PETITIONER:
U.P. HOTELS ETC.
Vs.
RESPONDENT:
U.P. STATE ELECTRICITY BOARD
DATE OF JUDGMENT28/10/1988
BENCH:
MUKHARJI, SABYASACHI (J)
BENCH:
MUKHARJI, SABYASACHI (J)
RANGNATHAN, S.
CITATION:
1989 AIR 268 1988 SCR Supl. (3) 670
1989 SCC (1) 359 JT 1988 (4) 478
1988 SCALE (2)1235
ACT:
Arbitration Act, 1940: Sections 14, 17, 30 and 33-
Award- Setting aside of- Wrong proposition of law laid down
in award as basis of award.
HEADNOTE:
On taking over the Agra Electric Supply Co. in December
1973, the respondent- U.P. State Electricity Board-
intimated to the appellant- U.P. Hotels- that the Bulk
Supply Agreement between the appellant and the Agra Electric
Supply Co. would continue to be in force until such time the
agreement was determined in accordance with its relevant
provisions. The agreement contained terms of rates,
discounts, minimum sum payable and increase in the rates and
sums payable once a year on account of increase in cost of
production and distribution of electrical energy (clause 9)
and also contained an arbitration clause (clause 18).
In November 1976, the appellant received a communication
from the respondent informing that the uniform tariff rates
issued under section 49 of the Electricity Supply Act, 1949
would be applicable to them. The Board also withdrew the
contractual discount and rebates. While sub-sections (1) and
(2) of section 49, stipulate a uniform tariff for electric
supply, sub-section (3) authorises the Board to fix
different tariffs for the supply of electricity.
The appellant protested against this unilateral
increases and withdrawal, but without success. The appellant
then informed the respondent that it was referring the
disputes for decision by the arbitrator and appointed a
retired High Court Judge as its arbitrator. The respondent
in turn appointed another retired High Court Judge as a
joint arbitrator. The joint arbitrators appointed Justice V.
Bhargava, a retired Judge of the Supreme Court, as the
Umpire. The arbitrators having failed, the proceedings
started before the Umpire.
The Umpire gave his award in June 1983 and held that the
Board having accepted the agreement, it became binding on
the Board and once the agreement was binding, its terms
under sub-section (3) of section 49 could not be varied by
PG NO 670
PG NO 671
fixation of uniform tariff under sub-sections (1) and (2).
The Umpire further held that the present case was fully
covered by the decision of the Supreme Court in Indian
Aluminium Co. wherein it was held that where a stipulation
in a contract was entered into by a public authority in
exercise of a statutory power then, even though such
stipulation fettered subsequent exercise of the same
statutory power, it would be valid and the exercise of such
statutory power would pro tanto stand restricted. In that
view of the matter the Umpire held that in terms of clause 9
the increase in unit rate was permissible and the fuel cost
variation charges which were variable every month was
contrary to clause 9 as increase was permitted only once in
a year of accounts, and further that the appellant was
entitled to discount of 50% of the charges for electricity
and also to discount for prompt payment of bills.
Objections were filed by the respondent before the IInd
Additional District Judge during the proceedings initiated
for making the award the Rule of the Court. The IInd
Additional Distt. Judge set aside the award on the ground
that the reference made to arbitration was unilateral. In
appeal, the High Court, while holding against the above
finding of the IInd Addl. Judge, set aside the award on the
ground that the Indian Aluminium Co. case was inapplicable
to the present case, and the mistake committed by the Umpire
in this regard was error of law apparent on the face of the
award. The High Court held that even if the stipulation as
to the tariff structure in the agreement be taken to have
been Continued in existence in view of sub-section (3) of
section 49 of the Act, the same was not unrestricted, and
that the stipulation was expressly made subject to certain
reservations as would be clear from the opening sentence of
clause 9 of the agreement the main clause was "subject to
the provisions hereinafter contained". It was further held
that in drawing distinction between `rates' and `discount'
and upholding the right of the Board to tamper with the
former and negating similar right in respect of the latter,
the Umpire had committed an error.
Before this Court it was contended on behalf of the
appellant that a specific question of law being a question
of construction had been referred to the Umpire and hence,
his decision, right or wrong, had to be accepted.
On behalf of the respondent it was contended that there
was no specific question of law referred to the Umpire but
it was a general reference in which a question of law arose,
and that it was a question in the proceedings and the
question of law, as such, did not arise.
PG NO. 672
Allowing the appeal, it was,
HELD: (1) Even assuming that there was an error of
construction of the agreement or even that there was an
error of a law in arriving at a conclusion, such an error
was not an error which was amenable to correction even in a
reasoned award under the law. [683B]
(2) Where the question referred for arbitration is a
question of construction, which is, generally speaking a
question of law, the arbitrator's decision can not be set
aside only because the court would itself have come to a
different conclusion, but if it appears on the face of the
award that the arbitrator has proceeded illegally, as, for
instance, by deciding on evidence which was not admissible,
or on principles of construction which the law does not
countenance, there is error in law which may be ground for
setting aside the award. [683G-H; 684A]
(3) In order to set aside an award, there must be a
wrong proposition of law laid down in the award as the basis
of the award. [684D]
(4) In the instant case, a question of law arose
certainly during the course of the proceedings. Such a
question has been decided by the Umpire on a view which is a
possible one to take. Even if there was no specific
reference of a question referred to the Umpire, there was a
question of law involved. Even on the assumption that such a
view is not right, the award is not amenable to interference
or correction by the Courts of law as there was no
proposition of law which could be said to be the basis of
the award of the Umpire, and which was erroneous. [689B-Cl
(5) The Umpire in his award stated that the decision of
this Court covered and supported the claim of the claimant.
