JUDGMENT : MR.JUSTICE AKIL KURESHI, J. 1. This appeal is filed by Krishak Bharati Cooperative Limited (“KRIBHCO” for short) challenging the judgment of the learned Additional District Judge, Surat, dated 11.05.2015 by which he rejected application of the appellant filed under Section 34 of the Arbitration and Conciliation Act, 1996 for setting aside the arbitral award. 2. Facts are as under. The appellant-KRIBHCO desired to engage an agency for providing luxury buses for excursion of the employees and family members to various places in and around Gujarat. After inviting bids from interested tenderers, KRIBHCO awarded contract to the respondent-M/s. S.R.Travels, under a work order dated 29.10.2002. Description of the work order was as under: SR. NO. DESCRIPTION QTY. UNIT RATE (RS.) TOTAL AMOUNT (NOT EXCEEDING) (RS.) 01 HIRING OF 52/56 SEATER SEMI LUXURY BUSES OF 2000 AND ABOVE YEAR MODEL FOR EXCURSION TRIPS TO GUJARAT AND/OR ADJOINING STATES. AS PER SOR AS PER SOR 20,00,000-00 TOTAL VALUE 20,00,000-00 RUPEES TWENTY LACS ONLY. 3. The Work Order was valid for a period of one year from 29.10.2002 till 28.10.2003. The schedule or rates which formed part of the work order provided as under: SCHEDULE OF RATES FOR HIRING OF 52/56 SEATER SEMI LUXURY BUS OF MODEL 2000 AND ABOVE FOR EXCURSION TRIPS TO GUJARAT AND/OR ADJOINING STATES. Description Rates (A) Tour Route Excursion trip to any destination in the State of Gujarat, Maharashtra, Rajasthan, M.P., Daman & Diu etc. for 600 Kms/1200 Kms for 2 days/4 days including journey time and can be extended for additional 3-4 days. (B) Fixed lumpsum charges for 600 Kms journey for 2 days inclusive of journey timings & all related cost but exclusive of RTO Tax of other than Gujarat States. Rs.8,700-00 (C) Fixed lumpsum charges for 1200 Kms journey for 4 days inclusive of journey timings & all related cost but exclusive of RTO Tax of other than Gujarat States. Rs.16,800-00 (D) All inclusive Charges for extra Kms beyond 600 Kms/1200 Kms respectively. Payment is to be made on actual kms traveled beyond 600/1200 kms, subject to minimum 300 kms. per day basis beyond 2/4 days respectively. Rs.14.10 per kms. 4. Rs.16,800-00 (D) All inclusive Charges for extra Kms beyond 600 Kms/1200 Kms respectively. Payment is to be made on actual kms traveled beyond 600/1200 kms, subject to minimum 300 kms. per day basis beyond 2/4 days respectively. Rs.14.10 per kms. 4. The work order also contained an attachment containing general terms and conditions, relevant conditions being the following: “(e) Work Order means the Work Order to be issued by the Owner and accepted by the Contractor, and subsequent amendments agreed between the Owner and the Contractor, in writing. 11.0 The Contractor shall ensure disciplined behaviour and good conduct amongst its staff/workers inside the plant. If any one found violating the norms of discipline and good conduct the Contractor shall be liable to take disciplinary action for the same as per the provisions contained in Model Standing Orders under Industrial Employment (S.O.) Act 1946. 15. In case of failure on the part of the Contractor to complete the Work as per the scope of work defined in the Work Order, and/or failure to fulfill any of the terms and conditions of the Work Order, the Security Deposit of the Contractor shall be forfeited and remaining unexecuted Work shall be got done through another contractor at the risk and cost of the Contractor. All related cost incurred by the Owner on this account shall be recovered from the dues payable under this Work Order or any other dues of the Contractor. 16.1 The Owner, due to any reason whatsoever it may be, at any time by giving notice in writing to the Contractor, may terminate the Work Order.” 5. The work order also contained an attachment containing commercial terms and conditions, relevant portion of which reads as under: “5.1 The quantities indicated in the Schedule of Rates are approximate only and may vary to any extent. The maximum ceiling shall be plus 10% over the contract value. The rates/prices quoted by the Contractor shall remain firm, except for the escalation if any as provided in the Work Order, through out the Contract Period including extended period.” 