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[Cites 12, Cited by 0]

Bangalore District Court

M/S. Karnataka State Co­Operative vs M/S. United Commercial Company on 30 January, 2020

IN THE COURT OF THE LXXXIII ADDITIONAL CITY CIVIL
AND SESSIONS JUDGE AT BENGALURU CITY[CCH-84]

PRESENT:      Sri S.A. HIDAYATHULLA SHARIFF,
                                      B.A., LL.M.,
              LXXXIII Additional City Civil and
              Sessions Judge

       Dated this the 30th day of January 2020


                   COM.A.S.No.45/2012


petitioner:              M/s. Karnataka State Co­operative
                         Marketing Federation Limited, No.9,
                         Cunningham Road, P.B.No.150,
                         Bangalore­560052.
                         Represented    by   its  Managing
                         Director, Sri. H.G.Shivananda and
                         Murthy, (Respondent in Arbitration)


                         [By Sri. SPK, Advocate]

                          /v e r s u s/

Respondents:        1.    M/s. United Commercial Company,
                          Kalibari Road, Silchar­788001,
                          District Cachor, Assam State,
                          Represented by its Partner Sri.
                          Mahaveer Prasaar Jain, (Claimant
                          in Arbitration).

                          Sri. Kukkaji Ramakrishna Bhat,
                          Sole Arbitrator,
                          District & Sessions Judge (Retd),
                          F­112, 4C, 1st Floor, Central
                              2
                         CT 1390_Com.A.S.45­2012_Judgment .doc


                       Chambers,    2nd   Main    Road,
                       Gandhinagar, Bangalore­560009.

                       [R1 by: Sri. GKM, Advocate,
                        R2 by: Arbitrator]


Date of institution of the   :         26/04/2012
suit
Nature of the suit           :       Arbitration suit
Date of commencement of      :
recording of the evidence
Date    on    which    the   :         30/01/2020
Judgment               was
pronounced.
                             : Year/s Month/s        Day/s
Total duration
                                 07      09             04



                        (S.A. Hidayathulla Shariff)
                      LXXXIII ACC & SJ: Bengaluru




      The petitioner M/s. Karnataka State Co­operative

Marketing Federation Limited has filed this petition

U/S.34 of Arbitration & Conciliation Act against the 1st

respondent M/s. United Commercial Company to set

aside the arbitral award dated 31/1/2012 made in

A.C.No.8/2019 by the sole arbitrator in the matter of
                             3
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dispute between the petitioner and the 1st respondent.

Consequently to allow the counter claim of the petitioner

and to dismiss the claim made by the 1st respondent in

A.C.No.8/2009.

     2. The brief facts of the case as stated in the petition

by the petitioner is that the 1st respondent who was the

claimant before the Arbitrator filed claim petition with a

prayer to pass an award for payment of Rs.1,20,55,000/­

towards the balance amount alleged to be payable to the

1st respondent along with interest thereon @ 24% per

annum from 13/4/2005 till realization of the amount.

     3. The case of the 1st respondent who was the

claimant before the Arbitrator in brief is that it is a

partnership firm dealing in commodities including sugar

had entered into a memorandum of understanding dated

5/3/2005 with the petitioner agreeing to purchase 2325

Metric tons of premium quality granulated white sugar @

16,550/­   per   metric    ton.      The    memorandum             of

understanding    was      followed    by    addendum       dated
                            4
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15/3/2005.     The 1st respondent also claimed that the

petitioner is the seller and the 1 st respondent is the buyer

under the memorandum of understanding with M/s.

Astral Exim International represented by Mrs. Bhavana

Viswanath is the facilitator. The 1st respondent has also

claimed that the seller under the MOU clearly stated that

it certified, represented and warranted with full corporate

authority and responsibility certified that it could fulfill

the requirement of the MOU and could provide the

product.    The 1st respondent also contended that the

word 'representative' after the word 'seller' is an insertion

with a pen in the MOU. It was agreed that proportionate

to the payment released by the buyer to the seller after

inspection and clearance of stock, the buyer has to issue

NOC to the seller so that amount would be released to

the Associate Agency by the seller.       The 1 st respondent

also contended that the associate agency of the seller was

M/s. Super Commercial Company (SCCO) Limited at

Nagpur.    It is further stated by the 1 st respondent that
                            5
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the petitioner in its letter dated 29/1/2015 insisted that

in order to contain the price of Rs.16.55 per KG the

entire amount shall be remitted to the petitioner and it

was stated that clause 9 of MOU stage wise payment

detailed expected from the buyer was also stated. The 1 st

respondent further contended that it did not enter into

any agreement with the associate agency namely M/s.

SCCO and for all practical purposes the petitioner who

had received all the money from the 1 st respondent is

bound to be the seller and is answerable and accountable

for the same. The 1st respondent further contended that

though MOU is executed on 5/3/2005 the payment made

to the extent of 3,24,00,000/­ related to various dates by

way   of   DDs    purchased      between   20/2/2005         and

12/3/2005 and the receipts were given on 17/3/2005.

The 1st respondent further contended that another

payment    of    Rs.9,00,000/­    was   made     by    the    1 st

respondent to the petitioner by way of DD on 25/5/2005

and another sum of Rs.50,00,000/­ on 5/3/2005 and
                                  6
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receipts were issued for the same, ultimately resulting in

total    payment         of   Rs.3,83,00,000/­      from    the    1 st

respondent to the petitioner.

        4. The 1st respondent in its claim petition further

contended that it wrote a letter on 12/3/2005 to transfer

partial funds to SCCO Nagpur and the associate agency

informed the 1st respondent that unless and until they

receive the monies the product would not be dispatched.

The 1st respondent explaining the said situation further

contended that there was delay in the dispatch and that

the 1st respondent ultimately was upset with the

transaction.      The 1st respondent communicated a letter

dated 21/9/2005 to the petitioner enclosing letter of

SCCO, Nagpur             dt. 10/9/2005      and requesting        the

petitioner to take further steps for the payment of the

balance amount of Rs.1,20,55,000/­ and out of this

amount      the    1st    respondent     agreed    to   waived     off

Rs.6,00,000/­ towards excess railway charges.                     The

respondent in the claim statement further contended that
                          7
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ultimately the SCCO, Nagpur handed over pre­post dated

cheques   to   the   petitioners     to    the    extent        of

Rs.1,06,55,000/­ payable to the 1st respondent with the

assurance that the cheque could be converted into DDs.

