Judgment:
Rekha Sharma, J.
1. Shri A.S. Bhola, General Manager (Finance) Punjab Telecom Circle, acted as the Sole Arbitrator between M/s Vindhya Telelinks Ltd. and Bharat Sanchar Nigam Limited with regard to disputes and differences that arose out of two Purchase Agreements entered by them to supply cables. The learned Arbitrator entered upon the reference and proceeded to finally pass the award on 25.9.2001. Bharat Sanchar Nigam Limited is unhappy with the award. It is because of that, that the objections under Section 34(2)(a)(iv) read with Section 14(1)(a)(2) and Section 33(2) and (4) of the Arbitration and Conciliation Act, 1996 have come to the fore.
2. The claims which were referred to the Arbitrator were as follows:-
1. Deduction of Rs. 97,64,547/- from the final invoice value admitted by the petitioners due to application of new rates for the supplies made within 21 days of the contracted original delivery period detailed in DGM (A) O/O CGMT J and K Telecom Circle letter No. 160-10/Eng/Legal/VTL/2001 dated at JT : 8.5.2001
2. Recovery of Rs. 10,72,758/- from the petitioners bills due to duct length detailed in DGM(A) O/o CGMT J and K Telecom Circle letter No. 160- 10/Eng/Legal/VTL/2001 dated at JT 8.5.2001
3. Petitioner's claim for interest at the rate of 18% per annum up to the date of award and thereafter as per Section 31(7)(b) of the Arbitration and Conciliation Act, 1996.
3. The learned Arbitrator gave his award in favor of M/s Vindhya Telelinks Ltd in respect of two out of the three claims by holding as under :-
1. The deduction of Rs. 97,64,547/- from the final invoice value admitted by the petitioner due to application of new rates for the supplies made and unconditionally accepted by the respondents within 21 days of the contracted original delivery period is not in order. The respondents are directed to release the payment without any further delay.
2. The recovery of Rs. 10,72,758/- by treating the tailored length not as standard length but as short length is result of wrongful interpretation of the relevant clauses of agreement. The respondents are directed to release the withheld payment without any further delay.
3. No interest is admissible for the withheld payment however the interest will be payable if there is inordinate delay in release of the withheld payments after publication of the award and receipt of the same by the petitioner.
4. During arguments Bharat Sanchar Nigam Limited challenged the award in respect of the first claim, on the ground, that the learned Arbitrator while allowing the claim of M/s Vindhya Telelinks Ltd. and directing the objector to release the amount of Rs. 97,64,547/- had heavily leaned on a circular No. 80- 33/PIJF3/96 VLF (Pt.II) dated 12.2.98 issued by the Department of Telecommunications Headquarters at New Delhi which neither formed part of the pleadings nor the evidence before him. It was argued that neither party filed or produced this document before the Arbitrator at any stage of the proceedings. It was not known as to how this circular found its way to the arbitration proceedings and the record. It was alleged that it was the Arbitrator himself who fished out this document. From where He alone knew. thereforee, it was further argued that he could not and ought not to have based his finding on the same until he had put the parties to notice that he was relying upon the same. On the second claim, it was contended, that the Arbitrator misconstrued the relevant clauses of the agreement by wrongly treating the tailored length as standard length.
5. Needless to say that whereas, as per the objector, the objections so raised made the award liable to be set aside, the other side gave its firm support to what the Arbitrator had finally said. What then needs to be said about the above mentioned objections.? Before I proceed to deal with the question posed, it is necessary to set out a few facts.
