(Appeal under Section 37(1)(b) of the Arbitration and Conciliation Act, 1996)
Radhe Shyam Sharma, J.:
1. The instant appeal is directed against order dated 19-11-2009 passed by the District Judge, Korba in Civil Suit (Arbitration Case) No.31A/2007, whereby the application preferred by respondent Bharat Aluminum Company Limited under Section 34 of the Arbitration and Conciliation Act, 1996 (henceforth `the Act, 1996') has been allowed and award dated 25-7-2007 passed by the Sole Arbitrator has been set aside.
2. Facts of the case, as projected in it, in brief, are that appellant M/s Satjas Glorocks Private Ltd. is engaged in business of mining, transportation and logistics solutions. Respondent Bharat Aluminum Company Limited is a well-known aluminum maker. The respondent extracts Bauxite from its captive mines at Mainpat in Surguja District (Chhattisgarh). The ore, thus mined, is then transported by road to its alumina plant in Korba District (Chhattisgarh). This mining and transportation of ore is done through contractors. The appellant, vide letter dated 2-2-2002, approached the respondent to offer its services in this behalf. A profile of the appellant detailing its assets, professional team and experience was attached with this introductory letter. After preliminary discussion with the respondent's representatives on 7-2-2002, the appellant, vide letter dated 10-2-2002, offered to mine and transport Bauxite from Mainpat to Korba plant for Rs.585/- P.M.T. The offer was accepted by the respondent vide letter dated 22-2-2002. A formal agreement was executed between the parties on 6-3-2002. Work, under the contract, commenced from 8-3-2002. The respondent suggested norms under title, "Good Mining Practices" vide letter dated 6-3-2002. After the agreement, the appellant failed to achieve monthly target of supply of Bauxite and thereby, it breached terms and conditions of the contract. Quality of the Bauxite mined by the appellant was poor and, therefore, the respondent deducted some penalty in terms of Clause 12.2 of the agreement. The appellant also failed to make payments regarding labour-charges, provident-fund, pension-deposits, workers' wages/remuneration and Panchayat-Tax, which, it required to do in terms of the agreement. Appellant M/s Satjas Glorocks Private Ltd. asked for revision of rates, which were fixed under the agreement. The rates were revised in terms of the agreement due to escalation in wages of semi-skilled workers and also due to variation in price of diesel. The respondent, during execution of the agreement, introduced bonus and incentive schemes for benefit of the appellant. The appellant failed to execute the contract within its stipulated period, i.e., 36 months. The appellant failed to supply quality Bauxite, as agreed. The appellant failed to execute the contract in proper manner and it also failed to achieve the monthly target of supply of Bauxite, as agreed. The appellant abandoned the work after 4-1-2004. In view of the aforesaid breaches committed by the appellant, the respondent suffered loss and damages. Disputes and differences, claims and counter-claims arose between the parties out of the contract. Subsequently, vide order dated 9-1-2006, passed in M.C.C.No72/2004 (M/s Satjas Glorocks Private Ltd. vs. Bharat Aluminum Company Limited), learned Shri Justice P.N.S.Chouhan (retired) was appointed as Sole Arbitrator by this Court. Learned Sole Arbitrator entered into the reference and passed the award dated 25-7-2007. Being aggrieved, the respondent impugned the said award by filing an application under Section 34 of the Act, 1996 before the learned District Judge.
3. The appellant, opposing the case of the respondent, filed its written statement before the learned District Judge and supported the award dated 25-7-2007.
4. The learned District Judge, after hearing both the parties, allowed the application under Section 34 of the Act, 1996 and set aside the award dated 25-7-2007. The learned District Judge held that the Sole Arbitrator failed to consider the counter-claim raised by the respondent. He allowed interest on the security-deposit with effect from 25-7-2007, despite there being no such provision in the agreement and non-supply of the Bauxite by the appellant according to the provisions of the contract. Thereagainst, the appellant is in appeal before us.
