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PETITIONER: FOOD CORPORATION OF INDIA

       Vs.

RESPONDENT: JOGINDERPAL MOHINDERPAL

DATE OF JUDGMENT03/03/1989

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) RANGNATHAN, S.

CITATION:  1989 AIR 1263            1989 SCR  (1) 880  1989 SCC  (2) 347        JT 1989 (2)    89  1989 SCALE  (1)664

ACT:     Arbitration   Act,   1940--Sections  14,  17,   30   and 33--Arbitrator  making a speaking award--Unless the  reasons are erroneous as propositions of law or view of the arbitra- tor  cannot  be substantiated--Award not liable  to  be  set aside by Court.

HEADNOTE:     The  Respondent entered into a contract with the  appel- lant Food Corporation of India on or about May 1979 whereun- der  the appellantCorporation was to give to the  Respondent Paddy for being shelled/ converted into rice at the rate  of 70%  of the Paddy. The Paddy was to be lifted from  the  go- downs  of  the appellant. The shelling charge was  fixed  at Rs.2/20  p. per quintal. Some dispute having arisen  between the parties, the Respondent moved an application before  the Subordinate  Judge for appointment of an arbitrator and  the Sub-Judge  appointed  the arbitrator who gave his  award  on 22nd January 1982. In the award the arbitrator did not allow some  of the claims made by the appellant, in particular,  a claim of Rs.55,060/29 p which was claimed as a penalty     Rs.2  per quintal for not lifting the balance of  Paddy. The arbitrator in disallowing the claim on that count,  took the  view that the appellant has to prove the actual  losses suffered by it which the appellant failed to prove.  Another claim   not   allowed   by   the   arbitrator   related   to Rs.3,23,856/08. p. in respect of the cost of non-delivery of 137-39548 tonnes of rice @ Rs. 165 per quintal.     The Respondent made an application u/s. 14 of the  Arbi- tration Act, 1940 to make the award a rule of the Court. The appellant filed the objections u/s 30 and 33 of the Act. The Subordinate Judge, First Class, on 2nd December, 1982, found that  the award was liable to be set aside  and  accordingly modified  the  award and passed a decree in  favour  of  the appellant  for  the amount. On 2nd March,  1984,  the  Addl. Distt.  Judge,  on appeal by the  Respondent,  reversed  the order  passed  by the Subordinate Judge. He  held  that  the award was not liable to be corrected/interfered with in  the manner  done by the Sub-Judge. Aggrieved by the  said  order the  appellant went in revision to the High Court. The  High Court  on  11.12.84 dismissed the revision  petition.  Hence

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this appeal by the appellant-Corporation. 881 Dismissing the appeal, this Court,     HELD: That the arbitrator has chosen to make a  speaking award in the instant case, that is he has given reasons  for his  conclusions.  Since the arbitrator has chosen  to  give reasons,  unless it is demonstrated to this Court that  such reasons  are erroneous as such as propositions of law  or  a view which the arbitrator has taken is a view which it could not  possibly be sustained in any view of the  matter,  then the  challenge  to  the award of the  arbitrator  cannot  be sustained. [886H; 887A-B]     Even  assuming that there was some mistake, such a  mis- take is not amenable to be corrected in respect of the award by the Court. This was a fair order passed after considering all the records. The conclusion arrived at by the arbitrator is a plausible conclusion. The Court has no jurisdiction  to interfere  or modify the award in the manner sought  for  by the appellant. [887G-H]     The  Addl. Distt. Judge was justified in correcting  the order  of the Subordinate Judge and the High Court was  also justified  in  not interfering with the order of  the  Addl. Distt. Judge. [887H; 888A]     Mukkudduns of Kimkunwady v. Inamdar Brahmins of Soorpai, 3  MIA 380; M/s. Sudarsan Trading Co. v. The  Government  of Kerala  & Anr., [1989] 1 Jt. Today SC 339; Champsey Bhara  & Co. v. Jivraj Balloo Spinning & Weaving Co. Ltd., L 1922  IA 324, followed.     Puri Construction Pvt. Ltd. v. Union of India, [1989]  1 SCC 411, referred to.

