Bombay High Court
M/S. R.S. Jiwani vs Government Of India Undertaking ... on 16 December, 2009
Bench: A.M. Khanwilkar, S.C. Dharmadhikari
1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL NO.245 OF 2009
IN
ARBITRATION PETITION NO.347 OF 2005
M/s. R.S. Jiwani, a proprietorship firm
and having its office at Narayan Niwas,
2nd floor, 2nd Khetwadi Lane, Mumbai. .. Appellant
(Orig.Respdts./claimants)
versus
Ircon International Ltd., a
Government of India Undertaking and a
body corporate having its registered
address at Palika Bhavan, Sector 13,
R.K. Puram, New Delhi 400 066 and their
regional office at 7th floor,
New Administrative Building,
Dr. D.N. Road, Mumbai-400 001. .. Respondent
(Orig.petitioner/respondent)
ALONGWITH
ARBITRATIN PETITION NO.457 OF 2006
1. Hathway Cable & Datacom Private Limited
a company registered under the Companies
Act, 1956, having its Registered Office at
"Rahejas", 04th Floor, Corner of Main Avenue &
V.P. Road, Santa Cruz (West), Mumbai-400054.
2. Vision India Network Private Limited, .. Petitioners
a company registered under the Companies
Act. 1956, having its Registered Office at
No.8, "Vinayak Complex", 11th floor,
::: Downloaded on - 09/06/2013 15:25:28 :::
2
Dinnar Main Road, R.T. Nagar,
Bangalore-560 032.
versus
Mr. V.G. Selvan, .. Respondent
Proprietor M/s. Jai Sky Links
an Indian Inhabitant, residing at
No.37, Muninanjappa Layout,
3rd Croxx, Dinnur, R.T. Nagar Post,
Bangalore -560 032.
ALONGWITH
ARBITRATIN PETITION NO.370 OF 2008
Mr. Victor G. Selvan, .. Petitioner
of Bangalore, Indian Inhabitant,
having his address at No.37, Muninanjappa Layout,
3rd Cross, Dinnur, R.T. Nagar Post,
Bangalore -560 032.
versus
1. Hathway Cable & Datacom Private Limited
(formerly known as Chicks Display Services
Pvt.Ltd.) a company registered under the
Companies Act, 1956, having its Registered
Office at "Rahejas", 04th Floor,
Corner of Main Avenue, V.P. Road,
Santa Cruz (West), Mumbai-400054.
2. Vision India Network Private Limited, .. Respondents
a company registered under the Companies
Act. 1956, having its Registered Office at
No.8, "Vinayak Complex", 11th floor,
::: Downloaded on - 09/06/2013 15:25:28 :::
3
Dinnar Main Road, R.T. Nagar,
Bangalore-560 032.
Mr. Nitin Thakkar, Senior Advocate with Mr. Markand Gandhi, Mr.
Gaurav Joshi, Mr. Kapil Moye, Ms. Tanvi Gandhi, Mr. Satyen Vora, Mr.
Prashant Ghelani and Mr. Rohan Yagnik i/by M/s. M. Gandhi & Co. for
the appellant.
Mr. P.K. Samdani, Senior Advocate with Ms. Saumya Srikrishna, Mr.
B.R. Palav, Mr. Aditya Mehta and Mr. Arun Siwach i/by M/s. A.M. &
S.A. Shroff for the respondent.
Mr. S.U. Kamdar with Mr. Hetal Thakore, Ms. Jyoti Ghag, Ms. Pooja
Patil and Mr. Pranav Sampat i/by M/s. Thakore Jariwala & Associates
for the petitioner in Arb. Petn. No.457 of 2006 and for respondent No.
Arb. Petn. No.370 of 2006.
CORAM : SWATANTER KUMAR, C.J.
A.M. KHANWILKAR &
S.C. DHARMADHIKARI, JJ.
JUDGMENT RESERVED ON : 27TH NOVEMBER, 2009
JUDGMENT PRONOUNCED ON : 16TH DECEMBER, 2009
JUDGMENT (Per Swatanter Kumar, C.J.)
The Law of Arbitration was earlier governed by Indian
Arbitration Act, 1899. The Code of Civil Procedure, 1908 also provided
for arbitration as Special Proceedings in the following terms:
"89. Arbitration.- (1) Save in so far as is otherwise
provided by the Indian Arbitration Act, 1899; or by any
other law for the time being in force, all references to
arbitration whether by an order in suit or otherwise,
and all proceedings thereunder, shall be governed by
the provisions contained in the Second Schedule.
(2) The provisions of the Second Schedule
shall not affect any arbitration pending at the
commencement of this Code, but shall apply to any
arbitration after that date under any agreement or
reference made before the commencement of this
Code."
The said provision however, was repealed by section 49 and Schedule
III of Arbitration Act (10 of 1940). The Arbitration Act of 1940 itself
was repealed by section 85 of the Arbitration and Conciliation Act,
1996, hereinafter referred to as the `Act'. This Act comprehensively
amended the then existing law in relation to arbitration and provided
for a complete methodology and mechanism which would govern right
from the stage of constitution of the Arbitral Tribunal to enforcement
of the Award of the Arbitral Tribunal with least interference of the
court.
2. Principal of mutability is equally applicable to the Legislation as
well. The Legislature is always expected to examine the needs of the
society and amend, modify and enact laws accordingly. Looking into
the legislative history, the Law of Arbitration in India was
unsatisfactory and, in fact, quite non-existent which persuaded the
Legislature to enact the Arbitration Act, 1899 which was quite similar
to the English Arbitration Act, 1899. This probably was the beginning
of enforcement of Law of Arbitration in India but at that time, the
reference to arbitration was primarily permissible with intervention of
the court. The 1899 Act was applicable to presidency towns and its
scope was confined to, "arbitration by agreement" without intervention
of the court where it was so made applicable by the Provincial
Government. Later Law of Arbitration gained momentum in India and
need for its application in commercial as well as non-commercial
disputes was felt at different quarters. The Act of 1940 was not able to
attain effective results and thinkers in the field of arbitration felt that
the 1940 Act suffered from number of inadequacies in law as well as in
practice. Not only this, the Supreme Court in the case of Guru Nanak
Foundations v. Rattan Singh, AIR 1981 SC 2057 while referring to the
Act of 1940 observed, "the way in which the proceedings under the Act
are conducted and without an exception challenged in courts, has
made lawyers laugh and legal philosophers weep" in view of
"unending prolixity, at every stage providing a legal trap to the
unwary." Still in another case in Food Corporation of India v.
Joginderpal, AIR 1981 SC 2075, the Supreme Court observed that, "law
of arbitration must be `simple, less technical and more responsible to
the actual reality of the situations', `responsive to the canons of justice
and fair play'. That being the dictum of law pronounced by the highest
court of the land it made the Law Commission as well as Legislature
and thinkers ponder over the issues rather seriously to consider
amending the law. A proposal was mooted on 27th July, 1977 by
Secretary, Department of Legal Affairs stating that as Public Accounts
Committee had commented adversely on working of the Arbitration Act
due to its delay, enormous expenses and long time spent, Government
was desirous to have a second look to the provision of Arbitration Act,
1940 with a view to see whether the enormous delay occurring in
arbitration proceedings and disproportionate costs incurred therein
could be avoided. This resulted into 76th Report by the Law
Commission of India, November, 1978. 76th Report of the Law
Commission of India, the above referred observations of Supreme
Court and Model UNCITRAL Law were primarily responsible factors
leading to enactment of Arbitration and Conciliation Act, 1996. It will
be useful for the court to examine the objects and reasons of the
Arbitration and Conciliation Act, 1996 which have been stated as
under:
"3. Statement of Objects and Reasons
The Statement of Objects and Reasons appended
to the Arbitration and Conciliation Bill, 1995, reads as
follows:
"1. The law of arbitration in India is at present
substantially contained in three enactments, namely, the
Arbitration Act, 194, the Arbitration (Protocol and
Convention) Act, 1937 and the Foreign Awards
(Recognition and Enforcement) act, 1961. It is widely
felt that the 1940 Act, which contains the general law of
arbitration, has become outdated. The Law Commission
of India, several representative bodies of trade and
industry and experts in the field of arbitration have
proposed amendments to this Act to make it more
responsive to contemporary requirements. It is also
recognized that our economic reforms may not become
fully effective if the law dealing with settlement of both
the domestic and international commercial disputes
remains out of tune with such reforms. Like arbitration,
conciliation is also getting increasing worldwide
recognition as an instrument for settlement of disputes.
There is, however, no general law on the subject in
India.
2. The United Nations Commission on International
Trade Law (UNCITRAL) adopted in 1985 the Model Law
on International Commercial Arbitration. The General
Assembly of the United Nations has recommended that
all countries give due consideration to the said Model
Law, in view of the desirability of uniformity of the law
of arbitral procedures and the specific needs of
international commercial arbitration practice. The
UNCITRAL also adopted in 1980 a set of Conciliation
Rules. The General Assembly of the United Nations has
recommended the use of these Rules in cases where the
disputes arise in the context of international commercial
relations and the parties seek amicable settlement of
their disputes by recourse to conciliation. An important
feature of the said UNCITRAL Model Law and Rules is
that they have harmonized concepts on arbitration and
conciliation of different legal systems of the world and
thus contain provisions which are designed for universal
application.
3. Though the said UNCITRAL Model Law and Rules
are intended to deal with international commercial
arbitration and conciliation, they could, with appropriate
modifications, serve as a model for legislation on
domestic arbitration and conciliation. The present Bill
seeks to consolidate and amend the law relating to
domestic arbitration, international commercial
arbitration, enforcement of foreign arbitral awards and
to define the law relating to conciliation, taking into
account the said UNCITRAL Model Law and Rules.
4. The main objectives of the Bill are as under:
i) to comprehensively cover international
commercial arbitration and conciliation as
also domestic arbitration and conciliation;
ii) to make provision for an arbitral procedure
which is fair, efficient and capable of
meeting the needs of the specific arbitration;
iii) to provide that the arbitral tribunal gives
reasons for its arbitral award;
iv) to ensure that the arbitral tribunal remains
within the limits of its jurisdiction;
v) to minimize the supervisory role of court in
the arbitral process;
vi) to permit an arbitral tribunal to use
mediation, conciliation or other procedures
during the arbitral proceedings to encourage
settlement of disputes;
vii) to provide that every final arbitral award is
enforced in the same manner as if it were a
decree of the court;
viii) to provide that a settlement agreement
reached by the parties as a result of
conciliation proceedings will have the same
status and effect as an arbitral award on
agreed terms on the substance of the dispute
rendered by an arbitral tribunal; and
ix) to provide that, for purposes of enforcement
of foreign awards, every arbitral award
made in a country to which one of the two
international conventions relating to foreign
arbitral awards to which India is a party
applies, will be treated as a foreign award.
