Bangalore District Court
Bharat Earth Movers Limited Beml vs Ms Bakshi Engineering Works on 7 February, 2024
IN THE COURT OF THE XXVII ADDITIONAL CITY CIVIL
AND SESSIONS JUDGE (CCH-9) AT BENGALURU.
Dated this the 07th day of February, 2024.
PRESENT:
Sri HAREESHA A., B.A., LL.B.,
XXVII Additional City Civil and Sessions Judge,
Bengaluru.
A.S No.27/2015
APPLICANT : Bharat Earth Movers
Limited (BEML),
Flat No.EFGH, "Vandana"
11st Floor, Tolstoy Marg,
New Delhi- 110001.
Represented by its Assistant
General Manager (Legal)
Mr. M.K.Vidhyadharan.
(By Sri S.V.R Advocate)
-VERSUS-
RESPONDENTS : 1. M/s. Bakshi Engineering Works
A Proprietary concern,
Represented by its
Proprietor Mr. Anil Bakshi,
19/1, Tyagi Road, Dehra
Dun, Uttarakhand -
248 001.
2. K.P. Mohanan,
Sole Arbitrator & General
Manager and (plg) BEML
Limited, 5th Floor, Unity
Buildings, J.C.Road,
Bengaluru - 560002.
(By Sri M.A.P., Advocate)
Cont'd..
-2- A.S No.27/2015
JUDGMENT
The petitioner has filed the present petition under Section 34 of the Arbitration and Conciliation Act, 1996 (herein after Act) challenging the impugned Award dated: 26.11.2014 passed by the 2nd respondent, whereby the claim of the respondent was partly allowed and counter claim of the plaintiff was rejected as it barred by limitation.
2. Eschewing unnecessary details, in brief. the facts of the petitioner's case is as below-
The petitioner is a Government Company within the meaning of Section 617 of the Companies Act, 1956, under the administrative control of the Department of Defence Production, Ministry of Defence, Government of India, New Delhi. The company has involved in business of manufacturing and marketing of earthmoving machines and other heavy industrial equipments for mining and construction industries, Defence, Rai and Metro, Aerospace, Dredging etc. The company is a Mini Ratna - Category 1 company. The Government of India is the largest single shareholder in Cont'd..
-3- A.S No.27/2015
the company. The petitioner is represented by its
Assistant General Manager (Legal).
3. The 1st respondent M/s Bakshi Engineering Works is a contractor engaged in the business of handing over defense vehicles manufactured by the petitioner and having its office at Dehra Dun, Uttarakhand.
4. The petitioner regularly enters into a contractual arrangements with the Ministry of Defence (MoD and supplies vehicles, defence equipments. The petitioner had entered into an agreement to supply Tatra 8X8 VTI, Tatra 6X6, HRV AV 15, Tatra 4X4 (the "Vehicles") to the MoD. One part of this contractual arrangement pertained to supply of HRV AV 15 vide agreement dated:17.3.2006. As per the said contract, the HRVs vehicles were to be supplied to the MoD before 31.3.2009 as it evident from letter dated:31.3.2008.
5. The petitioner entered into an agreement with the respondent to transport and handing over the vehicles to the MoD and accordingly work order dated:28.7.2007 Cont'd..
-4- A.S No.27/2015 was issued to the 1st respondent. The basic scheme of the work order was such that once the vehicles with sealed tool kits were taken over by the 1 st respondent the petitioners manufacturing units at KGF, Bengaluru and Mysore, it was required to take care of the vehicles, ensure safe custody during transportation, classify the vehicles and finally hand over the same to CVD, Delhi. Therefore, it is averred that the vehicles with the sealed tool kit were entirely under the control of the 1 st respondent once it is taken over by the 1 st respondent from the petitioner.
6. It is contended that, during execution of the work order, the dispute arose between the petitioner and 1 st respondent and as it provided under Clause 16 of the work order, the dispute was referred to arbitration as per order passed by the Hon'ble High Court of Delhi in Arbitration Petition No.42/2013 under Section 11 of the Arbitration and Conciliation Act. The Hon'ble High Court of Delhi has appointed the 2 nd respondent as sole arbitrator with a direction to hear the matter expeditiously. The learned arbitrator after issuing Cont'd..
