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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

FIRST APPEAL No. 61 of 2009

For Approval and Signature:

HONOURABLE MS. JUSTICE R.M.DOSHIT

HONOURABLE MR.JUSTICE SHARAD D.DAVE
=========================================================
Whether Reporters of Local Papers may be allowed
1 to see the judgment ?

2 To be referred to the Reporter or not ?

Whether their Lordships wish to see the fair copy

3 of the judgment ?

Whether this case involves a substantial question

of law as to the interpretation of the
4 constitution of India, 1950 or any order made
thereunder ?

5 Whether it is to be circulated to the civil judge ?

=========================================================
DLF UNIVERSAL LIMITED - Appellant(s)
Versus
ATUL LIMITED - Defendant(s)
=========================================================
Appearance :
MR KAMAL TRIVEDI, ADVOCATE GENERAL for M/S TRIVEDI & GUPTA for
Appellant(s) : 1,
MR LALIT PATNI, GENERAL MANAGER (LEGAL) in Person for the Respondent.
=========================================================
CORAM : HONOURABLE MS. JUSTICE R.M.DOSHIT

and

HONOURABLE MR.JUSTICE SHARAD D.DAVE

Date : 07/09/2009
ORAL JUDGMENT

(Per : HONOURABLE MS. JUSTICE R.M.DOSHIT)

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This Appeal preferred under Section 37 of the

Arbitration and Conciliation Act, 1996 by one DLF

Universal Limited arises from the judgment and order

dated 20th September, 2008 passed by the Principal

District Judge, Valsad in Civil Misc. (Arbitration)

Application No.42/2005. By impugned judgment, the

learned Judge has rejected the challenge to the

arbitral award under Section 34 of the Arbitration

and Conciliation Act, 1996 (hereinafter referred to

as “the Act”).

One DLF Industries Limited, predecessor of the

appellant DLF Universal Limited, had entered into an

agreement for supply and commission of no.50 TPH

Atmospheric Fluidized Bed Combustion Boiler with

Auxiliaries, ESP Chimney, Electrical Controls and

Instrumentation alongwith interconnecting piping for

commercial operation by 15th September, 1996 with the

respondent Atul Limited (hereinafter referred to as

“the Atul”). The said contract was not carried out as

stipulated. The Atul, therefore, by its letter dated

16th June, 1999, terminated the said contract. The

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disputes arising from the said termination of the

contract were, at the instance of the Atul, referred

to the arbitral tribunal comprising a Presiding

Arbitrator and two Arbitrators.

Before the arbitral tribunal, the Atul raised

several demands including refund of a sum of

Rs.174.30 lakhs; compensation/damages in the sum of

Rs.5 crores; loss of profit/compensation in the sum

of Rs.141.25 crores; damages of Rs.60.60 lakhs; Rs.12

crores for future expenses the Atul would incur for

completion of the plant on account of risk purchase

and interest @ 24% per annum.

The appellant contested the claim and also

lodged a counter claim, inter alia, for recovery of

around Rs.36 crores under the heads: (1) cost of

materials supplied; (2) loss of profit on account of

termination of the contract; (3) overheads; (4) loss

of profit on account of delay of the contract; (5)

advances paid to the vendors/sub-contractors; (6)

loss of goodwill; (7) loss of future profit; (8)

interest for the delay in payment of advance, etc.

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and interest and the cost of arbitration.

Both, the appellant and the Atul led voluminous

evidence before the arbitral tribunal. The arbitral

tribunal, by its award dated 7th September, 2005,

ordered that the Atul was entitled to recover from

the appellant a sum of Rs.1,59,30,000=00 and interest

@ 10% per annum from the date of the claim till

payment.

As to the cost, the majority of the arbitral

tribunal held that both the appellant and the

claimant would bear half of the cost till the

disposal of the proceedings. One of the arbitrators

disagreed. According to the minority view, the

termination of contract by the Atul, without

following the agreed procedure, was illegal. The

entire cost of the arbitration proceedings,

therefore, should be borne by the Atul.

