JAWAHAR LAL WADHWA v. HARIPRADA CHAKRABORTY — 1985 DIGILAW 178 (DEL)

S. B. Wad ( 1 ) NON speaking awards is an uneasy area in the law of Arbitration. Its foundation is in the autonomy of the parties in creating the law for themselves and also a forum for resolving their disputes. It has a merit of a remedy which, is speedy and less expensive and free from the procedural harassment of the adversary method followed in normal courts. But, where the freedom of contract is absent or considerably diluted non-speaking awards can turn into a method of oppression and injustice. This is particularly felt in Government contracts and standard from contracts. Private citizens are not free to settle the terms of such contract. They have also no choice of a person who is to act as an arbitrator. The Arbitrator may be a government nominee or a nominee of a Chamber of Commerce. Thus the elements of voluntary choice of rights and obligations and the personal confidence in the arbitrator are absent in these sets of contracts. A Government nominee as an Arbitrator may be able to completely ruin private citizen or cause considerable loss to public funds by paying a citizen more than due. Government has a legal obligation to act with fair-play and to avoid arbitrariness in its dealings with the citizens. A commercial activity through a contract is a variety of the administrative actions or executive actions of the Government. The fair-play in action should be both to the citizens and to the State itself. Suppose an arbitrator, a Government nominee, pays highly excessive amounts out of corrupt motive, it would be impossible even for the accounts department to raise any objection in law. There is a need for law towards a reasoned award particularly in the contracts entered into by Government. The instrumentalities of the Government and all public bodies. In private contracts of course, the non-speaking awards are still useful for their obvious advantages. . A limited right of appeal is now available in England under the Arbitration Act of 1979. In India the problem is little different. The backlog of cases in our courts is so heavy that it should deter a law reformer to create new remedies to add to the said backlog. The problem in the present case is of a private contract or a contract which is sometimes described in England as one of contract. In India the problem is little different. The backlog of cases in our courts is so heavy that it should deter a law reformer to create new remedies to add to the said backlog. The problem in the present case is of a private contract or a contract which is sometimes described in England as one of contract. ( 2 ) THE respondent was allotted Plot No. 631 measuring 160 sq. yds. by the Settlement Commissioner Government of India in the settlement scheme for the refugees from Pakistan. The agreement was registered on 17. 9. 1970 in favour of the respondent. To total cost of the plot was Rs. 4,800. 00. The allotment was made on lease hold basis by the Rehabilitation Department for which Rs. 4,800. 00 was stated as the premium. The respondent applied for the loan for house construction from the Ministry of Defence in which he was working. A loan for Rs. 15,000. 00 was sanctioned to him. It is a matter of common knowledge that the house construction rule of the Government of India require plan and estimates to be submitted along with the application and a sanctioned amount is paid in four instalments at different stages of construction. The respondent had allotted the construction on labour contract, By the end of 1973 the house was constructed upto roof level. This is evident from the fact that out of Rs. 15,000. 00 the Government had paid a sum of Rs. 12,000. 00 and only the last instalment a fun Rs. 3,000. 00 was to be paid. According to the respondent the sum of Rs. 3,000. 00 was not sufficient for the final completion of the house on therefore sought the help of the appellant more He advanced a sum of Rs. 5,000. 00. It is not uncommon that in the last stages of the competion of the house shortage of money ;is commonly felt. In August 1973 the respondent enteren into an agreement to sell the house with the plot) to the appellant. It is shown that Rs. 5,000. 00 were paid to the respondent as an advance towards the sale price. According to the respondent the. house was complete but the appellant who was occupying the same was not ready to handover the possession. Therefore, on 29. 1. 1974 another agreement was entered into between the parties. It is shown that Rs. 5,000. 00 were paid to the respondent as an advance towards the sale price. According to the respondent the. house was complete but the appellant who was occupying the same was not ready to handover the possession. Therefore, on 29. 1. 1974 another agreement was entered into between the parties. This is described as an agreement for construction and that is the subject matter of the present appeal. The agreement purported to provide for Rs. 80,000. 00 as the price of the construction to be put up the appellant on the said plot. He was to charge Rs. 20,000. 00 as the profits and labour charges. He was to deposit Rs. 15. 000. 00 with the respondent as a security. After completion of the house the respondent was to return the amount of Rs. 15,000. 