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PETITIONER: UPPER GANGES VALLEY ELECTRICITY SUPPLY COMPANY LTD.

       Vs.

RESPONDENT: U.P. ELECTRICITY BOARD

DATE OF JUDGMENT19/12/1972

BENCH: CHANDRACHUD, Y.V. BENCH: CHANDRACHUD, Y.V. KHANNA, HANS RAJ VAIDYIALINGAM, C.A.

CITATION:  1973 AIR  683            1973 SCR  (3) 107  1973 SCC  (1) 254  CITATOR INFO :  RF         1989 SC 890  (18,30)

ACT: Arbitration Act (10 of 1940), s. 30--Speaking award -Error apparent  on  its face with respect to a  severable  Item-if entire  award should be set aside-Court, if may amend  award instead of remitting it.

HEADNOTE: The respondent took over the appellant’s Undertaking, in May 19591,  but  as  the parties were at variance  on  the  true market  value to ’,- paid to the appellant, the  matter  was referred to arbitration.  As the arbitrators were unable  to agree on the question whether the appellant was entitled  to compensation for the ’service lines which were laid with the help  of contributions made by consumers, they referred  the question to the umpire.  The umpire framed an issue and gave a finding that the appellant was not entitled to claim  from the respondent the value of the portion of the service lines which  were laid at the cost of the consumers, for the  sole reason that they were, laid at the cost of the consumers. The  appellant  filed  an application under  s.  30  of  the Arbitration Act, 1940, challenging the validity of the award on  the  question.   The lower court  and  High  Court  hold against the appellant. Allowing the appeal to this Court, HELD : (1) The appellant’s application for setting aside the award could succeed only if there was an error of law on the face  of the award.  The other conditions of s. 30  have  no bearing on the, case. (2)The  umpire had made a speaking award and there was  no question of the construction of any document  incorporated in or appended to the award.  If it is transparent from  the award  that  a leggal proposition which forms its  basis  is erroneous, the award is liable to be set aside.[111 D] Unionof  India Y. Bugo Steel Furniture P. Ltd.,  [1967] (1) S.C.R. 324, M/S. Allen Berry and Co. P., Ltd. v. The Union of India, A.I.R. 1971 S.C. 696, followed. (3)The  conditions of licence, the provisions of  the  Act namely, ss. 2(f), (1) and (n), 3(f), 7(1) as it stood at the

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time  of  taking over, Section 8 of the  Indian  Electricity Act, 1910, Paragraph VI of, the Schedule to the Act, and the legal  position,  all point only in one direction  that  the appellant  is  entitled  to  receive  compensation  for  the service  lines  laid  at the cost  of  the  consumers.   The umpire, however, in his calculations, had expressly excluded the  value of the portion of service lines installed at  the cost of consumers.  In making the exclusion, the umpire  had therefore  mis-conducted himself in law rendering his  award erroneous on its face. [113G] 108 Calcutta  Electric  Supply Corporation  v.  Commissioner  of Wealth-tax, West Bengal, 82 I.T.R. 154 referred to. (4)The  reference to the arbitrations in the present  case was  on the broad question of the fair market value  of  the appellant’s  undertaking, and the parties did not refer  any specific   question   of  law  for  the  decision   of   the arbitrators.   Therefore,  the  decision  in  Durga   Prasad Chamria  and Anr. v. Sewkishendas Bhatter, A.I.R. 1949  P.C. 334 has no application. [115B] (5)The  part  of  the  award,  which  is  invalid,   being severable   from   that  which  is  valid,   there   is   no justification for setting aside the entire award. [115D] (6)This  Court  should itself amend the award  instead  of remitting it in the interests of justice and to avoid  undue delay in a dispute pending since 1959. [115E] (7)The consumers’ contribution for laying the service line were made from April 1, 1958 to March 31, 1959.  The, taking over of the undertaking by the respondent being in May 1959, the  consumers’  contribution would  roughly  represent  the market  value of the service lines, even if, as required  by the  first proviso to s. 7(1) as it then stood,  due  regard was to be had to the nature and condition of the ’works’, to the  circumstance that they ate in such a Position as to  be ready  for immediate working, and to their  suitability  for the  purposes  of  the  undertaking.   Therefore,  the   sum representing  the consumers’ contributions should  be  taken into  account  in arriving at the price to be  paid  to  the appellant. [115G],

