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All India Institute of Medical Sciences Vs. American Refrigeration Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtDelhi High Court
Decided On
Case NumberFirst Appeal No. 132 of 1979
Judge
Reported inAIR1982Delhi275; 21(1982)DLT352; 1982(3)DRJ287
ActsArbitration Act, 1940 - Sections 17
AppellantAll India Institute of Medical Sciences
RespondentAmerican Refrigeration Co. Ltd.
Advocates: B.K. Bhargava and; P.P. Malhotra, Advs
Cases ReferredUpper Gangas Velley Electricity Supply Co. Ltd. v. U.P. Electrictity Board.
Excerpt:
.....in law or in fact in determining the matters referred, but such mistake does not appear on the award) the award is good notwithstanding the mistake, and will not be remitted or set aside. page 447). the general rule is that, as the parties choose their own arbitrator to be the judge in the disputes between them, they cannot, when the award is good on its face, object to his decision, either upon the law or the facts. the arbitrator had awarded damages in respect of the entire contracted quantity the learned judge was of the view that the award was- bad because there was an error on the face of the award. 653-654 and describe it as 'well settled law'.this is not a correct view. abnash kaur to which the learned judge refer at page 634 as an authority for the 'well-settled' proposition..........of legal and of lay arbitrators' (russell p. 448) (19) the law is that if upon the face of the award the arbitrator has tied himself to some legal proposition which is unsound his decision is open to review by the court. there should appear on the award itself some specific statemnt of the legal proposition involved in the present case no legal proposition at all is stated as a ground of award. the arbitrator has not enunciated any legal proposition in the award. here it is impossible to say, from what is shown on the face of the award, what mistake the arbitrator made. he was constituted the sole and final judge of all questions both of law and fact. we in this court are not entitled to see whether the arbitrator has taken the correct view of the scope of the clause relating to.....
Judgment:

Avadh Behari Rohatgi, J.

(1) The appellant. All India Institute of Medical Sciences at New Delhi, invited tenders for 'the supply and installation of air-conditioning plant, air handling units, whether makers, fan coil units, pipelines and other accessories in the main plant room, ward block, paying bed wards etc.' The respondent M/s American Refrigeration Company Limited, submitted a tender. Their tender was accepted. On November 21, 1968, a formal agreement was executed between the parties. In their letter dated April 24, 1967, M/s American Refrigeration Company (whom I shall call the contractor' because in the agreement they are so described) had written to the Institute that

'OURprices are exclusive of sales tax, octroi or any other tax which shall be charged extra as applicable at the time of the delivery.'

(2) It is not in dispute that this letter formed a part of the contract. The contractor indicated separately the sales tax payable by the Institute. It was also mentioned that the rate of sales tax applicable will be 10 per cent.

(3) The work of air-conditioning was completed sometimes in 1975. But in the course of the execution of the contract disputes arose between the parties. There was an arbitration clause. The matters in dispute were referred to the sole arbitration of Mr. G.P. Malik on March 16, 1977. The arbitrator made and published the award on May 18, 1976. The award was filed in Court. Both parties filed objections to the award.

(4) The disputes which were referred to the arbitrator were the claims of the contractor regarding sales tax, octroi duty, excise duty etc. But there is only one point in dispute in this appeal and that is regarding the decision of the arbitrator of the claim of the contractor regarding sales tax. The contractor claimed that they were entitled to be paid Rs. 2,56,787.50 on account of sales tax. The arbitrator rejected this claim. His award on this point was in these terms : 'Dispute/Ciatm No. Award : Claim No. 1 : On account of Sales The claimants have not Tax etc. Rs. 2,11,834.90 modified been able to establish this later on to Rs. 2.56,787.50 by member claim. secretary vide his letter of 25th Oct. 1977.

(5) The contractor challenged the award before the learned single Judge. They said that the award was bad because there was an error on the face of the award. It was contended by the contractor before the learned judge that there was an unambiguous agreement whereunder the Institute had agreed to pay sales tax to the contractor and the arbitrator was not entitled to ignore this express covenant between the parties. It was submitted that on a mere reading of the agreement between the parties it can be found that there is an error apparent on the face of the award. Counsel for the Institute submitted to the learned judge that he was not entitled to look at the contract. The learned judge repelled this submission. He said :

'Ido not agree. The Court can look at the agreement between the parties as it is the basis of the award.'

