V.V.S.Rao, J.

(1) These appeals under Section 37 of the Arbitration and Conciliation Act, 1996 ( the, for brevity) are heard and considered together for the reason that all the appeals arise out of common judgment dated 14.03.2005 of the Court of XIV Additional Chief Judge (Fast Track Court), Hyderabad and also for the reason that all the original petitions filed by the appellants herein were against similar awards passed by the arbitral tribunal in the background of similar facts. By the said award, dated 11.03.2002, the arbitral tribunal, while rejecting the claim of two appellant (s) and partly allowing the claim of other appellants, allowed in two cases the counter claims of Andhra Pradesh Backward Classes Cooperative Finance Corporation Limited (hereafter called, the Corporation) with i@ 6% per annum from 07.06.2001 till the date of recovery. The particulars of the arbitration cases, the original petitions and appeals are as under.

(2) The Government of Andhra Pradesh launched ADARANA scheme. It envisages supply of tools to village artisans like black smiths, carpenters, dhobis etc. Under the scheme, Dhobis are to be supplied Iron boxes, buckets and banas (Rajaka tools). The Corporation was entrusted with procurement and supply of Rajaka tools to identified backward class beneficiaries.

(3) In response to notice, the appellants, who are manufacturers/ dealers of Rajaka tools, participated in the exhibition at Vijayawada, Bhongir and other placed in 1998. Series of meetings were held thereafter and on invitation, the appellants gave their quotations in January, 1999 agreeing to supply Dawaleswaram variety iron boxes at Rs.244/- per kg, and buckets and banas at Rs.262/- per kg. The Corporation then entered into an agreement on 18.01.1999 or 19.01.1999 under which appellants were required to make supplies as per the indent placed by respective District Backward Class Cooperative Societies (District Society, for brevity). The supplies commenced on 18.02.1999. In the meanwhile, the negotiations were held between suppliers and committee of three District Collectors. The result was reduction of price to Rs.207/- per kg for iron boxes and Rs.216/- per kg for other items as agreed by the appellants. Again there were discussions with Managing Director and Chief Consultant/Special Officer of Corporation on 15.05.1999. There was a further reduction of brass vessels to Rs.174/- per kg exclusive of sales tax in respect of six coastal Districts, namely, Srikakulam, Vizianagaram, Visakhapatnam, East Godavari, West Godavari and Krishna and Rs.200/- per kg for other Districts exclusive of sales tax. There were further negotiations by Purchase Finalisation Committee (PFC) on 20.05.1999 when the appellants agreed to reduce the price of Rajaka tools to Rs.165/- per kg in six coastal Districts and Rs.190/- per kg in other Districts. The Corporation then issued a circular on 21.05.1999 fixing the rates accordingly. This was followed by another circular on 18.06.1999 directing Executive Directors of District Societies not to pay at a rate more than Rs.150/- per kg for six coastal Districts and Rs.175/- per kg for other Districts in respect of banas and buckets. Again on 03.09.1999, Corporation reduced the rate of Iron box to Rs.154.50/- per kg in all Districts exclusive of taxes, which was objected to by the suppliers. The request of the claimants was, however, rejected and the Corporation asked the appellants to stop supply in December, 1999.

(4) The matter went before the Government of Andhra Pradesh. A State Level Committee met the suppliers and asked them to reduce the price to Rs.135/- per kg, which was not accepted by claimants vide representation dated 06.11.2000. The Corporation, therefore, referred the matter to arbitration on 08.03.2001. In the claim petition, all the appellants claimed Rs.165/- per kg for Iron boxes in respect of coastal Districts, Rs.189.75/- in case of other Districts, and Rs.150/- per kg for costal Districts and Rs.172.50/- for buckets and banas. They also claimed interest at 24% per annum.

(5) Before the arbitral tribunal, appellants contend that as per the circular dated 21.05.1999 issued by Corporation the prices were finalised by PFC and therefore, the Corporation cannot go back and reduce the prices, which would amount to breach of agreement, dated 18.01.1999. Each of the appellants raised six claims. The appellants claimed the balance of amount payable by the Corporation in respect of the cost of total supplies calculated at Rs.165/- per kg for Iron box for coastal Districts and at Rs.189.75/- for other Districts, after deducting the amount already paid by Corporation to them.

(6) The Corporation opposed the claims raising the following contentions. The appellants gave an unconditional undertaking at the time of agreement that the price quoted by them is the lowest possible price and that if it is found on enquiry that the price quoted by them is not lowest, the Corporation can deduct excess amount paid on account of any price difference between higher price quoted and lower price offered in open market in Andhra Pradesh. The Corporation found that the prices quoted by the appellants are not lowest and that there was fraudulent misrepresentation about the prices. The price payable is essence of the contract. On enquiry, it is revealed that the appellant in C.M.A.No.973 of 2005 sold large quantity of articles to District Societies to be supplied to cyclone victims under cyclone rehabilitation programme at or about same time at Rs.128.89/-, that the appellant in C.M.A.No.999 of 2005 sold brass articles to appellant in C.M.A.No.973 of 2005 for consideration of Rs.115/- per kg which in turn supplied the same to respondents under ADARANA at exorbitant prices and that the same appellant sold to M/s.Chowdary and Company, who in turn supplied to the Corporation. Thus, the price quoted by the claimants during the negotiations is not the lowest and therefore, conduct of the claimants falls within clauses (i), (ii) and (iii) of Section 17 of the Indian Contract Act, 1882. By so doing, the appellants made Corporation to act on a false belief, which is not true. The appellants are entitled to price of the goods calculated basing on the price at which the same articles are sold in the open market at the same time when the supplies were made under ADARANA programme. Therefore, the Corporation is entitled for refund of the excess payment made over and above Rs.110/- per kg. As per the invoices, the goods sold by the appellants are similar to those, which are available in the market and sold at Rs.110/- per kg. The Corporation denied all the claims and alleged that the contract is vitiated and unenforceable for the price claimed by appellants and that appellants are entitled to Rs.110/- per kg which is the lowest price prevailing at or about the time.

(7) The Corporation also made a counter claim for the amount as shown in the table alleging above as follows. The appellant sold Rajaka tools to Corporation similar to those sold in the market at higher rate thereby violating undertaking given by them. The appellants cheated the Corporation to part with public money by suppressing material facts. Due to this, the Corporation paid excess amount and is entitled for refund of the same with interest thereon.

(8) The arbitral tribunal considered arbitration application Nos.1 to 4 and 8 of 2001 together, but passed separate awards in each case. As many as eight issues were framed which are as follows. 1]. Whether the Contract is vitiated by any fraudulent representation of the claimant regarding the price 2]. Whether the respondent has committed any breach of the contract 3]. What is the rate at which the claimant is entitled to charge as per the contract and subsequent negotiations 4]. (a) What is the total number of pieces and their total weight supplied by the claimant in Srikakulam, and West Godavari Districts (b) Whether the total amount received by the claimant is Rs.2,42,52,106/- as contended by it or Rs.2,43,11,254/- as contended by the respondent 5]. Whether the claimant is entiteld to the claim made 6]. If so, what is the rate of interest payable 7]. Whether the respondent is entitled to the counter claim 8]. If so, what is the rate of the interest payable

(9) On issue No.1, arbitral tribunal held that the supplier fraudulently misrepresented regarding market price of iron boxes in Andhra Pradesh and induced the Corporation to enter into contract agreeing to pay at Rs.244/- per kg for iron boxes and Rs.262/- per kg for banas and buckets even though the market price was Rs.115/- per kg just before submitting quotations. It was also held that the undertaking given by the contractor continues to be valid even after the price is revised in negotiations and the contract is vitiated by fraud regarding market price. In view of the finding on issue No.1, no findings were recorded on issue No.2. Issue No.3 was decided holding that the contractor is entitled to a reasonable rate of Rs.115/- per kg for supplies to all the Districts subject to 15% extra towards supply to Districts other than six coastal Districts. Issue Nos.4(a) and (b), 5, 6 and 7 were decided as per the reconciliation statements regarding the quantities supplied which differ in each case. Issue No.8 was decided holding that the contractor would not be entitled to interest for pre-arbitration and pendente lite periods but held that interest is payable on the balance of amount from 07.06.2001 when the counter is filed by the Corporation. Post award interest was also denied to either of the parties. As noticed supra, in three cases, awards were passed in favour of suppliers for a part of the amount claimed and in two cases counter claim of the Corporation was partly allowed.