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal  No.  1314  of 1967. Appeal  by special leave from the judgment and decree  dated April  15, 1966 of the Allahabad High Court in F.A.F.O.  No. 279 1963. B.   Sen and S. N. Mukherjee, for the appellant. C.   B. Agarwala, O. P. Rana and Ravinder Bana, for the res- pondent. The Judgment of the Court was delivered by CHANDRACHUD, J. On February 5, 1929 the Governor-in  Council of  the then Government of the United Provinces  granted  to Messrs.   Martin  &  Co. a licence under section  3  of  the Indian  Electricity Act, 1910 for supply of electric  energy within  the  Districts  of Bijnor  and  Moradabad.   Messrs. Martin  &  Co., who were Managing Agents of  the  apppllants company,  assigned  that licence to it.  By a  notice  dated January  31, 1957 the Government of Uttar Pradesh  exercised its  option to purchase the Undertaking of the appellant  on the  expiry of two years from the date of the notice.   This period  was  on appellant’s request, extended  till  May  4, 1959.  The respondent-Uttar Pradesh State Electricity, Board was constituted on April 1, 1959 and under section 71 of the

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109 Electricity (Supply) Act, 1948, the option of the Government of  Uttar Pradesh to purchase electrical undertakings  stood transferred to the respondent. By a letter dated May 1, 1959 respondent informed the appel- lant  that  it had decided to purchase  the  Undertaking  on payment  of a sum of Rs. 25,38,407/-, being the fair  market value  of all its assets, inclusive of solatium.  On May  4, 1959  respondent  made a provisional payment  of  rupees  15 lakhs  to  the appellant which, the  latter  accepted  under protest.   The Undertaking was eventually taken over by  the respondent on May 4/5, 1959. Being unable to agree on the true market value of the Under- taking,   parties   referred  their   differences   to   two arbitrators.   Out of the several contentions raised  before the  arbitrators, we are concerned with one only :  Whether, in  the computation of the market value of its  Undertaking, the appellant was entitled to compensation for the  "service lines"  which were laid with the help of contributions  made by consumers.  On this question, arbitrators were unable  to agree  and therefore they referred it to the decision of  an umpire, Shri Randhir Singh. Out of the eight issues framed by the umpire, issues 1  (a), 1 (b), 7 and 8 only are relevant.  These issues read thus : Issue No. 1 (a) : Is the Board entitled to get a credit  for the  amount of consumers’ contribution paid for the  service lines, laid on their premises and at their cost ? Issue  No.  1  (b) : What is the amount  of  the  Consumers’ contribution  for the period 1st of April, 1958 to 4/5  May, 1959 ? Issue No. 7 : Has any excess- payment been made by the Board to  the Company ? If so are the Board entitled to a  refund, and  interest thereon ? What should be the rate of  interest if any ? Issue  No.  8  :  What was the  fair  market  value  of  the Undertaking on the midnight of 4/5 May 1959 ? Issue No. 1 (a) : "The Company is not entitled to claim from the  Board  the value of the portion of  the  service  lines which were laid at the cost of the consumers." Issue  No. 1 (b) : "The Consumers’ contribution from  1.4.58 to 31st of March, 1959 is Rs. 2,38,255/-.  The amount of the contribution  from  1.4.59  to 415 May, 1959  has  not  been proved." On  Issue  No.  8,  the umpire found that  on  the  date  of purchase,  the  fair market value of  the  assets  of  the Undertaking was 110 Rs.  23,81,670/-.  As the appellant had already  received  a sum  of  rupees  15 lakhs from the  respondent  and  as  the respondent  was  entitled to a refund of Rs.  9,80,238/-  on account  of  security deposits held by  the  appellant,  the Umpire  came to the conclusion by his award  dated  November 27,  1961 that the appellant had received Rs.  9,8,568/-  in excess of the amount of the fair market value.  On Issue No. 7, the Umpire accordingly held that the respondent had  made an excess payment of the. aforesaid amount to the  appellant which  the latter was liable to refund with future  interest as awarded. The  appellant,  by an application under section 30  of  the Arbitration  Act, 1940 challenged the validity of the  award in  the  court of the Civil Judge, Moradabad on  the  ground that  the  Umire  had legally misconducted  himself  in  not awarding  compensation for the service lines.   The  learned Judge upheld a part of the award, to the extent to which the market value of the Undertaking was fixed at Rs. 23,81,670/-

