Bangalore District Court
No.1 Issued A Notice Dated 13.07.2007 ... vs No.1 Issued A Reply Notice Dated ... on 26 March, 2021
1
Com.AS.No.36/2015
IN THE COURT OF LXXXII ADDL.CITY CIVIL & SESSIONS
JUDGE,AT BENGALURU (CCH.83)
THIS THE 26TH DAY OF MARCH 2021.
PRESENT:
SRI.DEVARAJA BHAT.M.,B.COM,LL.B.,
LXXXII ADDL.CITY CIVIL & SESSIONS JUDGE,
BENGALURU.
Com.A.S.No.36/2015
BETWEEN:
1. M/S Arunodaya
Minerals, a registered
Partnership Firm,
Having its principal
place of business At
No.289, III Ward, Hospet
Post, Bellary District,
Represented herein by
its Partners.
2. Sri. M. Venu S/o
Mandapati Venkata
Raju, Aged Major,
Partner, Arunodaya
Minerals, No.3/289,
Tirumalanagar, Hospet
-583 201.
3. Mrs. Rukminidevi, W/o
M.Diwakar Babu, Aged
2
Com.AS.No.36/2015
major, Partner,
Arunodaya Minerals,
Behind Mubarak
Theatre, Agadi Mareppa
Compound, Bellary.
: PLAINTIFFS
(Represented by
Smt.Anuparna
Bordoloi- Advocate)
AND
1. M/s Gimpex Limited,
A Company incorporated
under the provisions of
the Companies Act,
1956, Represented by
their Company
Secretary, Mr. S. Uma
Shankar, Having
Registered office at
No.282, Lighi Chetty
Street, Chennai - 600
001.
2.M/s Gimpex Limited, A
Company incorporated
under the provisions of
the Companies Act,
1956, Having Registered
office at No.282, Lighi
Chetty Street, Chennai -
600 001.
3
Com.AS.No.36/2015
: DEFENDANTS
(Defendants are
represented by Smt.
Nalina Mayegowda-
Advocate)
3. Hon'ble Mr. Justice
Ajit J. Gunjal, Former
Judge, Hon'ble High
Court of Karnataka,
"Laxmi Kunj", No.95, 7th
Main, M.C.R. Layout,
Vijayanagar, Bengaluru
-560 040.
: RESPONDENT
Date of Institution of the 19.03.2015
suit
Nature of the suit (suit on
pronote, suit for Petition for setting aside
declaration & Possession, Arbitral Award
Suit for injunction etc.)
Date of commencement of
recording of evidence - NIL -
Date of First Case - Not held -
Management Hearing
Time taken for disposal 14 days
from the date of First Case
Management Hearing
Date on which judgment 26.03.2021
was pronounced
Total Duration Year/s Month/s Day/s
4
Com.AS.No.36/2015
06 00 07
(DEVARAJA BHAT.M),
LXXXII Addl.City Civil & Sessions Judge,
Bengaluru.
JUDGMENT
This is a Petition filed under Section 34 of the Arbitration & Conciliation Act, 1996 for setting aside the Arbitral Award dated 21.12.2014 passed by the Arbitral Tribunal.
2. The Brief facts leading to the case, as narrated in the Petition, are as follows:-
The 1st Plaintiff is a registered Partnership firm involved in the business of mining, that the Defendant No.1 is a company engaged in the business of mining, processing of minerals and ores, export, import and third country merchandising trade, that the Defendant No.2 is a Company engaged in the business of iron ore procurement, processing and export, that the Plaintiff No.1 entered into a Memorandum of Understanding dated 08.04.2004 with the Defendant Nos.1 & 2 , which envisaged that the Defendant No.2 would enter into an agreement to be 5 Com.AS.No.36/2015 appointed as Raising Contractors, subject to approval being given by the Central Government for grant of mining lease by the State Government to Plaintiff No.1, that in furtherance thereof, two separate agreements were entered into, one for sale of ore/mineral between the Plaintiff No.1 and Defendant No.2 and another between Plaintiff No.1 and Defendant No.2 for extraction of ore, both on 08.04.2004, that the tenure of the said contracts were for a period of 10 years from the date of execution of lease deed in respect of the said mining are renewable on mutually agreeable terms, that the Defendant No.1 at the time of entering into Memorandum of Understanding on 08.04.2004, paid a sum of Rs.1,50,00,000/-
to the Plaintiff No.1 as advance towards supply of iron ore/mineral, in anticipation that the mining lease would be granted to the Plaintiff No.1 by the State Government, during the period of agreement, there arose a dispute between the parties and the Plaintiff No.1 terminated the Memorandum of Understanding and the above-mentioned Agreements, that the Plaintiff No.1 issued a notice dated 13.07.2007 mentioning therein that the Memorandum of Understanding and the two contracts dated 08.04.2004 stands terminated and the sum of Rs.1,50,00,000/- paid by the Defendant No.1 to the Plaintiff No.1 stood forfeited and also demanding a further sum of Rs.One 6 Com.AS.No.36/2015 Crore as damages for the losses which the Plaintiff No.1 incurred due to litigation over the tract of land which was the subject matter of the mining lease, that the counsel for the Defendant No.1 issued a reply notice dated 13.07.2007 calling upon the Plaintiff No.1 to perform the terms of agreement dated 08.04.2004, that thereafter the Defendants invoked the arbitration clause and referred the said dispute for adjudication by Arbitration and the Arbitral Tribunal has passed the Impugned Order.
