Matter: State of Chhattisgarh and Anr. v. Sal Udyog Pvt. Ltd.
Order Dated: 08 November 2021
Summary:
A dispute arose between the State of Madhya Pradesh (State Government) and Sal Udyog Pvt. Ltd (SUPL) with regards to the termination of a contract by the State Government for supply Sal seeds to SUPL. SUPL claimed refund on the ground that certain excess amount had been paid by it to the State Government for the supply of Sal seeds. The arbitrator allowed the claim of SUPL and a sum of INR 74,346,772 (Indian Rupees Seventy-Four Million Three Hundred and Forty-Six Thousand Seven Hundred and Seventy-Two only) (Amount Awarded) was awarded in its favor, along with future interest (Arbitral Award).
Aggrieved by the Arbitral Award, State Government filed a petition to set aside the Arbitral Award under the provisions of the Arbitration Act, but the District Judge declined to interfere with the Arbitral Award. This order of the District Judge was appealed by the State Government before the High Court of Chhattisgarh. One of the grounds for appeal was that as per the contract, SUPL was to bear expenses incurred every year by the State Government for supplying Sal seeds. These expenses would not only include the cost of collection, purchase price paid to the growers and commission agents, cost of storage and transportation, but also include handling and supervision charges. Further, SUPL had been bearing these handling and supervision charges without any demur till the termination of the contract. However, the Amount Awarded included these handling and supervision charges and the same therefore became payable by the State Government to SUPL. SUPL argued that as the State Government had in its petition to set aside the arbitral award, not raised any objection relating to the inclusion of handling and supervision charges in the Awarded Amount, the State Government had waived its right to raise this new objection in the appeal. The High Court of Chhattisgarh dismissed the appeal filed by the State Government and the High Court’s order was then challenged before the SC.
The issue before the SC was whether any interference was called for in the Arbitral Award on the ground that the arbitral tribunal and the High Court had ignored the binding terms of the contract by including the handling and supervision charges in the Awarded Amount. SC noted that the State Government had raised an objection before the arbitral tribunal regarding inclusion of supervision charges, but the objection was turned down by the arbitral tribunal by giving a complete go by to the terms of the contract. Further, it was not denied by SUPL that the supervision charges were being paid by it from the date when the parties had entered into the contract till its termination. Thus, the SC opined that ‘patent illegality’ was manifest on the face of the Arbitral Award since the express terms and conditions of the contract governing the parties were ignored completely.
Further, SC rejected SUPL’s plea that as the State Government did not raise such an objection in its earlier petition, it is estopped from raising it in the appeal. SC held that failure on the part of the arbitral tribunal to decide in accordance with the terms of the contract would attract the patent illegality ground, which was not only apparent on the face of the Arbitral Award but went to the very root of the matter and deserved interference. Accordingly, the appeal was partially allowed to the extent that the Arbitral Award allowed refund of the supervision charges.
