Jagmohan Singh Gujral Vs Satish Ashok Sabnis and Another

F.I. Rebello, J.@mdashThe petitioner was the respondent and respondent No. 1, was the applicant before the Arbitral Tribunal. The Arbitral proceedings commenced at the instance of respondent No. 1 by his application dated 7th December, 2000 which was received in the office of respondent No. 2 on 8th December, 2000. The case of respondent No. 1 was that, on the 1st day of settlement No. 42 i.e. on 20th October, 1999 the petitioner built up a huge position and purchased shares worth Rs. 1.91 crores. Respondent No. 1 came to know about this position on the evening of 20th October, 1999 whereupon they promptly contacted the petitioner and informed him about his huge position. The case of respondent No. 1 was that the petitioner assured respondent No. 1 that he would reduce the position first thing in the morning of Thursday. To doubly confirm the same, respondent No. 1 personally went to the camp office where he found that Mr. Nagori was sitting in front of the terminal doing trading. Respondent No. 1 impressed upon Mr. Nagori, the necessity to reduce the position immediately, or otherwise it could create problems for all, including the other clients of respondent No. 1. It is the case of respondent No. 1 that, at that time, he telephoned the petitioner asking him to reduce the position of the petitioner immediately. Whereupon, it is contended that the petitioner informed respondent No. 1 that the market would go up substantially. Inspite of that, market fell and margins with National Stock Exchange were consumed and all terminals of respondent No. 1 were deactivated. In these transactions, it is contended that the petitioner has suffered loss of about Rs. 37 lakhs. The petitioner sold out his position on 25th and 26th October. The petitioner promised respondent No. 1 to pay the balance amount as early as possible and ask for a week''s time to complete the payments. It is the case of respondent No. 1 that Mr. Nagori also asked to transfer the credit of about Rs. 5.60 lakhs standing in his account to that of the petitioner. It is contended that out of the said dues, the petitioner paid Rs. 5 lakhs by cheque on 4th November, 1999 and another Rs. 5 lakhs on 5th November, 1999. Respondent No. 1, thereafter, contacted the petitioner on phone and by letters through the office bearer. Though the petitioner promised to pay the dues, every time, he did not do so on account of his financial position. The debit balance standing in the name of petitioner was Rs. 22,61,537.80. The amount was not forthcoming. Therefore, a letter was sent on August, 2000 which the petitioner refused to acknowledge. Reference is made to a police complaint, but that is after August, 2000, as informed at the bar.

2. The petitioner filed his reply to the said complaint. The petitioner pointed out that the claim filed by respondent No. 1 was a counter blast to the application made by the petitioner with the original office of the National Stock Exchange by letter dated 3rd November, 2000. By that letter, the case of the petitioner was that respondent No. 1 was due and owing to the petitioner a sum of Rs. 12,59,180.39 ps., some shares and interest as claimed thereon. It was a specific case of the petitioner that after the end of settlement No. 41, there were no dealings with respondent No. 1. The allegations made by respondent No. 1 were denied. It was further specifically set out that Mr. Bharat Nagori never asked the applicant to transfer Rs. 5.60 lakhs to his credit to the petitioner at any point of time and/or that the petitioner had made payment of Rs. 10 lakhs as alleged by respondent No. 1. It was also specifically pleaded that the claim of respondent No. 1 was false. Respondent No. 1 never wrote any letter or sent it to the petitioner and/or the petitioner never refused to receive any letter allegedly sent by respondent No. 1. It was specifically pleaded that the application of respondent No. 1 is time barred. The petitioner, on 14th February, 2001 filed written statement-cum-counterclaim. Therein it was alleged that the dispute and the claim for counter arose for the first time when respondent No. 1 refused delivery of shares and credit for the advanced amount to respondent No. 1. In the course of proceedings, the learned Arbitrator called upon respondent No. 1 to file new application in terms of directions issued. That was done. In view of that, the petitioner filed fresh written statement-cum-counterclaim. In this, it was contended on behalf of the petitioner that the application is time barred ; there was no agreement between the petitioner and the respondents as required under the law ; the petitioner specifically denied that after 19th October, 1999 there were any dealing with respondent No. 1. The rest were reiteration of the facts already set out.

