United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10 June 1958)

New York Convention

Article I
1. This Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought, and arising out of differences between persons, whether physical or legal. It shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought.

2. The term “arbitral awards” shall include not only awards made by arbitrators appointed for each case but also those made by permanent arbitral bodies to which the parties have submitted.

3. When signing, ratifying or acceding to this Convention, or notifying extension under article X hereof, any State may on the basis of reciprocity declare that it will apply the Convention to the recognition and enforcement of awards made only in the territory of another Contracting State. It may also declare that it will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the national law of the State making such declaration.

Article II
1. Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.

2. The term “agreement in writing” shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.

3. The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.

Article III
Each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles. There shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which this Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards.

Article IV
1. To obtain the recognition and enforcement mentioned in the preceding article, the party applying for recognition and enforcement shall, at the time of the application, supply:

(a) The duly authenticated original award or a duly certified copy thereof;

(b) The original agreement referred to in article II or a duly certified copy thereof.

2. If the said award or agreement is not made in an official language of the country in which the award is relied upon, the party applying for recognition and enforcement of the award shall produce a translation of these documents into such language. The translation shall be certified by an official or sworn translator or by a diplomatic or consular agent.

Article V
1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:

(a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or

(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or

(c) The award deals with a difference 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, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or

(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or

(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that:

(a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or

(b) The recognition or enforcement of the award would be contrary to the public policy of that country.

Article VI
If an application for the setting aside or suspension of the award has been made to a competent authority referred to in article V (1) (e), the authority before which the award is sought to be relied upon may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security.

Article VII
1. The provisions of the present Convention shall not affect the validity of multilateral or bilateral agreements concerning the recognition and enforcement of arbitral awards entered into by the Contracting States nor deprive any interested party of any right he may have to avail himself of an arbitral award in the manner and to the extent allowed by the law or the treaties of the country where such award is sought to be relied upon.

2. The Geneva Protocol on Arbitration Clauses of 1923 and the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927 shall cease to have effect between Contracting States on their becoming bound and to the extent that they become bound, by this Convention.

Article VIII
1. This Convention shall be open until 31 December 1958 for signature on behalf of any Member of the United Nations and also on behalf of any other State which is or hereafter becomes a member of any specialized agency of the United Nations, or which is or hereafter becomes a party to the Statute of the International Court of Justice, or any other State to which an invitation has been addressed by the General Assembly of the United Nations.

2. This Convention shall be ratified and the instrument of ratification shall be deposited with the Secretary-General of the United Nations.

Article IX
1. This Convention shall be open for accession to all States referred to in article VIII.

2. Accession shall be effected by the deposit of an instrument of accession with the Secretary-General of the United Nations.

Article X
1. Any State may, at the time of signature, ratification or accession, declare that this Convention shall extend to all or any of the territories for the international relations of which it is responsible. Such a declaration shall take effect when the Convention enters into force for the State concerned.

2. At any time thereafter any such extension shall be made by notification addressed to the Secretary-General of the United Nations and shall take effect as from the ninetieth day after the day of receipt by the Secretary-General of the United Nations of this notification, or as from the date of entry into force of the Convention for the State concerned, whichever is the later.

3. With respect to those territories to which this Convention is not extended at the time of signature, ratification or accession, each State concerned shall consider the possibility of taking the necessary steps in order to extend the application of this Convention to such territories, subject, where necessary for constitutional reasons, to the consent of the Governments of such territories.

Article XI
In the case of a federal or non-unitary State, the following provisions shall apply:

(a) With respect to those articles of this Convention that come within the legislative jurisdiction of the federal authority, the obligations of the federal Government shall to this extent be the same as those of Contracting States which are not federal States;

(b) With respect to those articles of this Convention that come within the legislative jurisdiction of constituent states or provinces which are not, under the constitutional system of the federation, bound to take legislative action, the federal Government shall bring such articles with a favourable recommendation to the notice of the appropriate authorities of constituent states or provinces at the earliest possible moment;

(c) A federal State Party to this Convention shall, at the request of any other Contracting State transmitted through the Secretary-General of the United Nations, supply a statement of the law and practice of the federation and its constituent units in regard to any particular provision of this Convention, showing the extent to which effect has been given to that provision by legislative or other action.

Article XII
1. This Convention shall come into force on the ninetieth day following the date of deposit of the third instrument of ratification or accession.

2. For each State ratifying or acceding to this Convention after the deposit of the third instrument of ratification or accession, this Convention shall enter into force on the ninetieth day after deposit by such State of its instrument of ratification or accession.

Article XIII
1. Any Contracting State may denounce this Convention by a written notification to the Secretary-General of the United Nations. Denunciation shall take effect one year after the date of receipt of the notification by the Secretary-General.

2. Any State which has made a declaration or notification under article X may, at any time thereafter, by notification to the Secretary-General of the United Nations, declare that this Convention shall cease to extend to the territory concerned one year after the date of the receipt of the notification by the Secretary-General.

3. This Convention shall continue to be applicable to arbitral awards in respect of which recognition and enforcement proceedings have been instituted before the denunciation takes effect.

Article XIV
A Contracting State shall not be entitled to avail itself of the present Convention against other Contracting States except to the extent that it is itself bound to apply the Convention.

Article XV
The Secretary-General of the United Nations shall notify the States contemplated in article VIII of the following:

(a) Signatures and ratifications in accordance with article VIII;

(b) Accessions in accordance with article IX;

(c) Declarations and notifications under articles I, X and XI;

(d) The date upon which this Convention enters into force in accordance with article XII;

(e) Denunciations and notifications in accordance with article XIII.

Article XVI
1. This Convention, of which the Chinese, English, French, Russian and Spanish texts shall be equally authentic, shall be deposited in the archives of the United Nations.

2. The Secretary-General of the United Nations shall transmit a certified copy of this Convention to the States contemplated in article VIII.

When an award can be set aside ?

In Oil and Natural Gas Corporation Ltd. Versus SAW Pipes Ltd. AIR 2003 SC 2629 : (2003) 3 SCR 691 : (2003) 5 SCC 705 : JT 2003 (4) SC 171 : (2003) 4 SCALE 92

 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.

B. (1) The impugned award requires to be set aside mainly on the grounds:-

(i) there is specific stipulation in the agreement that the time and date of delivery of the goods was the essence of the contract;

(ii) in case of failure to deliver the goods within the period fixed for such delivery in the schedule, ONGC was entitled to recover from the contractor liquidated damages as agreed;

(iii) it was also explicitly understood that the agreed liquidated damages were genuine pre-estimate of damages;

(iv) on the request of the respondent to extend the time limit for supply of goods, ONGC informed specifically that time was extended but stipulated liquidated damages as agreed would be recovered;

(v) liquidated damages for delay in supply of goods were to be recovered by paying authorities from the bills for payment of cost of material supplied by the contractor;

(vi) there is nothing on record to suggest that stipulation for recovering liquidated damages was by way of penalty or that the said sum was in any way unreasonable;

(vii) in certain contracts, it is impossible to assess the damages or prove the same. Such situation is taken care by Sections 73 and 74 of the Contract Act and in the present case by specific terms of the contract. [Oil and Natural Gas Corporation Ltd. Versus SAW Pipes Ltd. AIR 2003 SC 2629 : (2003) 3 SCR 691 : (2003) 5 SCC 705 : JT 2003 (4) SC 171 : (2003) 4 SCALE 92 ]

Whether the award could be set aside, if the Arbitral Tribunal has not followed the mandatory procedure prescribed under S. 24, 28 or 31(3), which affects the rights of the parties?

Under sub-section (1)(a) of S. 28 there is a mandate to the Arbitral Tribunal to decide the dispute in accordance with the substantive law for the time being in force in India. Admittedly, substantive law would include the Indian Contract Act, the Transfer of Property Act and other such laws in force. Suppose, if the award is passed in violation of the provisions of the Transfer of Property Act or in violation of the Indian Contract Act, the question would be – whether such award could be set aside? Similarly, under sub-section (3), Arbitral Tribunal is directed to decide the dispute in accordance with the terms of the contract and also after taking into account the usage of the trade applicable to the transaction. If Arbitral Tribunal ignores the terms of the contract or usage of the trade applicable to the transaction, whether the said award could be interfered? Similarly, if the award is non-speaking one and is in violation of S. 31(3), can such award be set aside? In our view, reading S. 34 conjointly with other provisions of the Act, it appears that the legislative intent could not be that if the award is in contravention of the provisions of the Act, still however, it couldn’t be set aside by the Court. If it is held that such award could not be interfered, it would be contrary to basic concept of justice. If the Arbitral Tribunal has not followed the mandatory procedure prescribed under the Act, it would mean that it has acted beyond its jurisdiction and thereby the award would be patently illegal which could be set aside under S. 34.

13. The aforesaid interpretation of the Cl. (v) would be in conformity with the settled principle of law that the procedural law cannot fail to provide relief when substantive law gives the right. Principle is – there cannot be any wrong without a remedy. In M. V. Elisabeth and others vs. Harwan Investment and Trading Pvt. Ltd. (1993) 2 Suppl. SCC 433 this Court observed that where substantive law demands justice for the party aggrieved and the statute has not provided the remedy, it is the duty of the Court to devise procedure by drawing analogy from other systems of law and practice. Similarly, in Dhanna Lal vs. Kalawatibai and others (2002) 6 SCC 16 this Court observed that wrong must not be left unredeemed and right not left unenforced.

14. Result is – if the award is contrary to the substantive provisions of law or the provisions of the Act or against the terms of the contract, it would be patently illegal, which could be interfered under S. 34. However, such failure of procedure should be patent affecting the rights of the parties.

WHAT MEANING COULD BE ASSIGNED TO THE PHRASE ‘PUBLIC POLICY OF INDIA’?

15. The next clause which requires interpretation is Cl. (ii) of sub-section (2)(b) of S. 34 which inter alia provides that the Court may set aside arbitral award if it is in conflict with the ‘Public Policy of India.’ The phrase ‘Public Policy of India’ is not defined under the Act. Hence, the said term is required to be given meaning in context and also considering the purpose of the section and scheme of the Act. It has been repeatedly stated by various authorities that the expression ‘public policy’ does not admit of precise definition and may vary from generation to generation and from time to time. Hence, the concept ‘public policy’ is considered to be vague, susceptible to narrow or wider meaning depending upon the context in which it is used. Lacking precedent the Court has to give its meaning in the light and principles underlying the Arbitration Act, Contract Act and constitutional provisions.

16. For this purpose, we would refer to few decisions referred to by the learned counsel for the parties. While dealing with the concept of ‘public policy,’ this Court in Central Inland Water Transport Corporation Limited and another vs. Brojo Nath Ganguly and another (1986) 3 SCC 156 has observed thus :-

“92. The Indian Contract Act does not define the expression “public policy” or “opposed to public policy.” From the very nature of things, the expressions “public policy,” “opposed to public policy,” or “contrary to public policy” are incapable of precise definition. Public policy, however, is not the policy of a particular Government. It connotes some matter which concerns the public good and the public interest. The concept of what is for the public good or in the public interest or what would be injurious or harmful to the public good or the public interest has varied from time to time. As new concepts take the place of old, transactions which were once considered against public policy are now being upheld by the Courts and similarly where there has been a well recognised head of public policy, the Courts have not shirked from extending it to the new transactions and changed circumstances and have at times not even flinched from inventing a new head of public policy. There are two schools of thought – “the narrow view” school and “the broad view” school. According to the former, Courts cannot create new heads of public policy whereas the latter countenances judicial law-making in this area. The adherents of “the narrow view” school would not invalidate a contract on the ground of public policy unless that particular ground had been well established by authorities. Hardly ever has the voice of the timorous spoken more clearly and loudly than in these words of Lord Davey in Janson vs. Driefontein Consolidated Gold Mines Ltd. (1902) AC 484, 500) “Public policy is always an unsafe and treacherous ground for legal decision.” That was in the year 1902. Seventy-eight years earlier, Burrough, J., in Richardson vs. Mellish (1824) 2 Bing 229, 252) described public policy as “a very unruly horse, and when once you get astride it you never know where it will carry you.” The Master of the Rolls, Lord Denning, however, was not a man to shy away from unmanageable horses and in words which conjure up before our eyes the picture of the young Alexander the Great taming Bucephalus, he said in Enderby Town Football Club Ltd. vs. Football Assocn. Ltd. (1971) Ch 591, 606); “With a good man in the saddle, the unruly horse can be kept in control. It can jump over obstacles.” Had the timorous always held the field, not only the doctrine of public policy but even the common law or the principles of equity would never have evolved. Sir William Holdsworth in his “History of English Law,” Volume III, page 55, has said :

In fact, a body of law like the common law, which has grown up gradually with the growth of the nation, necessarily acquires some fixed principles, and if it is to maintain these principles it must be able, on the ground of public policy or some other like ground, to suppress practices which, under ever new disguises, seek to weaken or negative them.

It is thus clear that the principles governing public policy must be and are capable, on proper occasion, of expansion or modification. Practices which were considered perfectly normal at one time have today become obnoxious and oppressive to public conscience. If there is no head of public policy which covers a case, then the Court must in consonance with public conscience and in keeping with public good and public interest declare such practice to be opposed to public policy. Above all, in deciding any case which may not be covered by authority our Courts have before them the beacon light of the preamble to the Constitution. Lacking precedent, the Court can always be guided by that light and the principles underlying the Fundamental Rights and the Directive Principles enshrined in our Constitution.

93. The normal rule of common law has been that a party who seeks to enforce an agreement which is opposed to public policy will be non-suited. The case of A. Schroeder Music Public Co. Ltd. vs. Macaulay (1974) 1 WLR 1308), however, establishes that where a contract is vitiated as being contrary to public policy, the party adversely affected by it can sue to have it declared void. The case may be different where the purpose of the contract is illegal or immoral. In Kedar Nath Motani vs. Prahlad Rai (1960) 1 SCR 861, reversing the High Court and restoring the decree passed by the trial Court declaring the appellants’ title to the lands in suit and directing the respondents who were the appellants’ benamidars to restore possession, this Court, after discussing the English and Indian law on the subject, said (at page 873) :

“The correct position in law, in our opinion, is that what one has to see is whether the illegality goes so much to the root of the matter that the plaintiff cannot bring his action without relying upon the illegal transaction into which he had entered. If the illegality be trivial or venial, as stated by Williston and the plaintiffis not required to rest his case upon that illegality, then public policy demands that the defendant should not be allowed to take advantage of the position. A strict view, of course, must be taken of the plaintiff’s conduct, and he should not be allowed to circumvent the illegality by resorting to some subterfuge or by misstating the facts. If, however, the matter is clear and the illegality is not required to be pleaded or proved as part of the cause of action and the plaintiff recanted before the illegal purpose was achieved, then, unless it be of such a gross nature as to outrage the conscience of the Court, the plea of the defendant should not prevail.

The types of contracts to which the principle formulated by us above applies are not contracts which are tainted with illegality but are contracts which contain terms which are so unfair and unreasonable that they shcok the conscience of the Court. They are opposed to public policy and require to be adjudged void.”

17. Further, in Renusagar Power Co. Ltd. vs. General Electric Co. (1994) 1 Suppl. SCC 644, this Court considered S. 7(1) of the Arbitration (Protocol and Convention) Act, 1937 which inter alia provided that a foreign award may not be enforced under the said Act, if the Court dealing with the case is satisfied that the enforcement of the award will be contrary to the public policy. After elaborate discussion, the Court arrived at the conclusion that public policy comprehended in S. 7(1)(b)(ii) of the Foreign Awards (Recognition and Enforcement) Act, 1961 is the ‘Public Policy of India’ and does not cover the public policy of any other country. For giving meaning to the term ‘Public Policy,’ the Court observed thus :-

“66. Article 5(2)(b) of the New York Convention of 1958 and S. 7(1)(b)(ii) of the Foreign Awards Act do not postulate refusal of recognition and enforcement of a foreign award on the ground that it is contrary to the law of the country of enforcement and the ground of challenge is confined to the recognition and enforcement being contrary to the public policy of the country in which the award is set to be enforced. There is nothing to indicate that the expression “public policy” in Art. 5(2)(b) of the New York Convention and S. 7(1)(b)(ii) of the Foreign Awards Act is not used in the same sense in which it was used in Art. 1(c) of the Geneva Convention of 1927 and S. 7(1) of the Protocol and Convention Act of 1937. This would mean that “public policy” in S. 7(1)(b)(ii) has been used in a narrower sense and in order to attract to bar of public policy the enforcement of the award must invoke something more than the violation of the law of India. Since the Foreign Awards Act is concerned with recognition and enforcement of foreign awards which are governed by the principles of private international law, the expression “public policy” in S. 7(1)(b)(ii) of the Foreign Awards Act must necessarily be construed in the sense the doctrine of public policy is applied in the field of private international law. Applying the said criteria it must be held that the enforcement of a foreign award would be refused on the ground that it is contrary to public policy if such enforcement would be contrary to (i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality.”

18. The Court finally held that :-

“76. Keeping in view the aforesaid objects underlying FERA and the principles governing enforcement of exchange control laws followed in other countries, we are of the view that the provisions contained in FERA have been enacted to safeguard the economic interests of India and any violation of the said provisions would be contrary to the public policy of India as envisaged in S. 7(1)(b)(ii) of the Act.”

19. This Court in Murlidhar Agarwal and another vs. State of U.P. and others (1974) 2 SCC 472 while dealing with the concept of ‘public policy’ observed thus :-

“31. Public policy does not remain static in any given community. It may vary from generation to generation and even in the same generation. Public policy would be almost useless if it were to remain in fixed moulds for all time.

32. The difficulty of discovering what public policy is at any given moment certainly does not absolve the Judges from the duty of doing so. In conducting an enquiry, as already stated, Judges are not hide-bound by precedent. The Judges must look beyond the narrow field of past precedents, though this still leaves open the question, in which direction they must cast their gaze. The Judges are to base their decision on the opinions of men of the world, as distinguished from opinions based on legal learning. In other words, the Judges will have to look beyond the jurisprudence and that in so doing, they must consult not their own personal standards or predilections but those of the dominant opinion at a given moment, or what has been termed customary morality. The Judges must consider the social consequences of the rule propounded, especially in the light of the factual evidence available as to its probable results. ……The point is rather that this power must be lodged somewhere and under our Constitution and laws, it has been lodged in the Judges and if they have to fulfil their function as Judges, it could hardly be lodged elsewhere.”

From this discussion it would be clear that the phrase ‘public policy of India’ is not required to be given a narrower meaning. As stated earlier, the said term is susceptible of narrower or wider meaning depending upon the object and purpose of the legislation. Hence, the award which is passed in contravention of S. 24, 28 or 31 could be set aside. In addition to S. 34, S. 13(5) of the Act also provides that Constitution of the Arbitral Tribunal could also be challenged by a party. Similarly, S. 16 provides that a party aggrieved by the decision of the Arbitral Tribunal with regard to its jurisdiction could challenge such arbitral award under S. 34. In any case, it is for the Parliament to provide for limited or wider jurisdiction to the Court in case where award is challenged. But in such cases, there is no reason to give narrower meaning to the term ‘public policy of India’ as contended by learned senior counsel Mr. Dave. In our view, wider meaning is required to be given so as to prevent frustration of legislation and justice. This Court in Rattan Chand Hira Chand vs. Askar Nawaz Jung (dead) by LRs and others (1991) 3 SCC 67, observed thus :-

“17. …..It cannot be disputed that a contract which has a tendency to injure public interests or public welfare is one against public policy. What constitutes an injury to public interests or welfare would depend upon the times and climes. . . . . The legislature often fails to keep pace with the changing needs and values nor is it realistic to expect that it will have provided for all contingencies and eventualities. It is, therefore, not only necessary but obligatory on the Courts to step in to fill the lacuna. When Courts perform this function undoubtedly they legislate judicially. But that is a kind of legislation which stands implicitly delegated to them to further the object of the legislation and to promote the goals of the society. Or to put it negatively, to prevent the frustration of the legislation or perversion of the goals and values of the society.”

Therefore, in our view, the phrase ‘public policy of India’ used in S. 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term ‘public policy in Renusagar’s case (supra), it is required to be held that the award could be set aside if it is patently illegal. Result would be – award could be set aside if it is contrary to :-

(a) fundamental policy of Indian law; or

(b) the interest of India; or

(c) justice or morality, or

(d) in addition, if it is patently illegal.

Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the Court. Such award is opposed to public policy and is required to be adjudged void.

Form and contents of arbitral award Under Arbitration and Conciliation Act 1996

31. Form and contents of arbitral award.—

(1)An arbitral award shall be made in writing and shall be signed by the members of the arbitral tribunal.

(2)For the purposes of sub-section (1), in arbitral proceedings with more than one arbitrator, the signatures of the majority of all the members of the arbitral tribunal shall be sufficient so long as the reason for any omitted signature is stated.

(3)The arbitral award shall state the reasons upon which it is based, unless—

(a)the parties have agreed that no reasons are to be given, or

(b)the award is an arbitral award on agreed terms under section 30.

