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Judgment
Basant, J.—(i) Are the findings of the Arbitrator
(a) that the claimant is not bound by the stipulation No.7 in Ext.C10 and
(b) that the claimant can take advantage of the other stipulations in Ext.C10 correct and justified?
(ii) Can those findings be held to be illegal perverse, unjust or immoral?
(iii) Can the award passed by the Arbitrator be consequently held to be opposed to the public policy of India?
(iv) Are those vices sufficient to justify the interference by the District Court with the award of the Arbitrator u/s 34 (2) (b) (ii) of the Arbitration
and Conciliation Act, 1996 (hereinafter referred to as `the Act'')?
These questions are thrown up for consideration in this appeal.
A brief resume of the events that have led to this appeal appears to be necessary. The appellant (hereinafter referred to as `the claimant'') and
the respondent Kerala Automobiles Ltd. (hereinafter referred to as `the company'') had entered into an agreement under which the company had
agreed to supply automobiles manufactured by it to the claimant, a foreign national. There is no dispute that they had agreed that disputes between
them if any must be resolved by arbitration. Purchase order was placed for 144 vehicles. 48 of them were supplied by the company. When the
consignment of 48 vehicles reached the claimant at Egypt, he raised an objection that they were defective, unusable and not roadworthy. Disputes
thus arose between the company and the claimant. They attempted to settle their disputes by direct negotiation. Parleys were held between the
officials of the company on the one hand and the claimant on the other. Ultimately they appear to have settled their disputes. The terms of the
agreement/settlement were reduced to writing in the form of minutes. Ext.C10 dated 03.11.2007 is admittedly the minutes of such meeting in which
parties settled their disputes. It is not disputed that the minutes were earlier recorded, were typed later and were presented for signature of the
parties. On the next day after the meeting, minutes were signed by the company and the claimant. On the side of the company, officers of the
company signed the minutes. On the side of the claimant, claimant himself as also RW1, an advocate, who was representing the claimant and who
was present with him throughout the negotiation, signed the minutes.
Within a week of signing Ext.C10, the claimant issued Ext.C11 letter dated 09.11.2007 expressing his intention not to abide by clause 7 of
Ext.C10. This was followed by Ext.C12 formal notice issued by the claimant on 09.02.2008.
The claimant staked a claim for huge amounts by way of compensation for the defective/not roadworthy automobiles that were supplied to the
claimant. The dispute was ultimately referred for arbitration by an order of a designated Judge of this Court. The learned Arbitrator entered upon
reference. Before the Arbitrator, the claimant proved Exts.C1 to C26. PWs 1 to 3 were examined on the side of the claimant. PW1 is the
claimant. PW2 is the consultant of PW1 and PW3 is a representative of the shipping agent. We shall later refer to the relevant documents in
Exts.C1 to C26.
On the side of the Company, R.W.1 who had signed Ext.C10 minutes was examined. R.W.2 a person who had been deputed by the company
to proceed to Egypt was also examined. Exts.R1 to R11 were marked on the side of the company. Annexure-A1 is the list of vehicles found by
the Arbitrator during his inspection to the factory of the company on 15/11/08.
The learned Arbitrator by the award dated 4/3/09 came to the conclusion that the company is liable to pay Rs.47,83,720/-or its equivalent
1,22,000 U.S. Dollars to the claimant. Alternative directions were also issued.
The crucial findings on which the Arbitrator came to a decision against the company are:
(1) The claimant is not bound by Clause (7) of Ext.C10 to which he had admittedly subscribed his signature.
(2) The claimant is entitled to take advantage of all other stipulations in Ext.C10.
Aggrieved by the award of the Arbitrator, the company approached the District Court, Thiruvananthapuram, with O.P. (Arb.) No.97/09. It was
prayed that the award may be set aside under Sec.34 of the Act. It is unnecessary to advert to the various contentions raised by the company
before the District Judge. Suffice it to say that it was contended that the award is liable to be set aside under Sec.34(2)(b)(ii) of the Act.
