Case Note & Summary
The dispute arose from a contract dated 21.03.2003 between M/s. Monarch Erectors Pvt. Ltd. (the agent) and Bhiwandi Nizampur City Municipal Corporation (the Corporation) for collection of octroi for the period 22.03.2003 to 28.02.2004 for an agreed consideration of Rs.71,74,57,285. During the contract period, the agent claimed that the Corporation had prohibited it from collecting octroi on grey cloth imported from six adjoining village panchayats, causing substantial loss. The agent invoked the dispute resolution clause and, after a series of proceedings, the Supreme Court appointed Justice A.A. Halbe (Retired) as sole arbitrator to decide two specific questions: whether the agent had not collected octroi on grey cloth from the said areas after 18.10.2003 till 30.03.2004, and what amount, if any, could be claimed. The arbitrator by award dated 21.12.2006 held the agent entitled to Rs.11,55,00,000 with interest at 9% from 01.04.2004 and costs of Rs.7 lakhs. The Corporation challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, alleging that the survey report on which the award was based was manipulated and the award suffered from patent illegality. By judgment dated 16.04.2008, the learned Single Judge allowed the petition and set aside the award. The agent then filed the present appeal before the Division Bench, contending that the Single Judge had exceeded the narrow scope of Section 34, as the award could be set aside only if it was contrary to fundamental policy of Indian law, interest of India, justice or morality, or patently illegal, and the alleged illegality must go to the root of the matter. The Corporation, in response, argued that the survey was manipulated and the agent had not followed the applicable rules. The available portion of the judgment does not record the court’s analysis or final decision on the appeal.
Issue of Consideration
Whether the learned Single Judge was justified in setting aside the arbitral award dated 21.12.2006 under Section 34 of the Arbitration and Conciliation Act, 1996 on the grounds raised by the Corporation.
Law Points
- Scope of interference under Section 34 of the Arbitration and Conciliation Act
- 1996 – award may be set aside if contrary to fundamental policy of Indian law
- interest of India
- justice or morality
- or is patently illegal
- illegality must go to the root of the matter
- award also liable to be set aside if it shocks the conscience of the court.
Case Details
2011 LawText (BOM) (08) 62
Appeal No.306 of 2008 in Arbitration Petition No.202 of 2007
D.K. Deshmukh, R.G. Ketkar
Subodh Dharmadhikari, Deven Chauhan, Kartik Shukul, Filji Frederick, Suvarna Joshi, R.S. Apte, N.R. Bubna
M/s. Monarch Erectors Pvt. Ltd.
Bhiwandi Nizampur City Municipal Corporation
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Nature of Litigation
Civil appeal against order setting aside arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996
Remedy Sought
The appellant seeks to set aside the Single Judge's order and restore the arbitral award granting compensation of Rs.11.55 crores with interest and costs
Filing Reason
The Corporation had challenged the arbitral award on grounds that the survey report was manipulated and the award suffered from patent illegality and was against public policy
Previous Decisions
The Chief Minister of Maharashtra granted an award of Rs.7.70 crores on 24.03.2004, which was set aside by the Supreme Court; the Supreme Court appointed Justice A.A. Halbe (Retired) as sole arbitrator who made an award dated 21.12.2006 for Rs.11.55 crores; the Single Judge of the High Court allowed the Corporation's petition under Section 34 and set aside the award on 16.04.2008
Issues
Whether the learned Single Judge exceeded the limited scope of interference under Section 34 of the Arbitration and Conciliation Act, 1996 in setting aside the arbitral award
Whether the award suffered from patent illegality or was contrary to fundamental policy of Indian law, interest of India, justice or morality warranting interference
Submissions/Arguments
Appellant: The Single Judge failed to appreciate that an arbitral award can only be set aside on narrow grounds such as patent illegality, violation of fundamental policy, interest of India, justice or morality, or if it shocks the conscience of the court; the illegality must go to the root of the matter; the survey was valid and the award was justified.
Respondent: The survey report was manipulated and fabricated to support the claim; the claimant did not strictly comply with the Octroi Rules; the award was illegal and properly set aside.
Judgment Excerpts
the respondent no.1 shall work within the framework of and comply with and bound by all the provisions of (i) the Bombay Provincial Municipal Corporation Act, 1949 and the Rules framed thereunder; (ii) the Maharashtra Municipalities (Octroi) Rules 1968 ...
the Apex Court directed that the learned Arbitrator will give an opportunity to the parties to lead evidence and after hearing them shall make an award and the arbitration shall be governed by the provisions of the Act.
... award can 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; (d) in addition, if it is patently illegal. The illegality must go to the root of the matter ... award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the Court.
Procedural History
On 11.02.2003, the Corporation issued a tender for octroi collection agents. The claimant’s offer was accepted on 28.02.2003, and an agreement was executed on 21.03.2003 for the period up to 28.02.2004. During the contract, the claimant discovered that gray cloth from six adjoining village panchayats was not being subjected to octroi. The claimant complained and later, after the Corporation initially permitted collection, the General Body on 18.10.2003 directed the Commissioner to stop collection on gray cloth from those villages. The claimant invoked the dispute resolution clause and approached the Secretary, Urban Development Department. The Chief Minister of Maharashtra passed an award of Rs.7.70 crores on 24.03.2004. The claimant challenged that award under Section 34, resulting in its remittance and ultimately the Supreme Court setting aside the Chief Minister’s award and appointing Justice A.A. Halbe (Retired) as sole arbitrator. The arbitrator awarded Rs.11.55 crores on 21.12.2006. The Corporation’s petition under Section 34 was allowed by the Single Judge on 16.04.2008, setting aside the award. The claimant appealed to the Division Bench; the appeal was heard on 11.08.2011, and the available judgment is truncated before a final decision.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 34
- Bombay Provincial Municipal Corporation Act, 1949:
- Maharashtra Municipalities (Octroi) Rules, 1968: Rule 3, Rule 5
- Maharashtra Municipalities Act, 1965:
