The High Court
Case Details
IN THE HIGH COURT OF ORISSA AT CUTTACK ARBA No.25 of 2019 In the matter of an Appeal under Section 37(1)(c) of the Arbitration and Conciliation Act, 1996 assailing the judgment dated 27th July, 2019 passed by the learned District Judge, Khurda at Bhubaneswar in Arb (P) No.31 of 2017. ---- Odisha State Seeds Corporation Limited …. Appellant -versus- M/s. Pallavi Firms & Nurseries …. Respondent Appeared in this case by Hybrid Arrangement (Virtual/Physical Mode): ================================================ For Appellants - Mr. R.K. Mohanty, Sr. Advocate For Respondent - Mr. N.K. Sahu, Advocate CORAM: MR. JUSTICE D.DASH Date of Hearing : 24.04.2024 : Date of Judgment: 20.06.2024 D.Dash, J. The Appellant-Corporation by filing this Appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (for short ‘the A&C Act’ 1996), has assailed the judgment dated 27th July, 2019 passed by the learned District Judge, Khurda at Bhubaneswar in Arb (P) Case No.31 of 2017 in the matter of an application under section 34 of the Act, refusing thereby to set ARBA No.25 of 2019 Page 1 of 33 aside the award dated 5th June, 2017 passed by the learned Arbitrator in Arbitration Proceeding No.17 of 2005, filed by the present Appellant as the Petitioner therein. 2. FACTUAL MATRIX OF THE CASE:- (i) The State Government in the year 2013 directed the Appellant-Corporation to explore the business facilities as a Trader for production and supply of various seeds to outside the State. Tender to the above affect being floated, the Appellant-Corporation participated therein for supply of different types of seeds outside the State. The Appellant- Corporation had invited applications for empanelment of supply of seeds on its behalf to outside the State. In the tender, eleven (11) participants took part. The Respondent-Claimant was qualified as the supply agency of the seeds to outside the State. A Tender Committee was constituted comprising seven members including the Managing Director and Company Secretary for empanelment of supply of Agency for supply of seeds on behalf of the Appellant-Corporation outside the State. The Respondent-Claimant was finally selected on 05.11.2013 and accordingly empaneled as the supplier of the Appellant-Corporation. On that day, the Memorandum of Understating (MOU) to the above effect was signed by the parties. The Appellant-Corporation then on 06.11.2013 requested the Respondent-Claimant to supply 16,000 quintals ARBA No.25 of 2019 Page 2 of 33 of certified wheat DBW-17, 2000 quintals of certified wheat HD-2733, 2,000 quintals of Arkel certified Garden Pea and 606 quintals of certified Garden Pea AZAD-P-1 to the Director of Agriculture, Jharkhand. The Respondent-Claimant pursuant to the said order supplied Wheat and Garden Pea to the said Director. On 07.12.2013, the Appellant-Corporation requested the Respondent-Claimant to supply 3000 quintals of certified Paddy seeds to the West Bengal State Seeds Corporation Limited, Burdwan. That was also supplied. Then on 13.12.2013, the Respondent-Claimant pursuant to the order of the Appellant-Corporation supplied 1500 quintals of certified Paddy seeds to the District Manager, West Bengal State Seeds Corporation Limited, Malda. The Respondent-Claimant made the above supplies as per the terms and conditions laid down and agreed upon under the MOU. (ii) The Respondent-Claimant as per the MOU supplied 7409.60 quintals of Wheat seeds @ Rs.2750/- per quintal and 173.20 quintals of Garden Pea seeds @ Rs.5,500/- per quintal to the Director of Agriculture, Ranchi, Jharkhand. The Respondent-Claimant further supplied 4412.42 quintals of paddy @ Rs.3200/- per quintal to the West Bengal State Seeds Corporation Limited. After the supply, the Appellant- Corporation had collected from the Director, Agriculture, Jharkhand, Ranchi Rs.28,05,000, Rs.80,24,500, Rs.86,17,613 and ARBA No.25 of 2019 Page 3 of 33 Rs.16,50,220 (in total Rs.2,10,97,113/-) on 20.11.2013, 26.05.2013 and 02.06.2014 respectively. The Appellant-Corporation also collected Rs.1,19,63,520/- and Rs.19,30,627/- in total Rs.1,38,94,147/- from West Bengal Seeds Corporation Limited on 10.06.2015. (iii) It is stated that in terms of Clause 11 of the MOU, the Appellant was to release the payment to the Respondent- Claimant on receipt of advance or part payment. It is further stated that even though the Appellant-Corporation received the amount as noted above towards part payment of cost of the seeds supplied by the Respondent-Claimant, the payment was not released in favour of Respondent-Claimant. The Appellant-Corporation did not take any step to collect the balance amount of Rs.3,96,886.88 from the Director of Agriculture, Jharkhand and Rs.2,25,600/- from West Bengal State Seeds Corporation Limited. Hence it is said that the Appellant-Corporation is liable to pay the said amount with interest to the Respondent-Claimant. However, the Appellant- Corporation on 05.11.2013 in an arbitrary manner illegally terminated the MOU. The Respondent-Claimant wrote letters to the Appellant-Corporation for release of the payment. As all the efforts in that regard did not bring any response, having no other alternative on 19.09.2014, the Respondent- Claimant issued the notice for arbitration and then filed an ARBA No.25 of 2019 Page 4 of 33 application under section 11 (6) of the A & C Act, which was registered as ARBP No.20 of 2014. This Court on 05.11.2015