5. The Bill seeks to achieve the above objects."
3. The above objects clearly indicate the legislative intent to make
arbitration proceedings more effective, expeditious, result oriented and
the arbitral procedure fair, efficient and capable of meeting the specific
needs of arbitration. To achieve those objects and to encourage
enforcement of Law of Arbitration in all fields of law relating to civil
disputes viz. at family, domestic and commercial levels and even at
international levels, section 89 was inserted to the Civil Procedure
Code, 1908 by the Civil Procedure Code (Amendment) Act, 1999. This
section casts an obligation upon the courts to consider, at any stage of
the suit, the possibility of settlement, formulation of terms of possible
settlement and reference thereof to arbitration amongst other modes of
alternative dispute resolution system. Thus, the object of newly
inserted section 89 is to promote alternative methods of dispute
resolution. Of course, the enforcement of this provision has still not
received complete implementation. There are certain areas which are
not quite clear from the language of the section in regard to
methodology to be adopted by the courts while enforcing the said
section.
4. Another very important part of the 1996 Act is its preamble. The
Act was enacted to consolidate and amend the law relating to domestic
arbitration and international commercial arbitration as also to define
the law relating to conciliation and for matters connected therewith or
incidental thereto. The United Nations Commission on International
Trade Law (UNCITRAL) adopted the UNCITRAL Model Law on
International and Commercial Arbitration, 1985 and it was
recommended by the UN General Assembly that all countries will give
due consideration to this Model Law, it was felt expedient to make Law
respecting arbitration and conciliation, taking into account Model Law
and Rules and thus, the 1996 Act came to be enacted. This shows the
intention to comprehensively enact the new law of arbitration which
will be in conformity with the Model Law and Rules and at the same
time achieve expeditious results with least intervention of the court.
The Legislature besides finding the 1940 Act outdated contemplated
the need of enacting more responsive provisions to complete the
requirements, to minimize the supervisory role of the courts in arbitral
process and to provide that every final award is enforced in the same
manner as if it was a decree of the civil court, enacted the law.
5. Section 5 of the 1996 Act opens with non-obstante clause which
provides that in the matters governed by Part-I of the Act, no judicial
authority shall intervene except where so provided in the part. This Act
would take precedence over all other laws which were in force at the
relevant point of time. The object appears to be to encourage
settlement of disputes by the parties through arbitration but primarily
without judicial intervention. In the light of this background, we are
required to examine and interpret the provisions of section 34(2) of
1996 Act, the need for which has arisen as a result of the order of
reference to a larger Bench made by the Division Bench of this court in
the present case. The Division Bench of this court on 22nd July, 2009
passed the following order:
"1. Notice. Learned Counsel for the Respondents
accepts notice and waives service. He prays for time.
2. Learned Counsel appearing for the Appellant
refers to paragraph-93 and 94 of the impugned
Judgment and submits that keeping in view the settled
principle of law and the observations made by the
learned Single Judge, it would be appropriate that the
matter is referred to larger Bench as the learned Judge
has made reference to the Division Bench order of the
Court. We find substance in this submission and in any
case, this question is likely to arise repeatedly before the
Courts concerned and would be of some significance.
Consequently, we agree that the matter should proceed
before the larger Bench.
3. Having perused the pleadings and the impugned
Judgment, the Registry is directed to place the matter on
24th July, 2009 before the larger Bench."
We may now notice the facts giving rise to the present appeal
and consequential reference made by the Division Bench.
6. M/s. Ircon International Limited, hereinafter to be referred to as
"the company", had been issued a contract by Maharashtra State Road
Development Corporation interalia for constructing a rail over bridge.
Upon issuance of this contract, the company floated the tender.
Respondent R.S. Jiwani, was the successful tenderer and letter of
acceptance was issued in his favour by the company on 19.1.1999 in
furtherance to which the parties entered and executed an agreement
dated 29.1.1999. The value of the contract was worth Rs.5 crores and
the work was to be completed by 18.11.1999. However, the same was
completed, as alleged, after considerable delay, on 27.1.2002. Disputes
had arisen between the parties primarily founded on the question of
delay. The company had written various letters to the appellant stating
reasons solely contributing the delay to the appellant and it also
imposed penalty of Rs.75,000/- per month which was required to be
deducted from the bills payable to the appellant. The Joint General
Manager of the company prepared a final bill which was accepted by
the appellant who issued "Qualified No-Claim certificate". This was
done on 12th March, 2002. However, subsequent thereto, the appellant
raised claim of Rs.6,15,87,131/- with interest thereon alleging that this
amount was due to him on account of extra expenses incurred and
unanticipated loss. While raising this claim, the appellant also made a
reference to condition 67.1 of the contract to treat his letter as notice
and requested the company to amicably settle the claims as per
condition 67.2 of the contract. However, this was not acceded to by
the company which termed the claim of the appellant as vague,
arbitrary, false, without any basis and being after thought. It also
averred that the appellant had misconstrued the terms of the contract.
On 4th October, 2002, the appellant issued a notice in terms of clause
29 of the special conditions of the contract praying for invocation of
the arbitration between the parties and requesting for reference to the
arbitrator. Vide letter dated 20th December, 2002, the Managing
Director of the respondent appointed Mr. S.R. Tambe, retired
Secretary, PWD, to the Government of Maharashtra as arbitrator to
adjudicate the disputes between the parties. The Arbitrator entered
upon the reference before whom the parties filed their claims. The
appellant submitted his claim while the company filed reply as well as
raised its counter-claims. The appellant had raised 32 claims before
the learned Arbitrator out of which 15 claims with interest were
allowed while the remaining claims were rejected. So also all the
counter-claims raised by the company were rejected. Aggrieved from
the Award of the learned Arbitrator, the company filed petition for
setting aside the Award dated 5.5.2005 in terms of sections 34 and
16(6) of 1996 Act. However, the appellant did not challenge the
award or any part thereof. The petition was admitted and was finally
disposed of by the learned Single Judge vide his judgment dated 11th
November, 2008. The learned Single Judge recorded the findings that
out of the 15 claims allowed by the learned Arbitrator, 11 claims were
sustainable and the appellant was entitled to those claims but while
referring to the Division Bench judgment of this court in the case of
Mrs. Pushpa P. Mulchandani v. Admiral Radhakrishin Tahiliani, 2008(7)
LJ Soft, 161, the learned Single Judge set aside the entire award. It
will be useful to refer to the relevant part of the judgment passed by
the learned Single Judge that reads as under:-
"5.........
I have upheld the award in respect of ten claims,
the claim for interest and in so far as it rejects the
Petitioners counter-claim. I have set aside the award in
respect of five claims. I would however have exercised
powers under Section 34 in respect of the award in
respect of three of these five claims. But for the reason
that the award is liable to be set aside as a whole in
view of the judgments of this Court I will refer to at the
end.
91. In the circumstances, the award is upheld in
respect of Claim Nos.7.2, 11, 4.5, 4.6, 5.1, 8.2, 9.1, 9.2,
9.4, 14.1 and 15. The petition is allowed and the award
is set aside in respect of Claim Nos.7.3, 10, 12, 4.1 and
13. Interest as granted by the learned arbitrator shall
be restricted to the claims in respect whereof the award
has been upheld. But for the fact that the petition is
allowed and the entire award is set aside for reasons I
shall state next, I would have exercised powers under
Section 34 in respect of claim nos.10, 12 and 13 as
stated earlier.
92. After the matter was reserved for judgment, my
attention was invited in an another matter, to the
judgments of this Court including in the case of Mrs.
Pushpa P. Mulchandani v. Admiral Radhakrishin
Tahilian, 2008(7) LJ Soft, 161 wherein it is held that
under the 1996 Act which applies to the present case
also, the power to set aside only part of the award is
conferred on the Court only in one contingency which
is to be found in Section 34(2)(iv).
The Division Bench held:-
"....... Thus, power to set aside only part
of the award is conferred on court by
Section 34 only in one contingency which
is to be found in Clause (iv) of sub-section
(2) of Section 34 of the Act. Section 15 of
the Arbitration Act, 1940 in terms
conferred power on the court to modify
the award. The Arbitration Act, 1996 does
not have any provision similar to the
provisions of Section 15 of the Act, 1940.
But, 1996 Act has the provisions in Section
34(4), which empowers the court to remit
the award to the arbitrator to enable him
to cure the defect because of which the
award may be liable to be set aside. Thus,
from perusal of Section 34 of the Aft it
appears that while examining the award if
the Court finds that the arbitrator in the
award has dealt with the matters not
submitted to arbitration, then the Court
has to make an inquiry to find out whether
it is possible to segregate the other part of
the award, which was within the
jurisdiction of the arbitrator and if the
Court finds that it is possible so to do, then
the court can set aside only that part of the
award which according to the Court was
beyond the jurisdiction of the arbitrator,
because it was not submitted to
arbitration. In all other cases, if the Court
finds that only a part of the award is
affected by illegality which is pointed out
to the court, the court cannot itself modify
the award, but if a party to the petition
applies to the court in exercise of its power
under Sub-section 4 of Section 34, the
Court can direct the arbitral tribunal to
resume the proceedings and take such
action to eliminate the ground for setting
aside the award. In such situation, the
arbitral tribunal on resumption may be
able to delete that part of the award which
the Court finds to be invalid or illegal and
make suitable modification in the award.
It, thus, appears that while exercising
jurisdiction under Section 34, the court
can modify the award only in one situation
which is to be found in clause (iv) of sub-
section 2 of section 34. In all other cases if
the Court finds that only part of the award
is affected, then in case the party makes an
application, the court can adopt the course
of action contemplated by sub-section 4 of
Section 34 and only option available to it
would be to set aside the award. We find
that the following observations of the
Supreme Court in its judgment in the case
of McDermott International Inc. v. Burn
Standard Co.Ltd. & ors., JT 2006 (11) SC
376 clearly indicate that this is the course
of action sanctioned by law. In paragraph
55 o the above referred judgment the
Supreme Court has observed thus:
"55. The 1996 Act makes
provision for the supervisory role
of courts, for the review of the
arbitral award only to ensure
fairness, intervention of the court
is envisaged in few circumstances
only, like, in case of fraud or bias
by the Arbitrators, violation of
natural justice, etc. The court
cannot correct errors of the
Arbitrators. It can only quash the
award leaving the parties free to
begin the arbitration again if it is
desired. So, scheme of the
provision aims at keeping the
supervisory role of the court at
minimum level and this can be
justified as parties to the
agreement make a conscious
decision to exclude the court's
jurisdiction by opting for
arbitration as they prefer the
expediency and finality offered
by it."