(10) All the contractors filed separate O.Ps., under Section 34 of theto set aside the arbitral award and for a direction to Corporation to pay the amount claimed with interest at 24% per annum and to direct the arbitrator to adjudicate the claim on the basis of the findings of the civil Court. In support of their applications, they contended that the award of the arbitrator is contrary to material on record, that the arbitrator committed mistakes apparent on the face of record by not considering the relevant material and that the award is liable to be set aside, as being in conflict with the public policy as provided under Section 34 (2)(b)(ii) of the. They also alleged that the arbitral tribunal failed to comply substantive law for the time being in force as provided under Section 34 of the Act, that the finding that the contract is vitiated by fraud is erroneous and that the undertaking does not form part of agreement and it was obtained to clarify that the rates are not finalized and that the undertaking ceased to be part of the concluded contract after the Corporation issued circulars on 21.05.1999 and 18.06.1999 fixing price. They also allege that undertaking was given for a limited purpose and its scope cannot be overstretched to deprive the contractor from claiming the finalized price for the supplies made. In the absence of any reliable material placed by the Corporation with regard to the lowest price in the market, the arbitrator ought not to have assumed a price, which was far below the negotiated price. They denied allegations of fraud contending that the price of any product would be different and the terms of payment and mode of delivery varies and that was the reason why the rate quoted in November, 1998 was much lesser than the rate quoted on 04.01.1999. Corporation filed counter in the Court below placing strong reliance on the undertaking given by the contractors after entering into an agreement. While reiterating the allegation of fraudulent misrepresentation by the contractors, it was urged that the undertaking forms part of clause 12 of the agreement providing for arbitration and that the arbitrator awarded true and correct price in consonance with the provisions of Sale of Goods Act, 1930. Their main contention was that none of the provisions of Section 34 of theare attracted and award passed cannot be interfered with.

(11) The Court of XIV Additional Chief Judge, which considered the matters framed the following points for consideration which are as below. (i) Whether the petitioners played fraud upon the respondent Corporation in quoting the price about Rs.175/- per kg (ii) Whether the undertaking given by petitioners survives the price fixatiion in the negotiations, dated 20.05.1999 (iii) Whether the reference of the learned arbitrator itself is invalid as the learned arbitrator held that the agreement is invalid and (iv) To what relief

(12) Sri Vedula Venkata Ramana, counsel appearing for the contractor/appellant in C.M.A.No.973 of 2005 submits as follows. The undertaking is an independent transaction and does not form part of the agreement. Undertaking authorizes the Corporation to deduct excess payment and if it is to be enforced, Corporation has to prove that the contractor sold at excess prices. In the absence of such proof, arbitration clause cannot extend for resolving the dispute especially when the agreement itself does not refer to undertaking which is unilateral and subsequent thereto. The undertaking itself cannot be subject matter of arbitration. The reference to arbitration was in relation to non-payment of bills for the goods supplied. In fixing the price ignoring the agreed price, arbitrator committed serious error ignoring substantive law. He would lastly urge that the question of fraud is outside the purview of arbitration.

(13) Sri S.Ravi, counsel appearing in C.M.A.Nos.674 and 675 of 2006 also submits that there is no link between the agreement and undertaking and therefore, the latter cannot be read as part of the agreement. According to him when the price is negotiated and agreed, question of misrepresentation and fraud would not arise as there is no implied condition or warranty that price offered is reasonable and fair. Question of fraud cannot be decided in a summary fashion unless it is conclusively proved by the Corporation. Mr.K.Prabhakar, learned counsel appearing for appellant in C.M.A.No.999 of 2005, submits that in a concluded contract, one party unilaterally cannot resile from the contract and it was not proper for the arbitral tribunal to go into the question of fraudulent misrepresentation when the dispute referred was regarding the price. Mr.P.Vinayaka Swamy adopted the arguments of other counsel. Counsel referred to State of Karnataka v Rameshwara Rice Mills, U.P.Cooperative Federation Limited v Singh Consultants and Engineers (Private) Limited[2], Svenska Handelsbanken v Indian Charge Chrome[3], National Thermal Power Corporation Limited v Flowmore Private Limited[4], I.T.C. Limited v Debts Recovery Appellate Tribunal[5], Rajasthan State Mines and Minerals Limited v Eastern Engineering Enterprises[6], McDermott International Inc., v Burn Standard Company Limited[7], Security Printing and Minting Corporation of India Limited v Gandhi Industrial Corporation[8], M.B.Patel and Company v Oil and Natural Gas Commission[9], Delhi Development Authority v R.S.Sharma and Co.,[10], M.K.Abraham and Co v State of Kerala[11] and M.R.Engineers and Contractors (Private) Limited v Som Datt Builders Limited[12].

(14) Sri N.Subba Reddy, learned counsel for Corporation submits that under clause 12 of the agreement, any question or dispute between the parties at any time with respect to the agreement or rights and liabilities of the parties are referable to arbitration. Therefore, the question whether undertaking given by the contractor forms part of the transaction itself is arbitrable. He nextly submits that the undertaking was given by the contractor only with regard to the supply of Rajaka tools under ADARANA scheme, covered by the original agreement and therefore, the undertaking forms part of the agreement. The appellants are aware of the undertaking and therefore, they cannot turnaround and raise such a plea. He would further contend that arbitral tribunal has jurisdiction to decide the price as the claim was made for Rs.165/- per kg and clause 12 covers even such a dispute. He would urge that interference under Section 34 of theis not called for for the following reasons. Arbitrator considered agreement and undertaking in the light of evidence and came to conclusion that the contractor is entitled to Rs.115/- per kg. It is a question of fact and cannot be interfered. Contractor himself claimed an amount of Rs.165/- per kg and there is nothing wrong in the arbitral tribunal to go into the question and fix the price based on evidence. Agreement and undertaking form integral part of contract and this itself being a question of fact interference is not called for. He relies on Khardah Company v Raymon and Company (India) (Private) Limited[13], Union of India v D.N.Revri and Company[14] and Halki Shipping Corporation v Sopex Oils Limited[15].

(15) The counsel appearing for respective parties, as seen from the summary of the arguments covered a very wide field touching upon procedural and substantive aspects of the case. Nevertheless, having regard to the allegations, facts and circumstances and rival contentions, this Court feels that various aspects can be considered under four headings, namely, (i) extent and power of the Court to interfere with the award of the arbitral tribunal; (ii) the validity of reference to arbitration; (iii) the question of fraudulent misrepresentation, and (iv) the validity of the arbitral award.

