@JUDGMENTTAG-ORDER
M. Thanikachalam, J.@mdashThe petitioners, who suffered an award in the hands of the Arbitrator, appointed by this Court, have filed this petition to set aside the same u/s 34 of the Arbitration and Conciliation Act, 1996. The parties herein are referred as per the ranking in this petition.
2. The brief facts leading to the appointment of the Arbitrator, passing of the award, followed by this petition are as follows:
(a) The respondent herein was carrying on cotton business (ginning and pressing), procuring cotton from small and marginal farmers in and around Guntur District. The cotton procured were ginned and pressed into bales and supplied to various spinning mills not only in the State of Andhra Pradesh, but also in Tamil Nadu. At the request of the fourth petitioner, the respondent had supplied cotton to their utmost satisfaction from the year 1995. However, there was no prompt payment by the 4th petitioner and upto 1.7.1996, there was an arrears of Rs. 30 lakhs.
(b) At the instance of the Government of Tamil Nadu, to settle the dues, after discussion on 23.12.1997, guidelines were framed and the respondent opted the second guideline/option and thereafter, continued to supply cotton. As per the account maintained and as admitted by the 4th petitioner, the total amount due including the arrears upto September 2000 is Rs. 140 lakhs. The 4th petitioner, though settled the amounts payable in June, July and August 2000, has failed to honour his commitment to pay Rs. 35 lakhs in September, thereby leaving the balance of Rs. 55 lakhs. Thus complaining, the respondent herein filed W.P.No.6898 of 2001 on the file of this Court against the petitioners arraying them as respondents under Article 226 of the Constitution of India, seeking direction to the petitioners herein to pay Rs. 55 lakhs, which was opposed by the petitioners.
(c) On 6.8.2001, this Court considering the guidelines formulated by the Government of Tamil Nadu as well as the above option exercised by the respondent herein, disposed of the writ petition recording the stand of the 4th petitioner herein, since they agreed to implement the undertaking without any reservation.
(d) The respondent herein aggrieved by the dismissal of W.P. preferred W.A.No.1642 of 2001, wherein he had also sought for interim direction to the 4th petitioner herein to pay a sum of Rs. 50 lakhs pending disposal of the writ appeal. A Division Bench of this Court as per the order dated 22.1.2002, directed the 4th petitioner to pay Rs. 25 lakhs within six weeks, of course without prejudice to the contention. The above said order came to be modified on 25.4.2002, which reads:
We have heard both the learned counsel. Having regard to the fact that summer vacation is fast approaching and the liability being not disputed and only hardship is projected that some more time is needed for liquidating the immovable assets enabling payment of Rs. 52,00,000/- among the eligible persons, pending further orders respondents 1 to 3 shall forthwith release an amount of Rs. 4,00,000/- (Rupees Four Lakhs only) enabling the fourth respondent to pay the said amount by a crossed demand draft in favour of the petitioner/appellant herein, who in turn shall disburse the said amount to the farmers who had supplied the cotton. This order shall be complied with by 10.5.2002. Post the matter after vacation.
(e) The 4th petitioner, aggrieved by the direction, approached the Hon''ble Supreme Court. The Hon''ble Supreme Court considering the nature of the dispute and other attending circumstances, maintaining the interim order passed, directed this Court to dispose of the matter as expeditiously as possible, but not later than three months from the date of order.
(f) Thereafter, pursuant to the direction given by the Hon''ble Supreme Court, the First Division Bench of this Court disposed of the appeal, referring the matter to arbitration, appointing one Mr. Vedantam Srinivasan, Advocate as Arbitrator. The said order dated 4.1.2005 reached its finality, since not challenged.
(g) The Arbitrator, appointed by the first Division Bench of this Court, after giving notice to the parties adopting certain procedure, then going through the materials, took up the matter for decision. Before the Arbitrator, claim statement was made by the respondent supported by bills, audited account, etc. On behalf of the petitioners, who were respondents in the arbitration proceedings No. 1 of 2005 have filed only counter and it appears they have not produced any account.
