State of Orissa vs Padmapur Trading Company

K.B. Panda, J.—A decree was passed against the Appellant-State of Orissa in terms of an award giving rise to this appeal. The background is thus: M/s. Padmapur Trading Co. represented by its managing partners entered into an agreement (Ex. D) with the State of Orissa, the Appellant, for procurement of rice and paddy for the khariff years - 1952-53 and 1953-54. The area of operation was the whole of Budhasambar Padampur in the district of Sambalpur. The agreement Clause 16 provided for arbitration which runs thus:

Clause 16 - Arbitration: (a) In the event of any question, dispute or controversy arising between the parties touching this agreement or any clause contained therein or any matter connected with this agreement (Except as to the matters the decision of which is specially provided for in the agreement) the same shall be referred to the Secretary whose decision if not accepted by either party shall be referred to a Tribunal consisting of three members to be nominated by the Governor, one from the Orissa Superior Judicial Service who may be a retired Officer, one from the Administrative Service who may be a member of the Indian Civil Service or a member of the Indian Administrative Service and a third from any trade or business from amongst whom the first named member shall be the Chairman. The decision of the majority of the members of the Tribunal shall prevail and shall be final, conclusive and binding on the parties. The provisions of the Indian Arbitration Act, 1940 and of the rules made thereunder and any statutory modifications thereof shall be deemed to apply to and be incorporated in this Agreement. Time being the essence of the contract in this respect, no reference shall be made to the Arbitration Tribunal after thirty days from the date of the decision of the Secretary.

(b) Upon every and any such reference, the assessment of the costs incidental to the reference shall be left to the discretion of the Secretary or the said Tribunal.

(c) The agreement shall continue in operation if reasonably'' possible during the arbitration proceeding and the payment due to or payable by Government shall be withheld on account of such proceedings.

Provided al ways and it is hereby Expressly Agreed and by and Between the Parties Hereto that all amounts due to the Government under the terms of this agreement shall, if not paid in time, be recoverable as arrears of land revenue and shall bear interest at the rate of 6 per centum per annum from the date when such payments fall due up to the date of payment of recovery.

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As would be seen from the clause quoted above, in case of any dispute between the parties it was first to be referred to the Secretary of the department concerned and if the parties would not be satisfied by the decision of the Secretary then the matter will be referred to a three-member Tribunal to be nominated by the Governor. In fact, a dispute arose and the Respondent company laid a claim of Rs. 45,504-7-6.. The Secretary did not grant any relief to him and consequently the matter was referred to a three-member Tribunal as envisaged under Clause 16 of the agreement. The Chairman and one of the members of the Tribunal passed an -award in favour of the Respondent-company for a sum of Rs. 39, 957-4-6. The other member, however, dissented from it. When the matter came up before the Subordinate Judge, Sambalpur, so that the award be made a rule of the Court, the parties were noticed, they were given a hearing and finally the Court passed a decree in terms of the award. Hence the present appeal by the State of Orissa.

The learned Additional Government Advocate appearing on behalf of the State raises the following points:

(1) That the arbitration Clause 16 is void;

(2) The matters not referred to the Secretary who was the first arbitrator have been referred to the second arbitrator, namely the Tribunal and as such the Tribunal had no jurisdiction to go into those matters; and

(3) The claim that do not come under the agreement have been referred to the Arbitrator and the Arbitrator has given a finding basing on extraneous matters.

Point No. 1: The learned Counsel for the State attempted to butress up his contention that Clause 16 of the agreement is void on the basis of two decisions, namely, Khardah. Company, Ltd. v. Rayman and Co. (India) Private Ltd. AIR 1962 S.C. 1810 and The State of U.P. v. Ramnath Bansal AIR 1968 All. 467. It may be at once said that the argument is barren of substance and the citations made are utterly irrelevant. What has been said in'' Khardan Company Ltd. v. Rayman and Co. (India) Private Ltd. AIR 1962 S.C. 1810 referred to above is that if a contract is void ab initio then any agreement thereof is also vitiated. Therefore, no arbitration clause in such an ab initio void contract is enforceable. Their Lordships have expressed this opinion in the following terms:

Accordingly, a dispute that the contract of which the arbitration clause forms an integral part is illegal and void is not one which the arbitrators are competent to decide under the arbitration clause although it is of sufficient amplitude to take in a dispute as to the validity of the agreement and in consequence a party to the contract is entitled to maintain an application u/s 33 for a declaration that the contract is illegal and that in consequence the proceedings taken thereunder before the arbitrators and the award in which they resulted were all void.

