Orissa High Court
Mahanadi Coalfields Limited And Anr vs Sri Ram Construction on 2 February, 2023
Author: S.K. Panigrahi
Bench: S.K. Panigrahi
IN THE HIGH COURT OF ORISSA AT CUTTACK
ARBA No.1 of 2006
(From the judgment dated 24.09.2005 passed by the learned
District Judge, Sambalpur in Arbitration Petition No.5 of 2004
arising out of arbitral award dated 31.03.2004 passed by the
learned Sole Arbitrator)
Mahanadi Coalfields Limited and Anr. .... Appellants
-versus-
Sri Ram Construction, Phularitand, .... Respondent
Kharkharee, Dhanbad, Jharkhand
Advocates appeared in the case:
For Appellants : Mr. Sanjit Mohanty, Sr. Adv.
Mr. S. Nanda, Adv.
-versus-
For Respondent : Mr. D. Panda, Sr. Adv.
Mr. S. Panda, Adv.
CORAM:
DR. JUSTICE S.K. PANIGRAHI
DATE OF HEARING:-06.12.2022
DATE OF JUDGMENT:-02.02.2023
Dr. S.K. Panigrahi, J.
1. The present Appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "A & C Act") has been filed seeking setting aside the final judgment pg. 1 dated 24.09.2005 passed by the Learned District Judge, Sambalpur in Arbitration Petition No.5 of 2004 arising out of arbitral award dated 31.03.2004 passed by the learned sole Arbitrator.
I. FACTUAL MATRIX OF THE CASE:
2. The present Appellants i.e. Mahanadi Coalfields Ltd., which is an undertaking of the Government of India (hereinafter referred to as "MCL") vide Tender Notice dated 30.08.1996 invited tenders for construction of 336 "A" Type Quarters at Lingaraj Township in Talcher, Odisha. The tender was floated in two packages for construction of 168 Quarters each. After negotiations, the present Respondent i.e. Sri Ram Construction (hereinafter referred to as "Sri Ram") was awarded a combined work order for both packages for an aggregate amount of Rs.7,13,43,281.28/- vide letter dated 30.09.1997.
3. The letter awarding work in Clause-7 stated "All the terms and conditions of original tender shall be applicable for this work". Furthermore, Clause 8 stated "that matters relating to any dispute or difference arising out of this tender, work order and subsequent contract agreement entered into, based on this tender and work order shall be subject to the jurisdiction of District Court, Sambalpur (Orissa) only." The work order further provided that the work was to be completed within pg. 2 a period of 18 months to be calculated from the 10th days of issue of the work order or from the actual date of handing over of the site whichever is later. A formal agreement was entered into between the parties on 22.12.1997. A subsequent agreement dated 09.02.1998 was also entered into between the Dy. Chief Engineer of MCL and Sri Ram which referred to the main agreement dated 22.12.1997 in its Preamble.
4. The formal agreement dated 22.12.1997 contains a very detailed arbitration clause which appears to have been struck off by hand. The subsequent agreement dated 09.02.1998 also contains an arbitration clause which subsists.
5. Disputes arose between the parties due to alleged delay in handing over the work site; presence of high tension electricity lines that ran over the work sites; delay in paying mobilisation advance; delay in providing drawings, etc. After various representations and discussions, Sri Ram sent a notice invoking arbitration clause on 01.11.1999 to MCL. Another letter was sent by Sri Ram on 18.12.1999 to MCL seeking appointment of a sole arbitrator when no reply was received for its previous letter. MCL responded vide letter dated 19.05.2000 stating that the contract executed between the parties does not provide an arbitration clause and pg. 3 therefore, Sri Ram's representations do not merit any consideration. MCL vide letter dated 25.05.2000 closed the contract which was later modified by letter dated 12.09.2000, whereby the contract was terminated by MCL.
6. Sri Ram Construction filed an application under Section 11 of the A & C Act before this Court vide MJC No.326 of 2000, wherein vide order dated 16.05.2001, the said matter was referred to the learned Sole Arbitrator. MCL filed Misc. Case No.99 of 2001 seeking review and cancellation of the aforesaid order, but vide order dated 30.08.2001, the petition for review was rejected. It appears from the record that MCL filed OJC No.4031 of 2002 challenging the order dated 30.08.2001 before this Court, but the same was also dismissed on 29.04.2002.
7. The parties participated in the arbitration proceedings and it appears that MCL contested the arbitration proceedings primarily on the ground of absence of an arbitration clause in the agreement. No statement of defence was filed to the various items of claims preferred by Sri Ram Construction. Keeping the contentious nature of the preliminary question of maintainability of the arbitration proceeding in mind, 8 issues were framed by the learned Sole Arbitrator. The same are reproduced hereinbelow:
pg. 4 "1. Whether the claim of the claimants for the adjudication of disputes through arbitration is maintainable?
