Telangana High Court
Bharath Sanchar Nigam Limited vs K.Sudhakar And Anr on 18 April, 2024
THE HONOURABLE SMT. JUSTICE M.G.PRIYADARSINI
CIVIL MISCELLANEOUS APPEAL No.284 OF 2012
J U D G M E N T:
Aggrieved by the Order dated 30.11.2011 in Original Petition No.226 of 2007 (impugned Order) passed by the learned Principal District Judge at Nalgonda, wherein the application filed by appellant to set aside the Award dated 25.09.2006 passed by learned Arbitrator-respondent No.2, was dismissed.
02. For the sake of convenience, hereinafter, the parties will be referred as per their array before the learned Arbitrator.
03. Respondent-Barath Sanchar Nigam Limited (BSNL), represented by the General Manager, Telecom, Nalgonda issued seal tenders from the experienced civil contractors for the digging trenches, laying underground cables, carrying out jointing, erection of DPs, termination at Pillars, DPs etc. for the divisions of Nalgonda (Rural&Urban), Miryalaguda, Bhongir, Suryapet, Kodad and Devarakonda. Claimant was the successful tenderer 2 for the said works for Suryapet Division. As per the Clause 28 of the Tender Schedule, the agreement should be executed by and in between respondent and claimant on stamp paper of Rs.100/- but the agreement was written on a stamp paper of Rs.20/-. Further, agreement does not contain the signature of respondent-BSNL, so, there is no agreement of contract between the BSNL and the successful tenderer. A dispute arose with regard to payment of Interest on the alleged delayed payments for the work done by Claimant for Nalgonda District.
04. Initially, the matter was referred to the Chief General Manager, BSNL, Hyderabad, for settlement of pending bills. On 27.05.2004, a Committee was constituted consisting of DMG, HTD as Chairman, CAO, Central HTD, AGM (L&B), DM, DE (Planning), CO, Hyderabad, and after hearing the parties, the Committee directed BSNL to pay the bills but at the time of hearing, Claimant did not raise the issue of payment of interest on the alleged bills. Further, on 20.08.2004 after hearing both sides, pending bills were settled. At that time, 3 Claimant has not claimed any interest on the delayed amounts on the ground of delay in payment of the bills. He received amount without any protest. Claimant referred the matter to the learned Arbitrator i.e., respondent No.2 as per Clause-6 of the Tender Notice, in the agreement to appoint an Arbitrator accordance with the Arbitration and Reconciliation Act, 1996. As per Section 7 of the Arbitration and Conciliation Act, 1996, the nature of dispute should be referred by both the parties to the Arbitrator in writing on a stamped paper worth of Rs.100/- and it should contain signatures of both parties agreeing to refer the disputed between to a particular Arbitrator and the said Arbitrator should give his consent for settling the dispute.
05. Claimant approached this Court by way of Writ Petition in W.P.No.8252 of 2004 and this Court vide Orders dated 03.12.2004 granted leave to Claimant for approaching appropriate forum for redressal in view of arbitration clause in Tender Agreement. Pursuant to the Orders of this Court, the learned Arbitrator-respondent 4 No.2 was appointed for settlement of disputes. Notices were issued to the parties. After giving reasonable opportunities to both sides and after duly considering the facts and consequences of the case, the learned Arbitrator passed an Award dated 25.09.2006 holding that Claimant is entitled for interest on delayed payments and the computation of interest was passed.
06. Aggrieved by the same, petitioner-BSNL filed Original Petition No.226 of 2007 on the file of the learned Principal District Judge at Nalgonda, however, the same was dismissed vide Order dated 30.11.2011. Aggrieved by the same, appellant-BSNL has filed the present Civil Miscellaneous Appeal to set aside the impugned Order dated 30.11.2011.
