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Jeevan Industries (P) Ltd. Vs. Haji BashiruddIn Madhusudan Dayal - Court Judgment

LegalCrystal Citation
CourtDelhi High Court
Decided On
Case NumberF.A.O. (O.S.) No. 34 of 1969
Reported inAIR1975Delhi215
ActsArbitration Act, 1940 - Sections 14(2), 30 and 38
AppellantJeevan Industries (P) Ltd.
RespondentHaji BashiruddIn Madhusudan Dayal
Appellant Advocate Bawa Shiv Charan Singh, Adv
Respondent Advocate T.N. Sethi and ; Y.K. Sabharwal, Advs.
Cases ReferredLtd. v. Union of India
(i) arbitration-fee of arbitrator--how fixed--power of court to determine the dispute about--duty of arbitrator to avoid course of action which may give an impression that he has received pecuniary inducement from any party--arbitration act, sections 14(2) & 38.; that the scheme of the arbitration act is that the fees of the arbitrator or umpire in case of umpire must ordinarily be fixed by an agreement between the parties and the arbitrator, and that should preferably be in writing. the arbitrator has the power to award costs of the arbitrations including the fees of the arbitrator between the parties. so far as the payment of fees to the arbitrator is concerned, he is entitled to withhold the filing of the award unless and until his fees are paid. the court, however, has the power.....misra, j.1. this first appeal from order has been filed by the objector m/s. jeevan industries pvt. ltd. against the judgment and order of the learned single judge of this court (s. n. andley, j.), d/- 19-5-1969 by which the learned single judge has dismissed the objections of the appellant and made the award of the umpire dated 8th march, 1966, a rule of the court. the award has been made by shri p. n. khanna who was then an advocate of this court, and later was elevated to the bench of the high court and has since retired, and the award directs the appellant herein to pay a sum of rs. 39,942/- to haji bashiruddin madhusudan, the respondent.2. the material facts of the case briefly stated are that the appellant runs a cold storage in which the respondent kept his potatoes amongst others......

Misra, J.

1. This first appeal from order has been filed by the objector M/s. Jeevan Industries Pvt. Ltd. against the judgment and order of the learned single judge of this Court (S. N. Andley, J.), D/- 19-5-1969 by which the learned single judge has dismissed the objections of the appellant and made the award of the umpire dated 8th March, 1966, a rule of the Court. The award has been made by Shri P. N. Khanna who was then an advocate of this court, and later was elevated to the Bench of the High Court and has since retired, and the award directs the appellant herein to pay a sum of Rs. 39,942/- to Haji Bashiruddin Madhusudan, the respondent.

2. The material facts of the case briefly stated are that the appellant runs a cold storage in which the respondent kept his potatoes amongst others. The agreement for storage is exhibit R-1, dated 10th March, 1955. This agreement contains terms and circumstances in which the liability for damages to the goods stored would arise and it also contains the provisions for reference of disputes to arbitration, Some of the potatoes belonging to the respondent which had been stored in cold storage were spoiled and the disputes arose between the parties. Eventually the disputes were referred under order of Mahajan, J. dated 26th November, 1962, passed in Civil Revisions Nos. 222-D of 1959 and 179-D of 1960, to the arbitration of two arbitrators, one of whom was nominated by each party. On 5-12-1963 they appointed Shri P. N. Khanna, as an umpire. On 6th July 1965, there was difference of opinion between the arbitrators and the matter was referred to the decision of the previously made umpire. The umpire Shri P. N. Khanna, commenced his proceedings on 27th August, 1965 and made and published the award dated 8th March, 1966 within the time extended by the Court. Out of a claim for about Rs. 2,01,524/11/6 preferred by the respondent and a counter-claim of Rupees 41,516/- preferred by the appellant the arbitrator in full and final settlement directed a payment of Rs. 39,942/- by the appellant to the respondent. The award was, filed by the umpire in court and notices were issued to the parties and the appellant herein filed objections on 7th May, 1966. A reply to the objections was filed and the following four issues were framed by the Senior Subordinate judge, who was then dealing with the matter, namely,

