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PETITIONER: RAJINDER KRISHAN KHANNA & ORS.

       Vs.

RESPONDENT: UNION OF INDIA & ORS.

DATE OF JUDGMENT:       12/10/1998

BENCH: S.P. BHARUCHA, V.N. KHARE

ACT:

HEADNOTE:

JUDGMENT: O R D E R The appellants and others filed a writ  petition  the High  Court  of  Punjab  and Haryana against the respondents. The case in the write petition, briefly stated, was that  the writ   petitioners   were   owners   of  agricultural  lands, residential buildings, tubewells, etc.  at  Gaddiwara  within the municipal  limits of Panipat.  The second respondent, the National Fertilizer Limited, had installed a  plant  for  the manufacture of  fertilisers  in  the  vicinity.    The second respondent had constructed a ’kucha’ bund around the original pond and was using it for depositing effluents.  The bund was made of earth which breached due to the excessive pressure of the effluents and the accumulation of burnt ash.  The  result was  that  water  and  ask  had escaped from the pond and had damaged the writ petitioners’ standing crops,  mango  gardens and residential  properties.    There had been a loss of soil from 6 inches to 2 feet, on their lands which had  made  them unfit   for   cultivation  untill  such  time  as  they  were reclaimed.  The second respondent had not  done  anything  to redress the  grievancees  of  the writ petitioners.  The writ petition, therefore, prayed for a  direction  to  the  second respondents  to  close  its  plant  until  effluent  disposal arrangements were made and "to pay the damages of  Rs.    one crore  for  the  destruction of residential houses, crops and Mango Garden.  The respondent No.2 may also  be  directed  to reclaim  the  agricultural  land of the petitioners which has been rendered unfit for cultivation.  The respondents No.   1 and  3  may  be directed to take steps for civil and criminal (action) against the respondent No.2". The writ petition was dismissed by a  learned  single Judge  because  it  raised  disputed  questions of fact which could not be resolved in proceedings under Article 226.   The order  of  the  learned Single Judge was upheld by a Division Bench, the appeal being summarily dismissed. The appellants (being five of the  writ  petitioners) filed  a  petition  for  special  leave to appeal against the order of the Division Bench.  Notice thereon  was  issued  to the respondents. Learned  counsel  appearing  for the parties informed this Court on 15th July, 1997 that they had agreed to  go  to

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arbitration  to  settle their disputes and an adjournment was granted for one week to file the arbitration agreement.    On 21st July, 1997 the following order was passed :         "Pursuant   to  our  order  dated         15.7.1997, the contestants have filed  an         Agreement  whereby,  they  have  referred         their   disputes   to   the   two   named         Arbitrators  therein. Therefore, we grant         leave and keep the  matter  pending  till         the arrival of the arbitration award. Let         the  Arbitrators be informed so that they         enter upon the reference.         The  arbitration  agreement  stated,   in         clause 1, thus :         |That    the     disputes     and         differences  arising  between the parties         hereto in S.L.P.    (Civil)  No.17106  of         1996   shall   stand   referred   to  the         arbitration of Mr.   Justice  K.S  Tiwana         and Mr.   Justice  G.R.    Majithia,  the         retired Judges of the  Hon’ble  Punjab  &         Haryana  High  Court  at  Chandigarh, who         shall resolve and  decide  the  aforesaid         disputes between the parties." T he agreement required the tow learned arbitrators to  appoint an umpire before entering upon the reference and provided for the modalities thereof.   Pursuant thereto, Mr.  S.S.Dewan, a retired Chief Justice, was appointed the  umpire.    On  20th September,  1997  the  learned  arbitrators, sitting with the learned umpire, entered upon the reference. The appellants filed a statement of claim dated  27th September, 1997   before   the  learned  arbitrators.    They contended that effluents such  as  fly  ash  emitted  by  the second   respondent’s   plant   and  slurry  covered  to  the appellants’ land because of successive breaches of  the  bund and   pond   bad  caused  havoc  to  the  agricultural  land, agricultural crops, mango orchards and fishery ponds and  had destroyed the appellant’s  land.    Details were stated.  The estimated value of profits lost by the  appellants  were  set out,  aggregating  to  Rs.4.2 lakhs for the years 1984, 1986, 1987, 1988, 1990 and 1991.  The appellants submitted that  by August,  1991  their  land  had  become  completely unfit for cultivation because of chemical pollutants which  had  seeped therein and  fly ash had been deposited over the trees.  etc. "The value of the land thus totally diminished in so  far  as the land was  completely  destroyed.  .......  The land being completely destroyed and having  become  worthless  both  for commercial and non-commercial use, the party No.1 is claiming the  entire  value of the land estimated at (Rs.)2 crores and 40 lakhs as damage of property being total loss in  the  year 1991."  The appellants claimed interest "on the sum of entire loss or damages incurred ever since 1984 at the rate  of  18% upto  August 1991" and "interest at the rate of 18% per annum till the date of re-payment  of  the  entire  amount".    The appellants  quantified  their  claim at Rs.5 crores 28 lakhs, including Rs.2 crores 40 lakhs for "total  loss  suffered  on account  of  the destruction of land making it worthless both for agricultural use ever since the year 1991". The  respondents  filed  a written statement in which they drew attention to the order of reference passed by  this court  on  21st  July, 1997 and the arbitration agreement and submitted that the claim made in the statement of claim  went beyond   the   scope  of  the  writ  petition  and  therefore ..........  ...............  arbitration.

