JUDGMENT
V.S. Aggarwal, J.
1. Under Sub-section (2) to Section 14 of the Arbitration Act, 1940, (for short “the Act”) the learned Arbitrator had filed the Award. In pursuance thereto, notices had been issued to the parties. The objections had been filed by Shri Alok Mandelia (for short “the applicant”) against the award and the respondent (National Research Development Corporation of India).
2. The basic facts, which are not in controversy between the parties are that vide letter of 7.9.1979, the arbitrator, as such, was appointed in pursuance of Clause 11 of the agreement between the parties. The petitioner (since deceased and now represented by the legal representatives), at the relevant time seemingly was young. He had entered into an agreement with the respondent on 7.6.1972. He was given license in respect of know-hows for commercial exploitations. An agreement, in writing, in this regard had been executed between the parties. Under the agreement, as per the petitioner, the respondent was under an obligation to supply the petitioner with the technical know-how data and information for producing close circuit television and television sets.
3. The petitioner asserted that it was on the representation and assurances made by the respondent that he made heavy investments in setting up the factories and importing necessary machinery, in accordance with the advise received by him from the respondent. He had made these heavy investments for commercial exploitation of the license with respect to the inventions granted to him. When the inventions were put into operation, the petitioner realized that no successful commercial exploitation of the inventions was possible or feasible. The respondent, after inducing the petitioner to enter into the said agreements totally failed to perform its obligations under the agreement. It failed to gibe to the petitioner the commercially and competitively viable know-how for the manufacture and commercial exploitation of the licensed items. The information given to him was totally out-dated, incomplete and impracticable for commercial exploitation. The short-falls deficiencies and inadequacies were not rectified nor the know-how given by the respondent up to-date by the latest improvements was provided. As a result of the failure of the respondent, it was asserted that the petitioner suffered huge mental loss, loss of reputation, confidence besides monetary loss of Rs. 1,80,00,000/-. Disputes were raised.
4. Needless to state that the assertions made by the petitioner had been controverter. The respondent asserted that it had not undertaken any obligation under the license agreement or otherwise to supply proto-types, as alleged. In order to assist the petitioner, the respondent was willing to supply prototypes but petitioner was not willing to pay the cost thereto. Prototypes were supplied at concessional rates. Negatives of the printed circuit boards had been supplied earlier in September 1972. Additional Boards were supplied in February 1973. The assertions of the petitioner that the know-how supplied was technically unsound, was denied. In fact no assurance of the nature alleged by the petitioner had been provided.
5. The learned arbitrator had rejected the claim of the petitioner in toto as a result of which the objections, as such, to be considered hereinafter, had been filed.
6. On 6.1.1988 this Court had framed the following issues:-
1. Whether the arbitrator has misconducted himself of the proceedings?
2. Whether the award is liable to be set aside for the objections?
3. Relief.
7. Both these issues are inter-connected and, therefore, can be taken up together. In order to appreciate the controversy between the parties, it would be appropriate, in the first instance, to see the award of the arbitrator before going into the fact as to whether the same is liable to be set aside or not.
8. The learned arbitrator had proceeded step-by-step and firstly giving the background of the matter. He noted the differences and disputes between the parties and that there were three agreements executed, dated 7.6.1972 between the parties viz. (i) Non-exclusive license for 14 years of the know-how for the manufacture of Television Video Monitor; (ii) Non-exclusive license for 10 years of the know-how for the manufacture of Transisterised Television Video Camera; and (iii) Non-exclusive license for 14 years of the know-how for the manufacture of Video and Pulse Distribution Amplifier.
9. It was noted that these items are essential parts for manufacturing of closed circuit television sets, which the petitioner wanted to manufacture on commercial scale. The fourth agreement was dated 9.6.1972. It was with respect to the non-exclusive license for 14 years of the know-how for the manufacture of community antenna for television receivers. All the know-hows, which were referred to in the agreement, are inventions and in some correspondence between the parties as ‘processes’, had been developed by the Central Electronics Engineering Research Institute, Pilani. The arbitrator thereupon went into the pleadings of the parties and summarized them and thereupon had framed the following issues:
1. Is the claim of the Claimant barred by time?
2. Is the claim of the claimant barred by res-judicata?
3. Does the Claimant Prove that the Respondent gave assurance and made representations that the know-how licensed to him and technically sound and commercially feasible and workable?