The learned District Judge by the impugned order came to the conclusion that the award of the Arbitrator is liable to be set aside under
Sec.34(2)(b)(ii). Accordingly, the learned District Judge proceeded to pass the impugned order. The Arbitrator''s award was set aside.
It would be apposite straightaway to mention that the company had raised a counter claim. That counter claim was rejected by the Arbitrator.
The rejection of the counter claim was not interfered with by the learned District Judge. No Appeal or Cross-Appeal has been preferred by the
company against the rejection of the counter claim.
Arguments have been advanced before us. We have heard the learned counsel for the rival contestants. On the arguments advanced before us,
the 4 points raised in paragraph-1 of this judgment arise for consideration.
We shall now proceed to consider the grounds of challenge.
I3. It shall be appropriate at the very outset to note the nature and quality of the jurisdiction of this Court under Sec.37 (1)(b) of the Act. An
appeal lies from the order of the District Court. This appellate jurisdiction is co-extensive and co terminus with the jurisdiction of the first court. We
shall therefore consider this appeal as if the entire matter is before us for consideration.
Objections have been raised about the want of pleadings. We have been taken through the petition under Sec.34 filed before the District
Court. Significantly though the award is challenged, it is not specifically stated that the arbitral award is in conflict with the public policy of India
which is the specific ground available under Sec.34(2)(b)(ii) of the Act. The learned counsel for the claimant contends that in the absence of
specific pleadings, the attempt made now to justify the order of the District Court under Sec.34(2)(b)(ii) is not sustainable.
`Forms we may have buried but they still rule us from the grave''. The necessity of pleadings has to be understood realistically. Proper
pleadings are necessary not as a matter of ritual or as a fetish. The law of pleadings has its foundation on the principles of natural justice that the
adversary must be notified of the precise nature of the challenge raised and given the opportunity to make his defence. The insistence of the law on
pleadings is not to repeat the words of the statute. Notwithstanding the fact that a specific plea that the award is in conflict with the public policy of
India is not raised in the petition filed under Sec.34, a total and holistic reading of the petition must eloquently convey that the challenge raised is on
that ground also. In these circumstances, the laborious attempt made to assail the findings of the District Court on the ground that the findings are
not supported by pleadings cannot be accepted.
The learned counsel for the Company Sri.Anand points out that the semantics employed by the legislature in Sec.34(2) (a) and (b) is in this
context of crucial relevance. Sec.34(2)(a) and (b), we extract below:
Application for setting aside arbitral award.-- (1) Recourse to a Court against an arbitral award may be made only by an application for setting
aside such award in accordance with sub-section(2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if---
(a) the party making the application furnishes proof that---
(i) x x x x x
(ii) x x x x x
(iii) x x x x x
(iv) x x x x x
(v) x x x x x
(b) the Court finds that-
(i) x x x x x
(ii) the arbitral award is in conflict with the public policy of India.
(Emphasis Supplied)
The attempt of the learned counsel is to impress upon the court the fact that while grounds under Sec.34(2)(a) must be proved by the party
making the application, the legislature consciously deviated and employed different semantics while enacting Clause (b). The requirement of Clause
(b) is only that the court must find the two grounds to exist.
We find the contention to be interesting and acceptable. It is idle to assume that the legislature did not employ the language of Clauses (a) and
(b) of Sec.34(2) without proper application of mind. While an award can be set aside under Clause (a) only if the applicant `furnishes proof'' of the
relevant ground, it is enough under Clause (b) if `the court finds'' existence of the relevant ground. Every finding of the court may also have to be on
the basis of pleadings and evidence; but that by itself cannot persuade us to ignore the different semantics employed by the legislature in Clauses
(a) and (b) of Sec.34(2). It appears to us that a paramount duty is imposed on the court to ensure that the award is not vitiated by either of the two
grounds mentioned in Clause (b); whereas the grounds under Clause (2) (a) are to be established by a person making the application to assail the
arbitral award. Though the language of Sec.34(2)(b) will not justify a court acting without pleadings and evidence altogether, the argument appears
to be acceptable that the burden to plead and prove is lesser when it comes to a ground under Clause (b) and that different language has been
employed by the legislature definitely as a result of the perception of the legislature that the court has a duty to ensure that the award does not
conflict with the public policy of India. The process of settlement of disputes by arbitration commands greater sanctity under the Indian law now
after introduction of Sec.89 of the Code of Civil Procedure. The purity and credibility of the process have to be maintained. That appears to be the
only object of the different semantics employed. Additional/greater burden is laid on the shoulders of the court to ensure that the awards are not
vitiated by the vices under Clause (b). Considering the object to be achieved and the language employed by the legislature, purely technical pleas
founded on the law of pleadings and burden of proof cannot claim primacy when a court considers the ground under Sec.34(2)(b) urged to set
aside an award.
Contentions have been raised about the law relating to the attempt of a party to avoid one stipulation alone in an agreement/contract. We feel it
unnecessary to advert to the various precedents cited. When a person enters into an agreement and signs the same it must be assumed that such
person has entered into such agreement after necessary and full application of mind. The attempt of a person to avoid one inconvenient stipulation
alone in an agreement containing various stipulations should always be viewed by a prudent person with the requisite care and caution. Different
may be the situation when one stipulation is contrary to law or unenforceable. In a case where parties after detailed mutual negotiations come to an
agreement and reduce the same into writing it will be an uphill task for one of the parties to contend that one stipulation alone was entered into
without proper application of mind or without properly understanding the stipulation. Though various precedents have been cited at the Bar in
support of this proposition we think it sufficient to advert to paragraph-6 of Grasim Industries Ltd. and Another Vs. Agarwal Steel, which we
extract below:
In our opinion, when a person signs a document, there is a presumption, unless there is proof of force or fraud, that he has read the document
properly and understood it and only then he has affixed his signatures thereon, otherwise no signature on a document can ever be accepted. In
particular, businessmen, being careful people (since their money is involved) would have ordinarily read and understood a document before signing
it. Hence the presumption would be even stronger in their case. There is no allegation of force or fraud in this case. Hence it is difficult to accept
the contention of the respondent while admitting that the document, Ext.D-8 bears his signatures that it was signed under some mistake.
We note that on facts that was also an identical case where the Arbitrator permitted a party to avoid one stipulation in an admitted document
accepting the plea that he subscribed his signautre under a mistake. That was not approved by the Supreme Court.
Arguments have been advanced on the question of severability of an agreement and the option available to the court to accept the remaining
stipulations after holding one stipulation to be not binding or void. Our attention has been drawn to the texts as also precedents which stipulate that
a person cannot be permitted to approbate or reprobate. There can be no serious controversy on this aspect also. An agreement containing
different stipulations must be holistically read. It is difficult in the absence of better evidence to come to a definite conclusion as to the impact which
each stipulation had in the mind of the contracting parties. Under the doctrine of severability there can certainly be instances where one stipulation
which is found to be illegal, contrary to public policy or unenforcible can be severed from the rest of the stipulations. It is certainly not the law that
no agreement would be severable at all. But the facts and circumstances of each case will have to be considered in detail to decide whether the
attempt to wriggle out of the obligation under one stipulation and to place reliance on the other stipulations is justified or not.
We shall now consider the ground of conflict with public policy of India which is a ground recognized under Sec.34 (2)(b)(ii) to set aside an
award passed by the Arbitrator. We read Sec.34(2)(b)(ii) again:
Application for setting aside arbitral award.-
x x x x x
(b) the Court finds that-
(i) x x x x x x
(ii) the arbitral award is in conflict with the public policy of India.
As to when an award can be held to be in conflict with the public policy of India, the law is now well settled. Disputes, if any, can be only on
the application of the law which is well settled. It will be apposite in this context to refer to the decision in Renusagar Power Co. Ltd. Vs. General
Electric Co., . The question arose in Renusagar while considering the relevant provisions of the Foreign Awards (Recognition and Enforcement)
Act1961. Summarizing the law relating to public policy as a ground for avoiding an arbitral award, the learned Judges in paragraph-66 stated the
law thus:
Applying the said criteria it must be held that the enforcement of a foreign award would be refused on the ground that it is contrary to public policy
if such enforcement would be contrary to
(i) fundamental policy of Indian law; or
(ii) the interests of India; or
(iii) justice or morality.