JUDGMENT:     CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1945  and 1946 of 1989.     From  the  Judgment and Order dated  11.12.1984  of  the Punjab  and Haryana High Court in C.R. No. 1794 and 1795  of 1985. Dr.     L.M.    Singhvi    and    Y.P.    Rao    for     the Appellant.               . G.L. Sanghi, J.P. Gupta and S.K. Agarwal for the Respondent. The Judgment of the Court was delivered by SABYASACHI MUKHARJI, J. Special leave granted. 882     This  appeal arises from the decision of the High  Court of  Punjab & Haryana, dated 11th December,  1984  dismissing the  Civil Revision filed by the appellant. It appears  that there was a contract entered into by the parties on or about 15th May, 1979 which provided that the appellant would  give to  the  respondent paddy to convert these into  rice  after lifting paddy from the godown of the appellant. There was an agreement  between’ the parties for shelling of  paddy  into rice, after lifting the paddy from the godown of the  appel- lant,  at the rate of 70% of the paddy. The shelling  charge was  Rs.2.20  per quintal. The  learned  Subordinate  Judge, First Class, directed on or about 17th March, 1980  appoint- ment  of an arbitrator on an application by the  respondent. On  22nd January, 1982, the arbitrator gave his  award.  The arbitrator  did  not allow the claims of  the  appellant  as claimed  as per the terms of the agreement.  The  arbitrator allowed  certain  claims. It is necessary, in  view  of  the contentions that have been raised, to refer to the award  of the arbitrator. After setting out the history the arbitrator dealt  with the various contentions. It is not necessary  to

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refer  to  all the contentions and points urged  before  the arbitrator  and  upon  which he has made his  award.  It  is sufficient  if  the relevant portions are  dealt  with.  The arbitrator, inter alia, dealt with a claim of Rs.  55,060.29 which had claimed as penalty at Rs.2 per qtl. for not  lift- ing  the  balance of the paddy weighing 2765-3093  mts.  The arbitrator noted that he had held that there was  justifica- tion  for the millers, millers being respondent herein,  not to lift the paddy. Assuming, however, the arbitrator  noted, that if it was decided that the millers were at fault in not lifting  this  paddy, the arbitrator expressed  the  opinion that  the appellant could not recover the amount claimed  by way  of  penalty.  He expressed the view that  in  order  to enable the appellant to claim the amount, it had to be shown that  the  actual losses were suffered by  the  Corporation. Otherwise, it could not be claimed as pre-estimated damages. Otherwise,  it  would  only be penalty which  could  not  be recovered.  No evidence had been led for how many  days  the bags  of the paddy remained in the godowns of  the  Corpora- tion,  the arbitrator noted, and what losses  were  incurred for  getting it shelled from other quarters. The  arbitrator referred  to  the affidavit of one Mr.  M.S.  Rawat,  Asstt. Manager, that the Corporation had to get the unlifted  paddy shelled  by transporting to other centre as well as  getting the same shelled at heavy additional expenditure. The  arbi- trator noted that there was not an iota of evidence on  that point.  So no actual losses stated to have been suffered  by the Corporation and no proof thereof was there. The arbitra- tor further noted that an amount by way of penalty could  be permitted  if  some  losses were  proved.  He,  accordingly, dismissed the claim of the appellant for Rs. 55,090.19. 883     The  next  claim dealt with by the  arbitrator  was  the claim  of Rs.3,23,856.08 claimed by the Corporation  as  the cost of non-delivery of 137-39549 tonnes of rice at the rate of Rs. 165 per qtl. of paddy. The claim of the appellant was based  on  the basis that the appellant  had  converted  the undelivered  rice into paddy by multiplying it  with  100/70 and  it came to 123,87.11 tonnes. The arbitrator dealt  with this question as follows:               "At  the  rate of Rs. 165 per qtl.  its  price               works  at Rs.3,23,856.08. According to  provi-               sions  of clause g(i) of the Contract, in  the               event  of failure to supply rice  within  pre-               scribed specification, the millers are  liable               to  pay to the Corporation for the  quantities               of  rice short supplied at the penal  rate  of               11/2 times the economic cost of the  concerned               variety of the paddy equivalent to the  short-               ages.  In the contract no definition of  ’Eco-               nomic Cost’ is furnished nor is the expression               any  where defined in any law.  However,  Shri               Pritam Singh in the statement attached to  the               affidavit work it out at Rs. 110 per qtl.  The               procurement  price of paddy is Rs.85 per  qtl.               as  shown therein. He has added to  it  market               fee and other charges including cost of  gunny               Rs.2 and interest charges at Re. 1. Under  the               above clause of the contract, the  Corporation               has added 50% penalty and thus has claimed the               price at Rs. 165 per qtl.               I  do not think that the Corporation is  enti-               tled  to  such a fantastic  rate  particularly               when  the expression ’economic rate’  has  not               been  defined. Even if the statement  of  Shri

