Skip to content


Alwaye Municipality Vs. K.A. Kochunny and Company and anr. Etc. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtKerala High Court
Decided On
Case NumberM.F.A. Nos. 113 to 115 of 1981
Judge
Reported inAIR1982Ker288
ActsArbitration Act, 1940 - Sections 17, 30 and 39(1)
AppellantAlwaye Municipality
RespondentK.A. Kochunny and Company and anr. Etc.
Appellant Advocate S. Narayanan Poti, Adv.
Respondent Advocate M.P. Abraham,; Baby George and; N.J. Mathew, Advs.
DispositionAppeals dismissed
Cases Referred and Bungo Steel Furniture v. Union of India
Excerpt:
arbitration - validity of award - sections 17, 30 and 39 (1) of arbitration act, 1940 - arbitrator misinterpreted clause in contract - arbitration award challenged on ground of apparent error - whether apparent error amounts to misconduct - no misconduct on part of arbitrator to commit an error either of law or of fact - misconstruction of particular clause cannot be said apparent error - award valid. - - 24 of 1980 to get the award set aside, without success. failure to do so would be a bar for an appeal against an order refusing to set aside the award. 9. before considering the questions of law raised, we think it useful to extract in full the award made by the arbitrator so that the contentions raised could be better understood :no. 11. what is a mere narrative and what 'not, can.....khalid, j. 1. these appeals filed undersection 39(1)(vi) of the arbitration act (for short the act) by the alwaye municipality represented by its commissioner, are against a common order passed by the principal sub judge, parur, dismissing petitions filed by it to set aside awards made by the 2nd respondent, the chief engineer (arbitration) tri-vendrum, in favour of the 1st respondent, a p. w. d. contractor, granting certain claims made by the contractor against the municipality. the questions raised are the same and hence the appeals are being disposed of by this common judgment. 2. we shall first deal with the facts of each case.m. f. a. no. 113 of 1981: the 1st respondent entered into a contract with the appellant for the construction of a mini market under the terms and conditions.....
Judgment:

Khalid, J.

1. These appeals filed underSection 39(1)(vi) of the Arbitration Act (for short the Act) by the Alwaye Municipality represented by its Commissioner, are against a common order passed by the Principal Sub Judge, Parur, dismissing petitions filed by it to set aside awards made by the 2nd respondent, the Chief Engineer (Arbitration) Tri-vendrum, in favour of the 1st respondent, a P. W. D. contractor, granting certain claims made by the contractor against the Municipality. The questions raised are the same and hence the appeals are being disposed of by this common judgment.

2. We shall first deal with the facts of each case.

M. F. A. No. 113 of 1981:

The 1st respondent entered into a contract with the appellant for the construction of a mini market under the terms and conditions embodied in the contract between them. After the completion of the work, me 1st respondent made certain claims on the appellant. According to the appellant, those claims were not admissible under the terms of the contract. Clause 14 of the contract between the parties provided for settlement of disputes and differences between them to be referred to the Chief Engineer. P. W. D. (B. & R.) Kerala, Trivandrum, for arbitration at the instance of either party to the dispute. Since the claims by the 1st respondent were not admitted by the appellant, he wrote to the Chief Engineer, Kerala P. W. D. (B & R), Trivandrum explaining the details regarding the disputes and differences between the parties and requested him to enter upon reference and decide the disputes at the earliest. The Chief Engineer declined to accept the appointment According to the 1st respondent, despite several letters and notices sent by him to the appellant to get the dispute referred to arbitration, the appellant kept quiet. Thereupon he filed O. P. No. 5 of 1978 under Sections 8 and 20 of the Act for the appointment of an arbitrator. This was allowed and the 2nd respondent was appointed as arbitrator. Tbe arbitrator entered upon the reference, allowed evidence to be adduced and after hearing the parties made an award granting some of the claims of the 1st respondent. As against the claims made by the 1st respondent for the difference in value between gray cement and super fine cement, against the tender excess for the extra work done, and towards the excess wages paid by him to women coolies on the basis of the minimum wages fixed by the Government subsequent to the agreement, certain amounts were granted by the 2nd respondent. The appellant Municipality resisted these claims on the ground that they were not admissible as per the terms of the contract. The Municipality relied upon condition No. 4 in the contract which stipulated that the Municipality was entitled to recover the costs of cement supplied to the contractor on the basis of actual cost plus 20% storage charge and on condition No. 5 which provided that the contractor was obliged to use cement according to the direction of the Municipal Engineer on the basis of availability. Regarding the excess for the extra work the contract provided that he was to be paid for at the estimate rates. Regarding the wages of women coolies, since there was no provision for escalation, the rates for the work included the wages for labourers also. The Municipality filed O. P. 22 of 1980 under Sections 30 and 32 of the Act to set aside the award. That application was dismissed which has given rise to this appeal.

