2000 Supreme(Bom) 916

IN THE HIGH COURT OF BOMBAY
F.I. Rebello, J.
Hindustan Petroleum Corporation Ltd..... Petitioners.
Versus
Batliboi Environmental Engineers Ltd. another.... Respondents.
Arbitration Petition No. 280 of 1999, decided on 4-12-2000.
Advocates appeared :
Shekhar Naphade with C. Raghavayya, for petitioner.
Virendra V. Tulzapurkar with G.K. Munsi i/b. Dhruv Co., for respondent No. 1.

Headnote:

[KEYWORD] - [SUBJECT] - [ACT SECTION LIST] - [SUMMARY]

Fact of the Case:

Petitioners had invited tenders for construction of Sewage Water Reclamation Plant on turn key basis by tender enquiry dated 20th March, 1991. The respondents tender was accepted vide Purchase Order dated 27th February, 1992. Clause 22 of the purchase order is the Arbitral clause. The clause reads as under :--- All disputes or differences arising, which shall at any time arise between the parties hereto touching or concerning the works or the execution or maintenance thereof or to the rights or construction making operation or effect thereof or to the rights or liabilities of the parties or arising out of or in relation thereto whether during or after completion of the contract or whether before or after determination or closure of the breach of the Contract (other than those in respect of which the decision of any person is by the contract expressed to be final and binding) shall after written notice of either party to the contract to the either of them and to the appointing authority hereinafter mentioned be referred for adjudication of the sole arbitrator to be appointed as hereinafter provided. Clause 3 of the Tender Enquiry dated 29th March, 1991 forming part of the contract, lays down that the rates quoted by the respondents shall be firm until completion of the job and shall not be subject to escalation or increase on any account whatsoever.

Finding of the Court:

The Court held that the arbitrator could not have awarded damages under the head compensation of loss of overhead loss and profit and profitability and compensation of idle machinery and equipments. The decision, therefore, is within jurisdiction. Even if the decision can be said to be erroneous decision it was a decision that cannot be questioned in the present petition, as it was within the jurisdiction of the arbitrator and more specifically in the present case the petitioners have chosen not to challenge the finding that delay was on their count. That contention, must, therefore, be rejected.

Issues: 1. Whether the award is in conflict with the public policy of India? 2. Whether the arbitrator has exceeded his jurisdiction in granting Claim No. 1, in a sum of Rs. 1,57,37,666/- under the head of compensation for loss of overhead and profit and profitability? 3. Whether the arbitrator has exceeded his jurisdiction in granting Claim No. 2, in a sum of Rs. 84,59,615/- under the head of compensation for idle machinery and equipments? 4. Whether the arbitrator has exceeded his jurisdiction in granting Claim No. 4, in a sum of Rs. 1,95,000/- under the head of compensation for carrying out extra work? 5. Whether the cost of repairs and rectification as awarded by the arbitrator is against the public policy of India?

Ratio Decidendi: 1. The expression public policy is not defined in the Act, save and except and to the extent as contained in the explanation to section 34(2)(b)(ii). Public policy of India considering the explanation would include an award induced or affected by fraud or corruption or in violation of section 75 or section 81. The inclusion of section 75 or section 81 to challenge an award under the head of public policy of India, would then necessarily include a challenge to an award being contrary to substantive law of India i.e. made in violation of the express provisions of section 75 or 81 of the 1996 Act. We have already noted what is the meaning to be given to an explanation in the section. This, therefore, must shed light as to the nature of the challenge available under the head "public policy of India", considering section 28 of the Act and section 34(2)(b)(ii). 2. Under the common law of England a rule made by those in authority which has the effect of unjustly interfering with the individual liberty of the right of a person to work at a trade or profession has been held to be against public policy. Taking undue advantage of one's influence, to obtain a contract for another or intermediaries charging a person to use personal influence to obtain contracts from persons in public position have been held to be against public policy. English courts have also applied the principle in respect of contract performed abroad, which were contrary to English Public Policy based on morality and the same public policy also applied in the Country of performance. 3. Earlier we have set out, how our courts understood the concept of public policy. A contract which has the effect of defeating a provision of law, enacted for the benefit of class of under privileged sections of the society has been held to be contrary to public policy. A contract which has the effect of affecting public good and public interest, or injurious or harmful to public good or interest is contrary to public policy. A practice or rule derogatory to the Constitution has been held to be opposed to public policy. Public Policy can be drawn from the Constitution. Article 14 can help to shed light on public policy. An arbitrary action, violative of constitutional principles would be, therefore, contrary to public policy. 4. Contracts entered into by influencing public men have been held to be contrary to public policy. One thing from this is clear, public policy is not static but elastic. It can soar like a Pegasus beyond the momentary needs of the community. It can also be reined in with the interpretation given in Delhi Transport Corporation (supra), applying the fountainhead of constitutional principles. Constitutional principles, therefore, are a surer method of understanding public policy, as constitutions are not designed for the day, but for all times. This view has found favour with the Apex Court. Similarly, any action which involves, disregard of orders of the Court would adversely affect the administration of justice and would be destructive of the rule of law and would be contrary to public policy. 5. An award, which is perverse or mala fide meaning thereby suffering from legal mala fides or arbitrary, be allowed to be executed. Arbitrariness and mala fides are the two sides of the same coin. Would an award, which a High Court in the exercise of extra ordinary jurisdiction would quash being in excess of its jurisdiction, be saved. Would that not be destructive of the rule of law. Under section 28 of the 1996 Act, an arbitral Tribunal must follow the substantive law of India. What happens if the arbitral Tribunal does not follow the substantive law or does not apply the law. Would that not amount to an award being contrary to the public policy of India. Outside section 34(2)(b) there is no other ground to challenge such an award. Can it be the contention that even such an award cannot be interfered with. Such a submission would be destructive of the rule of law. An award contrary to the principles of natural justice and fair play is arbitrary and as such against the public policy of India. An award by an arbitral Tribunal against which bias is alleged if not waived, is void and, therefore, contrary to public policy. An award by an arbitral Tribunal having no jurisdiction, or exercising jurisdiction, beyond the scope of its authority or to the very existence of the arbitration agreement would be contrary to the public policy of India.

Final Decision: Petition dismissed.