07. Heard Dr. Pundla Bhasakara Mohan, learned counsel for appellant-BSNL and Sri K.R. Koteswara Rao, learned counsel for respondent No.1-Claimant and perused the record available before this Court. 5
08. Now the point for consideration is:
Whether the impugned Order dated 30.11.2011 in Original Petition No.226 of 2007 passed by the learned Principal District Judge at Nalgonda, is liable to be set aside?
P O I N T:
09. The first and foremost contention of learned counsel for appellant-BSNL is that the agreement should be executed by both parties on a stamp paper of the value of Rs.100/- but it was executed on a stamp paper of Rs.20/- and the same was not signed by appellant. It is further submitted that the arbitral Award shall be written on a stamp paper duly stamped but the same was not done by the learned Arbitrator. Therefore, the agreement itself is void and the Award is liable to be set aside on this ground alone.
10. The Honourable Supreme Court of India in M/s.N.N.Global Mercantile Private Limited v. M/s.Indo Unique Flame Limited and others 1 while dealing with the aspect of stamp duty on agreement, referred a decision in 1 Civil Appeal No(s).3802-3803 of 2020 decided on 25.04.2023 6 N.N.Global Mercantile Private Limited v. Indo Unique Flame Limited and others 2 wherein it was held that:
"The Bench in N.N.Global (supra) went on to hold as follows:
"26. In our view, there is no legal impediment to the enforceability of the arbitration agreement, pending payment of stamp duty on the substantive contract. The adjudication of the rights and obligations under the work order or the substantive commercial contract would, however, not proceed before complying with the mandatory provisions of the Stamp Act.
27. The Stamp Act is a fiscal enactment for payment of stamp duty to the State on certain classes of instruments specified in the Stamp Act. Section 40 of the Stamp Act, 1899 provides the procedure for instruments which have been impounded, and sub-section (1) of Section 42 requires the instrument to be endorsed after it is duly stamped by the Collector concerned. Section 42(2) provides that after the document is duly stamped, it shall be admissible in evidence, and may be acted upon.
28. In our view, the decision in SMS Tea Estates [SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66 : (2012) 4 SCC (Civ) 777] does not lay down the correct position in law on two issues i.e. : (i) that an arbitration agreement in an unstamped commercial contract cannot be acted upon, or is rendered unenforceable in law; and (ii) that an arbitration agreement would be invalid where the contract or instrument is voidable at the option of a party, such as under Section 19 of the Contract Act, 1872.
2 (2021) 4 SCC 379 7
29. We hold that since the arbitration agreement is an independent agreement between the parties, and is not chargeable to payment of stamp duty, the non-payment of stamp duty on the commercial contract, would not invalidate the arbitration clause, or render it unenforceable, since it has an independent existence of its own. The view taken by the Court on the issue of separability of the arbitration clause on the registration of the substantive contract, ought to have been followed even with respect to the Stamp Act. The non-payment of stamp duty on the substantive contract would not invalidate even the main contract. It is a deficiency which is curable on the payment of the requisite stamp duty."
11. In the above authority, the Honourable Supreme Court had made it clear that the arbitration agreement is an independent agreement between the parties, and is not chargeable to payment of stamp duty, the non-payment of stamp duty on the commercial contract, would not invalidate the arbitration clause, or render it unenforceable, since it has an independent existence of its own. Moreover, the non-payment of stamp duty on the substantive contract would not invalidate even the main contract. It is a deficiency which is curable on the payment of the requisite stamp duty. 8
12. In the case on hand, the plea of non-payment of stamp duty was not taken at threshold before the learned Arbitrator and the said plea was introduced before the learned Principal District Judge, Nalgonda. However, in view of the above settled position of law, the non-payment of stamp duty on the substantive contract would not invalidate even the main contract.
