Union of India v. Industrial Laminates India Pvt. Ltd.
2018-08-17
ASHIS KUMAR CHAKRABORTY
body2018
DigiLaw.ai
JUDGMENT : Ashis Kumar Chakraborty, J. 1. In this application under section 34 of the Arbitration and Conciliation Act, 1996 (in short, "the Act of 1996") the petitioner, the General Manager, Eastern Railway has prayed for setting aside of the award dated November 14, 2017 made by the arbitrator, the Chief Communication Engineer of Eastern Railway. 2. In the arbitral proceeding before the arbitrator, the respondent herein and the petitioner herein were the claimant and the respondent, respectively. 3. By the impugned award the arbitrator has directed the petitioner, to pay Rs. 30,87,226/- to the respondent within thirty days from the date of the award, failing which compound interest at the rate of 8%, per annum will be applicable on the awarded amount from the date of publication of award. The arbitrator also rejected all the counter claims of the petitioner against the respondent, as mentioned hereinafter. 4. Shortly stated, the facts which need to be considered for deciding this application are that in response to a notice inviting tender issued by the petitioner, the respondent submitted its offer to supply brake blocks which are used as brakes and are attached with the wheels of EMU coaches. The said offer of the respondent was accepted by the petitioner and its Controller of Stores issued a purchase order dated July 10, 2006 (hereinafter referred to as the ("said purchase order") in favour of the respondent to supply 72,000 units of brake blocks as per RDSO Specification No. C-9810 (Rev. I). As per the said purchase order, after manufacture of the said brake blocks by the respondent at its factory the same would be inspected by the petitioner's inspection agency namely, M/s. RITES, Mumbai and 95% of payment would be made against the inspection certificate and receipted challan duly signed by the Depot. Officer and the balance 5% against RR note. The delivery of the said brake blocks by the respondent was to commence from the month of August, 2006 and the entire supply, under the said purchase order, was to be completed by October, 2006.
Officer and the balance 5% against RR note. The delivery of the said brake blocks by the respondent was to commence from the month of August, 2006 and the entire supply, under the said purchase order, was to be completed by October, 2006. The other terms and conditions for supply of the said brake blocks, by the respondent to the petitioner were governed by those contained in the General Condition of Contract of the petitioner railway providing, inter alia, that all disputes and differences arising between the parties relating to the said purchase order would be adjudicated upon by an arbitrator, a serving Railway Officer. After inspection of the brake blocks manufactured at its factory in Pune by RITES, the respondent supplied 47,000 units of brake blocks to the petitioner and the latter made payment for the same. On October 13, 2006 and October 14, 2006 the officers of RITES inspected further 11,000 units of brake blocks manufactured by the respondent. Thereafter, on October 30, 2006 and October 31, 2006 the respondent delivered 5496 units and 5504 units of the said brake blocks, respectively to the KPA Depot (Kanchrapara unit) of the petitioner. However, the petitioner rejected the said 11,000 units of brake blocks on the ground that the same were not manufactured as per the specification stated in modification advice dated October 10, 2006 (hereinafter referred to as the "said modification advice") released through the Controller of Stores. Since the petitioner was claiming payment for the said 11,000 units of brake blocks supplied by it, a joint inspection of the said brake blocks by the representatives of the petitioner, the respondent and RITES, respectively was fixed on December 29, 2006. During the said joint inspection, the representative of the petitioner claimed that on October 10, 2006 the said modification advice was issued by the Controller of Stores for manufacturing the said brake blocks, but since the said 11,000 units of brake blocks were not manufactured as per the said modification advice the same were rejected. On the other hand, the representatives of RITES submitted that the 11,000 units of brake blocks manufactured by the petitioner were inspected by them on October 13, 2006 and October 14, 2006 as per the RDSO specification, before they had received the said modification advice.
