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Bareilly Electricity Supply Co. Ltd. Vs. State of Uttar Pradesh - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtKolkata High Court
Decided On
Case NumberSuit No. 149 of 1976 (Re. Arb.)
Judge
Reported inAIR1977Cal328
ActsArbitration Act, 1940 - Section 30; ;Electricity (Supply) Act, 1948
AppellantBareilly Electricity Supply Co. Ltd.
RespondentState of Uttar Pradesh
DispositionApplication dismissed
Cases ReferredThawardas v. Union of India.
Excerpt:
- .....martin burn ltd. were paid certain amounts as and by way of office allowances. the payment of such office allowance was duly approved, according to the petitioner company, by the central government under the provisions of the companies act, 1956. the agreement dated the 30th august, 1965, inter alia, provided as follows :'5. the secretaries and treasurers shall be entitled to receive from the company by way of remuneration for their services in relation to such management, in respect of each financial year (as defined in section 2(17) of the act) of the company or part thereof; (a) ordinary remuneration as and to the maximum extent specified in sub-para. (1) of para. xiii of the sixth schedule to the electricity (supply) act, 1948 subject to the minimum payment specified in sub-para. (2).....
Judgment:
ORDER

Sabyasachi Mukharji, J.

1. This is an application by Bareilly Electricity Supply Co. Ltd., filed on the 18th January, 1977, challenging the award dated the 28th September, 1974.

2. Before I go to the merits of the rival contentions of the parties it has to be mentioned that a preliminary objection was taken as to the maintainability of this application. It was contended that on the 19th January, 1977, the name of the petitioner Company was changed into Bareilly Holdings Limited. Therefore, the petitioner, it was urged, was not entitled to continue the present proceeding in this form and name. As would appear from what is stated above, when the application was made it was a competent application because the change in the name had not taken place at that time. The change took place subsequently.

Therefore, in view of the provisions of Section 23(3) of the Companies Act, 1956 and the facts and circumstances of this case, in my opinion, it would be proper to allow the prayer, on the oral application of Counsel for the petitioner, to change the name of the petitioner to Bareilly Holdings Limited. I, therefore, direct that the name of the petitioner be changed in the records of this case to Bareilly Holdings Limited.

3. The petitioner Company is registered under the Indian Companies Act and during the period 1965-66 to 1969-70 M/s. Martin Burn Ltd. were the Secretaries and Treasurers of the petitioner company under an agreement dated the 30th August, 1965. Ag such Secretaries and Treasurers, M/s. Martin Burn Ltd. were paid certain amounts as and by way of office allowances. The payment of such office allowance was duly approved, according to the petitioner company, by the Central Government under the provisions of the Companies Act, 1956. The agreement dated the 30th August, 1965, inter alia, provided as follows :

'5. The Secretaries and Treasurers shall be entitled to receive from the Company by way of remuneration for their services in relation to such management, in respect of each financial year (as defined in Section 2(17) of the Act) of the Company or part thereof;

(a) Ordinary remuneration as and to the maximum extent specified in sub-para. (1) of para. XIII of the Sixth Schedule to the Electricity (Supply) Act, 1948 subject to the minimum payment specified in sub-para. (2) of the said para. XIII.

(b) An Office allowance as and to the maximum extent specified in sub-para. (3) of the said para. XIII to cover wages and salaries.'

It appears that dispute arose between the petitioner and the State of Uttar Pradesh represented by the Secretary of the Government of Uttar Pradesh, Irrigation and Power Department with regard to the amounts which M/s. Martin Burn Ltd. were entitled to draw as office allowances during the aforesaid period. It is not in dispute that the payment of office allowance in this case is governed by the provisions of para. XIII (3) of the Sixth Schedule of the Electricity (Supply) Act, 1948. It was the case of the petitioner that on an interpretation of the said clause of para. XIII (3), the amounts paid to M/s. Martin Burn Ltd., during the relevant year, which were within the ceiling provided by the Clause XIII (3), were permitted by the said clause. The petitioner contended that the office allowance had to be calculated as a percentage of the operating expenditure and the expenditure on capital works as laid down in the said Schedule of the Act. On the other hand, the respondent's case was that M/s. Martin Burn Ltd. were entitled to draw only the 'actual expenditure' incurred on office allowance. It is the case of the petitioner that there was no question of 'actual expenditure' involved and therefore, the petitioner contended the concept of 'actual expenditure' was foreign to the said paragraph XIII (3) of the said Schedule. It was further the case of the petitioner that it was not possible or practically feasible to calculate such actual expenditure nor was any guideline laid down for calculation of actual expenditure. The dispute was referred to the arbitration of the Central Electricity Authority under the provisions of para. XVI of the Sixth Schedule to the Electricity (Supply) Act. 1948, and on or about the 27th December. 1972 the Central Electricity Authority had decided to admit for arbitration on the following issues in respect of the said dispute :

'Whether the Managing Agents are entitled to draw the following amounts as office allowance during the years 1965-66 to 1969-70:

Year of Account.Amount Charged

(Rs.)