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On  2nd  January,  1998  the   learned   umpire   and arbitrators made   an   award.    The  relief  given  to  the appellants read thus :         "In the result,  we  determine  the  compensation  as         under :-         (i) For loss of potential of land Rs.77,19,800.00         (ii)For damage to the crops other Rs.5,14,347.50         than orchard for the years, 1984             1986,1987, 1988, 1990 and 1991.         ------------------         Total   Rs.82,34,147.00         ------------------         The  demised land lost all productivity and fertility         from the year 1991. Accordingly, we allow interest on         the principal amount @ 12% per annum from January  1,         1991  till  the  date of award and interest @ 18% per         annum from the date of award till realisation.  Party         No1.  will be entitled to the cost of the arbitration         proceedings." On   31st  January,  1998  the  appellants  made  an application to this court to take the award  on  record  and dispose of   the  appeal  in  terms  thereof.    The  second respondent, on 30th March, 1998, filed objections to  making the award  a  rule  of  the court.  This is the scope of the controversy before us. The learned  Attorney  General,  appearing  for  the second respondent, submitted that the award fell outside the ambit of the reference to arbitration made by this Court. It also went far beyond the terms of the arbitration agreement. This  was  because it awarded to the appellants compensation for  loss  of  potential  of  the  land,  in  the   sum   of Rs.77,19,800/-.  The learned Attorney General submitted that the case was covered by the terms of  Section  34(2)(iv)  of the  Arbitration  and  Conciliation  Act, 19996 ("the Act"). Next, the learned Attorney  General  pointed  out  that  the award  made  copious references to an inspection report made by the learned arbitrators consequent upon a site visit.  He submitted that in as much as a copy of the inspection report had  not  been  made available by the learned arbitrators to the second respondent, the second respondent had been unable to present its case thereon and the  principles  of  natural justice  had  been  violated.  In  this  behalf  the learned Attorney General drew our attention to Section 34(2)(iii) of the Act. The learned  Attorney  General  submitted,  lastly, that  the award of interest was without jurisdiction because there was no claim for interest. In any event, he submitted, the grant of pre-reference interest at the rate of  12%  per annum  was  without  jurisdiction,  and  the  amount of such interest aggregated to Rs.66,45,557.96. In  support  of  his contention  on  the aspect of interest, the learned Attorney General relied upon the judgment of this Court in  State  of Orissa  vs.  B.N.  Agarwalla,  1997  (2)S.C>C>  469, and the provisions of Section 3(1)(b) of the Interest Act, 1978. Mr.  D.D.    Thakur,   learned   counsel   for   the appellants,  drew  our  attention to the prayers in the writ petition and to an application made before  the  High  Court pending the  writ  petition.    It  alleged  that  the  writ petitioners had been deprived of their livelihood, which was dependent on the soil; the write petitioners’ lands had been rendered unfit for cultivation and their houses had suffered great loss on account of floods; the environment of the area had been rendered unfair due to pollution and the  residents were  living  in  great  stress and strain, which had caused depression, on account of the constant fear  of  leakage  of gas.   Learned  counsel  drew  attention  to the arbitration

