Chandra Construction Co. v. State of Kerala — 1977 DIGILAW 87 (KER)

JUDGMENT P. Subramonian Poti, J. 1. Lord Dunedin said in Champsey Co. v. Jivraj Balloo Co. A.I.R. 1923 P.C. 66 at Page 69, thus: "An error in law on the face of the award means, in their Lordships' 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 his judgment, some legal proposition which is the basis of the award and which you can then say is erroneous." This passage is oft quoted by Courts in India while considering the question of setting aside awards on the ground of error apparent on the face of the records. 2. The court below has set aside, two awards for identical reasons. It has been found that the awards in terms of which the Appellants here" wanted decrees to be passed by that court were liable to be set aside on the application of the State which was a party to the award. Such awards were set aside by the court below. The awards concerned disputes between contractors who had entered into agreements with the State Government for the construction of the work of forming a canal. In terms of the agreements the disputes were subjected to arbitration before the Government Arbitrator for engineering contracts. The Arbitrator found that the contractors were guilty of breach. The Arbitrator further found in both the cases that the cancellation of the contracts by the Respondents was in order but the liability of the contractors on this account was to be limited to forfeiture of the security amount. Further it was found that for the works executed by the claimants, the Respondents were to pay a further specified sum of money. The retention amount was to be released to the contractors in the two cases. There are further provisions in both awards that the Respondents were to pay 6 per cent interest on the amounts of the Awards from the date of the awards till the dates of the decrees. 3. Though there was controversy before the Sub Judge whether the Arbitrator ought to have taken into account the loss of Rs. 36,000 sustained by the Respondents in one of the cases and the loss of an amount of Rs. 70,500 sustained in the other case those amounts were not awarded to the Respondents. 3. Though there was controversy before the Sub Judge whether the Arbitrator ought to have taken into account the loss of Rs. 36,000 sustained by the Respondents in one of the cases and the loss of an amount of Rs. 70,500 sustained in the other case those amounts were not awarded to the Respondents. Damages for loss was limited to the amount of the security deposit. The court below found that the quantum of the liability of the contractor is a matter which relates to the merit of the case and therefore the court was not competent to go into it as the court was not sitting in appeal. But on the question of award of interest by the Arbitrator for the period from the date of Award to the date of decree the court below took the view that the contractor was not entitled to such interest in view of the provisions contained in the Madras Details Standard Specifications and particular reference was made to Clause 69 of the said specification. According to the court below this provision disabled the contractor from claiming interest upon any guarantee fund or payments in arrears, or upon any balance which may, on the final settlement of his accounts, he found due to him. The direction in the Award for payment of interest at 6 per cent from the date of award till the date of decree was considered to be an error apparent on the face of the awards and for that reason both the awards were found liable to be set aside. Accordingly these have been set aside. 4. The only controversy before us is whether, In the circumstances, the court below was right in considering that there was error apparent on the face of the record. Learned Government Pleader attempts to support the judgment on the premises that the court was in error in refusing to interfere with the award in spite of the fact that the court having found that the cancellation of the contract was proper it limited the liability of the contractor to the security amount. 5. We may in this context notice that the claim made to the Arbitrator was in accordance with the terms of the agreement between the parties and one of the issues specifically raised in the claim was the award of interest. 5. We may in this context notice that the claim made to the Arbitrator was in accordance with the terms of the agreement between the parties and one of the issues specifically raised in the claim was the award of interest. Therefore this was in issue and the Arbitrator had to decide this. That was so decided by him. He decreed interest to the claimant At 6 per cent from the date of award to the date of decree. 6. As prefaced in this judgment the observations of Lord Dunedin have guided the courts of this country in laying down the law on the question of interference with arbitration awards. Once any dispute is found to fall within the scope of arbitration and therefore within the scope of the Arbitrator's decision the right or wrong of his decision is not to be called into question in any court. It is so whether it be an error on a question of law or on a question of fact. That is because the parties resort to a Tiibunal chosen by them and agree to abide by its decision. The Tribunal is not obliged to indicate its reasons for its decision and therefore there is no scope for examination of such reasons or to investigate the reasons which could have prompted the Arbitrator to come to his conclusion. No award would be rendered invalid merely because it may be possible to demonstrate by a process of reasoning that the arbitrator has committed some mistake in reaching the final