M/S Sikkim Subba Associates Vs. State of Sikkim [2001] Insc 252 (1 May 2001)
Cji,
R.C. Lahoti & Doraiswamy Raju Raju, J.
L.I.T.J
A
skeletal reference to the facts, without much emphasis on the details of merits
of the case, would help to appreciate certain submissions, at the time of
actual consideration of the claims projected before us.
The
respondent, State of Sikkim, and the appellant, M/s Sikkim Subba Associates
(referred throughout as appellants), claimed to be a firm of Partnership,
entered into an agreement on 22.1.1991 under which the appellants have been
appointed as the organising agents for its lotteries enumerated therein subject
to the terms and conditions more fully set out therein regulating the rights
and obligations of the parties. It needs to be kept in view that since running
of private lotteries would constitute a criminal offence, some of the States
have allowed parties to put on the apparel of the State in return for a
stipulated fee to mobilise funds, in public interest to undertake public works.
Disputes and misunderstanding arose which led to the termination of the
agreement resulting in the appellants seeking recourse to litigation by getting
an Arbitrator appointed invoking the powers under Section 8 of the Arbitration
Act, 1940 (hereinafter referred to as the `Act).
As
against the order dated 24.10.1992 of the District Judge, Gangtok (Sikkim), appointing the sole Arbitrator,
the respondent challenged the same before the High Court by filing an appeal which
came to be dismissed on 23.11.1992.
The
matter was pursued further before this Court in SLP (C) No.26 of 1993 and by an
order dated 26.4.1993 the same was, by the agreement of parties, dismissed
subject to the observation that the Arbitrator shall give a speaking order and,
therefore, there was no need to go into the controversy raised. The appellants
filed their statement of claim before the Arbitrator for a sum of Rs.81,84,679.45
with further relief for the refund of Rs.76 lacs, said to have been realised by
the State by encashing two bank guarantees, with interest at 18% p.a. from
23.9.1992, the date of encashment. The respondent-State filed its reply
opposing the claims made by the appellants and asserted a counter claim against
the appellants for a sum of Rs.8,64,81,445/- with future interest and costs.
Both parties marked documents and adduced oral evidence. Thereupon, the
Arbitrator made an Award on 8.2.1994 determining the amount payable by the
State to the appellants at Rs.37,75,00,000/- and the amount payable by the
appellants to the State by way of counter claim at Rs.4,61,35,242/- and after
adjusting the amounts due to the State towards its counter claim, determined
the net amount payable to the appellants by the State at Rs.33,13,54,758/-.
Proportionate costs were awarded and future interest was also granted at the
rate of 12% p.a. on the sum of Rs.33,13,54,758/-.
Aggrieved,
the State filed an application under Section 30 of the Act to set aside the
Award. The District Judge by his decision dated 27.10.94 overruled the
objections of the State and made the Award the rule of court by passing a
decree in terms of the Award. The State challenged the same before the High
Court by filing an appeal under Section 39 of the Act. The matter was heard in
the High Court by a Division Bench consisting of the learned Chief Justice
(Justice S.N. Bhargava) and Justice R. Dayal. In a judgment dated 29.9.1995 the
learned Chief Justice agreed with the contentions raised on behalf of the State
and sustained the challenge made to the Award by setting aside the Award as
well as the Judgement of the learned District Judge, thereby allowing the
appeal with costs. Dayal, J.
rendered
a separate dissenting judgment by coming to the ultimate conclusion that the
quantum of damages arrived at by the Arbitrator suffered an illegality apparent
on its face and, therefore, in his view the matter required to be remitted for
reconsideration of the matter afresh to the Arbitrator. In view of the above,
the Court passed the following order :- There is a difference of opinion
between us. Chief Justice has come to the conclusion that the appeal should be
allowed with costs whereas Justice Dayal has come to the conclusion that the
matter may be remitted back to the Arbitrator for determining quantum of
damages. As such, the matter may be placed before the Honble Chief
Justice/Judge as soon as he assumes charge.
Sd/- Sd/-
(Ripusudan Dayal) (S.N. Bhargava) Judge Chief Justice 29/09/1995 29/09/1995
Thereafter, Dayal, J. ceased to be Judge of the Sikkim High Court and was
transferred to the Allahabad High Court and in his place Justice M. Sengupta
assumed office.
Though
the date for hearing of the matter was fixed by the said learned Judge, on the
said date it was mentioned that Sikkim Subba Associates, the appellants, has
filed an application in CMA No.11/96 invoking powers under Sections 98 and 151,CPC,
opposing the hearing of the appeal in view of Section 98(2). The State also
filed CMA No.15/96 invoking Sections 11, 98 and 151, CPC, questioning the very
maintainability of the application filed by Sikkim Subba Associates. The said
applications though initially were before Sengupta, J., due to inadvertence
came to be listed before the new Chief Justice (Justice K.M. Agarwal) and when
the learned Chief Justice asked the counsel as to whether they wanted the case
to be made over to Sengupta, J., both sides wanted the same to be heard by the
Chief Justice himself. The learned Chief Justice was of the view that the order
of reference made on the judicial side by the Division Bench cannot be upset
either on the administrative side or on the judicial side while hearing the
appeal as a third Judge pursuant to the order of reference.