However, the cheques were not converted into DDs            as

agreed and that the problem cropped up in this regard.

     5. The 1st respondent in its claim statement further

contended that it had made the payment to the petitioner

and there was an agreement between the petitioner and

associate agency whereby the petitioner had accepted

post dated cheques towards the repayment of balance

and as such the 1st respondent got issued a legal notice

on 24/3/2007, calling upon the petitioner to repay a sum

of Rs.1,14,55,000/­ with regard to supply of sugar along

with admitted rate of interest @ 24% per annum. The 1 st

respondent in its claim statement further contended that

having waited for a long time issued notice calling upon

for appointment of arbitrator. The 1st respondent in the

claim statement has further alleged that the petitioner
                            8
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did not take action against the SCCO, lot of money

invested by the 1st respondent was wasted and petitioner

has not acted with responsibility and the 1st respondent

had withdrawn concession of Rs.6,00,000/­ shown to the

petitioner.   In the claim petition, 1 st respondent has

claimed a sum of Rs.1,20,55,000/­ along with interest

from the petitioner.

       6. The petitioner has contested the claim petition

before the Arbitral Tribunal by filing its written defense

by taking of all legal grounds and contentions.              The

petitioner in its written defense has contended that the

claim petition filed by the 1 st respondent before the

Arbitral Tribunal suffered from non joinder of parties and

the 1st respondent has failed to observe the terms and

conditions of MOU dated 5/3/2005. The petitioner in its

written defense has further contended that it is neither

responsible nor accountable for the claim made by the

petitioner before the arbitral tribunal as it has already

been     absolved   of   its   responsibility      under     the
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memorandum of understanding and it is not even liable

to pay cost of the arbitration proceedings.

      7. The sole arbitrator on the basis of the pleadings

of the parties has framed following 10 issues:

      1) Whether the claimant proves that there exists
relationship of buyer and seller between the claimant and
the respondent in respect of the subject matter of
transaction involved in the claim?
      2) Whether the respondent proves that the claim
petition is liable to be dismissed for non joinder of M/s.
Super    Commercial    Company       as   a   party    to   this
proceeding?
      3) Whether the respondent proves that the claimant
has failed to observe the terms and conditions of the
memorandum of understanding dated 5/3/2005 and
thereby violated the same?
      4) Whether the respondent proves that it is neither
responsible nor accountable to the claimant in relation to
the     transaction   under      the      Memorandum             of
Understanding and the respondent is absolved of its
responsibility under the memorandum of understanding?
      5) Whether the claimant proves that it has made in
all payment of Rs.3.83 crores to the respondent and
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therefore the respondent is liable to account for the
same?
     6) Whether the claimant proves that the respondent
was liable to make good the short supply of sugar and to
refund the balance amount to the claimant?
     7) Whether the claimant proves that, it is entitled to
recover Rs.1,20,55,000/­ from the respondent with
regard to the short supply of sugar by M/s. Super
Commercial Company, Nagpur, with interest at 24% per
annum?
     8) Whether the respondent proves that it is not
liable to bear the costs of arbitration in these proceeding?
     9) Whether the claimant is entitled to an award as
prayed?
     10) What award or order?
     8. Based on the above mentioned issues, parties

have lead their oral and documentary evidence and

addressed their arguments.     The Arbitral Tribual by its

award dated 31/1/2012 has allowed the claim of the 1st

respondent and rejected the contentions of the petitioner.

By stating the above mentioned facts, the petitioner has

challenged the impugned award dated 31/1/2012 passed
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by the learned sole Arbitrator in A.C.No.8/2009 on

following grounds:

     9. That the findings given, conclusion arrived at,

decision taken and the very award of the sole Arbitrator,

allowing   the   claim   petition,   are    totally   arbitrary,

erroneous and totally not sustainable in law. The award

cannot stand the test of the requirements contemplated

U/S.34 of the Arbitration & Conciliation Act, 1996.

Therefore, the present application/ appeal is bound to be

entertained by this court, in the matter of the said issue

in question.

     10. The findings, conclusions and the very Arbitral

Award dt. 31/1/2012 passed by the sole Arbitrator are

totally arbitrary, erroneous and opposed to law.             The

findings and the very award are violative of Section 34 of

the Arbitration Act and the very Arbitral Award is bound

to be set aside/ quashed in view of the law contemplated

U/S.34 of Act.
                          12
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     11. The MOU dt. 5/3/2005 entered into between

the parties which is marked as Ex.P.1 is the basic

document which clinches the issue in this case.            But,

unfortunately, the Arbitral Tribunal has crept into

serious jurisdictional error in not properly understanding

and appreciating the said document MOU and therefore

there is an error apparent on the face of the record and

on this ground alone the Award passed by the Arbitrator

needs to be set aside and the present application/ appeal

is bound to be allowed in law.

     12. In as much as, the entire payments have been

made by the 1st respondent institution at the instance

and as per the statement and NOC given by the agency

appointed by the purchaser M/s. United Commercial

Company, the respondent cannot be found fault with in

the transaction. Therefore the claim ought to have been

dismissed by the Arbitrator.

     13. The legal position of the buyer and seller of

SCCO     has     been    totally     misunderstood          and
                             13
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misinterpreted by the Arbitrator in the case and therefore

the award cannot stand in law.

        14. That several correspondences have been taken

place    between    the   buyer   and   the    supplier    which

correspondences clearly show that the transaction has

taken place.      Therefore, the claim ought to have been

rejected by the arbitrator.

        15. In as much as the payments have been made as

per the instructions of the agent appointed by the

claimant, the applicant cannot be found at fault with the

transaction, which the Hon'ble Arbitrator has failed to

appreciate.

        16. That the MOU, Ex.P.1 entered into between the

parties has not been scrupulously and appropriately

appreciated by the Hon'ble Arbitrator. At one stage the

Arbitrator has also culled about a portion of MOU and

appears to have gone into minute details, but, the sum

and substance of the MOU has not been appreciated by

the Arbitrator.
                             14
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     17. In the cross examination elicited on behalf of the

claimant to Sri. K.P.Ithal, some questions have been put

to him asking regarding the dates of the affidavits for

which, Mr. Ithal has answered that documents are

already produced and therefore, dates of documents

ought to have been enough. This would not amount to

any vital admission, which the Arbitrator has failed to

appreciate. There is no proper appreciation of evidence

and material and record by the Hon'ble Arbitrator.

