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Himachal Pradesh High Court · body

2002 DIGILAW 172 (HP)

H. D. S. I. D. C. v. R. P. VERMA

2002-06-24

K.C.SOOD

body2002
JUDGMENT Kuldip Chand Sood, J.—These objections, under Section 34 of the Arbitration and Conciliation Act, 1996 (Act for short) have been laid by the Himachal Pradesh State Industrial Development Corporation (HPSIDC for short) for the setting aside of the award made by Shri PC. Dhiman, Arbitrator (Director of Industries, H.R) dated April 28, 2001. 2. It appears, HPSIDC invited offers for the allotment of Industrial Plots, at Industrial Area, Baddi, in the year 1985. M/s. Ashoka Steels Ltd./ a partnership firm, respondent herein, applied for the allotment of plot(s) on April 15, 1985. HPSIDC issued letter of intent for the allotment of the plots on November 17, 1986. HPSIDC decided to allot the industrial plots No. 41 and 42 to the respondent firm on June 4,1987 subject to the execution of the agreement. The possession of the plots was to be handed over to the respondent firm after the execution of the agreement. The agreement was not executed till February 28, 1995. The possession of the plots was handed over to the respondent firm on March 4, 1995. HPSIDC on April 16,1995, issued notice to the respondent-firm saying that firm was required to start the construction work within thirty days of the handing over of the plot and the firm had not started the construction within the stipulated period. Correspondence was exchanged between the HPSIDC and the respondent firm. HPSIDC granted extension to the respondent firm to set up the unit by one year. Further two extensions of one year each were granted by the respondent firm by the HPSIDC. On October 17, 1998, HPSIDC resumed the plots which were allotted to the respondent-firm on the grounds that the agreements between the parties were signed on February 28, 1995, the possession of the plots was handed over to the respondent-firm on March 4,1995 and as per the agreement, the respondent firm was required to set up the unit on the plots by August 27, 1995, i.e., within six months from the date of agreement and in spite of extensions, the unit was not set-up. 3. Feeling aggrieved, the respondent firm, on December 10,1998 moved Secretary (Industries) to the Government of Himachal Pradesh to nominate Arbitrator in terms of Clause 6(xv) of the Contract agreement dated February 28, 1995. 3. Feeling aggrieved, the respondent firm, on December 10,1998 moved Secretary (Industries) to the Government of Himachal Pradesh to nominate Arbitrator in terms of Clause 6(xv) of the Contract agreement dated February 28, 1995. The Secretary (Industries) on February 24, 1998, nominated Shri R.K. Jain, Director of Industries, as the sole arbitrator, to arbitrate the dispute arising between the parties. During the pendency of the arbitration proceedings, Shri R.K. Jain, (Arbitrator) was transferred. Subsequently, the Director of Industries was nominated as sole arbitrator by the Secretary (Industries) to the Government of Himachal Pradesh. The Arbitrator made the award on April 28, 2001. 4. The case of the respondent firm was that the action of the HPSIDC, in resuming the plots vide orders dated October 17, 1998, was wrong, illegal and in violation of the contract agreement dated February 28, 1995. It was the case of the respondent-firm that the firm was required to set up the unit within three years from the date of delivery of the possession and the firm was entitled to further extension of three years. The extension charges were wrongly claimed and retained by the HPSIDC. The claim was resisted by the HPSIDC. The case of the HPSIDC was that the respondent firm, under the contract agreement, was requried to put up the Industrial unit within six months of the date of handing over of the possession. The respondent firm could not raise the construction of the unit even after three years of extension and therefore, the plots were rightly resumed by the HPSIDC. 5. The arbitrator found that the respondent firm in fact was required to put up its unit within three years from the date of handing over of the possession of the plots to respondent firm. The possession was handed over to the firm on March 4, 1995; therefore, the unit was to be completed by March 4, 1998. The arbitrator made an award that the three extensions of one years each granted to the respondent should be considered to have been granted after March 4, 1998 and therefore, the unit should come into production before March 4, 2001. The Arbitrator also held that the plot was cancelled on October 17, 1998 and the arbitration clause was invoked on December 26, 1998. The Arbitrator also held that the plot was cancelled on October 17, 1998 and the arbitration clause was invoked on December 26, 1998. Therefore, the period from the date of cancellation to the date of the award is to be excluded and, therefore, the respondent firm was required to complete the unit before March 15, 2003. 6. The award is assailed by the HPSIDC on the grounds: (a) The award of the Arbitrator is not informed by reasons as required under Section 31 of the Act; (b) The impugned award is against the terms of the contract agreement between the parties and as such, against the Public Policy of India; (c) The arbitrator settled eight issues but while making the award, confined only to one issue and, therefore, the award would be contrary to the Public Policy of India; (d) The parties were not afforded an opportunity to cross-examine the deponent of the affidavit(s) of the opposite party. 