TaxTMI 
TaxTMI 
2009 (11) TMI 884
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....le III of Arbitration Act (10 of 1940). The Arbitration Act of 1940 itself was repealed by section 85 of the Arbitration and Conciliation Act, 1996, hereinafter referred to as the `Act'. This Act comprehensively amended the then existing law in relation to arbitration and provided for a complete methodology and mechanism which would govern right from the stage of constitution of the Arbitral Tribunal to enforcement of the Award of the Arbitral Tribunal with least interference of the court. 2. Principal of mutability is equally applicable to the Legislation as well. The Legislature is always expected to examine the needs of the society and amend, modify and enact laws accordingly. Looking into the legislative history, the Law of Arbitration in India was unsatisfactory and, in fact, quite non-existent which persuaded the Legislature to enact the Arbitration Act, 1899 which was quite similar to the English Arbitration Act, 1899. This probably was the beginning of enforcement of Law of Arbitration in India but at that time, the reference to arbitration was primarily permissible with intervention of the court. The 1899 Act was applicable to presidency towns and its scope was conf....
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....nd Conciliation Bill, 1995, reads as follows: "1. The law of arbitration in India is at present substantially contained in three enactments, namely, the Arbitration Act, 194, the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) act, 1961. It is widely felt that the 1940 Act, which contains the general law of arbitration, has become outdated. The Law Commission of India, several representative bodies of trade and industry and experts in the field of arbitration have proposed amendments to this Act to make it more responsive to contemporary requirements. It is also recognized that our economic reforms may not become fully effective if the law dealing with settlement of both the domestic and international commercial disputes remains out of tune with such reforms. Like arbitration, conciliation is also getting increasing worldwide recognition as an instrument for settlement of disputes. There is, however, no general law on the subject in India. 2. The United Nations Commission on International Trade Law (UNCITRAL) adopted in 1985 the Model Law on International Commercial Arbitration. The General Assembly of the United Nations ha....
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....bitral tribunal; and ix) to provide that, for purposes of enforcement of foreign awards, every arbitral award made in a country to which one of the two international conventions relating to foreign arbitral awards to which India is a party applies, will be treated as a foreign award. 5. The Bill seeks to achieve the above objects." 3. The above objects clearly indicate the legislative intent to make arbitration proceedings more effective, expeditious, result oriented and the arbitral procedure fair, efficient and capable of meeting the specific needs of arbitration. To achieve those objects and to encourage enforcement of Law of Arbitration in all fields of law relating to civil disputes viz. at family, domestic and commercial levels and even at international levels, section 89 was inserted to the Civil Procedure Code, 1908 by the Civil Procedure Code (Amendment) Act, 1999. This section casts an obligation upon the courts to consider, at any stage of the suit, the possibility of settlement, formulation of terms of possible settlement and reference thereof to arbitration amongst other modes of alternative dispute resolution system. Thus, the object of newly inserted section....
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....ng order: "1. Notice. Learned Counsel for the Respondents accepts notice and waives service. He prays for time. 2. Learned Counsel appearing for the Appellant refers to paragraph-93 and 94 of the impugned Judgment and submits that keeping in view the settled principle of law and the observations made by the learned Single Judge, it would be appropriate that the matter is referred to larger Bench as the learned Judge has made reference to the Division Bench order of the Court. We find substance in this submission and in any case, this question is likely to arise repeatedly before the Courts concerned and would be of some significance. Consequently, we agree that the matter should proceed before the larger Bench. 3. Having perused the pleadings and the impugned Judgment, the Registry is directed to place the matter on 24th July, 2009 before the larger Bench." We may now notice the facts giving rise to the present appeal and consequential reference made by the Division Bench. 6. M/s. Ircon International Limited, hereinafter to be referred to as "the company", had been issued a contract by Maharashtra State Road Development Corporation interalia for constructing a rail o....