On the other hand, the representatives of RITES submitted that the 11,000 units of brake blocks manufactured by the petitioner were inspected by them on October 13, 2006 and October 14, 2006 as per the RDSO specification, before they had received the said modification advice. Even the representative of the respondent stated that after completion of the inspection of the said 11,000 units of break blocks by RITES, the respondent received the said modification advice. The respondent's representative further claimed that the petitioner issued said modification advice without the consent of the respondent. On the other hand, the petitioner's representative asserted that the said 11,000 units of brake blocks were not inspected and supplied as per the said modification advice dated October 10, 2006. The respondent, however, did not supply the balance quantity of 14000 units of brake blocks as stipulated under the said purchase order. Subsequently, the respondent claimed refund of the price of the 19,591 units of the brake blocks forming part of the supply of the said first lot on the ground of not being manufactured as per the specification and that the same remained unutilised. 5. Since the petitioner refused to make payment for the said 11,000 units of brake blocks, the respondent invoked the arbitration agreement between the parties and the arbitrator was appointed to adjudicate upon the disputes between the parties. The respondent filed its statement of claim in the arbitration proceeding claiming an award against the petitioner for various amounts. The first claim of the respondent was for Rs. 72,98,862/- on account of price of the said 11,000 units of the said brake blocks together with interest. In its statement of claim the respondent also raised various other claims against the petitioner, including pendente lite interest and interest upon award. However, as mentioned hereinafter, by the impugned award the arbitrator only awarded a portion of the first claim the respondent herein and the interest upon award. Thus, it is not necessary to dilate on the other claims of the respondent in the arbitral proceeding which were rejected by the arbitrator and not challenged by the respondent. 6.
However, as mentioned hereinafter, by the impugned award the arbitrator only awarded a portion of the first claim the respondent herein and the interest upon award. Thus, it is not necessary to dilate on the other claims of the respondent in the arbitral proceeding which were rejected by the arbitrator and not challenged by the respondent. 6. In support of its first claim, the respondent alleged that as per the said purchase order, it started to manufacture the said brake blocks as stipulated in RDSO Specification No. C-9810 (Hardness Value 95-120 and co-efficient friction 0.45+ 0.1) at its factory at Aghai/Mumbai and completed manufacturing of 58,000 units of brake blocks which were duly inspected and approved by the inspecting agency, RITES. The respondent further alleged that although it delivered the said 58,000 units of brake blocks to the railway who paid the price of 47,000 units of brake blocks, but the latter refused to pay the price for 11,000 units of brake blocks supplied at its KPA Depot, on October 30, 2006 and October 31, 2006 showing the said brake blocks were rejected on the alleged ground that the same were not manufactured as per the said modification advice. The respondent asserted that it had manufactured the said 11,000 units of brake blocks, as per the RDSO Specification No. C-9810 and the same were also inspected and approved by RITES on October 13 and 14, 2006 and after issuance of the inspection certificate dated October 14, 2006 by RITES it delivered the said 11,000 units of brake blocks to the present petitioner. It was alleged that the issuance of the said modification advice on October 10, 2006 by the Controller of Stores of the railway was nothing but a unilateral modification of the specification and the same was non est. The respondent also referred to the joint inspection report dated December 29, 2006 recording the remarks of the representatives of itself and that of RITES and the respondent railway, respectively and alleged that the rejection of the said 11,000 units of brake blocks by the Railway was wrongful. Based on the said allegations the respondent claimed various relief in the arbitral proceeding, including an award against the petitioner for the price of the said 11,000 units of the said brake blocks, together with interest. 7.
