B.D. Agarwal, J.
1. This appeal under Section 37 of the Arbitration and Conciliation Act, 1996 ('Arbitration Act') has been filed by the Union of India praying for setting aside the award dated 21.12.2005 passed by the learned sole arbitrator in Arbitration Case No. MS 3 of 2002 and also the judgment and order dated 24.11.2006 passed by the learned Additional District Magistrate (Judicial), Aizawl in Arbitration Case No. 1 of 2006 upholding the award.
2. I have heard Mr. S.N. Meitei, learned central government counsel for the appellant. The sole respondent/contractor was represented by Mr. A.R. Malhotra, learned Counsel. I have also perused the impugned award, contract agreement and evidence of the parties.
3. The impugned award has been assailed basically on the ground that the same is in contravention of Section 28 of the Arbitration Act. It was also contended on behalf of the appellant that although there was no clause of price escalation the learned arbitrator has given the award in favour of the respondent due to misconceived and wrong interpretation of Clause 10(a) of the contract agreement. Learned CGC also submitted that the impugned award has been passed on the ground of equity and fair play which cannot be a criteria for awarding price escalation of consumable goods sans any specific clause in this regard in the contract agreement. Learned CGC further submitted that although the request of the contractor/respondent to revise the transportation rates due to hike in the rates of petroleum products was rejected by the department on 21.06.2000, the respondent instead of invoking Clause 26 of the IAFW 2320 to rescind the contract agreement continued to complete the work and despite receiving final payment without protest, the learned arbitrator has acceded to the claim of the contractor to grant price escalation of petrol/diesel. In addition to these grounds the impugned award has also been assailed on a technical infirmity relating to appointment of arbitrator. According to learned CGC as per Clause 36 of the General Conditions (IAFW- 2320) the arbitrator should have been an engineering officer whereas in the present case the Hon'ble Chief Justice, Gauhati High Court appointed a retired High Court Judge to resolve the dispute by way of arbitration, which is contrary to the contract agreement and as such the entire award is null and void.
4. On the other hand, Mr. Malhotra, learned Counsel for the sole respondent, submitted that since there was no clause in the agreement disentitling the contractor to claim the benefit of price escalation, the learned arbitrator has rightly given the benefit within the meaning of Clause 10(a) of the agreement. In support of this submission, the learned Counsel relied upon two decisions of the Supreme Court rendered in the case of Tarapore & Co. v. State of M.P. : [1994]1SCR1012 and Bharat Coking Coal Ltd. v. L.K. Ahuja : (2004)5SCC109 . Learned Counsel further contended that similar benefit of price escalation of petroleum products was given to another firm in identical situation and as such the learned arbitrator has rightly passed the impugned award giving the same benefit to the present respondent.
5. Before addressing the legal and factual questions raised by the learned Counsel for the parties it is necessary to recapitulate the brief facts of the case leading to reference for arbitration and culminating in filing of this appeal.
6. The respondent herein was awarded contract works for handing and conveyance of cement, bitumen and steel from Guwahati to different work sites under Project Pushpak of Broder Road Task Force. The work orders were issued in pursuance to a contract agreement that was executed by the parties on 13.08.1999. In addition to the terms and conditions of the contract agreement, the general conditions of contract based on IAFW-2320 were also made a part of that contract agreement. Within two months of the issuance of the work orders there was upward revision of prices of petrol and diesel. Accordingly, the respondent made a request to the department to give the benefit of hike in rates of petroleum products, which was the major component of transportation of goods by road. According to the contractor, the prices of petroleum products had increased by 20% to 40% and as such average increase of 30% was claimed. Having not received any favourable reply from the appellant the respondent renewed its prayer vide letter dated 06.12.1999 and the prayer was rejected in writing vide letter dated 21.06.2000. Even thereafter, the contract work was completed and final bill was prepared in the month of April 2000 and the payment was received by the contractor sometime in the month of May 2000 without any protest.
7. After more than one year of receipt of final payment, the respondent initiated the process for referring the dispute to an arbitrator by writing a letter on 01.06.2001 followed by a reminder on 05.11.2001. Having declined to appoint an arbitrator by the department, the contractor filed Arbitration Petition No. 12 of 2002 in the High Court for appointment of an arbitrator. In the case the Hon'ble Chief Justice appointed Smt. Meera Sharma, a retired judge of Gauhati High Court, as a sole arbitrator vide order dated 15.04.2002. Thereafter, the arbitration proceeding was held and impugned award was passed which has been upheld by the learned Additional District Magistrate (Judicial), Aizawl under Section 34 of the Arbitration Act.
