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2021 DIGILAW 24 (JK)

Manisha Builders v. Union of India

2021-02-16

PANKAJ MITHAL

body2021
JUDGMENT : 1. Heard Sh. Anil Mahajan, learned counsel for the petitioner and Sh. Vishal Sharma, learned Assistant Solicitor General of India appearing for the respondents. 2. The petitioner is a proprietorship firm engaged in the contract business. It was awarded a contract on 22.03.2006 for a total amount of Rs. 26,50,442.82 which was to be completed by 30.09.2006. The said contract provided for the resolution of the disputes inter se the parties by means of arbitration and that the award has to be made within a maximum period of one year from the date of entry into arbitration. 3. Condition No. 70 of IAFW 2249 of the Contract providing for referring the dispute to the arbitrator is reproduced hereunder:- "70. Arbitration.- All disputes, between the parties to the Contract (other than those for which the decision of the C.W.E. or any other person is by the Contract expressed to be final and binding) shall, after written notice by either party to the Contract to the other of them, be referred to the sole arbitration of an Engineer Officer to be appointed by the authority mentioned in the tender documents. Unless both parties agree in writing such reference shall not take place until after the completion or alleged completion of the Works or termination or determination of the Contract under Condition Nos. 55, 56 and 57 hereof: Provided that in the event of abandonment of the Works or cancellation of the Contract under Condition Nos. 52, 53 or 54 hereof, such reference shall not take place until alternative arrangements have been finalized by the Government to get the Works completed by or through any other Contractor or Contractors or Agency or Agencies: Provided always that commencement or continuance of any arbitration proceeding hereunder or otherwise shall not in any manner militate against the Government's right of recovery from the contractor as provided in Condition 67 hereof. If the Arbitrator so appointed resigns his appointment or vacates his office or is unable or unwilling to act due to any reason whatsoever, the authority appointing him may appoint a new Arbitrator to act in his place. The Arbitrator shall be deemed to have entered on the reference on the date he issues notice to both the parties, asking them to submit to him their statement of the case and pleadings in defence. The Arbitrator shall be deemed to have entered on the reference on the date he issues notice to both the parties, asking them to submit to him their statement of the case and pleadings in defence. The Arbitrator may proceed with the arbitration, ex-parte, if either party, inspite of a notice from the Arbitrator fails to take part in the proceedings. The Arbitrator may, from time to time with the consent of the parties, enlarge, the time upto but not exceeding one year from the date of his entering on the reference, for making and publishing the award. The Arbitrator shall give his award within a period of six months from the date of his entering on the reference or within the extended time as the case may be on all matters referred to him and shall indicate his findings, along with sums awarded, separately on each individual item of dispute. The venue of the Arbitration shall be such place or places as may be fixed by the Arbitrator in his sole discretion. The Award of the Arbitrator shall be final and binding on both parties to the Contract." 4. On the petitioner's request in connection with the disputes arising from the said contract, the designated authority vide letter dated 31.07.2010 appointed Sh. Rajesh Kachwah, Superintending Engineer as the sole arbitrator. The said arbitrator entered upon the reference on 19.08.2010 and the award made by him was published on 11.06.2012. 5. The aforesaid award has been assailed by means of this petition under Section 34 of the Arbitration and Conciliation Act, 1996 (herein after referred to as 'the Act'). 6. Apart from other submissions, the primary argument of learned counsel for the petitioner is that the award is in conflict with the public policy of India as the arbitrator acted arbitrarily in making the award even after he had ceased to exercise jurisdiction in the matter. The parties had agreed for the award to be made latest by 28.02.2012. Thereafter, the time for making the award was never extended with the consent of the parties. 7. The parties had agreed for the award to be made latest by 28.02.2012. Thereafter, the time for making the award was never extended with the consent of the parties. 7. Learned counsel for the petitioner also submitted that the appointment of the arbitrator vide letter dated 31.07.2010 specifically contained a condition that arbitrator was first required to decide on the jurisdiction and the arbitrability of the claims and thereafter to take them up for adjudication on merit which exercise has not been done by the arbitrator. 