26. It is, thus, clear that if the Court
finds that the award is vitiated because of
violation of principles of natural justice, or
such other reasons which cannot be called
as "adjudication" on merits, the Court can
set aside the award and if the award is set
aside for such reasons, it is open to the
parties to invoke the arbitration clause
again and initiate arbitration proceeding.
In our opinion, in this regard reference can
be made to the provisions of sub-section 4
of Section 43. They read as under:-
"43(4) Where the Court orders
that an arbitral award be set
aside, the period between the
commencement of the arbitration
and the date of the order of the
Court shall be excluded in
computing the time prescribed by
the Limitation Act, 1963 (36of
1963), for the commencement of
the proceedings (including
arbitration) with respect to the
dispute so submitted."
"When the award is set aside for the
reasons other than merits, then it is open
to the parties to the arbitration agreement,
if arbitration agreement survives, to invoke
the arbitration agreement and to have the
matter referred to arbitration. In other
contingencies they can adopt other remedy
that may be available to them and in that
situation, either for adopting any other
remedy or in initiating arbitration, the
period spent during the earlier arbitration
is liable to be excluded while computing
the period of limitation. In our opinion,
the decision of various courts either on
Arbitration Act, 1940 or the Acts which
were in the field before that, while
considering whether the Court has the
power to modify the award in a petition
filed under Section 34 cannot be
considered because under those
enactments power was positively conferred
on the court to modify the award. It is
further to be seen here that Arbitration
Act, 1996 has repealed the Arbitration Act,
1940. Arbitration Act, 1940 had a specific
power conferred on the court to modify
the award. While enacting 1996 Act, the
Parliament has chosen not enact that
provision. In our opinion, the intention of
the Legislature, therefore, was clear not to
confer on the court power to modify the
award. It is now well settled that scheme
of Arbitration Act, 1996 is clear departure
from the scheme of 1940 Act. In 1940 Act,
power was conferred on the court itself to
modify the award. In 1996 Act, as
observed above, the scheme is that the
power is conferred on the court to modify
the award only in one situation found in
Clause (iv) of Section 34(2), and in all
other situations the court, if an application
is made by the party, has to follow the
course of action contemplated by sub-
section 4 of Section 34 or in the absence of
any application set aside the award and
leave the parties to their own remedy. In
our opinion, one more principle has to be
taken into consider. The court before
1996 Act came into force, under the
Arbitration Act had power to modify an
award. While framing 1996 Act, the
Legislature was conscious of the power of
the court under 1940 Act to modify the
award. While enacting 1996 Act, the
Legislature has chosen to confer power on
the court to modify the award only in one
contingency found in Clause (iv) of
Section 34(2), and therefore, in our
opinion, it will have to be held that the
Legislature has denied power to the court
to modify the award in all other
situations."
93. I informed the learned counsel about the
judgments and invited their submissions in respect
thereof. The award in respect of claim nos.7.3 and 4.1
has also been set aside. They do not fall within the
scope of Section 34(2)(iv). I have no option therefore,
however reluctantly, but to set aside the award. If the
Respondent is willing to give up the claim with regard
to the amounts awarded but in respect whereof the
award is set aside, it would be a different matter. The
Respondent is at liberty to make such an application
even in this petition. If such a claim is given up, the
ratio of the judgment would not obviously apply as the
award in respect of such a claim requires no
consideration in an application under Section 34. The
Respondent is also at liberty to make any other
application including in the present petition including
as indicated in the judgment of the Division Bench in
the case of Mrs. Pushpa P. Mulchandani.
94. I do not for a moment suggest that I disagree
with Mr. Josh's very persuasive submissions in regard
to this point of law. I am however bound by the
judgment. Being bound by the judgment, I do not
consider it appropriate to consider the matter further.
Nor do I disagree with Mr. Joshi that the matter
requires to be considered by a Full Bench. However,
being a judgment of a Division Bench, I do not consider
it appropriate to direct the papers to be placed before
the learned Chief Justice for considering whether the
matter ought to be referred to a Full Bench. That must
be left to be decided by the Division Bench which
considers the appeal that will quite obviously and
understandably be filed against this judgment.
95. In the result, the petition is made absolute, the
award is set aside."
INTERPRETATION :-
7. A bare reading of the impugned judgment and particularly above
referred portion shows that though the learned Single Judge upheld
the award of the learned Arbitrator in favour of the Appellant and
expressed agreement with the arguments raised on behalf of the
Appellant that the principle of severability would be applicable to such
award but being bound by discipline and precedent reluctantly set
aside the whole award. The sole question of law that thus arise for
consideration before this Larger Bench is ; (1) Whether doctrine of
severability can be applied to an award while dealing with a Petition
under Section 34 of the Arbitration and Conciliation Act, 1996; and
(2) What is the scope of proviso to Section 34(2)(iv) and whether its
application is restricted to clause (iv) alone or it applies to the whole of
Section 34(2) of the Act.
8. It is this provision of Section 34 which falls for interpretation and
explanation, before this Bench in the present case, with some emphasis
to the impact and effect of proviso to Section 34(2)(iv) of the Act. The
process of interpretation is the only way by which the Courts can
enforce the law and determine the meaning and expression that is
required to be given to the language of the Statute in accordance with
the basis rule of interpretation. Salmond, while emphasizing the
importance of rule of interpretation as one of the main processes in the
judicial interpretation, said as under: -
"By interpretation or construction is meant the
process by which the courts seek to ascertain the
meaning of the legislative intent through the medium
of authoritative forms in which it is expressed".
Maxwell also said :-
"The will of the legislature is the supreme law of the
land and demand perfect obedience."
While applying the principles of Interpretation of Statute, the Courts
find out the intention, purpose and the object of the legislation so as to
ensure that the interpretation given makes the statute workable and the
words are given their normal meaning. The rule of construction is "to
intend the Legislature to have meant what they have actually
expressed." The object of all interpretation is to discover the intention
of Parliament, "but the intention of Parliament must be deduced from
the language used," for "it is well accepted that the beliefs and
assumptions of those who frame Acts of Parliament cannot make the
law." [Maxwell on The Interpretation of Statutes, Twelfth Edition by P.
St. J. Langan]
9. In order to examine the basic principles which can be applied to
interpretation of provisions of statute, reference can be made to a
recent judgment of the Full Bench of this Court in the case of Mohd.
Riyazur Rehman Siddiqui v. Deputy Director of Health Services,
2008(6) Mh.L.J. 941, where the Court held as under:-
"51. A statute is stated to be a will of the
Legislature. It expresses a will of the Legislature,
and function of the Court is to interpret the
document, according to the intent of them that
made it. It is a settled rule of construction of
statute that the provisions should be interpreted
with application of plain rule of construction. The
courts normally would not imply anything in them
which is inconsistent with the words expressly used
by the statute. In other words, the Court would
keep in mind that its function is jus dicere, not jus
dare. The right of appeal being creation of a statute
and being a statutory right does not invite
unnecessary liberal or strict construction. The best
norm would be to give literal construction keeping
the legislative intent in mind.
52. The Supreme Court in the case of Shiv Shakti
Co-op. Housing Society, Nagpur vs Swaraj
Developers and Others, reported in (2003) 6 SCC
659, while referring to the principles for
interpretation of statutory provisions, held as under:
-
"19. It is a well-settled principle in law
that the court cannot read anything into
a statutory provision which is plain and
unambiguous. A statute is an edict of
the legislature. The language employed
in a statute is the determinative factor
of legislative intent. Words and phrases
are symbols that stimulate mental
references to referents. The object of
interpreting a statute is to ascertain the
intention of the legislature enacting it.
(See Institute of Chartered Accountants
of India v. Price Waterhouse.) The
intention of the legislature is primarily
to be gathered from the language used,
which means that attention should be
paid to what has been said as also to
what has not been said. As a
consequence, a construction which
requires for its support, addition or
substitution of words or which results in
rejection of words as meaningless has to
be avoided. As observed in Crawford v.
Spooner courts cannot aid the
legislatures' defective phrasing of an
Act, we cannot add or mend, and by
construction make up deficiencies
which are left there. (See State of
Gujarat v. Dilipbhai Nathjibhai Patel ).
It is contrary to all rules of construction
to read words into an Act unless it is
absolutely necessary to do so. [ See
Stock v. Frank Jones (Tipton) Ltd. ]
Rules of interpretation do not permit
courts to do so, unless the provision as
it stands is meaningless or of a doubtful
meaning. Courts are not entitled to
read words into an Act of Parliament
unless clear reason for it is to be found
within the four corners of the Act itself.
( Per Lord Loreburn, L.C. In Vickers
Sons and Maxim Ltd. v. Evans, quoted
in Jumma Masjid v. Kodimaniandra
Deviah.)"
53. The Law Commission of India, in its 183rd
Report, while dealing with the need for providing
principles of interpretation of statute as regards the
extrinsic aids of interpretation in General Clauses
Act, 1897 expressed the view that a statute is a will
of legislature conveyed in the form of text.
Noticing that process of interpretation is as old as
language, it says that the rules of interpretation
were evolved even at a very early stage of Hindu
civilization and culture and the same were given by
`Jaimini', the author of Mimamsat Sutras, originally
meant for srutis were employed for the
interpretation of Smrities also. While referring to
the said historical background, the Commission said
thus: -
"It is well settled principle of law that as
the statute is an edict of the Legislature,
the conventional way of interpreting or
construing a statute is to seek the
intention of legislature. The intention of
legislature assimilates two aspects; one
aspect carries the concept of `meaning',
i.e., what the word means and another
aspect conveys the concept of `purpose'
and `object' or the `reason' or `spirit'
pervading through the statute. The
process of construction, therefore,
combines both the literal and purposive
approaches. However, necessity of
interpretation would arise only where
the language of a statutory provision is
ambiguous, not clear or where two
views are possible or where the
provision gives a different meaning
defeating the object of the statute. If the
language is clear and unambiguous, no
need of interpretation would arise. In
this regard, a Constitution Bench of five
Judges of the Supreme Court in R.S.
Nayak v. A.R. Antulay, AIR 1984 SC 684
has held:
".....If the words of the Statute
are clear and unambiguous, it
is the plainest duty of the Court
to give effect to the natural
meaning of the words used in
the provision. The question of
construction arises only in the
event of an ambiguity or the
plain meaning of the words
used in the Statute would be
self defeating."