Feeling aggrieved, the appellant challenged the

arbitral award before the District Court, Valsad,

under Section 34 of the Act. According to the

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appellant, the arbitral award was in conflict with

the public policy of india and was, therefore, liable

to be set-aside. The learned Principal District Judge

has negatived the contentions raised by the appellant

and has rejected the application for setting aside

the arbitral award. Feeling aggrieved, the appellant

has preferred the present Appeal.

As we are called upon to consider the validity

of the arbitral award passed by the arbitral

tribunal, we shall first examine the jurisdiction of

the Court in respect of arbitral awards.

Learned Advocate General Mr.Trivedi has appeared

for the appellant. To buttress the contention that

the impugned award is opposed to the public policy of

India and is liable to be set-aside, Mr.Trivedi has

relied upon the judgment of the Hon'ble Supreme Court

in the matter of Oil and Natural Gas Corporation

Limited v/s. SAW Pipes Limited [(2003)5 SCC 705].

Mr.Patni, General Manager (Legal), has appeared

for the Atul. He has contested the Appeal. He has

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relied upon various provisions of the Act and the

judgments of the Hon'ble Supreme Court in the matters

of G.Ramachandra Reddy and Company v/s. Union of

India and another [2009(2) Arb.LR 475]; of Madhya

Pradesh Housing Board v/s. Progressive Writers and

Publishers [(2009)5 SCC 678] and of McDermot

International Inc. v/s. Burn Standard Co. Ltd. and

others [2006(2) Arb.LR 498].

With a view to keeping pace with nation's

economic reforms, the Act was enacted with avowed

objective, inter alia, “to minimise the supervisory

role of courts in the arbitral process”. Under the

Act, scope of interference by the Court is minimal.

Section 5 of the Act expressly provides that in

matters governed by Part I of the Act “no judicial

authority shall intervene except where so provided in

this Part”. Section 9 of the Act empowers a party to

approach a court for the matters specified in clauses

(i) and (ii) thereof. In case a party fails to

appoint an arbitrator or the arbitrators appointed by

the parties fail to appoint the presiding arbitrator,

Section 11 of the Act empowers the Chief Justice or

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any person or institution designated by him to make

such appointment. Section 34 of the Act provides for

setting aside an arbitral award by a court only on

the grounds specified in clauses (a) and (b) of sub-

section (2) of the said Section 34. Section 37 of the

Act provides for an appeal, inter alia, against the

order “setting aside or refusing to set aside an

arbitral award under section 34”.

In the matter of Oil and Natural Gas Corporation

Limited (supra), the Hon'ble Supreme Court had

occasion to consider the meaning of the phrase

“public policy of India” appearing in Section 34(2)

(b)(ii) of the Act. After considering the issue at a

great length, the Hon'ble Court, in paragraph 31 of

the judgment, held as under :

“Therefore, in our view, the phrase “public

policy of India” used in Section 34 in context

is required to be given a wider meaning. It can

be stated that the concept of public policy

connotes some matter which concerns public good

and the public interest. What is for public good

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or in public interest or what would be injurious

or harmful to the public good or public interest

has varied from time to time. However, the award

which is, on the fact of it, patently in

violation of statutory provisions cannot be said

to be in public interest. Such

award/judgment/decision is likely to adversely

affect the administration of justice. Hence, in

our view in addition to narrower meaning given

to the term “public policy” in Renusagar case it

is required to be held that the award could be

set aside if it is patently illegal. The result

would be – award could 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.

Illegality must go to the root of the matter and

if the illegality is of trivial nature it cannot

be held that award is against the public policy.

Award could also be set aside if it is so unfair

and unreasonable that it shocks the conscience

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of the court. Such award is opposed to public

policy and is required to be adjudged void.”

Mr.Trivedi has heavily relied upon the aforesaid

ruling. He has submitted that the impugned arbitral

award is passed in contravention of the agreed terms

of the contract and in violation of the provisions of

the Contract Act. The same is, therefore, in conflict

with the public policy of India and is liable to be

set-aside.