1. Whether the award was made after the expiry of due time? If so to what effect?

2. Whether the Umpire was not properly appointed? If so, to what effect?

3. Whether the award is liable to be set aside for the grounds mentioned in the objection petition?

4. Relief.

3. On the advent of the Delhi High Court Act, this case was transferred to the original side of this Court and was registered as an arbitration suit No. 426 of 1966. The appellant produced evidence and the umpire was himself examined as a witness and the respondent did not appear in the witness box. All the issues have been decided by the learned single judge by the impugned order. He found that the award had been made within the extended time and he decided the first issue against the objector. The second issue was also decided against the objector. In answer to the third issue the objections of the objector were repelled and the award has been made a rule of the Court. Aggrieved by this decision the appellant has filed an appeal in this Court. In the appeal he has not pressed issues Nos. 1 and 2. As a matter of fact a C. M. No. 940/69 was moved on 21st August, 1969 to add a ground to challenge the appointment of the umpire, but Mr. S. C. Singh has not pressed the said application and, has, thereforee, abandoned the grounds covered by issues Nos. 1and 2. His main attack is directed against issue No. 3. The counsel for the appellant has raised the following contentions:

(1) The umpire had misconducted himself in demanding his fees from stage to stage unrelated to the work in hand instead of stating the same at the outset and that after receiving the payment of Rs. 1500/- his further demand for Rs. 500/- prejudiced the umpire against the appellant and the award is thereforee biased and vitiated.

2. The second contention is that the notes A and B attached to the award although not formally incorporated in the award state the reasons which show an error of law apparent on the face of the record and the award is thereforee invalid.

4. The Material facts bearing on the first contention are that the two arbitrators appointed the umpire at the commencement of the proceedings subject to obtaining his consent and then on the date they discussed the case and recorded a disagreement, and referred the case to the umpire. In this order they stated that the fees of the umpire was fixed at Rs. 200/- provisionally, each party being liable to pay Rs. 100/- to the umpire. The record of the proceedings does not bear out any reference to the demand or payment of any fees to the umpire. Jivan Lal Virmani, Managing Director, of the objector appellant made a statement in the court on 1st August, 1967 and stated his case thus:

'The fee of the Umpire was not fixed by the arbitrators after consulting us. On 18-9-1965 each of the 2 parties paid Rupees 250/- to the umpire as his fees, on 17-11-1965 each of the 2 parties paid an additional amount of Rs. 250/- to the Umpire as his fees. On 4-2-1966 each of the 2 parties paid Rs. 250/- as additional fees to the Umpire. Additional amount of Rs. 500/- was demanded by the Umpire as his fees thereafter. I then declined to pay the fees of the Umpire and he got offended on that account. The Umpire also told me that I would have to bear consequences. The fee was paid on 3 occasions to the Umpire by me. Payment of cross Cheques.'

In the later part of his statement in answer to the cross-examination he stated that he never objected in writing to the payment of fees to the Umpire.

'When the last amount of fees to the extent of Rs. 500/- was demanded as the witness told the Umpire not to ask for the fees, the amount was not paid either by me or by the opposite party. No application was filed before the Uingire objecting to the demand of Rs. 500/-.

5. The umpire Mr. P. N. Khanna was examined as R. W. 1. Facts about the demand in payment of fees are deposed by him as follows:

'My fees as an umpire was paid by the parties in three Installments; before starting the case, fees agreed to by the parties provisionally was Rs. 500/- to be paid by them in equal shares; thereafter as the work proceeded they agreed to pay another Rs. 500/- again in equal shares; the proceedings still continued and at the third stage they again agreed to pay me Rs. 500/- for the work and the payments were all through made by the parties at different stages. It is entirely wrong that I ever gave any threat to Mr. Virmani that in case the payment was not made the consequences were likely to be serious.

In cross-examination Mr. Khanna further stated:

'It is not correct that I demanded another sum of Rs. 500/- thereafter and the respondent declined to make the payment, The facts of the matter is that when I had entered on the reference as an umpire I had told the parties that the fees would not come to less than Rs. 1,500/- but they said that they should be allowed to start with Rupees 500/- provisionally. It is correct that at the time when I made assessment of Rs. 1500/- I had on the record the arbitrators estimate of Rs. 200/- provisionally which I have referred to above. I do not think I put down in writing on the record that my fees would be to the extent of Rs. 1500/-.'

6. The above is the entire material on the record from which the appellant wants to find support for his objection. The relevant provisions of law may be examined. Paragraph 8 of the 1st Schedule attached to the Arbitration Act 1940 provides that :

'The costs of the reference and award shall be in the discretion of the arbitrators or umpire who may direct to, and by whom, and in what manner, such costs or any part thereof shall be paid, and may tax or settle the amount of costs to be so or any part thereof and may award costs to be paid as between legal practitioner and client.'

Sub-section (2) of Section 14 of the Act provides:

'The arbitrators or umpire shall, at the request of any party to the arbitration agreement or any person claiming under such party or if so directed by the Court and upon payment of the fees and charges due in respect of the arbitration and award and of the costs and charges of filing the award, cause the award or a signed copy of it, together with any depositions and documents which may have been taken and proved before them, to be filed in Court, and the Court shall thereupon give notice to the parties of the filing of the award.'

