Calcutta High Court
Sadasukh Kabra & Co. vs Calcutta Stock Exchange Association ... on 9 March, 1993
Equivalent citations: AIR1994CAL131, AIR 1994 CALCUTTA 131, (1994) 1 ARBILR 520
ORDER
1. This is an application for setting aside the award passed by the Arbitration Sub-Committee of the Calcutta Stock Exchange Ltd.
2. Parties are agreed that the Arbitration Clause is bye-law 253 of the Bye-Laws and Regulations of the said Stock Exchange, which is set out below:
"All claims (whether admitted or not), differences and disputes between a member and a non-member and or non-members (the terms non-member and non-members shall include an authorised assistant or employee or any other person with whom the member shares brokerage) arising out of or in relation to dealings, transactions and contracts made subject to the Articles, Bye-laws and Regulations of the Exchange or with reference to anything incidental thereto or in pursuance thereof or relating to their construction, fulfilment or validity of transactions and contracts shall be referred to and decided by aribtration as provided in the Articles, Bye-laws and Regulations of the Exchange."
Mr. Sibdas Banerjee appearing for the petitioner has submitted that under bye-law 249 of the self-same Regulations and Bye-Laws, a case for damages for breach of contract must proceed on the basis that damages shall be calculated on a closing out by the party who claims damages and if there is no such closing out, damages must be calculated as on the fifteenth day after the date of breach. Bye-Law 249 is set out below:
"249. If a member fails to complete the performance of a contract by delivry or payment in accordance with the provisions of these Bye-Laws and Regulations the constituent shall be giving notice in writing to the memeber close out such contract through any other member of the Exchange within fifteen days from the date of default and any loss or damage sustained as a result of such closing-out shall be immediately payable by the defaulting member to the constitution.
If closing-out be not effected as provided herein the damages between the parties shall be determined on the basis of the closing prices ruling on the fifteenth day following the date of default and the constituent and the member shall forfeit all further right of recourse against each other."
3. Closing out is the subject-matter of Chapter XII of the said Bye-Laws and Rules 186 and 187 (a) are set out therefrom.
" 186. A contract in securities made subject to the rules, Bye-Laws and regulations of the Exchange may be closed out by buying in or selling out against a member under the orders of the Arbitration Sub-Committee on his failure to comply with any of the provisions relating to delivery, payment and settlement of bargains or any failure to fulfil the terms and conditions subject to which the bargain has been made."
"187 (a). A member shall be entitled to make an application to the Arbitration Sub-Committee for closing out against the party in default either on the day or failure or any day thereafter but not later than the fifteenth day following the date of such failure".
4. Mr. Banerjee said on the above basis that Bye-Laws contemplate calculation of damages as on the fifteenth day from the date of breach. These Bye-Laws do not contemplate calculation of damages on some other day, say a date of hearing, before the arbitrarial body.
5. Mr. Banerjee next pointed out from the award the following portion in the 4th paragraph of page 2 thereof:--
"The Claimant now claims that the shares are due to her and all the transactions due to her at best can be squared as on last date of the hearing i.e., the 14th Aug. 1992 giving her credit balance of Rs.10,84,416/-....."
6. Mr. Banerjee further showed that the awarding portion in the award is as follows:
"M/s. Sadasukh Kabra& Co. of No. 2 India Exchange Place, Calcutta -- 700 001 must pay a sum of Rs. 10,84,416/-....."
7. Mr. Banerjee submitted on the above basis that the award clearly accepted the last date of hearing as the date for calculation of damages, i.e. 14th August, 1990 and the exact sum claimed as on that date was awarded. Mr. Banerjee submitted that the arbitration according to the Bye-Laws, and specially Bye-Law 249, were bound to consider the date for calculation of damages as on 15 days from the date of breach. According to him the Arbitrators were not free to take some other date for the purpose of calculation of damages and the taking of such other day i.e. the date of hearing means that the Arbitrators were travelling beyond the contract. Mr. Banerjee said that this would mean that the Arbitrators travelled beyond their jurisdiction because the Arbitrators are creatures of contract and must act in accordance with the terms thereof.
8. The point that is raised is of common occurrence in the Arbitration Court. Nobody disputes in the instant case that the arbitral tribunal has jurisdiction to award damages in regard to the sale and purchase of shares. Dispute is raised with regard to the method of calculation of damages. It is said that the calculation has been made on a basis which is not the basis permitted by the contract and, therefore, even though it is only a matter of calculation, the arbitrators have, in that matter, travelled beyond their jurisdiction, which is set and circumscribed by the terms of the agreement.
9. It often happens in works contracts, to which more often than not an Art. 12 authority is a party, that claims are forwarded for certain items in the schedules to the works contracts. It also happens, and quite as often, that the contract contains prohibitory clauses regarding claims or future claims to be made by the contractor on various items of work. These prohibitions tend to be of the nature that on no account these extra claims for works would be entertained. Again and again the contractors have made claims on these prohibited items, again and again arbitrators have awarded moneys on contracts which are in excess of those prohibited items, again and again the awards have been challenged in Court, and again and again the Courts have refused to set aside the awards, on the basis that the arbitrator had jurisdiction to award damages, and that on the face of the award there is no proposition of law which is a basis of the award which is wrong. Thus the arbitrator being the sole Judge as to the way in which the contract is to be applied to the facts has come to a conclusion which cannot be upset by the Court by sitting in appeal over it.
10. However Mr. Banerji has relied upon a Supreme Court case being the case of Associated Engineering were two learned Judges of that Court laid down propositions which, unless there is even superior authority, bind me. That case has to be examined. There were four claims in that case which were awarded upon by the arbitrators which the Supreme Court said in paragraph 23 were "not payable under the contract". These claims included claims like those for extra leads for getting water, for roads built by the contractor, for escalation otherwise than in accordance with the formula prescribed in the works contract. Persons dealing with works contracts are familiar with these types of claims which, to repeat are of extremely frequent occurrence.
11. The Supreme Court further said in the said paragraph 23 as follows:--
"..... The Umpire travelled totally outside the permissible territory and thus exceeded his jurisdiction in making the award under those claims....."
12. In paragraph 26 their Lordships said:--
"..... The arbitrator cannot act arbitrarily, irrationally, capriciously or independently of the contract......"
13. No other authority has been cited, and I am not aware of any other earlier autghority where arbitrariness, irrationality or caprice of the arbitrator have, either or all, been equated to action of the arbitrator independent of the contract. In the manner I venture to read this judgment, it appears to me that their Lordships were laying down, that if the award contains sums which are awarded contrary to one or more clauses of the contract, then the same is a question of jurisdiction, and the award can be set aside on that basis. It would therefor follow, that in many cases involving works contracts and even in other cases like the present, the Arbitration Court would have to address its mind, apart from the award, and independently of the award, to the facts of the case and to the entire contract, thus determining afesh the rights and liabilities of the parties, and then see whether any express term of the contract has been broken in the matter of passing of the award. I say this with the utmost respect, but again to the best of my limited knowledge, this was never the law prior to the decision in the Associated Engineering case.
14. It remains for me to see whether that is the law subsequent to the Associated Engineering case, and if the dictum of the Supreme Court remains, then that is the law so far as I am concerned.
15. Mr. Mitter appearing for the respondents upon the three Judge decision in the case of Hindusthan Construction Co. Ltd., . That decision would have precedence over the Associated Engineering case in accordance with the Rules of precedent, now well set down by the Supreme Court itself.