(16) (i) Interference with the arbitral awards by the Court It is not denied that arbitral tribunal being a creature of the parties in dispute has to necessarily enforce agreed covenants of the agreement. Anything done outside the agreed terms of the contract amounts to acting outside the jurisdiction and therefore, amounts to committing error in jurisdiction. This, however, does not mean that the arbitral tribunal is precluded from interpreting the contract or clauses thereof when such interpretation itself is in dispute between the parties, or when such dispute exists in relation to a term of the contract or its interpretation. In so doing, the arbitral tribunal have to apply substantive law governing parties and in the absence of any such agreement, in case of domestic arbitration, necessarily nations substantive law alone applies. The new Arbitration Act which repealed Arbitration Act, 1940 (1940 Act, for brevity) indicates the grounds on which an award of the tribunal can be set aside. Has there been any difference with regard to the power of the Court to interfere with the awards under 1940 Act and 1996 Act To our mind, except to a limited extent, the difference is not much. A perusal of Section 34(2) of 1996 Act would show that an award may be set aside by the Court on the grounds of procedural non-compliance (let us say, procedural grounds) and/or on grounds which are of substantial nature (substantive grounds). The substantive grounds may include procedural grounds but not vice versa for obvious reasons. Section 34(2)(a)(iii) and (iv) of thebroadly fall under the category of procedural grounds. These are non-service or improper service of notice of appointment of arbitrator or non-service or improper service of notice of arbitral proceedings. In a given case, when an arbitrator is appointed under Section 11(6) of thewithout notice to a party, it can also be a ground to set aside such an award. Similarly if the arbitrator proceeds without giving notice or it is proved that proper notice was not given to the party, it is a ground to set aside arbitral award. In addition to this, Section 34(2)(a)(v) of thecontemplates a situation where the composition of arbitral tribunal or arbitrary procedure is not in accordance with agreement of the parties or where the composition of arbitral tribunal or arbitral tribunal is in conflict with any of the provisions of Part-I of the. Many situations in which pre-arbitral procedure may not in accordance with agreement can be visualized like less number of members constituting arbitral tribunal than agreed, constituting arbitral tribunal at a place not agreed to by the parties and defective procedure evolved by the arbitral tribunal, which places one of the parties at an unfair and disadvantageous position.

(17) As noticed supra, substantive grounds for setting aside arbitral award are contained in Section 34(2)(a)(i), (ii) and (iv) of the. They are self-explanatory and read as under. 34. Application for setting aside arbitral award. (2) An arbitral award may be set aside by the Court only if (a) the party making the application furnishes proof that (i) a party was under some incapacity, or (ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or (iii) omitted (iv) the arbitral award deals with a dispute not contemplated by or contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside;

(18) From the language of Section 34(2)(a) of the Act, there cannot be any doubt that an arbitral award can be set aside by the Court only if the party making an application furnishes proof making out a case for setting aside the arbitral award. The provision casts a duty on the Court to set aside an arbitral award if the subject matter of the dispute is not capable of settlement by arbitration and/or is in conflict with the public policy of India. Thus the burden lies on the party making an application to prove the procedural grounds and/or substantive grounds for setting aside the arbitral award as contemplated under Section 34(2)(a) of the. But after an objective enquiry, the Court on its own may set aside the award if any of the grounds mentioned in Section 34(2)(b) of theare satisfied in a given case.

(19) In addition to above procedural and substantive grounds for setting aside an award of arbitral tribunal, there are other grounds evolved in precedent law. These include error of fact apparent on the face of record, error of law apparent on the face of record, perversity in relation to each of these errors and bias. Even while testing the arbitral award on these grounds, the Court has certain limitations.

(20) In Rajasthan State Mines and Minerals Limited (supra), Supreme Court after reviewing the case law, summarised the principles as under. (a) It is not open to the court to speculate, where no reasons are given by the arbitrator, as to what impelled the arbitrator to arrive at his conclusion. (b) It is not open to the court to admit to probe the mental process by which the arbitrator has reached his conclusion where it is not disclosed by the terms of the award. (c) If the arbitrator has committed a mere error of fact or law in reaching his conclusion on the disputed question submitted for his adjudication then the court cannot interfere. (d) If no specific question of law is referred, the decision of the arbitrator on that question is not final, however much it may be within his jurisdiction and indeed essential for him to decide the question incidentally. In a case where a specific question of law touching upon the jurisdiction of the arbitrator was referred for the decision of the arbitrator by the parties, then the finding of the arbitrator on the said question between the parties may be binding. (e) In a case of a non-speaking award, the jurisdiction of the court is limited. The award can be set aside if the arbitrator acts beyond his jurisdiction. (f) To find out whether the arbitrator has travelled beyond his jurisdiction, it would be necessary to consider the agreement between the parties containing the arbitration clause. The arbitrator acting beyond his jurisdiction is a different ground from the error apparent on the face of the award. (g) In order to determine whether the arbitrator has acted in excess of his jurisdiction what has to be seen is whether the claimant could raise a particular claim before the arbitrator. If there is a specific term in the contract or the law which does not permit or give the arbitrator the power to decide the dispute raised by the claimant or there is a specific bar in the contract to the raising of the particular claim then the award passed by the arbitrator in respect thereof would be in excess of jurisdiction. (h) The award made by the arbitrator disregarding the terms of the reference or the arbitration agreement or the terms of the contract would be a jurisdictional error which requires ultimately to be decided by the court. He cannot award an amount which is ruled out or prohibited by the terms of the agreement. Because of a specific bar stipulated by the parties in the agreement, that claim could not be raised. Even if it is raised and referred to arbitration because of a wider arbitration clause such claim amount cannot be awarded as the agreement is binding between the parties and the arbitrator has to adjudicate as per the agreement. (i) The arbitrator could not act arbitrarily, irrationally, capriciously or independently of the contract. A deliberate departure or conscious disregard of the contract not only manifests the disregard of his authority or misconduct on his part but it may tantamount to mala fide action. (j) The arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks just and reasonable; the arbitrator is a tribunal selected by the parties to decide the disputes according to law.

(21) In ONGC Ltd., v Saw Pipes Ltd., Supreme Court held as below.

(22) The question, therefore, which requires consideration is whether the award could be set aside, if the Arbitral Tribunal has not followed the mandatory procedure prescribed under Sections 24, 28 or 31(3), which affects the rights of the parties. Under sub-section (1)(a) of Section 28 there is a mandate to the Arbitral Tribunal to decide the dispute in accordance with the substantive law for the time being in force in India. Admittedly, substantive law would include the Indian Contract Act, the Transfer of Property Act and other such laws in force. Suppose, if the award is passed in violation of the provisions of the Transfer of Property Act or in violation of the Indian Contract Act, the question would be whether such award could be set aside. Similarly, under sub-section (3), the Arbitral Tribunal is directed to decide the dispute in accordance with the terms of the contract and also after taking into account the usage of the trade applicable to the transaction. If the Arbitral Tribunal ignores the terms of the contract or usage of the trade applicable to the transaction, whether the said award could be interfered. Similarly, if the award is a non-speaking one and is in violation of Section 31(3), can such award be set aside In our view, reading Section 34 conjointly with other provisions of the, it appears that the legislative intent could not be that if the award is in contravention of the provisions of the, still however, it couldnt be set aside by the court. If it is held that such award could not be interfered, it would be contrary to the basic concept of justice. If the Arbitral Tribunal has not followed the mandatory procedure prescribed under the, it would mean that it has acted beyond its jurisdiction and thereby the award would be patently illegal which could be set aside under Section 34." "In our view, the phrase "public policy of India" used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter, which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award, which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term "public policy" in Renusagar case it is required to be held that the award could be set aside if it is patently illegal. Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. Such award is opposed to public policy and is required to be adjudged void. (emphasis supplied)

(23) The above dictum was followed in Hindustan Zinc Ltd v Friends Coal Corporation, and the principle that the Court can consider if the award is against specific terms of the contract and interfere if it is patently illegal, was reiterated. In Numaligarh Refinery Ltd. v Daelim Industrial Co. Ltd., Supreme Court explained further thus.

(24) So far as the legal proposition as enunciated by this Court in various decisions mentioned above, it is correct that Courts shall not ordinarily substitute its interpretation for that of the arbitrator. It is also true that if the parties with their eyes wide open have consented to refer the matter to the arbitration, then normally the finding of the arbitrator should be accepted without demur. There is no quarrel with this legal proposition. But in a case where it is found that the Arbitrator has acted without jurisdiction and has put an interpretation of the clause of the agreement which is wholly contrary to law then in that case, there is no prohibition for the Courts to set things right.

