C.V. Jain & Co. vs Hindustan Fertilizer ...
2001 Latest Caselaw 946 Del

JUDGMENT

V.S. Aggarwal, J.

1. The Supreme Court in the case of Muralidhar Agarwal and Anr. v. State of Uttar Pradesh and Ors. explained in paragraphs 30 and 31, the expression Public Policy, which is reproduced below:

30. "Public Policy" has been defined by Winfield as "a principle of judicial legislation or interpretation founded on the current needs of the community". Now, this would show that the interests of the whole public must be taken into account, but it leads in practice to the paradox that in many cases what seems to be in contemplation is the interest of one section only of the public, and a small section at that. The explanation of the paradox is that the courts must certainly weigh the interests of the whole community as well as the interests of a considerable section of it, such as tenants, for instance, as a class as in this case. If the decision is in their favor, it means no more than that there is nothing in their conduct which is prejudicial to the nation as a whole. nor is the benefit of the whole community always a more tacit consideration. The courts may have to strike a balance in express terms between community interests and sectional interests. So, here we are concerned with the general freedom of contract which everyone possesses as against the principle that this freedom shall not be used to subject a class, to the harassment of suits without valid or reasonable grounds. Though there is considerable support in judicial dicta for the view that courts cannot create new heads of public policy see Gheralal Parakh v. Mahadeodas Maiya, , there is also no lack of judicial authority for the view that the categories of heads of public policy are not closed and that there remains a broad filed within which courts can apply a variable notice of policy as a principle of judicial legislation or interpretation founded on the current needs of the community.

2. In this process, the law though well known and established again started taking a shape. It becomes unnecessary to ponder with all the precedents on the subject but it would be in the fitness of things to refer to the landmark judgment of the Supreme Court in the case of Central Inland Water Transport Corporation Ltd and Anr. v. Brojo Nath Ganguly and Anr. . In this particular pronouncement, the Supreme Court was interpreting the relevant service rules. One of the rules empowered the Government Corporation to terminate the services of the permanent employees by giving notice or pay in lieu of notice period. The Supreme Court held that it was opposed to Public Policy and violated Article 14 of the Constitution. The Supreme Court held in paragraph 93 as under:-

From the very nature of things, the expressions "public policy", "opposed to public policy", or "contrary to public policy" are incapable of precise definition. Public policy, however, is not the policy of a particular government. It connotes some matter which concerns the public good and the public interest. The concept of what is for the public good or in the public interest or what would be injurious or harmful to the public good or the public interest has varied from time to time. As new concepts take the place of old, transactions which were once considered against public policy are now being upheld by the courts and similarly where there has been a well recognised head of public policy, the courts have not shirked from extending it to new transactions and changed circumstances and have at times not even flinched from inventing a new head of public policy. There are two schools of though - "the narrow view" school and "the broad view" school. According to the former, courts cannot create new heads of public policy whereas the latter countenances judicial law-making in this area. The adherents of "the narrow view" school would not invalidate a contract on the ground of public policy unless that particular ground had been well established by authorities.

3. The Supreme Court went on to explain the same and further held :

It is thus clear that the principles governing public policy must be and are capable, on proper occasion of expansion or modification. Practices which were considered perfectly normal at one time have today become obnoxious and oppressive to public conscience. If there is no head of public policy which covers a case, then the court must in consonance with public conscience and in keeping with public good and public interest declare such practice to be opposed to public policy. Above all, in deciding any case which may not be covered by authority our courts have before them the beacon light of the Preamble to the Constitution. Lacking precedent, the court can always be guided by that light and the principles underlying the Fundamental Rights and Directive Principles enshrined in our Constitution.

4. Indeed similar was the view expressed in the leading decision in the case of Delhi Transport Corporation v. DTC Mazdoor Congress and Ors. . In paragraph 256 in this regard following findings had been recorded:-

Sutherland, in his Statute and Statutory Construction Third Edition Vol. 3 paragraph 5904 at pages 131-132 has stated that the most reliable source of public policy is to be found in the federal and state constitutions. Since constitutions are the superior law of the land, and because one of their outstanding features is flexibility and capability to meet changing conditions, constitutional policy provides a valuable aid in determining the legitimate boundaries of statutory meaning. Thus public policy having its inception in constitutions may accomplish either a restricted or extended interpretation of the literal expression of a statute. A statute is always presumed to be constitutional and where necessary a constitutional meaning will be inferred to preserve validity. Likewise, where a statute tends to extend or preserve a constitutional principle, reference to analogous constitutional provisions may be of great value in shaping the statute to accord with the statutory aim or objective.