Consequently,
by an order dated 14.8.96 the application filed by the appellants came to be
dismissed and the one filed by the State came to be allowed to the extent of
challenge made to the maintainability of the application filed by the
appellants. These appeals came to be filed in this Court challenging those
orders.
On
3.3.1997 when SLP (C) Nos.3232-3233 of 1997 came up for hearing, this Court (Honble
the Chief Justice and Honble Mrs. Justice Sujata V. Manohar) passed the
following order, after briefly noticing the circumstances in which the appeals
have been filed :- Against the said order of 14.8.96 made by Agarwal Chief
Justice, the petitioners filed the present Special Leave Petitions. When these
petitions were came up for hearing on the last occasion a technical objection
was raised that the per Court order of 29.9.95 had not been challenged by the
petitioners and, therefore, the petitions were not maintainable. To overcome
this technical objection by way of abundant caution the petitioners have sought
amendment of the petition with a view to challenging the said per Court order
of 29.9.95. The amendment is opposed on the ground that it is barred by 400
days. However, in the aforementioned circumstances, we conclude that there was
no deliberate delay on the part of the petitioners, but it was only because
they thought that it was not necessary to challenge the order of 29.9.95 as
they had challenged the subsequent order of 14.8.96. We, therefore, condone the
delay and allow the amendment.
We
would also like to make it clear that we do not propose to go into the merits
of the matter except to consider whether in the aforesaid factual background
was it permissible to the learned Chief Justice to hear and pass the order of
14.8.96. In other words, was the learned Chief Justice entitled to hear the matter
in view of the per Court order passed on 29.9.95. If yes, the question is
whether the per Court order of 29.9.95 itself was a correct order.
If no,
what order this Court should pass in the matter.
This
is the limited question which we may be required to consider at the initial
stage unless we find it necessary to enter into the merits of the matter.
We
direct the learned counsel appearing for the contesting parties to file their
brief written submissions within two weeks from today. The matters may thereafter
be fixed for final disposal. Permitted to mention before the learned Chief
Justice.
On
11.4.1997 when the SLPs came up once again before the very Bench of this Court,
it was ordered as follows:- In order to avoid multiplicity of the proceedings
which may be the consequence if this Court first decides only the legality of
the order dated 14.8.1996 passed by the learned third Judge in the High Court,
we consider it appropriate to treat these special leave petitions as ones
against the judgment of the High Court even on merits. Irrespective of the view
taken by this Court on the question of the legality of the order of the learned
third Judge, these matters would be heard as appeals even on merits of the
case. This is clarified in view of the earlier order dated 3.3.1997 which had
indicated that this Court did not propose then to go into the merits of these
matters. Learned counsel for both sides agree that this would be the more
appropriate course to avoid any further delay in the decision of the matters on
merits and it would also avoid multiplicity of proceedings because in either
view taken on the question of legality of the learned third Judges order, the
aggrieved party would be required to then challenge the decision on merits. It
is clarified accordingly.
Leave
granted.
No
stay.
Shri
B. Sen, learned senior counsel for the appellants, submitted that having regard
to the fact that the Sikkim High Court, at the relevant point of time, had only
two judges, inclusive of the Chief Justice, and they have chosen to differ from
each other - the learned Chief Justice taking the view that the appeal of the
State has to be allowed and the Award of damages in favour of the appellants
was unwarranted as well as unsustainable in law and the other learned Judge (R.
Dayal J.,) expressing the view that the award suffered from an error of law
apparent only in the manner of determination of the quantum of damages and that
for purposes of re-determination afresh of the quantum of damages alone, the
matter has to be remitted to the Arbitrator, the Award ought to have been
confirmed under Section 98 (2) C.P.C., particularly when rules 149 & 150 of
the Sikkim High Court (Practice & Procedure) Rules, 1991 came to be deleted
with effect from 12.3.92, the date of enforcement of the original rules.
Reliance has been placed in this regard on the decision of this Court reported
in Tej Kaur & another vs Kirpal Singh & Another (1995 (5) SCC 119) and
that of the Assam High Court in Abdul Latif vs Abdul Samad (AIR 1950 Assam 80).
In traversing the said claim, Shri V.A. Bobde, learned senior counsel for the Sikkim
State, contended that the words Court consisting of in juxtaposition to the
words Constituting the Bench, in proviso to sub-Section (2) of Section 98 will
only have relevance and has to be construed with reference to the sanctioned
strength alone - which at all relevant points of time was only three so far as Sikkim
High Court is concerned and whenever there is a third judge, even on the
vacancy being filled up on such vacancy arising for any reason in respect of
any one of the two, the matter should be referred to and heard by the third
judge and neither any exception could be taken for the same nor could it be
claimed that the judgement under appeal before the High Court should only be
confirmed. Since retrospective deletion of a statutory rule could not have been
legitimately made by a notification by the rule-making authority in the absence
of a specific statutory provision conferring any such power in this case, it is
contended that the deletion could be only of prospective effect and the case
before us would be governed by those rules, as if it existed.