In the present case the only difference was that there was
only an agreement which was held by the Umpire to have
become operative. Once that agreement was binding on the
Board, its terms could not be vaired from the uniform rate
under sub-sections (1) and (2) of section 49. The Umpire was
right. The Umpire committed no error in arriving at such
conclusion. Further-more, such a conclusion was certainly a
possible view of the interpretation of the decision of this
Court in Indian Aluminium Co.'s case, if not the only view.
[688G-H; 689A]
Indian Aluminium Co. Ltd. v. Kerala Electricity Board,
[1976] 1 SCR 70; Coimbatore Distt. P.T. Sangam v. Bala
PG NO 673
Subramania Foundry, AIR (1987) SC 2045; Delhi Municipal
corpn. v. M/s Jagan Nath Ashok Kumar, AIR (1987) SC 2316;
M/s. Hindustan Tea Co. v. M/s. K. Sashikant & Co., AIR 1987
SC 81; Kanpur Nagar Mahapalika v. M/s. Narain Das Haribansh,
[1970] 2 SCR 28; Champsey Bhara & Co. v. Jivraj Balloo
Spinning & Weaving Co. Ltd., [1923] AC 480; Dr. S.B. Dutt v.
University of Delhi, [1959] SCR 1236; M/s. Kapoor Nilokheri
Co-op. Dairy Farm Society Ltd. v. Union of lndia, [1973] 1
SCC 708; Tarapore & Co. v. Cochin Shipyard Ltd. Cochin,
[1984] 3 SCR 118; Hitchins & Anr. v. British Coal Refining,
[1936] 2 A.E.R. Reprint 191; Pioneer Shipping Ltd. & Ors. v.
ETP Tioxide Ltd., [1981] 2 AER 1030, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 756 of
1988.
From the Judgment and Order dated 21.7.1987 of the High
Court of Allahabad in F.A.F.O. No. 106 of 1984.
F.S. Nariman, M.L. Verma, Jeet Mahajan and Ranjit Kumar
for the Appellats.
B. Sen, Gopal Subramanium and Mrs. Shobha Dikshit for
the Respondent.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, J. This appeal by special leave is
from the judgment and order of he High Court of Allahabad,
dated 21st July, 1987. The High Court has set aside the
award of the Umpire. To appreciate the decision and the
contentions urged, a few facts are necessary.
On or about 20th October, 1962 there was a Bulk Supply
Agreement entered into between Agra Electric Supply Co. Ltd.
and the appellant herein, for supply of electrical energy to
the latter’s hotel, inter alia, containing terms of rates,
discounts, minimum sum payable and increase in the rates and
sums payable once a year on account of increase in cost of
production and distribution of electrical energy. Clause 9
of the said agreement contained terms of the rate of supply
and the contingencies in which such rates could be
increased. The said Clause provided as follows:
PG NO. 674
“The consumer shall, subject to the provisions
hereinafter contained, pay to the Company for all electrical
energy supplied and registered or estimated as herein
provided at the rate of Rs.0.20 (Rupees zero decimal two
zero) per unit per month for all energy so supplied and
registered and/or estimated in the case of a defective meter
installation in accordance with the proviso to clause 6
thereof. The charge for all energy shall be subject to the
scale of special discounts in accordance with the schedule
annexed thereto.
Provided that, (without regard to the quantity of units
supplied) if the payment made or to be made for any one
English Calendar year ending 31st March in respect of the
electricity consumed shall fall short of a minimum sum of
Rs. 38640 (Rs. Thirty eight thousand six hundred and forty)
the consumer shall nevertheless pay to the Company such
amount in addition to the payments already made in respect
of the electricity consumed for such Calendar year as will,
being the total payment made in this respect to the said
minimum of Rs.38640 (Rs. Thirty eight thousand six hundred
and forty).
Provided Further that, in the event of the first and
last years of this Agreement not being complete calendar
year as aforesaid the Company shall make a proportionate
reduction on the aforesaid annual Maximum Demand and Minimum
charges in respect of the period for which the said first
and last year as the case may be shall be less than a
complete calendar year.
Provided also that. if and whenever during the
subsistence of this Agreement the Company is satisfied that
there has been an increase in the cost of production and
distribution of electrical energy it shall be at liberty
(but not more than once in any year of accounts) to increase
the rates and sums payable by the Consumer under the
foregoing provision of this present clause 9 by such amount
as it shall in its sole and absolute discretion decide.”