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             Pritam Singh is accepted the maximum price  of               the  rice at that time should be Rs.  100  per               qtl.  exclusive  of  gunny  bag  and  interest               charges to which in my opinion the Corporation               is  not  entitled.  The market  rate  did  not               exceed that amount at that time. So the calcu-               lated  at this rate the price of the  undeliv-               ered  rice  will come  to  Rs.1,96,277.00.  to               which  the Corporation is entitled. I may  add               here that the above amount has been allowed to               the  Corporation besides from the evidence  on               the  record I believe that the rice was  short               delivered. When the paddy had been accepted by               the  millers unconditionally and  without  any               reservation,  they were bound to give  to  the               Corporation 70% of the yield. As they did  not               do it, so they are liable to pay the price  of               the undelivered rice.               884               I  have  already stated above  that  the  rice               after shelling to be , delivered to the Corpo-               ration under clause g(i)of the contract had to               conform to the specification laid down by  the               Punjab  Government under the Punjab Rice  Pro-               curement  Price Control Order, 1968 issued  on               the  22nd October, 1968, as amended from  time               to time. The Corporation states that the  rice               accepted  by  them  was done  subject  to  the               quality  rice  which  was  permissible   under               clause  g(ii) of the contract. This  has  been               duly  proved from the evidence placed  on  the               record  by  the Corporation.  Even  Shri  Anil               Kumar, a partner of the millers firm  admitted               that  they  received  an  analysis  report  in               respect of the rice which was accepted by  the               Corporation  to continue that the  Corporation               was  mentioned  and that they did  not  appeal               against the cut, though there was a  provision               in  the  said order to do so.  It,  therefore,               means  that  the quality cut was  admitted  to               have  been correctly assessed under  the  said               Punjab  Rice  Order and to  that  the  millers               submitted. This item is, therefore, allowed."     The respondent filed an application under section 14  of the  Arbitration Act, 1948 (hereinafter referred to as  ’the Act’)  for  filing of the award and prayed  for  making  the award the rule of the court. The appellant on 25th May, 1982 filed  objections under sections 30 and 33 of the  Act.  The learned  Subordinate  Judge, First ClasS, on  2nd  December, 1982  found  that the award was liable to be set  aside  and modified  the  award and passed a decree in  favour  of  the appellant for the amount. On 2nd March, 1984, the Additional District Judge allowed the appeal by respondent and reversed the Subordinate Judge’s order.     Aggrieved thereby, the appellant went in revision before the  High Court. The High Court on 11th December, 1984  dis- missed the revision petition. Aggrieved thereby, the  appel- lant has come up before this Court. It is, therefore, neces- sary to decide whether the High Court was right.     As mentioned hereinbefore, the learned Subordinate Judge had modified the award and passed a decree in favour of  the appellant  for the amount. The learned  Additional  District Judge,  however,  allowed the appeal of the  respondent  and reversed the decision of the learned Subordinate Judge.  The High Court did not interfere with that decision because  the

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High Court did not find any ground to interfere. The 885 question  therefore is, whether the learned Additional  Dis- trict  Judge in the first appeal was right in  holding  that the award was not liable to be corrected in the manner  done by the learned Subordinate Judge. The jurisdiction to inter- fere by the Court of law of an award made by the  arbitrator chosen by the parties is circumscribed. In India, there is a long  history of arbitration. Arbitration is a mode of  set- tlement of disputes evolved by the society for  adjudication and  settlement of the disputes and the differences  between the parties apart from the courts of law. Arbitration has  a tradition;  it has a purpose. Arbitration, that is a  refer- ence of any particular dispute by consent of the parties  to one or more persons chosen by the parties with or without an umpire and an award enforceable by the sovereign power  were generally unknown to ancient India. Hindus recognised  deci- sions of Panchayats or bodies consisting of wealthy,  influ- ential  and elderly men of the Community and entrusted  them with  the power of management of their religions and  social functions. The sanction against disobedience to their  deci- sion  was excommunication, or ostracism and  exclusion  from all  religions  and social functions of  the  community.  An agreement  to abide by the decision of a Panchayat  and  its decision with regard to the line of boundary was held not to be  conclusive, since a reference to arbitration  and  award properly  so called did not exist. See the  observations  in Mukkudduns  of Kimkunwady v. Inamdar Brahmins of Soorpai,  3 MIA 380. See also Bachawat’s Law of Arbitration at page 1.     When  power came to the East India Company, they  framed Regulations  in exercise of the power vested in them by  the British Government- Some of these Regulations were  touching arbitration. Bachawat gives description of the evolution  of the Arbitration Act, 1940. Therefore, arbitration as a  mode for settlement of disputes between the parties, has a tradi- tion  in India. It has a social purpose to fulfil today.  It has great urgency today when there has been an explosion  of litigations  in the courts of law established by the  sover- eign  power.  New  rights created,  or  awareness  of  these rights,  the  erosion  of faith in the  intrinsic  sense  of fairness of men, intolerant and uncompromising attitudes are all the factors which block our courts. The courts are  full of litigations, which are pending for long time.  Therefore, it  should be the endeavour of those who are  interested  in the administration of justice to help settlement by arbitra- tion,  if possible. It has also a social efficacy being  the decision by the consent of the parties. It has greater scope of acceptance today when there is a certain erosion of faith in view of the failure to appreciating the functions of  the courts of law. It has also the advantage of not only  quick- ness  of  decision but of simplicity of  procedure.  But  in proceedings of arbitra- 886 lion  there  must be adherence to justice, equity,  law  and fair  play in actions. However, the proceedings of  arbitra- tion  must adhere to the principles of natural  justice  and must be in consonance with such practice and procedure which will  lead to a proper resolution of the dispute and  create confidence  of the people for whose benefit these  processes are resorted to. It is, therefore, the function of courts of law to oversee that the arbitrators act within the norms  of justice.  Once they do so and the award is clear,  just  and fair, the courts should, as far as possible, give effect  to the  award  of the parties and make the  parties  compel  to adhere to and obey the decision of their chosen adjudicator.

