 is relating to statement of accounts of R1 in Karnataka Bank.
Ex.R4 & R5 are relating to the statement of accounts in State Bank of India, Anna Nagar West and those documents on the R1's side, are incapable of Topedoing the evidence of the side of the claimants.'
(g) Interference qua a arbitral award under Section 34 of A and C Act is warranted only when it is an implausible view. It should shock the conscience of the Court is another facet of the matter. This is more so, as learned counsel has predicated his argument on Clause (iii) of Explanation 1 of Section 34 (2)(b)(ii) of A and C Act. If Clause (iii) of Explanation 1 of Section 34(2)(b)(ii) of A and C Act is to be attracted, it is imperative that it should shock the conscience of the Court, as that it is a ground which turns on a view that it is in conflict with the very basic notions of morality 18/22 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.33 of 2022 or justice;
(h) As captured supra, at the highest (on a demurer), it can qualify as a ground of regular appeal under Section 96 of 'The Code of Civil Procedure, 1908' ('CPC' for brevity), but not as a ground under Section 34 much less a ground that is good enough to dislodge or interfere qua impugned award;
(i) The sublime philosophy and salutary principle underlying the entire legal drill on hand is based on the principle that arbitration is part of 'Alternate Dispute Resolution' ('ADR') mechanism. This has to be seen in the context of Section 34 of A and C Act or in other words, Section 34 of A and C Act has to be read with/in conjunction of Section 5 of A and C Act. 'Minimum Judicial interference' is a sublime philosophy underlying Section 34 of A and C Act or in other words, Section 34 is a delicate legal balance between sanctity judicial review and equally important finality of the award phenomenon ingrained in Section 5 of A and C Act;
(j) There is yet another aspect of the matter which needs to be 19/22 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.33 of 2022 gone into and that is one of the three partners of sub-contractor has clearly sailed with the contractor. One of the three partners of sub contractor firm has been arrayed as fourth respondent (second respondent before AT). It is also to be read in the context of factual setting that the partnership deed qua said contract and said MOU have been made on the same day i.e., 13.03.2014;
(k) Therefore, there are dissensions inter se the partners.
This may be another realm of the dispute resolution. Therefore, this Court deems it appropriate to leave open all those questions between the partners;
9. Before concluding, it is to be made clear that though a point has been urged that the impugned award has travelled outside the scope of relief, learned counsel very fairly submitted that it is not happily worded and therefore, he will not pitch himself on that.
10. On Section 28(3) of A and C Act, there is nothing relevant to demonstrate that there is any trade usage or specific terms of contract i.e., said MOU which have not been taken into account. As the review on the 20/22 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.33 of 2022 merits of the matter is impermissible in a Section 34 legal drill, any and every possible error cannot be tested as in a regular appeal. Not taking into account the terms of contract may arise only AT takes a vastly different i.e., tangential approach which is completely against what parties have agreed and it may not be possible to say that AT has done this in the case on hand. This is the considered view of this Court in the light of the narrative, discussion and dispositive reasoning thus far.
11. The sequitur is, captioned main OP fails and the same is dismissed. Consequently, captioned application namely, A.No.362 of 2022 is also dismissed. There shall be no order as to costs.
08.02.2022 Speaking/Non-speaking order Index : Yes / No Internet : Yes / No mk M.SUNDAR. J mk 21/22 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.33 of 2022 Arb O.P.(Com. Div.)No.33 of 2022 08.02.2022 22/22 https://www.mhc.tn.gov.in/judis