1965-66Rs. 45,376.001966-67Rs. 51,366.001967-68Rs. 48,990.001968-69Rs. 54,537.001969-70Rs. 53,951.00

or

Whether the Managing Agents are entitled to draw only the actual expenditure incurred on office allowance subject to the ceiling laid down Under para. XIII (3) of the Sixth Schedule.'

Thereafter, after the statements of facts had been filed, the arbitrators made the award on the 28th September, 1974 which is the subject-matter of challenge in this application. The award was to the following effect :

'AND WHEREAS a dispute arose between the Government of Uttar Pradesh (hereinafter referred to as the 'Government') and the Bareilly Electricity Supply Co. Ltd. (hereinafter referred to as 'the company') on the following points:

Whether the Managing Agents are entitled to draw the following amounts as office allowance during the years 1965-69to 1969-70 :

Year of AccountAmount Charged in Rs.

1965-66Rs. 45,376/-1966-67Rs. 51,366/-1967-68Rs. 48,990/-1968-69Rs. 54,537/-1969-70Rs. 53,951/-

'Whether the Managing Agents are entitled to draw only the actual expenditure incurred on office allowance subject to the ceiling laid down under Paragraph XIII (3) of the Sixth Schedule. 'AND WHEREAS the Government referred the above mentioned dispute between itself and the Company to the Authority for Arbitration under Paragraph XVI of the Sixth Schedule by its letter No 3590-V/71/XXIII-PB-455/62 dated 31st January, 1972.

'AND WHEREAS the Government filed its statement of case vide its letter-No. 155-V/XXIII-P-4/62 dated 20th January. 1973.

'AND WHEREAS the Company filed its statement of the case vide its letter No. BE/30A/73/2490, dated 20th February, 1973.

'AND WHEREAS the Government filed its rejoinder to the statement of case of the Company vide its letter No. 714-V/73/XXIII-P-455/62 dated 17th March, 1973.

'NOW THEREFORE, We N. Venkatesan and N. Tata Rao having considered the written statement filed by the Government and the Company and having heard the aforementioned representatives of the parties in person on the aforesaid date and having considered all the materials placed before us by the parties, make our Award in respect of the dispute referred to above as follows:

'The Managing Agents' claim for office allowance in terms of the provision laid down under paragraph XIII (3) of the Sixth Schedule to the Electricity (Supply) Act, 1948 should be limited to the actual expenditure incurred and shall not exceed the ceiling specified therein.' As is apparent from the award the arbitrators have awarded that the Managing Agents' claim for office allowance in terms of the provisions laid down in paragraph XIII (3) of the Sixth Schedule should be limited to the actual expenditure incurred and should not exceed the ceiling specified therein. It is material at this stage to refer to the provisions of paragraph XIII of the Sixth Schedule of the Electricity (Supply) Act, 1948. The said paragraph is to the following effect:

'XIII (1) Subject to the provisions of the sub-paragraph (2) the ordinary remuneration of a managing agent excluding the office allowance mentioned in sub-paragraph (3) but including purchasing commission, if any, shall be based on a percentage of net profits (as determined In accordance with the provisions of Section 349 of the Companies Act, 1956) and shall not exceed-

(a) in respect of the first Rs. 5 lakhs of such net profits -- 10 per cent.; and

(b) in respect of all net profits in excess of Rs. 5 lakhs -- 7 per cent.

(2) The amount paid to a managing agent shall be subject to a minimum payment on account of ordinary remuneration not exceeding two rupees per annum for each complete thousand rupees of paid up share and debenture capital, provided that for purposes of computing the minimum payment should the share and debenture capital be less than rupees five lakhs it shall be taken as rupees five lakhs and should the said capital be greater than rupees one crore it shall be taken as rupees one crore.

(3) An office allowance drawn by a managing agent which shall include the salaries and wages of all persons employed in the office of the managing agent, but not the salaries of the engineering staff employed for purposes of the undertaking, shall be a percentage of the operating expenditure and the expenditure during the year of account on capital works. The office allowance so drawn shall not exceed-

(a) In respect of the first Rs. 1 lakh of operating expenditure -- 8 per cent.