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It is in this perspective that one should view the scope and limit  of  correction by the court of an award made  by  the arbitrator.  We should make the law of  arbitration  simple, less technical and more responsible to the actual  realities of  the situation, but must be responsive to the cannons  of justice and fair play and make the arbitrator adhere to such process and norms which will create confidence, not only  by doing  justice between the parties, but by creating a  sense that  justice appears to have been done. Sections 30 and  33 of the Act provide for the grounds on which an award of  the arbitrator can be set aside. These were mainly, until recent changes  made  by statutory laws in England,  in  consonance with  the  English principles of Common Law  as  adopted  in India.  So  far as the material of the  present  purpose  is concerned, an award of the arbitrator can only be interfered with or set aside or modified within the four corners of the procedure  provided  by  the Act. It is  necessary  to  find whether  the  arbitrator  has misconducted  himself  or  the proceedings legally in the sense whether the arbitrator  has gone contrary to the terms of reference between the  parties or  whether  the arbitrator has committed any error  of  law apparent on the face of the award. It is necessary to empha- sise that these are grounds for setting aside the award  but these are separate and distinct grounds. Halsbury’s Laws  of England, Vol. 2 4th Edn., para 623 reiterates that an  arbi- trator’s  award may be set aside for error of law  appearing on  the  face of it. Though this jurisdiction is not  to  be lightly exercised. The award can also be set aside if, inter alia,  the arbitrator has misconducted himself or  the  pro- ceedings.  It is difficult to give an exhaustive  definition what may amount to a misconduct on the part of the  arbitra- tor.  This  is  discussed  in  Halsbury’s  Laws  of  England (supra).  It is not misconduct on the part of an  arbitrator to  come to an erroneous decision, whether his error is  one of fact or law, and whether or not his findings of fact  are supported  by evidence. See the observations of  Russell  on Arbitration, 20th Edn., page 422. In  the  instant case, the arbitrator has chosen to  make  a speaking 887 award, that is to say, he has given reasons for his  conclu- sion.  Whether he is obliged to give such reasons or not  is another  matter but since the arbitrator has chosen to  give the  reasons, unless it is demonstrated to this  Court  that such reasons are erroneous as such as propositions of law or a  view  which the arbitrator has taken is a view  which  it could  not possibly be sustained on any view of the  matter, then the challenge to the award of the arbitrator cannot  be sustained.  As has been emphasised in M/s  Sudarsan  Trading Co.  v. The Government of Kerala & Anr., [1989] 1 Jt.  Today SC  339 that an award could be set aside if  the  arbitrator has misconducted himself or the proceedings or has proceeded beyond jurisdiction. It could also be set aside where  there are errors apparent on the face of the award. But these  are separate and distinct grounds. In case of errors apparent on the  face of the award, it can only be set aside if  in  the award  there is any proposition of law which is apparent  on the  face of the award, namely, in the award itself  or  any document incorporated in the award. See the observations  of the  Judicial  Committee in Champsey Bhara & Co.  v.  Jivraj Balloo Spinning & Weaving Co. Ltd., L 1922 IA 324.     Dr.  L.M.  Singhvi, learned counsel for  the  appellant, urged before us that the arbitrator was wrong in not  award- ing 50% of the added penalty as claimed by the appellant, as mentioned  hereinabove. The appellant had claimed the  price

