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Delhi High Court
Kesar Enterprises Ltd. vs D.C.M. Shriram Industries Ltd. & … on 4 September, 2000
Author: V Sen
Bench: V Sen


Vikramajit Sen, J.

1. Section 30 of the Arbitration Act, 1940 envisages that an Award shall not be set aside except if the Arbitrator had misconducted himself or the proceedings, or if it has been published after the proceedings had been superseded, or if the award had been improperly procured, or if it was otherwise invalid. Probably because arbitration was yet the evolve and develop and be ubiquitously accepted as an alternative forum for dispute resolution, the Courts of law exercised a strict supervision over it, much as a parent watches over its fledging. Over the years, arbitration has developed into a robust institution, fully capable of effectively deciding all disputes which may come before it. An analysis of the judicial trends over the years mirrors this matamorphosis. The apex Court firstly gave judicial review a wide amplitude, causing a proliferation in the grounds on which an award could be assailed. For example, if all the questions raised had not been dealt with in the Award it was initially considered sufficient reason to set it aside. Later decisions however recognised the fiction that if this happened, it could be assumed that these points had been duly considered and then rejected. Similarly, it was earlier expected that the Awards should contain reasons in clear terms, thereafter it was thought necessary that the trend/chain of thought need only be expressed, and finally where the submission was recorded but not dealt with even this was not considered to be essential. Most significantly, recent decisions have recognised that judicial interference is not expected even though the Arbitrator may have committed an error of fact.

2. Although almost two score years have passed since the decision of Union of India Vs. Rallia Ram, , the following observations of the Apex Court in this case have not been varied. “An award being a decision of an arbitrator whether a lawyer or a layman chosen by the parties, and entrusted with power to decide a dispute submitted to him is ordinarily not liable to be challenge on the ground that it is erroneous. In order to make arbi- tration effective and the awards enforceable, machinery is de- vised for lending the assistance of the ordinary Courts. The Court is also entrusted with power to modify or correct the award on the ground of imperfect form or clerical errors, or decision on questions not referred, which are severable from those re- ferred. The Court has also power to remit the award when it has left some matters referred undetermined, or when the award is indefinite, or where the objection to the legality of the award is apparent on the face of the award. The Court may also set aside an award on the ground of corruption or misconduct of the arbitrator, or that a party has been guilty of fraudulent concealment or wilful deception. But the Court cannot interfere with the award if otherwise proper on the ground that the decision appears to it to be erroneous. The award of the arbitrator is ordinarily final and conclusive, unless a contrary intention is disclosed by the agreement. The award is the decision of a domes- tic tribunal chosen by the parties, and the Civil Courts which are entrusted with the power to facilitate arbitration and to effectuate the awards, cannot exercise appellate powers over the decision. Wrong or right the decision is binding if it be reached fairly after giving adequate opportunity to the parties to place their grievances in the manner provided by the arbitration agree- ment. But it is now firmly established that an award is bad on the ground of error of law on the face of it, when in the award itself or in a document actually incorporated in it, there is found some legal proposition which is the basis of the award and which is erroneous”.

Acknowledging that the Arbitrator is the final judge of facts, the Apex Court in State of Orissa & Anr. Vs. Kalinga Construction Co. (P) Ltd., held that the High Court erred in considering the matter as a court of appeal and in re-evaluating the evidence and that it further erred in recording a finding in reversal of the conclusions of the arbitrator.

3. In Hindustan Iron Co. Vs. K. Shashikant & Co., the Court held that the award of the Arbitrator ought not to be set aside of the reason that, in the opinion of the Court, the Arbitrator reached wrong conclusions or failed to appreciate the facts. That this was a well settled proposition of law was reiterated in the decision of the Apex Court in Coimbatore District f Thozillar Sangam Vs. Balasubramania Foundary & Ors, . It was opined that it is only an error of law and not a mistake of fact, committed by the arbitrator, which is justiciable in the application/objection before the Court. If there is no legal proposition either in the award or in any document annexed with the award which is erroneous and the alleged mistakes or alleged errors, are only mistakes of fact and if the award is made fairly, after giving adequate opportunity to the parties to place their grievances in the manner provided by the arbitration agreement, the award is not amenable to corrections of the Court. Similar views were again expressed in Indian Oil Corporation Ltd. Vs. Indian Carbon Ltd., ; Jawahar Lal Wadhwa & Anr. Vs. Haripada Chakroberty, ; Puri Construction Pvt. Ltd. Vs. Union of India, ; M/s. Sudarsan Trading Co. Vs. Government of Kerala & Anr., (1989) 2 SCC 30; Food Corporation of India Vs. Joginderpal Mohinderpal & Anr., where even a plausible view taken by the Arbitrator was held not to be open to Court interference. In Municipal Corporation of Delhi Vs. M/s. Jagan Nath Ashok Kumar & Anr., the Court held that if the reasons appear per se to be not unreasonable and irrational the Court ought not to reappreciate the evidence. In Hind Builders Vs. Union of India, the Court cautioned that where two views were possible it could not be predicated that there was an error apparent on the face of the award. In Bijendra Nath Srivastava Vs. Mayank Srivastava & Ors., the view was expressed that the reasonableness of reasons given by the arbitrator were not open to challenge and that the proper approach would be for the Court to support the award. Similarly, in Hindustan Construction Co. Ltd. Vs. Governor of Orissa & Ors., it was repeated that the Court cannot reappreciate the material on the record. In Trustees of the Port of Madras Vs. Engineering Constructions Corporation Ltd., the decision of a Division Bench of the High Court of Madras, which reversed the Award on a question of fact and not a question of law, was set aside by the Supreme Court. After considering its previous decisions, the Apex Court in B.V. Radha Krishna Vs. Sponge Iron India Ltd., again held that the Court could not substitute its own view in place of that of the Arbitrator. In Army Welfare Housing Organisation Vs. Gautam Construction & Fisheries Ltd. the Court declined to vary an award for the reason that without reappreciating evidence it would not be possible to fault the quantum awarded towards anticipated expenses.

