State Trading Corporation Of ... vs M/S Toepfer International Asia ...
2014 Latest Caselaw 2877 Del

          *IN THE HIGH COURT OF DELHI AT NEW DELHI
%                                           Date of decision: 2nd July, 2014.
+                               FAO(OS) 242/2014

       STATE TRADING CORPORATION OF
       INDIA LTD                                 ......Appellant
                   Through: Dr. A. Francis Julian, Sr. Advocate
                            along with Mr. Danish Zubair Khan,
                            Adv.
                                   Versus

    M/S TOEPFER INTERNATIONAL ASIA
    PTE LTD.                                ......Respondents
                  Through: Mr. Neeraj Kishan Kaul, Sr. Adv.
                           along with Mr. A. Majumdar, Mr.
                           Arvind Kumar Gupta and Mr.
                           Siddarth Ranka, Advs.
CORAM :-
HON'BLE THE CHIEF JUSTICE
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

RAJIV SAHAI ENDLAW, J.

1. This appeal under Section 37 of the Arbitration and Conciliation Act,

1996 impugns the order dated 28th January, 2014 of the learned Single

Judge of this Court of dismissal of the objections, being OMP 106/2014

filed by the appellant, to the Arbitral Award dated 27th September, 2013 of

an Arbitral Tribunal comprising of the nominees of the appellant and the

respondent, who as per the Arbitration Agreement were to be the retired

judges of the High Court or the Supreme Court, and of a third arbitrator

who was required to be senior to the nominated arbitrators.

2. The particulars of the dispute which were referred to arbitration, the

respective versions of the parties and the respective contentions of the

parties are recorded in detail in the unanimous arbitral award running into

36 pages and have been recapitulated by the learned Single Judge also in

his order running into as many as 19 pages. Considering the nature of the

jurisdiction which we are exercising and the contentions before us, we do

not feel the need to reiterate the same. Suffice it will be to state that the

appellant bought Yellow Peas from the respondent, a company

incorporated under the laws of Singapore and the dispute was qua the

liability for demurrage levied for delay in unloading of the goods shipped

by the respondent from Canada to the appellant at Vishakhapatnam. The

Arbitral Tribunal held the respondent entitled to demurrage for 53 days 12

hours and 47 minutes amounting to USD 1,070,652.78 from the appellant

and also awarded interest at the rate of 6% per annum against the appellant,

from the date of notice i.e. 12th October, 2010 till the actual realization of

the award amount. The counter claim of the appellant, of having earned a

dispatch of 14 minutes for which the appellant claimed to be entitled to

USD 5,833.33 from the respondent was dismissed. The respondent was

also awarded cost of arbitration.

3. The challenge by the appellant to the award before the learned Single

Judge was on the ground of the interpretation by the Arbitral Tribunal of

the terms of the contract, relating to lay time and demurrage, being based

on the principle/ practice applicable to charter party disputes when it

should have been based on the law applicable to the sale of goods and

contracts.

4. The learned Single Judge has held:

i. That the appellant has failed to show as to how the award could

be said to be opposed to public policy of India, as interpreted by

the Supreme court in ONGC Ltd. vs. Saw Pipes Ltd. (2003) 5

SCC 705;

ii. that the tribunal had dealt at length with each and every of the

appellant‟s contentions, even though raised for the first time at

the stage of final hearing, and rejected them on merits by giving

reasons;

iii. that even the commentaries, being The Law of Demurrage by

Hugo Tiberg (4th edition), and Benjamin, Sale of Goods (4th

edition) relied upon by the appellant were found to be supporting

the contentions of the respondent, rather than of the appellant;

iv. the Arbitral Tribunal had applied its mind to the pleadings, the

evidence adduced before it and the terms of the contract and the

court would not reappraise the matter as if it were an appeal;

v. interpretation of a term of the contract is a matter within the

jurisdiction of the tribunal - it may be capable of two possible

views, but if the view taken by the Arbitral Tribunal is a

plausible view, though not the only correct view, it would

prevail and the court cannot substitute it with its own

interpretation;

vi. the arbitral awards can be interfered by the court, only if the

findings therein are totally perverse or based on a wrong

proposition of Law;

vii. in the present case, there was no patent error in the

reasons/findings given by the Arbitral Tribunal in rejecting the

appellant‟s contentions and in disallowing the application of the

appellant for filing of amended written statement as the matter

was entirely in the domain of the Arbitral Tribunal and there was

no vested right in the appellant to insist upon the amended

written statement being taken on record;

viii. the Arbitral Tribunal is the final Arbiter of facts.