3. Both the parties relied on documents. The petitioner examined himself as also Mr. Nagori as witness. Respondent No. 1 examined himself and also filed affidavit of two witnesses in support of his case stating that Nagori was doing transactions on behalf of the petitioner herein. At this stage, it may be specifically set out that respondent No. 1 did not produce before the Arbitral Tribunal the purported letter of August, 2000 which, the respondent No. 1 contended, had been served on the petitioner. Factually, it may also be set out that no contract notes exchanged between the parties in respect of disputed transactions nor the accounts for the settlement periods, sent by respondent No. 1 to the petitioner were produced. There is also no correspondence in writing between the parties until the purported police complaint which is sometime after August, 2000. The transaction was of October, 1999. There was no documentary evidence, evidencing any transaction by the petitioner or respondent No. 2.

4. The Arbitral Tribunal, by the impugned Award dated October 10, 2001, firstly held that the claim was within limitation on the ground that the last letter from the petitioner to the respondents is dated 20th June, 2000. The application by respondent No. 1 was received in the office of respondent No. 2, i.e. National Stock Exchange of India, on 8th December, 2000 and, in these circumstances, the claim was within limitation. The Tribunal has, on the two other questions, viz. whether Mr. Nagori ordered the deals in settlement No. 42 and whether he did so as the authorised representative of the respondents, held that Mr. Nagori gave instructions at the terminal for the deals booked on account of the petitioner, and Mr. Nagori had the authority of the petitioner herein to do so. While answering the issue, the Tribunal further held that respondent No. 1 did not produce any documentary evidence in support of his contention that Mr. Nagori was authorised representative of the respondents. The learned Tribunal also referred to the affidavit of Mr. Nagori produced by the petitioner dated 16th July, 2001 wherein he denied the allegations made by Ram Sippy that he was present on the alleged day. The Tribunal then proceeded to consider the affidavits produced by two of respondent No. 1''s witnesses, who are his clients, viz. Ram T. Sippy and Vijesh Agarwal. It is their case, as set out in the order of the Tribunal, that they were present in front of the applicant''s NSE terminal when Mr. Nagori was trading through the terminal on 20th/21st October, 1999. The learned Tribunal referring to those affidavits has observed that Mr. Nagori denied that he gave orders to the terminal for trading settlement No. 42. For the purpose of record, the averments in the affidavit of Mr. Nagori in the matter of dealings are as under :

"I say that statement made in the statement of case by the applicant referring to himself having been authorized by Mr. Gujaral are wrong, untrue, and in view of the contradictory statement and fact. With reference to Mr. Ram Sippy''s affidavit that he was present on the alleged occasions and referring to the presence and talks between the applicant and respondent and Mr. Bharat Nagori are all false and concocted and they are each and every emphatically denied by him.............".

5. The Tribunal then in paragraph 4.5.5. noted the contention of the petitioner that he never authorised Mr. Nagori to act on his behalf and he was never aware of the happenings on 20th/21st October, 1995. The learned Tribunal noted that in the statement of the petitioner dated 22nd August, 2001, he pointed out that on 21st October, 1999, he was not in Pune but in Aurangabad, and produced a notarised photocopy of the relevant page in the guest register of Shiv Shakti Lodge, Sambhaji Nagar, Aurangabad, which shows that the petitioner had arrived at the Lodge on 21st October, 1999 at 5.00 a.m. and departed therefrom on 23rd October, 1999. The Tribunal also noted that it was not the case of respondent No. 1 that Mr. Nagori was present at the terminal on 21st October, 1999, but he had spoken on the phone twice, once with Mr. Sabnis and once with Mr. Nagori. Based on these two affidavits of the two witnesses, who contended that they were present when Nagori was present and the purported conversation, the learned Tribunal came to the conclusion that the petitioner was liable for the amounts, as claimed, and in respect of the delivery of shares, as contended by the petitioner, the Tribunal held that respondent No. 1 had satisfied that the shares were sold by the respondent in October and November, 1999 in settlement Nos. 42 and 45, respectively, and proceeds thereof were adjusted in bills on 26th October and 16th November, 1999. In view of that, the Award came to be passed on October 10, 2001.