6. The work order contained an attachment specifying specific terms and conditions, relevant portion of which reads as under: “(1) The contractor will provide semi-luxury buses of model 2000 and above. The bus below model 2000 and capacity less than 52/56 seater is not acceptable to KRIBHCO. The work order contained an attachment specifying specific terms and conditions, relevant portion of which reads as under: “(1) The contractor will provide semi-luxury buses of model 2000 and above. The bus below model 2000 and capacity less than 52/56 seater is not acceptable to KRIBHCO. (9) KRIBHCO will be hiring required number of buses on need basis for the present. KRIBHCO as its sole discretion may engage two or more contractors for the entire duration of contract. (13) The scope of work includes supply of required number of 52/56 seater semi luxury bus of model 2000 & above in up to date condition on hire basis. The bus below model 2000 and capacity less than 52/56 seater is not acceptable to KRIBHCO. In case of bus supplied of below model and standard, penalty shall be imposed as per the respective penalty clauses. (16) Contractor has to follow all safety norms and KRIBHCO shall not be responsible for any accident caused to the passengers and persons employed by the Contractor. (17) All the excursion trips shall originate & terminate from KRIBHCO Township. The duty slip giving Entry/Exit timings in Township shall be got filed and signed by the Security Personnel at Main Gate. (18) PENALTIES: (A) If the contractor fails to provide the buses and/or bus does not report for duty a penalty of RS.5,000/per such instance shall be levied. (B) The contractor will provide semi-luxury buses of model 2000 and above. The bus below model 2000 and capacity less than 52/56 seater is not acceptable to KRIBHCO. In case of emergency, to keep the continuity of the work, if the bus supplied of below model, the penalty shall be imposed @ RS.1,000/for the model of the bus below stipulated model as above. (C) The contractor will ensure that his Driver/Staff do not misbehave with the passengers. In case of such incidents, a penalty of RS.500/per incident will be imposed and recovered from Contractor’s bills.” 7. During the course of working out the contract, KRIBHCO awarded work to the contractor for a total value of Rs.4.86 lakhs up to 18.09.2003. Multiple disputes had arisen between the two sides regarding the performance of the contract, which included the ability of the contractor to provide the required number of buses at short notice, the competence and behaviour of the drivers employed to drive the buses and other related issues. Multiple disputes had arisen between the two sides regarding the performance of the contract, which included the ability of the contractor to provide the required number of buses at short notice, the competence and behaviour of the drivers employed to drive the buses and other related issues. According to KRIBHCO, on certain occasions, the contractor could not provide the required number of buses, forcing employees and their families to cancel their trips at the last moment. On certain occasions, the bus drivers were found driving buses in rash and negligent manner. According to KRIBHCO, instances were there where the employees and family members had to walk long distance, since due to the reasons attributable to the contractor, the buses could not travel further. The contractor, of course, disputes all these allegations. The stand of the contractor is that he had been doing business with KRIBHCO since several years. He had made complaints about irregularity in awarding the contract for favouring staff members of KRIBHCO on regular basis, which was the reason for false allegations being levelled against him. 8. Be that as it may, KRIBHCO passed an order on 12.12.2003 under the heading “Work Order Amendment”. Two significant amendments made were that the Work Order, which was originally envisaged of Rs.20 lakhs, was reduced to Rs.4.86,731/and secondly, KRIBHCO cancelled the work order with effect from 18.09.2003 and placed the contractor in blacklist. The contractor thereupon, after correspondences with KRIBHCO, resorted to arbitration, which was the mode of resolution of disputes under the work order. In the Statement of Claim, he complained of the treatment meted out by KRIBHCO by asking him to provide 13 or 14 buses at short notice of less than 12 hours. He also contended that the action of blacklisting was taken without affording any opportunity of hearing, which according to him resulted into reduction of the contract value by Rs.15,13,269/. He raised total claim of Rs.99,43,914/, which comprised of the following: 1 15,13,269=00 Being the amount reduced from the original contract value 2 20,65,000=00 Being the amount invested due to purchase of new Buses 3 1,00,00=00 Being the amount of Bank Guarantee, which is not returned to the applicant but encashed illegally by the opponent. 4 50,00,000=00 (Rounded Approximate amount) caused due to loss of business, by putting the applicant on Black List. 4 50,00,000=00 (Rounded Approximate amount) caused due to loss of business, by putting the applicant on Black List. 5 12,65,645=00 Being amount of Interest/Loss of Interest or damages on the above amount. 