M/S.Oil And Natural Gas v. M/S.Trichy Construction

O.P.No. 427 of 2011 R. MAHADEVAN, J.

This petition under section 34 of the Arbitration and Conciliation Act, 1996 has been filed by the respondent in the claim petition.

2. For the sake of convenience, the parties shall be referred hereinafter as per their original rank in the claim petition.

3. The claimant was awarded the contract to supply tankers for carrying the crude oil of the respondent to various locations based on a tender. An agreement was entered on 09.08.2006 wherein the terms and conditions have been spelled out. The claim was filed by the respondent herein for a refund of Rs 36,10,985/-with interest @18% per annum contending that the liability to pay the service tax on the transportation agreement between the claimant and the respondent corporation would be on the respondent corporation as per clause 21 of the agreement dated 09.08.2006. However, when a notice by the authorities was made to the respondent corporation, a sum of Rs 36,10,985/- was deducted from the outstanding bills over a period of time. According to the claimant, the service provided by them would only be "chartered hirer" and not that of

a"transportation agency" and hence they disputed the liability. Even before any order was passed and demand was raised, the respondent had deducted the claim sum out of their bills. Since the legal notice did not evoke a favourable response, the claim petition was filed by the claimant.

4. The claim was resisted by the respondent stating that the dispute was beyond the scope of contract and the Tribunal had no jurisdiction to decide whether the relationship is that of chartered hire or goods transport agency as only the statutory authorities are entitled to decide the same. The respondent further contended that as per clause 23 of the Bid Evaluation Criteria (BEC), it is the duty of the claimant to pay all types of taxes including service tax and that the respondent corporation is not liable to pay any amount other than the agreed rate, which was inclusive of all the charges, taxes.

5. Considering the pleadings and the documents, the Arbitration Tribunal holding that the work carried out by the claimant would not fall within the categories enumerated under the provisions of the Service Tax Act. Therefore,holding that the claimant was not liable to pay any service tax , the deduction of service tax from the bills of the claimant was illegal, the tribunal by its

awared dated 08.03.2011,awarded Rs 29,29,397/- with 12% per annum from the date of award till payment. Aggrieved the present application under section 34 of the Arbitration and Conciliation Act has been filed.

6. Assailing the award, the Learned counsel for the respondent contended that the Arbitration Tribunal went beyond the scope of reference by deciding the liability under the Finance Act as it is for the statutory authorities to decide the same.

The counsel also contended that the Tribunal, erred in overlooking clause 23 of BEC and Note 5 of Annexure III of the contract and went on to hold that the services rendered by the claimant as 'charter Hire' instead of 'Goods Transport Agency, omitted to consider the legal position that the service tax element was shifted on the service provider from service receiver, that the parties are at liberty to enter into an agreement to pass on the liability to service provider, the indemnity bond executed by the claimant after the notice was completely ignored, that there is a categorical admission by the claimant himself and having paid the amount, the respondent was entitled to deduct the same from and out of the bills of the claimant,that the claimant was only an un-registered partnership firm and the claim petition on that score itself ought to have been dismissed.

terms and conditions of the contract documents from the date of tender as a whole and erred in placing reliance upon contra proferentum theory. The Counsel also relied upon the judgments reported in 1998 (6) SCC 538, 2001

(5) SCC 60, 2009 (5) SCC 608, 2003 (12) SCC 144, 2007 (8) SCC 466, 2012 (5) SCC 306, 2011 (5) SCC 532, Judgment of the Agra Bench of ITAT, 124 STC 426 and 2007 (1) Arb LR 436 (mad).

7. Per contra, the Learned counsel appearing for the claimant contended that it is well within the competency and jurisdiction of the Tribunal to go into the nature of service as the maintainability of the claim itself rested on it and after considering all the documents, the Tribunal has passed a well- reasoned award. The counsel also contended that if only the liability of the service tax is fastened on the claimant and upon his failure, the same can be deducted from the bills. However, when the liability is on the respondent corporation, it is for them to pay the service tax. The counsel also contended that none of the grounds raised by the respondent would fall within the ambit of section 34 warranting the interference of this Court. The counsel also placed reliance upon the judgment of the Apex Court in 2015 (1) CTC 191 and sought the dismissal of the petition.

8. Heard both sides and perused the documents.

9. It is settled law that the grounds for challenge must satisfy any one of the categories mentioned under section 34 of the Arbitration and Conciliation Act, 1996 which reads as follows:-

10. Section 34 in THE ARBITRATION AND CONCILIATION ACT, 34 Application for setting aside arbitral award. -

(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).

(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.

(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award.

11. The respondent in the present case has contended that the award of the Tribunal would be hit by Section 34 (2) (a) (iv) and (b). The counsel for the respondent has contended that the issue whether the services rendered by the claimant is 'Charter Hire' or ' Goods Transport Agency' ought not to have been decided by the Tribunal as it was beyond the scope of reference and in any case it is only the statutory authorities under the Finance Act,1994 who must decide the same.

12. The counsel drew the attention of this court to the judgment reported in Booz Allen

and Hamilton Inc. vs. SBI Home Finance Limited and others (2011 (5) SCC 532) to contend that when disputes are not capable for settlement by arbitration and if settled by the award, then the award can be set aside. The counsel has relied upon para 32 to 40 and 53 which read as follows; "20. The nature and scope of issues arising for consideration in an application under section 11 of the Act for appointment of arbitrators, are far narrower than those arising in an application under section 8 of the Act, seeking reference of the parties to a suit to arbitration.

While considering an application under section 11 of the Act, the Chief Justice or his designate would not embark upon an examination of the issue of `arbitrability' or appropriateness of adjudication by a private forum, once he finds that there was an arbitration agreement between or among the parties, and would leave the issue of arbitrability for the decision of the arbitral Tribunal. If the arbitrator wrongly holds that the dispute is arbitrable, the aggrieved party will have to challenge the award by filing an application under section 34 of the Act, relying upon subsection 2(b)(i) of that section.

But where the issue of `arbitrability' arises in the context of an application under section 8 of the Act in a pending suit, all aspects of arbitrability have to be decided by the court seized of the suit, and cannot be left to the decision of the Arbitrator.

Even if there is an arbitration agreement between the parties, and even if the dispute is covered by the arbitration agreement, the court where the civil suit is pending, will refuse an application under Section 8 of the Act, to refer the parties to arbitration, if the subject matter of the suit is capable of adjudication only by a public forum or the relief claimed can only be granted by a special court or Tribunal.

21. The term `arbitrability' has different meanings in different contexts.

The three facets of arbitrability, relating to the jurisdiction of the arbitral tribunal, are as under : (i) whether the disputes are capable of adjudication and settlement by arbitration? That is, whether the disputes, having regard to their nature, could be resolved by a private forum chosen by the parties (the arbitral tribunal) or whether they would exclusively fall within the domain of public fora

(courts). (ii) Whether the disputes are covered by the arbitration agreement? That is, whether the disputes are enumerated or described in the arbitration agreement as matters to be decided by arbitration or whether the disputes fall under the `excepted matters' excluded from the purview of the arbitration agreement. (iii) Whether the parties have referred the disputes to arbitration? That is, whether the disputes fall under the scope of the submission to the arbitral tribunal, or whether they do not arise out of the statement of claim and the counter claim filed before the arbitral tribunal. A dispute, even if it is capable of being decided by arbitration and falling within the scope of arbitration agreement, will not be `arbitrable' if it is not enumerated in the joint list of disputes referred to arbitration, or in the absence of such joint list of disputes, does not form part of the disputes raised in the pleadings before the arbitral tribunal.

22. Arbitral tribunals are private fora chosen voluntarily by the parties to the dispute, to adjudicate their disputes in place of courts and tribunals which are public fora constituted under the laws of the country. Every civil or commercial dispute, either contractual or non-contractual, which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of arbitral tribunals is excluded either expressly or by necessary implication. Adjudication of certain categories of proceedings are reserved by the Legislature exclusively for public fora as a matter of public policy. Certain other categories of cases, though not expressly reserved for adjudication by a public fora (courts and Tribunals), may by necessary implication stand excluded from the purview of private fora.

Consequently, where the cause/dispute is inarbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration, under section 8 of the Act, even if the parties might have agreed upon arbitration as the forum for settlement of such disputes.

The well recognized examples of non-arbitrable disputes are : (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding up matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.

23. It may be noticed that the cases referred to above relate to

actions in rem. A right in rem is a right exercisable against the world at large, as contrasted from a right in personam which is an interest protected solely against specific individuals. Actions in personam refer to actions determining the rights and interests of the parties themselves in the subject matter of the case, whereas actions in rem refer to actions determining the title to property and the rights of the parties, not merely among themselves but also against all persons at any time claiming an interest in that property. Correspondingly, judgment in personam refers to a judgment against a person as distinguished from a judgment against a thing, right or status and Judgment in rem refers to a judgment that determines the status or condition of property which operates directly on the property itself.

(Vide : Black's Law Dictionary). Generally and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. This is not however a rigid or inflexible rule. Disputes relating to sub-ordinate rights in personam arising from rights in rem have always been considered to be arbitrable.

24. The Act does not specifically exclude any category of disputes as being not arbitrable. Sections 34(2)(b) and 48(2) of the Act however make it clear that an arbitral award will be set aside if the court finds that "the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force."

25. Russell on Arbitration [22nd Edition] observed thus [page 28, para 2.007] :

"Not all matter are capable of being referred to arbitration. As a matter of English law certain matters are reserved for the court alone and if a tribunal purports to deal with them the resulting award will be unenforceable. These include matters where the type of remedy required is not one which an arbitral tribunal is empowered to give."

The subsequent edition of Russell [23rd Edition, page 470, para 8.043] ] merely observes that English law does recognize that there are matters which cannot be decided by means of arbitration.

53. Having regard to our finding on question (iv) it has to be held that the suit being one for enforcement of a mortgage by sale, it should be tried by the court and not by an arbitral tribunal.

Therefore we uphold the dismissal of the application under section 8 of the Act, though for different reasons.

13. The Apex Court in the above judgment has laid down the categories of arbitrable and non-arbitrable disputes. It is pertinent to mention here that in para 38 of the above judgment, the Apex Court has went onto hold that disputes relating to subordinate rights in personam arising from rights in rem have always been considered to be arbitrable.

14. The counsel has also placed reliance upon the judgment of this court in Satish Raj and another vs. Atlanta Applied Dynamics (India) Pvt. Ltd. (2007 (1) Arb LR 436 (mad)) to contend that in cases of special enactments with specific remedies, the same is to be resorted to.

"24. I am unable to accept this submission also. This court appointed an arbitrator and directed the parties to file their application before him. This court has also granted liberty to the 1st respondent herein to make the grievance of removing the compound wall put up by the revision petitioners herein before the arbitrator. So it is very clear that the arbitration proceedings should continue to go on with regard to all the other issues like the digging of pit, putting up offending construction, interfering with the ingress and egress of the outlet etc. excepting the proceedings which are contemplated under the Act, 1960.

25. Therefore I am of the considered view that the rent controller has failed to exercise her jurisdiction by holding that in view of the lease agreement the jurisdiction of the rent controller is ousted. In fact, the revision petitioners cannot invoke any other

jurisdiction other than the jurisdiction of the rent controller for filing an eviction petition against the respondents herein. Hence I have no hesitation in setting aside the order of the rent controller passed in M.P.No.581/2005 and also the consequent order passed in main RCOP itself. In view of the above, the rent controller is directed to take RCOP No.1443/2005 on file and to proceed with the same in accordance with law.

15. On examining the pleadings of both the parties, it is evident that from the nature of claim, the Tribunal could not have decided the claim without giving a finding on the nature of service of the claimant. It is also pertinent to point out that the respondent also has painstakingly tried to convince the Tribunal on merits that the service rendered is only 'GTA' and not 'Chartered hire'. It has all along been the case of the claimant that the liability to pay service tax would fasten on them only if the service is that of a transport agency and that they are not performing the function of Goods Transport Agency.

