State Of Jharkhand Through The ... vs Webel Technology Limited on 2 March, 2023

[Cites 47, Cited by 0]

Jharkhand High Court

State Of Jharkhand Through The ... vs Webel Technology Limited on 2 March, 2023

Author: Anubha Rawat Choudhary

Bench: Anubha Rawat Choudhary

                  IN THE HIGH COURT OF JHARKHAND AT RANCHI

                             Arbitration Appeal No.6 of 2009

             State of Jharkhand through the Secretary, Department of Information
             Technology, Jharkhand Mantralaya, P.O.- Dhurwa, P.S. - Jagannathpur,
             Dhurwa, Ranchi, 834002 (Jharkhand)
                                             ...      ...      Petitioner/Appellant
                                      Versus
             Webel Technology Limited, having its registered Office at Webel Bhawan,
             Salt Lake, Electronics Complex, Sector - V, P.O. & P.S. & District -
             Kolkata 700091, West Bengal     ...          Opposite Party/Respondent
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CORAM: HON'BLE MRS. JUSTICE ANUBHA RAWAT CHOUDHARY

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For the Petitioner : Mr. Rajiv Ranjan, Advocate General : Mr. Ashok Yadav, Sr. S.C. I : Mr. Devesh Krishna, Advocate For the Opposite Party : Mr. Rudreshwar Singh, Advocate : Mr. Rupesh Singh, Advocate : Mr. Jagdeesh, Advocate

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15/02.03.2023

1. Heard the learned counsel for the parties.

2. This arbitration appeal has been filed under Section 37 of Arbitration and Conciliation Act, 1996 against the order dated 16.06.2009 passed by learned Subordinate Judge I, Ranchi in Misc. Case No.54 of 2007, whereby the learned court below has refused to interfere with the award dated 23.07.2007 passed by the learned sole Arbitrator under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act of 1996). The learned Arbitrator has directed the appellant to pay Rs.17,05,00,000/- to the claimant/respondent with interest @ 12 percent per annum from April, 2004 till the date of the award and has directed that if the said amount is not paid within the period of 30 days from the date of the award, the appellant shall pay the same with interest @ 14% from the date of the award till the date of payment. The learned Arbitrator has also awarded the cost of arbitration amounting to Rs.1,56,000/-. The learned Arbitrator, however, rejected the counter-claim of the appellant amounting to Rs.7,61,25,000/- against claimant/respondent.

3. The case of appellant, in brief, is that the appellant (Department of Information and Technology, Govt. of Jharkhand) has decided to provide Computer Education in 500 Schools in Jharkhand. M/s. Webel Technology Ltd. (claimant -respondent) made an offer to the Department to undertake Computer Literacy Programme in association with IBM in 500 Schools in the State of Jharkhand under scheme Build, Own, Operate 2 and Transfer (BOOT) basis. The parties entered into an agreement on 2nd April, 2003. The broad terms of the agreement are that the respondent shall provide Computer Education Services in 500 Schools selected by the I.T. Deptt. (appellant) at the cost of Rs. 105/- per month per student. Payment to be made by the School authorities or by any other nodal agency to be identified by the information Technology Ministry. The Duration for the contract shall be for 5 years commencing from the date of signing the contract or commencement of operation in Schools whichever is later. There is a clause which provides for termination of the contract.

4. It is the case of the appellant-state that the claimant-respondent made an offer in the month of September, 2002 to undertake Computer Literacy Programme in 500 schools in the State of Jharkhand under the scheme "Build, Own, Operate and Transfer (BOOT) basis". As per the BOOT model of implementation of any project, the government accords permission to the concessionaire to undertake the work relating to the project normally on the site owned by the government and the state has no financial liability on the project. It is the concessionaire who was to build the project, operate it and recover its investment and profit through charging from the services and after an agreed period, transfer the project to the State. The claimant had submitted a draft of agreement for implementation of the aforesaid project approved by the Government of Jharkhand and agreement between the parties was executed on 02.04.2003. As per the agreement, the aforesaid work was to be done in 500 schools at the cost of Rs.105/- per student for total of 500 students per school. On 30.04.2003, the claimant intimated the State that it was ready to start with the computer education in 100 school by 31.05.2003 and requested to furnish the list of schools. In response, vide letter dated 30.04.2003 the claimant was informed that the list of the schools will be given shortly. It is further case of the State that before issuance of letter dated 30.04.2003, no approval of the government was taken and the authority who had issued the letter dated 30.04.2003 was the Secretary of Department of Information and Technology of the State and he was not competent to make any commitment to reimburse cost of learning services and thereby fasten any financial liability on the Government of Jharkhand and therefore, the said letter was not binding on the State.

5. All along the project was to be done on BOOT basis and therefore, there was no question of making any payment by the State. Consequently, the State wanted to clarify this doubt with the claimant and 3 issued letter dated 05.08.2003 specifying that the Government of Jharkhand would not pay for the learning services as project was to be implemented on BOOT basis. Thereafter, meeting took place between the State and the claimant and in presence of the Chief Secretary, some points as raised in letter dated 05.08.2003, were discussed. After the meeting, the claimant issued letter dated 13.08.2003 agreeing that the fees for learning services will be collected from the students directly by the claimant. They also agreed that the compensation clause needed to be deleted as the same was one sided. The letter was not found sufficient to clarify the clause in the agreement dated 02.04.2003 and consequently, modification of the agreement became necessary and the draft of the modified agreement was sent to the claimant for acceptance vide letter dated 14.08.2003. The claimant informed that the agreement will be put before the meeting of the Board of Directors on 19.08.2003. The claimant vide letter dated 27.08.2003 informed the State that their Board had approved revised draft agreement with certain modifications and they also forwarded the revised draft agreement to the State. The draft agreement approved by the State was sent to the claimant requesting them to authorize and depute a person who could sign the revised agreement, but vide letter dated 20.10.2003, the claimant informed the State that they were withdrawing the earlier modified draft which they had sent to the Government. The offer received from the claimant on 31.10.2003 for implementation of the project on trial basis, was not acceptable to the State and such view was communicated to the claimant vide letter dated 04.11.2003 and the State clarified that agreement dated 02.04.2003 had not yet come into effect and therefore, the question of compensation did not arise. The State again requested the claimant to sign the revised agreement, but the claimant was not willing to sign the same and informed the Government that they were willing to start the programme in one school.

6. It is further case of the State that starting the Computer Literacy Programme in one school as pilot programme was meaningless and ultimately, the claimant lodged their claim for compensation in terms of liquidated damages as well as unliquidated damages for an amount of Rs.15.75 crores with interest @ 18% vide letter dated 15.04.2004. Prior to that, one letter dated 09.01.2004 was issued by the claimant asking to give list of schools where the project was to be implemented, but the State vide letter dated 30.01.2004 clearly informed the claimant that the issue of signing of revised agreement remained pending and unless it was resolved, 4 it would not be possible to start the project. It is further case of the State that on account of wrongful and illegal acts and omission on the part of the claimant, Government of Jharkhand could not start the Computer Literacy Programme and as such the State suffered huge loss in terms of time and loss of opportunity for students in getting the computer education. In spite of repeated letters issued by the State, the claimant did not sign the revised agreement and the project itself did not take off.

7. Some differences and disputes arose between the parties and the respondent moved before the Hon'ble High Court for appointment of an Arbitrator invoking the arbitration clause of the agreement dated 02.04.2003. The appellant contested the case regarding appointment of arbitrator on various grounds. However, the Hon'ble High Court passed order appointing a Former Hon'ble Justice of the High Court as Arbitrator. Thereafter, State Government/ appellant filed a writ petition against the order of Hon'ble High Court. The Hon'ble High Court vide order dated 24.8.05 dismissed the writ petition holding inter alia that any question regarding jurisdiction of learned Arbitrator to enter into arbitration may be considered by the learned Arbitrator himself on objection being raised by any of the parties. Thereafter, I.T. Deptt./appellant filed Special Leave Petition before the Hon'ble Supreme Court against the order of Hon'ble High Court which was dismissed. The learned Arbitrator entered into the proceeding and after hearing both parties on their claim and counter claim published his award on 23rd July, 2007.

8. Submissions of Appellant A. The learned Advocate General appearing on behalf of the appellant has submitted that the award suffers from patent illegality and is against the public policy. It also suffers from non-consideration of the objection raised by the appellant to the revised claim which was submitted by the claimant. The learned Advocate General has further submitted that the provisions of Sections 53, 73, 74 and 62 of the Indian Contract Act have not been properly appreciated by the learned Arbitrator while pronouncing the Award. B. The learned Advocate General has, in particular, submitted that there was no concluded contract on 02.04.2003 and the correspondences between the parties would clearly show that the terms and conditions of the contract were yet to be finalized. He has submitted that merely because the parties had put a signature on the written agreement dated 02.04.2003, the same was not 5 sufficient to hold that there was any concluded contract between the parties. The learned Senior counsel has also submitted that the parties were exchanging draft agreements and admittedly none of the draft agreements forwarded by either party to each other reached at any concluded agreement between the parties. C. The learned Advocate General by referring to the Award has submitted that on the point as to whether there was a concluded contract between the parties or not, the learned Arbitrator has wrongly recorded that the parties have admitted that the contract is lawful and binding upon them. He submits that the Issue No.(i) was, whether the agreement dated 02.04.2003 executed between the claimant and the respondent is a lawful agreement leading to a binding contract between the parties, to which in para-15 of the Award, it has been recorded as follows -

"The parties admit that the contract is lawful and binding on the parties."

D. The learned Advocate General has further submitted that the petition under Section 16 of the Arbitration and Conciliation Act, 1996 was filed and contested by the parties. The learned Arbitrator had framed two issues - (a) Whether there was a valid and concluded contract between the claimant and the respondent on 02.04.2003? and (b) whether the contract dated 02.04.2003 is legally enforceable? He submits that the point of enforceability of the contract was kept to be decided later as it was opined by the learned Arbitrator that it could not be decided as a preliminary issue. The learned Advocate General submits that the learned Arbitrator has decided the point of enforceability but has not considered the conduct of the parties, the communications between the parties although the specific case of the appellant was that the contract was not enforceable and the learned Arbitrator was of the view that enforceability of the agreement could not be decided as a preliminary issue. The learned Advocate General has referred to the clause of the agreement to submit that the contract was to remain in force for a period of five years commencing from the date of signing of the contract or commencement of operations in the schools, whichever was later. The learned counsel submits that the operation in schools never commenced and, therefore, the contract was not enforceable. He submits that the order passed by the 6 learned Arbitrator disposing off the petition under Section 16 of the Act of 1996 deciding on the aforesaid preliminary issues is also not sustainable in the eyes of law and calls for interference under Section 34 of the Act of 1996.

E. The learned Advocate General has further submitted that the learned Arbitrator has recorded a finding that the agreement was not a BOOT (i.e. build, own , operate and transfer) agreement, although on the face of the agreement dated 2nd of April, 2003 it was clearly stipulated that there was a proposal for BOOT agreement and the claimant had accepted to provide the said services in the schools as per the rate mentioned in the contract for the contract period of five years commencing from the date of signing of the contract or commencement of operations in the schools, whichever was later. The learned Advocate General submits that the finding of the learned Arbitrator that it was not a BOOT agreement is ex facie perverse. The learned Advocate General has further submitted that as per the scheme of the BOOT agreement, the State was not to incur any financial liability and every liability was to be borne by the claimant and consequently there was no breach from the side of the appellant. He has further submitted that the clauses of the agreement particularly with regard to the minimum commitment as well as the termination were yet not finalized and, therefore, any of the claim of the claimant could not have been granted by referring to the termination clause or minimum commitment clause. The learned Advocate General has submitted that there was novation of agreement in view of the fact that at one stage the claimant had communicated that they were agreeable to the proposed changes in the terms of the agreement but subsequently the claimant backed out from the same by stating that their Board of Directors had modified the terms of agreement. The learned Advocate General submits that since the agreement did not take off, so there was no question of any termination of agreement or any claim of damages arising from the agreement. The learned Advocate General submits that it is an admitted fact on record that not even one student was benefited out of the entire gamut of affairs between the parties and this was due to the fact that the agreement itself did not take off and consequently, there was no occasion to grant any relief to the claimant arising out of the 7 agreement. He has emphasized that there was no concluded contract between the parties. The learned Senior counsel has also referred to the various communications between the parties which have been referred to in the award and submits that upon construction of various communications it was clear that there was no concluded contract between the parties.

F. The learned Advocate General further submits that the claimant had raised a claim of Rs.15,75,00,000/- on account of liquidated damages and an amount of Rs.22.00 Crores on account of un- liquidated damages, both were claimed with interest @ 18% p.a. He submits that there was a revised claim made by the claimant and the appellant had filed objection to the revised claim which has been annexed along with the memo of appeal and it is not in dispute that the appellant had filed objection to the revised claim, but the learned Arbitrator has not at all considered such objection and, therefore, the Award of the learned Arbitrator is perverse on that count.