99,43,914=00 Total (Rupees Ninety Nine Lacs Forty Three Thousand Nine Hundred Fourteen Only) 16.1.2018 9. KRIBHCO appeared before the arbitrator and filed a written statement. In such reply, several instances were cited where the contractor had failed to supply the requisite buses and in proper condition. Detailed reasons were cited for termination of the contract before the period. Instances were mentioned where the contractor had failed to perform his duties satisfactorily. According to KRIBHCO, buses supplied by the contractor, at times, were in bad condition. On one occasion the bus was detained at Maharashtra border by the RTO authorities since the travel permit had expired. The driver of the bus did not have sufficient amount to pay the penalty imposed. The passengers i.e. the employees of KRIBHCO, had to raise money and pay the penalty. Due to such reasons, the period of contract was reduced to 18.9.2003 instead of originally envisaged period upto 28.10.2003 and the amount of contract was revised to Rs.4,86,731/. 10. The arbitrator passed the award on 25.11.2011 and awarded a sum of Rs.39,00,000/to be paid by KRIBHCO to the contractor with interest at the rate of 9% per annum from the date of the award till payment. The additional amount of Rs.9 lacs was awarded towards interest pendente lite till passing of the award. The arbitrator was of the opinion that the contractor had neither failed to perform his contractual obligations nor had violated the terms and conditions of the contract. The act of termination of the contract by KRIBHCO and the unilateral amendment of the work order was arbitrary, illegal and without hearing the contractor. The action of KRIBHCO of blacklisting the contractor had adverse impact. Due to such actions, the business of the contractor was ruined and he lost his business. He had to dispose of the buses purchased for this very contract. Based on such conclusions, the arbitrator awarded compensation under different heads as under : (i) A sum of Rs. 10,00,000/was awarded on the ground that the contractor had purchased new buses for this very contract by making sizeable investment. He had to dispose of the buses purchased for this very contract. Based on such conclusions, the arbitrator awarded compensation under different heads as under : (i) A sum of Rs. 10,00,000/was awarded on the ground that the contractor had purchased new buses for this very contract by making sizeable investment. Because of the termination of the contract, he had to sell off such buses which would result into loss which was quantified at Rs. 10,00,000/. (ii) The arbitrator was of the opinion that the contractor should be compensated for loss of profit at the rate of 15% of the total value of the contract i.e. Rs. 20,00,000/. Sum of Rs. 3,00,000/was therefore, awarded under this head. (iii) The arbitrator referred to the fact that the contractor was blacklisted. This resulted in the loss of business of the contractor. For loss of business, therefore, sum of Rs. 25,00,000/was awarded. (iv) The arbitrator also ordered return of the security deposit of Rs. 1,00,000/and that is how, a total sum of Rs. 39,00,000/was awarded as principal compensation along with interest pendente lite as well as future interest. 11. KRIBHCO applied to District Court for setting aside the award. Civil Misc. Application filed for such purpose, however, came to be dismissed by order dated 11.5.2015. Learned Judge was of the opinion that KRIBHCO had failed to prove that the award was against or opposed to public policy of India. He was of the opinion that award was passed on proper estimation of loss to the contractor. 12. We have heard learned advocates for the parties at considerable length and perused the documents on record. Before addressing different heads under which the compensation has been awarded by the arbitrator, we may refer to the general materials on record. As noted, KRIBHCO had awarded the contract for supplying passenger buses for the trips of its employees. Under such contract, the contractor would supply requisite number of buses as required by KRIBHCO. Such buses must be of model of year 2000 and upwards. Despite awarding the contract, KRIBHCO had discretion to award the work to engage other contractors. If the contractor failed to provide buses as desired, he would be visited with penalty. Total amount of contract was indicated as not exceeding Rs. 20,00,000/. Such buses must be of model of year 2000 and upwards. Despite awarding the contract, KRIBHCO had discretion to award the work to engage other contractors. If the contractor failed to provide buses as desired, he would be visited with penalty. Total amount of contract was indicated as not exceeding Rs. 20,00,000/. From the terms and conditions of the work order, it can thus be seen that it was not obligatory on part of KRIBHCO to place the order for supply of specific number of buses during the contract period. Even sum of Rs. 20,00,000/indicated in the work order was upper limit and not meant to be affixed minimum or committed