7. The respondent firm in its reply submitted: (a) The application was not maintainable as no ground under Section 34 of the Act for setting aside of the award is made out; (b) The Objector HPSIDC was given full opportunity of hearing and at no point of time, the objector sought to cross-examine the deponents; (c) The respondent firm was required to set up the unit within three years of the handing over of the possession of the plots to the firm. The space in Clause 5 regarding the time for the installation of the unit, of the contract agreement was left blank when the agreement was signed and it was later on that the HPSIDC inserted "six months period" in the blank space in Clause 5 of the contract agreement though all connected papers including draft agreement sent by the HPSIDC to the respondent firm stipulated a period of three years for setting up the unit from the date of possession. 8. I have heard Mr. J.S. Bhogal, learned Senior Counsel assisted by Ms. Preeti Sethi for the objectors and Mr. Kuldip Singh Sr. Advocate assisted by Mr. Jatinder Thakur, for the respondent. 8. I have heard Mr. J.S. Bhogal, learned Senior Counsel assisted by Ms. Preeti Sethi for the objectors and Mr. Kuldip Singh Sr. Advocate assisted by Mr. Jatinder Thakur, for the respondent. The questions, which arise for consideration, are : (a) Whether the impugned award made by the Arbitrator is not informed by reasons as required under Section 31 of the Act; (b) Whether the award as it stands is against the Public Policy of India and, therefore, liable to be set aside under Section 34(2)(b)(ii) of the Act. 9. Sub-section (1) of Section 34 of the Act provides for the setting aside of the Award by the Court on an application made by an aggrieved party, if the award suffes from .the vice as specified in sub-section (2). Section 34 of the Act may be reproduced for convenience : "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). Section 34 of the Act may be reproduced for convenience : "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 subject 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 the 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 Public Policy of India. Explanation.—Without prejudice to the generality of sub-clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the Public Policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81. Explanation.—Without prejudice to the generality of sub-clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the Public Policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81. (3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under Section 33, from the date on which that request had been disposed of by the arbitral tribunal: Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days but not thereafter. (4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of the arbitral tribunal will eliminate the grounds for setting aside the arbitral award.” 10. It may be noticed that arbitral award is not open to challenge save and except on the grounds specified under sub-section (2) of Section 34 of the Act read with grounds stated under Sections 13 and 16 of the Act. The party who challenges the award must satisfy the Court that the grounds as contemplated under sub-section (2) of Section 34 of the Act exist and the arbitral award is liable to be set-aside, the onus lies heavily on the party who seeks the setting aside of the arbitral award : (a) Whether the impugned award made by the Arbitrator is not informed by reasons as required under Section 31 of the Act? 11. Mr. Bhogal, learned Senior Counsel for the HPSIDC submits that under Section 31 of the Act, arbitral award has to be in writing and must state the reasons on which such an award is made. 11. Mr. Bhogal, learned Senior Counsel for the HPSIDC submits that under Section 31 of the Act, arbitral award has to be in writing and must state the reasons on which such an award is made. It is true that arbitral award is contemplated to be made, under Section 31 of the Act, in writing, signed by all the members of the arbitral Tribunal and it must state the reasons on which such award is based unless the parties had agreed that no reasons were required to be given by the arbitrator or the award is made on settlment between the parties on agreed terms. 12. It may be noticed that under the 1940 Act, there was no provision, which provided that Arbitrator should give reasons for the award. In the present case, the arbitrator has given detailed reasons for his conclusion. The Arbitrator in his award observed that the counsel for the HPSIDC was asked to indicate as to how much period is provided for completing the construction work by a unit under the Policy of the Corporation or rules. The counsel for the Corporation could not give any satisfactory answer. The arbitrator took note of the Scheme of the allotment of Industrial plots at Baddi inviting offers for the allotment of the plot (Annexure-Rl to the reply of the respondent firm). Under the head "other terms and conditions", it is stipulated that allottee shall start construction of buildings/sheds for setting up industry within a period of one year and complete the installation of the proposed, units within 3 years. The relevant portion of the Scheme reads : ".....The allottees shall start construction of buildings/sheds for setting up industry within a period of one year and complete the installation of the proposed units within 3 years after complying with all the Rules and Regulations of State Government, failing which the plots shall be liable to be resumed by the Corporation.” 