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1987 DIGILAW 347 (DEL)

AJAY INDUSTRIES LIMITED v. UNION OF INDIA

1987-09-11

B.N.KIRPAL

body1987
B. N. Kirpal ( 1 ) THE challenge in this case is to the validity of the award given by respondent No. 2 who was the sole-arbitrator in a dispute between the petitioner and respondent No. 1. ( 2 ) BRIEFLY stated, the facts are that on 25th July, 1970 a contract was entered into between the parties when respondent No. 1 accepted the tender of the petitioner for the supply of 9422 Break Beam (BG) at Rs. 70. 00 each. Subsequently the quantity to be supplied was reduced to 7921 by respondent No. 1. ( 3 ) IT appears that only a very few number of Break Beam were supplied. As on 15th January, 1973 there was a balance of 7709 Break Beam required to be supplied. As according to respondent No, 1 the contract had been breached by the petitioner, the said contract was cancelled at the risk and cost of the petitioner. ( 4 ) RESPONDENT No. 1 is thereafter stated to have undertaken the risk purchase at the cost of the petitioner. Vide a letter dated 12th December, 1973 a demand for Rs. 3,00,366. 00 for 3034 pieces alleged to have been bought at risk purchase at a price of Rs. 169. 00 each was made on the petitioner. When the petitioner did not make this payment, respondent No. 1 unilaterally referred the dispute for arbitration on 21st January, 1974 to Shri C. R. Rao. ( 5 ) AFTER Shri Rao accepted the appointment, he resigned. Thereafter on 29th August, 1975 Shri N. S. Mehta was appointed as the arbitrator. Some documents were filed before him. The petitioner-herein on 6th December, 1976 denied the documents of the Union of India relating to alleged risk purchase and its placement of risk purchase order and payments for risk purchase. ( 6 ) ON 11th January, 1977 the sole-arbitrator permitted the petitioner to file interrogatories by llth March, 1977. Before the next date of hearing Mr. N. S. Mehta resigned and on 7th March, 1977 respondent No. 2 Dr. Bakhshish Singh was appointment as the arbitrator. ( 7 ) AFTER respondent No. 2 entered upon the reference, the petitioner on 27th October, 1977 filed an application for interrogatories and demanded a reply to the said interrogatories and the filing of the original documents relating to risk purchase. Bakhshish Singh was appointment as the arbitrator. ( 7 ) AFTER respondent No. 2 entered upon the reference, the petitioner on 27th October, 1977 filed an application for interrogatories and demanded a reply to the said interrogatories and the filing of the original documents relating to risk purchase. On 1st December, 1977 the Union of India filed a brief reply to the application for interrogatories. It was, inter alia, stated by the Union of India that the interrogatories should be dismissed with a direction to the parties to adduce their evidence. ( 8 ) IT appears that no evidence was recorded and on 30th December 1978 the arbitrator made an award, whereby he allowed the claim of the Union of India for a sum of Rs. three lacs. ( 9 ) PETITION was then filed under section 14 of the Arbitration Act being Suit No. 185-A of 1979. Notice was issued requiring the arbitrator to file the award. The arbitrator then filed the award. Notice of filing of the award was issued to the parties. It is thereupon that the petitioner-herein filed objections to the award. Various objections were raised, inter alia, alleging that the arbitrator has misconduced himself and the proceedings. After reply had been filed and the pleadings were completed, the following issues were framed : 1. Whether the award is liable to be set aside on the grounds stated in the objection petition ? 2. Relief. ( 10 ) EVIDENCE was taken by way of affidavits. I will now deal with both the issues together. ( 11 ) IT has been vehemently urged by the learned counsel for the petitioner that in the instant case the arbitrator has misconducted the proceedings and principles of natural justice have been violated because the interrogatories were not allowed and evidence was not led. It is further contended that the original documents on which the Union of India had based its claim have not been placed before the arbitrator. ( 12 ) IT is true that the provisions of the Evidence Act as such do not apply. Nevertheless, it is now well settled that principles of natural justice are applicable to the arbitration proceedings. The general rules of evidence are usually kept as a guideline by the arbitrators while conducting arbitration proceedings. ( 12 ) IT is true that the provisions of the Evidence Act as such do not apply. Nevertheless, it is now well settled that principles of natural justice are applicable to the arbitration proceedings. The general rules of evidence are usually kept as a guideline by the arbitrators while conducting arbitration proceedings. If an arbitrator does not give adequate opportunity to a party then itcan be legitimately contended that the arbitrator has misconducted the proceedings. ( 13 ) IN the present case it is the contention of the petitioner that the original documents with regard to the risk purchase alleged to have been done by the Union of India were not placed before the arbitrator. In the order dated 13th December, 1978 the arbitrator has noted that the original file of the Department has not been brought. The record of the arbitration proceedings received from the arbitrator also shows that the original documents were not filed. ( 14 ) THE entire case of Union of India before the arbitrator was that the contract had