6. The petitioner No. 1 Bharat Sanchar Nigam Limited is a Govt. of India undertaking and was formed in pursuance of the new Telecom Policy 1999 by which the Government of India decided to corporative the Department of Telecom services and the Department of Telecom Operations. The petitioner No. 2 is an administrative unit of petitioner No. 1 The respondent is a company registered under the Companies Act and deals in the manufacturing of PIJF U/G cables. The petitioner No.1 entered into two purchase agreements with the respondent vide agreement No.160-10/ENG/XXV/96/140 dated 13.12.96 and No. 160-10/ENG/XXIV/96/145 dated 17.2.97 for the supply of 0.79 and 0.14 LCKM of PIJF U/G cables on deferred payment basis. The delivery under both the purchase agreements was to be effected by 12.4.97. It was stipulated in the agreement vide its Clause 19.1 that if the delivery of goods was made after the contracted delivery period but within 21 days of the scheduled delivery period the consignee may accept the stores, and if it does so, the clause of liquidated damages as contained in Clause 19.2 shall not be attracted. The delivery schedule in respect of both the agreements was rescheduled from 12.4.97 to 3.5.1997 and admittedly the delivery was made within 21 days of the original delivery period. It was further stipulated in the agreement that initially the respondent would be paid in respect of the supply made under the agreements on the basis of provisional rates worked out at 95% of the rates contained in tender No.14-21/94-MMT(MMS) dated 24.1.95 of DOT in respect of PIJF U/G cables. The final rates termed as ``applicable prices'` were to be determined later on after adjusting reduction in custom duty that might be announced in the budget for 1996-97. The agreements also contained a clause that the benefit of reduction in custom duty announced in the budget for 1996-97 would go to the purchaser and any increase thereon was to go to the account of the supplier. These stipulations were contained in Clause 5.5(a) to (f) of Agreement No.160-10/ENG/XXV/96/114 dated 13.12.96 . It was the case of the claimant before the Arbitrator that the final bills which it raised on the basis of `applicable prices' were prepared after taking into account the reduction in the custom duty as announced in the budget of 1996-97 and thereforee the withholding of the amount by department to the tune of Rs. 97,64,547/- was not justified. The finding of the Arbitrator on this claim can be best stated in the words of the Arbitrator himself. The relevant extracts of what he said is as follows :
4. The respondents have also argued that Clause 5.5(f) of the agreement particularly the last paragraph of the same However, benefit of any decrease in these taxes/duties or downward trend in prices of principle raw materials during the scheduled or extended delivery period shall be passed on the purchaser by the supplier,'` has also been the governing principle while releasing the payment. There is no denying of the fact that this clause is the part of the agreement and is binding for both the parties irrespective of the time of delivery. However, the only communication in this regard is the circular No.80-33/PIJF3/96 VLF (Pt.II) dated 12.2.98 issued by the DOT Headquarters at New Delhi, the concerned authority, which finalized the rates on the subject agreements after making reductions on account of reductions on account of reduction in custom duties in the budget for the year 1996-97. The claim of the petitioner is based on these finalized rates vide circular dated 12.2.1998 and is for recovery of amounts withheld by the respondent by application of lower rates of subsequent tender which were below the finalized rates. The respondents have not given any other instance of further reduction of rates of cables in respect of agreements due to any decrease in taxes or duties/levies or any downward trend in the prices of principal raw materials during the period when the supplies were made. It is not possible to agree with the general statement of the respondent that the deductions had been made from the petitioner's admitted bills under this clause. So the deduction of Rs.97,64,547/- cannot be on account of application of 5.5.(f) Clause of the agreements.
5. The respondent have further argued that as per Clause 5.5(a) of the agreement the prices under the agreement was based/fixed on a provisional basis and it was agreed by the parties that the said rates would be provisional till the applicable prices are fixed under the scheme. If 5.5 of the agreement is read further it states `` The applicable prices (final and payable for the present quantity on deferred payment terms) shall be the prices under TE No.14-21/94- MMT(MMS), opened on 24-1-1995, adjusted to the custom duty reduction in the budget for 1996-97. As discussed above, the finalized rates under the agreements after making reduction on account of reduction in customs duty in the budget for the year 1996-97 were communicated by DOT Headquarters by circular dated 12.2.98. But it is not the case of the respondent that the claimed deduction has been made from the admitted bills on the basis of the circular. Rather the respondent vide letter dated 8.5.2001 have applied new rates to the cable supplied under the subject agreements. I am of the view that such application of new/reduced rates are not covered by any clause of the agreements or any such term agreed between the parties and thereforee is not sustainable.
7. It is apparent from what has been noticed above that the Arbitrator while giving the finding in favor of the respondent solely relied on circular No.80- 33/PIJF3/96-VLF (Pt.II) dated 12.2.98. The Arbitrator has proceeded on the basis that the applicable rates in respect of the two agreements were determined by this circular and the enclosures thereto. The Arbitrator also proceeded on the assumption that the respondent prepared the final bills as per the said circular. Accordingly, it was held by him that a sum of Rs.97,64,547/- was wrongly withheld by the petitioner and consequently directed release of the same to the respondent. Could the Arbitrator have returned such a finding? The answer is in the negative.
8. The circular in question bearing No.80-33/PIJF3/96-VLF (Pt.II) dated 12.2.98 was not filed before the Arbitrator by the respondent/claimant. This is evident from the fact that the documents which were filed by the respondent/claimant before the Arbitrator in the form of Volume 2 were also placed before this Court. The circular in dispute does not figure in the same. During the course of arguments, the learned Counsel for the respondent was time and again asked if such a circular was filed by the claimant at any stage of the proceedings before the Arbitrator but she was unable to say that it was so filed. As for the petitioner, it had, after the award was passed, filed an application under Section 33 of the Arbitration and Conciliation Act 1996 seeking correction and clarification in respect of certain portion of the award and in the said application, it inter-alia alleged, that it was not clear as to how the learned arbitrator had relied on the circular dated 12.2.98 which was neither part of the pleadings nor the record. The arbitrator passed no order on this application. When the matter came in execution before this Court the Arbitrator was directed vide order dated 16.9.2002 to send a report regarding the status of the said application. In response to the same the Arbitrator wrote to the court that he found no justification to either amend the award or to pass any additional award and that the award passed by him was unambiguous and speaking. The Arbitrator gave no specific answer to the query as to how he relied on the circular dated 12.2.98 which was neither part of the pleadings nor the record.
