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PETITIONER: MUNICIPAL CORPORATION OF DELHI

       Vs.

RESPONDENT: JAGAN NATH ASHOK KUMAR & ANR.

DATE OF JUDGMENT17/09/1987

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) OZA, G.L. (J)

CITATION:  1987 AIR 2316            1988 SCR  (1) 180  1987 SCC  (4) 497        JT 1987 (4)    25  1987 SCALE  (2)695  CITATOR INFO :  APL        1989 SC 268  (17)  RF         1989 SC 890  (29)  RF         1989 SC 973  (11)

ACT:      Arbitration Act,  1940: ss.  20, 30,  &  33-Arbitrator. Sole judge  of quality and quantity of evidence-When germane and relevant  reasons are  indicated by the arbitrator award not  unreasonable-Whether  time  essence  of  contract-Mixed question of law and fact.      Indian Evidence  Act, 1872:  s. 1-Applicability  of  to proceedings before an arbitrator.      Words and Phrases: Word "reasonable"-Meaning of. %      The respondent  no. 1  was awarded  a contract  by  the petitioner Corporation  for construction  of staff quarters, which was  later rescinded  on the  ground that he could not complete the work as per the schedule. A Single Judge of the High Court referred the dispute to an arbitrator.      The arbitrator in his award submitted to the High Court found that  there was  a delay  of nearly four months in the commencement of  the work due to giving of the lay out etc., that there  was also delay in the execution of sanitary work by another  contractor who  was previously employed and that this work  was still incomplete at the time of the making of the award,  and as  such complete  site had  not  been  made available to  the respondent-contractor  in time. He further found  that   there  was  provision  in  the  agreement  for extension of  time for completion of the contract as well as for levy  of compensation  for delay, that subsequent to the expiry  of   the  stipulated   period  of   completion   the petitioner-Corporation did  not make  time  the  essence  of contract by  directing the  claimant to  complete  the  work within  a   specified  period   but  instead  rescinded  the contract.  He,   therefore,  held   that  the   decision  of rescission of  the contract was bad, wrongful, and hence the claim of  the respondent  for Rs.23,820  was just.  He  also allowed interest  on the  sum from the date of rescission of the contract.  Certain counter  claims  of  the  petitioner- Corporation were also allowed by giving cogent }.1 reasons. 181      Rejecting the  objection to  the award  raised  by  the petitioner, the  Single Judge of the High Court directed the

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award to  be made  a rule  of the Court. A Division Bench of the High  Court summarily  dismissed the appeal against that judgment and order.      In the  special leave  petition to  this Court  on  the question: Whether  reasonableness  of  the  reasons  in  the speaking award  was justiciable  under Article  136  of  the Constitution.      Dismissing the special leave petition,

HEADNOTE:      HELD: 1.1 The reasonableness of the reasons given by an arbitrator in  making his  award  cannot  be  challenged  in proceedings under Article 136. [183E]      1.2 Appraisement  of  evidence  by  the  arbitrator  is ordinarily never  a matter  which the  court  questions  and considers. Section 1 of the Evidence Act, 1872 in its rigour is  not   intended  to   apply  to   proceedings  before  an arbitrator. In  the instant  case, the parties have selected their own  forum and the deciding forum must be conceded the power of appraisement of the evidence. The arbitrator is the sole judge  of the  quality as  well as quantity of evidence and it will not be for the Supreme Court to take upon itself the task  of being  a  judge  of  the  evidence  before  the arbitrator. It may be possible that on the same evidence the Court might  have arrived at a different conclusion than the one arrived at by the arbitrator but that by itself could be no ground  for setting  aside the  award of  an  arbitrator. 1186B-D]      Haji Ebrahim  Kassam Cochinwall  v. Northern Indian oil Industries Ltd., A.I.R. 1951 Calcutta 230, referred to.      2. There  was no violation of any principles of natural justice in  the instant  case. It  was not  a case where the arbitrator had  refused cogent  and material  factors to  be taken into  consideration. The award could not therefore, be said to  be vitiated  by non-reception  of material  or non- consideration of  the relevant aspects of the matter. [186A- B]      Mediterranean &  Eastern Export  Co. Ltd.  v.  Fortress Fabrics Ltd., 11948] 2 All. E.R. 186, referred to.      3. Whether  in  a  particular  contract  time  was  the essence of  the contract  or not, is a mixed question of law and fact.  In the  instant case,  the reasons  given by  the arbitrator in holding that it could not be taken 182 that time  was the  essence of the contract, were cogent and based on  materials on record and have a rational nexus with the conclusion arrived at by him. [184C;186A]      4. The  word ’reasonable’  have in  law the prima facie meaning of  reasonable in  regard to  those circumstances of which the actor, called on to act reasonably, knows or ought to know.  An arbitrator  acting as a Judge has to exercise a discretion informed  by tradition,  methodized  by  analogy, disciplined by  system, and  subordinated to  the primordial necessity of  order in  the social  life.  Therefore,  where reasons germane  and relevant  for the arbitrator to hold in the manner  he did  have been  indicated, it  cannot be said that it was unreasonable. [187E-F; 184E      Re a  Solicitor, [1945]  K.B. 368 at 371 of the Report) and Stroud’s Judicial Dictionary, Fourth Edition, page 2258, referred to.      In the instant case the arbitrator acted reasonably and rationally. The  challenge  to  the  award  was,  therefore, rightly rejected by the High Court. [187G]