3. M. F. A. No. 114 of 1981 : In this case the contract related to the construction of a general market. The 1st respondent contradtor, filed O. P. No. 6 of 1978 for the appointment of an arbitrator under circumstances mentioned above since his claims were not granted by the Municipality. The 2nd respondent was appointed arbitrator. He passed an award granting the claims made by the 1st respondent. These claims were resisted by the Municipality on the ground that they were not admissible as per the terms of the contract. The Municipality filed O. P. No. 23 of 1980 to set aside the award, which petition on being dismissed by the Court below, has resumed in this appeal.

4. M. F. A. No. 115 of 1981 : The contract in this case is for the construction of an office building under the terms and conditions embodied in the contract. O. P. No. 7 of 1978 was filed for the appointment of an arbitrator. The 2nd respondent was appointed arbitrator. Rs. 1,11,433/-was granted as a 60%, increase from the agreed rates; Rs. 42,000/- as difference in price for for steel as against mild steel; and Rs. 2.750/- as excess for plastering. These claims were resisted by the Municipality as being not admissible as per the terms of the contract. Dissatisfied with the award, the Municipality filed O. P. No. 24 of 1980 to get the award set aside, without success. Hence this appeal.

5. The 1st respondent filed I. A. No. 337 (a)/80 in O. P. No. 5/7S, T. A. No. 338 (a)/80 in O. P. 6/78 and I. A. No. 340 (at/80 in O. P. 7/78 requesting the Court to pass a decree in terms of the award under Section 17 of the Act. The Court below considered these petitions along with O. P. Nos. 22, 23 and 24 of 1980 mentioned above and passed, a common judgment.

6. We would, in brief, outline the disputes that arose between the parties, and led to the arbitration proceedings. As per Clause 5 of the agreement, the Municipality could realise from the bill of the contractor, the price of cement supplied at the rate of actual cost plus 20%. Municipality supplied substantial quantity of super fine cement instead of grey cement. The contractor's case was that Clause 5 related only to grey cement and not to super fine cement. The second claim related to tender excess. The third related to higher labour rates to women coolies by virtue of the promulgation of an Ordinance relating to minimum wages. In the second case, thaw was a further claim on account of lots incurred, during stoppage of work on two day due to the functioning of the Municipal market. The other claim related to the additional cost incurred since there was hike in the costs. In the third case, the claims related to 60% increase from the agreed rates alleging increase in price of materials and revision by Government or the P. W. D. schedule, to difference in price for tor steel supplied as against mild steel and to excess amount for plastering. The case of the Municipality was that it had paid all the amounts as per the contract and the contractor was not entitled to any additional amount. The awards made by the Arbitrator were challenged by it before the Court below on the ground that the arbitrator had misconducted himself and the proceedings and the award was improperly procured. The applications to set aside the awards were filed under Sections 30 and 33 of the Act. The Court below dismissed the applications holding that the grounds of challenge against the awards were not made out.

7. The challenge before us is on two grounds. (1) The award is liable to be set aside since there is an error apparent on the face of it. The statement in the award by the arbitrator that he carefully weighed the allegations and evidence amounts to incorporation by him of those materials in the award. A mere perusal of the terms of the contract and the application of those terms to the claims of the contractor is sufficient to reject the claim. Not having done this, the arbitrator has misconducted himself and the proceedings. (2) The arbitrator committed legal misconduct in making an award not justified by the terms of the contract.

