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PETITIONER: UNION OF INDIA

       Vs.

RESPONDENT: BUNGO STEEL FURNITURE PVT.  LTD.

DATE OF JUDGMENT: 14/09/1966

BENCH: RAMASWAMI, V. BENCH: RAMASWAMI, V. BHARGAVA, VISHISHTHA DAYAL, RAGHUBAR

CITATION:  1967 AIR 1032            1967 SCR  (1) 324  CITATOR INFO :  R          1971 SC 696  (5)  RF         1972 SC1507  (28,30)  F          1973 SC 683  (10)  F          1975 SC 230  (13)  RF         1980 SC1896  (107)  F          1988 SC1791  (10)  R          1988 SC2018  (9)  RF         1990 SC1340  (13,16)  R          1992 SC 732  (10,26,30,33)  E&R        1992 SC2192  (5)

ACT: Arbitration-Error of law apparent on the face of award, what is Jurisdiction of court to examine evidence. Code   of  Civil   Procedure  (Act  5  of  1908),   s.   34- Applicability  to  arbitration  proceedings-Jurisdictin   of arbitrator to award future interest.

HEADNOTE: The disputes between the appellant and respondent in  regard to  certain  contracts were referred  to  arbitration.   The award  was  sought to be set aside on the grounds  that  the arbitrator  committed  an error : (i) with  respect  to  the deduction of an amount, and (ii) by granting future interest from the date of award till the date when the court passed a decree   in  terms  of  the  award.   For  the  purpose   of establishing  the  first  error  the  appellant  relied   on affidavits  filed and statements made by the parties  before the arbitrator. HELD  : (i) The award of an arbitrator can be set  aside  on the  Around of error of law on the face of the  award,  only when  in  the award or in a document  incorporated  with  it there is found some legal proposition which is the basis  of the  award  and  which  is  erroneous.   The  court  has  no jurisdiction to investigate into the merits of the case  and to  examine the documentary and oral evidence on the  record for  the  purpose  of  finding  out.,  whether  or  not  the arbitrator has committed an error of law. [327 A-B] Champsey Bhare & Co. v. Jivraj Balloo Spinning & Weaving Co. Ltd. 50 I.A. 324, applied. (ii) The  arbitrator had jurisdiction to, grant interest  on

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the amount of the award from the date of the award till  the date  of  the  decree as all  questions  including  that  of interest were referred to the arbitrator.  It is an  implied term  of the -reference that the arbitrator will decide  the dispute according to existing law and give such relief  with regard  to interest as a court could give if it decided  the dispute.   Though,  in terms, s. 34 of the  Civil  Procedure Code   does  not  apply  to  arbitration  proceedings,   the principle  of that section may be applied by the  arbitrator for  awarding interest in cases where a court of  law  could grant a decree for interest under the section. [329 A-D] Seth  Thawardas Pherumal v. Union of India, [1955] 2  S.C.R. 48, explained. Firm Madanlal Roshanlal Mahajan v. The Hukumchand Mills Ltd. Indore, [1967] 1 S.C.R. 105, followed.

JUDGMENT: CIVIL  APPELLATE JURISDICTION : Civil Appeals Nos.  373  and 543 of 1965. Appeals from the judgment and decree/order dated the  August 1,  1962 of the Calcutta High Court in Appeals Nos. 132  and 32 of 1961. N.   S. Bindra and R. N. Sachthey, for the appellant (in the both appeals).  325 A.   K. Sen, Uma Mehta, P. K. Chatterjee and P. K. Bose, for the respondent (in both the appeals). The Judgment of the Court was delivered by Ramaswami, J. These appeals are brought by certificate  from the judgment of the Calcutta High Court dated August 1, 1962 in  Appeals Nos. 32 and 132 of 1961 by which the High  Court allowed the appeals’against the Union of India  (hereinafter called  the ’appellant’) in part and modified the  award  of the arbitrator and the/judgment of Mallick, J. The  disputes  relate  to  3 contracts  for  the  supply  of bedsteads  by  the  respondent-Bungo  Steel  Furniture  Pvt. Ltd.-(hereinafter  called the ’Company’) to  the  appellant, namely,  contract  No.  A.T. 3116 for the  supply  of  17202 bedsteads,  contract No. A.T. 767 for the supply  of  30,000 bedsteads and contract No. A. T. 816 for the supply of 7,000 bedsteads.   Each  of these contracts  contained  the  usual arbitration  clause  embodied  in  cl.  21  of  the  general conditions of contract in form No. W.S.B. 133.  The disputes arising  between  the Company and the appellant out  of  the three  contracts  were referred to the  arbitration  of  Sir Rupen  Mitter.   The  award  of  the  arbitrator  is   dated September  2, 1959.  The arbitrator found that  the  Company was entitled to be credited with the sum of Rs.  11,64,423/- on account of the price (inclusive of the price of steel) of the bedsteads supplied under the three contracts made up  of (a)  a  sum  of  Rs. 4,12,848/-  for  the  price  of  17,202 bedsteads supplied under contract No. A.T. 3116 at Rs.  24/- per  bedstead,  (b) Rs. 7,05,000/- for the price  of  30,000 bedsteads supplied under contract No. A.T. 767 at Rs. 23/8/- per  bedstead  and (c) Rs. 46,575/- for the price  of  2,025 bedsteads  supplied  under  contract  No.  A.T.  816.    The appellant  undertook to supply the requisite steel at  basic rates and the price of steel so supplied was payable by  the Company  on presentation of material release  orders  called ’M.R.Os’. The arbitrator found that the Company was entitled to  a credit for Rs. 3,42,737/- for payment on  M.R.0s.  for the price of steel and the appellant was entitled to credits for Rs. 29,188/- on account of railway freight and transport