Legal Reasoning
disposed of said application by appointing Hon’ble Mr. Justice B.K. Patel, former Judge. 3. On the above rival case, the learned Arbitrator has framed the following issues:- “(i) Whether the Claimant is entitled to receive a sum of Rs.10,91,869/- as the cost of seeds from the Respondent- Corporation after receipt of Rs.3,33,93,412/- on dated 28.01.2016 pursuant to the directions in this proceedings? (ii) Whether the Claimant is entitled to receive a sum of Rs.1,34,41,564/- as past interest from the Respondent- Corporation for non-payment of dues and, if so, from which date? (iii) Whether the Claimant is entitled to receive a sum of Rs.68,97,056.40 as damages from the Respondent- Corporation for non-performance of contract? (iv) Whether the Claimant is entitled to receive a sum of Rs.68,97,056.40 from the Respondent-Corporation towards loss of profit due to non-performance of contract? (v) Whether the Claimant is entitled to receive a sum of Rs.34,48,528.20 from the Respondent-Corporation for illegal termination of contract? ARBA No.25 of 2019 Page 5 of 33 (vi) Whether the Claimant is entitled to receive a sum of Rs..20.00 lakhs as the cost of present arbitral proceeding? (vii) Whether the Claimant is entitled to receive pendent-lite interest? (viii) Whether the Claimant is entitled to receive future interest from the Respondent-Corporation from the date of award till the payment at the rate 24% per annum? (ix) Whether the Claimant is entitled to any other relief?” 4. It would be pertinent, at this stage, to mention that the Hon’ble Arbitrator during pendency of the proceeding
Decision
disposed of the application under section 17 of the A & C Act on 22.02.2016. Thereunder, the Appellant-Corporation was directed to make payment of Rs.3,33,93,412.00 to the Respondent-Claimant which has been paid to the Respondent-Claimant on 28.01.2016. The claims laid by the Respondent-Claimant under different heads and as awarded by the learned Arbitrator are shown in the following table:- Claim for Item No.1 Claim for Item No.2 Claim Made (Towards Seed Cost Rs.10,91,869.68 + award Claim Made Rs.1,30,36,896/- Claim Allowed Rs.10,91,870/- Claim Allowed Rs.1,16,65,320 + ARBA No.25 of 2019 Page 6 of 33 (Towards interest on cost of seeds for delay in payment from the date of supply 28.01.2016 till the decision taken and seed cost was paid in 144th Board Meeting) Claim for Item No.3 (Damage for illegal retention of legitimate dues keeping the claimant to business loss) Claim for Item No.4 (Loss profit due to non- performance of contract (20% of the Claim Item No.1) Claim for Item No.5 (for illegal termination of the contract) Claim for Item No.6 (cost of legal proceeding) interest @ 21 % per annum from 21.08.2014 till the award Claim Made Rs.68,97,056.40 Claim Allowed Rs.53,17,312/- Claim Made Rs.68,97,056.40 Claim Allowed Rs.53,17,312/- Claim Made Rs.34,48,528.20 Claim Allowed Rs.17,24,264/- Claim Made Rs.20.00 lakhs Claim Allowed Rs.15.00 lakhs 5. The learned Arbitrator having allowed the claim under different heads as above has directed the Respondent- ARBA No.25 of 2019 Page 7 of 33 Claimant to pay interest @ 21% per annum over the awarded amount under Claim Item No.2 from 21.08.2014 till award, i.e., 05.06.2017 and interest @ 24% per annum over the total awarded amount from the date of award till payment from the date the amount became due and payable till the date of payment. 6. The stand of the Appellant-Corporation in defending the claim is that the selection of the Respondent-Claimant as the supplier for being empaneled was in circumvention and by side lining the rules of business, procedural compliances and other guiding principles holding the field as per the observations made in 136th Meeting of the Board of Directors held on 20.03.2014. The blame is placed upon the shoulder of the Managing Director of the Appellant-Corporation, casting some aspersions on the father of the proprietor of the Respondent-Claimant. It is further pleaded that for such suspicious conduct of the Managing Director of the Appellant-Corporation, the State Vigilance Authority had caused investigation. In view of