Judgment:
Prafulla C. Pant, J.
1. This appeal, preferred under Section 37 of the Arbitration and Conciliation Act, 1996, is directed against the judgment and order dated 11.1.2005. passed by learned District Judge, Dehradun, in Misc. Arbitration Case No. 46 of 2003, whereby the said Court has refused to set aside the award given by the Arbitrator.
2. Heard learned Counsel for the parties and perused the record.
3. Brief facts of the case are that appellant No. 1 Council of Scientific and Industrial Research (hereinafter referred as C.S.I.R.) is doing research in the field of Science and Technology. Appellant No. 2 Indian Institute of Petroleum (hereinafter referred as I.I.P.) is a constituent laboratory under C.S.I.R. and is a society registered under Societies Registration Act. Respondent M/s Goodman Drug House Pvt. Ltd. (hereinafter referred as Goodman), which is a private limited company registered under the Companies Act, entered into an agreement on 21.8.1996 with the appellant for the purpose of setting up a project for conversion of Menthone to Menthol. The scope of project and time schedule of the work is mentioned in Annexure-1 to the agreement, which provided five months time schedule for the same. As per the agreement, in consideration of work done by I.I.P. and for using intellectual property generated for conversion of Menthone to Menthol, respondent Goodman agreed to pay to I.I.P. a sum of Rs. 3,00,000. It is also agreed between the parties that the Goodman shall further pay a consolidated sum of Rs. 9,00,000 towards the royalty in three equal instalments. A royalty was to be distributed in a proportionate ratio of 50:50 percent between the two parties in the agreement. The royalty agreement between the parties was for a period of ten years. The work was to be carried out in the project and was to be reviewed every month by the I.I.P. and the Goodman till the completion of the project. The I.I.P. has to submit Basic Engineering Package (B.E.P.) apart from In-Plant training to Goodman's operating personnel. The procedural formality for securing and maintaining the intellectual property rights/patents was the responsibility of the I.I.P. It was also agreed that for a period of five years, parties to the agreement would maintain strict confidentiality to prevent disclosure of method of conversion of Menthone to Menthol. There was an Arbitration Clause in the agreement to refer the dispute between the parties to a sole Arbitrator, selected by Chairman and Managing Director of respondent-Goodman and Director of I.I.P..
4. It appears that after an agreement was entered, the respondent incurred the huge expenditure in setting up the project of industrial development. The allegations of respondent-Goodman is that the know-how supplied by the appellant failed to show the result of conversion from Menthone to Menthol. The respondent-Goodman has further alleged that the appellant I.I.P. committed breach of contract, as they had failed to supply the technology for successful conversion of Menthone to Menthol due to which the respondent Goodman suffered huge losses not only in making investment in setting up the unit but also deprived of the profits, which he would have earned on transfer of technology for conversion from Menthone to Menthol.
5. It appears that respondent-Goodman made certain claims regarding the losses and sought appointment of sole Arbitrator. Justice K. D. Sahi (retired Judge) was appointed sole Arbitrator on the following claims:
(a) Rs. 142.010 lacs with interest @ 24% as compensation for the amount incurred due to the expenses and investment of installing the plant and machinery, operation of the plant for trial production and other losses due to failure of project vide details as per Annexure-P-XXVI.
(b) Rs. 4,95,60,000 as damages suffered by the claimant due to non-running of the plant alongwith interest @ 24% per annum till final payment vide details as per Annexure-P-XXVII.
(c) Rs. 1.50 crores as compensation for losses suffered by the claimant due to non-maintenance of ploughing back owing to fallure of the project.
(d) Rs. 20 lacs as compensation for loss of time, energy and for mental agony to claimant.
(e) Rs. 40,000 with interest @ 24% per annum till payment as compensation as medical expenses incurred by the claimant in his medical treatment Annexure-P-XXIX.
(f) Compensation on account of heart attack, general land special damages due to reduction of life expectancy Rs. 30 lacs.
(g) Rs. 3 lacs incurred by the claimant for undergoing angiography and bye pass surgery.
(h) Medical expenses approximately Rs. 1,500 per month (medicines Rs. 1,000 + E.C.G. Rs. 100 + kl Consultancy Charges + Tests etc.).
(i) The cost of arbitration litigation C.Z.B.-D.D.N.-Nainital-Supreme Court-Nainital-till finalization of arbitration proceedings and award.
The Arbitrator entered into the arbitration and after considering the claims of the Goodman and the objections of the appellant I.I.P. it gave award dated 15.1.2003, whereby claim for Rs. 90,00,000 (Ninety lakh) was allowed and directed to be paid by I.I.P. within a period of two months, in default of payment of which, interest of 12% per annum was further awarded by the Arbitrator.
6. The appellants challenged the award, under Section 34 of Arbitration and Conciliation Act, 1996, before the District Judge, Dehradun, who after hearing the parties dismissed the application for setting aside the award. Aggrieved by the judgment and order dated 11.1.2005, passed by learned District Judge, Dehradun, this first appeal has been preferred by C.S.I.R. and I.I.P.
7. Before further discussions, it is relevant to mention here that this Court has to see the scope of arbitration clause in the agreement between the parties and the scope of Sub-section (2) of Section 34 whereunder the award was sought to be set aside. The arbitration clause in the agreement dated 21.8.1996, entered into between the parties, reads as under:
Clause 14.1. In case of any dispute or difference arising in interpreting all or any of the clauses of this agreement or any other difference or dispute relatable to this agreement, such a dispute or difference shall be amicably settled by mutual discussion between the parties. If however, the dispute or differences cannot be so settled, all the disputes and differences shall be referred to the arbitration of a sole Arbitrator selected by Chairman and Managing Director of Goodman and the Director of I.I.P. The award of the sole Arbitrator shall be final, conclusive and binding on all the parties to the agreement subject to the provisions of the Arbitration Act, 1940, and the Rules made thereunder for the time being in force.
