Judgment:
Deepak Gupta, J.
1. This arbitration appeal filed by the claimant (hereinafter referred to as the Contractor) raises interesting questions of law. The undisputed facts are that the works pertaining to strengthening of Chandigarh-Mandi-Manali road NH- 21 in K.M. 105/0 to 127/0 was awarded by the respondent-State in favour of the Appellant-Contractor. The contract provided that in case the deviation in the work was beyond 30% the contractor would be entitled to claim payment for the works in excess of 30% of the awarded quantity at market rate. The agreement entered into between the parties also contained an arbitration clause. The contractor claimed that he had in respect of certain works been required to carry out work in excess of the prescribed deviation of 30% and therefore he was entitled to be paid for such works in excess of the stipulated deviation at the market rates. The Engineer in-charge recommended the case of the contractor to the Chief Engineer. However, the latter did not agree with the views of the Engineer in-charge and came to the conclusion that the deviation was less than 30% taking into consideration the total value of the contract. Not satisfied with the rejection of his claim by the Chief Engineer the Contractor filed a petition before Hon'ble the Chief Justice of this Court for referring the dispute to the Arbitrator. This petition was registered as OMP(M) No. 35 of 2001. The Hon'ble Chief Justice disposed of this petition vide order dated 5th July, 2001 and the Chief Engineer in terms of Clause 25 of the Agreement was directed to appoint an Arbitrator. The Chief Engineer vide his order dated 6.8.2001 appointed the Superintending Engineer, Arbitration Cell, Solan as the Arbitrator to decide the claims of the claimant and counter claims, if any, of the respondents. The Arbitrator entered into reference and the first proceedings were held on 15.11.2001 on which date the claimant was directed to submit his claim. The claim was contested by the State and the State also raised a counter claim. The State relied upon a letter dated 16.3.2001 sent by the Chief Engineer, National Highway Division, HPPWD, Shimla rejecting the claim of the contractor mainly on the ground that the 30% deviation should be in respect of the entire awarded amount and not in respect of particular items. Second hearing was conducted by the Arbitrator on 27.12.2001. The Arbitrator conducted the 3rd hearing on 15.2.2002. On 21.2.2002 the Executive Engineer sent a letter to the Superintending Engineer, copy of which is on the file of the arbitration proceedings. In this letter the Executive Engineer stated that the Superintending Engineer, Arbitration Cell, HPPWD, Solan i.e. the Arbitrator Er.B.S. Parmar was the Engineer in-charge of the works in question and should not have been appointed as Arbitrator to decide the claims. The Superintending Engineer in turn sent a letter dated 4th March, 2002 to the Chief Engineer informing him that the Arbitrator had been the Engineer in-charge during the execution of the work and should not have been appointed the arbitrator. The Chief Engineer vide his office order dated 23.5.2002 superseded the appointment of the Superintending Engineer, Arbitration Cell, Solan and appointed the Superintending Engineer, D-III, Office of the Engineer-in-Chief, HPPWD as the Arbitrator. A copy of this order was sent to Er.B.S. Parmar, Superintending Engineer, Arbitration Cell, Solan. However, the Arbitrator himself issued an order on 3.6.2002 that his appointment could not be superseded by the Chief Engineer on the ground that the Chief Engineer after making the appointment had become functus officio and could not cancel his appointment. The Arbitrator thereafter continued with the arbitration proceedings and ultimately gave the award dated 21.6.2002 awarding a sum of Rs. 23,78,800/- in favour of the contractor along with interest @ 18% p.a.
2. The State filed objections under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act) challenging the award. One of the main grounds of challenge was that the Arbitrator was himself the site Engineer/Engineer in-charge of the execution of the works which gave rise to the disputes in question. According to the State the Arbitrator had himself made certain recommendations in favour of the Contractor and therefore his appointment was improper and further the Arbitrator should have disclosed his interest in the matter in terms of Section 12 of the Act. It was also alleged that since the order appointing the Arbitrator had been superseded by the Chief Engineer the award delivered by him was void. Other objections were also raised but we are not concerned with the same in the appeal.
