A.K.SIKRI
(1) IN this writ petition petitioners are challenging the vires of Section 34 of the Arbitration and Conciliation Act, 1996 (for short "the Act"). Following factual matrix has led the petitioners to file the instant petition:
(2) RESPONDENT No.2 (for short "IFFCO") placed an order for 4.5 lakh bags in different specifications and prices, on the petitioners. The order envisaged that Delivery Orders would be issued specifying the quantity and destination and price on which the material is to be supplied. IFFCO placed three Delivery Orders for supply of total of 2.25 lakhs of Urea bags to Kalol Plant. Petitioners defaulted in supplying the bags. This compelled the IFFCO to go in for risk purchase by refuting the tender of 80 lakhs bags in respect of default by several suppliers which included petitioners. Thereafter, IFFCO issued notice calling upon petitioners to pay a sum of Rs.5.93 lakhs with interest. It had forfeited the earnest money deposit of the petitioners and the demand by legal notice as aforesaid, was for the amount after adjusting the earnest money deposit. Petitioners refuted liability to make any payment and on the other hand demanded refund of earnest money deposit. As dispute arose, IFFCO issued notice referring the issue to arbitration and called upon petitioners to concur to the appointment of named arbitrators. Petitioners refused to do so. IFFCO filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 in this Court for appointment of Arbitrator. Order dated 28/08/1998 was passed in the said application appointing Mr. Justice P.K.Bahri (Retired) as the Sole Arbitrator. It may be mentioned at this stage that the Arbitrator was appointed as per the suggestion of the parties. Learned Arbitrator held the proceedings and gave Award dated 14/10/1999. As per this Award damages/compensation to the tune of Rs.3,69,600.00 along with interest at the rate of 18% P.A. and cost of Rs.50,000.00 has been awarded in favour of IFFCO. Petitioners, if were aggrieved by the Award, had the remedy to challenge the Award as per the provisions of section 34 of the Act. For this petitioners were to file objections to the Award within a period of three months. However, petitioners did not choose to do so as the petitioners felt that Section 34 does not provide proper and adequate remedy to challenge the Award. Therefore, the petitioners filed the instant petition challenging the constitutionality of Section 34 of the Act.
(3) THE main thrust of the petition, on the basis of which Section 34 of the Act is challenged as ultravires and unconstitutional, is that it fails to provide even one forum of appeal. The contention is that the grounds as stipulated in Section 34 on which the Award can be challenged do not include a ground to challenge the Award on merits and are mainly jurisdictional grounds. According to the petitioners there has to be at least provision for one appeal to challenge the Award on merits and the courts should be entitled to review the Award judicially. The power of judicial review is a fundamental right and part of basic structure of the constitution. The Court should be equipped with power to consider whether the conclusion is based on evidence and record and whether it supports the finding or else the conclusion is based on no evidence and Award is to be set-aside. In the absence of any such power, the provisions of section 34 should be treated as unconstitutional being violative of Article 14 of the Constitution. Counsel further tried to buttress this argument by submitting that in the instant case itself although learned Arbitrator had allowed the claim of the IFFCO only to the extent of Rs.3,69,600.00 an exorbitant amount has been awarded by way of cost of Rs.50,000.00 when there was not even a prayer made by the IFFCO for cost before the Arbitrator. According to the learned counsel such an Award could not be challenged on this ground within the four corners of Section 34 of the Act. Counsel for the petitioners, in support of aforesaid arguments relied upon following judgments relating to power of judicial review, necessity for provision of at least one appeal etc.:
1. R.KJain Vs. Union of India and others (1993) 4 SCC 119
2. State of Tamil Nadu and another Vs. S.Subramaniam AIR 1996 SC 1232
3. Lt.Col.Prithi Pal Singh Bedi Vs. Union of India & Ors. AIR 1982 SC 1413 We are not impressed by any of the arguments advanced on behalf of the petitioners.
(4) WE may also point out at the outset that in the case of BabarAli \/s. Union of India (2000) 2 SCC 178 validity of Section 34 of the Act has been upheld by the Supreme Court while upholding the judgment of this Court. However, it was tried to be argued that Babar Ali case (supra) arose under different circumstances and the grounds urged in this petition are substantially different. Although it may not be a valid plea, however, as such petitions are repeatedly being filed, we intend to deal with the issue.
(5) IT is well settled that right to appeal is a creature of statute and a party can file an appeal only if provided by statute. The matter in question does not relate to judicial review of administrative action or judicial review of decision of a tribunal created under any statute. The arbitration which is alternate forum for redressal of dispute, is the one selected by the parties out of their own free will. The parties agree to the decision by the Arbitrator by means of a mutual agreement, which is a contract between the parties, which gives go by to the normal judicial forum otherwise available to the parties.