Later, a two Judge Bench of the Supreme Court had occasion to consider the ambit and sweep of the expression ""in conflict with the public
policy of India"" in Sec.34(2)(b)(ii). After referring to the decision in Renusagar (supra), the learned Judges felt the need to assign a wider meaning
for the expression ""public policy of India"" for the purpose of Sec.34(2) (b)(ii). In paragraph-31 of Oil and Natural Gas Corporation Ltd. Vs.
SAW Pipes Ltd., the Bench after referring to the need to assign a wider meaning for the said expression declared the law thus:
The result would be-- award could be set aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality, or
(d) in addition, if it is patently illegal.
Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award
could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. Such award is opposed to public policy and is
required to be adjudged void.
The law on the point has thus been succinctly held. We are conscious of the fact that this judgment had attracted criticism from various
quarters. But, be that as it may, a later two Judge Bench of the Supreme Court in McDermott International Inc. Vs. Burn Standard Co. Ltd. and
Others, in paragraphs-62 to 64 observed thus:
We are not unmindful that the decision of this Court in Oil and Natural Gas Corporation Ltd. Vs. SAW Pipes Ltd., had invited considerable
adverse comments but the correctness or otherwise of the said decision is not in question before us. It is only for a larger Bench to consider the
correctness or otherwise of the said decision. The said decision is binding on us. The said decision has been followed in a large number of cases.
(See The Law and Practice of Arbitration and Conciliation by O.P. Malhotra, 2nd Edn., p. 1174).
Before us, the correctness or otherwise of the aforesaid decision of this Court is not in question. The learned counsel for both the parties
referred to the said decision in extenso.
Arb. Appeal No. 31 of 2010 -: 16 :
We, therefore, would proceed on the basis that Oil and Natural Gas Corporation Ltd. Vs. SAW Pipes Ltd., lays down the correct principles
of law.
There can hence be no doubt that the declaration of law in ONGC assigning a wider meaning to the concept of an award being ""in conflict with
the public policy of India"" has to be followed by us in the present case.
Precedents have been copiously cited before us about the narrow scope for judicial interference with an arbitral award. We are conscious of
the fact that the jurisdiction which the court has under Sec.34(2)(b)(ii) is not appellate; nor even revisional. The nature and quality of the jurisdiction
has to be alertly perceived. The court under Sec.34 of the Act cannot re-appreciate facts and law. It cannot choose to disagree with the
Arbitrators and come to a more reasonable or more correct conclusion. The mere fact that a different view is possible cannot persuade a court to
interfere with an award under Sec.34. That a better conclusion is possible or even the fact that the Arbitrator had erred in facts or in law is not
sufficient to persuade a court to invoke the jurisdiction under Sec.34 of the Act. The court will have to be convinced that the illegality is patent and
that it goes to the root of the matter. The court will have to be satisfied that the award is so unfair and unreasonable that it should shock the
conscience of the court. Only then can it be held that the award is opposed to public policy and consequently deserves to be adjudged void.
A question arises whether the vice of perversity would justify the conclusion that an award is patently illegal as to attract the 4th limb of the
grounds mentioned in ONGC. It will be advantageous in this context to refer to the commentary by O.P. Malhotra on the question of perversity
with which we completely agree. At page 1194 of `The Law and Practice of Arbitration and Conciliation'' (Second Edition) by O.P. Malhotra the
learned author observes thus:
Perversity, though not identical with an `error of law apparent on the face of award'', is very much akin to it. Perversity, therefore, will have the
same effect on an award, as an error of law apparent on the face of award. Even if it does not fit in any of the grounds listed in S.34(2)(a), it is well
comprehended in the concept of the expression `in conflict with the public policy of India'' in S.34(b)(ii) for annulling the award.
Precedents have been cited before us in support of the proposition that gross perversity will also vitiate the award leading to its avoidance
under Sec.34(2)(b)(ii) of the Act. We accept that proposition of law without any doubt.