Recently, again Supreme Court in Grasim Industries
Ltd. v. Collector of Customs, Bombay, (2002)4 SCC
297 has followed the same principle and observed:
"Where the words are clear and there is
no obscurity, and there is no ambiguity
and the intention of the legislature is
clearly conveyed, there is no scope for
court to take upon itself the task of
amending or altering the statutory
provisions."
54. Above stated principles clearly show that the
Court can safely apply rudiments of plain
construction to legislative intent and object sought
to be achieved by the enactment while interpreting
the provision of an Act. It is not necessary for the
Court to implant or exclude words or over
emphasize the language of a provision where it is
plain and simple. We have already noticed that
Section 100-A opens with a non obstante clause and
clause 44 of the Letters Patent refers to the aspect
that the letters patent would be read in community
with the legislative enactment. A clause beginning
with `notwithstanding anything contained in any
other law for the time being in force including the
Letters Patent' normally would show the intent and
the view of the Legislature enacting part of the
section to give overriding effect over the provision of
that Act or other laws in case of conflict. The
enactment following it will have its full operation or
that the provisions embraced in the non obstante
clause will not be an impediment for the operation
of the enactment."
10. These principles are applicable as general rules of interpretation
and they would have to be applied to the language of a particular
statute, in the present case to the provisions of Arbitration and
Conciliation Act, 1996, while keeping in view the facts of the case in
hand. Therefore, we will have to examine what meaning and
application can be permitted to the provisions of Section 34 of the Act
of 1996, with the help of the legislative intent as gathered from the
object and the reasons of the Act, historical background of the
legislation, objects sought to be achieved and the purpose for which the
law was enacted. While dealing with all these aspects, proviso to
Section 34(2)(a)(iv) attains greater relevance. Learned counsel
appearing for the parties emphasized on the importance of the proviso
and its restricted application to that particular sub-clause of the sub-
section. It is a settled rule of interpretation and it is fundamental rule
of construction that a proviso must be construed in relation to a
particular matter to which it stands as a proviso. Therefore, it is to be
construed harmoniously with the main enactment. Further, a proviso
is subsidiary to the main section and it must be construed in the light of
the said Section itself. While dealing with construction of provisos
Maxwell's commentary notes as follows:-
"Difficulties sometimes arising in construing
provisos. It will, however, generally be found that
inconsistencies can be avoided by applying the
general rule that the words of a proviso are not to
be taken "absolutely in their strict literal sense,"
but that a proviso is "of necessity ... limited in its
operation to the ambit of the section which it
qualifies." And, so far as that section itself is
concerned, the proviso again receives a restricted
construction: where the section confers powers,
"it would be contrary to the ordinary operation of
a proviso to give it an effect which would cut
down those powers beyond what compliance with
the proviso renders necessary."
11. Normal function of a proviso is to except something out of
enactment or to qualify something enacted therein which but for
the proviso would be within the purview of enactment.
"As stated by LUSH, J. "When one finds a proviso to
a section the natural presumption is that, but for
the proviso, the enacting part of the section would
have included the subject-matter of the proviso. In
the words of LORD MACMILLAN: "The proper
function of a proviso is to except and to deal with a
case which would otherwise fall within the general
language of the main enactment, and its effect is
confined to that case." The proviso may, as LORD
MACNAGHTAN laid down, be "a qualification of the
preceding enactment which is expressed in terms
too general to be quite accurate". The general rule
has been stated by HIDAYATULLAH, J., in the
following words: "As a general rule, a proviso is
added to an enactment to qualify or create an
exception to what is in the enactment, and
ordinarily, a proviso is not interpreted as stating a
general rule". And in the words of KAPUR, J. "The
proper function of a proviso is that it qualifies the
generality of the main enactment by providing an
exception and taking out as it were, from the main
enactment, a portion which, but for the proviso
would fall within the main enactment. Ordinarily it
is foreign to the proper function of proviso to read it
as providing something by way of an addendum or
dealing."
"It is a fundamental rule of construction that
proviso must be considered in relation to the
principal matter to which it stands as a
proviso." (Abdul Jabbar Butt v. St. of J & K AIR
1957 SC 281)
"Although a proviso may well be incapable of
putting upon preceding words a construction which
they cannot possibly bear, it may without doubt
operate to explain which of the two or more
possible meanings is the right one to attribute to
them---. One must, however, read the whole clause
before attempting to construe any portion of it, and
a perusal of the proviso fixes the meaning of the
words which precede it."
( Ref: Justice G.P. Singh on Principles of Statutory
Interpretation, 11th Edition 2008, Wadhwa,
Nagpur.)
12. While dealing with the proviso, the Court has to keep in mind
the clear distinction between the "Proviso", "Exception" and Saving
clause. `Exception' is intended to restrain the enacted clause to
particular cases. `Proviso' is used to remove special cases from the
general enactment and provide for them specially and 'Saving Clause' is
used to preserve from destroying certain rights, remedies or privileges
already in existence.
13.
In Sundaram Pillai v. Pattabiraman (1985) 1 SCC 591, the
Supreme Court summarized the purposes of a proviso as
-"
"(1) Qualifying or excepting certain provisions from the main
enactment;
(2) It may entirely change the very concept of the intendment
of the enactment by insisting on certain mandatory conditions to be
fulfilled in order to make the enactment workable;
(3) It may be so embedded in the Act itself as to become an
integral part of the enactment and thus acquire the tenor and colour of
the substantive enactment itself; and
(4) It may be used merely to act as optional addenda to the
enactment with the sole object of explaining the real intendment of the
statutory provision."
The above summary cannot however be taken as exhaustive and
ultimately a proviso, like any other enactment, ought to be construed
upon its terms.
DISCUSSION ON LAW :-
14. Having referred to the basic principles of construction applicable
to such cases with particular reference to ambit, scope of proviso to
section, now we may refer to legislative history of this provision. In
the opening part of this judgment, we have made reference, to some
extent to the legislative history of the Arbitration and Conciliation Act,
1996 which clearly indicate that with the passage of time this law has
developed in various respects. The main object of enacting this Act was
to bring the law of arbitration in conformity with UNCITRAL Model
Rules on one hand, while on the other hand also to ensure that newly
enacted law was in conformity with the existing Indian Law and
Arbitral Tribunals were able to deal with the matters expeditiously and
parties were able to receive resolutions of their disputes without much
interference from the Courts at different stages of the arbitral
proceedings. There is some need to examine at this juncture as to
what were the provisions of the Act of 1940 and what are the
provisions under the Act of 1996. Under the Act of 1940, there was a
specific provision for setting aside an award, provision for correcting
the award and even a provision for remitting an award back to the
Arbitrator for fresh consideration in accordance with law. While under
the Act of 1996, Section 5 controls the extent of judicial intervention.
It is only Section 34, which provides for setting aside an arbitral award
in terms of language of Section 34. The Act of 1996 also provides for
correction of the award in terms of Section 33 thereof. Let us have a
comparative look at respective provisions of these two Acts, i.e. Act of
1940 and the Act of 1996.
Arbitration Act, 1940 The Arbitration and Conciliation Act,
1996.
Sec. 15. Power of Courts to modify Sec.33. Correction and interpretation
award.- The Court may by order modify of award; additional award
or correct an award -
(1) Within thirty days from the receipt
(a) where it appears that a part of the of the arbitral award, unless another
award is upon a matter not referred to period of time has been agreed upon by
arbitration and such part can be the parties--
separated from the other part and does
not affect the decision on the matter (a) a party, with notice to the other
referred; or party, may request the arbitral tribunal to
correct any computation errors, any
(b) where the award is imperfect in clerical or typographical errors or any
form, or contains any obvious error other errors of a similar nature occurring
which can be amended without affecting in the award;
such decision; or
(b) if so agreed by the parties, a party,
(c) where the award contains a clerical with notice to the other party, may
mistake or an error arising from an request the arbitral tribunal to give an
accidental slip or omission. interpretation of a specific point or part
of the award.
Sec. 16. Power to remit award. - (1)
The Court may from time to time remit (2) If the arbitral tribunal considers the
the award or any matter referred to request made under sub-section (1) to be
arbitration to the arbitrators or umpire justified, it shall make the correction or
for reconsideration upon such terms as give the interpretation within thirty days
it thinks fit,- from the receipt of the request and the
interpretation shall form part of the
(a) where the award has left arbitral award.
undetermined any of the matters
referred to arbitration, or where it (3) The arbitral tribunal may correct
determines any matter not referred to any error of the type referred to in clause
arbitration and such matter cannot be (a) of sub-section (1), on its own
separated without affecting the initiative, within thirty days from the date
determination of the matters referred: of the arbitral award.
or
(4) Unless otherwise agreed by the
(b) where the award is so indefinite as parties, a party with notice to the other
to be incapable of execution; or party, may request, within thirty days
from the receipt of the arbitral award, the
(c) where an objection to the legality arbitral tribunal to make an additional
of the award is apparent upon the face arbitral award as to claims presented in
of it. the arbitral proceedings but omitted from
the arbitral award.
(2) Where an award is remitted under
sub-section (1) the Court shall fix the (5) If the arbitral tribunal considers the
time within the arbitrator or umpire request made under sub-section (4) to be
shall submit his decision to the Court : justified, it shall make the additional
arbitral award within sixty days from the
PROVIDED THAT any time so fixed receipt of such request.
may be extended by subsequent order of
the Court. (6) The arbitral tribunal may extend, if
necessary, the period of time within
(3) An award remitted under sub- which it shall make a correction, give an
section (1) shall become void on the interpretation or make an additional
failure of the arbitrator or umpire to arbitral award under sub-section (2) or
reconsider it and submit his decision
ig sub-section (5).
within the time fixed.