(h) The learned Arbitrator, by going through the materials, taking into account the admitted position as well as the admitted claim, in addition to the proved claim, has passed an award directing the petitioners jointly and severally to pay a sum of Rs. 2,31,27,382.48 with pendente lite interest at 18% per annum from the date of the claim till the date of the Award. As seen from the Award, the amount payable by the petitioners for the cotton purchased was only a sum of Rs. 58,35,278.00 for which the interest is calculated at 24% per annum and the total amount was arrived at, as said above, is Rs. 2,31,27,382.48, which caused grievance to the petitioners and the result is this petition challenging the Award seeking relief of setting aside the same invoking Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter called the Act).
3. Heard the learned Additional Advocate General, Mr. A.L. Somayaji appearing for the petitioners and the learned senior counsel Mr. R. Thiayagarajan appearing for the respondent.
4. Mr. A.L. Somayaji, the learned Additional Advocate General would contend that the award is liable to be set aside on the following grounds:
(i) that while filing the writ petition, the respondent had claimed only Rs. 55 lakhs and not more and this being the position, the Award passed for Rs. 2,31,27,382.48 is against the claim;
(ii) that there is no arbitration agreement as contemplated u/s 7 of the Act and in this view, the very appointment of the Arbitrator itself is invalid;
(iii) that when the Government has not given any guarantee for the payment, the Award would say that the Government is also jointly and severally liable to pay the Award amount, which is erroneous;
(iv) that on the part of the Government, there is no legal liability or obligation;
(v) that even assuming there is liability, the respondent is not entitled to claim interest which forms the major portion of the award, liable to be set aside and
(vi) that without assigning any reasons, cost also awarded.
5. The learned Additional Advocate General elaborating the above points, taking me through the pleadings, as well as the guidelines formulated at the instance of the Government including certain provisions of the Tamil Nadu Co-operative Societies Act, 1963 would further contend, that the learned Arbitrator, without considering the above facts even without jurisdiction, passed an exorbitant and unconscionable Award, which is liable to be set aside not only on the basis of the above grounds, but also the arbitral award is in conflict with public policy as well as the same is patently illegal, thereby coming within the four walls of Section 34 of the Act.
6. In response to the above submissions Mr. R. Thyagarajan, the learned senior counsel appearing for the respondent would submit, that as far as the liability is concerned, the same is not in dispute and in this view, there could be no quarrel in the amount arrived at by the arbitrator, that not only on the basis of the invoice, but also on the basis of the trade and usage, for the non payment of the amount for the purchase of the cotton within the stipulated time, the respondent is entitled to interest, which was granted by the Arbitrator and it cannot labeled as illegal, that a well reasoned award cannot be questioned in view of the fact, the Court is not sitting u/s 34 of the Act as an appellate authority and that in view of the admitted legal position the Court cannot also substitute its decision assuming there is any possibility of taking any other possible view. In support of the above contentions, the learned senior counsel inviting my attention to various decisions of the Apex Court, as well as other courts, and the previous litigation between the parties, as well the observations therein, would contend that the claim of the petitioners failed to attract the ingredients of Section 34 of the Act, which should follow setting aside of the award does not arise for consideration.
7. Before stepping into the dispute or the grounds raised before me, to set aside the award, first let me take the second point urged viz., since there is no arbitration agreement, the appointment of arbitrator itself is invalid. Though this point was urged at the first instance by the learned Additional Advocate General, it was not taken to the end for its success, probably realising the effect of the order passed by the First Division Bench, which had reached the finality. It is not necessary always, to refer the dispute to arbitration, that there must be an agreement between the parties. At any stage of the litigation, the parties to the lis could choose the arbitrator, requesting the Court to refer the same for arbitration, to solve the dispute between the parties and if at all, the reference must be clear. There is nothing wrong in appointing an arbitrator, by the Court with the consent of the parties, aiming amicable solution.