8. Since commercial disputes can be decided on the basis of the terms and conditions of the contract, it is also necessary to look at the nature of the contract and its terms and conditions. The relevant clauses of the contract agreement are reproduced below:
20. Rates--
(a) The rates given in Schedule 'A' and the single overall percentage above/below Schedule 'A' rates quoted by the contractor as accepted, shall not be subject to any adjustment due to any reason whatsoever during the contract period.
(b) The contractor shall provide at his own expense all tools, plant and equipment such as motor truck, etc. for the full and entire completion of the work.
9. I also find from the contract agreement that the work of transportation was allotted on fixed rate basis. Admittedly, there was no clause in the contract agreement for price escalation. Hence, the respondent took reference under Clause 10(a) for price escalation of petrol/diesel for staking claim for upward revision of rates of transportation charges. The learned sole arbitrator found merit in the claim, which has resulted into filing of this appeal.
10. Although the respondent did not raise any objection about maintainability of this appeal in view of the limited grounds provided for challenging an arbitral award under Section 34 of the Arbitration Act. However, in the case of the Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd. : [2003]3SCR691 the Hon'ble Supreme Court has elaborately examined the ambit and scope of court's jurisdiction under Section 34 of the Act. Their Lordships have held that an arbitral tribunal has to decide the dispute in accordance with the substantive law, i.e. the procedures prescribed under various provisions of the Arbitration Act as well as the Indian Contract Act, Transfer of Property Act and such other laws in force. Their Lordships have held that if a patently illegal award is not interfered with by the court, it would be contrary to the basic concept of justice. Stretching the ambit and scope of challenging arbitration awards Their Lordships have also expanded the interpretation of words 'public policy' employed in Section 34(2)(b) of the Arbitration Act, which is one of the ground to set aside the arbitral award. The relevant observations can be fruitfully reproduced below:
15 if the award is contrary to the substantive provisions of law or the provisions of the Act or against the terms of the contract, it would be patently illegal, which could be interfered under Section 34. However, such failure of procedure should be patent affecting the rights of the parties.
22. The aforesaid submission of the learned senior counsel requires to be accepted. From the judgments discussed above, it can be held that the term 'Public Policy of India' is required to be interpreted in the context of the jurisdiction of the court where the validity of award is challenged before it becomes final and executable. The concept of enforcement of the award after it becomes final is different and the jurisdiction of the court at that stage could be limited. Similar is the position with regard to the execution of a decree. It is settled law as well as it is provided under the Code of Civil Procedure that once the decree has attained finality, in an execution proceeding, it may be challenged only on limited grounds such as the decree being without jurisdiction or nullity. But in a case where the judgment and decree is challenged before the appellate court or the court exercising revisional jurisdiction, the jurisdiction of such court would be wider. Therefore, in a case where the validity of award is challenged, there is no necessity of giving a narrower meaning to the term 'Public Policy of India'. On the contrary, wider meaning is required to be given so that the 'patently illegal award' passed by the arbitral tribunal could be set aside. If narrow meaning as contended by the learned senior counsel Mr. Dave is given, some of the provisions of the Arbitration Act would become nugatory....
30. ...Further, for achieving the object of speedier disposal of dispute, justice in accordance with law cannot be sacrificed. In our view, giving limited jurisdiction to the court for having finality to the award and resolving the dispute by speedier method would be much more frustrated by permitting patently illegal award to operate. Patently illegal award is required to be set at naught, otherwise it would promote injustice.
31. 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 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 face of it, patently in violation of statutory provisions cannot be said to be in puolic 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's case, it is required to be held that the award could be set aside if it is patently illegal. 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 of the court. Such award is opposed to public policy and is required to be adjudged void.
