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2021 DIGILAW 597 (JK)

State of Jammu & Kashmir v. S. K. S. Kohli

2021-11-16

JAVED IQBAL WANI

body2021
JUDGMENT : 1. Through the medium of instant application filed by the Applicant herein under Section 34 of the Jammu and Kashmir Arbitration and Conciliation Act, 1997, (for short the Act) setting aside of the award dated 31.08.2005 passed by the Learned Arbitrator, Mr. Justice K.K. Gupta (Retd.) in case titled “M/S S.K.S. Kohli v. State of Jammu & Kashmir and others”, is prayed for. 2. Before adverting to the grounds of the challenge urged in the instant application, it would be appropriate to give a brief background of facts emerging from the application. 3. The Director Food & Supplies, Srinagar is stated to have issued a tender notice dated 31.01.2003 for lifting of gunny bags numbering 118.30 lacs of different classes lying in the Central Godowns at Lethpora / Gulab Bagh, Srinagar. The intending tenderers were given an option to inspect the bags on any working day before the last date of submission of tenders. It was mentioned in the NIT that the successful bidder shall have to lift the bags on ‘as is where is basis’. 4. It is stated that in response to the said tender notice, the respondent submitted his tender after depositing earnest money by way of CDR/FDR of Rs.24.00 lakhs offering a bid for Rs.7.80 crores. The respondent, being the highest bidder, was invited for negotiation, however, before entering into the agreement / negotiations, he had inspected the stocks in the godown and after satisfying himself about the condition of the stocks, he voluntarily agreed to enhance the contract value to Rs.8.67 crores. 5. It is stated that thereafter the respondent executed an Agreement with the Applicant-Department on 28.04.2003. It is further stated that the respondent after allotment of the contract had lifted 40,40,618 bags for which he deposited the payment and almost 40% contract was over. 6. It is next stated that the respondent not only failed to deposit the whole amount for the tendered quantity of the bags within the stipulated timeframe, but had also failed to lift the bags within the stipulated period as well as by the extended period sought by him in the meantime and ultimately the respondent turned a defaulter and raised dispute for which he requested for appointment of an Arbitrator. 7. It is being stated that Justice Mr. 7. It is being stated that Justice Mr. K.K. Gupta (Retd.) was appointed as an Arbitrator in the case and the learned Arbitrator passed the impugned Award on 31.08.2005. 8. The impugned Award is being challenged inter-alia on the following grounds; (a) “That award impugned in application is against the law and facts of the case, as such, is required to be set aside. (b) That the learned Arbitrator has dealt with a dispute not contemplated by or not falling with the terms of the submissions to arbitration and it contains decisions on matters beyond the scope of the submissions to arbitration. (c) That the impugned award is patently against the public policy of the State as the same was affected by fraudulent means, which shall cause huge loss to the public exchequer. (d) That the learned Arbitrator has not appreciated the counter claim put forth by the petitioner and exceeded jurisdiction in allowing the claims of the respondent. Further, it is submitted that the learned Arbitrator has not appreciated the evidence in proper perceptive, which led to the passing of the impugned award. (e) That after the execution of the agreement, the future relationship between the parties will be regulated by the agreement as well as the clauses of the tender notice which form part and parcel of the agreement. The language of the agreement as well as the clauses of the tender notice being unambiguous, the principles of natural justice cannot be invoked for determining the rights and obligations of the parties to the contract. The principles of law ‘caveat emptor’ (buyer be aware) leaves no scope for the contractor to take the plea that the bags have out lived their utility when he had a right of inspection before submitting the tender, coupled with the fact that in the documents executed, the contractor had to lift the bags on the expressed condition of “as is where is basis”. (f) That a conjoint reading of the tender notice as well as the agreement leaves no scope for the contractor to file representation. (f) That a conjoint reading of the tender notice as well as the agreement leaves no scope for the contractor to file representation. He has to be bound by the agreement as well as the NIT and in case of default the penalty clauses in the tender notice as well as in the agreement can be invoked, particularly clause 19 of the tender notice read with para 9 of the agreement which empowers the Department to go for re-tender in the event the contractor doesn’t fulfill his contractual obligation and such re-tender shall be at the cost, risk and responsibility of the contractor”. 9. Mr. D.C. Raina, learned Advocate General appearing for the applicant while reiterating the contentions raised and grounds urged in the instant application would pray for setting aside of the impugned award, while as Mr. M.I. Dar, appearing counsel for the respondent would controvert the contentions raised and grounds urged by the learned Advocate General and pray for dismissal of the application. 