(6) THERE is no compulsion and or imposition by any statute which compels the parties to resort to arbitration in case of dispute between the parties. The constitutionality of the provision of Section 34 of the Act is to be examined keeping in view this important and relevant aspect in mind. When the parties have chosen the forum of arbitration and the Arbitrator of their choice, it is not necessary to make a provision for appeal against the Award rendered by the Arbitrator. The legislature has the power to specify the grounds on which an Award can be challenged and it would be permissible for the party to challenge the Award only on those grounds and no others. Therefore, if, the Parliament in its wisdom has prescribed certain grounds on which the Award can be challenged, it is not permissible for the petitioners to say that there should be a right to challenge the Award even on merits and in the absence of such a provision Section 34 of the Act is unconstitutional. The parties agree to the resolutioof dispute by arbitration knowing fully well the limitations envisaged by Section 34 of the Act in the event of the Award rendered by Arbitrator being challenged. Legally speaking such an argument has no legs to stand. In fact it may be noticed that even in the earlier Act, namely, Arbitration Act, 1940, there was neither any provision for appeal against an Award nor Award could be challenged on merits i.e. it was not the function of the Court to sit in appeal over the decision of the Arbitrator. In fact there is abundance of case law to conclude that Arbitrator was the best Judge of facts and even law and courts were not to interfere with the Award of the Arbitrator on merits. The scope of the objections to Award was limited even under provisions of the Arbitration Act,1940, particularly, Section 33 of the Act. The vires of Section 33 of the Act were upheld by the Apex Court.
7. In the case of Bihar State Electricity Board Vs. M/s. Khalsa Brothers AIR 1988 Patna 304 it was held that the jurisdiction of the Court to examine correctness of the arbitration Award is limited by the provisions of arbitration act which are based on the general principle applicable to arbitration proceedings. An Arbitrator is a Tribunal selected by the parties and his adjudication is binding on them. If it was permissible for the Court to re-examine the correctness of the Award, the entire proceedings would amount to an exercise in futility. The grounds on which the award can be set-aside are limited by statute.
(8) THE aforesaid observations dealing with the Arbitration Act, 1940 would apply to the present Act also. We may note here that the Arbitration and Conciliation Act, 1996 is substantially based on the model law adopted by the United Nations Commission on International Trade Law (UNCITRAL) in view of the policy of liberalisation pursed by this country. It became almost imperative to model the arbitration laws of the country after the UNCITRAL Model Code. The General Assembly of the United Nations recommended that all countries give due consideration to the said Model Law in view of the desirability of uniformity of the law of arbitral procedures. In global contracts it is customary to have provision for arbitration in the event of disputes. Therefore, it is only proper that all the participating countries should have uniform laws as far as possible. That was the need for a Model Code which resulted in the UNCITRAL Model Law on arbitration and most of the countries including India brought their local laws in line with the said Model Law. This is the birth of the Arbitration and Conciliation Act, 1996. One fact which permeates this Code is the emphasis on speedy disposal of arbitration proceedings. It is well known that under the Arbitration Act, 1940, arbitration proceedings took years to come to end. Court interference at various stages was one of the major causes for delay. Even after the Award was rendered by the Arbitrator, it would take number of years before it is made Rule of the Court as the aggrieved party would file objections of all sorts which led to delay. It was felt that the very purpose of speedy resolution of disputes by means of arbitration was defeated by such provisions. The new statute has endeavoured to minimise judicial interference at all stages. The Act embodies the mature vision of a modem nation. It is a product of conceptual thinking and of much debate and consultation. It provides for greater autonomy in the arbitral process and limits judicial intervention to a narrower circumference. It is more responsive to contemporary requirements. Transparency is a statutory feature of the arbitral process and the disclosure of circumstances which may throw doubt on an arbitrator's independence or impartiality is an integral part of that process. The element of accountability is reflected in the requirement that the Award must state reasons, unless the parties dispense with it or the award is on agreed terms. Several other features have been incorporated which are intended to perfect the legislative scheme. An award can now be set aside if it is in conflict with "the public policy in India", a ground which according to the need of the hour is capable of expansion and/or modification and a ground which would definitely cover, inter alia, fraud, corruption, disregard for well settled legal principles etc.
(9) THE result of aforesaid discussion is that present petition is without any merit and is liable to be dismissed.
(10) BEFORE parting, we may mention that it was factually incorrect on the part of the petitioners to allege that cost is awarded although not claimed. IFFCO had claimed the cost of arbitration proceedings. While awarding the cost the learned Arbitrator would have, naturally, taken into consideration, fee payable to the Arbitrator, cost of stamp on the Award and the cost of litigation etc. Further, it also needs to be mentioned that by order dated 28th August, 1998 in applipplication under Section 11 filed by the IFFCO, the Arbitrator was appointed on the suggestion of both the parties. Thus the petitioners agreed to adjudication of dispute by the Arbitrator of their choice knowing fully well that arbitration proceedings and Award would be governed by the Arbitration and Conciliation Act, 1996. These facts are mentioned only to highlight the conduct of the petitioners and it may be clarified that insofar as challenge to the constitutionality of Section 34 of the Act is concerned, the same has been dealt with independent of these considerations and purely from legal angle. This writ petition is, therefore, dismissed with cost quantified at Rs.5,000.00.