PETITIONER:
STATE OF RAJASTHAN
Vs.
RESPONDENT:
R.S. SHARMA & CO.
DATE OF JUDGMENT16/08/1988
BENCH:
MUKHARJI, SABYASACHI (J)
BENCH:
MUKHARJI, SABYASACHI (J)
RANGNATHAN, S.
CITATION:
1988 SCR Supl. (2) 441 1988 SCC (4) 353
JT 1988 (4) 18 1988 SCALE (2)644
ACT:
Arbitration Act, 1940: Sections 14, 17, 30 and 33-
Award- Setting aside of by Court- Error apparent on race of
award- Award not invalid where by process of inference and
argument it may be demonstrated that the arbitrator had
committed mistake in arriving at some conclusion.
HEADNOTE:
A dispute over the completion of construction work under
a contract led to the litigation between the appellant and
the respondent-company. However, during the pendency of the
proceedings in the High Court, the parties agreed to settle
the dispute through arbitration.
The Arbitrators gave their award in favour of the
respondent-company on the ground that the appellant had
committed breach of contract and was also guilty of wrongful
revocation of the agreement. The award did not contain any
reason as to why and how the Arbitrators had arrived at the
sum awarded.
The appellant filed objection to the respondent's
application for making the award Rule of the Court on the
ground inter alia that (i) no reasons had been given for the
award, (ii) the award being ambiguous showed non-application
of mind, and (iii) the amount of interest awarded was
unjustified. The learned District Judge allowed the
objection and set aside the award on the ground of ambiguity
and non-statement of reasons. The High Court, however,
allowed the respondent's appeal and also directed payment of
interest for the period during which the arbitration
proceedings were pending.
Before this Court it was urged that, because the
question whether on the ground of absence of reasons the
award is bad per se is pending consideration by a
Constitution Bench of this Court, the present case should
await adjudication on this point by the Constitution Bench.
Disposing of the appeal, it was,
HELD: (1) One of the cardinal principles of the
administration of justice is to ensure quick disposal of
PG NO 441
PG NO 442
disputes in accordance with law, justice and equity. Justice
between the parties in a particular case should not be in
suspended animation. [445B-C, G]
(2) Interests of justice and administration of justice
would not be served by keeping at bay final adjudication of
the controversy in this case on the plea that the question
whether an unreasoned award is bad or not, is pending
adjudication by a larger Bench. [445E-F]
(3) It is not known whether the decision of this Court
would have prospective application only in view of the long
settled position of law on this aspect in this country or
not. [445G]
(4) The law as it stands today is clear that unless
there is an error of law apparent on the face of the award,
the award cannot be challenged merely on the ground of
absence of reasons. This is settled law by a long series of
decisions. [445E]
(5) An award is not invalid merely because by a process
of inference and argument it may be demonstrated that the
arbitrator had committed some mistake in arriving at some
conclusion. [446B]
(6) It is not open to the Court to speculate, where no
reasons are given by the arbitrator, as to what impelled the
arbitrator to arrive at his conclusions. [446C]
Jivarajbhai Ujamshi Sheth v. Chintamanrao Balaji & Ors.,
[1964] 5 SCR 480, referred to.
(7) It is an error of law apparent on the face of it and
not a mistake of fact which could be the ground for
challenging the award. [446F]
Union of India v. Bungo Steel Furniture P. Ltd., [1967]
1 SCR 324 and Allen Berry & Co. P. Ltd. v. Union of India,
[1971] 3 SCR 282, referred to.
8. In the present case the arbitrator gave no reasons
for the award. There is no legal proposition which is the
basis of the award, far less any legal proposition which is
erroneous. And there is no allegation of any misconduct in
the proceedings. [446E-F]
(9) The award of interest pendente lite in this case was
in violation of the principles enunciated by this Court.
[447B]
PG NO 443
Executive Engineer (Irrigation) Balimela v. Abhaduta
Jena, [1988] 1 SCC 418, followed.
Food Corporation of India v. M/s. Surendra Devendra &
Mohendra Transport Co., [1988] 1 SCC 57, explained.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3054 of
1988.
From the Judgment and Order dated 16.3.1988 of the
Rajasthan High Court in S.B. Civil Miscellaneous Appeal No.
240/1987.
K. Parasaran, Attorney General, B.L. Saruparia and
Badridas Sharma for the Appellant.
Soli J. Sorabjee, Paras Kulad, Rohinton F. Nariman and
Rathin Das for the Respondent.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, J. Leave granted. Appeal is
disposed of by the judgment herein.