-5- A.S No.27/2015 notice to the parties, conducted enquiry and after completion of evidence, upon hearing parties, by the impugned Award has partly allowed the claim of the 1 st respondent and rejected the counter claim of the petitioner.
7. The petitioner being aggrieved by the impugned Award has filed present petition on multiple grounds. It is asserted that the impugned Award is afflicted with the vices of arbitrariness and vagueness, contravening the established laws of the jurisdiction, deviating from the factual matrix of the case, and conflicting with the evidentiary record. Consequently, it is urged that the impugned Award warrants annulment. Further, it is alleged that the learned arbitrator, failing to engage in due deliberation and afford adequate opportunities to the petitioner, precipitously rendered the impugned Award. Consequently, the impugned Award is impugned on the grounds of having been promulgated in violation of the sacrosanct principles of natural justice. It is also contended that, the arbitrator has not given any opportunity to address the arguments on the issue of Cont'd..
-6- A.S No.27/2015
inherent lack of jurisdiction. Further it is contended
that, the sole arbitrator has failed to permit the petitioner to reply the allegations of fraud and cohersion made by the 1st respondent in statement of claim and proof affidavit and the cross examination of the claimant's witness.
8. Further it is contended that, the sole arbitrator failed to take into consideration the issue of inherent lack of jurisdiction, that can be raised by the parties at any stage even at the stage of execution of proceedings. The learned arbitrator has failed to considered binding precedent of the Hon'ble Apex Court and Award is in violation of Section 34 (2) (b) (1) of the Arbitration and Conciliation Act. Since the arbitrator has not considered any of the terms of the work order between the petitioner and 1st respondent. Further it is contended that, the sole arbitrator has erred in calculating the interest from December 2010 to December 2014 which is beyond the period of arbitration as the award was rendered on 26.11.2014, that itself shows the clear non-application of mind.
Cont'd..
-7- A.S No.27/2015
9. The arbitrator has failed to considered the evidence in proper and erroneously passed the impugned Award. Further it is contended that, the sold arbitrator erred in holding that the non-reporting of delivery of the vehicles as a failure and breach of contract on the part of the petitioner as baseless when the terms of the work order and obligations and duties of the 1st respondent contained therein implies to the contrary. Such observation is contrary to the terms of the contract and amounts to a contravention of Section 28 of the Arbitration and Conciliation Act. Further it is contended that, the arbitrator has ignored the admissions made by the respondent witness regarding work scope of the work order and to discharge obligations. The sole arbitrator erred that, there is no any breach of terms with the work order by the 1 st respondent and that the withholding the payment to the 1st respondent is erroneous against to the evidence and terms of work order. Further it is contended that, the arbitrator has erred in holding that, the counter claim of the petitioner is barred by limitation. Therefore, the petitioner sought to call for records and set aside the Cont'd..
-8- A.S No.27/2015 Arbitral Award and to allow the counter claims of the petitioner.
10. In response to the notice, the 1st respondent entered appearance through his counsel and filed detailed statement of objection by refitting the petition averments. The respondent has contended that, the petitioner has not made out any grounds to set aside the Award as it provided under Section 34 of the Arbitration and Conciliation Act, 1996. The ground delineated in the petition does not in any manner fall under the grounds enunciated under Section 34 of the Act. It is contended that, the petitioners before this court seeks to make out a new case, which is impermissible under Section 34 of the Act. The learned arbitrator has given ample opportunities to the both the parties to prove their claim and counter claim. The learned counsel for respondent No.1 has contended that, even if the arbitrator has passed the impugned order on erroneous interpretation of law or evidence, that cannot set aside under Section 34 of the Act.
Cont'd..
-9- A.S No.27/2015 Therefore, the respondent No.1 sought to dismiss the petition with cost.
11. I have heard the arguments and perused impugned Award and the documents placed by the petitioner and respondent No.1 before this court. The petitioner sought to call for records from respondent No.2 went in vain, since the notice could not be served to the respondent No.2 for want of correct address and all the peaces since 2015 taken by the petitioner came fruitail. Hence, this court directed the parties to produce documents on which they have released before arbitrator in support of their claim. After having heard arguments and perused documents, the points that would arise for my consideration are as below-
1. Whether the petitioner has made out any grounds to numerated under Section 34 of the Arbitration and Conciliation Act, 1996 to warrant interfere in the impugned Award?