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but   he   set  aside  the  rest  of  it.    Obviously,   he misunderstood  the appellant’s contention in regard  to  its right  to  receive compensation for the service  lines.   He mixed  up that claim with the claim in regard  to  security deposits  and  overlooked  considering  the  main   question whether  the appellant was entitled to compensation for  the service lines. The appellant filed an appeal in the High Court of Allahabad against that judgment while the respondent filed its  cross- objections.   By  a judgment dated April  15,1966  the  High Court  held  that the Umpire was justified  in  refusing  to award  compensation to the appellant for the service  lines. ’the  appeal as well as the cross-objections were  dismissed by the High Court.  This appeal by special leave is directed against that judgment. The  only  point  of dispute in the appeal  is  whether  the appellant is entitled to compensation for the service lines. Before  considering  this  question,  it  is  necessary   to emphasise  that these proceedings arise, not out of  a  suit but  out  of an application made under section  30  of-  the Arbitration  Act,  1940 for setting aside  an  award.   That section provides that an award shall not be set aside except on one or more of the grounds therein mentioned.  Two of the three  grounds on which alone an award is liable to  be  set aside under section 30 are that the arbitrator or umpire has misconducted  himself or the proceedings, or (ii)  that  the award has been improperly procured or is otherwise invalid. It is well settled that if parties constitute an  arbitrator as the sole and final judge of the disputes arising  between them, they bind themselves as a rule to accept the award  as final and conclusive.  An award is Ordinarily not liable  to be set aside on the 111 ground that either on facts or in law, it is erroneous.   In Hodgkinson v. Fernie(1) the true principle_was states thus : "Where  a cause or matters in difference are referred to  an               arbitrator.  He  is constituted the  sole  and               final  judge of all questions both of law  and               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." This view was cited with approved in Union of India v. Bungo Steel Furniture P. Ltd.(2) and was recently adopted in  Mls. Allen Berry and Co. P. Ltd. v. The Union of India. (3) It is therefore plain that the appellant’s application for setting aside the award can succeed only if there is an error of law on  the face of the award.  The other conditions of  section 30 have no. bearing on the case. It  is  unnecessary  to consider the  comprehension  of  the expression "on the face of the award" because the Umpire has made  a speaking award and there is no question here of  the construction  of  a document incorporated in  the  award  or appended to it.  If it is transparent from the award that  a legal  proposition which forms its basis is  erroneous,  the award would be liable to be set aside. In order to find the true legal position, it is necessary to look at a few provisions of the Indian Electricity Act, 1910 (herein,  "the  Act").  Section 2(1) of the Act  defines  a’ "service "line" as meaning any electric supply-line, through which  energy  is, or is intended to be, supplied (i)  to  a

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single   consumer  either  from  a  distributing   main   or immediately  from  the supplier’s premises or  (ii)  from  a distributing  main  to  a group of  consumers  on  the  same premises  or  on adjoining premises supplied from  the  same point  of  the  distributing  main.   Under  section   2(c), "consumer" means any person who is supplied with energy by a licensee  or  by  the Government.  Under  section  3(f)  the provisions  contained in the Schedule to the Act are  to  be deemed  to be incorporated’ with and to form part  of  every licence  granted under the Act, save in so far as  they  are expressly added to, varied or excepted by the licence. Paragraph VI(1) of the Schedule casts on the licensee an ob- ligation, subject to certain exceptions, to supply  electric energy to the opner or occupier of premises situated  within the area of (1) 1857 (3) C.B. (N.S.) 189. (3)  A.LR. 1971 S.C. 696. (2) [1967] 1 S.C.R. 32,4. 112 supply,  within one month of the requisition.  Under  clause (b) of the first provision to Paragraph VI(1), however,  the licensee  is  not  bound to  comply  with  such  requisition unless,   among   other  things,  the  person   making   the requisition,  if required by the licensee so to do, pays  to the licensee the cost of so much of any service line as  may be  laid down or placed for the purposes of the supply  upon the property in respect of which the requisition is made. Section  7 of ’the Act, as it stood then, conferred  on  the State Government an option to purchase the undertaking of  a licensee " on payment of the value of all lands,  buildings, works, materials and plant of the licensee suitable to,  and used  by  him for, the purposes of  the  undertaking-."  The first  proviso to section 7(i) said that "the value of  such lands,  buildings,  works, materials and IC plant  shall  be deemed  to  be  their  fair market  value  at  the  time  of purchase,  due regard being had to the nature and  condition for the time being" of such lands, buildings, works etc. Section  2  (n) defines "work’ to include  electric,  supply line  and any building, plant, machinery, apparatus and  any other  thing of Section 2(f) defines "electric supply  line" as  meaning  a  wire,  conductor or  other  means  used  for conveying, transmitting or distributing energy. It  is patent from these provisions that the  appellant  was entitled to receive compensation for the service lines  laid with the help of contributions made by consumers.  Section 7 (1  ) of the Act conferred upon the appellant the  right  to receive  the  fair  market value of  "works’  amongst  other assets.   Under section 2(n) "’works" includes  an  electric supply-line  and  by reason of the definitions  in  sections 2(f) and (1), a supply-line includes a service line. Under  paragraph  VI (2) of the Schedule, any  service  line laid for the purpose of supply in pusuance of a  requisition made  by  a consumer has to be maintained by  the  licensee, "notwithstanding that a portion of it may have been paid for by  the  person  making  the  requisition";  the   licensee, however,  has  the right to use such service fine  "for  the supply of energy to any other person".  Under section, 8  of the  Act,  if neither the State Electricity  Board  nor  the State  Government  nor  the local authority  is  willing  to purchase  a  licensee’s  undertaking  and  the  licence   is revoked,  the  licensee  has the right to  dispose  of  "all lands,  buildings, works, materials and plant  belonging  to the undertaking in such manner as he may think fit". An  interesting  sidelight  of the issue  involved  in  this appeal  is  H that in 1923, the Government of India  in  its

