Orissa High Court
The Fertilizer Corporation Of India ... vs Bharat Painters on 17 December, 1985
Equivalent citations: AIR1986ORI82, 1986(I)OLR96, AIR 1986 ORISSA 82, (1986) 61 CUTLT 194 (1986) 1 ORISSA LR 96, (1986) 1 ORISSA LR 96
Author: G.B. Patnaik
Bench: G.B. Patnaik
JUDGMENT G.B. Patnaik, J.
1. This is an appeal under Section 39 of the Arbitration Act against the judgment of the Subordinate Judge, Angul, in Title Suit No. 22 of 1979. By the impugned judgment, the award of the arbitrator has been made a rule of Court and the objection filed by the appellant under Sections 30 and 33 of the Arbitration Act has been rejected.
2. The respondent-Messrs Bharat Painters entered into a contract with the appellant, the Fertilizer Corporation of India Limited, for execution of 'additional works in coal handling tunnel's at factory area at Vikrampur in the district of Dhenkanal. Disputes having arisen between the parties, the respondent invoked the arbitration clause in the contract and in accordance with the said clause, the General Manager, appointed one Shri A. K. Sinha, an employee of the Fertilizer Corporation at Gorakhpur, as the sole arbitrator. The letter of appointment also referred the dispute to be adjudicated upon which has been quoted in the impugned judgment of the Subordinate Judge and is to the effect, "Claims regarding reimbursement of cost amounting to Rs. 10.00 lakhs approximately for de-watering 3,00,000 kilo-liters of water while executing the 'additional works in Coal Handling Tunnels' at Fertilizer Corporation of India Limited, Talcher Factory Area, vide letter dated 11-8-1979 of M/s. Bharat Painters, Cuttack, Orissa, to Fertilizer Corporation of India Limited, Talcher."
The learned arbitrator passed an award directing the appellant to pay a sum of Rs. 8,20,800/- in full and final settlement of all disputes and claims arising out of the contract. The operative portion of the said award leaving aside the narration is extracted hereinbelow in extenso : --
"Having heard the arguments advanced by the representatives of both the parties, namely, M/s. Bharat Painters, Badambadi, Cuttack, Orissa and the Fertilizer Corporation of India Ltd., Talcher Division, Vikrampur, Dhenkanal, Orissa, and both of their counsel, and having gone through the documents produced before , me by both the parties, and having seen the work sites, I do hereby give my award as under : --
AWARD
1) The Fertilizer Corporation of India Ltd., Talcher Division, Vikrampur, Dhenkanal, Orissa shall pay to the Contractor (Claimant), M/s. Bharat Painters, Badambadi Cuttack, Orissa a sum of Rs. 8,20,800.00 (Rupees Eight Lakhs Twenty Thousand Eight Hundred only), in full and final settlement of all disputes and claims arising out of the said contract (Agreement No. 211, dated 7th October, 1977), as enumerated by the Claimant M/s. Bharat Painters, Badambadi, Cuttack, Orissa in their detailed statement of claims from 1 to 3 submitted under their letter No. Nil, dated 1st September, 1979.
2) The aforesaid amount shall be paid to the Contractor (Claimant) M/s. Bharat Painters, Badambadi, Cuttack, Orissa by The Fertilizer Corporation of India Ltd., Talcher Division, Vikrampur, Dhenkanal, Orissa within 15 (fifteen) days of making this award.
3) In respect of Contractor's (Claimant's) claims Nos. 2 and 3 of the above claim statement, no claim will be entertained.
4) Both the parties, namely, M/s. Bharat Painters, Badambadi, Cuttack, Orissa and The Fertilizer Corporation of India Ltd., Talcher Division, Vikrampur, Dhenkanal, Orissa shall pay a sum of Rs. 60.00 (Rupees Sixty only) each to Mr. V. M. Arun, Personal Assistant to Materials Manager. The Fertilizer Corporation of India Ltd., Gorakhpur (U. P.) towards the cost of arbitration, for the services rendered by him in clerical and typing work, and stationery.
5) Both the parties, namely, M/s. Bharat Painters, Badambadi, Cuttack, Orissa and The Fertilizer Corporation of India Ltd., Talcher Division, Vikrampur, Dhenkanal, Orissa shall bear their own costs of this Arbitration."
