Gujarat High Court
Interface Brokerage And Research Ltd. vs Dms Investment Advisory Pvt. Ltd. on 30 July, 2018
Author: J.B.Pardiwala
Bench: J.B.Pardiwala
C/FA/836/2018 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/FIRST APPEAL NO. 836 of 2018
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE J.B.PARDIWALA
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1 Whether Reporters of Local Papers may be allowed to NO
see the judgment ?
2 To be referred to the Reporter or not ? NO
3 Whether their Lordships wish to see the fair copy of the NO
judgment ?
4 Whether this case involves a substantial question of law NO
as to the interpretation of the Constitution of India or any
order made thereunder ?
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INTERFACE BROKERAGE AND RESEARCH LTD.
Versus
DMS INVESTMENT ADVISORY PVT. LTD.
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Appearance:
MR GM JOSHI(370) for the PETITIONER(s) No. 1
ANMOL A MEHTA(8390) for the RESPONDENT(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA
Date : 30/07/2018
ORAL JUDGMENT
1. This first appeal under section 37 of the Arbitration and Conciliation Act, 1996 is at the instance of the original applicant and is directed against the judgment and order dated Page 1 of 26 C/FA/836/2018 JUDGMENT 18th November, 2017 passed by the Judge of the City Civil Court, Court No.27, Ahmedabad in the Civil Misc. Application No.103 of 2010 filed by the appellant herein under section 34 of the Act, 1996 for setting aside the arbitral award passed by the Sole Arbitrator in the Arbitration Matter No.CM/M- 0129/2009 dated 30th September, 2009.
2. It appears from the materials on record that the appellant herein is in the business of trading of shares/securities. The case of the respondent herein is that there was a credit balance of Rs.4,03,946/- (Rupees Four Lakhs Three Thousand Nine Hundred Forty Six Only) in the Ledger Account which has not been paid to him. The respondent herein had purchased 5000/- shares of the PNB Gilts on 5th January, 2009 which have not been credited in the demat account of the respondent. In such circumstances, the respondent herein filed a claim before the NSE (National Stock Exchange), which culminated in the Arbitration No.CM/M-0129/2009. Hon'ble Justice A.S. Aguiar, Former Judge of the Bombay High Court, was appointed as the sole arbitrator. The award passed by the sole arbitrator reads as under;
"1. National Stock Exchange of India Limited vide its letter dated 11th June, 2009 has referred the above Arbitration matter to the Sole Arbitrator, Justice A.S. Aguiar (Retd), to enquire into the dispute between the above parties under the Bye-laws, Rules and Regulations of the National Stock Exchange.
2. The initial hearing on 6th July, 2009 and all subsequent hearings on 22.7.09, 17.8.09, and 9.9.09 in the above matter were held at the office of the National Stock Exchange of India Limited, Exchange Plaza, Bandra Kurla Complex, Mumbai, on which dates the Applicants were represented by their Authorized Representative- Manish Shah. The Respondents were represented by Page 2 of 26 C/FA/836/2018 JUDGMENT their Authorized Representative-Himal Parikh on 17.8.09 on which date the said Mr. Parikh prayed for time to file the Respondents' Reply. The Respondents had failed to remain present on the previous two dates 67.09 and 22.7.09.
3. It must at the outset be pointed out that though the Applicants have in Form No.1 stated the claim amount to be Rs.6,00,000/- (Rupees Six Lakhs Only), the Applicants had not submitted any Statement of Claim setting out the details or particulars of the claim. Hence the Applicants were directed to file a detailed Application in writing clearly setting out the facts and particulars of the claim as well as facts pertaining to charge of name of the Applicants company. The Applicants have filed a revised claim on 14.7.09.
4. The Applicants have stated that the previous name of their Company was KGMs Investment Consultants Pvt. Ltd. And this fact has been stated in the Application for Arbitration filed with the Exchange. The Applicants point out that in view of Sec.23(3) of the Companies Act 1956, the change of name shall not affect any right or obligations of the Company or render defection any legal proceedings by or against it.
It is further pointed out that the Applicants have trading Code No.55100 since June 2003 in the former name iI.e., KGMs Investment Pvt. Ltd.. The change of name was effected in March 2005 of which the Respondents were duly informed. The Respondents had taken note of the change of name and all payments were received from the Respondents and payments made by the Applicants were to or from the Bank account of the Applicants with the new name.
Further, the demat deliveries given or received from the Respondent were in the name of DMS Investment Advisory (P) Ltd.
The case of the Applicants is that there was a credit balance of Rs.4,03,946/- (Rupees Four Lakhs Three Thousand Nine Hundred Forty Six Only) in the Ledger Account which has not been paid to the Applicants.
Further, the Applicants had purchased 5000 shares of
Page 3 of 26
C/FA/836/2018 JUDGMENT
PNB Gilts on 5th January, 2009 which have not been credited to their demat account. The value of the same as on 14th July 2009 @ Rs.23.25 is Rs.1,16,250/- (Rupees One Lakh Sixteen Thousand Two Hundred Fifty Only). The value of the shares is shown debited in their Ledger.
Further, the Applicants had given 200 shares of Mahindra and Mahindra to the Applicants account as margin money for the Derivatives Segment. The value of this shown as on 14th July 2009 @ Rs.690/- per share amounting to Rs.1,38,000/- (Rupees One Lakh Thirty Eight Thousand Only) has to be paid to the Applicants as the shares have not been returned to the Applicants.
Thus the total claim of the Applicants would be Rs.6,58,214/- (Rupees Six Lakh Fifty Eight Thousand Two Hundered Fourteen Only).
The Applicants have stated that they had both orally and in writing (letter dated 25.3.09) informed the Respondents' director Mr. Himal Parikh to pay the amount but the Respondents have failed to respond. Hence the Applicants have failed the Arbitration Application.
The Respondents in their so called Reply dated 31.8.09 have not denied the Applicants claim but have only stated that the statement of Accounts submitted by the Applicants has not been certified by them. They have with their reply submitted a fresh copy of the Applicants Accounts for the period from 1.4.08 to 31.3.09 for the Capital Market Segment only. The Respondent have not submitted copy of the Financial Account Ledger of NSE Derivative Segment.
The Applicants in their response to the Respondent's so called Reply dated 31.8.09 pointed out that in the ledger copy submitted by the Respondents, the last entry shown, is dated 13th March 2009, whereas the Applicant's Ledger copy which was in fact given to them by the Respondents shows the last entry is of 25th March 2009 and this is a credit entry of Rs.4,03,886.84 (Rupees Four Lakhs Three Thousand Eight Hundred Eighty Six and paise Eighty Four only) given to the Applicants- the narration reads " TRF from Derivative Segment".
Again, the Applicants Ledger copy of Derivative Segment Page 4 of 26 C/FA/836/2018 JUDGMENT Account given to them by the Respondent show the last entry by the Respondent as a credit balance transferred to the Applicants NSE Capital Market Segment Account and the Amount transferred is Rs.4,03,886.84 (Rupees Four Lakhs Three Thousand Eight Hundred Eighty Six and paise Eighty Four only). That is the same amount as reflected in the Capital Market Ledger Account entry dated 25th March 2009.
9. In the light of the above the Applicants are entitled to a sum of Rs.4,03,886.84 (Rupees Four Lakhs Three Thousand Eight Hundred Eighty Six and paise Eighty Four only) from the Respondent being the credit balance in the ledger account. The Respondent is also liable to pay to the Applicants the value of the 5000 shares of PNB and the value of the 200 shares of Mahindra and Mahindra kept with them as margin.
10. Hence, I pass the following award.
AWARD
(a) The Respondents are directed to pay to the Applicant a sum of Rs.6,00,000/- (Rupees Six Lakh Only) as stated in the claim form together with interest thereon at the rate of 10% from the date of filing the Application till payment or realization.
(b) No order as to costs.
(c ) NSEL is directed to file the Original Award which is engrossed in triplicate with requisite non-judicial Stamp, and to forward one Original Copy to each of the parties."
3. The appellant, being dissatisfied with the award passed by the Sole Arbitrator, preferred the Civil Misc. Application No.103 of 2010 under section 34 of the Act in the City Civil Court at Ahmedabad and prayed that the award be quashed.
4. The City Civil Court adjudicated the application filed by the appellant herein under section 34 of the Act and by the impugned order, rejected the same. The findings recorded by Page 5 of 26 C/FA/836/2018 JUDGMENT the City Civil Court in the impugned order are extracted hereunder;
"(8) Now, if I peruse the documents produced with the affidavit, more particularly the minutes of the proceedings convened before the Hon'ble Arbitrator, it is crystal clear that As per my observations, sufficient opportunity of presenting its case is given to the applicant and also after carefully taking into consideration the reply filed by the applicant, the Ld. Arbitrator has passed the award. As far as the letter of dated 02.07.2009 for fixing up arbitration on or after 15.08.2009 is concerned, the same was received by NSE only on 07.07.2009 i.e. after the fist date of arbitration proceeding so, the question of non-consideration of this letter by the ld. Arbitrator is not at all a relevant here.
With regard to the request for change in date of hearing to 10.09.2009 instead of 09.09.2009 and non-acceptance of this request by the Ld. Arbitrator does not means that the applicant has not granted sufficient opportunity as in spite of being fully aware about the date fixed then also applicant remained absent at the time of hearing therefore, it is immaterial and irrelevant whether the said rejoinder was sent to the applicant by NSE on 10.09.2009 . Furthermore, ld. Arbitrator has considered the contents of reply filed by the present applicant in award para-6 and appreciate the documentary evidence produced before him. Further, the applicant should have duly remember that this Court is not an appeal Court.
Now, I have considered the ratio laid down by the Hon'ble High Court in case of Nitin Construction Co., the award can be set aside on the ground of error of law on the fact of it, the award is passed in legal preposition, which is not erroneous. I have perused the record and discussed above, there is nothing found on record that Ld. Arbitrator has passed the award during the scope of reference, not only that, there is no breach of provision of any law. So, award can be passed by the Ld. Arbitrator is within the provision of law and considering all the factual aspects, giving reasonable opportunity of being heard and in the legal preposition of law. So, it is not needed any interference in the award passed by the Ld. Arbitrator. I have gone through the award and Page 6 of 26 C/FA/836/2018 JUDGMENT reasons assigned by the ld. Arbitrator, the Ld. Arbitrator has discussed the facts, evidence and law at length and documentary evidence on record and has given sufficient, genuine and bonafide reasons for the purpose of coming to the conclusion. No other award is made against the claims. Thus, in my view, the applicant could not be able to point out as to how and in what manner, the award passed by the Ld. Arbitrator is illegal, perverse and against the sound principles of law. Hence, the petition is required to be dismissed and I pass the following order."
5. Being dissatisfied with the judgment and order passed by the court below, the appellant is here before this Court with this appeal under section 37 of the Act.
6. The grounds of challenge raised in the memo of the first appeal are as under;
"(C ) That the Learned City Civil Court has materially erred by not taking into aspect the fact that the arbitral award was passed by the Learned Arbitrator without giving the applicant proper chance of representing his case during the arbitration proceedings.
(D) The Learned City Civil Court has materially erred by not taking tin consideration the bias and the lack of opportunity towards the applicant by the Learned Arbitrator which clearly reflects from the fact that though the reply was filed by the applicant on 31.08.2009, the Learned Arbitrator in the proceeding of 09.09.2009 has observed that there was no reply filed by the applicant.
(E) The Learned City Civil Court has erred in not taking the fact into consideration that the applicant had time and again sent letters requesting the hearing to be fixed after 15th August, 2009 due to settlement of accounts of his firm but still his request was not taken into consideration and short dates were granted just to record the absence of the applicant during the proceedings.Page 7 of 26
C/FA/836/2018 JUDGMENT (F) That the Learned City Civil Court has grossly erred in coming to the conclusion that the applicant is liable to pay an amount of Rs.6,00,000/- with 10% interest from the date of filing the application till the date of realization.
(G) The Learned City Civil Court has materially erred by completely ignoring the fact that the Learned Arbitrator has shut his eyes on the reply filed by the applicant contending that the accounts produced by the opponents were not certified and the last entry was concocted.
(H) The Learned City Civil Court has materially erred in not setting aside the award of the Learned Arbitrator awarding interest at the rate of 10% per annum despite the fact that the amount was already deposited by the applicant and was converted into a fixed deposit beforehand meaning thereby interest was already being accrued on that amount.
(I) The Learned City Civil Court has materially erred by not taking into consideration the fact that the applicant was not even given a chance of presenting its oral submissions before the Learned Arbitrator despite his request and the arguments were concluded resulting into complete violation of the principles of natural justice.
(J) That the Learned City Civil Court has materially erred in not taking into consideration the fact that the applicant had also submitted his rejoinder during the course of the arbitral proceedings but the Learned Arbitrator had decided to completely ignore it by not mentioning even a word about the same in the award.
(K) That the learned City Civil Court has materially erred by not accepting the case of the applicant in its entirety without examining the merits of the grounds of the applicant.
(L) That even otherwise the judgment is contrary to law and therefore liable to be quashed and set aside."Page 8 of 26
C/FA/836/2018 JUDGMENT ANALYSIS
7. Section 34 of the Arbitration and Conciliation Act reads as follows-
"Application for setting aside arbitral award.-(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3). (2) An arbitral award may be set aside by the Court only if-
(a) the party making the application furnishes proof that-
(i) a party was under some incapacity; or
(ii) The arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the Court finds that-
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or Page 9 of 26 C/FA/836/2018 JUDGMENT
(ii) the arbitral award is in conflict with the public policy of India.
Explanation.-Without prejudice to the generality of sub- clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under Section 33, from the date on which that request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.
(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award."
This Section in conjunction with Section 5 makes it clear that an arbitration award that is governed by part I of the Arbitration and Conciliation Act, 1996 can be set aside only on grounds mentioned under Section 34 (2) and (3), and not otherwise. Section 5 reads as follows:
"5. Extent of judicial intervention.-Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part."
8. It is important to note that the 1996 Act was enacted to replace the 1940 Arbitration Act in order to provide for an arbitral procedure which is fair, efficient and capable of Page 10 of 26 C/FA/836/2018 JUDGMENT meeting the needs of arbitration; also to provide that the tribunal gives reasons for an arbitral award; to ensure that the tribunal remains within the limits of its jurisdiction; and to minimize the supervisory roles of courts in the arbitral process.
9. The intendment of the new Act is to minimise the scope for intervention of Courts in arbitration matters. The Arbitral Tribunal has been given a free hand to deal with the disputes between the parties and to arrive at its resolution. A finality has been attached to an arbitral award under Section 35 of the Act and the law has turned a full circle as an award by itself has become enforceable as a decree of a Court. The award is not open to challenge on the ground that the arbitrator has reached a wrong conclusion or has failed to appreciate the facts. On the other hand, under Section 34 or under Section 9 of the Act, when a Court is called upon to decide the objection raised by a party against an arbitral award or to make interim measures of protection, the jurisdiction of the Court is limited as expressly indicated in the said provisions. It has no jurisdiction to sit in appeal and examine the correctness of the award on merits with reference to materials produced before the Arbitral Tribunal or to issue an order of injunction, which may result in obstructing the proceedings before the Arbitral Tribunal. The Court cannot sit in appeal over the views of the Arbitrator by re-examining and reassessing the materials, in exercise of its power under Section 34 of the Act and similarly under the garb of interim measures of protection it cannot put impediments in the progress of the arbitral proceeding.
10. Arbitration is intended to be a faster and less expensive Page 11 of 26 C/FA/836/2018 JUDGMENT alternative to the courts. If this is one‟s motivation and expectation, then the finality of the arbitral award is very important. The remedy provided in Section 34 against an arbitral award is in no sense an appeal. The legislative intent in Section 34 was to make the result of the annulment procedure prescribed therein potentially different from that in an appeal. In appeal, the decision under review not only may be confirmed, but may also be modified. In annulment, on the other hand, the decision under review may either be invalidated in whole or in part or be left to stand if the plea for annulment is rejected. Annulment operates to negate a decision, in whole or in part, thereby depriving the portion negated of legal force and returning the parties, as to that portion, to their original litigating positions. Annulment can void, while appeal can modify. Section 34 is found to provide for annulment only on the grounds affecting the legitimacy of the process of decision as distinct from substantive correctness of the contents of the impugned order. A remedy of appeal focuses upon both, legitimacy of the process of decision and the substantive correctness of the decision. Annulment, in the case of arbitration focuses not on the correctness of decision but rather more narrowly considers whether, regardless of the errors in the application of law or determination of facts, the decision resulted from a legitimate process.
11. In the case of arbitration, the parties through their agreement create an entirely different situation because regardless of how complex or simple a dispute resolution mechanism they create, they almost always agree that the Page 12 of 26 C/FA/836/2018 JUDGMENT resultant award will be final and binding upon them. In other words, regardless of whether there are errors of application of law or ascertainment of fact, the parties agree that the award will be regarded as substantively correct. Yet, although the content of the award is thus final, parties may still challenge the legitimacy of the decision-making process leading to the award. In essence, parties are always free to argue that they are not bound by a given "award" because what was labeled an award is the result of an illegitimate process of decision.
12. Arbitration under the 1940 Act could not achieve the savings in time and money for which it was enacted and had merely become a first step in lengthy litigation. Reference in this regard can be made to para 35 of Bharat Aluminium Company Vs. Kaiser Aluminium Technical Services Inc. (2012) 9 SCC 552. It was to get over the said malady that the law was sought to be overhauled. While under the old Act, the award was unenforceable till made rule of the court and for which it had to pass various tests as laid down therein and general power/authority was vested in the court to modify the award, all this was removed in the new Act. The new Act not only made the award executable as a decree after the time for preferring objection with respect thereto had expired and without requiring it to be necessarily made rule of the court but also did away with condonation of delay in filing the said objections. The reason/purpose being expediency. The grounds on which the objections could be filed are also such which if made out, the only consequence thereof could be setting aside of the award. It is for this reason that under new Act there is no power to the court to modify the award or to remit the award Page 13 of 26 C/FA/836/2018 JUDGMENT etc. as under the old Act. A perusal of the various grounds enunciated in Section 34 will show that the same are procedural in nature i.e., concerning legitimacy of the process of decision. While doing so, the ground, of the award being in conflict with Public Policy of India, was also incorporated. However the juxtaposition of Section 34(2)(b)(ii) shows that the reference to „Public Policy‟ is also in relation to fraud or corruption in the making of the award. The new Act was being understood so [see Konkan Railway Corporation Ltd. Vs. Mehul Construction Co. (2000) 7 SCC 201 (para 4 and which has not been set aside in S.B.P. & Co. Vs. Patel Engineering Ltd. (2005) 8 SCC 618)] till the Supreme Court in Saw Pipes Ltd. (supra) held that the phrase "Public Policy of India‟ is required to be given wider meaning and if the award on the face of it is patently in violation of statutory provisions, it cannot be said to be in public interest and such award/judgment/decision is likely to adversely affect the administration of justice. In para 37 of the judgment it was held that award could be set aside if it is contrary to fundamental policy of Indian Law or the interest of India or justice or morality or if it is patently illegal. A rider was however put that illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that the award is against the public policy. Yet another test laid down is of the award being so unfair and unreasonable that it shakes the conscience of the court.
13. The courts have thereafter been inundated with challenges to the award. The objections to the award are drafted like appeals to the courts; grounds are urged to show each and every finding of the arbitrator to be either contrary to Page 14 of 26 C/FA/836/2018 JUDGMENT the record or to the law and thus pleaded to be against the Public Policy of India. As aforesaid, the courts are vested with a difficult task of simultaneously dealing with such objections under two diverse provisions and which has led to the courts in some instances dealing with awards under the new Act on the parameters under the old Act.
14. The result is that the goal of re-enactment has been missed.
15. The re-enactment was not only to achieve savings in time and prevent arbitration from merely becoming the first step in lengthy litigation but also in consonance with the international treaties and commitments of this country thereto. Since the enactment of the 1940 Act, the international barriers had disappeared and the volume of international trade had grown phenomenally. The new Act was modeled on the model law of international commercial arbitration of the United Nations Commission on International Trade Law (UNICTRAL). It was enacted to make it more responsive to contemporary requirements. The process of economic liberalization had brought huge foreign investment in India. Such foreign investment was hesitant, owing to there being no effective mode of settlement of domestic and international disputes. It was with such lofty ideals and with a view to attract foreign investment that the re-enactment was done. If the courts are to, notwithstanding such re-enactment, deal with the arbitration matters as under the old Act it would be a breach of the commitment made under the treaties on international trade. (see Delhi Development Authority vs. M/s. Bhardwaj Brothers, AIR 2014 DELHI 147) Page 15 of 26 C/FA/836/2018 JUDGMENT
16. The Supreme Court as far back as in Union of India Vs. A.L. Rallia Ram, AIR 1963 SC 1685 held that:-
"An award being a decision of an arbitrator whether a lawyer or a layman chosen by the parties, and entrusted with power to decide a dispute submitted to him is ordinarily not liable to be challenged on the ground that it is erroneous. In order to make arbitration effective and the awards enforceable, machinery is devised for lending the assistance of the ordinary Courts. The Courts are also entrusted with power to modify or correct the award on the ground of imperfect form or clerical errors, or decision on questions not referred, which are severable from those referred........The Court may also set aside an award on the ground of corruption or misconduct of the arbitrator, or that a party has been guilty of fraudulent concealment or willful deception. But the Court cannot interfere with the award if otherwise proper on the ground that the decision appears to it to be erroneous. The award of the arbitrator is ordinarily final and conclusive, unless a contrary intention is disclosed by the agreement. The award is the decision of a domestic tribunal chosen by the parties, and the civil courts which are entrusted with the power to facilitate arbitration and to effectuate the awards, cannot exercise appellate powers over the decision. Wrong or right the decision is binding, if it be reached fairly after giving adequate opportunity to the parties to place their grievances in the manner provided in the arbitration agreement."
17. Of course the said judgment being under the Arbitration Act, 1940 proceeds to hold that an award is bad on the ground of error of law on the face of it. However the legislature while re-enacting the arbitration law has removed the ground of challenge of error of law on the face of the award. In Mc. Dermott International Inc. (2006 AIR SCW 3276) also it was held that the parties to the Arbitration Agreement make a conscious decision to exclude the Courts jurisdiction as they prefer the expediency and finality offered by arbitration. We are bound to respect the said change brought about by the Page 16 of 26 C/FA/836/2018 JUDGMENT legislature and cannot dogmatically review the awards on the grounds of challenge which have been intentionally taken away by the legislature.
18. Arbitration will not survive, much less flourish, if this core precept is not followed through by the Courts. The integrity and efficacy of arbitration as a parallel dispute resolution system will be subverted if the Courts appear unable or unwilling to restrain themselves from entering into the merits of every arbitral decision that comes before it. The power to intervene must and should only be exercised charily, within the framework of the Arbitration Act. Minimal curial intervention is underpinned by need to recognise the autonomy of the arbitral process by encouraging finality, so that its advantage as an efficient alternative dispute resolution process is not undermined. The parties having opted for arbitration, must be taken to have acknowledged and accepted the attendant risks of having only a very limited right of recourse to the Courts. It would be neither appropriate nor consonant for the Court to lend assistance to a dissatisfied party by exercising appellate function over arbitral awards, save to the extent statutorily permitted. (see M/s. National Highways Authority of India vs. M/s. Oriental Structural Engineers Pvt. Ltd., AIR 2015 DELHI 79.
19. I am not, at all, impressed with the solitary submission of the learned counsel as regards the opportunity of hearing not being given by the Arbitrator. The findings recorded by the Arbitrator in the award speak for themselves. As regards the opportunity of hearing in the matters arising from the arbitration proceedings, I may refer to and rely upon a decision Page 17 of 26 C/FA/836/2018 JUDGMENT of the Supreme Court in the case of Sohanlal Gupta (Dead) Through Lrs. & Ors. vs. Asha Devi Gupta (Smt.) & Ors., (2003) 7 SCC 492. The relevant observations are as under;
"20. There cannot be any dispute with regard to the proposition of law that the parties would be entitled to a reasonable opportunity of putting their case. [See Montrose Cannel Foods Ltd. v. Eric Wells (Merchants) Ltd. [(1965) 1 Lloyd's Report 597]. A reasonable opportunity would mean that a party must be given an opportunity to explain his arguments before the Tribunal and to adduce evidence in support of his case. However, under the old Act, an oral hearing would only be permitted if a party requested one, unless there was some agreement to the contrary [See Henry Southeran Ltd. vs. Norwich Union Life Insurance Society (1992) 31 E.G. 70].
21. What would constitute a reasonable opportunity of putting case as also qualification of the right has been stated in 'Russell on Arbitration', 22nd Edition, paragraphs 5-053 and 5-054 which are in the following terms :
"5-053 A reasonable opportunity of putting case. Each party must be given a reasonable opportunity to present his own case. This means he must be given an opportunity to explain his arguments to the tribunal and to adduce evidence in support of his case. Failure to comply with this requirement may render the award subject to challenge under section 68 of the Arbitration Act 1996. It is also a ground for refusing enforcement of the resulting award under the New York Convention.
5-054 Qualification of the right. The need to allow a party a reasonable opportunity to present his case can give rise to difficulties. To what extent can the tribunal intervene where, for example, a party's submissions or evidence is needlessly long, repetitive, focuses on irrelevant issues or is sought to be made over an extended period of time? What if a party ignores procedural deadlines imposed by the tribunal but maintains he still has points to put before it in support of Page 18 of 26 C/FA/836/2018 JUDGMENT his case? Inevitably each situation has to be dealt with in its own context but the following general considerations should be taken into account."
22. There cannot, therefore, be any doubt that a party does not have an unfettered right. The arbitrator can not only ask a party to comply with procedural orders and directions including those imposing limits as to time and content of submissions and evidence but also the arbitrator has a right of managing the hearing. In 'Russell on Arbitration', 22nd Edition the law is stated thus :
"5-057 Managing the hearing. Similarly, a tribunal cannot be expected to sit through extended oral hearings listening to long-winded submissions on irrelevant matters. The tribunal is entitled, and under section 33 is obliged and encouraged, to avoid the unnecessary delay and expense that would be caused by such an approach. The tribunal should take a grip on the proceedings and indicate to the parties those areas on which it particularly wishes to be addressed and those which it does not consider relevant to the real issues in dispute. If a party fails to heed such guidance, the tribunal might seek to focus the proceedings by allocating the remaining hearing time between the parties. This the tribunal is entitled to do, provided it will allow a reasonable time for both parties to put forward their argument and evidence."
23. For constituting a reasonable opportunity, the following conditions are required to be observed :
1. Each party must have notice that the hearing is to take place.
2. Each party must have a reasonable opportunity to be present at the hearing, together with his advisers and witnesses.
3. Each party must have the opportunity to be present throughout the hearing
4. Each party must have a reasonable opportunity to present evidence and argument in support of his own case.
5. Each party must have a reasonable opportunity to test his opponent's case by cross-examining his witnesses, Page 19 of 26 C/FA/836/2018 JUDGMENT presenting rebutting evidence and addressing oral argument.
6. The hearing must, unless the contrary is expressly agreed, be the occasion on which the parties present the whole of their evidence and argument.
24. The objectors do not say that Ghanshyamdas Gupta has an interest adverse to or independent of them. Ghanshyamdas Gupta himself has not stated as to whether his interests were not safeguarded by other co- sharers who were present in the meeting.
25. The minutes of the meeting referred to hereinbefore clearly show that not only he had notice of arbitration proceedings but also took active part therein days after days. The circular letter dated 12.5.1976 was issued by the arbitrator so as to give a notice of caution that the arbitration proceedings shall be held and continued at Kolkata.
26. Can it be said having regard to the magnitude of the problem and the number of parties involved, the extent of the properties in dispute and the disputes not only between the two groups but also some members of the same group that the arbitrator was not entitled to take recourse thereto ? If the arbitrator is to manage the arbitration proceedings, in our opinion, he would be entitled to give direction to the parties to be present on the particular date, particular time and particular place which would be sufficient compliance of the requirements of law. Ghanshyamdas Gupta does not say that he did not receive the circular letter dated 12.5.1976. He did not make out a case that the said dates did not suit him. As despite receiving the said circular letter from the arbitrator, he did not choose to make himself available on 8.6.1976 at his own, the arbitrator sent him a telegram dated 12.7.1976. The said telegram was sent ex abundanti cautela.
27. The arbitrator, as appears from the minutes of the meeting, proceeded only on the documentary evidences.
No party appears to have presented oral evidence. Thus,
the question of cross-examination the witnesses
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appearing on behalf of the other parties did not arise. Submissions must have been made by the parties themselves. Ghanshyamdas Gupta does not say that he had difficulty in appearing on 15.6.1976 or any subsequent date and he had asked for adjournment. Even otherwise, a party has no absolute right to insist on his convenience being consulted in every respect. The matter is within the discretion of the arbitrator and the Court will intervene only in the event of positive abuse. [See Montrose Cannel Foods Ltd. (supra)]. If a party, after being given proper notice, chooses not to appear, then the proceedings may properly continue in his absence. [See British Oil and Cake Mills Ltd. vs. Horace Battin & Co. Ltd. (1922) 13 LI L Rep. 443].
28. In D.L. Miller (supra) the law is stated in the following terms :
"The doctrine of Arbitrators' legal misconduct has been so over-worked in recent years that across the whole branch of case law on this point one finds the blazing trial of principles of natural justice. They are discussed and agitated in an atmosphere of complete unreality and divorced from the facts of each case.
Somehow the obvious point is missed in most of such cases that when the parties agree to go to arbitration they stipulate not so much for vague principles of natural justice as for concrete principles of contractual justice according to the contracts of the parties and their specific stipulations. Where the contract of arbitration itself prescribes a private procedure of its own, then so long as such agreed private procedure is not against the laws and the statutes of the land, then such agreed procedure must prevail over the notions and principles of natural justice."
29. The principles of natural justice, it is trite, cannot be put in a straight jacket formula. In a given case the party should not only be required to show that he did not have a proper notice resulting in violation of principles of natural justice but also to show that he was seriously prejudiced thereby. In The Chairman, Board of Mining Examination and Chief Inspector of Mines and Another vs. Ramjee [(1977) 2 SCC 256], this Court held :
Page 21 of 26C/FA/836/2018 JUDGMENT "...Natural justice is no unruly horse, no lurking land mine, nor a judicial cure-all. If fairness is shown by the decision-maker to the man proceeded against, the form, features and the fundamentals of such essential processual propriety being conditioned by the facts and circumstances of each situation, no breach of natural justice can be complained of. Unnatural expansion of natural justice, without reference to the administrative realities and other factors of a given case, can be exasperating. We can neither be finical nor fanatical but should be flexible yet firm in this jurisdiction. No man shall be hit below the belt - that is the conscience of the matter."
[See also Union of India and Others vs. Anand Kumar Pandey and Others - (1994) 5 SCC 663], and R.S. Dass etc. vs. Union of India and Others [1986 (Supp.) SCC 617].
30. In Anand Kumar Pandey's case (supra), this Court again reiterated that the rules of natural justice cannot be put in a straight jacket and applicability thereof would depend upon the facts and circumstances relating to each particular given situation.
31. In M.C. Mehta vs. Union of India and Others [(1999) 6 SCC 237], this Court held that in a case of natural justice upon admitted or indisputable factual position, only one conclusion is possible, a writ of certiorari may be issued.
32. In State of U.P.vs. Harendra Arora and Another [(2001) 6 SCC 392], this Court followed, inter alia, Managing Director, ECIL vs. B. Karunakar [(1993) 4 SCC 727] and State Bank of Patiala vs. S.K. Sharma [(1996) 3 SCC 364] and held that an order passed in a disciplinary proceeding cannot ipso facto be quashed merely because a copy of the enquiry report has not been furnished to the delinquent officer, but he is obliged to show that by non-furnishing of such a report he has been prejudiced, would apply even to cases where there is requirement of furnishing a copy of enquiry report under the statutory rules.
33. In Aligarh Muslim University and Others vs. Mansoor Page 22 of 26 C/FA/836/2018 JUDGMENT Ali Khan [(2000) 7 SCC 529], it was held :
"The principle that in addition to breach of natural justice, prejudice must also be proved has been developed in several cases. In K.L. Tripathi v. State Bank of India Sabyasachi Mukharji, J. (as he then was) also laid down the principle that not mere violation of natural justice but de facto prejudice (other than non-issue of notice) had to be proved. It was observed, quoting Wade's Administrative Law (5th Edn., pp.472-75), as follows :
"It is not possible to lay down rigid rules as to when the principles of natural justice are to apply, nor as to their scope and extent...There must also have been some real prejudice to the complainant; there is no such thing as a merely technical infringement of natural justice. The requirements of natural justice must depend on the facts and circumstances of the case, the nature of the inquiry, the rules under which the tribunal is acting, the subject- matter to be dealt with, and so forth."
Since then, this Court has consistently applied the principle of prejudice in several cases. The above ruling and various other rulings taking the same view have been exhaustively referred to in State Bank of Patiala vs. S.K. Sharma. In that case, the principle of "prejudice" has been further elaborated. The same principle has been reiterated again in Rajendra Singh vs. State of M.P."