(25) In G.Ramachandra Reddy v Union of India, Supreme Court considered scope of interference by the Court while dealing with petitions filed under Section 30 of 1940 Act. Noticing relevant case law, the apex Court set out legal principles in the following terms: the Court while dealing with an award would not re-appreciate the evidence. The award containing reasons also may not be interfered with unless they are found to be perverse or based on wrong proposition of law. If two views are possible, it is trite, the Court will refrain itself from interfering.

(26) In Delhi Development Authority v R.S. Sharma, Supreme Court referred to Grid Corporation of Orissa Ltd., v Balasore Technical School, Northern Railway v Sarvesh Chopra[22], State of Rajasthan v Nav Bharat Construction Co.,[23] and Hindustan Zinc Ltd., (supra) and laid down the following principles. (a) An Award, which is (i) contrary to substantive provisions of law ; or (ii) the provisions of the Arbitration and Conciliation Act, 1996 ; or (iii) against the terms of the respective contract ; or (iv) patently illegal, or (iv) prejudicial to the rights of the parties, is open to interference by the Court under Section 34(2) of the. (b) Award could be set aside if it is contrary to : (a) fundamental policy of Indian Law; or (b) the interest of India; or (c) justice or morality; (c) The Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the Court. (d) It is open to the Court to consider whether the Award is against the specific terms of contract and if so, interfere with it on the ground that it is patently illegal and opposed to the public policy of India.

(27) Thus, it is well settled that if there is an error of fact in arriving at conclusion, the award cannot be interfered but if a question of law is referred, the interpretation of arbitrator is not final. The Court can certainly look at the arbitrators interpretation to find out any error. If a question arises that arbitrator has acted, the contract in such a manner that it amounts to altering the mutual promises, it is certainly within the powers of the Court to interfere with the matter. How then to approach the case when an allegation is made to that effect. So as to find out whether the arbitral award deals with a dispute not contemplated within the scope of arbitration, to find out whether arbtirator travelled beyond jurisdiction and to find out whether the arbitrator committed serious error, it is mandatory to consider the agreement containing arbitration clause or to consider arbitration clause itself. If the arbitrator committed error apparent on the face of record, certainly interference is called for. It means where it is manifestly clear that the conclusion on a law based on any misrepresentation of statutory provisions or ignorance or disregard of the statutory provisions or such conclusion is founded on reasons which are manifestly wrong in law, it has error apparent on the face of record. Again whether there is an error of law or error of fact apparent on the face of record, depends on facts and circumstances of each case, and upon the nature and scope of the statutory provisions alleged to have been contravened or misconstrued. But if statutory provision is reasonably capable of two constructions and one construction is adopted by the tribunal, its conclusions are always not open to be corrected by the Court.

(28) In the present case, counsel for appellants in chorus contend that the reference to arbitral tribunal itself is a manifest error and that the learned arbitrator exceeded jurisdiction and travelled beyond jurisdiction in considering the question of fraud and misrepresentation and in re-determining and fixing the price of Rajaka tools contrary to the negotiated and agreed price. Indeed, placing reliance on McDermott (supra) also commend to us to set aside the award which they call Nil award and leave the parties to avail the remedies in law including arbitration. This aspect can wait a little while before we take up the submissions of the counsel under the remaining three headings one after the other.

(29) (ii) Validity of Reference Arbitration The admitted fact of the matter relevant to this point in brief may be noticed. Government of Andhra Pradesh conceived ADARANA to supply tools to BC artisans. Its object is to ameliorate the conditions of artisans by providing suitable occupation. The Corporation is nodal agency for the same. They issued advertisements in September and November, 1998 inviting suppliers to participate in the exhibitions and also to register themselves with Corporation. They were also asked to quote competitive prices. The tools exhibited by suppliers were video filmed. Last such exhibition was held at Bhongir and all the suppliers quoted the rates were enlisted. They entered into agreements on different dates like 18.01.1999, 26.04.1999 etc. Some time thereafter, all the suppliers gave undertaking, according to refund or authorise the Corporation to deduct excess amount paid to them after it is found that their rates were higher than the market rates. In the meanwhile, the contractors commenced supplies to concerned District societies and raised bills claiming the quoted rates. At that stage, it came to notice of the Corporation that the same contractors/suppliers delivered Rajaka tools under the Cyclone Relief Programme to District Societies at far lesser rates and that those contractors themselves obtained Rajaka tools from other contractors at lesser rates and offered to Corporation at higher rates. The Government, therefore, decided to negotiate with the suppliers and for that reason, the entire amount towards the total supplies made by contractors was not paid. All the contractors were paid part of the money and balance was withheld.

(30) The contractors quoted Rs.244/- per kg for iron boxes and Rs.262/- per kg for buckets and banas. The committee of Collectors negotiated and brought down the price to Rs.207/- and Rs.216/- respectively for the items. Again there were negotiations with the Managing Director and others when the price of brass vessels was reduced to Rs.174/- per kg for coastal Districts and Rs.200/- for other Districts. Thereafter, PFC called for discussions. The contractors agreed to reduce the price of Rajaka tools to Rs.165/- per kg for coastal Districts and Rs.190/- per kg for other Districts. A circular was issued on 21.05.1999 fixing the rate of Rs.165/- per kg for coastal Districts and Rs.185.75/- for other Districts. The same was followed by another circular dated 18.06.1999 further reducing the iron box rate to Rs.150/- per kg and bana to Rs.175/- per kg. All the contractors claimed Rs.165/- per kg for coastal Districts and Rs.189.75/- per kg for other Districts. After the issue of these circulars, Contractors stopped supply as directed by District Societies. Subsequently, the Corporation issued a circular on 03.09.1999, reducing the price to uniform rate of Rs.154.50/- per kg exclusive of taxes. Contractors protested by sending letters and giving reasons why Dawaleswaram boxes cost more than Moradabad variety. The officials of the Corporation convened a meeting on 04.07.2000. Disagreeing with the proposals made by them, the claimants wrote to Corporation on 11.07.2000 expressing inability to reduce the price. Government of Andhra Pradesh issued G.O.Ms.No.21, dated 04.07.2000 directing the Corporation to re-negotiate the prices. The committee so appointed met on three occasions and asked the suppliers to reduce to Rs.135/- per kg. The letter was then sent by the contractors on 06.11.2000 to convey their non-acceptance of the rates for the proposed action. Therefore, the Vice Chancellor and Managing Director of Corporation by letter, dated 08.03.2001 communicated about the reference to learned arbitrator.

(31) The agreement between the contractor and Corporation does not specifically deal with the quantity of tools/equipment/units to be supplied by the contractor to artisans, nor it mentions the rate at which these units are to be supplied. But, there are sufficient indications in the agreement itself with regard to the quantities and rates. As per the preambular clause of the agreement, the Corporation agreed to purchase artisan tools from the contractors as per the quotations subject to conditions, inter alia that the contractor shall supply and deliver at Mandals artisan tools to beneficiaries as directed by the Corporation or District Society. From this, the intention is clear that both the parties were very much aware about the rates or the quantities with reference to the indent to be placed in future. What are the rates to be supplied These are to be decided based on the quotations. These quotations never finalized nor there had been agreed price. There were negotiations by the District Committee, Managing Director, PFC, State Committee and so on. That means the contractor has certainly waived his right to claim the rates quoted at the time of submission of quotations. Similarly, the Corporation also is not bound to purchase the tools as per the quotations. This leads a further question as to what are all the documents constituting the contract.

(32) In our opinion, the quotations submitted by the contractors, the agreement they entered into with the Corporation, the undertaking given by them, the minutes of various committees convened to negotiate the actual price are all the documents constituting the contract. Therefore, the agreement alone cannot be construed as a contract nor the undertaking can be read as a document outside the transaction. Why at all the contractors gave undertaking If only they had not entered into an agreement with the Corporation to supply artisan tools, they would not have given undertaking to refund/authorize deduction of excess amount paid if quoted rates are higher than prevailing market rates. Therefore, the undertaking given by the contractors is certainly in relation to the agreement and as well as the subsequent minutes recorded in various negotiations. Such a dispute would certainly fall within the ambit of clause 12 (arbitration clause), which reads as under.