The appellant filed objection to the aforesaid award under Sections 30 and 33 of the Arbitration Act on several grounds, whereas the respondent filed an application to make the award a rule of Court and by the impugned judgment, the learned Subordinate Judge has rejected the objections raised on behalf of the appellant and has made the award a rule of Court.
3. The learned Subordinate Judge framed six issues and answered all the issues in favour of the respondent rejecting the objections lodged by the appellant. A perusal of the judgment of the Subordinate Judge shows that the conclusions of the learned Subordinate Judge have been influenced by the fact that, the award being a non-reasoned one, it would not be permissible for a Court of law to delve into the same to find out any error apparent on the face of the award.
4. Mr. Behura, the learned counsel for the appellant raised the following contentions in support of the grounds taken in the appeal : --
(i) In view of the fact that each and every allegation made in the claim statement was denied in the written statement filed by the appellant and parties having led no evidence, the award is one based on no evidence and such the award cannot be sustained and must be interfered with;
(ii) On the pleadings and looking at the dispute which had been referred to the arbitrator, no reasonable man would be able to come to the conclusion arrived at by the learned arbitrator without any materials before him and the learned arbitrator having done so has committed legal misconduct and such a conclusion is not sustainable in law;
(iii) In view of the admitted position that no document Was filed by either party, the award showing ".....having gone through the documents produced before me by both the parties....." indicates total non-application of mind by the learned arbitrator and exhibits the anxiety of the arbitrator to pass an award on grounds unsustainable in law and on this ground alone, the award is liable to be set aside.
(iv) Non-consideration of the counter-claim made by the appellant constitutes legal misconduct of the arbitrator.
5. Mr. Rath, the learned counsel appearing for the respondent, on the other hand submits that in view of the legal position and taking into consideration the permissible limits of interference by a Court in case of a non-reasoned award, the Subordinate Judge was fully justified in rejecting the objections raised by the appellant and it would not be possible for a Court of law to enter into the mind of the arbitrator to find out the reason and then to test whether such reason is good or bad. Mr. Rath further submits that it is true that before the arbitrator none of the parties had filed any documents and further the claims made in the claim statement were denied by the appellant in the written statement, but the arbitrator having inspected the site was well within his jurisdiction to pass the impugned award and the said inspection of the arbitrator would constitute the evidence for the award. So far as the contention regarding non-consideration of the counter-claim of the appellant is concerned, Mr. Rath, the learned counsel, submits that it amounts to rejection since the entire matter was considered by the arbitrator.
6. The rival contentions require careful examination. But before entering into the legality of the submissions made by either side, it would be profitable to note some general principles.
The law of arbitration was not unknown to India before the advent of the British rule, though it may not have been applicable in the form in which it applies today. The first enactment to regulate procedure of civil Courts was passed in 1859 and Sections 312 to 327 of that Act dealt with the law of arbitration. Though the Act was repealed by Act 10 of 1877, but there was no change in the law relating to arbitration. The Civil Procedure Code which was revised in 1882 (Act, XIV of 1882) also repeated the same provisions with regard to arbitration. But in all these enactments reference to arbitration was provided of disputes after they had arisen. There was no provision for a reference to arbitration of a future dispute. This was considered to be a great drawback particularly in commercial transactions and Act IX of 1899 was enacted which made provision for reference of deputes present as well as future to arbitration without the intervention of Court. It also recognised arbitration agreement whether or not an arbitrator was named in it. When the Civil Procedure Code came to be revised in 1908, it was felt that the provisions relating to arbitration should be eliminated from the Code and should be re-enacted as a comprehensive arbitration Act and then ultimately the Arbitration Act was put on the Statute book repealing the Indian Arbitration Act of 1899 and Second Schedule of the Code of Civil Procedure, 1908. The basic idea behind the law of arbitration obviously was to get the disputes between the parties settled in a more expeditious manner without going through the lengthy procedure provided for a proceeding under common law. That is why the decision of an arbitrator is being given finality unless it falls