Indian Kanoon - Search engine for Indian Law

Madras High Court

Zuari Cement Limited vs India Cements Limited on 17 September, 2013

Author: R.S.Ramanathan

Bench: R.S.Ramanathan

       

  

  

 
 
 IN THE HIGH COURT OF JUDICATURE AT MADRAS

DATE: 17.9.2013.

CORAM

THE HON'BLE MR.JUSTICE R.S.RAMANATHAN

Arbitration O.P.No.674 of 2011

Zuari Cement Limited,
represented by Emiliyan Andreev, 
Chief Finance Officer, 
No.1, 10th Main, 
Jeevan Bhima Nagar,
Bengaluru 560 075.						Petitioner
	
	vs. 

1. India Cements Limited,
   Dhun Building,
   827, Anna Salai,
   Chennai 600 002. 

2. Hon'ble Mr.Justice G.T.Nanavati (Retd.)
   Former Judge, 
   Supreme Court of India, 
   Sole Arbitrator,
   91, 9th Floor, 'A' Tower,
   Galaxy Apartment,
   Near Hotel Grand Bhagwati,
   Sarkhej  Gandhinagar Highway Road,
   Bodakdev, Ahmedabad 380 054. 			Respondents
	
	Application under Section 34 of the Arbitration and Conciliation Act, 1996 for setting aside the Arbitration Award dated 30.7.2011. 

	For petitioner 	: Mr.Solicopper, Senior Advocate
					  for Mr.Arun Karthik Mohan
	
	For R1			: Mr.P.S.Raman, Senior Advocate 
					  for M/s.C.Ramesh and Harishankar


ORDER

This petition is filed under section 34 of the Arbitration and Conciliation Act, 1996 to set aside the award dated 30.7.2011 passed by the Arbitral Tribunal.

2. The first respondent initiated the arbitration proceedings by invoking clause 13.2 of the marketing agreement dated 18.5.2002 for passing an award directing the petitioner herein to pay the first respondent a sum of Rs.74.40 crores with interest at 18% from 18.5.2002 till the date of realization, directing the petitioner herein to pay the first respondent the cost of arbitration proceedings and such other reliefs.

3. The case of the first respondent as projected in the statement of claim is as follows:-

Sri Vishnu Cement Limited hereinafter referred to as SVCL was a subsidiary of the first respondent. The petitioner herein is a joint venture company between Zuari Industries an Indian Company and Ciments Francias (CF) a French Company. In the year 2001, the petitioner herein approached the first respondent herein for taking over the share holding in SVCL Company as the said SVCL was under the control of the first respondent herein and India Cements and Securities Limited. After complying with all the formalities for the acquisition of the shareholding, a Share Purchase Agreement (SPA) was entered into on 10.1.2002 between the first respondent and ICL Securities Limited and the petitioner herein. Pursuant to the share purchase agreement, the second respondent acquired 94.7% equity shares of SVCL. Besides payment of price as mentioned in the share purchase agreement, the petitioner and the first respondent agreed that a sum of Rs.74.40 crores was payable by the petitioner to the first respondent and it was agreed that the same was part of the purchase transaction between the parties and in view of the circumstances prevailing at the time of share purchase agreement, the parties agreed to have a marketing agreement for facilitating the same. The parties agreed that the marketing agreement was conceived only as a mechanism for the payment of Rs.74.40 crores to the first respondent and accordingly, the marketing agreement was entered into between the first respondent and the petitioner on 18.5.2002 and it came into effect from 1st June 2002. It is the specific case of the first respondent that it was agreed by the petitioner that they would pay a sum of Rs.74.40 crores as part of the share purchase agreement and the marketing agreement was projected as a means to provide for the generation of funds by the petitioner. It was only to facilitate the petitioner to pay the said sum, the first respondent agreed for that agreement. Therefore, whatever be the terms of the agreement dated 18.5.2002, the obligation of the petitioner to pay the first respondent Rs.74.40 crores remained in tact and that was unconditionally accepted by the petitioner. An irrevocable letter of credit was issued by BNP Paribas Bank which was renewed on behalf of SVCL by the petitioner and the whole objective was that the payment of Rs.74.40 crores would be made by SVCL itself. This was a method adopted by the petitioner and it was also believed by the first respondent as the objective was only to get the balance money payable to them. With a view to enable the petitioner to pay the first respondent Rs.74.40 cores, the first respondent agreed, just as a gesture of assistance, to the petitioner to make the marketing agreement operational and in spite of the first respondent's helping the petitioner, the petitioner did not act as per the terms in the marketing agreement which was for their benefit. The petitioner attempted to make it appear as if the first respondent did not act according to the terms of the contract just to deny the legitimate claim of the first respondent. Therefore, the first respondent invoked the arbitration clause in the marketing agreement to claim Rs.74.40 crores from the petitioner.

4. SVCL was the first respondent and the petitioner herein was the second respondent before the Arbitral Tribunal. Later, SVCL merged with the petitioner with effect from 29.6.2007 and the petitioner became the successor-in-interest of SVCL.

5. SVCL filed a statement of defence raising their preliminary objection that as per the marketing agreement dated 18.5.2002, the petitioner company has no obligation with respect to payment under the said agreement and therefore, the petitioner is not a proper or necessary party to the dispute and the only obligation placed upon the petitioner under the said agreement is contained in clause 5 (b) (ii) wherein it mandates that if any shortfall is to be lifted by the first respondent or its nominees, SVCL shall, at its option supply either from its factory or from the factory of the petitioner pursuant to the demand for lifting the shortfall by the first respondent and the only obligation placed upon the petitioner was to supply cement to the respondent in the event SVCL required the same. Therefore, there is no cause of action against the petitioner and therefore, the petition is bad for misjoinder of parties.

6. SVCL also raised a question of law stating that marketing agreement is a separate independent transaction and as per the statement of claim filed by the first respondent, the first respondent wanted a sum of Rs.74.40 crores to be paid as part and parcel of the consideration payable as per share purchase agreement dated 10.1.2002 and if it is to be treated as part of the purchase price, then the same is hit by section 77 of the Companies Act, 1956 and also section 9 of the Companies Act and hence, the claim of the first respondent cannot be entertained as it is against the provisions of section 77 and 9 of the Companies Act, 1956. It is further stated that the Arbitral Tribunal has to decide the dispute within the four corners of the marketing agreement under which a reference was made and no relief can be granted outside the purview of the marketing agreement and as per the marketing agreement, the first respondent has to render marketing services to enable SVCL to achieve a market share of atleast 5.5% in the first 24 months of the agreement and as per the marketing agreement, 'shortfall' is defined to mean the difference between the product that SVCL should have despatched in order to achieve the specified market share in a given period and the actual despatched quantity during such period and the shortfall has to be computed by an independent authority and in order to lift the shortfall, the first respondent or its nominee was required to place orders from time to time and SVCL has the option to supply cement to the first respondent pursuant to the indent from the factory of SVCL factory or from the factory of Zuari Cements Limited. A sum of Rs.52.80 crores was payable for rendering marketing services whereby SVCL would achieve the specified market share for a period of two years commencing from the operation date and such payment was called specified market share payment. The first respondent was also entitled to 1680 lakhs after SVCL achieved the target market share during the period of 12 months commencing from the period of one year from the operation date and the first respondent was also entitled to 4.80 crores after SVCL achieved the specified market share by marketing the cements under the brand name "Vishnu" for a continuous period of 12 months and the payments under the agreement were contingent on the achievement of the said market shares. It is therefore, stated that the first respondent cannot claim such amount payable under the marketing agreement when it has admittedly failed to perform its obligations under the said agreement. The petitioner also denied the allegation that it has to pay to the first respondent a sum of Rs.74.40 crores irrespective of the assistance given by the first respondent to enable SVCL to reach the specified market share within the specified period and also denied the allegation that marketing agreement was only a means to provide generation of funds by the petitioner and was conceived as a mechanism for the payment of Rs.74.40 crores to the first respondent as part of amount payable under the share purchase agreement.

7. The petitioner herein also filed a separate statement of defence stating that it has no obligations with respect to payment under the marketing agreement and it is not a necessary or proper party and the only obligation placed upon the petitioner in the marketing agreement is clause 5 (b) (ii) referred to above and adopted the reply of SVCL.