As to what is gross perversity in law, it is not necessary to advert to the precedents which have been citied at the Bar. The principle is stated
thus:
Broadly speaking, if the reasons stated in the award on which it is based, reveal that the decision in it is based on no legal evidence at all; or in
coming to its conclusion, the arbitrator has taken into account irrelevant and extraneous considerations not germane to the resolution of the dispute;
or it has not taken the vital material into account, the award is perverse. It will be `an affront to the law which cannot be overlooked, and the order
stands self-condemned even though it may be within jurisdiction.
(See at page 1193 of `The Law and Practice of Arbitration and Conciliation'' Second Edition by O.P. Malhotra).
It is trite that courts have to alertly ascertain whether there is patent illegality to justify interference with an award onthe ground available under
Sec.34(2)(b)(ii) of the Act. It has to be verified whether the award is vitiated by gross perversity as to justify interference on that ground. But if it is
found that the award is so vitiated, we find no reason for a court not to invoke its powers under Sec.34. On this aspect we find it advantageous to
refer to paragraph-28 of the decision in ONGC Ltd. Vs. Garware Shipping Corpn. Ltd., which we completely accept and follow:
There is no proposition that the Courts could be slow to interfere with the arbitrators Award, even if the conclusions are perverse, and even
when the very basis of the Arbitrators award is wrong.
If the court finds that the award is vitiated by gross perversity and consequently patent illegality, the court should not hesitate to invoke the power
under Sec.34(2)(b)(ii). We are in agreement that such an approach is necessary to maintain the purity and credibility of the process of arbitration
to which the Indian law gives great emphasis as can be seen from Sec.89 of the amended C.P.C.
That takes us to the crucial question whether the two findings referred above:
(a) that the claimant is not bound by Clause (7) of Ext.C10 and
(b) that the claimant can rely on the other stipulations of Ext.C10 are reasonable and correct and whether they are vitiated by the vice of gross
perversity. To decide this question a detailed reference to the facts appear to be necessary. We repeat that we are conscious of the fact that re-
appreciation of evidence is not in the domain of a court under Sec.34. But to decide whether the award is vitiated by the vice of gross perversity it
is certainly necessary to be cognizant of the relevant facts. For this purpose alone reference is necessary to Exts.C10 and C11.
Ext.C10 was the result of direct negotiations between the parties. They entered into Ext.C10 by direct negotiation after the disputes arose
between them about the condition and road worthiness of 48 vehicles which had already reached the claimant at Egypt. According to the claimant
he had suffered a net loss of 1,22,000 USD (for the sake of convenience, we shall refer to the amount in US Dollars only hereafter). The basis of
that claim is explained in Annexure-I of Ext.C11. That is the claim made by the claimant, it is evident. We extract below Annexure-I giving details
of the claim by the claimant annexed to Ext.C10:
Customs Duty 58266.00
Customs Clearance 3253.00
Freight Charge 7608.00
Loading Charges 900.00
Transportation Charges 600.00
Rent for storing the containers 288.00
Total 159154.00
Less: Sale Proceedings of 48 37154.00
vehicles at Egypt
Net Claim 122000.00
Firstly, we will refer to the binding nature of Clause (7) of Ext.C10 on the claimant. It is admitted that Ext.C10 was entered into after
prolonged discussions. The claimant with his wife proficient in English was present for the early part of the negotiation. It included discussions with
the Minister. In addition to his wife, the claimant had with him R.W.1 who is said to be an Advocate of standing and reputation of the Trivandrum
Bar. He was present throughout the negotiation including the negotiation with the Minister. It is not disputed that the minutes was initially hand
written, was subsequently type written and was made available to the parties for perusal before the same was signed on the next day. It is also not
disputed that the claimant had opportunity to peruse the same before he affixed his signature confirming the minutes. Not only he, his
representative, R.W.1 a person competent in law was also present along with him during negotiation as also at the time when Ext.C10 was
presented for signature. It is not disputed that R.W.1 had perused Ext.C10 and had confirmed to the claimant that it is in tune with the negotiations
and discussions held. Extraction of the relevant portion of Ext.C11 letter dated 9/1/07 will in this context be crucially relevant as it reveals the
circumstances under which the claimant signed Ext.C10:
I asked Mr.Sasidharan yourself and Advocate Karim if the minutes were in line with our discussion. As all confirmed the minutes were as per our
discussion I signed the document in good faith without asking for an Arabic translation.