In our
view, the decision in AIR 1950 Assam 80 (Supra) has no application to this case
where unlike the Assam Case, the very Division Bench, as part of their judicial
order also made a consequential order of reference to a third judge and
inasmuch as there was no appeal challenging the same. We are of the view that
rules 149 & 150 of the Sikkim High Court (Practice & Procedure) Rules,
1991, which governed the situation, were very much in force on the date when
the Division Bench exercised their power and the order of reference passed in
this case could not therefore be said to be bad in law. Apart from the
axiomatic principle of law that a subordinate legislation in the form of Rule
or Notification could not be made/unmade retrospectively unless any power in
that regard has been specifically conferred upon the Rule-making Authority , a
mere retrospective deletion could not per se have the effect of nullifying or
destroying orders passed or acts already performed, when such powers were
available in the absence of any specific statutory provision enacted to destroy
all such rights already acquired or obligations and liabilities incurred.
The
decision in 1995 (5) SCC 119 (supra) will have no application to this case, in
view of rules 149 & 150 noticed above and also for the reason that unlike
in the present case, the case considered therein, concedingly involved only a
question of fact over which the dissenting views came to be expressed. That
apart, the words Consisting of shall mean and also considered to have relevance
only to the sanctioned strength. Therefore, taking into account the fact that
for the time being, there were only two Judges in position and that the learned
judges, who constituted the Division Bench, expressed different views and at
the same time thought fit to refer the matter to the opinion of a third judge,
the matter should await till the arrival of a third judge. Not only such a
contingency also fructified in this case but the matter also came to be
actually posted before the third judge for hearing. The amplitude of powers of
this Court under Articles 136 and 142 of the Constitution of India for doing
complete justice in any cause or matter brought before it, cannot also be
otherwise disputed. As a matter of fact, in the teeth of the Orders passed by
this Court on 11.4.97 to treat the appeals as having been filed even on the
merits of the case and be heard as such, and that too, on the agreement
expressed by the counsel on both sides, to be also the appropriate course, in
these matters, it is not permissible for the appellants to take a stand to the
contrary to avoid or stall an hearing and disposal of these appeals on the
merits of the matters involved therein.
The
respondent-State, though at some point of time, seems to have pressed into
service Article 299 of the Constitution of India, to contend that no valid
contract between parties came into existence as envisaged therein and
consequently neither the Arbitrator could have entered upon reference nor can
the State be held bound by such an agreement, the same was not pursued before
us realising the futility of the same, having regard to the peculiar facts of
this case. We are not called upon, in such circumstances, to decide this issue
and the parties have also proceeded on the footing that there was a valid and
binding contract between the appellants and the State, in this case, without
prejudice to their contentions in respect of their rights under the agreement.
On
behalf of the appellants, it has been strenuously contended that the
Arbitrators award cannot be challenged in proceedings under Section 30 of the
Act, as if on an appeal and that the Award in this case has been rightly upheld
by the District Judge, since it did not disclose any misconduct on the part of
the Arbitrator and no other ground for any such an interference within the
parameters of Section 30, having also been substantiated by the respondent-State.
It is, therefore, contended that the decision of Chief Justice Bhargava, for
the same reason, could not be sustained and that the learned Chief Justice
committed an error in directing the Award, as affirmed by the District Judge,
to be set aside for any one or other of the reasons assigned by him. At the
same time, while strongly defending the decision of the learned Chief Justice,
it was urged for the respondent- State that the numerous errors apparent ex facie on the Award
have been not only meticulously enumerated but found to have been substantiated
succinctly, by adverting to the materials in support thereof for justifying
Courts interference. It was also submitted for the respondents that Dayal J.,
having found the Award to suffer from serious infirmities in awarding damages,
erred in directing a remand to the very Arbitrator for consideration afresh, to
re-determinate the damages and instead there should have been only a supersession
of the arbitration agreement itself under Section 19 read with Section 16 (c)
of the Act. The learned senior counsel on either side invited our attention to
voluminous case law on the scope and ambit of powers of Courts exercising
jurisdiction under Section 30 as well as Section 39 of the Act for interference
with the award of an Arbitrator, which, on a closer scrutiny, would disclose
that the observations in each of such cases came to be made, invariably and
ultimately in the context of the peculiar facts and circumstances of the cases
dealt with therein and having regard to the particular class or category of
mistakes or nature of errors found highlighted in those cases. It is
appropriate, before undertaking an adjudication on the merits of the claims of
parties, to advert to the salient and overall peripheral parameters, repeatedly
re- emphasised by this Court, in justification of interference with an Award of
the Arbitrator by different Courts at various levels exercising powers under
the Act as well as by this Court, without unnecessarily multiplying the number
of authorities by making reference to only some relevant out of the same, for
our purpose.