such investigation by the State Vigilance Authori8ty, the Board Directors of the Appellant-Corporation in their 137th Meeting held on 20.06.2014 had taken a decision to terminate the empanelment of the Respondent-Claimant and defer the payment. It is further stated that although the Managing Director was ARBA No.25 of 2019 Page 8 of 33 authorized by the Board of Directors to take necessary step regarding procurement of the seed, no power was delegated by the Board of Directors to the then Managing Director towards empanelment of suppliers or to agree upon the service charges @ 3% on sale value. It is also stated that the MOU was executed without prior consent of the Competent Authority and the terms and conditions as find place in the MOU were never placed before the Board of Directors or the Committee constituted by it for approval. It is stated that the dues could not be settled since those were under the scrutiny and subsidy bill was to be prepared on the basis of acknowledgement and seed cost to be received from Jharkhand. It is stated that the Respondent-Claimant having actually supplied the seed, the Appellant-Corporation had an obligation to pay the seed cost received, but it is not the concern of the Appellant-Corporation that the Claimant had made investment and was entitled to the interest. It is further stated that the Appellant-Corporation had received only Rs.1,38,94,147/- from the West Bengal leaving a balance of Rs.2,25,600/- against the supply of paddy seeds. So, there is no intention on the part of the Appellant-Corporation to withheld the payment. It is asserted that the termination of ARBA No.25 of 2019 Page 9 of 33 the Respondent-Claimant empanelment under the MOU was in accordance with the terms of the MOU. 7. The Appellant-Corporation does not deny their liability towards the cost of the seeds received from Jharkhand and West Bengal; less 3% commission and refund of the security of Rs.1.00 lakhs amount to Rs.3,44,85,282/- in total made under Claim Item No.1. In fact, in their 144th Board Meeting, approval for payment of Rs.3,33,93,412/- has been given. It is next stated that the Respondent-Claimant’s assertion regarding seed cost is not totally correct with regard to the funds received from Jharkhand and West Bengal. It is also next stated that the subsidy portion for the supply seeds to Jharkhand amount to Rs.7,93,773.75 and cost of seeds supply to West Bengal amount to Rs.2,25,600/- has not been received and hence not paid to the Respondent-Claimant and the security deposit has not been released for the finalization of the bill. 8. The Appellant-Corporation dispute and deny the liability to pay the interest under Column Item No.2. The Appellant-Corporation also assert that the Claim ItemNo.3 is mischievous. At this stage, it would be stated that the Respondent- Claimant has not pressed the claim made under Item No.3 at the end. In so far as Claim Item No.4 is concerned, the same is ARBA No.25 of 2019 Page 10 of 33 resisted by the Appellant-Corporation whereas the Claim Item No.5 is denied projecting the ground that the termination of the MOU was legal. It is further stated that the cost of the proceeding is not the entitlement of the Respondent-Claimant since the matter ought to have been moved before the Chairman of the Appellant-Corporation for settlement of the dispute in accordance with Clause-20 of the MOU and that having not been done, the cost should not be awarded. 9. Mr. R.K. Mohanty, learned Senior Counsel for the Appellant-Corporation submitted that the Managing Director of the Appellant-Corporation having illegally appointed the Respondent-Claimant as the Supplier without taking the approval of the Board of Directors and as for such illegality, Vigilance Department of the State seized all the records and during the proceeding the dues have been paid as the Respondent-Claimant has not put forth any material about the alleged differential amount claimed, the award granting the differential amount suffers from the vice of patent illegality. It was next submitted that there being no provision for granting interest in the MOU, the contract having been terminated for the Vigilance case and as the same cannot be said to be illegal, the award of interest for the alleged delayed amount is patently illegal. It was submitted that the learned Court in ARBA No.25 of 2019 Page 11 of 33 seisin of the proceeding under section 34 of the A & C Act has not even answered the first point. 