There was a clause providing for arbitration i.e. clause
18 which read as follows:
“If any question or difference whatsoever shall arise
between the parties to these presents as to the
PG NO 675
interpretation or effect of any provision or clause herein
contained or the construction thereof or as to any other
matter in anyway connected with or arising out of these
presents or the operation thereof or the rights, duties or
liabilities of either party in connection therewith, when
unless the means for deciding any such question or
difference is provided for by the Indian Electricity Act,
1910 or the Electricity (Supply) Act, 1948 as the case may
be, or by the rules made respectively under the said Acts or
by a specific provision of this Agreement, in every such
case the matter in difference shall be referred to the
Arbitration of two Arbitrators, one to be appointed by each
party hereto, and an Umpire to be appointed by the
Arbitrators before entering upon the reference and the
decision or award of the said Arbitrators or Umpire shall be
final and binding on the parties hereto and any reference
made under this clause shall be deemed to be a submission to
arbitration under the Indian Arbitration Act, 1940 (Act X of
1940) or any statutory modification or re-enactment thereof
for the time being in force.
The Arbitrators or the Umpire giving their or his
decisions shall also decide by which party the cost of the
Arbitration and award shall be paid and if by both parties
in what proportion.”
On or from 26th September, 1973 the Agra Electric Supply
Co. Ltd. increased per unit rate of electricity from 0.20 P
to 21.5 P in terms of clause 9 of the said agreement.
Thereafter, the bills were sent @ 21.5 P per unit, after
giving discounts and rebates as per the agreement. On or
about 17/18th December, 1973, the respondent herein took
over the undertaking of the Agra Electric Supply Co. Ltd. On
or about 16th January, 1974, the respondent informed the
appellant by a written communication that consequent upon
the expiry of licence granted to Agra Electric Supply Co.
Ltd. to generate and supply electricity the respondent had
taken it over and would supply electric energy to the hotel
and that the Bulk Supply Agreement with Agra Electric Supply
Co. Ltd. will continue to be in force with the respondent
until such time the agreement is determined in accordance
with its relevant provisions. All bills received subsequent
to the take over were billed at the agreed rate allowing
discounts and rebates.
On or about 23rd November, 1974, the appellant received
a communication from the respondent informing that uniform
PG NO 676
tariff rates issued under section 49 of the Electricity
Supply Act, 1949 will be applicable to the electrical energy
supplied to the hotel w.e.f. 12.10.1974. Section 49 of the
Electricity (Supply) Act, 1948 (hereinafter called `the
Act’), is to the following effect:
“49. Provision for the sale of electricity by the Board
to persons other than licensees. -(1) Subject to the
provisions of this Act and of regulations, if any, made in
this behalf, the Board may supply electricity to any person
not being a licensee upon such terms and conditions as the
Board thinks fit and may for the purposes of such supply
frame uniform tariff.
(2) In fixing the uniform tariffs, the Board shall have
regard to all or any of the following factors, namely:
(a) the nature of supply and the purposes for which it
is required:
(b) the co-ordinated development of the supply and
distribution of electricity within the State in the most
efficient and economical manner, with particular reference
to such development in areas not for the time being served
or adequately served by the licensee:
(c) the simplification and standardisation of methods
and rates of charge for such supplies;
(d) the extension and cheapening of supplies of
electricity to sparsely developed areas.
(3) Nothing in the foregoing provisions of this section
shall derogate from the power of the Board, if it considers
it necessary or expedient to fix different tariffs for the
supply of electricity to any person not being a licensee,
having regard to the geographical position or any area, the
nature of the supply, and purpose for which supply is
required and any other relevant factors.
(4) In fixing the tariff and terms and conditions for
the supply of electricity, the Board shall not show undue
preference to any person.”
PG NO. 677
After the said date the bills were sent at the enhanced
rate of 0.30 P per unit, adding fuel cost variation charges
and without allowing any discount or rebate. On or about
28th November, 1974, the appellant, however, protested
against the unilateral withdrawal of contractual discount
and rebates and enhancement in the rates and drew the
attention of the respondent to the existing and subsisting
bulk supply agreement, but the respondent took no action. On
or about 31st August, 1976, a Circular was issued by the
Chief Engineer of the respondent advising all Engineers-in-
charge of the undertakings to bill the consumers having
special agreements with the ex-licensees as per those
agreements and steps be taken to terminate the old
agreements with new agreements providing for application of
tariff.
On 7th October, 1977, vide written communication the
appellant informed the respondent that upon latter’s failure
to resolve the disputes and differences arising between them
consequent to the illegal increase in the rates and
discontinuation of discounts and rebates w.e.f. 12.10.1974,
the appellant was referring the disputes for decision by the
arbitrator and appointed Justice Manchanda, a retired Judge
of the Allahabad High Court, as the arbitrator and the
respondent appointed Justice Nigam, another retired Judge of
the same High Court, as its arbitrator. On or about 8th
April, 1977, the joint arbitrators appointed Justice V.
Bhargava, a retired Judge of this Court, as an Umpire.
Between 3rd November, 1979 and 4th March, 1980, several
sittings were held before the arbitrators but the parties
were unable to agree and upon their disagreement the
disputes were referred to the learned Umpire for decision.
From 4th March, 1980 onwards, proceedings started before the
Umpire and there was a plea for de novo hearing of the
proceedings before the Umpire, by the respondent. The
learned Umpire started de novo proceedings taking evidence
of the parties. On 21st March, 1980, the respondent filed an
application, being Case No. 59 of 1980 under section 33 of
the Arbitration Act, 1940 before the District Judge,
Lucknow, denying the existence of the agreement dated 20th
October, 1962. The respondent also denied the acceptance and
adoption of the agreement consequent upon the take over and
sought a declaration from the Court that the arbitration
agreement did not exist. The Vth Addl. District Judge by his
order dated 27.5.1983 held that the agreement was duly
executed, accepted and adopted by the respondent and was
binding on it and that the arbitration proceedings were
pursuant to the arbitration clause and, as such, the
application under section 33 of the Arbitration Act, was
rejected.