     18. Hon'ble Arbitrator has not properly considered

all the terms of the agreement (MOU) in the context of

admissions given by the witnesses for the claimant.

     19. There is vital error by the Hon'ble Arbitrator in

not understanding and appreciating the mandatory

provisions of Indian Evidence Act and also has not

followed the mandatory procedure contemplated under

Sections   24,   28   and     31(3)   of   the   Arbitration        &

Conciliation Act, 1996.          The learned Arbitrator has

miserably failed to apply the substantive law while
                            15
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interpreting the agreements which has resulted in

misreading and misinterpretation of terms of contract in

various documents. Further, the learned Arbitrator ought

to have decided the dispute in accordance with the terms

of the contract and taking into consideration the usages

of the trade between the parties.

     20. Some portion of the evidence let in by the

claimant are beyond the pleadings and no amount of

evidence can be allowed in the absence of the pleadings.

Therefore this also is a vital defect in the order passed by

the Honorary Arbitrator.

     21. The bunch of documents produced and marked

by Sri. Ithal on behalf of the applicant herein has not

been appreciated and weighed appropriately by the

Hon'ble Arbitrator.

     22. As regards the issues framed by the Hon'ble

Arbitrator, the issue in respect of item No.3 pertaining to

the compliance, the strict terms and conditions of MOU

have not complied with by the claimant, and this has not
                               16
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been considered by the Arbitrator though pointed out by

the applicant herein.

     23. The applicant herein who was the respondent

before the Arbitral tribunal, has proved beyond doubt

that it is neither responsible nor the accountable for the

accounts of the claimant beyond all the reasonable doubt

in respect of transactions between them as framed in

MOU, and as such, he has been absolved of the

responsibility.    The reasons assigned by the Hon'ble

Arbitrator to negative the issue are not cogent and

satisfactory.

     24. As regards the proof of Rs.3.83 crores to the

applicant herein, the claimant has failed to sow that the

payments        have   been        made   to   the   applicant.

Unfortunately, the Hon'ble Arbitrator has held that all

that payments are proved by the claimant and that, the

applicant has to account for the same.

     25. As regards SCCO also, the Hon'ble Arbitrator

has totally erred in holding that Rs.1,20,55,000/­ was
                            17
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received from the claimant with regard to the short

supply of sugar by SCCO, Nagpur with high rate of 24%

interest.

     26. There is no clarity about the vital transactions,

terms of MOU and interpretation regarding the payment

and liability.    Therefore, on this ground also the

Arbitrator's Award is liable to be set aside.

     27. In respect of some of the documents, the

applicant had got xerox copy/ true copy of the same, and

sought to produce before the Arbitrator, but the Hon'ble

Arbitrator refused the documents on the ground that the

same are not authenticated, original or certified copies

and as such, the same could not have been marked. The

production was totally denied. This has prejudiced case

of the respondent in the arbitration and rejection of the

documents has weighed with the Hon'ble Judge.

     28. It is submitted that the Hon'ble Arbitrator has

gone into serious jurisdictional error in disallowing the

I.A filed by the respondent before the Arbitrator seeking
                            18
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one for implementing of the supplier viz. M/s. Super

Commercial Company, Nagpur (SCCO), as a vital party to

the proceedings. It is submitted that, in as much as the

said SCCO played vital role in the transactions and led

the respondent in the proceeding for the purpose of the

transactions the said party viz. SCCO was very proper

and necessary party to be brought before the Arbitrator

for effectively proving this defense before the Hon'ble

Arbitrator. If only the said SCCO was to be brought on

record as a party to the proceedings, the conclusion of

the Arbitrator would have been otherwise.

     29. The said award is contrary to several judgments

of Hon'ble Supreme Court of India, including ONGC Ltd.

v. Saw Pipes Ltd., reported in AIR 2003 SC 2629, AIR

SCW 2010 page 5027 and AIR SCW 2010 page 5326. The

said award is erroneous on the basis of record with

regard   to   material   propositions    If   law   and    their

interpretation. The award conflicts with the substantive

law and the terms of the agreement governing the parties.
                            19
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The said award is wholly unfair to the applicants and is

unreasonable and shocks the conscience of the Court,

being violative of public policy.        The said award is

opposed to the law of the land and in violation of various

judgments of the Hon'ble Supreme Court of India, as well

as the respective High Courts. As such the said award is

liable to be interfered with.

     30. On a bare perusal of the award passed by the

Arbitration Tribunal it will be clear that there are grave

and patent errors in the said award and grave prejudice

has been done to the applicants herein.             The award

passed by the arbitration tribunal is completely biased

and is liable to be set aside on this ground alone.

     31. That the Hon'ble Arbitrator has totally erred in

allowing the claim petition made by the claimant before

the Arbitrator and in directing the applicant herein to

make good a sum of Rs.1,20,55,000/­ calling it as the

balance amount payable to the claimant along with
                          20
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interest at 24% interest per annum, from 13/4/2005 till

the date of the claim (15/1/2010).

     32. That the Hon'ble Arbitrator has totally erred in

coming to the conclusion that the applicant herein has

totally failed to produce effective evidence to prove his

defense in the said regard, relating to the very disputed

documents and MOU.

     33. That the Hon'ble Arbitrator has totally erred in

imposing a cost of Rs.3,20,000/­ against the applicant

herein without there being any legal basis for the same.

     34. The learned Arbitrator has totally failed to

understand and interpret the purport and the very object

of the MOU entered into between the parties and the true

intent of the same.

     35. The impugned award also suffers from various

other legal infirmities which will be pointed out at the

time of final hearing of the arguments.

     36. In response to the court notice, the 1 st

respondent appeared before the court and contested the
                                 21
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petition by filing objections statement by denying the

entire grounds alleged by the petitioner in challenging the

impugned order and sought for dismissal of the petition.