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Department of Industries and Labour, had sought the  opinion of the officiating  113 Advocate-General, Bengal, on the, "question of ownership  of the service line the cost of which has been paid for by  the consumer".   Shri B. L. Mitter who was then the  officiating Advocate-General opined that "the property in a service line is  in  the  licensee It makes  no  difference  whether  the consumer  pays for any portion under schedule rule VI(  1  ) (b).   The service line is part of the "Works’ (Sec. 2)  (n) and the licensee maintains it.  Schedule VI(2)".  In 1924, a copy  of  this opinion was forwarded by  the  Government  of India to The Government of the United Provinces., When years later,  the  same  question cropped  over  once  again,  the Government of Uttar Pradesh informed all the electric supply undertakings in the State by their letter dated December  5, 1952 that the Government had decided "that the ownership  of a service line vests in the licensee irrespective of whether the cost of the whole or part of it, has been paid for by  a consumer or not". On March 10, 1953, the, Government of Uttar Pradesh sent  an intimation  to all the electricity supply companies  in  the State  including  the appellant that the Governor  of  Uttar Pradesh  had,  under section 21 (2) of the  Act,  given  his sanction  to  an amendment or modification in  the  existing conditions  of the licences by the addition of a new  clause 4. That clause reads thus : "The whole of the service line, irrespective of the  payment made  by the consumer, shall be and remain the  property  of the company to whom and at whose cost it shall be maintained and  the  Company  reserves the  rights  to  extend.  alter, remodel or replace the said service line or cable to  afford a supply to other consumers, should this be necessary." Finally,  it is of some relevance that in Calcutta  Electric Supply  Corporation  v.  Commissioner  of  Wealth-tax,  West Bengal(1), it was held by this Court that service lines laid with the help of contributions made by consumers for a  part of  the licensee’s wealth for the purposes of computing  the net wealth under Wealth-tax Act, 1957. The conditions of the licence, the provisions of the Act and the  legal position point only in one direction :  that  the appellant  is  entitled  to  receive  compensation  for  the service  lines  laid at the cost of the consumers.   In  the award. the Umpire has made calculations for arriving at  the market   value  of  the  appellant’s  undertaking  and   has expressly  excluded therefrom the "value of the  portion  of services installed at the cost of the consumers." In (1) 82 I.T.R. 154. 9-L631 SupCI 73 114 making  this exclusion, the Umpire misconducted  himself  in law, thereby rendering the award erronous on its face. The reason for this error may easily be this : Under section 7 of the Act to which we have called attention, the licensee was  entitled  to the "payment of the value  of  all  lands, buildings,  works"  etc.  This section, along  with  certain others,  was amended by the Electricity (Amendment) Act,  32 of  1959,  which came into force on September 5,  1959.   By this amendment, a new section 7A was inserted in the Act  in order to provide for the "Determination of purchase  price". Under the relevant part of sub-section (2) of that  section, the market value of an undertaking is to be the value of all lands,  buildings,  works etc. other  than  "service  lines. C  ....  which  have  been constructed  at  the  expense  of consumers".    The  appellant’s  undertaking   having   been