(4)The arbitral award shall state its date and the place of arbitration as determined in accordance with section 20 and the award shall be deemed to have been made at that place.

(5)After the arbitral award is made, a signed copy shall be delivered to each party.

(6)The arbitral tribunal may, at any time during the arbitral proceedings, make an interim arbitral award on any matter with respect to which it may make a final arbitral award.

(7) (a)Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.

(b)A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of two per cent. higher than the current rate of interest prevalent on the date of award, from the date of award to the date of payment.

Explanation.—The expression “current rate of interest” shall have the same meaning as assigned to it under clause (b) of section 2 of the Interest Act, 1978 (14 of 1978).

(8)The costs of an arbitration shall be fixed by the arbitral tribunal in accordance with section 31A.

Explanation—For the purpose of clause (a), “costs” means reasonable costs relating to—(i)the fees and expenses of the arbitrators and witnesses,

(ii)legal fees and expenses,

(iii)any administration fees of the institution supervising the arbitration, and

(iv)any other expenses incurred in connection with the arbitral proceedings and the arbitral award.

Whether the Award of the Arbitrator tantamounts to a Decree or not, Yes, an Award has to be enforced under the Code of Civil Procedure in the same manner as it were a Decree of the Court.

(SUPREME COURT OF INDIA) in Leela Hotels Ltd. Versus Housing and Urban Development Corporation Ltd. (2011) 12 SCALE 573

18. It was next submitted by the learned ASG that analogy of a post-decretal payment cannot be applied to an Arbitration Award under the 1996 Act for the simple reason that the Arbitration Award under the 1996 Act does not attain the status or character of a Decree within the meaning of the Code of Code of Civil Procedure. It is to be executed “as if it were a Decree”, which means that it is not a Decree.

19. It was thirdly urged by the learned ASG that assuming that the Award could be treated as a Decree and the second payment is a post-decretal payment, even then the said payment will have to be treated as appropriation towards the principal sum, since Leela Hotels had been duly intimated of the nature of the deposit and by way of an implied contract, Leela Hotels had appropriated the said sum towards the principal.

20. The learned ASG referred to the decision of this Court in NALCO v. Presteel and Fabrication Pvt. Ltd., (2004) 1 SCC 540, wherein it had been held that there is no question of any Decree being honoured pursuant to the passing of an Award and unlike a judgment within the meaning of the Code of Civil Procedure Code, an Award remains unenforceable during the period available for challenging the Award, and, thereafter, till such time as the Petition under Section 34 is disposed of by the appropriate Court. Reference was also made to the decision of this Court in (1) Paramjeet Singh Patheja v. ICDS Ltd. (2006) 13 SCC 322, wherein it was explained that the Arbitrator is not a Court and accordingly an arbitration is not an adjudication and an Award is not a Decree, (2) Morgan Securities and Credit Pvt. Ltd. v. Modi Rubber Ltd. (2006) 12 SCC 642 and (3) West Bengal Essential Commodities Supply Corporation v. Swadesh Agro Farming and Storage Pvt. Ltd. and Anr., (1999) 8 SCC 315, where similar views have been expressed. Reference was also made to the decision of the Privy Council in the case of Rai Bahadur Seth Nemichand v. Seth Radha Kishen AIR 1922 PC 26, wherein it was, inter alia, held that a creditor to whom principal and interest are owed is entitled to appropriate any indefinite payment which he gets from a debtor towards the payment of interest. However, a debtor might in making a payment stipulate that it was to be applied only towards the principal. If such a stipulation was made, the creditor was at liberty to refuse the payment on such terms, but then he would have to give back the money or the cheque by which the money was offered. If the amount was accepted then the creditor would be bound by the appropriation as proposed by the debtor.

21. As to the decision of this Court in Smithaben’s case (supra), the learned ASG submitted that the payment was unilaterally made out of Court by the debtor with a covering letter, which was immediately responded to by the Decree-holder who made it clear that he had appropriated the amount towards interest alone. This Court, therefore, held that the creditor was not bound by the appropriation so made by the debtor. The learned ASG submitted that in the instant case the Respondent had tendered a sum of ` 89.78 crores in Court as payment towards the principal amount and the same had been accepted by Leela Hotels without objection and accordingly the decision in Smithaben’s case (supra) would have no application to the facts of this case. The learned ASG submitted that there being little or no substance in the Appeal, the same was liable to be dismissed with costs.

22. of the two issues involved in this matter, it appears that the issue relating to charging of compound interest did not survive since the parties had agreed that no compound interest would be payable in terms of the Award. In fact, although such an assertion had been made by the learned ASG, the same was not seriously opposed by Mr. Desai who had taken the stand that this was not a case of compound interest, but a case of calculating simple interest on the amount as remained unpaid. Mr. Desai also accepted the position that after the Award had been passed by the learned Arbitrator, Leela Hotels had calculated the interest on the basis of yearly rests, but had subsequently given up its claim of compound interest and limited its claim to simple interest after appropriating the amount received from HUDCO, first towards interest and then towards the principal in accordance with the decision in Smithaben’s case (supra).

23. Consequently, the only issue which remains for decision is whether the amounts deposited and/or paid by HUDCO to M/s Leela Hotels in terms of the Award of the learned Arbitrator, was first to be appropriated towards payment of the interest due on the principal sum or whether the same was to be appropriated against the principal sum itself.

25. As indicated hereinbefore, the submissions made by the learned ASG on behalf of HUDCO was based on the proposition as contained in Sections 59 and 60 of the Indian Contract Act, 1872, on account of the stipulation recorded on behalf of HUDCO that the amount of ` 89.78 crores was being tendered towards the principal sum, to which there was no objection from the Appellant and, accordingly, it must be held that that since the amount had been received without demur, such payment fell within the provisions of Section 59 of the aforesaid Act. In fact, the Division Bench of the High Court proceeded to consider such payment and acceptance to be a voluntary acceptance by the Appellant of the aforesaid amount as appropriation towards the principal as it made good business sense to accept the same and to utilise the same in spite of waiting for something indefinite in the future. Such a submission, though legal and correct, is not supported by the materials on record.

26. Admittedly, there was no agreement between the parties as to how the amounts to be paid in terms of the Award were to be appropriated by the Appellant. Accordingly, in terms of the well settled principle that in such cases it was for the creditor to appropriate such payment firstly against the interest payable, would, in our view, be squarely attracted to the facts of this case. As was laid down by the Privy Council in Meka Venkatadri Appa Rao Bahadur Zamindar Garu and Ors. v. Raja Parthasarathy Appa Rao Bahadur Zamindar Garu AIR 1922 PC 233, and later reiterated in Rai Bahadur Seth Nemichand’s case (supra), when monies are received without a definite appropriation on the one side or the other, the rule which is well established in ordinary cases is that in those circumstances, the money is first applied in payment of interest and when that is satisfied, in payment of the capital. In the latter case, the said principal was restated and it was indicated that a creditor to whom principal and interest are owed is entitled to appropriate any indefinite payment which he gets from a debtor to the payment of interest. It was also indicated that a debtor might in making a payment stipulate that it was to be applied only towards the principal. If he did so, the creditor was at liberty to refuse payment on such terms, but then he would have to give back the money or the cheque by which the money is proffered and if the same is accepted, the creditor would then be bound by the appropriation as proposed by the debtor.

27. In the instant case, a unilateral assertion had been made by HUDCO as the debtor that the sum of ` 89.78 crores was being tendered as payment towards the principal amount and that there was, therefore, no other amounts due and payable to the creditor Leela Hotels Ltd. The principle as laid down in the two aforesaid decisions, and as subsequently followed in Smithaben’s case (supra) will not apply in the facts of the instant case, since the amount as deposited was accepted by the Appellant without prejudice to its rights and contentions in the appeal. Since the amount had been accepted on protest, the principle laid down in Rai Bahadur Seth Nemichand’s case (supra) will have no application.

28. The philosophy behind the principle set out in Meka Venkatadri’s case (supra) and as reiterated in Rai Bahadur Seth Nemichand’s case (supra) and also in Smithaben’s case (supra) and then consistently followed by this Court, is that a debtor cannot be allowed to take advantage of his default to deny to the creditor the amount to which he would be entitled on account of such default, by way of elimination of the principal amount due itself, unless, of course, the provisions of Section 59 of the Indian Contract Act, 1872, were attracted or there was a separate agreement between the parties in that regard. That is not so in the instant case and, accordingly, the creditor cannot be denied its dues on a unilateral stipulation that the amount of ` 89.78 crores was being deposited as against the principal sum due in terms of the Award. Since the said amount was accepted by the Appellant on protest, it would be entitled to appropriate the same against the interest which was due and payable till that date on the principal amount, as has been asserted by it.

29. In our view, the Division Bench of the Delhi High Court erred in presuming that the said amount had been accepted by the Appellant on account of good business sense in view of the uncertainty of the final outcome of the case. In our view, the Division Bench of the High Court should have proceeded on the basis of the principles of law as laid down by this Court in Smithaben’s case (supra), keeping in mind the earlier decisions of the Privy Council in both Meka Venkatadri’s case (supra) and Rai Bahadur Seth Nemichand’s case (supra) in interfering with the judgment of the learned Single Judge. The Division Bench seems to have erroneously taken the presence of the Learned Counsel for the Appellant, when the aforesaid undertaking of the Respondent was recorded, in coming to the conclusion that since no objection had been raised with regard to the said deposit, it must be presumed that it had the consent of the Appellant and hence was covered by the provisions of Sections 59 and 60 of the Indian Contract Act, 1872.

30. Regarding the question as to whether the Award of the learned Arbitrator tantamounts to a Decree or not, the language used in Section 36 of the Arbitration and Conciliation Act, 1996, makes it very clear that such an Award has to be enforced under the Code of Civil Procedure in the same manner as it were a Decree of the Court. The said language leaves no room for doubt as to the manner in which the Award of the learned Arbitrator was to be accepted.

 

Setting aside an Arbitral Award in India

The Arbitration and Conciliation Act, 1996

34. Application for setting aside arbitral award.

(1)Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).

(2)An arbitral award may be set aside by the Court only if—

(a)the party making the application furnishes proof that—

(i)a party was under some incapacity, or

(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

(ii)the arbitral award is in conflict with the public policy of India.

Explanation 1. For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,—

(i)the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or

(ii)it is in contravention with the fundamental policy of Indian law; or

(iii)it is in conflict with the most basic notions of morality or justice.

Explanation 2.—For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.

(2A)An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:

Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.

(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.

(5)An application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement.

(6)An application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub-section (5) is served upon the other party.

COMMENT –The principle of Intervention:  The law with regard to Section 34 of Arbitration and Conciliation Act, 1996, is well settled that the jurisdiction of the Court to interfere with the award made by an arbitrator is very limited and consequently the court while entertaining an objection petition under Section 34 of the said Act cannot sit as a Court of Appeal and that evidence is not to be re- appreciated. The Apex Court in the case of Markfed Vanaspati and Allied Industries v. Union of India reported in (2007) 7 Supreme Court Cases 679, while relying on Bijendra Nath Srivastava (Dead) through LRs v. Mayank Srivastava And Others reported in (1994) 6 Supreme Court Cases 117, has observed that “the arbitrator is the sole judge of the quality as well as the quantity of the evidence. It will not be for the court to take upon itself the task of being a judge of the evidence before the arbitrator. The 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.” Further in Mcdermott International Inc. v. Burn Standard Co. Ltd. & Ors reported in (2006) 11 SCC 181 it has been held by the Apex Court that “the 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only like, in case of fraud or bias by the arbitrators, violation of natural justice, etc.” Recently, the observations of the Apex Court in para 21 in P.R. Shah, Shares and Stock Brokers Private Limited v. B.H.H. Securities Private Limited And Others reported in (2012) 1 Supreme Court Cases 594 is worth noting in this respect. Para 21 reads as under:-
“21. A court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or reappreciating the evidence. An award can be challenged only under the grounds mentioned in Section 34 (2) of the Act. Therefore, in the absence of any ground under section 34 (2) of the Act, it is not possible to re-examine the facts to find out whether a different decision can be arrived at.”

Appreciation of facts and evidence: Where the Arbitral Tribunal has assessed the material and evidence placed before it in detail, the court while considering the objections under Section 34 of the said Act does not sit as a court of appeal and is not expected to re-appreciate the entire evidence and reassess the case of the parties. The jurisdiction under section 34 is not appellate in nature and an award passed by an Arbitrator cannot be set aside on the ground that it was erroneous. It is not open to the court to interfere with the award merely because in the opinion of the court, another view is possible. The duty of the court in these circumstances is to see whether the view taken by the Arbitrator is a plausible view on the facts, pleadings and evidence before the Arbitrator. Even if on the assessment of material, the court while considering the objections under section 34 is of the view that there are two views possible and the Arbitral Tribunal has taken one of the possible views which could have been taken on the material before it, the court would be reluctant to interfere. The court is not to substitute its view with the view of the Arbitrator if the view taken by the Arbitrator is reasonable and plausible.

A Civil Court examining the validity of an arbitral award under Section 34 of the AC Act exercises supervisory and not appellate jurisdiction over the awards of an arbitral tribunal.

A Civil Court examining the validity of an arbitral award under Section 34 of the Act exercises supervisory and not appellate jurisdiction over the awards of an arbitral tribunal. A court can set aside an arbitral award, only if any of the grounds mentioned in Sections 34(2)(a)(i) to (v) or Section 34(2)(b)(i) and (ii), or Section 28(1)(a) or 28(3) read with Section 34(2)(b)(ii) of the Act, are made out. An award adjudicating claims which are `excepted matters’ excluded from the scope of arbitration, would violate Section 34(2)(a)(iv) and 34(2)(b) of the Act. Making an award allowing or granting a claim, contrary to any provision of the contract, would violate Section 34(2)(b)(ii) read with Section 28(3) of the Act.[J.G. Engineers Pvt. Ltd. Versus Union of India and Another AIR 2011 SC 2477 : JT 2011 (5) SC 380 : (2011) 5 SCALE 46 : (2011) 5 SCC 758]

AFCONs Infrastructure Ltd. and AnOTHER Vs Cherian Varkey Construction Co. (P) Ltd. and OTHERS [ALL SC 2010 JULY ]

KEYWORDS: Alternative Dispute Resolution- Arbitration

HELD:- A civil court exercising power under Section 89 CPC cannot refer a suit to arbitration unless all the parties to the suit agree to such reference. If the reference is to arbitration or conciliation, the court has to record that the reference is by mutual consent. If the reference is to any other non-adjudicatory ADR process, the court should briefly record the same. [Paras 49(ii), 44(i) and 44(ii)]

  • The trial court did not adopt the proper procedure while enforcing Section 89. Failure to invoke Section 89 suo motu after completion of pleadings and considering it only after an application under Section 89 was filed, is erroneous. Consequently, the orders of the trial court referring the matter to arbitration and of the High Court affirming the said reference are set aside. The trial court will new consider and decide upon a non-adjudicatory ADR process. [Paras 49(i), 50, 47 and 48]

JT 2010 (7) SC 616 : (2010) 7 SCALE 293 : (2010) 8 SCC 24 : (2010) 8 SCR 1053

(SUPREME COURT OF INDIA)

AFCONs Infrastructure Ltd. and AnOTHER Appellant
Versus
Cherian Varkey Construction Co. (P) Ltd. and OTHERS Respondent

(Before : R. V. Raveendran and J. M. Panchal, JJ.)

Civil Appeal No. 6000 of 2010 (Arising out of SLP (C) No. 760 of 2007); Decided On: 26-07-2010

Civil Procedure Code, 1908—Section 89 read with Order 10, Rule 1A—Alternative Dispute Resolution (ADR)—Reference to arbitration without consent of parties—Court cannot formulate terms of settlement without discussion with parties—Court has to formulate terms of possible settlement—Court has to give option to parties to choose any of ADR processes—There can be reference to arbitration only if there is an arbitration agreement between parties—If there is no agreement between parties for reference to arbitration, Court cannot refer matter to arbitration under Section 89—When a matter is referred to conciliation, matter does not go out of stream of Court process permanently—If there is no settlement matter is returned to Court for framing issues and proceeding with trial.

Arbitration and Conciliation Act, 1996—Sections 30, 62 and 64—Civil Procedure Code, 1908—Section 89 read with Order 10, Rule 1A—Alternative Dispute Resolution (ADR)—Award of Arbitrators is binding on parties and is executable/enforceable as if a decree of a Court—Arbitration being an adjudicatory process, it always ends in a decision.

Interpretation of Statute—Rules of construction—Where words of statute are clear and unambiguous, provision should be given its plain and normal meaning, without adding or rejecting any words—Departure from literal rule of plain and straight reading can be only in exceptional cases.

Civil Procedure Code, 1908—Section 89 Order 10 Rule 1A—Arbitration & Conciliation Act, 1996—Sections 8, 74 and 30—Legal Services Authority Act, 1987—Sections 20(1) and 21.

JUDGMENT

R.V. Raveendran, J—Leave granted. The general scope of Section 89 of the Code of Civil Procedure (‘Code’ for short) and the question whether the said section empowers the court to refer the parties to a suit to arbitration without the consent of both parties, arise for consideration in this appeal.

2. The second respondent (Cochin Port Trust) entrusted the work of construction of certain bridges and roads to the appellants under an agreement dated 20.4.2001. The appellants sub-contracted a part of the said work to the first respondent under an agreement dated 1.8.2001. It is not in dispute that the agreement between the appellants and the first respondent did not contain any provision for reference of the disputes to arbitration.

3. The first respondent filed a suit against the appellants for recovery of ` 210,70,881 from the appellants and their assets and/or the amounts due to the appellants from the employer, with interest at 18% per annum. In the said suit an order of attachment was made on 15.9.2004 in regard to a sum of ` 2.25 crores. Thereafter in March 2005, the first respondent filed an application under Section 89 of the Code before the trial court praying that the court may formulate the terms of settlement and refer the matter to arbitration. The appellants filed a counter dated 24.10.2005 to the application submitting that they were not agreeable for referring the matter to arbitration or any of the other ADR processes under Section 89 of the Code. In the meanwhile, the High Court of Kerala by order dated 8.9.2005, allowed the appeal filed by the appellants against the order of attachment and raised the attachment granted by the trial court subject to certain conditions. While doing so, the High Court also directed the trial court to consider and dispose of the application filed by the first respondent under Section 89 of the Code.

4. The trial court heard the said application under Section 89. It recorded the fact that first respondent (plaintiff) was agreeable for arbitration and appellants (defendants 1 and 2) were not agreeable for arbitration. The trial court allowed the said application under Section 89 by a reasoned order dated 26.10.2005 and held that as the claim of the plaintiff in the suit related to a work contract, it was appropriate that the dispute should be settled by arbitration. It formulated sixteen issues and referred the matter to arbitration. The appellants filed a revision against the order of the trial court. The High Court by the impugned order dated 11.10.2006 dismissed the revision petition holding that the apparent tenor of Section 89 of the Code permitted the court, in appropriate cases, to refer even unwilling parties to arbitration. The High Court also held that the concept of pre existing arbitration agreement which was necessary for reference to arbitration under the provisions of the Arbitration & Conciliation Act, 1996 (‘AC Act’ for short) was inapplicable to references under Section 89 of the Code, having regard to the decision in Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya and Anr., (2003) 5 SCC 531. The said order is challenged in this appeal.

5. On the contentions urged, two questions arise for consideration:

(i) What is the procedure to be followed by a court in implementing Section 89 and Order 10 Rule 1A of the Code?

(ii) Whether consent of all parties to the suit is necessary for reference to arbitration under Section 89 of the Code?

6. To find answers to the said questions, we have to analyse the object, purpose, scope and tenor of the said provisions. The said provisions are extracted below:

89. Settlement of disputes outside the court. – (1) Where it appears to the Court that there exist elements of a settlement which may be acceptable to the parties, the Court shall formulate the terms of settlement and give them to the parties for their observations and after receiving the observations of the parties, the Court may reformulate the terms of a possible settlement and refer the same for –

(a) arbitration;

(b) conciliation;

(c) judicial settlement including settlement through Lok Adalat; or

(d) mediation.

(2) where a dispute has been referred –

(a) for arbitration or conciliation, the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply as if the proceedings for arbitration or conciliation were referred for settlement under the provisions of that Act;

(b) to Lok Adalat, the Court shall refer the same to the Lok Adalat in accordance with the provisions of Sub-section (1) of Section 20 of the Legal Services Authority Act, 1987 (39 of 1987) and all other provisions of that Act shall apply in respect of the dispute so referred to the Lok Adalat;

(c) for judicial settlement, the Court shall refer the same to a suitable institution or person and such institution or person shall be deemed to be a Lok Adalat and all the provisions of the Legal Services Authority Act, 1987 (39 of 1987) shall apply as if the dispute were referred to a Lok Adalat under the provisions of that Act;

(d) for mediation, the Court shall effect a compromise between the parties and shall follow such procedure as may be prescribed.