     37. Based on the contents of the petition and

objections   filed   to   it,    the   points   that   arise    for

consideration of this court are :

     1) Whether the petitioner proves that the impugned
award dated 31/1/2012 passed in A.C.No.8/2009 by the
Hon'ble sole Arbitrator is illegal, erroneous and opposed
to public policy and liable to be set aside as alleged by
the petitioner?
     2) What order?
     38. In the present case, initially no oral arguments

were addressed by both the counsels before the court and

no written arguments were also filed. When the case was

posted for judgment, both the counsels got the case

advanced and filed their respective written arguments.

Along with the written arguments filed by the petitioner's

counsel, he has relied on the decisions reported in AIR

1983 SC 1143, AIR 1990 SC 405, AIR 2003 SC 2629,
                           22
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2010 AIR SCW 5326 & 2010 AIR SCW 5027.                 On the

other hand, along with the written arguments, the

counsel for respondent No.1 has relied on the decisions

reported in 2015 (5) SCC 899, 2009 (5) SCC 142 & (2015)

3 SCC 49.

     39. Perused the materials placed on record.

     40. My findings on the above mentioned points are

as under:

     POINT NO.1 : In the negative.
     POINT No.2 : As per final order for the following:




     41. POINT NO.1 : A perusal of the materials on

record discloses that there are certain undisputed facts

between the parties to the petition. The fact that the 1 st

respondent    ­M/s.   United    Commercial      Company,         a

partnership   firm    trading   in   sugar     entered     into

memorandum of understanding dated 5/3/2005 with the

petitioner M/s. Karnataka State Co­operative Marketing
                                23
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Federation Limited, agreeing to purchase 2325 metric

tons of premium quality granulated white sugar @

Rs.16,550/­ per metric ton           is not in dispute. Further

fact    that    the    above     mentioned      memorandum             of

understanding          was   followed     by    addendum       dated

15/3/2005 issued by the petitioner is also not in dispute.

Further fact that in the memorandum of understanding,

the petitioner is shown as a seller and respondent No.1 is

shown as the buyer and M/s. Astral Exim International

is shown as the facilitator is also not in dispute. It is also

not in dispute that in the memorandum of understanding

it was agreed that proportionate to the payment released

by the buyer - 1st respondent to the seller­petitioner after

inspection of clearance of stock, the buyer has to issue

NOC to the seller, so that, the amount would be released

to     M/s.    Super    Commercial       Company       (SCCO)     the

associate agency of the seller - petitioner. Further fact

that the 1st respondent has not entered into any

agreement with M/s. SCCO the associate agency of the
                             24
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petitioner is also not in dispute. Further fact that the 1st

respondent    buyer    has       totally    paid         a     sum    of

Rs.3,83,00,000/­ to the petitioner - seller through

Demand Drafts with regard to purchase of the sugar is

also not in dispute. Further fact that the 1 st respondent

out of 2325 metric tons of sugar agreed to purchase had

received only 1600 metric tons of sugar and balance

quantity of 727 metric tons of sugar was not supplied to

the 1st respondent purchaser is also not in dispute.

Since    dispute    arose     between      the    1 st       respondent

purchaser    and   petitioner­seller       with    regard       to   the

memorandum of understanding dated 5/3/2005 with

regard to short supply of sugar and refund of balance

amount of Rs.1,20,55,000/­ alleged to be due by the

petitioner ­supplier to the 1st respondent - purchaser, the

1st respondent purchaser has approached the Hon'ble

High Court of Karnataka in CMP 21/2009 seeking

appointment of arbitrator. The Hon'ble High court of

Karnataka by its order dated 27/8/2009 has appointed
                             25
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one of the retired District & Sessions Judge as Arbitrator.

The Arbitrator after entering reference issued notices to

both the parties. Both the parties have put­up their

appearance before the arbitrator through their respective

advocates. The 1st Respondent of the present petition who

was the claimant before the arbitrator has filed his claim

statement seeking recovery of a sum of Rs. 1,20,55,000/­

with interest @ 24% per annum against the present

petitioner, who was the respondent before the arbitrator.

The present petitioner who was the respondent before the

arbitrator   has   filed   objections    by   way    of   defence

statement resisting the claim petition. On the basis of the

respective pleadings of the parties, the arbitrator had

framed 10 issues and on the basis of the oral and

documentary evidence lead by the parties             before him,

the arbitrator by his order dated 31/1/2012 has allowed

the claim petition and passed the impugned arbitral

award, directing the present petitioner who was the 1 st

respondent before the arbitrator to make payment of Rs.
                            26
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1,20,55,000/­ to the 1st respondent of the present

petition who was the claimant before the arbitrator along

with interest @ 24% per annum from 13/4/2005 till the

date of filing of the claim petition and further restricted

the future interest @ 12% per annum from the date of

claim petition till the date of realization of the entire

award amount.

     42. Being aggrieved by the impugned award passed

by the Hon'ble Arbitrator­ the present petitioner who was

the respondent before the arbitrator has filed the present

petition U/s. 34 of the Arbitration & conciliation Act.

     43.   It is pertinent to note that an arbitral award

may be set aside by the court only on the ground

mentioned U/S.34 of the Arbitration & Conciliation Act

1996. U/S.34(2) of the Act an arbitral award may be set

aside by the court only if ­

     a) the party making the application furnishes proof
that ­
     i) a party was under some incapacity; or
                                 27
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     ii) the arbitration agreement is not valid under the
law to which the parties have subjected it or, failing any
indication thereon, under the law for the time being in
force; or
     iii) the party making the application was not given
proper notice of the appointment of an arbitrator or of the
arbitral proceedings or was otherwise unable to present
his case; or
     iv) the arbitral award deals with a dispute not
contemplated by or not falling within the terms of the
submission to arbitration, or it contains decisions on
matters     beyond   the    scope    of    the   submission         to
arbitration;
     Provided that, if the decisions on matters submitted
to arbitration can be separated from those not so
submitted, only that part of the arbitral award which
contains    decisions      on    matters   not    submitted         to
arbitration may be set aside; or
     v) the composition of the arbitral tribunal or the
arbitral procedure was not in accordance with the
agreement of the parties, unless such agreement was in
conflict with a provision of this part from which the
parties cannot derogate, or, failing such agreement, was
not in accordance with this part; or
     b) the Court finds that ­
                           28
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     I) the subject matter of the dispute is not capable of
settlement by arbitration under the law for the time being
in force, or
     ii) the arbitral award is in conflict with the public
policy of India.
     44. A perusal of the grounds urged by the petitioner

in the present petition discloses that the petitioner has

challenged the impugned award U/s. 34 (2) (5) (ii) of the

Arbitration & Conciliation Act on the ground that the

impugned award is in conflict with public policy of India.