3. The learned Single Judge came to the conclusion that the order of supersession passed by the Chief Engineer was improper since the Chief Engineer had no jurisdiction to pass such an order after the appointment of the Arbitrator. However, the learned Single Judge held that the award of the learned Arbitrator was opposed to the Public Policy of India and violated the provisions of Section 12 of the Act inasmuch as the Arbitrator had not disclosed to the parties the circumstances likely to give rise to justifiable doubts as to his independence or impartiality. On this ground alone the award was set-aside vide judgment of the learned Single Judge dated 5.9.2005.
4. The Contractor aggrieved by the judgment of the learned Single Judge has filed the present appeal. We have heard Sh.J.S. Bhogal, learned senior counsel on behalf of the Contractor and Sh.R.M. Bisht, learned Deputy Advocate General on behalf of the State.
5. Sh. Bhogal, has laid emphasis on the provisions of Sections 12 and 13 of the Arbitration and Conciliation Act and submits that since the State had itself appointed the Arbitrator it cannot now claim that the Arbitrator was wrongly appointed. According to him the Arbitrator being the creation of the agreement between the parties, no objection having been raised for one year the award cannot be set-aside at this stage. According to him Clause 25 of the arbitration agreement provides that 'it will be no objection to any such appointment that the Arbitrator so appointed is a Government servant; that he has to deal with the matters to which the contract relates in the course of his duties as Government servant.' It is contended that this agreement will supersede and derogate the provisions of Section 12 of the Act. It is also contended that no proper challenge was made in terms of the procedure prescribed by law and hence such challenge cannot be allowed to be raised at the stage of filing of objections under Section 34 of the Act. It is lastly contended that the learned Single Judge has relied upon material which was not before him while delivering the judgment.
6. On the other hand Sh. R.M. Bisht, learned Deputy Advocate General for the State has contended that the Arbitrator was duty bound to disclose to the parties that he had not only dealt with the claims of the contractor but had in fact recommended the claims to the Superintending Engineer who in turn sent the file to the Chief Engineer but the Chief Engineer had rejected the claims of the contractor. He has supported the judgment of the learned Single Judge.
7. To appreciate the rival contentions of the parties, it would be useful to refer to Sections 12 and 13 of the Act which read as follows:
12. Grounds for challenge.
(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality.
(2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in Sub-section (1) unless they have already been informed of them by him.
(3) An arbitrator may be challenged only if:
(a) Circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or
(b) He does not possess the qualifications agreed to by the parties.
(4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.
13. Challenge procedure.
(1) Subject to Sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator.
(2) Failing any agreement referred to in Sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in Sub-section (3) of Section 12, send a written statement of the reasons for the challenge to the arbitral tribunal.
(3) Unless the arbitrator challenged under Sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge.
(4) If a challenge under any procedure agreed upon by the parties or under the procedure under Sub-section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award.
(5) Where an arbitral award is made under Sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with Section 34.
(6) Where an arbitral award is set aside on an application made under Sub-section (5), the court may decide as to whether the arbitrator who is challenged is entitled to any fees.
8. A bare perusal of Section 12(1) of the Act shows that when a person is even approached in connection with his possible appointment as an arbitrator, he should disclose in writing any circumstances likely to give rise to justifiable doubts as to his impartiality. Even if some such facts comes to his notice later on the arbitrator is bound to disclose such facts as early as possible to the parties in terms of Clause (2) of Section 12.