8. In Section 7 of the Act, the arbitration agreement contemplated is an agreement by the parties to submit to arbitration all or certain disputes, which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. Sub-section 2 of Section 7 of the Act contemplates the arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. Admittedly, in the case on hand, there is no arbitration agreement. Therefore, Chapter 2 of the Act will not come into operation at the most. As said above, even in the absence of an arbitration agreement in writing, the jurisdiction of the Court to appoint an arbitrator that too, by the consent of the parties, is not taken away by any specific provisions of the Act. In this case, as narrated above, when the dispute was pending before the first Division Bench of this Court, considering the plight of the farmers, as well as the grievance of the Mills in addition to the controversy about the payment due to the respondent, a decision was taken that the controversy should be solved by appointment of an Arbitrator. Thus, the First Division Bench in W.A.No.1642/2001 has observed,
We would ordinarily relegate the petitioners to the alternative remedy of filing a civil suit, but since the matter has been pending very long and since it is alleged that large number of farmers of Andhra Pradesh and Tamil Nadu are affected, we are of the opinion that the controversy about how much is due to whom and by whom, should be decided by an Arbitrator.
(emphasis supplied)
Thus concluding, an Arbitrator was appointed by the consent of the parties and the relevant portion of the order reads:
With the consent of the parties, we appoint Mr. Vedantam Srinivasan, learned Advocate, as Arbitrator in this case. The parties shall appear before him on the date convenient to him and make their claim statements and he is requested to decide the controversy expeditiously. The Arbitrator''s fees will be fixed as decided upon by the parties. The matter is adjourned till the receipt of the report from Mr. Vedantam Srinivasan. The respondent shall make payment in accordance with the decision of the Arbitrator within a month of that decision.
As said above, this order reached finality. The above order would disclose undoubtedly, not challenged, that the Arbitrator was appointed only with the consent of the parties. Therefore, it is not open to the petitioners to contend that there was no arbitration agreement between the parties and in view of the same, the appointment of arbitrator itself is invalid. The reference is also very clear since it is stated "that the controversy about how much is due, to whom and by whom, should be decided by the Arbitrator". Thus the Arbitrator, who was appointed by the First Division Bench of this Court with consent, was directed to decide what is the amount due to the respondent, to whom it should be paid and by whom. In this view, if the arbitrator has not exceeded the terms of the arbitration, then it cannot be said that he had exceeded his jurisdiction or the arbitral procedure was not in accordance with the agreement of the parties, which I shall discuss infra also. For the above said reasons, I should say empathetically, that the second point urged deserves out right rejection, thereby rejected.
9. When the respondent approached this Court invoking the jurisdiction under Article 226 of the Constitution of India in W.P.No.6898/2001, as seen from the affidavit, he has claimed a sum of Rs. 55 lakhs as if due to him. On the basis of the above claim, the learned Additional Advocate General would contend that the respondent, having claimed lesser amount before this Court, is not entitled to the award amount. It is the further submission of the learned Additional Advocate General that the respondent is estopped not only by pleading, but also by conduct from claiming more amount including interest. In the above submission, considering the reference as well as the very purpose of appointment of an arbitrator by this Court, I find no substance at all. The respondent has not waived his right to claim any interest, which could be seen from the affidavit filed by him in W.A.M.P.No.1675/2002 in W.A.M.P.No.19380 of 2001 in W.A.No.1642 of 2001. In the affidavit, the respondent herein has stated "the appellant is also entitled to interest for the delay in payment as per the contract", whether the claim of the respondent in the writ petition includes interest or not, what is the amount due to him or in other words what is the amount payable by the petitioners was in dispute. Therefore, while appointing the Arbitrator, the First Division Bench has observed that the Arbitrator has to decide "how much is due, to whom and by whom". This would include interest also. Therefore, the submission of the learned Additional Advocate General for the petitioners, that the passing of the Award of Rs. 2,31,27,382.48 by the Arbitrator prima facie appears to be unsustainable, when the respondent himself had claimed only Rs. 55 lakhs in the writ petition, deserves rejection. As far as the interest is concerned, I will deal it separately hereunder.