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....e allowed while the remaining claims were rejected. So also all the counter-claims raised by the company were rejected. Aggrieved from the Award of the learned Arbitrator, the company filed petition for setting aside the Award dated 5.5.2005 in terms of sections 34 and 16(6) of 1996 Act. However, the appellant did not challenge the award or any part thereof. The petition was admitted and was finally disposed of by the learned Single Judge vide his judgment dated 11th November, 2008. The learned Single Judge recorded the findings that out of the 15 claims allowed by the learned Arbitrator, 11 claims were sustainable and the appellant was entitled to those claims but while referring to the Division Bench judgment of this court in the case of Mrs. Pushpa P. Mulchandani v. Admiral Radhakrishin Tahiliani, 2008(7) LJ Soft, 161, the learned Single Judge set aside the entire award. It will be useful to refer to the relevant part of the judgment passed by the learned Single Judge that reads as under:- "5......... I have upheld the award in respect of ten claims, the claim for interest and in so far as it rejects the Petitioners counter-claim. I have set aside the award in respect of f....
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.... that part of the award which according to the Court was beyond the jurisdiction of the arbitrator, because it was not submitted to arbitration. In all other cases, if the Court finds that only a part of the award is affected by illegality which is pointed out to the court, the court cannot itself modify the award, but if a party to the petition applies to the court in exercise of its power under Sub-section 4 of Section 34, the Court can direct the arbitral tribunal to resume the proceedings and take such action to eliminate the ground for setting aside the award. In such situation, the arbitral tribunal on resumption may be able to delete that part of the award which the Court finds to be invalid or illegal and make suitable modification in the award. It, thus, appears that while exercising jurisdiction under Section 34, the court can modify the award only in one situation which is to be found in clause (iv) of sub- section 2 of section 34. In all other cases if the Court finds that only part of the award is affected, then in case the party makes an application, the court can adopt the course of action contemplated by sub-section 4 of Section 34 and only option available to....
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....n, the period spent during the earlier arbitration is liable to be excluded while computing the period of limitation. In our opinion, the decision of various courts either on Arbitration Act, 1940 or the Acts which were in the field before that, while considering whether the Court has the power to modify the award in a petition filed under Section 34 cannot be considered because under those enactments power was positively conferred on the court to modify the award. It is further to be seen here that Arbitration Act, 1996 has repealed the Arbitration Act, 1940. Arbitration Act, 1940 had a specific power conferred on the court to modify the award. While enacting 1996 Act, the Parliament has chosen not enact that provision. In our opinion, the intention of the Legislature, therefore, was clear not to confer on the court power to modify the award. It is now well settled that scheme of Arbitration Act, 1996 is clear departure from the scheme of 1940 Act. In 1940 Act, power was conferred on the court itself to modify the award. In 1996 Act, as observed above, the scheme is that the power is conferred on the court to modify the award only in one situation found in Clause (iv) of Section 3....
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....t to be decided by the Division Bench which considers the appeal that will quite obviously and understandably be filed against this judgment. 95. In the result, the petition is made absolute, the award is set aside." INTERPRETATION :- 7. A bare reading of the impugned judgment and particularly above referred portion shows that though the learned Single Judge upheld the award of the learned Arbitrator in favour of the Appellant and expressed agreement with the arguments raised on behalf of the Appellant that the principle of severability would be applicable to such award but being bound by discipline and precedent reluctantly set aside the whole award. The sole question of law that thus arise for consideration before this Larger Bench is ; (1) Whether doctrine of severability can be applied to an award while dealing with a Petition under Section 34 of the Arbitration and Conciliation Act, 1996; and (2) What is the scope of proviso to Section 34(2)(iv) and whether its application is restricted to clause (iv) alone or it applies to the whole of Section 34(2) of the Act. 8. It is this provision of Section 34 which falls for interpretation and explanation, before this Bench ....
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.... not jus dare. The right of appeal being creation of a statute and being a statutory right does not invite unnecessary liberal or strict construction. The best norm would be to give literal construction keeping the legislative intent in mind. 52. The Supreme Court in the case of Shiv Shakti Co-op. Housing Society, Nagpur vs Swaraj Developers and Others, reported in (2003) 6 SCC 659, while referring to the principles for interpretation of statutory provisions, held as under: - "19. It is a well-settled principle in law that the court cannot read anything into a statutory provision which is plain and unambiguous. A statute is an edict of the legislature. The language employed in a statute is the determinative factor of legislative intent. Words and phrases are symbols that stimulate mental references to referents. The object of interpreting a statute is to ascertain the intention of the legislature enacting it. (See Institute of Chartered Accountants of India v. Price Waterhouse.) The intention of the legislature is primarily to be gathered from the language used, which means that attention should be paid to what has been said as also to what has not been said. As a conse....