within the limited scope for interference as provided in the Statute. In course of time, it has been found that the manner in which the proceedings under the Act are conducted and the decisions are challenged in Courts, makes such proceedings highly technical accompanied by un-ending prolixity at every stage providing a legal track to the unwary informal forum chosen by the parties for expeditious disposal of their disputes. At the same time, experience also reveals that arbitration has become a great source of leakage of public revenue and the State as well as the public sector undertakings are made liable to pay huge sums by virtue of awards given by their own oficers on fanciful considerations. In spite of all these facts, when a matter comes before a Court, the Court is bound by the perimeter fixed under the statute and a Court of law has to operate within the limits prescribed by the statute as interpreted by different Courts including the highest Court of the Country. There cannot be any manner of doubt that an arbitrator, whether a lawyer or an engineer or a lay-man, is constituted the sole and the final judge of all questions, both the law and fact. The only exceptions to the rule are cases where the award is a result of corruption and fraud and other dishonesty and where the question of law necessarily arises on the face of the award or upon some papers accompanying and forming a part of the award. An award is speaking document when the arbitrator sets out the reasons for his decision and as the Court has before it the reasons, the Court is entitled to look into those reasons to find out whether the reasons are good or bad. But if no reasons are given then it becomes difficult for a Court to interfere with the conclusion of the arbitrator. So far as this country is concerned, the grounds on which an award can be interfered with are enumerated in Section 30 of the Arbitration Act and the words "shall not be set aside" in Section 30 take away the jurisdiction of the Courts to set aside the award except on one or more of the grounds specified in the said section. Clause (a) of Section 30 uses the word "misconduct" and, therefore, misconduct of arbitrator would be a good ground for setting aside an award. The word "misconduct" does not necessarily mean a moral turpitude or anything of that kind. The word is used in a technical sense in which it is familiar to the law relating to arbitration as denoting "irregularity". It is used to describe a variety of grounds for which awards may be set aside on grounds of public policy. It comprises 'legal misconduct' which means some honest though erroneous breach of duty causing miscarriage of justice. If there has been some mis-handling of the arbitration proceedings or serious neglect of duties on the part of the arbitrator, which is likely to lead to substantial miscarriage of justice, the Court is justified in setting aside the award. If an arbitrator reaches a conclusion which no person acting j udicially and properly instructed in law could reach, it must be held that he is guilty of misconduct. Though an arbitrator is not bound to follow the strict rules of evidence, yet, an arbitrator is not entitled to dispose of the dispute before him whimsically or without any legal basis for the same. Clause (c) of Section 30 uses the expression "an award has been improperly procured or is otherwise invalid". The words used in the said clause are wide enough to include a variety of grounds on which an award can be said to be otherwise invalid. The objections to the award on the ground of invalidity from any cause whatsoever are covered by the said expression. If it is found that the award is not fairly and impartially made or that the arbitrator did not function in a manner befitting his role, it would render the award invalid on the ground of being "otherwise invalid" within the meaning of that expression.
7. I have referred to the aforesaid general principles as I find that the Subordinate Judge has refused to interfere with the award mainly on the ground that the award being a non-reasoned one, the Court has no jurisdiction to interfere with the same. Mr. Rath, the learned counsel for the respondent, also harps on that principle in his submissions. It is no doubt true that the scope of interference by a Court in case of a non-reasoned award is rather very limited and a Court has no jurisdiction to investigate into the merits of a case and to examine the evidence on record for the purpose of finding out whether or not the arbitrator has committed an error of law. This view is consistent right from the case of Champsey Bhara Co. v. Jivraj Ballao Spinning & Weaving Co. Ltd., AIR 1923 PC 66 till the case of N. Chellappan v. Secy, Kerala State Electricity Board, AIR 1975 SC 230. Mr. Rath, the learned counsel for the respondent also cites several other authorities on the point which cannot be disputed. But yet, the difficult task which remains is as to whether in the facts and circumstances of the present case, a Court of law would be justified to interfere with the impugned award or not even with the limited power of interference a Court possesses.