10. It is an admitted position that the 4th petitioner Co-operative Spinning Mill has been declared as a relief undertaking by the Government of Tamil Nadu under the provisions of Section 3 of the Tamil Nadu Relief Undertakings (special Provisions) Act, 1969. Considering the amount payable by the Mills to the vendors, who in turn have to pay to the farmers, the Government took appropriate steps appreciably and pursuant to the same, the Director of Handlooms and Textiles called for a meeting on 31.5.1997 to discuss about the settlement of cotton dues payable by the Co-operative Spinning Mill for the cotton purchase made prior to 1.7.1996 in the chamber of Hon''ble Minister of Handloom and Textiles. Pursuant to the discussion alone, guidelines were formulated and they are:
I. (a) For the cotton dues payable to the private cotton parties for the cotton supplies made prior to 1.7.1996, only 60% of the outstanding dues will be paid. The cotton parties will forego the remaining 40% of the dues. The private cotton parties should not stake the claim for the remaining 40% in future.
(b) If the total dues of the party in a mill is less than Rs. 1.00 lakh, 60% of the total dues will be repaid in 3 equal instalments before 31.3.1999. The first instalment will be paid before 30.9.1998.
II. If the private cotton parties do not agree for the guidelines given at (I) above, the cotton parties may supply cotton and claim 10% of fresh cotton supplies in addition to full value for the present cotton supplies. The 10% extra given will be adjusted to the old outstanding dues.
The cotton merchants and cotton suppliers were given option to exercise any one of the above options and admittedly, the respondent herein opted the second option or guideline. On the basis of the option exercised by the respondent, the amount payable to the respondent is admitted by the 4th petitioner as Rs. 170 lakhs as per the communication dated 26.5.2000, which includes dues prior to 1.7.96 and current cotton dues Rs. 140 lakhs totaling Rs. 170 lakhs, not in dispute. But for the above assurance given by the Government, the cotton merchants and cotton suppliers would not have exercised the above option. Therefore, it may not be proper on the part of petitioners 1 to 3 now to contend that the Government has not given any guarantee or assurance, further urging that there is no legal liability or obligation upon them and therefore, they are not answerable to the award and if at all, the 4th petitioner alone is liable to pay the amount.
11. Admittedly, when there was a discussion in the presence of the Hon''ble Minister for Handloom and Textiles to solve the problems of the Mills as well as to alleviate the sufferings of the farmers, the Government alone had formulated the guidelines. Pursuant to the guidelines, as submitted by the learned Senior Counsel, Mr. R. Thiagarajan, G.Os. were also issued for payment, though it is sought to be labeled by the learned additional Advocate General as loan given to the 4th petitioner; only from the said amounts alone, dues were discharged to certain extent, thereby indicating Government also stepped into the shoes of the 4th petitioner, thereby impliedly guarantying the payment to the cotton merchants also, though there is no written undertaking to indemnify the respondent. As observed by a Division Bench of Andhra Pradesh High Court in
In order to decide that question, it must be remembered that the law does not require a contract of guarantee to be necessarily in writing. It may be either oral or in writing. It may be express or it may even be implied. It might be even inferred from the course of conduct of the parties concerned. It is, however, to be borne in mind that whatever may be the form of the contract, it must be satisfactorily proved and that it must have consideration. Like any other contract, a contract of guarantee must be supported by consideration. It is, however, not necessary that the consideration should flow from the creditor and be received by the surety. Consideration between the creditor and the principal debtor is a valid and good consideration for the guarantee given by the surety.