In respect of next Rs. 2 lakhs of operating expenditure -- 5 per cent.

In respect of the next Rs. 7 lakhs of operating expenditure -- 24 per cent.

In respect of all operating expenditure in excess of Rs. 10 lakhs -- l1/2 per cent; and

(b) In respect of the first Rs. 1 lakh of capital expenditure incurred during the year of account -- 4 per cent.

In respect of next Rs. 2 lakhs of capital expenditure incurred during the year of account -- 3 per cent.

In respect of the next Rs. 7 lakhs of capital expenditure incurred during the year of account -- 11/2 per cent.

In respect of all capital expenditure in excess of Rs. 10 lakhs incurred during the year of account -- 1 per cent.

Operating expenditure for the purposes of sub-paragraph (3) (a) above shall mean the sum of the items of expenditure as defined in sub-paragraph (2) (b) of paragraph XVII with the omission of those under Clauses (i), (iv), (ix) and (x) thereof.'

On behalf of the petitioner it was contended that inasmuch as the arbitrators held that the office allowance should be limited only to the actual expenditure, the arbitrators had committed an error of law on the face of the award in view of the provisions of paragraph XIII (3) of the Sixth Schedule referred to hereinbefore: It was urged that the said sub-paragraph directed that office allowance 'shall be a percentage'. It was emphasised that unlike sub-paragraph (1) of paragraph XIII of the said Schedule, it did not stipulate that it should be baaed on a percentage but it directed that it should be a percentage. It was, therefore, argued that the office allowance had to be computed on a notional basis of the percentage provided such computation did not exceed the ceiling, and there is no dispute in this case that payments claimed had not exceeded the ceiling -- and therefore, the arbitrators had to allow the percentage claimed by the petitioner. It was submitted that inasmuch as the arbitrators had proceeded on the concept of actual expenditure subject to the ceiling, the arbitrators had misconstrued or misread the provisions of sub-paragraph (3) of paragraph XIII of the Sixth Schedule of the said Act.

4. The contention in opposition to this argument on behalf of the respondent was that specific question of law had been referred to the arbitrators. Therefore, the petitioner was not entitled to challenge the finding of the arbitrators. In aid of this submission reliance was placed on the observations of the Supreme Court in the case of Union of India v. Ralli Ram : [1964]3SCR164 . There the Supreme Court observed that an award being a decision of an Arbitrator, whether a lawyer or a layman chosen by the parties, and entrusted with power to decide a dispute submitted to him is ordinarily not libale to be challenged on the ground that it was erroneous. The award of the arbitrator was ordinarily final and conclusive unless a contrary intention was disclosed by the agreement The award was a decision of a domestic tribunal chosen by the parties, and the civil courts which were entrusted with the power to facilitate arbitration and to effectuate the awards, could not exercise appellate powers over the decision. Wrong or right the decision was binding, if it had been reached fairly, after giving adequate opportunity to the parties to place their grievances in the manner provided by the arbitration agreement. But it was firmly established, according to the Supreme Court, that an award was bad on the ground of error of law on the face of it, when in the award itself or in a document actually incorporated in it, there was found some legal proposition which was the basis of the award and which was erroneous. An error in law on the face of the award means, 'you can find in the award or a document' actually incorporated thereto, as for instance, a note appended by the arbitrator stating the reason for his judgment, some legal proposition which was the basis of the award and which could be said to be erroneous. It did not mean that if a narrative reference was made to a contention of one party that would open the door to setting first what that contention was and then going to the contract on which the parties' right depended to see if that contention was sound. The Supreme Court observed, but this rule did not apply where questions of law were specifically referred to the arbitrator for his decision, the award of the arbitrator on those questions was binding upon the parties for by referring the specific questions parties desired to have a decision from the arbitrator on those questions rather than from the Court and the Court would not, unless it was satisfied that the arbitrator had proceeded illegally, interfere with the decision.

5. In this case, therefore, two questions are relevant, viz. whether specific questions of law had been referred to the arbitrators and secondly whether there is any error of law in the award on the face of it. So far as the first question is concerned whether any specific question of law had been referred to or not must be determined having regard to the reference before the arbitrators. It is essential to keep the case, where the disputes are referred to the arbitrator in the decision of which the question of law becomes material distinct from the case in which a specific question of law has been referred to him for a decision. See in this connection the observations of Lord Russel in the case of F.R. Absalom Ltd. v. Great Western (London) Garden Village Society, 1933 AC 592 at p 607 and Lord Wright at page 616 of the report observed as follows:

'There is here no submission of any specific question of law as such and as a specific question of law, no doubt incidentally, and indeed necessarily, the arbitrator will have to decide some questions on the construction of the building contract, but the two matters submitted are both composite questions of law and fact; there is no express submission of the true effect of the contract on the basis of undisputed facts.'