2. What order or decree?
Cont'd..
- 10 - A.S No.27/2015
12. My findings on the above Points are as under -
POINT No.1 - In the Negative;
POINT No.2 - As per final order, for the following -
REASONS
13. POINT No.1: The petitioner has impugned the Award primarily on the grounds that the arbitrator failed to afford the petitioner an opportunity to present their arguments, committed errors in the evaluation of evidence, and rendered the Award without proper jurisdiction. The learned counsel representing the petitioner has directed the attention of this court to the intricacies of work order No.CVD/OS/2007-08-350, dated 28th July 2007. Notably, emphasis is placed on the specific delineation of the scope of work "by the contractor," the verbatim reproduction of which is proffered herein for enhanced comprehension:
1. SCOPE OF WORK : BY THE CONTRACTOR :
i. Taking over of Vehicles with sealed tool kits by contractor at BEML works (KGF, Bengalore Complex and Mysore).
Cont'd..
- 11 - A.S No.27/2015 ii. Safe custody till handing over to CVD Delhi,
Rail/ Road transport will be provided by BEML. Transit comprehensive insurance shall be responsibility of BEW cost of which shall be reimbursed by BEML on actual on production of original bills from Nationalised Insurance Company.
iii. Diesel filling for RI inspection.
iv. Topping up of oils/ lubricants for TMO/ RI inspection with the prescribed grade of oil and lubricants duly verified by DET IC BEML.
v. Vehicle preparation including washing, greasing etc., (outside CVD Delhi Cantt at contractor designated place).
vi. Feeding the vehicles to Resident Inspector and Handing over of classified vehicles to CVD, Delhi.
vii. Defect rectification and re-feeding to RI (if vehicles returned by RI).
viii. Tools - spreading and handing over to Stores Depot CVD Delhi Cantt.
ix. Clearing of I -notes copies 2 & 5 from CVD and handing over to BEML Delhi Office after handing over to tools and vehicles complete in all respect CVD within 15 days (Except for any specified vehicle for specific reasons for which BEML may be responsible).
2. ISSUE OF VEHICLES AND TOOLS Cont'd..
- 12 - A.S No.27/2015 2.1.1 The vehicle along with the loose items like kits, spare wheels, tarapaulins, etc shall be handed over to the Contractor by BEML along with the relevant documents for which contractor should depute authorized representatives for taking over the vehicles and tools complete in all respect. No deficiency should be accepted at a later date on arrival at CVD Delhi Cantt. Necessary acknowledgment shall be obtained from the contractor for having received the vehicles along with loose items complete in good condition. At the time of handing over the vehicles to the contractor, CHECK LIST with data containing date of issue of vehicles, KM reading and Hour Meter Reading (HMR) at the time of issue would be recorded and signed by both the contractor and rep. of BEML.
2.1.2 BEML Division shall hand over the CQA inspection note to the contractor while taking delivery of vehicles and for arranging inspection by RI at CVD, Delhi.
2.2 The contractor will collect both set of keys from respective BEML Division and hand over the same to CVD, Delhi Cantt.
2.3 The contractor will collect both set of keys from respective BEML Divisions and ahnd over the same to CVD, Delhi Cantt.
3. SAFE CUSTODY Contractor shall be fully responsible for safe handling/ custody, protection of the vehicle or part thereof from theft, damage, Cont'd..
- 13 - A.S No.27/2015 vandalism fire, etc., during transit and at CVD till the vehicles are handed over to CVD, Delhi. Lost and / or damaged part, if any,, shall be made good at the time of delivery of CVD, Delhi for which contractor shall be responsible.
INSPECTION BY RI AT CVD DELHI
4. INSPECTION AUTHORITY : Resident Inspection (RI) Inspection Criteria - RI will inspect the vehicles as per their standard procedure and practice.
a) CLASSIFICATION BY RESIDENT INSPECTION AT CONSIGNEE DEPOT Contractor shall get the vehicles classified with RI.