value of the contract to be so awarded. By the action, which the contractor has challenged, KRIBHCO principally decided not to place any further order of the buses with the contractor after 18.9.2003 and thereby curtailed the period of contract from 28.10.2003 as originally envisaged. By the time KRIBHCO thus decided to terminate the contract earlier, only five weeks of the originally envisaged period remained. In the meantime, KRIBHCO had placed work order worth Rs.4,86,731/- with the contractor and there is no dispute that payment for the same was also made. According to KRIBHCO, the contractor had committed multiple defaults which led KRIBHCO to take such an action. KRIBHCO also decided to place the contractor in blacklist. The formal decision to reduce the value of contract to Rs.4,86,731/must be viewed in such background. 13. There is nothing in the contract which prevented KRIBHCO from either curtailing the period of contract or not placing any further order with the contractor for remainder of the period, if KRIBHCO was not satisfied with the supply of buses by the contractor or his services in relation to the same. Even otherwise, period of curtailment of the contract was barely about five weeks out of the total period of one year originally envisaged. The question therefore, it was the arbitrator correct in awarding huge amount of compensation under different heads for such action of KRIBHCO? 14. We may address the different heads under which such compensation was awarded. (i) We may recall a sum of Rs. 10,00,000/was awarded for the loss suffered by the contractor in purchase and sale of new buses. According to the arbitrator, the contractor had purchased new buses to fulfill the contract obligations. 14. We may address the different heads under which such compensation was awarded. (i) We may recall a sum of Rs. 10,00,000/was awarded for the loss suffered by the contractor in purchase and sale of new buses. According to the arbitrator, the contractor had purchased new buses to fulfill the contract obligations. Since KRIBHCO terminated the contract, he was forced to sell the buses, in the process in the opinion of the arbitrator, he would suffer loss of Rs. 10,00,000/. For multiple reasons, this claim cannot be sustained. Firstly, as noted, under the work order, KRIBHCO had committed to supply work to the contractor only upto 28.10.2003. This period was curtailed only by a period of five weeks. Even after 28.10.2003, there was no commitment on part of KRIBHCO that for future period, the contract would be continued. Same would obviously depend on multiple factors including the satisfactory performance of the contract by the contractor and his offer for competitive rates for future periods. The contractor could not have any legitimate expectation that such term even after 28.10.2003 would be extended and non extension of contract beyond such period, therefore, cannot give rise to any claim for compensation for loss for purchase and sale of buses. Purchasing of buses, if so required, to fulfill the contract and to use such buses past the contract period are inbuilt exigencies of any contract of similar nature. No contractor can claim that simply because beyond the period of contract, same was not extended, which was his legitimate expectation, and therefore, he should be compensated for the loss. Further, there has not been any quantification of such sum of Rs. 10,00,000/. The contractor had not produced any evidence of total value of purchase of buses and the price at which the same were sold. Arbitrator could not have awarded the compensation even otherwise, without there being any material in this respect. (ii) Sum of Rs. 3,00,000/was awarded for loss of business. As noted, as per the terms of the contract, KRIBHCO had never committed to supply work worth Rs. 20,00,000/during the contract period. The question of awarding work to the contractor would depend on the nature of requirement of KRIBHCO and satisfactory performance by the contractor of multiple trips undertaken by the employees of KRIBHCO. Till the period when the contract was curtailed, KRIBHCO according to its requirement, had awarded contract of Rs.4,86,731/. 