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agreement.  He submitted that the  learned  arbitrators  and umpire   found  that  the  appellants’  land  could  not  be reclaimed; they, therefore, gave  the  alternate  relief  of compensation for  the  land.   He submitted that arbitrators had in this behalf the same powers as a  court  of  law,  to mould the  relief  having  regard  to the circumstances.  It was, learned counsel submitted, a reasonable conclusion from what was stated in  paragraph  10  of  the  award  that  the learned  arbitrators  had  found  that  the appellants’ land could not be reclaimed.  Paragraph 10  of  the  award  reads thus:         "10.  Party No.2 contended that if the Party No.1         had drained out the  water,  the  land  could  be         reclaimed and  made  fit  for  cultivation.  This         assertion fails to  absolve  Party  No.2  of  its         responsibility  to  maintain its ash pond and the         dikes in a proper manner to avoid the  breach  or         leakage therein.  The negligence of Party No.2 is         apparent.   Their  failure  to keep the ash ponds         and the dykeys in  a  standardised  form  and  to         prevent  any leakage or breach is blame-worthy of         negligence.  Their  negligence  has  resulted  in         rendering   the   land   of   Party  No.1  beyond         cultivation  and  the  garden  developed  thereof         deprecated in result.  During our inspection.  We         noted  that  on  a  part  of  the  disputed  land         residential houses belonging to people  belonging         to  lower  strata  of  society,  seemingly  below         poverty line, have been constructed recently  and         that locality   is  quite  filthy.    Foul  smell         unabatedly emanated from the land,  although  the         ash  ponds were abandoned and as alleged by Party         No.2 were to be used in the  event  of  emergency         only." Reference was also made by learned counsel to  the  findings in  paragraph  13 of the award that the appellants’ land had "had  the  potentiality  for  developing  a  housing  colony thereon.  In fact, a licence was granted by the Haryana Town and Country  Planning  Department.    The  second party No.2 contended that the land for which the  licence  was  granted was  not  owned  by  Party No.1 Nevertheless it could not be disputed that the land for which permission was granted  was part  and parcel of the disputed land and similarly situated in all respects.  The irresistible  inference  is  that  the demised  land  could  be  developed  into  a housing colony. During our inspection we noticed that the land is  hardly  3 Kms.  Away  form the G.T Road passing through Panipat.  G.T. Road is also called Sher Shah Suri Marg  and  it  is  agreed over  from  Calcutta  to  Rawalpindi  (now  forming  part of Pakistan).  C.W.1 Shri Vineet Khanna says that  the  Housing colony  could  not  be  developed because of the fear of the deluge with ash slurry water on the demised land.  Thus, the land other than the land under orchard was at one  time  the most  fertile  land  yielding  considerable annual income as depicted in the average produce  statement,  Exhibit  TW1/1. The  land  under  the  orchard  measuring 17 acres similarly fetched considerable income to Party No.1 as stated by  Shri Vineet Khanna.    Now  this  land  is unfit for cultivation. However, as was notice and observed by us in our  inspection note,  many  residential houses belonging to people of lower strata of society, seemingly below poverty line,  have  been constructed  on  a  part  of the disputed land in the recent years.  After  the  agriculture  and  horticulture  activity stopped,  part  of  the  land  other than the land under the orchard before 1991 was sold at the rate of Rs.200/- per sq.