3. The Defendants have filed objection statement on 20.09.2017 and prays to dismiss the present Petition.
4. Being Aggrieved by the said Arbitral Award dated 21.12.2014, the Plaintiffs have challenged the same on the following grounds:-
(i) The Impugned Award is patently illegal, against the substantive provisions of law and hence, the same is liable to be set aside under Section 34(2)(b)(ii) of the Arbitration & Conciliation Act, 1996.
(ii) That the finding of the learned Arbitral Tribunal that 7 Com.AS.No.36/2015 Rule 37 of the Mineral Concession Rules is not applicable to the present case and that Rule 37 of the said Rules would come into play only after the lease has been granted and the said lease has been transferred in favour of another party without the consent of the State Government which is not the case here, is highly erroneous,
(iii) That the learned Arbitral Tribunal has erred in not considering that the Memorandum of Understanding and agreements dated 08.04.2004 are unlawful and illegal as under
Rule 37 of the said Rules.
(iv) That the learned Arbitral Tribunal failed to consider the Evidence adduced by the Plaintiffs and the reports of CEC on Raising Contracts and that the Arbitral Tribunal instead of adjudicating upon the validity and enforceability of the Memorandum of Understanding and agreement, has erroneously held that the present proceedings are only for refund of money and therefore, the Impugned Award is highly arbitrary, illegal and against Public Policy and hence, is liable to be set aside.
(vi) That the Arbitral Tribunal failed to consider the fact 8 Com.AS.No.36/2015 that the Plaintiffs terminated the Memorandum of Understanding by Notice dated 13.07.2007 as the same was void and illegal and forfeited the sum of Rs.1,50,00,000/- paid by the defendant No.1 and also made a claim of Rs.1,00,00,000/- as damages for the losses that the Plaintiffs incurred owing to the litigations in respect of the lands.
(vii) That the Arbitral Tribunal failed to consider the fact that the said sum of Rs.1,50,00,000/- was not retained by the Plaintiffs and the same had been spent in pursuance of the Memorandum of Understanding for various compliances and therefore, the Defendants 1 & 2 are not entitled to seek refund of the said amount.
(viii) That the learned Arbitral Tribunal has ignored and overlooked the fundamental and material aspect relating to its authority and jurisdiction in reaching its conclusion and further, it has not adjudicated upon the jurisdiction of the Arbitral Tribunal though the same was challenged by challenging the validity of the Arbitration Clause itself.
(ix) That the learned Arbitral Tribunal traveled beyond its substantive jurisdiction by holding that the present proceedings 9 Com.AS.No.36/2015 are only for refund of the amount, which was paid by the Defendants to the Plaintiffs,
(x) That the Impugned Award is arbitrary, unfair, unreasonable, patently illegal, based on non-consideration of evidence, contrary to specific provisions of law and Agreement.
5. This Petition was originally filed on the file of the Court of XXIX Addl. District and Sessions Judge, Bengaluru on 19.03.2015. On 23.04.2019 this Petition was registered as 'Commercial dispute' and transferred to this Court.
6. I have heard the arguments of the learned Advocate Smt.Anuparna Bordoloi on behalf of the Plaintiffs. I heard the arguments of the learned Advocate for the Defendant Sri. Arjun Sarathi. The learned Advocate for the Plaintiffs has also filed her written arguments on 05.03.2021. The learned Advocate for the Defendants No.1 & 2 has also filed written arguments on 19.03.2021.
7. Based on the above contentions of both parties, following Points arise for my consideration:-
1. Whether there are grounds to set aside the Impugned Award under Section 34 of 10 Com.AS.No.36/2015 the Arbitration & Conciliation Act?