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....where the provision gives a different meaning defeating the object of the statute. If the language is clear and unambiguous, no need of interpretation would arise. In this regard, a Constitution Bench of five Judges of the Supreme Court in R.S. Nayak v. A.R. Antulay, AIR 1984 SC 684 has held: ".....If the words of the Statute are clear and unambiguous, it is the plainest duty of the Court to give effect to the natural meaning of the words used in the provision. The question of construction arises only in the event of an ambiguity or the plain meaning of the words used in the Statute would be self defeating." Recently, again Supreme Court in Grasim Industries Ltd. v. Collector of Customs, Bombay, (2002)4 SCC 297 has followed the same principle and observed: "Where the words are clear and there is no obscurity, and there is no ambiguity and the intention of the legislature is clearly conveyed, there is no scope for court to take upon itself the task of amending or altering the statutory provisions." 54. Above stated principles clearly show that the Court can safely apply rudiments of plain construction to legislative intent and object sought to be achieved by the enactmen....
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....ying the general rule that the words of a proviso are not to be taken "absolutely in their strict literal sense," but that a proviso is "of necessity ... limited in its operation to the ambit of the section which it qualifies." And, so far as that section itself is concerned, the proviso again receives a restricted construction: where the section confers powers, "it would be contrary to the ordinary operation of a proviso to give it an effect which would cut down those powers beyond what compliance with the proviso renders necessary." 11. Normal function of a proviso is to except something out of enactment or to qualify something enacted therein which but for the proviso would be within the purview of enactment. "As stated by LUSH, J. "When one finds a proviso to a section the natural presumption is that, but for the proviso, the enacting part of the section would have included the subject-matter of the proviso. In the words of LORD MACMILLAN: "The proper function of a proviso is to except and to deal with a case which would otherwise fall within the general language of the main enactment, and its effect is confined to that case." The proviso may, as LORD MACNAGHTAN laid down....
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....come an integral part of the enactment and thus acquire the tenor and colour of the substantive enactment itself; and (4) It may be used merely to act as optional addenda to the enactment with the sole object of explaining the real intendment of the statutory provision." The above summary cannot however be taken as exhaustive and ultimately a proviso, like any other enactment, ought to be construed upon its terms. DISCUSSION ON LAW :- 14. Having referred to the basic principles of construction applicable to such cases with particular reference to ambit, scope of proviso to section, now we may refer to legislative history of this provision. In the opening part of this judgment, we have made reference, to some extent to the legislative history of the Arbitration and Conciliation Act, 1996 which clearly indicate that with the passage of time this law has developed in various respects. The main object of enacting this Act was to bring the law of arbitration in conformity with UNCITRAL Model Rules on one hand, while on the other hand also to ensure that newly enacted law was in conformity with the existing Indian Law and Arbitral Tribunals were able to deal with the matters exp....
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.... parties, a party, (c) where the award contains a clerical with notice to the other party, may mistake or an error arising from an request the arbitral tribunal to give an accidental slip or omission. interpretation of a specific point or part of the award. Sec. 16. Power to remit award. - (1) The Court may from time to time remit (2) If the arbitral tribunal considers the the award or any matter referred to request made under sub-section (1) to be arbitration to the arbitrators or umpire justified, it shall make the correction or for reconsideration upon such terms as give the interpretation within thirty days it thinks fit,- from the receipt of the request and the interpretation shall form part of the (a) where the award has left arbitral award. undetermined any of the matters referred to arbitration, or where it (3) The arbitral tribunal may correct determines any matter not referred to any error of the type referred to in clause arbitration and such matter cannot be (a) of sub-section (1), on its own separated without affecting the initiative, within thirty days from the date determination of the matters referred: of the arbitral award. ....