It is also relevant to mention here the provision contained in Sub-section (2) of Section 34, which provides the grounds for setting aside the award given by the Arbitrator:
(2) An arbitral award may be set aside by the Court only if-
(a) the party making the application furnishes proof that-
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;
Provided that, if the decision on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the compensation of the Arbitral Tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the Court finds that:
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Explanation. - Without prejudice to the generality of Sub-clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81.
8. Shri V.K. Kohli, learned Counsel for the appellants argued that 'project' in question agreed to be set up was a research and development project and the claim of the respondent-Goodman was wrong, as success and failure in such development work is always a possibility in undertaking such kind of project. In support of his contention, learned Counsel for the appellants drew attention of this Court to the opening para of the agreement, which reads as under:
Whereas I.I.P. has expertise and facilities in the area of Petroleum Refining, Processing, Chemicals and Intermediates and was developed, over the years, experience and capabilities in these areas.
Whereas Goodman, is desirous of sponsoring a project with I.I.P. for the Development of a Process on Conversion of Menthone to Menthol (hereinafter called the Project) and I.I.P. has agreed to undertake the Project with Goodman as per the scope of work detailed in Annexure-1 to this agreement.
In our opinion, the agreement is required to be read as a whole and only then the correct interpretation can be drawn whether the project in question was a simple research and development work or it was a project for which the appellants had agreed to transfer technical know-how which they had possessed after getting success in converting Menthone to Menthol. Clause 2.1 of the agreement clearly shows that in consideration of work done by I.I.P. and for using intellectual property generated for conversion of Menthone to Menthol, Goodman was required to pay to I.I.P. a sum of Rs. 3,00,000. This itself shows that I.I.P. had claimed to have know-how of successfully converting Menthone to Menthol. Not only this, Clause 2.2 of the agreement shows that in addition of the above payment, Goodman was required to pay to I.I.P. consolidated sum of Rs. 9,00,000 towards royalty in three equal instalments. This further shows that the appellants had represented that they had expertise in converting Menthone to Menthol otherwise there would have been no question of distribution of royalty.
9. It is not disputed that after the agreement was entered into between the parties, the respondent Goodman incurred huge expenditure in setting up the plant. Certificate dated January 22, 1997, issued by the Deputy Director I.I.P., which is Annexure-PIX in paper book shows that I.I.P. had claimed that they have developed a technology for producing Menthol from Menthone. However, their further correspondence (including minutes of the meetings) thereafter with Goodman, which is Annexure-P14, P15, P20 and P23, shows that the I.I.P. In their meeting with the Goodman at the site of the project conceded having failed to get converted Menthone to Menthol. The papers on record, further reveal that when I.I.P. failed to successfully convert Menthone to Menthol, they persuaded the Goodman to produce thymol and when that too failed they offered that they could produce piperidine from pyridine. The evidence on record, suggests that without having successfully achieved the process of converting the Menthone into Menthol, I.I.P. entered into an agreement with respondent to permit them to use the technology. These all correspondence show that the work which was required to he done within five months by I.I.P. could not be done even after three years. As such, we are of the view that it was clearly a case of breach of contract, and it cannot be accepted that the agreement between the parties was only to run a Research and Development Project.
10. On behalf of the appellants, it is further argued that even . the parties failed to produce Menthol from Menthone, the I.I.P. is not responsible for every loss, claimed by the Goodman. From the papers on record, it is evident that the claim of Goodman was of 142 lakhs under claim (a) (apart from more than seven crores on claims (b) to (i)) while the Arbitrator awarded only 90,00,000 (Ninety lakhs). The scope of Sub-section (2) of Section 34 of Arbitration and Conciliation Act, 1996, for setting aside the award is limited one. The Arbitrator has given the reasons for coming to the conclusion as to the quantum of the damages awarded by it to the Goodman. This Court cannot go into the question of whether the sum awarded is on the higher side or on the lower side.
11. Learned Counsel for the appellants drew our attention to the principle of law laid down in Oil and Natural Gas Commission v. S.A.W. Pipes Ltd. : [2003]3SCR691 , and argued that the award can be set aside if the same is against the public policy of India. In the aforesaid case, it is defined that award can be said to be against the public policy when it is contrary to:
(a) Fundamental policy of Indian law or
(b) The interest of India or
(c) Justice or morality or
(d) If it is patently illegal.
We do not see any reason to hold that any of the aforesaid four conditions are fulfilled in the present case. The impugned award cannot be said to be against public policy. The amount awarded by the Arbitrator appears to be in consonance to the provisions of Section 73 of Indian Contract Act, 1872, which provides for compensation of loss or damages caused by breach of contract.
12. The case of Union of India v. Banwari Lal and Sons (P.) Ltd. : AIR2004SC1983 , is also referred on behalf of the appellants and it is argued that Court can look into the correctness of the reasons mentioned by the Arbitrator while allowing the claim. We are of the view that said case law pertains to a case covered by Arbitration Act, 1940 and not to the one covered by Arbitration and Conciliation Act, 1996. The misconduct which was a good ground for setting aside award given under the earlier law (Arbitration Act, 1940) is no more available under the new Act.
13. For the reasons, as discussed above, we are of the view that there is no force in the appeal and the same is liable to be dismissed. The appeal is dismissed. No order as to costs.