8. The dispute between the parties was in respect of a claim made by the respondent for reimbursement or cost amounting to Rs. 10 lakhs approximately which the respondent had spent for de-watering three lakhs kilo-litres of water while executing the additional works in coal handling tunnel. Mr. Behura for the appellant emphatically asserts that each and every averment made in the claim statement filed before the arbitrator was denied in the written statement of the appellant filed before the arbitrator and Mr. Rath appearing for the respondent also does not dispute this position. It is also conceded by the learned counsel appearing for both parties that no evidence had been led before the learned arbitrator either oral or documentary by either party. But the arbitrator merely heard the arguments on behalf of both sides and had inspected the site on one particular day. In view of the assertions made in the claim statement and denial of those assertions in the written statement, the only material which was before the arbitrator to arrive at a conclusion as to whether there was at all any de-watering involved while executing the additional works and if so, the extent of such de-watering and the cost of such de-watering, was his own inspection of the site. It is also conceded by the parties that by the time the arbitrator inspected the site, the work in question had already been over and was not in progress. In the premises, it goes beyond one's comprehension as to how the arbitrator however expertise he might have, would arrive at a conclusion as to the quantity of de-watering which had taken place actually and what would be the cost of such de-watering. The conclusion of the arbitrator in such circumstances, must be held to be one backed by no evidence and, therefore, such a conclusion can be interfered with by a Court even though the arbitrator has not given any reasons for arriving at the said conclusion. In my view, the determination made by the learned arbitrator in the facts and circumstances of the present case is perverse and such perversity on the part of the arbitrator amounts to misconduct within the ambit of Section 30 of the Arbitration Act enabling a Court of law to interfere with the award. In other words, I am of the opinion that the arbitrator had reached a conclusion which no person acting judicially and properly instructed in law could reaches and, therefore, he is guilty of misconduct.
In one of the earliest case of Messrs. Khusiram Benarashilal v. Mathuradass Goverdhandass, (1948) 52 Cai WN 826, the learned Judge after noting down the limitations of a Court of law in the matter of interference with an award observed : --
"It is quite true that this Court will not allow itself to be made a Court of Appeal against the decision of arbitrators. This Court must also give a wide latitude to the arbitrators to decide rightly or wrongly and the mistake of the arbitrators, if they proceed honestly and impartially, will not be corrected unless it appears on the face of the award. This Court must also 'go very far in ignoring technicalities and irregularities on the part of arbitrators unless there is some real substance of error behind them.' The Court will not, however, release real and effective control over arbitrators or give them a free hand to decide according to law or not according to law as they think fit. The Court must retain sufficient control over them to prevent and redress any injustice on the part of the arbitrators. If the arbitrators do not appreciate the points involved in the case and do not apply their minds to them, or if they decide in a way in which no reasonable man occupying a judicial or a quasi-judicial position would decide, it is open to the Court to interfere with the award in the interest of justice."
(Underlining is mine) Applying the aforesaid principles to the facts of the present case, I am of the view that having regard to the materials before the arbitrator and the circumstances of the case, it was impossible for the arbitrator to decide as he did and, therefore, the arbitrator was guilty of misconduct and on this ground alone the award of the arbitrator must be set aside.
This disposes of the first and second contentions raised by Mr. Behura, the learned counsel for the appellant.
9. So far as the third contention of the learned Counsel for the appellant is concerned, I also find sufficient force in the same. The award ex facie shows that the arbitrator has not applied his mind to the records of the case which is apparent from the fact that though admittedly no documents were produced before him, yet the arbitrator indicates that he has gone through the documents produced before him by both the parties. It is too well settled that an award which is the product of non-application of the mind of the arbitrator cannot be permitted to be sustained in law, since this would come within the expression "otherwise invalid" used in Section 30 of the Arbitration Act. Non-application of mind to the materials on record suggests absence of fair play and indicates that the arbitrator did not function in a manner befitting his role. On this ground also, the impugned award is liable to be set aside and is hereby set aside.
10. In view of my aforesaid conclusion, it is not necessary for me to go into the fourth contention raised by Mr. Behura, the learned counsel for the appellant.
11. In the ultimate result, therefore, the judgment of the Subordinate Judge in Title Suit No. 22 of 1979 is set aside and the award dated 12-10-1979 of the arbitrator, Shri A. K. Sinha, is also set aside. But at the same time, in my opinion, this is a fit case where the matter should be remitted back to the arbitrator in exercise of the powers under Sub-section (2) of Section 16 of the Arbitration Act, since the dispute between the parties still subsists. The best interest of the parties can be served by directing the arbitrator to re-dispose of the proceedings before him by taking such evidence as he thinks fit and proper in the facts and circumstances of the case bearing in mind the observations made in this judgment. While, therefore, I would set aside the award of the arbitrator, I would remit the matter to the learned arbitrator directing him to submit his decision within a period of four months from the date of receipt of the records by him. It is made clear that the arbitrator would permit parties to lead evidence in respect of their respective claims on the existing claim statement and counter statement.
The Miscellaneous Appeal is accordingly allowed, but in the facts and circumstances of the case, there would be no order as to costs.