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.... may be made only by an (b) that an award has been made after application for setting aside such award the issue of an order by the Court in accordance with sub-section (2) and superseding the arbitration or after sub-section (3). arbitration proceedings have become invalid under Sec. 35; (2) An arbitral award may be set aside by the Court only if - (c) that an award has been improperly procured or is otherwise invalid. (a) the party making the application furnishes proof that - Sec. 33. Arbitration agreement or award to be contested by application.- (i) a party was under some incapacity; or Any party to an arbitration agreem....
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....ent, was not in accordance with this Part; or (b) the Court finds that - (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force; or (ii) the arbitral award is in conflict with the public policy of India. Explanation. - Without prejudice to the generality of sub-clause (ii) of clause (b), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81. (3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal: Provided that if the Court is satisfied ig that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty cays, but not thereafter. (4) On receipt of....
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....ligation is cast upon the applicants to furnish proof thereof. The word "proof" again has some definite value in law and it cannot be equated to the word 'ground' or 'alleged facts'. Thus, the provisions of sub-section (2) of section 34 contemplate a higher degree of deliberation than a mere statement of fact when an award is challenged. It is expected that the documents produced in evidence before the arbitral tribunal would be the proof in support of an objection raised by an applicant. The applicant should be able to demonstrate from the record that his objection is supported by evidence and is not a mere objection for the sake of objecting. The word "proof" need be understood in the sense in which it is defined in the Evidence Act because proof depends upon the admissibility of evidence. A fact is said to be proved when, after considering the matters before it, the court either believes it to exist, or considers its existence so probable that a prudent man ought, under the circumstances of the particular case, to act upon the supposition that it exists. This is the definition given for the word "proved" in the Evidence Act. What is required is production of such....
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....es it would be inevitable for the Court to set aside the entire award. It may not be very true that even under these categories, it would be absolutely essential for the Court to set aside an award. It is true that where a party was under incapacity or was not served with the notice at all and the arbitration agreement itself was not valid that an award may have to be set aside in its entirety. But even within these clauses, there is possibility of a situation where it may not be necessary for the Court to set aside the entire award. Let us take an example that where a party is given a notice has participated in the proceedings before the arbitral tribunal but was unable to lead evidence or present himself or submit his counter claim. Would it be fair for the Court to set aside an award of the arbitral tribunal in its entirety in this situation? A party who participated in the arbitral proceeding even led evidence and cross-examined the witnesses of the claimants in relation to the claims but for any reason was not able to place his evidence on record in relation to the counter claims or he was not granted sufficient opportunity to present his case or for some reason was unable to ....
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....re it is possible to sever the bad part from the good part, the good part of the contract can always be enforced and partial relief can be granted. Doctrine of severability has been applied to law of Contract since time immemorial. Of course, it could be said that substantial severability and not textual divisibility is the principle controlling this concept. In the case of Shin Satellite Public Co. Ltd. V. Jain Studios Ltd., 2006(2) SCC 628 where the Supreme Court was dealing with an agreement between the parties for availing broadcasting services in favour of the petitioner therein by the respondent. Because of the dispute between the parties, arbitration clause was invoked to which defence was taken by the respondent that the claim of the petitioner was not maintainable in as much as clause 20 of the agreement was against the public policy and was not enforceable. The Supreme Court in the light of para 430 of Halsbury Law of England, 4th Edition, Volume 9, page 297 finally held as under: "430. Severance of illegal and void provisions - A contract will rarely be totally illegal or void and certain parts of it may be entirely lawful in themselves. The question therefore aris....
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....ction must now be understood to apply only to cases where the provisions shall be wholly void. Unless that is so, then provided the good part is separable from and not dependent on the bad, that part only will be void which contravenes the provisions of the statute. The general rule is that 'where you cannot sever the illegal from the legal part of a covenant, the contract is altogether void; but, where you can sever them, whether the illegality by created by statute or by the common law, you may reject the bad part and retain the good'. Thus, a covenant in a lease that the tenant should pay 'all parliamentary taxes', only included such as he might lawfully pay, and a separate covenant to pay the landlord's property tax, which it was illegal for a tenant to contract to pay, although void, did not affect the validity of the instrument. In some situations where there is a statutory requirement to obtain a licence for work above a stipulated financial limit but up to that limit no licence is required, the courts will enforce a contract up to that limit. There is some doubt whether this applies to a lump sum contract 'for a single and indivisible work'. Even....