11. The law laid down by the Apex Court in the case of Saw Pipes has been reiterated in series of judicial pronouncements. Reference may be made to the cases of Bharat Coking Coal Ltd. v. Annapurna Construction : AIR2003SC3660 ; Union of India v. Banwari Lal & Sons (P) Ltd. : AIR2004SC1983 ; Hindustan Zinc Ltd. v. Friends Coal Carbonisation : (2006)4SCC445 ; Food Corporation of India v. Chandu Construction and Anr. : (2007)4SCC697 .
12. Coming to the case at hand, it needs to be reiterated that the contract agreement did not contain any 'price escalation' clause. In my considered opinion had the parties any intention to have flexibility in the revision of rates of transportation under certain eventualities/exigencies, they would have certainly incorporated an express and exclusive clause in the agreement in this regard. From the impugned award, I find that the learned arbitrator has held that Clause 10(a) is basically for adjustment of some amounts in the bills and not for refusing the benefit of price escalation of petroleum products. In addition to this beneficial interpretation in favour of the contractor the learned arbitrator has also held that since similar benefit was given to another firm and, as such, the principles of fair play and equity can be invoked to give the benefit of price escalation to the contractor. The relevant findings of the learned arbitrator are extracted below for ready reference:
36. In this case, apparently, as discussed above, the dispute is relating to payment of claim amount on the ground of sudden increase in price of petroleum products. In view of this, I hold that there is no question of adjustment of any amount with the bills of agreed rate and, therefore, Clause 10(a) has no application in the facts and circumstances of this case/dispute. Further, I hold that the interpretation of clause in dispute, i.e. 10(a), is misperceived proposition of both facts and condition of the clause in interpretation.
37. Further, I find reason in the submission of the learned Counsel for the claimant as claimant is entitled to the consideration for revision of payment on the basis of the principle of fair play of justice and equity as was given in the case of M/s. Bagga Roadlines. The same consideration is applicable as the principle of equity and justice cannot be different and discriminated under the law. Admitted position is that the claimant very promptly communicated the respondent authority to consider the change of the rate occurred during the contact work when the hike in petroleum products was not conceived of at the time of contract agreement. This fact also remained that during the period the contract was subsisting, petroleum price was hiked from 30% to 20% for which deference for the earlier approved price required to be spent/invested from the pocket of the contractor as extra expenditure related to the contract work.
13. In my considered opinion, the interpretation of terms and conditions of contract agreement by the learned arbitrator is self-conflicting. In the words of the arbitrator Clause 10(a) has no application in the facts and circumstances of the case since it relates to adjustment of any amount in the bills and at the same time the learned arbitrator has accepted the claim of the contractor which was laid on the basis of Clause 10(a) itself. In my considered opinion, when a contract is based on written stipulation, the terms and conditions of such contract have to be read with all rigidity and there cannot be any scope of giving liberal interpretation thereof nor can an arbitrator or court travel beyond the terms and conditions of the contract agreement. As noted earlier the contract of transportation of some goods was awarded to the respondent on fixed rate basis and that was the reason for not having any price revision clause in the contract agreement. In other words, without any express or implied stipulation with regard to revision of contract rates the impugned award is liable to be set aside on this count alone.
14. I also find from the impugned award that the learned arbitrator has taken into consideration the fact that similar benefit of price escalation was given to M/s. Bagga Roadlines. During the arguments learned Counsel for the respondent failed to produce the contract agreement of Bagga Roadlines. It also does not appear from the record that the contractor had placed the contract agreement of Bagga Roadlines before the learned arbitrator. On the other hand, it was the submission of learned CGC that learned arbitrator ought not to have taken judicial notice of such statement of the contractor inasmuch as M/s. Bagga Roadlines was awarded some contract works of different nature by the army and not by BRTF/Border Roads Organisation.
15. Under Section 28(3) of the Arbitration Act, the arbitral tribunal has to decide the dispute in accordance with the terms and conditions of the contract and in this process usages of the trade can also be taken into consideration. In this way the law emphasizes that terms and conditions of contract should be the primary concern for the tribunal. With due respect to the learned arbitrator I hold that granting price escalation to some other firm by another department under different contract cannot be considered as ordinary usages of the trade. Hence, the impugned award is also de hors to Section 28(3) of the Arbitration Act.