(7) Section 31 shall apply to a
Sec. 30. Grounds for setting aside.- An correction or interpretation of the arbitral
award shall not be set aside except on award or to an additional arbitral award
one or more of the following grounds, made under this section.
namely:
Sec. 34. Application for setting aside
(a) that an arbitrator or umpire has arbitral award -
misconducted himself or the
proceedings: (1) Recourse to a Court against an
arbitral award may be made only by an
(b) that an award has been made after application for setting aside such award
the issue of an order by the Court in accordance with sub-section (2) and
superseding the arbitration or after sub-section (3).
arbitration proceedings have become
invalid under Sec. 35; (2) An arbitral award may be set aside
by the Court only if -
(c) that an award has been improperly
procured or is otherwise invalid. (a) the party making the application
furnishes proof that -
Sec. 33. Arbitration agreement or
award to be contested by application.- (i) a party was under some incapacity; or
Any party to an arbitration agreement (ii) the arbitration agreement is not valid
or any person claiming under him under the law to which the parties have
desiring to challenge the existence or subjected it or, failing any indication
validity of an arbitration agreement or thereon, under the law for the time being
an award or to have the effect of either in force; or
determined shall apply to the Court and (iii) the party making the application was
the Court shall decide the question on not given proper notice of the
affidavits : appointment of an arbitrator or of the
arbitral proceedings or was otherwise
PROVIDED THAT where the unable to present his case; or
Court deems it just and expedient, it (iv) the arbitral award deals with a
may set down the application for dispute not contemplated by or not
hearing on other evidence also, and it falling within the terms of the submission
may pass such orders for discovery and to arbitration, or it contains decisions on
particulars as it may do in a suit. 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,
ig 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. - 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 India
if the making of the award was induced
or affected by fraud or corruption or was
in violation of section 75 or section 81.
(3) An application for setting aside may
not be made after three months have
elapsed from the date on which the party
making that application had received the
arbitral award or, if a request had been
made under section 33, from the date on
which that request had been disposed of
by the arbitral tribunal:
Provided that if the Court is satisfied
ig that the applicant was prevented by
sufficient cause from making the
application within the said period of
three months it may entertain the
application within a further period of
thirty cays, but not thereafter.
(4) On receipt of an application under
sub-section (1), the Court may, where it
is appropriate and it is so requested by a
party, adjourn the proceedings for a
period of time determined by it in order
to give the arbitral tribunal an
opportunity to resume the arbitral
proceedings or to take such other action
as in the opinion of arbitral tribunal will
eliminate the grounds for setting aside
the arbitral award.
15. A comparative study of the above, it is clear that in the Act of
1996, Legislature has not provided provision equivalent to Sections 15
and 16 of the Act of 1940. The power to set aside an award has been
incorporated under the provisions of Section 34, but in some what
different language and with different impact.
16. In terms of Section 34(1) recourse to a Court against an arbitral
award has been limited by the Legislature which can be made only by
one mode that is, by filing an application for setting aside an arbitral
award in accordance with provisions of Sub-section (2) and sub-section
(3) of the Act. Sub-section (3) primarily prescribes the limitation
within which an application for setting aside an award can be made
that the Court would entertain such an application only within 3
months from the date on which the party making application received
the award and would entertain it after the prescribed limitation of
three months only if sufficient cause is shown within a period of 30
days and not thereafter. The ambit and the scope of power setting
aside an arbitral award are entirely controlled by Section 34(2). An
arbitral award may be set aside by the Court only if the grounds stated
in sub-section (2) are satisfied and application to that effect are placed
before the Court. The expression `May' sufficiently indicates that
larger discretion is vested in the Court which has to be exercised in
accordance with the settled canons of judicial discretion and the
context would require that the expression 'may' should be read as
'may" alone and does not admit or invite any other meaning or
interpretation. The other expression which is of significance is `only
if'. The word `only if' empowers the Court to set aside an award only if
conditions of sub-clause (a) and (b) of sub-section (2) are satisfied. In
other words, it is for the grounds stated in the said provisions alone
that the award can be set aside and not otherwise. Further an
obligation is cast upon the applicants to furnish proof thereof. The
word "proof" again has some definite value in law and it cannot be
equated to the word 'ground' or 'alleged facts'. Thus, the provisions of
sub-section (2) of section 34 contemplate a higher degree of
deliberation than a mere statement of fact when an award is
challenged. It is expected that the documents produced in evidence
before the arbitral tribunal would be the proof in support of an
objection raised by an applicant. The applicant should be able to
demonstrate from the record that his objection is supported by
evidence and is not a mere objection for the sake of objecting. The
word "proof" need be understood in the sense in which it is defined in
the Evidence Act because proof depends upon the admissibility of
evidence. A fact is said to be proved when, after considering the
matters before it, the court either believes it to exist, or considers its
existence so probable that a prudent man ought, under the
circumstances of the particular case, to act upon the supposition that it
exists. This is the definition given for the word "proved" in the
Evidence Act. What is required is production of such materials on
which the court can reasonably act to reach the supposition that a fact
exists. `Proof' of the fact depends upon the degree of probability of its
having existed. The standard required for reaching the supposition is
that of a prudent man acting in any important matter concerning him.
M. Narsinga Rao v. State of A.P. (2001)1 SCC 691.
17. The argument raised before us is that sub-clauses (i) to (iii) and
(v) of clause (a) of sub-section (2) of Section 34 are the grounds
where it is mandatory for the Court to set aside the whole award and
there is no other choice before the Court. It is only in the class of
cases falling under Section 34(2)(a)(iv) that with the aid of the proviso
to that sub-section, the Court can apply principle of severability. In
that case, if the matter submitted to the arbitration can be separated
from the one not submitted then the Court may set aside that part of
the award alone which is not submitted to arbitration. This argument
is founded on the Division Bench judgment of this Court in the case of
Mrs. Pushpa P. Mulchandani v. Admiral Radhakrishin Tahiliani,
2008(7) LJ Soft, 161, and which was relied upon by the Respondents
for inviting the decision against the Appellant. Thus, we have to
examine the provision of Section 34 of the 1996 Act to find whether it
permit of any other interpretation than the one put forward by the
Respondents. Sub-clause (i),(ii),(iii) and (v) of clause (a) of sub-
section (2) of Section 34 deal with certain situations which may require
the Court to set aside an award of the arbitral tribunal. These may be
the cases where the party was under incapacity, the agreement is not
valid under the law in force, where proper notice was not given to the
party or otherwise enable to present his case, and the composition of
arbitral tribunal or procedure was not in accordance with the
agreement between the parties and lastly the subject matter of the
dispute is not capable of settlement by arbitration under the law for the
time being in force. Explanation to Section 34(2) which is in the
nature of a declaration further explains that when an award is in
conflict with the public policy of India when the award was induced or
affected by (i) fraud or (ii) by corruption; or (iii) was in violation of
Section 75 or 81 of the Act. It is difficult for this Court to hold that
under all these categories it would be inevitable for the Court to set
aside the entire award. It may not be very true that even under these
categories, it would be absolutely essential for the Court to set aside an
award. It is true that where a party was under incapacity or was not
served with the notice at all and the arbitration agreement itself was
not valid that an award may have to be set aside in its entirety. But
even within these clauses, there is possibility of a situation where it
may not be necessary for the Court to set aside the entire award. Let
us take an example that where a party is given a notice has participated
in the proceedings before the arbitral tribunal but was unable to lead
evidence or present himself or submit his counter claim. Would it be
fair for the Court to set aside an award of the arbitral tribunal in its
entirety in this situation? A party who participated in the arbitral
proceeding even led evidence and cross-examined the witnesses of the
claimants in relation to the claims but for any reason was not able to
place his evidence on record in relation to the counter claims or he was
not granted sufficient opportunity to present his case or for some
reason was unable to present his case before the arbitral tribunal,
would it not be just, fair, equitable and in line with the object of the
Act of 1996 to consider setting aside award only regarding counter
claim. Is such a party which has succeeded in the claims made by it,
which are otherwise lawful and not hit by any of the stated
circumstances, should be awarded his reliefs while either rejecting or
even altering the award with regard to the counter claim filed by the
aggrieved party before the Arbitrator. Situation may be different
where arbitration agreement is not valid. In other words, where claim
is unlawful. The Supreme Court in the case of Karnail Singh v. State of
Haryana and another, 1995 Supp (3) SCC 376 held that not valid
would mean unlawful and equated it to void.
"8. `Void' dictionarily means, ineffectual,
nugatory; having no legal force or binding effect,
unable in law to support the purpose for which it was
intended; nugatory and ineffectual so that nothing
can cure it; not valid. In Words and Phrases
(American), Vol.44, published by West Publishing
Co., at page 319 it is stated thus:
"A `void' thing is nothing; it has no
legal effect whatsoever; and no rights
whatever can be obtained under it or
grow out of it. In law it is the same
thing as if the void thing had never
existed."
What was declared void was election. That is the
process which led to choosing or selecting appellant
as a member was invalid. The legal effect of
declaration granted by the Tribunal was that the
election of the appellant became non-existent
resulting automatically in nullifying the earlier
declaration. The declaration did not operate from the
date it was granted but it related back to the date
when election was held. The legislative provision
being clear and the Tribunal being vested only with
power of declaring election to be void the entire
controversy about voidable and void was
unnecessary. The appellant could not therefore,
claim any pension under Secti9on 7-A of the 1975
Act."
18. In the event the arbitration agreement between the parties is not
valid means where it is unlawful or void, the whole award will have to
be set aside as the very root of the matter suffers from a defect of law
and is not valid under the law for the time being in force. Severability
is an established concept. It is largely applicable to various branches of
civil jurisprudence. Where it is possible to sever the bad part from the
good part, the good part of the contract can always be enforced and
partial relief can be granted. Doctrine of severability has been applied
to law of Contract since time immemorial. Of course, it could be said
that substantial severability and not textual divisibility is the principle
controlling this concept. In the case of Shin Satellite Public Co. Ltd. V.
Jain Studios Ltd., 2006(2) SCC 628 where the Supreme Court was
dealing with an agreement between the parties for availing
broadcasting services in favour of the petitioner therein by the
respondent. Because of the dispute between the parties, arbitration
clause was invoked to which defence was taken by the respondent that
the claim of the petitioner was not maintainable in as much as clause
20 of the agreement was against the public policy and was not
enforceable. The Supreme Court in the light of para 430 of Halsbury
Law of England, 4th Edition, Volume 9, page 297 finally held as under:
"430. Severance of illegal and void provisions - A
contract will rarely be totally illegal or void and
certain parts of it may be entirely lawful in
themselves. The question therefore arises whether
the illegal or void parts may be separated or `severed'
from the contract and the rest of the contract
enforced without them. Nearly all the cases arise in
the context of restrain of trade, but the following
principles are applicable to contracts in general.
First, as a general rule, severance is probably
not possible where the objectionable parts of the
contract involve illegality and not mere void
promises. In one type of case, however, the courts
have adopted what amounts almost to a principle of
severance by holding that if a statute allows works to
be done up to a financial limit without a licence but
requires a licence above that limit, then, where works
are done under a contract which does not specify an
amount but which in the event exceeds the financial
limit permitted without licence, the cost of the works
up to that limit is recoverable.
Secondly, where severance is allowed, it must
be possible simply to strike out the offending parts
but the court will not rewrite or rearrange the
contract.