Order 10 Rule 1A. Direction of the Court to opt for any one mode of alternative dispute resolution.–After recording the admissions and denials, the Court shall direct the parties to the suit to opt either mode of the settlement outside the Court as specified in Sub-section (1) of section 89. On the option of the parties, the Court shall fix the date of appearance before such forum or authority as may be opted by the parties.

Order 10 Rule 1B. Appearance before the conciliatory forum or authority.–Where a suit is referred under Rule 1A, the parties shall appear before such forum or authority for conciliation of the suit.

Order 10 Rule 1C. Appearance before the Court consequent to the failure of efforts of conciliation.–Where a suit is referred under Rule 1A and the presiding officer of conciliation forum or authority is satisfied that it would not be proper in the interest of justice to proceed with the matter further, then, it shall refer the matter again to the Court and direct the parties to appear before the Court on the date fixed by it.

7. If Section 89 is to be read and required to be implemented in its literal sense, it will be a Trial Judge’s nightmare. It puts the cart before the horse and lays down an impractical, if not impossible, procedure in Sub-section (1). It has mixed up the definitions in Sub-section (2). In spite of these defects, the object behind Section 89 is laudable and sound. Resort to alternative disputes resolution (for short ‘ADR’) processes is necessary to give speedy and effective relief to the litigants and to reduce the pendency in and burden upon the courts. As ADR processes were not being resorted to with the desired frequency, Parliament thought it fit to introduce Section 89 and Rules 1A to 1C in Order X in the Code, to ensure that ADR process was resorted to before the commencement of trial in suits. In view of its laudable object, the validity of Section 89, with all its imperfections, was upheld in Salem Advocate Bar Association v. Union of India reported in, (2003) 1 SCC 49 – for short, Salem Bar – (I) but referred to a Committee, as it was hoped that Section 89 could be implemented by ironing the creases. In Salem Advocate Bar Association v. Union of India, (2005) 6 SCC 344 – for short, Salem Bar-(II) this Court applied the principle of purposive construction in an attempt to make it workable.

What is wrong with Section 89 of the Code?

8. The first anomaly is the mixing up of the definitions of ‘mediation’ and ‘judicial settlement’ under Clauses (c) and (d) of Sub-section (2) of Section 89 of the Code. Clause (c) says that for “judicial settlement”, the court shall refer the same to a suitable institution or person who shall be deemed to be a Lok Adalat. Clause (d) provides that where the reference is to “mediation”, the court shall effect a compromise between the parties by following such procedure as may be prescribed. It makes no sense to call a compromise effected by a court, as “mediation”, as is done in Clause (d). Nor does it make any sense to describe a reference made by a court to a suitable institution or person for arriving at a settlement as “judicial settlement”, as is done in Clause (c). “Judicial settlement” is a term in vogue in USA referring to a settlement of a civil case with the help of a judge who is not assigned to adjudicate upon the dispute. “Mediation” is also a well known term and it refers to a method of non-binding dispute resolution with the assistance of a neutral third party who tries to help the disputing parties to arrive at a negotiated settlement. It is also synonym of the term ‘conciliation’. (See: Black’s Law Dictionary, 7th Edition, Pages 1377 and 996). When words are universally understood in a particular sense, and assigned a particular meaning in common parlance, the definitions of those words in Section 89 with interchanged meanings has led to confusion, complications and difficulties in implementation. The mix-up of definitions of the terms “judicial settlement” and “mediation” in Section 89 is apparently due to a clerical or typographical error in drafting, resulting in the two words being interchanged in Clauses (c) and (d) of Section 89(2). If the word “mediation” in Clause (d) and the words “judicial settlement” in Clause (c) are interchanged, we find that the said clauses make perfect sense.

9. The second anomaly is that Sub-section (1) of Section 89 imports the final stage of conciliation referred to in Section 73(1) of the AC Act into the pre-ADR reference stage under Section 89 of the Code. Sub-section (1) of Section 89 requires the court to formulate the terms of settlement and give them to the parties for their observation and then reformulate the terms of a possible settlement and then refer the same for any one of the ADR processes. If Sub-section (1) of Section 89 is to be literally followed, every Trial Judge before framing issues, is required to ascertain whether there exists any elements of settlement which may be acceptable to the parties, formulate the terms of settlement, give them to parties for observations and then reformulate the terms of a possible settlement before referring it to arbitration, conciliation, judicial settlement, Lok Adalat or mediation. There is nothing that is left to be done by the alternative dispute resolution forum. If all these have to be done by the trial court before referring the parties to alternative dispute resolution processes, the court itself may as well proceed to record the settlement as nothing more is required to be done, as a Judge cannot do these unless he acts as a conciliator or mediator and holds detailed discussions and negotiations running into hours.

10. Section 73 of AC Act shows that formulation and reformulation of terms of settlement is a process carried out at the final stage of a conciliation process, when the settlement is being arrived at. What is required to be done at the final stage of conciliation by a conciliator is borrowed lock, stock and barrel into Section 89 and the court is wrongly required to formulate the terms of settlement and reformulate them at a stage prior to reference to an ADR process. This becomes evident by a comparison of the wording of the two provisions.

Section 73(1) of Arbitration Section 89(1) of Code of Civil Procedure and Conciliation relating to a stage before reference to Act, 1996 relating to the final an ADR process. stage of settlement process in conciliation. When it appears to the Where it appears to the Court that there conciliator that there exist elements of a settlement which may exist elements of a settlement be acceptable to the parties, the Court which may be acceptable to the shall formulate the terms of parties, he shall settlement and give formulate the terms of a them to the parties for their observations possible settlement and after receiving the observations of the and submit them to the parties, the Court may reformulate the parties for their observations. terms of a possible settlement and refer the After receiving the observations same for (a) arbitration; of the (b) conciliation; parties, the conciliator may (c) judicial settlement reformulate the terms of a including settlement through Lok Adalat; possible settlement in the or (d) mediation. light of such observations.

Formulation and re-formulation of terms of settlement by the court is therefore wholly out of place at the stage of pre ADR reference. It is not possible for courts to perform these acts at a preliminary hearing to decide whether a case should be referred to an ADR process and, if so, which ADR process.

11. If the reference is to be made to arbitration, the terms of settlement formulated by the court will be of no use, as what is referred to arbitration is the dispute and not the terms of settlement; and the Arbitrator will adjudicate upon the dispute and give his decision by way of award. If the reference is to conciliation/mediation/Lok Adalat, then drawing up the terms of the settlement or reformulating them is the job of the conciliator or the mediator or the Lok Adalat, after going through the entire process of conciliation/ mediation. Thus, the terms of settlement drawn up by the court will be totally useless in any subsequent ADR process. Why then the courts should be burdened with the onerous and virtually impossible, but redundant, task of formulating terms of settlement at pre-reference stage?

12. It will not be possible for a court to formulate the terms of the settlement, unless the judge discusses the matter in detail with both parties. The court formulating the terms of settlement merely on the basis of pleadings is neither feasible nor possible. The requirement that the court should formulate the terms of settlement is therefore a great hindrance to courts in implementing Section 89 of the Code. This Court therefore diluted this anomaly in Salem Bar (II) by equating “terms of settlement” to a “summary of disputes” meaning thereby that the court is only required to formulate a ‘summary of disputes’ and not ‘terms of settlement’.

How should Section 89 be interpreted?

13. The principles of statutory interpretation are well settled. Where the words of the statute are clear and unambiguous, the provision should be given its plain and normal meaning, without adding or rejecting any words. Departure from the literal rule, by making structural changes or substituting words in a clear statutory provision, under the guise of interpretation will pose a great risk as the changes may not be what the Legislature intended or desired. Legislative wisdom cannot be replaced by the Judge’s views. As observed by this Court in somewhat different context: “When a procedure is prescribed by the Legislature, it is not for the court to substitute a different one according to its notion of justice. When the Legislature has spoken, the Judges cannot afford to be wiser.” See: Shri Mandir Sita Ramji v. Lt. Governor of Delhi, (1975) 4 SCC 298. There is however an exception to this general rule. Where the words used in the statutory provision are vague and ambiguous or where the plain and normal meaning of its words or grammatical construction thereof would lead to confusion, absurdity, repugnancy with other provisions, the courts may, instead of adopting the plain and grammatical construction, use the interpretative tools to set right the situation, by adding or omitting or substituting the words in the Statute. When faced with an apparently defective provision in a statute, courts prefer to assume that the draftsman had committed a mistake rather than concluding that the Legislature has deliberately introduced an absurd or irrational statutory provision. Departure from the literal rule of plain and straight reading can however be only in exceptional cases, where the anomalies make the literal compliance of a provision impossible, or absurd or so impractical as to defeat the very object of the provision. We may also mention purposive interpretation to avoid absurdity and irrationality is more readily and easily employed in relation to procedural provisions than with reference to substantive provisions.

Maxwell on Interpretation of Statutes (12th Edn., page 228), under the caption ‘modification of the language to meet the intention’ in the chapter dealing with ‘Exceptional Construction’ states the position succinctly:

Where the language of a statute, in its ordinary meaning and grammatical construction, leads to a manifest contradiction of the apparent purpose of the enactment, or to some inconvenience or absurdity, hardship or injustice, which can hardly have been intended, a construction may be put upon it which modifies the meaning of the words, and even the structure of the sentence. This may be done by departing from the rules of grammar, by giving an unusual meaning to particular words, or by rejecting them altogether, on the ground that the legislature could not possibly have intended what its words signify, and that the modifications made are mere corrections of careless language and really give the true meaning. Where the main object and intention of a statute are clear, it must not be reduced to a nullity by the draftman’s unskilfulness or ignorance of the law, except in a case of necessity, or the absolute intractability of the language used.

This Court in Tirath Singh v. Bachittar Singh, AIR 1955 SC 830 approved and adopted the said approach.

In Shamrao V. Parulekar v. District Magistrate, Thana, Bombay, AIR 1952 SC 324 this Court reiterated the principle from Maxwell:

if one construction will lead to an absurdity while another will give effect to what commonsense would show was obviously intended, the construction which would defeat the ends of the Act must be rejected even if the same words used in the same section, and even the same sentence, have to be construed differently. Indeed, the law goes so far as to require the Courts sometimes even to modify the grammatical and ordinary sense of the words if by doing so absurdity and inconsistency can be avoided.

13.3 In Molar Mal v. Kay Iron Works (P) Ltd. (2004) 4 SCC 285 this Court while reiterating that courts will have to follow the rule of literal construction, which enjoins the court to take the words as used by the Legislature and to give it the meaning which naturally implies, held that there is an exception to that rule. This Court observed:

That exception comes into play when application of literal construction of the words in the statute leads to absurdity, inconsistency or when it is shown that the legal context in which the words are used or by reading the statute as a whole, it requires a different meaning.

13.4 In Mangin v. Inland Revenue Commission 1971 (1) All. ER 179 the Privy Council held:

The object of the construction of a statute, be it to ascertain the will of the legislature, it may be presumed that neither injustice nor absurdity was intended. If, therefore a literal interpretation would produce such a result, and the language admits of an interpretation which would avoid it, then such an interpretation may be adopted.

13.5 A classic example of correcting an error committed by the draftsman in legislative drafting is the substitution of the words ‘defendant’s witnesses’ by this Court for the words ‘plaintiff’s witnesses’ occurring in Order VII Rule 14(4) of the Code, in Salem Bar-II. We extract below the relevant portion of the said decision:

Order VII relates to the production of documents by the plaintiff whereas Order VIII relates to production of documents by the defendant. Under Order VIII Rule 1A(4) a document not produced by defendant can be confronted to the plaintiff’s witness during cross-examination. Similarly, the plaintiff can also confront the defendant’s witness with a document during cross-examination. By mistake, instead of ‘defendant’s witnesses’, the words ‘plaintiff’s witnesses’ have been mentioned in Order VII Rule (4). To avoid any confusion, we direct that till the legislature corrects the mistake, the words ‘plaintiff’s witnesses, would be read as ‘defendant’s witnesses’ in Order VII Rule 4. We, however, hope that the mistake would be expeditiously corrected by the legislature.

13.6 Justice G.P. Singh extracts four conditions that should be present to justify departure from the plain words of the Statute, in his treatise “Principles of Statutory Interpretation” (12th Edn. – 2010, Lexis Nexis – page 144) from the decision of the House of Lords in Stock v. Frank Jones (Tipton) Ltd. 1978 (1) All ER 948:

…a court would only be justified in departing from the plain words of the statute when it is satisfied that (1) there is clear and gross balance of anomaly; (2) Parliament, the legislative promoters and the draftsman could not have envisaged such anomaly and could not have been prepared to accept it in the interest of a supervening legislative objective; (3) the anomaly can be obviated without detriment to such a legislative objective; and (4) the language of the statute is susceptible of the modification required to obviate the anomaly.

14. All the aforesaid four conditions justifying departure from the literal rule, exist with reference to Section 89 of the Code. Therefore, in Salem Bar -II, by judicial interpretation the entire process of formulating the terms of settlement, giving them to the parties for their observation and reformulating the terms of possible settlement after receiving the observations, contained in Sub-section (1) of Section 89, is excluded or done away with by stating that the said provision merely requires formulating a summary of disputes. Further, this Court in Salem Bar-II, adopted the following definition of ‘mediation’ suggested in the model mediation rules, in spite of a different definition in Section 89(2)(d):

Settlement by ‘mediation’ means the process by which a mediator appointed by parties or by the Court, as the case may be, mediates the dispute between the parties to the suit by the application of the provisions of the Mediation Rules, 2003 in Part II, and in particular, by facilitating discussion between parties directly or by communicating with each other through the mediator, by assisting parties in identifying issues, reducing misunderstandings, clarifying priorities, exploring areas of compromise, generating options in an attempt to solve the dispute and emphasizing that it is the parties’ own responsibility for making decisions which affect them.

All over the country the courts have been referring cases under Section 89 to mediation by assuming and understanding ‘mediation’ to mean a dispute resolution process by negotiated settlement with the assistance of a neutral third party. Judicial settlement is understood as referring to a compromise entered by the parties with the assistance of the court adjudicating the matter, or another Judge to whom the court had referred the dispute.

15. Section 89 has to be read with Rule 1A of Order 10 which requires the court to direct the parties to opt for any of the five modes of alternative dispute resolution processes and on their option refer the matter. The said rule does not require the court to either formulate the terms of settlement or make available such terms of settlement to the parties to reformulate the terms of possible settlement after receiving the observations of the parties. Therefore the only practical way of reading Section 89 and Order 10, Rule 1A is that after the pleadings are complete and after seeking admission/denials wherever required, and before framing issues, the court will have recourse to Section 89 of the Code. Such recourse requires the court to consider and record the nature of the dispute, inform the parties about the five options available and take note of their preferences and then refer them to one of the alternative dispute resolution processes.

16. In view of the foregoing, it has to be concluded that proper interpretation of Section 89 of the Code requires two changes from a plain and literal reading of the section. Firstly, it is not necessary for the court, before referring the parties to an ADR process to formulate or re-formulate the terms of a possible settlement. It is sufficient if the court merely describes the nature of dispute (in a sentence or two) and makes the reference. Secondly, the definitions of ‘judicial settlement’ and ‘mediation’ in Clauses (c) and (d) of Section 89(2) shall have to be interchanged to correct the draftsman’s error. Clauses (c) and (d) of Section 89(2) of the Code will read as under when the two terms are interchanged:

(c) for “mediation”, the court shall refer the same to a suitable institution or person and such institution or person shall be deemed to be a Lok Adalat and all the provisions of the Legal Services Authority Act, 1987 (39 of 1987) shall apply as if the dispute were referred to a Lok Adalat under the provisions of that Act;

(d) for “judicial settlement”, the court shall effect a compromise between the parties and shall follow such procedure as may be prescribed.

The above changes made by interpretative process shall remain in force till the legislature corrects the mistakes, so that Section 89 is not rendered meaningless and infructuous.

Whether the reference to ADR Process is mandatory?

17. Section 89 starts with the words “where it appears to the court that there exist elements of a settlement”. This clearly shows that cases which are not suited for ADR process should not be referred under Section 89 of the Code. The court has to form an opinion that a case is one that is capable of being referred to and settled through ADR process. Having regard to the tenor of the provisions of Rule 1A of Order 10 of the Code, the civil court should invariably refer cases to ADR process. Only in certain recognized excluded categories of cases, it may choose not to refer to an ADR process. Where the case is unsuited for reference to any of the ADR process, the court will have to briefly record the reasons for not resorting to any of the settlement procedures prescribed under Section 89 of the Code. Therefore, having a hearing after completion of pleadings, to consider recourse to ADR process under Section 89 of the Code, is mandatory. But actual reference to an ADR process in all cases is not mandatory. Where the case falls under an excluded category there need not be reference to ADR process. In all other case reference to ADR process is a must.

18. The following categories of cases are normally considered to be not suitable for ADR process having regard to their nature:

(i) Representative suits under Order 1 Rule 8 CPC which involve public interest or interest of numerous persons who are not parties before the court. (In fact, even a compromise in such a suit is a difficult process requiring notice to the persons interested in the suit, before its acceptance).

(ii) Disputes relating to election to public offices (as contrasted from disputes between two groups trying to get control over the management of societies, clubs, association etc.).

(iii) Cases involving grant of authority by the court after enquiry, as for example, suits for grant of probate or letters of administration.

(iv) Cases involving serious and specific allegations of fraud, fabrication of documents, forgery, impersonation, coercion etc.

(v) Cases requiring protection of courts, as for example, claims against minors, deities and mentally challenged and suits for declaration of title against government.

(vi) Cases involving prosecution for criminal offences.

19. All other suits and cases of civil nature in particular the following categories of cases (whether pending in civil courts or other special Tribunals/Forums) are normally suitable for ADR processes:

(i) All cases relating to trade, commerce and contracts, including

– disputes arising out of contracts (including all money claims);

– disputes relating to specific performance;

– disputes between suppliers and customers;

– disputes between bankers and customers;

– disputes between developers/builders and customers;

– disputes between landlords and tenants/licensor and licensees;

– disputes between insurer and insured;

(ii) All cases arising from strained or soured relationships, including

– disputes relating to matrimonial causes, maintenance, custody of children;

– disputes relating to partition/division among family members/co- parceners/co-owners; and

– disputes relating to partnership among partners.

(iii) All cases where there is a need for continuation of the pre-existing relationship in spite of the disputes, including

– disputes between neighbours (relating to easementary rights, encroachments, nuisance etc.);

– disputes between employers and employees;

– disputes among members of societies/associations/Apartment owners Associations;

(iv) All cases relating to tortious liability including

– claims for compensation in motor accidents/other accidents; and

(v) All consumer disputes including

– disputes where a trader/supplier/manufacturer/service provider is keen to maintain his business/professional reputation and credibility or ‘product popularity.

The above enumeration of ‘suitable’ and ‘unsuitable’ categorization of cases is not intended to be exhaustive or rigid. They are illustrative, which can be subjected to just exceptions or additions by the court/Tribunal exercising its jurisdiction/discretion in referring a dispute/case to an ADR process.

How to decide the appropriate ADR process under Section 89?

20. Section 89 refers to five types of ADR procedures, made up of one adjudicatory process (arbitration) and four negotiatory (non adjudicatory) processes – conciliation, mediation, judicial settlement and Lok Adalat settlement. The object of Section 89 of the Code is that settlement should be attempted by adopting an appropriate ADR process before the case proceeds to trial. Neither Section 89 nor Rule 1A of Order 10 of the Code is intended to supersede or modify the provisions of the Arbitration and Conciliation Act, 1996 or the Legal Services Authorities Act, 1987. On the other hand, Section 89 of the Code makes it clear that two of the ADR processes – Arbitration and Conciliation, will be governed by the provisions of the AC Act and two other ADR Processes – Lok Adalat Settlement and Mediation (See: amended definition in para 18 above), will be governed by the Legal Services Authorities Act. As for the last of the ADR processes – judicial settlement (See: amended definition in para 18 above), Section 89 makes it clear that it is not governed by any enactment and the court will follow such procedure as may be prescribed (by appropriate rules).

21. Rule 1A of Order 10 requires the court to give the option to the parties, to choose any of the ADR processes. This does not mean an individual option, but a joint option or consensus about the choice of the ADR process. On the other hand, Section 89 vests the choice of reference to the court. There is of course no inconsistency. Section 89 of the Code gives the jurisdiction to refer to ADR process and Rules 1A to IC of Order 10 lay down the manner in which the said jurisdiction is to be exercised. The scheme is that the court explains the choices available regarding ADR process to the parties, permits them to opt for a process by consensus, and if there is no consensus, proceeds to choose the process.

22. Let us next consider which of the ADR processes require mutual consent of the parties and which of them do not require the consent of parties.

