2021 Supreme(SC) 666

SUPREME COURT OF INDIA
N. V. Ramana, CJI., Surya Kant, Hima Kohli, JJ.
State Of Chhattisgarh & Anr. - Appellants
Versus
M/S Sal Udyog Private Limited - Respondent
Civil Appeal No. 4353 of 2010
Decided On : 08-11-2021

IMPORTANT POINT
Failure on part of Sole Arbitrator to decide in accordance with terms of contract governing parties, would certainly attract “patent illegality ground”.

Headnote:

Arbitration and Conciliation Act, 1996 – Section 34 – Petition against arbitral award – Reduction of rate of interest from 18% to 9% interest – Law on interference in matters of Awards under 1996 Act has been circumscribed with object of minimising interference by courts in arbitration matters – One of grounds on which an Award may be set aside is patent illegality – In present case, express terms and conditions of Agreement governing parties as also Circular dated 27th July, 1987 issued by Government of Madhya Pradesh have been completely ignored – Plea of waiver taken against appellant-State on the ground that it did not raise such an objection in grounds spelt out in Section 34 petition and is, therefore, estopped from taking the same in appeal preferred under Section 37 or before this Court, would also not be available to respondent-Company having regard to language used in Section 34(2A) of 1996 Act that empowers Court to set aside an award if it finds that same is vitiated by patent illegality appearing on face of same – Once appellant-State had taken such a ground in Section 37 petition and it was duly noted in impugned judgment, High Court ought to have interfered by resorting to Section 34(2A) of 1996 Act, a provision which would be equally available for application to an appealable order under Section 37 as it is to a petition filed under Section 34 of 1996 Act – Respondent-Company cannot be heard to state that grounds available for setting aside an award under sub-section (2A) of Section 34 of 1996 Act could not have been invoked by Court on its own, in exercise of jurisdiction vested in it under Section 37 of 1996 Act – Failure on part of Sole Arbitrator to decide in accordance with terms of contract governing parties, would certainly attract “patent illegality ground” – Said ‘patent illegality’ is not only apparent on face of Award, it goes to very root of matter and deserves interference – Impugned Award, insofar as it has permitted deduction of ‘supervision charges’ recovered from respondent-Company by appellant-State as a part of expenditure incurred by it while calculating price of Sal seeds, quashed and set aside, being in direct conflict with terms of contract governing parties and relevant Circular – Impugned judgment modified to that extent. (Paras 13, 22, 25 and 26)

Facts of the case:

Appellant-State of Chhattisgarh is aggrieved by a common judgment dated 21st October, 2009 passed by the Chhattisgarh High Court disposing of two appeals; one preferred by the appellant1 and other preferred by the respondent-M/s. Sal Udyog Private Limited whereby the order dated 14th March, 2006 passed by District Judge, Raipur in a petition filed by the appellant under Section 34 of Arbitration and Conciliation Act, 1996 has been partially modified and interest awarded in favour of the respondent from the date of the notice i.e. 6th December, 2009 till realisation, has been reduced from 18 per cent per annum to 9 per cent per annum. At the same time, appeal preferred by the respondent-Company came to be dismissed.

Findings of Court:

On a conspectus of the facts of the case, it remains undisputed that though the appellant-State did raise an objection before the Arbitral Tribunal on the claim of the respondent-Company seeking deduction of supervision charges, for which it relied on Clause 6(b) of the Agreement and the Circular dated 27th July, 1987 to assert that recovery of supervision charges along with expenses was a part and parcel of the contract executed with the respondent-Company, the said objection was turned down by Sole Arbitrator by giving a complete go by to the terms and conditions of the Agreement governing the parties and observing that there is no basis to admit any such “indirect expenses”. The Circular dated 27th July, 1987 issued by Government of Madhya Pradesh that provides for imposition of 10% supervision charges on the amounts calculated towards the cost of the Sal seeds in the expenditure incurred, was also ignored.

Result : Appeal Partly allowed.