8. Before considering these grounds, we may dispose of a preliminary objection raised by the learned counsel for the 1st respondent. He invited us to read Section 17 of the Act which provides that no appeal shall lie from a decree passed in terms of the award except on the ground that 'it is in excess of, or not otherwise in accordance with the award'. The point made is, that Section 17 which is an independent section provides for an appeal against a decree passed by the Court in terms of the award. No appeal has been filed against the decree passed in terms of the award. The decree has therefore become final. In the absence of an appeal against the decree passed, the appeals filed under Section 39(1)(vi) are not maintainable. According to him, not only should an appeal be tiled against an order refusing to set aside the award but an appeal should also be filed challenging the decree passed in terms of the award. Failure to do so would be a bar for an appeal against an order refusing to set aside the award. We find no difficulty in rejecting this contention. The appellant before us is challenging the award itself. If it succeeds in this challenge, the award goes. Consequently, the decree passed in terms of the award also goes. Section 39 enumerates the orders from which appeals shall lie. One such order is an order refusing to set aside an award. The present appeals are against such orders. Section 17 does not provide a machinery for filing ap-peals. What Section 17 provides is the conferment of power on the Court to pronounce judgment according to the award where the Court sees no cause to remit the award or, remit any of the matters referred to arbitration for consideration or to set aside the award, after the time for making an application to set aside the award has expired. The judgment so pronounced shall be followed by a decree. It is thereafter that the section provides that such decree cannot be challenged except on the ground that it is in excess of, or not otherwise in accordance with the award. In the cases on hand, applications were filed in time to set aside the awards. It is the refusal to set aside the awards that is the subject matter of the appeals under Section 39(1)(vi). It is the finding that there are no grounds to set aside the award that is challenged in the appeal before us. If the appellant succeeds in this challenge, the decree passed in terms of the award will have no legs to stand even in the absence of an appeal against it. Therefore, the preliminary objection about the maintain-ability of the appeals a without force and is rejected.

9. Before considering the questions of law raised, we think it useful to extract in full the award made by the arbitrator so that the contentions raised could be better understood :

'No. 113/79.

In the matter of arbitration

between

Sri K. A. Kochunny & Company,

Contractors

Uliyannur P. O.

Alwaye.

(hereinafter referred to as the Claimant)

on the one part

and

The Alwaye Municipality,

represented by its Commissioner,

Alwaye Municipal Office,

Alwaye

(hereinafter referred to as the Respondents)

on the other part

Whereas certain differences arose between the Claimant and the Respondent out of a Contract in writing for the work of 'The Construction of Mini Market at Thottakattu-kara for Alwaye Municipality' under Contract Agreement dated 14-3-1975;

And whereas I am empowered to act as ARBITRATOR as per the Order in O. P. No. 5/78 dated 20th July, 1979 of the Subordinate Judge at Parur;

Now, therefore, I. K. Kesavan Poti, having taken upon myself the burthen of the reference and having heard and duly weighed and considered the allegations and evidence produced by both parties before me, do hereby make and publish the final Award in writing of and concerning the matter referred to me.

I hereby award and direct as follows :

Claim 1. The Claimant shall be paid Rs. 40,460/- (Rupees Forty Thousand Four hundred and Sixty only) under this head.

Claim 2. The Claimant shall be paid Rs. 4,000/- (Rupees Four thousand only) under this head.

Claim 3. The Claimant shall be paid Rs. 10,000/- (Rupees Ten Thousand only) under this head.

Claim 4. No interest.

Claim. 5. No costs.

Sd/-

K. Kesavan Poti

Chief Engineer (Arbitration)

Vellayambalam

Trivandrum

signed and delivered on this the 17th day ofMarch, 1980.

We have extracted one of the awards in full -- the two other awards are identical except for the difference in the amounts covered by various claims -- to examine the contention raised against its validity.