2. What Order?
8. My findings on the above points are as follows:-
Point No.1 :- In the Negative Point No.2 :- As per the final Order for the following reasons.
REASONS
9. Point No.1:- The settled position in law that in proceedings under Section 34 of the Act, the Court does not sit in appeal over the Award. Thus, an Arbitral Award passed by an Arbitrator shall not be interfered with lightly. The Court can neither sit in appeal nor reassess or re-appreciate the evidence and the Arbitral Award can only be interfered with grounds stipulated in Section 34(2) of the Act.
10. It is settled position in law that an 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.11
Com.AS.No.36/2015
11. The illegality must go to the root of the matter and if the illegality is of trivial nature, it cannot be held that the 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 an award is opposed to public policy and is required to be adjudged void.
12. The Hon'ble Supreme Court in the landmark judgment reported in 2015(3) - S.C.C. - 49 (Associate Builders vs. Delhi Development Authority), (which is relied on by the Advocate for Plaintiff) while setting aside the judgment passed by the Division Bench of Hon'ble High Court of Delhi culled out the legal principles after traversing the judicial pronouncements passed by the various High Courts and the Hon'ble Apex Court. In the said case, it is held that it is important to note that the 1996 Act was enacted to replace the Arbitration Act, 1940 in order to provide for an Arbitral procedure which is fair, efficient and capable of meeting the needs of Arbitration and also to provide that the tribunal gives reasons for an Arbitral Award; to ensure that the Arbitral Tribunal remains within the limits of its jurisdiction and to minimize the supervisory role of Courts in the Arbitral process.
12Com.AS.No.36/2015
13. In the said decision, the Hon'ble Apex Court observed that it must be clearly 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 Arbitral Award based on little evidence or no evidence which does not measure up in quality to a train legal mind would not be held to be invalid on this count.
14. In view of the above mentioned discussions, the position in law is well settled that while dealing with an award under Section 34 of the Act, the Courts are not supposed to sit in appeal and re-appreciate the evidences as an appellate Court. Hence, the findings of the facts by the Arbitral Tribunal, if based on evidence, even where a different opinion can be held on the basis of that evidences, the findings given by the Arbitrator has to be accepted and the Courts cannot substitute its opinion. The power to interpret the contracts also lies with the Arbitrator. Once the Court reach to the conclusion that the Arbitrator has acted within its jurisdiction, even if the Courts are 13 Com.AS.No.36/2015 of the view that the opinion of the Arbitrator is wrong, the same cannot be disturbed unless it is against the public policy.
15. By keeping the above principles in my mind, I now propose to discuss about the facts of the case and the validity of the Impugned Award.
16. The 1St Plaintiff applied for grant of Mining Lease under Mines & Minerals (Development & Regulation) Act, 1957 read with Mineral Concession Rules, 1960, on 26.03.2002 over an extent of 8.82 Hectares (21.79 acres) in S.M. Block, Sandur Taluk, Bellari District. M/s Deccan Mining Syndicate Private Limited also applied for grant of Mining Lease on 27.05.2002. The 1st Defendant issued a letter dated 17.01.2004 to 1 st Plaintiff as per Annexure-C-2.
17. The Government of Karnataka recommended and requested the Government of India for grant of approval under Section 5(1) of MMDR Act, 1957 on 28.02.2004.
18. It is to be noted that before granting of Mining Lease in favour of the 1st Plaintiff and when the recommendation of the 14 Com.AS.No.36/2015 Government of Karnataka was pending consideration, the 1st Plaintiff entered into a Memorandum of Understanding dated 08.04.2004 with the Defendants as per Annexure-C-3. In furtherance thereof, the 1st Plaintiff entered into two separate Agreements, one with the 1st Defendant for sale of Ore/Mineral i.e., Annexure-C-4 and another with the 2 nd Defendant for extraction of Ore for a period of 10 years renewable on mutually agreeable terms as per Annexure-C-5.
19. Clause No.4 of the Annexure-C-3 Agreement is as follows:-
"Whereas the State Government in its Communication bearing No.CI 104 MMM 2002 dated 28.02.2004 requested the Government of India, Ministry of Mines for grant of approval under Section 5(1) of the Act."
20. From Clause No.4, it is very clear that as on the date of the said Agreements, the matter was pending before the Central Government and the approval for Mining Lease was not yet granted.