5. The conclusion in the face of the aforesaid are obvious. When Legislature has not defined the expression "opposed to Public Policy", it would be improper even to give a precise meaning. It is not possible to formulate a straight jacket formula. Necessarily the principles governing what would be public policy will have to be construed on each occasion, on facts of each case and with the law as applicable at the relevant time. This expression cannot remain static and has to vary from time to time. It cannot be placed in a fixed mould.

6. With this backdrop, one can conveniently refer to the facts of the present petition filed by M/s C V Jani & Co., hereinafter described as the petitioner. The petition has been filed u/s 34 of the Arbitration and Conciliation Act, 1996 challenging the legality and validity of the award dated 19th March, 2001 passed by the arbitrator. It is admitted that Shri R S Saran had been appointed as the arbitrator and he decided the disputes between the petitioner and the respondent (M/s Hindustan Fertilizer Corporation Ltd.). Vide the award in question the arbitrator decided various claims and counter claims of the parties. Certain claims of the petitioner has been allowed. Needless to say that petitioner has no controversy regarding that. Certain claims of the petitioner has not been allowed and some counter claims of the respondent have been allowed. The petitioner challenges the said claims and the counter claims that have been allowed. The ground of attack in this regard has been that conclusions arrived at by the learned arbitrator are not correct and further interest should have been awarded from the respective due dates when the amounts were withheld unjustifiably by the respondent.

7. At the outset, it had been put to the learned counsel for the petitioner as to whether such a petition under the Act would be maintainable or not. As per the learned counsel, on the said grounds it must be taken that the arbitral award is a conflict with the public policy of India.

8. Sub-section (1) and (2) of Section 34 of the Act runs as under:-

Application for setting aside arbitral award-(1) Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with Sub-section (2) and Sub-section (3).

(2) An arbitral award may be set aside by the court only if-

(a) the party making the application furnishes proof that-

(i) a party was under some incapacity; or

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or

(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decision on matters beyond the scope of the submission to arbitration;

Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or

(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or

(b) the courts 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.

9. It is abundantly clear from what is being reproduced above that Section 34 makes a complete departure from the earlier provisions of the Arbitration Act, 1940. The grounds on which an award can be set aside have been enumerated which are patently different from what was contemplated in the Arbitration Act, 1940. Under clause (a) of Sub-section (2) to Section 34, an arbitral award can be set aside by the court if the party is under some incapacity, the arbitration agreement is not valid under the law but which the parties have subjected it, the party making the application was not given proper notice for the appointment of an arbitrator, the arbitral award deals with disputes not contemplated by or not falling within the terms of the submissions of the arbitration and the composition of the arbitral tribunal or arbitral procedure was not in accordance with the agreement of the parties. It becomes unnecessary for this court to ponder further details contemplated under clause (a) of Sub-section (2) to Section 34 of the Act. Reasons are obvious. it is not the case of the petitioner that on any of these grounds the arbitral award is liable to be set aside.

10. As mentioned above and re-mentioned at the risk of repetition, the arbitral award is claimed to be set up alleging that it is in conflict with the public policy of India.

11. Under Section 23 of the Contract Act, if the consideration or the object of an agreement has to e lawful. If it is forbidden by law then it would be not a legal contract. The contract is also illegal if it is opposed to public policy. But herein it is not the case of the petitioner that the contract was unlawful. The petitioner's counsel relies upon the second part of Section 23 of the Contract Act that it is opposed to public policy. As referred to the said expression, is not capable of precise meaning. But the court cannot ignore the vigours of Section 5 of the Arbitration and Conciliation Act, 1996 which specifically prescribes that notwithstanding anything contained in any other law for the time being in force in no mattes governed by part I, no judicial authority is to intervene except provided herein. Therefore, the court has to circumspect while interfering in the awards under the Act.