2. Whether the Arbitrator has the jurisdiction to give the award in the matter?
3. Whether the deletion of arbitration clause was made in the tender document before or after the sale of the same and whether the same has been made before or after the execution of the Agreement (Ext.6)?
4. Whether the supplementary Agreement dated 9.02.1998 (Ext.8) was executed by officers of M.C.L. having authority to execute the same?
5. Whether the respondents have ratified the supplementary Agreement?
6. Whether the supplementary Agreement relates to the main Agreement?
7. Whether the claimants are entitled to any other relief on the claims raised?
8. Whether the claimants are entitled to any other relief?"
As it is evidently clear from the above, the first 6 issues directly or indirectly relate to the existence and validity of arbitration between the parties and thereafter, whether the Arbitrator has jurisdiction to decide the present matter.
These 6 issues were considered together and decided preliminarily by the learned Sole Arbitrator after weighing the evidence available on record.
8. After returning a positive finding and assuming jurisdiction, the learned Sole Arbitrator passed the final pg. 5 award in favour of Sri Ram, the Claimant therein. Vide award dated 31.03.2004, the learned Sole Arbitrator awarded Sri Ram Construction a sum of Rs.3,93,72,100/- including interest and future interest at the rate of 17% per annum from the date of award till the date of payment.
9. The MCL preferred an appeal against the said award under Section 34 of the A & C Act before the Court of the learned District Judge, Sambalpur vide ARBP No.5 of 2004. The learned District Judge, Sambalpur vide order dated 24.09.2005 dismissed the said arbitration petition and confirmed the award of the learned Sole Arbitrator, leading to the present Appeal.
10. Now the facts leading to the filing the instant Appeal has been laid down, this Court shall endeavour to summarise the contentions of the Parties and the grounds which they put forth for consideration of this Court in exercise of this Court's limited jurisdiction available under Section 37 of the A & C Act.
II. APPELLANTS' SUBMISSIONS
11. The Learned Counsel for MCL assails the arbitral award mainly on the question of jurisdiction of the learned Arbitrator. It is their contention that the learned Arbitrator did not give a finding on the pleas of the appellants over his jurisdiction prior to entering into the merits of the matter pg. 6 and on this ground alone, the arbitral award is liable to be set aside as it has caused grave miscarriage of justice. More so, for this non-consideration of the plea of jurisdiction first, the MCL was denied its opportunity to file a statement of defence against all other claims of Sri Ram which is in violation of the rules of natural justice.
12. Furthermore, the finding of the learned Arbitrator (which was confirmed by the learned District Judge) that Clause 14 which provides for arbitration in the agreement dated 22.12.1997 had not been struck off by the time the agreement was signed is perverse, unreasonable and liable to be set aside.
13. It is also earnestly contended that the agreement dated 09.02.1998 was executed by unauthorized persons and could not be held to be binding on MCL, therefore, the arbitration clause contained in this agreement would not be binding on MCL.
14. It is further submitted that the learned Arbitrator was appointed ex parte by this Court and as such, MCL was not given opportunity to bring to the notice of this Court that there was no arbitration clause in the contract.
III. RESPONDENT'S SUBMISSIONS
15. Per contra, Learned Counsel for Sri Ram stated that scope of interference for this Court under Section 37 of the A & C pg. 7 Act is extremely narrow and the Appellants' case does not fall within any of the grounds for setting aside of the arbitral award.
16. On the question of the decision of the arbitrator on the plea of maintainability of the arbitration, it was submitted that the parties consented to the Arbitrator deciding the same along with all other issues as has been recorded in the award. The order dated 14.04.2002 of the learned Arbitrator also clearly reflects that the parties agreed that the learned Arbitrator would adjudicate the pleas under Section 16 along with the main claim. Any allegation which is contrary to the same is an afterthought and has no foundation in fact. It is baseless and false.
17. Learned Counsel for Sri Ram submitted that it is not true that the arbitration clause in the agreement dated 22.12.1997 was struck off at the time of signing the agreement. The same was done unilaterally behind the back of the concerned officials of Sri Ram. The original agreement was in the custody of the officers of MCL and therefore, in the absence of any date put below the signature on the scored off portion, the officers of MCL attempted to blindside Sri Ram. It is further submitted that after appreciating all the evidence put forth by the parties, the learned Sole Arbitrator has applied his mind and come to the conclusion pg. 8 that the arbitration clause was scored off illegally and as such is not binding on Sri Ram.
18. With regards to the supplementary agreement, the learned Counsel for Sri Ram submits that the supplementary agreement was a part of the main agreement and has to be essentially incorporated by reference. There is no doubt of the fact that the terms of the supplementary agreement were acted upon by both parties and as such whether or not any officer of the Corporation had authority to execute the contract is no more a live dispute between the parties.