4. If the finding on Issue No. 3 is in the affirmative, does the Claimant prove that the know-how licensed to him was technically unsound and commercially not feasible and unworkable?
5. Has the Respondent committed breach of the Agreements as alleged by the Claimant?
6. If the finding on Issue No. 5 is in the affirmative, is the Claimant entitled to damages on the various counts set out in Annexure D to the Statement of Claim? If so, to what amount?
7. What orders?
10. So far as Issues No. 1 and 2 were concerned, the findings of the arbitrator were favorable to the petitioner and no disputes had been raised in this regard during the course of submissions. The controversies were with respect to the findings on issues No. 3 to 6. The learned arbitrator had recorded that the petitioner’s statement was that before he executed the agreements, there were discussions, in which the respondent promised and assured that the resultant commercial manufacture with the licensed know-how via respondent’s inventions would successfully best the competition in the market. Thereupon the arbitrator referred to the statement of claim of the petitioner in which he had stated that the respondent was to provide complete know-how for manufacturing closed circuit television sets and also paragraph 7 of the statement of claim that respondent had given firm assurance to the petitioner that their know-how was technically sound and economically and commercially viable. The learned arbitrator thereupon referred to the statement of the petitioner in which he had stated that respondent had promised to give full know-how and assistance for commercial production. The differences between the alleged promise and assurance in the notice, the statement of claim and deposition were noted. It was taken note of that promises and assurances were about resultant commercial manufacture successfully beating the competitors. While in deposition he deposed about giving complete know-how and assistance for commercial production. The arbitrator concluded that the respondent merely had assured the petitioner that it would give complete know-how and necessary assistance. It was further held on basis of the statement of the petitioner and his claim that he had received the know-how from the respondent but as per the petitioner it was defective and incomplete. The petitioner has started manufacturing closed circuit televisions and CATV but they were not acceptable in the market. It was held that agreement was for grant of license conferred on the petitioner. The right to use the know-how referred to as inventions, had only been given. Even the petitioner’s engineer had been given the training at CEERI but it can not be termed, therefore, that there was any breach of agreement on the part of the respondent. In this regard, the arbitrator recorded:
The petitioner has a heavy burden to discharge in proving that the licensed inventions – know-how – were defective and unsuitable for commercial exploitation. Merely because the petitioner’s project failed, it does not follow as a matter of course that the know-hows were defective and unsuitable for commercial exploitation. Apart from the know-how, there are many factors contributing to the success of a project; for example, organisational capacity, managerial experience, business talent, flawless components, expert workmanship etc. These and such factors have to be eliminated to lead to a conclusion that the failure of the project was entirely and exclusively due to faulty know-how.
11. The evidence on record was considered and it was further held that respondent had given no warranty of the “novelty, utility and workability” of the know-how. It was a case of “take or leave it” and in this view of the matter, the above said conclusion had been returned that respondent had not committed any breach of the agreement. In fact of the aforesaid, the damages even had been refused to the petitioner-claimant.
12. The law, as to under what circumstances the court can interfere in an award of the arbitrator, is well settled. While considering a matter under the Arbitration Act, 1940, before an award can be set aside, the matter must fall within the scope and ambit of Section 30 or 33 of the Act. It has become a settled principle of law that the parties have chosen their own arbitrator by virtue of an agreement that has been arrived at either before or at the time when the contract was entered into. Since they have chosen their own arbitrator, normally the award would be set aside only in case when it is erroneous or the arbitrator, as envisaged under the provisions of the Act, misconducts himself. The courts have always been reluctant to pin point as to what would be a misconduct of the arbitrator. It has always been left in the facts and circumstances of the each case as to whether on a peculiar fact, it can be termed that the arbitrator has misconducted himself or not. Broadly speaking, even when he commits a mistake an that is a plausible view, the award will not be set aside. If no other view is possible and it is totally erroneous, only then the courts would interfere.