5. Shri Rahul Jha, learned counsel appearing for the appellant argued that the learned District Judge gravely erred in appreciating the award dated 25-7-2007 in its true spirit. The counter-claim of the respondent was well considered by the learned Sole Arbitrator. The counter-claim of penalty for short supply was allowed in part and, therefore, the said amount was not allowed to be refunded to the appellant. Consequently, claim No.3 of the appellant was rejected. As regards counter-claim of Rs.5 Crores, which is estimated loss of profit or business, is discussed in paragraph 24 of the award. The decision in regard to the counter-claim after elaborate discussion in different paragraphs of the award is rendered by the learned Sole Arbitrator in paragraph 59 of the award. The award passed by learned Sole Arbitrator is well-founded on facts and law. The learned District Judge cannot reappreciate the award passed by the learned Sole Arbitrator unless it is totally perverse. The award dated 25-7-2007 passed by the learned Sole Arbitrator deserves to be restored and the order dated 19-11-2009 passed by the learned District Judge deserves to be set aside.
6. Learned counsel for the appellant placed reliance on Mcdermott International Inc. vs. Burn Standard Co. Ltd. and ors., 2006 (2) Arb.LR 498 (SC), Oil and Natural Gas Corporation Limited vs. Saw Pipes Limited, 2003 (2) Arb.LR 5 (SC), State of Rajasthan vs. Nav Bharat Construction Company, 2010 (1) Arb.LR 178 (SC), Steel Authority of India Limited vs. Gupta Brothers Steel Tubes Limited, 2009 (3) Arb.LR 466 (SC), G. Ramchandra Reddy and Company vs. Union of India and another, 2009 (2) Arb.LR 475 (SC), Union of India vs. A.L.Rallia Ram, AIR 1963 SC 1685, State of Uttar Pradesh vs. Allied Constructions, 2003 (3) Arb.LR 106 (SC), M/s Susaka Pvt. Ltd. vs. Union of India and others, 2006 Arb.W.L.J. 77 (Bombay), Steel Authority of India Limited vs. Shamon Galva Colortck (P) Ltd., 2002 (3) Arb.LR 55 (Calcutta), State of Orissa vs. B.N.Agarwalla etc., 1997 (1) Arb.LR 612 (SC), and South Eastern Coalfields Limited vs. M/s Shyamlal Agrawal, Arbitration appeal No.45/2010 decided by a Division Bench of this Court vide order dated 20-9-2011.
7. Shri Ratnanko Banerjee, Shri Tarun Aich and Shri Abhishek Sinha, learned counsel appearing for the respondent argued that learned Sole Arbitrator did not consider the counter-claim of the respondent at all. There is no infirmity in the impugned order passed by the learned District Judge. The scope of examination in an application under Section 34 of the Act, 1996 for setting aside an award is very limited and is restricted to question of law and perverse finding. The learned Sole Arbitrator did not record any finding regarding counter-claim of the respondent. No reason was assigned as to why the counter-claim of the respondent was held unjustified. The argument of the appellant that rejection of its claim for recovery of deduction of penalty is an implied acceptance of counter-claim is totally misconceived. The Sole Arbitrator has not held so anywhere in the award. There is no whisper in the award that the rejection of the claim of the appellant would mean allowing the counter-claim of the respondent. In fact, in the operative paragraph of the award, the learned Sole Arbitrator held that the respondent's counter-claim must fail and is hereby disallowed. The submission of the appellant is contrary to the finding. In fact, the Arbitrator held that the deduction made by the respondent for penalty after 2002 was justified. If such is the finding, then logically, the entire counter-claim of the respondent for claiming penalty on quality and quantity for the subsequent years 2003-2004, which was one of the heads of the counter-claim, should have been allowed in the award. The impugned order passed by the learned District Judge is a well-reasoned order and it does not warrant interference by this Court. Learned counsel placed reliance on K.V.George vs. The Secretary to Government, Water and Power Department, Trivandrum and another, AIR 1990 SC 53 and State of Orissa vs. Orient Paper and Industries Limited, AIR 1999 SC 2253.
8. We have heard learned counsel appearing for the parties at length and have perused the record with utmost circumspection.