8. The first respondent filed rejoinder reiterating its stand that the marketing agreement was always considered as part of the deal reached between CF and ICL, the first respondent and it was at the request of CF through the petitioner two agreements were finalized and part I was termed as share purchase agreement and part II was termed as marketing alliance. The petitioner has acquired the shares and also acted on behalf of CF and therefore, the petitioner was a necessary party to the Arbitration. It is further stated that the claim under part I and II of the offer made by CF and accepted by the first respondent was towards USD 10 million which is equivalent to Rs.52.80 crores and the material lifted by the first respondent was in order to give incentive beyond this figure as contained in clause 7.1 (b) and (c) of the marketing agreement. SVCL adopted an attitude of non-cooperation which prevented the first respondent from working towards getting the consideration made in clause 7.1 (b) and (c) and also made parawise comments and reply to the defence taken by the SVCL. The first respondent reiterated that the acquisition of SVCL was brokered by Lazard on behalf of CF through the petitioner and the offer right from the beginning comprised of 2 parts. Part I was the payment of USD 90 millions with necessary adjustments and part II for the payment of USD 10 million over two to four years and CF assured the first respondent that payment under part II would be seamless and smooth with many flexibilities built into the agreement and sent a letter dated 15th September 2001 through Lazard and that would prove that both share purchase agreement and marketing agreement were dealt with and initiated cumulatively with predefined amount in both the proposed agreements which were to flow to the first respondent. Further, ICL, the first respondent was given to understand that SVCL shall be 100% owned by ZCL the petitioner herein and ZCL the petitioner herein, will ensure that the payment committed by them will be honoured and that was the reason for arraying ZCL as a party to the agreement. It is further stated that both the agreements viz., share purchase agreement and marketing agreement were floated together, but, the marketing agreement was dated 18.5.2002 which falls immediately after the closing date in the offer and that was done for the benefit of the petitioner herein. It is further stated that as per clause 8.1. of the marketing agreement adequate flexibility was provided in the marketing agreement for modification of specified market share and target market share as envisaged in clause 6 of the marketing agreement and that would also reflect that ZCL was a necessary party for monitoring the payments to be made to first respondent.

9. A reading of the rejoinder was only to enforce that ZCL was a proper and necessary party to the arbitration. The petitioner also filed rejoinder denying the allegation made in the rejoinder filed by the first respondent.

10. The Arbitral Tribunal, on the basis of the statement of claim and statement of defence filed by both the parties, framed the following points for determination:-

"a) Whether the claimant proves that pursuant to the share purchase agreement dated 10.1.2002, the claimant and the respondents had agreed, that besides the payment of price for the purchase of shares, the respondents will pay to the claimant Rs.74.40 cores?

b) Whether the claimant proves that the marketing agreement between the claimant and the respondents was only a mechanism conceived for the payment of Rs.74.40 crores?

c) Whether respondent No.2 is a necessary party?

d) Whether the respondents prove that the marketing agreement would be invalid as it would be hit by section 77 read with section 9 of the Companies Act, 1956, if it is held to be an arrangement as contended by the claimant?

e) Whether the respondents prove that the relief claimed by the claimant cannot be granted by this Tribunal as the dispute has been referred to this Tribunal under the marketing agreement, and that the claimant has committed a breach thereof?

f) What reliefs the claimant is entitled to?

g) What order as to costs?"

11. The learned Arbitral Tribunal, considering the points A, B, D and E together, held that arbitration was invoked by the first respondent under the marketing agreement and that clearly implies that the dispute has arisen under or out of the marketing agreement. The learned Arbitral Tribunal also held that having regard to section 1 of Evidence Act and section 19 of the Arbitration Act, the Evidence Act is not made applicable to arbitration proceedings and therefore, the bar created under section 91 and 92 of the Evidence Act cannot, by its own force apply to arbitration proceedings. Further, the learned Arbitral Tribunal held that even in arbitration proceedings, basic principles of judicial determination of a dispute, including the principles of natural justice are required to be followed so as to maintain fairness and reasonableness of the procedure.

12. The learned Arbitral Tribunal further rejected the objection raised by the petitioner and held that oral and documentary evidence can be let in by the first respondent to disclose the real nature of transactions in respect of marketing agreement executed between the parties. The learned Arbitral Tribunal also held that though share purchase agreement does not refer to the marketing agreement, it is not in dispute that marketing agreement was prepared and deposited in the escrow account alongwith other documents mentioned in the share purchase agreement and also held that the prior correspondence and the antecedent circumstances can be considered for understanding the nature of true transactions.

13. The Arbitral Tribunal also held that no evidence was let in by the petitioner to show in which way the actual marketing services were to be rendered and what was the deficiency in rendering those services and only attempt made by SVCL was to show that there was a shortfall in the market share by not lifting the required quantity by the first respondent. The Arbitral Tribunal, therefore, held that the absence of such evidence, non-payment of any remuneration to ICL for the services rendered and provision in the agreement that services were to be rendered for 24 months and that the agreement was not to be terminated earlier by any party clearly go against the case of the petitioner that marketing agreement was a completely independent agreement and it has nothing to do with the additional amount that was to be paid to ICL for the sale of its share holding in SVCL. The Arbitral Tribunal also held that the first respondent was also not correct in contending that the marketing agreement is a sham agreement not intended to be acted upon and irrespective of the agreement, it was to be paid Rs.74.40 crores as consideration for the shares sold by it. The Arbitral Tribunal also held that even though the marketing agreement was treated as part of the transaction of purchase of SVCL, the same was made payable by a separate agreement and rights and obligations of the parties, therefore, have to be decided in terms of the separate agreement.

14. Thereafter, the learned Arbitral Tribunal proceeded to examine the obligations under the marketing agreement and which party to the agreement defaulted in performance of its obligations. After referring to various clauses and exhibits, the Arbitral Tribunal held that till the end of December 2002, the first respondent was not allowed to perform its obligation and it cannot be stated that the reasons given by it for not lifting the shortfall were not genuine and that it had committed a default in performance of it obligation. It also held that on an overall consideration of the facts and circumstances, as disclosed by oral evidence, correspondence between the parties, conduct of the parties and the manner in which certificates were issued by E&Y, the first respondent was willing to fulfil its obligation by lifting the shortfall.

15. The learned Arbitral Tribunal also came to the conclusion that issues raised by ICL in this behalf were not resolved with the result that they were not properly taken into account by E&Y while issuing certificates and therefore, SVCL and ZCL did not settle them as that would have helped them in avoiding its liability to pay the agreed amount of Rs.74.40 crores. It also found that ICL did not lift the shortfall as mentioned in certificates as there was a genuine grievance regarding the correctness of the certificates because of SVCL and ZCL not supplying the necessary information to E&Y and accordingly, E&Y did not verify the relevant records. It came to the conclusion that but for the non-cooperation and impediment created by the petitioner, ICL could have performed its obligation qua the specified market share and failed to prove that ICL was under the obligation to increase the sales of SVCL by using its marketing network in the territory. They have not proved any deficiency in rendering assistance except the fact ICL did not lift the shortfall. The petitioner failed to prove that they performed their obligations promptly and as required by the agreement and they were always willing to do so and held that taking into consideration the facts and circumstances, ICL deserved to be granted 50% of the amount that was payable under the agreement i.e., Rs.52.80 crores and accordingly, passed an award of Rs.26.40 crores directing SVCL to pay the same.

16. The learned Arbitrator held that there is no violation of section 77 of the Companies Act and held that marketing agreement is a separate agreement and it was executed by the Companies after completion of the process of acquisition of ICL Group's shareholding in SVCL by ICL and what was to be paid under the agreement was an an additional amount over and above the consideration amount fixed under the share purchase agreement and therefore, there is no question of violation of section 77 of the Companies Act.

17. The Arbitral Tribunal also held that ZCL was a proper party and was rightly joined as a party to the proceedings and also held that no relief was granted against it. This award of the Arbitral Tribunal is challenged in this petition.

