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CASE NO.: Appeal (civil) 2789-2790  of  1997

PETITIONER: M/S SIKKIM SUBBA ASSOCIATES

       Vs.

RESPONDENT: STATE OF SIKKIM

DATE OF JUDGMENT:       01/05/2001

BENCH: CJI, R.C. Lahoti & Doraiswamy Raju

JUDGMENT:

RAJU, J. L...I...T.......T.......T.......T.......T.......T.......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

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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

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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.

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       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

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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

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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

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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

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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

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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

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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

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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.

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   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.

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   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.

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   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 Halsbury, L.C.  in Andrews Vs.  Mitchell (1904-7 All E R 599 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. No  doubt this Court in M.  Chelamayya Vs.  M.  Venkataraman (AIR  1972 SC 1121);  Upper Ganges Valley Electricity Supply Co.   Ltd.   Vs.  U.P.  Electiricty Board (1973(3) SCR  107) and  Union  of  India Vs.  M/s Jain Associates &  Anr.   (JT 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

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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. L...I...T.......T.......T.......T.......T.......T.......T..J