9. In Oil and Natural Gas Corporation Limited vs. Saw Pipes Limited, 2003 (2) Arb.LR 5 (SC) = AIR 2003 SC 2629 (supra), the Hon'ble Supreme Court observed thus:
"(55.) It is true that if the arbitral tribunal has committed mere error of fact or law in reaching its conclusion on the disputed question submitted to it for adjudication then the Court would have no jurisdiction to interfere with the award. But, this would depend upon reference made to the arbitrator; (a) If there is a general reference for deciding the contractual dispute between the parties and if the award is based on erroneous legal proposition, the Court could interfere; (b) It is also settled law that in a case of reasoned award, the Court can set aside the same if it is, on the face of it, erroneous on the proposition of law or its application; (c) If a specific question of law is submitted to the arbitrator, erroneous decision in point of law does not make the award bad, so as to permit of its being set aside, unless the Court is satisfied that the arbitrator had proceeded illegally.
(56.) In the facts of the case, it cannot be disputed that if contractual term, as it is, is to be taken into consideration, the award is, on the face of it, erroneous and in violation of the terms of the contract and thereby it violates Section 28(3) of the Act. Undisputedly, reference to the arbitral tribunal was not with regard to interpretation of question of law. It was only a general reference with regard to claim of respondent. Hence, if the award is erroneous on the basis of record with regard to proposition of law or its application, the Court will have jurisdiction to interfere with the same.
(57.) Dealing with the similar question, this Court in M/s Alopi Parshad and Sons Ltd. V. The Union of India, (1960) 2 SCR 793 observed that the extent of jurisdiction of the Court to set aside the award on the ground of an error in making the award is well defined and held thus:-
"The award of an arbitrator may be set aside on the ground of an error on the face thereof only when in the award or in any document incorporated with it, as for instance, a note appended by the arbitrators, stating the reasons for his decision, there is found some legal proposition which is the basis of the award and which is erroneous - Champsey Bhara and Company v. Jivaraj Balloo Spinning and Weaving Company Limited [LR 50 IA 324]. If however, a specific question is submitted to the arbitrator and he answers it, the fact that the answer involves an erroneous decision in point of law, does not make the award bad on its face so as to permit of its being set aside - In the matter of an arbitration between King and Duveen and others [LR (1913) 2 KBD 32] and Government of Kelantan v. Duff Development Company Limited [LR 1923 AC 395]."
......"
10. In Mcdermott International Inc. vs. Burn Standard Co. Ltd. and ors., 2006 (2) Arb.LR 498 (SC) = (2006) 11 SCC 181 (supra), the Hon'ble Supreme Court observed thus:
"(52.) The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like in case of fraud or bias by the arbitrators, violation of natural justice, etc. 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, the scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court's jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it.
(55.) Another important change which has been made by reason of the provisions of the 1996 Act is that unlike the 1940 Act, the arbitrator is required to assign reasons in support of the award. A question may invariably arise as to what would be meant by a reasoned award.
(56.) In Bachawat's Law of Arbitration and Conciliation, 4th Edn., pp. 855-56, it is stated:
"‘Reason' is a ground or motive for a belief or a course of action, a statement in justification or explanation of belief or action. It is in this sense that the award must state reasons or the amount awarded. The rationale of the requirement of reasons is that reasons assure that the arbitrator has not acted capriciously. Reasons reveal the grounds on which the arbitrator reached the conclusion which adversely affects the interests of a party. The contractual stipulation of reasons means, as held in Poyser and Mills' Arbitration. In re, ‘proper, adequate reasons'. Such reasons shall not only be intelligible but shall be a reason connected with the case which the court can see is proper. Contradictory reasons are equal to lack of reasons. The meaning of the word `reason' was explained by the Kerala High Court in the contest of a reasoned award. ‘Reasons are the links between the materials on which certain conclusions are based and the actual conclusions.' A mere statement o reasons does not satisfy the requirements of Section 31(3). Reasons must be based upon the materials submitted before the Arbitral Tribunal. The Tribunal has to give its reasons on consideration of the relevant materials while the irrelevant material may be ignored.. Statement of reasons is a mandatory requirement unless dispensed with by the parties or by a statutory provision."