16. It is pertinent to refer to clause 31 of the Contract between the parties which deal with the scope of Arbitration. Clause 31 reads as follows:

31. Form and contents of arbitral award.-

(1) An arbitral award shall be made in writing and shall be signed by the members of the arbitral tribunal.

(2) For the purposes of sub-section (1), in arbitral proceedings with more than one

arbitrator, the signatures of the majority of all the members of the arbitral tribunal shall be sufficient so long as the reason for any omitted signature is stated.

(3) The arbitral award shall state the reasons upon which it is based, unless- (a) the parties have agreed that no reasons are to be given, or (b) the award is an arbitral award on agreed terms under section 30.

(4) The arbitral award shall state its date and the place of arbitration as determined in accordance with section 20 and the award shall be deemed to have been made at that place.

(5) After the arbitral award is made, a signed copy shall be delivered to each party.

(6) The arbitral tribunal may, at any time during the arbitral proceedings, make an interim arbitral award on any matter with respect to which it may make a final arbitral award.

(7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made. (b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen per centum per annum from the date of the award to the date of payment.

(8) Unless otherwise agreed by the parties,- (a) the costs of an arbitration shall be fixed by the arbitral tribunal; (b) the arbitral tribunal shall specify- (i) the party entitled to costs, (ii) the party who shall pay the costs, (iii) the amount of costs or method of determining that amount, and (iv) the manner in which the costs shall be paid. Explanation.-For the purpose of clause (a), "costs" means reasonable costs relating to- (i) the fees and expenses of the arbitrators and witnesses, (ii) legal fees and expenses, (iii) any administration fees of the institution supervising the arbitration, and (iv) any other expenses incurred in connection with the arbitral proceedings and the arbitral award

17. Upon reading of the clause, which in terms of section 7 of the Arbitration Act is an agreement in itself, it is clear that the subject of reference is wide enough to decide the liability of either party under the Finance Act. Obviously, there is a dispute or disagreement on the liability to pay service tax. Hence, this court is of the view that the Tribunal was

very well within its powers to decide on the nature of service rendered by the claimant.

18. The counsel for the respondent has relied upon the judgment of the ITAT, Agra Bench in ITA Nos 14/2010 batch dated 25.05.2012, to contend that the nature of service is only that of transport agency.

"We also find that the Hon'ble Bombay High Court in their decision dated 29.6.2007 in Indian National Ship Owner's Association and others vs. CIT (TDS) in Cwr. No.400 of 2007 concluded that the provisions of Section 194-I of the Act are applicable only in respect of rent for land or building (including factory buildings) furniture, fittings 11 ITA Nos.14, 15, 41, 42, 98, 99, 103 & 104/Agr/2010, A.Ys.2009-10 & 2008-09 or any other machinery attached thereto and not for anything else like ships, transport vehicles (including railways) and freight/charter hire payments thereto.

Hon'ble High Court further held that explanation-III of section 194-C , clarifies that the expression "work" means carriage of goods and passengers by any mode of transport other than by railways and tax from freight payments have to be deducted under this Section and not under Section 194-I of the Act. Following the view taken in this decision, ITAT in the case of Accenture Services (P) Ltd., 2010 - TIOL-618 - ITAT -Mum held that expression plant and machinery used in explanation to sec. 194-I of the Act refers only to the plant and machinery used by the assessee in their business by hiring them but not the hiring the transport services.

The ITAT Delhi Bench in their decision in the case of Lotus Education Society (supra) held that provisions of Section 194-I of the Act could not be applied in the case of payments mad to bus operators, providing pick up and drop facility to school students. As Ahmedabad Development Authority, ITAT Ahmedabad Bench in their decision dated 10.3.2011 in ITA No.1637/Ahd.

Act.

10. In the light of the consistent view taken in the aforesaid decisions and considering the various clauses in the aforesaid Bulk Petroleum Products Road Transport agreement, we have no hesitation in upholding the findings of Id. CIT(A) in concluding that the arrangement for transportation of petroleum products was essentially a contract for transportation of goods and not an arrangement of hiring of vehicles. In view thereof, tax is required to be deducted at source from the payments to the carrier in terms of provisions of sec. 194 C of the Act and not u/s 194-I of the Act. Therefore, ground Nos.1.1. & 1.2 in these six appeals of the Revenue are dismissed. As a corollary, grounds raised in the six Cos become academic and do not survive for our adjudication."

12. We have heard the ld. Representatives of the parties and records perused. As per the discussion made above deciding the appeals relating to tax deducted at source in respect of payment for tanker Truck etc., we hold that the CIT(A) was not correct in making apportion in between the sections 194-I and 194C of the Act. In respect of these appeals also the ld. Representatives of the parties submitted that the effective facts for deciding the issue are common in the case under consideration and in th3e case of a decision of I.T.A.T.Ahmedabad Bench in the case of Ahmedabad Urban Development Authority vs.ACIT TDS Circle in ITA No.1637/Ahd/2010 order dated 10.3.2011. The relevant finding noted from copy of order fild in assessee's Paper Book is reproduced as under:- "5.

We have considered the rival submissions and the material available on record. The facts noted by the AO are not in dispute that the assessee had hired cars on fixed rent payment and TDS was deducted @ 2% treating the same as contract as per section 194C of the IT Act. The AO also noted that the assessee had made vehicle hire charges payment in connection with plying of employees from one place to another. It was also noted by the AO that vehicles are owned and maintained by contractors. The assessee paid fixed payment for use of the hired cars and all the expenses are borne by the contractors. It is also admitted fact that the assess is a local authority.

The provisions of Section 194C of the IT Act is applicable to the assessment year under appeal provided (a) any person responsible for paying any sum to any resident (b) any local authority (as the assessee is ) referred to as a contractor for carrying out any work in pursuance of the contract between the contractor and the local authorities etc.

credit of such sum to the account of the contractor or at any time of payment thereof in case or issue of a cheque or draft or by any other mode whichever is earlier, 15 ITA Nos. 14, 15, 41, 42, 98, 99, 103 & 104/Agr/2010, A.Ys.2009-10 & 2008-09, deduct an amount equal to (i) 1% in case of " advertising" (ii) or in any other case 2%, of such sum as income tax or income comprised therein. The definition of "work" has been provided in Explanation (iii) to Section 194C of the IT Act which provides for the purpose of this section, expression "work" shall also include:- (a) Advertising (b) Broadcasting and telecasting including production of programmes for such broadcasting or telecasting, (c ) Carriage of goods and passengers by any mode of transport other than railways.

(d) Catering.

The AO admitted that the assessee had hired the cars on fixed rent payment owned and maintained by contractor. The Assessee paid vehicle hire charges and all the expenditure are borne by the contractor. It is also admitted fact that vehicle charges were paid in connection with plying of employees from one place to another. Thus, it implies that the passengers were transported by the drivers and vehicles of the vehicle owner/contractor and in consideration of that the vehicle owners/contractors were paid by the assessee the fixed amount. Therefore, sub-clause (c ) to Explanation (iii) of the provisions of Section 194 C of the IT Act would apply in the case of the assessee. In our opinion the above payment of vehicle hire charges clearly falls within the scope of section 194C of the IT Act.

The assessee, therefore, correctly deducted tax thereof as per the provisions of section 194C (Explanation (iii) (c ) of the IT Act. Same view is taken by ITAT Ahmedabad " B" Bench in the case of M/s. Mukesh Travels Co. (supra) copy of which is placed on record. The AO however, noted that the provisions of section 194-I of the IT Act would apply in the matter being rent paid to the contractor which provides as under: (prior to amendment w.e.f.1.10.2009). "194 -I Any person, not being an individual or a Hindu undivided family, who is responsible for paying to (a resident) any income by way of rent, shall at the time of credit of such income to the account of the payee or at the time of payment thereof in case or by the issue of a cheque or draft or by any 16 ITA Nos.14,15, 41, 42, 98, 99, 103 & 104/Agr/2010, A.Ys.

use of any machinery or plant or equipment; and (b) fifteen per cent for the use of any land or building (including factory building or land appurtenant to a building (including factory building) or furniture or fittings where the payee is an individual or a Hindu undivided family, and) (c ) twenty per cent for the use of any land or building (including factory building), or land appurtenant to a building (including factory building) or furniture or fittings where the payee is a person other than an individual or a Hindu undivided family" Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed one hundred and twenty thousand rupees: (Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of Section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income tax under this section.)

(i) "rent' means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any:- (a) land ; or (b) building (including factory building) ; or 17 ITA Nos.14, 15, 41, 42, 98, 99, 103 & 104/Agr/2010 A.Ys.

any income is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provision of this section shall apply accordingly.) The above definition of rent does not provide any item for vehicle hire charges. Therefore, provisions of section 194-I has been wrongly applied in the matter by the AO. Considering the above discussions we are of the view that the authorities below have wrongly applied the provisions of Section 194-I of the IT Act in the matter. We accordingly, set aside the orders of the authorities below and delete the demand and the interest thereon for shortfall as noted by the AO on this issue."

13. The ld. Departmental Representative, however, relied upon the order of the Assessing Officer but did not controvert in respect of the facts of the case under consideration and facts of the order of I.T.A.T. Ahmedabad Bench in the case of Ahmedabad Urban Development Authority (supra). Since the facts related to the issue to be decided are identical, by respectfully following the above order of I.T.A.T., Ahmedabad Bench and in the light of the facts, we find that the assessee 18 ITA Nos.14, 15, 41, 42, 98, 99, 103 & 104/Agr/2010, A.Ys.2009-10 & 2008-09 was rightly deducting tax under section 194C the Act in respect of payment to LMV and Buses. The Assessing Officer is directed accordingly. Thus, the appeals of the assessee for A.Ys.2009-10 & 2008-09 are allowed and the appeals of the Revenue for F.Ys.2007-08 & 2008-09 are dismissed."

19. The counsel has also relied upon the judgment reported in Lakshmi Audio Visual Inc. and another vs. Assistant Commissioner ((2001) 124 STC 426) Karnataka in the same context.

9. Thus if the transaction is one of leasing/hiring/letting simpliciter under which the possession of the goods, i.e., effective and general control of the goods is to be given to the customer and the customer has the freedom and choice of selecting the manner, time and nature of use and enjoyment, though

within the frame work of the agreement, then it would be a transfer of the right to use the goods and fall under the extended definition of "sale". On the other hand, if the customer entrusts to the assessee the work of achieving a certain desired result and that involves the use of goods belonging to the assessee and rendering of several other services and the goods used by the assessee to achieve the desired result continue to be in the effective and general control of the assessee, then, the transaction will not be a transfer of the right to use goods falling within the extended definition of "sale". Let me now clarify the position further, with an illustration which is a variation of the illustration used by the Andhra Pradesh High Court in the case of Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer . Illustration :

(i) A customer engages a carrier (transport operator) to transport one consignment (a full lorry load) from place A to B, for an agreed consideration which is called freight charges or lorry hire. The carrier sends its lorry to the customer's depot, picks up the consignment and proceeds to the destination for delivery of the consignment. The lorry is used exclusively for the customer's consignment from the time of loading, to the time of unloading at destination. Can it be said that right to use of the lorry has been transferred by the carrier to the customer ?

The answer is obviously in the negative, as there is no transfer of the "use of the lorry" for the following reasons : (i) The lorry is never in the control, let alone effective control of the customer ; (ii) the carrier decides how, when and where the lorry moves to the destination, and continues to be in effective control of the lorry ; (hi) the carrier can at any point (of time or place) transfer the consignment in the lorry to another lorry ; or the carrier may unload the consignment en-route in any of his godowns, to be picked up later by some other lorry assigned by the carrier for further transportation and delivery at destination.