10. Mr. N. K. Sahu, learned Senior Counsel for the Respondent-Claimant placing reliance upon the decision of the Hon’ble Apex Court in case of S.P Samudram -v- State of Karnataka and another (2024) SCC online SC 19, at the outset placed before this court, the scope of interference by the Court in seisin of an Appeal under section 37 of the A & C Act against an order disposing an application under section 34 of the Act in refusing to set aside the award of the learned Arbitrator. Next proceeding to counter the submission of the learned Senior Counsel for the Appellant-Corporation, he contended that on each head of the claim, learned Arbitrator has discussed the available evidence in detail and having appreciated the same in the backdrop of the rival case. Drawing the attention of this Court to the reasons given by the learned Arbitrator by deciding each of the issues, he contended that under the circumstance, this Court is precluded from undertaking an independent assessment of the merits of the award by reappreciation of the evidence and it should remain confined only to the ascertainment in exercise of the power under A & C Act and within the scope of the said provisions. He contended that the award of cost ARBA No.25 of 2019 Page 12 of 33 has been affirmed by the learned Court in seisin of the proceeding under section 34 of the A & C Act by giving reason and therefore the same is not liable to be interfered with in this Appeal. 11. Heaving heard the learned counsel for the parties at length and giving my anxious and thoughtful consideration over the same, the following points for determination have been identified for being answered:- Issues for consideration: - (1) What is the scope of this Court’s power under section 37 of the A & C Act and whether the arbitral award is in contravention of the fundamental policy of Indian law, as in the given case contrary to the provision laid down in the Indian Limitation Act, 1963? (2) Whether the findings of the Arbitrator are based on no evidence and as such the same are perverse and thus the award suffers from the vice of patent illegality? (3) Whether the learned Court in seisin of the proceeding under section 34 of the A & C Act is right in simply reducing the rate of interest pendente lite and future and accepting the award as regards imposition of exorbitant cost of Rs.30 lacs? ARBA No.25 of 2019 Page 13 of 33 12. ISSUE A: WHAT IS THE SCOPE OF THIS COURTS POWER UNDER SECTION 37 OF THE A &C ACT 1. In the present case, we are only concerned with Section 37(1)(c) which states that an appeal lies under Section 37 from an order setting aside or refusing to set aside an arbitral award under Section 34 of the A& C Act. 2. We may note that the law laid down by the Supreme Court constricts the supervisory role of the courts while testing the validity of an Arbitration Award. In the case of Mcdermott International Inc. v. Burn Standard Co. Ltd. (2006) 11 SCC 181, the Supreme Court has held as under:— “The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the Ld. Arbitral Tribunals, violation of natural justice, etc. The court cannot correct errors of the Ld. Arbitral Tribunals. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, the scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the ARBA No.25 of 2019 Page 14 of 33 court's jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it.” 13. It is now a settled position that while exercising a power under Section 34 of the A & C Act, the arbitral award can only be confirmed or set aside, but not modified. To buttress the said position of law, reliance is placed on the decision of the Supreme Court’s recent judgment and order in NHAI v. M. Hakeem (2021) SCC Online SC 473, wherein the Supreme Court held that: “16. What is important to note is that, far from Section 34 being in the nature of an appellate provision, it provides only for setting aside awards on very limited grounds, such grounds being contained in sub-sections (2) and (3) of Section 34. Secondly, as the marginal note of Section 34 indicates, “recourse” to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-sections (2) and (3). “Recourse” is defined by P. Ramanatha Aiyar's Advanced Law Lexicon (3rd Edn.) as the enforcement or method of enforcing a right. Where the right is itself truncated, enforcement of such truncated right can also be only limited in nature. What is clear from a reading of the said provisions is that, given the limited grounds of ARBA No.25 of 2019 Page 15 of 33 challenge under sub-sections (2) and (3), an application can only be made to set aside an award. This becomes even clearer when we see sub-section (4) under which, on receipt of an application under sub- section (1) of Section 34, the court may adjourn the Section 34 proceedings and give the Arbitral Tribunal an opportunity to resume the arbitral proceedings or take such action as will eliminate the grounds for setting aside the arbitral award. Here again, it is important to note that it is the opinion of the Arbitral Tribunal which counts in order to eliminate the grounds for setting aside the award, which