In the matter of G.Ramachandra Reddy and Company

(supra), the Hon'ble Supreme Court has observed,

“...Interpretation of a contract may fall within the

realm of the arbitrator. The court while dealing with

an award would not reappreciate the evidence. An

award containing reasons also may not be interfered

with unless they are found to be perverse or based on

a wrong proposition of law. If two views are

possible, it is trite, the court will refrain itself

from interfering.”

In the matter of McDermott International Inc.

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(supra), the Hon'ble Supreme Court has considered the

scope of intervention of the court in the matter of

arbitral awards. It is held that under the scheme of

the Act, the supervisory role of the court is kept at

minimum level. It is observed, “...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.”

In the matter of Madhya Pradesh Housing Board

(supra), the Hon'ble Supreme Court reiterated, “...It

is fairly well settled and needs no restatement that

the award of the arbitrator is ordinarily final and

the courts hearing applications under Section 30 of

the Act (sic Section 34) do not exercise any

appellate jurisdiction. Reappraisal of evidence by

the court is impermissible.....An error apparent on

the face of the records would not imply closer

scrutiny of the merits of documents and materials on

record. Once it is found that the view of the

arbitrator is a plausible one, the court will refrain

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itself from interfering.....the erroneous application

of law constituting the very basis of the award and

improper and incorrect findings of fact, which

without closer and intrinsic scrutiny, are

demonstrable on the face of the materials on record,

have been held,...as legal misconduct rendering the

award as invalid...but at the same time the court

could not reappraise the evidences intrinsically with

a close scrutiny for finding out that the conclusion

drawn from some facts, by the arbitrator is,

according to the understanding of the court,

erroneous. Such exercise of power which can be

exercised by an appellate court with power to reverse

the finding of fact, is alien to the scope and ambit

of challenge of an award under the Arbitration Act.”

Mr.Trivedi has taken us through the agreement.

He has particularly relied upon clause 10 of the

agreement. Clauses 9 to 13 of the agreement provided

for termination of agreement. Clause 9 provided for

circumstances in which the purchaser (the Atul) would

be entitled to terminate the contract. Clause 10

provided for notifying the seller of existence of

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such circumstance. It further provided for

termination of agreement by notice of three weeks in

case the seller failed to commence appropriate

remedial action within fifteen days.

Mr.Trivedi has vehemently argued that the

parties to the agreement had agreed to a certain

procedure, namely, to notify the existence/occurrence

of the circumstance for termination of the agreement;

to allow the seller fifteen days' time to commence

appropriate remedial action; and on seller's failure

to commence appropriate remedial action, to terminate

the agreement by giving three weeks' notice.

In the present case, admittedly, the Atul did

not follow the aforesaid agreed procedure; neither

the Atul informed/notified the existence/occurrence

of the circumstance for termination of the contract;

nor was the appellant given opportunity to take

appropriate remedial action; nor was it given three

weeks' notice of termination as agreed. Had the

agreed procedure been followed, the appellant could

have taken the remedial measures and completed the

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contract. The appellant was, therefore, not liable to

pay any amount to the Atul. Further, on account of

abrupt termination of the contract, the appellant had

to suffer damages which the Atul was liable to

indemnify. He has submitted that the arbitral

tribunal has ex-facie erred in ignoring the aforesaid

clause 10 of the agreement and in not passing award

in favour of the appellant.

He has next relied upon the high seas sale

agreements. He has submitted that it was agreed

between the parties that “...the sale for the

imported items considered in schedule 3 shall be

effected while the goods are on the high seas and the

property of these goods shall be passed on to the

purchaser while these goods are on the high seas i.e.

before the goods cross the territorial waters of

India.” He has submitted that in compliance with the

terms of the agreement, the appellant had purchased

certain equipments from the foreign seller. The said

goods were despatched and received at the port in

India. The Atul was, therefore, liable to pay the

purchase price, duty, etc. of the said goods and to

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get it released. Evidently, the appellant did make

payment to the foreign seller. The arbitral tribunal

has failed to notice the high seas sale agreements

and in not awarding the consequent damages to the

appellant.