(ii) On the other hand, let us consider the case of a customer (say a factory) entering into a contract with the transport operator, under which the transport operator has to provide a lorry to the customer, between the hours 8.00 a.m. to 8.00 p.m. at the customer's factory for its use, at a fixed hire per day or hire per km subject to an assured minimum, for a period of one month or one week or even one day ; and under the contract, the transport operator is responsible for making repairs apart from providing a driver to drive the lorry and filling the vehicle with diesel for running the lorry.

vehicle to be used in any manner as it deems fit ; and during the period when the lorry is with the customer, the transport operator has no control over it. The transport operator renders no other service to the customer. Therefore, the transaction involves transfer of right to use the lorry and thus be a deemed sale.

10. I will now examine the nature of a business of hiring of audio, visual and multimedia equipment, in the light of the aforesaid principles. The position will be as follows : (i) If the petitioner hires the audio/visual multimedia equipment to the customer without rendering any other service, i.e., it merely delivers the equipment to the customer on hire and leaves it to the customer to transport the equipment, installs and operate them in any manner he wants and at the end of the period of hiring, return them to the petitioner, then the possession and the effective control is transferred to the customer. The transaction will therefore be a deemed sale, exigible to tax under Section 5C.

(ii) On the other hand, if the customer engages the petitioner for providing audio visual services for any programme or event and the petitioner does not deliver any equipment to the customer, but takes the equipment to the site of the programme, installs them, operates them and then dismantles them and brings them back after the period of hiring, in such an event the possession and effective control never leaves the petitioner and the customer never gets the right to the use of equipment. In such an event there is no deemed sale attracting tax under Section 5C.

The undisputed facts in this case disclose that the transaction of the petitioners falls under the second category and therefore, the transactions are not transfer of use of goods amounting to deemed sales exigible to tax under Section 5-C of the Act.

20. The judgments relied upon by the learned counsel for the respondent cannot be applicable to the facts of this case. The judgments were rendered while identifying the nature of work to deduct tax at source and to decide whether the particular activity can be termed as service or

sales. The judgments were rendered considering the provisions of the respective Acts, which is completely different from the provisions of the Finance Act. It is pertinent to mention here that the Karnataka High Court has held that if the control vests with the contractor, then the transaction can be termed as hiring service. In the present case, the Tribunal after considering various clauses has held that the respondent corporation has for its exclusive use secured a charter of tankers.

21. The counsel for the respondent has relied upon the judgments reported in Seth Mohanlal Hiralal vs. State of M.P. (2003 (12) SCC 144) and Numaligarh Refinery Ltd. vs. Daelim Industry Co. Ltd. (2007 (8) SCC 466) to contend that non-consideration of the terms of the contract and the documents would amount to misconduct and therefore is opposed to public policy.

22. In the judgment reported in Seth Mohanlal Hiralal vs. State of M.P. (2003 (12) SCC 144), the Apex Court has held as follows:

6. In K.P. Poulose v. State of Kerala, . it was held by this Court that misconduct under Section 30(a) has not a connotation of moral lapse. It comprises legal misconduct which is complete if the Arbitrator on the face of the Award arrives at an inconsistent conclusion even on his own finding or arrives at a decision by ignoring very material documents which throw abundant light on the controversy to help a just and fair decision.

7. In the instant case the Arbitrator has misconducted the proceedings by ignoring the two very material documents to arrive at a just decision to resolve the controversy between the Department and the contractor.

23. Upon perusal of the award it is clear that the Tribunal has not failed to consider any documents or any particular clause. The Tribunal has considered all the documents and the clauses and interpreted them in logical, simple and unambiguous manner and has given its findings. It is relevant to quote the findings of the tribunal with regard to clause 23 and Note 4 and 5 of Annexure I.

"29.It remains for consideration whether the provisions in Ex.C2 regarding tax liability subject the claimant for payment of service tax. Under Clause 21 of Ex.C.2 provision is made for tax liability in the following terms: Service Tax/Sales applicable if any, on chartered hired payments received by the contractor under this contract will be to the account of ONGC.

Service tax if any applicable and/or levied on charter hire payment against this contract/agreement will be reimbursed by ONGC at actual against documentary evidence. In Annexure III to Ex.C.2 under Notes 4 and 5 it has been stated as follows:- Note 4 : The rates mentioned above shall be inclusive

of all taxes and duties and rates. No other amount is payable by ONGC except escalation/de-escalation on account of variation in diesel price as per Clause no.17.

Note 5 : Service Tax/Sales Tax if any shall be recovered from the contractor's bills for direct payment as per instruction from tax authority."

Through ONGC in its counter, in opposition to the claim, has stated that the claimant had confirmed its compliance with Clause 23 of the bid without taking any exception and therefore, the claimant should bear all the tax liabilities inclusive of service tax, it is difficult to accept the stand so taken by ONGC for under Clause 35 of the contract Ex.C.2 it has been clearly provided that the provisions in the contract shall always prevail. In view of this clear provision, the liability, if any of the claimant for service tax has to be considered only in the light of the provisions in the contract referred to earlier. In paragraph 10 of this counter statement, ONGC, after referring to the provisions in Clause 21 of Ex.C.

2 had stated that these provisions had been inadvertently incorporated and its applicability was not checked either by ONGC or by the claimant. ONGC is a Corporation established under law and an undertaking of the Government of India as well and in the normal course, the terms of the contract in all its stages till execution would have been discussed and decided by the law officers of ONGC and the claimant and finally agreed to and accepted by both parties. Further, when under Ex.C.7, the claimant made a request for refund of the amount deducted from its bill for November 2006 towards service tax, ONGC returned the deducted amount on the execution of an indemnify bond sent with Ex.C.8 without raising any objection based on inadvertent incorporation in Ex.C.2.

It is also significant that even subsequently till the filing of the counter statement, in June/July 2010. ONGC had not adverted to this at all. The plea of inadvertent incorporation put forward by ONGC is nothing but a belated attempt to wriggle out of this contractual obligation under Ex.C.2 in relation to service tax and cannot be countenanced.

Under Clause 21 of Ex.C.2 relating to tax liability, it has been clearly and categorically stated that service tax on chartered hire payment will be to the account of ONGC. This would mean that non one other than ONGC is liable for service tax. The next provisions under Clause 21 relating to reimbursement of service tax also makes it clear that in the event of service tax being levied on the chartered hire payments received by the

claimant, reimbursement will be done by ONGC. Note 4 in Annexure III to Ex.C.2 dealing with the rates of charter hire payable states that it shall be inclusive of all taxes and duties and no other amount is payable by ONGC. A fair and reasonable interpretation of Note 4 would be that the rates included all such taxes and duties as were payable by the claimant, except service tax/sales tax, specially provided for under Note 5. However, under Note 5 of Annexure III, it has been provided that service tax shall be recovered from the contractor's bills for direct payment as per instruction from tax authority. While Clause 21 of Ex.C.

2 refers to the liability of ONGC for payment of service tax and the right of the claimant to reimbursement by ONGC in the event of service tax payment by it, Note 5 under Annexure III to the contract clearly provides for recovery of the service tax from the contractor's bills, though stated to be as per the instructions from the tax authority. Obviously, therefore, there is an inconsistency between Clause 21 of Ex.C.2 and Notes 4 and 5 of Annexure III. The passage in Chitty on Contract referred to by learned counsel for claimant states that the rule that words must be construed in the ordinary sense is liable to be departed with the rest of the instrument where, if they were so construed they would impose upon the contractor a responsibility, which it could not reasonably be supposed he meant to assume.

A construction of Clause 21 and Notes 4 and 5 in Annexure III to Ex.C.2 in the matter put forward by ONGC, would lead to inconsistency in the contract and also fasten liability for service tax on the claimant, while it has been provided in another part of the contract that a liability for the service tax ill be on ONGC. The Supreme Court in Bank of India v.s K. Mohandas (2009) 5 SCC 313) referring to the principles of construction of a contract had pointed out that it must be read as a whole to ascertain the true meaning of the several clause and the words of each clause should be interpreted so as to bring them into harmony with other provision. If that interpretation does no violence to the meaning of which they are naturally susceptible.

The Court also referred to and applied the wellknown principle of construction of a contract that if the terms applied by one party are unclear, an interpretation against that party is preferred (Verba Chatarum Fortius Accipiuntur Contra Proferentem) in Food Corporation of India vs.

adjudicated on the specific terms of the contract and no other. In the present case, there is no question of going beyond the terms of the contract but interpreting them to bring about a harmony amongst its provisions in Tamil Nadu Electricity Board vs. N. Raju Reddiar (AIR 1996 SC 2025) referred to by learned senior counsel for ONGC, the Supreme Court ruled that when once a contract is reduced to writing, the parties are bound by the terms and conditions of the contract and that it is not open to any of the parties to prove the terms of the contract with reference to some oral or documentary evidence to find out the intention of the parties. It is necessary to state that no such attempt has been made by either party to prove the terms of the contract and the decision has, therefore, no application in the present case in Delhi Development Authority vs. Jitender Pal Bhardwaj ((2009) 1 SCC

146) the Supreme Court had occasion to consider the eligibility of an applicant for allotment of a plot under the terms and conditions of the Rohini Scheme and the Court laid down that an exemption granted to certain categories cannot be restricted in its applicability or a meaning other than the plain and normal meaning could be read into it. In the instant case by considering the plaint and normal meaning of the provisions in Ex.C2 the liability for the service tax is being dealt with, without resort to any restriction or expansion and the decision has no application to this case.

32. On a careful consideration of Clause 21 in Ex.C.2 Notes 4 and 5 of Annexure III, and the decisions referred to, it is clear that the liability for payment of service tax accepted by ONGC under Clause 21 was sought to be altered and modified under Notes 4 and 5 which cannot be upheld, as it would be inconsistent with the main provision under Clause 21. The recovery from the bills of the claimant provided for under Note 5 in Annexure III would, if at all, arise only in the event of the claimant being liable for service tax and its non-payment by the claimant. Earlier, in the course of the Award, it had been pointed out that the work carried out by the claimant under Ex.C.2 would not fall within the categories enumerated under the provisions of Service Tax Act and therefore, there was no liability on its part for payment of service tax.

Further, there is no material to show that the claimant had been subject to any service tax by the concerned authority under the Service Tax Act. It follows therefore that the deduction by ONGC from the bills of the claimant towards service tax during the period of Ex.C.2 amounting to Rs.29,29,397.00 is not in order and the claimant is entitled to a refund of this amount. Points 1 and 2 are found accordingly."

24. Therefore, the above judgment is not applicable to the present facts and circumstances.

24a. In Numaligarh Refinery Ltd. vs. Daelim Industrial Co. Ltd. (2007 (8) SCC 466), the Apex Court has observed as under:- " Learned senior counsel for the appellant also invited our attention to Section 64-A of the Sale of Goods Act, 1930 and Section 69 of the Contract Act, 1872 and submitted that the contract party is entitled to reimbursement of tax liability. As against this, learned counsel for the respondent submitted that Clause 2 (b) & Clause 6 of the Consolidated Agreement read with Clause 2.1 (g) of the Instructions to Bidders and Clause 13(f) of the Bid Document, leave no manner of doubt that it is the duty of the contracting party to pay all taxes,duties and levies.

Relevant provisions are reproduced below :" "Clause 2(b) all taxes and duties in respect of job mentioned in the aforesaid contracts shall be the entire responsibility of the contractor\005 " " Clause 6. It is specifically understood and agreed between the parties hereto that if there is any liability towards taxes/ duties (including custom duty on foreign component of supply portion) as may be assessed/ claimed/ demanded by the concerned Indian or foreign authorities, it shall be the sole responsibility/ liability of the contractor to pay all such taxes/ duties and that the owner shall not be responsible at all for the payment of such taxes/duties\005" " Clause 2.1 (g). The scope of this proposal \005 will include the following (g) payment of customs duty, port clearance charges etc.