19. Moreover, the order appointing the sole arbitrator under Section 11 of the A & C Act was assailed by MCL who moved this Court for review of the said order. This Court applied its mind not once but twice to the said appointment and MCL had ample opportunity to put forth its assertions, no matter how misconceived they were.
IV. ISSUES FOR CONSIDERATION
20. Having heard the Learned Counsels for the parties and perused the materials available on record, this Court here has identified the following issues to be determined:
A. Whether the learned Sole Arbitrator has incorrectly exercised his powers under Section 16 of the A & C Act?
pg. 9 B. What is the scope of this Court's power under Section 37 of the A & C Act and whether the arbitral award is patently illegal as alleged?
C. Whether the supplementary agreement can be read as a part of the main agreement?
V. ISSUE A: WHETHER THE LEARNED SOLE ARBITRATOR HAS INCORRECTLY EXERCISED HIS POWERS UNDER SECTION 16 OF THE A & C ACT?
21. Section 16 of the A & C Act has been framed in accordance with Article 16 of the UNCITRAL Model law, which embodies elemental jurisprudential doctrine i.e., "Kompetenz
- Kompetenz". This doctrine empowers the court or an Arbitral Tribunal to rule upon its 'own' jurisdiction, brought forth by one of the parties to the dispute. Section 16 (1) of the A & C Act states that an arbitral tribunal may rule on its own jurisdiction, including ruling on any objection with respect to the existence or validity of the arbitration agreement.
22. The doctrine of kompetenz-kompetenz implies that the Arbitral Tribunal has the competence to determine and rule on its own jurisdiction, including objections with respect to the existence, validity, and scope of the arbitration agreement, in the first instance, which is subject to judicial scrutiny by the courts at a later stage of the proceedings.
pg. 10 Under the A & C Act, the challenge before the Court is maintainable only after the final award is passed as provided by sub-section (6) of Section 16. The stage at which the order of the tribunal regarding its jurisdiction is amenable to judicial review, varies from jurisdiction to jurisdiction. The doctrine of kompetenz-kompetenz has purposefully evolved to minimise judicial intervention at the pre-reference stage, and reduce unmeritorious challenges raised on the issue of jurisdiction of the Arbitral Tribunal.
23. The Supreme Court of India in Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd.1 discussed the application of the doctrine of kompetenz-kompetenz in the Indian legislation, and observed :
"7.10. In view of the legislative mandate contained in Section 11(6-A), the Court is now required only to examine the existence of the arbitration agreement. All other preliminary or threshold issues are left to be decided by the arbitrator under Section 16, which enshrines the kompetenz-kompetenz principle.
7.11. The doctrine of "kompetenz-kompetenz", also referred to as "compétence-compétence", or "compétence de la recognized", implies that the Arbitral Tribunal is empowered and has the competence to rule on its own jurisdiction, including determining all jurisdictional issues, 1 (2020) 2 SCC 455 pg. 11 and the existence or validity of the arbitration agreement. This doctrine is intended to minimise judicial intervention, so that the arbitral process is not thwarted at the threshold, when a preliminary objection is raised by one of the parties. The doctrine of kompetenz-kompetenz is, however, subject to the exception i.e. when the arbitration agreement itself is impeached as being procured by fraud or deception. This exception would also apply to cases where the parties in the process of negotiation, may have entered into a draft agreement as an antecedent step prior to executing the final contract. The draft agreement would be a mere proposal to arbitrate, and not an unequivocal acceptance of the terms of the agreement. Section 7 of the Contract Act, 1872 requires the acceptance of a contract to be absolute and unqualified [Dresser Rand S.A. v. Bindal Agro Chem Ltd. [Dresser Rand S.A. v. Bindal Agro Chem Ltd., (2006) 1 SCC 751] See also BSNL v. Telephone Cables Ltd. [BSNL v. Telephone Cables Ltd., (2010) 5 SCC 213 : (2010) 2 SCC (Civ) 352] Refer to PSA Mumbai Investments Pte. Ltd. v. Jawaharlal Nehru Port Trust [PSA Mumbai Investments Pte. Ltd. v. Jawaharlal Nehru Port Trust, (2018) 10 SCC 525 : (2019) 1 SCC (Civ) 1] ]. If an arbitration agreement is not valid or non-existent, the Arbitral Tribunal cannot assume jurisdiction to adjudicate upon the disputes. Appointment of an arbitrator may be refused if the arbitration agreement is not in writing, or the disputes are beyond the scope of the arbitration agreement.
Article V(1)(a) of the New York Convention states that recognition and enforcement of an pg. 12 award may be refused if the arbitration agreement 'is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made'.