In the instant case, there was no application u/s 33 of the Arbitration Act. Both the parties have submitted to the arbitration, have taken part in it and now at this belated stage to turn round and say that Clause 16 of the agreement is void and therefore there should not have been any arbitration at all is really an intriguing stand taken by the State who is said to be an ideal litigant. In the other case law relied on by the Appellant, namely, The State of U.P. v. Ram Nath Bansal AIR 1968 All. 467, what was under consideration was whether Clause - 25 of that agreement entered into between the Plaintiff and the Conservator of forests amounted to an arbitration agreement. If so, the suit cannot proceed and it shall be necessary for the parties to move the Arbitrator for making an award. There a civil suit had been stayed on the ground that the matter should have been referred to an arbitrator according to the terms of that agreement. Finally in that case the stay of the hearing of the suit u/s 34 of the Arbitration Act was held not necessary and the trial proceeded in accordance with the law. One fails to understand how this case is at all relevant for a decision of the controversy now in issue. Suffice it to say the arbitration clause referred to above is very clear and no exception has been taken to it at any stage by the Appellant State by challenging the same u/s 33 of the Arbitration Act. On the contrary, all through the Appellant has participated in the proceeding and therefore it does not sound well for the Appellant to say now at this stage that Clause 16 of the agreement is void. Accordingly, this point is decided against the Appellant.

Point No. 2: The claim of the Respondent was under five heads before the Tribunal thus:

(1) Loss due to blocking of 14, 000 maunds of boiled rice which had been procured in December, 1952 and January, 1953) for nine months. Rs. 10, 611-6-6.

(2) Refund of penalties illegally levied and recovered. Rs. 23, 982-1-8.

(3) Non-payment of transport charges and refund of penalty recovered Rs. 510-150

(4) Decentrel period claim Rs. 6,000-00.

(5) Interest on blocked capital Rs. 4, 4000-0.

The Tribunals award may thus be broken up:

(1) The first three items of claim were awarded in full; (2) the fourth claim was abandoned; and (j) on the 5th claim; Rs. 4,400-0-0, the Tribunal granted Rs. 5, 000/ -. The item not referred to the Secretary, the first tribunal, but preferred before the three-member Tribunal was only item No. 4. In the award itself it is clearly stated that claim was abandoned before the Tribunal and no award has been given on that score. Thus, this point has also no merit and it is decided against the Appellant.

Point No. 3: Evidently at the time of laying the claim the Respondent-company had put the interest on blocked capital at Rs. 4, 400/ -. But the Tribunal has granted an award of Rs. 5, 000/ - on that score which is six hundred rupees more than what was claimed by the Respondent-company. According to the Appellant, this was beyond the jurisdiction of the Tribunal. I do not think such a contention can prevail. The law on the point is no more res integra. In a Division Bench decision of this Court in State of Orissa and Anr. v. Govinda Choudhury 37 (1971) C.L.T. 937, it is held thus:

It is now well settled by series of Supreme Court decisions that unless there is a specific clause in the Agreement, prohibiting award of interest, the Arbitrator has jurisdiction to award interest from the due date of payment till the date of the award. Firm Madanlal Roshanlal Mahajan Vs. Hukumchand Mills Ltd., Indore, , Union of India (UOI) Vs. Bungo Steel Furniture Pvt. Ltd., and 1970 S.C.D. 530 -M/s Ashok Construction Co. v. Union of India. The Award of the Arbitrator cannot, therefore, be questioned on the ground that he allowed interest from the due date till the date of the decree. There was no term in the Agreement that interest is not to be awarded. The dispute included a specific reference to the award of interest. As such the Arbitrator exercised his jurisdiction legally in awarding interest.

This item of the claims has been dealt with by the Tribunal in the following manner:

Item No. 5;. Interest on blocked capital Rs. 4, 4001/

The 1st. party claims in its petition a sum of Rs. 4, 400/ - as interest by way of damage for the blocking-up of its capital. This is for the period of 7 years preceding 1901 when it came before the Tribunal and nine years have passed since then. In other words, the 1st party''s legitimate dues have been held-up for the last 16 years and it would have earned by now a very heavy amount as interest, if it had invested Its money in any Bank even at a very low rate of interest. I accordingly allow in a lump sum of Rs. 5,000/ - as damages to the 1st. party for the blocking up of its capital for the last 16 years.

From the above discussion it would appear that the Tribunal was very much conscious of the fact that though a claim of Rs. 4, 400/ - was made yet it is enhancing the same to Rs. 5, 000/ -. Vary cogent grounds have been advanced in support of this enhancement. While granting a lump sum of Rs. 5, 000/., it is vulnerable to the criticism that the Tribunal has become very conservative. Be that as it may, enhancement of Rs. 600/ - for the nine years the matter was pending before the Tribunal is not an amount which can be said to be exorbitant so as to be interfered with. Since the law is clear that when litigants choose a private forum for settlement of their disputes instead of a Court of law, they are bound by the decision given by the private party and the parties thereto cannot challenge the same on any ground. In the instant case, the learned Counsel for the State had to concede that it is under one of the grounds enumerated u/s 30 of the Arbitration Act that the award can be challenged. When put this question pointedly he conceded that the Appellant does not come u/s 30(a), (b) or first part" of (c) but on the last term of Clause (c), namely, "otherwise invalid". From the above discussion it would follow that the award given by the Tribunal cannot be challenged on this vague ground that it is otherwise invalid and as such the decree that has been passed in terms thereof is unassailable.

In the result, therefore, the appeal, fails and is hereby dismissed with costs. Hearing fee Rs. 150/ - (Rupees one hundred and fifty only),