6. After the Award was made, on 24th October, 2001, respondent No. 1 wrote a letter to the Arbitration department setting out that the Award in a sum of Rs. 1,35,366.50 ps. related to PSE and BSE which is receivable in Pune Stock Exchange whereas the amount of the petitioner was related to NSE and accordingly, he prayed to reduce the Award amount by the said sum. After considering the reply by the petitioner, the learned Arbitrator by letter of 7th November, 2001 rejected the relief sought by respondent No. 1 but corrected some other arithmetical and clerical mistake.

7. It is this Award which is the subject matter of the challenge before this Court. On behalf of the petitioner, considering the grounds, as set out in the petition, the learned counsel for the petitioner has formulated the grounds as under :

(i) That there was no Arbitral agreement between the petitioner and the respondents as there were no transactions for settlement Nos. 42 and 45. Once that be the case, the Award would be without jurisdiction as the claim would not be Arbitrable.

(ii) The respondent''s case was that the transactions were done by the petitioner through Mr. Nagori. The Tribunal held that the respondent had not produced any documentary evidence to show transactions between the petitioner on one hand and the respondents on the other. Even if the provisions of Indian Evidence Act were not attracted, the onus still lay on respondent No. 1 to discharge that burden. That burden had not been discharged and in those circumstances, the Award disclosed an error of law apparent on the face of record and is liable to be quashed and set aside.

(iii) The petitioner, for the first time, invoked the Arbitral clause by his application dated 7th December, 2000 received by the Stock Exchange on 8th December, 2000. The case of respondent No. 1 himself in his application was that the petitioner had sold of his position on 25th and 26th October, 1999. Even if the case of respondent was accepted that the payments were received on 4th November, 1999 and 5th November, 1999, the earliest starting point of limitation would be that period. Apart from that, the Tribunal itself has taken the limitation period as commencing on 20th June, 2000 disregarding the earlier three letters referred to in the letter of 20th June, 2000, which are dated 15th November, 1999, 24th December, 1999 and 15th March, 2000. For a party to invoke Arbitral proceedings under the NSE, it must be within six months from the date of cause of action. Clearly, the invocation was after six months and consequently, the claims were non-arbitrable and accordingly the Award is liable to be set aside.

(iv) It is lastly contended that the findings are perverse. Section 31(3) contemplates that reasons must be given for the Award and the Award based on perverse findings would amount to no reasons. Apart from that, it would be contrary to the procedure prescribed u/s 31(3) and as such it would be against the public policy in India and consequently, on that count also the Award is liable to be set aside, and lastly, the contention of respondent No. 1 himself by his subsequent conduct to amend the Award disclosed that the Arbitral Tribunal has considered the claims which are non-arbitrable and, on that count itself, the Award is liable to be set aside.

8. On the other hand, on behalf of the respondents, the learned counsel contends that the challenge as made is not challenge falling within Section 34 and on that count, the Award is not liable to be set aside. It is next contended that at the highest, the contention raised would amount to reappreciation of facts which it is not open to this Court to do. The challenge to the Award does not fall u/s 34, to appreciate the facts is for the Tribunal and, '' consequently, the Award is not liable to be set-aside. In so far as the contention of limitation is concerned, it is submitted that it was within the jurisdiction of the Arbitral Tribunal to decide the issue of limitation, and once having so decided, at the highest it is an error within jurisdiction and not an error in exercise of jurisdiction or without jurisdiction and, consequently, the Award on that count is not liable to be set aside. In so far as the refusal by Arbitral Tribunal to rectify the Award, it is contended that the claim is severable and this Court itself can rectify the Award by excluding that amount. Once this is done, the Award to that extent can be saved. For all the aforesaid reasons, it is contended that the challenge as made by the petitioner is liable to be rejected.

9. Based on the contentions, as raised, in my opinion, the following points are required to be determined :

(i) Was the claim by the petitioner beyond the prescribed period of limitation as contended by the petitioner and if so, considering the finding given by the Arbitral Tribunal, is it open to this Court to interfere with the Award u/s 34.

