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PETITIONER: JAJODIA (OVERSEAS) PVT. LTD.

       Vs.

RESPONDENT: THE INDUSTRIAL DEVELOPMENT CORPORATION OFORISSA LTD.ANDVICE

DATE OF JUDGMENT15/01/1993

BENCH: BHARUCHA S.P. (J) BENCH: BHARUCHA S.P. (J) REDDY, K. JAYACHANDRA (J)

CITATION:  1993 SCR  (1) 229        1993 SCC  (2) 106  JT 1993 (1)   334        1993 SCALE  (1)135

ACT: Aribitration Act, 1940-S.20-Arbitration award-Held, on facts of  the  case that award not a speaking or  reasoned  award, agreement not incorporated by reference in the award and  no inconsistency on the face of the award.

HEADNOTE: IDCO  and  JOPL entered Into an  agreement  whereunder  IDCO agreed  to supply to JOPL 5000 tens of MS rounds for  export on  terms and conditions mentioned therein.  The goods  were not  supplied.  By a letter dated September 12,  1969,  IDCO cancelled the agreement and intimated to JOPL that its offer which had culminated in the agreement, should be treated  as withdrawn.  Some correspondence followed.  Thereafter JOPL’s claim  for damages against IDCO for breach of  contract  was referred  to  the  Chief Secretary, who  was  named  in  the agreement,   for  arbitration.   He  declined  to   act   as arbitrator.   An arbitrator was thereafter appointed by  the Subordinate Judge, Bhubaneswar under S.20 of the Arbitration Act, 1940.  He gave his award on September 24, 1985. In  the award the arbitrator briefly stated the  facts,  the issues  settled  for adjudication and that the  parties  had produced a large number of documents, examined witnesses and advanced  elaborate arguments.  Having carefully  considered them,  he  set  out the conclusions  and  awarded  JOPL  Rs. 11,00,344 with pendente lite interest @ 6%. IDCO  challenged  the award before  the  Subordinate  Judge, Bhubaneswar who dismissed the petition and made the award  a rule  of the Court In appeal before the Orissa  High  Court, the  learned Judge rejected all contentions of  IDCO  except one namely that In answering three issues the arbitrator had arrived at Inconsistent conclusions apparent on the face  of the  award, which had a bearing on the question of  awarding of damages.  He therefore directed that the records be  sent back to the 229 230 arbitrator for making a fresh award. Cross  appeals  were  filed  in  the  Supreme  Court.   JOPL contended  that there was no inconsistency on the  face’  of the  award  which vitiated it.  For IDCO, it  was  contended that  the  award was bad in law, and in any event  the  High Court  was  in  error  in sending the  matter  back  to  the

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arbitrator for making a fresh award.    Dismissing the appeal of IODC, this Court,   HELD:   1.  A  speaking  or reasoned award  is  one  which discusses  or sets out the reasons which led the  arbitrator to  make  the award.  Setting out the conclusions  upon  the questions  or issues that arise in  arbitration  proceedings without  discussing  the reasons for coming  to  these  con- clusions  does  not  make an award a  reasoned  or  speaking award.   The arbitrator has in the award only  answered  the issues  that were framed.  He had not discussed or  set  out the reasons for the answers.  The award is, therefore, not a speaking or reasoned award. [234E-F] 2.   That  the arbitrator merely referred to  the  pleadings does  not  mean that the pleadings are incorporated  in  the award. [234F] Allen  Berry and Co. v. Union of India, AIR 1971 SC  6%  and Ciacomo Costa Fu Andrea v. British Italian Trading Co.  Ltd, (1962) 2 All E.R. 53, followed. 3.   In answering issue no.2, the arbitrator construed  only such  clause of the agreement as was relevant to decide  the issue.  Such clause alone would be incorporated in the award and  could  be looked at by the court to  determine  if  the arbitrator had misconstrued it. (pp.9-10) [236B] 4.   Even  assuming the incorporation of the  agreement,  an error  apparent  on the face of the award had to  be  shown. (p.10) [236D] Bungo Steel Furniture Pvt.  Ltd. v. Union of India, [1967] 1 SCR 633, relied on. 5.   In  the circumstances of the case, merely  because  the arbitrator had not  mentioned  the  pleadings and  order  of reference does not mean that the   issues  framed  did   not reflect the referred disputes. (pp.11 and 12)    [237B] 231 6.   That  the original foreign sale contracts had not  been sent to IDCO does not ipso facto lead to the conclusion that the  arbitrator  had no material before him  upon  which  he could  find in monetary terms the damages suffered by  JOPL. [237E] 7.   In the facts of the case, there are no  inconsistencies upon the face of the award as can be characterised as errors that vitiate the award.  An award has to be read as a  whole and  harmoniously.  The grounds upon which an award  can  be set aside are limited.  The court should be very circumspect about  setting aside an award reached by an  arbitrator  for parties have agreed that the disputes that may arise or have arisen between them should be resolved not by a court of law but by arbitration. [239H, 240A] 8.   Evidence  of  a "malady of the racket  of  arbitration’ should make the court scrutinies the award carefully in each case, but would not make the court declare all high  amounts of awards would be bad per se. (p.17)                                                   [240B-C] State of Orissa v. Gangaram Chhapolia, (1983) 5 OLJ 214  and State of Orissa v. Dandasi Sahu, [1988] 4 SCC 12.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 572 & 591  of 1980. From the Judgment and Order dated 7.11.79 of the Orissa High Court in Misc.  A.No. 92 of 1979. G.L.  Sanghi, Harish N. Salve, S. Khaitan and Darshan  Singh for  the Appellant in CA.  No. 572/80 and Respondent in  CA. No. 571/80.