18. The learned Senior counsel appearing for the petitioner submitted that the learned Arbitral Tribunal, having held that the share purchase agreement and marketing agreement are two separate independent agreements, ought to have held that the first respondent is not entitled to claim any amount under the marketing agreement without fulfilling the obligations as per the marketing agreement. The learned Senior Counsel further submitted that the learned Arbitral Tribunal failed to appreciate the case projected by the first respondent. As per the claim statement and also as per the evidence given by the first respondent, their specific case was that the amount claimed by them was part of the consideration payable under the share purchase agreement and Mr.Srinivasan, who was examined as witness on the side of the first respondent, made it clear that their claim of Rs.74.40 crores was based not on the terms of the marketing agreement, and in the claim statement also, the first respondent made it clear that besides the price mentioned in the share purchase agreement, the petitioner and the first respondent agreed that a sum of Rs.74.40 crores was payable by the petitioner to the first respondent and the marketing agreement was conceived only as a mechanism for the payment of Rs.74.40 crores to the first respondent. He, therefore, submitted that having come to court with specific pleading that a sum of Rs.74.40 crores was payable only as a part of consideration under the share purchase agreement and the marketing agreement was devised only as a mechanism for the payment of that amount, the same is prohibited under section 77 of the Indian Companies Act and therefore, the learned Arbitral Tribunal ought not to have entertained the claim made by the first respondent as it is opposed to law and ought to have rejected the reference. The learned Senior Counsel further submitted that the learned Arbitral Tribunal, having formulated the points for determination as stated above, ought not to have arbitrally fixed the amount at 50% and passed the award of Rs.26.40 crores without giving any finding to the point for determination A and B. The learned Senior Counsel further submitted that the reference to arbitration was made only as per the clause in the marketing agreement and therefore the Tribunal derived its authority to decide the matter only under the terms of marketing agreement and therefore, the Tribunal ought to have framed an issue whether the first respondent herein is entitled to claim Rs.74.40 crores as per the marketing agreement without proving that it has performed its obligations as per the the marketing agreement and without framing an issue to that effect, ought not to have passed an award for Rs.26.40 crores in favour of the first respondent. He further submitted that the Arbitral Tribunal, having held that the first respondent did not lift the shortfall as mentioned in the certificates as there was a genuine grievance regarding the correctness of the certificates by reason of SVCL and ZCL not supplying necessary information to E&Y and E&Y not verifying the relevant records, ought to have held that the only course open to the first respondent was to have approached E&Y for providing necessary information or records so as to enable the first respondent to comply with the obligations. He further submitted that the Arbitral Tribunal was not correct in holding that but for the non-cooperation and impediment created by the petitioner, ICL could have performed its obligation qua the specified market share, in the absence of any pleading or evidence to that effect. He further submitted that no complaint has been made by the first respondent regarding denial of any access to the records of SVCL and the first respondent proceeded on the basis that they were entitled to claim Rs.74.40 crores as part of the consideration payable under the share purchase agreement and therefore, the Arbitral Tribunal was not correct in holding that the petitioner did not co-operate with the first respondent in complying with the obligations as per the marketing agreement, without properly appreciating the terms of the marketing agreement. The learned Senior Counsel brought to my notice the various clauses in the marketing agreement and submitted that as per clause 5 of the agreement, ICL shall render marketing services to SVCL to enable SVCL to achieve the market share of atleast 5.5% (specified market share) in the territory for the period of 24 months commencing from the operation date and shall raise the market share of SVCL from the specified market share to 6% (target market share) in the territory for the period of 12 months commencing from the expiry of one year from the operation date and as per clause 7.1 depending upon the ICL rendering marketing services to SVCL as per the agreement, SVCL shall, based on receipt of certificate of independent authority as specified in section 8.2(b), pay to ICL a sum of Rs.52.80 crores for rendering marketing services and also shall pay various other amounts as per clause 7.1(a)(ii-i). He, therefore, submitted that a duty was cast upon ICL to provide marketing services to SVCL and even a provision was made for the shortfall as per clause 5.2(b) and under clause 5.3, a provision was made for lifting of shortfall and therefore, it is not open to the first respondent to put the blame on the petitioner that they have not co-operated with ICL in achieving the target and finding to that effect by the Arbitral Tribunal is also not correct. He further submitted that the Arbitral Tribunal, having held that the the parties are governed by the terms of the marketing agreement, ought not to have referred to the earlier correspondence to understand the agreement between the parties without properly appreciating clause 16 of the marketing agreement which specifically provides that the marketing agreement and the exhibits and annexures filed thereto shall supersede any prior agreements, whether oral or written and communications among the parties relating to the subject matter of this agreement. He, therefore, submitted that the learned Arbitral Tribunal was not right in relying upon the earlier correspondence and ought to have held that letting in evidence contrary to the terms of the marketing agreement is hit by sections 91 and 92 of the Evidence Act. He further submitted that the Arbitral Tribunal, having held that the marketing agreement and share purchase agreement are two separate agreements, ought to have held that relying upon prior correspondence and antecedent circumstances for understanding the true nature of transaction is quite justified and ought not to have relied upon the earlier correspondence. He further submitted that the finding of the Arbitral Tribunal in para 28 of the Award that "Absence of such evidence, non payment of any remuneration to ICL for its services if the specified market share was not reached and provision in the agreement that services were to be rendered for 24 months and that the agreement was not terminated earlier by any party clearly go against the case of the respondents that it was a completely separate and independent agreement and had nothing to do with the additional amount that was to be paid to ICL for the sale of its shareholding in SVCL. While that is so, the claimant also does not appear to be correct in contending that the marketing agreement is a sham agreement and it was not to be acted upon and irrespective of that agreement, it was to be paid Rs.74.40 crores as consideration for the shares sold by it."

would confirm that the Arbitral Tribunal also accepted that the amount claimed by the first respondent was part of the share purchase agreement and therefore, the Arbitral Tribunal ought to have held that the same is prohibited under section 77 of the Companies Act and ought not to have entertained the reference. He further submitted that the main contention of the first respondent was that the marketing agreement was not intended to be acted upon and it was a sham document and they are entitled to Rs.74.40 crores as per the earlier correspondence and that was part of the consideration payable under the share purchase agreement and evidence was let in to that effect and therefore, the learned Arbitral Tribunal need not have discussed the documentary evidence to hold that the petitioner did not co-operate with ICL in achieving the market share. He further submitted that the first respondent cannot be permitted to project the case without any pleading and evidence and as a matter of fact, the learned Arbitral Tribunal proceeded on the basis as if the first respondent claimed that amount under the marketing agreement and the first respondent also proved that there was no deficiency on its part in complying with the obligations as per the marketing agreement without properly appreciating the case of the first respondent in the statement of claim as well as in evidence. The learned Senior Counsel therefore, submitted that the Arbitral Tribunal was not right in arbitrally fixing that the first respondent is entitled to 50% of the amount that was payable under the agreement and therefore, the award is liable to be set aside.

19. The learned Senior Counsel for the petitioner relied upon the judgments in ROOP KUMAR v. MOHAN THEDANI ((2003) 6 SCC 595), GANGABAI v. CHHABUBAI ((1982) 1 SCC 4), KRISHNABAI DESHMUKH v. APPASAHEB NIMBALKAR ((1979) 4 SCC 60), PUTTRANGAMMA v. RANGANNA (AIR 1968 SC 1018) and in support of his contention that under sections 91 and 92 of the Evidence Act, letting in of oral evidence to vary the terms of the contract is prohibited. The learned Senior Counsel further submitted that section 92 prohibits only the varying of the dispositive operative terms of the document and not the memorandum or recital of facts and therefore, section 92 is a substantive law and not a procedural law and therefore, section 92 of the Evidence Act will have application even in respect of arbitration proceedings and therefore, it is not open to the first respondent to lead any oral evidence varying the terms of the contract. He also relied on the judgment of the Honourable Supreme Court reported in ONGC LTD. v. SAW PIPES LTD ((2003) 5 SCC 705), INDU ENGINEERING & TEXTILES LTD. v. DELHI DEVELOPMENT AUTHORITY ((2001) 5 SCC 691), RAJASTHAN STATE MINES & MINERALS LTD. v. EASTERN ENGINEERING ENTERPRISES ((1999) 9 SCC 283) and DELHI DEVELOPMENT AUTHORITY v. R.S.SHARMA & CO. ((2008) 13 SCC 80) and contended that the Honourable Supreme Court laid down the principles in those judgments for setting aside the award and having regard to the principles stated therein, the award passed in this case is liable to be set aside. He also submitted that the learned Arbitral Tribunal, having framed points for determination, did not answer those points for determination and arbitrarily passed an award stating that the first respondent is entitled to claim 50% claim and awarded Rs.26.40 crores without any basis and therefore, the award is not a reasonable one and applying the principles laid down in MUNICIPAL CORPORATION OF DELHI v. JAGAN NATH ASHOK KUMAR ((1987) 4 SCC 497) that when the award is not a reasonable one and it is arbitrary, the same is liable to be set aside. He also submitted that when the award is against the provisions of statute, it is liable to be set aside as per the judgment of the Honourable Supreme Court in (2003) 5 SCC 705 and (2008) 13 SCC 80. He also submitted that it is not the case of the first respondent that they have fulfilled their obligations under the marketing agreement or they were prevented by the petitioner from fulfilling their obligation under the marketing agreement and it was the specific case of the first respondent that a sum of Rs.74.40 crores was liable to be paid as part of consideration payable under the share purchase agreement irrespective of the compliance of the terms and conditions as provided under the marketing agreement and the evidence of the Vice President Mr.Srinivasan was also very specific that their entire claim was based upon understanding and agreement which they had with CF and therefore, the claim of Rs.74.40 crores was not based on the terms of the marketing agreement. Therefore, the finding of the learned Arbitral Tribunal that the first respondent was willing to perform its obligations till the end of December 2002 and the petitioner was not co-operative and they did not supply the required information to E&Y for proper certification and the first respondent was willing and able to fulfil its obligations of lifting the shortfall and there was no denial of it cannot be correct. He further submitted that the finding of the Arbitral Tribunal that the petitioner failed to prove that ICL suffered from any disability in performing its obligations under the agreement and they also failed to prove that they performed their obligations promptly and as required by the agreement was not also correct inasmuch as it was not the case that was projected by the first respondent before the Arbitral Tribunal. In other words, the learned Senior Counsel submitted that when the first respondent came to the Tribunal with the specific plea that they were entitled to claim Rs.74.40 crores as part of consideration payable under the share purchase agreement and the marketing agreement was only a mechanism to provide for the payment of that amount, there was no necessity for the petitioner to prove that they performed their obligations as per the agreement and they were also willing to perform their obligations and ICL did not act according to the terms of the agreement. He also submitted that the learned Arbitrator should not have gone into the details to give a finding that the first respondent was willing to fulfill its obligations and the petitioner was at fault and the petitioner was not co-operating with the first respondent in fulfilling their obligations of the contract as per the marketing agreement when it was not the case of the first respondent.