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charges,  for Rs. 9,71,030/- on account of payments made  to the  Company directly and for Rs. 4,95,060/- on  account  of price of steel supplied to the Company.  The arbitrator also found  that the appellant had deducted Rs.  3,57,500/-  from bills  of the Company on account of the price of  steel  and upon  that finding the arbitrator subtracted the sum of  Rs. 3,57,500/-   from  the  price  of  steel  credited  to   the appellant. The appellant thereafter applied to the Calcutta High  Court for setting aside the award on the ground that there was  an error  of  law  apparent on the face of the  award  and  the arbitrator had 326 also  exceeded  his  authority in  awarding  interest.   The application  was  dismissed by Mallick, J. by  his  judgment dated July 27, 1960 and a decree was granted to the  Company on  the  basis of the award.  The  appellant  preferred  two appeals to the High Court from the judgment of Mallick,  J., namely, Appeals Nos. 32 and 132 of 1961.  These appeals were heard by the Division Bench consisting of Bachawat and  Laik JJ. who allowed the appeal in part and reduced the principal amount  adjudged  to  be  payable under  the  award  by  Rs. 30,970/_ and modified the award accordingly- The  first  question to be considered in  these  appeals  is whether the arbitrator committed an error of law in  holding that  the  appellant had deducted Rs.  3,57,500/-  from  the bills of the Company with regard to contracts other than the three contracts of bedsteads which are the subject matter of the present case, and whether the arbitrator could  subtract the aforesaid amount of Rs. 3,57,500/from the price of steel credited  to the appellant.  On behalf of the  appellant  it was  contended  by  Mr. Bindra that  the  deduction  of  Rs. 3,57,500/-  had  been made from the bills submitted  by  the Company  for the price of the bedsteads supplied  under  the three contracts Nos.’A. T. 3116, A. T. No. 767 and A. T. 816 and  the  arbitrator should not have debited  the  appellant with this amount.  It is not possible for us to accept  this argument.  The award of the arbitrator does not show on  its face  that  the amount of Rs. 3,57,500/- has  been  deducted from the bills submitted by the Company for the price of the bedsteads  under the three contracts.  The relevant  portion of the award states:               "I hold that the steel of different categories               amounting to 1908 tons and odd of the value of               Rs.  4,95,060/calculated  at basic  rates  had               been   supplied  by  the  Government  to   the               Company.   I  further  hold  that  the   whole               quantity of steel had been used in making  the               7000 bedsteads under A. T. 3116, A. T. 767 and               7000  bedsteads  under  A.T.  816  leaving  no               surplus.   I also hold that the  Company  paid               for  the  price of steel on  the  M.R.0s.  Rs.               3,42,737/-   and  that  the   Government   had               deducted  Rs. 3,57,500/- from bills.   I  hold               that the Company did not supply any steel from               its own stock." There  were  conflicting statements of the  parties  in  the affidavits  filed by them before Mallick, J.  in  connection with  the  application  for setting aside  the  award.   The affidavit  filed  by  the appellant dated  January  5,  1957 before  the  arbitrator suggests that at least part  of  the deductions were made from bills submitted by the Company  in other  contracts.   On behalf of the  appellant  Mr.  Bindra referred  to the affidavits and the statements  made  before the arbitrator, but it is well-settled that the Court has no