Contractor will get the I-Notes copy 2 & 5 cleared and submit the same to BEML. Delhi within 15 days from date of receipt of vehicles at CVD, Delhi Cantt.
b) DRIVERS :
The contractor shall ensure that the drivers employed by him have necessary valid heavy duty license and police verification.
5. COMMERCIAL TERMS AND CONDITIONS :
5.1 CONTRACT PERIOD :
Job order is being issued for handing over of following vehicles at rates, finalized during negotiations meeting held on 13 th June 2007 as given below:
Sl.No. Model Rate/ Vehicle Qty of Vehicle
1. Tatra 8X8 VTI Rs.12650/- 130
2. Tatra 6X6 Rs.12860/- 200 3. HRV AV 15 Rs.13760/- 40 Cont'd..
- 14 - A.S No.27/2015
4. Tatra 4X4 Rs.12500/- 124
Total 494
Responsibilities
Taking over of vehicles at BEML works -
Bengalore/ KGF/ Mysore.
a) Arranging wagons and loading of vehicles will be the responsibility of BEML.
b) Vehicles along with tools kits and accessories duly inspected and cleared by CQA/SQAE BEML will be handed over to BEW at BEML works prior to loading subject to availability of BEW reps at station.
c) Vehicles will be covered by transit insurance from Nationalized Insurance Company for transportation of vehicles from ware house to ware house i.e., CVD Delhi Cantt. BEW shall bear the cost of insurance as discussed during CNC. Copy of the same shall be provided to BEML before the movement.
BEW shall submit the insurance documents along with the proof of dispatch (copy of railway receipt) of vehicles to Delhi Cantt.
d) Escort - BEW to provide appropriate number of escorts to ensure safe delivery of equipment at CVD Delhi Cantt.
e) Functioning at CVD Delhi Cantt:
i) Clearance of the vehicles by TMO
ii) Clearance of the vehicles by RI
iii) Handing over the vehicles to 4SD or any sub depot assigned by CVD authorities for safe custody of Tatra vehicles.
iv) BEW shall be responsible till the vehicles is issued to the use unit by CVD wihin one year of RI said vehicles.
Cont'd..
- 15 - A.S No.27/2015
f) BEML shall replace all defective spare parts
subject to there being rendered
unserviceable due to any manufacturing defect and not due to any misuse or faulty operation on the part of BEW representatives after through investigation and certification/ recommendation by BEML service head located in Delhi.
6. THE TIME PERIOD FOR HANDING OVER OF VEHICLES The contractor shall hand over the vehicle to CVD and submit I-Notes to BEML within 15 days after receipt of vehicles at CVD.
14. As per the terms of work order, BEML shall replace all defective spare parts subject to there being rendered unserviceable due to any manufacturing defect and not due to any misuse or faulty operation on the part of BEW representatives after through investigation and certification/ recommendation by BEML service head located in Delhi. Contractor shall be fully responsible for safe handling/ custody, protection of the vehicle or part thereof from theft, damage, vandalism fire, etc., during transit and at CVD till the vehicles are handed over to CVD, Delhi. It was the duty of contractor to make good the Lost and / or damaged part, if any,, at the time of delivery of CVD, Delhi. However, BEML Cont'd..
- 16 - A.S No.27/2015 Division shall hand over the CQA inspection note to the contractor while taking delivery of vehicles and for arranging inspection by RI at CVD, Delhi. The vehicle along with the loose items like kits, spare wheels, tarapaulins, etc shall be handed over to the Contractor by BEML along with the relevant documents for which contractor should depute authorized representatives for taking over the vehicles and tools complete in all respect. No deficiency should be accepted at a later date on arrival at CVD Delhi Cantt. Necessary acknowledgment shall be obtained from the contractor for having received the vehicles along with loose items complete in good condition. At the time of handing over the vehicles to the contractor, CHECK LIST with data containing date of issue of vehicles, KM reading and Hour Meter Reading (HMR) at the time of issue would be recorded and signed by both the contractor and rep. of BEML. The petitioner has not adduced any such document before the Arbitrator, a fact manifestly discernible from the contents of the Award.
Cont'd..