20,00,000/during the contract period. The question of awarding work to the contractor would depend on the nature of requirement of KRIBHCO and satisfactory performance by the contractor of multiple trips undertaken by the employees of KRIBHCO. Till the period when the contract was curtailed, KRIBHCO according to its requirement, had awarded contract of Rs.4,86,731/. The arbitrator committed two errors in awarding compensation of Rs. 3,00,000/towards loss of business. Firstly, he computed the possible profit of the contractor at the rate of 15% of the total value of Rs.20,00,000/indicated in the work order ignoring sum of Rs.4,86,731/already paid over by KRIBHCO to the contractor. Secondly, and more importantly, as recorded repeatedly earlier, there was no commitment on part of KRIBHCO to provide minimum work order worth Rs.20,00,000/. Sum of Rs.20,00,000/indicated in the work order was the ceiling of contract value and not minimum limit. (iii) Sum of Rs.25,00,000/awarded for loss of business outside of the contract was impermissible and unsustainable for several reasons. Firstly, there was no evidence that the order of blacklisting recorded by KRIBHCO for the default resulted into such loss of reputation of the contractor that he lost his business elsewhere with other Government agencies. On mere assertion of the contractor such claim was accepted. Secondly, there was no assessment or even estimation of any such possible loss. The contractor had not even established that such action of blacklisting undertaken by KRIBHCO was either revealed to other agencies or came to their notice which prompted them not to award the contract to him. The conclusion of the arbitrator that the order of blacklisting was passed without following the principles of natural justice and therefore, bad in law, is also open to serious questioning. KRIBHCO is not shown to be State within the meaning of Article 12 of the Constitution. In fact, as pointed out by the counsel for KRIBHCO, learned Single Judge of this Court in judgment dated 29.12.2008 in Special Civil Application No.12229/2008 in case of Jayeshkumar S Patel v. Krishak Bharati Cooperative Ltd. and others, has held that KRIBHCO is not a State. If KRIBHCO therefore, was a private agency, it is extremely doubtful whether the action of KRIBHCO in deciding not to award work to the contractor for future on account of his misfeasance can be tended as an action of blacklisting classically understood in the context of contract awarded by Government and its agencies. If KRIBHCO therefore, was a private agency, it is extremely doubtful whether the action of KRIBHCO in deciding not to award work to the contractor for future on account of his misfeasance can be tended as an action of blacklisting classically understood in the context of contract awarded by Government and its agencies. The very concept of blacklisting of a contractor which has an effect of not awarding the Government contracts for a specified period for certain disqualification or misconduct incurred by him emanates from very requirement of fair play needed to be displayed by the Government and its agencies in the process of awarding the contracts for execution of various public works. As Government agencies they are not free to pick and choose, non-arbitrary decision making process being the guiding force during such exercise. When it comes to awarding the contract by private agency, such concepts would have no applicability. As pointed out by the counsel for KRIBHCO, Supreme Court in case of Kulja Industries Limited v. Chief General Manager, Western Telecom Project Bharat Sanchar Nigam Limited and others reported in (2014) 14 Supreme Court Cases 731, while recognising that the power of blacklisting of a contractor is inherent in every Government body awarding such contract, further observed as under : “17. That apart the power to blacklist a contractor whether the contract be for supply of material or equipment or for the execution of any other work whatsoever is in our opinion inherent in the party allotting the contract. There is no need for any such power being specifically conferred by statute or reserved by contractor. That is because ‘blacklisting’ simply signifies a business decision by which the party affected by the breach decides not to enter into any contractual relationship with the party committing the breach. Between two private parties the right to take any such decision is absolute and untrammelled by any constraints whatsoever. The freedom to contract or not to contract is unqualified in the case of private parties. But any such decision is subject to judicial review when the same is taken by the State or any of its instrumentalities. This implies that any such decision will be open to scrutiny not only on the touchstone of the principles of natural justice but also on the doctrine of proportionality. But any such decision is subject to judicial review when the same is taken by the State or any of its instrumentalities. This implies that any such decision will be open to scrutiny not only on the touchstone of the principles of natural justice but also on the doctrine of proportionality. A fair hearing to the party being blacklisted thus becomes an essential precondition for a proper exercise of the power and a valid order of blacklisting made pursuant thereto. The order itself being reasonable, fair and proportionate to the gravity of the offence is similarly examinable by a writ Court.” [Emphasis supplied] These observations