10. We will first consider whether there is any error apparent on the face of the award- This submission is developed by the learned counsel for the appellant thus. The arbitrator has specifically referred in the award to the 'allegations and evidence' produced by both parties and that such allegations and evidence were 'duly Weighed and considered' by him. According to counsel by incorporating these materials, he has inviled consideration of the terms of the contract and evidence, on which consideration the Court can easily hold that the conclusions of the arbitrator are erroneous in law. In support of this submission he invited our attention to the oft-quoted decisions reported in Champsey Bhara & Co. v. Jivraj Balloo Co., (AIR 1923 PC 66): L923 AC 480; F. R. Absolom Ltd. v. Great Western (London) Garden Village Society, (1933 AC 592); Giacomo Costa Fu Andrea v. British Italian Trading Co. Ltd., (1962) 3 WLR 512: (1962) 2 All ER 53 : (1963) 1 QB 201) and Firm of Salah Mohamed Umer Dossal v Nathoomal Kessamal, (AIR 1927 PC 164). We refrain from considering these decisions in detail for the reason that all these decisions have been considered by the Supreme Court. In our view it would be sufficient to refer to them. The question of law settled in the above authorities can be summed up as follows: Where in any matter any difference is referred to an arbitrator, a lawyer or a layman, he is constituted the sole and final judge of all questions both of law and of fact. Normally his decision should stand There is an exception to this rule and that is where the award is the result of corruption or fraud. The case law has evolved another exception and that is an error apparent on the face of the award either because a question of law arises on the face of the award or upon some paper accompanying or forming part of the award. This exception can be explained thus. An error of law on the face of the award means that we can find in the award or document actually incorporated or accompanying its some legal proposition which on its consideration could be said to be erroneous. This exception cannot be extended to a mere narrative in the award. To put it differently, mere narration of materials in general terms in an award without particularising any document or any piece of evidence will not permit an investigation into the terms of the contract or other materials placed before the arbitrator to discover whether there is error on the face o the award. Similarly where the terms of the contract are stated in the award for the only purpose to earmark the origin of the dispute, which had arisen between the parties, would be impermissible to hold that the arbitrator had incorporated in the aware any material for his conclusion which work be an invitation for others to consider such materials to test whether there is an erro apparent on the face of the award. We can not close our eyes to the fact that it is the duty of the arbitrator to look into all theevidence and materials placed before him and if in the narrative he makes mention of this fact it can never be equated to his consideration of any particular piece of evidence or document for the purpose of his conclusion.

11. What is a mere narrative and what 'not, can be best understood with reference no the following passage from Giacomo Costa Fu Andrea v. British Italian Trading Co. Ltd. ((1962) 3 WLR 512 at p. 519):--

'Having regard to those two cases, one on one side of the line and one on the other, I am clear myself that in this case we are not entitled to look at the contract. It is referred to generally in the recital and I do not think it would make any difference if it had been referred to generally in the award or in matters introductory to the finding which was 'not in form a recital. I do not find here that the learned arbitrators have on the face of their award based their decision on the construction of any particular term in the contract. Denning, L. J., speaking of the contract, said 'It is not expressly incorporated into the award, nor can I see that it is impliedly incorporated. The question whether a contract, or a clause in a contract is incorporated into an award is a very difficult one. As I read the cases, if the arbitrator says: 'On the wording of this clause I hold' so-and-so, then 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 (pp. 519 and 520).'

12. The jurisdiction of the Court in interfering with non-speaking awards is very narrow. When parties agree and entrust the disputes arising between them to arbitration they are deemed to have taken a decision to have implicit faith in the decision of the arbitrator, be he a layman or a man well-versed in law. To a large extent, the jurisdiction of the ordinary Courts, for interfering with the conclusions arrived at by the arbitrator both on questions of fact and on questions of law, is ousled by the agreement. It is in exceptional circumstances when the Court finds, prima facie, errors apparent on the face of the award, or where the arbitrator has exceeded his jurisdiction that the Court would step in either to set aside the award or remit it or direct reconsideration. It is settled law that the Court will be extremely slow in either finding fault with a non-speaking award much less interfering with it or attempting to substitute its views, for it is recognized in this country, that awards need not be speaking orders. Whether arbitrators should give reasons or parties should be given a right to insist upon arbitrators to give reasons in support of their decisions, are matters to be regulated by statutory provisions and not by judicial pronouncements. The Supreme Court has settled the law in this behalf. In A. M. Nair & Co. v. Gordhan-das Sagarmull (AIR 1951 SC 9) the jurisdiction of Courts in interfering with arbitration awards is outlined by the Supreme Court in para 9 in the following words :

'If, therefore, we come to the conclusion that both the disputes raised by the respondents fall within the scope of the arbitration clauses, then there is an end of the matter, for the arbitrators would have jurisdiction to adjudicate on the disputes, and we are not concerned with any error of law or fact committed by them or any omission on their part to consider any of the matters. In this view, it would not be for us to determine the true construction of the contract and find out whether the respondents' contention is correct or not. Once the dispute is found to be within the scope of the arbitration clause, it is no part of the province of the Court to enter into the merits of the dispute.'