Thirdly, even if the promises can be struck out
as aforementioned, the court will not do this if to do
so would alter entirely the scope and intention of the
agreement.
Fourthly, the contract, shorn of the offending
parts, must retain the characteristics of a valid
contract, so that if severance will remove the whole or
main consideration given by one party the contract
becomes unenforceable. Otherwise, the offending
promise simply drops out and the other parts of the
contract are enforceable.
Reference may be made to Chitty on Contracts (29th
Edn. Vol. 1) pp. 1048-49:
"16-188. Introductory.- Where all the terms of a
contract are illegal or against public policy or where the
whole contract is prohibited by statute, clearly no action
can be brought by the guilty party on the contract; but
sometimes, although parts of a contract are
unenforceable for such reasons, other parts, were they
to stand alone, would be unobjectionable. The question
then arises whether the unobjectionable may be
enforced and the objectionable disregarded or 'severed'.
The same question arises in relation to bonds where the
condition is partly against the law.
16-189. Partial statutory invalidity. - It was laid
down in some of the older cases that there is a
distinction between a deed or condition which is void in
part at common law. This distinction must now be
understood to apply only to cases where the provisions
shall be wholly void. Unless that is so, then provided
the good part is separable from and not dependent on
the bad, that part only will be void which contravenes
the provisions of the statute. The general rule is that
'where you cannot sever the illegal from the legal part
of a covenant, the contract is altogether void; but,
where you can sever them, whether the illegality by
created by statute or by the common law, you may
reject the bad part and retain the good'. Thus, a
covenant in a lease that the tenant should pay 'all
parliamentary taxes', only included such as he might
lawfully pay, and a separate covenant to pay the
landlord's property tax, which it was illegal for a tenant
to contract to pay, although void, did not affect the
validity of the instrument. In some situations where
there is a statutory requirement to obtain a licence for
work above a stipulated financial limit but up to that
limit no licence is required, the courts will enforce a
contract up to that limit. There is some doubt whether
this applies to a lump sum contract 'for a single and
indivisible work'. Even in this situation if the cost
element can be divided into its legal and illegal
components, the courts will enforce the former but not
the latter." ig (emphasis supplied)
15. It is no doubt true that a court of law will read
the agreement as it is and cannot rewrite nor create a
new one. It is also true that the contract must be read
as a whole and it is not open to dissect it by taking out a
part treating it to be contrary to law and by ordering
enforcement of the rest if otherwise it is not permissible.
But it is well settled that if the contract is in several
parts, some of which are legal and enforceable and
some are unenforceable, lawful parts can be enforced
provided they are severable.
16. xxx xxx xxx
17. In several cases, courts have held that partial
invalidity in contract will not ipso facto make the whole
contract void or unenforceable. Wherever a contract
contains legal as well as illegal parts and objectionable
parts can be severed, effect has been given to legal and
valid parts striking out the offending parts."
19. Similar situations also had arisen under section 23 of the
Contract Act where a contract was partly lawful and partly unlawful.
The contract where the unlawful parts were severable from lawful
parts had been held to be enforceable. [Referred Canbank Financial
Services v. Custodian and others, 2004(8) SCC, 355.]
20. The cases would be different where it is not possible or
permissible to sever the award. In other words, where the bad part of
the award was intermingled and interdependent upon the good part of
the award there it is practically not possible to sever the award as the
illegality may affect the award as a whole. In such cases, it may not be
possible to set aside the award partially. However, there appears to be
no bar in law in applying the doctrine of severability to the awards
which are severable. In the case of Messrs. Basant Lal Banarsi Lal v.
Bansi Lal Dagdulal, AIR 1961 SC 823, though the Supreme Court was
dealing with an application for setting aside an award passed by the
Bombay City Civil Court, contending that forward contract in
groundnuts were illegal as making of such contracts was prohibited by
Oil seeds (Forward Contract Prohibition) Order, 1943 and hence
arbitration clause contained in the forward contracts in groundnuts
between the parties was null and void, where it was found as a matter
of fact that it was not possible to segregate the dispute under the
various contracts as there was direct link between them. The Supreme
Court held as under:-
"It would follow that the arbitration clause
contained in that contract was of no effect. It has
therefore to be held that the award made under that
arbitration clause is a nullity and has been rightly set
aside. The award, it will have been noticed, was
however in respect of disputes under several contracts
one of which we have found to be void. But as the
award was one and is not severable in respect of the
different disputes covered by it, some of which may
have been legally and validly referred, the whole award
was rightly set aside. "
21. Even in the case of BOI Finance Ltd. V. Custodian and others,
(1997)10 SCC 488, the Supreme Court while dealing with the
provisions of section 23 of the Contract Act, 1872 took a view that
where the contract of reciprocal promises were entered into between
the parties, void part of the agreement could be separated from the
valid part, the valid part does not become void or invalid.
22. In relation to the provisions of section 30 of the 1940 Act, the
law has clearly been stated by the Supreme Court in the case of
J.C.Budhraja versus Chairman, Orissa Mining Corporation Ltd and
Another 2008(2) SCC 444 where while dealing with the award, the
court found that part of the arbitral award was vitiated while the other
could be upheld, the court held as under:
"34. Does it mean that the entire award should be set
aside? The answer is no. That part of the award which
is valid and separable can be upheld. That part relates to
the claims which were validly made before the arbitrator,
which were part of the existing or pending claims of Rs.
50,15,820/- and which were not barred by limitation. As
stated above they were the claims which were existing or
pending in 1978, 1979 and 1980 (considered by the
committee and payment made by OMC) which were
carried before the arbitrator to an extent of Rs.
28,32,128. Only the amounts awarded by the arbitrator
against those claims can be considered as award validly
made in arbitration, falling within jurisdiction. They are
clearly severable from the other portions of the award.
The particulars of the claims and corresponding awards
are as follows:
Thus, the total amount awarded by the arbitrator
against claims which were not barred by limitation was
only Rs.13,93,373.50. The award to this extent is not
open to challenge. This part of the award does not suffer
from any misconduct. There is also no error apparent on
the face of the award in respect of the amount. It is not
open to challenge.
35. The scope of interference is limited. In
Hindustan Construction Co. Ltd. Governor of Orissa
(1995 (3) SCC 8) this Court held (SCC p.17 para 10):
"10. ... .. It is well known that the court while
considering the question whether the award should be
set aside, does not examine that question as an appellate
court. While exercising the said power, the court cannot
re-appreciate all the materials on the record for the
purpose of recording a finding whether in the facts and
circumstances of a particular case the award in question
could have been made. Such award can be set aside on
any of the grounds specified in Section 30 of the Act."
23. This view was reiterated by the Supreme Court in a very recent
judgment in the case of Kwality Manufacturing Corporation v. Central
Warehousing Corporation, 2009(5) SCC 142.
24.
Now a further question that falls for consideration of this court is
as to whether there is anything contained in 1996 Act which prohibits
in law the court from adopting the approach applicable under the 1940
Act or prohibits applicability of principle of severability to the awards
under 1996 Act. We are unable to see any prohibition much less an
absolute bar in the provisions of section 34 of 1996 Act to that effect.
There could be instances falling under section 34(2)(a), sub-sections
(iii) and (v) where the principle of severability can safely be applied.
These provisions do not specifically or impliedly convey legislative
intent which prohibits the courts from applying this principle to the
awards under the 1996 Act. Again for example, an Arbitral Tribunal
might have adopted a procedure at a particular stage of proceeding
which may be held to be violative of principles of natural justice or
impermissible in law or the procedure was not in accordance with the
agreement between the parties but the parties waived such an
objection and participate in the arbitration proceedings without
protest, in that event it will be difficult for the court to hold that the
good part of the award cannot be segregated from the bad part.
25. Section 4 of the 1996 Act has been enacted by the Legislature to
control the conduct of the parties during the arbitral proceedings. The
purpose appears to be that unnecessary technical objections with
regard to the continuation or otherwise of the arbitration proceedings
and challenge to an award on that ground at a subsequent stage should
be discouraged. This itself is indicative of the legislative intent not to
unnecessarily prolong the litigation on such believable objection which
may be waived. The language of section 34(2) does not use any
specific language which debars the court from exercising its discretion
otherwise vested in it by virtue of its very creation to set aside the
award wholly or partially as the case may be.
26. Discretionary power is vested with the Court to set aside an
award. The ordinary meaning of the words "set aside" is to revoke or
quash, the effect of which is to make the interim order inoperative or
non existent. [ Ref: Bileshwar Khan Udyog Khedut Sahakari Mandali
Ltd. & Ors. v. Union of India & Anr., (1999) 2 SCC 518.]
27. The Black's Law Dictionary defines the expression"set aside" as
to annul or to vacate a judgment or order. Certainly the expression
"set aside" cannot be understood or equatable to void.
28.
These are distinct terms. Normally, the power to do an act
would include an ancillary power to do that act purposefully, unless a
specific language has been used in the provisions of the Statute so as to
lead to an irresistible conclusion expressly or by necessary implication
that such an act is prohibited or is barred. We have already noticed
that in the language of Section 34, no such prohibition can be traced.
The attempt of the Legislature in enacting the 1996 Act is to free
Arbitral Tribunal from rigours of strict rules of procedure and permit
least interference by judicial intervention. It was vehemently argued
before us that the Legislature has eliminated Sections 15 and 16 of the
Act of 1940 thereby conveying its intent not to permit remand or
remitting of the matters to arbitrator. Section 34(2) only vests power,
according to the learned counsel appearing for the Respondents, to set
aside the award and thus the Court is powerless from taking any other
steps or passing any other appropriate orders. This argument on the
face of it, besides being misconceived, cannot stand the test of law
inasmuch as under Section 34(4) of the 1996 Act, the Court has been
vested with the powers that where it receives application under Sub-
section (1), that is for setting aside an arbitral award, it may adjourn
the proceedings for a period of time determined by it in order to give
arbitral tribunal an opportunity to resume the arbitral proceedings or
to take such other actions as in the opinion of the arbitral tribunal will
eliminate the grounds for setting aside the arbitral award. Thus, the
emphasis is on taking all measures as may be permissible in law to
ensure that the arbitral award is not set aside on routine grounds or on
technical pleas taken and substantive rights of the parties should be
determined fully and finally. If the Court has been empowered to
adjourn the proceedings and it can lead the arbitral tribunal to take all
such actions as may be essential for removing grounds for setting aside
the award of the arbitral tribunal that itself substantiates the
arguments made before us by the Appellant that the power of the Court
under Section 34(2) is wide enough to apply the principle of
severability of award and/or pass such other directions as are
contemplated under Section 34(4) of the Act. Of course, the
intervention of the Court is permissible under the provisions of this Act
in relation to the matters contemplated under the Part-I and subject to
the provisions of Section 5. An award can only be set aside under the
provisions of Section 34 as there is no other provision except Section
33 which permits the arbitral tribunal to correct or interpret the award
or pass additional award, that too, on limited grounds stated in Section
33. Passing of an award certainly vests substantive and enforceable
right in the party in whose favour the award is made. Once the
Arbitral Tribunal makes an award and terminates the proceedings
under Section 32, subject to provisions contained in Part-I. An arbitral
award shall be final and binding on the parties and even on the persons
claiming under them respectively in terms of Section 35 of the Act.