Relying
upon the ratio in Champsey Bhara & Company vs Jivraj Balloo Spinning &
Weaving Company Ltd. (AIR 1923 P.C. 66) this Court in M/s Alopi Parshad &
Sons Ltd. vs Union of India (AIR 1960 SC 588) observed that the award may be
set aside on the ground of an error on the face thereof, when in the award or
in any document incorporated with it, as for instance, a note appended by the
Arbitrator(s) stating the reasons for the decision wherein the legal
propositions which are the basis of the award are found to be erroneous. A
specific question submitted to the Arbitrator for his decision, even if found
answered wrongly involving an erroneous decision in point of law also, was
considered not to make the award bad on its face so as to call for
interference. While emphasising the position that misconduct in Section 30 (a)
of the Act comprises legal misconduct, this Court held it to be complete in
itself when the Arbitrator was found to have, on the face of the award, arrived
at a decision by ignoring very material and relevant documents which throw
abundant light on the controversy to help a just and fair decision or arrived
at an inconsistent conclusion on his own finding (K.P Poulose vs State of Kerala
& Anr. - AIR 1975 SC 1259). In M/s Chahal Engineering and Construction
Company vs Irrigation Deptartment., Punjab, Sirsa, (1993 (4) SCC 186), this
Court held that the words is otherwise invalid in clause (c) of Section 30 of
the Act would include an error apparent on the face of the record.
In
Trustees of the Port of Madras vs Engineering Constructions Corporation Ltd., (1995 (5)
SCC 531) after adverting to the ratio of the Constitution Bench of this Court
in Raipur Development Authority & Ors. vs M/s Chokhamal Contractors &
others (1989 (2) SCC 721), this Court held that the error apparent on the face
of the award contemplated by Section 16 (1) (c) and Section 30 (c) of the Act
is an error of law apparent on the face of the award and not an error of fact
and that the Arbitrator cannot ignore the law or misapply it in order to do
what he thinks is just and reasonable. In The President, Union of India &
Another vs Kalinga Construction Co. (P) Ltd. (AIR 1971 SC 1646), it was held
that the Court, in a proceeding to set aside the award cannot exercise
jurisdiction, as if on an appeal by re- examining and re-appraising the
evidence considered by the Arbitrator and come to the decision that the
Arbitrator was wrong (See also AIR 1989 SC 268; 1989 SC 777 and 1989 SC 890).
In
Union of India vs M/s Jain Associates & Another (JT 1994 (3) SC 303), this
Court held as follows:
7. In
K.P. Poulose vs State of Kerala & Anr. [(1975) Supp. SCR 214)], this Court
held that misconduct under Section 30(a) does not connote a moral lapse. It
comprises of legal misconduct which is complete if the arbitrator, on the face
of the award, arrives at an inconsistent conclusion even on his own finding, by
ignoring material documents which would throw abundant light on the controversy
and help in arriving at a just and fair decision. It is in this sense that the
arbitrator has misconducted the proceedings in the case. In that case the
omission to consider the material documents to resolve the controversy was held
to suffer from manifest error apparent ex facie. The award was accordingly
quashed. In Dandasi Sahu vs State of Orissa (1990 (1) SCC 214), this Court held that the arbitrator need not give
any reasons. The award could be impeached only in limited circumstances as
provided under Section 16 and 30 of the Act. If the award is disproportionately
high having regard to the original claim made and the totality of the
circumstances it would certainly be a case of non application of mind amounting
to legal misconduct and it is not possible to set aside only invalid party
while retaining the valid part. In other words the doctrine of severability was
held inapplicable in such a situation. It is, therefore, clear that the word
misconduct in Section 30(a) does not necessarily comprehend or include
misconduct of fraudulent or improper conduct or moral lapse but does comprehend
and include actions on the part of the arbitrator, which on the face of the
award, are opposed to all rational and reasonable principles resulting in excessive
award or unjust result or the like circumstances which tend to show non
application of the mind to the material facts placed before the arbitrator or
umpire. In truth it points to fact that the arbitrator or umpire had not
applied his mind and not adjudicated upon the matter, although the award
professes to determine them. Such situation would amount to misconduct. In
other words, if the arbitrator or umpire is found to have not applied his mind
to the matters in controversy and yet, has adjudicated upon those matters in
law, there can be no adjudication made on them. The arbitrator/umpire may not
be guilty of any act which can possibly be construed as indicative or
partiality or unfairness. Misconduct is often used, in a technical sense
denoting irregularity and not guilt of any moral turpitude, that is, in the
sense of non-application of the mind to the relevant aspects of the dispute in
its adjudication. In K.V. George vs Secretary to Government, Water & Power
Department, Trivandrum & Anr. [(1989) 4 SCC 595], this Court held that the
arbitrator had committed misconduct in the proceedings by making an award
without adjudicating the counter claim made by the respondent. In Indian Oil
Corporation Ltd. vs Amritsar Gas Service and Ors. [(1991) 1 SCC 533 & 544],
the counter claim was rejected on the ground of delay and non consideration of
the claim, it was held, constituted an error on the face of the award.