may be indicated by the court hearing the Section 34 application. xxx 31. Thus, there can be no doubt that given the law laid down by this Court, Section 34 of the Arbitration Act, 1996 cannot be held to include within it a power to modify an award. The sheet anchor of the argument of the respondents is the judgment of the learned Single Judge in Gayatri Balaswamy [Gayatri Balaswamy v. ISG Novasoft Technologies Ltd., 2014 SCC OnLine Mad 6568 : (2015) 1 Mad LJ 5] . This matter arose out of a claim for damages by an ARBA No.25 of 2019 Page 16 of 33 employee on account of sexual harassment at the workplace. The learned Single Judge referred to the power to modify or correct an award under Section 15 of the Arbitration Act, 1940 in para 29 of the judgment. Thereafter, a number of judgments of this Court were referred to in which awards were modified by this Court, presumably under the powers of this Court under Article 142 of the Constitution of India. In para 34, the learned Single Judge referred to para 52 in McDermott case [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] and then concluded that since the observations made in the said para were not given in answer to a pointed question as to whether the court had the power under Section 34 to modify or vary an award, this judgment cannot be said to have settled the answer to the question raised finally. xxx 42. It can therefore be said that this question has now been settled finally by at least 3 decisions [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] , [Kinnari Mullick v. Ghanshyam Das Damani, (2018) 11 SCC 328 : (2018) 5 SCC (Civ) 106] , [Dakshin Haryana Bijli ARBA No.25 of 2019 Page 17 of 33 Vitran Nigam Ltd. v. Navigant Technologies (P) Ltd., (2021) 7 SCC 657] of this Court. Even otherwise, to state that the judicial trend appears to favour an interpretation that would read into Section 34 a power to modify, revise or vary the award would be to ignore the previous law contained in the 1940 Act; as also to ignore the fact that the 1996 Act was enacted based on the Uncitral Model Law on International Commercial Arbitration, 1985 which, as has been pointed out in Redfern and Hunter on International Arbitration, makes it clear that, given the limited judicial interference on extremely limited grounds not dealing with the merits of an award, the “limited remedy” under Section 34 is coterminous with the “limited right”, namely, either to set aside an award or remand the matter under the circumstances mentioned in Section 34 of the Arbitration Act, 1996. Xxx 48. Quite obviously if one were to include the power to modify an award in Section 34, one would be crossing the Lakshman Rekha and doing what, according to the justice of a case, ought to be done. In interpreting a statutory provision, a Judge must put himself in the shoes of Parliament and then ask whether Parliament intended this result. Parliament ARBA No.25 of 2019 Page 18 of 33 very clearly intended that no power of modification of an award exists in Section 34 of the Arbitration Act, 1996. It is only for Parliament to amend the aforesaid provision in the light of the experience of the courts in the working of the Arbitration Act, 1996, and bring it in line with other legislations the world over.” Further, the Supreme Court also re-iterated the above position in National Highway Authority of India vs. Sri P.Nagaraju @ Cheluvaiah & Anr as under: “26. Under the scheme of the Act 1996 it would not be permissible to modify the award passed by the learned Arbitrator to enhance or reduce the compensation based on the material available on record in proceeding emanating from Section 34 of the Act, 1996…” 14. It is thus amply clear that the extent of judicial scrutiny under Section 34 of the A & C Act is limited and the scope of interference is narrow. Under Section 37, the extent of judicial scrutiny and scope of interference is further narrower still. An appeal under Section 37 is akin to a second appeal, the first appeal being by way of objections under Section 34. Where there are concurrent findings of facts and law, first by the Learned Arbitral Tribunal which are then confirmed by the court while dealing with objections under Section 34, in an ARBA No.25 of 2019 Page 19 of 33 appeal under Section 37, the Appellate Court should be very cautious and loathe to interfere in the findings returned in the award by the Arbitral Tribunal and confirmed by the court under Section 34. As laid down by the Apex Court, the supervisory role of the court in arbitration proceedings has been kept at a minimal level and this is so because, the parties to the agreement make a conscious decision to exclude the court’s jurisdiction by opting for arbitration as the parties prefer the expediency and finality offered by it. 