00 within three years in lumpsum and on such payment the appellant was to handover the possession of the building and the plot to the respondent. Till the amount was paid by the respondent, the appellant was entitled to possess and occupy the same and for its enjoyment and to receive rents, etc. There was also a purported term for arbitration of one Shri Krishan Lal a relation of the appellants in case of dispute between the parties. Along with the said agreement for construction the respondent was required to execute a general power of attorney for dealing with the said property in favour of appellant No. 2 the wife of the appellant No. 1. ( 3 ) ACCORDING to the respondent the transactions were sham and fraudulently brought about. As he was not able to get back possession and it was likely that the appellant might dispose of the property, he filed a civil suit on l7/22nd August 1977. When the appellant was served he filed an application under Section 34 of the Arbitration Act for the stay of the suit as the contract between the parties contained an arbitration clause. That application was dismissed by the trial court. The appellants preferred TO an appeal to the Additional District Judge. In the said appeal, on 24. 8. 1978, the parties by their consent agreed that one Bakshi Man Singh should act as an Arbitrator between them. Bakshi Man Singh accordingly was appointed as an Arbitrator. The parties filed their claims documents before Bakshi Man Singh. The appellants preferred TO an appeal to the Additional District Judge. In the said appeal, on 24. 8. 1978, the parties by their consent agreed that one Bakshi Man Singh should act as an Arbitrator between them. Bakshi Man Singh accordingly was appointed as an Arbitrator. The parties filed their claims documents before Bakshi Man Singh. But Bakshi Man Singh died without rendering an award. An application was made for filling up the vacancy and again on the agreement between the parties Shri Hari Shanker, Advocate was appointed as an Arbitrator by the Additional Sessions Judge on3. 12. 1980. The Arbitrator, Hari Shanker entered on the reference on 4. 2. 1981 and directed a notice to be issued to the parties for 2oth February 1981. On 26th February 1981 the respondent was present in person. The Arbitrator noted that the two notices issued to Jawaharlal Wadhwa and Smt. Veena Wadhwa the appellants were received back unserved with the remarks that inspite of repeated visits both of them were not available at D-631, Chitranjan Park, New Delhi. The respondent then gave the address of the business place of the appellant. The Arbitrator therefore directed fresh notice to appellants for llth March 1981 by Registered A. D. post. On llth March 1981 again only respondent was present and the Arbitrator passed the following order : "notice sent by Registered Post to Shri Jawaharlal Wadhwa and Smt. Veena Wadhwa have been received back with the remarks "left without address" I have sent notices twice but to no effect. It is dear that Shri Jawaharlal Wadhwa and Smt. Veena Wadhwa are avoiding service of notice. There is no other made available to effect service on them except to pass proclamation in a daily newspaper. I, therefore, fix 5. 4. 1981 at F. O. A. M. in my office at G-74 Katra Asharfi, Chandni Chowk, Delhi as the next date of hearing for filing of claim add final hearing of the matter. Let notice be published in National Herald to publish with intimation that if Shri Jawaharlal Wadhwa and Smt. Veena Wadhwa fail to appear, I shall proceed ex-parte and proceed with the hearing and proceed to make the award". On the next date of hearing namely 5. 4. Let notice be published in National Herald to publish with intimation that if Shri Jawaharlal Wadhwa and Smt. Veena Wadhwa fail to appear, I shall proceed ex-parte and proceed with the hearing and proceed to make the award". On the next date of hearing namely 5. 4. 1981 respondent was present and the Arbitrator passed the following order : "as indicated in the proceedings of March 11, 1981 the required publication has been effected in national Hearld dated March 39, 1981. None has come or appeared on behalf of the Jawaharlal Wadhwa and Smt. Veena Wadhwa. The time is now 11. 30 A. M. I proceed ex-parte against Shri Jawaharlal Wadhwa and Smt. Veena Wadhwa. The proceedings are ex-parte. Sd/- (Hari Shankar) Advocate 5. 4. 1981 Shri Haripad Chakravarty has filed his written claim and supporting documents. I have heard him at length. I close the case for making the award. Let the stamp paper of Rs. 75. 00 be filed. " ( 4 ) THEREAFTER on 23. 4. 1981 the Arbitrator readered the award. The notices to that effect were sent to the parties. Then the respondent moved the Court for making the award the race of the court. Objections were filed by the appellant. By the impugned order the Additional District Judge dismissed the objections and made the award rule of the Court on 50. 9. 1982. ( 5 ) IT is argued by the counsel for the appellant that the award cannot be sustained on the basis of the original contract between the parties or the prayers in the suit. It is contended that under the contract, the possession could be granted to the respondent only on his payment of Rs. 1,15,000. 00 to the appellants. But the Arbitrator awarded the possession to the respondent by paying nearly Rs. 10. 000. 00. It is then submitted that there only were two prayers in the suit. The first prayer was for declaratn that the contract as well as the power of attorney were null and void. The second prayer was for permanent injunction against the appellants from selling, transfering or in any other way disposing of the suit property. There was no prayer for granting possession. The submission of the counsel is that the award was beyond the contract and the suit and was without jurisdiction. The second prayer was for permanent injunction against the appellants from selling, transfering or in any other way disposing of the suit property. There was no prayer for granting possession. The submission of the counsel is that the award was beyond the contract and the suit and was without jurisdiction. This according to the counsel is an error of law apparent on the face of the