It is
also, by now, well settled that an Arbitrator is not a conciliator and his duty
is to decide the disputes submitted to him according to the legal rights of the
parties and not according to what he may consider it to be fair and reasonable.
Arbitrator was held not entitled to ignore the law or misapply it and cannot
also act arbitrarily, irrationally, capriciously or independently of the
contract (See 1999 (9) SCC 283 : Rajasthan State Mines and Minerals Ltd. vs
Eastern Engineering Enterprises & Anr.). If there are two equally possible
or plausible views or interpretations, it was considered to be legitimate for
the Arbitrator to accept one or the other of the available interpretations. It
would be difficult for the Courts to either exhaustively define the word
misconduct or likewise enumerate the line of cases in which alone interference
either could or could not be made. Courts of Law have a duty and obligation in
order to maintain purity of standards and preserve full faith and credit as
well as to inspire confidence in alternate dispute redressal method of
Arbitration, when on the face of the Award it is shown to be based upon a
proposition of law which is unsound or findings recorded which are absurd or so
unreasonable and irrational that no reasonable or right thinking person or
authority could have reasonably come to such a conclusion on the basis of the
materials on record or the governing position of law to interfere. So far as
the case before us is concerned, the reference to the Arbitrator is found to be
a general reference to adjudicate upon the disputes relating to the alleged
termination of the agreement by the State and not a specific reference on any
particular question and consequently, if it is shown or substantiated to be
erroneous on the face of it, the award must be set aside.
The
Award under challenge, in our view, stands vitiated on account of several
serious errors of law, apparent on the face of it and such infirmities go to
substantiate the claim of the State that not only the Arbitrator acted
arbitrarily and irrationally on a perverse understanding or misreading of the
materials but also found to have misdirected himself on the vital issues before
him so as to render the award to be one in utter disregard of law and the
precedents.
Although
the award purports to determine the claims of parties, a careful scrutiny of
the same discloses total non-application of mind to the actual, relevant and
vital aspects and issues in their proper perspective. Had there been such a
prudent and judicious approach, the Arbitrator could not have awarded any
damage whatsoever and, at any rate, such a fabulous and astronomical sum on
mere conjectures and pure hypothetical exercises, absolutely divorced from
rationality and realities, inevitably making law, equity and justice, in the
process, a casualty. The Arbitrator has acknowledged when recording a finding
on the basis of indisputable facts that except for the first set of draws in
respect of eight lotteries in groups A & B, the prize money obliged to be
deposited seven days before the draw (since the winners have to be paid only
out of such deposits, after draw) as well as the agency fee running to crores
was not deposited/remitted in time constraining thereby the State to mobilise
funds to distribute prize money from State funds in order to preserve and
protect the fair name and reputation of the State, the lotteries being run as
that of and for and on behalf of the State. Even, as late as 8.2.94 when the
award came to be passed the appellants were in arrears, due to non-deposit of
prize money within the stipulated time, a sum of Rs.1,37,47,026/- besides
non-remittance of agency fee of Rs.3,72,87,884/-.
Despite
this, the Arbitrator tried to find an alibi for the defaulter appellants in the
fact that the State, in spite of warnings and threats, did not actually stop
either those draws or the further subsequent draws and allowed the lotteries to
go on without any break. From the above, the Arbitrator as well as the learned
District Judge chose to infer that the respondent-State had condoned or waived
the lapses and defaults completely overlooking the vital fact that the
Arbitrator is not dealing with any claim for damages from the respondent-State
against the appellants who defaulted in respect of such defaults but on the
other hand a claim from the defaulter appellants itself for damages against the
State for not willing to put up any longer with a recurrent and recalcitrant
defaulter. The Arbitrator, grossly omitted to give due weight to such defaults
committed by the appellants and further misdirected himself in not drawing the
legal inferences necessarily flowing from them. Even if it is assumed for
purposes of consideration that the State had waived past lapses, it cannot be
compelled to condone the persistent and continuous wrongs and defaults and
continue to perform their part of the contract to their disadvantage and
detriment and also further penalise them with damages for not doing so, when
even dictates of common sense, reason and ordinary prudence would commend for
rejecting the claim of the appellants as nothing but a gamble and vexatious.
The Arbitrator, who is obliged to apply law and adjudicate claims according to
law, is found to have thrown to winds all such basic and fundamental principles
and chosen to award an astronomical sum as damages without any basis or
concrete proof of such damages, as required in law.