8. There is no dispute to the fact that the arbitrator was appointed on 31.07.2010 and that the contract provided for making the award within a period of one year from the date of entering into arbitration unless parties agree to extend the same. 9. The award itself mentions that the hearing took place and concluded on 02.12.2011 and the parties submitted that they have nothing more to add. It was decided with the consent of both the parties to extend time for making and publishing the award upto 28.02.2012. It means that the time for making the award as provided under the contract stood extended up to 28.02.2012 with the consent of the parties. There is no material on record that after the conclusion of hearing on 02.12.2011, the parties ever agreed for extending the time for making the award beyond 28.02.2012. The award was admittedly made on 11.06.2012 beyond the period of limitation fixed and agreed upon by the parties. 10. Sh. Vishal Sharma, learned Assistant Solicitor General of India, submits that the period of making the award stood extended and extension of time can be inferred from the conduct of the parties. The petitioner at no point of time objected or raised any protest before the arbitrator that the period for making award has expired and he has ceased to exercise jurisdiction. The petitioner took the chance of success and failure and when the award has gone against him he has challenged it on a technical ground even though it had tacitly consented for award being made even after the period fixed. 11. Before examining the issue whether the award has been made within the stipulated period or not, it would be important to first deal with the grounds on which the award can be set aside in exercise of powers under Section 34 of the Act. 12. 11. Before examining the issue whether the award has been made within the stipulated period or not, it would be important to first deal with the grounds on which the award can be set aside in exercise of powers under Section 34 of the Act. 12. The scope under Section 34 of the Act for setting aside an award is very limited but one of the grounds provides that an award of the arbitrator can be set aside if the court is satisfied that the award is in conflict with public policy of India. It is ordinarily on this ground that the awards are sought to be set aside as in the present case. 13. The expression 'public policy of India' has been held to be wide enough so as to encompass within its ambit the actions which does not conform to the judicial approach, are arbitrary, unfair and capricious or where the award has been made on extraneous consideration or in violation of settled principles of justice delivery system. 14. In Renusagar Power Co. Ltd. V. General Electric Company, (1994) Supp. 1 SCC 644 it was provided that an arbitral award can be set aside if it is contrary to, (i) fundamental policy of Indian law; (ii) in the interest of India; or (iii) justice or morality. 15. In ONGC v. Saw Pipes Limited, (2003) 5 SCC 705 one more ground was added for setting aside the arbitral award, i.e., patent illegality. 16. The fundamental policy of India was extended in ONGC Ltd. v. Western Geco International Company Limited, (2014) 9 SCC 263 and it was held that every Tribunal or authority exercising powers that affect the rights and obligations of the parties or visit them with civil consequences must decide the matter by applying the judicial approach. 17. In Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49 it has been laid down that lack of judicial approach, violation of principles of natural justice, perversity and patent illegality are the known grounds for interference with an award of the arbitrator. 17. In Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49 it has been laid down that lack of judicial approach, violation of principles of natural justice, perversity and patent illegality are the known grounds for interference with an award of the arbitrator. It has been further provided that the illegality referred to above must be such which goes to the root of the matter and is not of a trivial nature and a award is not liable to be disturbed by the court as if it is sitting in appeal merely for the reason of insufficiency of evidence or where two view are possible in interpreting the terms of contract. 18. In this regard, it would be beneficial to quote part of paragraph 26 and 28 from a decision of the Supreme Court reported in AIR 2015 SC 363 , Oil & Natural Gas Corporation Ltd. versus Western Geco International Ltd. It reads as under:- "26. What then would constitute the 'Fundamental policy of Indian Law' is the question. The decision in Saw Pipes Ltd. (supra) does not elaborate that aspect. Even so, the expression must, in our opinion, include all such fundamental principles as providing a basis for administration of justice and enforcement of law in this country. Without meaning to exhaustively enumerate the purport of the expression "Fundamental Policy of Indian Law", we may refer to three distinct and fundamental juristic principles that must necessarily be understood as a part and parcel of the Fundamental Policy of Indian law. The first and foremost is the principle that in every determination whether by a Court or other authority that affects the rights of a citizen or leads to any civil