record. ( 6 ) THE submissions of the counsel for the appellants is mis-conceived. The respondent could not have prayed for permanent injunction before the Arbitrator. Also he could not have asked for a declaration from the Arbitrator that the power of attorney was null and void because the power of attorney did not form part of the main contract. It may be noted that the reference to the Arbitrator was not a reference under Section 21 of the Act. In Nachiappa v. Subramaniam1, the Supreme Court has held "two conditions must be satified before an application in writing for reference is made. (Section 21) All the interested parties to the suit must agree to obtain a reference and the subject- matter of the reference must be any matter in difference between the parties in the suit. " What were the matters of difference between the parties in the suit in the present case? The matters in difference were the entirety of the disputes that could arise under the contract between the parties. Dispute regarding possession was limited in the suit only to the extent of preserving the subject-matter of the contract by a permanent injunction on its transfer to a third-party. Under section 21 both parlies are required to move an application for reference to a court stating what differences or disputes arising out of the suit should be REFERRED TO to an Arbitrator. A court hearing the suit would make a reference incorporating the said differences or disputes to an Arbitrator after satisfying that they are the disputes or differences arising out of the suit. What has happened in the present case is that the court did not make a specific reference to the Arbitrator. Nor the parties had submitted in writing as to which of the disputes in the suit should be REFERRED TO to the Arbitrator. The parties generally agreed to refer all disputes arising out of contract to the Arbitrator in accordance with the arbitration clause in the contract. Nor the parties had submitted in writing as to which of the disputes in the suit should be REFERRED TO to the Arbitrator. The parties generally agreed to refer all disputes arising out of contract to the Arbitrator in accordance with the arbitration clause in the contract. It may also be noted that the appellants application for the stay of the suit was rejected by the trial Court. Appellants preferred TO an appeal against the said order. The order of the trial court was not set aside by the appellate court. On the peculiar facts of this case it must beheld that the reference to the Arbitrator was not under Section 21 of the Act but was under Section 8 of the Arbitration Act. This is a necessary conclusion flowing from the fact that neither the appointment of an Arbitrator nor the terms of reference are challenged by either party in this proceeding. It must further be presumed that the intervention of the court was limited only to record agreement between the parties for the appointment an Arbitrator, leaving the arbitrator free to render his award on each and every dispute raised by the parties by way of statement of claim before him. On these facts, the appellants cannot in law companion that award of possession the suit property has beyond the suit and therefore without the juris diction of the Arbitrator. The second argument of the appellants that the award was contrary of the contract or beyond the legitimate results under the contract is also without any merits. In the order of. the day on which the evidence and arguments were closed by the Arbitrator namely, 5th April 1981 the Arbitrator had noted that large number of documents were filed by the respondent along with his written claim. Under the contract, the Arbitrator was within the jurisdiction to direct that the possession of the house be handed back to the respondent. It was also competent for him to decide whether the respondent should make any payment to. the appellants and whether appellants had any valid claim against the respondent. The Arbitrator, on the documents before him and statement of claim found that the appellants were entitled only to Rs. 10,000. 00. The Arbitrator bad an undoubted jurisdiction to decide the matter in the way be had decided. The appellants may have a complaint that direction to pay Rs. 10,000. The Arbitrator, on the documents before him and statement of claim found that the appellants were entitled only to Rs. 10,000. 00. The Arbitrator bad an undoubted jurisdiction to decide the matter in the way be had decided. The appellants may have a complaint that direction to pay Rs. 10,000. 00 only was too inadequate or it was a mistake in law of the construction of the contract. But this is different from saying that the award was beyond jurisdiction of the Arbitrator. But assuming that there was some mistake of fact or law that is no ground for challenge under Section 30 of the Arbitration Act. ( 7 ) THE general rule 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 its face, object to his decision either upon the law or the facts. Where an arbitrator makes a mistake either in law or in fact, in determining the matter REFERRED TO, but such mistake does not appear on the face of the award, the award is good notwithstanding the mistake, and will not be remitted or set aside. In Champsey Bhora and Co. v. Jivraj Balloo and Co. 2, the Privy Council has formulated the principle thus : "an error in law on the face of the award means that you could find in the award or the document actually incorporated thereto, as for instance, a note appended by the arbitrator stating the reasons for his judgement some legal proposition which is the basis of the award and which you could then say is erroneous". This position of law has been uninterruptedly followed by the Supreme Court