16. It is needless to say that while deciding commercial disputes the courts/tribunals/arbitrators cannot travel beyond the terms and conditions of the contract agreement. In other words, there is no scope of taking judicial notice of any pecuniary benefit given to a particular contractor by another department under certain special circumstances. I am also of the view that courts and arbitrators should decide the disputes within the framework of the contract agreement itself and there is no scope of giving any latitude in interpreting the terms and conditions of the work orders. Hence, I am of the firm view that the learned arbitrator acted beyond its jurisdiction in giving the award on the basis of principles of fair play and equity.
17. The judgment of Tarapore & Co. cited by the learned Counsel for the respondent is clearly distinguishable on facts. In the said case a specific condition was laid down that the contractor shall pay not less than fair wage to labourers engaged in the contract work with a rider that the wages shall be paid as notified by PWD. During the period of the contract work the wages of labourers were enhanced by a statutory notification and on that ground the benefit of difference of wages was given to the contractor. The relevant observations that the Hon'ble Supreme Court made approving the award in favour of the contractor are reproduced below:
27. But then, the terms at hand did require the appellant (who is the contractor) not to pay less than fair wages as would appear from what has been stated in para 2.10 and para 1 of Annexure B. The explanation to latter para states that where fair wages have not been notified these wages would be the one 'prescribed by the PWD (Irrigation Department) for the division in which the work is done'. Now these wages were being increased from time to time as would appear from the decisions of the wages committee referred to above; and if the appellant was being required to pay wages as per these decisions, we do read a meeting of mind insofar as the claim of escalated payment on account of increase of fair wages is concerned. It has to be assumed that when the appellant was required to pay fair wages at increased rates, the authorities did visualize that the appellant would not do so by cutting down its profit. By asking the appellant to give tender by taking into account the fair wages notified at the time of inviting tenders, the authorities did give an impression that fair wages to be paid would be the one then notified/prescribed under the explanation to para 1. In such a situation, if rates of fair wages were raised afterwards, the tendered sum cannot be taken to be agreed amount for completing the contract, in the face of the directions of the authorities requiring the appellant to pay wages at rates higher than those prescribed or notified at the time of inviting tenders. On this fact situation, we hold that the State had by necessary implications agreed to reimburse this increased payment.
18. In the case before me there was no such condition. Rather Clause 10(b) is just opposite to the aforesaid situation. Under this clause the contractor was made bound to transport the goods at his own expenses for the entire period of the contract. However, this clause was not taken into consideration at all by the learned arbitrator. Besides this, I do not find any further stipulation that the intending contractors were mandatorily required to offer their rates at the prevailing rates of petrol/diesel. In other words, the contractors were free to quote higher rates in their tender visualizing the changes in the rates of petroleum products. In fact, the respondent was awarded the work at 275 percentage above the tender rates. Similarly, the authority of the Apex Court rendered in the case of Bharat Coking Coal Ltd. is also of no help to the contractor inasmuch as in the said case the company did not dispute giving the benefit of price escalation of petroleum products under certain peculiar circumstances.
19. I also find that the respondent staked its claim for price escalation of petroleum products at the rate of 30% and the learned arbitrator acceded to the claim of the respondent in toto. There is no discussion about the calculation of the amount claimed as awarded by the arbitrator. Strangely, the contractor also claimed a sum of Rs. 3,00,000 on the ground of harassment and mental agony for denial of his justified claim and the learned arbitrator lias awarded a lump sum amount of Rs. 1,00,000. In my view, since the department had refused to give the benefit of price escalation in absence of any clause in this regard in the agreement, there was no scope for seeking compensation on the ground of harassment and mental agony. Hence, I hold that awarding of compensation on the aforesaid grounds has also vitiated the impugned award.
20. For the reasons alluded hereinabove, I have come to the conclusion that the impugned award suffers from patent illegalities, touching the root of jurisdiction of learned arbitrator to accept the claim of the contractor. Consequently, the impugned award as well as the judgment of the learned Additional District Magistrate (Judicial), Aizawl are hereby set aside. Since the award has been set aside on the grounds of unsustainability in law and facts, I do not feel it necessary to address the question of the legality of the 2008(4) Board of Trustees for the Port of Calcutta v. Batliboi & Co. Ltd. 453 arbitration proceeding itself being vitiated due to appointment of a person other than an engineer, as provided in the contract agreement.
21. In the result, the appeal stands allowed. However, I do not propose to award any cost of this proceeding.