4. The Arbitration and Conciliation Act 1996, has given statutory expression to the judicial view that Courts’ interference in arbitration matters is to be eschewed.

5. In the present case the Arbitrator, whose name was jointly agreed upon by the parties, is a former Chief Justice or India. I mention this fact fully mindful that the Court should still not hesitate to intervene if the circumstances of the case so warrant. However, keeping in view the submissions made before me, this case is very relevant to illustrate that if the decision of such a distinguished jurist can be assailed, other persons would be far too vulnerable to similar criticism. It also highlights the significance of the amendments carried out in the law of Arbitration in 1996. In place of the legal regime established in Section 30 of the Arbitration Act, 1940, the corresponding provisions are to be found in Section 34 of the Arbitration and Conciliation Act 1996. They are reproduced for easy comparison.

Section 30 of the Arbitration Act, 1940.

   Grounds for setting aside award:- An award shall not be set aside    except on one or more of the following grounds, namely:- 

   (a) that an arbitrator or umpire has misconducted himself or the    proceedings; 

   (b) that an ward has been made after the issue of an order by the    Court superseding the arbitration or after arbitration proceedings have become invalid under section 35; 

   (c) that an award has been improperly procured or is otherwise    invalid. 

   Section 34 of the Arbitration and Conciliation Act, 1996. 

   34. Application for setting aside arbitral award.- (1) Recourse    to a Court against an arbitral award may be made only by an    application for setting aside such award in accordance with sub-   section (2) and sub-section (3) 

   (2) An arbitral award may be set aside by the court only if-

   (i) a party was under some incapacity; or

   (ii) the arbitration agreement is not valid under the law to    which the parties have subjected it or, failing any indication    thereon, under the law for the time being in force; or

   (iii) the party making the application was not given proper    notice of the appointment of an arbitrator or of the arbitral    proceedings or was otherwise unable to present his case; or

   (iv) the arbitral award deals with a dispute not contemplated by    or not falling within the terms of the submission to arbitration,    or it contains decisions on matters beyond the scope of the    submission to arbitration: 

   Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part    of the arbitral award which contains decisions on matters not    submitted to arbitration may be set aside; or

   (v) the composition of the arbitral tribunal or the arbitral    procedure was not in accordance with the agreement of the par-   ties, unless such agreement was in conflict with a provision of    this Part from which the parties cannot derogate, or, failing    such agreement, was not in accordance with this Part; 


   (b) the Court finds that-

   the arbitral award is in conflict with the public policy of    India. 

   Explanation:- Without prejudice to the generality of  sub-   clause(ii), it is hereby declared, for the avoidance of any    doubt, that an award is in conflict with the public policy of    India if the making of the award was induced or affected by fraud    or corruption or was in violation of Section 75 or Section 81.  

6.  The Apex Court lamented two decades ago, on the procedural delays that had crept in even in the disposal of disputes by the channel of Arbitra- tion, in the following passage in Guru Nanak Foundation Vs. Rattan Singh and Sons, :       "Interminable, time consuming, complex and expensive court procedures impelled jurists to search for an alternative forum, less    formal, more effective and speedy for resolution of disputes,    avoiding procedural claptrap and this led them to Arbitration    Act, 1940 ("Act" for short). However, the way in which the pro-   ceedings under the Act are conducted and without exception challenged in courts, has made lawyers laugh and legal philosophers    weep. Experience shows and law reports bear ample testimony that    the proceedings under the Act have become highly technical accompanied by unending prolixity, at every stage providing a legal    trap to the unwary. Informal forum chosen by the parties for    expeditious disposal of their disputes has by the decisions of    the courts been clothed with 'legalese' of unforeseeable complexity. 