20. On the other hand, Mr.P.S.Raman, learned Senior Counsel appearing for the first respondent submitted that the learned Arbitral Tribunal correctly appreciated the scope of the issue and considering the various terms of the marketing agreement and the earlier correspondence, rightly held that the main claim was the liquidated sum payable by the petitioner as part of the consideration for taking over SVCL and the marketing agreement was only a mechanism to make their payment and the marketing agreement was only a sham and nominal document and was never intended to be acted upon and it was only a camouflage disguising the true nature of the transaction viz., the said amount quantified and liquidated as part of consideration for the sale of shares. The learned Senior Counsel also brought to my notice the earlier correspondence between CF and ICL in that regard and the Arbitral Tribunal also rightly relied upon the earlier correspondence to appreciate the true nature of the transaction. The learned Senior Counsel further submitted that even according to the marketing agreement, if there is any shortfall in the market share by SVCL, the first respondent will not get anything and the first respondent will get the amount only when SVCL reaches the market target and therefore, the Arbitral Tribunal rightly held that the agreement viz., the marketing agreement creates a doubt regarding the nature of transaction and rightly relied upon the earlier correspondence and antecedent circumstances for understanding the true nature of the transaction. He also brought to my notice the earlier correspondence dated 30.7.2001, letter issued by Lazard wherein the offer was stated in two parts and after convening a meeting between CF and Mr.Sreenivasan of ICL, on 15.9.2001, the Lazard forwarded SMIFS a memorandum of understanding for acquisition of shares wherein it has been specifically stated that simultaneous with the execution of the share purchase agreement, an escrow account with an escrow agent appointed by ZCL would be created and it was also agreed that alongwith other documents an undated marketing agreement between SVCL and ICL shall be deposited and therefore, it was made clear that the marketing agreement was only a sham and nominal document and the amount payable by ICL was not depending upon the services to be rendered by ICL as per the marketing agreement and the amount was already fixed towards transfer of shares and therefore, the first respondent was entitled to claim that amount. He also submitted that the Tribunal has rightly held that the provisions of the Evidence Act cannot be made applicable to the Arbitration proceedings as per section 16 of the Arbitration and Conciliation Act, 1996 and section 1 of the Evidence Act also bars the application of the Evidence Act to Arbitration proceedings and therefore, the Tribunal was right in holding that sections 91 and 92 cannot be a bar to understand the true nature of the transaction. He further submitted that the Tribunal rightly held that the claim made by the first respondent was an additional amount over and above the consideration amount fixed in the share purchase agreement and therefore, the agreement was not violative of section 77. He also submitted that though as per the marketing agreement, the first respondent is entitled to Rs.74.40 crores, the first respondent has accepted the award passed by the Tribunal and therefore, there is no necessity to interfere with the award and the award has to be upheld.

21. Learned Senior Counsel appearing for the first respondent further submitted that section 77 of the Companies Act will not be a bar to award the amount as claimed by the respondent considering the real intent and object of section 77. The learned Senior Counsel further submitted that section 77 is introduced to prevent manipulation of trading and purchase of shares by the Company itself with a view to deceive the public. In this case, it is nobody's case that the object of the transaction viz., entering into marketing agreement was to deceive the public and according to the first respondent, it was only a mechanism provided for the payment of Rs.74.40 crores as payable under the share purchase agreement. Therefore, the claim of Rs.74.40 crores as part of consideration payable under the share purchase agreement will not be violative of section 77 of the Companies Act. He also submitted that violation of section 77 is a compoundable one under section 621A of the Companies Act and for violation of section 77, a nominal fine of Rs.10,000/= can be imposed as per section 77(4) of the Companies Act. Therefore, there is no total ban or prohibition on purchase of its own shares by a Company under section 77 and section 77 also contemplates certain suggestions and conditions under which such purchases can be made and therefore, it cannot be contended that the claim of Rs.74.40 cores as per the share purchase agreement is violative of section 77 of the Companies Act.

22. The learned Senior Counsel for the first respondent also relied upon the judgment in (2003) 6 SCC 595 in support of his contention that section 91 and 92 of the Evidence Act will not be a bar to lead any evidence to prove that the document was not intended to be acted upon. The learned Senior Counsel appearing for the first respondent also submitted that the award cannot be challenged on the ground that the learned Arbitrator arrived at a wrong conclusion or a different conclusion could have been reached by the learned Arbitrator and relied upon the judgments in DHIRAJ HIMMATSINGHJI v. STATE OF RAJASTHAN (AIR 1987 SC 82) and J.C.BUDHRAJA v. ORISSA MINING CORPORATION LIMITED ((2008) 2 SCC 444 at 464). He further submitted that the court cannot sit on appeal and re-appreciate the reasoning given by the Arbitrator to set aside the award and relied upon the judgment reported in PURI CONSTRUCTION PVT. LTD. v. UNION OF INDIA (AIR 1989 SC 777). He also relied upon the judgment reported in MADNANI CONSTRUCTION CORPORATION (P) LTD. v. UNION OF INDIA ((2010) 1 SCC 549) in support of his contention that the Arbitrator is the master of fact and when he came to a specific finding which cannot be called as perverse, those findings cannot be ignored. He also relied upon the decision in (2003) 5 SCC 705 in support of his contention that the award of the Arbitrator can be set aside only on certain conditions and the principles laid down in the judgment are not available in this case to set aside the award. He also relied upon the judgment in 2002 2 MLJ 361, the judgment rendered by a Division Bench of this court in support of contention that the Arbitrator is not bound by technicalities and he can decide the case on the basis of the evidence adduced before it and therefore, contended that having regard to the evidence adduced by the Companies, the learned Arbitral Tribunal has rightly come to the conclusion that the petitioner is liable to pay Rs.26.40 lakhs as it has failed to perform its obligations and there is no need to interfere with the award.

23. On the basis of the above submissions, the following points arise for consideration in this petition:-

1) Whether the award of Rs.26.40 crores by the Arbitrator is perverse and arbitrary as contended by the petitioner?

2) Whether the award is liable to be set aside in the light of the principles laid down by the Honourable Supreme Court in the judgment reported in 2003 5 SCC 705 and 2008 13 SCC 80?

3) Whether the Arbitral Tribunal was right in passing the award without answering all the points for determination framed by it?

4) Having regard to the specific case putforward by the first respondent that they claimed the amount as part of the sale consideration as per share purchase agreement and marketing agreement was only a mechanism for the payment of that amount, is it not violative of section 77 of the Companies Act?

5) Whether the learned Arbitral Tribunal is justified in going through the various Exhibits to arrive at a conclusion that the first respondent was willing to fulfil its obligations of lifting the shortfall and the petitioners did not co-operate to comply with the agreement and committed default when that was not the case projected by the first respondent in its statement of claim and evidence.

24. Though the parties have submitted their arguments with respect to the scope of sections 91 and 92 of the Evidence Act, the position has been made clear in the judgment reported in (2003) 6 SCC 595 wherein the scope of section 91 and 92 of the Evidence Act has been laid down as follows:-

"Section 91 relates to evidence of terms of contract, grants and other disposition of properties reduced to form of document. This section merely forbids proving the contents of a writing otherwise than by writing itself; it is covered by the ordinary rule of law of evidence, applicable not merely to solemn writings of the sort named but to others known sometimes as the "best evidence rule". It is in reality declaring a doctrine of the substantive law, namely, in the case of a written contract, that of all proceedings and contemporaneous oral expressions of the thing are merged in the writing or displaced by it. (See Thayer's Preliminary Law on Evidence, p.397 and p.398; Phipson's Evidence. 7th Edn., P.546; Wigmore's Evidence p.2406.) It has been best described by Wigmore stating that the rule is in no sense a rule of evidence but a rule of substantive law. It does not exclude certain data because they are for one or another reason untrustworthy or undesirable means of evidencing some fact to be proved. It does not concern a probative mental process - the process of believing one fact on the faith of another. What the rule does is to declare that certain kinds of facts are legally ineffective in the substantive law; and this of course (like any other ruling of substantive law) results in forbidding the fact to be proved at all. But this prohibition of proving it is merely that dramatic aspect of the process of applying the rule of substantive law. When a thing is not to be proved at all the rule of prohibition does not become a rule of evidence merely because it comes into play when the counsel offers to "prove" it or "give evidence" of it; otherwise, any rule of law whatever might reduced to a rule of evidence. It would become the legitimate progeny of the law of evidence. For the purpose of specific varieties of jural effects - sale, contract etc. there are specific requirements varying according to the subject. On the contrary there are also certain fundamental elements common to all and capable of being generalised. Every jural act may have the following four elements:

(a) the enaction or creation of the act.

(b) its integration or embodiment in a single memorial when desired;

(c) its solemnization or fulfillment of the prescribed forms, if any; and

(d) the interpretation or application of the act to the external objects affected by it.

...

In Section 92 the legislature has prevented oral evidence being adduced for the purpose of varying the contract as between the parties to the contract; but, no such limitations are imposed under Section 91. Having regard to the jural position of Sections 91 and 92 and the deliberation omission from Section 91 of such words of limitation, it must be taken note of that even a third party if he wants to establish a particular contract between certain others, either when such contract has been reduced to in a document or where under the law such contract has to be in writing, can only prove such contract by the production of such writing.

...

This Court in Gangabai v. Chhabubai ((1982) 1 SCC 4 : AIR 1982 SC 20) and Ishwar Dass Jain v. Sohan Lal ((2000) 1 SCC 434: AIR 2000 SC 426) with reference to Section 92(1) held that it is permissible to a party to a deed to contend that the deed was not intended to be acted upon, but was only a sham document. The bar arises only when the document is relied upon and its terms are sought to be varied and contradicted. Oral evidence is admissible to show that document executed was never intended to operate as an agreement but that some other agreement altogether, not recorded in the document, was entered into between the parties."