Upon the whole his conclusion was this :

'THECourt can look at the agreement. The arbitrator cannot ignore the express terms 'contained in the agreement to pay sales tax. It is, thereforee, held that refusal by the arbitrator to allow sales tax to the petitioner inspire of express agreement is an error apparent on the face of the award. The petitioner is entitled to sales tax.'

(6) He based his opinion on Alopi Pd, & Sons v. Union of India : [1960]2SCR793 and Beant Singh v. Union of India : [1977]2SCR122

(7) The learned judge took the view that this bad portion of the award was severable from the rest of the award which was good. He, thereforee, amended the award. He ordered that a further sum of Rs. 2,56,787.50 shall be paid to the contractor by the Institute on account of sales tax. From the decision of the learned Judge the Institute appeals to this Court.

(8) The crucial question upon this appeal is this : Does the award disclose an error on its face The award is a non-speaking award. The arbitrator has not given any reasons for his decision. He has not referred to any term of the contract- The real question for decision is whether the learned judge was entitled to look at the contract. Now only a document which is incorporated in the award can be looked at. The Court is entitled, while examining an award, to look at documents 'accompanying and forming part of the award (Hocgkinson v. ernie) (1957) 3 C. (N.S.) 189. Thus ill an arbitration arising out of a contract if the arbitrator refersspecifically to any term of the contract in the award then it can be said that he has incorporated the contract into the award. Then the Court will be entitled to look at the contract. Did the arbitrator in this case refer to the clause in the contract If not, is it not permissible to look at the contract.

(9) The locus classious on the subject is Champsay Bara & Co. v. Jivrai Balloo Spinning & Weaving Co. Ltd. Air 1923 P.G.66. There Lord Dunedin said :

'ANerror in 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 staling 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.'

(10) In D.S. Blaiber & Co. Ltd. Leopold Newborne (London) Limited 1953 (2) Ll 40 D Rep. 427 Lord Justice Denning said :

'ASI read the cause, if the arbitrator says 'on the wording of this clause I hold' so and so, than that clause is impliedly incorporated into the award because he invites the reading of it ; but if an arbitrator simply says : 'I hold that there was a breach of contract' then there is no incorporation.'

(11) The Privy Council decision in Ghampsay Bara has been followed in inumerable cases in India and England. Here it is sufficient to refer to two Allan Berry & Co. v. Union of India Air 1971 S.G. 496 and N. Chellappan v. Kerala SE. Board : [1975]2SCR811 . In Alien Berry the Supreme Court, following an illuminating judgment of Diplock L.J. in Giocomo Cost. Fu Andrsa v. British Italian Trading Co. (1972) (2) All E.R. 53 has administered the warning that 'the principle of reading contracts or other documents into the award is not to be encouraged or extended.'

(12) In the present case there is nothing about any clause of the contract in the decision of the arbitrator. He simply says on the claim of sales tax that 'the claimants have not been able to establish this claim.' There is no reference to any specific provision of the contract. It is quite impossible to say, reading those words, that he has incorporated the contract into the award or the term of the letter dated April 24, 1967 which I have set out above, in the sense that he has invited those reading the award to read the contract. We are, thereforee, not entitled to look at the contract and search it in order to see whether there is an error of law on the face of the award.

(13) In my opinion the contract cannot be looked at to see what sort of a contract it was. The arbitrator was not being asked simply and specifically to decide, upon some agreed facts, the true interpretation of the clause regarding sales tax in the contract. He was required to make an award on the question whether the Institute was liable to pay sales tax. Whatever questions of fact and law might emerge upon this issue the arbitrator was the master of both law and fact. The arbitrator was not called to decide a pure question of law such as construction of the contract. 'What was wanted was a practical decision on the disputed issues.' (F.R.Absalom v. Great Western (London) Garden Village Society) 1933 A.C.592 per Lord Wright.

(14) The mere fact that the contract is referred to in the award, especially if it is refered to in a recital to the award, does not make that contract a document which is incorporated in the award so that the Court can look at that for the purpose of seeing whether there is an error of law. But if the arbitrator goes further and sets out one at least of the material clauses it becomes permissible to look at the contract. (Nils Heime Akt v. G. Merel & Co. .Ltd,) 1959 (2) Lloyd Rep. 292

(15) Counsel for the contractor says that the arbitrator has referred to the contract impliedly in the recital when he says 'where I have read and considered the pleadings and documents filed by the two parties and have heard and considered the arguments advanced.' This is not incorporation of the contract It is a general reference to the documents in the recital. That in the recital the arbitrator has generally referred to documents does not mean that he has incorporated them in the award. It has been held that mere recital or a merely narrative reference even in the body of an award to a document, does not incorporate it in the award (W.J. Alan & Co. Ltd. v. El Nasr Export & Import Co.) 1971 (1) Lloyd Rep. 401.

