TaxTMI 
TaxTMI 
2021 (11) TMI 295
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..... In brief, the relevant facts of the case are that on 30th August, 1979, the State of Madhya Pradesh had entered into an agreement with the respondent-Company for supply of 10,000 tonnes of Sal seeds per annum for a period of 12 years. In the year 1987, faced with loss of revenue, Government of Madhya Pradesh decided to annul all agreements relating to forest produce and enacted a legislation M.P. Van Upaj Ke Kararon Ka Punarikshan Adhiniyam No. 32 of 1987 dated nil. However, the said Act was notified after a decade, on 1st January, 1997. In the absence of any Notification of the said enactment, the agreement between the State of Madhya Pradesh and the respondent-Company was renewed on 30th April, 1992 and was valid till 29th April, 2004. Under the renewed Agreement, the State of Madhya Pradesh agreed to supply 10,000 tonnes of Sal seeds to the respondent-Company. When the Act was finally notified in the year 1996, by virtue of Section 5A, State of Madhya Pradesh terminated the Agreement dated 30th April, 1992, on 21st December, 1998. Aggrieved by the said termination, the respondent- Company issued a notice dated 6th December, 1999 invoking Arbitration Clause No. 23 in the Agreem....
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....nt-Company never claimed refund of the excess recovery throughout the tenure of both the Agreements and that the respondent's claim was barred by limitation. A plea of estoppel was also taken against the respondent-Company. 7. In view of the order dated 30th April, 2010 whereunder leave was granted in the present petition limited to the issue of disallowance of supervision charges to the tune of Rs. 1.49 crores under the Award, which as per the appellant-State, was liable to be borne by the respondent-Company under the Agreement, this Court does not propose to examine the other pleas taken by the appellant-State in the present appeal. 8. Ms. Prerna Singh, learned counsel for the appellant-State has contended that a perusal of the terms and conditions of the Agreement make it apparent that the parties had agreed that the expenses incurred every year by the State Government for supplying Sal seeds to the respondent-Company would not only include the cost of collection, purchase price paid to the growers and Commission Agents, cost of storage and transportation, but also include handling and supervision charges. She pointed out that the said plea taken by the appellant-State was....
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....ice to the producers and other handling and supervision expenses'. In so far as the guidelines which have been issued by virtue of the notification of the state government dated 25.04.1981 in so far as in para 17 is concerned and particularly the guidelines which has been issued by Madhya Pradesh Rajya Vanopaj Sangh it is apparent that the work of the supervisor has to be done by the agent/committee and particularly the expenses to the clerk checher etc and all those other expenses which goes to the handling expenses and the commission. And thus in so far as in the form of supervision expenses there is no basis to admit any indirect expense. In this situation the amount which is shown in the account by the account experts are liable to be admitted for adjustments." 9. Learned counsel for the appellant-State argued that the aforesaid patent illegality on the face of the Award was highlighted in grounds (J) & (K) of the appeal preferred under Section 37 of the 1996 Act and was noted in para 3 of the impugned judgment but the High Court failed to return a finding. It was canvassed that 'supervision charges' have been clearly referred to in Clause 6(b) of the Agreement and is the su....
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....ecords and given our thoughtful consideration to the submissions advanced by learned counsel for the parties. 13. The law on interference in matters of Awards under the 1996 Act has been circumscribed with the object of minimising interference by courts in arbitration matters. One of the grounds on which an Award may be set aside is "patent illegality". What would constitute "patent illegality" has been elaborated in Associate Builders v. Delhi Development Authority [2015] 3 SCC 49, where "patent illegality" that broadly falls under the head of "Public Policy", has been divided into three sub-heads in the following words:- "...42. In the 1996 Act, this principle is substituted by the "patent illegality" principle which, in turn, contains three subheads: 42.1. (a) A contravention of the substantive law of India would result in the death knell of an Arbitral Award. This must be understood in the sense that such illegality must go to the root of the matter and cannot be of a trivial nature. This again is really a contravention of Section 28(1)(a) of the Act, which reads as under: "28. Rules applicable to substance of dispute. - (1) Where the place of arbi....
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....ern Geco [ONGC v. Western Geco International Ltd.,(2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12], as explained in paras 28 and 29 of Associate Builders [Associate Builders v. DDA,(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], would no longer obtain, as under the guise of interfering with an award on the ground that the arbitrator has not adopted a judicial approach, the Court's intervention would be on the merits of the award, which cannot be permitted post amendment. However, insofar as principles of natural justice are concerned, as contained in Sections 18 and 34(2) (a)(iii) of the 1996 Act, these continue to be grounds of challenge of an award, as is contained in para 30 of Associate Builders [Associate Builders v. DDA(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204]. 35. It is important to notice that the ground for interference insofar as it concerns "interest of India" has since been deleted, and therefore, no longer obtains. Equally, the ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the "most basic notions of morality or justice". This again would be in line with paras 36 to 39 of Associate....