10. Heard learned counsel for the parties and perused the record. 11. Before adverting to the grounds of challenge urged in the instant application by the applicant it would be appropriate to refer to the relevant part of Section 34 of the Act hereunder; “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). Application for setting aside arbitral award— (1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3). (2) An arbitral award may be set aside by the Court only if— (a) the party making the application furnishes proof that— (i) a party was under some incapacity; or (ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or (iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decision 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; of (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 the State. Explanation—Without prejudice to the generality of sub-clause (ii) of clause (b), it is hereby declared for the avoidance of any doubt, that an award is in conflict with the public policy, of the State if the making of the award was induced or affected by fraud or corruption or was in violation of Section 58 or Section 64.” 12. In regard to the ambit and scope of Section 34 of the Act, a reference hereunder to the judgment of the Apex Court titled as PSA SICAL Terminals Pvt. Ltd. Vs. Board of Trustees of V. O. Chidambranar Port Trust Tuticorin and Ors. In regard to the ambit and scope of Section 34 of the Act, a reference hereunder to the judgment of the Apex Court titled as PSA SICAL Terminals Pvt. Ltd. Vs. Board of Trustees of V. O. Chidambranar Port Trust Tuticorin and Ors. reported in 2021 SCC Online SC 508 would be relevant and germane herein wherein at Para 43, 44, 45 following has been noticed and observed:- 43. It will thus appear to be a more than settled legal position, that in an application under Section 34, the court is not expected to act as an appellate court and reappreciate the evidence. The scope of interference would be limited to grounds provided under Section 34 of the Arbitration Act. The interference would be so warranted when the award is in violation of “public policy of India”, which has been held to mean “the fundamental policy of Indian law”. A judicial intervention on account of interfering on the merits of the award would not be permissible. However, the principles of natural justice as contained in Section 18 and 34 (2) (a) (iii) of the Arbitration Act would continue to be the grounds of challenge of an award. The ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the “most basic notions of morality or justice”. It is only such arbitral awards that shock the conscience of the court, that can be set aside on the said ground. An award would be set aside on the ground of patent illegality appearing on the face of the award and as such, which goes to the roots of the matter. However, an illegality with regard to a mere erroneous application of law would not be a ground for interference. Equally, reappreciation of evidence would not be permissible on the ground of patent illegality appearing on the face of the award. 44. A decision which is perverse, though would not be a ground for challenge under “public policy of India”, would certainly amount to a patent illegality appearing on the face of the award. However, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. 45. However, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. 45. To understand the test of perversity, it will also be appropriate to refer to paragraph 31 and 32 from the Judgment of this Court in Associate Builders (supra), which read thus: “31. The third juristic principle is that a decision which is perverse or so irrational that no reasonable person would have arrived at the same is important and requires some degree of explanation. It is settled law that where: (i) a finding is based on no evidence, of (ii) an Arbitral Tribunal takes into account something irrelevant to the decision necessarily be perverse. 32. A good working test of perversity is contained in two Judgments. In Excise and Taxation Officer-cum-Assessing Authority v. Gopi Nath and Sons (1992 Supp (2) SCC 312), it was held: (SCC p. 317, para 7) “7. …. It is, no doubt, true that if a finding of fact is arrived at by ignoring or excluding relevant material or by taking into consideration irrelevant material or if the finding so outrageously defies logic as to suffer from the vice of irrationality incurring the blame of being perverse, then, the finding is rendered infirm in law.” In Kuldeep Singh v. Commr. of Police (1999) 2 SCC 10 : 1999 SCC (L&S) 429), it was held: (SCC p. 14, para 10) “10. A broad distinction has, therefore, to be maintained between the decisions which are perverse and those which are not. If a decision is arrived at on no evidence or evidence which is thoroughly unreliable and no reasonable person would act upon it, the order would be perverse. But if there is some evidence on record which is acceptable and which could be relied upon, howsoever compendious it may be, the conclusions would not be treated as perverse and the findings would not be interfered with.” 13. Keeping in mind the provision of Section 34 of the Act, and the principles of law enunciated and laid down by the Apex Court in the judgment supra, the impugned award may be examined having regard to the grounds of challenge urged in the instant application. 