(16) The primary quarrel el between the parties was whether the Institute was liable to pay sales tax. The contractor relied upon the term of the contract. They also produced their Manager Mr. Miglani in support of the claim. In cross-examination the witness admitted that the contractor had neither paid the sales tax nor have they been assessed to it. The arbilrator disallowed the claim of the contractor. He was not satisfied that the contractor was entitled to charge sales tax. They were not able to establish on law and facts their claim before him. Is his decision erroneous on the face I think not. He has not construed any clause of the contract. He has not said 'On the wording of this clause I hold that contractor is not entitled to sales tax.' It is not permissible to the Court to look at the contract and say that his decision is erroneous. As a sole tribunal, the arbitrator was entitled to decide rightly or wrongly.

'WHEREan arbitrator makes a mistake either in law or in fact in determining the matters referred, but such mistake does not appear on the award) the award is good notwithstanding the mistake, and will not be remitted or set aside.'

(Russel on Arbitration 19th Ed. page 447). The general rule is that, as the parties choose their own arbitrator to be the judge in the disputes between them, they cannot, when the award is good on its face, object to his decision, either upon the law or the facts. (Russel page 448).

(17) The foundation of the order under appeal is the view that under the contract there is an 'unambliguous' obligation to pay sales tax. But the central point in the case is : Is the Court entitled to look at the contract The disputes between the parties on various matters, such as sales tax, octroi duty, excise duty, income tax, refund of security, were referred to the arbitrator. He was made the sole judge of these disputes. He decided the disputes. He gave his award. But he has not referred to any term of the contract regarding the liability to pay sales tax in the sense that he has invited those reading the award to read the contract. The arbitrator has not referred to any particular provisions of the contract and thus in my opinion has not incorporated it in the award. So the error is not apparent on the face of it.

(18) The learned judge thought that the arbitrator had gone wrong in interpreting the clause of the contract. He held that this was a case of misconstruction of the clause regarding sales tax. In holding this, I think, with great respect, the learned judge fell into an error. Assuming there was a term in the contract the evidence showed that the contractor had neither been assessed to sales tax nor had they paid it The contract was awarded in 1968. It was completed in 1975. The matter was referred to arbitration in 1977. The arbitrator made the award in 1978. So over a period of ten years there was absolutely no evidence before the arbitrator to show that the contractor had paid the sales tax or they had been assessed to it. The parties submitted written arguments to the arbitrator. On behalf of the Institute it was argued before him that it was a contract for work and labour and not for sale of chattel and was thus not subject to sales tax. We do not know actually what weighed wiih the arbitrator. May be that he the thought that the obligation in the contract was not 'unambiguous' because it was qualified by the words 'as applicable at the time of delivery'. If not 'applicable' the arbitrator was entitled to hold to the contrary. May be that he thought that it was a works contract. May be that on evidence he found that the claim had not been substantiated. It has been said time and again that it is not open to the court to probe into the mental process of the arbitrator. His thought processes are as inscrutable as the face of sphinx. But one thing is clear from the frame of the award. The arbitrator was not impressed with the justice of the claim. He has not founded himself on the clause alone. His approach was pragmatic. He has given a practical decision on the merits of the dispute. 'In this respect the courts do not recognise any distinction between the awards of legal and of lay arbitrators' (Russell p. 448)

(19) The law is that if upon the face of the award the arbitrator has tied himself to some legal proposition which is unsound his decision is open to review by the court. There should appear on the award itself some specific statemnt of the legal proposition involved In the present case no legal proposition at all is stated as a ground of award. The arbitrator has not enunciated any legal proposition in the award. Here it is impossible to say, from what is shown on the face of the award, what mistake the arbitrator made. He was constituted the sole and final judge of all questions both of law and fact. We in this court are not entitled to see whether the arbitrator has taken the correct view of the scope of the clause relating to sales tax. An award cannot be impeached on the ground of an error on the face unless some legal proposition is stated which is the basis of the award and which you then can say is erroneous. ('See Dr. S. Dutt v. University of Delhi). : [1959]1SCR1236

(20) I have, thereforee, come to the conclusion that it was not permissible to the learned judge to look at the contract. I am clear in my mind that in this case we are not entitled to look at the contract. I do not find here that the arbitrator has on the face of the award based his decision on the construction of any particular term in the contract. It is not an award which purports to show that on the wording of the contract something was held by the arbitrator, and the award invited the reading of the contract including the provision relating to sales tax.