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yard....".  In paragraph 15 of the award, to which reference was made, the learned arbitrators were unable to agree  with "the  amount  of  compensation  claimed  by the claimants as admittedly the market value of their land  in  recent  years was  not  higher than Rs.200/- per square yard as the use of the land, for the reasons aforesaid, is confined to  job  of trivial nature or at best its use is limited for residential purpose of  the  lower strata of the society.  The potential of the land considerably diminished.  In the  circumstances, the  claimants  would  be  entitled  only  to the quantum of compensation for loss of  average  potential  of  the  land. Keeping  in  view  the  totality  of  circumstances  and the material brought on record, we hold that the ends of justice entail fixation of the quantum of compensation for  loss  of potential of  land at Rs.55/-per square yard.  In summation, as the average potential value of the land is taken  out  at Rs.55/-  per  sq.yard and the total area of the damaged land being 140360 per sq.yards, therefore, total loss under  this head   comes   to   Rs.77,19,800/-"   In  learned  counsel’s submission, this, in the  circumstances,  was  a  reasonable conclusion for  the learned arbitrators to come to.  Learned counsel  also  submitted  that  the  second  respondent  had acquiersced  in  the course that the arbitration proceedings had taken and he referred in this behalf to the  points  for decision  which  the learned arbitrators had framed, namely, "(1)Whether Party No.1 has suffered any damages, if  so,  is entitled to  any  compensation  ?   (2) Whether the claim is barred by acquiescence, laches, estoppel, limitation and res judicata ?" In this context, Mr.  Thakur referred to Section 16 of the Act which empowers the arbitral tribunal  to  rule on its  own  jurisdiction.    In  regard  to  the inspection reports,  learned  counsel  submitted   that   the   learned arbitrators  were under no obligation to furnish the same to the parties to the arbitration and, in fact, the  appellants had also not received a copy thereof.  He submitted that the second  respondent  had  not  stated  that  any  part of the inspection report was incorrect.  In the matter of interest, learned counsel referred to the  provisions  of  Section  31 (7)(a) of  the  Act.    Section  31  deals with the form and contents of and arbitral award and sub-section 7, clause (a) states:         "Unless otherwise agreed  by  the         parties,  where  and  in  so  far  as  an         arbitral award  is  for  the  payment  of         money,  the arbitral tribunal may include         in the sum for which the  award  is  made         interest,   at  such  rate  as  it  deems         reasonable, on the whole or any  part  of         the  money,  for the whole or any part of         the period between the date on which  the         cause  of  action  arose  and the date on         which the award is made." Section  34(1)  of the Act states that recourse to a court against an arbitral award  may  be  made  only  by  an application  for setting aside such award in accordance with sub-sections (2) and (3).   Under  sub-section  (2),  Clause (iv)  an  award amy be set aside if it "deals with a dispute not contemplated by or not falling within the terms  of  the submission  to  arbitration,  or  it  contains  decisions on matters beyond the scope of the submission to  arbitration". The  proviso  to  clause  (iv)  says that if the decision on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside.