- 17 - A.S No.27/2015
15. In respect of liquidate damages, it is provided that all the vehicles must be classified within the time frame as specified, otherwise liquidated damages at 5% per day for delay of vehicle caused in handing over to be charged from the contractor. The maximum liquidated damages charge will be 10% of vehicles handing over charges.
16. The learned arbitrator has considered the claim of the respondent and counter claim delving into the nuanced terms and conditions encapsulated within the work order. In a thorough and comprehensive analysis, the arbitrator crafted pertinent issues, strategically allocating the burden of proof to both the petitioner and respondent in relation to their respective adversarial claims and counterclaims. Evidentiary submissions, presented in the form of affidavits, were duly considered, and the claimant's witness underwent rigorous cross-examination by the respondent. Reciprocally, the respondent was subjected to cross- examination. Following a judicious evaluation of the arguments, the learned arbitrator adjudicated that, Cont'd..
- 18 - A.S No.27/2015 pursuant to Clause 1 of the work order, the obligation and responsibility for the transportation and delivery of the vehicles to CVD, Delhi rested squarely upon the consignor or transporter. Consequently, the onus of ensuring the vehicle's arrival at CVD and its subsequent delivery was conclusively determined to be the responsibility of the consignor or transporter, and not the claimant.
17. As it is evident from the Award, the petitioner has withhold the payment in respect of 40 invoices, amounting to Rs.9,13,002/-, submitted by the respondent. The rationale behind this withholding is attributed to the petitioner's assertion that despite persistent attempts to engage with BEW for elucidation on their representation for undertaking the conveyance of equipment from KGF to Delhi Cantonment, no response was forthcoming from the contractor. In response to this perceived non-responsiveness, the petitioner opted to dispatch the vehicles via M/s. ATI(1) Ltd. Upon their arrival at CVD, Delhi, the vehicles were duly received by representatives of respondent No.1, Cont'd..
- 19 - A.S No.27/2015 and notices were meticulously prepared and endorsed by the said representatives. However, a notable omission lies in the fact that the General Credit (GC) notes failed to delineate the specific details of shortages incurred during the course of these transactions.
18. It is contended that, as the representative of respondent No.1 were not available to facilitate the conveyance of vehicles from KGF to CVD, Delhi, the petitioner was left with no alternative but to dispatch the vehicles through BEML's authorized transporter. Furthermore, it is alleged that the contractor bore the responsibility of apprising the authorities at CVD, Delhi Cantonment of the vehicles' arrival and obtaining acknowledgment accordingly. While recognizing that individual deficiencies or shortcomings could be subsequently addressed, the petitioner asserts that the contractor had the obligation to inform CVD, Delhi authorities promptly. The petitioner contends that, in the absence of such timely communication, losses were incurred. The petitioner maintains that the contractor, at a minimum, could have notified CVD, Delhi authorities Cont'd..
- 20 - A.S No.27/2015 about the vehicle arrival, initiating the inspection process. In cases of failure to accept the equipment within the contractually stipulated timeframe, the petitioner suggests that a case-by-case examination could have been undertaken, allowing for the waiver or recovery of liquidated damages as warranted. The crux of the petitioner's argument is that the contractor's failure to promptly inform CVD, Delhi about the vehicle arrival resulted in loss to the petitioner.
19. Contrary to these contentions, the petitioner has not proffered evidentiary support before the arbitrator to substantiate compliance with Clause 1(ii) of the work order, which imposes an obligation on the petitioner to ensure the safe custody of the vehicles until handed over to CVD, Delhi. Consequently, the arbitrator, in accordance with his observations, aptly noted that there was an absence of evidence indicating a specific condition mandating the delivery of vehicles within a predefined timeframe. Hence, the arbitrator rightly concluded that the delay in the delivery of vehicles to CVD could not be attributed to respondent No.1.
Cont'd..