Mr.Trivedi has also relied upon the payment

schedule (schedule 7 to the agreement). He has

submitted that under the said payment schedule, the

Atul was required to pay the agreed amount in certain

phases i.e. only on completion of milestone work the

next amount would become due. Indisputably, in

consonance with the said schedule, the Atul had paid

around Rs.174.3 lakhs to the appellant. That

presupposes that the appellant had completed the

works upto that stage. The arbitral tribunal has

manifestly erred in holding that the appellant had

done nothing towards the completion of the contract.

In support of his contentions, Mr.Trivedi has

relied upon the minority award referred to

hereinabove and the judgments in the matters of M/s.

Hind Construction Contractors by its sole proprietor

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Bhikamchand Mulchand Jain (Dead) by L.R's. [AIR 1979

SC 720]; of Santimmappa Venkappa Konnur v/s. Balbhim

Co-operative Credit Society of Hebsur [AIR 1950

Bombay 313] and of Khuma v/s. Jin Raj and others [AIR

1974 Rajasthan 28]. Mr.Trivedi has also submitted

that the findings recorded by the arbitral tribunal

are perverse and are based on wrong interpretation of

law. The arbitral tribunal ought to have accepted the

claim of the appellant, atleast to the extent of high

seas sale agreements. The arbitral tribunal has

manifestly erred in not holding that the property in

imported goods had passed over to the Atul and that

the Atul was liable to pay the price and other

antecedent expenses incurred in purchase and

transportation of the said goods. The arbitral

tribunal has committed error apparent on the face of

the record which calls for interference by the Court.

In support thereof, he has relied upon the judgments

of the Hon'ble Supreme Court in the matters of Grid

Corporation of Orissa Limited and another v/s.

Balasore Technical School [(2000)9 SCC 552]; of

Hindustan Zinc Limited v/s. Friends Coal

Carbonisation [(2006)4 SCC 445]; of Food Corporation

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of India v/s. Chandu Construction and another

[(2007)4 SCC 697] and of Delhi Development Authority

v/s. R.S.Sharma and Company, New Delhi [(2008)13 SCC

80].

Mr.Patni has contested the Appeal. He has taken

us through the voluminous record, the correspondence,

etc. He has also demonstrated how certain documents

were interpolated or forged by the appellant.

We have perused the record, the evidence, the

award of the arbitral tribunal and the judgment of

the Court below. We are of the opinion that the

arbitral tribunal has considered the claim and the

counter claim made before it and the evidence on

record. After examining the materials before it, the

arbitral tribunal has unanimously held that

“...before terminating the contract and before

invoking arbitration clause as late as on 16.6.1999,

years back, attempts were made by the claimant ( the

Atul) to resolve the dispute regarding working of the

respondent (the appellant) in connection with the boiler

contract in question. But all the efforts remained

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abortive and ultimately, having waited for more than

two years thereafter, termination notice was issued

by the claimant and arbitration clause was invoked.”

The arbitral tribunal further held that the Atul had

made an advance payment of Rs.174.30 lakhs against

the bank guarantee in the like amount. The appellant

was under contractual liability to keep alive the

bank guarantee till successful completion of the

plant. Despite non-completion of the plant and

despite repeated requests, the appellant did not

renew the bank guarantee. The appellant had thus

committed clear breach of that part of the contract.

Further, against the agreed price of Rs.6.06 crores,

the appellant, contrary to the contractual

obligation, demanded a further sum of Rs.5 crores. As

the Atul did not agree to enhance the price by Rs.5

crores, the appellant was unwilling to carry on the

contract work. It did not supply any material,

domestic or imported, at the site.

In respect of the counter claim raised by the

appellant, the arbitral tribunal observed that there,

indeed, were certain lapses on the part of the Atul

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in making advance payment. However, no grievance was

made by the appellant at the relevant time. Thus, the

said lapses either were condoned or were of no

consequence. After the advance payment of 30% of the

contract price amounting to Rs.174.30 lakhs, the Atul

was not liable to make any further payment till

completion of the plant. The Atul, therefore, was not

in substantial breach of the contract.