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JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Special  Leave  Petition (Civil) No. 9524 of 1987.      From the  Judgment and  order dated  25.5.1987  of  the Delhi High Court in F.A.O.. No. 58 of 1987.      R.B. Datar and Ranjit Kumar for the petitioner.      The Judgment of the Court was delivered by      SABYASACHI MUKHARJI, J. The respondent No. 1 herein was awarded the  contract in  question for  the construction  of staff quarters  for the  Municipal Corporation of Delhi, the petitioner herein  and the  work had  to be completed within the stipulated  period mentioned  in  the  contract.  Since, however, the  work was  not being  done in the manner as the Delhi Municipal  Corporation thought  it ought  to have been done, the  petitioner wrote  29 letters during June, 1978 to July, 1980  regarding the  timely completion of the work. It is alleged  that the  work was  not completed by the 15th of January, 1980  as per  the schedule  in the  contract.  Show cause notice  was given  to the  respondent-contractor.  The contractor failed  to give  satisfactory reply and according to the  petitioner, the  contract  was  rescind.  Thereafter several other letters were written which are not material to refer. 183 There was  an arbitration  clause in  the agreement.  On 2nd November, 1982  an application was filed under section 20 of the Arbitration  Act, 1940 (hereinafter called ’the Act’) in the Delhi  High Court.  A learned  Single Judge  of the said High Court  directed reference  of the  dispute and directed the Commissioner  of the  Municipal  Corporation  or  anyone nominated by  him to  enter into reference. The Commissioner on 17th  of March,  1983 appointed  one Shri  S.M.  Hasnain, Arbitrator  and  Superintending  Engineer  No.  II,  of  the Municipal Corporation  of Delhi  as the  arbitrator.  He  is respondent No.  2 in  this  petition.  The  said  arbitrator entered upon the reference and thereafter on 21st of August, 1984  submitted  his  award  allowing  some  claims  of  the contractor  and   some  counter-claims   of  the   Municipal Corporation. The  Municipal Corporation filed its objections to the  said award.  The learned  Single Judge  of the  High Court by  his judgment and order dated 22nd of October, 1986 directed that  the award  be made  a rule  of the  Court.  A Letters Patent  Appeal was filed thereafter but the same was summarily dismissed  by a  Division Bench  of the Delhi High Court on  25th May, 1987. The petitioner seeks leave in this petition under  Article 136 of the Constitution to challenge the said  order. As  the learned Division Bench did not give reasons, we  must refer  to the  order of the learned Single Judge.      The arbitrator  gave reasons  in support  of the award. The question  is whether  reasonableness of the reasons in a speaking award  is justiciable  under  Article  136  of  the Constitution. We are of the opinion that such reasonableness of the  reasons given  by an  arbitrator in making his award cannot be challenged in a proceeding like the present. It is desirable,  however,  that  we  state  our  reasons  for  so holding.      In order to appreciate this the award of the arbitrator must be  looked into.  The arbitrator in his award has dealt with various claims, one of the main claims was the claim of 23,850 out  of which  8,300 was in the form of fixed deposit receipt carrying  interest and  the balance amount of 15,520