PG NO. 678
On 1st June, 1983, the award was made by the learned
Umpire holding that in terms of clause 9 the increase in the
unit rate was permissible and the fuel cost variation
charges which were variable every month was contrary to
clause 9 as increase was permitted only once in a year of
accounts, and further held that the appellant was entitled
to discount of 50% on the charges for electricity; and was
also entitled to 0.03 paise per rupee for prompt payment of
bills. The learned Umpire in his award set out the facts and
therein recited these as follows:
“The main terms of the agreement were that in respect of
the bulk electric supply to the petitioner the Hotel was to
be charged at the rate of twenty paise per unit per month.
There was also a clause for granting a special discount to
the petitioner to the extent of 50% and in addition a cash
discount of three paise per whole rupee was to be allowed to
the petitioner in case the petitioner paid the bills of the
Company within the stipulated period. The bills for the
electric energy supplied by the Supply Company continued on
these contractual rates till October 1974, even after the
Supply Company was acquired by the opposite party in
December 1973, and the bills were accordingly paid.
However, in October 1974, the opposite party under s. 49
of the Electricity (Supply) Act, 1948 (hereinafter referred
to as the Act) unilaterally and according to the petitioner
illegally and arbitrarily purported to replace the original
terms in the agreement and revised the charges with effect
from 12th October, 1974. The Board, under this notification,
increased the rate of electricity supplied to 30 paise per
unit and further refused to grant the discount to which the
petitioner was entitled under the agreement as well as the
cash discount of three paise per rupee. The opposite party
further levied a fuel cost adjustment charges and
subsequently the rate was raised to 31 paise per unit with
effect from June 1976.”
Thereafter, the learned Umpire set out the history of
the negotiations between the parties resulting in the
agreement dated 20.10.1962. After referring to the bulk
supply agreement the learned arbitrator set out the terms
upon which supply was made to the appellant. The appellant
was to make an initial payment of Rs.35,326 towards service
connection for the purpose of supply, though irrespective of
PG NO 679
the payment the service connection was to continue to be the
property of the Supply Company. The Supply Company was to
make provision in the appellant’s monthly bill granting a
rebate of Rs. 147.20 for each month that the agreement
remained inforce upto a maximum of 20 years. Under para 9 of
the agreement the appellant was to pay the Company for all
electric energy supplied, registered, and estimated at the
rate of 20 paise p.m. The charges for energy consumed were
subject to special discount according to the scale in the
schedule which permitted a maximum discount of 50% in case a
minimum of 41,000 units were consumed in each month. The
consumption as shown by the record was never less than
41,000 units p.m. In addition, there was a provision under
clause (ii) of the agreement for cash discount of 3 paise
per whole rupee in case payment was made within the
stipulated period. Under the first proviso to para 9, the
appellant had to pay a minimum sum of Rs.38,640 for
electricity consumed in any English calendar year. The
provision made was that in addition to the amount paid in
accordance with the bills, the appellant was to make payment
in such cases so as to make up the said minimum of
Rs.38,640. The second proviso laid down that if and whenever
during the subsistence of the agreement the Supply Company
was satisfied that there was an increase in the cost of
production and distribution of electric energy it shall be
at liberty (but not more than once a year) to increase the
rates and sums payable by the consumer under the provisions
of clause 9 by such amount as the Company shall, in its sole
and absolute discretion, decide. Hence, it was held by the
Umpire on the oral and documentary evidence that the payment
was made at the enhanced rate under protest.
Challenging the Award, several contentions were raised,
namely, (i) that there was no agreement in existence and
that neither the Umpire nor the arbitrator had any
jurisdiction to make the award. This contention was rejected
and no argument was advanced before us challenging this
finding of the Umpire, (ii) that the appellant should prove
the terms and conditions upon which the Supply Company was
supplying the electricity to the appellant. This the Umpire
held, had been duty proved and there was no challenge to
either of the findings of the Umpire. (iii) it was thirdly
contended that the agreement even if in existence, was not
binding upon the respondent. and that while admitting that
the respondent under section 49 of the Act, issued
Notification under which the tariff was revised w.e.f.
12.10.1974, it was claimed that the opposite party had not,
in any way, failed to fulfil its obligations on the alleged
agreement and that the opposite party was fully competent
under law to fix a uniform tariff and also to levy fuel
PG NO 680
adjustment charges. This is the main and substantial
question involved in this matter.