14. Keeping in mind the provision of Section 34 of the Act, and the principles of law enunciated and laid down by the Apex Court in the judgment supra, the impugned award may be examined having regard to the grounds of challenge urged in the instant application. 14. Before proceeding further in the matter, a brief reference to few relevant provisions and conditions of the tender notice (NIT) dated 31-01-2003 and terms of the agreement entered into by the parties herein need to be made hereunder; Detailed tender notice “For and on behalf of the Governor of J&K State, sealed tenders affixed with two-rupee revenue stamps are invited from the registered firms/contractors for purchase of empty gunny bags numbering 118.73 lacs (status given below) from the Food and Supplies Department (Kashmir) Srinagar lying in the Central godowns at Lethpora/Gulab Bagh. The successful tenderer has to lift the bags on ‘as is where is basis’. 18. The successful tenderer shall have to lift the empty bags against advance payment within three months extendible by a month or more by the Govt. on genuine and justified reasons. 21. The bags intended for sale which are put to tender can be inspected by the intending tenderers in the godown of the Food and Supplies department on any working day before the last date of submitting of tenders and godowns will be kept under the double lock after the contract is allotted to the successful tenderer/party/firm”. Agreement 3. “That the contractor undertakes to lift the allotted number of empty gunny bags (118.73 lacs) in the proportionate and equal percentage manner as per the classification mentioned in NIT so that out of all the eight categories as mentioned in NIT empty gunny bags are lifted by contractor from each category. 5. All the toll taxes, dharat and any other taxes/charges under any law whatsoever in respect of purchase of empty gunny bags under any state or central law for the time being in force, shall be borne by the contractor himself. 7. In addition to the terms and conditions stipulated in this agreement deed, the terms and conditions of NIT No. DFSK/Adm/Gs-EGB/Sale/2002 dated 31-01-2003 shall also be completely binding upon the contractor and same shall form as part of this agreement deed and shall be acceptable to the parties”. 15. 7. In addition to the terms and conditions stipulated in this agreement deed, the terms and conditions of NIT No. DFSK/Adm/Gs-EGB/Sale/2002 dated 31-01-2003 shall also be completely binding upon the contractor and same shall form as part of this agreement deed and shall be acceptable to the parties”. 15. The first two grounds of challenge urged in the application are that the award is against law and facts and that the Arbitrator dealt with the dispute not contemplated by or not falling with the terms of the submissions to the arbitration and that the award contained decisions on matters beyond the scope of submission to arbitration. Perusal of the record indisputably tends to show that the NIT issued by the applicant herein provided for lifting of bags on ‘as is where is basis’ and that the said bags were open to inspection by the tenderers before submitting their tender documents and that after the allotment of the contract to the successful tenderer/party/firm, the godown where the bags had to remain under the double lock. The said conditions and their effect upon the parties in general and the respondent in particular even though noticed by the Arbitrator in the impugned award yet have been overlooked. The Arbitrator so much so has even failed to appreciate the said conditions in their true and correct perspective particularly clause 21 of the NIT and its import which provided for inspection of the stocks/gunny bags by the tenderers. There has been no denial to the said position by the non-applicant before the Arbitrator. The non-applicant has accepted the gunny bags after its inspection with open eyes with the condition incorporated in the NIT i.e., ‘as is where is basis’. The non-applicant thus, could not have questioned the status or quality of the gunny bags after having lifted a huge quantity thereof in the process of execution of the contract and consequently lodged a claim in this regard before the Arbitrator. The Arbitrator seemingly has not appreciated the said position of the non-applicant who had accepted the said terms and conditions being bound by them and that the non-applicant estopped from denying the terms and conditions of the NIT and agreement set out in this regard and in law is precluded by way of his actions and conduct from asserting any right thereof. A reference in regard to above to the Judgment of the Apex Court passed in case titled as “Punjab Urban Planning and Development Authority and Ors. vs. Raghu Nath Gupta and Ors. reported in (2012) 8 SCC 197 would be relevant and germane herein. 