In Bungo Steel Furniture v. Union of India (AIR 1967 SC 378) this jurisdiction is further elucidated in para 9 as follows:

'9. It is now a well settled principle that if an arbitrator, in deciding a dispute before him, does not record his reasons and does not indicate the principles of law on which he has proceeded, the award is not on that account vitiated. It is only when the arbitrator proceeds to give his reasons or to lay down principles on which he has arrived at his decisions that the Court is competent to examine whether he has proceeded contrary to law and is entitled to interfere if such error in law is apparent on the face of the award itself.'

In Firm Madanlal Roshanlal v. Hukumchand Mills (AIR 1967 SC 1030) the Supreme Court was invited to set aside an award on the ground that there were errors of law apparent on the face of the award. This request was declined by the Supreme Court thus :

'In the present case, the arbitrator gave no reason for the award. We do not find in the award any legal proposition which is the basis of the award, far less a legal proposition which is erroneous. It is not possible to say from the award that the arbitrator was under a misconception of law. The contention that there are errors of law on the face of the award is rejected.' (para 2) In Allen Berry & Co. v. Union of India (AIR 1971 SC 696) the Supreme Court understood the scope of Sec. 30 of the Arbitration Act and the principles underlying that section as follows in para 5 : '..... The general rule in matters of arbitration awards is that where parties have agreed upon an arbitrator, thereby displacing a Court of law for a domestic forum, they must accept the award as final for good or ill. In such cases the discretion of the Court either for remission or for setting aside the award will not be readily exercised and will be strictly confined to the specific grounds set out in Sections 16 and 30 of the Act.'

The Supreme' Court then referred to Hodgkinson v. Fernie, (1857) 3 CB (NS) 189, and considered the decisions in Landauer v. Asser (1905 (2) KB 184); F. R. Absalom Ltd. v. Great Western (London) Garden Village Society Ltd. (1933 AC 592); Champsey Bhara & Co. v. Jivraj Balloo Spinning and Weaving Co. Ltd. (1923 AC 480 : AIR 1923 PC 66) and Giacomo Costa Fu Andrea v. British Italian Trading Co. Ltd. (1962 (2) All ER 53), and held :

'9. The question whether a contract or a clause of it is incorporated in the award is a question of construction of the award. The test is, does the arbitrator come to a finding on the wording of the contract. If he does, he can be said to have impliedly incorporated the contract or a clause in it whichever be the case. But a mere general reference to the contract in the award is not to be held as incorporating it.

xx xx xx The Rule thus 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 the face of it, object to the decision either upon the law or the facts. Therefore, even when an arbitrator commits a mistake either in law or on fact in determining the matters referred to him, but such mistake does not appear on the face of the award or in a document appended to or incorporated in it so as to form part of it, the award will neither be remitted nor set aside notwithstanding the mistake.'

The cases dealing with this question have been noticed by Russell in his book on Arbitration, 19th Edn., at pages 443-444. This aspect of the case finds repeated approval in N. Chellappan v. Kerala S. E. Board (AIR 1975 SC 230) in para 12 in the following words:

'No mistake of law appears on the face of the award. The 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, can the award be set aside or remitted on the ground of error of law apparent on the face of the record.'

The Court then refers to passages in Russell on Arbitration, 17th Edn., p. 322 and to AIR 1923 PC 66, and winds up with this observation :

'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.'