Lord Wright further observed that there was no reason to think that the parties had any specific question of law in mind at all. Therefore, it is necessary to emphasise that there must be submission on a specific question of law as such and it must be distinct from a reference where the question of law must necessarily have to be decided.

6. In this case, as mentioned hereinbefore, the question referred to arbitration was whether the managing agents were entitled to draw the expenses claimed or to draw only the actual expenditure incurred on office allowance subject to the ceiling laid down in paragraph XIII (3) of the Sixth Schedule. In such form the disputes were referred to arbitration. But in the background of the reference it is abundantly clear that the reference to the arbitrators was whether on a true interpretation of paragraph XIII (3) of the Sixth Schedule of the Electricity Act the petitioners were entitled to the actual expenses or only on a percentage as contemplated in paragraph XIII (3) of the Sixth Schedule. In the instant case, there was no dispute as to the facts, there was no dispute as to the quantum of actual expenditure, there was no dispute as to whether the allowable expenditure exceeded the ceiling. The only dispute was whether on the construction of the relevant clause the claim of the petitioner was justified. The construction of that clause is a question of law. That specific question of law had been referred to the arbitrators. Therefore, even if the arbitrators had made an erroneous decision this cannot be challenged by the petitioner in the instant case. Reliance was also placed on this aspect on the decision U.G.V.E.S. Co. v. U. P. Electricity Board, : [1973]3SCR107 . There, the Supreme Court held, relying on the decision in the case oi Durga Prosad Chamaria v. Shew Kishendas Bhatta, AIR 1949 PC 334 in Which it was held, if a question of law had been specifically referred to an arbitrator for his decision it would be contrary to well established principles for a Court of law to interfere with the award even if the Court itself would have taken a different view of the point of view had it been before it that the said decision could have no application because the parties in the case before the Supreme Court had not referred to any specific question of law for the decision of the arbitrators. In the case of Thawardas v. Union of India. : [1955]2SCR48 the Supreme Court referred to the importance of the question where any question of law had been specifically referred to the arbitrator because the Supreme Court observed that it was necessary to stress the word 'specifically' as the parties who made the reference to arbitration have the right to insist that the tribunal of their choice should decide their dispute according to law, so before the right could be denied to them in any particular matter the Court must be very sure that both parties wanted the decision of the arbitrator on a point of law rather than that of the Courts that they wanted his decision on that point to be final. In this case the reference specifically was the quantum of expenditure allowable in terms of paragraph XIII (3) of the Sixth Schedule to the Act. There was no factual dispute which had been referred to the arbitrator. Therefore, in my opinion, the only question in this case necessarily not merely incidentally to be decided is the construction of paragraph XIII (3) of the Sixth Schedule to the Act and it is indisputable that it is a question of law. That question was the only question. Therefore that question of law had only been specifically referred to the arbitrators in the instant case. Whether any question of law has been referred to the arbitrators must be determined in the background of the facts and circumstances of the case. It is not necessary to use the words 'specifically referred' in the reference itself. In that view of the matter it must be held that specific question of law had been referred to the arbitrators and the petitioner is not entitled to challenge the decision.

7, Apart from that there id another aspect of the matter. The question here is whether in accordance to sub-paragraph (3) of paragraph XIII, which I have referred to hereinbefore, the said office allowance drawn by a managing agent shall be only a percentage of the operating expenditure and the expenditure during the year of account on capital work. In my opinion the expression 'based on a percentage' used in sub-para. (1) of paragraph XIII of the Sixth Schedule to the Act and 'shall be a percentage' in sub-paragraph (3) mean the same thing and intend to convey that the expenditure allowable must be based on a percentage, especially in view of the fact that office allowance includes certain expenses but not all. Furthermore unless the actual expenditure was contemplated there was no need to put a ceiling. In my opinion, the decision of the arbitrators cannot be challenged as erroneous in law. In the aforesaid view of the matter, I am unable to sustain the challenge to the impugned award.

8. The application therefore fails and I accordingly dismiss the application.

9. In the facts and circumstances of this case, each party will pay and bear their own cost.

10. Judgment upon award is stayed for three weeks.

11. Allegations made in the affidavit-in-opposition are not admitted by Mr. Banerji's client.


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