13. The Supreme Court in the case of ALLEN BERRY & CO. PRIVATE LTD. v. THE UNION OF INDIA, looked into various precedents on the subject and held:
….. Therefore, even when an arbitrator commits a mistake either in law or in fact in determining the matters referred to him, but such mistake does not appear on the face of the award or in a document appended to or incorporated in it so as to form part of it, the award will neither be remitted nor set aside notwithstanding the mistake.
10. In the light of the principle above stated, the first question calling for determination is, is there an error apparent on the award, in the sense that the umpire misconstrued the contracts of sale inasmuch as though those contracts were contained in sale-notes as well as in several letters, he considered the sale-notes only as containing the contracts of sale disregarding the correspondence which had taken place between the company and the Director-General, Disposals and his officers? Such a question would undoubtedly be one of law. But the disputes referred to the umpire contained disputes both of fact and law, even though it be on a question of law, would be binding on the parties. The Court would only interfere if the case falls within the exceptions mentioned by Williams J. in (1857) 3 CB (NS) 189 and reaffirmed by Diplock, L.J., in 1962 (2) All ER 53.
14. In other words, the Supreme Court held that even if on a question of law, the matter had been referred and considered by the arbitrator, the court would not interfere except when there is error apparent on the face of the record.
15. Similarly in the case of MUNICIPAL CORPORATION OF DELHI v. JAGAN NATH ASHOK KUMAR AND ANR., , though the Supreme Court was basically concerned as to whether the said court would interfere in special leave petition or not, but still held that reasonableness of the reasons given by the arbitrator can not be challenged in the special leave petition. The Supreme Court, in paragraph 6 onwards concluded:
6. In this case the reasons given by the arbitrator are cogent and based on materials on record. In Stroud’s Judicial Dictionary, Fourth Edition, page 2258 states that it would be unreasonable to except an exact definition of the word “reasonable”. Reason varies in its conclusions according to the idiosyncrasy of the individual, and the times and circumstances in which he thinks. The reasoning which built up the old scholastic logic sounds now like the jingling of a child’s toy. But mankind must be satisfied with the reasonableness within reach; and in cases not covered by authority, the verdict of a jury or the decision of a judge sitting as a jury usually determines what is “reasonable” in each particular case. The word “reasonable” has in law the prima face meaning of reasonable in regard to those circumstances of which the actor, called on to act reasonably, knows or ought to know. See the observations, in Re a Solicitor, 1945 KB 368 at p. 371 of the report.
7. After all an arbitrator as a Judge in the words of Bengamin N. Cardozo, has to exercise a discretion informed by tradition, methodized by analogy, disciplined by system, and subordinated to “the primordial necessity of order in the social life:.
8. Indeed reading the award of the arbitrator, one would say that he acted reasonably and rationally.
16. In the case of SUDARSAN TRADING CO. v. THE GOVT. OF KERALA AND ANR., the same question had again cropped up for consideration. Once again, the Supreme Court held that reasonableness of the reasons given can not be questioned and award may be set aside only on the ground if there is error apparent on the face of the award. But an award will not be invalid merely because by a process of inference that the arbitrator committed some mistake in arriving at the conclusion. The Supreme Court took note of the fact that there are two different and distinct grounds involved in many of the cases; one is the error apparent on the face of the award and the other that the arbitrator exceeded his jurisdiction. It was held that in the later case the Court can look into the arbitration agreement but in the former it can not unless the agreement is incorporated or recited in the award. The Supreme Court in paragraph 29 had drawn the following conclusion:
…..Furthermore, in any event, reasonableness of the reasons given by the arbitrator cannot be challenged. Appraisement of evidence by the arbitrator is never a matter which the court questions and considers. If the parties have selected their own forum, the deciding forum must be conceded the power of appraisement of the evidence. The arbitrator is the sole judge of the quality as well as the quantity of evidence and it will not be for the Court to take upon itself the task of being a judge on the on the evidence before the arbitrator. See the observations of this Court in Municipal Corporation of Delhi v. Jagan Nath Ashok Kumar .