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B.M.  Patnaik, R.K. Mehta and Ms. Mona Chakraborty  for  the Respondent  in CA.  No. 572/80 and for the Appellant in  CA. No. 571/80. The Judgment of the Court was delivered by BHARUCHA,  J.  These  are  cross appeals  and  they  can  be disposed   of   by  a  common  judgment.    The   Industrial Development  Corporation  of  Orissa  Ltd.  (IDCO))  is  the appellant  in  Civil  Appeal No. 571  of  1980  and  Jajodia (Overseas)  Private  Ltd. (JOPL) is the appellant  in  Civil Appeal No. 572 of 1980. 232     IDCO and JOPL entered into an agreement whereunder  IDCO agreed to supply to JOPL 5000 tons of M.S. Rounds for export on  the terms and conditions mentioned therein.   The  goods were not supplied.  By a letter dated 12th September,  1969, IDCO cancelled the agreement and intimated to JOPL that  its offer,  which  had culminated in the  agreement,  should  be treated as withdrawn.  There was some correspondence between the parties.  Thereafter the claim against IDCO for  damages for  breach  of contract made by JOPL was  referred  to  the Chief Secretary to the Government of Orissa, the  arbitrator named  in  the  agreement,  for  ’adjudication.   The  Chief Secretary  declined to act as arbitrator’.   Thereupon  JOPL filed  a suit under Section 20 of the Arbitration Act  1940, in  the  Calcutta High Court praying that the  agreement  be taken  on  file  and the dispute between JOPL  and  IDCO  be referred  to  an arbitrator to be nominated  by  the  court. That plaint was returned to JOPL to be presented before  the proper  court.   It  was  presented  in  the  court  of  the Subordinate  judge,  Bhubaneswar.  On 4th April,  1973,  the learned  Subordinate  Judge appointed Mr.  B.  Mohapatra,  a retired  Judge  of  the  Patna High Court  "to  act  as  the arbitrator  to  give his award on the disputes  between  the parties as enumerated in their respective pleadings and  the order  of this court.  Reference he made to  him  requesting him  to  make  the award by 30th June, 1974.   Copy  of  the plaint,  written  statement and the order of this  court  be sent to the arbitrator."    The  arbitrator  entered upon the  reference  and,  after hearing parties and considering the material placed upon the record  before him, gave an award on 24th  September,  1985. In the Preamble to the award the arbitrator set out  briefly some  of  the facts aforementioned.  The  arbitrator  stated that  issues had been settled for adjudication and that  the parties  produced  a  large number  of  documents,  examined witnesses and advanced elaborate arguments.  The arbitrator, having  given  careful  consideration  to  all  the  written statements,  documents and evidence and the  arguments,  set out  the  conclusions to which he had come upon  the  issues raised.  He concluded:               "  In  the result, my award  is  that  Jajodia               Overseas  Pvt.   Ltd. is entitled  to  recover               from the Industrial Development Corporation of               Orissa Rs. 11,00,344 only (eleven lakhs  three               hundred   forty-four)   with   pendente   lite               interest  at the rate of 6 per cent per  annum               from  28th  April, 1974 to the date  of  award               (24th September, 1975)".  233   The  award was challenged by IDCO before  the  Subordinate Judge,  Bhubaneshwar.  JOPL supported the award  and  prayed that  it be made a rule of the court with  future  interest. The learned Subordinate Judge dismissed IDCO’s petition  and made  the award a rule of the court ordering that  JOPL  was entitled  to future interest at the rate of 6 per  cent  per