consequences, the Court or authority concerned is bound to adopt what is in legal parlance called a 'judicial approach' in the matter. The duty to adopt a judicial approach arises from the very nature of the power exercised by the Court or the authority does not have to be separately or additionally enjoined upon the fora concerned. What must be remembered is that the importance of Judicial approach in judicial and quasi judicial determination lies in the fact so long as the Court, Tribunal or the authority exercising powers that affect the rights or obligations of the parties before them shows fidelity to judicial approach, they cannot act in an arbitrary, capricious or whimsical manner. What must be remembered is that the importance of Judicial approach in judicial and quasi judicial determination lies in the fact so long as the Court, Tribunal or the authority exercising powers that affect the rights or obligations of the parties before them shows fidelity to judicial approach, they cannot act in an arbitrary, capricious or whimsical manner. Judicial approach ensures that the authority acts bonafide and deals with the subject in a fair, reasonable and objective manner and that its decision is not actuated by any extraneous consideration. Judicial approach in that sense acts as a check against flaws and faults that can render the decision of a Court, Tribunal or Authority vulnerable to challenge. x x x x x x x x x 28. 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." 19. A reading of the above decision of the Apex Court makes evident that even an arbitrary act of the arbitrator and the pronouncing of an award without jurisdiction after he has ceased to have power to make the award, are all matters which fall in conflict with the public policy of India inasmuch as such decisions do not conform to the judicial approach. 20. 20. In view of the aforesaid facts and circumstances, it is crystal clear that an award made after the expiry of the period of limitation agreed upon would be without jurisdiction and liable to be set aside as one in conflict with the public policy of India. 21. In Jayesh H. Pandya and Anr. versus Subhtex India Ltd. and Ors., reported in 2019 (3) CCC 590 (SC), it was held that arbitrator becomes functus officio after the expiry of the period fixed for making the award. In the said case, the arbitration clause provided a period of four months for the conclusion of the arbitration proceedings unless extended by the consent of the parties. No party sought extension and the proceedings could not be completed within four months. It was also held that the mandate of the arbitrator came to an end and he had become functus officio to make an award. 22. In one another case before the Supreme Court reported in 2010 (1) Arb. LR 165 (SC) N.B.C.C. LTD. versus J.G. Engineering Pvt. Ltd., the parties to the arbitration mutually agreed to extend time for making and publishing the award but the arbitrator failed to conclude the proceedings within the time so fixed. It was held that arbitrator was bound to make and publish his award within the time mutually agreed between the parties unless there is further enlargement of time otherwise his mandate stands automatically determined meaning thereby that the arbitrator loses jurisdiction to make an award after the expiry of the time agreed upon by the parties for making the award. 23. In view of the above legal position, as admittedly the last extension of time for making the award was up to 28.02.2012 as per the agreement of the parties, and there is no documentary material on record to indicate any further extension, consequently, the arbitrator became functus officio on the said date and lost his mandate to arbitrate. Accordingly, the award made by him on 11.06.2012 is patently without jurisdiction and cannot be sustained in law. 24. The submission that the extension of time can also be inferred from the conduct of parties is bereft of merit as; I find that there is no material on record even to infer such consent or conduct. Accordingly, the award made by him on 11.06.2012 is patently without jurisdiction and cannot be sustained in law. 24. The submission that the extension of time can also be inferred from the conduct of parties is bereft of merit as; I find that there is no material on record even to infer such consent or conduct. Merely for the reason that the petitioner had not objected or protested before the arbitrator after the expiry of time on 28.02.2012 would not mean that he had acquiesced to the jurisdiction of the arbitrator or had consented for extending the time. Once the mandate of the arbitrator stood determined on 28.02.2012, there was no occasion for the petitioner to raise any objection or protest before him. The determination of mandate is automatic. 25. In view of the aforesaid facts and circumstances without considering the other aspects raised by the petitioner in assailing the award, I on the aforesaid point alone direct for setting aside award dated 11.06.2012, as against the public policy of India. 26. The petition under Section 34 of the Arbitration and Conciliation Act, 1996 is allowed with no orders as to costs.