G. The learned Advocate General has submitted that the damages have been claimed under Sections 73 and 74 of the Contract Act. It is submitted that the condition precedent for grant of damages has not been satisfied. He has further submitted that there was no formal termination of contract either from the side of the appellant or from the side of the respondent at the time when the claim was made and even till the time the matter was referred to arbitration. Therefore, there was no occasion to refer to the termination clause. The condition precedent for claiming any damages in terms of termination clause was also not satisfied. The learned Advocate General further submits that the termination clause clearly stipulated that the contract could be terminated by the claimant with three months' notice in writing on account of failure of Government of Jharkhand to reimburse the minimum monthly revenue and the Government would terminate this contract with three months' notice in the event of any change of statute / any policy shift. The learned Advocate General submits that the condition precedent for termination of the agreement on behalf of the State as well as the claimant did not arise since no service was at all provided and no claim for reimbursement of any monthly committed revenue was placed by the claimant to the appellant.

Therefore, the condition precedent for attracting liquidated damages under the termination clause was also not satisfied. H. Without prejudice to the aforesaid submissions, it has been submitted that so far as liquidated damages are concerned, the same have been claimed by referring to the termination clause in the agreement dated 02.04.2003 and upon perusal of the said clause, it has been clearly stipulated that any amount payable thereunder was by way of compensation. He submits that once the damage is by way of compensation, it was for the claimant to prove the loss by leading positive evidence, but this exercise has not been done by the claimant and, therefore, on this count also, award of liquidated damages by the learned Arbitrator is against the public policy of India and suffers from patent illegality.

I. The learned Advocate General has further submitted that the provisions of Section 73 / 74 of the Indian Contract Act has been subject-matter of consideration in various judgments passed by Hon'ble Supreme Court including in the cases of a. Fateh Chand Vs. Balkishan Dass reported in AIR 1963 SC 1405 (paras 9, 10 & 16), b. (1969) 2 SCC 554 Maula Bux Vs Union of India (paras 3, 4 and 5) c. (2011) 10 SCC 300 Phulchand Exports Limited Vs. O.O.O. Patriot (paras 10 and 35);

d. (2015) 4 SCC 136; Kailash Nath Associates Vs. Delhi Development Authority and another (paras 30, 31, 32 33 and 44) e. (2015) 14 SCC 263; Construction and Design Services Vs. Delhi Development Authority (paras 2 and

14).

f. (2003) 5 SCC 705 (paras 64, 67 and 68).

J. The learned Advocate General submits that the claimant has based their claim only on termination clause and has not supported their claim by showing any actual loss suffered by them and, therefore, reasonableness of damage was also required to be seen when admittedly not even single computer was supplied by the claimant. This exercise has not been done by the learned Arbitrator and the objections raised by the appellant to the revised claim of the claimant have been totally ignored while awarding damages to the 9 claimant. The learned Advocate General has referred to the objection to the revised claim as annexed with the memo of appeal. K. The learned Advocate General has referred to Section 62 of the Contract Act to submit that it was a clear case of novation of contract and this aspect of the matter has not been properly considered by the learned Arbitrator. The learned Advocate General has also referred to Section 53 of the Contract Act to submit that the said provision of law, though relied upon by the appellant before the learned Arbitrator, has not been properly appreciated and at any point of time the claimant did not exercise any option under Section 53 of the Contract Act to avoid the contract and consequently claim damages.

L. The learned Advocate General has referred to the various grounds urged before the learned Court below in the petition filed under Section 34 of the aforesaid Act of 1996 for setting aside the award and has submitted that the learned Court below has not dealt with the various grounds of challenge and has mechanically dismissed the petition by merely referring to the provisions of law and the limited scope of interference in the award as provided under Section 34 of the Act of 1996. The learned Advocate General has further submitted that the learned Arbitrator has misconstrued and misinterpreted the agreement dated 2nd of April, 2003. M. He has also submitted that the claimant had agreed that fee would be collected from the students and the fee would be debited, but subsequently, the claimant detracted and wanted to implement the project for only a few schools on trial basis which was not acceptable to the appellant and consequently the contract was never executed.

N. The learned Advocate General has also submitted that the Award passed by the learned Arbitrator calls for interference by this Court, as the award is shocking. Admittedly, huge liability has been fastened upon the appellant without supply of even one computer.

9. Submissions of Claimant/Respondent I. The learned counsel for the claimant has provided a list of dates giving the sequence of events which has been discussed later in the finding portion of this judgement.

II. The learned counsel appearing for the claimant-respondent has submitted that no specific provision of Section 34 of the Arbitration 10 and Conciliation Act, 1996 was mentioned in the petition under Section 34 of the Act of 1996 and, therefore, the petition for setting aside the Award was not in accordance with law. He submits that the provision of Section 34 is very clear and the law is well settled that unless the Award is fit to be set aside under the provisions of Section 34, no interference is called for.

III. The learned counsel submits that there is no scope for re-

appreciation of evidence in a proceeding under Section 34 of the Act of 1996. He has submitted that the Award passed by the learned Arbitrator is a well-reasoned award dealing with every aspect of the mater. The learned Arbitrator framed as many as 07 issues and dealt with each of them.

IV. The learned counsel submits that the binding nature of agreement dated 02.04.2003 was already decided against the appellant vide order passed under Section 16 of the Arbitration and Conciliation Act, 1996 and the impugned Award has to be read along with the order passed under Section 16 of the aforesaid Act of 1996. He has submitted that it is not in dispute that both the parties had signed the agreement dated 02.04.2003 and, therefore, it is not open for the appellant to contend that the contract was not lawful or not binding on the parties. The learned counsel submits that there is no allegation of fraud, misrepresentation, etc. while entering into the contract dated 02.04.2003. The learned counsel has also submitted that the terms of the agreement have been interpreted to hold that the agreement was not a BOOT agreement . He has also submitted that the agreement is required to be read as a whole and the learned Arbitrator after appreciating the terms and conditions of the agreement has recorded a finding which does not call for any interference. He submits that the finding recorded by the learned Arbitrator that the Agreement was not a BOOT agreement, is a plausible view and as long as it is a plausible view, there is no scope of any interference. Such finding does not suffer from any perversity and does not fall within the scope of interference under Section 34 of the Act of 1996.

V. The learned counsel has further submitted that so far as enforceability of the contract is concerned, the same has also been decided by the learned Arbitrator, though no specific issue as such was framed on the point of enforceability while passing the final 11 award. The learned counsel submits that the learned Arbitrator has held that the contract was enforceable. Such finding is based on interpretation of materials on record and, therefore, such finding does not call for any interference. He has also submitted that the contract was duly entered, it was a lawful contract, binding upon the parties and was also enforceable. The learned counsel also submits that the agreement was never novated or rescinded. VI. The learned counsel submits that there was clear breach from the side of the appellant in view of the fact that the claimant was throughout ready to perform his part of the contract, but the appellant did not perform its part by not providing the list of the schools where the computer literacy Programme was to commence. He submits that on account of such omission on the part of the appellant, the claimant suffered huge damages as the claimant had already taken steps for implementation of the agreement and placed orders with 3rd parties. On account of non-performance of the obligation on the part of the appellant, the goods were to be returned, contracts with third parties were cancelled followed by liability fastened upon the claimant by the 3rd parties. VII. The learned counsel has submitted that so far as the claim of un- liquidated damage of Rs.22.00 Crores is concerned, only a portion of the same has been allowed to the extent that the claimant had produced documents and accordingly the argument of the learned counsel for the appellant that there were no evidences of losses is not correct. The learned counsel submits that the amended claim was substantially reduced and was allowed only to the extent the claimant was able to prove the component of un-liquidated damage. VIII. So far as the claim of liquidated damages is concerned, he submits that the same was in terms of the termination clause which was never altered. He has placed the termination clause before this Court and has submitted that as per the termination clause, the claimant was entitled to minimum monthly committed revenue for six months and the same was duly calculated on the basis of the stipulations in the contract i.e. 500 schools with 500 children each at the rate of Rs.105/- per student for a period of six months. This was the contemplated compensation in terms of the termination clause. He has submitted that the compensation was duly fixed as 12 per the agreement by way of liquidated damages and the claimant was entitled to the same.

IX. He has also submitted that it is an admitted fact that the appellant did not provide the name of even one school so as to enable the claimant to execute its part of the contract and consequently, not even a penny was collected from any student and, therefore, the entire amount of compensation which was calculated in terms of the termination clause was payable to the claimant which has been rightly allowed by the learned Arbitrator.

X. The learned counsel submits that the claim of liquidated as well as un-liquidated damages was duly supported by materials on record and, therefore, it cannot be said that they are based on no evidence for the losses suffered on behalf of the claimant.

XI. The learned counsel has also submitted a list of dates and he submits that all the documents mentioned in the list of dates have been duly considered by the learned Arbitrator. Some of the material documents which he has specifically referred is the agreement dated 02.04.2003, letter dated 30.04.2003 whereby the claimant had informed the Government that they were ready to start with computer education in 100 schools by 31.05.2003 and on 30.04.2003, the Secretary, Government of Jharkhand informed the claimant that the list of schools will be shortly given and the information furnished by the claimant that they had taken steps for implementation of their obligations. It is submitted that in spite of issuance of letter dated 30.04.2003 the appellant had issued a letter dated 05.08.2003 that the Secretary had issued the letter dated 30.04.2003 without any approval from the Government and thereby resiled from their stand that Information Technology Ministry/Department would pay the fee to the claimant. The learned counsel has also submitted that though there was exchange of draft modified agreement between the parties but ultimately the same did not crystallize into a modified agreement and it remained in the realm of proposal and counter-proposal and thus, the agreement dated 02.04.2003 was never modified and it stood binding upon the parties. Learned counsel has also referred to the communication dated 30.01.2004 issued by the Government of Jharkhand informing the claimant that it was not possible to start the project unless the issue of revised agreement was resolved. The 13 State has been insisting upon the claimant to sign the revised agreement which was prepared by them, but the claimant ultimately did not agree to sign the revised agreement and sent its own revised agreement duly approved by the Board. Ultimately, the parties did not agree to any modified draft and consequently, the modification of the agreement did not materialize. The claimant vide letter dated 05.04.2004 reiterated the agreement dated 02.04.2003 and refused to sign any revised draft agreement and thereafter on 15.04.2004 the claimant raised demand before the Government of Jharkhand to compensate the losses - (a) liquidated damages to the extent of Rs.15.7 Crores with interest @ 18% and, (b) un-liquidated damages to the extent of Rs.22.00 Crores with interest @ 18% p.a. Thereafter, the arbitration clause was invoked and a Former Judge of Hon'ble Patna High Court was appointed as Arbitrator vide order dated 25.01.2005 in Arbitration Application No. 17 of 2004. The appointment of arbitrator was challenged in writ petition being W.P. (C) No. 1777 of 2005. The writ petition was dismissed on 28.04.2005 and ultimately the matter went up to the Hon'ble Supreme Court in S.L.P. (Civil) No. 14655 of 2005 and the Hon'ble Supreme Court dismissed the SLP on 08.05.2006 leaving it open to the Government to take required steps before the learned Arbitrator. Consequently, a petition under Section 16 of the Act of 1996 was filed and the same was decided against the appellant by a well-reasoned order holding that the agreement dated 02.04.2003 was valid and binding. So far as the enforceability is concerned, the same was to be decided later on and it was duly decided vide the impugned Award. It is submitted that the State of Jharkhand issued notice inviting tender dated 07.05.2005 whereby the state expressly repudiated the agreement dated 02.04.2003.

XII. The learned counsel has relied upon the judgment passed by Hon'ble Supreme Court reported in-

i. (2022) 3 SCC 237 (Haryana Tourism Ltd Vs Kandhari Beverages Ltd) and referred to paras 8 to 10 of the said judgment to submit that merit of the case cannot be gone into in a petition under Section 34 of the Arbitration and Conciliation Act, 1996.

ii. (2021) 9 SCC 1 (Project Director, NHAI Vs. M. Hakeem and Another) to emphasize upon the scope of interference under Section 34 of Act of 1996.

iii. (2022) 4 SCC 116 (UHL Power Company Ltd Vs. State of Himachal Pradesh) (Para 15 to 21).

iv. (2020) 7 SCC 167 (Patel Engineering Limited Vs North Eastern Electric Power Corporation Ltd) to submit that case will be guided by pre-amended provision as the petition under Section 34 was filed prior to 2015 Amendment and consequently, the judgment passed by the Hon'ble Supreme Court reported in (2015) 3 SCC 49 (Associate Builders Vs. Delhi Development Authority) (paras 17-29, 30-39) would be applicable. The learned counsel has also referred to judgments reported in (2018) 16 SCC 661; (2022) 1 SCC 131 (para 28-31); (2019) 15 SCC 131 (Ssangyong Engineering & Construction Co. Ltd Vs. National Highways Authority of India) (paras 21- 24, 31-39).

v. He has submitted that mere contravention of any statute is not sufficient to interfere in the Award unless it comes under the concept public policy calling for interference under Section 34 of the Act of 1996. The learned counsel has submitted that paragraph 22 onwards of the judgment reported in (2018) 16 SCC 661 deals with the public policy doctrine which could be basis for interference in arbitral award.