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of Rs. 165 per qtl. The arbitrator was of the view that  the expression ’Economic Rate’ had not been defined. It is  true that  the expression ’Economic Rate’ has not been used,  but the expression ’Economic Cost’ has been used. The arbitrator has noted that the market rate did not exceed that amount at the  time.  The amount of Rs. 100 per qtl. is  mentioned  of such a rate as the arbitrator had noted, could only be  pre- estimated  damages  but  this was not so  according  to  the arbitrator.  The  arbitrator  had construed  the  effect  of clause  g(i) of the contract as mentioned  hereinbefore.  It cannot  be said that such a construction is  a  construction which is not conceivable or possible.     If  that is the position assuming even for the  argument that  there  was some mistake in the  construction,  such  a mistake  is not amenable to be connected in respect  of  the award by the court. This was a fair order after  considering all the records. The conclusion arrived at by the arbitrator is a plausible conclusion. The court has, in our opinion, no jurisdiction to interfere or modify the award in the  manner sought  for by the appellant and in the manner done  by  the learned  Subordinate  Judge in the first  instance  in  this case.  In  that view of the matter, the  learned  Additional District Judge was justified in correcting the 888 order  of the learned Subordinate Judge and the  High  Court was also justified in not interfering with the order of  the Additional  District  Judge. The award on the  aspects  can- vassed  before  us by Dr. L.M. Singhvi is a  plausible  con- struction of clause g(i) of the contract. It cannot, in  our opinion, be interfered with either on the ground that  there was error apparent on the face of the award or on the ground that  the arbitrator has misconducted himself in not  giving the  effect to the penal rate as contemplated  under  clause g(i) of the contract referred to hereinbefore in the  award. Dr.  Singhvi  sought to urge that as per the  terms  of  the contract  the arbitrator was obliged to award penal rate  in terms  of  clause g(i) of the contract. The  arbitrator  has apparently  not done so. He has given reason why he has  not done so. It was submitted that he was wrong in not doing so. We do not agree. The arbitrator has discussed the effect  of clause  g(i).  He has noted that unless there  was  evidence about  which incidentally there was none, this amount  could not  be treated as a pre-estimate of damage. If that  be  so then it was penalty. It was not recoverable. Reasons may not be  apparent,  latent  was there.  Dr.  Singhvi’s  objection therefore cannot be accepted.     Dr.  Singhvi drew our attention to the  observations  of this Court in M/s Sudersan Trading Co., (supra) at page  352 of  the report where it was stated that if it  was  apparent from  the  award that a legal proposition which  formed  its basis  was erroneous, the award was liable to be set  aside. Dr. Singhvi sought to urge that when the arbitrator observed that  "Corporation is not entitled to recover such  a  claim particularly when the ’Economic Rate’ has not been defined", this,  according to the statement of Dr. Singhvi, the  arbi- trator  was  mistaking  the law, such a mistake  of  law  is apparent  on  the face if it. It has to be  borne  in  mind, however, that wrong statement or conclusion of law, assuming even  that  it was a wrong statement of law, was  not  wrong statement of the proposition of law which was the basis  for decision  in this award. Error of law as such is not  to  be presumed,  if there is legal proposition which is the  basis of the award and which is erroneous as observed in  Champsey Bhara  & Co, (supra), then only the award can be set  aside. There was no proposition of law; there was a legal deduction

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of law arrived at to say that the provisions of clause  g(i) of  the  contract would be penal rate and  such  penal  rate cannot  be sustainable without evidence of the damages  suf- fered  to that extent. We are of the opinion that the  arbi- trator  had  taken a view which is  plausible  view.  Beyond this, the court has nothing to examine. It is not  necessary for  a court to examine the merits of the award with  refer- ence  to the materials produced before the  arbitrator.  The Court cannot sit in appeal over the 889 views of the arbitrator by re-examining and re-assessing the materials.  See the observations of this Court in Puri  Con- struction Pvt. Ltd. v. Union of India, [1989] 1 SCC 411.     In  the aforesaid view of the-matter, it appears  to  us that the learned Additional District Judge was right in  the view it took and the High Court, therefore, was justified in dismissing the revision. The appeal, therefore, fails and is accordingly dismissed. No order as to costs. Special leave granted.        In view of the fact that the facts of this appeal are more or less     identical  to the Appeal arising out of S.L.P.  (C)  No. 3392 of 1985, this  appeal is also dismissed. No order as to costs. Y.L.                                          Appeals   dis- missed. 890