15. Further, the Supreme Court in the case of UHL Power Co. Ltd. v. State of H.P. (2022) SCC Online SC 19, recently held as follows: “16. As it is, the jurisdiction conferred on courts under Section 34 of the Arbitration Act is fairly narrow, when it comes to the scope of an appeal under Section 37 of the Arbitration Act, the jurisdiction of an appellate court in examining an order, setting aside or refusing to set aside an award, is all the more circumscribed. In MMTC Ltd. v. Vedanta Ltd. [MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163 : (2019) 2 SCC (Civ) 293] , the reasons for vesting such a limited jurisdiction on the High Court in exercise of powers under Section 34 of the Arbitration Act have ARBA No.25 of 2019 Page 20 of 33 been explained in the following words : (SCC pp. 166- 67, para 11) “11. As far as Section 34 is concerned, the position is wellsettled by now that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited ground provided under Section 34(2)(b)(ii) i.e. if the award is against the public policy of India. As per the legal position clarified through decisions of this Court prior to the amendments to the 1996 Act in 2015, a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice or morality, and the existence of patent illegality in the arbitral award. Additionally, the concept of the “fundamental policy of Indian law” would cover compliance with statutes and judicial precedents, adopting a judicial approach, compliance with the principles of natural justice, and Wednesbury [Associated Provincial Picture Houses Ltd. v. Wednesbury Corpn., (1948) 1 KB 223 (CA)] reasonableness. Furthermore, “patent illegality” itself has been held to mean contravention of the substantive law of India, contravention of the 1996 Act, and contravention of the terms of the contract.” ARBA No.25 of 2019 Page 21 of 33 16. A similar view, as stated above, has been taken by the Supreme Court in K. Sugumar v. Hindustan Petroleum Corpn. Ltd.(2020) 12 SCC 539, wherein it has been observed as follows:- “2. The contours of the power of the Court under Section 34 of the Act are too well established to require any reiteration. Even a bare reading of Section 34 of the Act indicates the highly constricted power of the civil court to interfere with an arbitral award. The reason for this is obvious. When parties have chosen to avail an alternate mechanism for dispute resolution, they must be left to reconcile themselves to the wisdom of the decision of the arbitrator and the role of the court should be restricted to the bare minimum. Interference will be justified only in cases of commission of misconduct by the arbitrator which can find manifestation in different forms including exercise of legal perversity by the arbitrator.” 17. In the same vein, the Supreme Court in the case of Haryana Tourism Ltd. v. Kandhari Beverages Ltd.(2022)3 SCC 237 has held as follows: “9. As per settled position of law laid down by this Court in a catena of decisions, an award can be set aside ARBA No.25 of 2019 Page 22 of 33 only if the award is against the public policy of India. The award can be set aside under Sections 34/37 of the Arbitration Act, if the award is found to be 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. None of the aforesaid exceptions shall be applicable to the facts of the case on hand. The High Court has entered into the merits of the claim and has decided the appeal under Section 37 of the Arbitration Act as if the High Court was deciding the appeal against the judgment and decree passed by the learned trial court. Thus, the High Court has exercised the jurisdiction not vested in it under Section 37 of the Arbitration Act. The impugned judgment and order [Kandhari Beverages Ltd. v. Haryana Tourism Ltd., 2018 SCC OnLine P&H 3233] passed by the High Court is hence not sustainable.” 18. More recently, the Supreme Court affirmed the above legal position in the case of Punjab State Civil Supplies Corporation Ltd. v. Ramesh Kumar and Company (2021) SCC Online SC 1056. 19. In the light of the of the parameters as laid down above vis-à-vis the scope of judicial intervention that the present Appeal in view of the judgment passed by the learned District ARBA No.25 of 2019 Page 23 of 33 Judge in Arbitration Case No.32 of 2017 arising out of the arbitration award dated 05.06.2017 passed by the learned Arbitrator has to be addressed. 