7.13. In view of the provisions of Section 16, and the legislative policy to restrict judicial intervention at the pre-reference stage, the issue of limitation would require to be decided by the arbitrator. Sub-section (1) of Section 16 provides that the Arbitral Tribunal may rule on its own jurisdiction, "including any objections" with respect to the existence or validity of the arbitration agreement. Section 16 is as an inclusive provision, which would comprehend all preliminary issues touching upon the jurisdiction of the Arbitral Tribunal. The issue of limitation is a jurisdictional issue, which would be required to be decided by the arbitrator under Section 16, and not the High Court at the pre-reference stage under Section 11 of the Act. Once the existence of the arbitration agreement is not disputed, all issues, including jurisdictional objections are to be decided by the arbitrator."
24. Recently, the Apex Court in Vidya Drolia v. Durga Trading Corpn.2 has held that:
"130. Section 16(1) of the Arbitration Act accepts and empowers the Arbitral Tribunal to rule on its own jurisdiction including a ruling on the objections, with respect to all aspects of non- arbitrability including validity of the arbitration agreement. A party opposing arbitration, as per sub-section (2), should raise the objection to 2 (2021) 2 SCC 1 pg. 13 jurisdiction of the tribunal before the Arbitral Tribunal, not later than the submission of statement of defence. However, participation in the appointment procedure or appointing an arbitrator would not preclude and prejudice any party from raising an objection to the jurisdiction.
Obviously, the intent is to curtail delay and expedite appointment of the Arbitral Tribunal. The clause also indirectly accepts that appointment of an arbitrator is different from the issue and question of jurisdiction and non- arbitrability. As per sub-section (3), any objection that the Arbitral Tribunal is exceeding the scope of its authority should be raised as soon as the matter arises. However, the Arbitral Tribunal, as per sub-section (4), is empowered to admit a plea regarding lack of jurisdiction beyond the periods specified in sub-sections (2) and (3) if it considers that the delay is justified. As per the mandate of sub-section (5) when objections to the jurisdiction under sub-sections (2) and (3) are rejected, the Arbitral Tribunal can continue with the proceedings and pass the arbitration award. A party aggrieved is at liberty to file an application for setting aside such arbitral award under Section 34 of the Arbitration Act. Sub-section (3) to Section 8 in specific terms permits an Arbitral Tribunal to continue with the arbitration proceeding and make an award, even when an application under sub-section (1) to Section 8 is pending consideration of the court/forum. Therefore, pendency of the judicial proceedings even before the court is not by itself a bar for the Arbitral Tribunal to proceed and make an award. Whether the court should stay arbitral pg. 14 proceedings or appropriate deference by the Arbitral Tribunal are distinctly different aspects and not for us to elaborate in the present reference.
131. Section 34 of the Act is applicable at the third stage post the award when an application is filed for setting aside the award. Under Section 34, an award can be set aside : (i) if the arbitration agreement is not valid as per law to which the party is subject; (ii) if the award deals with the disputes not contemplated by or not falling within the submission to arbitration, or contains a decision on the matter beyond the scope of submission to arbitration; and (iii) when the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force. Thus, the competence- competence principle, in its negative effect, leaves the door open for the parties to challenge the findings of the Arbitral Tribunal on the three issues. The negative effect does not provide absolute authority, but only a priority to the Arbitral Tribunal to rule the jurisdiction on the three issues. The courts have a "second look" on the three aspects under Section 34 of the Arbitration Act. [ The nature and extent of power of judicial review under Section 34 has not been examined and answered in this reference.]"
25. Under Section 16 of the A & C Act, the outcomes that are contemplated under the Act are where the objection as to maintainability is upheld by the Tribunal or whereby the Tribunal rejects the plea and continues with the arbitral proceedings. In the former, when the plea is accepted by the pg. 15 Tribunal under Section 16(2) or 16(3) of the A & C Act, an appeal would lie under Section 37 of the A & C Act. If the plea is either rejected or no ruling is rendered by the Tribunal, the proceedings would continue and the challenge, if any, would be only after the final award is passed under Section 34 of the A & C Act.
26. Learned Counsel for the Appellants alleged that it is patently illegal and fundamentally against the policy of Indian law that the learned Sole Arbitrator did not decide the issue of his jurisdiction first and thereafter deprived them from filing a Statement of Defence with respect to other claims. In this regard, it is pertinent to note that it is not necessary that in every case, a jurisdiction issue has to be decided at the very threshold. In Glencore International AG v. Indian Potash Limited3 , the learned Single Judge was of the opinion that:
"61. There is, contrary to the assertion made on behalf of IPL, no such fundamental policy in Indian law that adjudicating authorities should mandatorily render decision on jurisdictional issues before hearing the matter on merits. The discretion in this behalf lies with the adjudicating authority. In case the adjudicating authority hears the matter both with regard to jurisdictional issues as well as on merits together, it would logically not give its views on merits if it were to 3 2019 SCC OnLine Del 9591 pg. 16 sustain an objection ousting its jurisdiction in the matter."