21. Thereafter, in view of certain disputes between the parties, the First Plaintiff issued a Notice to Defendants No.1 & 2 15 Com.AS.No.36/2015 on 13.07.2007 and terminated Memorandum of Understanding dated 08.04.2004 as per Annexure-C-7.
22. The 1st Defendant issued a Reply to said Notice on 12.12.2007, denying the allegations and called upon the Plaintiff No.1 to perform the terms of the Agreement dated 08.04.2004 as and when the lease is executed by the Government of Karnataka in its favour as per Annexure-C-8. The Defendants issued a Notice on 16.01.2009 by invoking Arbitration Clause as per Annexure-C-9. Reply was issued to Arbitration Notice on 04.02.2009.
23. In fact, the dispute between the parties is in respect of the aspects detailed hereinafter. M/s Deccan Minings Private Limited challenged the said recommendation of the Government of Karnataka in favour of the 1 st Plaintiff before the Hon'ble High Court of Karnataka in W.P.No.18066/2004 and the said Writ Petition was allowed and the said recommendation was set aside as per Order in W.P.No.18066/2004 dated 26.02.2009.
24. The 1st Plaintiff has questioned the said Order in 16 Com.AS.No.36/2015 W.A.No.1908/2009 before the Hon'ble High Court of Karnataka and the same was pending as on the date of passing of the Impugned Arbitral Award. Thereafter, the First Defendant issued a Notice to the Plaintiff on 13.07.2011.
25. Further, a Public Interest Litigation was also filed before the Hon'ble Supreme court in respect of mining activities at Bellary District in 2009. In the said proceedings, the Hon'ble Supreme court has called upon a Report from by Central Empowered Committee with regard to various mining activities beyond the area, which was granted for mining activities and the said Report was submitted on 20.04.2012. Based on the said Report, the Hon'ble Supreme court suspended the grant of lease upon mining in Bellary District. The Hon'ble Supreme court has passed a Final Order in the said Proceedings i.e., W.P.No.562/2009 on 06.09.2012, which is reported in (2013) 8
- S.C.C. - 209 (Samaj Parivartana Samudaya & Ors vs State Of Karnataka & Ors).
26. After passing of the Impugned Award by the learned Arbitrator, during pendency of this Petition, the Hon'ble High Court of Karnataka has passed the Order in W.A.No.1908/2009 17 Com.AS.No.36/2015 preferred by the 1st Plaintiff, on 22.05.2015.
27. On factual background of all these aspects, it is to be noted that before the Arbitral Tribunal, the Defendants claimed only for refund of the amount which was paid by the Defendants to the Plaintiffs pursuant to aforesaid Memorandum of Understanding.
28. The learned Advocate for the Plaintiff has vehemently argued that the said above-mentioned three Agreements are illegal by virtue of Rule 37 of Mineral Concession Rules, 1960, which reads as follows:-
"37. Transfer of lease :- (1) The lessee shall not, without the previous consent in writing of the State Government and in the case of mining lease in respect of any mineral specified in Part 'A' and Part 'B' of] the First Schedule to the Act, without the previous approval of the Central Government :-
(a)assign, sublet, mortgage, or in any other manner, transfer the mining lease, or any right, title or interest therein, or
(b) enter into or make any bonafide arrangement, contract, or understanding whereby the lessee will or may be directly or indirectly financed to a substantial extent by, or under which 18 Com.AS.No.36/2015 the lessee's operations or undertakings will or may be substantially controlled by, any person or body of persons other than the lessee:
Provided further that where the mortgagee is an institution or a Bank or a Corporation specified in Schedule V, it shall not be necessary for the lessee to obtain any such consent of the State Government.
(1A) The State Government shall not give its consent to transfer of mining lease unless the transferee has accepted all the conditions and liabilities which the transferor was having in respect of such mining lease.
(2) Without prejudice to the provisions of sub-
rule (1) the lessee may, transfer his lease or any right, title or interest therein to a person who has filed an affidavit stating that he has filed an up-to- date income-tax returns, paid the income tax assessed on him and paid the income tax on the basis of self-assessment as provided in the Income Tax Act, 1961( 43 of 1961), on payment of a fee of five hundred rupees to the State Government :
Provided that the lessee shall make available to the transferee the original or certified copies of all plans of abandoned workings in the area and in a belt 65 metres wide surrounding it;
Provided further that where the mortgagee is an institution or a Bank or a Corporation specified in Schedule V, it shall not be necessary for any such institution or Bank or Corporation to meet with the requirement relating to income tax;19
Com.AS.No.36/2015 Provided further that the lessee shall not charge or accept from the transferee any premium in addition to the sum spent by him, in obtaining the lease, and for conducting all or any of the operations referred to in Rule 30 in or over the land leased to him.