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The first  question,  therefore, is :  What were the terms of the  submission  to  arbitration.    The  order  of reference  to  arbitration  is  material  in the context, it refers to the arbitration agreement  that  the  parties  had filed.  Clause 1 thereof refers to arbitration "the disputes and  differences arising between the parties hereto in S.L.P (Civil) No.17106 of 1996".  The S.L.P.   arose  out  of  the writ  petition  filed  by the appellants (and others) in the High Court.  It is, therefore, reasonable to  conclude  that what was referred to arbitration was the dispute in the writ petition.  This is, in fact, not contested. The grievance in the  writ  petition  was  that  the overflow  of  effluents and slurry from a pond in the second respondent’s premises due to breaches of  the  earthen  bund thereof  had  damaged  the  writ  petitioners’ lands, crops, mango crops, houses, etc.  The  reliefs  the  writ  petition sought, and  this  is most important, were :  a) a direction to the second respondent to close its plant; b) damages from the second respondent in the sum of Rupees 1 crore  for  the destruction  of (i) residential houses, (ii) crops and (iii) mango garden; c) a direction to  the  second  respondent  to reclaim  the  writ  petitioners’ agricultural lands that had been rendered unfit for cultivation; and d) a  direction  to the  first  and  third respondent to take civil and criminal action against the second respondent.  This, then, was  what was referred to arbitration.  There was no claim for damages for  the  alleged  loss of the potential of the lands and no averments or particulars in that behalf. There  is  no  discussion  or  ruling  in  the award relating to the scope of the  reference;  this  despite  the fact  that  the second respondent had contended in its reply to the appellants’ statement of claim that the claim therein fell outside the scope of the reference.  It is difficult to see how, in the circumstances, the second respondent can  be said  to have acquiesced in the determination of damages for the alleged loss of potential of the appellants’ land.   All that  was  referred to by learned counsel for the appellants in this behalf was the statement in the award of the  points for determination.   That the first of the points relates to compensation for damage suffered by the appellants does  not by   itself   support   learned   counsel’s  submission  for compensation  for  damage  to  the  appellants’  residential house,  crops  and  mango garden was within the scope of the reference.  The first point must be read in  light  of  this restricted  claim  and  not  as  encompassing  the claim for compensation for the alleged lost potential of the land. The argument of learned counsel for  the  appellants was   that  the  learned  arbitrators  had  found  that  the appellants’ land was beyond reclamation and, therefore,  the learned  arbitrators  had  moulded  the  relief  and awarded compensation for the land’s lost potential.  We do not  find in the paragraphs of the award quoted by learned counsel, or for that matter, anywhere else in the award, a discussion or conclusion  by  the learned arbitrators that the appellants’ land could not be reclaimed.  In fact, the  award  quotes  a witness as  explaining ’reclamation’ thus :  "By this I mean bringing the soil to its  natural  position.    The  natural position  of  the soil can be had after the total removal of the coal ash".  A perusal of the  award  suggests  that  the learned  arbitrators  did  not  think  that they could award compensation for the alleged lost potential of the land only if they found that the land could not be reclaimed; there is therefore no such evidence or discussion or finding  in  the award. In any event, we do not find it possible  to  accept

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learned  counsel’s submission that granting compensation for the alleged lost  potential  of  the  land  was  permissible moulding of  the  relief.    It  was  not  the  case  of the appellants in the writ petition, even  in  the  alternative, that  the land could not be reclaimed and there was no claim for compensation for the slleged lost potential of the  land or averments  or particulars in support thereof.  The relief that was sought was direction to the  second  respondent  to reclaim  the appellants’ land; awarding compensation for the alleged lost potential of the  land  was  not  moulding  the relief that was sought. We  hold that the award of Rs.77,19,800 for "loss of potential of land" and interest thereon  falls  outside  the scope of the reference to arbitration and is not in relation to a dispute contemplated thereby. The  learned  Attorney  General  did  not advance an argument specific to the award of Rs.5,14,347.5 for  "damage to  crops other than orchard for the years 1984, 1986, 1987, 1988, 1990 and 1991".  Even his general argument related  to the  learned arbitrators’ inspection report would not really apply to this item of the award.  At the same time,  learned counsel  for  the  appellants  did  not  urge that the award should not be set  aside  qua  this  item  which  is  easily separable and the appeal should be allowed in terms thereof. We can  understand  why.  The larger claim of the appellants is  in  relation  to  the  reclamation  of  the  land;   the appellants  would  want  to agitate that claim in the appeal and  we  think  that  to  do   complete   justice   in   the circumstances we should permit them to do so. In  the  view  that  we take, it is not necessary to deal with the arguments on the  aspects  of  the  inspection report and interest. The  award dated 2nd January, 1998 is set aside, The appellants’ application (I.A.No.2 of 1998) to take the award on record and dispose of the  appeal  in  terms  thereof  is dismissed.  The second respondent’s application (I.A.No.3 of 1998) to set aside the award is allowed. The appeal shall now be  heard  on  its  merits.  It shall be listed in the ordinary course. No orders as to costs.