Based on the said allegations the respondent claimed various relief in the arbitral proceeding, including an award against the petitioner for the price of the said 11,000 units of the said brake blocks, together with interest. 7. The petitioner, as the respondent in the arbitral proceeding filed its counter-statement and contested the claims of the respondent herein. The petitioner alleged that there were problems in the brake blocks supplied by the respondent against the previous purchase orders issued to them by itself, South Eastern Railway and Northern Railway and by the communications dated May 22, 2006 and June 23/26, 2006 the RDSO informed it that the respondent had improved the quality of their brake blocks by lowering hardness and co-efficient of friction and the same were found to be satisfactory. The petitioner further alleged that it was only after the said report of RDSO, the said purchase order dated July 10, 2006 was issued to the respondent for obtaining supply of 72,000/- units of brake blocks with lowered values of hardness 70-95 HRR and co-efficient friction with 0.22-0.35, respectively. The petitioner claimed that the respondent was required to supply the material only with the said parameters agreed by them in field trial, at Ghaziabad EMU Car shed, jointly with RDSO, Northern Railway. Since the respondent did not supply the said 11,000 units of brake blocks with the said lowered values of hardness and coefficient friction of 70-95 HRR and 0.22-0.35, respectively the said modification advice was issued on October 10, 2006 recording the said lowered value of hardness and coefficient of friction which the claimant had already agreed and accepted after field trials at Ghaziabad, EMU Car shed of Northern Railway, jointly with them. According to the petitioner, since the respondent did not supply the 11,000 units of brake blocks with the said lowered value of hardness and co-efficient friction. The petitioner claimed the said modification advice was not issued to make any change in the specification, but merely to inform the respondent and RITES about the specific values of parameters the respondent was to follow for manufacture and supply of the material and the same only indicated the parameters already agreed by the respondent and RDSO after the aforementioned field trials at Ghaziabad EMU Car Shed.
It further asserted that the said 11000 units of brake blocks were rejected on the ground that the parameters like hardness and co-efficient of friction were not found within the range as finalised by RDSO after conducting field trials on Northern Railway, Ghaziabad, EMU Car Shed jointly with the respondent. The petitioner not only pressed for rejection of all the claims of the respondents it also raised counter claims against the respondent for Rs. 81,87,646 which included Rs. 50,000/- on account of cost of arbitration, Rs. 54,98,410/- on account of refund of price of 19,591 units of defective brake blocks supplied by the respondent and interest amount of Rs. 26,39,236.82 at the rate of 12%, per annum for 4 years. In support of its counter claims in the arbitral proceeding the petitioner alleged that even the 47,000 units of the said brake blocks supplied in the first lot were not manufactured as per the agreed specification and, as such, it is entitled to obtain refund of Rs. 54,98,410/- on account price of 19,591 units of the said brake blocks which remained unutilised, together with interest. 8. The respondent, however, did not file any rejoinder before the arbitrator to dispute the above allegations made in the counter statement of the petitioner. The respondent did not even file any pleading to deny the counter claims raised by the petitioner. 9. On December 27, 2011 the arbitrator made and published an award holding that the said modification advice issued by the Railway on October 10, 2006 contravened of the provisions of the contract and the same is not enforceable. The arbitrator further held that in the instant case, the conditions of non-acceptance/rejection under IRS Conditions of Contract 1502 are not fulfilled as the rejection was made on the ground that the material did not conform to the said modification advice, which itself is not enforceable. With these findings, by the said award dated December 27, 2011 the arbitrator allowed the first and second claim of the claimant, the respondent by directing the present petitioner to pay Rs. 15,45,735/- and Rs. 15,42,491/-. By the said award although the other claims of the claimant respondent was rejected by the arbitrator, but he allowed the claim of the claimant for pendente lite interest. The arbitrator also rejected the counter claims of the petitioner. 10.
15,45,735/- and Rs. 15,42,491/-. By the said award although the other claims of the claimant respondent was rejected by the arbitrator, but he allowed the claim of the claimant for pendente lite interest. The arbitrator also rejected the counter claims of the petitioner. 10. The petitioner challenged the said award dated December 27, 2011 passed by the arbitrator by filing an application, A.P. No. 309 of 2012, under section 34 of the Act of 1996 before this Court. By a judgment and order dated February 07, 2017 a learned Single Judge of this Court held that the arbitrator did not address the correct questions and set aside the said award dated December 27, 2011 and directed the arbitrator to reconsider the evidence on record, hear the parties and pass a reasoned award within four months of communication of the said order. 11. In terms of the said order dated February 07, 2017 the arbitrator held further sittings when the parties made their respective submissions by placing reliance on the respective documents disclosed by them. The arbitrator held that during the inspection, RITES found not only the 47,000 but also the said 11,000 units of the brake blocks manufactured by the petitioner to conform to the specification mentioned in the original purchase order. According to the arbitrator, in the present case the central issue in dispute is Railways insistence on bringing in force the said modification advice, which amended or modified the specification in the purchase order at a later stage. He held that a contract between two parties is a both way commitment and one party cannot introduce new terms and conditions or change any specification unless it is mutually agreed upon and any action to the contrary, is a breach of contract. He further held that there is no place for any clarification or amplification of the standard specifications that too issued by an agency other than the standard body (here RDSO) and the railway could not produce any document to show that the said specification was modified by RDSO.