5. The challenge in this appeal is on the ground that the learned Single

Judge ignored that the interpretation of the contract between the parties

given by the Arbitral Tribunal is contrary to the express terms and

conditions thereof and the Arbitral Tribunal has given a meaning to the

terms and conditions which is not contemplated in the contract. The senior

counsel for the appellant thus wants us to read the contract between the

parties, particularly the clauses relating to demurrage, and then to judge

whether the interpretation thereof by the Arbitral Tribunal is correct or not.

6. In our view, the interpretation in Saw Pipes Ltd. supra of the ground

in Section 34 of the Act for setting aside of the arbitral award, for the

reason of the same being in conflict with the public policy of India, would

not permit setting aside, in the aforesaid facts. A Section 34 proceeding,

which in essence is the remedy of annulment, cannot be used by one party

to convert the same into a remedy of appeal. In our view, mere

erroneous/wrong finding of fact by the Arbitral Tribunal or even an

erroneous interpretation of documents/evidence, is non-interferable under

Section 34 and if such interference is done by the Court, the same will set

at naught the whole purpose of amendment of the Arbitration Act.

7. Arbitration is intended to be a faster and less expensive alternative to

the courts. If this is one‟s motivation and expectation, then the finality of

the arbitral award is very important. The remedy provided in Section 34

against an arbitral award is in no sense an appeal. The legislative intent in

Section 34 was to make the result of the annulment procedure prescribed

therein potentially different from that in an appeal. In appeal, the decision

under review not only may be confirmed, but may also be modified. In

annulment, on the other hand, the decision under review may either be

invalidated in whole or in part or be left to stand if the plea for annulment is

rejected. Annulment operates to negate a decision, in whole or in part,

thereby depriving the portion negated of legal force and returning the

parties, as to that portion, to their original litigating positions. Annulment

can void, while appeal can modify. Section 34 is found to provide for

annulment only on the grounds affecting legitimacy of the process of

decision as distinct from substantive correctness of the contents of the

decision. A remedy of appeal focuses upon both legitimacy of the process

of decision and the substantive correctness of the decision. Annulment, in

the case of arbitration focuses not on the correctness of decision but rather

more narrowly considers whether, regardless of errors in application of law

or determination of facts, the decision resulted from a legitimate process.

8. In the case of arbitration, the parties through their agreement create an

entirely different situation because regardless of how complex or simple a

dispute resolution mechanism they create, they almost always agree that the

resultant award will be final and binding upon them. In other words,

regardless of whether there are errors of application of law or ascertainment

of fact, the parties agree that the award will be regarded as substantively

correct. Yet, although the content of the award is thus final, parties may still

challenge the legitimacy of the decision-making process leading to the

award. In essence, parties are always free to argue that they are not bound

by a given "award" because what was labeled an award is the result of an

illegitimate process of decision.

9. This is the core of the notion of annulment in arbitration. In a sense,

annulment is all that doctrinally survives the parties‟ agreement to regard the

award as final and binding. Given the agreement of the parties, annulment

requires a challenge to the legitimacy of the process of decision, rather than

the substantive correctness of the award.

10. Joseph Raz in his paper "The Politics of the Rule of Law" has opined

that the function of the rule of law is to facilitate the integration of a

particular piece of legislation with the underlying doctrines of the legal

system; the authority of the courts to harness legislation to legal doctrine

arises neither from their superior wisdom nor from any superior law of

which they are the custodians; it arises out of the need to bring legislation in

line with doctrine. The courts ensure coherence of purpose of law, ensuring

that its different parts do not fight each other. The learned author has further

observed that a law which is incoherent in purpose serves none of its

inconsistent purposes very well. Purposes conflict if due to contingencies of

life serving one will in some cases retard the other. The second basis for the

authority of the courts to integrate legislation with doctrine is the need to

mix the fruits of long established traditions with the urgencies of short term

exigencies. In ensuring the coherence of law, the courts are expected to

ensure the effectiveness of the democratic rule. In giving weight to the

preservation of long established doctrines i.e., the traditions, they protect the