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....matter of fact that it was not possible to segregate the dispute under the various contracts as there was direct link between them. The Supreme Court held as under:- "It would follow that the arbitration clause contained in that contract was of no effect. It has therefore to be held that the award made under that arbitration clause is a nullity and has been rightly set aside. The award, it will have been noticed, was however in respect of disputes under several contracts one of which we have found to be void. But as the award was one and is not severable in respect of the different disputes covered by it, some of which may have been legally and validly referred, the whole award was rightly set aside. " 21. Even in the case of BOI Finance Ltd. V. Custodian and others, (1997)10 SCC 488, the Supreme Court while dealing with the provisions of section 23 of the Contract Act, 1872 took a view that where the contract of reciprocal promises were entered into between the parties, void part of the agreement could be separated from the valid part, the valid part does not become void or invalid. 22. In relation to the provisions of section 30 of the 1940 Act, the law has clearly been ....
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....r there is anything contained in 1996 Act which prohibits in law the court from adopting the approach applicable under the 1940 Act or prohibits applicability of principle of severability to the awards under 1996 Act. We are unable to see any prohibition much less an absolute bar in the provisions of section 34 of 1996 Act to that effect. There could be instances falling under section 34(2)(a), sub-sections (iii) and (v) where the principle of severability can safely be applied. These provisions do not specifically or impliedly convey legislative intent which prohibits the courts from applying this principle to the awards under the 1996 Act. Again for example, an Arbitral Tribunal might have adopted a procedure at a particular stage of proceeding which may be held to be violative of principles of natural justice or impermissible in law or the procedure was not in accordance with the agreement between the parties but the parties waived such an objection and participate in the arbitration proceedings without protest, in that event it will be difficult for the court to hold that the good part of the award cannot be segregated from the bad part. 25. Section 4 of the 1996 Ac....
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....of the 1996 Act, the Court has been vested with the powers that where it receives application under Sub- section (1), that is for setting aside an arbitral award, it may adjourn the proceedings for a period of time determined by it in order to give arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other actions as in the opinion of the arbitral tribunal will eliminate the grounds for setting aside the arbitral award. Thus, the emphasis is on taking all measures as may be permissible in law to ensure that the arbitral award is not set aside on routine grounds or on technical pleas taken and substantive rights of the parties should be determined fully and finally. If the Court has been empowered to adjourn the proceedings and it can lead the arbitral tribunal to take all such actions as may be essential for removing grounds for setting aside the award of the arbitral tribunal that itself substantiates the arguments made before us by the Appellant that the power of the Court under Section 34(2) is wide enough to apply the principle of severability of award and/or pass such other directions as are contemplated under Section 34(4) of the Act. Of cour....
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.... by six months' notice. No cause need be shown for such termination nor does such termination entail payment of compensation or other penal consequences. In this case, after considering the High Level Committee Report, has taken a decision that all quarrying by private agencies in pursuance of the quarrying leases granted in regard to government lands or permissions granted in respect of ryotwari land should be terminated in public interest. If Rule 38-A is read down as terminating all mining leases granted by the Government by six months' notice ( in terms of clause 11 in the lease deeds based on the model form at Appendix I to the Rules ) or for the remainder period of the lease, whichever is less, it can be saved, as it will then terminate the leases after notice, in terms of the lease." 30. If the principles of severability can be applied to a contract on one hand and even to a statute on the other hand, we fail to see any reason why it cannot be applied to a judgment or an award containing resolution of the disputes of the parties providing them such relief as they may be entitled to in the facts of the case. It will be more so, when there is no statutory prohibi....
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....w courts should expand and amplify jurisdiction to achieve the ends of justice and not unnecessarily restrict its discretion particularly when the later approach would lead to frustrate the very object of the Act. 32. The cases or illustrations indicated in the proviso in fact, should be read to construe that in such other cases where it is so necessary the court should exercise its discretion and apply the principle of severability rather than compel the parties to undergo the entire arbitration proceedings all over again or be satisfied with the rejection of their claim despite the fact that the Arbitral Tribunal has upon due appreciation of evidence and in accordance with law has granted relief to them. It will not only be appropriate but even permissible to read the proviso to add to the discretion and power of the court vested in it by the Legislature by using the expression "may". 33. It must be understood that the scope of judicial intervention under section 34 is very limited and cannot be equated to the powers of a civil appellate court. The award can be set aside on the grounds stated in these provisions and that is what is emphasized by the use of expression `only&....
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....(Del); Mc Dermott International v. Burns Standard Co.Ltd., (2006)11 SCC 181 cases including the Division Bench judgment of this court take the later view. We have given detailed reasoning as to why the view taken by the Division Bench of this court in the case of Ms. Pushpa Mulchandani (supra) may not be a correct view of law. It will be appropriate to discuss the reasoning given by the Division Bench while taking that view in some detail. In the case of Ms. Pushpa Mulchandani (supra), the court was concerned with a case where the disputes and differences had been referred to the Arbitrator and the Arbitrator had made his award holding that the testator willed the goodwill of his trading concerns to the Trust and other ancillary matters like tenancy and conversion of a partnership concern into a limited company and its winding up of the business. Aggrieved from the award of the Arbitral Tribunal, a petition was filed under section 34 of the 1996 Act on different grounds. The grounds raised were rejected by the learned Single Judge who declined to interfere with the award. This judgment of the learned Single Judge was challenged before the Division Bench on two grounds; (a) the a....
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....ich may be attracted in relation to setting aside of an award. Paragraph 52 relied upon by the Division Bench. Paras 59, 60 and 65 which can be usefully referred to at this stage which read as under: 59. Such patent illegality, however, must go to the root of the matter. The public policy violation, indisputably, should be so unfair and unreasonable as to shock the conscience of the court. Where the arbitrator, however, has gone contrary to or beyond the expressed law of the contract or granted relief in the matter not in dispute would come within the the purview of Section 34 of the Act. However, we would consider the applicability of the aforementioned principles while noticing the merits of the matter. 60. What would constitute public policy is a matter dependent upon the nature of transaction and nature of statute. For the said purpose, the pleadings of the parties and the materials brought on record would be relevant to enable the court to judge what is in public good or public interest, and what would otherwise be injurious to the public good at the relevant point, as contradistinguished from the policy of a particular Government. ( See State of Rajasthan v. Basant N....
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....arily stating the principles which have been kept in mind by the courts while interfering with the award of the Arbitral Tribunal that it was to outline the supervisory role of the courts within the ambit and scope of section 34. It is true that the court like a court of appeal cannot correct the errors of arbitrator. It can set aside the award wholly or partially in its discretion depending on the facts of a given case and can even invoke its power under section 34(4). It is not expected of a party to make a separate application under section 34(4) as the provisions open with the language "on receipt of application under sub-section (1), the court may.........." which obviously means that application would be one for setting aside the arbitral award to be made under section 34(1)on the grounds of reasons stated in section 34(2) and has to be filed within the period of limitation as stated as reply under section 34(3). The court may if it deems appropriate can pass orders as required under section 34(4). In other words, the provisions of section 34(4) have to be read with section 34(1) and 34(2) to enlarge the jurisdiction of the court in order to do justice between the parties and....
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....ision Bench judgment in the case of Ms. Pushpa Mulchandani (supra). Could there be a greater perversity of justice to a party which has succeeded before the Arbitral Tribunal as well as in the court of law but still does not get a relief. Is that what is contemplated and was the purpose of introduction of the Act of 1996. An Act which was to provide expeditious effective resolution of disputes free of court interference would merely become ineffective statute. Would not the canon of civil jurisprudence with the very object of the Arbitration Act, 1996 stand undermined by such an approach. The effective and expeditious disposal by recourse to the provisions of the 1996 Act would stand completely frustrated if submissions of the respondent are accepted. Partial challenge to an award is permissible then why not partial setting aside of an award. In a given case, a party may be satisfied with major part of the award but is still entitled to challenge a limited part of the award. It is obligatory on the court to deal with such a petition under section 34(1)(2) of the Act. We may further take an example where the Arbitral Tribunal has allowed more than one claim in favour of the claimant....