17. In the same year, in the case of FOOD CORPORATION OF INDIA v JOGINDERPAL MOHINDERPAL AND ANR., .. The apex Court once again held that it is not permissible or possible to exhaustively define as to what would be the misconduct by the arbitrator and erroneous decision will not be taken to be a misconduct. The arbitrator must adhere to the principles of natural justice and acts within the norms of justice but if the award is clear, just and fair, the court should as far as possible, give effect to the award of the arbitrator and compel the parties to adhere to it. The Supreme Court, thereupon observed:
If that is the position assuming even for the argument that there was some mistake in the construction, such a mistake is not amenable to be corrected in respect of the award by the court. This was a fair order after considering all the records. The conclusion arrived at by the arbitrator is a plausible conclusion. The court has, in our opinion, no jurisdiction to interfere or modify the award in the manner sought for by the appellant and in the manner done by the learned Subordinate Judge in the first instance in this case. In that view of the matter, the learned Additional District Judge was justified in correcting the order of the learned Subordinate Judge and the High Court was also justified in not interfering with the order of the Additional District Judge. The award on the aspect canvassed before us by Dr. L.M. Singhvi is a plausible construction of Clause g (i) of the contract. It cannot, in our opinion, be interfered with either on the ground that there was error apparent on the face of the award or on the ground that the arbitrator has misconducted himself in not giving the effect to the penal rate as contemplated under Clause g(i) of the contract referred to hereinabove in the award.
18. Similarly, in the case of HIMACHAL PRADESH STATE ELECTRICITY BOARD v. R.J. SHAH AND COMPANY, JT 1999 (3) 151 the Supreme Court held that when arbitrator construes a contract and takes a view that the court would ordinarily not interfere it can not be termed that the award was in excess of the jurisdiction. In paragraph 23 the Court held:-
23. From the aforesaid decisions of this Court, and the last one in particular, it is clear that when the arbitrator is required to construe a contract then merely because another view may be possible the court would not be justified in construing the contract in a different manner and then to set aside the award by observing that the arbitrator has exceeded the jurisdiction in making the award.
Thereupon the Supreme Court went on to conclude further:
…..Even if the arbitrators construed the terms of the contract incorrectly it cannot be said that the award was in excess of their jurisdiction. Their jurisdiction clearly was to construe the terms of the contract and their decision thereon is final and binding on the parties.
19. The position of law had remained the same and in the case of AROSAN ENTERPRISES LTD. v. UNION OF INDIA AND ANR., the Supreme Court warned that the courts are not to sit as a court of appeal and reappraise the evidence. There should be total perversity in the award before the court can interfere. It is held that by and large the courts have disfavored interference with arbitration award on account of error of law and fact on the score of misappreciation and misreading of the materials on record. The courts have to show definite inclination to preserve the award as far as possible. The Supreme Court held:
36. Be it noted that by reason of a long catena of cases, it is now a well settled principle of law that reappraisal of evidence by the court is not permissible and as a matter of fact exercise of power by the court to reappraise the evidence is unknown to proceedings under Section 30 of the Arbitration Act. In the event of there being no reasons in the award, question of interference of the court would not arise at all. In the event, however, there are reasons, the interference would still be not available within the jurisdiction of the court unless of course, there exist a total perversity in the award or the judgment is based on a wrong proposition of law. In the event however two views are possible on a question of law as well, the court would not be justified in interfering with the award.
37. The common phraseology “error apparent on the face of the record” does not itself, however, mean and imply closer scrutiny of the merits of documents and materials on record. The court as a matter of fact, cannot substitute its evaluation and come to the conclusion that the arbitrator had acted contrary to the bargain between the parties. If the view of the arbitrator is a possible view the award or the reasoning contained therein cannot be examined. …….