long term interest of the people from being swamped by the short term. We

have taken the liberty to quote from the aforesaid paper since the courts are

being repeatedly called upon to adjudicate on the various provisions of the

re-enacted arbitration law. From the various pronouncements in the last

about 18 years since re-enactment, it appears that the danger of interpreting

the new Act in a manner doing away with the whole object/purpose of re-

enactment is imminent. The courts continue to be inundated till date, in

spite of repeal of the old Act 18 years ago, with cases thereunder also,

particularly of challenge to the arbitral award. Provisions of the old and the

new Act relating to inference with the arbitral award are vastly different.

However, when the courts, in the same day are wrestling with a matter

concerning arbitral award under the old Act and with that under the new Act,

the chances of culling out the huge difference between the two are minimal.

It is not to be forgotten that the courts deal with and rule on disputes where

monies and properties of real persons are at stake. The courts do not decide

in abstract. Thus, when in one case the courts interfere with the arbitral

award for the reason of the same not rendering to the litigant what the courts

would have granted to him, the courts find it difficult in the very next case,

though under the new Act, to apply different parameters.

11. Arbitration under the 1940 Act could not achieve the savings in time

and money for which it was enacted and had merely become a first step in

lengthy litigation. Reference in this regard can be made to para 35 of

Bharat Aluminium Company Vs. Kaiser Aluminium Technical Services

Inc. (2012) 9 SCC 552. It was to get over the said malady that the law was

sought to be overhauled. While under the old Act, the award was

unenforceable till made rule of the court and for which it had to pass various

tests as laid down therein and general power/authority was vested in the

court to modify the award, all this was removed in the new Act. The new

Act not only made the award executable as a decree after the time for

preferring objection with respect thereto had expired and without requiring it

to be necessarily made rule of the court but also did away with condonation

of delay in filing the said objections. The reason/purpose being expediency.

The grounds on which the objections could be filed are also such which if

made out, the only consequence thereof could be setting aside of the award.

It is for this reason that under new Act there is no power to the court to

modify the award or to remit the award etc. as under the old Act. A perusal

of the various grounds enunciated in Section 34 will show that the same are

procedural in nature i.e., concerning legitimacy of the process of decision.

While doing so, the ground, of the award being in conflict with Public Policy

of India, was also incorporated. However the juxtaposition of Section

34(2)(b)(ii) shows that the reference to „Public Policy‟ is also in relation to

fraud or corruption in the making of the award. The new Act was being

understood so [see Konkan Railway Corporation Ltd. Vs. Mehul

Construction Co. (2000) 7 SCC 201 (para 4 and which has not been set

aside in S.B.P. & Co. Vs. Patel Engineering Ltd. (2005) 8 SCC 618)] till

the Supreme Court in Saw Pipes Ltd. (supra) held that the phrase „Public

Policy of India‟ is required to be given wider meaning and if the award on

the face of it is patently in violation of statutory provisions, it cannot be said

to be in public interest and such award/judgment/decision is likely to

adversely affect the administration of justice. In para 37 of the judgment it

was held that award could be set aside if it is contrary to fundamental policy

of Indian Law or the interest of India or justice or morality or if it is patently

illegal. A rider was however put that illegality must go to the root of the

matter and if the illegality is of trivial nature it cannot be held that the award

is against the public policy. Yet another test laid down is of the award being

so unfair and unreasonable that it shakes the conscience of the court.

12. The courts have thereafter been inundated with challenges to the

award. The objections to the award are drafted like appeals to the courts;

grounds are urged to show each and every finding of the arbitrator to be

either contrary to the record or to the law and thus pleaded to be against the

Public Policy of India. As aforesaid, the courts are vested with a difficult

task of simultaneously dealing with such objections under two diverse

provisions and which has led to the courts in some instances dealing with

awards under the new Act on the parameters under the old Act.