ofcourse are made by Supreme Court in the context of requirement of fair play and restriction of the Government agencies in awarding the contracts which decisions are open to judicial review. Nevertheless, these observations recognise the freedom of a private agency to contract or not to contract at will with any other agency or contractor. The very decision of KRIBHCO not to award the contract to the present contractor in future even though termed as blacklisted for its internal purposes, therefore, cannot be equated with action of blacklisting of a contractor or an agency by the Government or its instrumentalities. (iv) Sum of Rs.1,00,000/was awarded for return of the security deposit. It was based on the conclusion of the arbitrator that the contractor had substantially performed his contract and KRIBHCO had raised frivolous objections. Even if these conclusions are left untouched being the assessment of evidence by the arbitrator, scrutiny of which by the Court would be extremely narrow, the entire claim to be awarded to the contractor would be reduced to Rs. 1,00,000/with interest. Remaining award of the contractor shall have to be reversed. 15. We are not unmindful of the limitation of the Courts in interfering with the award of an arbitrator. Nevertheless, there are recognised areas which would permit the Court to set aside the award of the arbitrator. The Supreme Court in case of Oil and Natural Gas Corporation Limited v. Western GECO International Limited reported in (2014) 9 Supreme Court Cases 263 had observed as under : “34. It is true that none of the grounds enumerated under Section 34(2)(a) were set up before the High Court to assail the arbitral award. The Supreme Court in case of Oil and Natural Gas Corporation Limited v. Western GECO International Limited reported in (2014) 9 Supreme Court Cases 263 had observed as under : “34. It is true that none of the grounds enumerated under Section 34(2)(a) were set up before the High Court to assail the arbitral award. What was all the same urged before the High Court and so also before us was that the award made by the arbitrators was in conflict with the “public policy of India”, a ground recognised under Section 34(2)(b)(ii) (supra). The expression “Public Policy of India” fell for interpretation before this Court in ONGC Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705 and was, after a comprehensive review of the case law on the subject, explained in para 31 of the decision in the following words: “31. Therefore, in our view, the phrase “public policy of India” used in Section 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 case it is required to be held that the award could be set aside if it is patently illegal. The 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. 38. 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. 38. Equally important and indeed fundamental to the policy of Indian law is the principle that a Court and so also a quasi judicial authority must, while determining the rights and obligations of parties before it, do so in accordance with the principles of natural justice. Besides the celebrated ‘audi alteram partem’ rule one of the facets of the principles of natural justice is that the Court/authority deciding the matter must apply its mind to the attendant facts and circumstances while taking a view one way or the other. Non-application of mind is a defect that is fatal to any adjudication. Application of mind is best demonstrated by disclosure of the mind and disclosure of mind is best done by recording reasons in support of the decision which the Court or authority is taking. The requirement that an adjudicatory authority must apply its mind is, in that view, so deeply embedded in our jurisprudence that it can be described as a fundamental policy of Indian Law. 16. In the result, appeal is allowed in part. Award of the arbitrator directing the appellant to pay Rs.39,00,000/with interest is reduced to Rs. 1,00,000/with interest pendente lite as well as future interest. We are informed that the appellant has deposited entire amount awarded by the arbitrator before the District Court which is not allowed to be withdrawn. For simplicity, taking into account that the period for which such sum of Rs.1,00,000/was awarded will incur simple interest at the rate of 9% as awarded by the Tribunal, we modify the award in such a manner that the contractor would receive a total sum of Rs. 1,75,000/inclusive of interest on the security deposit of Rs. 1,00,000/to be returned to him for the entire period. Out of the amount deposited by KRIBHCO with the District Court, sum of Rs.1,75,000/shall be paid over to the contractor. Remaining amount with accrued interest, if any, shall be released in favour of KRIBHCO. 17. First Appeal is disposed of. R&P may be transmitted back to concerned trial Court.