13. The Honourable Apex Court in M. Anasuya Devi v. M Manik Reddy 3 held that:
"After we heard the matter, we are of the view that in the present case this issue was not required to be gone into at the stage of proceedings under Section 34 of the Act. In fact, this issue was pre-mature at that stage. Section 34 of the Act provides for setting aside of the Award on the ground enumerated therein. It is not dispute that an application for setting aside the Award would not lie on any other ground, which is not enumerated in Section 34 of the Act. The question as to whether the Award is required to be stamped and registered, would be relevant only when the parties would file the Award for its enforcement under Section 36 of the Act. It is at this stage the parties can raise objections regarding its admissibility on account of non- registration and non-stamping under Section 17 of the Registration Act. In that view of the matter the exercise undertaken to decide the said issue by the Civil Court as also by the High Court was 3 2003 (9) SCALE 12 9 entirely an exercise in futility. The question whether an Award requires stamping and registration is within the ambit of Section 47 of the Code of Civil Procedure and not covered by Section 34 of the Act."
14. In the above authority, the Honourable Supreme Court made it crystal clear that the non-stamping of the Arbitral Award can be objected at the enforcement stage of such award under Section 36 of the Act but not at the stage of raising objection under Section 34 of the Act. In other words, the aggrieved party can take such a plea at the enforcement stage but not in proceedings under Section 34 of the Act.
15. It is pertinent to state here that there is no dispute regarding execution of work and payments made by respondent for the work done by claimant. Dispute arose only with regard to payment of interest for the delayed payments on bills submitted by claimant. As seen from the Award, the learned Arbitrator has given a finding that the delay caused in making the payments unwarranted with no justifiable grounds for the reason that even after many investigations. In so far as execution 10 of works is concerned, respondent could not find any flaw with claimant. Award passed by the learned Arbitrator is a well-reasoned one. Moreover, the material on record would not give any scope to doubt that the learned Arbitrator has acted beyond his jurisdiction or was biased and that he violated the principles of natural justice. Equal opportunity given to the parties is evident from the correspondence made by the learned Arbitrator and the manner in which the proceedings were conducted.
16. The scope of interfering with the arbitration award is very limited until and unless there is error apparent on the face of the record and there is perversity in the award. The expression public policy was of wider amplitude and hence, where award passed by the learned Arbitrator was against the terms of the contract or against the law of land for the time bearing in force, such an award is against the public policy of India and is liable to be set aside under Section 34 of the Act.
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17. The Honourable Supreme Court in NTPC Limited v. Deconar Services Private Limited 4, held as under:
"12. Further, it is also a settled proposition that where the arbitrator has taken a possible view, although a different view may be possible on the same evidence, the Court would not interfere with the award. This Court in Arosan Enterprises Ltd.v. Union of India, (1999) 9 SCC 449 held as follows:
'36. Be it noted that by reason of a long catena of cases, it is now a well - settled principle of law that reappraisal of evidence by the Court to re- appraise the evidence is known to proceedings under Section 30 of the Arbitration Act. In the event of there being no reasons in the award, question of interference of the court would not arise at all. IN the event, however, there are reasons, the interference would still be not available within the jurisdiction of the court unless of course, there exist a total perversity in the award or the judgment is based on a wrong proposition of law. IN the event however two views are possible on a question of law as well, the Court would not be justified in interfering with the award.
37. The common phraseology "error apparent on the face of the record" does not itself, however, mean and imply closer scrutiny of the merits of documents and materials on record. The Court as a matter of fact, cannot substitute its evaluation and come to the conclusion that the arbitrator had acted contrary to the bargain between the parties. If the view of the arbitrator is a possible view the award or the reasoning contained therein cannot be examined...' 4 2021 SCC OnLine SC 498...12
From the above pronouncements, and from a catena of other judgments of this Court, it is clear that for the objector/appellant in order to succeed in their challenge against an arbitral award, they must show that the award of the arbitrator suffered from perversity or an error of law or that the arbitrator has otherwise misconducted himself. Merely showing that there is another reasonable interpretation or possible view on the basis of the material on the record is insufficient to allow for the interference by the Court."