27. The same view was reiterated by the Delhi High Court in Shri Pankaj Arora v. AVV Hospitality4 where the Court held that the Arbitrator had the option of keeping open the issue of jurisdiction to be decided after recording evidence and after hearing final arguments. The decision of the arbitral tribunal to enunciate its view concerning the jurisdictional issue along with its view on the merits of the matter in the final award aligns with Indian public policy as reflected in Maharshi Dayanand University v. Anand Coop. L/C Society Ltd.5, Shakti Bhog Foods Limited v. Kola Shipping Limited6 and Roshan Lal Gupta v. Shri. Parasram Holding Pvt. Ltd.7.
28. Furthermore, the Appellants' present Petition itself refers to and reproduced the learned Sole Arbitrator's order dated 14.04.2002. It appears that the learned Arbitrator directed the present Appellants to file their statement of defence after it was agreed that evidence would be necessary to decide the plea of maintainability and the same is a question which has to be decided along with the main claim 4 O.M.P.(T) (COMM.) 32/2020 decided on 20th July, 2020 5 (2007) 5 SCC 295 6 2012 SCC OnLine Del 4300.
7 2009 SCC OnLine Del 293 pg. 17 since the questions are intricately connected. The parties having consented to the plea of maintainability being decided with the main claim during the arbitration proceedings and not at the threshold, cannot now turnaround and challenge the same. The Appellants had not at this point filed their Statement of Defence, and now upon being fully aware that the issues would be decided together, chose to still not include their defence to the claims and focused just on the maintainability aspect. It is, therefore, not true that no opportunity was awarded to them, but that they squandered away the opportunity for reasons best known to them.
29. In light of the position of law as discussed above and keeping in mind the facts as they have transpired, this Court is of the view that the learned Sole Arbitrator did not exercise his power under Section 16 of the A & C Act improperly or incorrectly. There is no bar to the learned Arbitrator deciding the plea of maintainability at a belated stage due to the need to examine evidence as long as the plea is decided first amongst all claims. Moreover, the Appellants were not refused any opportunity to file their statement of defence, being fully aware prior to filing the same that all the claims and pleas would be heard and decided together given the nature of the dispute.
pg. 18
30. In Jagdish Chander v. Ramesh Chander8, a two-judge bench of the Supreme Court, while relying upon the earlier decisions in K.K. Modi v. K.N. Modi9, Bharat Bhushan Bansal v. U.P. Small Industries Corpn. Ltd.10, Bihar State Mineral Development Corpn v. Encon Builders (I) (P) Ltd.11, and State of Orissa v. Damodar Das12, enumerated the principles governing what constitutes an arbitration agreement. Justice R V Raveendran, speaking on behalf of the Hon'ble Bench, held that the words used in an arbitration agreement should disclose a determination and obligation on behalf of parties to refer disputes to arbitration.
31. It was a contentious issue between the parties as to whether or not the Arbitration Clause in the main agreement was struck off prior to signing of the agreement. The learned Arbitrator after examining the witnesses and the materials produced on record by both parties, thoroughly examined the issue and rendered a in favour of the Claimant- Sri Ram Construction. It was the finding of the learned Arbitrator that mere striking off of the arbitration clause in the main 8 (2007) 5 SCC 719 9 (1998) 3 SCC 573 10 (1999) 2 SCC 166 11 (2003) 7 SCC 418 12 (1996) 2 SCC 216 pg. 19 agreement is not determinative of whether or not the same was done before or at the time of signing the agreement. The learned District Judge agrees and also highlighted the same points of evidence that the learned Arbitrator has in his award. It is evident that the authorized person for Sri Ram Construction has signed on all pages of the agreement but the G.M.(C) of MCL has only signed on the two pages which contain the arbitration clause. If the same was done in the presence of the official from Sri Ram Construction, it would have been independently ratified as having been struck off as is the standard practice. The date also would have been inserted below the signature. There is nothing before this Court to set at naught this finding. Moreover, this Court does not sit in appeal over such fact-finding exercises and is not permitted to re-appreciate facts. What this Court must be convinced of is that the learned Arbitrator reasonably and judiciously applied his mind and there is the possibility that he could have arrived at his finding. The Supreme Court in Ssangyong Engg. & Construction Co. Ltd. v. NHAI13 has held that re- appreciation of evidence, cannot be permitted under the ground of patent illegality appearing on the face of the 13 (2019) 15 SCC 131 pg. 20 award. A perusal of the award dated 31.03.2004 clearly demonstrates the anxious consideration of the learned Arbitrator and a clear reasoning as to why he has arrived at his finding based on the evidence that was presented by the parties in the course of the arbitral proceedings. The Court is not to attempt to form a view in order to substitute the same with the view of the learned Arbitrator if the view taken by the learned Arbitrator is reasonable. The same has been previously reiterated by this Court in State of Orissa v. Bhagyadhar Dash14 and P.R. Shah Shares & Stock Broker (P) Ltd. v. B.H.H. Securities (P) Ltd.15. It is, thus, clear in view of the law discussed hereinabove the learned Sole Arbitrator was well within the permissible countours in deciding the question in the matter that he did. VI. ISSUE B: WHAT IS THE SCOPE OF THIS COURT'S POWER UNDER SECTION 37 OF THE A&C ACT AND WHETHER THE ARBITRAL AWARD IS PATENTLY ILLEGAL AS ALLEGED?