12. In the case on hand, as rightly observed by the learned Arbitrator, there is an implied guarantee for the payment due to the cotton merchants. Because of this reason alone, admittedly a sum of Rs. 4 lakhs was paid as per the order of this Court, and as pointed out G.Os. were also issued. Therefore, on the ground that the Government cannot be mulcted with liability or there is no legal liability or obligation on the part of the Government, they cannot disown their responsibility and liability, which in my considered opinion they have impliedly agreed not only while formulating the guidelines, but also at later point of time, by their conduct. Section 64 of the Tamil Nadu Co-operative Societies Act, 1983 also fixes the liability upon the Government in respect of dues payable by the registered societies, which is also considered by the Arbitrator. In the light of the above discussion, grounds 3 & 4 urged on behalf of the petitioners also failed to inspire me to set aside the award.
13. As per the Award, interest exceeds the principal amount more than twice or so. The Arbitrator has observed that the calculation of interest is not in dispute, which is also not challenged before me, though liability to pay interest challenged. Therefore, the only question if at all, we have to consider in this case is, prima facie the grant of interest is illegal or against law, thereby bringing the Award within Section 34 of the Act.
14. Now the law is well settled that the Arbitrator, appointed with or without intervention of the Court, has power to grant interest in respect of pre reference period provided there is no stipulation or prohibition in the arbitration agreement, excluding his jurisdiction [vide Executive Eng. Dhenkanal Minor Irrigation Division v. N.C. Budharaj (2001 2 SCC 721)]. Admittedly, here there is no arbitration agreement between the parties and therefore, it is not possible to decide whether the contract contains any clause for awarding interest. As indicted above, when the First Division Bench of this Court had appointed the Arbitrator, with the consent of the parties, the purpose was to decide what is the amount payable, which should include the interest also as per the trade, usage as well as as per the invoices. All the invoices raised, while dealing the cotton, provides payment of interest after certain period, if the amount is not paid within the specified period. Therefore, unless it is shown that the claim of interest is waived, as per the invoices also, since the amounts were not paid within the stipulated time, the respondent is entitled to claim interest. It is an admitted position that in the trade, it is the usual practice of claiming interest giving exemption for certain period, if the amount is not paid within that period and on the basis of trade, usage also certainly the respondent is entitled to claim interest, which was rightly considered by the Arbitrator and granted, though it appears exorbitant, which had occasioned only due to the fault committed by the petitioner, in not honouring the commitments. The amounts are due for a long period and despite the litigation, the 4th petitioner failed to pay the amount and that is the reason for accumulation of heavy interest, for which the respondent cannot be blamed.
15. This Court, while referring the matter to arbitration by appointing an arbitrator, has not prohibited him to award interest, whereas he was directed to fix the amount due. Therefore, as ruled by the Apex Court in
Where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (along with the claim for principal amount or independently) is referred to the arbitrator, he shall have the power to award interest pendente lite. This is for the reason that in such a case it must presumed that interest was an implied term of the agreement between the parties and therefore, when the parties refer all their disputes - or refer the dispute as to interest as such - to the arbitrator, he shall have the power to award interest.
In view of the fact that the entire matter was referred to the arbitrator, to decide the amount, or fix the liability, not excluding interest, I do not find any illegality in the arbitrator''s decision in awarding interest.
16. The learned senior counsel Mr. R. Thiagarajan inviting my attention to a decision of the Apex Court in
Further the jurisdiction of the Court to interfere with the Award is confined to matters enumerated in Section 30 of the Arbitration Act. We do not think that the last point raised before us would fall within the ambit of Section 30 to interfere with the award.
thereby showing when the Award is challenged u/s 34 (new Act), this Court cannot decide whether the interest granted by the Arbitrator is within his jurisdiction or not, since it is not barred otherwise.
17. It is also held in
(1) from the stage of accrual of cause of action till filing of the arbitration proceedings,
(2) during pendency of the proceedings before arbitrator,
(3) future interest arising between date of award and date of the decree and
(4) Interest arising from date of decree till realisation of award.
thereby concluding, it is held, the direction to pay interest from the date of award cannot be faulted.
