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1991 DIGILAW 226 (DEL)

NEO SHINE VARNISHES v. STATE TRADING CORPORATION OF INDIA LIMITED

1991-04-05

P.K.BAHRI

body1991
Mr. P. K. Bahri ( 1 ) IN this petition filed under Section 17 of the Arbitration Act, notice was given to the arbitrator for filing the award and the proceedings. The arbitrator had filed the award and the proceedings. Notice of the filing of the award was served on both the parties and the respondent had filed objections, i. e. IA 225 of 1985, which are opposed by the petitioner and following issues were framed. (1) Whether there was no arbitration agreement between the parties in respect of the disputes under claim No. 1 determined by the arbitrator ? OP Objector. (2) Whether there is any error apparent on the face of the award as Shri Ram Jethmalani was never appointed as the sole arbitrator ? OP Objector. (3) Whether the award of interest by the arbitrator is beyond the scope of reference ? OP Objector. (4) Whether the award is liable to be set aside on the objections contained in IA 225/85 ? OP Objector. (5) Relief. ( 2 ) ISSUE No. 1. Counsel for the respondent has not advanced arguments on the issue, rightly so because the award and the documents filed alongwith the award show that claim No. 1 put up by the petitioner before the arbitrator arose from the contract arrived as between the parties, which contained an arbitration clause. The petitioner-claimant is carrying on the business of manufacturing paints and was allocated 7. 3 metric tonnes of NO. 30/40, a canalised item in respect of release order No. 134048 and the claimant had paid Rs. 2,26,634. 00 to the respondent and taken delivery in June 1976 of 7 M. T. consisting of 70 drums bearing markings of NC 3/4 instead of NC 30/40 of 70 drums bearing markings of NC 3/4 instead of NC 30/40 and, therefore, complained about the same after using 12 or 13 drums and protested that the goods were not of the quality purchased, which was NO 30/40. The respondent, however, did not accept the claim of the petitioner and finally rejected the same on or about 15th or 17th July, 1978 and at first Mr. Justice Grover was appointed as an arbitrator and thereafter Mr. Justice S. M. Sikri was appointed as an arbitrator and the petitioner put up a claim for Rs. 12,99,936. The respondent, however, did not accept the claim of the petitioner and finally rejected the same on or about 15th or 17th July, 1978 and at first Mr. Justice Grover was appointed as an arbitrator and thereafter Mr. Justice S. M. Sikri was appointed as an arbitrator and the petitioner put up a claim for Rs. 12,99,936. 00 as damages including interest for breach of contract and also special damages on account of fraud committed by the respondent. ( 3 ) THE arbitrator had given the award sans reasons and mentioned that he had considered the pleadings, oral and documentary evidence and heard the arguments and held that the petitioner-claimant was entitled to damages for breach of the contract on the part of the respondent is not supplying goods of NO 30/40 but something else and he assessed the damages at Rs. 1,91,685. 00 and allowed interest @ 18% from 1st June, 1979 till the order of the court or the date of payment whichever was earlier. He also held that the claim of the petitioner was not barred by time. So, it is not disputed before me that the said claim of the petitioner arose from the contract made between the parties and was based on the averment that the petitioner had suffered damages on account of breach of the contract by the respondent and it is also not disputed that the contract arrived at between the parties contained an arbitration clause. Hence I hold that the claim of the petitioner was covered by the contract, which was referable to arbitration. ( 4 ) SO, this issue No. 1 is decided in favour of the petitioner. ( 5 ) ISSUE No. 2 While reciting the facts in the opening of the award, the arbitrator had mentioned that Mr. Justice Grover was appointed in place of Mr. Ram Jethmalani, when it is the admitted fact before me that Mr. Jethmalani had never been appointed as an arbitrator although his name was considered initially for being appointed as an arbitrator but he had declined to become an arbitrator. But it is not understood how such an innocuous error made by the arbitrator has any bearing on the merits of the claims examined by the arbitrator. Jethmalani had never been appointed as an arbitrator although his name was considered initially for being appointed as an arbitrator but he had declined to become an arbitrator. But it is not understood how such an innocuous error made by the arbitrator has any bearing on the merits of the claims examined by the arbitrator. Learned counsel for the respondent has vehemently argued that this error is there on the face of the award and thus it should be held that the award is vitiated. Every error appearing in the award in my opinion does not go to the root of the matter so that the court could set aside the award. ( 6 ) SO, I find no merit in this contention and decide this issue No. 2 against the respondent. ( 7 ) ISSUE No. 3 Now I take up issue No. 4 at first. ( 8 ) ISSUE No. 4 Learned counsel for the respondent has contended that the arbitrator has followed two different yardsticks while assessing the claims of the petitioner and the respondent in as much while allowing the claim of the petitioner, the arbitrator had not kept in view the principle of mitigating the damages whereas he has applied the said principle while declining the claim of the respondent and thus the arbitrator has given inconsistent findings which amount to judicial misconduct. He has also argued that the arbitrator has committed a grave error of law in returning the finding that the claim of the petitioner is not barred by time and thus on that score also, the award is liable to be set aside. ( 9 ) I have already reproduced the claim of the petitioner while discussing issue No. 1. The arbitrator has not given any reasons in his finding allowing the claim of the petitioner