Though
the entire award bristles with numerous infirmities and errors of very serious
nature undermining the very credibility and objectivity of the reasoning as
well as the ultimate conclusions arrived at by the Arbitrator, it would suffice
to point out a few of them with necessary and relevant materials on record in
support thereof to warrant and justify the interference of this Court with the
award allowing damages of such a fabulous sum, as a windfall in favour of the
appellants, more as a premium for their own defaults and breaches :- a) The
conclusions in the award are found seriously vitiated on account of gross
misreading of the materials on record as well as due to conspicuous omission to
draw necessary and lawful inferences, inevitably flowing from the indisputable
materials as well as findings recorded by the Arbitrator himself. Conclusions
directly contrary to the indisputable facts placed on record are shown to have
been drawn on the question of alleged waiver throwing over board the
well-settled norms and criteria to be satisfied and proved before the plea of
waiver, can ever be countenanced leave alone, the basic and fundamental
principle that a violator of reciprocal promises cannot be crowned with a prize
for his defaults. Chief Justice Bhargava has taken great pains to enumerate
them. Neither the Arbitrator, nor the District Judge or even the learned Judge
who has chosen to differ from the view of the Chief Justice appear to have
applied their mind judiciously or judicially to these aspects before
countenancing the claim of damages made by the appellants. Even a cursory
reading of the contents of Ex. R-14, R- 16 to R-19, R-21, R-22 to R-25 and R-26
to R-34 as well as R-80 would belie the claims based upon the plea of condonation
or waiver forever so as to entitle the appellants to still insist upon the
State alone, notwithstanding its own continuing wrongs, to perform its part of
the obligations under the contract or to claim damages from the respondent for
not doing so. To illustrate R-25 dated 7.8.91 written to the appellants may be
usefully extracted :- I have been repeatedly reminding you for sending
Government dues of Agency fees and prize money but it seems that you are not
bothering to care for it. Since three months have passed you have not yet paid
any instalments of Agency fees. As regards prize money you have paid only for
the five draws and remaining ten draws are still outstanding. Now Govt. has
taken a very serious view for the lapses on your part. I am, therefore,
directed to inform you that if we do not receive Agency fees together with 18%
interest and prize money by the end of the next week, we shall be constrained
to stop all your lottery draws without any further notice which may please
note:
This
may be treated as our final reminder and we shall not be held responsible if
any thing goes wrong against you.
R-39
dated 12.2.92 also reads as follows :
In
continuation of our Telegram dated 8.2.92, a detailed statement of Agency fee
due upto 31st January,
1992 is enclosed
herewith:- 1st. lot of eight lotteries - Agency Fee - 1,09,36,924 Interest -
10,64,272 2nd. lot of eight lotteries - Agency fee - 1,15,09,517 Interest -
5,25,534 3rd. lot of eight lotteries - Agency fee - 48,46,154 Interest -
1,15,324 __________ Total Rs. :- 2,89,97,725 (Rupees two crores eighty nine lakhs
ninety seven thousand seven hundred twenty five only).
Please
clear the dues before 25th of Feb 92 positively so that money could be credited
in time in the Govt. A/c.
Besides
this, draw expenses of Rs.6,00,000/- in respect of 3rd. lot of eight lotteries
may be sent expeditiously and prize money in respect of all the 24 lotteries
should be cleared immediately so that all the pending claims could be settled
early in order to keep the prestige of the Sikkim State Lotteries.
R-45
dated 31.3.92 addressed to the appellants reads thus :
Please
refer to our various letters and telegrams requesting you to settle the dues as
mentioned below :-
(1)
Telegram No.452/Fin./Lott. Dated 28.10.91
(2)
Telegram No.572/Fin/Lott. Dated 19/11/91
(3)
Letter No.484/Fin/Lott. Dated 27/11/91
(4)
Letter No.902/Fin/Lott. Dated 17/1/92
(5)
Telegram No.1062/Fin/Lott. Dated 8/2/92
(6)
Letter No.1066/Fin/Lott. Dated 12/2/91
As per
your requests we have given sufficient time to settle the dues but because of
your failure we have been compelled to stop printings of Tickets from 16/4/1992 onwards to avoid further liabilities.
Further
you have also failed to give assurance or proper response to our various
letters. In view of your failure to settle the huge amount of dues your request
to continue Seven Weekly Lotteries from 16/4/92 onward has not been considered
by the Government.
The
dues based on draws upto 15/4/92 works out as under :-
1.
Agency Fees - Rs.3,72,87,824/-
2. Interest
- Rs. 28,80,621/- Total Rs.4,01,68,505/- Besides above you have also failed to
deposit the prize money from time to time as a result of which we have not been
able to settle the claim.
I am
therefore directed to give you this notice to settle the entire dues before
15th April, 1992 failing which Government will be compelled to take action and
also invoke the guarantees.