He further held that there is no place for any clarification or amplification of the standard specifications that too issued by an agency other than the standard body (here RDSO) and the railway could not produce any document to show that the said specification was modified by RDSO. According to the arbitrator, there were indeed differences between 'the original specification' and 'specification read with M.A.' otherwise, Railways could not have accepted and paid for the material to the extent of 47,000 units of the said brake blocks and then, after issuance of the modification advice suddenly started rejecting the material, when the inspecting agency certified the material to have conformed to the original RDSO specification. On the basis of these findings, on November 14, 2017 the arbitrator made and published his fresh award allowing the claim of the respondent on account of the price of the said 11,000 units of the said brake blocks amounting Rs. 30,87,226. The arbitrator directed the petitioner to pay the award amount to the respondent within 30 days from the publication of the award. In default, the petitioner would pay interest at the rate of 8% from the date of publication of the award. By the said award the arbitrator rejected all the counter claims of the respondent. Further, the arbitrator rejected all the counter claims of the petitioner. The first counter claim of the petitioner was rejected as the parties were directed to equally bear the cost of arbitration. With regard to the second counter claim of the petitioner for 54,98,410/- on account of refund of the price of 19,591 units of defective brake blocks which remained unutilised the arbitrator held that the onus lied on the petitioner, being the purchaser to spell out the required specification of the material at the time of issuing the purchase order and subsequent discovery of the unsuitability of the material indented cannot be accepted as the ground to sustain the claim for refund of the price already paid. With the said finding the arbitrator also rejected the second counter claim of the petitioner. Consequently, the third claim of the petitioner on account of interest also stood rejected by the arbitrator. As mentioned earlier, it is the said award dated November 14, 2017 passed by the arbitrator which has been challenged by the petitioner in this application. 12. Mr.
With the said finding the arbitrator also rejected the second counter claim of the petitioner. Consequently, the third claim of the petitioner on account of interest also stood rejected by the arbitrator. As mentioned earlier, it is the said award dated November 14, 2017 passed by the arbitrator which has been challenged by the petitioner in this application. 12. Mr. L.K. Chatterjee, learned Advocate appearing in support of the present application submitted that the said purchase order specifically mentioned that the respondent had to supply 72,000 units of brake blocks manufactured as per Specification No. C-9810 (Revision-1) of the drawing no. IPML-001, Rev. No. 01, but from the inspection certificates issued by RITES, as also otherwise it is evident that the respondent manufactured the said brake blocks with Specification No. C-9810. In this regard, learned Counsel for the petitioner also referred to the averments made by the respondent in its statement of claim filed in the arbitral proceeding that it had manufactured the said brake blocks as per RDSO Specification No. C-9810. It was further submitted that in its counter statement the petitioner had specifically stated all the facts which required the respondent to supply the brake blocks with the lowered values of hardness and co-efficient of friction with 70-95 HRR and 0.22-0.35, respectively, as agreed by them in the field trial at Ghaziabad, EMU Car Shed of Northern Railway and that said modification advice was not issued for making any change in the specification mentioned in the purchase order which were not controverted by the respondent. According to the petitioner, the respondent did not even issue any communication to the petitioner that the said modification advice resulted in any change in the specification mentioned RDSO Specification No. C-9810 (Revision-1) stipulated in the said purchase order. Further, in the impugned award the arbitrator has not specified as to how the said modification advice amended or modified the specification in the said purchase order. It was emphasised that the finding of the arbitrator that by issuing the said modification advice the petitioner Railway amended or modified the specification in the purchase order at a later stage and that there were indeed differences between the original specification and the specification read with the modification advice is vitiated by perversity, patent illegality and the same is against the public policy of India.