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annum.   The  judgment and order, of the learned Subordinate  Judge was  impugned  before the Orissa High  Court.   The  learned Single  Judge who heard the appeal rejected all  contentions raised  on  behalf  of IDCO except one:  be  found  that  in answering  three  issues  the  arbitrator  had  arrived   at inconsistent conclusions which had a bearing on the question whether or not damages should be awarded.  The inconsistency was  not  a trifling or inconsequential  matter  and,  being apparent  on the face of the award, the learned  Judge  held that  the arbitrator had been guilty of legal misconduct  so that  the award was set aside.  The learned  Judge  directed that the records pertaining to the arbitration proceeding be sent  back  to the arbitrator, who was directed  to  give  a fresh award, after giving an opportunity of hearning to both parties, keeping in view the findings and observations  made in the judgment. Against  the  judgment and order of the Orissa  High  Court, both JOPL and IDCO are in appeal.  JOPL contends that  there is  no  inconsistency  upon  the face  of  the  award  which vitiates  it.   On behalf of IDCO it is contended  that  the award  is bad and that, in any event the High Court  was  in error  in  sending  the matter back to  the  arbitrator  for making a fresh award. It  was submitted by Mr. B.M. Patnaik, learned  counsel  for IDCO, that - (i)  No disputes which were referred to the Chief  Secretary by  JOPL  and  which were contained in the  plaint  and  the written    statement   before   the    Subordinate    Judge, Bhubaneshwar,  and  were referred by  the  said  Subordinate Judge  to the arbitrator were considered by  the  arbitrator because  these  documents were not mentioned in  the  award. Consequently, the arbitrator had acted without jurisdiction.   (ii)    That the award of damages was based on no evidence or material. 234 (iii)     The  answer by the arbitrator to issue No. 2,  set out  in the award, showed that the arbitrator had  construed the  agreement between the parties.  As such, the  agreement was incorporated in the award and it was, therefore, open to the  court  to  see  if  the  arbitrator  had  in  any  wise misconstrued the agreement. (iv) The  arbitrator had referred to the statement of  claim and the counter filed before him and had given findings.  As suck the statement of claim and the counter was incorporated in  the award so that the whole matter was open  before  the court. (v)  The award was a speaking award inasmuch as the  answers to the issues were the reasons for the award. (vi)There were inconsistencies in the answers to the  issues and the arbitrator  had,    therefore,   misconducted    the proceedings. (vii)In  any event, if at all the matter had to go back,  it should  not  go back to the arbitrator but to  the  arbitral tribunal now constituted in the State of Orissa. It is, we think, necessary, first, to clear some cobwebs.  A speaking  or reasoned award is one which discusses  or  sets out the reasons which led the arbitrator to make the  award. Setting out the conclusions upon the question or issues that arise in the arbitration proceedings without discussing  the reasons  for  coming to these conclusions does not  make  an award  a reasoned or speaking award.  The arbitrator has  in the  award  before  us only answered the  issues  that  were framed.  He has not discussed or set out the reasons for the answers.   The  award  is,  therefore,  not  a  speaking  or

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reasoned award. That  the arbitrator merely referred to the pleadings  filed before him does not mean that the pleadings are incorporated in the award.  As was aid in the context of a contract in  a passage,  quoted by this Court with approval in Allen  Berry and Co. v. Union of India AIR 1971 SC 696, from he  judgment of  Diplock,  LJ.  in Ciacomo Costa  Fu  Andrea  v.  British Italian Co.  Ltd., [1962] 2 All E.R. 53 :               "It  seems  to  me, therefore,  that,  on  the               cases, there is none which compels us to  hold               that  a mere reference to the contract in  the               award entitles us to look at the contract.  It               may be that                235               in particular cases a specific reference to  a               particular   clause   of   a   contract    may               incorporate  the contract, or that  clause  of               it, in the award.  I think that we are  driven               back  to  first  principles  in  this  matter,               namely,  that an award can only be  set  aside               for  error which is on its face.  It  is  true               that an award can incorporate another document               so as to entitle one to read that document  as               part  of  the award and, by the  reading  them               together,  find  an error on the face  of  the               award."               "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." The arbitrator merely referred to the fact that parties  had "filed  their statements" before him and that he  had  given "careful  consideration  to  all  the  written   statements, documents and evidence and the arguments".  This is not such a  reference  as can be said to  incorporate  the  pleadings before him in the award. Reference  was made to issue No.2 and its answer and it  was contended  that the arbitrator had thereby made  a  specific reference  to the agreement and it must, therefore, be  held that the agreement was incorporated in the award.  Issue No. 2 and the answer to it read thus: "Issue Was the said agreement a commission agency or export  agency agreement. Answer The  agreement  was  not  a  commission  agency  or   export agreement." In  the  first place, the pleadings before  the  Subordinate Judge,  Bhubaneshwar and the order of reference made by  him are  not  placed by IDCO before us.  If it was  IDCO’s  case that  no issue of law had specifically been referred to  the arbitrator, it was its obligation so to show.  But we  shall proceed on the basis that a specific question of law was not referred.   The  submission on IDCO’s behalf  was  that  the arbitrator misconstrued the 236 agreement  and,  therefore, the court was entitled  to  look into  the  agreement  and determine whether  the  award  was correct.   We  do not think that this  broad  submission  is

