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PETITIONER: STATE OF RAJASTHAN

       Vs.

RESPONDENT: R.S. SHARMA & CO.

DATE OF JUDGMENT16/08/1988

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

CITATION:  1988 SCR  Supl. (2) 441  1988 SCC  (4) 353  JT 1988 (4)    18        1988 SCALE  (2)644

ACT:     Arbitration  Act,  1940:  Sections 14, 17,  30  and  33- Award- Setting aside of by Court- Error apparent on race  of award-  Award not invalid where by process of inference  and argument  it  may be demonstrated that  the  arbitrator  had committed mistake in arriving at some conclusion.

HEADNOTE:     A dispute over the completion of construction work under a  contract led to the litigation between the appellant  and the respondent-company. However, during the pendency of  the proceedings in the High Court, the parties agreed to  settle the dispute through arbitration.     The  Arbitrators  gave  their award  in  favour  of  the respondent-company  on  the ground that  the  appellant  had committed breach of contract and was also guilty of wrongful revocation  of the agreement. The award did not contain  any reason as to why and how the Arbitrators had arrived at  the sum awarded.     The  appellant  filed  objection  to  the   respondent’s application  for making the award Rule of the Court  on  the ground inter alia that (i) no reasons had been given for the award, (ii) the award being ambiguous showed non-application of  mind,  and  (iii) the amount  of  interest  awarded  was unjustified.   The  learned  District  Judge   allowed   the objection and set aside the award on the ground of ambiguity and  non-statement  of  reasons. The  High  Court,  however, allowed the respondent’s appeal and also directed payment of interest  for  the  period  during  which  the   arbitration proceedings were pending.     Before  this  Court  it  was  urged  that,  because  the question  whether  on the ground of absence of  reasons  the award   is  bad  per  se  is  pending  consideration  by   a Constitution  Bench of this Court, the present  case  should await adjudication on this point by the Constitution Bench.     Disposing of the appeal, it was,     HELD:  (1)  One  of  the  cardinal  principles  of   the administration  of justice is to ensure  quick  disposal  of                                                   PG NO 441                                                   PG NO 442 disputes in accordance with law, justice and equity. Justice between  the parties in a particular case should not  be  in

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suspended animation. [445B-C, G]     (2)  Interests of justice and administration of  justice would not be served by keeping at bay final adjudication  of the  controversy in this case on the plea that the  question whether  an  unreasoned  award is bad  or  not,  is  pending adjudication by a larger Bench. [445E-F]     (3)  It is not known whether the decision of this  Court would have prospective application only in view of the  long settled  position of law on this aspect in this  country  or not. [445G]     (4)  The  law as it stands today is  clear  that  unless there is an error of law apparent on the face of the  award, the  award  cannot  be challenged merely on  the  ground  of absence of reasons. This is settled law by a long series  of decisions. [445E]     (5) An award is not invalid merely because by a  process of  inference and argument it may be demonstrated  that  the arbitrator  had committed some mistake in arriving  at  some conclusion. [446B]     (6)  It is not open to the Court to speculate, where  no reasons are given by the arbitrator, as to what impelled the arbitrator to arrive at his conclusions. [446C]     Jivarajbhai Ujamshi Sheth v. Chintamanrao Balaji & Ors., [1964] 5 SCR 480, referred to.     (7) It is an error of law apparent on the face of it and not  a  mistake  of  fact which  could  be  the  ground  for challenging the award. [446F]     Union of India v. Bungo Steel Furniture P. Ltd.,  [1967] 1  SCR 324 and Allen Berry & Co. P. Ltd. v. Union of  India, [1971] 3 SCR 282, referred to.     8.  In the present case the arbitrator gave  no  reasons for  the award. There is no legal proposition which  is  the basis of the award, far less any legal proposition which  is erroneous.  And there is no allegation of any misconduct  in the proceedings. [446E-F]     (9) The award of interest pendente lite in this case was in  violation  of the principles enunciated by  this  Court. [447B]                                                   PG NO 443     Executive  Engineer  (Irrigation) Balimela  v.  Abhaduta Jena, [1988] 1 SCC 418, followed.     Food  Corporation of India v. M/s. Surendra  Devendra  & Mohendra Transport Co., [1988] 1 SCC 57, explained.

JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 3054  of 1988.     From  the  Judgment  and Order dated  16.3.1988  of  the Rajasthan High Court in S.B. Civil Miscellaneous Appeal  No. 240/1987.     K.  Parasaran,  Attorney  General,  B.L.  Saruparia  and Badridas Sharma for the Appellant.      Soli J. Sorabjee, Paras Kulad, Rohinton F. Nariman  and Rathin Das for the Respondent.     The Judgment of the Court was delivered by     SABYASACHI   MUKHARJI,  J.  Leave  granted.  Appeal   is disposed of by the judgment herein.     This  appeal challenges the order of the High  Court  of Rajasthan,  dated 16th March, 1988. The respondent’s  tender for construction of complete  masonry dam (Civil Engineering Works)  Mahi Bajaj-Sagar Project, Banswara, was accepted  by the appellant for a sum of Rs.5,90,30,791 vide letter  dated 29.4.1974  and  a  provisional agreement  was  entered  into

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between  the  parties  on 23.5.1975.  The  construction  was commenced by the respondent-company but it did not  complete the same and, it is alleged, left the work unfinished in the year 1979, which was of the value of Rs. 1,79,80,054.     The  letter  of acceptance was dated  23.5.1975.  It  is stated  that the respondent did not start the work in  spite of  written notices and, ultimately, by a letter dated  24th December,  l979  of the Executive Engineer  (Dam  Division), Banswara,  the  respondent  was  informed  that  as  it  had committed breach of the conditions of the contract, the same had been terminated and that the State Govt. would  complete the  work under the clauses and conditions of the  contract. The work had to be completed departmentally at the cost  and risk  of  the  respondent-company.  After  some   litigation between  the parties when the Civil Revision was pending  in the High Court of Rajasthan at Jodhpur, a compromise between                                                   PG NO 444 the  parties was arrived at on the 13th April, 1982. It  was agreed   that   the  dispute  would   be   settled   through arbitration.  By  an  agreement dated 13th  June,  1982  the parties named their arbitrators.     The arbitrators entered upon the reference on 19th June, 1982. On 5th May, 1982, the respondent-company presented its claims   under  40  heads  claiming  a  total  sum  of   Rs. 1,90,53,059.28.  This  amount was later on  revised  to  Rs. 1,82,20,261.02. The State filed a counter-claim for a sum of Rs. 1,70,63,026.37 which was revised to Rs. 1,25,706,17.  It is  stated that the arbitration proceedings  were  conducted for  52  days during which the number of  sittings  was  25. Various issues were framed. Minutes of the proceedings  were recorded. The arbitrators gave the award on 8.12.1982. It is stated  that the award did not contain any reason as to  why and  how they had arrived at the figure of Rs. 75,41,755  in favour  of  the  respondent-company.  The  award,   however, mentioned  that the State of Rajasthan committed  breach  of contract  and was also guilty of wrongful revocation of  the agreement and the actions taken under Clauses 2 and 3 of the conditions  of the Contract, were wrongful and  unjustified. However. no reasons were indicated as to how the arbitrators arrived at those findings.     The respondent filed an application in the Court of  the learned  District  Judge for making the award  Rule  of  the Court.  The  appellant, however, filed an objection  on  the grounds  inter  alia that no reasons had been given  by  the arbitrators for the award and the amount of interest awarded was unjustified. It was further averred that the award being ambiguous,  showed non-application of mind and the  question as  regards  the plant machinery of  the  respondent-company lying  at  the  dam  site, were  beyond  the  scope  of  the arbitrator.     The  learned  District Judge by his judgment  and  order dated 11th August, 1987 allowed the objection and set  aside the award on the ground of ambiguity and non-application  of mind. The award also suffered from the vice of non-statement of  reasons,  according  to  the  learned  District   Judge. According to him, the award was not in accordance with  law. He further held that the plant & machinery lying at the  dam site  was beyond the reference made to the  arbitrators.  He was  of the opinion that the interest amount  was  ambiguous and thus liable to be set aside. THere was an appeal to  the High  Court. The High Court allowed the appeal and passed  a decree for Rs. 75,41,755 being the amount of all claims  and directed that the State should pay interest @ 5% p.a. on the said amount for the period from 1.8.1983 to 8.12.1985, being the  period  during which the arbitration  proceedings  were