Urging all these and relying upon the decision of the Supreme Court in the case of Ramnath International Construction (P) Ltd. v. Union of India reported in (2007)2 SCC 453, Mr. Chatterjee pressed' for setting aside of the impugned award made and published by the arbitrator on November 14, 2017, in so far as the same allowed the claim of the respondent for Rs. 30,87,226/- and rejected the second counter claim or the petitioner. 13. Opposing the petitioner's prayer in this application, Mr. Sakya Sen, learned advocate appearing for the respondent strongly contended that the award passed by the arbitrator is not vitiated by any ground specified in section 34 of the Act of 1996. He submitted that the arbitrator had clearly identified the issue for determination in the reference as to whether the Railway could insist on enforcing the modification advice purporting to modify the specification mentioned in the said purchase order at a later stage. It was urged that the decision of the arbitrator in the impugned award is based on a clear understanding of the settled principle that a contract cannot be modified unilaterally at the instance of one of the parties thereto. In this regard, Mr. Sen relied on the decision of the Supreme Court in the case of Bharat Sanchar Nigam Ltd. v. Vodafone Essar Gujarat Ltd. (2016)16 SCC 1. According to him, the arbitrator has also given detailed reasons as to why the modification advice cannot be stated to a mere clarification. It was argued for the respondent that from the documents on record of the arbitral proceeding it was evident that the said 11,000 units of brake blocks were manufactured by the respondent in terms of the specification stipulated in the said purchase order, that is, RDSO's Specification No. C-9810(Revision-1). In this regard, learned counsel for the respondent referred to the inspection reports of RITES appearing at pages 60 to 66 of the petition as well as the joint inspection report. He submitted that even the minutes of the joint inspection report dated October 29, 2006 records the assertion by the representative of RITES that as on the date of the inspection of the said 11,000 units of brake blocks they had not received the modification advice issued by the Railway on October 10, 2006.
He submitted that even the minutes of the joint inspection report dated October 29, 2006 records the assertion by the representative of RITES that as on the date of the inspection of the said 11,000 units of brake blocks they had not received the modification advice issued by the Railway on October 10, 2006. It was strenuously urged that the award passed by the arbitrator is a well reasoned award, taking into consideration all the material documents disclosed by the respective parties and the findings of the arbitrator in the impugned award are based on a proper analysis of the position of law relating to issuance of a modification advice purporting to alter the terms of the contract. Relying on the decisions of the Supreme Court in the cases of Delhi Development Authority v. R.S. Sharma & Company, New Delhi, reported in (2008)13 SCC 80 and in the case of Associate Builders v, Delhi Development Authority, reported in (2015)3 SCC 49 Mr. Sen submitted that since the award of the arbitrator is based on proper appreciation of law and no part of the findings of the arbitrator recorded in the award can be said to be perverse or such as to "shock the conscience of the Court" this Court would uphold the same. According the respondent the jurisdiction of this Court to set aside an arbitral award being limited to the grounds set out in section 34 of the Act of 1996. It was further contended that none of the grounds on which a Court is authorised to interfere with an arbitral award are present in the case at hand and as such the award made by the arbitrator cannot be interfered with. It was further submitted that the ground urged by the petitioner in this application disputing the certificate of inspection issued by RITES is a new factual issue never raised in the counter-statement and of the counter-claim and, as such, the petitioner cannot urge the said ground to challenge the award under section 34 of the Act. 14. I have considered the materials on record and the arguments advanced by the learned advocates appearing for the respective parties. In the present case, it was contended by the respondent that the jurisdiction of this Court to set aside an arbitral award being limited to the grounds set out in section 34 of the Act of 1996.
14. I have considered the materials on record and the arguments advanced by the learned advocates appearing for the respective parties. In the present case, it was contended by the respondent that the jurisdiction of this Court to set aside an arbitral award being limited to the grounds set out in section 34 of the Act of 1996. It was further contended that none of the grounds on which a Court is authorised to interfere with an arbitral award are present in the case at hand and as such the award made by the arbitrator cannot be interfered with. 15. In order to appreciate above the contentions raised on behalf of the respondent it is necessary to consider the provisions of sub-sections (1), (2) and (2A) of section 34 of the Act of 1996 which reads as follows: Application for setting aside arbitral award.-(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and subsection (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, 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.