(21) Counsel for the contractor referred us to a decision of V.D. Misra J. in Bashashar Nath & Co. v. Union of India. 1978 Raj L.R. 64. It is not widely known that this decision was set aside on appeal : (See Union of India v. Bashashar Nath F.A.O (OS) 65/73 decided on May 21, 1980 by Prakash Narain and Sultan Singh JJ.). In Bhai Gian Chand Mohan Singh v. Union of India : 19(1982)DLT1 the correctness of the decision of VD. Misra J. has been doubted by Sachar and Vohra JJ. But it was not brought to the notice of the learned judges that the decision has been expressly overrulled in appeal. I have pointed this in my judgment in Natwar Lal v. M M.T.C. India Ltd. : AIR1982Delhi44 . Though overruled Basheshar Nath continues to be cited in courts.

(22) A further development must be noticed here. The decision on which V.D. Misra, J. based himself was dissented from by me in Union of India v. M/s. Commercial Metal Corporation 228-A of 1980. V.D. Misra J. followed a decision of Prakash Narain J. in Union of India v. Tribhuvan Dass : AIR1971Delhi120 . In Union of India v. M/s. Commercial Metal Corporation (supra) I have tried to demonstrate that the view taken by Prakash Narain J. is erroneous. Following Tribhuvan Dass V.D. Misra J. set aside the award. The Union of India claimed risk purchase loss before arbitrator. The contracter had agreed to supply a certain quantity of tents to them. But he did not supply the entire quantity. The Union of India purchased only some tents from the market. V.D. Misra J. held that the Union of India was entitled to claim damages only in respect of such tents as they had purchased and in respect of which the Government had paid Rs. 5.50 per tent more than the contract price. Besides this he held there was no other evidence to show that the Government suffered any other loss on risk purchase. The arbitrator had awarded damages in respect of the entire contracted quantity The learned judge was of the view that the award was- bad because there was an error on the face of the award. He applied the 'no evidence' rule. In Union of India v. M/s Commercial Metal Corporation (supra) I have held that it is not at all necessary for a purchaser to go into the market and buy the contracted goods to establish his claim for damages. He can claim damages from the seller for breach of contract if the market rises on the date of the breach. He need not go into the market. He may sit at home and claim damages from the contract-breaker on the time-honoured rule of difference between the market price and the contract price. (M/s. Murlidhar Chiraojilal v. M/s. Harishchandra Dwarkadas and anr.) : [1962]1SCR653 .

(23) In Bhai Gian Chand (supra) the learned judge also assumed that Tribhuvan Dass was correctly decided. They expressly refer to it at pp. 653-654 and describe it as 'well settled law'. This is not a correct view. Nor have I said anything to this effect in Jaswant Rai v. Abnash Kaur to which the learned judge refer at page 634 as an authority for the 'Well-settled' proposition of law. The result of the discussion is that Basheshar Nath is no longer a good authority because it has been overruled in appeal. As regards Union of India v. TribhuvanDass : AIR1971Delhi120 , I think it is time that we overrule it here and now. But my learned colleague Mrs. Justice Leila Seth does not agree with me. She says that as the question of risk purchase loss has not directly arisen before us we should leave the question of overruling this decision to some future occasion. So I would rest content by saying that Union of India v. Tribhuvan Dass has been wrongly decided.

(24) There remains the question of amending the award. In this case the learned judge amended the award. He awarded a sum of Rs. 2,56,787.50 to the contractor himself. Can this be done by a Court The Court can either set aside the award or sustain the award. Or it can remit the award. Or act on the principle of severability. But it cannot amend the award and Substitute its own decision in lieu of the arbitrator's decision. The learned judge relied upon Upper Gangas Velley Electricity Supply Co. Ltd. v. U.P. Electrictity Board. : [1973]3SCR107 and said that in similar circumstances the Supreme Court had amended the award. This is a mis- reading of that case. Upper Ganges Valley was a decision on special facts. That was a case of a speaking award. There was a mistake in calculation. The Supreme Court amended the award in the special circumstances of the case. They decided the point of law and themselves calculated the compensation instead of remitting the award to the arbitrator. The Court expressly said that normally the award should have been remitted to the arbitrator.

(25) For these reasons the appeal is allowed. The order dated May, 25,1979, in so far as it awards Rs 2,56,787.50 to the responded, is set aside. The modified award is upheld in its entiriety. The parties are left to bear their own costs.


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