Arbitration

23. Arbitration is an adjudicatory dispute resolution process by a private forum, governed by the provisions of the AC Act. The said Act makes it clear that there can be reference to arbitration only if there is an ‘arbitration agreement’ between the parties. If there was a pre-existing arbitration agreement between the parties, in all probability, even before the suit reaches the stage governed by Order 10 of the Code, the matter would have stood referred to arbitration either by invoking Section 8 or Section 11 of the AC Act, and there would be no need to have recourse to arbitration under Section 89 of the Code. Section 89 therefore pre-supposes that there is no pre-existing arbitration agreement. Even if there was no pre-existing arbitration agreement, the parties to the suit can agree for arbitration when the choice of ADR processes is offered to them by the court under Section 89 of the Code. Such agreement can be by means of a joint memo or joint application or a joint affidavit before the court, or by record of the agreement by the court in the ordersheet signed by the parties. Once there is such an agreement in writing signed by parties, the matter can be referred to arbitration under Section 89 of the Code; and on such reference, the provisions of AC Act will apply to the arbitration, and as noticed in Salem Bar-I the case will go outside the stream of the court permanently and will not come back to the court.

24. If there is no agreement between the parties for reference to arbitration, the court cannot refer the matter to arbitration under Section 89 of the Code. This is evident from the provisions of AC Act. A court has no power, authority or jurisdiction to refer unwilling parties to arbitration, if there is no arbitration agreement. This Court has consistently held that though Section 89 of the Code mandates reference to ADR processes, reference to arbitration under Section 89 of the Code could only be with the consent of both sides and not otherwise.

24.1 In Salem Bar (I) this Court held:

It is quite obvious that the reason why Section 89 has been inserted is to try and see that all the cases which are filed in court need not necessarily be decided by the court itself. Keeping in mind the law’s delays and the limited number of Judges which are available, it has now become imperative that resort should be had to alternative dispute resolution mechanism with a view to bring to an end litigation between the parties at an early date. The alternative dispute resolution (ADR) mechanism as contemplated by Section 89 is arbitration or conciliation or judicial settlement including settlement through Lok Adalat or mediation. x x x x x If the parties agree to arbitration, then the provisions of the Arbitration and Conciliation Act, 1996 will apply and that case will go outside the stream of the court but resorting to conciliation or judicial settlement or mediation with a view to settle the dispute would not ipso facto take the case outside the judicial system. All that this means is that effort has to be made to bring about an amicable settlement between the parties but if conciliation or mediation or judicial settlement is not possible, despite efforts being made, the case will ultimately go to trial.

Emphasis supplied)

24.2 In Salem Bar – (II), this Court held:

Some doubt as to a possible conflict has been expressed in view of used of the word “may” in Section 89 when it stipulates that “the court may reformulate the terms of a possible settlement and refer the same for” and use of the word “shall” in Order 10 Rule 1A when it states that “the court shall direct the parties to the suit to opt either mode of the settlement outside the court as specified in Sub-section (1) of Section 89”.

The intention of the legislature behind enacting Section 89 is that where it appears to the court that there exists an element of a settlement which may be acceptable to the parties, they, at the instance of the court, shall be made to apply their mind so as to opt for one or the other of the four ADR methods mentioned in the section and if the parties do not agree, the court shall refer them to one or the other of the said modes. Section 89 uses both the words “shall” and “may” whereas Order 10 Rule 1A uses the word “shall” but on harmonious reading of these provisions it becomes clear that the use of the word “may” in Section 89 only governs the aspect of reformulation of the terms of a possible settlement and its reference to one of ADR methods. There is no conflict. It is evident that what is referred to one of the ADR modes is the dispute which is summarized in the terms of settlement formulated or reformulated in terms of Section 89.

One of the modes to which the dispute can be referred is “arbitration”. Section 89(2) provides that where a dispute has been referred for arbitration or conciliation, the provisions of the Arbitration and Conciliation Act, 1996 (for short “the 1996 Act”) shall apply as if the proceedings for arbitration or conciliation were referred for settlement under the provisions of the 1996 Act. Section 8 of the 1996 Act deals with the power to refer parties to arbitration where there is arbitration agreement. As held in P. Anand Gajapathi Raju v. P.V.G. Raju, (2000) 4 SCC 539 the 1996 Act governs a case where arbitration is agreed upon before or pending a suit by all the parties. The 1996 Act, however, does not contemplate a situation as in Section 89 of the Code where the court asks the parties to choose one or other ADRs including arbitration and the parties choose arbitration as their option. Of course, the parties have to agree for arbitration.

(Emphasis supplied)

24.3 The position was reiterated by this Court in Jagdish Chander v. Ramesh Chander (2007) 5 SCC 719 thus:

It should not also be overlooked that even though Section 89 mandates courts to refer pending suits to any of the several alternative dispute resolution processes mentioned therein, there cannot be a reference to arbitration even under Section 89 CPC, unless there is a mutual consent of all parties, for such reference.

(Emphasis supplied)

24.4 Therefore, where there is no pre-existing arbitration agreement between the parties, the consent of all the parties to the suit will be necessary, for referring the subject matter of the suit to arbitration under Section 89 of the Code.

Conciliation

25. Conciliation is a non-adjudicatory ADR process, which is also governed by the provisions of AC Act. There can be a valid reference to conciliation only if both parties to the dispute agree to have negotiations with the help of a third party or third parties either by an agreement or by the process of invitation and acceptance provided in Section 62 of AC Act followed by appointment of conciliator/s as provided in Section 64 of AC Act. If both parties do not agree for conciliation, there can be no ‘conciliation’. As a consequence, as in the case of arbitration, the court cannot refer the parties to conciliation under Section 89, in the absence of consent by all parties. As contrasted from arbitration, when a matter is referred to conciliation, the matter does not go out of the stream of court process permanently. If there is no settlement, the matter is returned to the court for framing issues and proceeding with the trial.

The other three ADR Processes

26. If the parties are not agreeable for either arbitration or conciliation, both of which require consent of all parties, the court has to consider which of the other three ADR processes (Lok Adalat, Mediation and Judicial Settlement) which do not require the consent of parties for reference, is suitable and appropriate and refer the parties to such ADR process. If mediation process is not available (for want of a mediation centre or qualified mediators), necessarily the court will have to choose between reference to Lok Adalat or judicial settlement. If facility of mediation is available, then the choice becomes wider. It the suit is complicated or lengthy, mediation will be the recognized choice. If the suit is not complicated and the disputes are easily sortable or could be settled by applying clear cut legal principles, Lok Adalat will be the preferred choice. If the court feels that a suggestion or guidance by a Judge would be appropriate, it can refer it to another Judge for dispute resolution. The court has to use its discretion in choosing the ADR process judiciously, keeping in view the nature of disputes, interests of parties and expedition in dispute resolution.

Whether the settlement in an ADR process is binding in itself ?

27. When the court refers the matter to arbitration under Section 89 of the Act, as already noticed, the case goes out of the stream of the court and becomes an independent proceeding before the arbitral tribunal. Arbitration being an adjudicatory process, it always ends in a decision. There is also no question of failure of ADR process or the matter being returned to the court with a failure report. The award of the arbitrators is binding on the parties and is executable/enforceable as if a decree of a court, having regard to Section 36 of the AC Act. If any settlement is reached in the arbitration proceedings, then the award passed by the Arbitral Tribunal on such settlement, will also be binding and executable/enforceable as if a decree of a court, under Section 30 of the AC Act.

28. The other four ADR processes are non-adjudicatory and the case does not go out of the stream of the court when a reference is made to such a non- adjudicatory ADR forum. The court retains its control and jurisdiction over the case, even when the matter is before the ADR forum. When a matter is settled through conciliation, the Settlement Agreement is enforceable as if it is a decree of the court having regard to Section 74 read with Section 30 of the AC Act. Similarly, when a settlement takes place before the Lok Adalat, the Lok Adalat award is also deemed to be a decree of the civil court and executable as such under Section 21 of the Legal Services Authorities Act, 1987. Though the settlement agreement in a conciliation or a settlement award of a Lok Adalat may not require the seal of approval of the court for its enforcement when they are made in a direct reference by parties without the intervention of court, the position will be different if they are made on a reference by a court in a pending suit/proceedings. As the court continues to retain control and jurisdiction over the cases which it refers to conciliations, or Lok Adalats, the settlement agreement in conciliation or the Lok Adalat award will have to be placed before the court for recording it and disposal in its terms. Where the reference is to a neutral third party (‘mediation’ as defined above) on a court reference, though it will be deemed to be reference to Lok Adalat, as court retains its control and jurisdiction over the matter, the mediation settlement will have to be placed before the court for recording the settlement and disposal. Where the matter is referred to another Judge and settlement is arrived at before him, such settlement agreement will also have to be placed before the court which referred the matter and that court will make a decree in terms of it. Whenever such settlements reached before non-adjudicatory ADR Fora are placed before the court, the court should apply the principles of Order 23 Rule 3 of the Code and make a decree/order in terms of the settlement, in regard to the subject matter of the suit/proceeding. In regard to matters/disputes which are not the subject matter of the suit/proceedings, the court will have to direct that the settlement shall be governed by Section 74 of AC Act (in respect of conciliation settlements) or Section 21 of the Legal Services Authorities Act, 1987 (in respect of settlements by a Lok Adalat or a Mediator). Only then such settlements will be effective.

Summation

29. Having regard to the provisions of Section 89 and Rule 1A of Order 10, the stage at which the court should explore whether the matter should be referred to ADR processes, is after the pleadings are complete, and before framing the issues, when the matter is taken up for preliminary hearing for examination of parties under Order 10 of the Code. However, if for any reason, the court had missed the opportunity to consider and refer the matter to ADR processes under Section 89 before framing issues, nothing prevents the court from resorting to Section 89 even after framing issues. But once evidence is commenced, the court will be reluctant to refer the matter to the ADR processes lest it becomes a tool for protracting the trial.

30. Though in civil suits, the appropriate stage for considering reference to ADR processes is after the completion of pleadings, in family disputes or matrimonial cases, the position can be slightly different. In those cases, the relationship becomes hostile on account of the various allegations in the petition against the spouse. The hostility will be further aggravated by the counter-allegations made by the respondent in his or her written statement or objections. Therefore, as far as Family Courts are concerned, the ideal stage for mediation will be immediately after service of respondent and before the respondent files objections/written statements. Be that as it may.

31. We may summarize the procedure to be adopted by a court under Section 89 of the Code as under:

a) When the pleadings are complete, before framing issues, the court shall fix a preliminary hearing for appearance of parties. The court should acquaint itself with the facts of the case and the nature of the dispute between the parties.

b) The court should first consider whether the case falls under any of the category of the cases which are required to be tried by courts and not fit to be referred to any ADR processes. If it finds the case falls under any excluded category, it should record a brief order referring to the nature of the case and why it is not fit for reference to ADR processes. It will then proceed with the framing of issues and trial.

c) In other cases (that is, in cases which can be referred to ADR processes) the court should explain the choice of five ADR processes to the parties to enable them to exercise their option.

d) The court should first ascertain whether the parties are willing for arbitration. The court should inform the parties that arbitration is an adjudicatory process by a chosen private forum and reference to arbitration will permanently take the suit outside the ambit of the court. The parties should also be informed that the cost of arbitration will have to be borne by them. Only if both parties agree for arbitration, and also agree upon the arbitrator, the matter should be referred to arbitration.

e) If the parties are not agreeable for arbitration, the court should ascertain whether the parties are agreeble for reference to conciliation which will be governed by the provisions of the AC Act. If all the parties agree for reference to conciliation and agree upon the conciliator/s, the court can refer the matter to conciliation in accordance with Section 64 of the AC Act.

f) If parties are not agreeable for arbitration and conciliation, which is likely to happen in most of the cases for want of consensus, the court should, keeping in view the preferences/options of parties, refer the matter to any one of the other three other ADR processes: (a) Lok Adalat; (b) mediation by a neutral third party facilitator or mediator; and (c) a judicial settlement, where a Judge assists the parties to arrive at a settlement.

(g) If the case is simple which may be completed in a single sitting, or cases relating to a matter where the legal principles are clearly settled and there is no personal animosity between the parties (as in the case of motor accident claims), the court may refer the matter to Lok Adalat. In case where the questions are complicated or cases which may require several rounds of negotiations, the court may refer the matter to mediation. Where the facility of mediation is not available or where the parties opt for the guidance of a Judge to arrive at a settlement, the court may refer the matter to another Judge for attempting settlement.

(h) If the reference to the ADR process fails, on receipt of the Report of the ADR Forum, the court shall proceed with hearing of the suit. If there is a settlement, the court shall examine the settlement and make a decree in terms of it, keeping the principles of Order 23 Rule 3 of the Code in mind.

(i) If the settlement includes disputes which are not the subject matter of the suit, the court may direct that the same will be governed by Section 74 of the AC Act (if it is a Conciliation Settlement) or Section 21 of the Legal Services Authorities Act, 1987 (if it is a settlement by a Lok Adalat or by mediation which is a deemed Lok Adalat). If the settlement is through mediation and it relates not only to disputes which are the subject matter of the suit, but also other disputes involving persons other than the parties to the suit, the court may adopt the principle underlying Order Rule 3 of the Code. This will be necessary as many settlement agreements deal with not only the disputes which are the subject matter of the suit or proceeding in which the reference is made, but also other disputes which are not the subject matter of the suit.

(j) Settlement is ex facie illegal or unenforceable, the court should draw the attention of parties thereto to avoid further litigations and disputes about executability.

32. The Court should also bear in mind the following consequential aspects, while giving effect to Section 89 of the Code:

(i) If the reference is to arbitration or conciliation, the court has to record that the reference is by mutual consent. Nothing further need be stated in the order sheet.

(ii) If the reference is to any other ADR process, the court should briefly record that having regard to the nature of dispute, the case deserves to be referred to Lok Adalat, or mediation or judicial settlement, as the case may be. There is no need for an elaborate order for making the reference.

(iii) The requirement in Section 89(1) that the court should formulate or reformulate the terms of settlement would only mean that court has to briefly refer to the nature of dispute and decide upon the appropriate ADR process.

(iv) If the Judge in charge of the case assists the parties and if settlement negotiations fail, he should not deal with the adjudication of the matter, to avoid apprehensions of bias and prejudice. It is therefore advisable to refer cases proposed for Judicial Settlement to another Judge.

(v) If the court refers the matter to an ADR process (other than Arbitration), it should keep track of the matter by fixing a hearing date for the ADR Report. The period allotted for the ADR process can normally vary from a week to two months (which may be extended in exceptional cases, depending upon the availability of the alternative forum, the nature of case etc.). Under no circumstances the court should allow the ADR process to become a tool in the hands of an unscrupulous litigant intent upon dragging on the proceedings.

(vi) Normally the court should not send the original record of the case when referring the matter for an ADR forum. It should make available only copies of relevant papers to the ADR forum. (For this purpose, when pleadings are filed the court may insist upon filing of an extra copy). However if the case is referred to a Court annexed Mediation Centre which is under the exclusive control and supervision of a Judicial Officer, the original file may be made available wherever necessary.

33. The procedure and consequential aspects referred to in the earlier two paragraphs are intended to be general guidelines subject to such changes as the concerned court may deem fit with reference to the special circumstances of a case. We have referred to the procedure and process rather elaborately as we find that Section 89 has been a non-starter with many courts. Though the process under Section 89 appears to be lengthy and complicated, in practice the process is simple: know the dispute; exclude ‘unfit’ cases; ascertain consent for arbitration or conciliation; if there is no consent, select Lok Adalat for simple cases and mediation for all other cases, reserving reference to a Judge assisted settlement only in exceptional or special cases.

Conclusion

34. Coming back to this case, we may refer to the decision in Sukanya Holdings relied upon by the respondents, to contend that for a reference to arbitration under Section 89 of the Code, consent of parties is not required. The High Court assumed that Sukanya Holdings has held that Section 89 enables the civil court to refer a case to arbitration even in the absence of an arbitration agreement. Sukanya Holdings does not lay down any such proposition. In that decision, this Court was considering the question as to whether an application under Section 8 of the AC Act could be maintained even where a part of the subject matter of the suit was not covered by an arbitration agreement. The only observations in the decision relating to Section 89 are as under:

Reliance was placed on Section 89 CPC in support of the argument that the matter should have been referred to arbitration. In our view, Section 89 CPC cannot be resorted to for interpreting Section 8 of the Act as it stands on a different footing and it would be applicable even in cases where there is no arbitration agreement for referring the dispute for arbitration. Further, for that purpose, the court has to apply its mind to the condition contemplated under Section 89 CPC and even if application under Section 8 of the Act is rejected, the court is required to follow the procedure prescribed under the said section.

The observations only mean that even when there is no existing arbitration agreement enabling filing of an application under Section 8 of the Act, there can be a reference under Section 89 to arbitration if parties agree to arbitration. The observations in Sukanya Holdings do not assist the first respondent as they were made in the context of considering a question as to whether Section 89 of the Code could be invoked for seeking a reference under Section 8 of the AC Act in a suit, where only a part of the subject- matter of the suit was covered by arbitration agreement and other parts were not covered by arbitration agreement. The first respondent next contended that the effect of the decision in Sukanya Holdings is that “section 89 of CPC would be applicable even in cases where there is no arbitration agreement for referring the dispute to arbitration.” There can be no dispute in regard to the said proposition as Section 89 deals, not only with arbitration but also four other modes of non-adjudicatory resolution processes and existence of an arbitration agreement is not a condition precedent for exercising power under Section 89 of the Code in regard to the said four ADR processes.

35. In the light of the above discussion, we answer the questions as follows:

(i) The trial court did not adopt the proper procedure while enforcing Section 89 of the Code. Failure to invoke Section 89 suo moto after completion of pleadings and considering it only after an application under Section 89 was filed, is erroneous.

(ii) A civil court exercising power under Section 89 of the Code cannot refer a suit to arbitration unless all the parties to the suit agree for such reference.

36. Consequently, this appeal is allowed and the order of the trial court referring the matter to arbitration and the order of the High Court affirming the said reference are set aside. The Trial Court will now consider and decide upon a non-adjudicatory ADR process.


Chronological list of cases cited
1. (2007)5 SCC 719, Jagdish Chander v.Ramesh Chander
2. (2005) 6 SCC 344, Salem Advocate Bar Assn.c(II) v. Union of India
4. (2003) 5 SCC 531, Sukanya Holdings (P) Ltd. v. Jayesh H.Pandya
5. (2003) 1 SCC 49, Salem Advocate Bar Assn. (I) v. Union of India
6. (2000) 4 SCC 539, P. Anand Gajapathi Raju v. P. V.G. Raju
7. (2000) 4 SCC 285, Molar Mai v. Kay Iron Works (P) Ltd.
8. (1978) 1 WLR 231 : (1978) 1 All ER 948 (HL), Stock v. Frank Jones (Tipton) Ltd
9. (1975) 4 SCC 29S,Shri Mandir Sita Ramji v. Lt. Governor of Delhi
10. 1971 AC 739 : (1971) 2 WLR 39 : (1971) 1 All ER 179 (PC), Mangin v.IRC
10. AIR 1955 SC 830, Tirath Singh v. Bachittar Singh
11. AIR 1952 SC 324 : 1952 Cri LJ 1503, Shamrao V. Parulekarv. District Magistrate, Thana

Salem Advocate Bar Assn. (II) v. Union of India, (2005) 6 SCC 344, relied on
Black’s Law Dictionary, 7th Edn., pp. 1377 and 996, referred to
Salem Advocate Bar Assn. (I) v. Union of India, (2003) 1 SCC 49; Salem Advocate Bar Assn. (II) v.
Union of India. (2005) 6 SCC 344, relied on
Salem Advocate Bar Assn. (II) v. Union of India, (2005) 6 SCC 344; Shri iviandir Sita Ramji v. Lt.
Governor of Delhi, (1975) 4 SCC 298; Tirath Singh v. Bachittar Singh, AIR 1955 SC 830; Shamrao V.
Parulekar v. District Magistrate, Thana, AER 1952 SC 324 : 1952 Cri U 1503: Molar Mai v. Kay Iron
Works (P) Ltd., (2000) 4 SCC 285; Mangin v. IRC, 1971 AC 739 : (1971) 2 WLR 39 : (1971) 1 All ER
179 (PC); Stock v. Frank Jones (Tipton) Ltd, (1978) I WLR 231 : (1978) 1 All ER948 (HL), relied on
Maxwell: Interpretation of Statutes (12th Edn., p. 228); Principles of Statutory Interpretation (12th Edn. 2010, Lexis Nexis, p. 144), referred to

Union of India Vs. Hardy Exploration and Production (India) Inc.[ALL SC 2018 MAY]

KEYWORDS:-“seat” and “venue” for holding arbitration proceedings

c

DATE:-May 01, 2018

The case referred to a larger bench-

QUESTION POSED :-When the arbitration agreement specify the “venue” for holding the arbitration sittings by the arbitrators but does not specify the “seat”, then on what basis and by which principle, the parties have to decide the place of “seat” which has a material bearing for determining the applicability of laws of a particular country for deciding the post award arbitration proceedings.

ACTS:-Section 34 and 37(2)of the Arbitration and Conciliation Act, 1996

SUPREME COURT OF INDIA

Union of India Vs. Hardy Exploration and Production (India) Inc.

[Civil Appeal No. 4628 of 2018 arising out of SLP (C) No.31356 of 2016]

Abhay Manohar Sapre, J.