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 re appreciation of evidence. (3)............... (4)............... (5)................ (6)................ 16. From a reading of the provisions of section 34(2) of the Act of 1996 and the arguments advanced on behalf of the petitioner it is evident that the only ground on which the petitioner can assail the impugned award made by the arbitrator is confined to that the impugned award is in conflict with the "public policy of India", a ground recognised under section 34(2)(b)(ii) above. In various cases the expression "public policy of India" fell for interpretation before the Supreme Court. In the case of ONGC Ltd. v. Saw Pipes Ltd. reported in (2003)5 SCC 705 , the Supreme Court held that the phrase 'public policy of India' used in section 34 of the Act of 1996 in context is required to be given a wider meaning to connote some matter which concerns public good and public interest. The Supreme Court further held that an arbitral award can be assailed on the ground of being in conflict with the 'public policy of India' 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. 17. In the said decision the Supreme Court laid down that if an illegality committed by an arbitrator in making an award goes to the root of the matter or if the award 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.
17. In the said decision the Supreme Court laid down that if an illegality committed by an arbitrator in making an award goes to the root of the matter or if the award 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. In the case of ONGC Ltd. v. Western Geco International Ltd. reported in (2014)9 SCC 263 , the Supreme Court held that although it is difficult to exhaustively enumerate the purport of the expression "fundamental policy of Indian law", but the first and foremost distinct and fundamental juristic principle that must necessarily be understood as a part and parcel of the fundamental policy of Indian law is that in an every determination whether by a Court or other authority that affects the rights of a citizen or leads to any civil consequence, the Court or authority concern is bound to adopt what is in legal parlance called "a judicial approach" in the matter which ensures that the authority acts bona fide and deals with the subject in a fair, reasonable and objective manner and that the decision of the Court or the authority is not actuated by any extraneous consideration. In paragraphs 38, 39 and 40 of the said decision the Supreme Court further held as follows: "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. 39.
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. 39. No less important is the principle now recognised as a salutary juristic fundamental in administrative law that a decision which is perverse or so irrational that no reasonable person would have arrived at the same will not be sustained in a Court of law. Perversity or irrationality of decisions is tested on the touchstone or Wednesbury principle of reasonableness. Decisions that fall short of the standards of reasonableness are open to challenge in a court of law often in writ jurisdiction of the superior courts but no less in statutory processes wherever the same are available. 40. It is neither necessary nor proper for us to attempt an exhaustive enumeration of what would constitute the fundamental policy of Indian law nor is it possible to place the expression in the straitjacket of a definition. What is important in the context of the case at hand is that if on facts proved before them the arbitrators fail to draw an inference which ought to have been drawn or if they have drawn an inference which is on the face of it, untenable resulting in miscarriage of justice, the adjudication even when made by an Arbitral Tribunal that enjoys considerable latitude and play at the joints in making awards will be open to challenge and may be cast away or modified depending upon whether the offending part is or is not severable from the rest." 18. In the case of Delhi Development Authority v. R.S. Sharma & Co. (supra) cited by the respondent, the Supreme Court held that when an award of an arbitrator is patently illegal, the same can be interfered with by the Court in an application under section 34 of the Act of 1996. Even in the case of Associated Builders (supra) cited by the respondent the Supreme Court held that when an award made by an arbitrator is patently illegal going to the root of the matter and cannot be of trivial nature the same is opposed to the public policy of India and can be interfered by the Court under section 34 of the Act of 1996. 19.