It was then contended that the respondent was entitled
even under the agreement and under its second proviso to
clause 9 to revise the tariff and the appellant was not
entitled to any relief. It was further urged that the
payments were made after coming into operation of the
Electricity (Supply) Act, under protest. In respect of these
contentions the learned Umpire held that the plea was that
even if the agreement was in existence, it was not binding
on the opposite party and that the opposite party was
competent under section 49 of the Electricity Supply Act, to
fix revised charges w.e.f. 12.10.1974 and had not violated
any terms of the agreement. The appellant had also relied on
the alternative provisions of section 49(3) of the Act, set
out hereinbefore. The said sub-section (3) provides that
nothing contained in sub-sections (1) & (2) of section 49
shall derogate from the power of the Board, if it happens to
enter into an agreement at different rates of tariff with
any person other than a licensee. It appears that when the
Supply Company was taken over on l7/18.12.1973, the resident
Engineer wrote a letter on 16.1.1974 in which he informed
the appellant that the licence of M/s. Agra Electric Supply
Co. Ltd. having expired and the U.P. State Electricity Board
having taken over the supply, it was to supply energy to the
appellant at the aforesaid date. Their further contention
was that the bulk supply agreement which the appellant had
with M/s. Agra Electric Supply Co. Ltd., would continue to
be in force with the State Electricity Board until such time
as the agreement was determined in accordance with the
relevant provisions thereof. The learned Umpire held that
the letter clearly laid down that the U.P. Electricity Board
had accepted the agreement which was in existence between
the Supply Company and the appellant, and the Umpire
proceeded on that basis. The learned Umpire further stated
as follows:
“The Board thus having accepted the agreement with the
claimant, it became binding on the Board and under sub-
section (3) of s. 49 of the Electric Supply Act nothing
contained in sub-sections (1) & (2) of s. 49 of the Act
could have any bearing on the terms of the agreement. The
result was that the uniform tariff fixed by the Board with
effect from 12th October, 1974 did not apply to the claimant
and the claimant had to be granted the various rebates laid
down in the agreement. The decision of the Supreme Court in
Indian Aluminium Co. Ltd. v. Kerala Electricity Board,
PG NO 681
[1976] 1 SCR pa. 70 fully covers the case and supports the
claim of the claimant. In the case before the Supreme Court
an agreement had been entered into by the State Government
and it was held that under s. 60 of the Electricity Supply
Act, 1940 it became binding on the Kerala State Electricity
Board and further that that agreement was enforceable under
sub-section (3) of s 49 irrespective of the fixation of
uniform tariff under sub-sections (I) and (2) of s. 49. In
the present case the only difference is that instead of the
agreement being first binding between the consumer and the
State Government, the agreement became binding on the
Electricity Board, because it accepted the agreement and
became a party to it by letter dated 16th January 1974 (Ex.
R).”
The aforesaid basis of the decision, it was contended,
was the error of law which vitiated the award. This question
will require further consideration later. It was held that
the decision in Indian Aluminium Co., (supra) fully covered
the dispute on this aspect in the instant case. The learned
Umpire further held as follows:
“Once the agreement was binding on the Board its terms
under sub-section (3) of s. 49 could not be varied by
fixation of uniform tariff under sub-sections (1) and (2) of
S. 49. The opposite party in these circumstances must be
held to have failed to fulfil its obligations under the
agreement”.
On 1st July, 1983. an application was made under section
12 [2] of the Arbitration Act before the learned District
Judge, Lucknow, for filing of the award and making the same
Rule of the Court. Objections were filed by the respondent
against the said award. The learned kind Addl. Distt. Judge,
Lucknow, held that the award was legal, valid and binding on
the parties and the alleged grounds of misconduct were not
maintainable. The award was. however, set aside on the
ground that the reference made to arbitration was
unilateral. The appellant filed an appeal. The Lucknow Bench
of the Allahahad High Court held against the finding of the
Ilnd Additional Distt. Judge Lucknow that the reference was
unilateral. but set-aside the award on the ground that there
was an error of law apparent on the face of it in view of
the agreement dated 20.10. 1962 and the ratio of the
decision of this Court in Indian Aluminium Co., (supra). The
revision filed by the respondent against the judgment of the
Vth Addl. Distt Judge, Lucknow was also rejected. This
appeal is from the aforesaid decision of the High Court by
special leave.
PG NO 682
The two learned Judges of the High Court gave separate
judgments. The High Court was of the view that the instant
case was distinct from the facts in the case of Indian
Aluminium Co., (supra). There it was held that where a
stipulation in a contract is entered into by a public
authority in exercise of a statutory power then, even though
such stipulation fetters subsequent exercise of the same
statutory power, it would be valid and the exercise of such
statutory power would pro tanto stand restricted. Mr Justice
Loomba was of the view that in the instant case even if the
stipulation as to the tariff structure in the agreement by
taken to have been continued to be in existence in view of
sub-section (3) of section 49 of the Act, the same was not
unrestricted. The stipulation was expressly made subject to
certain reservations as would be clear from the opening
sentence of clause 9 of the agreement, the main clause was
“subject to the provisions hereinafter contained”.
Mr Justice Loomba was of the view that the decision of
the Indian Aluminium Co., (supra) case was inapplicable to
the present case. According to the learned Judge, the
mistake committed by the Umpire was a manifest error. It was
further stated that it is well-settled proposition of law
that if the reasons are stated on the basis of which the
award was made and such reasons are found to be erroneous,
the errors become apparent on the face of the award and
constitute legal misconduct on the part of the Umpire
vitiating the award. The other learned Judge Mr Justice
Mathur also held that there was error of law apparent on the
face of the award of the Umpire. He was of the opinion that
the expression “sum payable by the consumer under the
foregoing provision of this present clause 9” was subject to
the discounts mentioned in the subsequent clauses of the
agreement. In view of the discounts, the sum payable under
clause 9 was altered and the altered amount becomes the sum
payable under clause 9. According to the learned Judge,
since the amount determined after allowing discounts is also
sum payable under clause 9, it followed that in exercise of
the power conferred under the third proviso, the discount
could only be tampered with in the same way the unit charge
could be tampered with. Beyond this it was not permissible.