" Clause 13(f) , Bid Documents:. Prices for the entire scope of work on divisible contract basis and indicate the following break-up: (f) lump sum charges on accounts of customs duty, port charges etc. for imported equipment and materials\005" "Reading of these documents leave s no manner of doubt that all the taxes and levies shall be borne by the contracting party i.e. DIC"

A perusal of the contract makes it clear that DIC is under obligation to pay the taxes, duties and levies. Therefore, the intention is very clear that taxes and duties will be the obligation of the DIC. Section 69 of the Indian Contract Act, 1872 deals with reimbursement of a person paying money due by another, in payment of which he is interested. Section 69 has no role to pay in the present case in view of the clear terms of the agreement that the taxes, levies have to be paid by the DIC. Therefore, nothing turns on Section 69 of the Contract Act. In view of the above discussion, we are of opinion that so far as the payment of countervailing duty is concerned, it was the obligation of the DIC and the view taken by the Division Bench of the Act appears to be correct and there is no ground to interfere with this part of the order. Consequently, we uphold the judgment of the High Court and dismiss the appeal arising out of S.L.P.(c) No.4409 of 2007 filed by the DIC."

25. The above judgment is not applicable to the present facts of the case, as there is a specific clause 21 fixing the liability on the respondent corporation in case of 'chartered hiring'. The Tribunal has given a specific finding that the nature of service is only chartered hiring. When there is a specific clause whereby the liability is fixed on one party, the general clause cannot be made applicable. Further, it is only when the liability is on the claimant, the clauses including the indemnity as rightly held by the Tribunal can be enforced on the claimant.

26. The counsel has also taken a plea that the parties are free to fix the liability to pay indirect taxes by a contract and in support has relied upon the judgment of the

Apex Court in Rashtriya Ispat Nigam Limited vs. Dewan Chand Ram Saran (2012 (5) SCC 306).

13. The learned arbitrator, however, noted that the contract between the parties dated 17.6.1998 referred the respondent as the 'handling contractor', who shall undertake the job of handling iron and steel materials at the yard of the company on the terms and conditions stipulated therein as also in the manner and in all respects as mentioned in the contract. He referred to the notice inviting tender, the declaration of particulars relating to the tender, the schedule of rates, the provision relating to scope of work and the obligations of the contractor detailed in clause 6. In that connection, he referred to the letter dated 27.11.1997 received from the office of Commissioner of Central Excise, Chennai wherein he had also held the work of the handling contractor as that of the clearing and forwarding agent liable to pay service tax. The arbitrator therefore held that the respondent was forwarding and clearing contractor.

14. Thereafter, he dealt with the question of liability to pay the service tax, and by a detailed award dated 25.5.2004 rejected the contentions of the respondent and dismissed the Claim Petition. In the penultimate paragraph, the learned arbitrator held as follows:- "Clause 9.3 of the Tender Terms and Conditions of the Contract, to my mind is clear & unambiguous. Thus it is the Respondent who is the assessee. It is also true that liability is of the Respondent to pay the tax. But then, under the contract, under clause 9.3 to be more precise, it was agreed that it would be the claimant who shall bear "all taxes, duties and other liabilities" which accrue or become payable "In connection with the discharge of his obligation."

Service tax was one such tax/duty or a liability which was directly connected with "the discharge of his obligation" as the clearing & forwarding agent. It is this contractual obligation which binds the claimant and though under the law it is the respondent who is the assessee, it can & rightly did deduct the service tax from the bills of the claimant in terms of the said contractual obligation, the validity and legality of which has not been challenged before me."

25. It was submitted on behalf of the respondent that clause 9.3 and the contract must be read as a whole and one must harmonise various provisions thereof. However, in fact when that is done as above, clause 9.3 will have to be held as containing the stipulation of the contractor accepting the liability to pay the service tax, since the liability did arise out of the discharge of his obligations under the contract. It appears that the rationale behind clause 9.3 was that the petitioner as a Public Sector Undertaking should be thereby exposed only to a known and determined liability under the contract, and all other risks regarding taxes arising out of the obligations of the contractor are assumed by the contractor.

26. As far as the submission of shifting of tax liability is concerned, as observed in paragraph 9 of Laghu Udyog Bharati (Supra), service tax is an indirect tax, and it is possible that it may be passed on. Therefore, an assessee can certainly enter into a contract to shift its liability of service tax. Though the appellant became the assessee due to amendment of 2000, his position is exactly the same as in respect of Sales Tax, where the seller is the assessee, and is liable to pay Sales Tax to the tax authorities, but it is open to the seller, under his contract with the buyer, to recover the Sales Tax from the buyer, and to pass on the tax burden to him.

Therefore, though there is no difficulty in accepting that after the amendment of 2000 the liability to pay the service tax is on the appellant as the assessee, the liability arose out of the services rendered by the respondent to the appellant, and that too prior to this amendment when the liability was on the service provider. The provisions concerning service tax are relevant only as between the appellant as an assessee under the statute and the tax authorities. This statutory provision can be of no relevance to determine the rights and liabilities between the appellant and the respondent as agreed in the contract between two of them.

There was nothing in law to prevent the appellant from entering into an agreement with the respondent handling contractor that the burden of any tax arising out of obligations of the respondent under the contract would be borne by the respondent.

27. If this clause was to be read as meaning that the respondent would be liable only to honour his own tax liabilities, and not the liabilities arising out of the obligations under the contract, there was no need to make such a provision in a bilateral commercial document executed by the parties, since the respondent would be otherwise also liable for the same.

46. In view of what is stated above, the respondent as the contractor had to bear the service tax under clause 9.3 as the liability in connection with the discharge of his obligations under the contract. The appellant could not be faulted for deducting the service tax from the bills of the respondent under clause 9.3, and there was no reason for the High Court to interfere in the view taken by the arbitrator which was based, in any case on a possible interpretation of clause 9.3. The learned single Judge as well as the Division Bench clearly erred in interfering with the award rendered by the arbitrator. Both those judgments will, therefore, have to be set-aside.

27. On the other hand, in the case on hand, the respondent corporation has agreed in clause 21 to pay service tax for 'chartered hiring'. I have already agreed with the finding of the Tribunal that the service rendered is only 'chartered hiring' and therefore, the above judgment is also of no use to the respondent and in fact, it is only in favour of the claimant.

28. The counsel for the respondent has also relied upon the judgment reported in Uptron India Ltd. vs. Shammi Bhan and another (1998 (6) SCC 538) to contend that the wrong concession on a question of law is not binding.

29. In the same context, the learned counsel has also relied upon the judgment of the Apex Court reported in Central Council for

Research in Ayurveda & Siddha and another vs. Dr.K.Santhakumari (2001 (5) SCC 60), wherein, the Apex Court has observed as under:- "12. In the instant case, the selection was made by Departmental Promotion Committee. The Committee must have considered all relevant facts inlcuding the inter-se merit and ability of the candidates and prepared the select list on that basis. The respondent though senior in comparison to other candidates, secured a lower place in the select list, evidently because the principle of "merit-cum-seniority" had been applied by the Departmental Promotion Committee. The respondent has no grievance that there was any malafides on the part of the Departmental Promotion Committee.

The only contention urged by the respondent is that the Departmental Promotion Committee did not follow the principle of "seniority-cum-fitness". In the High Court, the appellants herein failed to point out that the promotion is in respect of a 'selection post' and the principle to be applied is "merit-cum-seniority". Had the appellants pointed out the true position, the learned Single Judge would not have granted relief in favour of the respondent. If the learned Counsel has made an admission or concession inadvertently or under a mistaken impression of law, it is not binding on his client and the same cannot cannot enure to the benefit of any party.

13. This Court in Uptron India Ltd. Vs. Shammi Bhan AIR 1998 SC 1681 pointed out that a wrong concession on question of law made by counsel is not binding on his client and such concession cannot constitute a just ground for a binding precedent.

14. Therefore, even if the appellants had mistakenly contended in the High Court that the principle of seniority-cum-fitness was to be followed for promotion to the post of Research Officer, the departmental rules clearly show that the promotion was in respect of a 'selection post' and the promotion was to be made on the basis of the inter-se merit of the eligible candidates. In that view of the matter, the respondent was not entitled to get promotion to the post of Research Officer on the strength of her seniority alone. The seniority list prepared by the Departmental Promotion Committee was not challenged by the respondent on other grounds and we also do not find any ground to assail that select list. Thus, the Writ Petition is liable to be dismissed by setting aside the orders made therein and in the writ appeal arising therefrom. Therefore, the appeal succeeds and is

allowed, however, without costs."

30. Though there cannot be any dispute or other opinion with regard to the ratio laid down by the Apex Court in the above judgments, the finding of the Tribunal in the factual matrix of the case cannot be found at fault. The findings of the Tribunal would show that the tribunal irrespective of the submission of the counsel for the respondent that the service may fall under 'cargo handling service' has independently perused the documents and the provisions and given its findings. Hence the above judgments also do not come to the aid of the respondent. In any case, the respondent having agreed to pay the service taxes for 'Chartered hiring' and having relied upon the judgment that in respect of indirect taxes, parties can agree to shift the liability cannot now go back.

31. The other contention of the counsel for the respondent is that the claimant firm is an unregistered firm and therefore, the claim is unsustainable in view of the bar under section 69 of the Partnership Act and in support of his contention, the counsel has relied upon the judgment in V. Subramaniam vs. Rajesh Raghuvandra Rao (2009 (5) SCC 608),

wherein the Apex Court has held as follows:

"25. The effect of the Amendment is that a partnership firm is allowed to come into existence and function without registration but it cannot go out of existence (with certain exceptions). This can result into a situation where in case of disputes amongst the partners the relationship of partnership cannot be put an end to by approaching a court of law. A dishonest partner, if in control of the business, or if simply stronger, can successfully deprive the other partner of his dues from the partnership. It could result in extreme hardship and injustice. Might would be right. An aggrieved partner is left without any remedy whatsoever. He can neither file a suit to compel the mischievous partner to cooperate for registration, as such a suit is not maintainable, nor can he resort to arbitration if any, because the arbitration proceedings would be hit by Section 69(1) of the Act (Jagdish Chandra Gupta vs. Kajaria Traders (India) Ltd. AIR 1964 SC 1882).

32. In the above judgment, reliance has been placed upon the judgment of the Apex Court in Jagdish Chander Gupat vs. Kajaria Traders (India Ltd.) (AIR 1964 SC 1882), wherein it was held by the Apex Court that an unregistered firm cannot resort to Arbitration.

33. However, much water has flown in the subject and this Court in the judgment in O.P 139 of 2008 dated 18.03.2010 (M/S. Texfield Engineers vsTexteema Engineering Industries) after elaborately considering various judgments on whether the bar under section 69 of the Partnership Act , would vitiate the arbitral award has held as follows:

"42. The jurisdiction of the Arbitrator is circumscribed by the terms of the contract, vis-a-vis, the disputes raised with reference to the rights and obligations under the contract. As pointed out by the Apex Court in the decision reported in (2001) 4 SCC 86 (Bharat Coking Coal Ltd. Vs. M/s.L.K.Ahuja& Co.), Arbitral Tribunal is a Tribunal of limited jurisdiction circumscribed by the terms of reference and the Arbitrator cannot be equated with a Court of law. The decision of the Apex Court reported in (2007) 7 SCC 679 (MarkfedVanaspati and Allied Industry Vs. Union of India) in this regard, quoting a passage from Russel on Arbitration, needs a special mention and it reads as follows:

An arbitrator is neither more or less than a private judge of a private court (called an arbitral tribunal) who gives a private judgment (called an award). He is a judge in that a dispute is submitted to him: he is not a mere investigator but a person before whom material is placed by the parties, being either or both of evidence and submissions: he gives a decision in accordance with his duty to hold the scales fairly between the disputants in accordance with some recognized system of law and rules of natural justice.

He is private in so far as (1) he is chosen and paid by the disputants (2) he does not sit in public (3) he acts in accordance with privately chosen procedure so far as that is not repugnant to public policy (4) so far as the law allows he is set up to the exclusion of the State Courts (5) his authority and powers are only whatsoever he is given by the disputants agreement (6) the effectiveness of his powers derives wholly from the private law of contract and accordingly the nature and exercise of those powers must not be contrary to the proper law of the contract or the public policy of England bearing in mind that the paramount public policy is that freedom of contract is not lightly to be inferred with. Whatever has been mentioned by Russell in this paragraph is equally true for Indian Arbitrators.