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correct.  It would appear that the arbitrator construed only such  clause  of  the agreement as was  relevant  to  decide whether   the  agreement  was,  as  contended  by  IDCO,   a commission  or export agency agreement.  Such  clause  alone would be incorporated in the award and could be looked at by the  court to determine whether the arbitrator  misconstrued it.   We cannot accede to the submission that, by reason  of the  answer  to  issue no. 2, the  entire  agreement  became incorporated  in the award and that it was, therefore,  open to the court to look into the entirety of the dispute in the arbitration proceedings and determine whether the award  was correct. Even  assuming the incorporation of the agreement, an  error apparent upon the face of the award had to be shown.  We may refer with advantage to this court’s judgment in Bungo Steel Furniture  Pvt.  Ltd. v. Union of India, [1967] 1  SCR  633. The court quoted the well-known passage from the judgment of Lord Dunedin in Champasey Bhara and Company v. Jivraj Balloo Spinning and Weaving Company Ltd., 50 I.A. 324, thus:               "An  error  in law on the face  of  the  award               means, in their Lordships’ view, that you  can               find  in  the  award or  a  document  actually               incorporated thereto, a:; for instance a  note               appended by the arbitrator stating 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               in   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."               It went on to observe:               ’An award may be set aside by the court on the               ground of an error of law apparent on the face               of  the  award  but an award  is  not  invalid               merely  because by a process of inference  and               argument  it  may  be  demonstrated  that  the               arbitrator  has  committed  some  mistake   in               arriving at his conclusion."  237    It  was  argued on behalf of IDCO before the  High  Court that the pleadings before the Subordinate Judge, Bhubneshwar and  the  order of reference to the arbitrator made  by  him were  not  before the arbitrator and  that,  therefore,  the arbitrator  had acted without jurisdiction.  The High  Court rejected that contention and made reference to the order  of the  Subordinate  Judge, which we have quoted  above,  which showed  that if directed that the copy of the pleadings  and of  itself should be sent by,. the Court to the  arbitrator. Before  us it was submitted that these pleadings  and  order had  not been considered by the arbitrator, because  he  had not mentioned them in the award.  Issues were framed by  the arbitrator,  obviously in consultation with the parties  and arising  upon the pleadings.  There were  several  hearings. It is, in these circumstances, inconceivable that the issues would  not have reflected the referred dispute  between  the parties.   It is also significant that the pleadings  before the  Subordinate Judge, Bhubaneshwar, and the  statement  of claim  and the counter filed before the arbitrator were  not produced  before  us  by IDCO so  that  we  could  determine whether  the  statement of claim filed by  JOPL  before  the arbitrator  raised claims different from those contained  in the pleadings before the Subordinate Judge, Bhubaneshwar.