20. The position of law is no more res integra that a finding recorded by the learned Arbitrator which is not based on any evidence so as to be substantiated the said finding is perverse and as such is liable to be set aside being under the sufferance of vice of patent illegality can only be gone into for reappraisal and appropriate finding based on that. It has been held in case of Associate Builders (supra) as under:- xxx xxx xxx xxx 31. The third juristic principle 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 where: (i) a finding is based on no evidence, or (ii) an Arbitral Tribunal takes into account something irrelevant to the decision which it arrives at: or (iii) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse. 32. A good working test of perversity is contained in two judgments. In Excise and Taxation Officer-cum- ARBA No.25 of 2019 Page 24 of 33 Assessing Authority v. Gopi Nath & Sons, it was held: (SCC p. 317, para 7) “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.” 21. In Kuldeep Singh v. Commr. of Police, it was held: (SCC p.14, para 10) “10. A broad distinction has, therefore, to be maintained between the decision 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.” 33. 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 ARBA No.25 of 2019 Page 25 of 33 arbitrator on fact 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. 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., this Court held: (SCC pp. 601-02, para 21). “21. A Court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or reappreciation 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 nonmember, had no jurisdiction to decide a claim against another member. ARBA No.25 of 2019 Page 26 of 33 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 re-examine the facts to find out whether a different decision can be arrived at.” 34. It is with this very important caveat that the two fundamental principles which from 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.” 22. In a very recent case of Reliance Infrastructure Ltd. (supra) reiterating the principles laid down in case of SSANGYONG ENGINEERING & CONSTRUCTION CO. LTD. (supra) and Delhi Airport Metro Express Private Ltd. Vrs. Delhi Metro Rail Corporation Ltd., (2022) 1 SCC 131, it has been held that – “patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the Arbitral Tribunal would not fall within the expression “patent illegality”. Likewise, erroneous application of law cannot be categorized as patent illegality. In addition, contravention of law not ARBA No.25 of 2019 Page 27 of 33 linked to public policy or public interest is beyond the scope of the expression “patent illegality”. What is prohibited is for Courts to reapprecaition evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as Courts do not sit in appeal against the arbitral award. The permissible grounds for interference with a domestic award under Section 34(2-A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one, or interprets a clause in the contract in such a manner which no fair-minded or reasonable person should, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression “patent illegality”. ARBA No.25 of 2019 Page 28 of 33 23. In Ssangyong Engineering and Construction Company Ltd. (Supra) the position held is that although the decision which is perverse is no long a ground for challenge under public policy of India which certainly amount to a patent illegality appearing on the face of the award. Thus a finding based on no evidence at all and the award which ignores vital evidence in arriving at its decision which is perverse and liable to be set aside on the ground of patent illegality. In case of Dyena Technologies Pvt. Ltd. (Supra) whether the award was without any reason and the learned Arbitrator had merely restated the contentions of the parties without appropriate consideration of the complicity of the issues involved therein, the award was held to be unintelligible and thus liable to be set aside. In case of State of Rajasthan (Supra) where the Arbitrator had simply awarded the amount as claimed in the claim statement merely basing upon the same without anything more, it was held to be invalid being wholly illegal and beyond the jurisdiction of the learned Arbitrator. 24. It is now, therefore, the rival contention as regards the award under challenge before us stands for being addressed in the touchstone of the afore-stated legal principles. 25. On perusal of the award, it is seen that the learned Arbitrator while deciding the issue no.1 has taken into account the relevant evidence let in by the parties, the ARBA No.25 of 2019 Page 29 of 33 Appellant-Corporation does not dispute their liability to pay the cost of the seeds received from the State of Jharkhand and West Bengal less by 3% as commission and refund of the security deposit. In fact, as per the decision taken in the 144th Board Meeting the seed cost dues of the Respondent-Claimant to the tune of Rs.3,33,93,412/- has been paid and it is the total cost of the seed supplied by the Respondent-Claimant is Rs.3,54,48,744/- A sum of Rs.1,00,000.00 was deposited by the Respondent-Claimant towards