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                                                 PG NO 445 pending. This decision of the High Court is under  challenge in this appeal.     It was contended before us that the question whether  on the  ground of absence of reasons, the award is bad per  se, is  pending  consideration by a Constitution Bench  of  this Court  in C.A. No. 3137-39/85, 3145/85-  Jaipur  Development Authority v. Firm Chhokhamal Contractor etc. It was,  hence, urged  that this should await adjudication on this point  by the  Constitution  Bench.  We  are  unable  to  accept  this contention. In our opinion pendency of this question  should not  postpone  all  decisions  by this  Court.  One  of  the cardinal  principles of the administration of justice is  to ensure  quick disposal of disputes in accordance  with  law, justice and equity. In the instant case the proceedings have long  procrasticated. Indeed, the learned Judge of the  High Court,  after  narrating the incidents from  1975  to  1985, concluded his judgment in March 1988 by observing that  that was the end of the journey. He was wrong. That was only  the end  of a chapter in the journey and the appellant wants  to begin  another chapter in the journey on the plea  that  the award  is  not a reasoned one. The  bargaining  between  the parties  was entered into in 1974-75 and the award was  made on  8th December, 1985 i.e. a decade after the beginning  of the transaction.     The law as it stands today is clear that unless there is an error of law apparent on the face of the award, the award cannot  be  challenged merely on the ground  of  absence  of reasons. This is settled law by a long series of  decisions. Interests of justice and administration of justice would not be  served  by  keeping at bay  final  adjudication  of  the controversy  in  this  case on the plea  that  the  question whether  an  unreasoned  award is bad  or  not,  is  pending adjudication  by  a larger Bench. There have  been  a  large number of sittings before the arbitrators. Parties have been heard. There was no misconduct in the proceedings. There has been  no violation of the principles of natural justice.  In such  a situation it would be inappropriate to postpone  the decision  pending adjudication of this question by a  larger Bench  of this Court. We do not know how long it would  take to  decide that question, and whether ultimately this  court would  decide  that  unreasoned awards per  se  are  bad  or whether the decision would have prospective application only in  view of the long settled position of law on this  aspect in  this country or not. Justice, between the parties  in  a particular  case, should not be in suspended animation.  Law as it stands today, as observed in Jivarajbhai Ujamshi Sheth &  Ors. v. Chintamanrao Balaji & Ors., [1964] 5 SCR  480  is that award made by an arbitrator is conclusive as a judgment between  the parties and the Court is entitled to set  aside an award only if the arbitrator has misconducted himself  in                                                   PG NO 446 the  proceedings or when the award has been made  after  the issue  of an order by the Court superseding the  arbitration or if the arbitration proceedings have become invalid  under Sec.  35 of the Arbitration Act or where an award  has  been improperly procured or is otherwise invalid under Sec. 30 of the  Act.  An  award may be set aside by the  Court  on  the ground  of error 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  had committed  some mistake in arriving at some  conclusion.  In that  decision Shah, J. and Sarkar, J. as the learned  Chief Justices then were, were of the view that it was not open to the  Court to speculate, where no reasons are given  by  the