(57.) In Konkan Rly. Corpn. Ltd. v. Mehul Construction Co., (2000) 7 SCC 201, this Court emphasized the mandatoriness of giving reasons unless the arbitration agreement provides otherwise."
11. In Steel Authority of India Limited vs. Gupta Brothers Steel Tubes Limited, 2009 (3) Arb.LR 466 (SC) = (2009) 10 SCC 63 (supra), the Hon'ble Supreme Court observed thus:
"(29.) The legal position is no more res integra that the arbitrator having been made the final arbiter of resolution of disputes between the parties, the award is not open to challenge on the ground that arbitrator has reached at a wrong conclusion. The courts do not interfere with the conclusion of the arbitrator even with regard to construction of a contract, if it is a possible view of the matter. The words "no award shall be set aside" in Section 30 mandate the courts not to set aside the award on the ground other than those specified in Section 30. In a case such as this, where the arbitrator has given elaborate reasons that compensation Clause 7.2 is not attracted or the breaches for which the compensation has been claimed by the respondent and such view of the arbitrator is a possible view, we are afraid in the circumstances, award is not amenable to correction by the court."
12. The ratio of law laid down by the Hon'ble Supreme Court in the above decisions makes it very evident that an award passed by an Arbitrator can be set aside only under the provisions of Sections 30 and 33 of the Arbitration Act, 1940 corresponding to Section 34 of the Act, 1996.
13. Now, we shall consider whether the impugned order of setting aside of the award by the learned District Judge suffers from any illegality and infirmity and is beyond the purview of provisions of Section 34 of the Act, 1996?
14. Relevant provisions of Section 34 of the Act, 1996 read thus:
"(34.) Application for setting aside arbitral award.- (1) xxxxx xxxxx xxxxx
(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 decisions 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 composition 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.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under Section 33, from the date on which that request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter."
15. In State of Rajasthan vs. Nav Bharat Construction Company, 2010 (1) Arb.LR 178 (SC) = (2010) 2 SCC 182 (supra), the Hon'ble Supreme Court observed thus:
"(17.) The jurisdiction of the court to set aside an award under Section 30 of the Act has now been settled by a catena of decisions of this Court as well as by the different High Courts in India. Taking those principles into consideration, it would thus be clear that under Section 30 of the Act it must be said that the court is not empowered to reappreciate the evidence and examine the correctness of the conclusions arrived at by the umpire in considering an application for setting aside the award.
(18.) In this connection, we may refer to a decision of this Court in Bhagawati Oxygen Ltd. v. Hindustan Copper Ltd., (2005) 6 SCC 462. In that decision, this Court observed in para 25 as follows: (SCC pp. 472-73)
"(25.) This Court has considered the provisions of Section 30 of the Act is several cases and has held that the court while exercising the power under Section 30, cannot reappreciate the evidence or examine correctness of the conclusions arrived at by the arbitrator. The jurisdiction is not appellate in nature and an award passed by an arbitrator cannot be set aside on the ground that it was erroneous. It is not open to the court to interfere with the award merely because in the opinion of the court, another view is equally possible. It is only when the court is satisfied that the arbitrator had misconducted himself or the proceedings or the award had been improperly procured or is `otherwise' invalid that the court may set aside such award."
(19.) Similarly, in Food Corporation of India v. Chandu Construction, (2007) 4 SCC 697, in which one of us (Chatterjee, J.) was also a party, it was held that when the arbitrator or the umpire as the case may be, had ignored the specific terms or had acted beyond the four corners of the contract, it was open for the court in the exercise of its power under Section 30 of the Act to set aside the award on the ground that the arbitrator could not ignore the law or misapply the terms of the contract in order to do what he thought was just and reasonable."
16. We have perused the award dated 25-7-2007 passed by the learned Sole Arbitrator. The learned Sole Arbitrator framed 10 issues for adjudication of the dispute between the parties on the basis of the claim and counter-claim/reply thereto. Issue No.8 reads thus:
"(8.) Whether, the counter claims raised by the Respondent on account of -
1) Short fall in monthly target of supply of Bauxite.
2) Non performance of Clause 10 of the agreement with relation to machineries and labour requirements.