Now the case of the claimant is that he did not have his spectacles and could not hence read Ext.C10. He was not proficient in the English
language and could not hence understand the same. It is his further case that the stipulation No.7 in Ext.C10 alone was not in terms of the
discussions held. It will be apposite in this context to note that admittedly the claimant is a well qualified and educated person. He holds a double
doctorate degree. He enters into the correspondence in English by himself. Exts.C11 and C12 are all written by him in English. An argument that
for want of his spectacles and for the deficiency in the knowledge of English language the claimant must be permitted to avoid Clause (7) of
Ext.C10 is on the face of it totally and grossly untenable. Add to this, the circumstance that his Advocate was present along with him throughout
the negotiation; while preparing the draft of the minutes and later when that draft was presented for signature. The claimant had taken pains to
cross check with his Advocate and others to confirm that the minutes were in line with the discussions. The Advocate had confirmed that the
minutes were as per the discussions. Not only the claimant but the Advocate had also signed Ext.C10 to represent the claimant. In these
circumstances, the conclusion that there was confusion and that Ext.C10 was signed by the claimant without being cognizant of the import and
implication of Clause (7) is on the face of it grossly unreasonable and unacceptable. If we were sitting in appeal, there can be no doubt that the said
finding would have been vacated. There can be no semblance of doubt on that aspect.
But we remind ourselves that our jurisdiction is not appellate or revisional. Our jurisdiction is under Sec.34(2)(b)(ii) of the Act. Gross
perversity amounting to patent illegality has to be shown and perceived. The ready acceptance by the Arbitrator that want of spectacles with the
claimant and the existence of the alleged confusion in the mind of the claimant justifies avoiding Clause (7) of Ext.C10 is certainly incorrect and
unacceptable. According to us, it is not merely incorrect or erroneous; but it is certainly grossly perverse. No reasonable person, according to us,
could have come to such a conclusion on the admitted evidence. It is not a question of choosing between two sets of evidence. The conclusion of
the Arbitrator that the claimant did not understand Clause (7) of Ext.C10 alone is, according to us, not based on any evidence. If a person
swallows the version of the claimant such course must be held to be not only erroneous and unreasonable but grossly perverse. That course - of
readily accepting that convenient explanation, must shock judicial conscience.
We now come to the crucial circumstance. The claimant did not examine R.W.1. Therefore, the company was obliged to examine R.W.1.
R.W.1 in his evidence stated that he had signed Ext.C1. It is puerile and perverse to assume that R.W.1 a legal practitioner of standing would have
signed the minutes along with the claimant if the same were not in tune with the discussions earlier held. The Arbitrator, we find, has erred grossly in
not considering the relevance, significance and impact of R.W.1, the legal advisor and representative of the claimant affixing his signature in
Ext.C10 after confirming to the claimant (as stated in Ext.C11) that the minutes were in line with the discussions. That was a very crucial
circumstance which a prudent person could not have ignored or omitted to consider before coming to a finding that the claimant is not bound by
Clause (7) of Ext.C10 alone. Crucially we find that the relevance, significance or impact of that circumstance was not even adverted to by the
Arbitrator.
The finding of the Arbitrator is thus vitiated by one gross vice, viz., non-consideration of a crucially vital circumstance - of the competent and
experienced legal advisor who was present with the claimant through out and who had confirmed to the claimant that the minutes were in line with
the discussions affixing his signature along with the claimant to confirm the minutes. Non- consideration of that crucial circumstance is not a mere
error or mistake. It certainly amounts to gross perversity in our mind.