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juris- 3 2 7 diction  to investigate into the merits of the case  and  to examine the documentary and oral evidence on the record  for the purpose of finding out whether or not the arbitrator has committed  an  error  of  law and  that  the  award  of  the arbitrator can be set aside on the ground of error of law on the  face  of  the  award only when in the  award  or  in  a document  incorporated  with  it, as  for  instance  a  note appended by the arbitrator stating the reasons for his deci- sion,  there  is found some legal proposition which  is  the basis  of the award and which is erroneous.  In the  present case,  the  affidavits  filed  by  the  parties  before  the arbitrator  are  not  incorporated in the award  and  it  is therefore  not  permissible for the court to  examine  these affidavits in order to ascertain whether the arbitrator  has committed any error of law.  In Hodgkinson v. Fernie(1)  the law on this point has been clearly stated by William, J,  as follows:               "The law has for many years been settled,  and               remains so at this day, that where a cause  or               matters  in  difference  are  referred  to  an               arbitrator,  whether a lawyer or a layman,  he               is constituted the sole and final judge of all               questions both of law and of  fact............               The  only exceptions to that rule, are,  cases               where the award is the result of corruption or               fraud, and one other, which though it is to be               regretted,    is   now,   I   think,    firmly               established,  viz., where the question of  law               necessarily  arises on the face of the  award,               or  upon some paper accompanying  and  forming               part  of the award.  Though the  propriety  of               this latter may very well be doubted, I  think               it may be considered as established." The decision of this case was approved by the Judicial  Com- mittee  in  Champsey  -Bhara and Company  v.  Jivraj  Balloo Spinning  and  Weaving  Conmpany,  Ltd.,(2)  in  which   the appellants  sold  cotton to the respondents  by  a  contract which  contained a submission to arbitration of disputes  as to  quality, and a further clause submitting to  arbitration all other disputes arising out of the contract.  Cotton  was delivered, but the respondents objected to its quality,  and upon  arbitration an allowance was awarded; the  respondents thereupon  rejected  the  cotton.   The  appellants  claimed damages  for  the rejection.  The dispute  was  referred  to arbitration  and  the award recited that  the  contract  was subject to the rules of the Bombay Cotton Trade Association, which were not further referred to; and that the respondents had  rejected  on  the grounds contained in a  letter  of  a certain  date.   That  letter  stated  merely  that  as  the arbitrators  had made an allowance of a certain  amount  the respondents  rejected the cotton.  The High Court set  aside the  award,  holding that it was bad on its  face,  in  that under  one of the rules of the Association  the  respondents were (1) 3 C. B. (N.  S.) 189 at p. 202. (2) 501.A. 324. 328 entitled to reject without liability.  It was held on appeal by  the Judicial Committee that the award could not  be  set aside  and  though the award recited that the  contract  was subject to the rules of the Bombay Cotton Trade Association, yet those rules were not so incorporated in the award as  to entitle the Court to refer to them for ascertaining  whether

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there  was  an  error  of law on  the  face  of  the  award. Applying  the principle to the present case, it is  manifest that  there is no error of law on the face of the award  and the  argument  of the appellant on this aspect of  the  case must fail. We  next proceed to consider the argument of  the  appellant that the arbitrator had no authority to award interest  from the date of the award dated September 2, 1959 to the date of the decree granted by Mallick, J. i.e., August 2, 1960.   In support of this contention Counsel for the appellant  relied upon  the  following  observations  of  Bose,  J.  in   Seth Thawardas Pherumal v. The Union of India(1).               "It was suggested that at least interest  from               the  date  of ’suit’ could be awarded  on  the               analogy  of section 34 of the Civil  Procedure               Code,  1908.   But section 34 does  not  apply               because  an arbitrator is not a court’  within               the  meaning  of the Code nor  does  the  Code               apply to arbitrators, and, but for section 34,               even a Court would not have the power to  give               interest after the suit.  This was, therefore,               also rightly struck out from the award." This  passage  supports the argument of the  appellant  that interest cannot be awarded by the arbitrator after the  date of  the award but in later cases it has been pointed out  by this  Court  that  the  observations of  Bose,  J.  in  Seth Thawardas  Pherwnal  v.  The  Union  of  India(1)  were  not intended   to  lay  down  such  a  broad   and   unqualified proposition (See CT.  A. CT.  Nachiappa Chettiar and  others v. CT.  A. CT.  Subramaniam Chettiar,(2) and Satinder  Singh v. Amrao Singh)(3).  In Seth Thawardas Pherumal v. The Union of India(4), the material facts were that the arbitrator had awarded interest on unliquidated damages for a period before the   reference  to  arbitration  and  also  for  a   period subsequent  to the reference.  The High Court set aside  the award  regarding interest on the ground that the  claim  for interest was not referred to arbitration and the  arbitrator had no jurisdiction to entertain the claim.  In this  Court, counsel for the appellant contended that the arbitrator  had statutory power under the Interest Act of 1839 to award  the interest  and, in any event, he had power to award  interest during the pendency of the arbitration (1) [1955] 2 S. C. R. 48,65. (2) [1960] 2 S. C.  R. 209, 238, (3) [1961] 3 S. C. R. 676, 695.  329 proceedings  under  s’ 34 of the Code  of  Civil  Procedure, 1908.   Bose, J. rejected this contention, but it should  be noticed that the judgment of this Court in Seth  Thawardas’s case(1)   does  not  deal  with  the  question  whether   the arbitrator  can award interest subsequent to the passing  of the  award if the claim regarding interest was  referred  to arbitration.   In the present case, all the disputes in  the suit,  including the question of interest, were referred  to the  arbitrator  for  his decision.   In  our  opinion,  the arbitrator  had jurisdiction, in the present case, to  grant interest  on  the amount of the award from the date  of  the award till the date of the decree granted by Mallick, J. The reason  is that it is an implied term of the reference  that the arbitrator will decide the dispute according to existing law and give such relief with regard to interest as a  court could give if it decided the dispute.  Though, in terms,  s. 34  of  the  Code  of Civil  Procedure  does  not  apply  to arbitration proceedings, the principle of that section  will be applied by the. arbitrator for awarding interest in cases