(33) If any question or dispute shall at any time arise between the parties with respect to the meaning or effect of any clauses in this agreement or the rights and liabilities of the parties hereto respectively hereunder, then such question or dispute shall be referred to arbitration to the sole arbitrator appointed by the first party. The decisions made by the arbitrator shall be final and binding on both the parties. The defaulting party shall bear the fee, costs and expenses of the arbitrator. It is explicitly agreed that all claims arising out of this contract shall be instituted within the respective jurisdictions of courts in A.P. only. (emphasis supplied)

(34) A plain reading and an analysis of the above clause would show that arbitration clause contemplates that arbitrable disputes in four different situations. These are (i) question or dispute with respect to meaning of the clauses in the agreement; (ii) question or dispute with respect to the effect of any clause in the agreement; (iii) question or dispute with respect to the rights and liabilities of the parties to the agreement; and (iv) question or dispute under the of agreement and contract. It is axiomatic that while interpreting an agreement Court should not ascribe superfluity to the language of the document and must always presume that every word was intended to have some effect on the contract (see Ramana Dayaram Shetty v International Airport Authority of India. When the terms this agreement and this contract are used, it would be illogical to ignore the undertaking and other contemporaneous documents, which form part of the contract. The dispute should be given ordinary meaning and arbitration clause should be interpreted in the context and phraseology used in arbitration clause. The undertaking given by the contractor is part of the contract under which he declared that prices quoted by him are less than the market price and that in case the Corporation finds that the prices quoted are higher than the market price, the contractor authorized the Corporation to deduct the excess amount.

(35) In Khardah Company (supra), a Constitution Bench of the Supreme Court, a question arose as to whether the parties can raise before the Court the question whether the contract is illegal and whether such question should be raised before the arbitrator. It was ruled that on the principle ex nihilo nil fit, when the agreement is invalid every part of it including the arbitration clause must always be invalid. While referring Heyman v Darwins Limited, wherein it was held that difference between the parties with regard to the breach by one side or the other should be treated as arising in respect of or with regard to or under the contract, and an arbitration clause using these terms should be construed accordingly. Relevant observations are: If on a reading of the document as a whole, it can fairly be deduced from the words actually used therein that the parties had agreed on a particular term, there is nothing in law which prevents them from setting up that term. The terms of a contract can be express or implied from what has been expressed. It is in the ultimate analysis a question of construction of the contract. And again it is well established that in construing a contract it would be legitimate to take into account surrounding circumstances. Therefore on the question whether there was an agreement between the parties that the contract was to be non-transferable, the absence of a specific clause forbidding transfer is not conclusive. What has to be seen is whether it could be held on a reasonable interpretation of the contract, aided by such considerations as can legitimately be taken into account that the agreement of the parties was that it was not to be transferred. When once a conclusion is reached that such was the understanding of the parties, there is nothing in law which prevents effect from being given to it. (emphasis supplied)

(36) In D.N.Revri (supra), similar view was expressed by Supreme Court in the following terms (para 5 of SCC).

(37) The only question debated before us in this appeal was as to whether the appointment of the arbitrator by the Secretary, Department of Food in the Ministry of Food and Agriculture was a valid appointment. Obviously, if the appointment was invalid, the arbitrator would have no jurisdiction to arbitrate upon the disputes between the parties and the award would be invalid. But, an alternative argument was also advanced on behalf of the appellant to sustain the award and it was that the respondents not having raised any objection to the appointment of the arbitrator and participated in the arbitration proceedings without any demur or protest, it was not open to them, after the award was made, to challenge it on the ground of invalidity of appointment of the arbitrator. The respondents, having taken the chance of obtaining the award in their favour, could not denounce the award when it went against them. We will first examine whether the appointment of the arbitrator was valid, for, if it was, the second question, which raises the issue of waiver, would not arise. Yet again, it was held: (para 7 of SCC)

(38) It must be remembered that a contract is a commercial document between the parties and it must be interpreted in such a manner as to give efficacy to the contract rather than to invalidate it. It would not be right while interpreting a contract, entered into between two lay parties, to apply strict rules of construction which are ordinarily applicable to a conveyance and other formal documents. The meaning of such a contract must be gathered by adopting a common sense approach and it must not be allowed to be thwarted by a narrow, pedantic and legalistic interpretation.

(39) In Halki Shipping Corporation (supra), the Court of Appeal, in the context of Section 9 of the English Arbitration Act, 1996 was considering the question whether plaintiff can enforce a claim by filing a claim arising under the contract containing arbitration clause. Halki Shipping chartered their vessel to Sopex Oils for carriage of oils. The contract contained arbitration clause in respect of any dispute arising from or in connection with the charter party. Plaintiff claimed demurrage alleging that defendant failed to load and discharge the vessel within the agreed lay time. The liability was denied. When an action was brought for demurrage, the defendants applied for stay under Section 9 of the English Arbitration Act, which provided that such stay shall be granted unless the Court is satisfied that arbitration agreement is null and void, inoperative or incapable of being performed. At that stage, plaintiff applied for summary Judgment under relevant rules on the ground that there was no dispute within the meaning of arbitration clause since the demurrage claimed was indisputably due. The Judge granted application of Sopex Oils staying the action and dismissed the plaintiffs application for summary Judgment. The plaintiff went in appeal. It was inter alia contended that dispute means a genuine or real dispute and, therefore, claim which is indisputable because there is no arguable defence does not create a dispute at all and therefore, it is a case for summary Judgment against the defendant. The defendant argued that dispute means any disputed claim and therefore, covers any claim, which is not admitted as due and payable and leave no scope for summary Judgment. The Court of Appeal (Lord Justice Hirst) held that the dispute under an arbitration agreement has to be given its ordinary meaning and that any claim which the other party refused to admit or did not pay would certainly come within the ambit of dispute. The relevant observations from the opinion of Lord Justice Henry are as follows.

(40) If I had to decide this matter untroubled by previous authority construing both the statutory framework governing international arbitrations prior to and since the Arbitration Act 1996 and/or the construction of individual arbitration agreements, I would hesitatingly conclude that there was a dispute as to the entirety of the sum claimed, and that the proceedings should be stayed and referred to arbitration. My reasoning would be that, by their arbitration clause referring all disputes to arbitration, the parties were, without qualification, agreeing on a form of dispute resolution alternative to that provided by the Courts. And, as arbitration procedures make their own provision for the possibility of obtaining prompt interim awards for the minimum sum plainly due, I would not be immediately impressed by a submission that I should construe dispute with so artificial a narrowness as to be restricted to such disputes (as to liability or quantum) as are found by the court to merit the grant of leave to defend after a contested hearing for summary judgment under Order 14, which often takes hours and sometimes takes days; for an example of that narrow interpretation, see Ellis Mechanical Services Limited v Wates Construction Limited (Note) (1978) 1 Lloyds Rep.33, decided in 1976. To put it another way, when the parties have chosen arbitration for their dispute resolution, I would not (if unconstrained by statute or authority) interpret their choice as being restricted to referring only those disputes that cannot be resolved by the Courts summary judgment procedures.

(41) In M.K.Abraham and Co (supra), a question arose as to whether there was an arbitration agreement between the parties, when there was no such clause in the original agreement, but the arbitration clause was on a separate cyclostyled amendment and was attached to the main agreement. The Supreme Court noticed the following principles applicable in such situations, namely, cyclostyled amendments would prevail over printed terms, typewritten additions would prevail over cyclostyled amendments and printed terms; and handwritten corrections would prevail over cyclostyled amendments, printed terms and typewritten additions. Applying the above principles, Supreme Court reversed the Judgment of Kerala High Court and remanded the matter for reconsideration after hearing other objections of opposite parties.