XIII. During the course of hearing, the learned counsel appearing for the claimant, upon a query by this Court, has submitted that no specific date of termination of contract as such has been given in the finding by the learned Arbitrator, but certainly it has come on record that the State had floated a fresh tender on 07.05.2005 expressly repudiating the agreement dated 02.04.2003. He has also submitted that the claimant was also blacklisted by the State Government. XIV. The learned counsel, upon a further query by this court, has submitted that there is no finding in the Award that the claimant ever took any step to terminate the contract. However, he submits that the very fact that the claimant had placed its claim of liquidated damages and un-liquidated damages on 15.04.2004, itself signifies that the agreement stood terminated.

XV. Without prejudice to the aforesaid submissions, the learned counsel has submitted that mere error in appreciation of provisions of Contract Act in a matter between two parties falling in the realm of private disputes, though one of the parties is Government, will not be sufficient to call for any interference in the arbitral award. The learned counsel submits that error of interpretation of agreement /transactions between the parties, will not fall within the ambit of public policy doctrine as a ground for interference in the arbitral Award under Section 34 of the Act of 1996.

XVI. On the point of commencement of contract, the learned counsel for the respondent has submitted that the period of contract was for five years and the same had nothing to do with the date of commencement of contract. The contract had commenced on the date it was executed. He submits that this aspect of the matter has been considered by the learned Arbitrator and he has recorded findings on this point which is certainly one of the possible views and such finding does not call for any interference. XVII. The learned counsel reiterates that none of the grounds which was raised by the appellant under Section 34 of the Act of 1996 fell within the scope of interference, therefore, the learned Court below has rightly held that the petition for setting aside the arbitral award was devoid of any merit and has rightly rejected.

Findings of this court.

SCOPE OF INTERFERENCE UNDER SECTION 34 AND 37 OF THE AFORESAID ACT OF 1996.

10. Before proceeding with the merits of the case, it would be important to refer to the scope of interference in arbitral award under section 34 and 37 of the aforesaid Act of 1996. It is also important to note that the petition under Section 34 of the aforesaid Act of 1996 was filed prior to 23.10.2015 i.e. before coming into force of the 2015 Amendment Act in the aforesaid Act of 1996. Accordingly, this case will be governed by pre-2015 amendment law. [Reference may be made to para 19 of the judgement passed by the Hon'ble Supreme Court in the case reported in (2019) 15 SCC 311 [Ssangyong Engineering and Construction Company Limited versus National Highway Authority of India) and also the judgement of Patel Engineering Limited Vs North Eastern Electric Power Corporation Ltd (supra) as relied upon by the learned counsel for the respondent- claimant.] 16

11. In the case of "Associate Builders v. DDA" reported in (2015) 3 SCC 49, it has been held in para 17 that it will be seen that none of the grounds contained in sub-section (2)(a) of Section 34 deal with the merits of the decision rendered by an arbitral award. It is only when we come to the award being in conflict with the public policy of India that the merits of an arbitral award are to be looked into under certain specified circumstances. The Hon'ble Supreme Court considered the entire development of law with regards to the 'public Policy' doctrine and considered the judgement passed in the case of Renusagar Power Co. Ltd. v. General Electric Co. passed in the context of the Foreign Awards (Recognition and Enforcement) Act, 1961 wherein in construing the expression "public policy" in the context of a foreign award, it was held that an award contrary to

(i) The fundamental policy of Indian law,

(ii) The interest of India,

(iii) Justice or morality, would be set aside on the ground that it would be contrary to the public policy of India. It was also held therein that a contravention of the provisions of the Foreign Exchange Regulation Act would be contrary to the public policy of India in that the statute is enacted for the national economic interest to ensure that the nation does not lose foreign exchange which is essential for the economic survival of the nation and that equally, disregarding orders passed by the superior courts in India could also be a contravention of the fundamental policy of Indian law. However, the point of recovery of compound interest on interest was held to be contrary to statute only and accordingly it was held to be not contravening any fundamental policy of Indian law.

12. The Hon'ble Supreme Court in paragraphs 19 and 20 of the judgement passed in the case of Associate Builders (Supra) also considered the interpretation of the expression "the public policy of India" in ONGC Ltd. v. Saw Pipes Ltd. reported in (2003) 5 SCC 705 which was consistently followed and recorded in the findings of the said judgement by quoting para 31 and 74 as under:-

"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 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 17 adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term 'public policy' in Renusagar case 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.

74. In the result, it is held that:

(A)(1) The court can set aside the arbitral award under Section 34(2) of the Act if the party making the application furnishes proof that:

(i) a party was under some incapacity, or

(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. (2) The court may set aside the award:

(i)(a) if the composition of the Arbitral Tribunal was not in accordance with the agreement of the parties,

(b) failing such agreement, the composition of the Arbitral Tribunal was not in accordance with Part I of the Act,

(ii) if the arbitral procedure was not in accordance with:

(a) the agreement of the parties, or

(b) failing such agreement, the arbitral procedure was not in accordance with Part I of the Act.

However, exception for setting aside the award on the ground of composition of Arbitral Tribunal or illegality of arbitral procedure is that the agreement should not be in conflict with the provisions of Part I of the Act from which parties cannot derogate.

(c) If the award passed by the Arbitral Tribunal is in contravention of the provisions of the Act or any other substantive law governing the parties or is against the terms of the contract.

(3) The award could be set aside if it is against the public policy of India, that is to say, if it is contrary to:

(a) fundamental policy of Indian law; or

(b) the interest of India; or

(c) justice or morality; or

(d) if it is patently illegal.

(4) It could be challenged:

(a) as provided under Section 13(5); and

(b) Section 16(6) of the Act.

(B)(1) The impugned award requires to be set aside mainly on the grounds:

(i) there is specific stipulation in the agreement that the time and date of delivery of the goods was of the essence of the contract;

(ii) in case of failure to deliver the goods within the period fixed for such delivery in the schedule, ONGC was entitled to recover from the contractor liquidated damages as agreed;

(iii) it was also explicitly understood that the agreed liquidated damages were genuine pre-estimate of damages;

(iv) on the request of the respondent to extend the time-limit for supply of goods, ONGC informed specifically that time was extended but stipulated liquidated damages as agreed would be recovered;

(v) liquidated damages for delay in supply of goods were to be recovered by paying authorities from the bills for payment of cost of material supplied by the contractor;

(vi) there is nothing on record to suggest that stipulation for recovering liquidated damages was by way of penalty or that the said sum was in any way unreasonable;

(vii) in certain contracts, it is impossible to assess the damages or prove the same. Such situation is taken care of by Sections 73 and 74 of the Contract Act and in the present case by specific terms of the contract."

13. The Hon'ble Supreme Court in para 21 to 26 of the judgement passed in the case of Associate Builders (Supra) considered few other judgements dealing with the interpretation of the expression "the public policy of India" as under :-

"21. In Hindustan Zinc Ltd. v. Friends Coal Carbonisation, this Court held:

"14. The High Court did not have the benefit of the principles laid down in Saw Pipes, and had proceeded on the assumption that award cannot be interfered with even if it was contrary to the terms of the contract. It went to the extent of holding that contract terms cannot even be looked into for examining the correctness of the award. This Court in Saw Pipes has made it clear that it is open to the court to consider whether the award is against the specific terms of contract and if so, interfere with it on the ground that it is patently illegal and opposed to the public policy of India."

22. In McDermott International Inc. v. Burn Standard Co. Ltd., this Court held:

"58. In Renusagar Power Co. Ltd. v. General Electric Co. this Court laid down that the arbitral award can be set aside if it is contrary to

(a) fundamental policy of Indian law; (b) the interests of India; or (c) justice or morality. A narrower meaning to the expression 'public policy' was given therein by confining judicial review of the arbitral award only on the aforementioned three grounds. An apparent shift can, however, be noticed from the decision of this Court in ONGC Ltd.

v. Saw Pipes Ltd. (for short 'ONGC'). This Court therein referred to an earlier decision of this Court in Central Inland Water Transport Corpn. Ltd. v. Brojo Nath Ganguly wherein the applicability of the expression 'public policy' on the touchstone of Section 23 of the Contract Act, 1872 and Article 14 of the Constitution of India came to be considered. This Court therein was dealing with unequal bargaining power of the workmen and the employer and came to the conclusion that any term of the agreement which is patently arbitrary and/or otherwise arrived at because of the unequal bargaining power would not only be ultra vires Article 14 of the Constitution of India but also hit by Section 23 of the Contract Act, 1872. In ONGC this Court, apart from the three grounds stated in Renusagar, added another ground thereto for exercise of the court's jurisdiction in setting aside the award if it is patently arbitrary.

59. Such patent illegality, however, must go to the root of the matter.

The public policy violation, indisputably, should be so unfair and unreasonable as to shock the conscience of the court. Where the arbitrator, however, 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. However, we would consider the applicability of the aforementioned principles while noticing the merits of the matter.

60. What would constitute public policy is a matter dependent upon the nature of transaction and nature of statute. For the said purpose, the pleadings of the parties and the materials brought on record would be relevant to enable the court to judge what is in public good or public interest, and what would otherwise be injurious to the public good at the relevant point, as contradistinguished from the policy of a particular Government. (See State of Rajasthan v. Basant Nahata.)"

23. In Centrotrade Minerals & Metals Inc. v. Hindustan Copper Ltd., Sinha, J., held:

"103. Such patent illegality, however, must go to the root of the matter. The public policy, indisputably, should be unfair and unreasonable so as to shock the conscience of the court. Where the arbitrator, however, 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.

104. What would be a public policy would be a matter which would again depend upon the nature of transaction and the nature of statute. For the said purpose, the pleadings of the parties and the materials brought on record would be relevant so as to enable the court to judge the concept of what was a public good or public interest or what would otherwise be injurious to the public good at the relevant point as contradistinguished by the policy of a particular Government. (See State of Rajasthan v. Basant Nahata.)"

24. In DDA v. R.S. Sharma and Co., the Court summarised the law thus:

"21. From the above decisions, the following principles emerge:

(a) An award, which is

(i) contrary to substantive provisions of law; or

(ii) the provisions of the Arbitration and Conciliation Act, 1996; or

(iii) against the terms of the respective contract; or

(iv) patently illegal; or

(v) prejudicial to the rights of the parties;

is open to interference by the court under Section 34(2) of the Act.

(b) The 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.

(c) The award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court.

(d) It is open to the court to consider whether the award is against the specific terms of contract and if so, interfere with it on the ground that it is patently illegal and opposed to the public policy of India.

With these principles and statutory provisions, particularly, Section 34(2) of the Act, let us consider whether the arbitrator as well as the Division Bench of the High Court were justified in granting the award in respect of Claims 1 to 3 and Additional Claims 1 to 3 of the claimant or the appellant DDA has made out a case for setting aside the award in respect of those claims with reference to the terms of the agreement duly executed by both parties."

25. J.G. Engineers (P) Ltd. v. Union of India held:

"27. Interpreting the said provisions, this Court in ONGC Ltd. v. Saw Pipes Ltd. held that a court can set aside an award under Section 34(2)(b)(ii) of the Act, as being in conflict with the public policy of India, if it is (a) contrary to the fundamental policy of Indian law; or (b) contrary to the interests of India; or (c) contrary to justice or morality; or (d) patently illegal. This Court explained that to hold an award to be opposed to public policy, the patent illegality should go to the very root of the matter and not a trivial illegality. It is also observed that an award could be set aside if it is so unfair and unreasonable that it shocks the conscience of the court, as then it would be opposed to public policy."

26. Union of India v. Col. L.S.N. Murthy held:

"22. In ONGC Ltd. v. Saw Pipes Ltd. this Court after examining the grounds on which an award of the arbitrator can be set aside under Section 34 of the Act has said: (SCC p. 727, para 31) '31. ... 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 it is required to be held that the award could be set aside if it is patently illegal'."

14. Thus, an award could be, inter alia, set-aside if it is against the public policy of India, that is to say, if it is contrary to:

(a) fundamental policy of Indian law; or

(b) the interest of India; or

(c) justice or morality; or

(d) if it is patently illegal.

15. Each of the head has been separately dealt with by the Hon'ble Supreme court in the judgement passed in the case of Associate Builders. Fundamental Policy of Indian Law has been considered from para 27 onwards. Some of the paragraphs of the judgement are quoted as under: -

"27. Coming to each of the heads contained in Saw Pipes judgment, we will first deal with the head "fundamental policy of Indian law". It has already been seen from Renusagar judgment that violation of the Foreign Exchange Act and disregarding orders of superior courts in India would be regarded as being contrary to the fundamental policy of Indian law. To this it could be added that the binding effect of the judgment of a superior court being disregarded would be equally violative of the fundamental policy of Indian law.

28. In a recent judgment, ONGC Ltd. v. Western Geco International Ltd., 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 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 '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 21 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 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 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.

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."

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.

30. The audi alteram partem principle which undoubtedly is a fundamental juristic principle in Indian law ............................

31. The third juristic principle is that a decision which is perverse or so irrational that no reasonable person would have arrived at the same is important and requires some degree of explanation. It is settled law that where:

(i) a finding is based on no evidence, or 22

(ii) an Arbitral Tribunal takes into account something irrelevant to the decision which it arrives at; or

(iii) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse.

32. A good working test of perversity is contained in two judgments. In Excise and Taxation Officer-cum-Assessing Authority v. Gopi Nath & Sons, it was held: (SCC p. 317, para 7) "7. ... It is, no doubt, true that if a finding of fact is arrived at by ignoring or excluding relevant material or by taking into consideration irrelevant material or if the finding so outrageously defies logic as to suffer from the vice of irrationality incurring the blame of being perverse, then, the finding is rendered infirm in law." In Kuldeep Singh v. Commr. of Police, it was held: (SCC p. 14, para 10) "10. A broad distinction has, therefore, to be maintained between the decisions which are perverse and those which are not. If a decision is arrived at on no evidence or evidence which is thoroughly unreliable and no reasonable person would act upon it, the order would be perverse. But if there is some evidence on record which is acceptable and which could be relied upon, howsoever compendious it may be, the conclusions would not be treated as perverse and the findings would not be interfered with."

33. It must clearly be understood that when a court is applying the "public policy" test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score. Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts. In P.R. Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H. Securities (P) Ltd., this Court held: (SCC pp. 601-02, para 21) "21. A court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or reappreciating the evidence. An award can be challenged only under the grounds mentioned in Section 34(2) of the Act. The Arbitral Tribunal has examined the facts and held that both the second respondent and the appellant are liable. The case as put forward by the first respondent has been accepted. Even the minority view was that the second respondent was liable as claimed by the first respondent, but the appellant was not liable only on the ground that the arbitrators appointed by the Stock Exchange under Bye-law 248, in a claim against a non-member, had no jurisdiction to decide a claim against another member. The finding of the majority is that the appellant did the transaction in the name of the second respondent and is therefore, liable along with the second respondent. Therefore, in the absence of any ground under Section 34(2) of the Act, it is not possible to re-examine the facts to find out whether a different decision can be arrived at."

34. It is with this very important caveat that the two fundamental principles which form part of the fundamental policy of Indian law (that the arbitrator must have a judicial approach and that he must not act perversely) are to be understood."

16. While dealing with Justice under public policy doctrine, the Hon'ble Supreme Court in the judgement of Associate Builders held in para 36 as under: -

"JUSTICE

36. The third ground of public policy is, if an award is against justice or morality. These are two different concepts in law. An award can be said to 23 be against justice only when it shocks the conscience of the court. An illustration of this can be given. A claimant is content with restricting his claim, let us say to Rs 30 lakhs in a statement of claim before the arbitrator and at no point does he seek to claim anything more. The arbitral award ultimately awards him Rs 45 lakhs without any acceptable reason or justification. Obviously, this would shock the conscience of the court and the arbitral award would be liable to be set aside on the ground that it is contrary to "justice".

17. The aforesaid view in connection with setting aside arbitral award in connection with public policy doctrine has been again summarized in M.P. Power Generation Co. Ltd. v. ANSALDO Energia SpA, (2018) 16 SCC 661, para 22 to 25 as follows:

"Section 34 of the Act -- "Public Policy"

"22. It is necessary to refer to the settled law on the scope of Section 34 of the Act. In this case we are concerned with the point as to whether an arbitral award can be set aside for being in conflict with the public policy of India. An arbitral award can 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. (Renusagar Power Co. Ltd. v. General Electric Co.) Patent illegality was added to the above three grounds in ONGC Ltd. v. Saw Pipes Ltd. Illegality must go to the root of the matter and in case the illegality is of trivial nature it cannot be held that the award is against the public policy. It was further observed in the said judgment (ONGC Ltd. v. Saw Pipes Ltd.) that an award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the Court.

23. In DDA v. R.S. Sharma and Co.it was held that an award can be interfered with by the Court under Section 34 of the Act when it is contrary to: (SCC pp. 91-92, para 21)

(a) substantive provisions of law; or

(b) provisions of the 1996 Act; or

(c) against the terms of the respective contract; or

(d) patently illegal; or

(e) prejudicial to the rights of the parties.

24. The fundamental policy of India was explained in ONGC Ltd. v. Western Geco International Ltd. as including all such fundamental principles as providing a basis for administration of justice and enforcement of law in this country. It was held inter alia, that a duty is cast on every tribunal or authority exercising powers that affect the rights or obligations of the parties to show a "judicial approach". It was further held that judicial approach ensures that an authority acts bona fide and deals with the subject in a fair, reasonable and objective manner and its decision is not actuated by any extraneous considerations. It was also held that the requirement of application of mind on the part of the adjudicatory authority is so deeply embedded in our jurisprudence that it can be described as a fundamental policy of Indian law. This Court further observed that the award of the Arbitral Tribunal is open to challenge when the arbitrators fail to draw an inference which ought to be drawn or if they had drawn an inference which on the face of it is untenable resulting in miscarriage of justice. The Court has the power to modify the offending part of the award in case it is severable from the rest, according to the said judgment (Western Geco International Ltd.).

25. The limit of exercise of power by courts under Section 34 of the Act has been comprehensively dealt with by R.F. Nariman, J. in Associate Builders v. DDA. Lack of judicial approach, violation of principles of natural justice, perversity and patent illegality have been identified as grounds for interference with an award of the arbitrator. The restrictions placed on the 24 exercise of power of a court under Section 34 of the Act have been analysed and enumerated in Associate Builders which are as follows:

(a) The court under Section 34(2) of the Act, does not act as a court of appeal while applying the ground of "public policy" to an arbitral award and consequently errors of fact cannot be corrected.

(b) A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the sole judge of the quantity and quality of the evidence.

(c) Insufficiency of evidence cannot be a ground for interference by the court. Re-examination of the facts to find out whether a different decision can be arrived at is impermissible under Section 34(2) of the Act.

(d) An award can be set aside only if it shocks the conscience of the court.

(e) Illegality must go to the root of the matter and cannot be of a trivial nature for interference by a court. A reasonable construction of the terms of the contract by the arbitrator cannot be interfered with by the court. Error of construction is within the jurisdiction of the arbitrator. Hence, no interference is warranted.

(f) If there are two possible interpretations of the terms of the contract, the arbitrator's interpretation has to be accepted and the court under Section 34 cannot substitute its opinion over the arbitrator's view."

18. In the judgement passed in the case of "Ssangyong Engg. & Construction Co. Ltd. v. NHAI" reported in (2019) 15 SCC 131, the law has been summarized again as follows:

22. However, this Court, in Saw Pipes, added yet another ground, namely, that of "patent illegality" to the three grounds mentioned in Renusagar in order to set aside an award under Section 34 of the 1996 Act. This ground was added in the following terms: (Saw Pipes case, SCC p. 728, para 31) "31. ... [Patent] 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."

23. Given this interpretation of the law, insofar as Section 34 was concerned, this Court, in DDA v. R.S. Sharma and Co., summarised the law as it stood at that point of time, .......................

24. Yet another expansion of the phrase "public policy of India" contained in Section 34 of the 1996 Act was by another judgment of this Court in Western Geco, which was explained in Associate Builders as follows:

"28. In a recent judgment, ONGC v. Western Geco International Ltd., 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:

'35. What then would constitute the "fundamental policy of Indian law" is the question. The decision in ONGC 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 "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 25 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.

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 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.

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.'

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.

(i) a finding is based on no evidence, or

(ii) an Arbitral Tribunal takes into account something irrelevant to the decision which it arrives at; or

(iii) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse."

19. In the judgement passed in the case of "Ssangyong Engg. & Construction Co. Ltd. v. NHAI" reported in (2019) 15 SCC 131, both pre and post 2015 amendment law and the impact of 2015 amendment has been considered in the following paragraphs: -

31. Pursuant to the Law Commission Report, the 1996 Act was amended by the Amendment Act, 2015 with effect from 23-10-2015. ........................

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 26 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 of Associate Builders, 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, or secondly, that such award is against basic notions of justice or morality as understood in paras 36 to 39 of Associate Builders. 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, as understood in Associate Builders, and paras 28 and 29 in particular, is now done away with.

37. Insofar as domestic awards made in India are concerned, an additional ground is now available under sub-section (2-A), added by the Amendment Act, 2015, to Section 34. Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law. In short, what is not subsumed within "the fundamental policy of Indian law", namely, the contravention of a statute not linked to public policy or public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality.

38. Secondly, it is also made clear that reappreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award.

39. To elucidate, para 42.1 of Associate Builders, namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Para 42.2 of Associate Builders, however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award."

20. Thus, post 2015 amendment, para 42.1 of Associate Builders, namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. However, admittedly this case has to be dealt with under pre-2015 amendment and accordingly it will be guided by the law laid down in the case of Associate Builders (supra) and Western Gego (supra).

21. In the judgement passed in the case of "Haryana Tourism Ltd. v. Kandhari Beverages Ltd." reported in (2022) 3 SCC 237, it has been held in paragraphs 8 and 9 as under:

"8. So far as the impugned judgment and order passed by the High Court quashing and setting aside the award and the order passed by the Additional District Judge under Section 34 of the Arbitration Act are concerned, it is required to be noted that in an appeal under Section 37 of the Arbitration Act, the High Court has entered into the merits of the claim, which is not permissible in exercise of powers under Section 37 of the Arbitration Act.

9. As per settled position of law laid down by this Court in a catena of decisions, an award can be set aside only if the award is against the public policy of India. The award can be set aside under Sections 34/37 of the Arbitration Act, if the award is found to be contrary to: (a) fundamental policy of Indian law; or (b) the interest of India; or (c) justice or morality;

or (d) if it is patently illegal. None of the aforesaid exceptions shall be applicable to the facts of the case on hand. The High Court has entered into the merits of the claim and has decided the appeal under Section 37 of the Arbitration Act as if the High Court was deciding the appeal against the judgment and decree passed by the learned trial court. Thus, the High Court has exercised the jurisdiction not vested in it under Section 37 of the Arbitration Act. The impugned judgment and order passed by the High Court is hence not sustainable.

22. Thus, the scope of scrutiny of the award under section 34 of the Act of 1996 is limited to the grounds mentioned therein read with the aforesaid judicial pronouncements. There is no doubt that the scope of the appellate power to interfere with an award under section 37 is all the more restricted when the learned court below has upheld the award.

The Agreement

23. Some of the Important portions of the agreement dated 02.04.2003 are as under: -

"WHEREAS the IT Ministry desired that Webel Technology Limited should provide computer education services in 500 Schools selected by the State Government in the State of Jharkhand on a BUILD-OWN- OPERATE-TRANSFER (BOOT) basis.

Whereas subject to the terms hereof Webel Technology Limited has accepted to provide the said services in schools as per the rate mentioned in the contract for the contract period of five years through Microsoft India Pvt. Ltd as an Information Technology education partner.

NOW THIS AGREEMENT WITNESSETH AS FOLLOWS:

In consideration of the payments to be made by the School Authorities or by any other nodal agency to be identified by the IT Ministry to WEBEL as hereinafter mentioned, WEBEL hereby covenants with the IT Ministry to provide computer education in schools. The IT Ministry has issued a supporting work order in a minimum lot of 500 schools to WEBEL. WEBEL shall provide the computer hardware, software and connected accessories in each of the selected schools in Jharkhand as specified in the offer in each school, The school shall provide a clean, dust free room with pucca roof with chairs and tables/running tables and adequate electrical points.

Learning Services a. A full-time faculty will be deputed for each school for a minimum committed strength of 500 students. But for a school with registration of 600 or more students but less than 700 students, a second full time faculty will be provided by the agency immediately if the IT Ministry and Webel determine that the compute classes to be conducted in the schools is beyond the capacity of 1 faculty already deputed. b. The agency shall also provide 1 Executive faculty and 1 senior faculty in a cluster of 10 schools, who in turn will adhere to the Learning services to each of the 10 schools for achieving the Service Level Objective.

c. ..............................

This Contract shall remain in force during the contract period of five years commencing from the date of signing of this Contract or commencement of operations in the school whichever is later. An academic year shall commence from 1st day of the month of May in any year and shall end on 30th day in the month of April in the following year.

WEBEL, shall take the responsibility of the availability of the Hardware, software, and peripherals including the utility services while the IT Ministry/School authorities shall be responsible for all infrastructural facilities as required for running the classes. ......................................................

WEBEL, agrees to provide the computer education as per this contract at a cost of Rs 105.00 (Rupees one hundred and five only) per student per month as per offer submitted.

............................................... WEBEL agrees to transfer all the hardware facilities so established to the Ministry of Information Technology, Government of Jharkhand on expiry of the contract period of 5 years and on receipt of all accrued dues from the Ministry of Information Technology, Government of Jharkhand. On transfer WEBEL will not be liable for any charge created on the above facility as per BOOT.