13. The HPSIDC allotted the industrial plots to the respondent firm on June 4, 1987 (Annexure R3). It was stipulated in the letter of allotment that allottee should communicate the acceptance of the terms and conditions of the allotment contained in the draft agreement. It was further stipulated that agreement with the Corporation was required to be executed before the possession of the plot could be delivered to the allottee. The relevant para 5 of the letter reads: "5. It was further stipulated that agreement with the Corporation was required to be executed before the possession of the plot could be delivered to the allottee. The relevant para 5 of the letter reads: "5. You are requested to communicate your acceptance of the terms and conditions of allotment contained in the draft agreement. The agreement with the Corporation is required to be executed on non-judicial stamp papers of Rs. 3 (Rs. three) only purchased from any Treasury of Himachal Pradesh in- your name before the possession of the plot could be delivered to you." 14. Clause 5 of the draft agreement sent to the allottee stipulated that within three years of the taking of the possession of the plot by the allottee, several conditions were to be fulfilled. Condition (a) was that the allottee shall erect the industrial building as per approved building plans by the HPSIDC within three years. The Arbitrator took into consideration this clause and concluded that the building was to be erected and unit installed within three years of the handing over of the possession to the respondent firm. The Arbitrator reasoned : "The dispute has arisen on the basis of this resumption order. The petitioner has submitted that when the plots were advertised, the Corporation had indicated that the allottee shall complete the installation of the unit within 3 years. The draft agreement sent by the Corporation indicated that the allottee shall complete the erection and installation of machinery and start production within 3 years. Even the letter dated 27.7.1990 of the Corporation indicated 3 years for completion of the unit". The arbitrator observed in his award : ".....The Corporation is a body to promote the industrial development of the State and it is governed by the rules and procedure approved by it. It is clear in this case that a period of only 6 months was provided but there is no authority with the Corporation to lower this period from 3 years....." The arbitrator proceeded to observe: ".....Even in its reply to the petition to para 5 the Corporation admits that the petitioner was required to complete the building and commence production within stipulated period, i.e., 3 years. Further in reply to para 7 the Corproation submits that the petitioner was required to develop the plot and complete the building etc., within a period of 1 year and complete the installation of the unit within 3 years on different occasions." 15. By no stretch, it can be said that the award of the Arbitrator is not informed by reasons. 16. The Apex Court in Arosan Enterprises Ltd. v. Union of India and another, (1999) 9 Supreme Court Cases 449, pointed out that the Court would not interfere with an award howsoever faulty the reasoning may be unless the award was totally perverse or the judgment was based on wrong proposition of law. The Apex Court proceeded to observe that even if two views were possible on a question of law, the Court would not be justified in interfering with the award of the arbitrator if the view taken by the arbitrator is possible view. In this case, it cannot be said that the award of the arbitrator is bereft of reasons : (b) Whether the award as it stands is against Public Policy of India and therefore, liable to be set aside under Section 34(b)(ii) of the Act? 17. The expression "public policy" or "opposed to public policy" is not defined either in the Arbitration Act or the Contract Act, 1872. These expressions in fact are incapable of precise definition. What the expression connotes is that the "Public Policy of India" would be which concerns the larger public interest or the public good. Lord Davey in Janson v. Driefontein Consolidated Mines Ltd., 1902 AC 484, stated: "Public Policy is always an unsafe and treacherous ground for legal decision" 18. Broadly speaking, "public policy" would be "policy of law". Therefore, whatever tends to obstruct the justice or violates a statute whatever is against the good morals would be against the public policy. The Apex Court in Central Inland Water Transport Corporation Ltd. and another v. Tarun Kanti Sengupta and another, AIR 1986 Supreme Court 1571 in para 93 of the judgment observed: "93. The 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. The 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-recognized head of public policy, the courts have not shirked from extending it to new transactions and changed circumstances and have not shirked from extending it to 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 even has the voice of the timorous spoken more clearly and loudly than in these words of Lord Davey in fanson v. Driefontein Consolidated Mines, Limited, (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, Burroubgh, J., in Richardson v. Mellish, (1824) 2 Bing 229, 252 SC 130 ER 294, 303 and (1824-34 All ER Reprint 258, 266). described public policy as "a very unruly horse, and when once you get astride if 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. v. Football Association Ltd., (1971) Ch. 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. v. Football Association 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 Holds worth 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." 19. Explanation (b) of sub-section (2) of Section 34 Act qualifies that in addition to generality of the meaning and content of "Public Policy of India" any award which is induced or affected by fraud or corruption or was in violation of Section 75 or 81 of the Act would be against the Public Policy of India. 20. Explanation (b) of sub-section (2) of Section 34 Act qualifies that in addition to generality of the meaning and content of "Public Policy of India" any award which is induced or affected by fraud or corruption or was in violation of Section 75 or 81 of the Act would be against the Public Policy of India. 