32. In the present matter, this Court is only concerned with Section 37(1)(c) which states that an appeal lies under Section 37 of the A & C Act from an order setting aside or refusing to set aside an arbitral award under Section 34 of the A & C Act. The extent of judicial scrutiny under Section 14 2016 SCC OnLine Ori 1039 15 (2012) 1 SCC 594 pg. 21 34 of the A & C Act is limited and the scope of interference is narrow. Under Section 37 of the A & C Act, the extent of judicial scrutiny and scope of interference is further narrower. Where there are concurrent findings of facts and law, first by the Arbitral Tribunal which are then confirmed by the court while in seisin of a Section 34 application, in an appeal under Section 37, the Appellate Court should be very cautious and reluctant to interfere in the findings returned in the award by the Arbitral Tribunal and confirmed by the Court under Section 34 of the A & C Act.
33. The Supreme Court in K. Sugumar v. Hindustan Petroleum Corpn. Ltd.16, wherein it has been observed as:
"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 forms including exercise of legal perversity by the arbitrator."16
(2020) 12 SCC 539 pg. 22
34. Furthermore the Supreme Court in Haryana Tourism Ltd. v. Kandhari Beverages Ltd.17 has further held as:
"9. As per settled position of law laid down by this Court in a catena of decisions, an award can be set aside only if the award is against the public policy of India. The award can be set aside under Sections 34/37 of the Arbitration Act, if the award is found to be contrary to: (a) fundamental policy of Indian law; or (b) the interest of India; or (c) justice or morality; or (d) if it is patently illegal. None of the aforesaid exceptions shall be applicable to the facts of the case on hand. The High Court has entered into the merits of the claim and has decided the appeal under Section 37 of the Arbitration Act as if the High Court was deciding the appeal against the judgment and decree passed by the learned trial court. Thus, the High Court has exercised the jurisdiction not vested in it under Section 37 of the Arbitration Act. The impugned judgment and order [Kandhari Beverages Ltd. v. Haryana Tourism Ltd., 2018 SCC OnLine P&H 3233] passed by the High Court is hence not sustainable."
More recently, a similar view was also echoed by the Supreme Court in Punjab State Civil Supplies Corporation Ltd. v. Ramesh Kumar and Company18.
35. In Oil & Natural Gas Corporation Ltd. v. Western Geco International Limited19, the Apex Court has observed that 17 (2022) 3 SCC 237 18 Civil Appeal No. 6832 of 2021, Order dated 30.6.2022 19 (2014) 9 SCC 263 pg. 23 the award could be set aside if it is against the public policy of India, that is to say, if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality; or
(d) if it is patently illegal.
After being subsequently discussed in Associate Builders v. Delhi Development Authority20 the position of law was clarified and laid down recently by the Supreme Court in Ssangyong Engg. & Construction Co. Ltd. v. NHAI21, wherein the Apex Court was pleased to hold that:
"34. What is clear, therefore, is that the expression "public policy of India", whether contained in Section 34 or in Section 48, would now mean the "fundamental policy of Indian law"
as explained in paras 18 and 27 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] i.e. the fundamental policy of Indian law would be relegated to "Renusagar" understanding of this expression. This would necessarily mean that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 20 (2015) 3 SCC 49 21 supra pg. 24 SCC (Civ) 12] expansion has been done away with. In short, Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 :
(2014) 5 SCC (Civ) 12] , as explained in paras 28 and 29 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , would no longer obtain, as under the guise of interfering with an award on the ground that the arbitrator has not adopted a judicial approach, the Court's intervention would be on the merits of the award, which cannot be permitted post amendment. However, insofar as principles of natural justice are concerned, as contained in Sections 18 and 34(2)(a)(iii) of the 1996 Act, these continue to be grounds of challenge of an award, as is contained in para 30 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] .
35. It is important to notice that the ground for interference insofar as it concerns "interest of India" has since been deleted, and therefore, no longer obtains. Equally, the ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the "most basic notions of morality or justice". This again would be in line with paras 36 to 39 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49: (2015) 2 SCC (Civ) 204] , as it is only such arbitral awards that shock the conscience of the court that can be set aside on this ground.