(ii) Was it open to the Arbitral Tribunal, after holding that there is nothing in writing that Mr. Nagori did the transaction on behalf of the petitioner on hearsay evidence to Award the claim against the petitioner. Putting it differently, did respondent No. 1 discharge the burden of proof cast on him in absence of documentary evidence, to prove that it was respondent No. 1 who was liable. Consequently, if the transactions are not proved, was it within the jurisdiction of the Arbitral Tribunal in the absence of any agreement to hold against the petitioner in absence of any Arbitral agreement and considering SEBI Regulations. If not is the Award open for interference u/s 34.

(iii) From the Award, can it be said that the findings recorded are perverse which no person reasonably instructed in law could have arrived at ; as if the findings are perverse, would that attract the ground of public policy on the ground that the Award is unreasoned Award and consequently liable to be set aside, on the ground of public policy.

10. We may now deal with the first point of limitation. A plea that the suit is barred by law of limitation, ex facie, does not constitute a ground u/s 34 of the Act of 1996 unless read into the expression ''public policy''. If that be so, can it be contended that the claim barred by limitation can be the subject matter of an Award by the Arbitral Tribunal. u/s 43 of the Act, the Limitation Act, 1963 shall apply to Arbitrations as it applies to proceedings in Court. In other words, the claims which are barred by limitation before the Courts cannot also be entertained by Arbitral Tribunal. It is now settled law that the law of limitation is grounded on the plea of public policy, viz. the stale claim cannot be entertained. Once that be the case, a plea of limitation would be a ground based on the public policy and, consequently Sections 34(2)(b)(i) would be attracted. That issue cannot be said to be an issue merely within the jurisdiction. That issue is the basis of a Tribunal exercising or assuming jurisdiction. The jurisdiction to entertain the claim is, therefore, decided. The claim is based on the fact that the claim is Arbitrable and not barred by law of limitation either special or general. Apart from the judgments earlier referred to, under the Act of 1996, this Court has been interfering with the Awards which were barred by limitation. See Poise Securities and Exchange Ltd. Vs. Mansu Investment Pvt. Ltd. and Others, , as also Geetashree Securities Pvt. Ltd. v. Option Pratibhuti and Vinimay Co. Ltd., decided on 28th October, 1999 in Arbitration Petition No. 365 of 1999, as also the judgment of the Division Bench dated 27th June, 2000 in Option Pratibhuti & Vinimay Co. Ltd. v. Geetashree Securities Pvt. Ltd. in Appeal No. 301 of 2000 in Arbitration Petition No. 365 of 1999. It may be clarified that in so far as the limitation for claims or transactions on NSE is concerned, that would be governed by the bye-laws framed by NSE and considering Section 2(4) of the Act 1996, therefore a plea of limitation under the Indian Limitation Act, 1963 or as a Special Limitation protected by Section 2(4) of the Act 1996, would give rise to a challenge u/s 34(2)(b)(ii) on the ground of violation of public policy. With that aspect, we may now examine the findings recorded by the Tribunal on that count. The Tribunal has held that the claim is within limitation, in paragraph 4.6.2 of the Award. The learned Arbitrator has referred to the various letters and held that the last one is dated 20th June, 2000. The cause of action is when the amount became first due and payable. A mere demand does not extend the period of limitation. The period of limitation can only be extended when the parties against whom the cause of action has arisen admit the liability and seek time to make payment or makes part payment, thereby admitting liability. It is only in these and similar events that the time is extended or can be said that there would be a fresh cause of action under which the starting point to counting the period of transaction would commence. There is nothing in the Award of the Arbitral Tribunal to show that the petitioner herein had admitted any amount as due and payable to respondent No. 1. On the contrary, by letter dated 20th June, 2000 and other correspondence, demands were made by the petitioner on respondent No. 1. There is no documentary evidence on record to show that respondent No. 1 disputed the contents of these letters including the letter of 20th June, 2000. The only contention raised on behalf of respondent No. 1 was that they had made the demand in August, 2000 by notice which had been refused by the petitioner herein. A demand by itself could not give rise to the cause of action. Even assuming that it could have so given, the respondents have not proved the fact that the letter dated 20th June, 2000 was sent and refused by the petitioner. There is no material whatsoever on record in the face of denial by respondent No. 1 in his pleading that no letters of communication were received and/or refused by him. It is in this background, the findings recorded on the plea of limitation will have to be examined. It can be seen in two ways. The claim of the petitioner himself was that these transactions were in respect of the settlement 42 and 45. These settlement monies became payable at the end of these settlements. The claim by respondent No. 1 in his statement of facts to the NSE was that the petitioner sold off his position on 25th and 26th October, and promised to pay the balance amount as early as possible. The contention of the petitioner herein was that after settlement No. 41, there has been no settlement by him with respondent No. 1. The settlement period was 13th October, 1999 to 19th October, 1999. At the end of that period, the amounts payable by respondent No. 1 to the petitioner was in the sum of Rs. 12,59,180.39 ps. The case of the petitioner is that thereafter to extend the margin, he had given two further payments of Rs. 5 lakhs each, one on 4th November, 1999 and another on 5th November, 1999. The 45th settlement was between the period from 10th November, 1999 to 16th November, 1999 and the arrears shown as recoverable are in a sum of Rs. 22,61,537.80 ps. Therefore, it is after this settlement period, that the amount would be due and payable. If accounts are maintained between the clients and the brokers and they would be payable at the end of financial year. If that is taken, it would be 31st March, 2000. As noted earlier, the claim by respondent No. 1 was filed on 8th December, 2000. Looking at either way that is the end of the settlement period of 45th settlement or accounting year, therefore, it would be beyond the period of six months as contemplated by the bye-laws of NSE. The finding, therefore, by the Arbitral Tribunal by relying on a later letter addressed by the petitioner to the respondents demanding amounts from the respondents and ignoring earlier letter as the commencement of cause of action, was clearly in excess of jurisdiction. That finding is based on ignoring material, and, if that be so, clearly the claim by respondent No. 1, on that count, would be barred by limitation. It must also be noted that till the so called police complaint in August 2000, there are no signed or admitted contract notes between the parties for the disputed transactions, and/or any other material by way of documents to evidence any transaction between the parties from the 45th settlement period. If it is barred by limitation, the claim of the petitioner had to be rejected on that count alone. Clearly, therefore, the entire Award on that count is liable to be quashed and set aside.