13. These formidable array of authorities makes one position abundantly clear, i. e. the Court shall not attempt to reappraise facts and evidence when an arbitrator's award in challenged before it. If the award is a non-speaking one, the Court will seldom try to discover or investigate the justification for the conclusions by the arbitrator. The uniform policy is to keep its hands off from it. The Court will attempt a scrutiny whether there is an error apparent on the face of the) award only if it is satisfied that the arbitrator had incorporated in it, or in any document or note actually appended to it materials and had rested his conclusions on them which conclusions are erroneous. The parties having agreed to the decision of the arbitrator, good or bad, legally right or wrong, are bound by it and the jurisdiction of the Court can be invoked only when the circumstances mentioned above are present. Whether the scope of interference is different in speaking awards need not detain us in these appeals, for the awards we are dealing here with are not speaking awards. In this case, we find that the arbitrator has not incorporated either the agreement or any part thereof nor has he incorporated any other document or note. The passage on which reliance was placed by the learned counsel for the appellant to contend that there was such incorporation is, in our opinion, only a narrative and nothing more. The award does not speak either. It does not give any reasons for the conclusions. Under these circumstances, we have no hesitation to hold that the submissions made on behalf of the appellant that there is an error apperant on the face of the award and that the arbitrator has misconducted himself and the proceedings by incorporating materials and arriving at wrong conclusions, cannot be justified.

14. The learned counsel for the appellant then made a feeble attempt to persuade us to find fault with the order refusing to set aside the award on the ground that the arbitrator should at least be deemed to have impliedly incorporated the terms of the contract and other evidence in the award. We do not think it necessary to enter into any detailed discussion about this submission, for, according to us, even this submission has no force. It cannot be said that there is even an implied incorporation. The learned counsel then tried to salvage his position by inviting us to a decision reported in Bhai Sardar Singh v. New Delhi Municipal Committee (AIR 1981 Delhi 374) where the Delhi High Court had interfered with a non-speaking award. It is true that in that case a non-speaking award was set aside. Jain, J. at first reassured himself of the Court's jurisdiction in setting aside an award after referring to AIR 1923 PC 66. AIR 1971 SC 696 and other cases. Then the learned Judge considered the various special features appearing in that case to examine whether the existence of those features was sufficient to set aside the award. One of the attacks against the arbitrator was that he declined to inspect the site though requested by the petitioner before the High Court. The learned Judge observed that (para 18):

'..... it was discretionary with the arbitrator to accede to the request or not. He was not bound to do so after the hearing was over. All the same, propriety demanded that he should have informed the petitioner-Contractor about his reluctance to inspect the site for whatever reason he was disinclined to do so.'

The learned Judge further observed that this disinclination would not amount to misconduct on the part of the arbitrator in the legal sense. The further attack against the arbitrator was that the award had been improperly procured. It is seen that in the first instance the arbitrator required the Contractor-claimant to supply stamp paper of the value of Rs. 114/- apparently contemplating an award of a particular amount and that he subsequently reduced the stamp duty to Rs. 50.55. The insinuation was that the amount was reduced under the influence of the respondent, the New Delhi Municipal Committee. It is seen that the Secretary of the New Delhi Municipal Committee had signed the award on each page as a witness. The arbitrator himself was a member of the New Delhi Municipal Committee. These circumstances persuaded the learned Judge to hold that the possibility of the arbitrator having taken into confidence the Secretary of the New Delhi Municipal Committee before making the award could not be altogether ruled out and that therefore the conduct of the arbitrator could not be said to be absolutely above board. There was a further-insinuation made by the Contractor that the arbitrator was keeping in touch with and consulting an Assistant Engineer in the Municipal Committees who used to visit Home Ministry where the office of the arbitrator was then housed. It is seen that the arbitrator himself was Financial Advisor to the Ministry of Home Affairs at the relevant time. The learned Judge was not inclined to accept the theory that the arbitrator could be influenced by a person of the rank of an Assistant Engineer. Even so, the learned Judge felt that the award in question could not be sustained for 'the arbitrator must not only be impartial and straightforward but he also must act in a very fair and above-board manner'. From the above narration, it would be clear that the facts of the Delhi case stood on an entirely different plane not comparable in any manner with the fads on hand. On the facts of that case, with respect, the learned Judge was justified in setting aside the award. Before us, nothing which might smack of bias, pressure or influence was mentioned from the appellant's side. We therefore hold that reliance on the Delhi case is misplaced.

15. The learned counsel for the appellant then attempted to build up a new case on the ground that the arbitrator had committed legal misconduct. The respondent's counsel argued that this was a new plea which was not put forward either before the Court below or in the memorandum of appeal. The appellant's counsel replied saying that Ground No. 5 takes in this plea. Ground No. 5 reads as follows;

'An arbitrator is bound to decide in accordance with law and cannot grant reliefs which are not justified by the terms of the contract.'