20. More recently, in the case of SIKKIM SUBBA ASSOCIATES v. STATE OF SIKKIM, the Supreme Court reiterated the same principles and held:
14. It is also, by now, well settled that an arbitrator is not a conciliator and his duty is to decide the disputes submitted to him according to the legal rights of the parties and not according to what he may consider to be fair and reasonable. An arbitrator was held not entitled to ignore the law or misapply it and he cannot also act arbitrarily, irrationally, capriciously or independently of the contract (see Rajasthan State Mines and Minerals Ltd. v. Eastern Engg. Enterprises). If there are two equally possible or plausible view or interpretations, it was considered to be legitimate for the arbitrator to accept one or the other of the available interpretations. It would be difficult for the courts to either exhaustively define the word “misconduct” or likewise enumerate the line of cases in which alone interference either could or could not be made. Courts of law have a duty and obligation in order to maintain purity of standards and preserve full faith and credit as well as to inspire confidence in alternate dispute redressal method of arbitration, when on the face of the award it is shown to be based upon a proposition of law which is unsound or findings recorded which are absurd or so unreasonable and irrational that no reasonable or right-thinking person or authority could record or the governing position of law to interfere……
21. Similarly, in the cases of INDU ENGINEERING & TEXTILES v. DELHI DEVELOPMENT AUTHORITY, it was insisted that the grounds for interference are restricted to the ones enumerated under Section 30 of the Act. Ordinarily, the court would not interfere and reappraise the evidence.
22. Having pondered, thus, one can conveniently draw the ratio decidendi of these decisions, referred to above. The arbitrator is an appointee of the parties by virtue of their contract. They have decided to get their disputes adjudicated by an arbitrator, who is a judge of the matters referred to him. The arbitrator can be a person having legal or no legal knowledge but since he has been appointed as per the contract, the courts will disfavor interference on account of error of law or fact. On the score of not appreciating the facts as the other party may allege the courts show definite inclination to preserve the award. Wider meaning of the expression “legal misconduct” has not been too much appreciated. The court is not to sit as a court of appeal and start reappreciating the evidence and the conclusions arrived at. If a reasonable view has been taken in that event the court would ordinarily not interfere unless findings are totally erroneous or that no other finding, as such, can be arrived at. The scope of interference in terms of Section 30 of the Act is limited. It can only be set aside on the grounds enumerated under these provisions. Some of the well recognized grounds are; (a) violation of the principles of natural justice in passing the award, (b) error apparent on the face of the record or the award, (c) the arbitrator has deliberately violated or ignored a clause, (d) the award on the face of it is based on a proposition of law, which is erroneous. One would haste into add that this is not an exhaustive list in this regard.
23. Reverting back to the facts of the case, one can restate that as per the applicant, it was for commercial exploitation and, therefore, when the parties using expression “invention” and it was for commercial exploitation, it must be taken that what is stated in the agreement, has to be provided. The learned counsel went on to urge that what was supplied was out of date knowledge and know-how and, therefore, there was a total breach of agreement. It was further urged that prototypes were supplied after one year and again there was breach of agreement.
24. Herein, as already referred to above, the arbitrator found that there was no such invention as such. The arbitrator further had returned the findings that there was no breach of agreement and as per the terms, the process was offered to the petitioner on basis of laboratory investigation. It was further noted in the agreement that these presents shall not be construed as warranty by the corporation.
25. The said findings of the arbitrator find support from the agreements that were entered into on 7.6.1972. Relevant parts of the same read:
……WHEREAS the Central Electronics Engineering Research Institute, Pilani, has developed a know-how for the manufacture of Television Video Monitor (hereinafter called the ‘said invention’) and full rights in the said invention have been assigned to the Corporation,…..
3(v) The grantee will employ his best endeavor to work and sell the said invention on a commercial scale within India and abroad to meet the demand for Television Video Monitor to adequate extent and at prices to be fixed by the Grantees;
9. These presents shall not be construed as a warranty by the Corporation of the novelty, utility and workability of the said invention.
26. Perusal of the same clearly shows that what was recorded by the arbitrator and the findings so arrived at, is an plausible and reasonable view. He found that there was no promise or representation that know-how license was technically sound and economically viable. The petitioner had simply been assured that it would give complete know-how and necessary assistance and that there was no warranty. The petitioner had been told that what is being given is on basis of the laboratory investigation and if he wanted further detailed information, he had to engage consulting engineer. In that view of the matter, the award so returned can not be taken to be consisting of misreading of evidence or that no other interpretation was possible. Findings have been recorded on basis of the evidence and appreciating the same they can not be described to be totally erroneous to prompt the court to interfere. In that view of the matter, all the other issues must be decided against the petitioner, holding that there is no ground for interference by reappraising the evidence afresh.
27. As a result of the aforesaid, the objections must fail and are dismissed. The award is made a rule of the Court whereby the claim of the petitioner had been rejected.