36. Thus, it is clear that public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as understood in paras 18 and 27 pg. 25 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , or secondly, that such award is against basic notions of justice or morality as understood in paras 36 to 39 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] . Explanation 2 to Section 34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) was added by the Amendment Act only so that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 :
(2014) 5 SCC (Civ) 12] , as understood in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , and paras 28 and 29 in particular, is now done away with.
37. Insofar as domestic awards made in India are concerned, an additional ground is now available under sub-section (2-A), added by the Amendment Act, 2015, to Section 34. Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law. In short, what is not subsumed within "the fundamental policy of Indian law", namely, the contravention of a statute not linked to public policy or public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality.
38. Secondly, it is also made clear that reappreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award.
pg. 26
39. To elucidate, para 42.1 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Para 42.2 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award.
40. The change made in Section 28(3) by the Amendment Act really follows what is stated in paras 42.3 to 45 in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair- minded or reasonable person would; in short, that the arbitrator's view is not even a possible view to take. Also, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under Section 34(2-A).
41. What is important to note is that a decision which is perverse, as understood in paras 31 and 32 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , while no longer being a ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award. Thus, a pg. 27 finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse."
36. It is seen that the learned Arbitrator has elaborately considered various documents, submissions and evidence led by the parties in respect of each claim, particularly the one on maintainability of the reference of the dispute to arbitration. The learned Arbitrator has extensively gone into the evidence and evaluated the entire material before him and has rendered a detailed speaking award. An award can be challenged only on the grounds mentioned in Section 34(2) of the Act and in absence of any such ground, it is not possible to re-examine the facts to find out whether a different decision can be arrived at. This view was reiterated by the High Court of Delhi in M/S Pragya Electronics Pvt. Ltd. v. M/s Cosmo Ferrites Ltd.22 and the Apex Court in Swan Gold Mining Ltd. v. Hindustan Copper Ltd.23. The Appellants have averred that the award is 22 2021 SCC OnLine Del 3428 23 (2015) 5 SCC 739 pg. 28 patently illegal without substantiating the same before this Court. In fact, it appears from the record, that they have actually not pleaded any such ground before the learned District Judge in their petition under Section 34 of the A & C Act. In light of the aforesaid facts and the Appellants' inability to substantiate its case, this Court does not doubt that there is any apparent violation of any terms of public policy in the present case, much less any patent illegality given the fact that this Court finds the reasoning to be cogent on the basis of which the learned Arbitrator has arrived at his conclusions.
37. The learned District Judge was correctly seized of the contours of the powers vested in him under Section 34 of the A & C Act. An arbitral award is not to be lightly interfered with. Unless the error of facts and law leads to perversity, there is no scope to upset an arbitral award. The learned court below has been of the correct opinion that it is the subjective satisfaction of the learned Arbitrator which should be respected.
VII. ISSUE C: WHETHER THE SUPPLEMENTARY AGREEMENT CAN BE READ AS A PART OF THE MAIN AGREEMENT?
38. The Appellants have brought up the supplementary agreement so contentiously in their petition as it is fairly obvious that the learned Sole Arbitrator has chosen to not pg. 29 rely on the same in his arbitral award. However, as the ground is pressed, this Court finds itself constrained to deal with the same.
39. In a recent judgment in Inox Wind Ltd. v. Thermocables Ltd.24, the Supreme Court has held that "a general reference to a standard form of contract of one party will be enough for incorporation of arbitration clause". This was apparently an expansion of the scope for incorporation by reference of an arbitration clause contained in a standard form of terms and conditions of a party.
40. In Aughton Ltd. v. M.F. Kent Services Ltd.25, the English Court of Appeal held that a general reference to a contract would be insufficient to incorporate any arbitration clause, unless sufficient cause existed to suggest to the contrary, and a special reference was, therefore, necessary. The law has however moved on, notably in the light of the subsequent first instance decisions of Langley J. in Sea Trade Maritime Corpn. v. Hellenic Mutual War Risks Assn. (Bermuda) Ltd.26 which discussed the single contract/two contract reference regime and Hamblen J. in Habas Sinai 24 (2018) 2 SCC 519 25 (1992) 57 BLR 1 (CA) 26 (2007) 1 Lloyd's Rep 280 pg. 30 Ve Tibbi Gazlar Isthisal Endustri AS v. Sometal SAL27 . In Habas Sinai28, Hamblen J. held that a general reference would be sufficient for incorporation of an arbitration clause from a standard form of contract if such standard terms were previously agreed between the two parties in another contract(s) or if they were standard terms of one party set out in the back of an offer letter, order or another document.