This appeal challenges the order of the High Court of
Rajasthan, dated 16th March, 1988. The respondent’s tender
for construction of complete masonry dam (Civil Engineering
Works) Mahi Bajaj-Sagar Project, Banswara, was accepted by
the appellant for a sum of Rs.5,90,30,791 vide letter dated
29.4.1974 and a provisional agreement was entered into
between the parties on 23.5.1975. The construction was
commenced by the respondent-company but it did not complete
the same and, it is alleged, left the work unfinished in the
year 1979, which was of the value of Rs. 1,79,80,054.
The letter of acceptance was dated 23.5.1975. It is
stated that the respondent did not start the work in spite
of written notices and, ultimately, by a letter dated 24th
December, l979 of the Executive Engineer (Dam Division),
Banswara, the respondent was informed that as it had
committed breach of the conditions of the contract, the same
had been terminated and that the State Govt. would complete
the work under the clauses and conditions of the contract.
The work had to be completed departmentally at the cost and
risk of the respondent-company. After some litigation
between the parties when the Civil Revision was pending in
the High Court of Rajasthan at Jodhpur, a compromise between
PG NO 444
the parties was arrived at on the 13th April, 1982. It was
agreed that the dispute would be settled through
arbitration. By an agreement dated 13th June, 1982 the
parties named their arbitrators.
The arbitrators entered upon the reference on 19th June,
1982. On 5th May, 1982, the respondent-company presented its
claims under 40 heads claiming a total sum of Rs.
1,90,53,059.28. This amount was later on revised to Rs.
1,82,20,261.02. The State filed a counter-claim for a sum of
Rs. 1,70,63,026.37 which was revised to Rs. 1,25,706,17. It
is stated that the arbitration proceedings were conducted
for 52 days during which the number of sittings was 25.
Various issues were framed. Minutes of the proceedings were
recorded. The arbitrators gave the award on 8.12.1982. It is
stated that the award did not contain any reason as to why
and how they had arrived at the figure of Rs. 75,41,755 in
favour of the respondent-company. The award, however,
mentioned that the State of Rajasthan committed breach of
contract and was also guilty of wrongful revocation of the
agreement and the actions taken under Clauses 2 and 3 of the
conditions of the Contract, were wrongful and unjustified.
However. no reasons were indicated as to how the arbitrators
arrived at those findings.
The respondent filed an application in the Court of the
learned District Judge for making the award Rule of the
Court. The appellant, however, filed an objection on the
grounds inter alia that no reasons had been given by the
arbitrators for the award and the amount of interest awarded
was unjustified. It was further averred that the award being
ambiguous, showed non-application of mind and the question
as regards the plant machinery of the respondent-company
lying at the dam site, were beyond the scope of the
arbitrator.
The learned District Judge by his judgment and order
dated 11th August, 1987 allowed the objection and set aside
the award on the ground of ambiguity and non-application of
mind. The award also suffered from the vice of non-statement
of reasons, according to the learned District Judge.
According to him, the award was not in accordance with law.
He further held that the plant & machinery lying at the dam
site was beyond the reference made to the arbitrators. He
was of the opinion that the interest amount was ambiguous
and thus liable to be set aside. THere was an appeal to the
High Court. The High Court allowed the appeal and passed a
decree for Rs. 75,41,755 being the amount of all claims and
directed that the State should pay interest @ 5% p.a. on the
said amount for the period from 1.8.1983 to 8.12.1985, being
the period during which the arbitration proceedings were
PG NO 445
pending. This decision of the High Court is under challenge
in this appeal.
It was contended before us that the question whether on
the ground of absence of reasons, the award is bad per se,
is pending consideration by a Constitution Bench of this
Court in C.A. No. 3137-39/85, 3145/85- Jaipur Development
Authority v. Firm Chhokhamal Contractor etc. It was, hence,
urged that this should await adjudication on this point by
the Constitution Bench. We are unable to accept this
contention. In our opinion pendency of this question should
not postpone all decisions by this Court. One of the
cardinal principles of the administration of justice is to
ensure quick disposal of disputes in accordance with law,
justice and equity. In the instant case the proceedings have
long procrasticated. Indeed, the learned Judge of the High
Court, after narrating the incidents from 1975 to 1985,
concluded his judgment in March 1988 by observing that that
was the end of the journey. He was wrong. That was only the
end of a chapter in the journey and the appellant wants to
begin another chapter in the journey on the plea that the
award is not a reasoned one. The bargaining between the
parties was entered into in 1974-75 and the award was made
on 8th December, 1985 i.e. a decade after the beginning of
the transaction.
The law as it stands today is clear that unless there is
an error of law apparent on the face of the award, the award
cannot be challenged merely on the ground of absence of
reasons. This is settled law by a long series of decisions.