Waiver
involves a conscious, voluntary and intentional relinquishment or abandonment
of a known, existing legal right, advantage, benefit, claim or privilege, which
except for such a waiver, the party would have enjoyed. The agreement between
parties in this case is such that its fulfilment depends upon the mutual
performance of reciprocal promises constituting the consideration for one
another and the reciprocity envisaged and engrafted is such that one party who
fails to perform his own reciprocal promise cannot assert a claim for
performance of the other party and go to the extent of claiming even damages
for non-performance by the other party. He who seeks equity must do equity and
when the condonation or acceptance of belated performance was conditional upon
the future good conduct and adherence to the promises of the defaulter, the
so-called waiver cannot be considered to be forever and complete in itself so
as to deprive the State, in this case, of its power to legitimately repudiate
and refuse to perform its part on the admitted fact that the default of the
appellants continued till even the passing of the Award in this case. So far as
the defaults and consequent entitlement or right of the State to have had the
lotteries either foreclosed or stopped further, the State in order to safeguard
its own stakes and reputation has continued the operation of lotteries even
undergoing the miseries arising out of the persistent defaults of the
appellants. The same cannot be availed of by the appellants or used as a ground
by the Arbitrator to claim any immunity permanently for being pardoned,
condoned and waived of their subsequent recurring and persistent defaults so as
to deny or denude forever the power of the State as other party to the contract
to put an end to the agreement and thereby relieve themselves of the
misfortunes they were made to suffer due to such defaults. Once the appellants
failed to deposit the prize money in advance within the stipulated time, the
time being essence since the prizes announced after the draw have to be paid
from out of only the prize money deposited, the State was well within its
rights to repudiate not only due to continuing wrongs or defaults but taking
into account the past conduct and violations also despite the fact that those
draws have been completed by declaration or disbursement of prize amounts by
the State from out of its own funds. The conclusion to the contrary that the
State has committed breach of the contract is nothing but sheer perversity and
contradiction in terms.
b) The
mere reference to the documents or material on record, or a cryptic observation
that all those materials have been considered is no substitute by itself for
proof of such positive consideration, which should otherwise be apparent from
only the manner of consideration disclosed from the award and reasonableness of
the conclusions arrived at by the Arbitrator. That the contents of Ex. R-52 and
R-43 have been patently misread is obvious from the fact that the Arbitrator
has merely chosen to fall back on the word postpone totally ignoring the
following words there will be no draw of these weekly lotteries w.e.f.
16.4.1992 and onwards, taking together with the further fact that no
re-scheduled date on which they propose to hold the draw for the so-called
postponed lotteries have been given.
Likewise,
Ex.C-3 another vital document has also been misconstrued by ignoring the vital and
relevant portions contained therein. Similar instances in respect of other
relevant documents also are rampant, as could be seen from the award,
appropriately pointed out by the Chief Justice in his judgment.
c) The
manner in which the Arbitrator has chosen to arrive at the quantum of damages
alleged to have been sustained by the appellants not only demonstrates
perversity of approach, but per se proves flagrant violation of the principles
of law governing the very award of damages. The principles enshrined in Section
54 in adjudicating the question of breach and Section 73 of the Contract Act
incorporating the principles for the determination of the damages, are found to
have been observed more in their breach. Despite the fact that M.K. Subba, who
had been all along corresponding and dealing with the matter directly, has
without any justification whatsoever, not only been withheld from the witness
box but despite the oral evidence of RW-1, facts which could only be denied or
proved by M.K. Subba have been taken for granted. No one from the appellants
side who could speak for as to what is the usual course of things in lotteries
was examined and no material about similar lotteries making consistent profit
at 7.51% throughout all years regardless even of stoppage of lots and absence
of sale of all the tickets and other relevant factors highlighted in the course
of cross examination of CW-1 and CW-2 were produced to prove the profit range
claimed. Merely relying upon CW-1, the Chartered Accountant, who, admittedly,
was unaware of the actual functioning of the business and who had not looked
into or shown any accounts, records or was in the knowledge of the state of
affairs of the lottery business in question, the Arbitrator appears to have
relied upon some hypothetical calculations worked out on mere surmises and
conjectures as though it constituted substantive evidence even in utter
disregard of the specific admissions contained in the letter of the appellants
marked as R-46, against the very claims now put forward on behalf of the
appellants. The Award also suffers from obvious and patent errors of law in
calculating damages on the footing that all the lotteries continued for their
full term, ignoring the real facts.
d)
Clause 2 of the Agreement reads as follows:-
2.
Except on the detection of the default or fraudulent conduct in lotteries or of
any act of malfeasance or misfeasance on the part of the Organising Agents, the
Government shall not rescind or modify this agreement.
Provided
that the Organising Agents shall be given an opportunity of being heard in
person before any decision regarding rescission or modification is taken.