conclusion on a question of law or on a question of fact. 7. Therefore if the question of award of interest was one of the matters which was legitimately within the scope of decision of the arbitrator and he has found that the' award of interest has to be made, there is no error apparent which calls for setting aside the award in proceedings under Section 30 of the Indian Arbitration Act. The Supreme Court in the decision in A.M. Mair and Co. The Supreme Court in the decision in A.M. Mair and Co. v. Gordhandas Sagarmull A.I.R. 1951 S.C. 9, said at paragraph 9 thus: "If, therefore, we come to the conclusion that both the disputes raised by the Respondents fall within the scope of the arbitration clause, then there is an end of the matter, for the arbitrators would have jurisdiction to adjudicate on the disputes, and we are not concerned with any error of law or fact committed by them or any omission on their part to consider any of the matters. In this view, it would not be for us to determine the true construction of the contract and find out whether the Respondents' contention is correct or not. Once the dispute is found to be within the scope of the arbitration clause, it is no part of the province of the Court to enter into the merits of the dispute." 8. Shah, J., as he then was, speaking for the court said in Union of India v. A.L. Rallia Ram A.I.R. 1963 S.C. 1685 at paragraph 13 of the Judgment thus: "But the Court cannot interfere with the award if otherwise proper on the ground that the decision appears to it to be erroneous. The award of the arbitrator is ordinarily final and conclusive, unless a contrary intention is disclosed by the agreement. The award is the decision of a domestic tribunal chosen by the parties, and the civil courts which are entrusted with the power to facilitate arbitration and to effectuate the awards, cannot exercise appellate powers over the decision. Wrong or right the decision is binding, if it be reached fairly after giving adequate opportunity to the parties to place their grievances in the manner provided by the arbitration agreement. But it is now firmly established that an award is bad on the ground of error of law on the face of it, when in the award itself or in a document actually incorporated in it, there is found some legal proposition which is the basis of the award and which is erroneous. But it is now firmly established that an award is bad on the ground of error of law on the face of it, when in the award itself or in a document actually incorporated in it, there is found some legal proposition which is the basis of the award and which is erroneous. An error in law on the face of the award means: "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 his 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 setting first what that contention is, and then going to the contract on which the parties' rights depend to see if that contention is sound." The same learned Judge said in the decision in Jivarajbhai Ujamshi sheth and Ors. v. Chintamanrao Balaji and Ors.A.I.R. 1965 S.C. 214 at para 18 thus: "An award made by an arbitrator is conclusive as a judgment between the parties and the Court is entitled to set aside an award if the arbitrator has misconducted himself in the proceedings or when the award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under (Section 35 of the Arbitration Act or where an award has been improperly procured or is otherwise invalid Section 30 of the Arbitration Act). An award may be set aside by the Court on the ground of error on the face of the award, but an award is not invalid merely because by a process of inference and agreement it may be demonstrated that the arbitrator has committed some mistake in arriving at his conclusion. As observed in Champsey Bhara and Co. v. Jivraj Balloo Spinning and Weaving Co. Ltd. 50 Ind. App. As observed in Champsey Bhara and Co. v. Jivraj Balloo Spinning and Weaving Co. Ltd. 50 Ind. App. 324 at p; 331: A.I.R. 1923 P.C. 66 at p. 69):" "An error in law on the face of the award means, in their Lord-ships' 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 his 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." The Court in dealing with an application to set aside an award has not to consider whether the view of the arbitrator on the evidence is justified. The arbitrator's adjudication is generally considered binding between the parties, for he is a tribunal selected by the parties and the power of the Court to set aside the award is restricted to cases set out in Section 30. 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. On the assumption that the arbitrator must have arrived at his conclusion by a certain process of reasoning, the Court cannot proceed to determine whether' the conclusion is right or wrong. It is not open to the Court to attempt to probe the mental process by which the arbitrator has reached his conclusion where it is not disclosed by the terms of his award. But the arbitrator has in the present case expressly stated in his award that in arriving at his valuation, he has included the depreciation and appreciation of the property, outstandings and dead-stock, and in so doing in our judgment the arbitrator has travelled outside his jurisdiction and the award is on that account liable to be set aside. The question is not one of interpretation of paragraph 13 of the" partnership agreement but of ascertaining the limits of his jurisdiction. The question is not one of interpretation of paragraph 13 of the" partnership agreement but of ascertaining the limits of his jurisdiction. The primary duty of the arbitrator under the deed of reference in which was iucorporated the partnership agreement, was to value the net assets of the firm and to award to the retiring partners a share therein. In making the "valuation of the firm", his jurisdiction was restricted in the manner provided by paragraph 13 of the partnership agreement." The same view was expressed by the Supreme Court in the decisions in Bungo Steel Furniture v. Union of India A.I.R. 1967 S.C. 378, Firm Madanlal Roshanldl v. Hukumchand Mills A.I.R. 1967 S.C. 1032, Union of India v. Bungo Steel Furniture A.I.R. 1967 S.C. 1032 and Allen Berry and Co. v. Union of India A.I.R. 1971 S.C. 696. In the last of these decisions the court quoted the following passage of Williams, J., in Hodqkinson v. Fernie 1857 (3) C.B. (NS) 189. "Where a cause or matters in difference are referred to an arbitrator, whether a lawyer or a layman, he is constituted the sole and final judge of all questions both of law and fact..... The only exceptions to that rule are, cases where the award is the result of corruption or fraud, and one other, which though it is to be regretted, is now, I think, firmly established, viz., where the question of law necessarily arises on the face of the award, or upon some paper accompanying and forming part of the award." The principle was explained as enabling the court, while examining an award, to look at documents accompanying and forming part of the award and thus, if an arbitrator was to refer to the pleadings of the parties so as to incorporate them into the award, enabling the court to look into them. On the question whether a contract or a clause of it is incorporated in the award the court said thus: "9. The question whether a contract or a clause of it is incorporated in the award is a question of construction of the award. The test is, does the arbitrator come to a finding on the wording of the contract. If he does, he can be said to have impliedly incorporated the contract or a clause in it whichever be the case. The test is, does the arbitrator come to a finding on the wording of the contract. If he does, he can be said to have impliedly incorporated the contract or a clause in it whichever be the case. But a mere general reference to the contract in the award is not to be held as incorporating it. The principle of reading contracts or other documents into the award is not to be encouraged or extended. [(See Babu Ram v. Nanhemal, G. A. No. 107 of 1966, dated 5th December 1968 (SC)]. The rule thus is that as the parties choose their own arbitrator to be the judge in the dispute between them, they cannot, when the award is good on the face of it, object to the decision either upon the law or the facts. Therefore, even when an arbitrator commits a mistake either in law or in fact in determining the matters referred to him, but such mistake does not appear on the face of the award or in a document appended to or incorporated in it so as to form part of it, the award will neither be remitted nor set aside notwithstanding the mistake." 9. We may also refer to the observations of Mathew, J. in the decision in JV. Chellappan v. Kerala State Electricity Board A.I.R. 1975 S.C. 230. "13. A error of law on the face of the award means 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 his judgment, some legal proposition which is the basis of the award and which you can then say is erroneous see Lord Dunedin in Champsey Bhara and Co. v. Jivraj Balloo Co. 1923 A.C. 480 : A.I.R. 1923 PC. 66; Union of India v. Bungo. Steel Furniture Put. Ltd. J (1967) 1 S.C.R. 324 A.I.R. 1967 S.C. 1032 this Court adopted the proposition laid down by the Privy Council and applied it. The court has no jurisdiction to investigate into the merits of the case and to examine the documentary and oral evidence on the record for the purpose of finding out, whether or not the arbitrator has committed an error of law." 10. The court has no jurisdiction to investigate into the merits of the case and to examine the documentary and oral evidence on the record for the purpose of finding out, whether or not the arbitrator has committed an error of law." 10. We think the Jaw is well settled that in a case where the Arbitrator decides on a matter calling for decision by him the court which is moved to set aside the award cannot embark upon the determination of the correctness of the decision, much less can it hold that the award is vitiated by an error apparent on the record merely because its view on the question is different from that taken by the arbitrator. 11. Learned counsel for the Appellants in these cases has gone to the extent of even attempting to substantiate the correctness of the decision reached by the arbitrator on the question of interest. According to him there is nothing in the terms of the contract which prohibits award of interest from the date of the award. That, it is said, depends upon the discretion of the arbitrator just as the civil court has discretion in awarding interest. The principles of Section 34 of the Code of Civil Procedure would apply though the section itself may not. That in such circumstances the award of interest is justified is the view taken by the Supreme Court. We need only refer to the decision in Union of India v. Bunga Steel Furniture A.I.R. 1967 S.C. 1032 "(5). We next proceed to consider the argument of the Appellant that the arbitrator had no authority to award interest from the date of the award, dated 2nd September 1959 to the dace of the decree granted by Mallick, J. i.e., 2nd August 1960. In support of this contention Counsel for the Appellant relied upon the following observations of Bose, J., in Thawardas Pherumal v. Union of India 65 (1955) 2 S.C.R. 48 at P. A.I.R. 1955 S.C. 468 at p. 478. 'It was suggested that at least interest from the date of 'suit' could be awarded on the analogy of Section 34 of the Code of Civil Procedure, 1908. 'It was suggested that at least interest from the date of 'suit' could be awarded on the analogy of Section 34 of the Code of Civil Procedure, 1908. But Section 34 does not apply because an arbitrator is not a 'Court' within the meaning of the Code nor does the Code apply to arbitrators, and, but for Section 34, even a court would not have the power to give interest after the suit. This was, therefore, also rightly struck out from the award.' This passage supports the argument of the Appellant that interest cannot be awarded by the arbitrator after the date of the award but in later cases it has been pointed out by this Court that the observations of Bose, J. in (1955) 2 S.C.R. 48: A.I.R. 1955 S.C. 468, supra, were not intended to lay down such a broad and unqualified proposition (See Nachiappa Chettiar v. Subramaniam Chettiar at p. 238: 1960 2 S.C.R. 209: A.I.R. 1960 S.C. 307 at p. 320 and Satinder Singh v. Umrao Singh at p. 696 1961 3 S.C.R. 676 : A.I.R. 1961 S.C. 908 at p. 916. In 1955 2 S.C.R. 48: A.I.R. 1955 S.C. 488, supra, the material facts were that the Arbitrator had awarded interest on unliquidated damages for a period before the reference to arbitration and also for a period subsequent to the reference. The High Court set aside the award regarding interest on the ground that the claim for interest was not referred to arbitration and the arbitrator had no jurisdiction to entertain the claim. In this Court, counsel for the Appellant contended that the. Arbitrator had statutory power under the Interest Act of 1839 to award the interest and in any event, he had power to award interest during the pendency of the arbitration proceedings under Section 34 of the Code of Civil Procedure, 1903, Bose, J. rejected this contention, but it should be noticed that the Judgment of this Court in Tkawardas's case 1955 2 S.C.R. 48 : A.I.R. 1955 S.C. 468, does not deal with the question whether the arbitrator can award interest subsequent to the passing of the award if the claim regarding interest was referred to arbitration. In the present case, all the disputes in the suit, including the question of interest, were referred to the arbitrator for his decision. In the present case, all the disputes in the suit, including the question of interest, were referred to the arbitrator for his decision. In our opinion, the arbitrator had jurisdiction, in the present case, to grant interest on the amount of the award from the date of the award till the date of the decree granted by Mallick, J. The reason is that it is an implied term of the reference that the arbitrator will decide the depute according to existing law and give such relief with regard to interest as a court could give if it decided the dispute. Though, in terms, Section 34 of the Code of Civil Procedure does not apply to arbitration proceedings, the principle of that section will be applied by the arbitrator for awarding interest in cases where a court of law in a suit having jurisdiction of the subject-matter covered by Section 34 could grant a decree for interest." 12. This court had occasion to consider the propriety of award of interest by the arbitrator and in State of Kerala v. Narayanan 1971 K.L.T. 124 reference was made by this Court to A.I.R. 1967 SC 1032. This court observed that the ratio of the decisions is that if the claim regarding interest is an implied term of the reference the arbitrator will have the power to decide the dispute according to existing law and give such relief with regard to interest as a court could give on the basis of the principle underlying Section 34, Code of Civil Procedure 13. In these circumstances we see no reason to hold that there was any justification for the court below to interfere with the two awards on the ground that directions for payment of interest from the date of the awards till the date of the decrees were also provided for in the awards concerned. 14. The learned Government Pleader seeks to support the decision of the court below on the ground that it was liable to be set aside for another reason urged by the State but not accepted by the court. That too is a matter which could not have and should not have persuaded the court to set aside the award. The question of liability of the claimant for damages was no doubt in issue and was a matter which the arbitrator was competent to decide. That too is a matter which could not have and should not have persuaded the court to set aside the award. The question of liability of the claimant for damages was no doubt in issue and was a matter which the arbitrator was competent to decide. The quantum was so decided by the arbitrator as the amount of the security deposit. To say that it should have been more and provision should have been made lor compensating for the loss sustained by the Respondents by reason of the re-auction is a challenge to the award on the merits. No reasons have been indicated in the award for limiting the liability of the claimant to the amount of the earnest money. Therefore it is not as if any reason by which the decision is sought to be supported could be challenged. What should be the quantum is not a matter on which the decision could be said to be bad as vitiated by any error of law or fact' apparent on the face of the record. Hence it would not have been possible for the court below to set aside the award on that ground also. It follows therefore that the court below was in error in setting aside the award. The decision of the court below is set aside and we pass decrees in terms of the awards in both the cases. Appellants will get their costs in these appeals from the 1st Respondent in the respective appeals.