(3) The State Government may, by order in writing determine any lease at any time if the lessee has, in the opinion of the State Government, committed a breach of any of the provisions of sub-
rule (1) or sub-rule (1A) or has transferred any lease or any right, title, or interest therein otherwise than in accordance with sub-rule (2) :
Provided that no such order shall be made without giving the lessee a reasonable opportunity of stating his case."
29. The learned Arbitrator has held that on perusal of the said Rule, it presupposes that there should be a grant of lease and in the present case, lease has not at all been granted by the Government of Karnataka as on the date of the Memorandum of Understanding and Agreements mentioned-above and hence, that is not applicable to the facts of the present case.
30. The Plaintiff has contended that in view of the above-
20Com.AS.No.36/2015 mentioned Report of the Central Empowered Committee and findings of the Hon'ble Supreme Court in W.P.No.562/2009, and as per the said finding in the said decision, the Hon'ble Supreme court referred about the rating contract or sub-leases executed in Bellary District which allows the private individuals a back-door entry into mining activities and hence, the said findings have to be read along with Rule 37 of the Mineral Concession Rules, 1960.
31. The Plaintiffs have also contended that since the above-mentioned Memorandum of Understanding was terminated on 13.07.2007 by the Plaintiffs, they have forfeited the sum of Rs.1,50,00,000/- paid by the 1 st Defendant and that the said amount was invested for various compliances and hence the same was forfeited and the Plaintiffs are not liable to refund the said amount.
32. The learned Advocate for the Plaintiffs has argued that since the said Agreements are void ab-initio in view of the findings of the Hon'ble Supreme court read with Rule 37 21 Com.AS.No.36/2015 of the Rules, the Arbitration Clauses are also not enforceable and hence, the Arbitrator being the creature of Agreements between the Parties, he cannot ignore the terms of the Agreement, that too about Arbitration Clause is concerned and hence, the Impugned Award is liable to be set aside. In support of said argument, he has relied on the decisions reported in A.I.R. - 2003 - S.C. - 3660 (Bharath Coking Coal Company Ltd. vs. Annapoorna Constructions) and 2007 (4) - S.C.C. - 697 (Food Corporation of India vs. Chandru Construction & Another).
33. In addition to the said arguments, the learned Advocate for the Plaintiffs has argued that if the main contract is void/voidable, the Arbitration Clause will consequently be void/voidable, by relying on the decision reported in 2011 (14)
- S.C.C. - 66 (SMS Tea Estate Pvt.Ltd. vs. Chandmari Tea Co. Pvt.Ltd.). I cannot accept the said arguments in view of recent decision of the Hon'ble Supreme Court reported in 2021
- S.C.C. ONLine - S.C. - 13 (N.N. Global Mercantile Private Limited vs. Indo Unique Flame Ltd. & Others). In the said decision, the Hon'ble Supreme Court dealt with the 22 Com.AS.No.36/2015 validity of an unstamped Arbitration Agreement.
34. In the said case, a three judge bench of the Hon'ble Supreme Court held that an arbitration agreement will not be invalidated if the stamp duty on the commercial contract is unpaid. Further, the Hon'ble Supreme Court overruled the above-mentioned decision reported in 2011 (14) - S.C.C. - 66 (SMS Tea Estate Pvt.Ltd. vs. Chandmari Tea Co. Pvt.Ltd.) relied on by the learned Advocate for the Plaintiffs.
35. The Advocate for the Plaintiffs has also referred to Sections 65, 70, 72 of the Indian Contract Act and in view of the said Sections, the finding of the Arbitral Tribunal is contrary to the Public Policy. As far as this argument is concerned, Sections 65 and 70 of the Indian Contract Act becomes relevant and they are reproduced herein under for the purpose of reference:-
"Section 65 of Indian Contract Act:- Obligation of person who has received advantage under void agreement, or contract that becomes void: When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to the person from whom he received it.23
Com.AS.No.36/2015 Section 70 of the Indian Contract Act- Obligation of person enjoying benefit of non-gratuitous Act:- Where a person lawfully does anything for another Person, or delivers anything to him not, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered."