in Union of India v. Bungo Steel Furniture Pvt. Ltd. 3, Allen Berry and Co. v. U. O. I. 4, N. Chillappa v. Kerala S. E. Board5. Where the award is a non- speaking award, a Court cannot enter into the process of reasoning of the Arbitrator in coming to the conclusions. So also no fault can be found with the award by imaginary reasoning or by an independent interpretation of the pleadings, statement of claims of the documents. ( 8 ) IN the present case it cannot be said that there is any error of law. So also no fault can be found with the award by imaginary reasoning or by an independent interpretation of the pleadings, statement of claims of the documents. ( 8 ) IN the present case it cannot be said that there is any error of law. But even assuming that there is one, it is not manifest on the face of the award as laid down by the Privy Council and the Supreme Court. The Court should be slow to enter into a question as to whether there is error of law apparent on the face of the record lightly unless there is palpable miscarriage of justice. By means of a contract the parties create rights and obligations for them selves. Where they incorporate on arbitration clause they create their own forum for resolution of their disputes law respects and protects such voluntary creation of rights and obligations as well as the forum for resolving the disputes. The Courts would not therefore like to interfere in this private initiative of the citizens. What happened in the present case in this. A government servant belonging to a lower middle class secured a small plot of land from the Rehabilitation Dept. He wanted to construct the house for providing about Rs. 1 ,000. 00. from the Govt. for the construction of the house. The amount was insufficient for completing the house. He needed additional money. He entered into a transaction with the third party which is named as the building contract. Along with the contract he executed an agreement to sale and a general power of attorney. These are the usual contrivances freely employed in Delhi to avoid the restriction on the sale of lands in Delhi. They are not described as sales but they achieve the object of sale. Transfer of ownership through such transactions is contrary to law and public policy. Such transactions are sometimes made by way of speculation or for profiteering. But most of the cases are the cases of need people having low means. They enter into the transactions with the hope that they would be able to complete their house. The respondent is the victim of circumstances obtaining in land- hungry cities. What the award in question has achieved is to uphold the sale but to the illegal tale. There is sting in the tale and the Arbitrator has neutralized it. They enter into the transactions with the hope that they would be able to complete their house. The respondent is the victim of circumstances obtaining in land- hungry cities. What the award in question has achieved is to uphold the sale but to the illegal tale. There is sting in the tale and the Arbitrator has neutralized it. The Arbitrator has done substantial justice to the parties. ( 9 ) THIS analysis answers the contention of the counsel for the appellants further. The counsel has submitted that the Arbitrator is not a conciliator. As an arbitrator he discharges the judicial functions. He must exercise his discretion judicially. It must appeal to reason and should not be capricious or arbitrary. Considering the transaction between the parties, does it not appeal to reason that the respondent, the owner of the house, should get back the possession ? The arbitrator felt that the payment of Rs. 10,000. 00 by the respondent will settle the equities between the parties. In case of a normal civil suit it is possible to decide whether payment of such amount is adequate or not by looking to the evidence and original agreement between the parties. Judgment of civil courts are reasoned orders and therefore they also assist. But, an arbitrator is free to pass a non-speaking award. He need not refer to any evidence or any documents in his award. One cannot surmise the basis or the foundation of the award. This is not permissible even by a backdoor of examining caprice or arbitrariness. The submission of the counsel for the appellants is therefore, rejected. ( 10 ) BUT the counsel for the appellants has submitted that the arbitration proceedings are vitiated by the fact that no notice of arbitration was served on the appellants. It is submitted that no notice was issued on the appellants address stated in the plaint. There is no merit in this submission. After the suit was filed the appellants filed an application under Section 34 of the Arbitration Act. In the affidavit supporting that application, the appellant gave his address as B-631, Chitranjan Park, New Delhi, which is the house in dispute. This was the last address on the record and therefore there was nothing wrong in sending the notice to the said address. In the affidavit supporting that application, the appellant gave his address as B-631, Chitranjan Park, New Delhi, which is the house in dispute. This was the last address on the record and therefore there was nothing wrong in sending the notice to the said address. The appellant himself claimed that he continued to occupy the house in question when he filed the application under Section 34 of the Act. A notice of making the award was sent by the arbitrator on the same address. Inspite of repeated attempts to serve the notice on the said address the notices were returned with the remarks that neither of the appellants were available on that address. The appellants have not stated that the house was being occupied by somebody else. But even if that is so, the normal