1. Leave granted.

2. This appeal arises from the final judgment and order dated 27.07.2016 passed by the High Court of Delhi at New Delhi in FAO No.59 of 2016 whereby the Division Bench of the High Court dismissed the appeal filed by the Union of India (appellant herein) challenging the order dated 09.07.2015 passed by the Single Judge in OMP No.693 of 2013 and order dated 20.01.2016 in Review Petition No.400 of 2015 in OMP No.693 of 2013.

3. In order to appreciate the controversy involved in the appeal, few relevant facts, which lie in a narrow compass, need to be stated hereinbelow.

4. This appeal arises out of the proceedings (OMP 693/2013) filed by the appellant (Union of India) against the respondent-Company under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”) wherein the appellant had challenged the legality, validity and correctness of the award made by the arbitrators in respondent’s favour in one international commercial arbitration proceeding between the appellant (Union of India) and the respondent (foreign company).

5. The respondent contested the appellant’s application by raising several objections. One such preliminary objection, which went to the root of the application, was in relation to the maintainability of appellant’s application filed under Section 34 of the Act in Courts in India.

6. According to the respondent, the Indian Courts have no jurisdiction to entertain the appellant’s application filed under Section 34 of the Act to challenge the legality and correctness of an award in question.

7. The Single Judge by order dated 09.07.2015 upheld the respondent’s preliminary objection and held that keeping in view the terms of the agreement in question coupled with the law laid down by this Court in several decisions governing the issues arising in the case, Indian Courts have no jurisdiction to entertain the application filed by the 3 appellant under Section 34 of the Act to question the legality and correctness of the award in question and accordingly dismissed the appellant’s application as being not maintainable in Indian Courts.

8. Since the appellant’s application was dismissed on the ground of lack of jurisdiction of the Indian Courts, the Single Judge did not consider it necessary to decide the issues arising in the case on the merits.

9. The appellant (Union of India) felt aggrieved by the order of the Single Judge, filed appeal under Section 37(2) of the Act before the Division Bench of the High Court at Delhi.

10. By impugned judgment, the Division Bench concurred with the reasoning and the conclusion arrived at by the Single Judge and held that the Indian Courts have no jurisdiction to entertain the appellant’s application under Section 34 of the Act to question the legality of award rendered in international commercial arbitration proceedings.

11. It is against this order, the Union of India felt aggrieved and has filed the present appeal by special leave in this Court.

12. Heard Mr. Tushar Mehta, learned Additional Solicitor General for the appellant and Dr. Abhishek Manu Singhvi, learned senior counsel for the respondent.

13. At the outset, we may state that Mr. Tushar Mehta, learned ASG appearing for the appellant (Union of India) and Dr. Abhishek Manu Singhvi learned senior counsel appearing for the respondent very ably presented their respective arguments in support of their case. The arguments indeed lasted for few months in intervals with lucidity.

14. In their submissions, both the learned senior counsel argued on almost every issue, which has arisen in the appeal directly, indirectly and even remotely.

15. Learned counsel, in support of their submissions, cited almost every decision of this Court including English Courts decisions which dealt with the subject and the issues arising in this case and made sincere attempt to either distinguish or/and place reliance on them to show how and why these decisions apply to the facts of the case at hand or how and why they do not apply.

16. Learned counsel for the parties mainly cited these cases:

Foreign Cases: Naviera Amazonica Peruana S.A. vs. Compania Internacional De Seguros Del Peru (1988) (1) Lloyd’s Law Reports 116, Hiscox vs. Outhwaite (1992) 1 AC 562, Union of India vs. McDonnell Douglas Corpn. (1993) 2 Lloyd’s Law Rep. 48, C vs. D (2007) EWCA Civ 1282 (CA), C vs. D 6 (2008) 1 Lloyd’s Law Rep 239, Braes of Doune Wind Farm (Scotland) Limited vs. Alfred McAlpine Business Services Limited (2008) EWHC 426 (TCC), Shashoua and Ors. vs. Sharma (2009) EWHC 957 (Comm.), Sulamerica Cia Nacional De Seguros S.A. & Ors. vs. Enesa Engenharia SA & Ors., (2012) EWCA Civ 638, (1) Enercon GMBH (2) Wobben Properties GMBH vs. Enercon (India) Ltd. (2012) EWHC 3711 (Comm), Govt. of India vs. Petrocon India Ltd. (2016) SCC Online MYFC 35.

Indian Cases: National Thermal Power Corporation vs. Singer Co. And Ors. (1992) 3 SCC 551, Sumitomo Heavy Industries Ltd. vs ONGC Ltd. and Ors. (1998) 1 SCC 305, Sundaram Finance Ltd. vs. NEPC India Ltd. (1999) 2 SCC 479, Bhatia International vs. Bulk Trading S.A. and Anr.(2002) 4 SCC 105, Venture Global Engineering vs. Satyam Computer Services Ltd. & Anr. (2008) 4 SCC 190, 7 Indtel Technical Services Pvt. Ltd. vs. W.S. Atkins Rail Ltd., (2008) 10 SCC 308, Bank of India & Anr. vs. K. Mohan Das & Ors., (2009) 5 SCC 313, Citation Infowares Ltd. vs. Equinox Corporation (2009) 7 SCC 220, State of Rajasthan & Anr. vs. Ferro Concrete Construction (P) Ltd. (2009) 12 SCC 1, Videocon Industries Limited vs. Union of India and Anr. (2011) 6 SCC 161, Dozco India Private Ltd. vs. Doosan Infracore Co. Limited (2011) 6 SCC 179, Yograj Infrastructure Limited vs. Ssang Yong Engineering and Construction Co. Limited (2011) 9 SCC 735, Bharat Aluminium Company vs. Kaiser Aluminium Technical Services INC (2012) 9 SCC 552, Enercon (India) Ltd. & Ors. vs. Enercon GMBH & Anr. (2014) 5 SCC 1, Reliance Industries Limited and Anr. Union of India (2014) 7 SCC 603, Harmony Innovation Shipping Ltd. vs. Gupta Coal India Ltd. & Anr., 8 (2015) 9 SCC 172, Union of India vs. Reliance Industries and Ors.(2015) 10 SCC 213, Bharat Aluminum Company vs. Kaiser Aluminum Technical Services INC (2016) 4 SCC 126, Eitzen Bulk A/S & Ors. vs. Ashapur Minechem Ltd. & Anr. (2016) 11 SCC 508, Imax Corporation vs E-City Entertainment(India) Pvt. Ltd. (2017) 5 SCC 331, Roger Shashoua and Ors. vs. Mukesh Sharma & Ors., 2017 (14) SCC 722.

17. The argument of both the learned senior counsel mainly centered around to one question which, in our opinion, does arise in the appeal, namely, when the arbitration agreement specify the “venue” for holding the arbitration sittings by the arbitrators but does not specify the “seat”, then on what basis and by which principle, the parties have to decide the place of “seat” which has a material bearing for determining the applicability of laws of a particular country for deciding the post award arbitration proceedings.

18. Several other ancillary questions connected with the main question were also urged by the learned senior counsel with the aid of law laid down in the aforementioned cases and the terms of the arbitration agreement in question.

19. Learned counsel for the parties also addressed the Court by pointing out that some decisions which have bearing over the questions arising in this appeal have been rendered by the Constitution Bench, some by Three Judge Bench and remaining by the Two Judge Bench.

20. One of the arguments of Dr. Singhvi, learned senior counsel was that the decision rendered by Three Judge Bench in the case of Sumitomo Heavy Industries Ltd. vs. ONGC Ltd. & Others (supra) on which great reliance was placed by Mr. Tushar Mehta, learned ASG has lost its efficacy, though approved by another recent decision of Three Judge Bench in Bharat Aluminum Company vs. Kaiser Aluminum Technical Services INC (supra), for the reason that it was rendered under the Arbitration Act, 1940 which now stands repealed by Arbitration Act, 1996 and secondly, it was rendered in relation to Section 9 of the Foreign Awards (Recognition and Enforcement) Act, 1961 which also now stands repealed by 1996 Act.

21. It was his submission that while approving the ratio of Sumitomo Heavy Industries Ltd. (supra) these two factors which have some relevance on its efficacy do not seem to have been examined in the case of Bharat Aluminum Company (supra).

22. Dr. Singhvi also urged that what is the effect of UNCITRAL Model Law, when they are made part of the arbitration agreement for deciding the question of 11 “seat” has also not been so far decided in any of the earlier decisions.

23. In our opinion, though, the question regarding the “seat” and “venue” for holding arbitration proceedings by the arbitrators arising under the Arbitration Agreement/International Commercial Arbitration Agreement is primarily required to be decided keeping in view the terms of the arbitration agreement itself, but having regard to the law laid down by this Court in several decisions by the Benches of variable strength as detailed above, and further taking into consideration the aforementioned submissions urged by the learned counsel for the parties and also keeping in view the issues involved in the appeal, which frequently arise in International Commercial Arbitration matters, we are of the considered view that this is a fit case to exercise our power under Order VI Rule 2 of the Supreme Court 12 Rules, 2013 and refer this case (appeal ) to be dealt with by the larger Bench of this Court for its hearing.

24. It is for this reason, we refrain from recording our findings on any of the issues arising in the appeal and leave the questions/issues to be dealt with by the appropriate larger Bench.

25. We, accordingly direct the Registry to place the matter before the Hon’ble the Chief Justice of India for constituting the appropriate Bench for hearing and disposal of this appeal.

…………………………………J (R.K. AGRAWAL)

…………………………………J. (ABHAY MANOHAR SAPRE)

New Delhi,

May 01, 2018

Maharashtra State Electricity Distribution Company Ltd. Vs. M/s. Datar Switchgear Ltd. & Ors.[SC 2018 JANUARY]

KEYWORDS:- Constitution of an Arbitral Tribunal-DELAY-

Capture

DATE: JANUARY 18, 2018-

  • Arbitration petition filed under Section 34 of the Act was sought to be amended after a delay of eight years. Further, the amendment in the appeal, taking those very grounds on which amendment in the arbitration petition was sought, was sought after a delay of 3 1/2 years. The High Court, thus, rightly rejected these summons.

ACTS: Section 34 of the Arbitration and Conciliation Act, 1996-

SUPREME COURT OF INDIA

Maharashtra State Electricity Distribution Company Ltd. Vs. M/s. Datar Switchgear Ltd. & Ors.

[Civil Appeal No. 10466 of 2017]

A.K. SIKRI, J.

1. The appellant herein had awarded a contract to the respondent. Dispute had arisen leading to the constitution of an Arbitral Tribunal (having regard to the Arbitration Agreement contained in the contract between the parties) and those arbitration proceedings culminated in the Arbitral Award dated June 18, 2004. An application under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ‘Act’) was filed by the appellant, questioning the correctness of the Award which was dismissed by the learned Single Judge of the High Court vide orders dated March 18, 2009 and April 30, 2009 thereby affirming the Arbitral Award. Intra-court appeal thereagainst, which was preferred by the appellant, has been dismissed by the Division Bench of the High Court vide judgment dated October 19, 2013. It is the validity of that judgment which is the subject matter of the instant appeal.

2. With the aforesaid preliminary comments on the nature of proceedings, we turn to the events that took place, in a chronological manner, that are relevant for deciding the lis:

EVENTS :

The respondent was awarded a contract for installation of Low Tension Load Management Systems (LTLMS) at various locations by the appellant during the year 1993-1994. The respondent participated in another tender in the year 1996 for installation of approximately 23000 numbers LTLMS.

The appellant awarded a work order dated January 15, 1997 for installation of 11760 numbers of LTLMS to the respondent against the above tender of 1996 and the balance quantities were awarded to other tenderers. According to the appellant, against the installation made by the respondent previously in the year 1993-1994, there were large scale complaints and the issue of defective equipments having been supplied by the respondent which issue was being raised in the press repeatedly.

In view of the criticism faced by the respondent, the respondent voluntarily offered to not only supply 11760 LTLMS against the order placed in January 1997 but also undertook to replace all defective Low Tension Switched Capacitators (LTSCs) supplied by them against the previous contract of 1993-1994 with new technology LTLMS and charge the old lease rentals against the replaced LTSC during the pendency of the earlier contract. The appellant accepting the package offer by the respondents issued Letter of Intent in respect of 12555 numbers panel of 1993-1994 contract objects to be replaced by new panels along with additional quantity of 23672 numbers fresh panels. The appellant finally placed a composite work order dated March 27, 1997 with the respondent to:

(i) Supply 11,760 numbers equipments against the tender of 1996-1997 contract. B-I Locations;

(ii) 12,555 numbers replacement of equipments against the 1993-1994 contract – B-II locations; and

(iii) 23,672 numbers equipments which was a package with the B-II locations – B-III locations.

Clause 5.1 of the letter of Work Order dated March 27, 1997 provided as under:

“The supply and installation of the LM Systems shall commence within four months from the date of this work order or opening of Letter of Credit or receipt of complete list of locations of DTCs whichever is later. The entire supply and installation of LM System covered under schedules at Annexure – B-I, Annexure – B-II and Annexure – B-III shall be completed within twenty months thereafter.”

3. During the execution of the said contract, some issues arose between the parties. As per the respondents, the appellant primarily committed two kinds of breaches, namely, the appellant did not supply the list of location where the contract objects had to be installed and, further, the appellant also did not renew the Letter of Credit (LC) through which the lease rentals were being paid for the installed objects. A series of correspondence was exchanged between the parties on the aforesaid two counts as the appellant maintained that it had not committed any fault in respect of any of the aforesaid aspects.

As against the total number of 47497 LTLMS to be installed by the respondents, it installed 17294 numbers and thereafter terminated the contract vide letter dated February 19, 1999 alleging breaches on the part of the appellant which according to the respondent entitled the respondent to terminate the contract. The respondent undertook to maintain 17,294 contracts objects installed by them on the condition that lease rental of the same would be paid by the appellant. The respondent further claimed that they had manufactured 14,206 numbers objects which were waiting to be installed for which locations were not intimated by the appellant.

4. As per the appellant, under the original tender of 1996, the respondent was only entitled to supply and maintain 11760 contract objects and 12555 replacement of 1993/94 contract was as a package, with 23672 supply of contract objects and, failure to replace the contract objects of 1993/94 completely disentitled the respondent from the right to supply any contract object under the additional quantities of 23672 contract objects awarded as package beyond the ratio in which the B-II locations were replaced vis-a-vis the additional quantity awarded in B-III locations.

Thus, the partial termination by the respondent was illegal and arbitrary because as against 12,555 B-II locations, the respondent had installed only 2,014 equipments and thus they were aware of 10,541 B-II locations which were for replacement basis. Hence it was incorrect on their part to suggest that they had a right to terminate the contract due to non-supply of list of locations.

5. A meeting was held between the officials of the appellant and representatives of the respondent and it was duly recorded in the Minutes of Meeting dated March 11, 1999 that the Chairman of the appellant had informed the respondent that the maps were readily available in the Kolhapur zone and requested the respondent to take up the work immediately. However, the respondent stated that it was not in a position to start the work immediately.

The appellant wrote letter dated April 5, 1999 to the respondent bringing out its extreme dissatisfaction in the manner in which the work was being carried out by the respondent and calling upon the respondent to stick to the implementation of the programme as per the terms and conditions of the Work Order. The respondent by letter dated April 21, 1999 terminated the contract in its entirety and refused to maintain even the objects installed by them.

6. Dispute having arisen; for adjudicating these disputes, Arbitral Tribunal in terms of Arbitration Agreement was constituted. The Tribunal commenced its proceedings on February 19, 1999 and on June 18, 2004 passed a final award directing the appellant to pay Rs.185,97,86,399/- to the respondent as damages which included:

(i) Rs. 109 crores towards the installed object.

(ii) Rs. 71 crores towards the objects manufactured by the respondent which were ready for installation which they claimed could not be installed due to lack of list of locations; and

(iii) Rs. 6.52 crores towards raw material allegedly purchased by the respondent for the manufacture of remaining equipments.

7. As aforesaid, before the arbitrators, the respondents had primarily contended two defaults by the appellant. First, that the appellant did not supply the list of locations where the contract objects had to be installed and second, that the appellant did not renew the LC through which the lease rentals were being paid for the installed objects.

8. The Arbitral Tribunal, however, found no fault with the appellant as regards non-renewal of the LC observing that the respondent had terminated the contract in its entirety on April 21, 1999 whereas the LC was valid upto April 30, 1999. The finding regarding non-renewal of LC by the Arbitral Tribunal was affirmed by the learned Single Judge (Justice D.K. Deshmukh) vide judgment dated August 3, 2005 when the Award was initially set aside. The said finding was also affirmed by the Ld. Division Bench of the Bombay High Court vide its judgment dated October 22, 2008. However, partly allowing the appeal of the respondent, the judgment of the learned Single Judge dated August 3, 2005 was set aside and the matter was remanded back for fresh consideration. While adopting this course of action, the Division Bench in its judgment dated October 22, 2008 observed as under:

“44. The Court if decides an application under Section 34 should either expressly or impliedly say that the award was being set aside because it was contrary to the terms of the contract or the Award was in any way violative of the public policy or the award was contrary to the substantive law in India viz., Sections 55 and 73 of the Indian Contract Act or the award was vitiated by perversity in evidence in contract or the adjudication of a claim has been made in respect whereof there was no dispute or difference or the award was vitiated by internal contradictions.

In the present judgment which is under challenge, we have not found any such findings either expressly or impliedly though in the pleadings the issues were raised which should be the subject matter of a petition under Section 34 of the Act of 1996. Therefore, we find that it will be necessary for this Court to set aside the judgment impugned and remand the case back for adjudication afresh in accordance with the parameters set out by Section 34 of the 1996 Act.

45. In view of the above, the appeal is allowed. Impugned judgment and order dated 3rd August 2005 passed by the learned Judge of this Court in Arbitration Petition No. 374 of 2004 is set aside. The case is remanded back for adjudication afresh in accordance with the parameters set out by Section 34 of the Arbitration and Conciliation Act, 1996.”

9. After the remand, the learned Single Judge (Justice Roshan Dalvi) by order dated March 18, 2009 rejected the case of the appellant on the ground that no case under Section 34(2)(iv) of the Act had been made out by the appellant. The aforesaid order dated March 18, 2009 of the learned Single Judge was challenged by the appellant before the Division Bench of the Bombay High Court. The Division Bench, while hearing the appeal, passed the following order on April 21, 2009:

“1. Learned counsel for the petitioner has tried to submit before this Court that certain arguments quoted by the learned Single Judge in the impugned judgment were not argued by him and they have been put up by the learned Single Judge in his mouth. Under these circumstances we find it appropriate to direct the petitioner to approach the Ld. Single Judge seeking correction and/or withdrawal and/or the modification of the submission which are put up in his mouth. After appropriate orders are passed by the Ld. Single Judge, appeal be placed for admission.

2. Appeal No. 165 of 2009 be heard along with this Appeal.

3. Since contentions raised before the Ld. Single Judge are in dispute as stated above and the Petitioner has been directed to approach the Ld. Single Judge for the purpose of correction and/or modification, and also in view of the fact that the impugned order has not attained finality for the purpose of being considered by us, we find it inappropriate to consider Notice of Motion (being Notice of Motion No. of 2009) for interim relief at this stage. The said notice of motion will be considered after the appropriate orders are passed by the Ld. Single Judge on approach to the Ld. Single Judge by the Petitioner.”

10. The learned Single Judge by order dated April 30, 2009 clarified her order by saying that although the appellant has Civil Appeal No. 10466 of 2017 Page 9 of 65 argued the matter challenging the award being beyond the contract between the parties and being opposed to public policy, the learned Single Judge in her considered opinion rejected the same under Section 34(2)(iv) of the Act.

11. Appeal of the appellant was thereafter listed before the Division Bench in which order dated May 2, 2009 was passed staying the Award upon the condition that the appellant deposits the principal amount and submits bank guarantee qua the interest awarded by the arbitrators. This order was challenged by both the parties by filing their respective SLP.

This Court while hearing these SLPs, modified the order of the High Court, directing the appellant to deposit Rs.65 crores with the Bombay High Court and furnish a bank guarantee in the sum of Rs.200 crores. Amount of Rs.65 crores was allowed to be withdrawn by the appellant upon furnishing bank guarantee subject to the outcome of the appeal before the High Court.

12. In the appeal before the High Court, the appellant raised certain additional grounds. Thereafter, the matter was heard finally and vide impugned judgment, the appeal of the appellant has been dismissed by the High Court.

ORDER OF THE HIGH COURT

13. Before adverting to the arguments that are advanced by Mr. Vikas Singh, learned senior counsel appearing for the appellant and reply thereto of Mr. Rafique Dada, learned senior counsel who appeared for the respondent, it would be wise to scan through the impugned judgment of the Division Bench in order to understand and appreciate the line of reasoning which is the basis of justifying and upholding the order of the learned Single Judge and dismissing the objections of the appellant to the award rendered by the Arbitral Tribunal. In a very elaborate judgment, which runs into more than 150 pages, the High court has discussed various facets of the case under the following heads:

1. Brief Synopsis and chronology of events.

2. Remand

3. Submissions and finding on interpretation of the order of Apex Court dated 25/8/2009 passed in SLP filed by MSEB, challenging the order of remand passed by the Division Bench of this Court headed by Bilal Nazki, J

4. Notice of Motion No.3227 of 2010

5. Notice of Motion No.461 of 2010.

6. Scope of interference under Sections 34 and 37 of the said Act; the interpretation of the term “public policy” and; power of the Court to interfere on that ground.