The relevant discussions/observations of the Arbitrator appears in paragraph-27 which we choose to extract below:
I do not find any reason to disbelieve this witness (RW1). He is an Advocate practising in Thiruvanantapuram having a long standing. Therefore, I
can conclude that at the time of drafting of Ext.C10 minutes, claimant might have completely agreed the contents therein, as if he has correctly
understood the contents. But from the evidence as disclosed in this case, both oral and documentary, it can be inferred that regarding the mode of
recovery of the damages there was a confusion. There was no dispute at all with regard to any other clause contained in Ext.C10. Therefore, so far
as issue No.3 is concerned, Ext.C10 settlement dated 03.11.07 executed between the claimant and the respondent as per clauses 21 and 23 is
valid and binding on both the parties and consequently the claimant is entitled to be reimbursed the amount of loss, damages, and expenses and
costs incurred thereby, contained in Issue No.1. The dispute raised by the claimant cannot be said to be an afterthought or without any bona fide.
Immediately after he received Ext.C10, he raised the dispute. One cannot infer that in such a commercial transaction claimant would have agreed
to wait for two years for reimbursement without any provision for payment of interest. The manner, the time, the content of the dispute he raised all
will go to show that there was some confusion with regard to the terms of reimbursement contained in Ext.C10. A commonsense approach
dictates that no prudent businessman would agree for such a long repayment schedule.
(Emphasis Supplied)
In the light of the admitted signature of the claimant and RW1 in Ext.C10, after verification and checking, as stated in Ext.C11, strong reasons
must be shown to exist for a prudent person to conclude that the claimant is not bound by clause 7 of Ext.C10 minutes. Not only that the
Arbitrator has not considered the relevance, significance and impact of RW1 signing the same, the Arbitrator has proceeded to observe that
commonsense approach dictates that no prudent business man would agree for such a long repayment schedule"". This is an inference or
assumption which the Arbitrator has imported. It does not appear to be reasonable to us. It crosses the rubicon of gross Arb. Appeal No. 31 of
2010 -: 28 :-perversity. It is all the more so when we look into Exts.C10 and C11. It was claimed that the loss suffered be fixed as 1,22,000
USD. As per Ext.C10, an amount of 40,677 USD was to be adjusted in the first three consignments - evidently the 144 vehicles including the 48
vehicles already despatched and the balance of 81,323 USD was to be adjusted over the future consignments including 7000 number of vehicles
to be supplied as per the proposed new contract on a pro-rata basis. The point that we note is that under Ext.C10 40,677 USD is agreed to be
immediately adjusted - ie. in the value of 144 vehicles. The balance was agreed to be adjusted towards the promised contract for 7000 vehicles.
Let us now see how the claimant claims to have understood this stipulation. According to the claimant, 80,000 USD was to be adjusted
towards the value of 144 vehicles. The balance 42,200 USD alone was agreed to be adjusted towards the fresh order for 7000 vehicles. The
contract for 7000 vehicles had not been specifically entered into. The price for supply of those 7000 vehicles and the details were also not agreed
upon. In spite of that, even according to the claimant, it was agreed that 80000 USD will be presently adjusted (against 144 vehicles) and 42200
USD will be adjusted later for the 7000 vehicles. As against this, the version in Ext.C10 is only that 40677 USD was to be presently adjusted and
the balance 81323 USD was to be adjusted towards the later promised contract of 7000 vehicles. The finding of the Arbitrator that commonsense
approach dictates that no prudent businessman would agree to such a long repayment schedule without interest is contrary to what claimant himself
stated in Ext.C11 about the adjustment of the balance 42200 USD towards the price of 7000 vehicles as per the proposed new order. It would
be totally and grossly perverse to assume (against the express stipulations in Ext.C10) that a reasonable person would agree to the 80000-42,200
USD arrangement and not to 40677 -- 81323 USD arrangement. That is a very subjective inference imported by the Arbitrator contrary to the
specific stipulations in Ext.C10 which was entered into and signed in the manner referred to earlier by the claimant and RW1. This subjective
inference imported by the Arbitrator to jettison clause 7 of Ext.C10 is, it appears to us, definitely grossly unreasonable and perverse.