human conduct is that the occupant of the house would inform the postman as to what is the true address of the owner. The respondent, who used to be present on all the hearings, then informed the Arbitrator of the business address. Attempts were made to serve the appellants on that address. Notices were sent twice but they returnedwith the remark, "left without address". By this time about four months had elapsed from the appointment of the Arbitrator. He was appointed with the consent of both the parties in the appellate court. Normally, the parties would make some attempt to contact the arbitrator who is a practicing advocate of this court to contact him. Appellants were represented by a counsel in the trial court. At least the advocate could have contacted the arbitrator in the Court. In these circumstances the appellants cannot complain that they were not served with the notice of arbitration. The Arbitrator, by way of additional precaution got the notice published in national Herald . The counsel for the appellants argues that service by publication is contrary to provisions of Section 42 of the Arbitration Act. Only two modes of service are prescribed by the said section : (1) Delivery of the notice in person or (2) by a registered letter. It is now well settled that arbitration proceeding would not be vitiated if the Arbitrator serves a notice by publication after repeated failure to serve a party by the two modes prescribed by Section 42. Only two modes of service are prescribed by the said section : (1) Delivery of the notice in person or (2) by a registered letter. It is now well settled that arbitration proceeding would not be vitiated if the Arbitrator serves a notice by publication after repeated failure to serve a party by the two modes prescribed by Section 42. Firm Kapur and Sons v. Raj Kumar6, and U. O. I, v. Bhati Tranning Industries FAO (OS) 68-A/84 decided by D. B. of this court on 26. 11. 1984. ( 11 ) THE counsel for the appellants put his objection to the service of notice in yet another way. He submits that a written claim and supporting documents were filed by the respondent on 5th April 1981, the date on which the Arbitrator closed the case and reserved it for pronouncement of the award. His submission is that if the Arbitrator was satisfied that the appellants were avoiding service, the should have closed the proceedings on llth March 1981 and proceeded to pronounce his award. But the Arbitrator did not do so and directed service by publication in national Herald . The grievance is that the appellants were entitle to the notice of the statement of claims and documents filed in support of the statement of claims by the respondent. This submission also has no merit. The Arbitrator would have been justified in closing on proceeding on llth March 1981 holding that the service was effected on the appellants. But he did not take a hasty step. He in fact wanted to give one more opportunity to the appellants. This was an indulgence shown to the party which had repeatedly defaulted in appearing. The arbitrator could have asked the respondent to file a statement of claims and documents on llth March 1981 and after hearing the respondent could have pronounced his award. It may be noticed that the statement of claims and the documents were already filed by the respondent before the earlier arbitrator Bakshi Man Singh. A direction was given by the Additional District Judge (While appointing new arbitrator Hari Shankar, advocate) that the documents and proceedings filed before the earlier arbitrator should be sent to the new arbitrator. However, after the death of Bakshi Man Singh the documents could not be traced. A direction was given by the Additional District Judge (While appointing new arbitrator Hari Shankar, advocate) that the documents and proceedings filed before the earlier arbitrator should be sent to the new arbitrator. However, after the death of Bakshi Man Singh the documents could not be traced. That is why the arbitrator directed the respondent to file the statement of claims and documents afresh. The appellants had the notice of the said documents when the matter was before Shri Bakshi Man Singh, The copies of the statement of claims filed before Bakshi Man Singh and before Shri Hari Shanker, the present arbitrator are seen by me. The counsel for the appellant accepted the copy of the statement of claims before Bakshi Man Singh as the correct copy. After comparing both the copies it is clear that they are substantially the same. It cannot therefore be said that a new material was brought on the record on 5th April 1981 or that the appellants had no notice of the claim for possession. But there is a further technical objection raised by the appellants. It is contended that Section 47 of the Act does not provide for service of notice by publication. To treat the service as complete on the basis of the publication in the present case was contrary to Section 42 and so illegal. In the eye of law, therefore, there was no service. Coming from a party who had repeatedly failed to take notice and to whom indulgence was shown by the arbitrator such hyper-technical objection cannot be permitted. If the respondent had raised entirely new pleas from the earlier statement of claim on 15tb April 1981 and if it was found that it resulted in substantial injustice to the appellants, the court would have been inclined to examine this argument further. The scope for the interference by the Court, where the arbitrator is appointed by common consent of the parties is very limited. The submission of the appellants is therefore rejected. ( 12 ) FOR the reasons stated above, the appeal is dismissed but on the facts of the case there shall be no order as to costs.