(42) In Som Datt Builders (supra), Supreme Court considered the question whether the provision for arbitration contained in the contract between the principal employer and the contractor was incorporated by reference in the sub-contract between the contractor and sub contractor. Having noticed the Judgment in Alimenta S.A., v National Agricultural Cooperative Marketing Federation of India Limited, Supreme Court held as under (para 33 of SCC)

(43) An arbitration clause though an integral part of the contract, is an agreement within an agreement. It is a collateral term of a contract, independent of and distinct from its substantive terms. It is not a term relating to carrying out of the contract. In the absence of a clear or specific indication that the main contract in entirety including the arbitration agreement was intended to be made applicable to the sub-contract between the parties, and as the wording of the sub-contract discloses only an intention to incorporate by reference the terms of the main contract relating to execution of the work as contrasted from the dispute resolution, we are of the view that the arbitration clause in the main contract did not form part of the sub-contract between the parties.

(44) After perusing the two Judgments in M.K.Abraham and Co., (supra) and Som Datt Builders (supra), relied on by the appellants, we are convinced that those Judgments are not relevant to facts of these appeals. As noticed supra, the undertaking was executed by the contractors in the context of the supply of Rajaka tools under the agreement, and therefore, the agreement as already held the undertaking very much forms part of the contract and consequently comes within the ambit of clause 12 of the agreement. Therefore, we do not find any substance in the argument of the appellants.

(45) (iii) Fraudulent misrepresentation All the suppliers on invitation participated in the exhibitions conducted at different places for displaying artisan tools. They gave their quotations. It appears, the Corporation accepted the offer and entered into agreements with suppliers. Thereafter, Corporation became a bit more wise. Presumably to avoid any public criticism that cheaper goods are purchased for artisans at higher price, Corporation innovated a novel idea. All the suppliers were asked to execute undertakings. The undertakings given by the suppliers are similar and the undertaking given by appellant in CMA No.973 of 2005 reads as under.

(46) I, Grandhi Subba Rao, Managing Partner of M/s.Mercury Metal Corporation, Rajahmundry, hereby declare that the prices quoted for the supply of our products under ADARANA Project being implemented by Andhra Pradesh Backward Classes Cooperative Finance Corporation (APBCCFC) or the lowest possible prices and nowhere in Andhra Pradesh we are selling our products with the same specifications at prices lower than the prices we have quoted under the said Project.

(47) We are also undertaking to refund/authorize APBCCFC to take excess amount paid to us on account of any price differential between the higher prices quoted by us under ADARANA Project and lower prices offered in open markets in Andhra Pradesh. For Mercury Metal Corporation, Partner. Rajahmundry, Dated 16th February 1999. After obtaining above undertakings, pending negotiations to finalise the price, Corporation/District Societies placed orders against which by December 1999 all the supplies were made and thereafter Corporation stopped further purchases. Before stopping supplies and even thereafter there were lot of negotiations involving officials of Corporation at different placed to which reference was already been made supra. Ultimately PFC finalized uniform rates, i.e., for iron boxes Rs.165/- per kg for coastal districts and Rs.189.75 ps per kg for other districts; and for buckets Rs.150/- per kg for coastal districts and Rs.175/- for other districts, exclusive of sale tax. These decisions were communicated under Ex.C20 circular dated 25.5.1999 and Ex.C22 circular dated 18.6.1999. Therefore even though the undertakings refer to without any doubt the price originally quoted by the suppliers at the time of submitting their quotations, by reason of Exs.C20 and C22, for all purposes the quoted rates must be construed as those mentioned here-in above in these paragraph and as determined in Exs.C19 and C22. there was in effect a novation. In this connection, we may refer to Section 62 with its Illustration (b) of the Indian Contract Act, 1872, which reads as under. 62. Effect of novation, rescission and alteration of contract:- If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed. Illustration (b) A owed B 10,000 rupees. A enters into an agreement with B, and gives B a mortgage of his (As) estate for 5,000 rupees in place of the debt of 10,000 rupees. This is a new contract and extinguishes the old.

(48) As held by the Supreme Court in Dayal Singh v Union of India, if the matter is concluded by a contract, a novation of the same would also fall within the realm of that contract only. Section 62 of the Contract Act is therefore attracted and there is no denial on the part of the suppliers that they are required to supply the goods at negotiated price and that they are not entitled to claim at the original price quoted by them. The Illustration (B) under Section 62 of Contract Act makes it very clear that the agreement between the Corporation and suppliers for selling Rajaka tools at quoted prices was changed due to downward price variation agreed to by both the parties. In their claim petitions before the arbitral tribunal, suppliers also admitted that, both the parties mutually agreed upon the prices by virtue of the circulars and by virtue of consent letters and invoices raised and that it culminated into concluded contract. Departing from their original quoted prices, suppliers agreed to deliver Rajaka tools at Rs.165/- per kg for coastal districts and at Rs.190/- per kg for other districts.

(49) Under Sale of Goods Act, 1930, position with regard to variation of price of sale of goods is no different. The price is defined in Section 2(10) of Sale of Goods Act, as the money, consideration for sale of goods. Section 9 thereof enables the parties to the contract of sale to agree to fixed price or may leave the price to be fixed in the manner thereby agreed or may be determined by the course of dealing between the parties. Section 9(2) of Partnership Act is to the effect that where the price is not determined the buyer shall pay the seller a reasonable price and what is reasonable price is a question of fact depending on circumstances of each case. Therefore, a contract of sale can come into existence containing, cost or price clause or may leave the parties to determine cost or price while the contract of sale is being worked out. We have already made reference to the agreement agreed by the suppliers. Though preambular clause (2) of the contract is to the effect that Corporation agreed to purchase the tools and equipment from the suppliers as per the quotations, the suppliers appear not to have insisted upon the prices quoted contract. They participated in negotiations for fixing price at least on three occasions and gave their consent to supply Rajaka tooks at Rs.165/- per kg for coastal districts and at Rs.190/- per kg for other districts.

(50) The arbitral tribunal as well as the Court below came to the conclusion that suppliers fraudulently misrepresented regarding the market price of Rajaka tools even though they were aware that prices in open market was less. In coming to such conclusion, they relied on the quoted prices and the prices at which the suppliers earlier sold Rajaka tools to cyclone victims under the aegis of District Societies. In the background of the case as reiterated hereinabove, whether the suppliers fraudulently misrepresented regarding market price.

(51) Fraud as defined by Bigelow consists on the one hand (1) in one mans endeavouring by deception to alter another mans general rights; or (2) in one mans endeavouring by circumvention to alter the general rights of another; or on the other hand (3) in one mans endeavouring by deception to alter another mans particular rights; or (4) in one mans endeavouring by circumvention to alter the particular rights of another (see Kerr on the Law of Fraud and Mistake, [first Indian reprint by ULP]). However, dishonest act is not fraud but every act of fraud involves dishonesty and an intention to deceive (see Derry v Peek). Whether deception or deceit practiced by one on the other requires intention of deception depends on circumstances of each case. Fraud is a conduct by letter or words, which induces the other person or authority to take a definite determinative stand as a response to the conduct of former either by words or letter. In common law mere fraud without proof of intention to act mala fide or not to act bona fide and/or without intention to deceive does not vitiate the action nor does it act as stigma on the actor. Such action is voidable though fraud vitiates unravels and renders an action or contract void. Misrepresentation in law itself amounts to fraud and a fraudulent misrepresentation (called, deceit) consists in leading a man into damage by willfully or recklessly causing him to believe an act on falsehood. It is not fraud in law if a party makes representations which he knows to be false, and injury ensures although the motive from which representations proceeded may not have been bad. (see Kerr on Fraud)

(52) Fraud and misrepresentation are questions of fact and require proof. It is also well settled that if a promise is made in honest belief that it is true, fraud cannot be believed. In Derry (supra), House of Lords considered one such case where a promise was made in honest belief that it was true. In the said case, a company issued prospectus to issue shares making a statement that steam power will be used to pull tram carriages. The plaintiff believed in the prospectus and subscribed to the shares. Subsequently the company did not get sanction for use of steam power and the plaintiff sued alleging fraud. The trial Court dismissed the suit but the Court of appeal reversed. The matter went before the House of Lords. The opinion of trial Judge was upheld drawing a distinction between the statement, which was made knowing fully well that it was false in a reckless and negligent manner and between a statement which was made believing and having faith that such statement is true. It was held as follows.