36. For the said aspect, the learned Advocate for the Plaintiff has relied on a decision reported in 1974 (2) - S.C.C. - 533 = A.I.R. - 1974 - S.C. - 1892 (Kuju Collieries Limited vs. Jarkhand Mines Limited). The learned Arbitrator has held that in order to invoke Section 65, the invalidity of the Contract Agreement should be discovered subsequent to the making of it and that the Memorandum of Understanding in the present case as on the date was not invalid and in view of the grant of lease for mining in Bellary District was suspended at the subsequent stage i.e., after the execution of said Agreements and hence, Section 65 is applicable to the facts of the present case. In the above-mentioned decision reported in 1974 (2) - S.C.C. - 533 = A.I.R. - 1974 - S.C. - 1892 (Kuju Collieries Limited vs. Jarkhand Mines Limited), it was held that since the Plaintiff therein was already in mining business and had the advantage of consulting its lawyers and solicitors, and their lease deed was prepared and drawn up by solicitors and there was no occasion 24 Com.AS.No.36/2015 for the Plaintiff to be under any kind of ignorance of law with regard to the Mineral Concession Rules rendering the lease illegal. Though the Hon'ble Supreme Court appreciated the reason given by the Trial Court for not giving the benefit of Section 65 of the Indian Contract Act to the Plaintiff, the Hon'ble Supreme Court clearly defined the scope of Section 65 of the Indian Contract Act in the following words:-
"The Section makes a distinction between an Agreement and a Contract. According to Section 2 of the Contract Act, an agreement which is enforceable by law is a Contract and an agreement which is not enforceable by law is said to be void. Therefore, when the earlier part of the Section speaks of an agreement being discovered to be void, it means that the Agreement is not enforceable and is, therefore, not a Contract. It means that it was void. It may be that the parties or one of the parties to the Agreement may not have, when they entered into the agreement, known that the agreement was in law not enforceable. They might have come to know later that the agreement was not enforceable. The second part of the section refers to a contract becoming void. That refers to a case where an agreement which was originally enforceable and was, therefore, a contract becomes void due to subsequent happenings. In both these cases any person who has received any advantage under such agreement or contract is bound to restore such advantage, or to make compensation for it to the person from whom he received it."25
Com.AS.No.36/2015
37. In the said decision, the Hon'ble Supreme Court held that there are two parts in Section 65 of Indian Contract Act. Reading of the above said observations indicates that Hon'ble Supreme Court has segregated between the void agreements into two parts. One when the party/parties had knowledge of the same to be illegal at the time of entering into it and the other, when parties/party may not have known about its illegality or unenforceability, at the time of entering into such agreement. It is observed therein that in second category of cases, any person who has received any advantage is bound to return it to the person from whom he has received it.
38. In the present case, the parties were not knowing about the illegality or unenforceability as on the date of entering into above-mentioned Agreements and in view of the decision of the Hon'ble Supreme Court in W.P.No.562/2009, the same became unenforceable and hence, the Plaintiffs are bound to return the amount received under the said Agreements to the Defendants. In order to substantiate the said observations, I wish to refer to a decision reported in A.I.R. - 1960 - Andhra Pradesh - 186 (Sivaramakrishniah vs. Narhari Rao), wherein it was held :-
"In order to invoke Section 65 the invalidity of the contract or agreement should be discovered subsequent 26 Com.AS.No.36/2015 to the making of it. This cannot be taken advantage of by parties who knew from the beginning the illegality thereof. It only applies to a case where one of the parties enters into an agreement under the belief that it was a legal agreement, i.e., without the knowledge that the agreement is forbidden by law or opposed to public policy and as such illegal. The effect of Section 65 is that, in such a situation, it enables a person not in pari delicto to claim restoration since it is not based an an illegal contract but dissociated from it. That is permissible by reason of the Section because the action is not founded on dealings which are contaminated by illegality. The party is only seeking to be restored to the status quo ante. Section 68 also does not recognise the distinction between a contract being illegal by reason of its being opposed to public policy or morality or a contract void for other reasons. Even agreements, the performance of which is attended with penal consequences, are not outside the scope of Section 65. At the same time, Courts will not render assistance to persons who induce innocent parties to enter into contracts of that nature by playing fraud on them to retain the benefit which they obtained by their wrong".
39. For the same aspect, I wish to refer another subsequent decision reported in A.I.R. - 1991 - Delhi - 190 (Shaukat Ali Khan vs. Balu Khan), wherein the Hon'ble Delhi High Court has held as follows :-
"It is not the case set up that the plaintiff knew about the illegality of the transaction at the time the contract was made and the payments were made in the 27 Com.AS.No.36/2015 partnership firm. So, it has to be held that the contract was discovered as void only when the contention has been raised in this Court for the first time by the learned counsel for the defendant despite the fact that the defendant has not filed any written statement to contest this suit. So, even if the contract is held to be void even then the plaintiff is entitled to get back his Money as compensation from the defendant."