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acquired  on 4/5 May, 1959, the provisions of old section  7 and  not  of  the newly added section 7A  would  govern  his rights.   The  Umpire made his award on  November  27,  1961 relying, probably, on section 7A which had no application. Learned  counsel  for the respondent is right  that  even  a mistake  of law cannot vitiate the award unless the  mistake is apparent on the face of the award.  But here, the  Umpire framed  specific  issues for decision, the  first  of  these being : whether the respondent was "entitled to get a credit for  the  amount  of consumers’ contribution  paid  for  the service  lines. laid on their premises and at  their  cost". The  finding  of  the Umpire on this  issue  was  that  "The Company is not entitled to claim from the Board the value of the portion of the service lines which were laid at the cost of  the consumers".  The calculations made by the Umpire  in the  award  for ascertaining the true market  value  of  the appellants undertaking show that the " value of the  portion of  services  installed at the cost of  the  consumers"  was expressly excluded from the total market value of the assets of the undertaking.  It seems beyond the pale of controversy that the Umpire did not award compensation to the  appellant in  respect  of the service lines for the sole  reason  that they  were laid at the cost of the consumers.  Some  market- value the service-lines must have had, even if it be no more than the scrap value.  But to the way of thinking which  the Umpire  adopted, that consideration had no  relevance.   The service-lines  were paid for by the consumers and that.  for the Umpire, was the end of the matter.  That, patently,  was the wrong end, Respondent  drew  our  attention to the  decision  in  Durga Prasad Chamria and Anr. v. Sewkishendas Bhattar and  Ors.(1) in  which  it  was  held  that  if  a  question  of  law  is specifically referred to an (1)  A.T.R. 1949 P.C. 334. 115 arbitrator  for his decision. it would be contrary to  well- established principles for a court of law to interfere  with the  award,  even  if the court itself would  have  taken  a different  view of the point of law, had it been before  it. This  decision can have no application because  the  parties here  did  not refer any specific question of  law  for  the decision  of the arbitrators.  The reference to  arbitrators was  on the broad question as to what was the  fair  market- value of the appellant’s undertaking.  Being unable to agree on this question, the two arbitrators referred the matter to an umpire.  The umpire raised a question of law and  decided it.  Parties had invited none to decide a specific  question of law. We are Dot disposed to hold, as contended by the respondent, that  if  a part of the award be found to  be  invalid,  the entire  award  should be set aside and remitted back  for  a fresh  decision.  The error which has occurred in the  award of  the  Umpire relates to a matter which  is  distinct  and separate  from  the rest of the award.  The  part  which  is invalid  being severable from that which is valid, there  is no justification for setting aside the entire award. Normally, we would have remitted the award for a decision in the  light  of our judgment but that is  likely  to  involve undue delay and expense in a dispute which is pending  since 1959.  Learned counsel for the appellant was agreeable  that we  should ourselves amend the award.  Learned  counsel  for the  respondent demurred but- he was unable to indicate  any cogent  reason why we should not adopt a course  which.  far from  causing any prejudice to the parties, was  clearly  in the interests of justice.

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The  Umpire  has  held that on the date of  sale.  the  fair market  value  of the appellant’s undertaking was  Rs.   ’23 81.670.  He arrived at this figure after excluding from  the total   market  value,  the  sum  of  Rs.   2,38.255   which represented  the  consumers’ contributions to  the  cost  of laying the service lines.  These contributions, according to him,  were made from April 1, 1958 to March 31,  1959.   The date of sale being 4/5 May, 1959 the consumers’ contribution will  roughly  represent the market value  of  the  service, lines even if, as, required by the first proviso to  section 7(1) of the Act as it then stood, due regard is to be had to the  nature and condition for the time being of the  "works" to  the  state of repair thereof, to the  circumstance  that they  are  in such a position as to be ready  for  immediate working and to the suitability of the same for the  purposes of the undertaking. Accordingly,  we  direct that the award of the  Umpire  will stand  amended to the extent that the fair market  value  of the appellant’s undertaking shall be Rs. 23,81,670 plus  Rs. 2,38,255, plus 116 Rs.  5,26,962/60 that is to say Rs. 31,46,887/60.   We  have not allowed solatium on the additional amount, so as to off- set  reasonable  depreciation in the value  of  the  service lines after they were laid. The  appeal is accordingly allowed to the  extent  indicated and with costs. V.P.S.                                                Appeal allowed. 117