In permitting this the Umpire committed an error in drawing
distinction between ‘rates’ and ‘discount’ and upholding the
right of the Board to tamper with the former and negating
similar right in respect of the latter. According to the
learned Judge, this was a wrong understanding of the
decision of the Indian Aluminium’s case (supra). In the
aforesaid view of the matter, the learned Judge agreed with
the other learned Judge and held that the award was
vitiated.
PG NO 683
It appears that the main question that arises is:
whether the decision of this Court in Indian Aluminium’s
case (supra) was properly understood and appreciated by the
learned Umpire and whether he properly applied the agreement
between the parties in the light of the aforesaid decision.
It was contended that the question was whether the sums
payable under clause 9 included discounts. On the aforesaid
basis it was contended that there was an error of law and
such error was manifest on the face of the award. Even
assuming, however, that there was an error of construction
of the agreement or even that there was an error of law in
arriving at a conclusion, such an error is not an error
which is amenable to correction even in a reasoned award
under the law. Reference may be made to the observations of
this Court in Coimbatore Distt. P.T. Sangam v. Bala
Subramania Foundry, AlR 1987 SC 2045, where it was
reiterated that an award can only be set aside if there is
an error on its face. Further, it is an error of law and not
mistake of fact committed by the arbitrator which is
justiciable in the application before the Court. Where the
alleged mistakes or errors, if any, of which grievances were
made were mistakes of facts if at all, and did not amount to
error of law apparent on the face of the record, the
objections were not sustainable and the award could not be
set aside. See also the observations of this Court in Delhi
Municipal Corpn. v. M/S. Jagan Nath Ashok Kumar, AIR 1987 SC
2316, where this Court reiterated that reasonableness of the
reasons given by an arbitrator in making his award cannot be
challenged. In that case before this Court, there was no
evidence of violation of any principle of natural justice,
and in this case also there is no violation of the
principles of natural justice. It may be possible that on
the same evidence some court might have arrived at some
different conclusion than the one arrived at by the
arbitrator but that by itself is no ground for setting aside
the award of an arbitrator. Also see the observations of
Halsbury’s Laws of England, 4th Edn., Vol. 2, at pages 334 &
335, para 624, where it was reiterated that an arbitrator’s
award may be set aside for error of law appearing on the
face of it, though that jurisdiction is not lightly to be
exercised. If a specific question of law is submitted to the
arbitrator for his decision and he decides it, the fact that
the decision is erroneous does not make the award bad on its
face so as to permit it being set aside; and where the
question referred for arbitration is a question of
construction, which is, generally speaking, a question of
law, the arbitrator’s decision cannot be set aside only
because the court would itself have come to a different
conclusion; but if it appears on the face of the award that
the arbitrator has proceeded illegally, as, for instance, by
deciding on evidence which was not admissible, or on
principles of construction which the law does not
PG NO 684
countenance, there is error in law which may be ground for
setting aside the award.
It was contended by Mr F.S. Nariman, counsel for the
appellant, that a specific question of law being a question
of construction had been referred to the Umpire and, hence,
his decision, right or wrong, had to be accepted. In view of
clause 18, it was submitted that in this case a specific
reference had been made in the interpretation of the
agreement between the parties, hence, the parties were bound
by the decision of the Umpire. Our attention was drawn to
the observations of this Court in M/s. Hindustan Tea Co. v.
M/s. K. Sashikant & Co., AIR 1987 SC 81, where this Court
held that under the law, the arbitrator is made the final
arbiter of the dispute between the parties, referred to him.
The award is not open to challenge on the ground that the
arbitrator has reached a wrong conclusion or has failed to
appreciate facts. Where the award which was a reasoned one
was challenged on the ground that the arbitrator had acted
contrary to the provisions of s. 70 of the Contract Act, it
was held that the same could not be set aside.
In order to set aside an award, there must be a wrong
proposition of law laid down in the award as the basis of
the award. For this see the observations of this Court in
Kanpur Nagar Mahapalika v. M/s. Narain Das Haribansh, [1970]
2 SCR 28. In that case the appellant had entered into a
contract with the respondent for certain construction work.
The contract contained an arbitration agreement between the
parties. The respondent filed a suit in 1946 claiming
certain moneys due against its final bills but, at the
instance of the appellant, the suit was stayed and the
matter referred to arbitration. The arbitrator made an award
in March 1960 in favour of the plaintiffs determining the
amount payable by the appellant. Thereafter the appellant
made an application for setting aside the award on the
ground that the arbitrator had misconducted himself in not
properly considering that the claim of the respondent was
barred by limitation under section 326 of the U.P. Act 2 of
1916. Although the trial court set aside the award, the High
Court, in appeal, reversed this decision. In appeal to this
Court it was contended for the appellant that the award was
bad by reason of an error apparent on its face.
Dismissing the appeal, it was held that there could not
be predicated of the award that there was any proposition of
law forming the basis of the award, and, therefore, it could
not be said that there was any error apparent on the face of
the award.
PG NO 685
The Judicial Committee in the famous decision of
Champsey Bhara & Co. v. Jivraj Balloo Spinning & Weaving Co.
Ltd., [ 1923] AC 480 held that the error of law on the face
of the award means that one can find in the award or in
document incorporated thereto as, 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 is erroneous. The same view was reiterated
by this Court in Dr. S.B. Dutt v. University of Delhi,
[1959] SCR 1236.
In this case. Mr. Nariman appearing for the appellant
contended that there was no proposition of law as such
stated by the Umpire which could be said to be the basis of
his decision. Hence, the award was not amenable to
corrections on the ground that there was an error of law
apparent on its face. Mr. Nariman further submitted that the
Umpire had decided the specific question of law and such a
decision, right or wrong, is binding on the parties. In aid
of his submission Mr. Nariman referred to the decision of
this Court in M/s. Kapoor Nilokheri Co-op. Dairy Farm
Society Ltd. v. Union of India & Ors., [ 1973] 1 SCC 708,
where it was held that in a case of arbitration where the
appellants had sepcifically stated that their claims were
based on the agreement and on nothing else and all that the
arbitrator had to decide was as to the effect of an
agreement between the appellant and the respondent, the
arbitrator had really to decide a question of law i.e. of
interpreting the document, the agreement. Such a decision
his, is not open to challenge.
Our attention was drawn to the observations of this
Court in Tarapore & Co. v. Cochin Shipyard Lld. Cochin &
Anr., [l984] 3 SCR 118, where Desai J., spoke for the Court
and Justice Chinnappa Reddy agreed with him. It was stated
that a question of law might figure before an arbitrator in
two ways. It may arise as an incidental point while deciding
the main dispute referred to the arbitrator or in a given
case parties may refer a specific question of law to the
arbitrator for his decision. This Court reiterated that the
arbitration has been considered a civilised way of resolving
disputes avoiding court proceedings. There was no reason why
the parties should be precluded from referring a specific
question of law to an arbitrator for his decision and agree
to be bound by the same. This approach manifests faith of
parties in the capacity of the tribunal of their choice to
decide even a pure question of law. If they do so, with eyes
wide open, there is nothing to preclude the parties from
doing so. If a question of law is specifically referred and
it becomes evident that the parties desired to have a
decision on the specific question from the arbitrator rather
than one from the Court, then the court will not interfere
PG NO 686
with the award of the arbitrator on the ground that there
was an error or law apparent on the face of the award even
if the view of law taken by the arbitrator did not accord
with the view of the court. A long line of decisions was
relied upon by this Court for that proposition.
Mr. B. Sen, learned counsel for the respondent, however,
contended that in the present case, there was no specific
question of law referred to the Umpire. He submitted
that it was a general reference in which a question of law
arose. It was any question in the proceedings and the
question of law, as such, did not arise. According to Mr.
Sen, the mistake that the Umpire, has committed is clear
from his following statement:
“The Board thus having accepted the agreement with the
claimant, it became binding on the Board and under sub-
section [3] of s. 49 of the Electricity Supply Act nothing
contained in sub-section ( 1) & (2) of s. 49 of the Act
could have any bearing on the terms of the agreement. The
result was that the uniform tariff fixed by the Board with
effect from 12th October, 1974 did not apply”.
It was stated that no specific question having been
referred to, this mistake was fatal.
We are unable to accept this submission. Our attention
was drawn by Mr. Nariman to the observations of Justice
Macnaghten in Hitchins & Anr. v. British Coal Refining
Processes Ltd., [1936] 2 A.E.R. Reprint 191. Ihere, by an
agreement the applicants were to act as consulting Engineers
in connection with a certain coal refining process owned by
the respondents. While the plant for the working of the
process was being erected, a dispute arose. the respondents
wanting the applicants to attend every day at the site of
the plant and the applicants considering this to be no part
of their duty. The respondents thereupon terminated the
agreement and the matter was referred to arbitration. The
applicants pleaded that the termination of the agreement was
unjustified; the respondents pleaded that the applicants
should have attended every day and that they had been quilty
of negligence in respect of certain matters set out in the
counterclaim. The arbitrator found the termination of the
agreement to be unjustified and also negligence on the part
of the appellants in respect of the matters set out in the
counterclaim, and he awarded the appellants damages after
setting off an unspecified amount for damages for
negligence. The respondents moved to set aside the award on
PG NO 687
the ground of error of law apparent on the face of it. At
the hearing the respondents contended that the whole of the
pleadings in the arbitration were admissible. The
respondents contended that for the purpose of deciding
whether there was an error of law apparent on the face of
the award, the court could not look at any document except
the award itself. The respondents further contended that the
arbitrator had committed an error of law in deciding that
the negligence found did not afford sufficient ground for
the termination of the agreement, and further that on the
true consideration of the agreement, the refusal to attend
daily was as a matter of law a sufficient ground for the
termination of the agreement. It was held that inasmuch as
the arbitrator in his award referred to certain paragraphs
in the counterclaim, such paras ought, in considering
whether there was an error on the face of the award, to be
regarded as forming part of the award. Whether misconduct
justifies dismissal is a question of fact, and the
arbitrator’s decision was final. It was further held that
the light to terminate the agreement because the applicants
refused to attend daily was a question specifically
submitted to the arbitrator and the court could not
interfere with his decision, even if the question was a
question of law. Mr. Justice Macnaghten at page 195 of the
report observed that it was permissible to look at the whole
of the pleadings delivered in the arbitration, and it
appears therein that the respondents affirmed and the
applicants denied that the respondents were entitled to
terminate the agreement as the applicants refused to attend
daily at the site, and that this was a specific question
submitted to the decision of the arbitrator. Our attention
was also drawn to the observations of House of Lords in
Pioneer Shipping Ltd. and Ors. v. ETP Tioxide Ltd., [1981] 2
AER 1030. In that case by a charterparty dated 2nd November,
197 the owners of a vessel chartered her to the charterers.