7. Points (i) to (vi) extensively urged by MSEB

8. Submissions and finding on Point No. (i) Whether the Arbitral Tribunal and the learned Single Judge were justified in coming to the conclusion that the MSEB had committed breach of contract by not supplying DTC Lists?

9. Submissions and finding on Point No.(ii) Whether the contract was one complete contract and the same could not be split up as argued by the Claimants?

10. Submissions and finding on Point No. (iii) Whether Claimants/DSL waived their right to receive complete lists of locations; and on Point No (iv) Whether the Award is contrary to the public policy as mentioned under Section 34 of the Arbitration and Conciliation Act, 1996?

11. Submissions and finding on Point No. (iv) Whether the Award is contrary to the Public Policy as mentioned under Section 34 of the Arbitration and Conciliation Act, 1996? (v) Whether the damages were properly awarded? and (vi) Whether the aspect of mitigation was properly considered?

12. Chamber Summonses filed by MSEB

13. Conclusion.

14. After narrating the scope of the work and the gist of the dispute which led to initiation of arbitration proceedings, the High Court noted that respondent filed its claims under various heads aggregating to Rs.1053,06,78,342/- and the counter claims of the appellant were to the tune of Rs.1273,70,26,669/- crores approximately.

Appellant had examined as many as 26 witnesses in support of its case whereas the respondent had examined its Managing Director who was in charge of the project. After conclusion of the evidence and hearing the arguments, the Arbitral Tribunal partly allowed the claims of the respondent, holding that respondent was entitled to a sum of Rs. 1,79,15,87,009/- (Rs. 185,97,86,399 – 6,81,99,390) along with interest @ 10% per annum payable from the date of the Award till realisation.

Cost of rupees one crore was also awarded. Counter claims of the appellant were dismissed. After taking note of the aforesaid facts in brief, the High Court dealt with the contention of the appellant herein that the matter needed to be remanded back to the learned Single Judge on the ground that the submission of the appellant that the Award was against the public policy had not been considered by the learned Single Judge. After comprehensive discussion, this argument has been rejected authoritatively.

In the process, the High Court also dealt with the submissions predicated on Order dated August 25, 2009 passed by this Court in special leave petition which was filed by the appellant whereby order of remand passed by Division Bench of the High Court, in the earlier round was challenged. Notice of Motion Nos. 3227 of 2010 and 461 of 2010 also came to be included in the discussion while dealing with the aforesaid issue.

Thereafter, the High Court has discussed the scope of interference under Sections 34 and 37 of the Act, with particular reference to the ground of challenge on the basis that the award is against “Public Policy of India”. After referring to the law on this pivotal aspect, the High Court noted the points of arguments advanced by the appellant affirming part of challenge to the Award. Six points which were advanced by the appellant in this behalf are as under:

(i) Whether the Arbitral Tribunal and the learned Single Judge were justified in coming to the conclusion that the MSEB had committed breach of contract by not supplying DTC Lists?

(ii) Whether the contract was one complete contract and the same could not be split up as argued by the Claimants?

(iii) Whether Claimants/DSL waived their right to receive complete lists of locations?

(iv) Whether the Award is contrary to the public policy as mentioned under Section 34 of the Arbitration and Conciliation Act, 1996?

(v) Whether the damages were properly awarded?

(vi) Whether the aspect of mitigation was properly considered?

15. Thereafter, discussion ensued on each of the aforesaid issue, one-by-one. On the first point, the High Court has concluded that the Arbitral Tribunal was justified in coming to conclusion that the appellant had committed breach of the contract by not supplying DTC list. While so concluding, the High Court went into the events which took place in this behalf, gist of the evidence as well as the manner in which the issue was upraised by the Arbitral Tribunal.

The High Court has held that the finding which was given by the Arbitral Tribunal, after taking into consideration the rival contentions raised in the claim and in the written statement on this aspect is a finding of fact which was given after examining the material on record. The High Court further noted that this finding was upheld by the learned Single Judge also and the manner in which the learned Single Judge dealt with the issue has been taken note of.

This being a finding of fact, as per the High Court it was not possible for it to substitute its own view to the views taken by the Arbitral Tribunal or the learned Single Judge and arrive at different conclusion, even if two views were possible. Notwithstanding the same, the Division Bench again examined this very issue on merits after going through the various clauses in the contract entered into between the parties. Taking particular note of clauses 5.2 and 5.3, the Division Bench has affirmed the findings of the Arbitral Tribunal in the following manner:

“46. Clause 5.2 is also relevant since it stipulates about the manner in which installation/replacement work was to be carried out by DSL. The work was to be completed in three Zones, viz., Kolhapur Zone, Nasik Zone and Aurangabad Zone. In clause 5.2 sequence of Zones was mentioned in which the work was to be carried out and it was as under:-

(a) Kolhapur Zone

(b) Nasik Zone. Work to be commenced on completion of work in Kolhapur Zone.

(c) Aurangabad Zone. Work to commence on completion of work in Nasik Zone.

The sequence therefore was that, first in Kolhapur Zone B-I, B-II, B-III objects were to be installed and, thereafter, in Nasik again B-I, B-II, B-III objects were to be installed and finally in Aurangabad, B-I, B-II and B-III objects were to be installed. The said schedule of completion of work, however, was changed from time to time and, finally, again, in December, 1998 MSEB informed DSL to follow the schedule as per clause 5.2.

47. Clause 5.3 lays down that supply, erection at site and commissioning of the contract objects was to be done within a stipulated time.

It also clarified that time is the essence of the contract and if there was delay in performance due to any reason MSEB would be entitled to claim liquidated damages. The chronology of events indicates that on 14/7/1997, MSEB by its letter informed DSL that Lists of DTC locations were ready with the Circle Offices and DSL should collect the same.

The case of DSL in brief is that though it was represented by MSEB that Lists were ready and available on 14/7/1997, Lists were not supplied and, as a result, installations could not be done and as many as 120 letters had to be written by DSL to MSEB, requesting them to supply the Lists.

Secondly, sequence of completion of work also was changed from time to time and suddenly on 21/12/1998 Circle Engineer informed DSL that sequence as per clause 5.2 of the work order had to be adhered to and, DSL was therefore constrained to send a letter of termination dated 19/02/1999 and even thereafter in a meeting which was held on 11/3/1999 between the Chairman of the MSEB, DSL and other two parties who were awarded the contract, as mentioned in clause 17 of the minutes of the meeting, the Chairman informed DSL that the Lists were readily available in Kolhapur Zone and asked Mr. Datar to take up the work under B-II and B-III schedule immediately and the Chairman directed that CEs present in the meeting that it was the Board’s responsibility to give the list with maps to the agencies and expeditious steps should be taken in that regard.

It was, therefore, contended that as late as 11/3/1999, the Chairman himself had conceded that the Lists were not made available to DSL. In this context, certain letters assume importance regarding change of sequence of work. The work order dated 27/3/1997 shows that the work initially had to be done in Kolhapur Zone, then in Nasik Zone and finally in Aurangabad Zone.

Thereafter, Chief Engineer, MSEB by his letter dated 4/11/1997 changed the sequence and directed that the work should be completed initially in Nasik Zone in respect of B-I, B-II, B-III Lists, then in Kolhapur Zone and finally in Aurangabad Zone. This sequence was again modified by the Chief Engineer’s letter dated 25/5/1998 and modification was made in the sequence of schedule and sequence of zone continued and work could be completed at any stage in any Zone. Again, third modification was made by Chief Engineer’s letter dated 17/6/1998 and there was modification in respect of Zones and work could be carried out in any Zone in any sequence.

Then there was fourth modification by Chief Engineer’s letter dated 21/12/1998 and direction was given to strictly adhere to the original work order sequence. According to DSL, because the Lists were not supplied though the contract objects/gadgets were ready for installation and though they were taken to the sites at the respective Zones, they could not be installed and were lying stranded causing monetary loss on account of transportation, manual labour etc. and non-installation of contract objects resulted in DSL not getting benefit of lease rentals.”

16. Interestingly, before the Division Bench, the appellant had raised certain additional points on this aspect, which were not argued before the Tribunal or even before the learned Single Judge, viz., the non-supply of DTC locations did not amount to breach of fundamental term of the contract which led to termination of contract by the respondent. We would like to reproduce, at this stage, this part of discussion as well:

“48. It must be noted here that before the learned Single Judge and before this Court, some of the points which were never urged before the Tribunal had been sought to be urged. In the written submissions which have been tendered before us and what was urged before us was that the Arbitral Tribunal had committed serious error by holding that non- supply of DTC locations amounts to breach of fundamental term of contract which led to termination of contract by Respondents/Claimants. It has been contended before us that since each contract object was a separate lease contract, the Arbitrator’s Award has to be considered in three parts

(i) qua uninstalled objects,

(ii) qua installed objects and

(iii) damages in respect of the objects not even manufactured and it has to be noted here that Tribunal has framed one of the points as under:-

(A) Whether the Claimants were ready and willing to perform their part of the contract and if so, whether Respondents prevented the Claimants from doing so? While answering this point, the point was discussed in two parts. Firstly, whether the Claimants were ready and willing to perform their part of the contract and, secondly, whether Respondents have prevented the Claimants from doing so. In this context, after having held that Claimants were ready and willing to perform their part of the contract, while considering the second point, the Tribunal had taken into consideration the question of supply of DTC Lists and whether it was a fundamental term of the contract.

After having held that MSEB had prevented DSL from performing their part of the contract even though they were ready and willing to do so, the question of damages has been thereafter separately considered and on that point Tribunal has adopted a particular method of calculation of damages. In our view, it is not permissible for MSEB to now change their submissions in this manner. However, even if the submissions, as advanced before us by MSEB, are taken into consideration, they are devoid of merits.”

17. Thereafter, the High Court took note of another argument of the appellant herein, namely, the contract was terminated by the respondent on account of non-renewal of Letter of Credit in view of respondent’s letter dated February 19, 1999. However, the High Court did not accept the said argument as valid and rejected the same. Thereafter, the High Court has recorded its specific findings on Point No. 1 and we reproduce relevant portion thereof as under:

“In our view from the material on record, it is abundantly clear that supply of DTC Lists was a fundamental term of the Work Order and MSEB had miserably failed in complying with the said fundamental term and there was a breach on the part of the MSEB in supplying the DTC locations which eventually prevented DSL from installation of contract objects.

It has to be noted here that after the work order was issued by MSEB, DSL had to make necessary arrangements for the purpose of carrying out the process of installation of the contract objects. This included procurement of raw material from a foreign country, starting the process of manufacturing gadgets, making arrangements for transportation of these contract objects to the places where the said gadgets were to be installed, employment of trained, skilled and other staff, making available vehicles for transporting these contract objects to the DTC location where they were to be installed and, finally, coordinating with the Officers of MSEB so that after the contract objects were installed, a Certificate of installation could be given by the Officers of MSEB so that from that point onwards, lease rentals could become payable to DSL.

It has to be borne in mind that the nature of the Work Order was such that it was in the interest of DSL to ensure that the contract objects are installed and certificates to that effect are obtained from the Officers of MSEB. It does not sound to reason that after having invested huge amount of almost Rs 163 crores, as observed by the Tribunal in the Award, DSL would not install the objects because it was in their interest to get the objects installed so that returns on their huge investment would start thereafter.

It is inconceivable therefore that though DTC Lists were available, DSL would not install the contract objects. Various facts and figures were given by MSEB to show that DTC locations were known to DSL and yet they had failed in installing the contract objects is without any substance. It cannot be forgotten that, initially, the sequence of installation was Kolhapur, Nasik and Aurangabad. This sequence was later on changed to Nasik, Kolhapur and Aurangabad. This was again changed and permission was given to DSL to install the objects at any time at any place and, lastly, again, this was changed and direction was given to DSL to adhere to the sequence as per the Work Order.

This being the position, even assuming that Civil Appeal No. 10466 of 2017 Page 20 of 65 B-II Lists were available, DSL could not have installed these contract objects because they were asked to follow the schedule again by letter dated 21/12/1998 and, therefore, even if the lists were available, it was not possible for DSL to simultaneously install all those objects since they were told to adhere to the sequence in the Work Order if the lists of locations under B-I were not given, even assuming that they had B-II lists of locations they could not have and were not actually allowed to install at the said B-II locations. It has come on record that more than 10,000 objects were manufactured and ready for installation.

There is no earthly reason why DSL would fail to install the objects which were inspected and ready for installation. The only obvious reason would be that they were unable to do so on account of various orders which were passed by MSEB from time to time preventing them from performing their obligation. MSEB has not examined any of its Superintending Engineers who were in charge of supplying the Lists. The cumulative effect of all the material which has been brought on record is that it clearly demonstrates the failure on the part of MSEB in supplying the Lists of DTC locations which was a fundamental term of the contract.”

18. Coming to point no. 2, the High Court noted that this point was not urged before the Tribunal or before the learned Single Judge, namely, the contract was not one complete contract. For this reason, held the High Court, it was not permissible for the appellant to urge the same for the first time before it.

19. Point nos. 3 and 4 were taken up together for discussion. Insofar as point no. 3 is concerned, the Court noted that relevant provisions in the light of which this point was to be examined, were Sections 39, 53, 55 and 63 of the Contract Act. The High Court found that when Chief Engineer of the appellant had written a letter dated December 21, 1998 informing the respondent that work had to be carried as per the original schedule given in the Work Order, viz., Kolhapur, Nasik and Aurangabad and a further direction was given not to install objects at B-III locations, only at that stage the appellant had refused to perform their part of promise.

Only, thereafter, notice was given by respondent on February 19, 1999 and finally the contract was terminated on April 21, 1999. Therefore, there was no waiver of right of acquiescence on the part of the respondent and, thus, argument of the appellant could not be accepted that the respondent had waived their right to terminate the contract. The High Court also held that the question of waiver or acquiescence is a question of fact and since there was a finding of fact by the Arbitral Tribunal (which was upheld by the Single Judge as well) that there was no waiver or acquiescence on the part of the respondent, such an argument was not even available to the appellant in appeal under Section 37 of the Act.

On this basis, the Division Bench rejected the contention of the appellant that the respondent waived its right to receive complete list of locations. In the process, the High Court has also rejected the contention of the appellant that as a consequence of waiver of right to receive list of DTC locations, the only option which was available to the respondent was to have given notice to the appellant that it was accepting the performance of the promise other than at the time agreed upon or that the respondent was entitled to any compensation.

20. With the aforesaid findings on Point no. 3, the High Court rejected the contention of the appellant that the award of damages was against the public policy.

21. Thereafter, the High Court discussed the question of quantum of damages as raised in Point No. 5. It went through the exercise done by the Arbitral Tribunal in this behalf, i.e., the manner in which the damages are calculated by the Tribunal. It found that the Tribunal had appreciated to determine the damages payable to the respondent in respect of lease rent for duration of seven years for 17294 contract objects which were installed and a figure of Rs. 108,02,53,173/- in this behalf was arrived at. In respect of 14206 stranded objects, the Tribunal held that the damages which were payable on account of aforesaid stranded objects were to the tune of Rs. 14,28,55,536/- for a period of one year at the rate of Rs. 10,056/- per year for each contract object and for a duration of five years Rs. 71,42,77,680/-.

As regards those objects which were not manufactured, the Arbitral Tribunal took into consideration the value of unused imported raw material. On that basis it came to the conclusion that damages in respect of imported raw material left unused for 16487 contract objects were Rs. 6,52,55,546/-. In this manner, it arrived at a total figure of Rs. 185,97,86,399/- and deducted a sum of Rs. 6,81,99,390/- which was paid by the appellant to the respondent pursuant to interim orders passed by the Tribunal.

22. After taking note of the manner in which the Tribunal awarded the damages, the High Court noted the challenge of the appellant’s counsel to the award of damages, which were as under:

(i) Since there was no breach committed by the appellant and that the respondent had no right to terminate the contract, no damages were payable.

(ii) Since the cost of contract object was on an average of Rs. 9,000/- per object, the respondent, at the best, was entitled to nominal profit of 10-15% on the said cost. Therefore, the Arbitral Tribunal had granted excessive damages.

(iii) The damages were wrongly awarded for objects not even manufactured and such an award was in violation of public policy as mentioned in Section 34 of the Act.

(iv) According to the understanding of the appellant, the contract was coming to an end on March 19, 1999 and the contract objects, therefore, should have been manufactured by it. Thus, failure to manufacture the same did not entitle them to claim any damages qua the objects not manufactured.

(v) Since the contract was novated, the respondent was obliged to manufacture the objects as and when the lists were supplied to it and, therefore, the question of payment of any compensation qua the objects not manufactured did not arise.

(vi) There was no default qua the installed or qua uninstalled objects and on this ground also the Tribunal was not justified in granting any compensation whatsoever.

(vii) In respect of the installed objects, the only breach was non-renewal of the Letter of Credit. Likewise, in respect of un-installed objects, the only breach was non-submission of lists of locations. Insofar as non-renewal of Letter of Credit is concerned Arbitral Tribunal had decided this issue in favour of the appellant and, therefore, no damages were awardable. In respect of uninstalled objects, the respondent had 16473 lists of location and they were obliged to maintain 2500 buffer stock. However, the respondent had manufactured only 14206 objects, therefore, there was no question of payment of any damages qua uninstalled objects.

23. Since this issue was connected with Point No. 6, i.e., mitigation of damages, the High Court dealt with the argument of mitigation as well. Here, contention of the appellant was that according to the respondents the breach, if at all, took place only on December 21, 1998 when permission for simultaneous installation in B-III was withdrawn and no steps whatsoever to remedy the breach thereafter were taken by the respondents. This showed that the respondents had not tried to mitigate their loss and were not entitled to get damages. Here the argument of the respondent was also noted and after considering the respective arguments, the High court has not found any substance in the submissions of the appellant. It has given following reasons for adopting this course of action:

“73. We agree with the submissions made by the learned Senior Counsel appearing on behalf of DSL for the following reasons: First of all, it has to be noted that Arbitral Tribunal in its Award has recorded a finding of fact that MSEB had committed breach of the contract by not supplying the lists of DTC locations and this breach was a fundamental breach of the agreement. Secondly, it is held that MSEB had prevented DSL from performing its part of the contract and, therefore, they were entitled to get damages.

The Arbitral Tribunal, thereafter, relying on the Judgment of the Supreme Court in Union of India v/s. Sugauli Sugar (Pvt.) Ltd. [(1976) 3 SCC 32)] has observed that innocent party who has proved the breach of contract to supply what he had contracted to get, such a party should be placed in as good a situation as if the contract had been performed and, therefore, damages which the Claimants/DSL were entitled to have to be determined on the said principle.

The Tribunal has then held that lease rent is one of the measures for ascertaining damages and, in that context, after relying on the Work Order, came to the conclusion that entitlement of the Claimants was to secure lease rent accrued from the date of installation of the contract objects. In this context, therefore, for the sake of convenience the question of quantum of damages was considered with reference to

(a) installation of contract objects,

(b) stranded objects and

(c) objects not manufactured.

The submission of the learned Senior Counsel appearing on behalf of MSEB that the Arbitral Tribunal had split up the contract into three parts, though the contract was one single contract, is without any substance. It has to be noted that the Arbitral Tribunal first came to the conclusion that there was a breach on the part of MSEB in supplying the lists of DTC locations.

Having held, that there was a breach and that the Claimants/DSL were entitled to claim compensation, while ascertaining the amount of compensation, for the sake of convenience, it has considered the aspect of granting damages in the above manner. The entire thrust of the argument of MSEB, therefore, is misconceived. MSEB has tried to give a twist to their tale by contending that 17,294 contract objects being installed, there was no question of awarding damages for the installed objects and, secondly, since termination of Letter of Credit was held not to be illegal, it was not open for the Arbitral Tribunal to have awarded damages for the uninstalled objects and the objects which were not manufactured.

This submission is totally misconceived, firstly because it has been consistently held that the Arbitral Tribunal alone is competent to decide the manner of calculation of damages which are to be awarded as also the method which is to be adopted by the Tribunal. In the present case, the Arbitral Tribunal has held that lease rent is one of the measures for ascertaining damages.

The Apex Court in McDermott vs. Burn Standard [(2006) 11 SCC 181] has observed as under:-

“106. We do not intend to delve deep into the matter as it is an accepted position that different formulae can be applied in different circumstances and the question as to whether damages should be computed by taking recourse to one or the other formula, having regard to the facts and circumstances of a particular case, would eminently fall within the domain of the arbitrator.