Section 38 of the Act provides that if in any case an arbitrator or umpire refuses to deliver his award except on payment of the fees demanded by him, the Court, may, on an application in this behalf, order that the arbitrator or umpire shall deliver the award to the applicant on payment into court by the applicant of the fees demanded, and shall, after such inquiry, if, any, as it thinks fit, further order that out of the money so paid into the court there shall be paid to the arbitrator or umpire by way of fees such sum as the Court may consider reasonable and that the balance of the money, if any, shall be refunded to the applicant. Sub-section (2) provides that any party to the reference may make an application under subsection (1) unless the fees demanded have been fixed by written agreement between him and the arbitrator or umpire.

7. In our opinion, the scheme of the Arbitration Act is that the fees of the arbitrator and/or umpire must ordinarily be fixed by an agreement between the parties and the arbitrator and that should preferably be in writing. In this discussion we would include the umpire within the expression 'arbitrator' as the same provisions apply. The arbitrator has the power to award costs of the arbitration including the fees of the arbitrator between the parties. So far as the payment of fees to the arbitrator is concerned, be is entitled to withhold the filing of the award unless and until his fees are paid. The court, however, has the power to order the arbitrator to file the award on deposit of the amount which was demanded by the arbitrator in the court, and thereafter the court has the jurisdiction and power to determine the dispute with regard to fees between the arbitrator on the one hand and the parties on the other hand and the court will decide what amount of fees is reasonable to be paid to the arbitrator and the balance of the money, if any, is to be refunded to the parties. These provisions however, do not militate against the voluntary payments made by the parties to the arbitrator so long as they are not objected to and are reasonable and have not caused any bias, in favor of or against any party. Bishan Narain J. in Union of India v. Bakshi Ram, (1957) 59 PLR 572 that:

'I see nothing objectionable in his endeavors to realise his fees from the Government and his efforts for that purpose do not even suggest that he was biased against the Government.'

The demand and payment of the fees before the making of the award may, however, invite the objection of misconduct, if the quantum of the fees demanded were extravagant or the manner of the demand were exceptional or prejudicial. The Court of Appeals observed in Government of Ceylon v. Chandris, (1963) 2 Qb 327:

'In my judgment, the court would not normally intervene in a motion such as this unless (i) it is satisfied that the fees can properly be described as extravagant; or (ii) it is apparent that the umpire as seriously misunderstood his duty as regards the assessment of fees which he demands by his award, whether for himself or, through himself, for the, arbitrators, or for both.'

It further observed that:

'Absence of proper assistance from the umpire, in the way of adequate information to the court when the fees prima facie appear to be out of relation to the work involved and are challenged as being grossly excessive, may be treated as leading to the conclusion that the umpire has misunderstood his duty...... (and thereforee) it would be desirable that an umpire or arbitrator, in fixing his fees, should do so by reference to considerations which he can put forward and except to justify as being reasonable.-

8. In the instant case Bawa S. C. Singh has not challenged the quantum of the fees realized by the umpire. Chapter 6-1 of Volume V of the Rules and Orders of the Delhi High Court lays down the scale of fees payable to a legal practitioner by his client in a taxation between the party and party. That scale is in the absence of special circumstances to the contrary normally accepted and acted upon as a safe guide for payment of fees to an arbitrator in an ordinary case and the payment in conformity with the Schedule can scarcely be called excessive. The Government has also fixed a scale of fees to be paid to arbitrators and umpires appointed to adjudicate upon the disputes between the Supply Department of the Government and the private parties. They lay down a ceiling and a scale for work done by arbitrators or umpires with regard to the time spent and they also afford a satisfactory guidance for the payment of the fees to the arbitrator or umpire. These scales either fixed by the High Court or by the Government are not absolutely binding and may in appropriate cases be departed from. But conformity with them will raise a presumption that the fees demanded are not excessive or extravagant. In the instant case the amount that would be taxable as payment to legal practitioner in a suit of the same valuation, as was the dispute decided by the, would amount to more than Rs. 2000/-. Considered from any point of view, the amount of Rs. 1500/- paid to the umpire in the in the instant case cannot be said to be exhorbitant or extravagant- The arbitration proceedings were held before him on eight or nine hearings. Although, there is no record of the time spent at each hearing, yet whatever time was spent the payment made is justified and no objection had rightly been taken by the counsel for the appellant against the quantum paid.