20. It is not the case of the HPSIDC that the award was result of any fraud or corruption or was contrary to the provisions of Section 25 or Section 81 of the Act. 21. Now viewing the concept of "public policy", on the touchstone noticed above, the contention of Mr. Bhogal that the award made by the Arbitrator is against the terms of the contract agreement between the HPSIDC and the respondent firm and therefore, against Public Policy of India has no force. As seen earlier, draft contract agreement and the Scheme of allotment unambiguously stipulated that the respondent firm was required to erect and set up the unit within] three years of the taking of the possession of the plots. Apparent as it is, the HPSIDC was wrong in insisting that respondent firm should complete the erection of the structure and set up the unit within six months of the taking over the possession of the plot. This apart, the contention of Mr. Kuldip Singh learned Senior Counsel for the respondent firm that the agreement, which was signed by Mr. R.P. Verma on behalf of the respondent firm and by the Superintending Engineer on behalf of the HPSIDC, did not, in fact, stipulate that the allottee respondent firm would erect the industrial building within six months of the agreement under Clause 5 of the agreement and the blank space stipulating the period by which unit was to be set up was left blank and was filled up later on by some person is well founded. The original agreement, on the direction of this Court, was produced in the Court. It was found that in Clause 5 of the agreement, the words "six" filled in the blank space were in different ink and different handwriting than the ink and handwriting with which other blank spaces in the agreement were filled. There is no scope of dispute that originally space in Clause 5 of the agreement was left blank and it was filled later on. There is no scope of dispute that originally space in Clause 5 of the agreement was left blank and it was filled later on. It is also apparent from the copy of the contract agreement filed by the respondent firm. 22. In the circumstances, it cannot be said that the award made by the arbitrator was against the terms of the contract agreement between the parties. In any event, the arbitrator interpreted the provisions of the Contract agreement in context with the provisions of the Scheme of the allotment of the plot and the draft agreement sent to the respondent firm alongwith the letter of allotmnt as also the reply filed to the claim of the respondent firm by the HPSIDC before the arbitrator. Such an interpretation is not open to challenge under Section 34 of the Act. 23. In my view, if an arbitrator merely interprets the provisions of the contract agreement, then the award cannot be interfered with under Section 34 of the Act. 24. In Associated Engineering Co. v. Government of Andhra Pradesh, AIR 1992 SC 232, the Apex Court observed that the arbitrator cannot act arbitrarily and irrationally or independent of the provisions of the contract agreement. In HFSEB v. RJ. Shah and Company, JT 1999 (3) SC 151, the Apex Couri considering the scope of interference under Section 34 of the Act held that scope of interference was limited and the court would not interfere with the award made by an arbitrator eveia if the claim was unjustified and it is within the powers of the Arbitrator to construe the provisions of the Contract agreement. The construction placed by an arbitrator to the provisions of the contract agreement cannot be said to be without jurisdiction as the arbitrator is required to interpret the terms of the contract. Therefore, the decision of the arbitrator on such interpretation would be final and binding on the parties. 25. Mr. Bhogal, learned Senior counsel then contended that the arbitrator settled eight issues but confined his findings only to one issue. Therefore, the decision of the arbitrator on such interpretation would be final and binding on the parties. 25. Mr. Bhogal, learned Senior counsel then contended that the arbitrator settled eight issues but confined his findings only to one issue. It is true that the arbitrator on January 10, 2000 settled seven issues for determination but during the course of arguments, the petitioner only pressed issue No. 1 and gave up the other issues on the ground that the purpose will be served if the decision is given only on issue No. 2, i.e., the time limit by which the building was to be constructed by the respondent firm. It is in this context that the findings were confined to issue No. 2 regarding the time limit by which the unit was required to be set up. The arbitrator observed : "During the course of arguments, the petitioner agreed that the purpose of the arbitration would be served if the decsion on Issue No. 2 is given and he is given three years for putting up the unit without extension and he did not press the issue issues. 26. Otherwise also, the only dispute between the parties was whether the respondent firm was required to set up the unit within six months of taking over of the possession of the plots or in three years as contended by the respondent firm. In the circumstances, no illegality was committed by the arbitrator in confining his findings to this issue alone. 27. The last contention of the learned Senior Counsel for the HPSIDC was that the HPSIDC was not afforded an opportunity to cross-examine the deponents who filed affidavits in support of the respondent firm. There is no merit in the argument. There is nothing on the record to suggest that the HPSIDC sought to cross-examine the deponent(s) who filed affidavit(s) in support of the claim of the respondent firm. 28. To conclude, the objections raised by the HPSIDC are ill founded and not tenable. The award is not liable to be set-aside on any of the grounds taken by the HPSIDC. The questions are accordingly answered. 29. In result, the objections fail and are dismissed. 30. 28. To conclude, the objections raised by the HPSIDC are ill founded and not tenable. The award is not liable to be set-aside on any of the grounds taken by the HPSIDC. The questions are accordingly answered. 29. In result, the objections fail and are dismissed. 30. It is clarified that the time lost in the litigation before this Court, in the present petition, shall be excluded from time given by the arbitrator to the respondent firm to set up the unit in the allotted plots. 31. There would be no order as to costs. O.M.P. dismissed.