110. As computation depends on circumstances and methods to compute damages, how the quantum thereof should be determined is a matter which would fall for the decision of the arbitrator. We, however, see no reason to interfere with that part of the award in view of the fact that the aforementioned formula evolved over the years, is accepted internationally and, therefore, cannot be said to be wholly contrary to the provisions of the Indian law.”

24. Citing few more judgments and after extensively quoting therefrom1, the High Court proceeded further with the discussion

(a) Dwarka Das v. State of M.P. and Another

(b) ONGC v. Comex

(c) Prakash Kharade v. Dr. Vijay Kumar Khandre and Others

(d) Grandhi v. Vissamastti

(e) Mirza Javed Murtaza v. U.P. Financial Corporation Kanpur and another as follows:

“The Arbitral Tribunal, therefore, after having adopted lease rent as one of the methods of ascertaining damages has thereafter considered what damages should be awarded by way of lease rentals on installed objects, stranded objects and the objects not manufactured. In our view, it is not possible to find fault with the finding of the Arbitral Tribunal on the measure and method for ascertaining and calculating the damages which have been adopted by it to arrive at the final figure of compensation to be payable to the Claimants/DSL.

It is also quite well settled position in law that once it is established that the party was justified in terminating the contract on account of fundamental breach of contract then, in that event, such an innocent party is entitled to claim damages for the entire contract, i.e., for the part which is performed and also for remaining part of the contract which it was prevented to perform.

This principle is quite well settled in number of cases. The Tribunal, therefore, was perfectly justified in calculating the damages in the aforesaid manner. In this view of the matter we do not propose to deal with the judgments on which reliance is sought to be placed by MSEB. So far as the question of mitigation is concerned, the Tribunal has specifically held that the contract objects were unique objects which had to be manufactured according to the specifications laid down by the MSEB and, therefore, these contract objects could not be disposed of in the open market. Even if the said contract objects were dismantled, value would become nil.

The Tribunal also observed that Datar deposed with reference to Exhibit-C-16 that efforts were made to sell the contract objects stranded in the factory to other Electricity Boards but those efforts did not succeed. The question of mitigation, therefore, was considered by the Tribunal and the submissions of MSEB were not accepted. In our view, reasoning given by the Tribunal cannot be faulted.”

25. According to the High Court, the Arbitral Tribunal had awarded damages in a most conservative manner and, thus, committed no illegalities in awarding these damages. At the end, the High Court dealt with the Chamber Summons which were filed by the appellant and on detailed discussion thereupon, dismissed all these Summons.

26. As a consequence, the appeal of the appellant stood dismissed.

ARGUMENTS OF THE APPELLANT:

27. Mr. Vikas Singh referred to the tender of 1993-94, pursuant to which the respondent had installed 12,555 numbers of LTSC, and submitted that the respondent was maintaining the same but large scale complaints about the inefficiency of LTSC was received with the appellant. Having regard to this criticism faced by the respondent, it volunteered to replace the installations made in the earlier contract and charge the old rental in respect of the same. In the meantime, pursuant to tender of the year 1996 for installation, the respondent was awarded work for installation of 11,760 contract objects. Going by the said assurance, the appellant awarded a work order dated March 27, 1997 for replacement of 12,555 panels of earlier contract objects plus installation of 23,672 LTMS panels and the work order finally became as under:

(i) Supply 11,760 numbers equipments against the tender of 1996-1997 contract. B-I Locations;

(ii) 12,555 numbers replacement of equipments against the 1993-94 contract – B-II locations; and

(iii) 23,672 numbers equipments which was given as a package with the B-II Locations – B-III locations.

28. Mr. Vikas Singh referred to Clause 5.1 of the contract as per which entire supply and installation of L.M. Systems covered by schedules at Annexures – B-I, B-II and B-III was to be completed within twenty months. He thereafter read out the correspondence that was exchanged between the parties and on that basis, he sought to argue that as per the appellant, the list of locations was ready on July 14, 1997 but it is the respondent who was facing difficulties in installation of the contract objects and violating the terms of the contract with impunity.

The respondent had even withdrawn money in excess of its entitlement. Vide letter dated December 21, 1998, the appellant had written to the respondent to do installation of B-I and B-II first before B-III locations, as by that date, the respondent had already installed 17,294 objects out of which B-II was only 2014. However, the respondents in their Civil Appeal No. 10466 of 2017 Page 31 of 65 reply dated March 21, 1998 asserted their right to install the objects at B-III locations simultaneously. He further pointed out that in their letter dated February 18, 1999, the respondent admitted having received Rs.4.34 crores in excess of their entitlement, however, on the very next date, i.e. on February 19, 1999, it sought to terminate the contract qua the uninstalled objects numbering 30,695 but volunteered to maintain the installed objects provided that the rent for the same was forthcoming.

It was argued that since the payment of rent was by means of an irrevocable LC, and since the LC was valid on February 19, 1999, the offer of maintaining 17,294 objects was clearly accepted by the appellant as the appellant did not cancel the LC in spite of termination of the contract qua uninstalled objects on February 19, 1999. In other words, the LC continued to remain alive even after termination of the contract on February 19, 1999 in order to make payment of future rentals qua the uninstalled objects. In spite thereof, the respondent, vide its communication dated April 21, 1999, terminated the contract. It was submitted in the aforesaid backdrop that the action of the respondents was clearly illegal.

It was further argued that the findings of the Arbitral Tribunal that the appellant had committed the fundamental breach of the contract in not providing the complete list of the contract objects to the respondents is clearly erroneous which is patently illegal and contrary to the terms of the contract. It was submitted that the entire premise of the Arbitral Tribunal to record this finding was on the basis of the letter of the appellant dated December 21, 1998 which had only debarred the respondent from installing B-III locations as the respondent was indulging in the malpractice of charging bills higher than what they were entitled to which is proved by the credit note given by the respondents themselves on February 18, 1999. The said letter did not debar the respondent from installing the B-II locations which were 10,541 remaining to be installed on February 19, 1999.

The Arbitral Tribunal recorded a perverse finding which resulted in patent illegality in the award that by letter dated December 21, 1998 the appellant had debarred the respondent from installing the B-II locations when clearly neither the same was mentioned in the said letter nor was the same understood contemporaneously by the respondent in their response dated December 23, 1999 wherein they merely protested from being denied the opportunity to install the B-III objects.

The Arbitral Tribunal accordingly committed a grave mistake in holding that the appellant had committed a fundamental breach when clearly on the date of termination the respondent had with them 10541 B-II locations and admittedly 1633 B-I locations in Kolhapur Zone and they were under an obligation under the contract to maintain 2500 buffer objects and hence the respondent had only 14026 contract objects at that time whereas they were required to maintain at least 14,674 contract objects on the said date.

29. Next submission of Mr. Vikas Singh, learned senior counsel, was that the Arbitral Tribunal gave a specific finding that the LC was valid till April 30, 1999 and there was no default on the part of the appellant in this behalf, which finding was also confirmed by the learned Single Judge as well as by the Division Bench which had heard the appeal in the first round.

Therefore, there was no occasion whatsoever for the Arbitral Tribunal to award damages qua the installed objects as there was no default alleged and there was no default held to have been committed by the appellant qua the same.

30. Much emphasis was laid by the learned senior counsel for the appellant on the order dated August 3, 2005 passed by the learned Single Judge in the appellant’s petition under Section 34 of the Act (in the first round), whereby the learned Single Judge had decided the case in favour of the appellant holding that there could not be any direction for payment of damages in respect of the installed objects as no default was found by the Arbitral Tribunal and, therefore, the Tribunal committed a grave mistake in awarding compensation in respect thereof. In order dated August 3, 2005, the learned Single Judge had also held that the Arbitral Tribunal had committed illegality by awarding compensation in respect of the objects manufactured but not installed while permitting the respondents to retain the same.

Likewise, the award was faulted with to the extent that the Arbitral Tribunal awarded the amount for the raw material available with the respondent, without directing the respondent to handover the said raw material to the appellant. Though, this order dated August 3, 2005 was set aside by the Division Bench in appeal which was preferred by the respondent, submission of the learned senior counsel was that it was erroneously set aside on the only ground that the Single Judge while allowing Section 34 petition had not specifically mentioned the particular section under which the petition had been allowed when clearly the order of the learned Single Judge had been passed on the ground that the award is against the public policy of India and hence it was clearly referable to Section 34(2)(b)(ii) of the Act.

Hence, there was no occasion or necessity to remand the matter back to the Single Judge of the High Court. Since the direction by the Division Bench were to the Single Judge was to decide the matter in a time bound manner, even before the appeal against the order of the Division Bench could be heard by the Supreme Court, the learned Single Judge of the Bombay High Court rejected Section 34 petition on a completely erroneous premise as if that the appellant had argued the case under Section 34(2)(iv) when admittedly no arguments had been raised under the said Section and the entire arguments as well as the written submission were only with regard to the award being contrary to the public policy which is under Section 34(2)(b)(ii). In this manner, submitted the learned senior counsel, the learned Single Judge went beyond the mandate of the Division Bench while dismissing the petition of the appellant in its entirety under Section 34 of the Act and the Division Bench has also erred in giving its imprimatur to such an order of the Single Judge.

31. Continuing his submissions with great emphasis, Mr. Vikas Singh further argued that an important issue which need consideration is as to whether the contract was one complete contract and whether the same could or could not be split up as argued by the respondents. He referred to the provisions of the contract, the relevant correspondence and the submission of the respondents witnesses to refute the respondents contention that the contract was one bargain and there was no right to split up the same. He also referred to the certain judgments to contend that the contract in question can be held to be clearly severable and it is the duty of the Courts to severe the enforceable part vis-à-vis the unenforceable part.

32. Touching upon the facet of the uninstalled object, it was submitted that in terms of the work order, the supply and installation was to commence from the date of the work order or opening of LC or receipt of complete list of locations of DTCs, whichever is later.

On July 14, 1997, the appellant wrote to the respondents that the list of locations was available with the circle office. The respondents assumed July 14, 1997 as the date of making available the complete list of locations without actually receiving the said list from the circle office. The clause very clearly provided the four month period to commence from the date of receipt of list of complete locations and admittedly the respondent did not receive the list of locations on July 14, 1997 nor any time thereafter till they started installation on November 2 Firm Bhagwandas Shobhalal Jain, a Registered firm and Anr. v. State of Madhya Pradesh, AIR 1966 MP 95; Shin Satellite Public Co. Ltd. v. Jain Studios Ltd., (2006) 2 SCC 628; Beed District Central Coop. Bank Ltd. v. State of Maharashtra & Ors., (2006) 8 SCC 514, Daruka & Co. v. Union of India & Ors., (1973) 2 SCC 617 and Food Corporation of India v. Yousuff and Co., Kerala High Court (DB) (17.11.1980) A.S. No. 31 of 1976 at Page 2296 (starting from 2280-2297 of volume X) 18, 1997, considering the four month period to start from July 19, 1997 i.e. the date of receipt of the communication dated July 14, 1997.

Clearly, the respondent had enough time after July 14, 1997 to insist upon the complete list of locations before any installation was started by them on November 18, 1997. Therefore, argued the learned senior counsel, it is the respondent which committed breach of contract in not completing the work.

33. Mr. Vikas Singh once again emphasised the submission which was made before the learned arbitrator as well as the High Court, that there was a waiver by the respondent in respect of list of DTC location and the consequences of such a waiver had to flow as per Section 55 read with Section 63 of the Contract Act. It was submitted that this Court has held in the case of Waman Shriniwas Kini v. Ratilal Bhagwandas & Co.3 at para 13 “waiver is the amendment of a right which normally everybody had a liberty to waive. A waiver is nothing unless it amounts to a release it signifies nothing more than an intention to insist upon the right”.

Accordingly, once the waiver takes place, the clause with regard to providing the complete list does not remain a fundamental term of the contract and the respondent would not be entitled to claim any damages for the non-supply of the list. 3 1959 Supp.

(2) SCR 217 He also referred to the decision in Jagad Bandhu Chatterjee v. Smt. Nilima Rani & Ors.4 wherein at para 5, it is stated “it is open to a promisee to dispense with or remit, wholly or in part, the performance of the promise made to him or he can accept instead of it any satisfaction which he thinks fit.”

He also relied upon the judgment in Babulal Badriprasad Varma v. Surat Municipal Corporation & Ors.5 and pointed out that in that case, the Court has considered various judgments on the issue of waiver in paragraph 42 to 49, which laid down that waiver amounts to abandonment of right in such a way that the other parties entitled to plead the abandonment by way of confession and avoidance if the right is thereafter asserted and is either expressed or implied from the conduct. Number of other judgments laying down the same proposition of law were also referred to.

34. Additionally, it was submitted that the appellant had on June 17, 1998 permitted the respondent to make feeder-wise installation irrespective of B-I, B-II and B-III locations. Between June 17, 1998 to December 21, 1998 i.e. for a period of more than six months, the respondents had all the B-II locations available to them which is 12,555 out of which they only installed 4 (1969) 3 SCC 445 5 (2008) 12 SCC 401 2014 and they did not install 10541 B-II locations which were the locations where the respondent had themselves installed the contract objects against tender of 1993 and 1994 and were maintaining the said objects at the time when the present tender was awarded and hence were in the complete knowledge of the said locations.

The endeavour was to show that the respondent was aware of sufficient number of locations, even B-II locations and, therefore, there was no reason to terminate the contract and, in fact, it is the respondent which had failed to perform its obligations under the contract and was, thus, responsible for the breach thereof. On that premise, the submission was that award of the Arbitral Tribunal qua the uninstalled object is patently illegal and it also shocks the conscience of the Court and is liable to be set aside as being opposed to public policy.

Specifically adverting to the damages awarded qua installed objects, it was argued that the work order clearly provided that each contract object was a separate contract between the appellant and the respondent and, therefore, it was incumbent upon the Arbitral Tribunal to decide as to what fault had been committed by the appellant qua the installed objects before granting any damages for the same. Absence of this exercise, contended the learned senior counsel, had rendered the award illegal and in violation of public policy as mentioned in Section 34 of the Act.

35. While questioning the damages awarded in respect of objects not even manufactured; quantum of damages awarded by the Tribunal and failure on the part of the respondent to mitigate the losses, the same arguments were advanced which were taken before the High Court as well. It is also submitted that the High Court committed serious error in rejecting the chamber summons.

Arguments in Reply by the Respondent:

36. Mr. Dada, learned senior counsel appearing for the respondent, strongly refuted all the aforesaid submissions of the appellant and made earnest effort to show that the entire approach of the Arbitral Tribunal in dealing with the issues and awarding the damages was correct in law and this award was rightly held by the learned Single Judge as well as the Division Bench of the High Court.

37. At the outset, Mr. Dada emphasized the crucial nature of the contract in question, which was essentially for operating lease for ten years in respect of energy saving devices which were to be installed by respondent No.2 on the locations to be given by the appellant herein. He pointed out that since it was a contract for operating these devices on lease basis, entire investment was to be made by respondent No.2 and the appellant was only to give the lease rent, that too on the condition that contract objects were working satisfactorily.

Further, the contract being a ‘lease’ contract, the ownership of the equipment had to remain with respondent No.2 and was never to be transferred to the appellant. In the aforesaid scenario, argued the learned senior counsel for respondent No.2, respondent No.2 could perform its part of the contract of installation of objects only on furnishing the DTC locations. He argued that the appellant failed to discharge this obligation and, thus, committed fundamental breach of the contract. This has been held so by the Arbitral Tribunal and this very finding was upheld by the High Court as well. Submission was that this being a finding of fact, the breach of contract on the part of the appellant stands established.

38. Elaborating on this aspect, it was contended that the appellant made an unequivocal representation to respondent No.2 on 14.07.1997 that complete lists for DTC locations, including Schedule B-II, are ready with the district offices. Respondent No.2 acted upon the said representation and Civil Appeal No. 10466 of 2017 Page 42 of 65 commenced installation in November 1997. On 20.04.1998, the appellant threatened respondent No.2 with liquidated damages and warned that time will not be extended for installation. This letter glossed over the fact that DTC locations were withheld by the district offices of the appellant.

Both parties were ad idem that time had started to run and installation was to be completed before 18.03.1999 (twenty months from 18.07.1997, i.e. the date of receipt of the letter dated 14.07.1997 from the appellant). Despite rigorous follow up and distress appeals by respondent No.2 through more than 120 letters, the appellant did not furnish complete lists of DTC locations. On 21.12.1998, the appellant directed the work to proceed strictly in the sequence – Kolhapur, Nasik and Aurangabad Zones, with further sequences B-1, B-2 and B-3. The appellant stopped work under B03 indefinitely without assigning any reason. However, even till 19.02.1999, respondent No.2 was not provided with complete list of B-I locations in Kolhapur.

Despite representation of 11.02.1999 from Technical Member of the appellant to give lists within four days, i.e. by 15.02.1999, no lists were received. Realizing the futility of expecting cooperation from the appellant, respondent No.2 terminated the contract on 19.02.1999.

39. It was further submitted that respondent No.2 still ‘offered’ to maintain the 17294 installed objects (however, the appellant was admitting installation of only 7000 contract objects as of July 199, as stated by respondent No.2 in the interim application filed before the Arbitrators), provided that payment was made without demur or dispute – obviously alluding to the financial blockade by NIL performance certificates and fabrication of failure reports. Respondent No.2 gave the appellant seven days to convey if the said “offer” was acceptable. Admittedly, the appellant did not accept the offer and proceeded to make a counter claim against respondent No.2 on the footing that respondent No.2 had abandoned the entire contract on 19.02.1999, including that for installed objects.

40. It was next argued by Mr. Dada that after the disputes were referred to the Arbitral Tribunal, it went into the length and breadth of each issue in minute detail. This Tribunal consisted of eminent retired Judges who scanned through the deposition of witnesses produced before it as well as other documentary evidence. 125 sittings, over a period of five years, were held in the process, which culminated into a fully reasoned and unanimous award dated 18.06.2004 running into 150 pages, as per which the was decided in favour of respondent No.2 and against the appellant. His argument was that most of the submissions of the appellant were questioning the findings of facts only and this Court would not embark on such a journey and decide correctness thereof in exercise of its jurisdiction under Article 136 of the Constitution.

41. We find adequate force in the aforesaid submission of Mr. Dada. Let us first take note of these findings:

FINDINGS OF FACTS:

42. Reasoning contained in the Award reveals following salient findings returned by the Arbitral Tribunal:

(i) The appellant prevented respondent No.2 from performing the contract.

(ii) Respondent No.2 was ready and willing to perform the contract all throughout.

(iii) The appellant chose not to examine any of its Superintending Engineers who were in-charge for giving DTC locations to respondent No.2 and, as found by the Arbitral Tribunal, they were the kingpins of each circle for performance of the contract.

(iv) There is considerable merit in the submission of respondent Civil Appeal No. 10466 of 2017 Page 45 of 65 No.2 that the Minutes of the Meeting dated 24.06.1998 is a fabricated document.

(v) It is not possible to accede to the submission of the appellant that respondent No.2 had adequate lists of locations available and still failed to install the contract objects.

(vi) It is obvious that there is something seriously wrong in the working of the appellant. Once a letter is listed in the affidavit of documents, it is surprising how the letter was not traceable. Be that as it may, the fact remains that prior to the date of termination of contract, at least in three Circles, the appellant had directed stoppage of installation work.

(vii) It is unfortunate that the Head Office of the appellant lacked control over the field offices and which ultimately led to the failure of the project. It is futile to even suggest that the breach was not a fundamental one.

(viii) Respondent No.2 was ready and willing to perform their part of the contract while the appellant committed a breach by failure to supply DTC locations as per the terms of the contract.

(ix) Respondent No.2 invested Rs.163 crores in the project.

(x) The appellant failed to prove that deductions effected in the Civil Appeal No. 10466 of 2017 Page 46 of 65 Performance Certificates were proper.

(xi) The appellant indulged in tampering the commissioning reports produced on record. The attempt does not behove to a statutory body and requires to be deprecated. The attempt made by the appellant by producing documents which are tampered with and which are not genuine indicates that the appellant was willing to go to any extent to make allegations against respondent No.2.

(xii) The appellant did not make available large number of documents disclosed in the affidavit of documents on the ground that the same are not available.

(xiii) Counter claim of the appellant is misconceived and is nothing short of counter blast to the claim made against respondent No.2.

(xiv) It was the appellant and appellant alone who had committed fundamental breaches of the terms of the work order.

(xv) The appellant has raised untenable and unsustainable defences which led to considerable delay in concluding the proceedings. These are findings of facts based upon the material evidence that emerged on the record of the case.

TERMINATION OF CONTRACT WAS VALID AND JUSTIFIED:

43. Categorical findings are arrived at by the Arbitral Tribunal to the effect that insofar as respondent No.2 is concerned, it was always ready and willing to perform its contractual obligations, but was prevented by the appellant from such performance. Another specific finding which is returned by the Arbitral Tribunal is that the appellant had not given the list of locations and, therefore, its submission that respondent No.2 had adequate lists of locations available but still failed to install the contract objects was not acceptable. In fact, on this count, the Arbitral Tribunal has commented upon the working of the appellant itself and expressed its dismay about lack of control by the Head Office of the appellant over the field offices which led to the failure of the contract.

These are findings of facts which are arrived at by the Arbitral Tribunal after appreciating the evidence and documents on record. From these findings it stands established that there is a fundamental breach on the part of the appellant in carrying out its obligations, with no fault of respondent No.2 which had invested whooping amount of Rs.163 crores in the project. A perusal of the award reveals that the Tribunal investigated the conduct of entire transaction between the parties pertaining to the work order, including withholding of DTC locations, allegations and counter allegations by the parties concerning installed objects.

The arbitrators did not focus on a particular breach qua particular number of objects/class of objects. Respondent No.2 is right in its submission that the fundamental breach, by its very nature, pervades the entire contract and once acted committed, the contract as a whole stands abrogated. It is on the aforesaid basis that the Arbitral Tribunal has come to the conclusion that the termination of contract by respondent No.2 was in order and valid. The proposition of law that the Arbitral Tribunal is the master of evidence and the findings of fact which are arrived at by the arbitrators on the basis of evidence on record are not to be scrutinised as if the Court was sitting in appeal now stands settled by catena of judgments pronounced by this Court without any exception thereto6.

44. At this stage, we may deal with the contention of the appellant to the effect that the arbitrators have themselves recorded a finding that the LC was still in operation and had not expired and, therefore, the finding of the Tribunal that the contract was terminated validly was self contradictory. 6 (See – Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49, and S. Munishamappa v. B. Venkatarayappa & Ors., (1981) 3 SCC 260)

45. Though this contention appears to be attractive in the first blush, we find no substance in the same on deeper examination thereof. It was rightly contended by Mr. Dada that the Arbitral Tribunal has held that since the contract was terminated on 19.02.1999, the appellant was not required to renew the LC. In other words, since there was no contract in existence after 19.02.1999, there could not be a breach. It is APT to quote the following discussion from the award of the arbitrators:

“24…The grievance of the Claimants that by not renewing letter of credit which expired on April 30, 1999, the Respondents have committed the breach, cannot be accepted. In the first instance, the Claimants cannot complain about non-renewal of Letter of Credit on April 30, 1999 when the claimants themselves have terminated the contract by notice dated February 19, 1999. Secondly, the claimants have invoked the arbitration on April 13, 1999 and these events having taken place prior to April 30, 1999, there was no point in Respondents renewing Letter of Credit for the benefit of the Claimants.”

46. By the aforesaid analysis, the Arbitral Tribunal did not accept the contention of respondent No.2, which was predicated on non-renewal of the LC. However, the context in which these observations are made is abundantly clear. The Arbitral Tribunal had confined the discussion revolving around the contention of respondent No.2 as to why the LC was not extended even after 30.04.1999. In this hue, it was observed that there was no reason or rationale in doing so when the contract had itself come to an end as it had been terminated by respondent No.2 itself vide notice dated 19.02.1999. It would not follow therefrom that respondent No.2 was wrong in terminating the contract.

Insofar as the termination of the contract is concerned, the Arbitral Tribunal dealt with the issue specifically and on independent examination thereof had came to the conclusion that respondent No.2 was justified in the said action as there were other breaches on the part of the appellant. It is to be borne in mind that non-renewal of LC was not the only breach alleged by respondent No.2, which had asserted various other acts of breach on the part of the appellant. In this behalf, Mr. Dada drew our attention, and rightly so, to the letter dated 18.11.1998 which is contemporaneous to the letter of termination, wherein respondent No.2 categorically alleged fabrication of Commissioning Reports of installed objects and the financial blockade created by the issue of NIL Performance Certificates by the appellant.

This letter is referred to in the letter of 19.02.1999 by incorporating references contained in the letter dated 23.12.1998. Respondent No.2, in its Statement of Claim, has also asserted the harassment and deliberate breach of the appellant in the course of installation of objects such as fabrication of failure reports and Civil Appeal No. 10466 of 2017 Page 51 of 65 commissioning reports, obstructing payments by bogus deductions in performance certificates and other wrong practices of the appellant staff. The serious grievances of respondent No.2 in respect of installed objects were considered at length by the Arbitral Tribunal and accepted the same.

47. We have already referred to these findings hereinabove. Learned senior counsel appearing for respondent No.2 referred to the judgment of this Court in Juggilal Kamlapat v. Pratapmal Rameshwar7 wherein it has been held that repudiation of a contract can be justified on the basis of any ground that existed in fact, even though not stated in the correspondence. Following passage from the said judgment needs a quote:

“23. It was also contended that the defendant not having raised the plea in their correspondence with the plaintiff that the delivery orders tendered were defective, was estopped from justifying their requisition of the contracts on that around. As the High Court has pointed out no case of estoppel was pleaded by the plaintiff and, therefore, it was the plaintiff who should be precluded from raising the question of estoppel. Apart from that, the law permits defendant to justify the repudiation on any ground which existed at the time of the repudiation whether or not the ground was stated in the correspondence. (See Nune Sivayya v. Maddu Ranganayakulu, AIR 1935 PC 67 : 62 IA 89, 98).”

48. One more aspect needs to be adverted to at this stage which incidentally arises in view of the submission of Mr. Vikas Singh, learned senior counsel appearing for the appellant.

49. It was argued that respondent No.2 should have installed objects at least under category B-2, even if there was breach on the part of the appellant in supplying locations for categories B-1 and B-3.

This was refuted by learned senior counsel appearing for respondent No.2 on the round that the Arbitral Tribunal had specifically considered and rejected this argument and the approach of the arbitrators is even upheld by the learned Single Judge as well as the Division Bench of the High Court. We may point out that the Arbitral Tribunal has dealt with this aspect in the following manner: “Datar was asked a specific question as to how the Claimants did not install the contract objects in category B-II and the answer of the witness was in four parts.

The witness claimed that

(a) the contract was entered into considering the commercial efficacy of installing given quantity of B-I and B-III categories to counter balance low revenue from B-II category. The witness claimed that as the Respondents did not supply the list of categories B-I and B-III, the Claimants were entitled to withhold installation of category B-II;

(b) The annually installed at Nasik under B-II category was install at Nasik under B-II category was relatively less obstructive in Nasik Circle;

(c) the locations under category B-II were intervened with locations of categories B-I and B-III and it was practically unviable to install objects of category B-II selectively. The list of B-II category was also required to be re identified by the Respondents separately as was done for the Nasik Circle and

(d) the Respondents unilaterally willingly revoked the permission granted earlier to install simultaneously by letter dated December 21, 1998. Some of the reasons given by the witness cannot be termed as unreasonable in the facts and circumstances of the case. It cannot be overlooked that in respect of installation of objects under category B-II, the Claimants were entitled only to the rates fixed under year 1993 and 1994 contract till the expiration of six year period while in respect of categories B-I and B-III, the lease rentals were considerably high.

In any event, it does not lie in the mouth of the Respondents to urge that the claimants should have installed contract objects under category B-II when specific directions were given on December 21, 1998 to install objects under category B-II only after completion of installation under category B-I. The Respondents claimed that 16,477 locations were available on February 19, 1999 but that is not correct because taking into consideration 10,541 locations of category B-II the available locations out of B-I and B-III categories were 5,932.”

50. The Division Bench dealt with this contention in the following manner: “In our view from the material on record, it is abundantly clear that supply of DTC Lists was a fundamental term of the Work Order and MSEB had miserably failed in complying with the said fundamental term and there was a breach on the part of the MSEB in supplying the DTC locations which eventually prevented DSL from installation of contract objects. It has to be noted here that after the work order was issued by MSEB, DSL had to make necessary arrangements for the purpose of carrying out the process of installation of the contract objects.

This included procurement of raw material from a foreign country, starting the process of manufacturing gadgets, making arrangements for transportation of these contract objects to the places where the said gadgets were to be installed, employment of trained, skilled and other staff, making available vehicles for transporting these contract objects to the DTC location where they were to be installed and, finally, co-ordinating with the Officers of MSEB so that after the contract objects were installed, a Certificate of installation could be given by the Officers of MSEB so that from that point onwards, lease rentals could become payable to DSL.

It has to be borne in mind that the nature of the Work Order was such that it was in the interest of DSL to ensure that the contract objects are installed and certificates to that effect are obtained from the Officers of MSEB. It does not sound to reason that after having invested huge amount of almost Rs 163 crores, as observed by the Tribunal in the Award, DSL would not install the objects because it was in their interest to get the objects installed so that returns on their huge investment would start thereafter. It is inconceivable therefore that though DTC Lists were available, DSL would not install the contract objects.

Various facts and figures were given by MSEB to show that DTC locations were known to DSL and yet they had failed in installing the contract objects is without any substance. It cannot be forgotten that, initially, the sequence of installation was Kolhapur, Nasik and Aurangabad. This sequence was later on changed to Nasik, Kolhapur and Aurangabad. This was again changed and permission was given to DSL to install the objects at any time at any place and, lastly, again, this was changed and direction was given to DSL to adhere to the sequence as per the Work Order.

This being the position, even assuming that B-II Lists were available, DSL could not have installed these contract objects because they were asked to follow the schedule again by letter dated 21/12/1998 and, therefore, even if the lists were available, it was not possible for DSL to simultaneously install all those objects since they were told to adhere to the sequence in the Work Order if the lists of locations under B-I were not given, even assuming that they had B-II lists of locations they could not have and were not actually allowed to install at the said B-II locations. It has come on record that more than 10,000 objects were manufactured and ready for installation.

There is no earthly reason why DSL would fail to install the objects which were inspected and ready for installation. The only obvious reason would be that they were unable to do so on account of various orders which were passed by MSEB from time to time preventing them from performing their obligation. MSEB has not examined any of its Superintending Engineers who were in charge of supplying the Lists. The cumulative effect of all the material which has been brought on record is that it clearly demonstrates the failure on the part of MSEB in supplying the Lists of DTC locations which was a fundamental term of the contract.”

51. We agree with the contention of respondent No.2 that these are pure findings of facts and there is no perversity therein. It may, however, be pointed out that out of 12555 B-2 category objects under the work order, 9515 objects were to be installed in Kolhapur Zone, i.e. 76% of the said category. Vide letter dated 14.07.1997, the Chief Engineer, Kolhapur Zone admittedly directed respondent No.2 to first complete new installation (B-1 and B-3) and only thereafter take up installation under category B-2. The locations for B-1 and B-3 from Kolhapur were admittedly never furnished. Therefore, this contention of the appellant also warrants a rejection.

52. The award of the Arbitral Tribunal having been affirmed by the learned Single Judge as well as the Division Bench of the High Court, that too after dealing with each and every argument raised by the appellant in detail, which is negatived, we hold that Mr. Dada is correct in his argument that there is no question of law which is involved herein and the only attempt of the appellant was to re-argue the matter afresh, which was impermissible.

AWARD OF DAMAGES:

53. Refuting the argument of the appellant that there was no breach in respect of 17294 installed objects and, therefore, no damages were payable in that behalf, Mr. Dada pointed out that the appellant had itself submitted before the Arbitral Tribunal as under: “The respondents submitted that the claimants at the most would be entitled to the costs of the objects installed, i.e. cost of 17294 contract objects. Alternatively it was submitted that the claimants would be entitled to lease rent for reasonable period after deducting the cost of maintenance and taking out of print outs.”

He also pointed out that identical submission is to be found in the written submissions filed by the appellant before the Arbitral Tribunal at para 13. According to him, the arbitrators accepted the said submission of the appellant and awarded damages. The appellant is, therefore, not at all entitled to invoke public policy to challenge the award on the said premise. This aspect has been considered by the Division Bench at para 73, which has already been reproduced above.

54. We see substance in the contention of respondent No.2 and are of the opinion that the appellant cannot now turn around and raise objection to the award of damages which are measured Civil Appeal No. 10466 of 2017 Page 57 of 65 having regard to the loss suffered by respondent No.2 in terms of lease rent for reasonable period for which it would have been entitled to otherwise.

55. That apart, we also find that the Arbitral Tribunal, while awarding the damages, has relied upon the judgment of this Court in Union of India & Ors. v. Sugauli Sugar Works (P) Ltd.8 wherein a cardinal principle of damages had been laid down to the effect that the injured party should be placed in as good a position as money could do as if the contract had been performed. Following passage from the said judgment was kept in mind by the Arbitral Tribunal:

“22. The market rate is a presumptive test because it is the general intention of the law that, in giving damages, for breach of contract, the party complaining should, so far as it can be done by money, be placed in the same position as he would have been in if the contract had been performed. The rule as to market price is intended to secure only an indemnity to the purchaser. The market value is taken because it is presumed to be the true value of the goods to the purchaser.

One of the principles for award of damages is that as far as possible he who has proved a breach of a bargain to supply what he has contracted to get is to be placed as far as money can do it, in as good a situation as if the contract had been performed. The fundamental basis thus is compensation for the pecuniary loss which naturally flows from the breach.

Therefore, the principle is that as far as possible the injured party should be placed in as good a situation as if the contract had been performed. In other words, it is to provide compensation for pecuniary loss which naturally flows from the breach. The High Court correctly applied these principles and adopted the contract price in the facts and circumstances of the case as the correct basis for compensation.”

56. In the instant case, applying the aforesaid principle, the Arbitral Tribunal, for the purpose of classification, considered a 30% reduction in lease rent to compute damages for installed objects, 50% reduction in lease rent to compute damages for manufactured but uninstalled objects and the bare cost of raw materials for the objects not manufactured. No pendente lite interest was awarded, though the proceedings went on for five and a half years. Thus, the Arbitral Tribunal awarded almost the same amount as was invested by respondent No.2 for the project. Interest was awarded only @ 10% per annum from the date of the award as opposed to the prevailing bank rate of about 21%. The aforesaid being a reasonable and plausible measure adopted by the Arbitral Tribunal for awarding the damages, there is no question of interdicting with the same.

57. It may be noted that Mr. Dada had argued that it was incumbent upon the Arbitral Tribunal to take into account the practices of leasing trade when making the award, having regard to the provisions of Section 28(3) of the Indian Contract Act, 1872. He had drawn our attention to Article 13(2) of UNIDROIT Convention on international lease, which stipulates as under: “Where the lessee’s default is substantial, then subject to paragraph 5 the lessor may also require accelerated payment of the value of the future rentals, where the leasing agreement so provides, or may terminate the leasing agreement and after such termination:

(a) recover possession of the equipment; and

(b) recover such damages as will place the lessor in the position in which it would have been had the lessee performed the leasing agreement in accordance with its terms.”

58. In the aforesaid backdrop, we agree with the approach of the High Court in spelling out the proposition of law that once it is established that the party was justified in terminating the contract on account of fundamental breach thereof, then the said innocent party is entitled to claim damages for the entire contract, i.e. for the part which is performed and also for the part of the contract which it was prevented from performing.

We may usefully refer to the following dicta laid down in Suisse Atlantique Societe d’Armament SA v. NV Rotterdamsche Kolen Centrale9: “…if facts of that kind could be proved I think it would be open to the arbitrators to find that the respondents had committed a fundamental or repudiatory breach. One way of looking at the matter would be to ask whether the party in breach has by his breach produced a situation fundamentally different from anything which the parties could as reasonable men have contemplated when the contract was made.

Then one would have to ask not only what had already 9 1966 A.C. 361 (pages 397-398) happened but also what was likely to happen in future. And there the fact that the breach was deliberate might be of great importance. If fundamental breach is established the next question is what effect, if any, that has on the applicability of other terms of the contract.

This question has often arisen with regard to clauses excluding liability, in whole or in part, of the party in breach. I do not think that there is generally much difficulty where the innocent party has elected to treat the breach as a repudiation, bring the contract to an end and sue for damages. Then the whole contract has ceased to exist, including the exclusion clause, and I do not see how that clause can then be used to exclude an action for loss which will be suffered by the innocent party after it has ceased to exist, such as loss of the profit which would have accrued if the contract had run its full term…”

(emphasis supplied)

59. We, thus, do not find any infirmity in the manner in which damages are awarded in favour of respondent No.2.

RE: MITIGATION OF DAMAGES

60. Mr. Rafique Dada also countered the argument of the appellant on mitigation of damages with the submission that this aspect was specifically considered and the contention of the appellant in this behalf was rejected not only by the Arbitral Tribunal but by the High Court as well. He referred to the relevant portion of the discussion in the award as well as the judgments. We find that the Arbitral Tribunal has dealt with this aspect and held that the contract objects were custom built in the following manner:

“55. Respondents submitted that the Claimants did not make any efforts to mitigate the loss suffered. The submission is without any merit for more than one reason. In the first instance, the contract objects manufactured in pursuance of the orders of the Respondents were custom built i.e. to the specifications laid down by the Respondents and these contract objects cannot be disposed in open market. Datar deposed with reference to Exh. C 16 that efforts were made to sell the contract objects stranded in the factory to other Electricity Boards but those efforts did not succeed. It was contended by the Respondents that the claimants should have dismantled the stranded contract objects and sold the components thereof. The submission is only required to be slated to be rejected. Once an electronic instrument is dismantled, then the value almost becomes nil. In any event, the Claimants have established that efforts were made to mitigate the loss.”

61. The learned Single Judge as well as the Division Bench of the High Court has given its imprimatur to the aforesaid findings. It, therefore, becomes apparent that the objects in question were manufactured by respondent No.2 to suit the specific needs of the appellant ad they could not be used otherwise. Therefore, there was no possibility on the part of respondent No.2 to make an endeavour to dispose of the same in order to mitigate the loses.

RE: WAIVER

62. The argument of the appellant on waiver is also successfully met by respondent No.2. Submission of Mr. Dada, Civil Appeal No. 10466 of 2017 Page 62 of 65 on this argument, was that both parties went to trial before the Arbitral Tribunal on the basis that the time to start work under the contract had commenced with reference to letter dated 14.07.1997 of the appellant signed by the Chief Engineer who was the competent authority under the contract. The same Chief Engineer insisted, by letter dated 20.04.1998, that liquidated damages would be imposed if the work was not completed in time.

We may point out that the Arbitral Tribunal considered and rejected this argument of waiver, as set up by the appellant, in the following words: “18… It was then contended that the Claimants had waived the right to receive the lists of locations from the Respondents. By reference to clause 5.1 of the work order, it was submitted that the Claimants were to commence installation within four months from (a) the date of the work order;

(b) opening of Letter of Credit and (c) on receipt of complete list of locations, whichever is later. It was contended that the Claimants were entitled to wait till all the lists were supplied to installation, but as the Claimants commenced installation even though the entire lists were not supplied, it should be concluded that the Claimants have waived their right. The submission is desperate and wholly unfair. The Respondents were in a hurry to complete the installation within a period of 20 months with an object to save the large amount lost due to loss of energy.

Merely because the Claimants acted in a reasonable manner and did not insist upon the terms of the contract, it is absurd to suggest that the Claimants waived their right to complain about non-supply of lists of locations. It was then submitted that the Claimants had installed contract objects on the oral instructions and on the basis of chits issued by some of the Officers of the Respondents and that was contrary to the terms of the work order which provided that installation should be only on locations, the lists of which are given in accordance with the format at Annexure ‘E’ to the work order. It was also submitted that on 155 locations at Jalgaon, Dhule and Aurangabad, the lists were received by the Claimants from Authorities who were not competent to issue such lists.

The submission has no merit because while undertaking such a huge project, the parties were not keen on strict compliance of each and every term and condition of the contract. Such an instance would have defeated the contract at once because the contract had to be carried out over a large area and with the interaction of large number of people. These factors cannot establish that the claimants have waived their right to complaint about the failure to supply lists of location…”

63. Mr. Vikas Singh, learned senior counsel appearing for the appellant, referred to and relied upon various judgments in support of his contention. These judgments deal with the scope of interference in the awards passed by the arbitrators. It is not even necessary to deal with these judgments inasmuch as, on the facts of this case, as discussed in detail hereinabove, none of the judgments gets attracted. Likewise, effort on the part of the appellant to rely upon the judgment of the learned single Judge of the High Court in the first round is futile as that was set aside by the Division Bench and matter was remitted back to the single Judge of the High Court to decide it afresh.

RE: ORDER ON CHAMBER SUMMONS

64. Three chamber summons were taken out by the appellant during the pendency of this appeal before the Division Bench. By these chamber summons, the appellant intended to amend the petition which was filed by it under Section 34 of the Act as well as the appeal. The High Court after detailed discussion in the impugned judgment rejected these summons. We find that the amendment sought was highly belated. Arbitration petition filed under Section 34 of the Act was sought to be amended after a delay of eight years. Further, the amendment in the appeal, taking those very grounds on which amendment in the arbitration petition was sought, was sought after a delay of 3 1/2 years. The High Court, thus, rightly rejected these summons and it is not necessary to have any elaborate discussion on these aspects.

65. In the ultimate analysis, having found no merit in any of the arguments raised by the appellant, the appeal is dismissed with costs.

 (A.K. SIKRI)

 (ASHOK BHUSHAN)

NEW DELHI;

JANUARY 18, 2018