..........................................

"Termination: Notwithstanding anything contained hereinabove this contract can be terminated by WEBEL with three months' notice in writing on account of the failure of the Government of Jharkhand to reimburse the minimum committed monthly revenue as specified above. The IT Ministry can terminate this contract with three months' notice in the event of any change in the statutes of the State and/or any policy shift. In the event of any such termination the IT Ministry is liable to reimburse to WEBEL, a sum equivalent to 6(Six) month's revenue as compensation. In the event of the contract being terminated in advance WEBEL will not be liable to transfer the facilities so established to the IT Ministry."

24. The following are the material dates in sequence which are not in dispute:

02.04.2003 Parties entered into a written agreement wherein claimant was to provide computer education services for class-VI to XII in 500 schools at the cost of Rs. 105/- per student for a total of 500 students per school.

30.04.2003 Claimant wrote letter to the Secretary, Ministry of Science and Technology & Information Technology Department, Government of Jharkhand that it is ready to start with the computer education in 100 schools by 31.05.2003 and requested to furnish the list of schools.

30.04.2003 The Secretary, Government of Jharkhand informed the claimant that the list of Schools would be given shortly.

May, 2003 Claimant had taken steps for implementing its obligation under the agreement dated 02.04.2003 and had placed orders on various parties for procuring equipments and machineries. 05.08.2003 Government of Jharkhand by letter dated 05.08.2003 informed the claimant that the letter of Secretary dated 30.04.2003 has been issued without approval of the Government.

14.08.2003 Government of Jharkhand forwarded the modified draft to be 29 signed at the earliest.

16.08.2003 Letter of claimant to Government of Jharkhand that since the previous Agreement dated 02.04.2003 was approved by the Board of Directors, the fresh draft also needs to be approved by the Board of Directors which is scheduled to meet on 19.08.2003.

27.08.2003 Claimant submitted before the Government of Jharkhand its own draft Agreement for consideration by the Government of Jharkhand in response to the draft Agreement submitted by Government of Jharkhand by letter dated 14.08.2003. There have been series of correspondences but the new agreement could not be finalized.

30.01.2004 Government of Jharkhand vide letter dated 30.01.2004 informed that it is not possible to start the project unless issue of revised Agreement is resolved.

05.02.2004 Letter of the claimant to Government of Jharkhand indicating that the Agreement dated 02.04.2003 remains valid and subsisting and requesting to provide necessary details under the Contract dated 02.04.2003.

18.03.2004 Letter of Government of Jharkhand to the claimant giving last chance to sign revised Agreement, draft of which provided under letter dated 14.10.2003 and in the event of failure, Government of Jharkhand will presume that the claimant is not agreeable to sign Agreement and the Government of Jharkhand will proceed with alternative arrangements.

05.04.2004 Claimant reiterating the Agreement dated 02.04.2003 and refusing to sign any revised Agreement.

15.04.2004 Claimant made demand before the Government of Jharkhand to compensate WTL towards: -

(a) liquidated damages of Rs. 15,75,00000/- with interest @ 18% per annum.

(b) un-liquidated damages of Rs. 22 Crores with interest @18% per annum.

25.01.2005 Order of Hon'ble Jharkhand High Court in Arbitration Application No. 17/2004, whereby a Former Hon'ble Judge, Patna High Court was appointed as the Sole Arbitrator.

25. It is further case of the claimant that the Government of Jharkhand on 07.05.2005 issued Notice Inviting Tender for computer literacy project and thereby expressly repudiating the Agreement dated 02.04.2003.

26. A petition under section 16 of the aforesaid Act of 1996 was filed by the appellant-state before the learned Arbitrator raising objection regarding validity as well as enforceability of the agreement dated 02.04.2003 to which objection was filed by the respondent- claimant. The petition filed under Section 16 of the Act of 1996 was disposed of by the learned Arbitrator vide order dated 31.03.2006. From perusal of the said order it is apparent that two issues were formulated as preliminary issue -

"(a) whether there was a valid and concluded contract in between the claimant and the respondent on 2.4.2003?

(b) Whether the contract dated 2.4.2003 is legally enforceable?"

27. The learned Arbitrator considered the salient features of the Agreement and also recorded that it was an admitted position that the parties had executed an agreement on 02.04.2003 and that the specific case of the State was that though the agreement was executed but it never came into effect as computer learning Programme never commenced and, therefore, it was contended that it cannot be said that the dispute exists between the parties in connection with infrastructure and learning services as envisaged in the arbitration clause. The learned arbitrator further recorded that it was contended by the state that the agreement never came into force and, therefore, it cannot be enforced. It was also recorded in the order that Chapter II of the Indian Contract Act provides that under what circumstances a contract may be voidable and void. It was also recorded that the State had not made any written statement or oral submissions that any of the grounds mentioned in Chapter II of the Contract Act was available in which agreement dated 02.04.2003 can be said to be void. The learned Arbitrator recorded a clear finding that the agreement dated 02.04.2003 was a concluded contract and nothing further was required to be done by any of the parties to conclude the contract. It was also recorded that all that was required of the parties was to perform the reciprocal promise under the agreement. The learned Arbitrator recorded that the State did not give the list of schools where the infrastructure for learning of computer was to be installed by the claimant and consequently, the learning of computer never commenced and it was the specific case of the State that the contract was not enforceable.

28. The learned Arbitrator ultimately held that the contract dated 02.04.2003 was a valid contract and certain modifications were suggested but ultimately nothing materialized and, thus, the first issue regarding validity and concluded contract dated 02.04.2003 was decided against the State and in favour of the claimant.

29. So far as the 2nd issue as to whether the contract was legally enforceable or not, was kept open to be decided later with the following observations: -

"To decide the question whether the contract dated 2.4.2003 is enforceable or not the Arbitral Tribunal shall have to look 31 into the admitted and disputed facts that may be brought on record by the parties. I have noticed that the claimant has filed Statement of Claim but the respondent have not filed statement of defence. In my opinion enforceability of agreement dated 2.4.2003 cannot be decided as preliminary issue.

For the reasons aforesaid it is held that the parties entered into valid and concluded contract on 2.4.2003 and that the question of enforceability of the contract cannot be decided as a preliminary issue but can only be decided on the basis of facts brought on record by the parties."

30. The State had objected to the amended claim of the claimant by filing a detailed statement of defence in that regard. The appellant had filed counter claim also. The learned arbitrator later framed further seven issues for determination which has been discussed later in this judgement. Ultimately, the award dated 23.07.2007 was passed by the learned Arbitrator which was challenged by the appellant resulting in passing the impugned judgement. The learned arbitrator allowed the claim partly and totally rejected the counter-claim.

31. Upon perusal of the award and the order passed under section 16 of the aforesaid Act of 1996 the following chart will give an overall picture as to the issues framed and decided by the learned arbitrator: -

 Issue                                   Decision
 (a)    Whether there was a valid        Held that there was a valid and
 and concluded contract in between       concluded contract between the
 the claimant and the respondent on      parties. (Order under Section 16)
 02.04.2003?
 Under section 16 of the Act.
 (b) Whether the contract dated       Could not be decided as a

02.04.2003 is legally enforceable? preliminary issue. Under section 16 of the Act. In the final award, this point has not been decided as a separate issue but has been incidentally decided in para 56 while deciding issue no. 4.

1. Whether the agreement dated Held to be a lawful agreement 02.04.2003 executed by the leading to a binding contract claimants and the respondents is between the parties. a lawful agreement leading to a binding contract between the parties?

2. Whether under the agreement the Held that the agreement was not a claimant had agreed that it shall Build-Own-Operate-Transfer provide computer education (BOOT) agreement.

services on Build-Own-Operate-

Transfer (BOOT) basis?

3. Whether the agreement was agreement was neither substituted substituted by new contract i.e. by new contract i.e. nor novated, novated, or rescinded or altered nor rescinded nor altered in in accordance with law. If not, accordance with law. The parties whether the parties were bound were bound to perform their to perform their respective respective promises. promises?

4. In view of the fact that the The appellant state failed to agreement consists of reciprocal perform its promise due to which promises to be performed by the the claimant could not perform its claimant and the respondent, promise as a result of which which party failed to perform its computer education services as promise due to which the other envisaged in the agreement did not party could not perform its start.

promise as a result of which computer education services as envisaged in the agreement did not start.

5. Whether in the facts and disputes between the parties can be circumstances of this case, adjudicated under the arbitration disputes between the parties can clause contained in the agreement. be adjudicated under the arbitration clause contained in the agreement?

6. Are the claimants entitled to the Partly allowed. claims made in this case?

Original claim-

   Rs.15,75,00,000/-as       liquated
   damages as per the termination
   clause.
   Rs.22,00,00,000/-               as
   unliquidated damages.
   Amended claim -
   Rs.15,75,00,000/-as       liquated   Rs.15,75,00,000/-     as    liquated
   damages as per the termination       damages as per the termination
   clause.                              clause.
   Rs.3,77,10,845/- as unliquidated     Rs.1,30,00,000/- as unliquidated
   damages.                             damages.
   Breakup -major elements of           Breakup-
   unliquidated damages -               Rs. 80,00,000/- forfeited by Syntech
   Rs.1,40,00,000/- paid to Syntech     and Rs. 50,00,000/- paid to Aloha
   as advance for supplying             on account of loss suffered by
   computer equipments.                 claimant - unliquidated damages
   Rs. 50,00,000/- paid to Aloha in     Total amount- Rs.17,05,00,000/-
   advance for execution of             with 12% interest per annum from
   computer learning project.           April 2004 to the date of the award
   Rs. 11,60,590/- as expenses          to be paid within 30 days failing
   incurred by its employees.           which interest @ 14% per annum
                                        from the date of the award to the
                                33

                                    date of payment.

7. Are the respondents entitled to counter claim of Rs. 7,61,25,000/- the claims made in this case? -Rejected.

32. The appellant had filed the petition under section 34 of the aforesaid Act of 1996.

33. The learned court below dismissed the petition by the impugned order which is under challenge in this case.

Legality, validity and binding nature of the agreement dated 02.04.2003

34. One of the issues framed by the learned Arbitrator at the stage of section 16 application was as to whether there was a valid and concluded contract between the parties. The learned Arbitrator again framed another issue at the time of final adjudication as issue no. 1 i.e. whether the agreement was a lawful agreement leading to a binding contract between the parties. This court finds that the 1st issue framed at the stage of section 16 application and the 1st issue framed at the time of final adjudication were overlapping. While deciding the section 16 application, the learned arbitrator made an elaborate discussion and considered the various clauses of the contract and held that there was a valid contract between the parties dated 02.04.2003 and in the final award the learned arbitrator straightaway decided the 1st issue vide one line i.e. paragraph 15 of the Award without any further discussion on the issue and held as under: -

"15. The parties admit that the contract is lawful and binding on the parties."

35. Although the appellant has submitted that there was no admission on the part of the State that the contract was lawful and binding but this Court finds that the legality and validity of the contract and the issue as to whether the contract dated 02.04.2003 was binding on the parties was already decided by the learned Arbitrator while disposing of the 1st issue framed while deciding petition under Section 16 of the Act of 1996 by holding that there was a valid and concluded contract dated 02.04.2003.

36. Therefore, this court is of the considered view that no much elaboration was required by the learned Arbitrator to hold that the contract was lawful and binding on the parties at the stage of final adjudication. It is still not in dispute that the Agreement dated 02.04.2003 was duly signed by the parties. Admittedly, the parties were negotiating on modification of contract by exchanging draft agreements but the Agreement dated 02.04.2003 was never replaced by another agreement.

37. Considering the limited scope of interference under Section 34 and 37 of the aforesaid Act of 1996, and the interpretation of the contract read with the mutual exchange of communications between the parties being in exclusive domain of the learned arbitrator, the finding of the learned arbitrator that the contract was lawful and binding between the parties does not call for any interference by this court. The learned Arbitrator in the order under Section 16 has clearly held that there was nothing to show that the agreement was void. The issues which are finally decided in the petition under Section 16 are final and they are not required to be re-agitated and redetermined at the stage of final award. The law provides that the issues which have been raised and decided under Section 16 can be challenged later under Section 34 of the Act of 1996, once the final award has been passed.

Enforceability of the agreement dated 02.04.2003

38. Enforceability of the agreement dated 02.04.2003, was an issue framed by the learned arbitrator while dealing with the petition under section 16 of the act of 1996. However, this issue was not decided at that stage holding that in order to decide the question whether contract dated 02.04.2003 is enforceable or not, the Arbitral Tribunal shall have to look into the admitted and disputed facts that may be brought on record by the parties and it was opined that enforceability of the agreement dated 02.04.2003 cannot be decided as a preliminary issue.