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arbitrator, as to what impelled the arbitrator to arrive  at his  conclusions.  They  held  the  award   not   severable. Hidayatullah,  J.  as the learned Chief  Justice  then  was, observed  that  if the parties set limits to action  by  the arbitrator, then the arbitrator had to follow the limits set for  him and the Court can find his auxiliary  jurisdiction. Instant case before us is also not a severable award.     In  Firm Madanlal Roshanlal Mahajan v. Hukumchand  Mills Ltd., Indore [1967] 1 SCR 105 Bachawat, J. speaking for  the Court  observed  that an arbitrator could give  a  lump  sum award.  He was not bound to give a separate award  for  each claim.  His  award  on both fact and law is final. There  is no  appeal  from his verdict. The Court  cannot  review  his award  and correct any mistake in his  adjudication,  unless an objection to the legality of the award is apparent on the face of it.     In  the present case the arbitrator gave no reasons  for the award. There is no legal proposition which is the  basis of  the  award,  far less any  legal  proposition  which  is erroneous. Also there is  no allegation of any misconduct in the proceedings. It is an error of law  apparent on the face of it and not mistake of fact which could be the ground  for challenging   the   award.  See  in  this   connection   the observations  in Union of India v. Bungo Steel Furniture  P. Ltd.,  [1967] 1 SCR 324. Also see the observations  of  this Court in Allen Berry &  Co. (P) Ltd. v. Union of India,  New Delhi, [l971] 3 SCR 282. Hence, the High Court was right  in the instant case.     There  is,  however,  one  infirmity  in  the  award  as sanctioned  by the High Court, that is to say, the grant  of interest  pendente  lite. The arbitrators have  observed  as follows :     "By  adjustment  of  interest  held to  be  due  to  the Respondents  with  that held to be due to the  Claimants  on their items of claims which were not in the nature of  claim                                                   PG NO 447 for damages for breach, we hold that the Respondents do  pay Rs. 17,92,957 (Rupees seventeen lacs ninetytwo thousand nine hundred fiftyseven only) as interest, to the Claimants  upto the  date  of  the AWARD. Claimants further do  pay  to  the Respondents Rs. Nill."     This  was  awarding interest pendente lite. This  is  in violation  of  the principles enunciated by  this  Court  in Executive Engineer (Irrigation), Balimela & Ors. v. Abhaduta Jena  & Ors., [1988] 1 SCC 418. Our attention was  drawn  by Shri  Soli J. Sorabjee, counsel for the respondent,  to  the decision  of  this  Court in Food Corpn. of  India  v.  M/s. Surendra,  Devendra & Mohendra Transport Co., [1988]  1  SCC 547 where at pages 555-556 of the report, the Court referred to   certain  decisions  cited by  Chinnappa  Reddy,  J.  in Executive  Engineer  (Irrigation), (supra) in which  he  had expressed  the  view  that those were  cases  in  which  the references to arbitration were made by the Court or in Court proceedings of the disputes in the suit. In that context  it was  held  in those cases that the arbitrator had  power  to grant  interest. It was contended before us that this was  a similar  case.  There was a Court proceeding  in  this  case regarding the appointment of the arbitrator and, as such, on the  same analogy it should be treated  that the  arbitrator had power to grant interest. We are unable to accept this.     What  Mr justice O. Chinnappa Reddy meant to say by  the latter  judgment  in Executive Engineer  (Irrigation),  case referred to in Food Corporation of India, (supra) was  where the disputes regarding the merit of the case were pending in the Court and such disputes instead of being decided by  the

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Court adjudication had been referred to an arbitrator by the Court,  in such cases the arbitrators deciding in the  place of  the Court, would have the same powers to grant  interest pendente  lite  as the Courts have under Section 34  of  the Civil Procedure Code. Instant case is not such a proceeding.     In that view of the matter this part of the award, which was affirmed by the High Court of granting of interest, must be deleted. We do so accordingly.     Shri K. Parasaran, learned Attorney General, assures  us that the amount awarded as modified, would be paid within  8 weeks from today.     The  appeal is thus disposed of without any order as  to costs. R.S.S.                                  Appeal disposed of.