18. Even in the case on hand, there is no material to show that there is an error apparent on the face of the record or that there is perversity in award. Moreover, when two views are possible on a question of law as well, the Court would not be justified in interfering with the award. In the case on hand, there is no question of law involved in this case. In fact, all the grounds raised by the learned counsel for appellant are based on questions of fact and they are not based on question of law. Furthermore, even for the sake of arguments, if any questions of law are involved in the case on hand, as held above, when two views are possible, there is no justification on the part of the Court to interfere with the award.
19. It is apt to mention here that in Delhi Airport Metro Express Private Limited v. Delhi Metro Rail 13 Corporation Limited 5, the Honourable Supreme Court held as under:
"23. For a better understanding of the role ascribed to Courts in reviewing arbitral awards while considering the application under Section 34 of the 1996 Act, it would be relevant to refer to a judgment of this Court in Ssangyong Engineering and Construction Co. Limited v. National Highways Authority of India (NHAI) MANU/SC/0705/2019:
(2019) 15 SCC 131 where R.F. Nariman, J. has in clear terms delineated the limited area for judicial interference, taking into account the amendments brought about by the 2015 Amendment Act. The relevant passages of the judgment in Ssangyong (supra) are noted as under;
"34. What is clear, therefore, is that the expression "public policy of India", whether contained in Section 34 or in Section 48, would now mean the "fundamental policy of Indian law" as explained in paras 18 and 27 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49: (2015) 2 SCC (Civ) 204] i.e. the fundamental policy of Indian law would be relegated to "Renusagar" understanding of this expression. This would necessarily mean that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] expansion has been done away with. In short, Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 :
(2014) 5 SCC (Civ) 12] ,as explained in paras 28 and 29 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , would no longer obtain, as under the guise of interfering with an award on the ground that the arbitrator has not adopted a judicial approach, the Court's intervention would be on the merits of the award, which cannot be permitted post amendment.
However, insofar as principles of natural 5 2022 Live Law (SC) 452 14 justice are concerned, as contained in Sections 18 and 34(2) (a)(iii) of the 1996 Act, these continue to be grounds of challenge of an award, as is contained in para 30 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] .
35. It is important to notice that the ground for interference insofar as it concerns "interest of India" has since been deleted, and therefore, no longer obtains. Equally, 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". This again would be in line with paras 36 to 39 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , as it is only such arbitral awards that shock the conscience of the court that can be set aside on this ground.
36. Thus, it is clear that public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as understood in paras 18 and 27 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49: (2015) 2 SCC (Civ) 204], or secondly, that such award is against basic notions of justice or morality as understood in paras 36 to 39 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] .
37. Insofar as domestic awards made in India are concerned, an additional ground is now available under sub-section (2-A), added by the Amendment Act, 2015, to Section 34. Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law. In short, what is not 15 subsumed within "the fundamental policy of Indian law", namely, the contravention of a statute not linked to public policy or public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality.
38. Secondly, it is also made clear that reappreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award.
39. To elucidate, para 42.1 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Para 42.2 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award.
40. The change made in Section 28(3) by the Amendment Act really follows what is stated in paras 42.3 to 45 in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204] , namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair-minded or reasonable person would; in short, that the arbitrator's view is not even a possible view to take. Also, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under Section 34(2-A).16
41. What is important to note is that a decision which is perverse, as understood in paras 31 and 32 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , while no longer being a ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award. Thus, 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. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse."