This award attains not only finality but becomes enforceable as a
decree of the Civil Court under the Code of Civil Procedure, after the
period stated under Section 34 of the Act. Thus, an award which
attains finality and becomes enforceable vesting a legal right in the
claimants. It will be unjust and unfair to deny statutory rights
accrued to the parties even by not applying the doctrine of severability
if some part of the award is unsustainable and where other part of the
award is found to be good and enforceable in law by the Court in
exercise of its powers vested under Section 34 of the Act.
29. In the case of State of T.N. and Another v. P. Krishnamurthy and
Others, (2006)4 SCC 517, the Supreme Court held as under: -
"31. If a rule is partly valid and partly
invalid, the part that is valid and severable
is saved. Even the part which is found to be
invalid, can be read down to avoid being
declared as invalid. We have already held
that premature termination of existing
leases, in law, can be only after granting a
hearing as required under sub-section (3) of
Section 4-A for any of the reasons
mentioned in Section 4-A(1) or (2).
Therefore, let us examine whether we can
save the offending part of Rule 38-A (which
terminates quarrying leases/permissions
forthwith) by reading it down. Apart from
the statutory provision for termination in
Section 4-A(3), there is a contractual
provision for termination in the mining
leases granted by the State Government.
This provision enables either party to
terminate the lease by six months' notice.
No cause need be shown for such
termination nor does such termination
entail payment of compensation or other
penal consequences. In this case, after
considering the High Level Committee
Report, has taken a decision that all
quarrying by private agencies in pursuance
of the quarrying leases granted in regard to
government lands or permissions granted in
respect of ryotwari land should be
terminated in public interest. If Rule 38-A
is read down as terminating all mining
leases granted by the Government by six
months' notice ( in terms of clause 11 in the
lease deeds based on the model form at
Appendix I to the Rules ) or for the
remainder period of the lease, whichever is
less, it can be saved, as it will then
terminate the leases after notice, in terms of
the lease."
30. If the principles of severability can be applied to a contract on
one hand and even to a statute on the other hand, we fail to see any
reason why it cannot be applied to a judgment or an award containing
resolution of the disputes of the parties providing them such relief as
they may be entitled to in the facts of the case. It will be more so,
when there is no statutory prohibition to apply principle of severability.
We are unable to contribute to the view that the power vested in the
Court under Section 34(1) and (2) should be construed rigidly and
restrictedly so that the Court would have no power to set aside an
award partially. The word "set aside" cannot be construed as to `only
to set aside an award wholly', as it will neither be permissible nor
proper for the Court to add these words to the language of Section
which had vested discretion in the Court. Absence of a specific
language further supported by the fact that the very purpose and object
of the Act is expeditious disposal of the arbitration cases by not
delaying the proceedings before the Court would support our view
otherwise the object of Arbitration Act would stand defeated and
frustrated.
31. Rival submissions have been made before us with regard to
operation and effect of proviso to sub-clause (iv) of clause (a) of
section 34. According to the appellants the proviso applies to the entire
section while according to the respondent, its operation is limited to
sub-clause (iv) alone. There seems to be some merit in the contention
of the respondent inasmuch as the language of the proviso is directly
referable to the section itself and, thus, must take its colour from the
principal section viz. 34(2)(iv). A reading of the proviso shows that
where severability is possible, the court in the class of the cases falling
under sub-clause (iv) is expected to set aside the award partially. In
other words, a greater obligation is placed upon the court to adopt such
an approach when the case in hand is covered under the provisions of
sub-clause (iv). This contention will not have any adverse effect on the
interpretation and scope of section 34 as a whole. It is a settled rule of
interpretation that the statutory provision should be read as a whole to
find out the real legislative intent and that provision should be read by
keeping in mind the scheme of the Act as well as the object which is
sought to be achieved by the Legislation while enacting such a law.
There is nothing in the proviso or in the language of section 34 which
has an impact or effect to restrict the power of the court as
contemplated under section 34(1) read with the opening words of sub-
sections (2) and (4) of section 34 the Act. Est boni judicis ampliare
jurisdictionem is a settled canon of law courts should expand and
amplify jurisdiction to achieve the ends of justice and not unnecessarily
restrict its discretion particularly when the later approach would lead
to frustrate the very object of the Act.
32. The cases or illustrations indicated in the proviso in fact, should
be read to construe that in such other cases where it is so necessary the
court should exercise its discretion and apply the principle of
severability rather than compel the parties to undergo the entire
arbitration proceedings all over again or be satisfied with the rejection
of their claim despite the fact that the Arbitral Tribunal has upon due
appreciation of evidence and in accordance with law has granted relief
to them. It will not only be appropriate but even permissible to read
the proviso to add to the discretion and power of the court vested in it
by the Legislature by using the expression "may".
33. It must be understood that the scope of judicial intervention
under section 34 is very limited and cannot be equated to the powers
of a civil appellate court. The award can be set aside on the grounds
stated in these provisions and that is what is emphasized by the use of
expression `only'. The Supreme Court in the case of McDermott
International Inc. v. Burnt Standard Co.Ltd. and others, 2006(11) SCC
181 has discussed in some elaboration the cases where the court can
interfere with the awards and/or set aside the award. Mere
appreciation of evidence or an error simplicitor in appreciation of fact
or law may not essentially fall within the class of cases which may be
covered within the ambit and scope of section 34 of the Act. We will
shortly proceed to discuss this aspect of law but only in so far as it is
relevant for answering the question posed before the larger Bench.
34. Number of cases have been relied upon and referred by the
learned counsel appearing for the respective parties. One set of cases
have taken the view that partial setting aside of the award is
permissible and the court can exercise its discretion while granting
partial relief to the parties. On the other hand, the rival contention is
that an award can partially be set aside only if a case falls under
proviso to section 34(2)(iv) and the court is bound to set aside the
entire award in other cases and leave the parties to such remedy as
may be available to them in law. The judgments of this court as well as
the other courts which take the former view are Mt. Amir Begum v.
Syed Badr-ud-din Husain & ors., AIR 1914 PC 105; Mattapalli
Chelamayya & Anr. v. Mattapalli Venkataratnam Anr., (1972)3 SCC
799; The Upper Ganges Valley Electricity Supply Co. Ltd. v. The U.P.
Electricity Board, (1973)1 SCC 254; State of Orissa v. Niranjan Swain,
(1989)4 SCC 269; Union of India v. Jain Associates & Anr. (1994)4
SCC 665; J.C. Budhraja v. Orissa Mining Corpn. Ltd. (2008)2 SCC 445;
Poonam International Co.Pvt.Ltd. v. ONGC, 1998(1) Arb. LR 28; Union
of India v. M.L. Dalmiya, AIR 1977 Cal 266; M/s. Metro Electric Co. v.
DDA, AIR 1976 Del 195; M/s. Umraosingh & Co., Lucknow v. State of
Madhya Pradesh, AIR 1976 MP 126; Anandilal Poddar v. Keshavdeo
Poddar, AIR (36) 1949 Cal, 549; S.B. Garware & Ors. v. D.V. Garware,
AIR 1939 Bom. 296; Dagdusa Tilakchand v. Bhukan Govind Shet, 1884
Indian Law Reports Vol. IX 82; Mehta Teja Singh & Co. v. UOI, AIR
1977 DEL 231, Union of India v. M/s. Artic India, Arb.Petn.No.
355/2004 (SJ); and Sanyukt Nrimata v. IIT & Ors. 1986(2) Arb LR 33
(Del); while Rakomder Lrosjam Ljamma v/ IPO. (1998)7 SCC 129;
ITDC v. T.P. Sharma, (2002)3 RAJ 360 (Del); Mc Dermott
International v. Burns Standard Co.Ltd., (2006)11 SCC 181 cases
including the Division Bench judgment of this court take the later view.
We have given detailed reasoning as to why the view taken by the
Division Bench of this court in the case of Ms. Pushpa Mulchandani
(supra) may not be a correct view of law. It will be appropriate to
discuss the reasoning given by the Division Bench while taking that
view in some detail. In the case of Ms. Pushpa Mulchandani (supra),
the court was concerned with a case where the disputes and differences
had been referred to the Arbitrator and the Arbitrator had made his
award holding that the testator willed the goodwill of his trading
concerns to the Trust and other ancillary matters like tenancy and
conversion of a partnership concern into a limited company and its
winding up of the business. Aggrieved from the award of the Arbitral
Tribunal, a petition was filed under section 34 of the 1996 Act on
different grounds. The grounds raised were rejected by the learned
Single Judge who declined to interfere with the award. This judgment
of the learned Single Judge was challenged before the Division Bench
on two grounds; (a) the award had been vitiated on account of non-
compliance of provision of sub-section (3) of section 24 of the Act due
to non supply of copies of the valuation report on which the award was
based and (b) the award had been passed after termination of mandate
of the arbitrator. The Division Bench discussed various aspects of the
case and it finally allowed the appeal, set aside the award as well as the
judgment of the learned Single Judge. In the present case, we are not
concerned with the merits of this case as such. The only relevance of
the order of the Division Bench for answering the present reference is
whether the Division Bench has taken a correct view that the only
option with the court was to set aside the whole award and not part
thereof. The relevant part of the judgment of the Division Bench we
have already reproduced above. The Division Bench while taking that
view recorded reasons that it is not permissible for the court to modify
the award even if it finds that only part of the award is affected by
illegality, the court has to still set aside the entire award unless a party
had applied under the provisions of section 34(4) of the Act. While
taking this view, the Division Bench entirely relied upon para 52 of the
judgment of the Supreme Court in the case of McDermott International
(supra) It must be noticed at the very outset that the Supreme Court in
that case was not concerned with the application of principle of
severability of award. The court was primarily concerned with the
ambit and scope of section 34(2) in its entirety. The contention of
severability neither came up for consideration nor has been dealt with
by the Supreme Court in the entire judgment as the court was not
called upon to decide such an issue. In stricto senso the proviso to
section 34(2)(iv) may not literally apply to the entire provision of
section 34(2) but can certainly be taken as a yardstick for rest of the
provision in so far as exercise of judicial discretion of the court is
concerned. The Supreme Court while considering the provisions of
section 34(2) discussed in some detail as to which of the cases would
fall under those heads and defined the supervisory role of the courts
under that provision. Discussion on this topic, in fact, starts at
paragraph 45 and goes upto paragraph 66 of the judgment. The
Supreme Court in that case has defined in particular principle which
may be attracted in relation to setting aside of an award. Paragraph 52
relied upon by the Division Bench. Paras 59, 60 and 65 which can be
usefully referred to at this stage which read as under:
59. Such patent illegality, however, must go
to the root of the matter. The public policy
violation, indisputably, should be so unfair and
unreasonable as to shock the conscience of the court.