13. The result is that the goal of re-enactment has been missed.

14. The re-enactment was not only to achieve savings in time and prevent

arbitration from merely becoming the first step in lengthy litigation but also

in consonance with the international treaties and commitments of this

country thereto. Since the enactment of the 1940 Act, the international

barriers had disappeared and the volume of international trade had grown

phenomenally. The new Act was modeled on the model law of international

commercial arbitration of the United Nations Commission on International

Trade Law (UNICTRAL). It was enacted to make it more responsive to

contemporary requirements. The process of economic liberalization had

brought huge foreign investment in India. Such foreign investment was

hesitant, owing to there being no effective mode of settlement of domestic

and international disputes. It was with such lofty ideals and with a view to

attract foreign investment that the re-enactment was done. If the courts are

to, notwithstanding such re-enactment, deal with the arbitration matters as

under the old Act it would be a breach of the commitment made under the

treaties on international trade.

15. Applying the aforesaid test, we are afraid, the arguments of the senior

counsel for the appellant are beyond the scope of Section 34.

16. The senior counsel for the respondent has in this regard rightly argued

that the scope of appeal under Section 37 is even more restricted. It has

been so held by the Division Benches of this Court in Thyssen Krupp

Werkstoffe Vs. Steel Authority of India MANU/DE/1853/2011 and Shree

Vinayak Cement Clearing Agency Vs. Cement Corporation of India 147

(2007) DLT 385. It is also the contention of the senior counsel for the

respondent that the argument made by the appellant before the learned

Single Judge and being made before this Court, that the particular clause in

the contract is a contract of indemnification, was not even raised before the

Arbitral Tribunal and did not form the ground in the OMP filed under

Section 34 of the Act and was raised for the first time in the arguments.

17. The Supreme Court in Rashtriya Ispat Nigam Ltd. Vs. Dewan Chand

Ram Saran (2012) 5 SCC 306 refused to set aside an arbitral award, under

the 1996 Act on the ground that the view taken by the Arbitral Tribunal was

against the terms of the contract and held that it could not be said that the

Arbitral Tribunal had travelled outside its jurisdiction and the Court could

not substitute its view in place of the interpretation accepted by the Arbitral

Tribunal. It was reiterated that the Arbitral Tribunal is legitimately entitled

to take the view which it holds to be correct one after considering the

material before it and after interpreting the provisions of the Agreement and

if the Arbitral Tribunal does so, its decision has to be accepted as final and

binding. Reliance in this regard was placed on Sumitomo Heavy Industries

Ltd. Vs. ONGC Ltd. (2010) 11 SCC 296 and on Kwality MFG.

Corporation Vs. Central Warehousing Corporation (2009) 5 SCC 142.

Similarly, in P.R. Shah, Shares & Stock Broker (P) Ltd. V. B.H.H.

Securities (P) Ltd. (2012) 1 SCC 594 it was held that a Court does not sit in

appeal over the award of an Arbitral Tribunal by reassessing or

reappreciating evidence and an award can be challenged only under the

grounds mentioned in Section 34(2) and in the absence of any such ground it

is not possible to reexamine the facts to find out whether a different decision

can be arrived at. A Division Bench of this Court also recently in National

Highways Authority of India Vs. M/s. Lanco Infratech Ltd.

MANU/DE/0609/2014 held that an interpretation placed on the contract is a

matter within the jurisdiction of the Arbitral Tribunal and even if an error

exists, this is an error of fact within jurisdiction, which cannot be

reappreciated by the Court under Section 34 of the Act. The Supreme Court

in Steel Authority of India Ltd. Vs. Gupta Brother Steel Tubes Ltd. (2009)

10 SCC 63 even while dealing with a challenge to an arbitral award under

the 1940 Act reiterated that an error by the Arbitrator relatable to

interpretation of contract is an error within his jurisdiction and is not an error

on the face of the award and is not amenable to correction by the Courts. It

was further held that the legal position is no more res integra that the

Arbitrator having been made the final Arbiter of resolution of dispute

between the parties, the award is not open to challenge on the ground that

Arbitrator has reached at a wrong conclusion.

18. If we were to start analyzing the contract between the parties and

interpreting the terms and conditions thereof and which will necessarily have

to be in the light of the contemporaneous conduct of the parties, it will be

nothing else than sitting in appeal over the arbitral award and which is not

permissible.

19. Resultantly, there is no merit in the appeal which is dismissed with the

costs of Rs.20,000/- payable to the respondent alongwith the awarded

amount.

RAJIV SAHAI ENDLAW, J.

CHIEF JUSTICE JULY 02, 2014.

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