- 21 - A.S No.27/2015
20. In respect of counter claim of the petitioner is concerned, the arbitrator has considered that, the delay in handing over the vehicles were caused by the respondent in providing defective tyres, defective batteries, missing keys, non-provision of BA numbers belatedly making provision for engine/ tyre/ chassis/ battery amendment etc., and various other factors. Therefore, the vehicles could not have been handed over for inspection without rectifying the defects by the authoroty. Apart from that, the learned arbitrator has rightly rejected the counter claim as it barred by limitation since the meeting for amicable settlement between the claimant was held in the month of October 2010 and therefore, claim is not within the period of limitation. Therefore, I am of the view that, no fault can be discerned in the rationale employed by the learned Arbitrator in dismissing the counterclaim.
21. It is well settled position of law that, burden lies upon the petitioner to substantiate any grounds as delineated under Section 34 of the Arbitration and Conciliation Act. The court, in this context, is not positioned to Cont'd..
- 22 - A.S No.27/2015 function as an appellate forum in review of the Award passed by the Arbitrator. While the counsel for the petitioner has vehemently argued that the arbitrator passed the impugned Award without due adherence to procedural norms and in a biased manner, it is noteworthy that the petitioners have failed to undertake any measures to invoke the right to seek revocation of referral, a prerogative expressly permitted under Section 12 of the Arbitration and Conciliation Act. As provided under Section 12(3) of the Act, the parties to the proceedings can challenge the appointment of arbitrator if circumstances exist that give rise to justifiable doubt about as to his independence or impartiality or he does not possess the qualifications agreed to by the parties. In the instant case, admittedly the sole arbitrator concurrently held the position of Chief Manager in the petitioner company with responsibilities in the planning domain. Consequently, it is my considered opinion that the petitioner is precluded from raising objections to the legality of the Award on the grounds of imputed lack of integrity, especially subsequent to his retirement.
Cont'd..
- 23 - A.S No.27/2015
22. The Hon'ble Apex Court in the case of Prasun Roy V/s.
The Calcutta Metropolitan Development Authority and Another reported in AIR 1998 SC 205, in a similar set of facts has held thus;
"The Judicial Committee in decision in Chowdhury Murtaza Hossein v. Mussumat Bibi Bechunnissa, (31.A. 209) observed at page 220:
On the whole, therefore, their Lordships think that the appellant, having a clear knowledge of the circumstances on which he might have founded an objection to the arbitrators proceedings to make their awards, did submit to the arbitration going on; that he allowed the arbitrators to deal with the case as is stood before them, taking his chance of the decision being more or less favourable to himself; and that is too late for him, after the award has been made, and on the application to file the award, to insist on this objection to the filing of the award."
Relying on the aforesaid observations this Court in N. Chellappan v. Secretary, Kerala State Electricity Board (AIR 1975) SC 230) acted upon the principle that acquiescence defeated the right of the applicant at a later stage. In that case the facts were similar. It Cont'd..
- 24 - A.S No.27/2015 was held by conduct there was acquiscence. Even in a case where initial order was not passed by consent of the parties a party by participation and acquiescence can preclude future challenges."
23. As discussed supra, the scope for interference with an arbitration award under Sec.34 of the A & C Act, 1996 is very constricted. The duty upon the party who challenge the award to make out any grounds as enumerated Under Sec.34 of the A & C Act. Sec.34 of the Arbitration and Conciliation Act, which reads as below:
"Sec.34. Application for setting aside arbitral award (1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).
(2) 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 Cont'd..
- 25 - A.S No.27/2015
(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 -
Cont'd..
- 26 - A.S No.27/2015
(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.
(Explanation I: For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if, -
(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2: For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.
[(2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:
Cont'd..
- 27 - A.S No.27/2015 PROVIDED that an award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciation of evidence."
24. Therefore, the proviso to Sub Section (2A) makes it clear that, there is no scope for interference in the award even if there is any apparent error in appreciating the evidence or application of law. It is also settled position of law that Sec.34 proceedings cannot be used by one party to hash out the remedy of appeal. In some of the cases, the Apex Court held that even erroneous or wrong findings of fact by the Arbitral Tribunal or even an erroneous interpretation of documents/evidence, is not grounds for interference under Section 34 of the A&C Act.
25. In light of the aforementioned well-established legal principle, while it is not imperative to cite precedents to buttress my perspective, I would like to refer some landmark decisions of the Apex Court on this matter. In the case of Renusagar Power Co. Ltd. v. General Electric Co., as reported in 1994 Supp (1) SCC 644, it was established that an award may be liable for setting aside if it is manifestly illegal or contravenes:
Cont'd..