We do not subscribe to the view that this ground takes in a specific plea of legal misconduct on the part of the arbitrator. However, we do not feel inclined to shot out this plea on the technical ground, that it had notbeen specifically raised,. Perhaps it can be argued that the plea is remotely discernible in that ground. The case is put forward by the learned counsel for the appellant as follows : The arbitrator, with his status, technical qualification and experience should have found on the terms of the contract that the claims put forward by the contractor were clearly outside the stipulations in the contract and that the awarding of the claims in flagrant violation of the terms of the agreement amounted to legal misconduct. An effective adjudication of this plea necessitates a thorough investigation into the terms of the contract and the materials placed before the arbitrator. We do not think we will be justified in going into all the materials before the arbitrator to test the correctness of this challenge based on legal misconduct. The learned counsel for the appellant fairly conceded that this was a virgin field and that he could not come by any authority direct or indirect to be pressed into service in support of his case. However, he contend-ed that legal misconduct was one of the recognised grounds to set aside an award and that he could succeed if he satisfied the Court that the grant to the respondent made by the arbitrator was one which a man of his experience and technical qualification would never have given. The challenge is bused largely on Conditions Nos. 4 and 5 of the contract. They stipulate as to how cost of cement has to be recovered and as to how cement is to be used. The other clauses relate to tender excess and rise in wages. The arbitrator had before him a wealth of materials, in the shape of correspondence between the parties before he made his award. No materials have been placed before us to disturb the award on this ground and we do not sustain the challenge on the ground of legal misconduct.

I6. The learned counsel for the appellant invited us to two decisions unconnected with arbitration law which according to him might throw some light on the proposition of law which he developed before us. In Govinda Menon v. Union of India (1967 Ker IT 336): (AIR 1967 SC 1274), the Supreme Court was considering the challenge by an officer in the Indian Administrative Service of the action initiated against him by the Government. Among the charges against the officer, the main charges related to his conduct in sanctioning 30 leases regarding the private forest lands of Five Devaswoms. The cases put forward against the officer was that he granted the leases in question in utter disregard of the provisions of the concerned Act and the Rules and without being satisfied that the leases were beneficial to the Devaswom and this action disclosed misconduct, irregularity and gross recklessness in the discharge of his official duties. On this accusation this is what the Supreme Court stated :

'It is manifest therefore that though the propriety and legality of the sanction to the leases may be questioned in appeal or revision under the Act, the Government is not precluded from taking disciplinary action if there is proof that the Commissioner had acted in gross recklessness in the discharge of his duties or that he failed to act honestly or in good faith or that he omitted to observe the prescribed conditions which are essential for the exercise of the statutory power. We see no reason why the Government cannot do so for the purpose of showing that the Commissioner acted in utter disregard of the conditions prescribed for the exercise of his power or that he was guilty of misconduct or gross negligence. We are accordingly of the opinion that the appellant has been unable to make good his argument on this aspect of the case.' (para 8)

It is contended that misconduct in that case was assumed on the ground that the officer who was well-versed in the law regarding grant of such leases acted recklessly and in violation of such law. Here the arbitrator who is an experienced and technical man has committed a similar misconduct by a reckless disregard of the stipulations in the agreement.

17. The second case relied upon by the appellant's counsel was S. Mishra v. B. Dixit (AIR 1972 SC 2466). In that case a member of the Superior Judicial Service of the Slate of Orissa was proceeded against for contempt for disobeying the directions given by the Orissa High Court. His answer to the contempt charge was that he was under the bona fide opinion that when a matter was under appeal or otherwise before the Supreme Court the point of law became subjudice and only a decision of the Supreme Court in the matter would be binding on the Sub Court. At the relevant time he was functioning as a Commissioner of Hindu Religious Endowments, Orissa. The High Court did not accept his plea in justification and held that the appellant refused to follow the High Court decision and observed thus (at p. 2468):

'We do not find any trace of bona fides of the contemner in the order dated 19-1-1970 ..... The contemner is a Senior Judicial Officer who has already put in 23 years of service; having been recruited as a Munsiff he has now risen, to the rank of District Judge. We regret to find that though he has functioned as a Judicial Officer for about 23 years he has not been able to pick up the approach and attitude of a Judicial Officer and was actuated by the bias so often manifested in actions of the executive today while disposing of a judicial proceeding and when found fault with has come up with the stand that he was acting administratively.'