25. In the judgment reported in (1979) 4 SCC 60, it has been held that section 92 prohibits only the varying of terms of the document and not the memorandum or recitals of facts bereft of dispositive terms when the correctness of the whole or any part of the recital is in question.

26. In the judgment reported in (1982) 1 SCC 4, it is held as follows:-

"Section 91 of the Evidence Act provides that when the terms of contract, or of a grant, or of any other disposition of property, have been reduced to the form of a document, and in all cases in which any matter is required by law to be reduced to the form of a document, no evidence shall be given in proof of the terms of such contract, grant or other disposition of property, or of such matter, except the document itself. Sub-section (1) of Section 92 declares that when the terms of any contract, grant or other disposition of property, or any matter required by law to be reduced to the form of a document, have been proved according to the last section, no evidence of any oral agreement or statement shall be admitted, as between the parties to any such instrument or their representatives in interest, for the purpose of contradicting, varying, adding to, or subtracting from, its terms. And the first proviso to Section 92 says that any fact may be proved which would invalidate any document, or which would entitle any person to any decree or order relating thereto; such as fraud, intimidation, illegality, want of due execution, want of capacity in any contradicting party, want or failure of consideration, or mistake in fact or law. It is clear to us that the bar imposed by sub-section (1) of Section 92 applies only when a party seeks to rely upon the document embodying the terms of the transaction. In that event, the law declares that the nature and intent of the transaction must be gathered from the terms of the document itself and no evidence of any oral agreement or statement can be admitted as between the parties to such document for the purpose of contradicting or modifying its terms. The sub-section is not attracted when the case of a party is that the transaction recorded in the document was never intended to be acted upon at all between the parties and that the document is a sham. Such a question arises when the party asserts that there was a different transaction altogether and what is recorded in the document was intended to be of no consequence whatever. For that purpose oral evidence is admissible to show that the document executed was never intended to operate as an agreement but that some other agreement altogether, not recorded in the document, was entered into between the parties. (Tyagaraja Mudaliyar v. Vedathanni)."

27. The learned Arbitrator also considered all these aspects and held that section 92 applies only to dispositive documents and evidence can be let in by the first respondent to show the real nature of transaction in respect of which the marketing agreement was executed by the parties. The learned Arbitrator, therefore, held that oral evidence can be let to show that the document is a sham or it was not intended to be acted upon or that it was made for creating evidence for some other purpose or the real nature of transaction is different and having regard to the judgment of the Honourable Supreme Court referred to above, I do not find any substance in the submission of the learned Senior Counsel for the petitioner that sections 91 and 92 of the Evidence Act provides a legal bar from letting any oral evidence and therefore, the objection of the learned Senior Counsel in that respect cannot be sustained. At the same time, by permitting the first respondent to lead evidence to prove that marketing agreement was not intended to be acted upon, the Arbitral Tribunal also to some extent admit the contention of the first respondent that the sum of Rs.74.40 crores was payable as per the share purchase agreement irrespective of the obligations to be fulfilled as per marketing agreement. In other words, if the marketing agreement has to be considered independently to find out whether the first respondent is entitled to claim that amount, there is no need to look into other correspondence between the parties earlier to marketing agreement.

28. Before appreciating the merits of the contentions putforward by the learned Senior Counsel appearing for both sides, it is better to understand the law on this aspect. In the judgment reported in SANTA SILA v. DHIRENDRA NATH (AIR 1963 SC 1677), it has been held therein that "(1) a Court should approach an award with a desire to support it, if that is reasonably possible, rather than to destroy it by calling it illegal; (2) unless the reference to arbitration specifically so requires the arbitrator is not bound to deal, with each claim or matter separately, but can deliver a consolidated award. The legal position is clear that unless so specifically required an award need not formally express the decision of the arbitrator on each matter of difference, (3) unless the contrary appears the Court will presume that the award disposes finally of all the matters in difference; and (4) where an award is made de praemissis (that is, of an concerning all the matters in dispute referred to the arbitrator), the presumption is, that the arbitrator intended to dispose finally of all the matters in difference; and his award will be held final, if by any intendment it can be made so."

29. In the judgment reported in HINDUSTAN TEA CO. v. K.SASHIKANT CO. (1986 SUPP. SCC 506), it is held as follows:-

"The Award is a reasoned one. The objections which have been raised against the Award are such that they cannot indeed be taken into consideration within the limited ambit of challenge admissible under the scheme of the Arbitration Act. Under the law, the Arbitrator is made the final arbiter of the dispute between the parties. The award is not open to challenge on the ground that the Arbitrator has reached a wrong conclusion or has failed to appreciate facts."

30. In the judgment reported in HINDUSTAN CONSTRUCTION CO. LTD. v. GOVERNOR OF ORISSA ((1995) 3 SCC 8), it is held as follows:-

"It is well known that the court while considering the question whether the award should be set aside, does not examine that question as an appellate court. While exercising the said power, the court cannot reappreciate all the materials on the record for the purpose of recording a finding whether in the facts and circumstances of a particular case the award in question could have been made. Such award can be set aside on any of the grounds specified in section 30 of the Act."

31. In PURI CONSTRUCTION PVT. LTD. v. UNION OF INDIA (AIR 1989 SC 777), it is held that when a court is called upon to decide the objections raised by a party against an arbitration award, the jurisdiction of the court is limited as expressly indicated in the 1940 Act and it has no jurisdiction to sit on appeal and examine the correctness of the award on merits. The same principle is reiterated in PARADIP PORT TRUST AND OTHERS v. UNIQUE BUILDERS ((2001) 2 SCC 680).

32. In the decision reported in (1987) 4 SCC 497, the Honourable Supreme Court held that reasonableness of the reasons given in a speaking award are not justiciable if reasons appear per se not unreasonable and irrational. Appraisement of evidence by the Arbitrator is ordinarily never a matter which the court questions and considers. The Arbitrator is the sole Judge of the quality as well as quantity of evidence and it will not be for the court to take upon itself the task of being a judge of the evidence before the Arbitrator. It may be possible that on the same evidence, the court might have arrived at a different conclusion than the one arrived at by the Arbitrator, but, that by itself is no ground for setting aside the award of an Arbitrator. In that judgment, in para 7, the Honourable Supreme Court discussed the meaning of the phrase 'reasonable' as follows:-

"In Stroud's Judicial Dictionary, Fourth Edition, page 2258 states that it would be unreasonable to expect an exact definition of the word "reasonable". Reason varies in its conclusions according to the idiosyncrasy of the individual, and the times and circumstances in which he thinks. The reasoning which built up the old scholastic logic sounds now like the jingling of a child's toy. But mankind must be satisfied with the reasonableness within reach; and in cases not covered by authority, the verdict of a jury or the decision of a judge sitting as a jury usually determines what is "reasonable" in each particular case. The word "reasonable" has in law the prima facie meaning of reasonable in regard to those circumstances of which the actor, called on to act reasonably, knows or ought to know. See the observations, in Re a Solicitor [1945 KB 368 at 371)."

33. In the judgment reported in ASSOCIATED ENGINEERING CO. v. GOVERNMENT OF ANDHRA PRADESH AND ANOTHER ((1991) 4 SCC 93), the role of an arbitrator has been discussed as follows:-

" 24. The arbitrator cannot act arbitrarily, irrationally, capriciously or independently of the contract. His sole function is to arbitrate in terms of the contract. He has no power apart from what the parties have given him under the contract. If he has travelled outside the bounds of the contract, he has acted without jurisdiction. But if he has remained inside the parameters of the contract and has construed the provisions of the contract, his award cannot be interfered with unless he has given reasons for the award disclosing an error apparent on the face of it.

25. An arbitrator who acts in manifest disregard of the contract acts without jurisdiction. His authority is derived from the contract and is governed by the Arbitration Act which embodies principles derived from a specialised branch of the law of agency (see Mustill & Boyd's Commercial Arbitration, Second Edition, p.641). He commits misconduct if by his award he decides matters excluded by the agreement (see Halsbury's Laws of England, Volume II, Fourth Edition, Para 622). A deliberate departure from contract amounts to not only manifest disregard of his authority or a misconduct on his part, but it may tantamount to a mala fide action. A conscious disregard of the law or the provisions of the contract from which he has derived his authority vitiates the award. (Bold letters supplied)

26. A dispute as to the jurisdiction of the arbitrator is not a dispute within the award, but one which has to be decided outside the award. An umpire or arbitrator cannot widen his jurisdiction by deciding a question not referred to him by the parties or by deciding a question otherwise than in accordance with the contract. He cannot say that he does not care what the contract says. He is bound by it. It must bear his decision. He cannot travel outside its bounds. It he exceeded his jurisdiction by so doing, his award would be liable to be set aside. As stated by Lord Parmoor (Attorney-General for Manitoba v. Kelly ((1922) 1 AC 268, 276 : 1922 All ER Rep 69):

"It would be impossible to allow an umpire to arrogate to himself jurisdiction over a question which, on the true construction of the submission, was not referred to him. An umpire cannot widen the area of his jurisdiction by holding, contrary to the fact, that the matter which he affects to decide is within the submission of the parties."

Evidence of matters not appearing on the face of the award would be admissible to decide whether the arbitrator travelled outside the bounds of the contract and thus exceeded his jurisdiction. In order to see what the jurisdiction of the arbitrator is, it is open to the Court to see what dispute was submitted to him. If that is not clear from the award, it is open to the Court to have recourse to outside sources. The Court can look at the affidavits and pleadings of parties; the Court can look at the agreement itself. Bunge & Co. v. Dewar & Webb, ((1921) 8 L1. L.Rep. 436.

27. If the arbitrator commits an error in the construction of the contract, that is an error within his jurisdiction. But if he wanders outside the contract and deals with matters not allotted to him, he commits a jurisdictional error. Such error going to his jurisdiction can he established by looking into material outside the award."

34. In RAJASTHAN STATE MINES & MINERALS LTD. v. EASTERN ENGINEERING ENTERPRISES ((1999) 9 SCC 283), it is held as follows:-

"It is settled law that the arbitrator is the creature of the contract between the parties and hence if he ignores the specific terms of the contract, it would be a question of jurisdictional error which could be corrected by the Court for that limited purpose agreement is required to be considered. For deciding whether the arbitrator has exceeded his jurisdiction reference to the terms of the contract is a must.

...

(c) If the arbitrator has committed a mere error of fact or law in reaching his conclusion on the disputed question submitted for his adjudication then the Court cannot interfere.

(d) If no specific question of law is referred, the decision of the Arbitrator on that question is not final, however much it may be within his jurisdiction and indeed essential for him to decide the question incidentally. In a case where a specific question of law touching upon the jurisdiction of the arbitrator was referred for the decision of the arbitrator by the parties, then the finding of the arbitrator on the said question between the parties may be binding.

...

(f) To find out whether the arbitrator has travelled beyond his jurisdiction, it would be necessary to consider the agreement between the parties containing the arbitration clause. The arbitrator acting beyond his jurisdiction is a different ground from the error apparent on the face of the award.

(g) In order to determine whether arbitrator has acted in excess of his jurisdiction what has to be seen is whether the claimant could raise a particular claim before the arbitrator. If there is a specific term in the contract or the law which does not permit or give the arbitrator the power to decide the dispute raised by the claimant or there is a specific bar in the contract to the raising of the particular claim then the award passed by the arbitrator in respect thereof would be in excess of jurisdiction.

(h) The award made by the Arbitrator disregarding the terms of the reference or the arbitration agreement or the terms of the contract would be a jurisdictional error which requires ultimately to be decided by the Court. He cannot award an amount which is ruled out or prohibited by the terms of the agreement. Because of a specific bar stipulated by the parties in the agreement, that claim could not be raised. Even if it is raised and referred to arbitration because of wider arbitration clause such claim amount cannot be awarded as agreement is binding between the parties and the arbitrator has to adjudicate as per the agreement. This aspect is absolutely made clear in Continental Construction Co. Ltd.((1988) 3 SCC 82) by relying upon the following passage from M/s. Alopi Parshad Vs. Union of India [1960] 2 SCR 793 which is to the following effect: -

"There it was observed that a contract is not frustrated merely because the circumstances in which the contract was made, altered. The Contract Act does not enable a party to a contract to ignore the express covenants thereof, and to claim payment of consideration for performance of the contract at rates different from the stipulated rates, on some vague plea of equity. The parties to an executory contract are often faced, in the course of carrying it out, with a turn of events which they did not at all anticipate, a wholly abnormal rise or fall in prices, a sudden depreciation of currency, an unexpected obstacle to execution, or the like. There is no general liberty reserved to the courts to absolve a party from liability to perform his part of the contract merely because on account of an uncontemplated turn of events, the performance of the contract may become onerous.

(i) The arbitrator could not act arbitrarily, irrationally, capriciously or independently of the contract. A deliberate departure or conscious disregard of the contract not only manifests the disregard of his authority or misconduct on his part but it may tantamount to mala fide action.

(j) The arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks just and reasonable; the arbitrator is a tribunal selected by the parties to decide the disputes according to law."

35. All these judgments were considered in SAW PIPES case reported in (2003) 5 SCC 705 and the Honourable Supreme Court provided the guidelines for setting aside the award as follows:-

"In the result, it is held that:-

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

(i) a party was under some incapacity, or

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or

(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;

2) The Court may set aside the award:-

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

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

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

(a) the agreement of the parties, or

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

(c) If the award passed by the Arbitral Tribunal is in contravention of provisions of the Act or any other substantive law governing the parties or is against the terms of the contract. (3) The award could be set aside if it is against the public policy of India, that is to say, if it is contrary to:

(a) fundamental policy of Indian law;

(b) the interest of India; or

(c) justice or morality; or

(d) if it is patently illegal.

(4) It could be challenged:

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

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

36. This was considered in the latest judgment in (2008) 13 SCC 80 and in that judgment, all the earlier judgments were referred and the Honourable Supreme Court laid down the following principles:-

"From the above decisions, the following principles emerge:

(a) An Award, which is

(i) contrary to substantive provisions of law; or

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

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

(iv) patently illegal; or

(v) prejudicial to the rights of the parties;

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

(b) The award could be set aside if it is contrary to:

(a) fundamental policy of Indian Law; or

(b) the interest of India; or

(c) justice or morality;

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

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

37. Bearing these principles and statutory provisions, particularly, section 34(2) of the Arbitration and Conciliation Act, 1996, it is to be considered whether the learned arbitrator was justified in granting the award.

38. I am also conscious of the decisions of the Honourable Supreme Court that I cannot sit on appeal on the appreciation of evidence by the learned Arbitral Tribunal which was arrived on the basis of the evidence and that is why I am not discussing the various Exhibits discussed by the learned Arbitral Tribunal and the conclusion arrived at by the Tribunal with respect to those Exhibits. Nevertheless, this court can consider the inconsistent finding of the learned Arbitral Tribunal to decide whether the award can be sustained or not. To appreciate the award passed by the learned Arbitral Tribunal, we will have to take the award as a whole and if so read, in my respectful opinion, the Tribunal had confused itself with regard to the stand taken by the first respondent.

39. As stated supra, the specific case of the first respondent before the Tribunal was that the marketing agreement was a sham and nominal document and it was not intended to be acted upon and the amount claimed by them was part of the sale consideration payable under the share purchase agreement. The learned Tribunal also recorded the same while considering the submission of the learned counsel for the first respondent in para 13 of the award as under:-

"Thus, the so called Marketing agreement is sham and nominal and was never intended to be a bona fide marketing agreement intended to utilize the marketing expertise or experience of ICL but was only a camouflage for disguising the true nature of the transaction namely that the said amount which was quantified and liquidated was a part of the consideration for the sale of shares."

40. On the other hand, the contention of the petitioner was that the Tribunal derives its authority to decide the matter solely on the terms of the marketing agreement and the only issue which arises for consideration before the Tribunal was whether the claimant/first respondent herein was entitled to receive the consideration mentioned in the agreement for rendering marketing services irrespective of the fact whether they provided those services or met with the conditions mentioned therein. It was also the contention of the petitioner that the marketing agreement and share purchase agreement are distinct agreements. It is to be borne in mind that reference was made only as per the marketing agreement and therefore, the petitioner was right in contending that the Arbitrator has to decide whether the claimants are entitled to receive the consideration under the marketing agreement.

41. The learned Arbitral Tribunal also accepted the same and held in para 19 of the award that ICL invoked arbitration under the marketing agreement and that clearly implies that the dispute has arisen under or out of the marketing agreement and there is no dispute between the parties on this point. Nevertheless, the Tribunal also observed that ICL was seeking to enforce liability of the petitioner to pay to ICL Rs.74.40 crores under the marketing agreement stating that it is a device evolved and structured by the respondents as a part of single transaction of sale of shares and the said amount has to be paid to ICL irrespective of the services contemplated by that agreement. Therefore, when the first respondent projected the case that they are entitled to claim that amount irrespective of the services contemplated by that agreement and the amount fixed was part of the sale consideration payable under the share purchase agreement, the learned Arbitral Tribunal need not have gone into the evidence to arrive at a conclusion that the first respondent performed its obligations and the first respondent cannot be held guilty of any default in performance of the obligations, when that was not the case of the first respondent. The first respondent not only made its stand clear in the statement of claim but in evidence also, the Vice President/Managing Director made it clear that the claim of Rs.74.40 crores was based not on the basis of marketing agreement but, on some understanding and correspondence prior to such agreement and the entire claim was based on the understanding and agreement which they had with CF. Therefore, in my respectful opinion, the Arbitral Tribunal need not have discussed the various Exhibits produced by the first respondent to arrive at a conclusion that ZCL failed to prove that ICL suffered from any disability in performing its obligations under the agreement and ZCL failed to prove that they did perform their obligations promptly and as referred by the agreement and in my respectful opinion, the learned Arbitral Tribunal has pleaded for the first respondent a case which was not putforward by the first respondent before the Arbitral Tribunal.