partly. The court cannot probe into the mind of the arbitrator in order to decide as to whether the arbitrator bad taken into consideration or not the principle of mitigation of damages while allowing the claim of the petitioner partly. The arbitrator has not incorporated any document in the award so that the court could look to the documents and come to any finding different from the one given by the arbitrator. ( 10 ) IN N. Chellappan v. Secretary Kerala State Electricity Board1, it was laid down that : (See 1991 Vol. The arbitrator has not incorporated any document in the award so that the court could look to the documents and come to any finding different from the one given by the arbitrator. ( 10 ) IN N. Chellappan v. Secretary Kerala State Electricity Board1, it was laid down that : (See 1991 Vol. 43 D. L. T. page 246 ). "umpire, as sole arbitrator, was not bound to give a reasoned award and if in passing the award he makes a mistake of law or of fact, that is no ground for challenging the validity of the award. It is only when a proposition of law is stated in the award and which is the basis of the award and that is erroneous, that the award can be set aside or remitted on the ground of error of law apparent on the face of record. An error of law on the fact 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. 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". ( 11 ) I may also refer to the law laid down by the Supreme Court in Municipal Corporation of Delhi v. Mis. Jagan Nath Ashok Kumar2, (See 1991 Vol. 43 D. L. T. page 246 ). "such reasonableness of the reasons given by an arbitrator in making his award cannot be challenged. It was opened that appraisement of evidence by the arbitrator is ordinarily never a matter which the court questions and considers. The parties have selected their own forum and the deciding forum must be conceded the power of appraisement of the evidence. It was held that the arbitrator is the sole judge of the quality as well as quantity of evidence and it will not be for the court to take upon itself the task of being a judge of the evidence before the arbitrator. It was held that the arbitrator is the sole judge of the quality as well as quantity of evidence and it will not be for the court to take upon itself the task of being a judge of the evidence before the arbitrator. It may be possible that on the same evidence, the court might have arrived at a different conclusion that the one arrived at by the arbitrator but that by itself is no ground in our view for setting aside the award of an arbitrator". ( 12 ) KEEPING in view the aforesaid principles of law laid down by the Supreme Court, it is not possible for this court to examine the merits of the claim of the petitioner as decided by the arbitrator. No finding can be arrived at by bare reading of the award that the arbitrator has given any inconsistent finding while examining the claim of the petitioner and the claim of the respondent. It cannot be also held that any different yardsticks have been adopted by the arbitrator while assessing the two claims. ( 13 ) THE claim of the respondent was for damages in as much as the claimant had not taken delivery in time of the goods. The arbitrator held that the respondent was entitled to damages for breach of the contract but no early steps were taken by the respondent to mitigate the damages and the goods being sold as old stock more than a year after the breach, he rejected the counter-claim of the respondent. Again the finding given by the arbitrator on merits without giving reasons cannot be questioned by this court on reading the award and it is not possible to hold that the arbitrator had committed any error of law in returning this finding. No support can be obtained by the learned counsel for the respondent in support of his contentions inthe present case from K. P. Poulose v. State of Kerala3, that "misconduct under Section 30 (a) has not a connotation or moral lapse. It comprises legal misconduct which is complete if the arbitrator on the face of the award arrives at an inconsistent conclusion even on his own finding or arrives at a decision by ignoring very material documents which throw abundant light on the controversy to held a just and fair decision. It comprises legal misconduct which is complete if the arbitrator on the face of the award arrives at an inconsistent conclusion even on his own finding or arrives at a decision by ignoring very material documents which throw abundant light on the controversy to held a just and fair decision. " ( 14 ) IN the present case, the aforesaid principles laid down by the Supreme Court are not at all applicable because the court cannot come to the conclusion from reading the award that any inconsistent findings have been given by the arbitrator. It may mention that the Supreme Court in Raipur Development Authority v. M/s. Chokhamal Contractors4, has held that it is not the requirement of law that the arbitrator must give reasons in support of his findings and the award is not liable to be remitted or set aside on the ground that the arbitrator has not given reason in support of his findings. ( 15 ) LEARNED counsel for the respondent has then contended that the finding of the arbitrator that the claim of the petitioner is not barred by time is wrong. In order to show that such a finding is not correct, learned counsel for the respondent tried to refer to certain documents appearing in the arbitration file. The arbitrator has not incorporated any document in the award and the law is well settled that unless and until the documents stand incorporated in the award, the court has no jurisdiction to look into the documents appearing in the arbitration file in order to decide whether a particular finding given by the arbitrator is correct or not. The point of litigation was to be decided by the arbitrator and it is also a settled law that even if a wrong finding has been given on the point of limitation, the court cannot hold that the award is vitiated on that score. The arbitrator who is