16. In this judgment paragraphs 7 and 8 are as follows :-
"7. In our opinion, there is great force in contention urged by learned counsel. The High Court has set aside the award on the above items on the ground that there is an error apparent on the face of the award. This is clearly incorrect. The award is a non-speaking one and contains no reasoning which can be declared to be faulty. The scope of the Court's jurisdiction in interfering with a non-speaking award on the above ground is extremely limited. The rule of limitation in this respect was enunciated by the Judicial Committee almost seven decades ago in Champsey Bhara & Co. v. Jivraj Balloo Spinning & Weaving Co. Ld., (1923) 50 Ind App 324 : AIR 1923 PC 66, in words which have been consistently and uniformly followed and applied in all subsequent decisions. Lord Dunedin said, after noting with disapproval certain attempts to extend the area of the court's interference with such an award:
"An error in law on the face of the award means, in their Lordship's view, that you can find in the award or a document actually incorporated thereto, as for instance a note appended by the arbitrator stating the reasons for this Judgment, some legal proposition which is the basis of the award and which you can then say is erroneous. It does not mean that if in a narrative a reference is made to a contention of one party, that opens the door to seeing first what that contention is, and then going to the contract on which the parties' rights depend to see if that contention is sound. Here it is impossible to say, from what is shown on the face of the award, what mistake the arbitrators made. The only way that the Learned Judges have arrived at finding what the mistake was is by saying: "Inasmuch as the arbitrators awarded so-and-so, and inasmuch as the letter shows that the buyer rejected the cotton, the arbitrators can only have arrived at that result by totally misinterpreting Rule 52". But they were entitled to give their own interpretation to Rule 52 or any other article, and the award will stand unless, on the face of it, they have tied themselves down to some special legal proposition which then, when examined appears to be unsound".
8. The present case is precisley one of the same type as the one before the Judicial Commitee. The arbitrators have just awarded amounts to the contractor, against its claims, on Items 2 and 5. They make no reference to the contract or any of its clauses. Yet, the State contends that since these are items covered by certain terms of the contract, the Court should look at those terms and interpret them; if this is done, it is said, the State's interpretation is bound to be accepted and that apparently accepted by the arbitrators will be found to be wrong. It is this contention that has been accepted. This cannot be done. Even if, in fact, the arbitrators had interpreted the relevant clauses of the contract in making their award on the impugned items and even if the interpretation is erroneous, the Court cannot touch the award as it is within the jurisdiction of the arbitrators to interpret the contract. Whether the interpretation is right or wrong, the parties will be bound; only if they set out their line of interpretation in the award and that is found erroneous can the Court interfere".
17. If the dicta above are applied, then of course the present case would have a completely different result, then if the principles of the two Judge Bench are applied. Even though the claim of the claimants as on the last date of hearing happens to be identical to the claim that has been awarded by the Arbitrators, yet on the above authority of the Judicial Committee and of the Supreme Court, it would not be open to the Arbitration Court to infer that the arbitrators must have accepted the basis of the claim as made out by the claimant and even reproduced in the award in the opening portion thereof. There must be an actual proposition of law on the face of the award which is erroneous for the award to become liable to be set aside on the ground that there is error apparent on its face.
18. I must here clarify that if the arbitrators have sought to pass an award upon a dispute which was not arbitrable at all, then the contract can always be referred to for showing the initial lack of jurisdiction of the arbitrators. If it were the case here that the arbitrators had no jurisdiction to award damages in regard to the breach of contract for sale or delivery of shares then that lack of jurisdiction could be shown apart from the award by referring to the contract. But that is not the issue here.
19. The issue is whether the Arbitration Court will apply its mind to the other clauses of the Bye-Laws, which have at least the force of a contract between the parties, and come to any conclusion that the Arbitrators passed an award at variance with agreed terms. It I were to address my mind independently to Bye-Law 249, then it would be impossible not to come to the conclusion that damages are to be calculated "at a date 15 days from the breach. If I were to test the award on that touchstone, I would further have to come to the conclusion that the award does not specifically take into account any of the dates within the fateful 15 days but mentions some other date which is not necessarily one of those 15 days. If I were a Court of Appeal this would certainly be a serious matter, and the decision of the arbitral body would have to be further examined in the light of this unsatisfactory position.
20. However, in my opinion it is now the law, as it has practically always been the law, that the arbitrator has jurisdiction to go wrong in the assessment of facts, in the matter of application of the contract to the facts in issue, in the matter of interpretation of the contract and such like. Such errors are not errors of wrong assumption of jurisdiction. These are errors of which the arbitrator himself is the sole Judge and the Court has no way of entering into these errors according to the well settled law of arbitration. I frankly confess that I would have to come to a different conclusion if the Associated Engineering case were not subsequently followed up by the Hindusthan Construction case, wherein the old doctrine in Champsey Bhara was authoritatively reaffirmed.
21. Under these circumstances I find that there is no merit in this application. The same is dismissed.
22. There will be no order as to costs.
23. All parties and others concerned to act on a signed copy of the dictated order on the usual undertaking.
24. Application dismissed.