It was held by the House of Lords that having regard to the
purpose the Arbitration Act, 1970 of England which was to
promote greater finality in arbitration awards then had been
the case under the special case procedure judicial
interference with the arbitrator’s award was only justified
if it was shown that the arbitrator had misdirected himself
in law or had reached a decision which no reasonable
arbitrator could have.
In the instant case, the view taken by the Umpire on the
interpretation of the agreement between the parties in the
light of the observations of this Court in Indian Aluminium
Co.’s case (supra) was at best a possible view to take, if
not the correct view. If that was the position then such a
view, even if wrong, cannot be corrected by this Court on
the basis6is of long line of decisions of this Court. In the
PG NO 688
aforesaid view of the matter it is necessary to examine the
aforesaid decision in the Indian Aluminium Co’s case
(supra). There under section 49(1) & (2) of the Electricity
Supply Act, 1948, the Legislature had empowered the State
Electricity Board to frame uniform tariffs and had also
indicated the factors to be taken into account in fixing
uniform tariffs. Under sub-section (3), the Board was
empowered, in the special circumstances mentioned therein,
to fix different tariffs for the supply of electricity, but
in doing so, sub-section (4) directed that the Board was not
to show undue preference to any person. Under s. 59 it was
stipulated that the Board shall not, as far as practicable,
carry on its operations at a loss and shall adjust its
charges accordingly from time to time. Certain consumers of
electricity had entered into agreements for the supply of
electricity for their manufacturing purposes at specified
rates for specified period. Some of the agreements were
entered into with the State Governments and the others with
the State Electricity Boards. In one of the agreements there
was an arbitration clause. On account of the increase in the
operation and maintenance cost, due to various causes which
caused loss to the State Electricity Boards, the Boards
wanted to increase the charges in all the cases. The
consumers challenged the competency of the Boards to do so
by petitions in the respective High Courts. The High Court
sustained the Board’s claim, in some cases, under sections
49 & 59, and in others, held that the Board was incompetent
to do so. In the case of the consumer where there was the
arbitration clause. the High Court refused to entertain the
petition on account of the clause. This Court held that
fixation of special tariffs under s. 49 (3) can be a
unilateral Act on the part of the Board but more often it is
the result of negotiations between the Board and the
consumer and hence a matter of agreement between them.
Therefore, the Board can, in exercise of the power conferred
under the sub-section, enter into an agreement with a
consumer stipulating for special tariff for supply of
electricity for a specific period of time. The agreements
for supply of electricity to the consumers must therefore he
regarded as having been entered into by the Boards in
exercise of the statutory power conferred under section
49(3). The Umpire in his award stated that the decision of
this Court covered and supported the claim of the claimant.
In the present case the only difference is that there was
only an agreement by which the Electricity Board accepted
the agreement which was held by the Umpire to have become
operative. Once that agreement was binding on the Board, its
terms could not be varied from the uniform rate under sub-
sections (1) and (2) of s. 49. The Umpire was right. In our
opinion, the Umpire committed no error in arriving at such
conclusion. Furthermore, such a conclusion is certainly a
possible view of the interpretation of the decision of this
PG NO 689
Court in Indian Aluminium Co’s case, if not the only view.
We need go no further than that.
We, are, therefore, of the opinion that the view taken
by the Umpire on section 49 was a possible view in the light
of the decision of this Court in Indian Aluminium’s case. In
the premises, a question of law arose certainly during the
course of the proceedings. Such a question has been decided
by the Umpire on a view which is a possible one to take.
Even if there was no specific reference of a question of law
referred to the Umpire, there was a question of law
involved. Even on the assumption that such a view is not
right, the award is not amenable to interference or
correction by the courts of law as there is no proposition
of law which could be said to be the basis of the award of
the Umpire, and which is erroneous.
In the premises, we are of the opinion that the High
Court and the learned IInd Additional District Judge were in
error in the view they took of the award of the Umpire. The
appeal must, therefore, be allowed and the decision of the
High Court, dated 21st July, 1987 as well as the order of
the IInd Additional Judge, Lucknow, dated 30th May, 1984 are
set aside. No other point was urged challenging the award of
the Umpire. The award of the Umpire is confirmed and let the
award be made Rule of the Court under section 14(2) of the
Act. The appeal is allowed with costs.
R.S.S. Appeal allowed.