11. We then come to the next contention in so far as the finding by the Arbitral Tribunal that the transactions were done by Mr. Nagori at the instance of the petitioner herein. As we have noted earlier, the Tribunal itself, in its Award has recorded a finding that respondent No. 1 had failed to prove by documentary evidence that Nagori was authorized representative of the petitioner. The Tribunal has also recorded the finding that both, the respondent and Mr. Nagori, had independent dealings with the respondent. In the instant case, what is material only is that Mr. Nagori, according to the respondents, transacted the transactions in the account of the petitioner herein when he had his own account with the respondent. It is because of this and purported oral evidence of the two witnesses that the Tribunal has come to the conclusion that it was a liability of the petitioner herein and consequently, the Award. The petitioner had led his evidence to contend that he personally had done no transaction. That is not disputed by the respondent on that count. The claim of the respondent is based on Nagori acting on behalf of the respondent. The petitioner filed affidavit of Mr. Nagori wherein he sets out that he had not done any transaction on behalf of the petitioner herein. There was no documentary evidence showing any Contract Note Exchange which is a requirement as per the bye-laws and SEBI guidelines for doing transactions on the Stock Market. Settlement Notes produced for the period, by the respondents were not signed or admitted by the petitioner. Infact, upto the purported date of the complaint, as alleged in the case to the NSE, respondent No. 1 has not shown any documentary evidence of any demand made on the petitioner for the amounts claimed. The duplicate contract notes produced on record were not signed by the petitioner. On the contrary, the petitioner was able to prove that he had made demand on respondent No. 1 by various documents which were produced and neither the contents thereof nor the receipt of those documents has been rejected by the Arbitral Tribunal. On the contrary, the Arbitral Tribunal has accepted the letter of 20th June, 2000. That letter of 20th June, 2000 refers to the earlier correspondence of letters dated 15th November, 1999, 24th December, 1999 and 15th March, 2000. If for the 45th settlement, the petitioner was liable to the respondent, as the period of the 45th settlement was between 10th November, 1999 to 16th November, 1999, it is impossible to believe on 15th November, 1999, the petitioner would make a demand on the respondent and follow it up with a demand on 24th December, 1999 and subsequent correspondence. The respondent has not replied to any of these letters. The Arbitral Tribunal totally discarded these documents which were on record while arriving at a finding that respondent No. 1 had proved the liability of the petitioner. It may be noted and reiterated that the judgment of this Court rendered by Justice Wadia on the Strict Rules of Evidence is not applicable. The learned Judge of this Court in Aboobaker Latif v. Reception Committee of the 48th National Congress and Anr. AIR 1937 Bom. 410, held that the Indian Evidence Act does not apply to Arbitration. But that only means that an Arbitrator is not bound by the technical and strict rules of evidence. He must not disregard the rules of evidence which are founded on fundamental principles of justice and public policy. This would be the test which the Court would consider while examining such a challenge. In other words, disregarding the rules of evidence in recording a finding would be contrary to public policy as the rules of evidence are founded on public policy. The claim was made by respondent No. 1. Therefore, the onus to prove the claim was on respondent No. 1. It was respondent No. 1 who had to discharge that burden. The only evidence produced by respondent No. 1 is, his own statement that Mr. Nagori had dealt with on behalf of the petitioner and hearsay evidence of the two witnesses as to what they heard Mr. Nagori telling respondent No. 1. Petitioner was not present. Petitioner admittedly did not speak to the two witnesses when the evidence is relied upon by the respondent. Even if the strict rules of evidence did not apply, the learned Arbitrator could not have ignored the material, documentary evidence which was on record and which evidence was relied upon to record a finding on the point of limitation, and record a finding based on hearsay evidence. This would on the face of SEBI regulations which require that there must be contract notes, a perverse finding. The finding of liability, therefore, in my opinion, clearly amounts to an error apparent on the face of record. A Division Bench of this Court in The Tata Hydro-Electric Power Supply Co. Ltd. and Others Vs. Union of India, , decided on 5th October, 2000 in paragraph 12 has observed as under :

"Despite judicial interference with an Arbitration Award having been drastically circumscribed under the Arbitration and Conciliation Act, 1996 it is not disputed that an Award can still be set aside if it contains an error apparent on a question of law. An Arbitrator''s Award may be set aside for error of law appearing on the face of it though the jurisdiction is not lightly to be exercised..................................".

12. My attention was, however, invited to another judgment in Vijaya Bank Vs. Maker Development Services Pvt. Limited, , to contend that an error apparent would not constitute a ground u/s 34 of the Arbitration and Conciliation Act, 1996. On perusal of the judgment, I do not find such a proposition. It is indeed true that both the judgments were delivered by the same Judge presiding over the Division Bench. All that the judgment says is that the public policy is too wide an expression to be defined. It is true that the learned Judge referred to the judgment in Harlal Pardeshi Vs. State of Maharashtra and Others, . In that judgment, after addressing the law, this Court took the view that the expression ''public policy'' can be found from the constitutional principles and more so the trinity of the Constitution viz., preamble, fundamental rights and the directive principles. Under the circumstances, it would be possible to confine the public policy to those heads which a writ Court could exercise while exercising the extra ordinary jurisdiction under Article 227 of the Constitution of India. A writ Court exercises jurisdiction in a case where an order is without jurisdiction an order is in excess of jurisdiction or the orders suffer from an error of law apparent on the face of record and not a mere error of law and must shock the conscience of the Court. I find no substantial difference in the judgment of the learned Division Bench in Tata Hydro-Electric Power Supply Co. Ltd. and Ors. v. Union of India (supra) and the view taken in Hindustan Petroleum Corporation Ltd. (supra). In the case of Hindustan Petroleum Corporation Limited (supra), the foundational basis for giving a meaning to the public policy was on the constitutional principle of non-arbitrariness. At this stage, we may also mention that while dealing with the judgment, the Division Bench in paragraph 18 has quoted from the said judgment, as under :

"The contention that the alleged violation of substantive law, or the terms of the contract results in violation of public policy is totally untenable. The contention that the Arbitrator has awarded amounts contrary to Section 55 of the Contract Act cannot be a matter of public policy."

13. A perusal of the judgment in Hindustan Petroleum Corporation Limited (supra), would show that those were the contentions raised by learned counsel for the respondents in that case and are not the finding of the Court, as the discussion on public policy comes much later in the subsequent paragraphs of the said judgment.

14. Having said so, in my opinion, an error of law apparent on the face of record which shocks the conscience of the Court continues to be a ground available under the head of public policy to challenge an Award even under the Act of 1996 u/s 34. If that be the case, the finding on liability is clearly contrary to the Rules of evidence which are based on public policy and consequently the Award of the Arbitral Tribunal is liable to be set aside.

15. After the judgment was dictated but before it was signed, the Apex Court has pronounced on the concept of public policy, in Oil and Natural Gas Corporation Ltd. Vs. SAW Pipes Ltd., . Some of the challenges available under the Act of 1996 have been summarized as under :

"(c) If the Award passed by the Arbitral Tribunal is in contravention of 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 ;,

(b) the interest of India ;

(c) justice or morality; or

(d) if it is patently illegal.

(4) It could be challenged :

(a) as provided u/s 13(5); and

(b) Section 16(6) of the Act."

16. That brings us to the last contention as to whether the perverse findings or reasons as awarded can constitute a ground u/s 34 of the Act, 1996. Before considering the said judgments, let me advert to some judgments under the Act of 1940 where the issue of reasons was a matter of consideration by the Apex Court. Under the Act of 1996, Section 31(3) of the Act, clearly contemplates that the Arbitrator must give reasons in his Award unless the parties agree to the contrary. In other words, the Award must contain reasons. It would, therefore, be a requirement of law that mere giving of reasons would not meet with the requirement of Section 31(3), but the reasons must be based on the material available to the Tribunal. The Tribunal has to give its reasons on consideration of the relevant material and ignoring irrelevant material. This would be the relevant test. Findings based on the reasons not considering material on record and/or on appreciation of the evidence which the Court finds to be totally perverse can be said to be not a reasoned Award. In NGA Tok v. NGA Kasim and Ors. 1912 I C 978 , a judgment of the Upper Burma Judicial Commissioner''s Court, when the Arbitration was a part of Civil Procedure Code, the learned Judicial Commissioner held that perversity of the Arbitrators was misconduct justifying the setting aside of their Award. The finding was that the Arbitrators had to apply the principles of law and if they had disregarded that law, that finding would be perverse and amount to misconduct. In Aboobaker Latif case (supra), the learned Judge of this Court was considering that what would amount to legal misconduct. The Court noted that if the material piece of evidence is tendered and rejected, it may amount to misconduct entitling party to set aside the Award, and the party is not precluded from impeaching the Award on the ground of misconduct. In the same judgment, the learned Judge also held that though the Arbitrator is not bound by technical Rules and strict proof of evidence, he cannot disregard the rules of evidence which are founded on fundamental principles of justice and public policy. In Gujarat Water Supply and Sewerage Board Vs. Unique Erectors (Gujarat) (P) Ltd. and Another, , a contention was raised that the Award was unreasonable. In that context, the Apex Court observed as under :

"It is difficult to give an exact definition of the word ''reasonable''. Reason varies in its conclusion according to the idiosyncrasy of the individual and the times and the circumstances in which he thinks. The word ''reasonable'' has in law prima facie meaning of reasonable in regard to those circumstances of which the actor, called upon to act reasonably, knows or ought to know."

17. In Rajasthan State Mines and Minerals Limited Vs. Eastern Engineering Enterprises and Another, , a consideration before the Apex Court was whether the Award is perverse. The Court observed as under :

"The issue whether the Award is perverse and that the Arbitrator failed to apply his mind to pleadings, documents and evidence as well as Clauses 17 and 18 of the agreement would cover the contention that the Arbitrator acted beyond his jurisdiction in ignoring the stipulations of the contract............... ."

18. In M/s. Arosan Enterprises Ltd. Vs. Union of India and Another, , the issue was of no reasons and the Apex Court observed as under :

"In the event of there being no reasons in the Award, question of interference of the Court would not arise at all. In the event, however, there are reasons, the interference would still be not available within the jurisdiction of the Court unless of course, there exist a total perversity in the Award or the judgment is based on a wrong proposition of law."

19. It may be noted that upon the Act of 1940, there was no requirement that the Tribunal was bound to give reasons. In M/s. Sikkim Subba Associates Vs. State of Sikkim, , the issue was that the conclusion in the Award were found seriously vitiated on account of gross misreading of the materials on record as well as due to conspicuous omission to draw necessary and lawful interferences, the Court observed as under :

"Conclusions directly contrary to the indisputable facts placed on record are shown to have been drawn on the question of the alleged waiver throwing over board the well-settled norms and criteria to be satisfied and proved before the plea of waiver, can even be countenanced leave alone, the basic and fundamental principle that a violator of reciprocal promises cannot be crowned with a prize for his defaults..................... ."

20. In Bharat Coking Coal Limited v. L.K. Ahuja & Co. [reported in 2001(1) Arb. LR 656 (SC)], under the Act of 1940, whether the Court can interfere with the conclusions arrived at by the Arbitrator. The Court observed as under :

"The law is equally well-settled that in cases of speaking Awards, the Court can interfere if there is an error apparent on the face of the Award itself; it could also be shown that the Arbitrator has misconducted himself in arriving certain conclusions which are either plainly contrary to law or to the terms of the contract or ignored the provisions of contract or the evidence on record and such other similar matter.................".

21. From the perspective of these judgments it would be clear, therefore, that when the Act mandates that the Award must be a reasoned Award it does not mean that the requirement of law or the mandate is satisfied by the Arbitrator by giving reasons. The test of giving reasons is as founded on the principles earlier stated and culled out from the various judgments of the Apex Court and other Courts. It may be that, those observations were considering the Act of 1940 but that, to my mind, makes no difference. The purpose of giving reasons is to enable the Court to know that the Arbitrator has correctly addressed himself to the controversy in issue or has considered the material on record or ignored irrelevant material or applied the correct principles and, therefore, on appreciation of the evidence has given reasons for the findings on the conclusions. This to my mind, would be the requirement of giving reasons. Any other manner of reading the expression to give reasons would defeat the mandate of law as contained in Section 31(3) of Act of 1996. Parliament, under the Act of 1996, has mandated the Tribunal to give reasons unless the parties themselves agree that no reasons can be given. Therefore, every Award will have to satisfy these tests. If these tests are satisfied, then the Court would not interfere, otherwise, it would be open to the Court under the Act of 1996 to interfere with the Award on the ground that the Arbitrator has failed to comply with the mandatory requirement of Section 31(3) and/or alternatively holding that the Award based on reasons is a nullity at law. What is nullity in law would fall under the expression the public policy of this country and, consequently, Section 34(2)(b) of the Act 1996 would be attracted and would mandate the Court interfering with the Award.

22. We have earlier discussed while dealing with contention No. 2, the basis on which the Arbitral Tribunal has drawn his conclusions. It is not necessary once again to repeat what has been stated on record especially the documentary evidence which was available on record and entirely based on hearsay evidence as it was not the case of the witnesses that the petitioner made only statement or evidence in their presence. The evidence is that a call was made by the petitioner to Nagori when they were present. It is nobody''s case that the witness had the connection between the petitioner or Nagori or the respondent- Such reasons or findings given and conclusions arrived at are, therefore, totally perverse. In that view of the matter, it is open to this Court to interfere with the said Award. Having said so, in my opinion, the Award is liable to be set aside. It is true that there was counter-claim filed by the petitioner which has been rejected. The petitioner has not come to this Court challenging the rejection of that counter-claim. It is, therefore, not necessary for this Court to interfere with the Award on that count.

23. For the aforesaid reasons, the impugned Award dated October 10, 2000 is set aside.

24. In the circumstances of the case, each party to bear his own costs.