- 28 - A.S No.27/2015
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality, or
(d) in addition, if it is patently illegal.
Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. Such award is opposed to public policy and is required to be adjudged void.
26. In Associate Builders Vs. Delhi Development Authority reported in (2015) 2 Supreme Court Cases 49, wherein the Hon'ble Apex Court has elaborately discussed on Sec.34 of the A&C Act of 1996 as it stood prior to the amendment Act of 2015 and it held as below-
"15.This section in conjunction with Section 5 makes it clear that an arbitration award that is governed by Part I of the Arbitration and Conciliation Act, 1996 can be set aside only on grounds mentioned under Sections 34(2) and (3), and not otherwise. Section 5 reads as follows:
Cont'd..
- 29 - A.S No.27/2015
"5.Extent of judicial intervention.--
Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part".
16. It is important to note that the 1996 Act was enacted to replace the 1940 Arbitration Act in order to provide for an arbitral procedure which is fair, efficient and capable of meeting the needs of arbitration; also to provide that the tribunal gives reasons for an arbitral award; to ensure that the tribunal remains within the limits of its jurisdiction; and to minimise the supervisory roles of courts in the arbitral process.
17. It will be seen that none of the grounds contained in sub-section (2)(a) of Section 34 deal with the merits of the decision rendered by an arbitral award. It is only when we come to the award being in conflict with the public policy of India that the merits of an arbitral award are to be looked into under certain specified circumstances".
In the same decision, the Hon'ble Apex Court further held as below-
Cont'd..
- 30 - A.S No.27/2015 "40. We now come to the fourth head of public policy, namely, patent illegality. It must be remembered that under the Explanation to Section 34(2) (b), an award is said to be in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption. This ground is perhaps the earliest ground on which courts in England set aside awards under English law. Added to this ground (in 1802) is the ground that an arbitral award would be set aside if there were an error of law by the arbitrator. This is explained by Denning, L.J. in R.V. Northumberland Compensation Appeal Tribunal, Ex. p. shaw :
( All ER.p.130 D-E: KB p. 351) "Leaving now the statutory tribunals, I turn to the awards of the arbitrators. The Court of Kind's Bench never interfered by certiorari with the award of an arbitrator, because it was a private tribunal and not subject to the prerogative writs. If the award was not made a rule of court, the only course available to an aggrieved party was to resist an action on the award or to file a bill in equity. If the award was made a rule of court, a motion could be procured by corruption or other undue means (see Statutes 9 and 10 Will. III, C.15). At one time an award could not be upset on the ground of error of law by the arbitrator because that could not be said to be misconduct Cont'd..
- 31 - A.S No.27/2015 or undue means, but ultimately it was held in Kent V. Elstob, that an award could be set aside for error of law on the face of it. This was regretted by Williams, J., in Hodgkinson Vs. Fernie, but is now well established."
41. This in turn, led to the famous principle laid down in Champsey Bhara C. V. Jivraj Baloo Spg. And Wvg. Co.Ltd. Where the Privy Council referred to Hodgkinson and then laid down:
"The law on the subject has never been more clearly stated than by Williams, J. in Hodgkinson V. Fernie.
'The law has for many years been settled, and remains so at this day, that, where a cause or matters in difference are referred to an arbitrator, whether a lawyer or a layman, he is constituted the sole and final Judge of all questions both of law and of fact... The only exceptions to that rule are cases where the award is the result of corruption or fraud, and one other, which, though it is to be regretted, is now, I think firmly established viz. Where the question of law necessarily arises on the face of the award or upon some paper accompanying and forming part of the award. Though the propriety of this latter may very well be doubted, I think it may be considered as established."
Cont'd..