     45. At this stage, it is relevant to go through the

decision of Apex Court of the land on the aspect of

considering the legality and validity of the arbitration

award U/S.34 of the Arbitration & Conciliation Act 1996.

In the decision reported between Puri Constructions

Private Limited v. Union of India reported in (1989) 1

Supreme Court Cases 411, wherein, the Apex Court of

the Land has held that when a court is called upon to

decide the objection raised by a party against an

arbitration award, the jurisdiction of the court is limited
                           29
                         CT 1390_Com.A.S.45­2012_Judgment .doc


as expressly indicated in the arbitration act and it has no

jurisdiction to sit in appeal and examine the correctness

of the award on merits with reference to the materials

produced before the arbitrator. The court cannot sit in

appeal over the view of the arbitrator by re­examining

and re­assessing materials.

     46. Further, in a decision reported in associate

builders    v. Delhi Development Authority reported in

(2015) 3 Supreme court cases 49, the Apex court while

considering the scope of interference by court with

findings of fact in arbitral tribunal has indicate that the

arbitrator is the sole judge of quantity and quality of

evidence when he deliver arbitral award. It was further

held that the award based on little evidence or no

evidence which does not measure up any quality to a

trained legal mind cannot be held invalid. It is further

held that once it is found that arbitrator approach is

neither arbitrary nor capricious then no interference is

call for on facts.
                             30
                           CT 1390_Com.A.S.45­2012_Judgment .doc


     47.     In light of the above mentioned settled legal

position a perusal of the materials on record discloses

that the first ground on which the impugned award was

challenged by the petitioner is that the petitioner­

Karnataka      State   Co­operative    Marketing     Federation

Limited is not the seller but only seller representative and

in the memorandum of understanding, the petitioner is

wrongly quoted as seller and also functioning as Seller

representative which the arbitrator has not understood

and appreciated. It is further alleged that the petitioner

­Karnataka State Co­operative Marketing Federation

Limited is not a dealer in sugar. At no point of time it has

acted as an agent to join seller on the one hand and

purchaser on the other hand and the learned Arbitrator

has not considered this aspect properly. It is further

alleged that the word "seller" is loosely worded by the

petitioner    ­Karnataka    State     Co­operative    Marketing

Federation Limited in the memorandum of understanding

and other documents which could have been corrected by
                          31
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the 1st respondent, but the 1st respondent did not

corrected the same and accepted the same and arbitrator

has erred in not considering the correct relationship of

the petitioner and respondent in connection with the

memorandum of understanding executed between them.

     48. However, a perusal of the impugned award

discloses that the learned Arbitrator while considering

issue No. 1 pertaining to the existence of relationship of

the seller and buyer between the petitioner and 1st

respondent has laboriously gone through the oral and

documentary evidence produced on record.

     49. A perusal of the finding of the learned Arbitrator

on issue No. 1 discloses that the Arbitrator has

considered the contents of Ex.P1 memorandum of

understanding entered between the petitioner and 1 st

respondent to come to the conclusion that there exist a

relationship of seller and buyer between the petitioner

and the 1st respondent with regard to the purchase of the

sugar by the 1st respondent from the petitioner. The
                           32
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learned Arbitrator has considered the contents of Ex.P1

memorandum of understanding, wherein, the price of

sugar was agreed to be sold to be paid into the hands of

the petitioner by the respondent and further considering

Ex.P4 to P6 receipts given by the petitioner to the 1 st

respondent with regard to the receipt of total amount of

Rs. 3,83,00,000/­ as the sale consideration for supply of

sugar and further considering the fact that except the 1 st

respondent and petitioner no other third person was

involved in Ex.P1 sale of sugar by the petitioner to the 1 st

respondent has given a finding with regard to the

existence of the relationship of seller and buyer of sugar

under Ex.P1 memorandum of understanding between the

petitioner and 1st respondent. In Ex.P1 memorandum of

understanding though the petitioner was termed as seller

representative, the arbitrator has analized the said aspect

and come to the conclusion that to understand the terms

of a document and the relationship between the parties

to the transaction, the entire document has to be read.
                           33
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The Arbitrator has held that since there was no other

seller named in Ex.P1 Memorandum of understanding,

apart from the petitioner and since there was no privity of

contract between the 1st respondent­ purchaser and any

other person other than the petitioner, the relationship of

seller and buyer exist between the petitioner and 1 st

respondent. Further, the arbitrator has also considered

Ex.P30 the contract entered between the petitioner with

that of M/s. super commercial company for selling and

buying of sugar. Considering the fact that in Ex.P1

memorandum      of   understanding,     the   petitioner    has

shoulder the responsibility and liability to sell the sugar

to 1st respondent and in Ex.P30 contract the SCCO has

shoulder the responsibility and liability to sell the sugar

to the petitioner, the Arbitrator came to conclusion that

the relationship of the seller and buyer existed between

the petitioner and respondent under Ex.P1 and the

petitioner was not the seller representative with respect

to the 1st respondent in the transaction of sell of sugar.
                           34
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While arriving at a conclusion that the relationship of the

seller and buyer was existence between the petitioner and

1st respondent, the learned Arbitrator has also placed

reliance of Ex.P2 addendum dated 15/3/2005 entered

between the petitioner and 1st respondent, wherein also

there was no involvement of third party and even in

Ex.P2 document the relationship between the petitioner

and 1st respondent was clearly stated as the relationship

of seller and buyer. The learned Arbitrator by analyzing

the contents of Ex.P1 memorandum of understanding

entered between the petitioner and 1st respondent and

Ex.P30 agreement entered between the petitioner and

SCCO has come to the conclusion that these two

documents are separate documents of contract and

Ex.P1 was the contract between the petitioner and 1 st

respondent and Ex.P30 was the contract between the

petitioner and SCCO and the relationship of seller and

buyer was in existence between the petitioner and

respondent under Ex.P1 memorandum of understanding
                               35
                             CT 1390_Com.A.S.45­2012_Judgment .doc


and the relationship of seller and buyer was in existence

between     SCCO       and   1st   respondent     under      Ex.P30

agreement and perhaps due to the above mentioned

relationships the word "representative" after the word

"Seller" was mistakenly written in Ex.P1 by hand while

describing the petitioner as the representative of the

seller.