40. Therefore, the said findings of the learned Arbitrator is not perverse and not contrary to the Public Policy.
41. The Plaintiffs have also contended that the Claim before the Arbitral Tribunal is barred by limitation. The learned Arbitrator has observed that in view of the Writ Petition filed by M/s Deccan Mining Syndicate Private Limited and an interim Order suspending the recommendation made by the State Government in favour of Plaintiff No.1, by referring Section 43 of the Arbitration Act read with Section 15 of the Limitation Act, has held that the claim is well within the time. As discussed by me earlier about the Order passed in the said Writ Petition for suspending the recommendation and by considering Section 43 of the Arbitration Act, the said finding of the 28 Com.AS.No.36/2015 learned Arbitrator cannot be said to be contrary to the Public Policy.
42. The learned Advocate for the Plaintiffs has drawn my attention to the issues framed by the learned Arbitrator and has argued that the learned Arbitrator has not answered Issue No.
(a) & (b). Issue No.(a) is that whether the Plaintiffs are estopped from questioning the legality of the Memorandum of Understanding after having made an unjust enrichment of Rs.1.5 Crores under the Memorandum of Understanding and Issue (b) is that whether the termination of the Memorandum of Understanding by the Plaintiffs is valid in law. However, at Para No.19 of the Impugned Order, the learned Arbitrator has specifically mentioned he proposed to discuss Issue Nos.(a) to
(c) together. When such being the case, though there is no separate discussion on the said issues, in view of elaborate joint discussion of the said issues by the learned Arbitrator, the said argument cannot be accepted.
43. From the perusal of the Impugned Award, the learned Arbitrator has considered all the relevant available documents and he applied his mind judiciously to all the points raised by both sides. The appraisal of evidence placed before the 29 Com.AS.No.36/2015 Arbitrator is the task for the Arbitrator and the Court cannot re- appraise such evidence. In the decision reported in A.I.R. - 1989 - S.C. - 890 (Sudarshan Trading Co. vs. Government of Kerala) , the Hon'ble Supreme Court has held that the Court has no jurisdiction to substitute its own evaluation of the conclusion of the law or fact to come to the conclusion that the Arbitrator had acted contrary to bargain between the parties and appraisal of evidence is left solely to the Arbitrator and the Court cannot seek to re-appraise such evidence.
44. The learned Arbitrator has relied on documents and referred to in the Award in detail. When such being the case, there are no mistakes committed by the learned Arbitrator.
45. Though the learned Advocate for the Plaintiff has argued at length, all the said arguments are about the merits of the case. She has not pointed out that the Impugned Award is liable to be set aside under any of the grounds mentioned in Section 34 of the Arbitration & Conciliation Act, 1996. She has not pointed out any patent illegality in the Impugned Award. As per her argument, this Court has to re-appreciate the entire evidence adduced before the Arbitral Tribunal, which is 30 Com.AS.No.36/2015 impermissible under the law.
46. The Plaintiff has not specifically shown any of the said findings, which is contrary to the Public Policy of India, which is liable to be set aside under Section 34 of the Arbitration & Conciliation Act, 1996.
47. Section 34 of the Act does not empower the Courts to re- appreciate and re-evaluate the evidence produced before the Arbitral Tribunal and thereafter to judge if the findings of the Arbitral Tribunals are correct or wrong. The Superior Courts have repeatedly held that it is not permissible to a Court to examine the correctness of the findings of the arbitrator, as if it were sitting in appeal over his findings. The findings of fact by the Arbitral Tribunal, if based on evidence, even where a different opinion can be held on the basis of that evidences, the findings given by the arbitrator has to be accepted and the Courts cannot substitute its opinion. The power to interpret the contract also lies with the arbitrator. Once the courts reach to the conclusion that the arbitrator has acted within its jurisdiction, even if the courts are of the view that the opinion of the arbitrator is wrong the same cannot be disturbed unless it is against the public policy.
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48. On careful perusal of the Claim Petition, objections, evidence, documents filed by the parties and also of the arbitral record and deliberating over the submissions advanced by the learned counsel for parties, this court observes that the main plank of challenge to the Arbitral Award by the Plaintiff is that the Award is against the public policy of India.