- 32 - A.S No.27/2015
27. Subsequent to the above decision, by Amendment Act of 2015, Sub-Section 2(A) was inserted to Sec.34 wherein one more additional ground is provided to set aside the award on the ground that if the court finds that award is vitiated by patent illegality appearing on the face of award. The Proviso states that an award shall not be set aside merely on the ground of erroneous application of law and re appreciation of evidence. Therefore, the term patent illegality circumscribed in Sub-Sec.2(A) does not permit court to interfere even if it found that the Arbitrator erred in applying the law to the facts involved in the dispute and there is no scope for re- appreciation of evidence. The supervisory role of the court under Sec.34 is to be kept a minimum level and interference is envisaged only in case of fraud or bias, violation of the natural justice and in case of patent illegality, which must be substantiated by evidence to that effect. In MMTC Limited v. Vedanta Limited reported in (2019) 4 SCC 163 the Hon'ble Apex Court has explained the powers under Section 34 of the Arbitration Act in the following words:
"11. As far as Section 34 is concerned, the position is well- settled by now that the Court does not sit in appeal over the arbitral award Cont'd..
- 33 - A.S No.27/2015 and may interfere on merits on the limited ground provided under Section 34(2)(b)(ii) i.e. if the award is against the public policy of India.
As per the legal position clarified through decisions of this Court prior to the amendments to the 1996 Act in 2015, a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice or morality, and the existence of patent illegality in the arbitral award. Additionally, the concept of the "fundamental policy of Indian law" would cover compliance with statutes and judicial precedents, adopting a judicial approach, compliance with the principles of natural justice, and Wednesbury [Associated Provincial Picture Houses v. Wednesbury Corpn., (1948) 1 KB 223 (CA)] reasonableness. Furthermore, "patent illegality" itself has been held to mean contravention of the substantive law of India, Cont'd..
- 34 - A.S No.27/2015
contravention of the 1996 Act, and
contravention of the terms of the contract."
28. A similar view, as stated above, has been taken by the Hon'ble Apex Court in K. Sugumar v. Hindustan Petroleum Corporation Ltd., reported in (2020) 12 SCC 539 where it has been observed as follows:
"2. The contours of the power of the Court under Section 34 of the Act are too well established to require any reiteration. Even a bare reading of Section 34 of the Act indicates the highly constricted power of the civil court to interfere with an arbitral award. The reason for this is obvious. When parties have chosen to avail an alternate mechanism for dispute resolution, they must be left to reconcile themselves to the wisdom of the decision of the arbitrator and the role of the court should be restricted to the bare minimum.
Interference will be justified only in cases of commission of misconduct by the arbitrator which can find manifestation in different Cont'd..
- 35 - A.S No.27/2015 forms including exercise of legal perversity by the arbitrator."
29. The ratio laid down in the aforesaid decisions are squarely applicable to the facts of the present case. From the above referred decisions, explicitly clear that only in cases that if award apparently, on his face found contrary to (1) the fundamental policy of Indian Law or (2) the interests of India; or (3) justice or morality or (4) in case if it is patently illegal and lastly it is so unfair and unreasonable that it shocks the conscience of the Court could be interfered under Sec.34 of the A & C Act. Apart from that, in my humble view, in a petition under Section 34 Arbitration and Conciliation Act, it is impermissible to re-appreciate the evidence adduced by the parties before arbitral tribunal to record a different findings. It is a firmly entrenched legal tenet that, pursuant to Section 34 of the Arbitration and Conciliation Act, the court is devoid of authority to amend or adjust the Award, nor does it possess the jurisdiction to selectively confirm one aspect while annulling another. Therefore, I am of the view that the petitioner has failed to establish any grounds warranting interference in the impugned award. Accordingly, given the Cont'd..
- 36 - A.S No.27/2015 lack of merit in the petitioner's contentions, the petition is deemed devoid of substance and is liable to be rejected. Accordingly, the point for consideration is answered in the Negative.
30. POINT No.2 : For the aforesaid reasons and discussion, I proceed to pass the following -
ORDER The suit filed under Section 34 of Arbitration and Conciliation Act, 1996 is dismissed with cost.
Consequently, the impugned Award dated: 26.11.2014 passed by the respondent No.2 in unnumbered Arbitration Proceeding is confirmed.
(Dictated to the Stenographer on open court, transcribed by her, revised by me and after corrections, pronounced in open Court on this the 7 th day of February, 2024.) (HARESHA. A) XXVII Additional City Civil and Sessions Judge, Bengaluru.
Cont'd..