Even a
cursory reading of the clause would show that the Arbitrator has adopted a
narrow, pedantic and perfidious construction of the clause not only doing
violence to the language but defeating the very object of introducing such a
clause reducing it to a mere dead letter by holding that apparent, obvious and
admitted defaults of the nature will not fall within the said clause, but
instead only defaults which are and could be found out or unearthed after
detection alone would answer the situation envisaged therein. By such
construction, the Arbitrator has chosen to deny the powers of the State to put
an end to the contract on account of the defaults of the appellants, which as
observed by the Arbitrator himself could have under general law of the contract
provided grounds for the respondent (meaning thereby the State) to terminate
the contract.
This
misconstruction and misdirection alone is sufficient to scrap the Award of the
Arbitrator.
e) The
Award of an Arbitrator cannot be opposed to law and what is not permissible in
law cannot be granted or even approved by Courts merely because it was an
Arbitrator who granted it. Section 54 of the Contract Act is a complete answer
to the claim at the instance of the appellants for either performance of the
contract or for asserting a claim for compensation/damages for the alleged
non-performance arising out of repudiation by the State. The Arbitrator could
not have been oblivious of the fact that it was the defaults, violations and
breaches committed by the appellants that necessitated the termination of the
contract by the State, left with no other option for it, in law.
Even a
cursory reading of the Award in the light of the materials on record, as
rightly pointed out in the judgment of Chief Justice Bhargava, with particular
reference to the indisputable facts disclosed on the basis of the
correspondence between parties would disclose that no reasonable or prudent
person could have ever either reasonably, fairly or justly arrived at such
findings as have been recorded by the Arbitrator in this case by any known or
proclaimed process of consideration and judicious reasoning. The errors which could
be noticed in the form of obvious and conspicuous mistake of facts vital and
essential aspects and misapplication of law are found to so extensively and
deeply pervade the entire adjudicatory process undertaken by the Arbitrator as
to render it impossible to save the Award except at the expense rendering the
ends of justice, a casualty. It would be no exaggeration or meaning any
disrespect to place on record as to how appropriately the following
observations of Lord at 600 E) fits in with the manner of disposal given by the
Arbitrator :
I
should be anxious myself, as I have no doubt that all your Lordships would be,
to give every effect to their decisions. On the other hand, there are some
principles which it is impossible to disregard, and, after giving every credit
to the desire on the part of this arbitration court to do justice, I think it
manifest that they proceeded far too hastily in this case; and without imputing
to them any prejudice or any desire to do wrong, I think that the mode in which
the whole question was raised and was disposed of, was so slipshod and
irregular that it might lead to injustice.
Consequently,
we have no hesitation to set aside the Award of the Arbitrator, as affirmed by
the District Judge, insofar as it purports to award damages to the tune of
Rs.37,75,00,000/- in favour of the appellants, as wholly uncalled for and
illegal.
On
behalf of the State of Sikkim, a strong plea has been made in pursuit of its
counter-claim by contending that it is always permissible for this Court to set
aside the bad or vitiating part of the Award and retain and affirm the valid
portion, alone and, therefore, the Award to that extent may be allowed to stand
and the same be made a rule of Court.
(AIR
1972 SC 1121); Upper Ganges Valley Electricity Supply 1994(3) SC 303) has held
so. The Arbitrator has allowed a sum of Rs.5,39,15,531/- in favour of the State
and after adjusting against the same, the sum admittedly due to the appellants,
the counter-claim to the tune of Rs.4,61,35,242/- was awarded to them. The
various facts adverted to supra would go to show that though the initial
default was committed by the appellants, the respondent-State was also not
adhering strictly to the time schedule and other stipulations contained in the
agreement.
The
lotteries agreed to be run through the appellants have since been closed, once
and for all. Due to certain supervening difficulties said to have been
encountered by the appellants, their business adventure did not proceed on the
expected lines and it is not also the case of the State that the appellants
have made any undue profit or enriched themselves at the expense of the State.
We cannot completely ignore the fact that the initial preparations to float and
publicise the scheme of lotteries in question involving considerable
expenditure did not bring to them the expected returns, on account of the
premature termination of the Agency agreement and the encashment and
appropriation of the bank guarantees. The appellants could not have reaped the
full benefit of those business ventures. There seem to be no proper rendition
of accounts at the proper time and the finalisation came only at a much later
stage. Keeping in view all these practicalities and realities of the situation,
we are convinced, on the peculiar facts and circumstances of this case, that
equities have to be properly worked out between parties to ensure that no one
is allowed to have their pound of flesh unjustly against the other. Since this
Court has chosen to take up for consideration the merits of the claims of the
respective parties in these appeals filed by the appellants, in order to do
substantial justice between parties in exercise of its powers under Article 142
of the Constitution of India, we consider it not only appropriate but just and
necessary as well, on an overall consideration of the matter, to reject the
counter-claim made by the State.
The
challenge to the orders of the High Court dated 11.8.96 fails and shall stand
rejected. Consequently, we set aside the Award of the Arbitrator, as affirmed
by the learned District Judge. The judgment of the High Court rendered on
29.9.1995 shall stand modified, accordingly.
The
appeals shall stand finally disposed of on the above terms. The parties will
bear their respective costs.
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