19. In the present case, it is the specific case of the petitioner in its counter statement filed before the arbitrator, as well as in this application that the respondent did not manufacture the brake blocks as per the specification stipulated in the said purchase order, that is, RDSO's Specification No. C-9810 (Revision-1). Not only in the arbitral proceeding, but even in the present application (at pages 27 to 30) the petitioner has disclosed the check sheets issued by the inspecting agency, RITES showing that the respondent had supplied 58,000 units of brake blocks, including those inspected on October 8 and 9, 2006 as per the RDSO Specification No. C-9810, which is different from RDSO Specification No. C-9810 (Revision-1). In its counter statement filed before the arbitrator, the respondent by disclosing various documents further asserted the obligation of the respondent to supply 72,000 units of the brake blocks with the parameters agreed by them in the field trial at Ghaziabad EMU Car Shed of Northern Railway by lowering the hardness and co-efficient of friction and the respondent did not file any rejoinder to deny or dispute such assertion of facts by the petitioner. The same facts were also reiterated by the petitioner in its written note/communication dated September 14, 2017 filed before the arbitrator. In this connection, it is to be noted that in paragraph 1.04 of the statement of claim filed before the arbitrator the respondent itself claimed that it manufactured the said brake blocks as stipulated in RDSO Specification No. C-9810 (Hardness value 95-120 and co-efficient of friction 0.45+ 01). According to the petitioner, as per the RDSO Specification No. C-9810 (Rev-1) the Hardness Value is 70-95 HRR and co-efficient friction is 0.22-0.35 and, as such, by the said modification advice dated October 10, 2006 it did not make any change in the specification, but merely informed the various agencies about the specific values of parameters the respondent was to follow for manufacture and supply of the material. It was the further case of the petitioner that the 11,000 units of the said brake blocks were not rejected on the basis of the said modification advice, but on the basis of parameters like hardness and co-efficient of friction was not found within the range as finalised by RDSO after conducting field trials on Northern Railway, Ghaziabad, EMU Car Shed jointly with the respondent.
The said defence spelt out by the petitioner in paragraphs 1.04 to 1.12 of its counter statement was not denied by the respondent by filing any pleading before the arbitrator. 20. However, from a bare reading of the award under challenge it is evident that without rendering any finding as to how the said modification advice amended or modified the specification in the said purchase order the arbitrator concluded that the said modification advice amended or modified the specification in the purchase order at a later state. As already discussed above, many of the inspection certificates issued by RITES ex-facie mention that the respondent manufactured the brake blocks as per RDSO Specification No. C-9810, which was not the specification mentioned in the said purchase order. For all these reasons, the finding of the arbitrator that there were indeed differences between 'the original specification' is absolutely untenable and the same results in miscarriage of justice. 21. In the facts of the present case as discussed above, it is evident that the impugned award made by the arbitrator, in so far as the same allowed the claim of the respondent on account of price of the 11,000 units of the said brake blocks amounting to Rs. 30,87,226/- is vitiated by patent illegality which is not of trivial nature and goes to the root of the matter. The impugned award passed by the arbitrator, in so far as the same, allowed the claim of the respondent on account of price of the 11,000 units of the said brake blocks amounting to Rs. 30,87,226/- is also vitiated by perversity and irrationality. In the instant case, the decision of the Supreme Court in the case of Bharat Sanchar Nigam Ltd. v. Vodafone Essar Gujarat Ltd. (supra) is of no any assistance to the respondent. 22. In view of my above finding with regard to the decision of the arbitrator allowing the claim of the respondent for Rs. 30,87,226/- on account of the price of the said 11,000 units of the brake blocks, the reasoning of the arbitrator rejecting the second counter claim of the petitioner for refund of the price of 19,591 units of unutilised brake blocks is also vitiated by perversity and patent illegality. Thus, the decision of the arbitrator rejecting the second counter claim of the petitioner cannot be sustained.
Thus, the decision of the arbitrator rejecting the second counter claim of the petitioner cannot be sustained. However, since the arbitrator rejected the claim of the respondent for interest on the ground that both parties have agreed that no interest would be paid even the petitioner's third counter claim for interest was not maintainable. I also do not find any illegality in the decision of the arbitrator to reject the first counter claim of the petitioner for costs on the ground that the parties to bear the cost of arbitration equally. 23. For all the foregoing reasons, the award made by the arbitrator on November 14, 2017, in so far as the same directed the present petitioner to pay Rs. 30,87,226/- to the respondent herein and rejected the second counter claim of the present petitioner cannot be sustained and the same stands set aside.