As to the procedure for termination of the

contract, the arbitral tribunal held that since the

year 1997 the appellant had done nothing towards the

completion of the contract. Neither any material was

supplied nor any action was taken for erection of the

boiler for two years till the contract was

subsisting. There was no possibility of taking any

remedial measure within fifteen days agreed under

clause 10 of the agreement. In view of the inordinate

delay or inaction by the appellant and the fact that

the appellant had not performed its part of the

contract, the procedure for termination of contract

agreed under clause 10 of the agreement had become

superfluous. The termination of agreement was on

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account of abandonment of the contract by the

appellant. The appellant did not suffer any damage on

account of termination of the contract. We do agree

that the procedure for termination of contract agreed

under the agreement had been, under the

circumstances, reduced to a mere formality. The

appellant did not suffer any prejudice for non-

adherence to the agreed procedure.

As to the individual claims, the only claim the

arbitral tribunal upheld was the claim of the Atul

for refund of Rs.174.30 lakhs, the advance payment

made by it. The arbitral tribunal has found that the

said sum was paid in advance. However, the appellant

did not do any work. No goods were supplied at the

Atul's site.

As to the counter claim lodged by the appellant,

the arbitral tribunal was of the opinion that

“...counter claims based on sole responsibility of

the claimant for breach of contract on its part

cannot be sustained on any ground.” The arbitral

tribunal has considered the high seas sale agreement

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and particularly the clause that the property in the

imported goods shall pass on to the Atul on the high

seas before the goods entered the territorial waters

of India. The arbitral tribunal, after examining the

terms of the high seas sale agreements and the

indemnity bonds executed simultaneously, held that,

“sole responsibility for clearance of the goods from

Customs authorities remained with the respondent

seller.” On conjoint reading of the high seas

agreements and the terms and conditions of the

indemnity bonds, the arbitral tribunal held that,

“title in the goods cannot pass to the claimant ( the

Atul) till the respondent (the appellant) handed over

relevant duly endorsed documents of title in these

goods to the claimant and even thereafter, the

liability of the respondent to keep the goods clear

from the Customs authorities and to deliver them at

the site of the claimant remained operative.”

In absence of any evidence of the appellant's

handing over the duly endorsed documents to the Atul

and supply of the goods at the site, the arbitral

tribunal held that the title to the imported goods

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remained with the appellant. The arbitral tribunal

has also noted the interpolations made by the

appellant in several documents to make out a case for

supply of the goods at the site, which were never

supplied. Though the appellant had not claimed any

amount for designs, engineering, etc., the arbitral

tribunal did take into consideration the amount of

work the appellant had to put in for preparing

drawings, designs and engineering and has allowed a

sum of Rs.5 lakhs for the same. The arbitral tribunal

also allowed a sum of Rs.10 lakhs payable by the Atul

for proportionate value of DCS for boiler contract.

Thus, after allowing a sum of Rs.15 lakhs as

aforesaid, award in the sum of Rs.159.30 lakhs has

been passed in favour of the Atul.

We have discussed the arbitral award in detail

to bring forth that the arbitral tribunal did

consider every bit of evidence in detail for

accepting or rejecting any claim. We do not agree

with Mr.Trivedi that the findings recorded by the

arbitral tribunal are perverse which warrant

interference by this court. Nor is the award contrary

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to the terms of the contract or to any law prevalent

in India, much less in conflict with the public

policy of India.

The Court below has rightly rejected the

application made by the appellant under Section 34 of

the Act to set-aside the arbitral award. The Appeal

is dismissed with cost. The advocate's fee for the

purpose of cost is quantified at Rs.50,000=00. The

respondent Atul Limited is at liberty to recover the

sum of Rs.1,59,30,000=00 deposited in the District

Court at Gurgaon with interest earned on the said

amount, if any.

(Sharad D.Dave, J.) (Ms. R.M.Doshit, J.)

/moin

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