      50.   Apart from the above mentioned oral and

documentary evidence relied on by the learned arbitrator,

he has also considered Ex.P3 letter dated 29/1/2005

written     by   the    petitioner    to   M/s.     Astral    Exim

International who is shown to be the facilitator of the 1 st

respondent in Ex.P1 stating that it is willing to arrange

sugar for local sale through its associate agency. This

letter was also considered as a piece of document by the

learned arbitrator to come to the conclusion that the

relationship of seller and buyer existed between the

petitioner and 1st respondent. The arbitrator has also

considered the correspondence that took place between
                          36
                        CT 1390_Com.A.S.45­2012_Judgment .doc


the petitioner and 1st respondent in the form of Ex.P8

letter to determine the relationship of the seller and

buyer between the petitioner and respondent.

     51. A perusal of the impugned award discloses that

the finding given by the learned Arbitrator holding that

there exist a relationship of buyer and seller between the

petitioner and 1st respondent in respect of subject matter

of transaction involved in the claim is based on the

appreciation of oral and documentary evidence by the

arbitrator. This approach of the arbitrator arriving to a

conclusion with regard to the existence of relationship of

buyer and seller between the parties is neither arbitrary

nor capricious.

     52.   The next ground on which the impugned

award is challenged by the petitioner is that M/s. SCCO

is necessary party to the arbitration proceedings. Since

the 1st respondent/claimant had not impleaded to M/s.

SCCO as necessary party, the claim of 1st respondent/

claimant was liable to be rejected for non­joinder of
                            37
                          CT 1390_Com.A.S.45­2012_Judgment .doc


necessary and proper parties and the learned arbitrator

has erred in not considering the said aspect and erred in

allowing the claim petition in the absence of joining of a

necessary and proper party.

     53.    However, a perusal of the impugned award

discloses that in issue no. 2 arbitrator has dealt with the

objections of the petitioner pertaining to non­joinder of

M/s. Super commercial Company as a party to the

arbitration proceedings. A perusal of the findings of the

arbitrator on issue no. 2 discloses that by considering the

Ex.P1 Memorandum of understanding, Ex.P2 Addendum

and Ex.P30 agreement entered between the petitioner

and SCCO, the arbitrator has held that SCCO is neither a

necessary    nor   a   proper   party    to   the   arbitration

proceedings and the learned arbitrator by his order dated

17/1/2011 has dismissed IA No. 3 filed by the present

petitioner U/o. 1 Rule 10 of CPC to implead SCCO. The

findings of the learned Arbitrator that SCCO was not a

necessary and proper party to the arbitration proceedings
                          38
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was based on the reasoning that SCCO was neither a

party in Ex.P1 memorandum of understanding nor a

party in Ex.P2 addendum entered between the petitioner

and 1st respondent. That there was a separate and

distinct agreement between the petitioner and SCCO

which binds them together without involving the 1st

respondent/claimant.    This   finding    of   the    learned

arbitrator that the SCCO is not a necessary or proper

party to the arbitration proceedings is based on the

arbitrator appreciation of oral and documentary evidence

and this arbitrator approach is neither arbitrarily nor

capricious in nature.

     54. One of the ground on which the impugned

award was challenged by the petitioner is that the article

­9(a) to (f) of Ex.P1 memorandum of understanding dated

05/3/2005 executed between the petitioner and 1 st

respondent made some clauses mandatory to be followed

by the 1st respondent and since the 1st respondent has

not followed the same, the claim of the 1 st respondent
                             39
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was required to be dismissed and arbitrator has erred in

not considering the same.

     55. However,     a perusal of the impugned award

discloses that while answering issue No. 3, the learned

arbitrator has considered this allegation of the petitioner

with regard to failure on the part of the 1st respondent to

observe the terms and conditions of Ex.P1 memorandum

of understanding dated 05/3/2005.

     56.   A perusal of the reasoning given by the

arbitrator on issue No. 3 discloses that the main

allegation of the petitioner against the 1st respondent was

that the petitioner by making full payment to SCCO, with

consent of 1st respondent, the 1st respondent has

committed    breach    of    terms    and     conditions         of

memorandum of understanding dated 05/3/2005 and

the terms of Ex.P2 addendum.

     57.   However a perusal of the materials on record

discloses that the arbitrator considering the contents of

Ex.P3 letter dated 29/1/2005 written by the present
                          40
                        CT 1390_Com.A.S.45­2012_Judgment .doc


petitioner to the 1st respondent seeking immediate full

payment of the price of the sugar to be sold has

compelled the 1st respondent to give consent for making

of the payment of entire money. By considering the

contents of Ex.P3 and Ex.D6 correspondences exchange

between the parties, the learned arbitrator has also came

to the conclusion that there was no breach of the terms

of the contract by the 1st respondent in making full

payment of money to the petitioner for supply of the

sugar. This finding of the arbitrator is based on his

appreciation of oral and documentary evidence produced

before him and this finding of the arbitrator cannot be

considered as perverse and capricious finding.

     58.   Another ground on which the impugned award

was challenged by the petitioner is that in Ex.P2

addendum dated 15/3/2005 the responsibility of the

petitioner ceases once the 1st respondent and SCCO have

come together for business and thereafter the petitioner

is not responsible to the 1st respondent. When the goods
                           41
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are not delivered as per the agreement, the SCCO has to

be blamed for the same and not the petitioner and the

learned arbitrator has failed to consider the same.

      59.   A perusal of the impugned award discloses

that while answering issue No. 4, the learned arbitrator

has   considered   the   aspect   of   absolvement      of   the

responsibility of the petitioner under the memorandum of

understanding and addendum once the payment for

supply of sugar was made by the 1st respondent to the

SCCO.