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....ard and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award. 40. The change made in Section 28(3) by the Amendment Act really follows what is stated in paras 42.3 to 45 in Associate Builders [Associate Builders v. DDA (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair-minded or reasonable person would; in short, that the arbitrator's view is not even a possible view to take. Also, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under Section 34(2-A). 41. What is important to note is that a decision which is perverse, as understood in paras 31 and 32 of Associate Builders [Associate Builders v. DDA (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], while no longer being a ground for challenge under "public policy of In- dia", would certainly amount to a patent illegality appearing on the face of the a....
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.... in the Award on the ground taken by the appellant-State that the learned Arbitrator as also the High Court has ignored the binding terms of the contract governing the parties relating to recovery of 'supervision charges' from the respondent- Company and the Circular dated 27th July, 1987 issued by the State Government on the same lines which as per the appellant-State, goes to the root of the matter. 17. Some of the relevant terms and conditions of the Original Agreement dated 30th August, 1979, are extracted below for ready reference:- "6. The price payable by the Purchaser for the Sal Seeds supplied under this agreement shall consist of: - (a) Royalty at the rate of Rs. 312.50/- (Rupees Three Hundred Twelve and Fifty Paise only) per tonne for the initial four years of this agreement and. (b) All expenses incurred by the Governor each year, till the delivery of the Sal Seeds to the Purchaser, which shall include the cost of collection and/or the Purchase price paid to growers, as well as handling supervision charges, commission to agent, cost of storage, transportation etc. 8. Supply of Sal Seeds shall be made to the Purchaser against advanc....
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....revenue." 18. It is an admitted position that both, the Original Agreement dated 30th August, 1979 and the renewed Agreement dated 30th April, 1992 included a clause relating to levy of "supervision charges". Most of the terms and conditions of the Original Agreement dated 30th August, 1979 and the Renewed Agreement dated 30th April, 1992 are materially the same. Clause 6(b) of the Agreement dated 30th August, 1979 is identical to Clause 5(b) of the Agreement dated 30th April, 1992. The said clauses stipulate that expenses incurred by the State Government towards supply of Sal seeds were to include amongst others, 'supervision charges'. Clause 8 of the first Agreement is identical to Clause 7 of the second Agreement which stipulates that supply of Sal seeds to the respondent-Company would be against advance payment. There is also a similarity between Clause 9(ii) of the Agreement dated 30th July, 1979 and Clause 8(ii) of the Agreement dated 30th April, 1992, that require the respondent-Company to take delivery of the collected Sal seeds within a stipulated time and prescribe that in case of failure to do so, supervision charges and godown rent shall be payable at a fixed price o....
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....has remained un-answered by the High Court:- "3 *** *** Learned Arbitrator has also ignored circular of the erstwhile State Government whereby general supervision charges was fixed by 10% of the price which did not require assessment. Learned Arbitrator also not considered that High Court of M.P. at Jabalpur in W.P. No. 3177/99 in Bastar Oil Mill's case fixed the recovery towards handling and supervision charges at 20% of the price, which was subsequently fixed by the Hon'ble Supreme Court at Rs. 1,500/- per ton vide order dated 17.01.2000 by S.L.P. (Civil) No. 6/2000. Thus, the impugned award whereby the State has been directed refund of general handling and supervision charges collected by the State is bad in law. 4 *** 5 "....The State was within its right to recover supervision charges under Clause 6 at the rate of 10% of the price and there was no dispute raised by the purchaser in this regard and thus, the award directing refund of general handling and supervision charges collected by the State is contrary to law." 22. On a conspectus of the facts of the case, it remains undisputed that though the appellant-State did raise an ob....
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....ompany having regard to the language used in Section 34(2A) of the 1996 Act that empowers the Court to set aside an award if it finds that the same is vitiated by patent illegality appearing on the face of the same. Once the appellant-State had taken such a ground in the Section 37 petition and it was duly noted in the impugned judgment, the High Court ought to have interfered by resorting to Section 34(2A) of the 1996 Act, a provision which would be equally available for application to an appealable order under Section 37 as it is to a petition filed under Section 34 of the 1996 Act. In other words, the respondent-Company cannot be heard to state that the grounds available for setting aside an award under sub-section (2A) of Section 34 of the 1996 Act could not have been invoked by the Court on its own, in exercise of the jurisdiction vested in it under Section 37 of the 1996 Act. Notably, the expression used in the sub-rule is "the Court finds that". Therefore, it does not stand to reason that a provision that enables a Court acting on its own in deciding a petition under Section 34 for setting aside an Award, would not be available in an appeal preferred under Section 37 of the ....