12. The attention of the court was drawn by the petitioner's learned counsel to the decision of the Bombay High Court in the case of Hindustan Petroleum Corporation Ltd. v. Batliboi Environmental Engineers Ltd and Anr. (2001) 2 Company Law Journal (Bom) 79. On the strength of this decision, the learned counsel wanted to urge that he can be permitted to raise this controversy. Perusal of the decision referred to would reveal that the Bombay High Court took the view that expression opposed to public policy of India must be given a wider meaning and award which is unconstitutional can be set aside. It was further held that grounds available to a Writ Court should be made available to the courts while considering a challenge to an award under Section 34(ii)(b) under the head Public Policy. But this court has strong reservations regarding the other findings recorded by the bombay High Court. It becomes unnecessary to go into further details in this regard because ultimately even the Bombay High Court refused to interfere on the findings of fact that had been arrived at by the arbitral tribunal.

13. Suffice to say that while interfering in any arbitral award on the ground that it is opposed to public policy one must conclude as to what would be the public policy at the relevant time. Otherwise it would be doing injustice to the plain language of Section 34(ii)(b) of the Act. This is clearly reflected in the decision of the Supreme Court in the case of Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan and Ors. . In paragraph 17 the Supreme Court held:

Section 34 of the Act is based on Article 34 of the UNCITRAL Model Law and it will be noticed that under the 1996 Act the scope of the provisions for setting aside the award is far less the same under S. 30 or S. 33 of the Arbitration Act of 1940.

14. The conclusions are obvious therefore, that with limited scope prescribed under Section 34 one need not travel to Section 30 or 33 of the Arbitration Act, 1940.

15. What is the position in the present matter. Under Clause 24(a) of the agreement between the parties all disputes arising out of the contract had to be referred to the scale arbitration of Chief Marketing Manager. The relevant clause reads as under:-

Clause 24 (a): All disputes and difference arising out of the contract shall be referred to the sole arbitration of Chief Marketing Manager and if the said Chief Marketing Manager is unable to our unwilling to act as Sole Arbitrator, someother person appointed by the said Chief Marketing Manger will act as arbitrator. There will be no objection if the arbitrator so appointed is an employee of Hindustan Fertilizer Corporation Limited and he has expressed view on all or any of the matters in disputes or differences. The award of the arbitrator so appointed shall be final, conclusive, and binding on all parties to this contract. The demand for arbitration of any claim shall be made in writing by the contractor within 3 months from the date of termination or completion of the contract; otherwise claims of the contractor shall be deemed to have been waived and the Corporation shall be discharged and released of all liabilities under the contract. The award for costs in connection with the arbitration shall be at the discretion of the arbitrator.

16. It is in pursuance of the said agreement that the disputes were referred to the sole arbitrator. The said arbitrator had pronounced the award and certain claims of the petitioner have been allowed and some disallowed. There were some counter claims by the respondent Hindustan Fertilizer Corporation Ltd which too have been allowed and some not allowed. The petitioner seeks to assail the claims of the petitioner which have been disallowed and certain counter claims that have been allowed.

17. It is abundantly clear from aforesaid that what is being assailed is a finding which is of fact. According to the petitioner, the arbitrator should have given a finding to the contrary.

18. A particular finding arrived at even if not to the linking of a particular party cannot be described to be opposed to the public policy of India. There is no such public policy that a finding must adhere to the advantage of a particular litigant. There is no plea shown that it is based on fraud. It is not even show that the appointment of the arbitrator was illegal not it is established that it was contrary to any provision of law which may have been violated. Once it is so that court would shudder to interfere. It is not permissible. Even in the case of Olympus Superstructures (supra) the Supreme Court had expressed a view that the court would not interfere in questions regarding which findings a fact have been given. Necessarily there is no scope for interference.

19. A feeble attempt was made to urge that interest should have been awarded from the earlier period and not as has been awarded by the arbitrator. The arbitrator had directed that if the respondent fail to pay the sum within 30 days it will carry interest @18% PA from the date of the award till the date of the payment. Once again the discretion has been exercised which must be taken to be proper keeping in view that certain counter claims of the respondent even had been allowed. It requires therefore little interference.

20. In all fairness to the learned counsel reference can well be made to the decision cited at the Bar in the case of Gautam Constructions and Fisheries Ltd. v. National Bank for Agricultural and Rural Development and Anr. . The controversy therein was between the arbitrator awarding higher interest than what was mutually agreed. The Supreme Court answered the same by holding that it should be only as per the contact. This therefore is not at par with the facts of the present case and therefore the said decision must be held to be distinguishable.

21. As a result of the aforesaid reasons, the conclusions are obvious. The petition does not disclose a cause of action. Therefore must fail at the threshold. The same is rejected under Order 7 Rule 11 (c) of the Code of Civil Procedure.