      60.   A perusal of the finding of the arbitrator on

issue no. 4 discloses that by considering the oral and

documentary evidence produced on record, the learned

arbitrator has came to the conclusion that though in

Ex.P2 there is an agreement to the effect that the

responsibility of the present petitioner was ceased once

the payment is made to the seller based on the clearance

of the buyer, but the present petitioner has clearly

exhibited its responsibility and liability by insisting SCCO
                          42
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the seller of the petitioner under Ex.P30 agreement either

to send the remaining quantity of sugar or to repay the

balance amount to the 1st respondent. To arrive at the

above mentioned conclusion, a learned arbitrator has

relied on the Ex.P11 letter dated 17/5/2005 written by

the petitioner to SCCO seeking for arrangement of

dispatch of balance quantity of sugar of 725 metric tons

to the claimant/1st respondent. The learned arbitrator

has also relied on Ex.P23 letter dated 18/8/2005 written

by the petitioner to SCCO expressing concern about non

supply     of   the   remaining     sugar     to     the    1 st

respondent/claimant and requesting the SCCO to refund

the balance amount immediately to the 1st respondent.

     61.   By considering the oral and documentary

evidence produced on record, the learned arbitrator has

come to the conclusion that merely because in Ex.P2

addendum it was agreed that the responsibility of the

present petitioner towards funds will cease after sending

of the total amount to SCCO with consent or no
                           43
                          CT 1390_Com.A.S.45­2012_Judgment .doc


objections of the 1st respondent/claimant, it cannot be

said that respondent had no liability or responsibility to

see that required and agreed quantity of sugar was

delivered to the claimant / 1st respondent or in case of

failure to do so, the money paid by the 1st respondent

/claimant in excess of the value of the sugar already

supplied    to    them     was      repaid      to    the     1st

respondent/claimant. This finding of the arbitrator is

based on his appreciation of oral and documentary

evidence which cannot be considered as perverse and

capricious finding.

     62.   Another ground on which the impugned award

is challenged by the petitioner is that the SCCO has

breached the contract and not the petitioner. Payment is

made by the 1st respondent to the SCCO and SCCO is

liable for the amount due to the 1 st respondent and not

the petitioner. It is further alleged that the cheques of Rs.

1,06,55,000/­ received by the petitioner from SCCO are

in the form of security and they are to be returned to the
                               44
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SCCO or payment of dues and the petitioner cannot be

held liable for the cheques received from the SCCO and

the petitioner is not liable to pay the suit claim to the 1 st

respondent and the learned arbitrator has not considered

the said aspect and erred in allowing the claim of the 1 st

respondent against the petitioner.

      63.   However, a perusal of the impugned award

discloses that while answering issues No. 5 to 7, the

learned arbitrator has considered the above mentioned

allegations made by the petitioner seeking absolvence of

its   liability   to   make    any   payment      to   the    1 st

respondent/claimant.

      64.   However, a perusal of the finding given by the

learned arbitrator on issues no. 5 to 7 discloses that by

considering the oral and documentary evidence produced

on record, a learned arbitrator has come to the

conclusion that since the petitioner has sold only 1,600

metric tons of sugar instead of agreed quantity of 2325

metric tons of sugar agreed to be sold under Ex.P1
                           45
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memorandum of understanding and since the petitioner

had received the entire sale consideration of the Rs.

3,83,00,000/­ from the 1st respondent, it is liable to make

good the short fall of sugar of remaining 725 metric tons

and the petitioner cannot seek obsolvence of its liability.

Further, by perusing the oral and documentary evidence

produced before him, the learned arbitrator has come to

the conclusion that Ex.P14(a) three cheques for a sum of

Rs. 1,66,55,000/­ received by the petitioner from SCCO

was towards the amount paid by the 1st respondent to the

SCCO for supply of the sugar. On receipt of the cheques

from SCCO a duty was cast on the petitioner to realize

the amount shown in the post dated cheques. The

learned arbitrator by considering the materials placed on

record has come to the conclusion that on receipt of

cheques by the petitioner from SCCO there was a fresh

contract and promise by the petitioner to pay the balance

money to the 1st respondent and the petitioner is not

entitled to take a stand on the ground that it was only a
                             46
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mediator in the transaction and once the payment was

made to the sender SCCO on the advice of the 1 st

respondent, the responsibility of the petitioner was

ceased. This finding of the learned arbitrator is based on

his appreciation of oral and documentary evidence and

this finding cannot be considered as perverse and

capricious finding.

     65.   One of the ground on which the impugned

award was challenged by the petitioner is that the

present suit was filed by the petitioner on 26/4/2012

challenging the impugned award dated 31/1/2012. The

amendment     Act     of   2015   amending      section    34       of

Arbitration & Conciliation Act 1996 making section 34

narrow was notified on 23/10/2015 and in the said

notification it was clearly stated that act will come to

effect from the date of notification and the amendment

act cannot be applied retrospectively to the case in hand

and in the case in hand there is no bar for re­

appreciation of evidence by the court.
                               47
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     66.      In support of this argument, the learned

counsel for the petitioner has relied on a decision of the

Apex Court of the Land reported in AIR 1983 SC 1143

and AIR 1950 SC 405. A perusal of the ratio of the above

two decisions discloses that the same was not rendered

pertaining     to   the    interpretation   of     section   34      of

Arbitration & Conciliation Act in light of amendment

effected in section 34 of the Act in the year 2015. Hence,

the ratio of the above cited decisions is not helpful for the

petitioner.

     67.      It is pertinent to note that prior to the

amendment act 2015 with respect to scope of section 34

of the act, even as earlier in the year 1984, the Apex

Court   of    the   Land     in   the   decision    between    Puri

Construction Private Limited v. Union of India reported in

(1989) 1 SCC 4111 has held that while dealing with an

application U/s. 34 of the Arbitration & Conciliation Act

challenging the impugned award court cannot sit in
                          48
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appeal over the view of the arbitrator by re­examining

and re­assessing the evidence.

     68.   Considering the fact that there is bar for re­

appreciation of evidence of the arbitrator on factual

aspects the arguments of the learned counsel for the

petitioner that the present suit is filed in the year 2012

by the petitioner which is prior to enactment of

Amendment Act of 2015, hence there is no bar for re­

appreciation of the evidence placed before the arbitrator

cannot be accepted.

     69.   A perusal of the present petition filed by the

petitioner U/s. 34 of the Arbitration & Conciliation Act

discloses that mainly on the ground that the impugned

award is in conflict with public policy of India the award

is challenged.