43. The question as to whether the claim could be maintained at all by the petitioner, it being an unregistered firm, is certainly not a question arising under the terms of the contract

between the parties. The clause on arbitration states that all disputes and controversies which may arise between the parties out of, or in relation to or in connection with "this agreement" or the breach thereof shall be settled by mutual consultation in good faith and it not be finally settled by arbitration in accordance with the Arbitration Act. The issue raised before the Arbitrator as regards the maintainability of a claim, by reason of Section 69 of the Indian Partnership Act, by no stretch of reasoning, could be called as one arising out of or in relation to or in connection with the agreement to assume the jurisdiction to decide on dispute, nor was there a consensus between the parties to refer the question of maintainability of the claim in view of Section 69 of the Indian Partnership Act.

Admittedly, in this case, no consensus was there to confer such a jurisdiction to decide on this issue. The disputes between the parties were with reference to the respective rights and obligations under the contract with reference to the claim on defective supply of goods claim on patent violation, from certain money claim. It is not disputed by respondents-1 to 3 that if there was no settlement reached amicably, the disputes were agreed to be settled through arbitration. In the background of this, the claim of respondents-1 to 3 based on Section 28 of the Arbitration and Conciliation Act that the Arbitrator has the duty to decide on the basis of the substantive law has to be rejected as not sustainable.

44. In the decision reported in (1984) 4 SCC 679 (Renusagar Power Co. Ltd. Vs. General Electric Company and Anr.), the Supreme Court considered the scope of the terms "arising out of", "in relation to" and "in connection with" used in an arbitration clause. The Apex Court pointed out as follows:

" 25. Four propositions emerge very clearly from the authorities discussed above:

(1) Whether a given dispute inclusive of the arbitrators jurisdiction comes within the scope or purview of an arbitration clause or not primarily depends upon the terms of the clause itself; it is a question of what the parties intend to provide and what language they employ.

(2) Expressions such as arising out of or in respect of or in connection with or in relation to or in consequence of or concerning or relating tothe contract are of the widest amplitude and content and include even questions as to the existence, validity and effect (scope) of the arbitration agreement.

(3) Ordinarily as a rule an arbitrator cannot clothe himself with power to decide the questions of his own jurisdiction (and it will be for the court to decide those questions) but there is nothing to prevent the parties from investing him with power to decide those questions, as for instance, by a collateral or separate agreement which will be effective and operative.

(4) If, however, the arbitration clause, so widely worded as to include within its scope questions of its existence, validity and effect (scope), is contained in the underlying commercial contract then decided cases have made a distinction between questions as to the existence and or validity of the agreement on the one hand and its effect (scope) on the other and have held that in the case of former those questions cannot be decided by the arbitrator, as by sheer logic the arbitration clause must fall along with underlying commercial contract which is either non-existent or illegal while in the case of the latter it will ordinarily be for the arbitrator to decide the effect or scope of the arbitration agreement i.e. to decide the issue of arbitrability of the claims preferred before him."

45. Thus going by the decision of the Apex Court referred to above, a question arises as to whether the Tribunal is competent to consider the issue of Section 69 of the Indian Partnership Act as nonsuiting the petitioner from having its claim considered.

46. An Arbitrator to resolve the dispute is appointed only by way of an agreement of parties. Unlike in the common law, or under any statute, the invoking of this alternate dispute resolution method is not by the unilateral act or the desire of one party. Even in agreements providing for reference of a dispute to an Arbitrator chosen by the parties, if a dispute has to arise on the choice of the

Arbitrator or as to the disputes being referred to arbitration, Arbitration Act, 1940 provided for a solution. Section 8 of the Arbitration Act, 1940, conferred powers on the Court to appoint an arbitrator where the parties did not concur on the appointment of an Arbitrator. Section 20 of the Act, 1940 entitled a party to apply to the Court by filing the arbitration agreement seeking an order for referring the dispute to arbitration. The Court there upon makes an order of reference to the arbitrator appointed by the parties or in the absence of agreement on the Arbitrator to be appointed, to the arbitrator appointed by the Court.

As far as Arbitration and Conciliation Act, 1996 is concerned, where the parties to the agreement failed to reach a consensus on the appointment of the Arbitrator, Section 11 and provides a solution that the Arbitrator may be appointed by the Court on an application made by the aggrieved party. Thus Section 11 deals with the appointment of Arbitrators .Sub-Section (2) to Section 11 states that the parties are free to agree on the procedure for appointing the arbitrator or arbitrators.

Failing any agreement, the parties or the two appointed Arbitrators failed to reach an agreement expected of them under the procedure or a person, including an institution fails to perform any function entrusted to him or it under that procedure, subsection (6) to Section 11 provides the procedure that a party may request the Chief Justice or any person or any institution designated by him to appoint an arbitrator, unless the appointment procedure provides other means for securing the appointment. Sub-section (7) to Section 11 states that the decision of the Chief Justice on a matter entrusted by sub-section (4) or (5) or (6) is final.

Section 8 of the Arbitration and Conciliation Act, 1996 deals with the enforcement of the arbitration agreement on an action brought by any of the parties to the agreement before the Court seeking its assistance to refer the parties to arbitration. Section 16 of the 1996 Act, provides that the Arbitral Tribunal may rule on its own jurisdiction, including ruling on objections with respect to the existence or the validity of the arbitration agreement.

47. In the decision reported in (2005) 8 SCC 618 (S.P.B. & Co. Vs. Patel Engineering Ltd.), the Constitution Bench of the Apex Court had an occasion to consider the scope of the order passed under Section 11(6) of the Arbitration and Conciliation Act, 1996 and

the effect of an order passed thereon, vis-a-vis the claim under Section 16 of the Arbitration and Conciliation Act, 1996. While holding that the order passed by the Chief Justice in exercise of the powers given under Section 11(6) is a judicial order, the Apex Court referred to Section 16 of the Arbitration and Conciliation Act, 1996 that normally an Arbitral Tribunal has the right to decide whether it has jurisdiction to proceed with the arbitration; whether there was agreement between the parties and other matters referred to therein.

48. Dealing with the various clauses under Section 16 of the Arbitration and Conciliation Act, 1996, as to the competency of the Arbitrator to decide on the jurisdiction and the absence of such authority in the context of the appointment of an Arbitrator by the Chief Justice under Section 11 of the Arbitration and Conciliation Act, 1996, the Supreme Court observed:

" 12. Section 16 of the Act only makes explicit what is even otherwise implicit, namely, that the Arbitral Tribunal constituted under the Act has the jurisdiction to rule on its own jurisdiction, including ruling on objections with respect to the existence or validity of the arbitration agreement. Sub-section (1) also directs that an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. It also clarifies that a decision by the Arbitral Tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

Sub-section (2) of Section 16 enjoins that a party wanting to raise a plea that the Arbitral Tribunal does not have jurisdiction, has to raise that objection not later than the submission of the statement of defence, and that the party shall not be precluded from raising the plea of jurisdiction merely because he has appointed or participated in the appointment of an arbitrator. Sub-section (3) lays down that a plea that the Arbitral Tribunal is exceeding the scope of its authority, shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.

upheld and only in an appeal against the final award, when the objection is overruled. Sub-section (5) enjoins that if the Arbitral Tribunal overrules the objections under sub-section (2) or (3), it should continue with the arbitral proceedings and make an arbitral award. Sub-section (6) provides that a party aggrieved by such an arbitral award overruling the plea on lack of jurisdiction and the exceeding of the scope of authority, may make an application on these grounds for setting aside the award in accordance with Section 34 of the Act.

The question, in the context of sub-section (7) of Section 11 is, what is the scope of the right conferred on the Arbitral Tribunal to rule upon its own jurisdiction and the existence of the arbitration clause, envisaged by Section 16(1), once the Chief Justice or the person designated by him had appointed an arbitrator after satisfying himself that the conditions for the exercise of power to appoint an arbitrator are present in the case. Prima facie, it would be difficult to say that in spite of the finality conferred by subsection (7) of Section 11 of the Act, to such a decision of the Chief Justice, the Arbitral Tribunal can still go behind that decision and rule on its own jurisdiction or on the existence of an arbitration clause.

It also appears to us to be incongruous to say that after the Chief Justice had appointed an Arbitral Tribunal, the Arbitral Tribunal can turn round and say that the Chief Justice had no jurisdiction or authority to appoint the Tribunal, the very creature brought into existence by the exercise of power by its creator, the Chief Justice.

20. Section 16 is said to be the recognition of the principle of Kompetenz-Kompetenz. The fact that the Arbitral Tribunal has the competence to rule on its own jurisdiction and to define the contours of its jurisdiction, only means that when such issues arise before it, the Tribunal can, and possibly, ought to decide them. This can happen when the parties have gone to the Arbitral Tribunal without recourse to Section 8 or 11 of the Act. But where the jurisdictional issues are decided under these sections, before a reference is made, Section 16 cannot be held to empower the Arbitral Tribunal to ignore the decision given by the judicial authority or the Chief Justice before the reference to it was made. The competence to decide does not enable the Arbitral Tribunal to get over the finality conferred on an order passed prior to its entering upon the reference by the very statute that creates it. That

is the position arising out of Section 11(7) of the Act read with Section 16 thereof. The finality given to the order of the Chief Justice on the matters within his competence under Section 11 of the Act are incapable of being reopened before the Arbitral Tribunal. " (emphasis supplied)

49. The Apex Court pointed out that on being satisfied of the existence of an arbitration agreement, the existence of a live dispute, and in exercise of the power, the Chief Justice constitutes an Arbitral Tribunal as envisaged. The order thus passed by the Chief Justice puts an end to a host of disputes, which includes the question of arbitrability of a dispute. Once the order of the Chief Justice attains finality either on account of it not being challenged or affirmed on appeal before the Apex Court, the decision of the Chief Justice on matters decided by him while constituting the Tribunal is no longer available before the Tribunal for re-agitation and that the Tribunal would have to decide the dispute on merits unhampered by the preliminary or technical objections. The Supreme Court further held:

" Therefore, a decision on jurisdiction and on the existence of the arbitration agreement and of the person making the request being a party to that agreement and the subsistence of an arbitrable dispute require to be decided and the decision on these aspects is a prelude to the Chief Justice considering whether the requirements of sub-Section (4), sub-Section (5) or sub-Section (6) of Section 11 are satisfied when approached with the request for appointment of an arbitrator. "

50. In the background of the above-said decision of the Constitution Bench consisting of 7 Honourable Judges of the Supreme Court, the contention of respondents-1 to 3 as regards Section 16 of the Arbitration and Concilation Act, 1996 has to fail. So too the plea of respondents-1 to 3 as to the maintainability of the claim based on Section 69 of the Indian Partnership Act has to be rejected in the light of the decisions of the Supreme Court and this Court. In the

circumstances, the award, writ with illegality, has to be set aside.

51. Learned senior counsel appearing for respondents-1 to 3 placed reliance on the decisions of the Supreme Court reported in (1988) 3 SCC 82 (Continental Construction Co. Ltd. Vs. State of Madhya Pradesh) that in deciding the disputes between the parties, the arbitral Tribunal is bound to follow and apply the law. Referring to the decision reported in AIR 2003 SC 2620 (Oil and Natural Gas Corporation Ltd. Vs. Saw Pipes Ltd.), he pointed out that only when an award is contrary to the substantive law that the same could be interfered with by this Court under Section 34 of the Arbitration and Conciliation Act, 1996. He stressed that this clearly shows that the Arbitrators have the duty to follow the substantive law while deciding the dispute. He also referred to the decision reported in (2008) 14 SCC 271 (TDM Intrastructure Private Ltd.