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where  a court of law in, a suit having jurisdiction of  the subject-matter  covered  by s. 34 could grant a  decree  for interest.   In  Edwards v. Great Western Ry.(2) one  of  the questions at issue was whether an arbitrator could or  could not  award interest in a case which was within s. 28 of  the Civil  Procedure  Act, 1833.  It was held by  the  Court  of Common Pleas that the arbitrator, under a submission of "all matters in difference", might award the plaintiff  interest, notwithstanding  the  notice  of action did  not  contain  a demand of interest; and, further, that, assuming a notice of action  to have been necessary,the want or insufficiency  of such notice could not be taken advantage of, since the 5 & 6 Viet.  C. 97, s. 3, unless pleaded specially.  In the course of his judgment Jarvis C. J. observed               "A  further  answer would be, that this  is  a               submission, not only of the action, but of all               matters in difference; and the interest  would               be a matter in difference, whether demanded by               the notice of action or not.  If the  arbitra-               tor  could give it, he might give it  in  that               way,  notwithstanding  the want  of  claim  of               interest in the notice." This clearly decides that, although the Civil Procedure Act, 1833,  speaks  in terms of a jury, and only confers  upon  a jury a discretionary right to give interest, none the  less, if  a  matter was referred to an  arbitrator-a  matter  with regard  to  which  a  jury  could  have  given   interest-an arbitrator  may equally give interest, and that despite  the language  used in that Act.  The principle of this case  was applied  by the Court of Appeal in Chandris v.  Isbrandtsen- Moller Co. InC.(3) and it was held that though in terms s. 3 of  the  Law  Reform (Miscellaneous  Provisions)  Act,  1934 giving  the  court power to award interest on  any  debt  or damages (1) [1955] 2 S. C. R. 48.  (3) [1951] 1 K. B. 240. (2) (1851) 11 C. B. 588. 3 3 0 did  not apply to an arbitrator, it was an implied  term  of the  contract that the arbitrator could award interest in  a case where the court could award it.  It was pointed out  by the Court of Appeal that the power of an arbitrator to award interest,  was  derived from the submission  to  him,  which impliedly   gave  him  power  to  decide  "all  matters   in difference"  according  to  the existing  law  of  contract, exercising  every right and discretionary remedy given to  a court of law; that the Law Reform (Miscellaneous Provisions) Act  1934, which repealed s. 28 of the Civil Procedure  Act, 1833, was not concerned with the powers of arbitrators;  and that  the plaintiff was entitled to the interest awarded  by the arbitrator. The legal position is the same in India.  In Bhwanidas  Ram- Gobind v. Harasukhdas Balkishandas(1) the Division Bench  of the Calcutta High Court consisting of Rankin and  Mookerjee, JJ. held that the arbitrators had authority to make a decree for  interest  after  the date of the  award  and  expressly approved the decision of the English cases-Edwards v.  Great Western  Ry.,(2) Sherry, v. Oke(3) and Beahan  v.  Wolfe(4). The  same view has been expressed by this Court in a  recent judgment in Firm Madanlal Roshanal Mahajan v. The Hukamchand Mills Ltd., Indore(5) We are accordingly of the opinion that the arbitrator had authority to grant interest from the date of  the award to the date of the decree of Nallick,  J.  and Mr.  Bindra  is  unable to make good his  argument  on  this aspect of the case. For these reasons we affirm the decree of the Calcutta  High

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,Court  dated August 1, 1962 and dismiss these appeals  with costs. V. P. S.                         Appeals dismissed. (1) A.I.R. 1924 cal. 524. (2) (1851) 11  C.B. 588. (3) (1835) 3 Dow. 349-1 H. & W. 119. (4) (1832) 1  Al. & Na. 233. (5)  [1967] S.C.R. 105. 331