49. The scope of this court is limited with regard to Section 34 of the Act. The position of law stands crystallized today, that findings, of fact as well as of law, of the Arbitrator/Arbitral Tribunal are ordinarily not amenable to interference either under Section 34 of the Act. The scope of interference is only where the finding of the tribunal is either contrary to the terms of the contract between the parties, or, ex facie, perverse, that interference, by this court, is absolutely necessary. The arbitrator is the final arbiter on facts as well as in law, and even errors, factual or legal, which stop short of perversity, do not merit interference under Section 34 of the Act. The Hon'ble High Court of Delhi in the decision reported in 2015 - S.C.C. OnLine - Del - 13192 (P.C.L. Suncon (JV) vs. NHAI), in Paragraph No. 24 has held as follows :-
"24. As a postscript, this Court believes that 32 Com.AS.No.36/2015 it is imperative to sound a word of caution. Notwithstanding the considerable jurisprudence advising the Courts to remain circumspect in denying the enforcement of arbitral awards, interference with the awards challenged in the petitions before them has become a matter of routine, imperceptibly but surely erasing the distinction between arbitral tribunals and courts. Section 34 jurisdiction calls for judicial restraint and an awareness that the process is removed from appellate review. Arbitration as a form of alternate dispute resolution, running parallel to the judicial system, attempts to avoid the prolix and lengthy process of the courts and presupposes parties consciously agreeing to submit a potential dispute to arbitration with the object of actively avoiding a confrontation in the precincts of the judicial system. If a court is allowed to review the decision of the arbitral tribunal on the law or on the merits, the speed and, above all, the efficacy of the arbitral process is lost."
50. The Hon'ble Supreme Court in the decision reported in (2006) 11 - S.C.C. - 181 (McDermott International Inc. vs. Burn Standard Co. Ltd. and Ors.), has held as follows :-
"52. The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias 33 Com.AS.No.36/2015 by the arbitrators, violation of natural justice, etc. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court's jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it."
51. The position in law is well settled that this court while exercising power under Section 34 of the Act does not sit as a court of appeal. On perusal of the grounds urged in the present Petition preferred by the Plaintiff, the same are in the tenor of an appeal and the same is not maintainable. The nature of proceedings under Section 34 of the Act is summary in nature as held in the decision reported in (2019) - S.C.C. Online - S.C. - 1244 = (2019) 9 - S.C.C. - 462 (Canara Nidhi Limited vs. M. Shashikala).
52. Thus, the Impugned Arbitral Award is not marred by any patent illegality, as there is no contravention of the substantive law of India, which would result in the death knell of an Arbitral Award. There is no patent illegality in the Impugned 34 Com.AS.No.36/2015 Arbitral Award, which must go to the root of the matter. The Arbitral Award is also a well reasoned and a speaking award. The Impugned Arbitral Award is not in contravention of Section 28(3) of the Act, which pertains to the terms of the contract, trade usages applicable to the nature of contract and substance of dispute.
53. Having given my careful consideration to the submissions urged and the complete case record in the preceding paragraphs of this judgment, I am of the view that is not a fit and proper case for exercise the jurisdiction of this court under Section 34 of the Act and interfere with the Impugned Arbitral Award and the same is upheld. Therefore, I answer this Point in Negative.
54. Point No. 2: Therefore, I proceed to pass the following Order.
ORDER The Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996, is dismissed.
The Arbitral Award dated 21.12.2014 is not liable to be set-aside as prayed by the Plaintiffs.
35Com.AS.No.36/2015 The Plaintiffs shall pay the Costs to the Defendants.
The Office is directed to send copy of this Judgment to Plaintiffs and Defendants to their email ID as required under Order XX Rule 1 of the Civil Procedure Code as amended under Section 16 of the Commercial Courts Act.
(Dictated to the Judgment Writer, typed by her directly on the computer, verified and pronounced by me in the open court on 26th day of March 2021).
(DEVARAJA BHAT.M.), LXXXII Addl. City Civil & Sessions Judge, BENGALURU.
36 Com.AS.No.36/2015 The Judgment is pronounced in Open Court today. The operative portion of the said judgment is as follows:-
ORDER The Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996, is dismissed.
The Arbitral Award dated 21.12.2014 is not liable to be set-aside as prayed by the Plaintiffs.
The Plaintiffs shall pay the Costs to the Defendants.
The Office is directed to send copy of this Judgment to Plaintiffs and Defendants to their email ID as required under Order XX Rule 1 of the Civil Procedure Code as amended under Section 16 of the Commercial Courts Act.
(Vide my separate detailed Judgment dated 26.03.2021) (Typed as per my dictation) LXXXII ACC & SJ,B'LURU.
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