Vs. UE Development India Pvt. Ltd.) as to the imperative requirement as per Section 28 of the Arbitration and Conciliation Act for the arbitrator to follow the substantive law. Hence, no illegality can be seen in the order of the learned Arbitrator rejecting the claim based on Section 69 of the Indian Partnership Act.

52. There can be no two opinion that a decision by the Arbitrator has to go in tune with the provisions of the substantive law. As already pointed out in the preceding paragraphs, the duty to decide in conformity with the substantive law is as regards the disputes arising under the terms of the contract. This, however, does not mean that in deciding the maintainability of a claim, the Arbitrator has to see as to whether the claim is in accordance with the substantive law. If he is to embark on this, he would be doing violence to the very agreement under which he is constituted as a private Court for the resolution of the disputes. Apart from this, the Arbitrator would be violating the provisions of Section 7 of the Arbitration and Conciliation Act, 1996, thereby ignoring the sanctity of an agreement between the parties to settle the disputes through arbitration. After all, the Arbitrator derives his jurisdiction only by the consensus between the parties to the agreement. Further, after the decision of the Apex Court reported in (2005) 8 SCC 618 (S.P.B. &

Co. Vs. Patel Engineering Ltd.), once the arbitrator is appointed by the Court on an application by the respondents and there being no denial of the fact that the dispute had arisen and is to go for resolution before the Arbitrator, all that the Arbitrator has to decide is the dispute arising under the contract in terms of the agreement. It is not denied by the respondents that the contract entered into between the parties is not an illegal one by reason of the petitioners being an unregistered firm. Learned senior counsel appearing for respondents 1 to 3 does not dispute the competency of the unregistered firm to enter into an agreement. He fairly pointed out that the Indian Partnership Act does not frown on the existence of an unregistered firm.

The provisions of Section 69 of the Indian Partnership Act has application, when one of the parties to the agreement, an unregistered firm, seeks to enforce the right under the agreement to appoint an Arbitrator. When respondents-1 to 3 have accepted the validity of the agreement on arbitration and that the dispute between the parties at the stage of filing the petition under Section 11 of the Arbitration and Conciliation Act, 1996 was only as regards the naming of an Arbitrator, it is difficult to accept the contention of respondents- 1 to 3 that the dispute had arisen under the agreement on arbitration and that the enforcement of the rights arising under the agreement cannot be maintained under Section 69 of the Indian Partnership Act.

As already pointed out, after the decision of the Supreme Court in the decision reported in (2005) 8 SCC 618 (S.P.B. & Co. Vs. Patel Engineering Ltd.), it is not open to the Arbitrator to decide on the justiciability of the claim from the petitioner.

53. In the context of the aforesaid decision, when the award is patently illegal and prejudicial to the rights of the parties, the award is liable to be interfered with under Section 34(2) of the Arbitration and Conciliation Act, 1996.

54. Hence, apart from the fact that the decision of the Apex Court reported in AIR 1964 SC 1882 (Jagdish Chandra Gupta V. Kajaria Traders (India) Ltd.) is distinguishable and that the reference made to the Arbitrator is in terms of the arbitration

agreement and not as regards the enforcement of a right arising from the agreement, I have no hesitation in setting aside the award.

55. After the appointment of the Arbitrator, the question of the Arbitrator entering the jurisdictional question as to the maintainability of the claim does not arise. The Arbitrator has the jurisdiction only to decide the disputes that have arisen in connection with the execution of the contract and the breach alleged by taking recourse to the contract, to which both the parties are bound. A dispute could be held as inextricably linked to the contract only if and when the dispute is connected with the contract. When the terms of the contract are not denied and the contract is not illegal or void by reason of the petitioner being an unregistered firm, the preliminary objection raised as a dispute posed by respondents-1 to 3 cannot be held as one arising under the contract or a controversy arising out of or in relation to or in connection with the agreement."

34. The findings and the ratio laid down by this Court is squarely applicable to the present facts of the case. As already held above, the arbitration agreement between the parties is even more comprehensive in the present case. Having agreed to submit the dispute to Arbitration and having nominated an Arbitrator, the respondent cannot raise the plea of unregistered firm.

35. The counsel for the claimant has in support of his contention that the award warrants no interference relied upon the judgment of the Apex Court in Associate

Builders vs. Delhi Development Authority (2015 (1) CTC 191) wherein the Apex Court in para 12 has held as follows:

12. In as much as serious objections have been taken to the Division Bench judgment on the ground that it has ignored the parameters laid down in a series of judgments by this Court as to the limitations which a Judge hearing objections to an arbitral award under Section 34 is subject to, we deem it necessary to state the law on the subject.

Section 34 of the Arbitration and Conciliation Act reads as follows- "Application for setting aside arbitral award.-(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).

(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.

(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award."

This Section in conjunction with Section 5 makes it clear that an arbitration award that is governed by part I of the Arbitration and Conciliation Act, 1996 can be set aside only on grounds mentioned under Section 34 (2) and (3), and not otherwise. Section 5 reads as follows:

"5. Extent of judicial intervention.-Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part."

It is important to note that the 1996 Act was enacted to replace the 1940 Arbitration Act in order to provide for an arbitral procedure which is fair, efficient and capable of meeting the needs of arbitration; also to provide that the tribunal gives reasons for an arbitral award; to ensure that the tribunal remains within the limits of its jurisdiction; and to minimize the supervisory roles of courts in the arbitral process.

It will be seen that none of the grounds contained in sub-clause 2 (a) deal with the merits of the decision rendered by an arbitral award. It is only when we come to the award being in conflict with the public policy of India that the merits of an arbitral award are to be looked into under certain specified circumstances. In Renusagar Power Co. Ltd. v. General Electronic Co., 1994 Supp (1) SCC 644, the Supreme Court construed Section 7 (1)(b) (ii) of the Foreign Award (Recognition and Enforcement) Act, 1961. "7. Conditions for enforcement of foreign awards.-(1) A foreign award may not be enforced under this Act- (b) if the Court dealing with the case is satisfied that- (ii) the enforcement of the award will be contrary to the public policy."

In construing the expression "public policy" in the context of a foreign award, the Court held that an award contrary to

1. The fundamental policy of Indian law

2. The interest of India

3. Justice or morality, would be set aside on the ground that it would be contrary to the public policy of India. It went on further to hold that a contravention of the provisions of the Foreign Exchange Regulation Act would be contrary to the public policy of India in that the statute is enacted for the national economic interest to ensure that the nation does not lose foreign exchange which is essential for the economic survival of the nation (see para 75).

Equally, disregarding orders passed by the superior courts in India could also be a contravention of the fundamental policy of Indian law, but the recovery of compound interest on interest, being contrary to statute only, would not contravene any fundamental policy of Indian law (see paras 85,95).

When it came to construing the expression "the public policy of India" contained in Section 34 (2) (b) (ii) of the Arbitration Act, 1996, this Court in ONGC v. Saw Pipes, 2003 (5) SCC 705, held- "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 case [1994 Supp (1) SCC 644] 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.

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.

74. In the result, it is held that:

(A) (1) The court can set aside the arbitral award under Section 34(2) of the Act if 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.

(2) The court may set aside the award:

(i)(a) if the composition of the Arbitral Tribunal was not in accordance with the agreement of the parties, (b) failing such agreement, the composition of the Arbitral Tribunal was not in accordance with Part I of the Act. (ii) if the arbitral procedure was not in accordance with: (a) the agreement of the parties, or (b) failing such agreement, the arbitral procedure was not in accordance with Part I of the Act.

However, exception for setting aside the award on the ground of composition of Arbitral Tribunal or illegality of arbitral procedure is that the agreement should not be in conflict with the provisions of Part I of the Act from which parties cannot derogate. (c) If the award passed by the Arbitral Tribunal is in contravention of the provisions of the Act or any other substantive law governing the parties or is against the terms of the contract.

(3) The award could be set aside if it is against the public policy of India, that is to say, if it is contrary to:

(a) fundamental policy of Indian law; or (b) the interest of India; or (c) justice or morality; or (d) if it is patently illegal.

(4) It could be challenged:

(a) as provided under Section 13(5); and (b) Section 16(6) of the Act.

(B)(1) The impugned award requires to be set aside mainly on the grounds:

(i) there is specific stipulation in the agreement that the time and date of delivery of the goods was of the essence of the contract; (ii) in case of failure to deliver the goods within the period fixed for such delivery in the schedule, ONGC was entitled to recover from the contractor liquidated damages as agreed; (iii) it was also explicitly understood that the agreed liquidated damages were genuine pre-estimate of damages; (iv) on the request of the respondent to extend the time-limit for supply of goods, ONGC informed specifically that time was extended but stipulated liquidated damages as agreed would be recovered; (v) liquidated damages for delay in supply of goods were to be recovered by paying authorities from the bills for payment of cost of material supplied by the contractor;

(vi) there is nothing on record to suggest that stipulation for recovering liquidated damages was by way of penalty or that the said sum was in any way unreasonable.

(vii) In certain contracts, it is impossible to assess the damages or prove the same. Such situation is taken care of by Sections 73 and 74 of the Contract Act and in the present case by specific terms of the contract."

The judgment in ONGC v. Saw Pipes has been consistently followed till date.

In Hindustan Zinc Ltd. v. Friends Coal Carbonisation, (2006) 4 SCC 445, this Court held:

"14. The High Court did not have the benefit of the principles laid down in Saw Pipes [(2003) 5 SCC 705] , and had proceeded on the assumption that award cannot be interfered with even if it was contrary to the terms of the contract. It went to the extent of holding that contract terms cannot even be looked into for

examining the correctness of the award. This Court in Saw Pipes [(2003) 5 SCC 705] has made it clear that it is open to the court to consider whether the award is against the specific terms of contract and if so, interfere with it on the ground that it is patently illegal and opposed to the public policy of India."

In McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181, this Court held:

"58. In Renusagar Power Co. Ltd. v. General Electric Co. [1994 Supp

(1) SCC 644] this Court laid down that the arbitral award can be set aside if it is contrary to (a) fundamental policy of Indian law; (b) the interests of India; or (c) justice or morality. A narrower meaning to the expression "public policy" was given therein by confining judicial review of the arbitral award only on the aforementioned three grounds. An apparent shift can, however, be noticed from the decision of this Court in ONGC Ltd.v. Saw Pipes Ltd. [(2003) 5 SCC 705] (for short "ONGC"). This Court therein referred to an earlier decision of this Court in Central Inland Water Transport Corpn. Ltd. v.

Brojo Nath Ganguly [(1986) 3 SCC 156 : 1986 SCC (L&S) 429 : (1986) 1 ATC 103] wherein the applicability of the expression "public policy" on the touchstone of Section 23 of the Indian Contract Act and Article 14 of the Constitution of India came to be considered. This Court therein was dealing with unequal bargaining power of the workmen and the employer and came to the conclusion that any term of the agreement which is patently arbitrary and/or otherwise arrived at because of the unequal bargaining power would not only be ultra vires Article 14 of the Constitution of India but also hit by Section 23 of the Indian Contract Act.

In ONGC [(2003) 5 SCC 705] this Court, apart from the three grounds stated in Renusagar [1994 Supp (1) SCC 644] , added another ground thereto for exercise of the court's jurisdiction in setting aside the award if it is patently arbitrary.

59. Such patent illegality, however, must go to the root of the matter. The public policy violation, indisputably, should be so unfair and unreasonable as to shock the conscience of the court. Where the arbitrator, however, has gone contrary to or beyond the expressed law of the contract or granted relief in the matter not in dispute would come within the purview of Section 34 of the Act. However, we would consider the applicability of the aforementioned principles while noticing the merits of the matter.