39. Although the learned Arbitrator had clearly recorded in the order under Section 16 of the Act that the preliminary issue of enforceability of contract could not be decided solely on the basis of the agreement and the same required further elaboration subject to the evidences which may be led by the parties but the learned Arbitrator having framed the issue of enforceability of the agreement dated 02.04.2003 did not give any finding separately dealing with the issue of enforceability of the Agreement dated 02.04.2003 . However, the learned Arbitrator decided the enforceability of the contract in paragraph 55 and 56 of the Award while dealing with issue no. 4 i.e performance of reciprocal promises and while considering upon whose failure to perform, the computer education services as envisaged in the agreement did not start. Paragraphs 55 and 56 of the Award are quoted as under: -

"55. It was further urged by the respondent that as the claimant changed its stand from time to time regarding executing a new agreement, the respondent was prevented from performing its promise. Relying on section 53 Contract Act it was urged that the contract became voidable 35 at the option of the respondent and it was not bound to perform its promise. In the circumstances if the claimant made any investment or incurred any expenses, it did so under its own risk. According to the respondent it cannot be held responsible for not performing its promise.

56. Annexure A is not a contingent contract as defined in Section 31 of Contract Act. The contract came into effect immediately after it was executed. The duration of the contract was for 5 years to be calculated from the date of agreement or commencement of computer education in school, which ever was later. Computer Education did not commence. Therefore, there was no question of calculating the period of 5 years, calculating the period of duration has nothing to do with its enforceability. It became enforceable on its execution and the parties were bound to perform its reciprocal promises. Section 37 of the Contract Act provides that unless such performance is dispensed with or excused under the provision of the Contract Act or any other law, the parties to a contract must either perform or offer to perform their respective promises. No provision of the Contract Act or any law was pointed out to me to show that such performance under the contract was dispensed with or excused."

40. The relevant clause of the contract dealing with enforcement of the contract was as follows: -

The Contract shall remain in force during the contract period of five years commencing from the date of signing of this Contract or commencement of operations in the school whichever is later. An ....................

41. Although the issue of enforceability was framed at the stage of section 16 application and was deferred to be decided later by holding that issue of enforceability could not be decided solely on the basis of the agreement and the same required further elaboration subject to the evidences which may be led by the parties, the learned Arbitrator did not consider this issue separately nor this issue stood covered by any of the issues framed by the learned arbitrator while finally passing the award. However, the learned arbitrator has recorded a finding that the contract became enforceable on its execution by referring to the fact that Computer Education did not commence.

42. The clause regarding commencement of the agreement clearly stipulated that the Contract shall remain in force during the contract period of five years commencing from the date of signing of this Contract or commencement of operations in the school whichever is later. Admittedly, the latter event of the aforesaid clause i.e. Computer Education, did not commence at all and not even a single computer was ever supplied by the claimant to the appellant. The learned arbitrator also recorded that the parties were bound to perform their reciprocal promises. It was also recorded that Section 37 of the Contract Act provides that unless such performance is dispensed with or excused under the provision of Contract 36 Act or any other law, the parties to a contract must either perform or offer to perform their respective promises. It has also been recorded that no provision of Contract Act or any law was pointed to the learned arbitrator to show that such performance under the contract was dispensed with or excused.

43. Considering the limited scope of interference in the arbitral award, this court is of the considered view that the learned arbitrator has taken a plausible view holding that the agreement was enforceable by referring to the earlier event i.e. date of signing of the agreement after having decided that Agreement dated 02.04.2003 was duly executed and was binding on the parties.

The issue no.2 and 3 as framed by the learned arbitrator -

(2) whether under the agreement the claimants had agreed that it shall provide computer education services on Build-Own-Operate-Transfer (BOOT) basis?

(3) Whether the agreement was substituted by new contract i.e. novated, or rescinded or altered in accordance with law. If not, whether the parties were bound to perform their respective promises?

44. The clauses of the agreement which have been relied upon by the parties in connection with the 2nd issue are as follows:

"Whereas the IT Ministry desired that Webel Technology Limited should provide computer education service in 500 schools selected by the State Government in the State of Jharkhand on a Build- Own-Operate-Transfer (BOOT) Basis, whereas subject to the terms hereof Webel Technology Limited has accepted to provide the said services in schools as per the rate mentioned in the contract for the contract period of five years through Microsoft India Pvt. Limited as an Information Technology education partner."

45. The other relevant clauses of the agreement have been quoted above. The aforesaid clauses relied upon by the appellant cannot be seen in isolation.

46. Although there was a clear stipulation in the contract that the desire of the State was that the claimant should provide computer education on Build, Own, Operate and Transfer (BOOT) Basis, but the learned Arbitrator while deciding issue No.2 and 3 recorded that there was no dispute between the parties about the concept of BOOT Basis contract. According to the State, the State Government had no financial liability in the project and the claimant was to collect the fees from the students using the facility. The learned Arbitrator recorded that agreement dated 37 02.04.2003 was binding and nothing was to be added or omitted and its clear plain meaning was to be given to the clauses.

47. The learned Arbitrator referred to the scheme as per the agreement and also referred to the termination clause which provided that in the event of any termination as contemplated in the termination clause, the I.T. Ministry was liable to reimburse the respondent the sum equivalent to six months' revenue as compensation and in the event of the contract being terminated in advance, the respondent will not be liable to transfer the facilities so established to the I.T. Ministry. The learned Arbitrator recorded that the I.T. Ministry desired that the computer education should be provided on BOOT basis but it has not been stated in the agreement that the claimant agreed that it will impart computer training on BOOT basis i.e. the user student will pay Rs.105/- per head per month to the claimant, rather it was agreed that the claimant would provide computer education at the cost of Rs.105/- per student per month and further recorded that the parties agreed that the payment will be made by the school authorities or by any other nodal agency to be identified by I.T. Ministry.

48. The learned Arbitrator, after considering the various communications between the parties, ultimately held that the parties did not agree that the claimant shall provide computer training on BOOT basis and also held that the agreement was neither novated nor rescinded nor altered in accordance with law and parties were bound to perform their respective promises.

49. This Court is of the considered view that the learned Arbitrator has considered the clauses of the Agreement to come to the aforesaid finding and there is no scope for any re-appreciation of the materials to come to a different finding. This court is of the considered view that the view taken by the learned Arbitrator was certainly a possible view. The learned counsel for the State has not been able to refer to any clause of the agreement or any communication which has been ignored by the learned Arbitrator to come to the aforesaid finding. Interpretation of agreement and the attending circumstances is essentially within the domain of the learned arbitrator. In absence of any perversity or illegality or ignoring any important clause of the agreement or any ground within the permissible ground of interference in the award, no interference can be made in the Award. The arguments advanced by the appellant on these points are not sufficient to interfere with the arbitral award on these issues. Considering the limited scope of interference under Section 34 of the Act of 1996 and 38 the appellate jurisdiction under Section 37, the findings with regard to issue Nos.2 and 3 cannot be interfered with.

50. Issue No.(5) framed by the learned Arbitrator was as follows:-

"Whether in the facts and circumstances of this case, disputes between the parties can be adjudicated under the arbitration clause contained in the agreement?"

51. The said issue was decided in paragraph 39 onwards of the Award. The learned Arbitrator after considering the clauses of the contract inter alia observed that it was specifically mentioned in the Agreement that I.T. Ministry/School authorities were responsible for all infrastructure facility as required for running the classes and it was also recorded that the parties during course of submission agreed to the aforesaid meaning of infrastructure in Annexure A. The learned Arbitrator held that providing infrastructure was the responsibility of the State, the claimant was responsible to provide computer training services. For providing the service, the claimant was required to install computers and all allied appliances as mentioned in the agreement and the infrastructure facility in schools was to be provided by the State. A list of schools was not given by the State and consequently, the computer and appliances could not be installed and learning services could not commence. In spite of repeated requests by the claimant, the State did not provide infrastructure. It refused to provide it unless a new agreement in terms suggested by the State was executed.

52. The learned Arbitrator ultimately recorded a finding that the case was clearly in connection with infrastructure and learning services and they are covered by the arbitration clause and the learned Arbitrator had the jurisdiction to adjudicate the disputes.

53. This Court is of the considered view that such finding has been recorded after considering the materials on record and certainly the view expressed by the learned Arbitrator is one of the possible views, as the parties during course of submission before the learned Arbitrator agreed to what was meant by infrastructure in Annexure A as already mentioned hereinabove. Therefore, the finding of the learned Arbitrator with regard to Issue No.5 also does not call for any interference.

54. Issue no. 4 as framed by the learned Arbitrator is as follows:-

4. In view of the fact that the agreement consists of reciprocal promises to be performed by the claimants and the respondents, which party failed to perform its promise due to which the other party could not perform its 39 promise as a result of which computer education services as envisaged in the agreement did not start.

55. The learned Arbitrator referred to Section 52 of the Contract Act and recorded that it provides that whenever the order of performance of promise is not expressly fixed by the contract, they shall be performed in that order which the nature of transaction required.

56. In paragraph 58 of the Award, the learned Arbitrator recorded that the State was first required to perform its promise and the State did not provide the list of 500 schools, which could be in one lot or in phases, where the infrastructure was required to be provided and equipment were to be installed by the claimant and the nature of transaction required that the State shall first perform its promise and then the claimant shall perform its promise.

57. The learned Arbitrator thereafter referred to Section 53 of the Contract Act relied upon by the respondent and observed in paragraphs 59 and 60 of the Award that the State submitted that the claimant repeatedly changed its stand with regard to executing a new agreement and, therefore, it became voidable as provided under Section 53 of the Contract Act. The learned arbitrator observed that as per Section 53 of the contract Act, when a contract contains reciprocal promises and one party to the contract prevents the other from performing his promise, the contract becomes voidable at the option of the party so prevented. Thereafter, the learned Arbitrator went on to determine whether the State was prevented by the claimant to perform its promise and held that it was not the case of the State that the claimant had prevented the respondent (State) from performing its promise and, therefore, the reliance on Section 53 of the Contract Act by the State was misplaced. The learned arbitrator has specifically recorded that the State has refused to provide the list of the schools where the computer and allied appliances were to be installed by stating that unless the new agreement in terms of what was suggested by the state was accepted, the State would not provide the list of schools. The learned Arbitrator, while deciding issue No.4, held that it was the respondent (State) who was required to perform its promise and then only the claimant was required to perform its promise. As the respondent (State) refused to perform its promise, the computer education service under Annexure A i.e. the agreement dated 02.04.2003 did not start.

58. After considering the contract, conduct of the parties and the attending circumstances, the learned arbitrator held that the agreement 40 consisted of reciprocal promises to be performed by the claimant and the state, and the state failed to perform its promise due to which the claimant could not perform its promise as a result of which computer education services as envisaged in the agreement did not start.

59. This court finds that the finding with regards to issue no.4 has been arrived by the learned arbitrator after considering and appreciating the materials on record and the learned counsel for the appellant has not been able to make out any ground for interference in the limited scope of interference under section 34 and 37 of the aforesaid Act of 1996. Issue no. 6 as framed by the learned Arbitrator is as follows:

"6. Are the claimants entitled to the claims made in this case?"

60. This claim is under two heads - liquidated damages in terms of the termination clause and unliquidated damages on account of breach of agreement by the appellant -state. Admittedly, not even a single computer was supplied and admitted the computer education could not even start .

61. Before proceeding further, it is important to consider the law laid down by the Hon'ble Supreme court in the matter of grant of liquidated and unliquidated damages under section 73 and 74 of the Indian Contract Act, 1872.

62. Section 73 and 74 of the Indian Contract Act are quoted as under :-

"Section 73: Compensation for loss or damage caused by breach of contract:

When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.

Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.

Compensation for failure to discharge obligation resembling those created by contract - When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.

Explanation - In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account.

"Section 74: Compensation for breach of contract where penalty stipulated for:

When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the 41 contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for. Explanation- A stipulation for increased interest from the date of default may be a stipulation by way of penalty.

Exception- When any person enters into any bail-bond, recognizance or other instrument of the same nature, or, under the provisions of any law, or under the orders of the Central Government or of any State Government, gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of the condition of any such instrument, to pay the whole sum mentioned therein.

Explanation. - A person who enters into a contract with Government does not necessarily thereby undertake any public duty, or promise to do an act in which the public are interested".