EMI. Therefore, deducting 3% of the total cost of the seed towards commission and the amount already paid, the award on the head of the claim for Rs.10,91,870/- cannot be said to be having no base of evidence to stand upon. The Respondent-Claimant had claimed interest for delayed payment of cost of the seed and refund of security deposit/EMI. As it appears from the award, the learned Arbitrator having carefully gone through the materials has held the entitlement of the Respondent-Claimant to receive interest @ 21% on Claim No.2 and 7 has laid down the chart as under:- “A. Interest for delayed payment of seed cost received by the Respondent. Date of Receipt of Payment Amount Received Interest Rate Effective date Interest claimed up-to period Interest delayed payment A) Wheat & Field Pea to Jharkhand 20.11.2013 28,05,000/- 21% 21.11.2013 28.01.2016 800 12,91,068/- ARBA No.25 of 2019 Page 30 of 33 31.11.2013 01.04.2014 02.04.2014 05.04.2014 15.04.2014 16.05.2014 03.06.2014 21% 21% 21% 21% 21% 21% 21% 78,59,500/- 37,96,863/- 12,78,750/- 14,30,000/- 15,62,000/- 5,50,000/- 10,22,037/- 2,03,04,150/- 30.12.2013 31.03.2014 01.04.2014 0404.2014 14.04.2014 15.05.2014 02.06.2014 TOTAL Paddy to West Bengal, State Seeds Corporation 26.05.2014 07.01.2015 16.12.2015 TOTAL GRAND TOTAL (A+B) 46,69,440/- 72,94,080/- 15,13,803/- 1,34,77,323/- 3,37,81,473/- 27.05.2014 08.01.2015 17.12.2015 21% 21% 21% 28.01.2016 28.01.2016 28.01.2016 28.01.2016 28.01.2016 28.01.2016 28.01.2016 28.01.2016 28.01.2016 28.01.2016 760 668 667 664 654 618 606 612 386 43 34,36,647/- 14,59,244/- 4,90,725/- 5,46,299/- 5,87,946/- 1,95,559/- 3,56,341/- 83,63,829/- 16,44,155/- 16,19,885 /- 37,451/- 33,01,491/- 1,16,653/- B. Interest @ 21 % per annum on award amount under claim No.1, i.e., Rs.10.91,870/- from 21.08.2014 till the date of award.” 26. Reasons having been provided by the learned Arbitrator in support of the said award of interest at this stage of an Appeal under section 37 of the A & C Act it is not permissible in the eye of law to set aside the same in totally denying that as it does not seem to be wholly baseless. However, it is found that the learned Arbitrator while awarding interest over the claim under Item No.1, 2 and 7 till award, has not assigned any such reason for fixing the rate of interest @ 21 %. In the above state of affair, this Court finds that the rate of interest @ 9% would in the facts and circumstances be just and proper and reasonable. ARBA No.25 of 2019 Page 31 of 33 27. Now coming to the Claim Item No.4 towards loss of profit due to non-performance of the contract; the claim appears to be based on the fact that the Appellant-Corporation thereby for such non-release of the seed costs has deprived the Claimant the opportunity to invest the same and earn profit on the contrary the Appellant-Corporation had the opportunity to utilize the amount. The learned Arbitrator having held the termination of the MOU to be illegal which is supported by good reasons has held the Respondent-Claimant as entitled to compensation towards loss of profit. But then while going to say that 15% of the seed cost would be reasonable towards loss of profit due to premature termination of agreement; in again granting the claim Item No.4, no such evidence is found to have been relied upon. So having made just a guesstimation, the view that 15% would be reasonable suffers from the vice of patent illegality and that under the facts and circumstances should have been pegged at i.e., 9% and not beyond. Having awarded that amount towards loss of profit, the learned Arbitrator again under Claim No.5 has awarded damage for illegal termination of contract; the same clearly suffers from the vice of patent illegality. Similarly, in the absence of any evidence regarding the expenditure being met by the Respondent-Claimant in ARBA No.25 of 2019 Page 32 of 33 proceedings other than the arbitral proceeding, the award on that head (Claim Item No.6) is liable to be interfered with being backed by no evidence at all. That apart the future interest @ 24% as has been awarded by the learned Arbitrator is without any foundation and disproportionately high which ought to have been reasonably fixed at 12% per annum and that is so done. 28. The learned District Judge while deciding the application under section 34 of the A & C Act having not bestowed due attention on all the aforesaid, the judgment impugned in this Appeal is liable to be interfered to the extent as indicated above and so also the award under challenge in that proceeding. 29. Accordingly, the Appeal stands disposed of. No order as to cost. (D. Dash), Judge. Himansu Signature Not Verified Digitally Signed Signed by: HIMANSU SEKHAR DASH Reason: Authentication Location: OHC Date: 04-Jul-2024 19:01:16 ARBA No.25 of 2019 Page 33 of 33