Where the arbitrator, however, has gone contrary to
or beyond the expressed law of the contract or
granted relief in the matter not in dispute would
come within the the purview of Section 34 of the
Act. However, we would consider the applicability
of the aforementioned principles while noticing the
merits of the matter.
60. What would constitute public policy is a
matter dependent upon the nature of transaction
and nature of statute. For the said purpose, the
pleadings of the parties and the materials brought
on record would be relevant to enable the court to
judge what is in public good or public interest, and
what would otherwise be injurious to the public
good at the relevant point, as contradistinguished
from the policy of a particular Government. ( See
State of Rajasthan v. Basant Nahata, (2005) 12 SCC
77.
65. We may consider the submissions of the
learned counsel for the parties on the basis of the
broad principles which may be attracted in the
instant case i.e. (i) whether the award is contrary to
the terms of the contract and, therefore, no
arbitrable dispute arose between the parties; (ii)
whether the award is in any way violative of the
public policy; (iii) whether the award is contrary to
the substantive law in India viz. Sections 55 and 73
of the Indian Contract Act; (iv) whether the reasons
are vitiated by perversity in evidence in contract; (v)
whether adjudication of a claim has been made in
respect whereof there was no dispute or difference;
or (vi) whether the award is vitiated by internal
contradictions."
Thus, the above observations and dictum held in paragraph 52 has to
be construed in the context in which it has been referred to and
decided. If a issue is not raised before the court, no arguments are
addressed on that issue and no reasons on an issue is recorded by the
court, such a judgment cannot be treated as a precedent applicable to a
subsequent case on the correct application of the principle of ratio
decidendi. In order for a judgment to apply as a precedent, the relevant
laws and earlier judgments should be brought to the notice of the court
and they should be correctly applied. Mere observations in a previous
judgment may not be binding on a subsequent Bench if they are not
applicable to the facts and controversies in a subsequent case as per
settled principle of "ratio decidendi". The rule of precedent, thus, places
an obligation upon the Bench considering such judgments that the
Court should discuss the facts and the law of both the cases and then
come to a conclusion as to whether the principle enunciated in the
previous judgment is actually applicable on facts and in law of the
subsequent case. In the case of Commissioner of Customs (Fort) vs.
Toyota Kirloskar Motor (P) Ltd., (2007)5 SCC 371, the Supreme Court
stated the law relating to precedents and held that a decision, as is well
known, is an authority for what it decides and not what can logically
be deduced therefrom. The ratio of a decision must be culled out from
the facts involved in a given case and need not be an authority in
generality without reference to the reasons, discussions and facts of the
case.
35. The Supreme Court was primarily stating the principles which
have been kept in mind by the courts while interfering with the award
of the Arbitral Tribunal that it was to outline the supervisory role of the
courts within the ambit and scope of section 34. It is true that the
court like a court of appeal cannot correct the errors of arbitrator. It
can set aside the award wholly or partially in its discretion depending
on the facts of a given case and can even invoke its power under
section 34(4). It is not expected of a party to make a separate
application under section 34(4) as the provisions open with the
language "on receipt of application under sub-section (1), the court
may.........." which obviously means that application would be one for
setting aside the arbitral award to be made under section 34(1)on the
grounds of reasons stated in section 34(2) and has to be filed within
the period of limitation as stated as reply under section 34(3). The
court may if it deems appropriate can pass orders as required under
section 34(4). In other words, the provisions of section 34(4) have to
be read with section 34(1) and 34(2) to enlarge the jurisdiction of the
court in order to do justice between the parties and to ensure that the
proceedings before the Arbitral Tribunal or before the award are not
prolonged for unnecessarily. In our humble view, the Division Bench
appears to have placed entire reliance on para 52 by reading the same
out of the context and findings which have been recorded by the
Supreme Court in subsequent paragraphs. It is also true that there are
no pari materia provisions like sections 15 and 16 of the Act of 1940 in
the 1996 Act but still the provisions of section 34 read together,
sufficiently indicate vesting of vast powers in the court to set aside an
award and even to adjourn a matter and such acts and deeds by the
Arbitral Tribunal at the instance of the party which would help in
removing the grounds of attack for setting aside the arbitral award. We
see no reason as to why these powers vested in the court should be
construed so strictly which it would practically frustrate the very object
of the Act. Thus, in our view, the principle of law stated by the
Division Bench is not in line with the legislative intent which seeks to
achieve the object of the Act and also not in line with accepted norms
of interpretation of statute.
36. We may now revert back to the facts of the present case which
itself is a glaring example of what devastating results can be produced
by accepting the contention which has been raised on behalf of the
respondent in the present appeal. Undisputedly claims were
adjudicated upon on merits. Parties led evidence, documentary as well
as oral, argued the matter before the Arbitrator whereafter the Arbitral
Tribunal allowed some claims of the claimants and rejected all
remaining claims of the claimants and the counter-claim filed by the
company. The claimant was satisfied with the award. An enforceable
right by way of decree accrued to the claimant in terms of sections
32,35 and 36 of the Act. The company approached this court by filing
a petition under section 34 which partially allowed in the sense that
out of 15 claims allowed by the Arbitrator in favour of the claimant,
held that other claims were not payable to the claimants but still did
not make any observation that the award in so far as it rejects the
remaining claims and the counter-claim were unsustainable. However,
to conclude, the learned Single Judge despite having upheld the claims
in favour of the claimants, set aside the entire award in view of the
Division Bench judgment in the case of Ms. Pushpa Mulchandani
(supra). Could there be a greater perversity of justice to a party which
has succeeded before the Arbitral Tribunal as well as in the court of law
but still does not get a relief. Is that what is contemplated and was the
purpose of introduction of the Act of 1996. An Act which was to
provide expeditious effective resolution of disputes free of court
interference would merely become ineffective statute. Would not the
canon of civil jurisprudence with the very object of the Arbitration Act,
1996 stand undermined by such an approach. The effective and
expeditious disposal by recourse to the provisions of the 1996 Act
would stand completely frustrated if submissions of the respondent are
accepted. Partial challenge to an award is permissible then why not
partial setting aside of an award. In a given case, a party may be
satisfied with major part of the award but is still entitled to challenge a
limited part of the award. It is obligatory on the court to deal with
such a petition under section 34(1)(2) of the Act. We may further take
an example where the Arbitral Tribunal has allowed more than one
claim in favour of the claimant and one of such claim is barred by time
while all others are within time and can be lawfully allowed in favour
of the claimant. The court while examining the challenge to the award
could easily severe the time barred claim which is hit by law of
limitation. To say that it is mandatory for the court without exception
to set aside an award as a whole and to restart the arbitral proceeding
all over again would be unjust, unfair, inequitable and would not in
any way meet the ends of justice.
37. The interpretation put forward by the respondents is bound to
cause greater hardship, inconvenience and even injustice to some
extent to the parties. The process of arbitration even under 1996 Act
encumbersome process which concludes after considerable lapse of
time. To compel the parties, particularly a party who had succeeded to
undergo the arbitral process all over again does not appear to be in
conformity with the scheme of the Act. The provisions of section 34 are
quite pari materia to the provisions of Article 34 of the Model Law
except that the proviso and explanation have been added to section
34(2)(iv). The attempt under the Model Law and the Indian Law
appears to circumscribe the jurisdiction of the court to set aside an
award. There is nothing in the provisions of the Act and for that matter
absolutely nothing in the Model Law which can debar the court from
applying the principle of severability provided it is otherwise called for
in the facts and circumstances of the case and in accordance with law.
The courts will not get into the merits of the dispute. Thus, the
interpretation which should be accepted by the court should be the one
which will tilt in favour of the Model Laws, scheme of the Act and the
objects sought to be achieved by the Act of 1996.
38. For the reasons afore-recorded, we are of the considered view
that the dictum of law stated by the Division Bench in the case of Ms.
Pushpa Mulchandani (supra) is not the correct exposition of law. We
would predicate the contrary view expressed by different Benches of
this court for the reasons stated in those judgments in addition to what
we have held hereinabove. It is difficult to prescribe legal panacea
which, with regard to the applicability of the principle of severability
can be applied uniformally to all cases. We find that the principle of
law enunciated by us hereinabove is more in comity to object of the
Act, legislative intent, UNCITRAL Model Law and will serve the ends of
justice better. Thus, we proceed to record our answers to the questions
framed as follows:
1. The judicial discretion vested in the court in terms of the
provisions of section 34 of the Arbitration and Conciliation
Act, 1996 takes within its ambit power to set aside an
award partly or wholly depending on the facts and
circumstances of the given case. In our view, the
provisions of section 34 read as a whole and in particular
section 34(2) do not admit of interpretation which will
divest the court of competent jurisdiction to apply the
principle of severability to the award of the Arbitral
Tribunal, legality of which is questioned before the court.
The Legislature has vested wide discretion in the court to
set aside an award wholly or partly, of course, within the
strict limitations stated in the said provisions. The scheme
of the Act, the language of the provisions and the
legislative intent does not support the view that judicial
discretion of the court is intended to be whittled down by
these provisions.
2. The proviso to section 34(2)(a)(iv) has to be read ejusdem
generis to the main section, as in cases falling in that
category, there would be an absolute duty on the court to
invoke the principle of severability where the matter
submitted to arbitration can clearly be separated from the
matters not referred to arbitration and decision thereupon
by the Arbitral Tribunal.
39. Having answered the questions framed, we direct that this appeal
and the arbitration petitions be placed before the appropriate Bench for
disposal in accordance with law.
ig CHIEF JUSTICE
A.M. KHANWILKAR, J.
S.C. DHARMADHIKARI, J.