(53) A man who forms his belief carelessly or is unreasonably credulous may be blameworthy when he makes representation on which another is to act, but he is not in my opinion fraudulent in the sense in which that word was used in all the cases from PASLEY v. FREEMAN, 2 Smiths LC 74, down to that with which now I am dealing. Even when the expression "fraud in law" has been employed, there has been present and regarded as an essential element that the deception was wilful either because the untrue statement was known to be untrue or because belief in it was asserted without such belief existing. In an action of deceit the plaintiff must prove actual fraud. Fraud is proved when it is shown that a false representation has been made knowingly, or without belief in its truth, or recklessly, without caring whether it be true or false. A false statement, made through carelessness and without reasonable ground for believing it to be true, may be evidence of fraud but does not necessarily amount to fraud. Such a statement, if made in the honest belief that it is true, is not fraudulent and does not render the person make it liable to an action of deceit. (emphasis supplied)

(54) The interesting question that crops up before us is that when the seller quotes a higher price which is assumedly higher than the market price so as to induce the buyer to complete the contract of sale, does it amount to fraud or fraudulent misrepresentation. When the seller offers goods for sale, it does so in furtherance of his business motive to make profit. There is no law or common law principle that a seller should sell the goods without profit or with certain amount of reasonable profit after providing for business expenses. If a seller who is also a manufacturer produces certain goods at some price and offers to sell the same at four times the price of manufacturing cost, the same does not amount to fraud. Of course if the Sovereign regulates the manufacturing, production and sales on specified goods, no seller can sell the goods higher than the prescribed prices. But if there is no price control or regulation on the price of goods, a manufacturer or a dealer is not precluded from quoting higher prices for the goods offered for sale even if such manufacturer or dealer produces or procures or arranges goods at a far lesser price.

(55) The price of any goods is determined with reference to the quality, demand and supply and the cost of inputs involved in the manufacturing. In number of situations, the same type of goods manufactured by one company may cost less and similar ones manufactured by another company with brand value may cost more. As for instance, the goods manufactured according to specifications and standards prescribed by Board for Indian Standards (BIS) (earlier Indian Standard Institute), are certainly cost more than the similar goods without BIS registration. The mere quoting of higher price than the market price itself does not amount to change in the contract of sale especially when the seller and buyer agree to the quoted price and enter into concluded contract of sale. If a seller with an intention to make more profit dishonestly quotes exorbitant price, which is far higher than the market price, there is no fraud. There cannot be fraud even when such exorbitant price is accepted by the buyer. There cannot be fraud as long as seller and buyer adhere to the provisions of Sale of Goods Act.

(56) Every sale is subject to a condition or warranty. A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated and a warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated (see Section 12 of Sale of Goods Act). As per Sections 14 and 16 thereof, a contract of sale is subject to implied undertaking as to title of the seller and implied warranty as to quality or fitness of the goods supplied. In State of Madras v Gannon Dunkerley and Co.,, a Constitution Bench of Supreme Court considered the vires of Madras General Sales Tax Act 1939, insofar as it imposes a tax on the supply of materials in execution of works contract treating it as a sale of goods by the contractor. After quoting from Benjamin on Sale, Halsburys Laws of England, Chalmers Sale of Goods Act, Corpus Juris and Williston on Sales, quoted with approval, the following observations. Hence it follows that, to constitute a valid sale, there must be a concurrence of the following elements viz. (1) Parties competent to contract; (2) mutual assent; (3) a thing, the absolute or general property in which is transferred from the seller to the buyer; and (4) a price in money paid or promised. and that in order to constitute a sale it is necessary that there should be an agreement between the parties for the purpose of transferring title to goods which of course presupposes capacity to contract, that it must be supported by money consideration, and that as a result of the transaction property must actually pass in the goods. Unless all these elements are present, there can be no sale. Thus, if merely title to the goods passes but not as a result of any contract between the parties, express or implied, there is no sale.

(57) In the contract of sale, thus, the price of the goods has an important role. If the seller who has no legal obligation to offer the goods for sale at a price lesser than the market price offers goods for a higher price, an inference of fraud or fraudulent misrepresentation cannot be drawn.

(58) Kerr in his Treatise On the law of Fraud and Mistake says that on a sale by description, implied condition that the goods are merchantable quality, but if the buyer is examined the goods, there shall be no implied condition as regards defects and that if the purchaser himself examined the goods, mere concealment of defects will not justify an action for damages. It is further stated that, a vendor, however, is not bound to state that the goods have been recently valued at a sum greatly less than the intended purchase price, . Further more the maxim caveat emptor applies to all sale of goods and the purchaser has to be vigilant not only with regard to the quality, specification, durability, functionality, utility of the product purchased but also the price at which it is offered for sale. Furthermore, mere dishonesty in quoting the price does not amount to fraud in the contract of sale by a manufacturer to the purchaser. Any fraudulent misrepresentation must result in the alteration of position of the other party. If either party after completion of contract of sale further negotiate or alter the terms of the contract either with regard to quantity or quality or price of the goods offered for sale, fraudulent misrepresentation cannot be assumed nor any party can resile from the contract after due performance of mutual promises either fully or partly.

(59) In U.P. Cooperative Federation Limited (supra), Svenska Handelsbanken (supra) and I.T.C. Limited (supra) (all cases dealing with cases of injunction restraining the Bank from encashing Bank guarantee), Supreme Court observed that the Bank can refuse performance of guarantee only when unscrupulous seller is responsible for the fraud and enter on such fraud must be of egregious in nature as to vitiate the entire underlying transaction and that it must be fraud of the beneficiary not the fraud of somebody else. The observations made by Supreme Court in I.T.C. Limited (supra) need excerption.

(60) What is necessary for the Bank to refuse payment is a case of clear fraud and the Banks knowledge as to such fraud (Bolivinter Oil S.A. v. Chase Manhattan Bank N.A.), (1984) 1 LLR 392. As pointed by Lord Denning and Lord Lane in Edward Owen (1978) 1 All ER 976: 1978 QB 159: (1977) 3 WLR 764, CP, the Bank cannot refuse payment merely because according to it the claim was dishonest or suspicious or it appeared to be a sharp practice but it must be established as fraud. Lord Ackner in United Trading Corpn. S.A. and Murray Clayton Ltd. v. Allied Arab Bank Ltd.(1985) 2 LLR 554, CA, held that the Bank could object to pay not because the demand was not honestly made but was made fraudulently. Waller, J. in Turkiye v. Bank of China, (1996) 2 LLR 611, [LLR pp. (617-618)] said that the question was whether the demand for payment was fraudulent. Mere allegations and counter-allegations between the parties as to breach of contract, non-payment of advances or non-supply of machinery did not amount to fraud.

(61) In these cases, as noticed supra even assuming that the Dawaleswaram model tools offered for sale by the suppliers are of same quality as Moradabad tools, that the suppliers sold at Rs.115/- per kg 8 or 9 months prior to entering into contract with Corporation and that they intentionally inflated prices and acted contrary to undertaking, the same does not amount to fraud. Though the concluded contract came into existence immediately after suppliers gave undertakings, it was not the end of all. There were repeated negotiations and every time there was a downward revision of prices. Ultimately contractors gave consent letters to suppliers of iron boxes and bana/ buckets at Rs.165/- per kg for coastal districts and at Rs.190/- per kg for other districts, and therefore, the undertaking does not amount to fraudulent misrepresentation. To that extent we are convinced that arbitral tribunal and Civil Court ignored Section 28(1) of Arbitration Act, in that the substantive law was not applied and reliance on Section 17 of Contract was placed erroneously. We accordingly hold on this aspect in favour of appellants in these appeals.