9. Bawa Shiv Claran Singh has severely criticised the mode of demand. He contends that the arbitrators had provisionally fixed the umpire's fees at Rs. 200/- and the umpire was in error in continuing to raise his demand after every two months and in collecting Rs. 1500/-. It is unfortunate that the umpire did not record in the proceedings his demand of the fees and its payment by the parties. The amounts have, however, been paid by both the parties simultaneously within the knowledge of each other and whatever inference or prejudice was sought to be drawn from the absence of the mentioning of the demand and payment of fees in the proceedings is not available to the parties in the present case. In an old case Shepherd v. Brand, (1734) 2 Barn. K. B. 463, reprinted in 94 Er 620, the court found that the arbitrators insisted upon payment by the parties for their trouble any expenses and the defendant refused to this upon which the plaintiff paid the whole money and thereupon the court held that it may be something dangerous to suffer one side only to give money to arbitrators. This rule of law quoted by Costello J. In Akshoy Kumar Nandi v. S. C. Dass and Co. : AIR1935Cal359 , and the learned judge proceeded to observe

'the principles underlined in the said decision still hold good and it was imperative that arbitrators should always scrupulously avoid any course of action which even remotely bears the complexion of their having, put themselves into a position where it may be said against them that they had received a pecuniary inducement which might have had some effect on their determination of the matters submitted to the adjudication.' The observations of Costello J. are certainly a wise and prudent saying worthy of note. In the case before him he, however, held that the question of payment was a matter of mutual arrangement between the parties and so he rejected the objection. A learned single Judge of the High Court of Punjab in the First National Bank Ltd. Ambala v. Beri Brothers , lent his support to the aforesaid observations of Costello J, Harnam. Singh J. in First National Bank's case. however, proceeded to observe that from the scheme of the Act it appeared that Sections 14(2) and 38 provided only two remedies for recovering arbitrators fees. With respect we are to agree with this observation of Harnam Singh J. In our opinion, voluntary mode of payment, which is unexceptionable and reasonable, is an accepted mode. Harnam Singh J. in the said case, however found that the arbitrator had accepted the fees from one of the parties without the knowledge of the other and that constituted misconduct. Payment by one without the knowledge of the other is, in our opinion, certainly misconduct. Raghubar Dayal J. as he then was, while delivering the judgment for the Division Bench or the High Court in Teja Singh Soorma v. Union of India, : AIR1955All666 , that the law did not contemplate that an arbitrator must proceed with arbitration proceedings without payment of his fees in cage he wanted them to be paid before acting in the arbitration proceedings and that the demand of fees from only one party by the arbitrator and refusing to act further on failure to pay did not amount to misconduct on the part of the arbitrator.

10. As a result of the analysis of the provisions of law and the relevant authorities, our conclusion is that there is nothing illegal or improper in the demand made before the award by the arbitrator or umpire of' fees and expenses from the parties provided they are fair and reasonable and are not extravagant or excessive and they are made on both the parties equitably within the knowledge of both the parties. It would not be and improper if on the failure of one of the parties to make the payment, he either stays proceedings or directs the other party to pay the whole amount pending the decision of the dispute by arbitration. The arbitrator would also be justified in waiting till the making of the award and then proceed in accordance with Section 14(2) or Section 38 of the Act and have the matter determined by the court. The arbitrator, in our opinion, however, is likely to be charged with misconduct for having been illegally induced to make an award if he accepts any money on any account whatsoever from one of the parties without the knowledge of the other party. Such a charge: would also be open, if the amount demanded is exhorbitant having no relation to the work done or anticipated, nor to the standard of fees normally payable to arbitrators for such a work. In order to avoid such a charge and' also to avoid having to give evidence before the court to justify the payment of fees, the best course to adopt for the arbitrator is to make a record about his fees and, the reasons thereforee if any, in the record of the proceedings itself within the knowledge of both the parties. If he does not do so he will be involved in defending himself against the allegations of misconduct, if made.

11. Luckily in the instant case, the objector has himself stated that the payment was made in three Installments of Rs. 250/- each by each of the parties and the total sum paid was Rs. 1500/-. This amount we have found to be reasonable in view of the valuation of the claim, the number of hearings and the amount of work done. The charge of partiality and misconduct completely fails, when it is admitted that the amount had been demanded from both the parties equally and had been equally paid by both the parties at the same time, though it is a matter of regret that the same was not recorded by the umpire in the proceedings.