63. In the case of "Fateh Chand v. Balkishan Dass" reported in AIR 1963 SC 1405, the relevant covenant of the contract for forfeiture of Rs 24,000/- (Rs 1000/- paid as earnest money and Rs 24,000/- paid out of the price, on delivery of possession) was manifestly found to be a stipulation by way of penalty. The Hon'ble Supreme Court while dealing with the case enumerated the principles in connection with damages under section 74 of the Indian Contract Act clearly classifying the damages in two classes (i) where the contract names a sum to be paid in case of breach and

(ii) where the contract contains any other stipulation by way of penalty, holding that the measure of damages in the case of breach of a stipulation by way of penalty, is by Section 74, reasonable compensation not exceeding the penalty stipulated for. Jurisdiction of the Court to award compensation in case of breach of contract is unqualified except as to the maximum stipulated; but compensation has to be reasonable, and that imposes upon the Court duty to award compensation according to settled principles. The section undoubtedly says that the aggrieved party is entitled to receive compensation from the party who has broken the contract, whether or not actual damage or loss is proved to have been caused by the breach. Thereby it merely dispenses with proof of "actual loss or damage". Para 10 of the aforesaid judgement is quoted as under: -

"10. Section 74 of the Indian Contract Act deals with the measure of damages in two classes of cases (i) where the contract names a sum to be paid in case of breach and (ii) where the contract contains any other stipulation by way of penalty. We are in the present case not concerned to decide whether a contract containing a covenant of forfeiture of deposit for due performance of a contract falls within the first class. The measure of damages in the case of breach of a stipulation by way of penalty is by Section 74 reasonable compensation not exceeding the penalty stipulated for. In assessing damages, the Court has, subject to the limit of the penalty stipulated, jurisdiction to award such compensation as it deems reasonable having regard to all the circumstances of the case. Jurisdiction of the Court to award compensation in case of breach of contract is unqualified except as to the maximum stipulated; but compensation has to be reasonable, and that 42 imposes upon the Court duty to award compensation according to settled principles. The section undoubtedly says that the aggrieved party is entitled to receive compensation from the party who has broken the contract, whether or not actual damage or loss is proved to have been caused by the breach. Thereby it merely dispenses with proof of "actual loss or damage"; it does not justify the award of compensation when in consequence of the breach no legal injury at all has resulted, because compensation for breach of contract can be awarded to make good loss or damage which naturally arose in the usual course of things, or which the parties knew when they made the contract, to be likely to result from the breach."

64. In the judgement passed by the Hon'ble Supreme Court in the case of "Maula Bux v. Union of India", (1969) 2 SCC 554, at page 557, the judgement passed in Fateh Chand v. Balkishan Dass, AIR 1963 SC 1405 has been followed and the law with regards to damages under Section 74 of the Indian Contract Act has been explained as follows:-

".....There is authority, no doubt coloured by the view which was taken in English cases, that Section 74 of the Contract Act has no application to cases of deposit for due performance of a contract which is stipulated to be forfeited for breach, Natesa Aiyar v. Appayu Padayachi; Singer Manufacturing Company v. Raja Prosad; Manian Pattar v. Madras Railway Company. But this view is no longer good law in view of the judgment of this Court in Fateh Chand case (supra). This Court observed at p. 526:

"'Section 74 of the Indian Contract Act deals with the measure of damages in two classes of cases: (i) where the contract names a sum to be paid in case of breach, and (ii) where the contract contains any other stipulation by way of penalty...,' 'The measure of damages in the case of breach of a stipulation by way of penalty is by Section 74, reasonable compensation not exceeding the penalty stipulated for.'"

It was held as follows: -

"Duty not to enforce the penalty clause but only to award reasonable compensation is statutorily imposed upon courts by Section 74. In all cases, therefore, where there is a stipulation in the nature of penalty for forfeiture of an amount deposited pursuant to the terms of contract which expressly provides for forfeiture, the court has jurisdiction to award such sum only as it considers reasonable, but not exceeding the amount specified in the contract as liable to forfeiture, ............................ ....................... Section 74 applies. Where under the terms of the contract the party in breach has undertaken to pay a sum of money or to forfeit a sum of money which he has already paid to the party complaining of a breach of contract, the undertaking is of the nature of a penalty."

65. In the case of "Phulchand Exports Ltd. v. O.O.O. Patriot"

reported in (2011) 10 SCC 300, the Hon'ble Supreme Court while interpreting the clause of the contract having stipulation of reimbursement held by referring to the judgement passed in the case of Maula Bux (supra ) that the stipulation for reimbursement in the event stated in the last para of Clause 4 of the contract was not in the nature of penalty; the clause was not in terrorem; It is neither punitive nor vindictive.

66. In the judgement passed by the Hon'ble Supreme Court reported in (2015) 4 SCC 136 "Kailash Nath Associates v. DDA", the legislative history of the Section 74 has been recorded and it has been held that compensation can only be given for damage or loss suffered. If damage or loss is not suffered, the law does not provide for a windfall. Paragraphs 31 to 33 and paragraph 44 of the aforesaid judgement are quoted as under:

"31. Section 74 as it originally stood read thus:

"When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named."

32. By an amendment made in 1899, the section was amended to read:

"74. Compensation for breach of contract where penalty stipulated for.--When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.

Explanation. --A stipulation for increased interest from the date of default may be a stipulation by way of penalty.

Exception. --When any person enters into any bail-bond, recognizance or other instrument of the same nature, or, under the provisions of any law, or under the orders of the Central Government or of any State Government, gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of any condition of any such instrument, to pay the whole sum mentioned therein.

Explanation. --A person who enters into a contract with Government does not necessarily thereby undertake any public duty, or promise to do an act in which the public are interested."

33. Section 74 occurs in Chapter 6 of the Contract Act, 1872 which reads "Of the consequences of breach of contract". It is in fact sandwiched between Sections 73 and 75 which deal with compensation for loss or damage caused by breach of contract and compensation for damage which a party may sustain through non-fulfilment of a contract after such party rightfully rescinds such contract. It is important to note that like Sections 73 and 75, compensation is payable for breach of contract under Section 74 only where damage or loss is caused by such breach.

44. ...................... the most basic principle on the award of damages-- namely, that compensation can only be given for damage or loss suffered. If damage or loss is not suffered, the law does not provide for a windfall."

67. In the judgement passed by the Hon'ble Supreme Court in the case of "ONGC Ltd. v. Saw Pipes Ltd.", (2003) 5 SCC 705, it has been held in para 64 and 68 as under: -

"64. It is apparent from the aforesaid reasoning recorded by the Arbitral Tribunal that it failed to consider Sections 73 and 74 of the Indian Contract Act and the ratio laid down in Fateh Chand case wherein it is specifically held that jurisdiction of the court to award compensation in 44 case of breach of contract is unqualified except as to the maximum stipulated; and compensation has to be reasonable. Under Section 73, when a contract has been broken, the party who suffers by such breach is entitled to receive compensation for any loss caused to him which the parties knew when they made the contract to be likely to result from the breach of it. This section is to be read with Section 74, which deals with penalty stipulated in the contract, inter alia (relevant for the present case) provides that when a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, the party complaining of breach is entitled, whether or not actual loss is proved to have been caused, thereby to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named. Section 74 emphasizes that in case of breach of contract, the party complaining of the breach is entitled to receive reasonable compensation whether or not actual loss is proved to have been caused by such breach. Therefore, the emphasis is on reasonable compensation. If the compensation named in the contract is by way of penalty, consideration would be different and the party is only entitled to reasonable compensation for the loss suffered. But if the compensation named in the contract for such breach is genuine pre-estimate of loss which the parties knew when they made the contract to be likely to result from the breach of it, there is no question of proving such loss or such party is not required to lead evidence to prove actual loss suffered by him. Burden is on the other party to lead evidence for proving that no loss is likely to occur by such breach. ..................................

68. From the aforesaid discussions, it can be held that:

(1) Terms of the contract are required to be taken into consideration before arriving at the conclusion whether the party claiming damages is entitled to the same.

(2) If the terms are clear and unambiguous stipulating the liquidated damages in case of the breach of the contract unless it is held that such estimate of damages/compensation is unreasonable or is by way of penalty, party who has committed the breach is required to pay such compensation and that is what is provided in Section 73 of the Contract Act. (3) Section 74 is to be read along with Section 73 and, therefore, in every case of breach of contract, the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree. The court is competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered in consequence of the breach of a contract.

(4) In some contracts, it would be impossible for the court to assess the compensation arising from breach and if the compensation contemplated is not by way of penalty or unreasonable, the court can award the same if it is genuine pre-estimate by the parties as the measure of reasonable compensation."

Liquidated damages.

68. In the instant case the liquidated damages flow from the termination clause which is quoted as under: -

"Termination: Notwithstanding anything contained hereinabove this contract can be terminated by WEBEL with three months' notice in writing on account of the failure of the Government of Jharkhand to reimburse the minimum committed monthly revenue as specified above. The IT Ministry can terminate this contract with three months' notice in the event of any change in the statutes of the State and/or any policy shift. In the event of any such termination the IT 45 Ministry is liable to reimburse to WEBEL a sum equivalent to 6(Six) month's revenue as compensation. In the event of the contract being terminated in advance WEBEL will not be liable to transfer the facilities so established to the IT Ministry."

69. It has been the case of the appellant State throughout that there was no termination and damages under the termination clause is not payable. Further case has been that otherwise also the damages have to be compensatory and reasonable and that no damages could have been granted when not even a single computer has been supplied and the computer education did not commence. It is the case of the appellant state that the award suffers from patent illegality going to the root of the matter, shocks the conscience of the court, against public policy and against the substantive provisions of contract law.

70. This court finds that neither any specific issue was framed by the learned arbitrator on the point of termination of the contract nor any finding has been recorded by the learned arbitrator as to whether the agreement was terminated or not, much less as to who terminated the contract. While referring to the termination of the agreement, the learned arbitrator has only recorded the submission of the claimant in paragraph 66 of the award that according to the claimant the state had terminated the contract by not performing its promise and consequently, the claimant relied upon the termination clause of Annexure A which provided that the State shall provide a sum equivalent to six months' revenue as compensation which was Rs.15,75,00,000/- (500 schools x 500 students x Rs.105 per student x 6 months).

71. The sequence of events in the present case as submitted by the learned counsel for the claimant clearly demonstrates that the State had issued the letter dated 30.01.2004 informing the claimant that it was not possible to start the project unless the issue of revised agreement is resolved and consequently, the claimant issued a letter dated 05.02.2004 indicating that the agreement dated 02.04.2003 remained valid and subsisting and again requested the state to provide the necessary details under the contract and vide letter dated 05.04.2004 the claimant reiterated the agreement dated 02.04.2003 and refused to sign any revised agreement. Thus, in spite of denial of the state to perform its promise, the claimant still wanted to continue with the agreement dated 02.04.2003 and the claimant did not exercise its option to terminate the agreement which was voidable at the option of the claimant in terms of Section 53 of the Contract Act. After 46 having issued aforesaid letters dated 05.02.2004 and 05.04.2004 choosing to continue with the Agreement dated 02.04.2003, the claimant immediately raised demand before the State on 15.04.2004 to compensate the claimant for liquidated damages to the extent of 15.75 crores in terms of the termination clause and for un-liquidated damages to the extent of Rs.22.00 Crores. The High court appointed sole arbitrator vide order dated 25.01.2005. The learned arbitrator did not record any finding as to whether the contract was terminated or not, much less, any finding on termination of contract by referring to the act of inviting tender (dated 07.05.2005) or act of refusal to perform its part of the promise.

72. The learned Arbitrator failed to consider and record any finding as to whether the conditions precedent for invoking the aforesaid termination clause were satisfied or not satisfied prior to grant of liquidated damages to the claimant. The termination clause clearly provided that the contract would be terminated by the claimant with three months' notice in writing on account of failure of the Government of Jharkhand to reimburse the minimum committed monthly revenue as specified in the contract. It also appears that the State could also terminate the contract with three months' notice in the event of any change in the statute of the State or policy shift. In case of any such termination, the State was liable to reimburse the claimant a sum equivalent to six months' revenue as compensation. In the present case, neither the appellant nor the claimant terminated the contract in terms of the termination clause. In absence of any finding as to whether the conditions precedent in terms of the termination clause were satisfied or not, there was no occasion for the learned arbitrator to award liquidated damages in terms of the termination clause. This Court finds that though the learned arbitrator has recorded the termination clause but has neither interpreted the termination clause nor examined as to whether there was any termination of agreement in terms termination clause which provided for stipulation of liquidated damages only if the conditions prescribed therein were satisfied. On the face of the termination clause, it provided for specific mode and manner of termination in order to claim liquidated damages. Admittedly, the agreement was not terminated by the claimant and it was the specific case of the appellant State that the agreement was never terminated. Admittedly, no finding has been recorded with regards to termination of agreement much less termination in terms of the termination clause and the learned arbitrator granted liquidated damages under the termination clause. Further the fundamental principle of contract 47 law as applicable in India is that the compensation has to be reasonable even while granting liquidated damages whether by way of penalty or by way of compensation in the light of the law settled by the Hon'ble Supreme court in the aforesaid judgements. The law with regards to damages has been settled by holding that the most basic principle on the award of damages is that, compensation can only be given for damage or loss suffered. If damage or loss is not suffered, the law does not provide for a windfall. It has also been settled that Section 74 of Indian Contract Act is to be read along with Section 73 of the aforesaid Act and, therefore, in every case of breach of contract, the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree. The court is competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered in consequence of the breach of a contract.

73. In view of the aforesaid discussions, this court is of considered view that the award of liquidated damages is against public policy of India as it is -

--patently illegal- going to the root of the matter,

--against the substantive provisions of contract law,

--against the fundamental policy of Indian Law, and

-- the learned arbitrator has neither interpreted the termination clause nor recorded any finding as to whether the agreement was terminated or not and if terminated, at whose instance it was terminated in order to attract the liquidated damages under the termination clause.

--Further no finding has been recorded as to whether the conditions precedent to claim liquidated damages in terms of the termination clause were satisfied or not.