been cancelled at the risk and cost of the petitioner. It is the loss which was alleged to have been suffered on account of risk purchase which was being demanded from the petitioner. In order to prove the loss suffered the Union of India had to prove the contract for risk purchase and also prove the price which it had to pay. It is not disputed that the petitioner-herein had denied the copies of the documents placed on record before the arbitrator by Union of India. As far as the petitioner is concerned, it moved an application for interrogatories in October, 1977. These interrogatories, inter alia, related to risk purchase stated to have been resorted to by Union of India. The Union of India in reply to this application stated that the application for interrogatories be rejected and parties should produce their evidence. Thereafter the case was fixed for evidence but Union of India did not bring its witnesses. When the counsel for Union of India stated on 13th December, 1978 before the arbitrator that he was unable to produce the original file or the witnesses, it is thereupon that counsel for the petitioner stated that he also did not wish to produce any oral witness. The arguments were thereupon heard and the case reserved for making of the award. The arguments were thereupon heard and the case reserved for making of the award. ( 15 ) IT is clear from the aforesaid that there was no original document on which any reliance could have been placed by the arbitrator in determining the extent of loss alleged to have been suffered by Union of India on account of risk purchase. The award on account of loss of risk purchase in favour of Union of India could not have been made without reference to the said documents pertaining to the risk purchase and without there being any legal evidence on record before him. The petitioner-herein had a right to raise queries and ask questions pertaining to the risk purchase. It could do so either by filing interrogatories or by cross-examining the witness of Union of India as and when they appeared in the witness box. The arbitrator did not pass any orders on the application for interrogatories presumably for the reason that Union of India had itself stated that oral evidence would be be produced and it was open to the petitioner herein to cross-examine the witnesses when they appear. On the last date of hearing, however. Union of of India did not adduce any oral evidence. If the arbitrator was at that time inclined to accept the case and submission of Union of India without having before him any oral evidence or original documents, then the principles of natural justice would have required that opportunity be given to the petitioner-herein to ask questions from the Union of India with regard to the alleged risk purchase The arbitrator, before he accepted the claim of the Union of India, should have required the Union of India to answer the interrogatories and thereupon heard arguments. ( 16 ) WHEN the counsel for the Union of India on the last date of hearing indicated that the original documents were not being produced, the oral witnesses had not arrived for examination then the counsel for the petitioner rightly surmised that Union of India had been unable to prove its case. By not giving opportunity to the petitioner-herein to ask questions from Union of India with regard to the risk purchase and by placing his decision on copies of documents which were not admitted by the petitioner, the arbitrator, to my mind, clearly misconducted the proceedings. By not giving opportunity to the petitioner-herein to ask questions from Union of India with regard to the risk purchase and by placing his decision on copies of documents which were not admitted by the petitioner, the arbitrator, to my mind, clearly misconducted the proceedings. In this connection reference may usefully be made to a decision of a Division Bench of this Court in the case of Union of India, Delhi Cantt. v. Mis. Mehta Teja Singh and Co. , New Delhi1, the headnote of which brings out the ratio correctly, which reads as under : "where the claim of the Government before the arbitrator for recovery of amount from the contractor was based on the report of the technical examiner and the arbitrator did not order production of the report by Government though specifically requested by the contractor to do so, the action of the arbitrator in making the award allowing the claim without himself looking into the report on which the claim was based and without allowing the contractor inspection thereof amounts to misconduct of the arbitration pro ceedings resulting in denial of natural justice to the contractor and rendering the award liableto be set aside. When the Government opposed the request of the contractor for production of the report before the arbitrator and even in the Court it would not be equit able to allow the Government the benefit of second enquiry by the arbitrator by remitting the matter to him for fresh enquiry and award. "3 Just like Mehta Teja Singh s (supra), in the present case also the claim of the Union of India could not have been upheld in the absence of original or admitted documents pertaining to risk purchase. Those documents not being on record and the same not having been perused by the arbitrator, no award could have been made in favour of the Union of India. ( 17 ) FOR the aforesaid reasons, issue No. 1 is decided in favour of the petitioner-objector and the objections are upheld and the award dated 30th December, 1978 is set-aside. Parties to bear their own costs.