60. What would constitute public policy is a matter dependent upon the nature of transaction and nature of statute. For the said purpose, the pleadings of the parties and the materials brought on

record would be relevant to enable the court to judge what is in public good or public interest, and what would otherwise be injurious to the public good at the relevant point, as contradistinguished from the policy of a particular Government. (See State of Rajasthan v. Basant Nahata [(2005) 12 SCC 77].)" In Centrotrade Minerals & Metals Inc. v. Hindustan Copper Ltd., (2006) 11 SCC 245, Sinha, J., held:

"103. Such patent illegality, however, must go to the root of thematter. The public policy, indisputably, should be unfair and unreasonable so as to shock the conscience of the court. Where the arbitrator, however, has gone contrary to or beyond the expressed law of the contract or granted relief in the matter not in dispute would come within the purview of Section 34 of the Act."

104. What would be a public policy would be a matter which would again depend upon the nature of transaction and the nature of statute. For the said purpose, the pleadings of the parties and the materials brought on record would be relevant so as to enable the court to judge the concept of what was a public good or public interest or what would otherwise be injurious to the public good at the relevant point as contradistinguished by the policy of a particular government. (See State of Rajasthan v. Basant Nahata [(2005) 12 SCC 77].)"

In DDA v. R.S. Sharma and Co., (2008) 13 SCC 80, the Court summarized the law thus:

"21. From the above decisions, the following principles emerge: (a) An award, which is (i) contrary to substantive provisions of law; or (ii) the provisions of the Arbitration and Conciliation Act, 1996; or (iii) against the terms of the respective contract; or (iv) patently illegal; or (v) prejudicial to the rights of the parties; is open to interference by the court under Section 34(2) of the Act. (b) The 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.

(c) The award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. (d) It is open to the court to consider whether the award is against the specific terms of contract and if so, interfere with it on the ground that it is patently illegal and opposed to the public policy of India.

With these principles and statutory provisions, particularly, Section 34(2) of the Act, let us consider whether the arbitrator as well as the Division Bench of the High Court were justified in granting the award in respect of Claims 1 to 3 and Additional Claims 1 to 3 of the claimant or the appellant DDA has made out a case for setting aside the award in respect of those claims with reference to the terms of the agreement duly executed by both parties." J.G. Engineers (P) Ltd. v. Union of India, (2011) 5 SCC 758, held: "27. Interpreting the said provisions, this Court in ONGC Ltd. v. Saw Pipes Ltd.

[(2003) 5 SCC 705] held that a court can set aside an award under Section 34(2)(b)(ii) of the Act, as being in conflict with the public policy of India, if it is (a) contrary to the fundamental policy of Indian law; or (b) contrary to the interests of India; or (c) contrary to justice or morality; or (d) patently illegal. This Court explained that to hold an award to be opposed to public policy, the patent illegality should go to the very root of the matter and not a trivial illegality. It is also observed that an award could be set aside if it is so unfair and unreasonable that it shocks the conscience of the court, as then it would be opposed to public policy." Union of India v. Col. L.S.N. Murthy, (2012) 1 SCC 718, held: "22. In ONGC Ltd. v. Saw Pipes Ltd.

[(2003) 5 SCC 705] this Court after examining the grounds on which an award of the arbitrator can be set aside under Section 34 of the Act has said: (SCC p. 727, para 31) "31. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest.

the administration of justice. Hence, in our view in addition to narrower meaning given to the term 'public policy' in Renusagar case [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] it is required to be held that the award could be set aside if it is patently illegal".

Fundamental Policy of Indian Law Coming to each of the heads contained in the Saw Pipes judgment, we will first deal with the head "fundamental policy of Indian Law". It has already been seen from the Renusagar judgment that violation of the Foreign Exchange Act and disregarding orders of superior courts in India would be regarded as being contrary to the fundamental policy of Indian law. To this it could be added that the binding effect of the judgment of a superior court being disregarded would be equally violative of the fundamental policy of Indian law.

In a recent judgment, ONGC Ltd. v. Western Geco International Ltd., 2014 (9) SCC 263, this Court added three other distinct and fundamental juristic principles which must be understood as a part and parcel of the fundamental policy of Indian law. The Court held- "35. What then would constitute the "fundamental policy of Indian law" is the question. The decision in ONGC [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705] does not elaborate that aspect. Even so, the expression must, in our opinion, include all such fundamental principles as providing a basis for administration of justice and enforcement of law in this country.

Without meaning to exhaustively enumerate the purport of the expression "fundamental policy of Indian law", we may refer to three distinct and fundamental juristic principles that must necessarily be understood as a part and parcel of the fundamental policy of Indian law. The first and foremost is the principle that in every determination whether by a court or other authority that affects the rights of a citizen or leads to any civil consequences, the court or authority concerned is bound to adopt what is in legal parlance called a "judicial approach" in the matter. The duty to adopt a judicial approach arises from the very nature of the power exercised by the court or the authority does not have to be separately or additionally enjoined upon the fora concerned.

whimsical manner. Judicial approach ensures that the authority acts bona fide and deals with the subject in a fair, reasonable and objective manner and that its decision is not actuated by any extraneous consideration. Judicial approach in that sense acts as a check against flaws and faults that can render the decision of a court, tribunal or authority vulnerable to challenge.

38. Equally important and indeed fundamental to the policy of Indian law is the principle that a court and so also a quasi-judicial authority must, while determining the rights and obligations of parties before it, do so in accordance with the principles of natural justice. Besides the celebrated audi alteram partem rule one of the facets of the principles of natural justice is that the court/authority deciding the matter must apply its mind to the attendant facts and circumstances while taking a view one way or the other. Non-application of mind is a defect that is fatal to any adjudication. Application of mind is best demonstrated by disclosure of the mind and disclosure of mind is best done by recording reasons in support of the decision which the court or authority is taking. The requirement that an adjudicatory authority must apply its mind is, in that view, so deeply embedded in our jurisprudence that it can be described as a fundamental policy of Indian law.

39. No less important is the principle now recognised as a salutary juristic fundamental in administrative law that a decision which is perverse or so irrational that no reasonable person would have arrived at the same will not be sustained in a court of law. Perversity or irrationality of decisions is tested on the touchstone of Wednesbury principle [Associated Provincial Picture Houses Ltd. v. Wednesbury Corpn., (1948) 1 KB 223: (1947) 2 All ER 680 (CA)] of reasonableness. Decisions that fall short of the standards of reasonableness are open to challenge in a court of law often in writ jurisdiction of the superior courts but no less in statutory processes wherever the same are available.

40. It is neither necessary nor proper for us to attempt an exhaustive enumeration of what would constitute the fundamental policy of Indian law nor is it possible to place the expression in the straitjacket of a definition. What is important in the context of the case at hand is that if on facts proved before them the arbitrators fail to draw an inference which ought to have been drawn or if they have drawn an inference which is on the face of it, untenable resulting in miscarriage of justice, the adjudication even when made by an Arbitral Tribunal that enjoys considerable latitude and play at the joints in making awards will be open to challenge and

may be cast away or modified depending upon whether the offending part is or is not severable from the rest." It is clear that the juristic principle of a "judicial approach" demands that a decision be fair, reasonable and objective. On the obverse side, anything arbitrary and whimsical would obviously not be a determination which would either be fair, reasonable or objective.

The Audi Alteram Partem principle which undoubtedly is a fundamental juristic principle in Indian law is also contained in Sections 18 and 34 (2) (a) (iii) of the Arbitration and Conciliation Act. These Sections read as follows:

"18. Equal treatment of parties.- The parties shall be treated with equality and each party shall be given a full opportunity to present his case.

34. Application for setting aside arbitral award.-

(2) An arbitral award may be set aside by the Court only if- (a) the party making the application furnishes proof that- (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; "

The third juristic principle is that a decision which is perverse or so irrational that no reasonable person would have arrived at the same is important and requires some degree of explanation. It is settled law that wherea finding is based on no evidence, or an arbitral tribunal takes into account something irrelevant to the decision which it arrives at; or ignores vital evidence in arriving at its decision, such decision would necessarily be perverse. A good working test of perversity is contained in two judgments. In H.B. Gandhi, Excise and Taxation Officer-cum-Assessing Authority v. Gopi Nath & Sons, 1992 Supp (2) SCC 312 at p. 317, it was held:

"7. ...................It is, no doubt, true that if a finding of fact is arrived at by ignoring or excluding relevant material or by taking

into consideration irrelevant material or if the finding so outrageously defies logic as to suffer from the vice of irrationality incurring the blame of being perverse, then, the finding is rendered infirm in law."

In Kuldeep Singh v. Commr. of Police, (1999) 2 SCC 10 at para 10, it was held:

"10. A broad distinction has, therefore, to be maintained between the decisions which are perverse and those which are not. If a decision is arrived at on no evidence or evidence which is thoroughly unreliable and no reasonable person would act upon it, the order would be perverse. But if there is some evidence on record which is acceptable and which could be relied upon, howsoever compendious it may be, the conclusions would not be treated as perverse and the findings would not be interfered with."

It must clearly be understood that when a court is applying the "public policy" test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score [Very often an arbitrator is a lay person not necessarily trained in law.

Lord Mansfield, a famous English Judge, once advised a high military officer in Jamaica who needed to act as a Judge as follows: "General, you have a sound head, and a good heart; take courage and you will do very well, in your occupation, in a court of equity. My advice is, to make your decrees as your head and your heart dictate, to hear both sides patiently, to decide with firmness in the best manner you can; but be careful not to assign your reasons, since your determination may be substantially right, although your reasons may be very bad, or essentially wrong". It is very important to bear this in mind when awards of lay arbitrators are challenged.] Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts. In P.R. Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H.

Securities (P) Ltd.

"21. A court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or reappreciating the evidence. An award can be challenged only under the grounds mentioned in Section

34(2) of the Act. The Arbitral Tribunal has examined the facts and held that both the second respondent and the appellant are liable. The case as put forward by the first respondent has been accepted. Even the minority view was that the second respondent was liable as claimed by the first respondent, but the appellant was not liable only on the ground that the arbitrators appointed by the Stock Exchange under Bye-law 248, in a claim against a non-member, had no jurisdiction to decide a claim against another member. The finding of the majority is that the appellant did the transaction in the name of the second respondent and is therefore, liable along with the second respondent. Therefore, in the absence of any ground under Section 34(2) of the Act, it is not possible to reexamine the facts to find out whether a different decision can be arrived at."

It is with this very important caveat that the two fundamental principles which form part of the fundamental policy of Indian law (that the arbitrator must have a judicial approach and that he must not act perversely) are to be understood.

Interest of India The next ground on which an award may be set aside is that it is contrary to the interest of India. Obviously, this concerns itself with India as a member of the world community in its relations with foreign powers. As at present advised, we need not dilate on this aspect as this ground may need to evolve on a case by case basis. Justice The third ground of public policy is, if an award is against justice or morality. These are two different concepts in law. An award can be said to be against justice only when it shocks the conscience of the court. An illustration of this can be given. A claimant is content with restricting his claim, let us say to Rs. 30 lakhs in a statement of claim before the arbitrator and at no point does he seek to claim anything more. The arbitral award ultimately awards him 45 lakhs without any acceptable reason or justification. Obviously, this would shock the conscience of the court and the arbitral award would be liable to be set aside on the ground that it is contrary to "justice".

Morality The other ground is of "morality". Just as the expression "public policy" also occurs in Section 23 of the Indian Contract Act, so does

the expression "morality". Two illustrations to the said section are interesting for they explain to us the scope of the expression "morality".

"(j) A, who is B's Mukhtar, promises to exercise his influence, as such, with B in favour of C, and C promises to pay 1,000 rupees to A. The agreement is void, because it is immoral. (k) A agrees to let her daughter to hire to B for concubinage. The agreement is void, because it is immoral, though the letting may not be punishable under the Indian Penal Code (XLV of 1860)." In Gherulal Parekh v. Mahadeo Dass Maiya, 1959 Supp (2) SCR 406, this Court explained the concept of "morality" thus- "Re. Point 3 - Immorality: The argument under this head is rather broadly stated by the learned Counsel for the appellant.