34. In U.P. Awas Evam Vikas Parishad vs. Gyan Devi (Dead) by LRs. and Others (1995) 2 SCC 326], the Constitution Bench observed :
"...In other words the right conferred under Section 50(2) of the L.A. Act carries with it the right to be given adequate notice by the Collector as well as the reference court before whom the acquisition proceedings are pending of the date on which the matter of determination of the amount of compensation will be taken up. Service of such a notice, being necessary for effectuating the right conferred on the local authority under Section 50(2) of the L.A. Act, can, therefore, be regarded as an integral part of the said right and the failure to give such a notice would result in denial of the said right unless it can be shown that the local authority had knowledge about the Page 23 of 26 C/FA/836/2018 JUDGMENT pendency of the acquisition proceedings before the Collector or the reference court and has not suffered any prejudice on account of failure to give such notice."
35. In Graphite India Ltd. and Another vs. Durgapur Project Ltd. and Others [1999) 7 SCC 645], it has been held that the principles of natural justice can be waived.
36. In 'Administrative Law', 8th Edn., by William Wade and Christopher Forsyth at page 491, it has been stated :
"...At the other end of the spectrum of power, public authorities themselves are now given the benefit of natural justice, as illustrated at the end of this section. Basically the principle is confined by no frontiers. On the other hand it must be a flexible principle. The judges, anxious as always to preserve some freedom of manoeuvre, emphasise that 'it is not possible to lay down rigid rules as to when the principles of natural justice are to apply: nor as to their scope and extent. Everything depends on the subject-matter'. Their application, resting as it does upon statutory implication, must always be in conformity with the scheme of the Act and with the subject-matter of the case. 'In the application of the concept of fair play there must be real flexibility'. There must also have been some real prejudice to the complainant: there is no such thing as a merely technical infringement of natural justice."
37. In Khaitan (India) Ltd. & Ors. vs. Union of India & Ors. [Cal LT 1999 (2) HC 478], one of us said :
"The concept of principles of natural justice has undergone a radical change. It is not in every case, that the High Courts would entertain a writ application only on the ground that violation of principles of natural justice has been alleged. The apex court, in State Bank of Patiala & Others vs. S. K. Sharma reported in 1996 (3) SCC 364 has clearly held that a person complaining about the violation of the principles of natural justice must show causation of a prejudice against him by reason of such violation. The apex court has held that the principles of natural justice, may be said to have been violated which require an intervention when no hearing, no opportunity or no notice has been given. Reference in this connection may also be made to Managing Director, E.C.I.L. v. B. Karmarkar, reported in AIR 1994 SC 1076.Page 24 of 26
C/FA/836/2018 JUDGMENT The question as to the effect of non-grant of enough opportunity to the learned counsel for the appellant by the Commission to meet the allegations made in the supplementary affidavit requires investigation. As to what extent the appellant has suffered would be a question which would fall for a decision of a High Court. Where such a disputed question arises, in the considered opinion of this Court, a writ application will not be entertained only because violation of natural justice has been alleged and more so, in a case of this nature where such a contention can also be raised before the Highest Court of India. A distinction has to be borne in mind between a forum of appeal which is presided by an Administrative Body and the apex court as an appellate court."
20. The appellant, in its reply dated 31st August, 2009, filed before the Arbitrator, did not specifically deny the claim of the respondent herein, but only stated that the statement of accounts submitted by the respondent herein had not been certified by it. The respondent herein, in rejoinder to the reply of the appellant herein, pointed out that in the ledger copy submitted by the appellant, the last entry shown is dated 13 th March, 2009, whereas the respondent's ledger copy, which was, in fact, given to the appellant, indicates the last entry of 25th March, 2009 and the same is a credit entry of Rs.4.03,886.84 (Rupees Four Lakh Three Thousand Eight Hundred Eighty Six & Eighty Four Paise only) given to the respondent herein. This aspect of the matter has been well discussed in the Arbitral Award as well as in the impugned order.
21. From the various decisions, referred to above, it could safely be stated that;
(a) The award can be set aside only if the case is covered
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under section 34(2)(a) of the Act;
(b) The Civil Court has no jurisdiction to sit in appeal over the
award and review the reasons assigned by the arbitrator, and the award cannot be set aside merely because by process of inference and arguments it could be demonstrated that the arbitrator has committed some mistake in arriving at his conclusion.
(c ) The award cannot be interfered with even in the case where on an interpretation of any contract or documents, two views are plausible and the arbitrator accepts one view while the other view is more appealing to the Court.
(d) If any illegality or irregularity in the arbitral proceedings is complained, then such irregularity or illegality should fall within the ambit of objections under section 34 of the Act. If they do not fall within the ambit of objections under section 34 of the Act, then those, certainly, cannot be entertained under section 37 of the Act.
22. In the overall view of the matter, I have reached to the conclusion that no interference is warranted in this appeal under section 37 of the Act, 1996.
23. In the result this first appeal fails and is hereby dismissed. Notice stands discharged.
(J.B.PARDIWALA, J) Vahid Page 26 of 26