16. The next ground of challenge urged in the application is that the impugned award is patently against public policy and that the same shall be causing huge loss to the public exchequer. Perusal of the record tends to show that the non-applicant herein after complying with all requisite formalities in response to the NIT and in the process of execution of the contract of lifting of gunny bags lifted around 40% of the same within nine months instead of stipulated period of three months upon seeking and availing extension of time from the applicant without any protest or objection about the quality of the gunny bags and admittedly joined an issue in this regard thereafter. The Arbitrator has overlooked this position as well and so much so the evidence on record which manifestly demonstrated that the non-applicant did not raise any objection qua the quality of gunny bags till the non-applicant lifted a major chunk/part of the bags and also after seeking and availing extended period of contract. The award thus, can safely be said to have been passed with patent illegality i.e., in contravention of the terms of the contract and in conflict of public policy of the State. 17. The award thus, can safely be said to have been passed with patent illegality i.e., in contravention of the terms of the contract and in conflict of public policy of the State. 17. In so far as the other grounds urged in the application are concerned whereunder it is urged that the Arbitrator did not appreciate counter claim put forth by the applicant herein and exceeded jurisdiction in allowing the claims of the non-applicant and that the Arbitrator failed to appreciate that upon execution of the agreement between the applicant and the non-applicant, their relationship had to be regulated by the said agreement as well as the terms and conditions set out in the tender notice and for the purposes of determining their rights and interests arising out of the said agreement and the terms and conditions of the NIT and that the non-applicant could not have taken up a plea about the status of the gunny bags after having availed a right of inspection stipulated in the tender notice and in recognition of the same having executed the agreement as well subjecting itself to the terms and conditions of the NIT and the agreement. As has been noticed in the preceding Paras, and at the cost of risking repetition record manifestly demonstrate that the non-applicant upon being satisfied with the quality and quantity of the gunny bags entered into the agreement with the applicant as a token of acceptance of the terms and conditions set out in the NIT with open eyes and without reserving any right whatsoever thereof. The Arbitrator has while overlooking the said position inasmuch as the evidence on record therefore fallen in error and passed a perverse award having taken into account factors extraneous to the controversy consisting and comprising of the provisions of the J&K Financial Code (appendix 12) inasmuch as communications addressed by the staff of Chief Minister to the Finance Department and followed by a communication addressed to the Commissioner Secretary to Government Food and Supplies Department under UO No. DA/Adit/Cood/289 dated 18-11-1998 as also a report of the Committee of Directorate of Food and Supplies constituted for classification of stocks/gunny bags under No. 32-DFSK of 1999 dated 07-05-1999 as also the remarks of the Minister CAPD in his note dated 8th April, 2004 providing therein as to whether the issue will not be against the natural justice and fair play and that while interpreting clause ‘as is where is basis’, damaged bags can be supplied. The Arbitrator seems to have got influenced by the said factors ignoring the settled agreed and accepted terms and conditions set out in the NIT as also the agreement entered into between the parties. The findings arrived at by the Arbitrator in this regard thus suffer from vice of irrationality and perversity. Further the Arbitrator while passing the impugned award has in essence acknowledged the blowing of hot and cold of the non-applicant ignoring that the non-applicant voluntarily and knowingly accepted the terms and conditions of the NIT and those set out in the agreement till lifting of around 40% of the bags without any objection or a whisper and then finding fault with the bags thereafter more so after availing extension of stipulated time of the contract from three months to nine months. The principles of natural justice invoked by the Arbitrator and held applicable to the case of the non-applicant has been misplaced and misdirected in the facts and circumstances of the case having regard to the aforesaid position. Furthermore, law is no more res integra that for the construction of a contract, the intention of parties is to be gathered from the words used in the agreement and that in arbitration proceedings, the tribunal is required to decide the dispute in accordance with the terms of the contract. The Arbitrator however, while passing the impugned award has failed to consider this settled legal position while arbitrating outside the terms of the contract. The Arbitrator however, while passing the impugned award has failed to consider this settled legal position while arbitrating outside the terms of the contract. The Arbitrator has no power apart from what the parties had given him under the contract, as such, the Arbitrator has acted beyond and without jurisdiction. 18. Viewed thus what has been observed, considered and analyzed herein above, the impugned award is not legally sustainable and is liable to be set aside. Accordingly, the impugned award dated 31-08-2005 passed by Justice Mr. K.K. Gupta (Retd.) is set aside.