42. The observation of the learned Arbitral Tribunal in para 28 onwards would also lead to a conclusion that the Arbitral Tribunal was not willing to accept the case of the petitioner herein that marketing agreement is separate and independent one. In para 27 of the award, it is observed as follows:-

"Assuming that even after becoming competitors in the market, SVCL AND ZCL thought it fit to engage ICL as an expert to promote the sales of SVCL, the consideration agreed to be paid for such services raises a serious doubt about that assumption. Moreover, CF and ZCL were not new to manufacturing and marketing cement. ZCL was already operative in South India. They had sufficient experience and expertise and therefore had no need to take help of ICL for marketing the product of SVCL. Thus, the agreement itself creates a doubt regarding the true nature of the transaction and particularly about the consideration to be paid by SVCL. The agreement also shows that if the specified market share was not reached then nothing was to be paid by SVCL to ICL even though it was required to render services for 24 months."

43. In para 28, it is observed as follows:-

"Along with the above stated background, it is required to be appreciated that though it was projected as a stand alone service agreement and ICL was expected to render services as an expert, ICL would not get anything for the services rendered by it if the specified market share was not achieved by SVCL. No evidence has been led by the respondents to show in which way actual marketing services were to be rendered and what was the deficiency in rendering those services even though some averments in that behalf have been made in their counter affidavit to the rejoinder filed by ICL. Only attempt that SVCL has made is to show that the shortfall in the market share was not lifted by ICL. Absence of such evidence, non payment of any remuneration to ICL for its services if the specified market share was not reached and provision in the agreement that services were to be rendered for 24 months and that the agreement was not terminated earlier by any party clearly go against the case of the respondents that it was a completely separate and independent agreement and had nothing to do with the additional amount that was to be paid to ICL for the sale of its shareholding in SVCL. While that is so, the claimant also does not appear to be correct in contending that the marketing agreement is a sham agreement and it was not to be acted upon and irrespective of that agreement, it was to be paid Rs.74.40 crores as consideration for the shares sold by it."

44. Therefore, having held that the case of the petitioner that marketing agreement has to be treated as a separate and independent agreement and had nothing to do with the additional amount that was to be paid to ICL for the sale of its shareholding in SVCL, cannot be accepted, the Tribunal ought to have held that the amount claimed by the first respondent was part of the consideration payable under the share purchase agreement and therefore, it is against Section 77 of the Companies Act and ought not to have discussed various exhibits and held that the petitioner did not lead any evidence to show in which way the marketing services were rendered. The main submission of the learned Senior counsel for the petitioner is that the respondent came before the Arbitral Tribunal with the specific plea that a sum of Rs.74.40 crores was payable as part of consideration under share purchase agreement and marketing agreement was only a mechanism for the payment of such amount and therefore, there was no necessity on its part to perform any obligations under the marketing agreement and irrespective of the terms of the marketing agreement, it is entitled to claim that amount as the same was part of the share purchase agreement, and therefore, the learned Arbitral Tribunal ought to have held that the claim is violative of section 77 of the Companies Act and the respondent is not entitled to claim that amount and ought to have rejected the reference.

45. The Tribunal held that the marketing agreement cannot be said to be a sham document not intended to be acted upon. It also held that though a part of the same transaction of sale of shares, Rs.74.40 crores were made payable by a separate agreement, the Arbitral Tribunal also held that the objective disclosed by the agreement was not the real objective and it could have been to get out of the restriction/prohibition arisen out of the provisions of the Companies Act or to pay less for purchasing the remaining shares from the public. Nevertheless, the Tribunal also held that whatever might have been the real reason, the payment of Rs.74.40 crores was made depending upon ICL lifting the shortfall in SVCL market share in the States of Tamil Nadu and Andhra Pradesh and also held that it cannot be correct to state that independently and irrespective of the marketing agreement, Rs.74.40 crores was to be paid by the petitioner to ICL. It also held that even though the agreement to pay Rs.74.40 crores was part of the transaction for purchase of shares from ICL Group, the same was provided by a separate agreement and the rights and obligations of the parties have to be decided in terms of the marketing agreement. The findings of the learned Arbitral Tribunal that the amount payable was part of the transaction of purchase of ICL Group's shareholding, that the marketing agreement and share purchase agreement are two different agreements and the amount paid under the marketing agreement was an additional amount over and above the amount fixed in the share purchase agreement, that the marketing agreement was not violative of section 77 of the Companies Act, would lead to the conclusion that the learned Arbitral Tribunal was not sure whether the amount was payable depending upon the condition specified in marketing agreement or the amount represented the amount specified in the share purchase agreement. That was the reason for not answering the points for determination A and B and the learned Arbitral Tribunal confused itself by taking prevaricating stand regarding the amount payable or claimed by the first respondent under the marketing agreement. For the purpose of answering point 'D', the learned Arbitral Tribunal held that two agreements are separate and they are independent. But, while discussing the liability on the part of the petitioner regarding the amount payable under the marketing agreement, the Arbitral Tribunal held that the case of the petitioner herein that the marketing agreement was a separate and independent agreement and has nothing to do with the additional amount that was to be paid to ICL cannot be accepted and also held that the agreement is not a sham and nominal agreement not intended to be acted upon.

46. In my respectful opinion, the learned Arbitral Tribunal failed to take into consideration the specific case put forward by the first respondent and proceeded to consider whether there was any deficiency on the part of the first respondent in complying with the marketing agreement by referring to various correspondence. The learned Arbitral Tribunal even after coming to the conclusion that the first respondent did not complain to E&Y, the independent authority regarding the certificates issues by it and called upon E&Y to correct the same and the first respondent could have lifted that quantity as shortfall which according to it was proper under the then existing circumstances, held that the first respondent is entitled to Rs.26.40 crores holding that the first respondent deserves to be granted 50% of the amount of Rs.56.80 crores that was payable under the agreement. The learned Arbitral Tribunal, having held that there is no violation of section 77 of the Companies Act by holding that marketing agreement is a separate agreement and it was executed by the parties after completion of the process of acquisition of ICL Groups shareholding in SVCL by ZCL and what was to be paid under the agreement was an additional amount over and above the consideration fixed under the share purchase agreement while answering point D, ought to have answered points A and B that the first respondent failed to prove that the petitioner herein agreed to pay Rs.74.40 crores pursuant to share purchase agreement and marketing agreement was not a mechanism for such payment. On the other hand, the learned Arbitral Tribunal only held that the first respondent was willing to fulfil its obligation of lifting the shortfall, but for the non-cooperation and impediments created by the petitioner, the first respondent could have performed its obligations qua the specific market share. Therefore, the learned Arbitral Tribunal held that there was non-cooperation on the part of the petitioner which prevented the first respondent to perform its obligations qua the specific market share. The above said finding is contrary to the earlier finding arrived at by the learned Arbitral Tribunal holding that the first respondent could have lifted that quantity as shortfall which according to it was proper under the then existing circumstances and the first respondent also did not complain to E&Y regarding the certificates issued by it and called upon E&Y to correct the same. It is admitted that E&Y is the independent authority to give certificates on the basis of the information furnished by the petitioner and having held that the first respondent did not complain to E&Y regarding the certificates issued by it and did not call upon E&Y to correct the same, the learned Arbitral Tribunal is not right in holding that the first respondent has done its best to perform its obligations.

47. Let me consider whether the findings of the learned Arbitral Tribunal that ICL was willing and ready to fulfil its obligations of lifting the shortfall and due to non-cooperation and impediments created by ICL, ICL was not able to perform its obligation is "reasonable". The learned Arbitral Tribunal discussed the evidence in para 32 to 36 of its award. The learned Arbitral Tribunal proceeded to analyze the evidence to find out whether ICL has performed its obligations under the marketing agreement to claim Rs.74.40 crores. In para 30 of the award, it is observed as follows:-

"From the conduct of ICL and SVCL, it can be concluded that lifting of the shortfall was the only obligation really agreed upon by the parties to be performed by ICL for being paid the amounts in the manner stated in the agreement."

In para 31 of the award, it is observed as follows:-

"It is the case of ICL that it started performing its obligation under the agreement by lifting the shortfall for the month of June 2002, based upon its own calculations in the absence of any certificate from the Independent Authority in that behalf. That was the first month for which the obligation to lift the shortfall had become effective. It had thereafter, on 3.9.2002, forwarded its calculations of shortfall for the month of July 2002 for SVCL's confirmation. There was no reply from SVCL. It had sent a reminder to ZCL. In October 2002, it wrote to ZCL to make adjustments arising out of additional capacity and to revise the specified market share and targeted market share accordingly. In November 2002, it wrote to ZCL to urgently resolve the issues discussed during the joint meeting held on 12th and 13th November. It indicated its calculations of shortfall for the months of June to September and further informed SVCL and ZCL that it was not lifting the shortfall pending proper determination of the shortfall and other issues. Thereafter, there was correspondence between the parties and the disputes remained unresolved as SVCL and ZCL did not intend to act according to their obligations under the agreement and pay any amount to ICL. The respondents, have on the other hand, alleged defaults on the part of ICL in not lifting the shortfall and denied that they had prevented ICL from performing its obligations. ICL did not render the assistance required by SVCL to maintain and achieve higher share in the market and did not lift the shortfall even after shortfall certificates were issued by the independent authorities."