7.  The contention of Mr. D.K. Aggarwal, learned Senior Counsel appearing for the Petitioner is a short one, but must he decided in the backdrop narrated above. He argued that it was agreed by members of the Federation to which the parties belonged, that the losses sustained by the Petitioner in making supplies to the French buyer would be shared equally by them. This understanding assumes significance since it is not in controversy that the supply of ethyl alcohol made by the Respondent to the Petitioner was not sub-standard, as was the case in some of the other suppliers. Mr. Aggarwal submitted that the learned Arbitrator has not addressed this question and a reading of the Award would disclose that there is no finding to this effect. He formulated the argument that where all questions raised before the Arbitrator had not been considered, and/or a fair view thereto was not expressed in the Award, it would be a violation of natural justice and hence of 'public policy'. It would therefore be amenable to judicial interference under Section 34(2)(b)(ii). He relied on London Export Corporation Ltd. Vs. Jubilee Coffee Roasting Co. Ltd., [1958] 1 All.E.R. 494, where it was held that a violation of the rules of natural justice would be tantamount to an infraction of public policy. Emphasis was placed on the following passage from the said Judgment:       "It is in relation to this second and separate question that the    rules of what is so often called natural justice may arise di-   rectly. There may be a variety of grounds of public policy on    which an award may be set aside. That it has sought to oust the    statutory jurisdiction of the Court to direct a Special Case to    be stated is one example: See Czarnikov Vs. Roth, Schmidt & Co.    (3)([1922] 2. K.B. 478). That its effect is to enforce an illegal    contract is perhaps another: see David Taylor & Son. Ltd. Vs.    Barnett (4) ([1953] All E.R.843); and I apprehend that an award    obtained in violation of the rules of natural justice even where    there was no breach of the agreed procedure would be set aside on    grounds of public policy: as, for instance, where an arbitrator    manifested obvious bias too late for an application for his    removal to be effective before he made his award. Contrast Catal-   ing S.S. Ouners Vs. Norma Ouners (5)([1938), 61 Lloyd's Rep.360). 

8.  This authority does not lay down that a failure of an Arbitrator to return a finding on every question raised before him would tantamount to a violation of the rules of natural justice and therefore should be construed as opposed to public policy. I have already mentioned that Courts have held that in such circumstances, it would be deemed that the Arbitrator has rejected the contention. In the present case the Arbitrator is a former Chief Justice of India and to predicate that he had not appreciate and duly considered all the questions raised before him would be extremely sanguine. The parties have chosen their own forum for the resolution of their dis- putes and they must be held to their choice. An interpretation which would be in conformity with and in the implementation of this choice is to be preferred to any other. If an objection of the nature articulated before me is to be countenanced in a case where the Arbitrator is not only a seasoned lawyer but a Judge who has reached the pinnacle, professional Arbitrators would be rendered wholly unprotected to a similar charge. The rule must, therefore, be that such an objection should not be considered by the Court in violence to the intention of the statute. Learned Counsel for the Peti- tioner further relied on State of Orissa Vs. Orient Paper & Industries Ltd., . But that was a decision rendered in the context of the Arbitration Act, 1940. Learned Counsel for the Petitioner has drawn reference to the decision in Olympus Superstructures Pvt. Ltd. Vs. Meena Vijay Khetan and Others, , in which it was observed that Section 34 of the Act is based on Article 34 of the UNCITRAL MODEL LAW and that the scope of the provision of setting aside the Award is far less than the same as under Sections 30 or 33 of the Arbitration Act, 1940. Although there seems to be some typographical error is paragraph 17 of this judgment, it appears to me that this is what the Learned Judge intended to impress. Even if some doubts remain as to what the Hon'ble Judge intended to express, the follow- ing passage from M/s. Sundaram Finance Ltd. Vs. M/s. NEPC India Ltd.,  wholly clarifies the view of the Apex Court:       "The 1996 Act is very different from the Arbitration Act, 1940.    The provisions of this Act have, therefore, to be interpreted and    construed independently and in fact reference to 1940 Act may    actually read to misconception. In other words, the Provisions of    1996 Act have to be interpreted being uncommenced by the principles underlying the 1940 Act. In order to get help in construing    these provisions it is very relevant to refer to the UNCITRAL    MODEL LAW rather than 1940 Act."   

9.  These provisions have been amended clearly with a view to circumscribe to a narrow point, the objections that can be entertained where an Arbitral Award is assailed. To widen the scope of Section 34 would be ignoring and setting at nought the legislative intent, which perhaps was itself a response to the judicial lament extracted above. 

10. In these circumstances, I am unable to read and interpret the words "public policy of India", as being at all attracted in cases where a particular party alleges that a point was raised before the Arbitrator but not subsequently dealt with by him in the Award. I am in no manner of doubt, that such a conduct, even if it did happen, would not amount to an infraction of public policy, or for that matter, the rules of natural justice. 

11. The Objections are, accordingly, dismissed, but because of the brevity of Mr. D.K. Aggarwal, learned Senior Counsel for the Petitioner, I think without any costs.  

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