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  It  was submitted that the award of damages was based  on no  evidence or material.  The submission was based  on  the finding  that  the originals of the foreign  sale  contracts entered  into  by  JOPL in respect of the  goods  under  the agreement  had not been sent to IDCO.  That  these  original agreements had not been sent does not ipso facto lead to the conclusion  that the arbitrator had no material  before  him upon  which he could find that JOPL had suffered damage  and assess the same in monetary terms. This brings us to the question of the inconsistencies  found by  the High Court upon the face of the award.   The  issues and  the answers to which the High Court referred are  issue Nos. 6, 7(b) and 9(a). In our view, it is necessary to reproduce the issue nos.  6, 7, 9, and 10 and their answers in extenso. "Issues 6.   Did  the  claimant fulfil their obligations  under  the terms and conditions of the agreement. Answers JOPL  fulfilled  their obligations under  the  agreement  in question. 38 7.(a)  Did  the respondent ac-    IDC accepted  or  affirmed or  affirm  the claimant’s     the JOPL’s order  for  supply order for supply of 4000 ton   of 4000 tonnes. as  mentioned -nnes as mentioned in para 4 of the statement  of the claim ? (b)  Did the claimant send    JOPL did not send the original the foreign sale contracts    foreign     sale  contracts to originalnal foreign   sale    I.D.C. contractsto the respondent. 9.(a)  Were  the acts mentioned     The  agreement  provided inpara 10 of the counter-state    for JOPL sending the orig- ment covered by the agreement    nal foreign sale contracts                                 to the respondent at a                                  certain stage. Reference to                                  para 10 of the counter                                  statement IDC. (b)  Were the acts mentioned in  The agreement provided para 11 of the counter-state-       that JOPL would arrange  ment covered by the agree-          for export license, (Refer-  ment.                         ence to para 11 of the                                 counter-statement of IDC. (c) Were the acts mentioned    The agreement provided that in para-12 of the counter-     JOPL would procure orders statement covered by the       for export of 5000 metric agreeement?(JOPL)              tonnes of MS rounds within                                3 months from the date of                                acceptance of the IDC’s                                offer and they would follow                                up th indents placed by the                                respondent(IDC) for supply                                of billets and arrange for                                export licences, letter of                                authorisation from the Iron                                the Iron and Steel Controller                                in time (Ref. to para 12 of                                 counter statement of IDC).  239 (d) Were the acts mentioned in    The ’acts’ mentioned in    para 13 of the counter-state   para 13 of the counter   -ment covered     by the    statement by IDC are cov-    agreement.                     red by the previous three                                   paragraphs(10, 11 and

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                                 12) of that statement                                   and they have been                                   already dealt/with under                                   sub issues. (a),(b)                                   above. If so, did the party concer-     The party concerned that ned perform such Acts?           is the JOPL performed                                  their part of the work                                  as was necessary under the                                  agreement at relevant                                  stage. 10. Was the respondent jus-     IDC was not justified in tified in cancelling the        cancelling the agreement". agreement? It  will  be  seen that the award says  that  the  agreement provided   for  JOPL  sending  the  original  foreign   sale contracts  to  the respondent at a certain stage."  It  also says  that  "JOPL  fulfilled  their  obligations  under  the agreement  in question" and that "JOPL performed their  part of the work as was necessary under the Agreement at relevant Stage"  On the other hand, it says that ’JOPL did  not  send the  original  foreign sale contracts to I.D.C.’  The  award then  finds  that "IDC was not justified in  cancelling  the agreement".  (Emphasis supplied).  Reading these issues  and answers  together and harmoniously, it is apparent that  the agreement  provided  that  JOPL  should  send  to  IDCO  the original  foreign sale contracts at a certain point of  time and  that  it is found that JOPL had not sent  the  original foreign sale contracts to IDCO.  It is also apparent that it is  found that at the point of time at which IDCO  purported to  cancel  the  agreement,  JOPL  had  performed  all   its obligations under the agreement.  The conclusion is,  there- fore, that upto that point of time JOPL had not been obliged to send the foreign sale contracts to IDCO.  So read, in our view,  there  are no inconsistencies upon the  face  of  the award  as  can be characterised as errors that  vitiate  the award.  An award has to be read as a whole and harmoniously. The  grounds  upon  which  an award can  be  set  aside  are limited.  The court 240 should  be  very circumspect about setting  aside  an  award reached  by an arbitrator for parties have agreed  that  the disputes  that may arise or have arisen between them  should be resolved not by a court of law but by arbitration. Mr.  Patnaik  pointed  out that the Orissa  High  Court  had recognised  that ’the malady of the racket  of  arbitration" affected its State of Orissa v. Gangaram ahapolia, (1983)  5 OLJ  214 and that this had been taken note of by this  court in State of Orissa v. Dandasi Sahu [1988] 4 SCC 12.  The court said:               "In our opinion, the evidence of such state of               affairs should make this court scrutinise  the               award  carefully in each particular  case  but               that does not make the court declare that  all               high amounts of awards would be bad per se." We are in respectful agreement.  We do not, having  bestowed due care upon the award and the arguments advanced to assail it, find the award to be bad in law. Having  regard  to the view that we take,  the  question  of setting   aside  the  award  and  sending  the   arbitration proceedings  back  to  the arbitrator  or  to  the  arbitral tribunal now created in the State of Orissa does not arise. In the result, Civil Appeal No. 571 of 1980 (filed by  IDCO) is dismissed.  Civil Appeal No. 572 of 1980 (filed by  JOPL) is  allowed  and the judgment and order of  the  Subordinate

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Judge, Bhubaneshwar dated 9th March, 1979 is restored. There shall be no order as to costs. U.R.                          CA No. 571/80-dismissed.                               CA. No. 572/80-allowed. 241