12. The last argument of Bawa S. C. Singh is that the umpire demanded an additional sum of Rs. 500/- from the objector. This has not been believed by the learned single Judge and we are unable to differ from him and place any reliance on the statement of the objector. The umpire has candidly admitted the other demands and payments and has denied this demand. We accept the statement of the umpire in agreement with the learned single Judge. Non-appearance of the respondent is a matter of no consequence in this context. There is no corroborative evidence to support the alleged making of the demand or the inference that failure to make this payment enraged the umpire. Surely the umpire who had already received Bs. 1500/- and who could, if he was so inclined, demand any other reasonable fees by withholding the award, could not be angered by non-payment of Rs. 500/- only and then make an award only for Rs. 39,000/- and odd against a claim of more than 2 lakhs rupees preferred by the respondent. The contention of the appellant is baseless and is rejected.

13. The second contention again has no force. The award after making the recitals does not give any reasons and simply directs the payment of Rs. 39,962/- by the appellant to the respondent. The counsel, however, relies on two notes A and B which are attached to the award. These notes have not been incorporated in the award but they are accompanying the same. Notes A, B appear to contain only some private calculations made by the umpire before he made the award. They do not give nor can we discover from them any reasons at all. The note A states the claim of the respondent herein and says that the cost price of the potatoes was Rupees 130873/- and out of which he deducted the resale price of the damaged potatoes and an amount of Rupees 3500/- on account of balance on pronote, which is fortunately not in dispute before us. No other charge or profit was allowed. In respect of the claim of the appellant the storage charges of Rs. 38146/- have been al lowed and no cartage or interest has been al lowed. Difference between the two figures, namely, the amount of damage allowed to the respondent and the storage charges has been determined as the amount payable by the appellant to the respondent. In other words, against the total claim of the respondent the umpire has deducted the resale value of the damaged potatoes and the storage charges and instead of allowing the whole of the claim of the respondent has reduced it by the charges for the storage. We asked the learned counsel to explain what are the reasons that be could discover out of the notes A and B from which an error of law could be apparently found. He failed to give us any satisfactory answer except stating that if the umpire was allowing the appellant full storage charges be negatived the claim of negligence on the part of the appellant as a plaintiff. This argument is really very far fetched. There is no reason or finding given about the negligence but this would be implicit in the award as damages have been awarded to the respondent but their quantum has been reduced. No legal infirmity can thereforee be found in the award on the face if the record. The learned single judge in the impugned judgment has relied upon a passage from a division bench authority of this court in M/s. The Salween Timber and Construction Co. (India) v. Union of' India, 1968 D. L. T. 93, wherein Tatachari J., (as he then was) sitting with 1. D. Dua, J. observed in paragraph 33 :

'It is not open to the Court to speculate or to go into the evidence and try to find out as to what impelled the Umpire to arrive at his conclusion, or to attempt to prove the mental process by which the Arbitrator reached his conclusion.'

With respect we agree with the said statement of law. The Supreme Court in Jivarajbhai Ujamshi Sheth v. Chintamanrao Balaji, : [1964]5SCR480 observed at page 493 that:

'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. 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 argument it may be emonstrated that the arbitrator has committed some mistake in arriving at his conclusion.'

The Supreme Court further observed that it' was not open to the Court to speculate where no reasons have been given by the arbitrator as to what impelled the arbitrator to arrive at his conclusion and on the assumption that the arbitrator must have arrived at his conclusion by a certain process of reasoning, the court can to determine whether the conclusion was right or wrong. It was not open to the court to attempt to probe the mental process by which the arbitrator has reached his conclusion where it was not disclosed by the terms of his award. The following rule of law laid down by the Judicial Committee in Champssey Bhara Co v. Jivraj Baloo Spinning and Weaving Co. Ltd. Air 1923 Pc 66 was reaffirmed.

'The law has for many years been settled, and remains so at this day, that where a cause or matters in difference are referred to an arbitrator, a lawyer or a layman, be is constituted the sole and final judge of all questions both of law and of 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.

'According to Judicial Committee 'an error in law on the face of the award means that one could find in the award or a document actually incorporated thereto, as for instance, a note appended by the arbitrator stating the reasons for one's judgment, some legal proposition which was the basis of the award and which one could say was erroneous; it did not mean that if in a narrative a reference is made to a contention of one party that opened the door to seeing first what that contention was and then going to the contract on which the parties rights depended to see if that contention was sound.'

14. This rule of law also found approval of the Supreme Court in M/s. Alopi Parshad and Sons, Ltd. v. Union of India, : [1960]2SCR793 , The rule is thereforee firmly established.

15. On the facts and the circumstances of the case we are in entire agreement with the learned single Judge who passed the impugned order that there is no error of law apparent on the face of the record in the instant case. The contention of the appellant thereforee fails.

16. The appeal is consequently dismissed and the impugned order is affirmed. The learned single judge in the impugned order left the parties to bear their own costs and we would do likewise. There will be no order as to costs.

17. Appeal dismissed.

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