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was deducted  as security  of 10%  from  the  bills  of  the claimant. According  to the claimant this amount had wrongly been forfeited  by the Corporation at the time of rescission of the contract and that the same should be refunded to him. It was  held by  the arbitrator  that there was provision in the agreement  for extension  of time  for completion of the contract, as  well as  for levy  of compensation  for delay. Therefore, it  could not  be taken that time was the essence of the contract. The arbitrator had opined that according to the respondents’  own admission  there was  delay of  nearly four 184 Months in  the commencement of the work due to giving of the layout etc.  There  was  also  delay  in  the  execution  of sanitary work  by another  contractor previously employed by the petitioner  and this  work was  still incomplete  at the time of  the making  of the  award and as such complete site had not  been made  available to  the present  contractor in time. Further  there was  provision  in  the  agreement  for extension of  time or  levy of  compensation for  delay and, therefore, according  to the  arbitrator time  could not  be considered in  such a  contract to  be the  essence  of  the contract. Furthermore,  subsequent  to  the  expiry  of  the stipulated period  of completion,  the Corporation  did  not make time  the essence  of the  contract  by  directing  the claimant to  complete the work within a specified period but instead rescinded  the contract.  In those  circumstances it was held  by arbitrator  that the  decision of rescission of the contract  has bad,  wrongful  and  hence  the  claim  of Rs.23,820 was considered to be just. We do not find any lack of reason in the reasons given by the arbitrator. Whether in a particular  contract time  was the essence of the contract or not  is a mixed question of law and fact. But the reasons given by  the arbitrator  appear to  be reasonable  and have rational nexus with the conclusion arrived at by him. It was stated that  it was  admitted on  behalf of  the Corporation that there  was initial  delay  of  four  months.  This  was controverted by  the Corporation. They say that there was no admission. This,  in our  opinion was  a significant  factor that there  was some  delay and  in spite  of the  delay the corporation gave  letters to  the contractor to complete the work and  in the  contract itself  there was  provision  for extension of time. In our opinion, where reasons germane and relevant for  the arbitrator  to hold  in the  manner he did have  been   indicated,  it  cannot  be  said  that  it  was unreasonable. Another  factor the  arbitrator had  noted was that the  site was  not available  due  to  the  conduct  of another contractor  previously employed  by the  petitioner. This factor  is also  a relevant  factor. The fourth item of the award  was a  claim for  damages for  Rs.60,000().  This amount was  not granted  on the ground that the claimant was not able  to prove  this amount. The fifth item in the award was a  claim for interest at 18 % per annum on certain items from the  date of  rescission of the contract to the date of payment of  decretal  amount.  The  arbitrator  allowed  the interest as  the amount had been withheld due to unjustified and wrongful  rescission of  the contract.  Reasons given by the  arbitrator   appear  per   se  not   unreasonable.  The arbitrator has  not  awarded  any  costs.  There  were  also counter claims  by the  Corporation against  the contractor. The first  counter claim  was  forfeiture  of  Rs.23,820  on account on  the rescission  of the contract. Inasmuch as the rescission was  held to  be unjustified in the facts of this case, the forfeiture was also held to be wrongful. There was a claim of

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185 Rs.32,640 as  payment of compensation at 10% of Rs.3,28,400, but as  the time was not the essence of the contract and the rescission of the contract was unjustified, this claim could not be  sustained and  it was so rejected by the arbitrator. The next  claim was  for Rs.85,620  for the execution of the remaining work  at the  risk and cost of the respondent. The arbitrator found  that the contractor had as far as possible discharged his  contractual obligation and the rescission of the contract  was unjustified  and wrongful.  Therefore, the Corporation’s claim  for getting  the work  executed at  the risks and  costs of  the contractor  was unjustified and the claim was so logically rejected and no amount was awarded on that score.  The next  claim was  for Rs.2739  on account of mild steel  Lying with the contractor. On examination it was found that some quantities of steel had been consumed in the work and as such recovery could only be made for the balance quantity of  1172 kgs.  at the  recovery rate of Rs.1.50 per kg. and  the claim  was, therefore, allowed in favour of the Corporation for  Rs.1,758. The Corporation further claimed a sum of  Rs.6,083.20 on  account  of  non-return  of  certain steel. After  taking into  account the steel consumed in the work  and  after  allowing  for  permissible  variation  and wastage, it  was held  that recovery claim for Rs.3,862 only was justified.  The award  was made  accordingly. There  was another claim  of Rs.6,473 on account of penal rate recovery of mild steel. It was held for good reasons indicated in the award  that  the  claim  for  Rs.5,620  was  justified.  The Corporation claimed  Rs.13,578 for  penal rate  recovery  of cement  for  the  quantity  in  excess  of  the  theoretical consumption. After  going into  the material  the arbitrator found that the cement issued to the claimant was consumed in the work and the claim of the Corporation for the penal rate recovery was  not justified.  The next  was  the  claim  for Rs.1400 by  the Corporation  on account of non-return of 700 empty cement  bags to the Municipal store. This was enquired into and  found to  be justified  and a  sum of  Rs.1400 was awarded in  favour of  the Corporation.  There was a further claim of Rs.65 for adjustment of cost of steel on account of three transfer  entries. From  the  documents  produced  the claim was  awarded in  favour of  the Corporation.  The next claim was  for interest  at the rate of 12% per annum w.e.f. 1.9.81 on  the amount  of  alleged  counter-claim  preferred against the  claimant. As it was held that the rescission of the contract  was unjustified  and wrongful, the Corporation was at liberty to recover its justified claims from the dues of the  claimant at  its disposal and pay the balance amount to the  claimant within  a  reasonable  time.  There  was  a further claim  for Rs.10,000  as arbitration  costs and  the claim was  rejected. It  appears to  be very  reasonable and fair award. 186      In this  case, there was no violation of any principles of natural  justice. It  is not  a case where the arbitrator has refused  cogent and  material factors  to be  taken into consideration. The  award cannot  be said  to be vitiated by non-reception  of   material  or  non-consideration  of  the relevant aspects  of the matter. Appraisement of evidence by the arbitrator  is ordinarily never a matter which the Court questions and considers. The parties have selected their own forum and  the deciding  forum must be conceded the power of appraisement of the evidence. In the instant case, there was no  evidence  of  violation  of  any  principle  of  natural justice. The  Arbitrator in our opinion is the sole judge of the quality  as well as quantity of evidence and it will not

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be for  this Court  to take  upon itself the task of being a judge of  the evidence  before the  arbitrator.  It  may  be possible that  on the  same evidence  the Court  might  have arrived at a different conclusion than the one arrived at by the arbitrator  but that by it self is no ground in our view for setting aside the award of an arbitrator.      It is  familiar learning  but  requires  emphasis  that section 1  of the  Evidence Act,  1872 in  its rigour is not intended to  apply to proceedings before an arbitrator. P.B. Mukharji,  J.   as  the  learned  Chief  Justice  then  was, expressed the  above view  in Haji Ebrahim Kassam Cochinwall v. Nothern  Indian oil Industries Ltd., A.I.R. 1951 Calcutta 230 and  we are  of the  opinion that  this  represents  the correct statement  of law on this aspect. Lord Goddard, C.J. in Mediterranean  & Eastern  Export  Co.  Ltd.  v.  Fortress Fabrics Ltd.,  [1948] 2  All  E.R.  186  observed  at  pages 188/189 of the report as follows:           "A man  in the  trade  who  is  selected  for  his           experience would  be likely  to know and indeed to           be expected to know the fluctuations of the market           and  would  have  plenty  of  means  of  informing           himself or  refreshing his  memory on any point on           which he might find it necessary so to do. In this           case according  to the  affidavit of  sellers they           did take  the point before the Arbitrator that the           Southern African  market has  slumped. Whether the           buyers contested  that statement  does not  appear           but an  experienced Arbitrator  would know or have           the means  of knowing  whether that  was so or not           and to  what extent  and I  see no  reason why  in           principle he  should be  required to have evidence           on this  point any more than on any other question           relating to a particular trade. It must be taken I           think that  in fixing  the amount  that he has, he           has acted on his own knowledge and experience. The           day has long gone by when the Courts 187           looked with  jealousy on  the jurisdiction  of the           Arbitrators. The  modern tendency is in my opinion           more especially  in  commercial  arbitrations,  to           endeavour to  uphold Awards of the skilled persons           that  the  parties  themselves  have  selected  to           decide the  questions at issue between them. If an           Arbitrator has  acted  within  the  terms  of  his           submission and  has not violated any rules of what           is so  often. called  natural justice  the  Courts           should be slow indeed to set aside his award."      This in our opinion is an appropriate attitude.      In this  case the  reasons given  by the arbitrator are cogent  and  based  on  materials  on  record.  In  Stroud’s Judicial Dictionary,  Fourth Edition,  page 2258 states that it would  be unreasonable  to expect  an exact definition of the word  "reasonable". Reason  varies  in  its  conclusions according to  the idiosyncrasy  of the  individual, and  the times and  circumstances in  which he  thinks. The reasoning which built  up the old scholastic logic sounds now like the jingling of  a child’s  toy. But  mankind must  be satisfied with the  reasonableness within  reach;  and  in  cases  not covered by  authority, the verdict of a jury or the decision of a  judge sitting  as a  jury usually  determines what  is "reasonable" in  each particular case. The word "reasonable" has in  law the  prima facie meaning of reasonable in regard to those  circumstances of which the actor, called on to act reasonably, knows or ought to know. See the observations, in Re a Solicitor [ 1945] K.B . 368 at 371 of the report .

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    After all  an arbitrator  as a  Judge in  the words  of Benjamin N.  Cardozo, has  to exercise a discretion informed by tradition,  methodized by analogy, disciplined by system, and subordinated  to "the  primordial necessity  of order in the social life". F      Indeed reading  the award  of the arbitrator, one would say that he acted reasonably and rationally.      In  the  premises  the  award  of  the  arbitrator  was assailed on  trivial grounds  and the  challenge was rightly rejected by  the High  Court. The  respondent is entitled to the costs  of the  challenge upto  the High Court. So far as the costs  of this  petition to  this  Court  is  concerned, parties are  directed to  bear their  respective costs.  The petition for  leave to  appeal is,  therefore, dismissed and the leave refused. P.S.S.                                   Petition dismissed. 188