9. It was argued by learned Counsel for the respondent that the application under Section 33 did not lie as there was no error committed by the Arbitrator which needed correction or elucidation and thereforee there was no occasion for the Arbitrator to pass any order on the application under Section 33 of the Arbitration and Conciliation Act, 1996. I do not wish to go into the question whether the application under Section 33 in the context of the present award was maintainable or not. The fact of the matter is that such an application was filed and when the matter was brought to the notice of the court about the Arbitrator not having disposed of the same, the court directed the Arbitrator to do so. Once there was a direction from the court the Arbitrator ought to have dealt with the same. Yet the Arbitrator chose to keep quiet on the query so made. One would have ignored this slip on the part of the Arbitrator but it assumes significance for the reason that the entire award of the Arbitrator on claim No.1 is based on circular dated 12.2.98. But where did he get it from? He was bound to disclose his source. He could certainly rely upon the same but only if it had been filed by one or the other party and even if he himself found out the same he could still rely on it provided he had put the parties to notice so as to give an opportunity to them to explain the same. This is so laid down in Section 24(3) of the Arbitration and Conciliation Act, 1996. It reads as under:
24. Hearings and written proceedings
(1)...
(2) ...
(3) All statements, documents or other information supplied to, or applications made to the arbitral tribunal by one party shall be communicated to the other party, and any expert report or evidentiary document on which the arbitral tribunal may rely in making its decision shall be communicated to the parties.
10. It is clear from Section 24(3) that it mandates the Arbitrator that any expert report or evidentiary document on which he may rely in making its decision shall be communicated to the parties. Here, in the present case the Arbitrator relies upon the circular, bases its award on the same but keeps the parties in the dark.
11. According to the finding of the Arbitrator the claim of the respondent was based on the rates finalized by the circular dated 12.2.98. Where does he get it from? No one knows. The claimant never stated in its claim petition that the basis of its claim was this circular. The petitioner in any case is making a grievance about its find by the arbitrator. The net result is that the circular was the invention of the Arbitrator and he could not have relied upon the same without reference to the parties.
12. It was lastly sought to be contended by learned Counsel for the respondent that Section 34 of the Arbitration and Conciliation Act provides a very limited scope for interference in the award and that the objections raised by the petitioner do not fall within the parameters of the said section. The learned Counsel for the petitioner, on the other hand, contended that the award was in conflict with public policy as envisaged under Section 34(2)(b)(ii) of the Act. When would an award be considered against public policy has been explained by the Apex Court in ONGC Ltd. v. Saw Pipes Ltd. : [2003]3SCR691 . This is what the court says:-
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 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.
13. 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.
14. What is an illegality has also been explained by the Court in the following paragraph:
In Section 34(2)(a)(v) of the Act, the composition of the Arbitral Tribunal should be in accordance with the agreement. Similarly, the procedure which is required to be followed by the arbitrators should also be in accordance with the agreement of the parties. If there is no such agreement then it should be in accordance with the procedure prescribed in Part I of the Act i.e. Sections 2 to 43. These provisions prescribe the procedure to be followed by the Arbitral Tribunal coupled with its powers. Power and procedure are synonymous in the present case. By prescribing the procedure, the Arbitral Tribunal is empowered and is required to decide the dispute in accordance with the provisions of the Act, that is to say, the jurisdiction of the Tribunal to decide the dispute is prescribed. In these sections there is no distinction between the jurisdiction/power and the procedure. thereforee, it the award is dehors the said provisions, it would be, on the face of it, illegal. The decision of the Tribunal must be within the bounds of its jurisdiction conferred under the Act or the contract. In exercising jurisdiction, the Arbitral Tribunal cannot act in breach of some provision of substantive law or the provisions of the Act.
15. Having regard to what has been noticed above, I cannot but hold, that the arbitrator by relying upon and basing the award on circular No.80-33/PIJF3/96 VLF (Pt.II) dated 12.2.98 acted in total disregard of Section 24(3) of the Arbitration and Conciliation Act, 1996. thereforee, in so far as claim No.1 is concerned the award is set aside.
16. As regards claim No.2 it has been based on the interpretation given to Clause 7B of Section III of the tailored document and other related communications in that regard. It is well settled that even if the interpretation given by the Arbitrator is not fully justified because a different interpretation is possible the court would not interfere in the same. thereforee, I uphold the award in respect of this claim.
17. For the foregoing reasons the Arbitral Award dated 25.9.2001 is partly set aside to the extent indicated hereinabove. The petition is disposed of.