We now come to the question of the Arbitrator upholding other stipulations in Ext.C10 against the company. A holistic reading of Ext.C10
would clearly reveal that there was no acceptance as such of the case of either by the other. A negotiated settlement was reached. 144 vehicles
were formally ordered to be supplied. 48 were supplied and the dispute was about the road worthiness of those 48. The total price which the
company got as consignment value was only 88,239 USD. As against this, the net claim of loss staked by the claimant was 1,22,000 USD. In
spite of that, we find the parties agreeing on the net claim of 122000 USD. Evidently the temptation for the company was the agreement to place
order for 7000 vehicles in future. Both knew that order for 7000 vehicles was to be so placed. This temptation was offered even in Ext.R3, where
it was suggested that orders will be placed for a lot more of vehicles in future. To assume that the other terms of Ext.C10 were entered into,
ignoring the promise for future orders for 7000 vehilces is, to say the least, unreasonable and perverse. We must in this context again note the fact
that against supply of 48 vehicles of consignment value 88239 USD, the company was agreeing to satisfy the net claim of 1,22,000 USD and
obviously the agreement to place future orders for 7000 vehicles must have weighed heavily with the company. The claimant now wants to avoid
that responsibility for purchase of 7000 vehicles and adjustment of 81,323 USD towards the value of those vehicles. He now wants to claim
1,22,000 USD straightaway. Arbitrator accepted the same. The course adopted by the Arbitrator - of holding that sans clause No.7, all the other
clauses of Ext.C10 are binding on the parties, is again vitiated by the vice of gross perversity and unreasonableness. The claimant, it is transparent,
was permitted to approbate and reprobate. That conclusion appears to be unjust also. Commercial morality is offended by the conclusions
reached by the Arbitrator.
The learned counsel for the claimant contends that there was a confusion relating to `consignments'' and `containers''. Such a specific plea, it is
seen, is not raised with precision or in detail either in Ext.C11 or in Ext.C12, though in Ext.C11 there is a passing reference to such a confusion.
The fact remains that the said explanation that there was a confusion in the mind of the claimant between ""consignments"" and ""containers"" could not
have been accepted by any prudent mind to enable the claimant to avoid clause 7 of Ext.C10 while choosing to place reliance on the other
stipulations of Ext.C10.
To conclude we find specifically
(1) that the acceptance of the explanation that the claimant did not have his spectacles and did not have proficiency in English language and is
consequently entitled to avoid clause 7 of Ext.C10 is grossly unreasonable;
(2) that the acceptance of the explanation that clause 7 of Ext.C10 was not in time with the discussions that preceded is grossly unreasonable;
(3) that the importation of the subjective inference by the Arbitrator that a commonsense approach must suggest that no reasonable person would
have been persuaded to accept the 40,677-81323 USD Schedule in clause 7 of Ext.C10 (in the light of the admitted arrangement of 80000--
42000 USD as claimed in Ext.C11) is grossly unreasonable;
(4) the total omission of the Arbitrator to consider the relevance, significance and impact of the admitted circumstance that RW1, a legal
practitioner of standing who was present with the claimant throughout had signed Ext.C10 after specifically confirming to the claimant that all the
terms in Ext.C10 were in tune with the discussions that preceded, is grossly unreasonable;
(5) that the conclusion of the Arbitrator that the claimant can take advantage of the other stipulations in Ext.C10 after avoiding clause 7 (which
virtually enables him to avoid the liability to adjust any part of the amount of 1,22,000 USD towards the future liability to pay price of 7000
vehicles) is grossly unreasonable and offends the accepted fundamental principle of law that a person cannot approbate and reprobate;
(6) that the facility afforded to the claimant to avoid the obligation to purchase 7000 vehicles as agreed in Ext.C10 is unjust and commercially
immoral;
(7) that the findings and approach of the Arbitrator are not merely erroneous or mistaken but are perverse and do shock the conscience of this
Court;
(8) that the findings are hence grossly perverse (and hence patently illegal), unjust and commercially immoral;
(9) that consequently the award is liable to be set aside -being in conflict with the public policy of India as explained in para.31 of ONGC (supra),
ie. Oil and Natural Gas Corporation Ltd. Vs. SAW Pipes Ltd.,
In the result:
a) This Arbitration Appeal is dismissed;
b) The impugned order is upheld.