The learned counsel attempts to draw an analogy from the Hindu Law relating to the doctrine of pious obligation of sons to discharge their father's debts and contends that what the Hindu Law considers to be immoral in that context may appropriately be applied to a case under s. 23 of the Contract Act. Neither any authority is cited nor any legal basis is suggested for importing the doctrine of Hindu Law into the domain of contracts. Section 23 of the Contract Act is inspired by the common law of England and it would be more useful to refer to the English Law than to the Hindu Law texts dealing with a different matter. Anson in his Law of Contracts states at p.

"The only aspect of immorality with which Courts of Law have dealt is sexual immorality........... ."

Halsbury in his Laws of England, 3rd Edn., Vol. 8, makes a similar statement, at p. 138 :

"A contract which is made upon an immoral consideration or for an immoral purpose is unenforceable, and there is no distinction in this respect between immoral and illegal contracts. The immorality here alluded to is sexual immorality."

In the Law of Contract by Cheshire and Fifoot, 3rd Edn., it is stated at p. 279:

"Although Lord Mansfield laid it down that a contract contra bonos mores is illegal, the law in this connection gives no extended meaning to morality, but concerns itself only with what is sexually

reprehensible."

In the book on the Indian Contract Act by Pollock and Mulla it is stated at p. 157:

"The epithet "immoral" points, in legal usage, to conduct or purposes which the State, though disapproving them, is unable, or not advised, to visit with direct punishment." The learned authors confined its operation to acts which are considered to be immoral according to the standards of immorality approved by Courts. The case law both in England and India confines the operation of the doctrine to sexual immorality. To cite only some instances: settlements in consideration of concubinage, contracts of sale or hire of things to be used in a brothel or by a prostitute for purposes incidental to her profession, agreements to pay money for future illicit cohabitation, promises in regard to marriage for consideration, or contracts facilitating divorce are all held to be void on the ground that the object is immoral.

The word "immoral" is a very comprehensive word. Ordinarily it takes in every aspect of personal conduct deviating from the standard norms of life. It may also be said that what is repugnant to good conscience is immoral. Its varying content depends upon time, place and the stage of civilization of a particular society. In short, no universal standard can be laid down and any law based on such fluid concept defeats its own purpose. The provisions of S. 23 of the Contract Act indicate the legislative intention to give it a restricted meaning. Its juxtaposition with an equally illusive concept, public policy, indicates that it is used in a restricted sense; otherwise there would be overlapping of the two concepts.

In its wide sense what is immoral may be against public policy, for public policy covers political, social and economic ground of objection. Decided cases and authoritative text-book writers, therefore, confined it, with every justification, only to sexual immorality. The other limitation imposed on the word by the statute, namely, "the court regards it as immoral", brings out the idea that it is also a branch of the common law like the doctrine of public policy, and, therefore, should be confined to the principles recognized and settled by Courts. Precedents confine the said concept only to sexual immorality and no case has been brought to our notice where it has been applied to any head other than sexual immorality. In the circumstances, we cannot evolve a new head so as to bring in wagers within its fold."

This Court has confined morality to sexual morality so far as section

23 of the Contract Act is concerned, which in the context of an arbitral award would mean the enforcement of an award say for specific performance of a contract involving prostitution. "Morality" would, if it is to go beyond sexual morality necessarily cover such agreements as are not illegal but would not be enforced given the prevailing mores of the day. However, interference on this ground would also be only if something shocks the court's conscience. Patent Illegality We now come to the fourth head of public policy namely, patent illegality. It must be remembered that under the explanation to section 34 (2) (b), an award is said to be in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption.

This ground is perhaps the earliest ground on which courts in England set aside awards under English law. Added to this ground (in 1802) is the ground that an arbitral award would be set aside if there were an error of law by the arbitrator. This is explained by Lord Justice Denning in R v. Northumberland Compensation Appeal Tribunal. Ex Parte Shaw.

"Leaving now the statutory tribunals, I turn to the awards of the arbitrators. The Court of King's Bench never interfered by certiorari with the award of an arbitrator, because it was a private tribunal and not subject to the prerogative writs. If the award was not made a rule of court, the only course available to an aggrieved party was to resist an action on the award or to file a bill in equity. If the award was made a rule of court, a motion could be made to the court to set it aside for misconduct of the arbitrator on the ground that it was procured by corruption or other undue means: see the statute 9 and 10 Will. III, c. 15. At one time an award could not be upset on the ground of error of law by the arbitrator because that could not be said to be misconduct or undue means, but ultimately it was held in Kent v. Elstob, (1802) 3 East 18, that an award could be set aside for error of law on the face of it. This was regretted by Williams, J., in Hodgkinson v. Fernie, (1857) 3 C.B.N.S. 189, but is now well established."

This, in turn, led to the famous principle laid down in Champsey Bhara Company v. The Jivraj Balloo Spinning and Weaving Company Ltd., AIR 1923 PC 66, where the Privy Council referred to Hodgkinson and then laid down:

"The law on the subject has never been more clearly stated than by Williams, J. in the case of Hodgkinson v. Fernie (1857) 3 C.B.N.S.

189.

"The law has for many years been settled, and remains so at this day, that, where a cause or matters in difference are referred to an arbitrator a lawyer or a layman, he is constituted the sole and final judge of all questions both of law and of fact ...... The only exceptions to that rule are cases where the award is the result of corruption or fraud, and one other, which though it is to be regretted, is now, I think firmly established viz., where the question of law necessarily arises on the face of the award or upon some paper accompanying and forming part of the award. Though the propriety of this latter may very well be doubted, I think it may be considered as established."

"Now the regret expressed by Williams, J. in Hodgkinson v. Fernie has been repeated by more than one learned Judge, and it is certainly not to be desired that the exception should be in any way extended. An error in law on the face of the award means, in their Lordships' view, that you can find in the award or a document actually incorporated thereto, as for instance, a note appended by the arbitrator stating the reasons for his judgment, some legal proposition which is the basis of the award and which you can then say is erroneous. It does not mean that if in a narrative a reference is made to a contention of one party that opens the door to seeing first what that contention is, and then going to the contract on which the parties' rights depend to see if that contention is sound.

Here it is impossible to say, from what is shown on the face of the award, what mistake the arbitrators made. The only way that the learned judges have arrived at finding what the mistake was is by saying: "Inasmuch as the Arbitrators awarded so and so, and inasmuch as the letter shows that then buyer rejected the cotton, the arbitrators can only have arrived at that result by totally misinterpreting Cl.52." But they were entitled to give their own interpretation to Cl. 52 or any other article, and the award will stand unless, on the face of it they have tied themselves down to some special legal proposition which then, when examined, appears to be unsound.

Upon this point, therefore, their Lordships think that the judgment of Pratt, J was right and the conclusion of the learned Judges of the Court of Appeal erroneous."

This judgment has been consistently followed in India to test awards under Section 30 of the Arbitration Act, 1940.

In the 1996 Act, this principle is substituted by the 'patent illegality' principle which, in turn, contains three sub heads - (a) a contravention of the substantive law of India would result in the death knell of an arbitral award. This must be understood in the sense that such illegality must go to the root of the matter and cannot be of a trivial nature. This again is a really a contravention of Section 28(1)(a) of the Act, which reads as under: "28. Rules applicable to substance of dispute.-(1) Where the place of arbitration is situated in India,- (a) in an arbitration other than an international commercial arbitration, the arbitral tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India;"

(b) a contravention of the Arbitration Act itself would be regarded as a patent illegality- for example if an arbitrator gives no reasons for an award in contravention of section 31(3) of the Act, such award will be liable to be set aside.

(c) Equally, the third sub-head of patent illegality is really a contravention of Section 28 (3) of the Arbitration Act, which reads as under:

"28. Rules applicable to substance of dispute.- (3) In all cases, the arbitral tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction."

This last contravention must be understood with a caveat. An arbitral tribunal must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair minded or reasonable person could do.

In McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181, this Court held as under:

"112. It is trite that the terms of the contract can be express or implied. The conduct of the parties would also be a relevant factor in the matter of construction of a contract. The construction of the

contract agreement is within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and they cannot be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. It is also trite that correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law. (See Pure Helium India (P) Ltd. v. ONGC [(2003) 8 SCC 593] and D.D. Sharma v. Union of India [(2004) 5 SCC 325]).

113. Once, thus, it is held that the arbitrator had the jurisdiction, no further question shall be raised and the court will not exercise its jurisdiction unless it is found that there exists any bar on the face of the award."

In MSK Projects (I) (JV) Ltd. v. State of Rajasthan, (2011) 10 SCC 573, the Court held:

"17. If the arbitrator commits an error in the construction of the contract, that is an error within his jurisdiction. But if he wanders outside the contract and deals with matters not allotted to him, he commits a jurisdictional error. Extrinsic evidence is admissible in such cases because the dispute is not something which arises under or in relation to the contract or dependent on the construction of the contract or to be determined within the award. The ambiguity of the award can, in such cases, be resolved by admitting extrinsic evidence. The rationale of this rule is that the nature of the dispute is something which has to be determined outside and independent of what appears in the award. Such a jurisdictional error needs to be proved by evidence extrinsic to the award. (See Gobardhan Das v.

Lachhmi Ram [AIR 1954 SC 689], Thawardas Pherumal v. Union of India [AIR 1955 SC 468], Union of India v. Kishorilal Gupta & Bros. [AIR 1959 SC 1362], Alopi Parshad & Sons Ltd. v. Union of India [AIR 1960 SC 588], Jivarajbhai Ujamshi Sheth v. Chintamanrao Balaji [AIR 1965 SC 214] and Renusagar Power Co. Ltd. v. General Electric Co. [(1984) 4 SCC 679 : AIR 1985 SC 1156] )."

In Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran, (2012) 5 SCC 306, the Court held:

"43. In any case, assuming that Clause 9.3 was capable of two interpretations, the view taken by the arbitrator was clearly a possible if not a plausible one. It is not possible to say that the arbitrator had travelled outside his jurisdiction, or that the view

taken by him was against the terms of contract. That being the position, the High Court had no reason to interfere with the award and substitute its view in place of the interpretation accepted by the arbitrator.

44. The legal position in this behalf has been summarised in para 18 of the judgment of this Court in SAIL v. Gupta Brother Steel Tubes Ltd. [(2009) 10 SCC 63: (2009) 4 SCC (Civ) 16] and which has been referred to above. Similar view has been taken later in Sumitomo Heavy Industries Ltd. v. ONGC Ltd. [(2010) 11 SCC 296: (2010) 4 SCC (Civ) 459] to which one of us (Gokhale, J.) was a party. The observations in para 43 thereof are instructive in this behalf.

45. This para 43 reads as follows: (Sumitomo case [(2010) 11 SCC 296 : (2010) 4 SCC (Civ) 459] , SCC p. 313) "43. The umpire has considered the fact situation and placed a construction on the clauses of the agreement which according to him was the correct one. One may at the highest say that one would have preferred another construction of Clause 17.3 but that cannot make the award in any way perverse. Nor can one substitute one's own view in such a situation, in place of the one taken by the umpire, which would amount to sitting in appeal. As held by this Court in Kwality Mfg. Corpn. v. Central Warehousing Corpn.

[(2009) 5 SCC 142 : (2009) 2 SCC (Civ) 406] the Court while considering challenge to arbitral award does not sit in appeal over the findings and decision of the arbitrator, which is what the High Court has practically done in this matter. The umpire is legitimately entitled to take the view which he holds to be the correct one after considering the material before him and after interpreting the provisions of the agreement. If he does so, the decision of the umpire has to be accepted as final and binding."

34. This court upon perusal of the award, pleadings and the documents has held that the award does not suffer from any illegality. Hence in the above facts and circumstances, this court finds that no case has been made out by the petitioner/respondent for setting aside the award under section 34 of the Act.

In the result, the petition fails and is hereby dismissed. No costs.

rnb 20.3.2015 R. MAHADEVAN, J.

RNB

O.P.No. 427 of 2011 DATE : 20.3.2015