9. The Arbitration and Conciliation Act, 1996 places great deal of importance on arbitration proceedings. It presumes that arbitration proceedings are carried on honestly, fairly, impartially and independently. The arbitration proceedings are alternative disputes redressal mechanisms. If such alternative disputes redressal mechanisms have to succeed the public must have great faith in them. The makers of the law reposed great faith in the Arbitrators and provided very limited challenges to the award(s) of the Arbitrator(s). However, it is expected that the Arbitrator should be a person of great wisdom, of unimpeachable integrity and that such a person would disclose to the parties even the slightest connection which he may have with the matter so that any party if it has any doubt about the impartiality of the Arbitrator can challenge his appointment.
10. The challenge procedure if not agreed to between the parties is prescribed in Section 13 of the Act. Sub-section (2) of Section 13 provides that a party who intends to challenge the Arbitrator must do so within 15 days of becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstance referred to in Sub-section (3) of Section 12 where under the appointment of the Arbitrator can be challenged. The Arbitrator is given the right to decide the challenge himself. In case he rejects the challenge the same can be the subject mater of proceedings under Section 34 of the Act.
11. The Apex Court in Oil & Natural Gas Corporation Ltd. v. Saw pipes Ltd. : [2003]3SCR691 , dealt with the provisions of the Act in detail. It considered the import of the words 'public policy of India' as occurring in Section 34 of the Act. The Apex Court quoted with approval the following observations of the eminent Jurist and Senior Advocate late Mr. Nani Palkhivala while giving his opinion to Law of Arbitration and Conciliation by Justice Dr. B.P. Saraf and Justice S.M. Jhunjhunuwala, wherein Mr. Palkhivala had given his views as follows:
I welcome your view on the need for giving the doctrine of 'public policy' its full amplitude. I particularly endorse your comment that Courts of law may intervene to permit challenge to an arbitral award which is based on an irregularity of a kind which has caused substantial injustice. If the arbitral tribunal does not dispense justice, it cannot truly be reflective of an alternate dispute resolution mechanism. Hence, if the award has resulted in an injustice, a Court would be well within its right in upholding the challenge to the award on the ground that it is in conflict with the public policy of India.
12. After approving the aforesaid views of Mr. Palkhivala and considering the entire case law on the subject the Apex court summarized its views in the following terms:
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 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's case (supra) 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 roof 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.
13. It is in the light of these observations that we have to consider the facts of the present case. There is no manner of doubt that the order of the Chief Engineer superseding the appointment of the Arbitrator was totally illegal and not within his jurisdiction. Once the appointing authority appoints the Arbitrator he cannot set-aside the appointment of the Arbitrator and the challenge to the appointment of the Arbitrator must be in terms of the Act. The Act gives the Arbitrator a right to decide the challenge. In the present case we find that the Arbitrator was appointed by the Chief Engineer. The Arbitrator was appointed by designation and not by name. It is more than apparent that the appointing authority did not have any clue whatsoever that Er.B.S. Parmar, the officer holding the charge of Superintending Engineer, Arbitration Cell had dealt with the matter as Engineer in-charge. To satisfy ourselves, we had called for the record of the State and we find that Er.B.S. Parmar while working as Engineer in-charge had sent a letter on 4th March, 2000 to the Superintending Engineer, 10th Circle, HPPWD, Bilaspur. This letter makes reference to the letter of the Chief Engineer dated 2.12.1999 whereby the claim of the Arbitrator for having done work beyond the deviation limit of 30% has been rejected. After making reference to the said letter the Engineer incharge Er.B.S. Parmar, Executive Engineer, Bilaspur, Division No. 2 has justified the claim of the Contractor in no uncertain terms. According to him, the view of the Chief Engineer is not correct and the claim of the Contractor that deviation is to be considered item-wise and not in respect of the entire contract value is correct. He has again reiterated the claim of the Contractor. This recommendation of Er.B.S. Parmar again did not find favour with the Chief Engineer. Therefore, when Er.B.S. Parmar was appointed as Arbitrator he was duty bound under sub-sections 12(1) and 12(2) to inform the parties that he had directly dealt with the matter