(62) (iv) Validity of arbitral award The arbitral tribunal rejected claim of all the appellants at Rs.165/- per kg for coastal districts and Rs.190/- per kg for other districts. Be it noted when the suppliers raised the bills at these rates, Corporation tentatively calculated value of the goods at Rs.135/- per kg and paid part of the bills. The contractors claimed balance of amount calculated on the rates at Rs.165/- per kg / Rs.190/- per kg. In their counter claim, Corporation contended that the price of Rs.115/- per kg would be reasonable and accordingly sought for the relief of refund of excess amounts paid wherever necessary in calculating the amount payable, the arbitral tribunal applied Rs.115/- per kg. While so doing, in the arbitration out of which CMA No.973 of 2005 and CMA No.676 of 2006 arise, the counter claim of Corporation was partly allowed. In other matters, the claim of suppliers was allowed calculating at Rs.115/- per kg. As noticed supra, Court below did not think it proper to interfere with findings of tribunal. Though part of the claim of suppliers was allowed by arbitrator, the Corporation did not challenge the award before the Civil Court nor filed appeal before this Court.

(63) It is accepted by all that the agreement and undertaking were relied on for arbitral tribunal while fixing price at Rs.115/- per kg. Learned Counsel, therefore, contends that rate of Rs.115/- per kg unilaterally proposed by the Corporation is not binding on suppliers and that they did not accept even for the rate of Rs.135/- per kg. According to them, arbitral tribunal was in error in calculating the amount of the goods supplied by the suppliers taking Rs.115/- per kg. They would urge that the same would amount to rewriting the agreement and acting beyond the jurisdiction and terms of the agreement, which is unsustainable. They also urged that when the question referred to was with regard to rate at which the goods have been paid by the Corporation, arbitrator could not have relied on undertaking and fix the price as suggested by the Corporation, which is not agreed price as per the contract of sale.

(64) The suppliers gave undertaking authorizing the Corporation to deduct excess amount paid to them on account of price differential between the prices quoted by them and market price. While dealing with validity of reference to arbitration supra, we have already held that the agreement, undertaking and other subsequent documents form part of the contract, and therefore, the suppliers are bound by the undertaking. When the matter was being arbitrated, it was within the scope of the dispute to find out actual or reasonable price for the purpose of enforcing the undertaking. Without deciding the same, it would not have been possible for the arbitrator to arrive at excess amount paid to suppliers on account of any differential rates between higher prices and lower prices offered in open market. Therefore, it would be fallacy to think that arbitrator had no jurisdiction to decide the price.

(65) It is settled that if the conclusions of the arbitrator are patently illegal, unfair and unreasonable, the Court may set aside the award. In Security Printing and Minting Corpn. of India Ltd. v Gandhi Industrial Corpn.,, tenders were invited for supply of gummed and supercalendered paper for a period of 10 years. The offer of respondent therein was accepted at reduced rates in view of the agreement reached between the parties. The security press also issued orders to other persons ignoring the protests. When High Court of Bombay was moved, a retired Judge was appointed as arbitrator to adjudicate the disputes and differences. The award of the arbitrator was affirmed by the High Court, aggrieved by which the matter was carried to Supreme Court, which was mainly concerned with the issue of value of MODAVAT. A claim was made for a sum of about Rs.3,00,00,000/- on the basis that the value of the MODAVAT was to the extent of Rs.50,00,000/- on which compound interest at 25.5% was claimed. On this issue, arbitrator upheld the claim of respondent for about Rs.50,00,000/-. The question before Supreme Court was whether on the face of terms of contract, the award in allowing MODAVAT was sustainable. Having regard to the fact that MODAVAT was not one of the conditions of supply order though it was mentioned in the tender, Supreme Court held as follows.

(66) Therefore, on the face of this condition there is no going back from that. In case the claimant was not inclined to accept this clause he could have very well withdrawn from the contract. But it did not do so and continued with the contract. Therefore, on the basis of the clear terms of the contract, the claimant is bound by it and it has to restore whatever MODVAT credit received by it to the appellant security press. The view taken by the arbitrator that since it was not the condition when the tender was floated is not correct as after the complete contract having come into existence, there is no purpose to refer to the terms of tender. What is binding is the completed contract and not the terms of offer of the advertisement. Whatever may be the offers in the advertisement, once the completed contract has come into existence, this is binding. There are no two opinions in the matter in the present case that the terms and conditions of the supply order dated 31-5-1995 were complete. Therefore, what is binding is the terms of the contract and not the terms in the offer of advertisement. (emphasis supplied)

(67) Applying the above principles to these cases, it is clear that all the suppliers are governed by undertaking and if it is found that the payments were made to them at a price which is higher than the market price, they were bound to return the excess amount and it was valid for the Corporation to deduct excess amount. In determining the price at Rs.115/- per kg and arriving at the balance amount payable to suppliers or the amount liable to be refunded by them, the arbitral tribunal has acted within the scope of contract and not travelled beyond it. In case of a contract of sale where the price is not fixed and explicitly or impliedly agreed to be fixed or determined, it is open to parties and in case of dispute, arbitral tribunal to fix the price depending on various factors.

(68) In Nanalal M. Varma and Co. Ltd v Alexandra Jute Mills Ltd., it was held that repudiation or denial of liability and consequential non-payment is arbitral dispute and it was competent to arbitrator to decide the amount which was not paid on the contract. The facts in the said case would show that the appellant therein entered into contract with respondent for supply of goods at agreed value of Rs.84,00,000/-. In spite of demand, the amount was not paid. At the instance of respondent, Bengal Chamber of Commerce and Industry nominated arbitrators, who passed an award. The same was challenged before the High Court under Sections 30 and 31 of Arbitration Act, 1940. A learned Single Judge dismissed the application. In appeal, the Division Bench of Calcutta High Court on construction of the terms of contract and other correspondence came to the conclusion that non-payment of the amount due to repudiation is arbitrable dispute and it can be adjudicated upon by the arbitrator. The relevant observations are as follows.

(69) A non-payment may arise by reason of ones inability to pay while not disputing liability thereof. A non-payment, on the other hand, may be the result of repudiation or denial of its liability to pay. Thirdly, a non-payment of price may mean failure to fulfill ones obligation under the contract to pay within the time stipulated. When there is no repudiation or denial of liability a simpliciter non-payment or default in payment may not give rise to a dispute which can be referred to arbitration. On the other hand, when there is denial of liability and by reason thereof payment is not made by a party from whom demand is made by the other party, the same would be a case of repudiation. In our view the third kind of case mentioned by us, that is, failure to pay within the time provided in the contract resulting in breach of terms of the contract depending upon the terms of the particular arbitration clause could be validly the subject-matter of a reference to arbitration.

(70) Therefore, when there is non-payment of the amounts by reason of repudiation, it is certainly a matter for arbitration and it is an incidental aspect that the arbitral tribunal has to decide actual amount due and payable by the defaulting party to the other party. Having regard to the evidence, arbitral tribunal has arrived at price of Rs.115/- per kg and this cannot be reviewed by the Court acting under Section 34 of Arbitration Act. In this view of the matter, we do not find any substance in the submissions that the arbitrator acted without jurisdiction in determining the amount payable by Corporation and/or the amount due to Corporation payable by the suppliers, as the case may be.

(71) In conclusion, we hold that the undertaking given by suppliers forms part of the contract to supply Rajaka tools and is binding on the parties. The reference to arbitration, therefore, cannot be faulted nor it can be held that arbitral tribunal acted without jurisdiction giving the award. The Counsel for the suppliers have not adverted to the question of interest on the amount payable, and therefore, we leave the matter there.

(72) In the result, for the above reasons, all the appeals fail and are accordingly dismissed without any order as to costs.