The Arbitral Tribunal also referred to Section 5.3 of the Agreement and observed that E&Y, the independent authority had to compute the market share and shortfall. It also observed that it was open to ICL to lift any quantity of cement or clinker even prior to computation of shortfall and such lifting by ICL was to be adjusted against the shortfall to be computed by independent authority. As per Section 8.2, independent authority is required to take into account revised specific market share and revised Target market share, if any, submitted by the coordination committee consisting of two representatives each from ICL, SVCL and ZCL from time to time and also verify the total despatch of products from SVCL to all States from the excise/despatch records etc., and thereafter compute the market share as per CMA data. Such verification and computation was to be done within 15 days from the close of any month and then compute the shortfall/additional quantity required to be lifted by ICL. The independent authority had also to determine the ICL's entitlement for receiving payments from SVCL and ZCL after making certain verification. CMA data means the data published in the monthly/periodical publications of CMA like "Executive Summary", "Inter Regional Movement" and such other relevant publication and data which are available in the website of CMA. "Shortfall" is defined in Section 5.2(b) as the difference between quantity of products that SVCL should have despatched in order to achieve the Specified Market Share in any given period as contemplated in the Agreement and the actual despatched quantity (excluding Products despatched to ZCL) during such period. Shortfall for any particular month shall be computed by the Independent Authority within three days from the date of receipt by Independent Authority of CMA Data for such month. Any monthly Shortfall can be lifted by ICL within a timeframe of three months from the date of computation of Shortfall by the Independent Authority as specified in Section 5.3(b) and such lifting of Shortfall by ICL shall be reckoned while computing achievement of Specified Market Share relating to relevant period as in 5.1. Mechanism available to ICL to lift the shortfall is enumerated in Section 5.3. As per section 5.3(b)(ii) to lift the shortfal, ICL will be required to place indents from time to time and SVCL shall at its option supply from SVCL or ZCL, pursuant to such indent, not later than 10 days from the date of receipt of such indent, except in cases of unforeseen circumstances. As per section 7.1, in consideration of ICL rendering marketing services to SVCL as per the agreement, SVCL shall, based on receipt of certificate of independent authority as specified in Section 8.2, pay to ICL the amount. Section 8.2 provides the mechanism for issuing the certificate by the independent authority.

48. Therefore, from the various clauses referred to above, it is made clear that the independent authority E&Y has to issue the certificate after taking into account revised market share and revised target share submitted by the coordination committee as envisaged in Section 8.1(b), verify the total despatch of products from SVCL to all States from the excise/despatch records and compute the market share as per CMA data. Thereafter, compute the shortfall/additional quantity as envisaged in Section 5.2(b) and 5.2(c). Therefore, there is no question of non-cooperation or impediment created by SVCL and ZCL in furnishing the details as held by the Tribunal and a duty is cast upon the independent authority to issue certificate as stated in Section 8.2. ICL also found fault with the certificate issued by E&Y as seen in Ex.C25 letter dated 24.1.2003. The Tribunal also held that E&Y issued certificate for the month of June 2002 on 5.12.2002 and the certificates for the months of August, September and October 2002 were also issued on 5.12.2002. Having held so, it cannot be stated that SVCL and ZCL did not give the information to independent authority to issue the certificate.

49. The Tribunal also referred to Ex.C21 a letter dated 28.12.2002 issued by SVCL to ICL and held that the observation in para 3 of the letter is not correct. I am not going into the correctness of the said finding. But the fact remains that certificates were issued by E&Y the independent authority till October 2002 and therefore, the conclusion that SVCL and ZCL were not cooperating and caused impediments and ICL was willing to perform the obligations and it had not committed default cannot be said to be reasonable. Further, the learned Arbitral Tribunal correctly held that ICL did not complain to E&Y regarding the certificates issued by it and called upon E&Y to correct the same. Therefore, having regard to Section 5.2, 5.3 and 5.8 of the marketing agreement and the discussions stated above, the reasons stated by the learned Arbitral Tribunal that ICL could have performed its obligations qua the specified market share but for the non-cooperation and impediments created by SVCL and ZCL are without any basis and the reasons are unreasonable and irrational as held in (1987) 4 SCC 497 and therefore, the award is liable to be set aside. Therefore, the learned Arbitral Tribunal was not justified in holding that the ICL was willing to filfil its obligations of lifting the shortfall with reference to exhibits and that was also not the case of ICL. Point No.5 is answered accordingly.

50. As stated supra, the definite case of the first respondent was that the amount claimed by them was payable under share purchase agreement and marketing agreement was only a mechanism as evidenced by the pleadings and evidence. Nevertheless, the learned Arbitral Tribunal, without considering the said plea, discussed the exhibits and arrived at a conclusion that ICL was not at fault. As a matter of fact, no oral evidence was let in by ICL in that regard. It is settled law that in the absence of pleading, no amount of evidence can be let in. In this case, there is no pleading by ICL that due to non-cooperation and impediments caused by SVCL and ZCL, they were not able to lift the shortfall. Further, the learned Arbitral Tribunal also held that ICL did not complain to E&Y regarding the certificates issued by it and called upon E&Y to correct the same and ICL also could have lifted that quantity as shortfall which according to it was proper under the then existing circumstances. In the judgment reported in BHAGWATI PRASAD v. CHANDRAMAUL (AIR 1996 SC 735), it is held as follows:-

"To allow one party to rely upon a matter in respect of which the other party did not lead evidence and has had no opportunity to lead evidence, would introduce considerations of prejudice, and in doing justice to one party, the Court cannot do injustice to another."

In the judgment rendered in RAM SARUP GUPTA v. BISHUN NARAIN INTER COLLEGE ((1987) 2 SCC 555 = AIR 1987 SC 1242), it is held as follows:-

"... It is well settled that in the absence of pleading, evidence, if any, produced by the parties cannot be considered. It is also equally settled that no party should be permitted to travel beyond its pleading and that all necessary and material facts should be pleaded by the party in support of the case set up by it. The object and purpose of pleading is to enable the adversary party to know the case it has to meet. In order to have a fair trial it is imperative that the party should settle the essential material facts so that other party may not be taken by surprise."

Therefore, having regard to the specific case projected by the first respondent and the evidence let in by it, the learned Arbitral Tribunal need not have discussed the exhibits and arrived at a finding that ICL was not at fault in lifting the shortfall and therefore, the conclusion is against settled principles of law.

51. Further, the Arbitral Tribunal did not give any reason for awarding Rs.26.40 crores. Section 7(a)(ii-i), (ii-ii), (ii-iii) and (ii-iv) make provision for the payment under the marketing agreement at various stages and therefore, the awarded passed by the Arbitral Tribunal should be in accordance with section 7(a)(ii). But, the learned Arbitral Tribunal, without any reference to section 7(a)(ii), held that ICL deserves to be granted 50% of the amount that was payable under the agreement and awarded Rs.26.40 crores. Therefore, in my respectful opinion, the award of Rs.26.40 crores is arbitrary. Hence, the point for consideration No.1 is answered accordingly, in favour of the petitioner.

52. As per the judgment of the Honourable Supreme Court rendered in (2003) 5 SCC 705 and (2008) 13 SCC 80, an award can be set aside if it is against the terms of the respective contract and if it is unfair and unreasonable that it shocks the conscience of the court. The court can also consider whether the award is against the specific term of the contract and if so, interfere with it on the ground that it is patently illegal. I have already held that without reference to Section 7(a)(ii) of the marketing agreement and without any basis, the Tribunal awarded 50% of the amount payable under the agreement and therefore, it is against the specific term in the contract, and it is unfair and unreasonable and therefore, the award is liable to be set aside. One more important aspect was not considered by the Arbitral Tribunal. It is admitted that ICL invoked arbitration clause under the share purchase agreement and claimed Rs.74.40 crores from ZCL stating that they are entitled to claim amount as per share purchase agreement and that amount was payable as part of the consideration payable under the share purchase agreement. That reference is also pending before the same Arbitral Tribunal. Therefore, ICL have made it clear its stand that they are claiming the amount only under the share purchase agreement. Therefore, the claim is against the provisions of section 77 of the Companies Act. Further, ICL cannot be allowed to claim the amount under the agreements and the conduct of the first respondent-ICL is to be deprecated. The Arbitral Tribunal was aware of the two references made by ICL. Nevertheless, it awarded Rs.26.40 crores under the marketing agreement. Therefore, it shocks the conscience of this court and it is liable to be set aside. Point No.2 is also answered accordingly.

53. I have already held that the specific case of the first respondent both in pleading and evidence is that they are entitled to claim that amount as per share purchase agreement and marketing agreement is only a mechanism and irrespective of the fulfilment of obligations as per marketing agreement. The Tribunal also at one stage accepted the case of the first respondent. Hence, it is against Section 77 of the Companies Act and therefore, the award is against the substantive provisions of law and therefore, liable to be set aside. Point No.4 is answered accordingly.

54. I have already held that without giving any specific finding to point A and B, the Tribunal ought not to have proceeded to pass the award and hence, Point No.3 is answered.

In the result, the award is liable to be set aside and it is set aside. The petition is allowed.

17.9.2013.

Index: Yes.

Internet: Yes.

ssk.

R.S.RAMANATHAN, J.

Ssk.

P.D. ORDER IN Arb.O.P.No.674 of 2011 Delivered on 17.9.2013