24. This Court has in several other judgments interpreted Section 34 of the 1996 Act to stress on the restraint to be shown by courts while examining the validity of the arbitral awards. The limited grounds available to courts for annulment of arbitral awards are well known to legally trained minds. However, the difficulty arises in applying the well-established principles for interference to the facts of each case that come up before the courts. There is a disturbing tendency of courts setting aside arbitral awards, after dissecting and reassessing factual aspects of the cases to come to a conclusion that the award needs intervention and thereafter, dubbing the award to be vitiated by either perversity or patent illegality, apart from the other grounds available for annulment of the award. This approach would lead to corrosion of the object of the 1996 Act and the endeavours made to preserve this object, which is minimal judicial interference with arbitral awards. That apart, several judicial pronouncements of this Court would become a dead letter if arbitral awards are set aside by categorising them as perverse or patently illegal without appreciating the contours of the said expressions. 17
25. Patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the Arbitral Tribunal would not fall within the expression 'patent illegality'. Likewise, erroneous application of law cannot be categorised as patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the scope of the expression 'patent illegality'. What is prohibited is for courts to re-appreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as courts do not sit in appeal against the arbitral award. The permissible grounds for interference with a domestic award under Section 34(2-A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one, or interprets a clause in the contract in such a manner which no fair-minded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression 'patent illegality'.
26. Section 34 (2) (b) refers to the other grounds on which a court can set aside an arbitral award. If a dispute which is not capable of settlement by arbitration is the subject-matter of the award or if the award is in conflict with public policy of India, the award is liable to be set aside. Explanation (1), amended by the 2015 Amendment Act, clarified the expression 'public policy of India' and its connotations for the purposes of reviewing arbitral awards. It has been made clear that an award would be in conflict with public policy of India only when it is induced or affected by fraud or corruption or is in violation of Section 75 or Section 81 of the 1996 Act, if it is in contravention with the fundamental policy of Indian law or if it is in conflict with the most basic notions of morality or justice."
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20. In the above said authority, it was elaborately discussed with regard to patent illegality and public policy. It was held that the contravention of a statute not linked to public policy or public interest, which cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality.
21. It was also made clear that re-appreciation of evidence cannot be permitted under the ground of patent illegality appearing on the face of the award. The expression 'public policy of India' and its connotations for the purposes of reviewing arbitral awards were made clear in the 2015 Amendment Act, from which it can be culled out that an award would be in conflict with public policy of India only when it is induced or affected by fraud or corruption or is in violation of Section 75 or Section 81 of the 1996 Act, if it is in contravention with the fundamental policy of Indian law or if it is in conflict with the most basic notions of morality or justice. But in the instant case on hand, it is not brought to the notice of this Court about any fraud or corrupt practice adopted during the course of 19 transaction between the parties in violation of Section 75 or Section 81 of the 1996 Act.
22. Even appellant failed to bring to the notice of this Court that there is any patent illegality on the face of the record or that the learned Arbitrator has committed illegality or irregularity while passing the impugned arbitral award. In such circumstances, this Court is of the considered view that the learned Arbitrator after adjudicating all the aspects has rightly passed the impugned award and the interference of this Court in the impugned award is unwarranted, more particularly, when the scope of interference in the arbitral awards passed under Sections 34 and 37 of the Arbitration and Conciliation Act, is very minimum.
23. In view of the above facts and circumstances, viewed from any angle, this Court is of the opinion that the learned Arbitrator after considering all the aspects has passed the impugned Award and there is no illegality or irregularity in the proceedings conducted by the learned Arbitrator. The tests laid down by the Honourable Apex 20 Court with regard to public policy are very much fulfilled by the Arbitrator. There is no violation with regard to the fundamental policy of Indian Law. Therefore, appellant failed to make out any of the grounds to set aside the impugned Award, which was confirmed by way of the impugned Order dated 30.11.2011 in Original Petition No.226 of 2007 (impugned Order) passed by the learned Principal District Judge at Nalgonda. There are no merits in the Civil Miscellaneous Appeal and accordingly, the same is liable to be dismissed.
24. Accordingly, the Civil Miscellaneous Appeal is dismissed. There shall be no order as to costs.
As a sequel, pending Miscellaneous applications, if any, shall stand closed.
______________________________ JUSTICE M.G.PRIYADARSINI Date: 18-APR-2024 KHRM