and made recommendations in favour of the Contractor. This he failed to do. In our considered opinion, the nondisclosure of such an important circumstance which would give rise to justifiable doubts in regard to his independence and impartiality should have been disclosed by him. We cannot loose sight of the fact that the State is an amorphous inanimate body. One arm does not know what the other arm is doing. Therefore, the appointing authority was probably not aware about the role which Er.B.S. Parmar had played earlier. The 3rd hearing of the arbitration proceedings took place on 15.2.2002 when the Arbitrator compared the analysis of rates submitted by the Contractor and the rates recommended by the Executive Engineer and Superintending Engineer earlier. It was probably at this hearing that the representative of the Department came to know that the case of the Contractor had been recommended by the Executive Engineer and thereafter the Executive Engineer realized that Er.B.S. Parmar had dealt with the matter. He on 21.2.2002 sent a letter to the Superintending Engineer. True it is that this challenge was not strictly in terms of the procedure prescribed by law but there is no manner of doubt that a copy of this letter was sent to the Arbitrator also. The Arbitrator for reasons best known to him still did not adjourn the matter nor did he disclose the fact that he had not only been the Engineer in-charge but had also recommended the rates now claimed by the Contractor. In fact the Arbitrator took great umbrage to the role of the Executive Engineer and virtually threatened to get proceedings initiated against him and the Superintending Engineer by complaining about the matter to the Commissioner-cum-Secretary (Public works). This does not behove any authority or official conducting judicial or quasi-judicial proceedings. A party has a right to raise contentions. The contentions may be right or wrong but the authority cannot threaten the parties that it will complain to the senior officials. Even at this stage the Arbitrator, if he was impartial, should have disclosed the entire facts which he did not do so.
14. In our considered view the manner in which the Arbitrator acted was completely injudicious. When it was brought to his notice that he had been Engineer incharge and he knew that the Contractor was relying upon the communications made by him, it was his duty to have recused himself from the proceedings. He did not do so and on the other hand clung on to the case like a leech for reasons best known to him. The Apex Court in Saw Pipes case (supra) has clearly set out the grounds on which an award can be set-aside. It has held that the phrase 'Public Policy of India' must be given a wide meaning. According to the apex court this phrase connotes matters which concern public good and public interest. An independent and impartial judicial system is the bed-rock of our democratic set up. No person should be a Judge in his own cause. No person should adjudicate on a matter on which he has given his own opinion. The Arbitration Act as well as the arbitration agreement does in a sense deviate from these principles. This is only when the parties agree to appoint an arbitrator who may even have expressed an opinion in the matter but they must at least know what is the opinion which such Arbitrator has expressed. Er.B.S. Parmar should have disclosed to the parties that he had recommended the case of the contractor that too after the same had already been rejected by the Chief Engineer. He had already expressed his opinion on the matter in no uncertain terms. The fate of the case stood already decided. Therefore, by not disclosing this aspect he violated the provisions of Section 12 of the Act.
15. The limitation for laying challenge to the Arbitrator is within 15 days of the knowledge of the facts which give rise to the doubts regarding the impartiality and independence of the Arbitrator. In the present case the Arbitrator did not ever disclose such facts and therefore there is no delay in laying challenge to the appointment of the Arbitrator. In fact, we are of the view that even without any challenge having been laid in a case like the present, the Arbitrator should have himself withdrawn from the proceedings. His conduct in hanging on to the proceedings even after one of the parties had brought to his notice the fact that he had dealt with the matter in detail and the party doubted his impartiality raises grave suspicion in our mind in respect of his impartiality and independence. There is a well known legal maxim that 'justice should not only be done it should be seem to have been done.' A party should not remain under the belief that it has been denied justice because of the partiality of the Arbitrator. In such circumstances, the learned Single Judge was absolutely right in setting aside the award delivered by the Arbitrator.
16. In view of the above discussion, we find no merit in the appeal which is accordingly dismissed with no order as to costs.