Reliance on these two decisions was placed in support of the appellant's case that the arbitrator has acted in utter disregard of the terms of the contract despite his experience and technical knowledge. We hold that reliance on those two cases, for deciding a case arising in arbitration law, is misplaced. Besides the appellant has assumed misconduct on the part of the arbitrator without necessary factual foundation. We have referred to these only because they were cited before us, in support of a novel proposition.

18. To sum up, we do not accept the submissions in support of the appellant's case of misconduct. We hold that the assumption that the arbitrator has misconducted himself cannot be justified. To meet this case we think it sufficient to refer to the facts in M. F. A. No. 113 of 1981. The case is built upon Conditions Nos. 4 and 5 in the agreement. Condition No. 4 stipulates that the Municipality is entitled to recover the cost of cement supplied to the Contractor on the basis of actual cost plus 20% storage charge and Condition No. 5 provides that the Contractor is obliged to use the same according to the directions of the Municipal Engineer on the basis of availability. The dispute arose because the Municipality recovered the cost of superfine cement supplied in large quantities instead of grey cement. That the cost of superfine cement is very much higher than grey cement is a fact well-known to the arbitrator. If huge quantity of superfine cement alone is supplied to the Contractor that would cause considerable loss to him. The Contractor's case was that the clauses related to the supply of grey cement alone. It would be improper on our part to attribute legal misconduct on the part of the arbitrator on his conclusion about the grant under this head. The next head related to the fixation of minimum wages by the Government under an Ordinance subsequent to the agreement. The arbitrator had to consider the impact, of this unforeseen development on the contract work and had to decide about the claim of excess wages under this changed circumstance and it was after such consideration that he granted the claim partly. Even regarding the claim of escalation it cannot be said that the arbitrator had done anything which would amount to misconduct. We have only outlined the bare facts touching upon the relevant conditions in one case and refrained from a detailed examination of the facts and evidence for the reason that we find that the case of misconduct has been built up without necessary factual foundation and lhat he has failed to substantiate in any measure the case of misconduct.

19. Though the decisions reported in Santa Sila v. Dhirendra Nath (AIR 1963 SC 1677); Union of India v. Rallia Ram (AIR 1963 SC 1685); Jivarajbhai v. Chintamanrao (AIR 1965 SC 214) and Bungo Steel Furniture v. Union of India (AIR 1967 SC 378) were referred to us by the counsel Tor the respondent we will rest content by extracting the following passage from AIR 1963 SC 1677:

'Where, therefore, after taking into consideration the arbitration agreement, the statements filed by the parties and the document produced, the arbitrator proceeds to give his 'award in writing as to ah' disputes' referred to him, the Court will assume that the arbitrator has considered and disposed of every claim made or defence raised. Since the award states that it is made of and concerning all the matters in dispute referred to the arbitrator, there is a presumption that the award is complete.'

20. The settled position in arbitration law is that it is not misconduct on the part of the arbitrator to commit an error either of law or of fact. Misconstruction of a particular clause by an arbitrator will not invite the Courts jurisdiction to interfere with thej award made by him. It is only in very rare cases where manifest error is seen in the! award or a glaring violation of the terms of the contract is apparent that the Courts will attempt at consideration of the challenge of the award on the ground of legal misconduct on merits. An arbitrator agreed by the parties occupies a special position in view of the trust reposed in him by the disputants. It is for this reason that the Courts have evolved the limits of their jurisdiction in interfering with the awards. Law expects arbitrators to act fairly. Arbitration proceedings have the advantage of settling disputes more expeditiously than disputes that reach Court. Tested against this principle, the appellant's case has to fail.

21. In our judgment, the appellant has not succeeded in making out any case to disturb the orders under appeal. In the result, we dismiss the appeals with costs.

Immediately after the judgment was pronounced, the learned counsel for the appellants made an oral application requesting for leave to appeal to the Supreme Court. We are not satisfied that these appeals involve any substantial questions of law of general importance that need to be decided by the Supreme Court. Leave refused.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //