Jammu Development Authority ... vs Saral Sugam Sewa Society
2023 Latest Caselaw 2180 j&K

     HIGH COURT OF JAMMU & KASHMIR AND LADAKH
                     AT JAMMU
                           Reserved on: 29.09.2023
                          Pronounced on: 06.10.2023


                                             AA No.3/2022

Jammu Development Authority through its
Vice-Chairperson, Vikas Bhawan, Rail Head Complex,
Jammu.

                                                       ...Appellant(s)

                        Through:- Mr. Adarsh Sharma, Advocate
Versus


Saral Sugam Sewa Society, D-5, 348, Sangam Vihar,
New Delhi, 62 through its State Secretary, J&K, 47-A, 2nd Extension,
Gandhi Nagar, Jammu.
                                                     ... Respondent


                              Through:- Ms. Shivani Jalali, Advocate
Coram: HON'BLE MR. JUSTICE SANJEEV KUMAR, JUDGE
       HON'BLE MR. JUSTICE PUNEET GUPTA, JUDGE

                              JUDGMENT

Sanjeev Kumar-J

1. This appeal under Section 37 of the J&K Arbitration and

Conciliation Act, 1997 ["the Act"] arises from the judgment

dated 03.11.2021 passed by a Single Bench of this Court in an

application filed under Section 34 of the Act titled Jammu

Development Authority v. Saral Sugam Sewa Society, whereby the application of the appellant-authority for setting aside an

award of the sole arbitrator has been dismissed.

2. Before we advert to the grounds of challenge urged by the

learned counsel appearing for the appellant-authority, we deem it

appropriate to state few material facts germane to the disposal of

this appeal.

3. The appellant entered into an agreement/Memorandum of

Understanding (MOU) with the respondent-society on

15.12.2008 to undertake the work of operation, management and

maintenance of 28 public toilets on pay and use basis for a period

of five years. The contract was to commence w.e.f. 22.12.2008

and was to remain valid till 21.12.2013. It is important to note

that prior to the appellant-authority entering into MOU with the

respondent-society, the appellant-authority had an arrangement

on similar lines with M/s Sulabh International Social Service

Organization [M/s Sulabh International"] in terms of MOU

executed on 14.02.2006 for maintenance and operation of public

toilets on 22 sites. The aforesaid arrangement was later on

terminated by the appellant vide order No.SE/JDA/2471-75

dated 16.12.2008.

4. Feeling aggrieved, M/s Sulabh International filed two writ

petitions before the learned Single Bench; one challenging the

MOU entered by the appellant with the respondent-society; and

the other challenging the order of the appellant dated 16.12.2008

terminating the arrangement with it. M/s Sulabh International

succeeded in obtaining interim relief in both the writ petitions.

As per the claim of the respondent-society, which is not refuted

by the appellant, possession of all twenty eight sites was handed

over to the respondent on 22.12.2008. The respondent further

claimed that after passing of the interim directions by the Court,

M/s Sulabh International assisted by the officers of the appellant-

authority took back the possession of twenty two sites

24.12.2008 and the respondent-society was left only with six

sites. On the contrary, case of the appellant is that the

respondent-society, which was handed over six sites, could not

operate and maintain the public toilets even on these sites.

5. Having regard to the respondent-society‟s failure to maintain

even six sites, the appellant-authority vide its communication

No.JDA/Litg./2010/ 440 dated 12.05.2010 called upon the

respondent to discuss the matter and for taking decision to make

an alternative arrangement for maintenance of public toilets at

litigation free six sites. On failure of the respondent-society to

attend the office of the appellant-authority, the respondent-

society was put on notice to show cause as to why the contract

allotted in its favour be not cancelled. Having found no response

from the respondent-society, appellant-authority, claimably

acting in larger public interest and public convenience, cancelled

the arrangement/MOU made with the respondent-society and

revived the arrangement already made with M/s Sulabh

International with additional conditions by withdrawing the order

of termination of M/s Sulabh International passed on 15.12.2008.

However, the respondent-society, feeling aggrieved of such

action of the appellant-authority, challenged its termination as

also the revival of MOU with M/s Sulabh International by filing

OWP No.1154/2010. The writ petition was opposed by the

appellant by filing its objections.

6. Be that as it may, while the writ petition was pending

consideration of the learned Single Judge, the appellant-authority

and the respondent-society arrived at an agreement that the

claims of the respondent-society arising out of the MOU dated

15.12.2008 may be adjudicated upon by Sh. Sunil Sethi, Senior

Advocate as sole arbitrator. Learned Single Judge took note of

the agreement arrived at between the parties and accordingly,

disposed of OWP No.1154/2010 referring the respondent-society

and the appellant-authority to arbitration. Pursuant to the notice

issued by the arbitrator, both the parties caused their appearance

before the learned Arbitrator. The respondent-society filed its

claims before the learned Arbitrator with the following reliefs:-

a) To revoke/revive the contract dated 15.12.2008 entered

into between the appellant-authority and the respondent-

society for operation and maintenance of as many as 28

toilet blocks situated across the entire Jammu city.

b) To allow the respondent-society to work on the sites,

which were allotted to them vide MOU dated 15.12.2008.

c) Any other relief, order or direction which the Arbitrator

deems fit and appropriate in the nature and circumstances

of the instant case.

7. The disputes which were highlighted by the respondent-society

in its claims were enlisted from (A) to (E) of para 9 under the

heading „List of Disputes'. The appellant-authority filed its

objections/written statement but did not raise any counter claim.

The evidence was led by the respondent-society in the shape of

an affidavit executed by one Sh. Gauri Shanker, Secretary of the

respondent-society. The appellant-authority also produced

evidence in rebuttal and placed on record affidavit of one

T.R.Sargotra, Superintending Engineer.

8. It seems that during the course of hearing learned counsel

appearing for the respondent-society produced certain

documents, which were taken on record by the learned arbitrator.

To substantiate the documents, the respondent-society produced

another affidavit by way of evidence executed by Sh. Gauri

Shanker, Secretary of the respondent-society. In this second

affidavit sworn in by Gouri Shanker on behalf of the respondent-

society fresh claims to the tune of Rs.47,64,925/- on various

heads, which included a claim of compensation for the damage

suffered by the respondent-society, were also put forth.

Appellant-authority objected to the filing of second affidavit and

filed its reply affidavit. The Vice-Chairperson, JDA in her

affidavit also refuted the fresh clams put forth by the respondent-

society.

9. Learned Arbitrator considered the entire matter and came to the

conclusion that the respondent-society had not been fairly treated

and the contract entered into with it by the appellant-authority

was wrongfully terminated. The arbitrator did not allow the

respondent-society to continue with the operations for balance

period of the contract for the reason that M/s Sulabh

International was not party to the arbitration and was executing

the contract qua all the 28 toilet blocks pursuant to the revival of

their contract and cancellation of the MOU with the respondent-

society. The arbitrator, however, agreed with the respondent-

society that on account of this action of the appellant-authority,

respondent-society had suffered loss. The claims put forth by the

respondent-society by way of evidence affidavit were accepted

with modification and the respondent-society was held entitled to

a sum of Rs.34,23,473/- along with interest @ 9% to be reckoned

w.e.f. 02.05.2012 till realization of the amount. Accordingly, the

Arbitrator passed its award on 02.01.2013.

10. The Jammu Development Authority did not accept the award of

the Arbitrator and filed a petition under Section 34 of the Act

before the learned Single Bench. The award of the arbitrator was

assailed by the appellant-authority on following grounds:-

i) That the award passed by the learned Arbitrator is in

conflict with the public policy of the State.

ii) The Arbitrator awarded compensation to the respondent-

society in respect of claims, which were neither pleaded

nor projected either in the writ petition or in the claims

filed before the Arbitrator.

iii) The award is bad in the eye of law for the simple reason

that the second affidavit filed by the respondent-society

was taken on record by the Arbitrator after the evidence

stood closed and the matter was being finally heard by the

Arbitrator.

iv) That the Arbitrator did not spell out reasons in support of

its conclusion that there was breach of contract committed

by the appellant-authority in cancelling the MOU entered

by it with the respondent-Society.

v) That no award for compensation in favour of the

respondent-society could have been passed without first

quashing the order of cancellation of MOU dated

15.12.2008 entered into between the appellant-authority

and the respondent-society and also without terminating

the arrangement made with M/s Sulabh International by

reviving its earlier contract.

11. It was urged that the respondent-society could not have been

granted such relief without M/s Sulabh International being party

in the arbitration and without providing an opportunity of being

heard. The arbitrator has noticed this aspect and expressed his

inability to put the respondent-society back in the execution of

the work without first declaring the arrangement made by the

appellant-authority with M/s Sulabh International bad in the eye

of law.

12. The petition was opposed by the respondent-society. The learned

Single Judge considered the entire matter and did not find any

merit in the petition filed by the appellant-authority. Learned

Single Judge after discussing the entire matter in light of the rival

contentions addressed before it, came to the conclusion that the

appellant-authority had failed to show any perversity or error of

fact or law apparent on the face of the record. Vide order and

judgment impugned in this appeal, the petition filed by the

appellant-authority under Section 34 of the Act was dismissed.

13. The appellant-authority is aggrieved and has called in question

the impugned judgment as also the award of the sole Arbitrator

Sh. Sunil Sethi, Senior Advocate on the ground, which it had

pleaded and urged before the learned Single Judge.

14. Heard learned counsel for the parties and perused the material on

record.

15. First, the facts which are not in dispute before us.

16. Indisputably, an agreement/MOU was entered into by the

appellant-authority with the respondent-society on 15.12.2008 to

undertake the work of operation, management and maintenance

of 28 public toilets for a period of five years commencing from

22.12.2008. At the time of execution of MOU dated 15.12.2008

with respondent-society the appellant-authority had an

arrangement with M/s Sulabh International in terms of MOU

executed between them on 14.02.2006. This was, however, in

respect of 22 sites. This arrangement was later on terminated by

the appellant-authority vide its order dated 15.12.2008. Feeling

aggrieved, M/s Sulabh International challenged the MOU dated

15.12.2008 entered between by the appellant-authority with

respondent-society as also the order of termination of its

arrangement dated 15.12.2008 by filing two writ petitions

bearing OWP Nos.1018/2008 and 1039/2008. In OWP

No.1018/2008, the order of termination of contract with M/s

Sulabh International passed by the appellant-authority dated

15.12.2008 was stayed. In OWP No.1039/2008, the appellant-

authority was directed not to withdraw the works allotted to M/s

Sulabh International for all sites without resorting to due course

of law and the rules governing the subject. These directions were

passed on 23.12.2008 and 24.12.2008 respectively.

17. Because of the interim directions passed in twin petitions filed by

M/s Sulabh International, 22 sites out of 28 sites allotted to the

respondent-society vide MOU dated 15.12.2008 could not be

operationalized by the respondent-society. The respondent-

society, it seems, took over the operation of 28 sites on

22.12.2008 but in view of the interim directions passed in the

writ petitions filed by M/s Sulabh International, M/s Sulabh

International took over the operation and maintenance of 22 sites

which were subject matter of MOU dated 14.02.2006 entered

into between the appellant-authority and the said society.

18. The petitions filed by M/s Sulabh International remained pending

for almost two years. M/s Sulabh International continued to

operate and maintain 22 sites whereas six litigation free sites

only were handed over to the respondent-society for operation

and maintenance. It has amply come on record that the

respondent-society had been showing its inability to pay the

agreed annual sum of Rs.51000/- per site on the ground that

these sites were less frequented by public and, therefore, not

generating enough revenue. The appellant-authority called upon

the respondent-society to come forward and discuss the matter.

However, this was not responded by the respondent-society. The

appellant-authority even put the respondent-society on show

cause notice as to why the arrangement made with it for carrying

out operation and maintenance of the six sites be not terminated.

19. Indisputably, no reply was given by the respondent-society to the

show cause notice. This paved the way for the appellant-

authority to cancel the contract. It is true that the contract/MOU

dated 15.12.2008 was terminated by the appellant-authority only

after M/s Sulabh International agreed to withdraw both the writ

petitions on account of some assurance extended by the

appellant-authority. It is pertinent to note that both the writ

petitions filed by M/s Sulabh International came to be dismissed

as withdrawn vide order dated 27.08.2010. .It has also come on

record that after withdrawal of the writ petitions and the vacation

of the interim directions, respondent-society approached the

appellant-authority for allotment of all the sites which were

subject matter of MOU dated 15.12.2008.

20. It is further seen that the appellant-authority with a view to come

out of the litigation launched against it by M/s Sulabh

International agreed with the later to revive the MOU entered

between the parties in the year 2006 with fresh conditions. It is in

these circumstances and probably having regard to the conduct

of the respondent-society, which had shown its inability to pay

the annual amount of Rs.51,000/- in respect of six litigation free

sites allotted to it, vide its communication/order dated

09.09.2010 terminated the MOU dated 15.12.2008 entered with

the respondent-society. This made the respondent-society to file

OWP No.1154/2010.

21. Indisputably, the entire thrust of OWP No.1154/2010, which was

filed, inter alia, against M/s Sulabh International also, was to

seek quashment of the order of termination bearing No.560-

61/General dated 09.09.2010 as well as order of the appellant-

authority bearing No.558-59/JDA/General dated 09.09.2010,

whereby the MOU entered between the appellant-authority and

M/s Sulabh International on 14.02.2006 had been revived after

withdrawing earlier order of termination dated 15.12.2008. In

essence, the respondent-society claimed restoration of status quo

ante after the dismissal of two writ petitions of M/s Sulabh

International as withdrawn.

22. The writ petition, as stated above, was objected to by the

appellant-authority. Interestingly, the appellant-authority and the

respondent-society without involving M/s Sulabh International,

third necessary party to the dispute, agreed before the Writ Court

for disposal of the writ petition referring the disputes raised by

the respondent-society to the arbitration of sole arbitrator,

namely, Sh. Sunil Sethi, senior advocate.

23. The appellant-authority and respondent-society appeared before

the arbitrator. The respondent-society reiterated its claim, as was

projected by it, in the writ petition. From a reading of the entire

claim petition, one would not find even a whisper with regard to

any claim for damages suffered by it except Clause (E) of para 9

under the heading "List of Disputes", which for facility of

reference is reproduced hereunder:-

"E) Is the petitioner organization is not entitled to any benefit in the form of damages from the JDA who has left the petitioner organization a non voluntary Organization high and dry and without any source of livelihood from the past three and a half years."

24. Apart from the aforesaid paragraph, one would not find even a

single word in respect of any damage suffered by the respondent-

society. There is no quantification of the damages nor any basis

laid down for such damages in the claim petition. And rightly so,

as the respondent-society was aware that they could not execute

the contract due to stay orders granted by the High Court.

25. Reading the disputes raised by the respondent-society in

paragraph No.9 and the prayer made before the Arbitrator

together, it would be beyond any cavil of doubt that the

respondent-society only claimed revival of its contract and

handing back the possession of 28 toilet blocks allotted to it vide

MOU dated 15.12.2008 and nothing more. It is to this extent, the

respondent-society led its evidence by placing on record an

affidavit sworn-in by one Gauri Shanker, the Secretary of the

respondent-society. The affidavit filed by the respondent-society,

by way of evidence, does not spell out any claim in respect of

damages suffered by it on account of any breach of contract.

Neither any specific claims are raised nor basis for such claims

indicated anywhere in the affidavit.

26. The sole grievance raised by the respondent-society before the

Writ Court as also before the learned Arbitrator was that after

withdrawal of the writ petitions filed by M/s Sulabh International

and vacation of the interim directions passed therein, the

respondent-society was entitled to the revival of its contract and

allotment of 28 sites which were subject matter of the MOU

dated 15.12.2008.

27. The appellant-authority filed its objections in rebuttal as also the

affidavit of Mr. S.R.Sargotra, Superintending Engineer by way

of evidence. As noted above, the appellant-authority did not raise

any counter claim. It is, thus, not in dispute that both the parties

submitted only one affidavit each by way of evidence to support

their claim and stand respectively.

28. To appreciate the argument of learned counsel for the appellant-

authority that the second affidavit filed by the respondent-society

was taken on record by the arbitrator after the evidence stood

closed and the matter was being finally heard, it would be

appropriate to take note of the certain orders passed by the

learned arbitrator. The orders, which are relevant for our

purposes, are reproduced hereunder:-

Order dated 26th August, 2012 read as follows:-

"Dated:-26-08-2012 Sh. Avinash Gupta Legal Asst from JDA Sh. Gauri Shanker from SOS Evidence affidavits have been filed by both the parties. Both the parties say that they don‟t desire to file any further documents/pleadings. The matter as such is kept for final arguments on the next date of hearing. The case to come up now 02.09.2012 at 10:00 am."

Order dated 2nd September, 2012

"Date:-02-09-2012 Mrs. Shivani Jalali Pandita Advocate for SSS Society. None for JDA.

The date was fixed today for final arguments. Mrs. Shivani Jalali Pandita has partly argued the matter and produced ten letters depicting the handing over of toilet blocks to her client. The same are taken on record. The matter will be heard further on 9th of September, 2012 at 1.30 pm. JDA is proceeded ex parte today because of its absence and there being no request for adjournment.

Matter to be taken up on 9th of September, 2012 at 1.30 pm."

On 9th September 2012, following order was passed by the arbitrator:-

"9-9-2012 Representatives of both parties present. Case fixed for further proceedings for 17/09/2012 at 6 pm. Ex-parte against JDA is set aside on oral request."

th Order dated 17 September, 2012:-

"17.9.2012

Mrs. Shivani Jalali Pandita

Sh. Avinash Gupta Matter fixed for 24-9-2012 at 5 pm for evidence of claimant."

Order passed on 24th September, 2012 reads thus:-

"Date:- 24-09-2012 Sh. Pankaj Sharma Legal Asst for JDA Sh. Gauri Shanker from SSS Society. Both the parties are present. The matter has been kept for further evidence on the next date of hearing which is fixed for 30.09.2012, as requested by both sides. Matter to be taken up on 30th of September, 2012 at 11.00 am."

On 30.09.2012, following order was passed:-

"30-9-2012 Mrs. Shivani Jalali Pandita for SSS Society Nemo for JDA Matter is kept for filing of additional evidence affidavit by SSS Society on 1-10-2012 at 7 pm."