     70.   In the decision reported between Associate

Builders v. Delhi Development Authority reported in

(2015) 3 SCC 49, the Apex Court of the Land has held

that the merits of the arbitral award are assessable
                              49
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before the court U/S.34 of the Arbitration & Conciliation

Act only when award is in conflict with public policy of

India. In the said decision the Apex Court of the Land

has explained in detail the heads under which public

police   of   India    may   be   violated,    enumerated       and

elucidated.    In the said decision the Apex Court of the

Land has given caution on and limits of power of court to

interfere with arbitral award under the various heads of

public policy.        It was further held that none of the

grounds mentioned in Section 34 (2)(a) deal with the

merits of the decision rendered by the arbitral award. It

is only when the arbitral award is in conflict with public

policy of India as per Section 34(2)(b)(ii) the merits of the

arbitral award or to be looked into under certain specified

circumstances. In the said decision, the Apex Court of

the Land has stated the heads of the public policy of

India are :

     "I Fundamental policy of Indian Law: (I) Compliance
with statutes and judicial precedents; (ii) Need for judicial
                               50
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approach;     (iii)   Natural       Justice     compliance;       (iv)
Wednesbury reasonableness;
     II. Interest of India:
     III. Justice or Morality; and
     IV. Patent Illegality: (I) Contravention of substantive
law of India; (ii) Contravention of A & C Act, 1996; (iii)
contravention of the terms of the contract."
     71.    The Apex Court of the Land has further held

that when any of the heads/sub heads of test of public

policy is applied to an arbitral award, the court does not

act as court of appeal.            Interference of the court is

permissible only when findings of the arbitrator are

arbitrary, capricious or perverse or when the consance of

court is shocked, or when illegality is not trivial but goes

to the root of the matter.         It was further held that the

interference of the court is not permissible when merely

another view is possible.            It was further held that

arbitrator being ultimate master of quantity and quality

of evidence while drawing arbitral award, award based on

little evidence or on evidence which does not measure up
                            51
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in quality to a trained legal mind cannot be held invalid.

It was further held that once it is found that arbitrator's

approach    is   neither   arbitrary    nor    capricious,     no

interference is called for on facts.

     72.   In the light of the ratio of the above cited

decision, a perusal of the impugned award discloses that

none of the findings given by the arbitrator in the

impugned award are in conflict with public policy of India

with regard to the circumstances mentioned in the above

cited decision. Hence, the contention of the petitioner

that the finding given in the impugned award by the

learned arbitrator is in conflict with public policy of India

cannot be accepted.

     73.   The learned counsel for the petitioner in his

written arguments has relied on the decision reported in

AIR SCW 5326, wherein the Apex Court of the Land has

held that when under the agreement parties had agreed

not to claim interest arbitral tribunal cannot award
                             52
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interest from the date of cause of action to the date of

award.

     74.      I have perused the ratio of the above cited

decision. However, a perusal of the impugned award

discloses that unlike cited decision in the present case in

hand under Ex.P1 contract there is an agreement for

claiming interest on unpaid purchase money @ 24% per

annum. By considering the clause in Ex.P1 agreement,

the arbitrator has awarded interest @ 24% per annum

which is neither perverse nor capricious. Hence, the ratio

of the above cited decision is not helpful for the

petitioner.

     75.      The learned counsel for the petitioner in his

written arguments has also relied on a decision of Apex

Court of the Land reported in 2010 AIR SCCW 5027,

wherein, the Apex Court of the Land has held that when

the award is in conflict with public policy, when the same

is induced by fraud or coercion the same required to be
                            53
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set­aside   under   section     34   of   the   Arbitration       &

Conciliation Act.

     76.    I have perused the ratio of the above cited

decision. However, unlike cited decision in the present

case in hand, the petitioner has failed to prove that the

impugned award is induced by fraud or coercion and the

same is conflict with public policy. Hence, the ratio of the

above cited decision is also not helpful for the petitioner.

     77.    The learned counsel for the petitioner has

relied on another decision reported in AIR 2003 SC 2629,

wherein, the Apex Court of the Land has held that award

contrary to provisions of the substantive law or Act or

terms of contract can be set­aside.

     78.    I have perused the ratio of the above cited

decision. However, unlike cited decision in the present

case in hand, the petitioner has failed to prove that the

impugned award is contrary to provision of substantive

law or act or terms of contract. Hence, the ratio of the

above cited decision is also not helpful for the petitioner.
                            54
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      79. It is pertinent to note that the court dealing with

an application to set aside an arbitral award U/S.34 of

Arbitration & Conciliation Act 1996 has not to consider

whether the view of the arbitrator on evidence is justified.

The   Arbitrator   adjudication   is   generally    considered

binding between the parties as tribunal is selected by the

parties and the power of the court to set aside the award

is restricted to cases set out in Section 34 of the

Arbitration & Conciliation Act 1996.               Statute has

restricted challenge to arbitral award only on certain

grounds mentioned in Section 34 of the Act.                 Any

grounds of challenge to an arbitral award could be

succeed only if its find support from any of grounds of

challenge mentioned in Section 34 and not otherwise.

The challenge of award on factual aspect is not

maintainable.

      80. By going through the contents of the petition

filed by the petitioner U/S.34 of the Act challenging the

impugned award, this court is of the opinion that none of
                           55
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the grounds mentioned in Section 34 of Arbitration &

Conciliation Act 1996 have been made out by the

petitioner to set aside the impugned award.              All the

grounds agitated by the petitioner are the grounds

warranting re­appreciation of materials submitted before

and relied upon by the Hon'ble Arbitrator. This court is

not empower to re­examine the evidence or to interfere in

the findings of the fact arrived by the Hon'ble Arbitrator.

     81. By perusing the materials produced on record,

this court is of the opinion that the petitioner has not

shown   any   grounds    U/S.34      of   the   Arbitration       &

Conciliation Act 1996 to interfere with the impugned

award passed by the Hon'ble Arbitrator.            With these

observations, I answer point No.1 in the negative.



     82. POINT No.2 : In view of my findings on point

No.1 and for the reasons assigned thereon, I proceed to

pass the following:
                           56
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                        ORDER

The petition filed by the petitioner U/S.34 of the Arbitration & Conciliation Act is dismissed.

Parties are directed to bear their costs.

[Dictated to the Judgment Writer; transcript thereof corrected, initialed and then pronounced by me, in the Open Court on this the 30th day of January, 2020] [S.A.Hidayathulla Shariff] LXXXIII Additional City Civil Judge.

BENGALURU.