18. u/s 34 of the Act, the aggrieved party may apply to the Court, for setting aside the award on the following grounds alone viz.,
(i) in capacity of a party
(ii) invalidity of the agreement
(iii) want of proper notice
(iv) award deals with a dispute not referred to arbitration
(v) arbitral tribunal was defective in composition
(vi) subject matter of the dispute not being capable of settlement by arbitration under law for the time being in force and
(vii) arbitral award being in conflict with public policy.
Thus it is seen, on the ground that the arbitrator has awarded interest from the period of default, an award cannot be challenged and set aside in view of the admitted position, that the arbitrator is competent to award interest, as repeatedly held by various courts including the Apex Court.
19. In a recent decision rendered in
20. Mr. A.L. Somayaji, the learned Additional Advocate General inviting my attention to a decision of the Apex Court in
21. The main thrust of the learned Additional Advocate General is that the Award is hit by Section 34(2)(a)(iv) and 34(2)(b)(ii) of the Act. Section 34 (2)(a)(iv) of the Act reads:-
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.
Section 34(2)(b)(ii) of the Act reads:
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.
22. As far as Section 34(2)(b)(ii) of the Act is concerned, on facts, the Award cannot be described as one offending the public policy as discussed above. As far as Section 34(2)(a)(iv) of the Act is concerned, it is the submission on behalf of the petitioners that the Award does contain dispute not contemplated for arbitration or beyond the scope of the submission to arbitration. In this submission also, by going through the materials, I am unable to persuade myself. At the risk of repetition, the First Division Bench of this Court has stated that the Arbitrator has to decide how much is due, which would include, whether the respondent is entitled to claim interest also, which alone was considered by the Arbitrator, which cannot be termed as one outside the jurisdiction or beyond the scope of the submission to arbitration. In the same manner, the reference also would read by whom the amount should be paid and in this view alone, the arbitrator has decided that all the petitioners are jointly and severally liable to pay, which also cannot be said as one decided without jurisdiction or beyond the scope of submission to the arbitration. Thus the grounds mainly relied on at the last stage viz., Section 34(2)(a)(iv) and Section 34(2)(b)(ii) are also not available for invalidating the arbitral award.
23. As an alternative dispute resolution system, enabling the parties to solve the dispute by appointing Arbitrator of their choice or at the intervention of the Court, the Arbitration and Conciliation Act came into force, minimizing the supervisory role of courts, in the arbitral process, thereby curtailing unnecessary controversy, making the award as far as possible binding one, which could be enforced as a decree passed by a competent court. Thus arbitration being a process resorted to speedy method of adjudication of disputes, an award passed with reasonable grounds should not be interfered with by the Court, though unreasoned award per se is bad. On the other hand a well reasoned Award should have its recognition and this position is settled by the Apex Court in
The law as it stands today is that awards without reasons are not bad per se. An award can be set aside only on the ground of misconduct or on an error of law apparent on the face of the award.
In this view of the matter, if we apply the above principle, it is evident that the Award in question is well reasoned, not containing any apparent error of law, not liable to be set aside.
24. The Arbitrator has passed a well reasoned Award considering all the points, which were projected before him for decision. It is also observed by the Arbitrator, despite several opportunities, the petitioners did not comply with the order and had been seeking adjournments and finally counter statement alone has been filed, thereby showing not even producing any other document, disputing the quantum or the rate of interest claimed etc. The procedure adopted by the arbitrator is not challenged before me. When there was no agreement, the arbitrator probably with the consent of parties has formulated the procedure and proceeded with the enquiry, in which there is no patent illegality, warranting interference by this Court, invoking Section 34 of the Act.
25. For the foregoing reasons, I am of the considered opinion that the arbitrator has not violated any of the ingredients available in Section 34 of the Act and therefore, setting aside the same is beyond the jurisdiction of this Court. Hence the petition deserves only dismissal. The petition is dismissed. No order as to costs.