3) Supply of inferior quality of the approved grade of Bauxite.
4) A penalty imposed under Clauses 12.1, 12.2 and 12.3 of the agreement are justified.
FINDING - No, the counter claims are not justified."
17. The learned District Judge observed in his order that the learned Sole Arbitrator failed to consider the counter-claim raised by respondent Bharat Aluminum Company Limited and allowed the application filed by the respondent under Section 34 of the Act, 1996 and thereby set aside the award passed by the learned Sole Arbitrator.
18. Now, we shall see whether the learned Sole Arbitrator decided issue No.8 by a reasoned order?
19. Learned counsel appearing for the appellant submitted that issue No.8 is duly adjudicated by the learned Sole Arbitrator with reasoned order. He gave reasons for deciding it in paragraphs 24, 30, 42 and 55 of the award and thereafter, he disallowed the counter-claim raised by the respondent. Therefore, the finding recorded by the learned District Judge suffers from grave illegality and infirmity and deserves to be set aside.
20. We have perused paragraphs 24, 30, 42 and 55 of the award dated 25-7-2007 passed by the learned Sole Arbitrator. From perusal of the above paragraphs of the award, it appears that the learned Sole Arbitrator did not record any specific reason for arriving at finding regarding issue No.8.
21. In the 1996 Act, an important change has been made that an Arbitrator is required to assign reasons in support an award. A mere statement of reasons does not satisfy the requirements of Section 31(3) of the Act, 1996. Reasons must be based upon the materials submitted before the Arbitrator and statement of reasons is a mandatory requirement. Where an Arbitrator fails to adjudicate a counter-claim and does not consider it when it is a part of reference, it amounts to judicial misconduct and the award is liable to be set aside. Under the 1996 Act, an Arbitrator is not only required to decide a counter-claim, but he is also required to give reasons for his decision.
22. In K.V.George vs. The Secretary to Government, Water and Power Department, Trivandrum and another (supra), the Hon'ble Supreme Court observed thus:
"(13.) ... It is not disputed that the Arbitrator did not at all consider the counter-claims and kept the same for consideration subsequently while making award in respect of the claims filed by the appellant. Undoubtedly, this award made by the Arbitrator is not sustainable in law and the Arbitrator has misconducted himself and in the proceedings by making such an award. It is the duty of the Arbitrator while considering the claims of the appellant to consider also the counter-claims made on behalf of the respondents and to make the award after considering both the claims and counter-claims. This has not been done and the Arbitrator did not at all consider the counter-claims of the respondents in making the award. As such the first award dated January 22, 1981 made by the Arbitrator in Arbitration Case No.132 of 1980 is wholly illegal and unwarranted and the High Court was right in holding that the Arbitrator misconducted himself and the proceedings in making such an ward and in setting aside the same and directing the Arbitrator to dispose of the reference in accordance with law considering the claim of the contractor and the counter-claim of the respondents. ..."
23. In State of Orissa vs. Orient Paper and Industries Limited (supra), the Hon'ble Supreme Court observed thus:
"(10.) ... He did not even advert to the other points. In my opinion, the High Court was right in coming to the conclusion that the learned Arbitrator did not decide the question whether the method adopted by the Chief Conservator of Forests was scientific or not. He also did not determine whether this methodology could be made applicable to all cases w.e.f. 1-10-1973. In my opinion by merely agreeing with the decision of the Chief Conservator of Forests, the Arbitrator has not addressed himself to other points arising in first dispute and has not answered those points. Therefore, in my opinion the High Court is justified in setting aside the award and remitting it back to the arbitrator."
24. It appears that the learned Sole Arbitrator did not give any reason for the finding on issue No.8, which was mandatory in nature. We have considered all the aspects in the light of above decisions. We are of the considered opinion that the reasons assigned by the learned District Judge for allowing the application under Section 34 of the Act, 1996 are strictly in accordance with law. Therefore, the impugned order dated 19-11-2009 passed by the learned District Judge does not warrant any interference by this Court.
25. For the foregoing reasons, we do not find any substance in the appeal. The appeal is liable to be and is hereby dismissed. There shall be no order as to costs.