RAJINDER KRISHAN KHANNA AND ORS.versusUNION OF INDIA AND ORS.

A                  RAJINDER KRISHAN KHANNA AND ORS.
                                   v.
                        UNION OF INDIA AND ORS.

                                OCTOBER 12, 1998

B                   [S. P. BHARUCHA AND V. N. KHARE, JJ.]


         Arbitration and Conciliation Act, 1996: Sections 16, 31(7) (a) and
    34(2) (iv).

C        Arbitration-Writ filed by appellants against respondent-Allegation
   that due to effluent disposal arrangement of respondent's plant damage was
  caused to land crops and property of appellants-Reliefsought for-Damages
  for the destruction of residential houses, crops and mango gardens-Direction
  also sought to reclaim the land that had been rendered unfit for cultivation-
D No claim made for damages for the alleged loss of the potential of the /and--
   Dismissal of writ petition by High Court-Dismissal order upheld by Division
   Bench ofHigh Court-Special leave preferred before Supreme Court-Dispute
   between the parties referred for arbitration-Statement of claim filed by
  appellants before Arbitrator-Respondents' objection that claim made in the
  statement was beyond the scope of writ petition and thus beyond scope of
E arbitration-Award made by Arbitrators-Alternate relief of compensation
  for land granted by Arbitrator~-Award of sum for loss of potential of land-
   Objections by respondent to make the award a rule of Court-What was
  referred to arbitration was the dispute in the writ petition-Granting
  compensation for the alleged lost potential of the land was not permissible-
F It was not moulding the relief that was sought-It falls outside the scope of
  the reference lo arbitration and is not in relation to a contemplated dispute-
  Jn the circumstances, the respondent cannot be said to have acquiesced in
  the determination ofdamages for the alleged loss ofpotential of the appellants'
  land.

G           State of Orissa v. B. N. Agarwal/a, (1997) 2 SCC 469, referred to.

            CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5203 of
    1997.

            From the Judgment and Order dated 29.2.96 of the Punjab and Haryana
H High Court in L.P. A. No. 68of1996.
                                         302
                            R.K. KHANNA v. U.0.1.                           303
     D.D. Thakur, A.V. Palli, Atul Sharma and Ms. Rekha Palli for the               A
Appellants.

     Soli J. Sorabjee, N.N. Goswamy, G. Joshi, S. Bawmik, G. Kandpal, Devika
Bezboruah, Ms. Hemantika Wahi, Y.P. Dhamija and P. Parmeshwaran for the
Respondents.
                                                                                    B
      The following Order of the Court was delivered by

      The appellants and others filed a writ petition in the High Court of
Punjab and Haryana against the respondents. The case in the writ petition,
briefly stated, was that the writ petitioners were owners of agricultural lands,
residential buildings, tubewells, etc. at Gaddiwara within the municipal limits     C
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 ash had escaped from the pond and had                 D
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 until such time as they were
reclaimed. The second respondent had not done anything to redress the
grievances of the writ petitioners. fht: writ petition, therefore, prayed for a     E
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. I and 3
may be directed to take steps for civil and criminal (action) against the           F
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.                               G
      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         H
    304                        SUPREME COURT REPORTS [1998] SUPP. 2 S.C.R.

A   July, 1997 that they had agreed to go to 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 Arbitration Agreement whereby, they have referred their disputes
B           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 :

c                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."
D
    The agreement required the two 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.
                                                                                         -
E
          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 conveyed to the
    appellants' land because of successive breaches of the bund and pond had
F   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
G   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. I is claiming the entire value of the land estimated
H           at (Rs. )2 crores and 40 lakhs as damage of property being total loss
                               R.K. KHANNA v. U.0.1.                          305
           in the year 1991." The appellants claimed interest "on the sum of          A
           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       B
           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 arbitration.                                  C
     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           D

     (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. 82,34,147.50           E

           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 Nol. will be      F
           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.                  G
      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      H
    306                         SUPREME COURT REPORTS (1998] SUPP. 2 S.C.R.