41. Following the approach in Aughton29, the Supreme Court in M.R. Engineers & Contractors (P) Ltd. v. Som Datt Builders Ltd.30 has held that:
"16. There is a difference between reference to another document in a contract and incorporation of another document in a contract, by reference. In the first case, the parties intend to adopt only specific portions or part of the referred document for the purposes of the contract. In the second case, the parties intend to incorporate the referred document in entirety, into the contract. Therefore when there is a reference to a document in a contract, the court has to consider whether the reference to the document is with the intention of incorporating the contents of that document in entirety into the contract, or with the intention of 27 2010 EWHC 29 (Comm).
28 supra 29 supra 30 (2009) 7 SCC 696 pg. 31 adopting or borrowing specific portions of the said document for application to the contract.
17. We will give a few instances of incorporation and mere reference to explain the position (illustrative and not exhaustive). If a contract refers to a document and provides that the said document shall form part and parcel of the contract, or that all terms and conditions of the said document shall be read or treated as a part of the contract, or that the contract will be governed by the provisions of the said document, or that the terms and conditions of the said document shall be incorporated into the contract, the terms and conditions of the document in entirety will get bodily lifted and incorporated into the contract. When there is such incorporation of the terms and conditions of a document, every term of such document (except to the extent it is inconsistent with any specific provision in the contract) will apply to the contract. If the document so incorporated contains a provision for settlement of disputes by arbitration, the said arbitration clause also will apply to the contract."
42. The basis of the doctrine of incorporation by reference is that the parties have to be aware of the said other document that is sought to be incorporated. Issues 4, 5, and 6 framed by the learned Tribunal pertain to the supplementary agreement. The supplementary agreement dated 09.02.1998 referred to the main agreement in its preamble and continued to refer to it throughout. It was entered into as a supplement to the main agreement and was intended to be pg. 32 read as a part and parcel of the main agreement. The Appellants claim that the Dy. C.E (C) and Superintending Engineer (C) were not authorised to execute the supplementary agreement and the same was not within the knowledge of the Appellant-Company. The Respondent claims, on the other hand, that the Appellants Company by their subsequent conduct have ratified the supplementary agreement. All advances, payments, recoveries from bills, etc. were allegedly made in terms of the supplementary agreement itself. The learned Arbitrator has gone into all these contentions and the evidence produced in this regard in great detail to ultimately come to the finding that MCL did not ratify the supplementary agreement by its conduct and no estoppel operates against them in that respect.
43. A contract for construction involves numerous details, technical, financial administrative and otherwise. There are, understandably, many formalities to be carried out. Some contracts may be small; some simple. Some involve large chunks of money. Some others have an unduly concentrated share of technical complexities. An arbitration clause is not just another clause in a contract. It has some added significance, having regard to its nature. It is clarified that the learned Arbitrator has held the arbitration clause in the main agreement itself to have existed and forming an pg. 33 intention to refer the disputes to arbitration between the parties after proper analysis of the facts and materials produced in evidence. Both these findings are based on facts and this Court shall not sit in re-appreciation of the same as they do not appear prima facie illegal, perverse or contrary to law. Even though the arbitration was invoked with a reference to the supplementary agreement. This issue is thus decided accordingly.
VIII. CONCLUSION:
44. At this juncture, this Court also deems it appropriate to refer to a similar case which was disposed of by this Court in ARBA No.51 of 2005 vide judgment and final order dated 22.2.2007 titled as Mahanadi Coalfields Ltd. v. Rawani Constructions and Anr.31. The facts of the present matter remain conspicuously similar to the facts of the matter referred to above in as much as the question therein also revolved around whether the arbitration clause existed in light of scoring off of the same in the agreement and had the same Appellant apart from we doubt, a similar agreement as the Clause referred to is also numbered similarly. This Court was at that time was of the opinion that no ground for interference is made out under Section 31 2007 SCC OnLine Ori 63 pg. 34 37 of the A & C Act in the matter referred to above which was ultimately affirmed by the Supreme Court vide order dated 01.10.2007 in SLP(C) No.9812 of 2007.
45. The power and the jurisdiction of the Court to set aside an award are specifically laid down in Section 34 of the A & C Act. If none of the conditions laid down in the said Section is satisfied, the award cannot be set aside on re-appraisal of the evidence. In view of the aforesaid judicial pronouncements, this Court does not find any cogent ground to hold that the application of the Appellants/MCL in any manner satisfied the conditions laid down in Section 34 of the A & C Act for setting aside the impugned award.
46. The appeal is, accordingly, dismissed and the judgment of the learned District Judge, Sambalpur passed in Arbitration Petition No.5 of 2004 is hereby affirmed. Consequently, all the pending I.As. are dismissed. No order as to costs.
( Dr. S.K. Panigrahi ) Judge Orissa High Court, Cuttack, Dated the 2nd February, 2023/B. Jhankar pg. 35