the final authority on the disputed question of fact and law referred to him, can give the finding according to his wisdom, which is binding on the parties. Unless and until it is shown that while arriving at such a finding, the arbitrator has committed any judicial misconduct or any error apparent on the face of the award, the court cannot set aside such finding given in the award. Unless and until it is shown that while arriving at such a finding, the arbitrator has committed any judicial misconduct or any error apparent on the face of the award, the court cannot set aside such finding given in the award. So I hold that the award is not liable to be set aside on the aforesaid objections pressed before me by learned counsel for the respondent, ( 16 ) THIS issue is also decided against the respondent. ( 17 ) ISSUE No. 3 The arbitrator has awarded interest @ 18% per annum from June 1, 1979 on the amount awarded to the petitioner to the tune of Rs. 1,91,685. Counsel for the respondent has contended that no reference to the arbitrator having been made in any suit, the arbitrator had no jurisdiction to award any pendente lite or future interest. ( 18 ) COUNSEL for the petitioner has, however, argued that under Section 61 of the Sale of Goods Act, the arbitrator was entitled to grant interest. Section 61 of the Sale of Goods Act reads as follows : "61. Interest by way of damages and special damages (1 ). Nothing in this Act shall affect the right of the seller or the buyer to recover interest or special damages in any case where by law interest or special damages may be recoverable, or to recover the money paid where the consideration for the payment of it has failed. (2) In the absence of a contract to the contrary the court may award interest at such rate as it thinks fit on the amount of the price : (a) to the seller in a suit by him for the amount of the price from the date of the tender to the goods or from the date on which the price was payable; (b) to the buyer in a suit by him for the refund of the price in a case of a breach of the contract on the part of the seller from the date on which the payment was made. " ( 19 ) I do not think that the provisions of Section 61 authorise the arbitrator to award any pendente lite or future interest to the petitioner. " ( 19 ) I do not think that the provisions of Section 61 authorise the arbitrator to award any pendente lite or future interest to the petitioner. In Executive Engineer (Irrigation) Balimela and others v. Abhaduta Jena and others5, the Supreme Court has laid down as follows : "the general statutory provisions in regard to the award of interest by a court are contained in the Interest Act and the Civil Procedure Code. Both the Interest Act of 1839 and the Interest Act of 1978 provide for the award of interest upto the date of the institution of the proceedings. Neither the Interest Act of 1839 nor the Interest Act of 1978 provides for the award of pendente lite interest. The law relating to the award of interest pendente lite is provided in S. 34 of the Civil Procedure Code S. 34 however, applies to arbitrations in suits for the simple reason that where a matter is referred to arbitration in a. suit the arbitrator will have all the powers of the court in deciding the dispute. S. 34 does not otherwise apply to arbitrations as arbitrators are not courts within the meaning of Section 34 Civil Procedure Code. While under the Interest Act of 1978 the expression "court" was defined to include an arbitrator, under the Interest Act of 1939 it was not so defined. the result is that while in the cases arising after the commencement of the Interest Act of 1978 an arbitrator has the same power as the court to award interest upto the date of institution of the proceedings, in cases which arose prior to the commencement of the 1978 Act, the arbitrator has no such power under the Interest Act of 1839. Since the arbitrator is required to conduct himself and make the award in accordance with law, court must look to the substantive law for the power of the arbitrator to award interest before the commencement of the proceedings. If the agreement between the parties entitles the arbitrator the award interest no further question arises and the arbitrator may award interest. Similarly if there is a usage of trade having the force of law, the arbitrator may award interest. If the agreement between the parties entitles the arbitrator the award interest no further question arises and the arbitrator may award interest. Similarly if there is a usage of trade having the force of law, the arbitrator may award interest. Again the arbitrator may award interest if there are any other provisions of the substantive law enabling the award of interest e. g. , Section 80 of the Negotiable Instruments Act or Section 61 (2) of the Sale of Goods Act. There may also be a case where one of the parties is forced to pay interest to a third party, say on an overdraft consequent on the failure of the other party to the contract not fulfilling the obligation of paying the amount due to them. In such a case also equity may compel the payment of interest. Loss of interest in the place of the right to remain in possession may be rightfully claimed in equity by the owner of a property who has been dispossessed from it". ( 20 ) NO other provision of law has been cited before me to show that the arbitrator could award pendente lite and future interest in the case in hand. So, the finding of the arbitrator awarding pendente lite and future interest is liable to be set aside. ( 21 ) ISSUE No. 5 The objection petition is liable to be dismissed and the award is liable to made rule of the court after setting aside the finding of the arbitrator granting the pendente lite and future interest. ( 22 ) I dismiss the objection petition. IA 225 of 1985 and set aside the finding of the arbitrator granting pendente lite and future interest and direct that the award be made rule of the court and I grant interest @ 9% per annum from June 1, 1979 till payment. Decree be prepared accordingly.