A   General submitted that the case was covered by the terms of S.!ction 34(2)(iv)
    of the Arbitration and Conciliation Act, 1996 ("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
B   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
C   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 v. B.N. Agarwal/a, [1997] 2 SCC 469, and the provisions of Section
D   3( I )(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 pendiiig the writ petition. It alleged that the writ petitioners had been
    deprived of their livelihood, which was dependent on the soil; the writ
E   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 unfit 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
    agreement. He submitted that the learned arbitrators and umpire found that
F   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 I 0 of the award that the learned
G   arbitrators had found that the appellants' land could not be reclaimed. Paragraph
     IO of the award reads thus:

            "IO. Party No.2 contended that ifthe Party No.I had drained out the
            water, the land could be reclaimed and made fit for cultivatioil.. This
            assertion fails to absolve Party No.2 of its responsibility to maintaiii
H           its ash pond and the dykes in a proper manner to avoid the breach
                            R.K. KHANNA v. U.0.1.                           307
       or leakage therein. The negligence of Party No.2 is apparent. Their          A
       failure to keep the ash ponds and the dykes in a standardised fonn
       and to prevent any leakage or breach is blame-worthy of negligence.
       Their negligence has resulted in rendering the land of Party No. I
       beyond cultivation and the garden developed thereof deprecated in
       result. During our inspection, we noted that on a part of the disputed       B
       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
                                                                                    c
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. I.
Nevertheless it could not be disputed that the land for which pennission was        D
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 Krns. away from 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           E
Rawalpindi (now fonning part of Pakistan)~ C. W. l 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 TWl/1. The land under the orchard measuring 17 acres similarly              F
fetched considerable income to Party No.I as stated by Shri Vineet Khanna.
Now this land is unfit for cultivation. However, as was noticed and observed
by us in our inspection note, many residential houses belonging to people
of lower strata of society, seemingly below povei;ty line, have been constructed
on a part of the disputed land in the recent years. After the agriculture and       G
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. 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 teasons         H
    308                        SUPREME COURT REPORTS [1998] SUPP. 2 S.C.R.

A 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
  <?nly to the quantum of compensation for loss of average pctential of the land.
  Keeping in view the totality of circumstances and the material brought on
B 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
C learned arbitrators to come to. Learned counsel also submitted that the second
  respondent had acquiesced 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, "( l )Whether Party No. l has suffered
  any damages, if so, is entitled to any compensation ? (2) Whether the claim
D is barred by acquiescence, !aches, 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
E 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 an arbitral
  award and sub-section 7, clause (a) states:

                "Unless otherwise agreed by the parties, where and in so far as
F           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."
G        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 may be set aside if it "deals with a dispute not
  contemplated by or not falling within the terms of the submission to arbitration,
H or it contains decisions on matters beyond the scope of the submission to
                             R.K. KHANNA v. U.0.1.                              309
arbitration". The proviso to clause (iv) says that if the decision on matters           A
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.

       The first question, therefore, is : What were the terms of the submission
to arbitration. Thi! order of reference to arbitration is material in the context,      B
it refers to the arbitration agreement that the parties had filed. Clause l 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            C
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             D
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 l 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               E
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           F
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          G
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 houses, crops and mango garden was
within the scope of the reference. The first point must be read in the light of         H
    310                         SUPREME COURT REPORTS (1998) SUPP. 2 S.C.R.

A 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
B   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
C   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.
D
          In any event, we do not find it possible to accept learned counsel's
    submission that granting compensation for !he 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 alleged lost
E   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 ofR$.77,19,800 for "loss of potential of land"
F   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
G   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
H   reclamation of the land; the appellants would want to agitate that claim in the
                           R.K. KHANNA v. U.0.1.                          311
appeal and we think that to do complete justice in the circumstances we          A
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'            B
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.                                                                 C
      No orders as to costs.

T.NA.                                                 I.A. No. 2 disposed of
                                                          I.A. No. 3 allowed.