74. Thus, award of any amount on account of liquidated damages suffers from aforesaid illegalities covered within the scope of interference under Section 34/37 of the Act of 1996 which cannot be sustained in the eyes of law and has to be set aside in terms of Section 34/37 of the Act of 1996 as applicable prior to 2015 amendment.

Unliquidated damages.

75. Learned counsel for the appellant has specifically argued that the learned Arbitrator did not take into consideration the statement of defence to the amended claim while deciding the case. A copy of the defence statement of the amended claim has also been placed on record.

76. This court finds that unliquidated damages has been awarded by the learned arbitrator with regards to loss suffered by the claimant on account of dealing with two persons for the purposes of the contract in two parts.

77. The first one is on account of payment made to M/s. Syntech Informatics Private Limited. Upon perusal of the statement of defence, it was asserted that the limited tender was floated on 03.01.2003 and pursuant thereto order was placed with M/s Syntech Informatics Private Limited to the extent of Rs. 3.767 crores. It was the specific case of the appellant state throughout, even in the reply to the revised claim, that M/s Syntech Informatic Private Limited was not one of the tenderers in the short-term tender amongst the 6 tenderers. It was the case of the appellant throughout that 6 companies were invited which included Samsung Electronics and the tender was given in favour of Samsung Electronics, but the claimant in order to quantify the unliquidated damages asserted that they paid an advance of Rs. 1.40 crores as advance towards purchasing computer peripherals to Syntech Informatic Private Limited, who was not a participant to the limited tender. This aspect of the matter has not been taken care of by the learned Arbitrator while awarding the unliquidated damages in connection with payments made to Syntech Informatic Private Limited.

78. The second head of unliquidated damages is on account of payment made to Aloha Info System Limited, Ranchi. A stand was taken in reply to the amended claim stating that as per the agreement the claimant was to carry out computer literacy Programme in association with IBM in 500 schools of the State of Jharkhand, but agreement was entered into with Aloha Info System Limited, Ranchi. As per the agreement, the services in the school were to be provided at the rate mentioned in the contract for the contract period of 5 years through Microsoft India Private Limited as information technology education partner. The appellant in their objection has taken specific plea in connection with making Aloha Info System Limited, Ranchi as a partner in providing computer education, but neither the aforesaid plea nor the aforesaid clause of the agreement has been considered by the learned Arbitrator. Upon perusal of the agreement dated 02.04.2003, this Court finds that there was a named Information Technology Education Partner i.e., Microsoft India Private Limited. In spite of such clause, the claimant engaged Aloha Info System Limited, Ranchi as its franchise and gave the responsibility to arrange for faculty and other 49 personnel to man the computer centers and do all things necessary to fully implement the project. The learned Arbitrator did not take care of the said specific clause of the agreement nor considered the impact of the said clause nor framed any issue as to whether the claimant could enter into any arrangement with Aloha in the matter of information technology education and awarded a portion of unliquidated damages on account of payment made by the claimant to Aloha Info System Limited, Ranchi. The clause of the agreement has been quoted above. The objection taken by the appellant

-state that as per the contract the services in the school was to be provided through agency named in the agreement itself, has not been considered.

79. The learned Arbitrator, while considering the unliquidated damages, has certainly noted some of the objections raised in the reply to the amended claim but the aforesaid material objections have not been considered at all. Thus, an important clause of the agreement, which goes to the root of the award amount on account of unliquidated damages has been left out from consideration which makes the Award perverse. The learned Arbitrator has failed to consider the specific objection raised by the appellant in the reply to amended claim that Syntech was not one of the participants in the tender, but still the order was placed with Syntech. This aspect of the matter has neither been recorded nor been considered by the learned Arbitrator, although the learned Arbitrator has categorically recorded that Samsung Electronics was a participant in the tender enquiry and it was decided to purchase Samsung products.

80. Aforesaid aspects of the matter go to the root of the legality of the claim with regards to unliquidated damages. Non-consideration of such objection raised in the reply to revised claim while awarding unliquidated damages, makes the award perverse on this count.

Issue no.7 - Counter claim

81. This court finds that the counter claim of the appellant has been rejected by citing reasons that it was the State appellant who did not perform its promises and hence the counter claim was not payable. This Court is of the considered view that the learned Arbitrator has given sound reasons for rejection of counter claim, which do not call for any interference under section 34/37 of the Act of 1996.

The impugned order passed by the learned court below .

82. From the perusal of the impugned order passed by the learned court below, it appears that paragraph 1 is introductory paragraph. Paragraph 2 is the case of the petitioner (appellant before this Court).

Paragraph 3 deals with the manner in which the learned Arbitrator entered into reference. Paragraph 4 gives the narration of the grounds which were raised under Section 34(2) of the Act of 1996.

83. Upon perusal of the paragraph 4, this Court finds that the learned court below has not recorded some of the grounds which were raised in the petition under Section 34. It is important to point out some of the grounds of petition filed under section 34 of the Act of 1996 which are material for this case:

"(x) for that, the learned Arbitrator has palpably failed to take into consideration, that while awarding damages for breach of contract, he should bear in his mind that the damages should be compensatory not punitive as held by various judicial pronouncement of the Hon'ble Court.

(xi) For that the amount of damages cannot exceed the loss actually suffered by the claimant or which is likely to suffer arising from the breach of contract, damage should not confer a wind fall on the claimant. It must be reasonable and proportionate to the benefit gained from it receipt.

(xviii) For that the award passed by the learned Arbitrator is so unfair and unreasonable that it shocks the conscience as because arbitrator without adverting any reason in a most cryptic manner passed the award in favour of the claimants in the form of liquidated and unliquidated damages without assessing the actual damages caused due to breach of contract.

(xxvii) For that the learned Arbitrator passed award giving both liquidated and unliquidated damages to the claimant by misconstruing the specific provision envisaged in Section 74 of the Indian Contract Act.

(xxviii) For that Section 74 of the Indian Contract Act deals with measure of damages in two class of cases-

(i) Whether the contract mentions a sum to be paid in case of breach?

(ii) Whether the contract contains any other stipulation by way of penalty.

The principle of provision of Section 74 of the Indian Contract Act will apply only when a contract has been broken and the party who suffers by such breach is entitled to receive compensation for any loss caused to him which the party knew when they made the contract before likely to result from the breach of it.

In the instant case the agreement has not been terminated at the instance of either of the parties and the revised agreement which is still awaiting for signing by the claimant, the question of assessing damage on account of liquidated and unliquidated do not arise. (xxix) ...............The claimants claim based on mechanism of fraud and misrepresentation and they asserted that for purchasing computer and computer peripheral and ultimately tender was given to SAMSUNG Electronics. Though the tender was given to SAMSUNG Electronics but the claimant in order to quantify the damages with respect to unliquidated damages falsely alleged that they had paid Rs. 1,40,00,000/- as advance towards purchase of computer peripheral to Syntech Information Private Limited, who was not a participant to the limited tender as claimed by the claimant then how and under what circumstances enormous sum of Rs. 1,40,00,000/- was paid as 51 advance to the said company without following the basic requirement of tender rule.

(xxx) For that the illustration 'K' to Section 73 of the Indian Contract Act provides that first party has not to pay compensation which the second party has to pay to third party as he has not been told at the time of contract that second party was making purchase of the article or told to such party. Admittedly, the respondent were not informed by the claimant that in process of computer literacy programme the claimant is entering into agreement with third party. (xxxiii) For that had the learned Arbitrator carefully gone through the statement of defence as well as the statement of counter claim put forward on behalf of the petitioner and the statement of defence of the amended claim filed by the claimant, his decision would have been otherwise."

84. Thereafter, in paragraph 5, the learned court below has referred to the written statement filed by the claimant before the learned court below. Paragraph 6 of the impugned order deals with the rejoinder of the petitioner/appellant before the learned court below and thereafter, in para 7, issue was framed as under:

"On the basis of pleading of the parties in this case the main point for determination is whether the award dated 23.7.2007 is liable to be set aside?"

85. Paragraphs 8 and 9 of the impugned order further deals with the case of the parties. Paragraph 10 records the issues framed by the learned Arbitrator. Paragraph 11 records that the learned Arbitrator has well discussed all the issues and given the reasoned elaborate award. Then, paragraph 11 deals with the plea of jurisdiction of the learned Arbitrator. Paragraph 12 again refers to the background under which the learned Arbitrator entered into reference. Paragraph 13 again refers to the written statement filed by the State before the learned Arbitrator against both the original statement of claim as well as amended claim.

86. Paragraph 14 refers to order passed under Section 16 by holding that the petition under Section 16 was rejected. It appears that the learned court below has committed error of record, in as much as, admittedly, out of the two questions framed at Section 16 stage, only one question was decided at the stage of section 16 and the decision on the other question was deferred.

87. Paragraph 15 of the impugned order deals with the quantum of award.

88. In paragraph 16 of the impugned order, the learned court below has recorded that the learned Arbitrator has passed the Award after considering the material facts and evidences placed before him and nothing 52 contrary to the material has been recorded in the award and that the learned Arbitrator has rightly allowed interest which was in accordance with law. In the said paragraph, the learned arbitrator referred to the judgement of the Hon'ble Supreme Court on the point as to what would constitute public policy is the matter which would depend upon the nature of transaction and the nature of statute. In the said paragraph, it has been recorded that the Award is not against the fundamental policy of Indian Law or interest of India or justice or morality or there is no patent illegality in it and that no such specific point has been raised by the petitioner. Further it was recorded that the petitioner had failed to show any illegality in the Award which goes to the root of the matter and as per the judgement reported in (2006) 11 SCC 181, the Award could not be held against public policy. The learned court below also recorded that there was no material to show that the award was against public policy and it further recorded that the Award was not contrary to fundamental policy of Indian Law, the interest of India or Justice or Morality or there is no patent illegality and also recorded that the learned Arbitrator has not gone contrary to or beyond the express law of the contract or granted relief in the matter not in dispute.

89. The learned court below recorded that the learned Arbitrator was pleased to hold that the agreement dated 02.04.2003 was binding and no new agreement was executed. The terms of arbitration clause were there for resolution of dispute and also that the learned Arbitrator has observed that the dispute and differences arose because of failure on the part of the petitioner/appellant to provide the infrastructure as agreed under the contract, which in turn, prevented the claimant from providing computer learning services to which they were obliged.

90. Paragraph 17 of the impugned order refers to general proposition of law and records that the learned Arbitrator rejected each and every counter claim of the appellant by giving detailed reasons. The learned court below again referred to the power of arbitrator to grant interest and ultimately concluded in paragraph 18 as follows:

"18. Taking into consideration the above facts and circumstances of the case I am of the opinion that this Court can not examine the correctness of findings of the Arbitrator. Further no legal preposition has been raised by the petitioner for setting aside the award. The burden of substantiating the averment argued as an objection tentamounting to misconduct on the part of Arbitrator or complaining of violation of principle of natural justice was on the petitioner. But no proof or evidence has been adduced by petitioner to substantiate that plea mere a general allegation that the learned Arbitrator through the proceeding deployed biased partisan attitude will not be accepted as an allegation of misconduct and the award not to be set aside unless one or more of the ground mentioned in Section 53 34 of the Arbitration and Conciliation Act 1996 are made out. Since there is no error apparent on the face of the award and the learned Arbitrator can not be said to have exceeded his jurisdiction in granting award, as such the award dated 23.7.07 is not liable to be set aside and accordingly this Misc. Case is found not maintainable hence it is hereby ORDERED That this Misc. Case is hereby dismissed on contest but without cost.."

91. This court finds that the learned court below has in its findings, inter alia, mentioned about the case of the respective parties and as to what the learned Arbitrator had done and mentioned about the principles of law, but has not specifically dealt with and considered the various grounds which were raised in the petition filed under Section 34 of the Arbitration and Conciliation Act. The judgement passed by the learned court below is non-speaking on many aspects of the matter and suffers from non- consideration of many points which were raised by the appellant before the learned court below in its petition under Section 34 of the Aforesaid Act of 1996.

92. However, before this Court, the counsel for the parties have made elaborate arguments and the arguments were also recorded and uploaded earlier and thereafter, this judgement is being pronounced today.

93. As a cumulative effect of the findings recorded in paragraphs 37, 43, 48, 49, 53, 58, 59, 73, 74, 79, 80, 81 and 91:-

a. no interference is called for with regards to findings given by the learned Arbitrator to issues framed under Section 16 and also with regards to issue nos. 1 to 5;

b. So far as issue no. 6 is concerned, the arbitral award on account of damages, both liquidated and unliquidated, are set-aside; c. So far as issue no. 7 with regards to the counter claim by the appellant is concerned, the rejection vide impugned Award does not call for any interference.

d. The impugned order passed by the learned court below, refusing to interfere with the Award, is also set-aside to the aforesaid extent.

94. This arbitration appeal is accordingly disposed of.

95. Pending interlocutory application, if any, is closed.

(Anubha Rawat Choudhary, J.) Pankaj/Saurav N.A.F.R.

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