Proceedings done on 1st October, 2012 read as follows:-

"Date:-01.10.2012 Mr. Pankaj Sharma Advocate for JDA Mrs. Shivani Jalali Pandita Advocate for SSS Society. Additional evidence affidavit has been filed by SSS Society today and statement is made b Mrs. Shivani Jalali Pandita

(Advocate) for the society that she does not want to file any further evidence.

JDA seeks one more opportunity to file evidence affidavit and same has been granted.

Let the matter to be taken up on 08.10.2012 at 7 pm."

On 8th October, 2012, following order came to be passed:-

"Date:-08-10-2012 Sh. Gauri Shanker from SSS Society Telephonic request has been made by Sh. Adarsh Sharma Advocate for JDA that he may be given some time to file reply affidavit to additional evidence affidavit filed by the claimant. Same is granted. Matter now to be taken on 11.10.2012 at 7.00pm by giving last opportunity to file reply affidavit to JDA."

On 11.10.2012, the order passed by the arbitrator is as follows:-

"11-10-2012 Sh. Pankaj Sharma Adv. for JDA Another opportunity for filing rreply affidavit is sought by JDA. Same is granted and the matter is fixed for 16-10-2012 at 7 p.m. for last and final opportunity to JDA to file reply affidavit.

Order announced."

Order dated 16th October, 2012 reads thus:-

"Date:- 16.10.2012 Mr. Vikas Pankaj Sharma Advocate for JDA Mr. Gauri Shanker for SSS Society. Reply evidence affidavit has been filed by JDA today and the copy has been provided to the other party. The matter now be taken up on 21.10.2012 at 8.30 am for final arguments. Let the matter to be taken up on 21.10.2012 at 8.30 am."

29. As is evident from the proceeding-sheets maintained by the

learned Arbitrator, the matter was fixed for final hearing on

02.09.2012. The arguments on behalf of the respondent-society

were addressed by Ms. Shivani Jalali on 02.09.2012. Since

arguments could not be concluded, the matter was posted for

further arguments on 9th September, 2012. It is pertinent to

mention here that during the course of arguments, learned

counsel appearing for the respondent-society placed before the

arbitrator in as many as 10 different documents without

providing copy thereof in advance to the other side. The

documents were taken on record by the learned Arbitrator vide

its order dated 02.09.2012. It seems that the respondent-society

of its own and without seeking permission or orders from the

Arbitrator filed additional affidavit on 01.10.2012. This affidavit

was also sworn-in by Gauri Shanker, Secretary of the

respondent-society and was second affidavit sworn-in by way of

evidence. It is through this evidence affidavit by the respondent-

society, some claims for damages for the first time came to be

raised.

30. It needs to be marked that respondent-society neither amended

the claim petition nor filed any supplementary claims with or

without permission of the learned Arbitrator. This move of the

respondent-society was seriously objected to by the appellant-

authority. In the reply affidavit filed by then Vice Chairperson,

Jammu Development Authority, the Arbitrator was urged to

reject the second affidavit in evidence filed on behalf of the

respondent-society. It was pleaded that by way of second

affidavit in evidence sworn-in by same person a new case cannot

be set up. It was specifically pleaded in reply affidavit by the

Vice Chairperson, JDA that the respondent-society had neither in

the writ petition nor in the claim petition filed before the

arbitrator claimed any damages and the same cannot be

permitted to be introduced by way of evidence. The claims of

respondent-society for damages projected in the second evidence

affidavit were also refuted on merits. It was specifically pleaded

on behalf of the appellant-authority that the toilet blocks 22 in

number were never operated and maintained by the respondent-

society and, therefore, no loss whatsoever was suffered by the

respondent-society. It was, thus, submitted that all the 28 toilet

blocks could not be handed over to the respondent-society

pursuant to the MOU dated 15.12.2008 because of the stay

granted by the High Court in the two writ petitions filed by M/s

Sulabh International. It was further submitted in the reply

affidavit that the respondent-society, which had been allotted six

litigation free toilet blocks could not operate and maintain even

the said blocks, constraining the appellant-authority to cancel the

contract with it.

31. The arbitrator, as is apparent from his award, did not carefully

read the reply affidavit and without there being any iota of

evidence concluded that the appellant-authority had not disputed

the claim of the respondent-society on merits. The learned

arbitrator did not even thought it fit to consider the objection

taken by the appellant-authority to the submission of second

affidavit in evidence of the same person i.e. Secretary of the

respondent-society and introduction of new case during the

course of evidence/hearing.

32. Learned arbitrator also did not advert to the objection of the

appellant-authority what when the matter was being heard finally

where was the necessity to allow the respondent-society to lead

further evidence and that too without there being any request

from the respondent-society and formal order from the arbitrator.

Learned arbitrator, we are aware, may not be bound by strict

rules of pleading and evidence but at the same time cannot throw

the basic norms of procedure to wind.

33. The manner in which the learned arbitrator has acted has not

only deprived the appellant -authority of its right to contest the

claims of the respondent-society but has caused serious

miscarriage of justice. The entire proceedings conducted by the

learned arbitrator suffer from perversity. The claim for damages

are not only required to be pleaded and indicated under different

heads but a sufficient foundation is also required to be laid in the

pleadings to substantiate such claims.

34. From a reading of the writ petition from where the reference to

the arbitrator has arisen and also the claim petition filed before

the arbitrator, it is abundantly clear that the respondent- society

never intended to raise any claim for damages against appellant

but only wanted revival of its contract and its continuation for

the remainder contract period. The respondent-society was aware

that it could not operate atleast 22 toilet blocks due to the interim

directions passed by the High Court in two writ petitions filed by

M/s Sulabh International. It, therefore, rested its claim only for

restoration of its contract on the ground that after dismissal of the

writ petitions and vacation of the interim directions, the

respondent-society was entitled to claim continuance of the

contract entered into with it by the appellant-authority vide MOU

dated 15.12.2008.

35. It seems that while arguing the matter, the respondent-society

was told that revival of its contract is not possible without first

cancelling the contract entered into by the appellant-authority

with M/s Sulabh International and such action was not possible

unless M/s Sulabh International was also a party to the

arbitration. Confronted with the aforesaid position, hurriedly and

without giving proper thought to the issue, another affidavit by

way of evidence was filed by the Secretary of the respondent-

society, who had earlier also filed an evidence affidavit in

support of the respondent-society‟s claim.

36. It is by virtue of second affidavit, which was unauthorizedly and

without permission of the arbitrator was filed during course of

the arguments, fresh claims for damages were raised. The Jammu

Development Authority specifically refuted the claims and

sought rejection of the second affidavit in evidence but for the

reasons best known to the arbitrator, serious objection raised by

the appellant authority was taken as admission of the fresh

claims projected by respondent-society by way of second

affidavit. This is how the learned arbitrator messed up the entire

proceedings and passed the award, which has not only travelled

beyond reference but also suffers from grave perversity, both

substantive and procedural.

37. Learned arbitrator could not have gone beyond the terms of

reference and awarded the sums not claimed in the claim petition

or supplemented by filing additional claims. There was

absolutely no opportunity granted to the appellant-authority to

object to the claims and their quantification and, therefore, in the

process, learned arbitrator also acted in violation of the principles

of natural justice and decided the claims of the respondent-

society without providing adequate opportunity to contest the

same to the appellant-authority.

38. Viewed from any angle, the award passed by the arbitrator

challenged before the learned Single Judge was bad in the eye of

law and liable to be set aside. Learned Single Judge did not

appreciate these aspects and landed in serious error in upholding

the award, which was not only against the public policy of the

State but was beyond the terms of reference and absolutely

perverse.

39. It is trite that an arbitral award can be annulled, if the arbitral

tribunal awards differently than the submission of the parties

(ultra or extra petita). When an arbitral tribunal passes an award

in disregard of some fundamental legal principles and thereby

renders such award incompatible with the essential and widely

recognized values on which Indian Judicial System edificed,

such arbitral award will violate public policy of State. No doubt,

a challenged award will only be set aside if it violates public

policy not merely in its reasoning but also in its result.

40. The meaning and import of "Public Policy of the State" is

elaborately discussed and explained in a recent judgment of the

Apex Court in Batliboi Environmental Engineers Limited v.

Hindustan Petroleum Corporation Limited and another, Civil

Appeal No.1968 of 2012 decided on 21.09.2023. Paragraph Nos.

38 to 43 are quite relevant and are set out below:-

"38. The expression „public policy‟ under Section 34 of the A&C Act is capable of both wide and narrow interpretation.

Taking a broader interpretation, this Court in ONGC Limited. v. Saw Pipes Limited., 26 held that the legislative intent was not to uphold an award if it is in contravention of

provisions of an enactment, since it would be contrary to the basic concept of justice. The concept of „public policy‟ connotes a matter which concerns public good and public interest. An award which is patently in violation of statutory provisions cannot be held to be in public interest. Thus, expanding on the scope and expanse of the jurisdiction of the court under Section 34 of the A&C Act, it was held that an award can be set aside if it is contrary to:

(a) fundamental policy of Indian law; or

(b) the interest of India; or

(c) justice or morality, or

(d) in addition, if it is patently illegal.

Nevertheless, the decision holds that mere error of fact or law in reaching the conclusion on the disputed question will not give jurisdiction to the court to interfere. However, this will depend on three aspects: (a) whether the reference was made in general terms for deciding the contractual dispute, in which case the award can be set aside if the award is based upon erroneous legal position; (b) this proposition will also hold good in case of a reasoned award, which on the face of it is erroneous on the legal proposition of law and/or its application; and (c) where a specific question of law is submitted to an arbitrator, erroneous decision on the point of law does not make the award bad, unless the court is satisfied that arbitrator had proceeded illegally. In the said case, the court set aside the award on the ground that the award had not taken into consideration the terms of the contract before arriving at the conclusion as to whether the party claiming the damages is entitled to the same. Reference was made to the provisions of Sections 73 and 74 of the Contract Act, which relate to liquidated damages, general damages and penalty stipulations. This view had held the field for a long time and was applied in subsequent judgments of this Court in Hindustan Zinc Ltd. v. Friends Coal Carbonisation, (2006) 4 SCC 445, Centrotrade Minerals and Metals Inc. v. Hindustan Copper Limited, (2006) 11

SCC 245, Delhi Development Authority v. R.S. Sharma and Co., (2008) 13 SCC 80, J.G. Engineers (P) Ltd. v. Union of India and Another, (2011) 5 SCC 758, and Union of India v. L.S.N. Murthy, (2012) 1 SCC 718.

39. In 2006, this Court in McDermott International Inc. despite following the ratio of Saw Pipes Limited, made succinct observations regarding the restrictive role of courts in the postaward interference. In addition to the three grounds introduced in Renusagar Power Co. Limited v. General Electric Co., 1994 Supp (1) SCC 644, as noticed above, an additional ground of „patent illegality‟ was introduced Saw Pipes Limited, for exercise of the court‟s jurisdiction in setting aside an arbitral award. This Court, in McDermott International Inc, held that patent illegality, must be such which goes to the root of the matter. The public policy violation should be so unfair and unreasonable as to shock the conscience of the court. Arbitrator where s/he acts contrary to or beyond the express law of contract or grants relief, such awards fall within the purview of Section 34 of the A&C Act. Further, what would constitute public policy is a matter dependent upon the nature of transaction and the statute. Pleadings of the party and material brought before the court would be relevant to enable the court to judge what is in public good or public interest, or what would otherwise be injurious to public good and interest at a relevant point. So, this must be distinguished from public policy of a particular government.

40. A similar view was expressed in Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran, (2012) 5 SCC 306 with the clarification that where a term of the contract is capable of two interpretations and the view taken by the arbitrator is a plausible one, it cannot be said that the arbitrator travelled outside the jurisdiction or the view taken the arbitrator is against the terms of the contract. The court cannot interfere with the award and substitute its view with the award and interpretation accepted by the arbitrator, the reason being the

court does not sit in appeal over the findings and decision of the arbitrator, while deciding an application under Section 34 of the A&C Act. The arbitrator is legitimately entitled to take a view after considering the material before him/her and interpret the agreement. The judgment should be accepted as final and binding.

41. Subsequently, in ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263 a three Judge Bench of this Court observed that the Court, in Saw Pipes Ltd., did not examine what would constitute „fundamental policy of Indian law‟. The expression „fundamental policy of Indian law‟ in the opinion of this Court includes all fundamental principles providing as basis for administration of justice and enforcement of law in this country. There were three distinct and fundamental juristic principles which form a part and parcel of „fundamental policy of Indian law‟. The first and the foremost principle is that in every determination by a court or an authority that affects rights of a citizen or leads to civil consequences, the court or authority must adopt a judicial approach. Fidelity to judicial approach entails that the court or authority should not act in an arbitrary, capricious or whimsical manner. The court or authority should act in a bona fide manner and deal with the subject in a fair, reasonable and objective manner. Decision should not be actuated by extraneous considerations. Secondly, the principles of natural justice should be followed. This would include the requirement that the arbitral tribunal must apply its mind to the attending facts and circumstances while taking the view one way or the other. Nonapplication of mind is a defect that is fatal to any adjudication. Application of mind is best done by recording reasons in support of the decision. As noticed above, Section 31(3)(a) of the A&C states that the arbitral award shall state the reasons on which it is based, unless the parties have agreed that no reasons are to be given. Sub-clauses (i) and (iii) to Section 34(2) also refer to different facets of natural justice. In a given case sub- clause to Section 34(2) and sub-clause (ii) to clause (b) to

Section 34(2) may equally apply. Lastly, is the need to ensure that the decision is not perverse or irrational that no reasonable person would have arrived at the same or be sustained in a court of law. Perversity or irrationality of a decision is tested on the touchstone of Wednesbury principle of reasonableness. At the same time, it was cautioned that this Court was not attempting an exhaustive enumeration of what would constitute „fundamental policy of Indian law‟, as a straightjacket definition is not possible. If on facts proved before them, the arbitrators fail to draw an inference which ought to have been drawn or if they have drawn an inference which on the face of it, is untenable resulting in injustice, the adjudication made by an arbitral tribunal that enjoys considerable latitude and play at the joints in making awards, may be challenged and set aside.

42. The decision of this Court in Associate Builders elaborately examined the question of public policy in the context of Section 34 of the A&C Act, specifically under the head „fundamental policy of Indian law‟. It was firstly held that the principle of judicial approach demands a decision to be fair, reasonable and objective. On the obverse side, anything arbitrary and whimsical would not satisfy the said requirement.

43. Referring to the third principle in Western Geco, it was explained that the decision would be irrational and perverse if (a) it is based on no evidence; (b) if the arbitral tribunal takes into account something irrelevant to the decision which it arrives at; or (c) ignores vital evidence in arriving at its decision. The standards prescribed in Excise and Taxation Officer-cum-Assessing Authority v. Gopi Nath & Sons, (1992 Supp (2) SCC 312 and Kuldeep Singh v.

Commissioner of Police, (1999) 2 SCC 10 should be applied and relied upon, as good working tests of perversity. In Gopi Nath & Sons it has been held that apart from the cases where a finding of fact is arrived at by ignoring or relevant materials or taking into consideration irrelevant material, the

finding is perverse and infirm in law when it outrageously defies logic as to suffer from vice of irrationality. Kuldeep Singh clarifies that a finding is perverse when it is based on no evidence or evidence which is thoroughly unreliable and no reasonable person would act upon it. If there is some evidence which can be acted and can be relied upon, however compendious it may be, the conclusion should not be treated as perverse. This Court in Associate Builders emphasised that the public policy test to an arbitral award does not give jurisdiction to the court to act as a court of appeal and consequently errors of fact cannot be corrected. Arbitral tribunal is the ultimate master of quality and quantity of evidence. An award based on little evidence or no evidence, which does not measure up in quality to a trained legal mind would not be held to be invalid on this score. Every arbitrator need not necessarily be a person trained in law as a Judge. At times, decisions are taken acting on equity and such decisions can be just and fair should not be overturned under Section 34 of the A&C Act on the ground that the arbitrator‟s approach was arbitrary or capricious. Referring to the third ground of public policy, justice or morality, it is observed that these are two different concepts. An award is against justice when it shocks the conscience of the court, as in an example where the claimant has restricted his claim but the arbitral tribunal has awarded a higher amount without any reasonable ground of justification. Morality would necessarily cover agreements that are illegal and also those which cannot be enforced given the prevailing mores of the day. Here again interference would be only if something shocks the court‟s conscience. Further, „patent illegality‟ refers to three sub-heads: (a) contravention of substantive law of India, which must be restricted and limited such that the illegality must go to the root of the matter and should not be of a trivial nature. Reference in this regard was made to clause (a) to Section 28(1) of the A&C Act, which states that the dispute submitted to arbitration under Part I shall be in accordance with the substantive law

for the time being in force. The second sub-head would be when the arbitrator gives no reasons in the award in contravention with Section 31(3) of the A&C Act. The third sub-head deals with contravention of Section 28(3) of the A&C Act which states that the arbitral tribunal shall decide all cases in accordance with the terms of the contract and shall take into account the usage of the trade applicable to the transaction. This last sub-head should be understood with a caveat that the arbitrator has the right to construe and interpret the terms of the contract in a reasonable manner. Such interpretation should not be a ground to set aside the award, as the construction of the terms of the contract is finally for the arbitrator to decide. The award can be only set aside under this sub-head if the arbitrator construes the award in a way that no fair-minded or reasonable person would do.

41. We do not wish to discuss the legal position more, as the

judgment aforementioned takes care of all aspect of challenge to

arbitral award by resort to Section 34 of the Act. Suffice for us to

say and hold that the arbitral award passed by the sole arbitrator

in the instant case was liable to be set aside on the grounds

enumerated in Section 34 of the Act, in particular, grounds

mentioned under Subsections 2(a) (iv) and 2(b(ii) thereof. Not

only the arbitrator has passed award not falling within the terms

of the submission to arbitration and in respect of matters beyond

the scope of the submission to arbitration but has also rendered

his award which is in conflict with public policy of State. The

Single Bench, with great respect, has failed to appreciate all

these aspects of the case.

42. For the reasons given above, we allow this appeal and set aside

the judgment impugned dated 03.11.2021. As a result, arbitral

award dated 02.01.2013 passed by the learned arbitrator is also

set aside. Parties are left to bear their own costs.

                              (Puneet Gupta)            (Sanjeev Kumar)
                                  Judge                      Judge
JAMMU
06.10.2023
Vinod,PS
                           Whether the order is speaking : Yes
                           Whether the order is reportable: Yes