Interests of justice and administration of justice would not
be served by keeping at bay final adjudication of the
controversy in this case on the plea that the question
whether an unreasoned award is bad or not, is pending
adjudication by a larger Bench. There have been a large
number of sittings before the arbitrators. Parties have been
heard. There was no misconduct in the proceedings. There has
been no violation of the principles of natural justice. In
such a situation it would be inappropriate to postpone the
decision pending adjudication of this question by a larger
Bench of this Court. We do not know how long it would take
to decide that question, and whether ultimately this court
would decide that unreasoned awards per se are bad or
whether the decision would have prospective application only
in view of the long settled position of law on this aspect
in this country or not. Justice, between the parties in a
particular case, should not be in suspended animation. Law
as it stands today, as observed in Jivarajbhai Ujamshi Sheth
& Ors. v. Chintamanrao Balaji & Ors., [1964] 5 SCR 480 is
that award made by an arbitrator is conclusive as a judgment
between the parties and the Court is entitled to set aside
an award only if the arbitrator has misconducted himself in
PG NO 446
the proceedings or when the award has been made after the
issue of an order by the Court superseding the arbitration
or if the arbitration proceedings have become invalid under
Sec. 35 of the Arbitration Act or where an award has been
improperly procured or is otherwise invalid under Sec. 30 of
the Act. An award may be set aside by the Court on the
ground of error on the face of the award, but an award is
not invalid merely because by a process of inference and
argument it may be demonstrated that the arbitrator had
committed some mistake in arriving at some conclusion. In
that decision Shah, J. and Sarkar, J. as the learned Chief
Justices then were, were of the view that it was not open to
the Court to speculate, where no reasons are given by the
arbitrator, as to what impelled the arbitrator to arrive at
his conclusions. They held the award not severable.
Hidayatullah, J. as the learned Chief Justice then was,
observed that if the parties set limits to action by the
arbitrator, then the arbitrator had to follow the limits set
for him and the Court can find his auxiliary jurisdiction.
Instant case before us is also not a severable award.
In Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills
Ltd., Indore [1967] 1 SCR 105 Bachawat, J. speaking for the
Court observed that an arbitrator could give a lump sum
award. He was not bound to give a separate award for each
claim. His award on both fact and law is final. There is
no appeal from his verdict. The Court cannot review his
award and correct any mistake in his adjudication, unless
an objection to the legality of the award is apparent on the
face of it.
In the present case the arbitrator gave no reasons for
the award. There is no legal proposition which is the basis
of the award, far less any legal proposition which is
erroneous. Also there is no allegation of any misconduct in
the proceedings. It is an error of law apparent on the face
of it and not mistake of fact which could be the ground for
challenging the award. See in this connection the
observations in Union of India v. Bungo Steel Furniture P.
Ltd., [1967] 1 SCR 324. Also see the observations of this
Court in Allen Berry & Co. (P) Ltd. v. Union of India, New
Delhi, [l971] 3 SCR 282. Hence, the High Court was right in
the instant case.
There is, however, one infirmity in the award as
sanctioned by the High Court, that is to say, the grant of
interest pendente lite. The arbitrators have observed as
follows :
“By adjustment of interest held to be due to the
Respondents with that held to be due to the Claimants on
their items of claims which were not in the nature of claim
PG NO 447
for damages for breach, we hold that the Respondents do pay
Rs. 17,92,957 (Rupees seventeen lacs ninetytwo thousand nine
hundred fiftyseven only) as interest, to the Claimants upto
the date of the AWARD. Claimants further do pay to the
Respondents Rs. Nill.”
This was awarding interest pendente lite. This is in
violation of the principles enunciated by this Court in
Executive Engineer (Irrigation), Balimela & Ors. v. Abhaduta
Jena & Ors., [1988] 1 SCC 418. Our attention was drawn by
Shri Soli J. Sorabjee, counsel for the respondent, to the
decision of this Court in Food Corpn. of India v. M/s.
Surendra, Devendra & Mohendra Transport Co., [1988] 1 SCC
547 where at pages 555-556 of the report, the Court referred
to certain decisions cited by Chinnappa Reddy, J. in
Executive Engineer (Irrigation), (supra) in which he had
expressed the view that those were cases in which the
references to arbitration were made by the Court or in Court
proceedings of the disputes in the suit. In that context it
was held in those cases that the arbitrator had power to
grant interest. It was contended before us that this was a
similar case. There was a Court proceeding in this case
regarding the appointment of the arbitrator and, as such, on
the same analogy it should be treated that the arbitrator
had power to grant interest. We are unable to accept this.
What Mr justice O. Chinnappa Reddy meant to say by the
latter judgment in Executive Engineer (Irrigation), case
referred to in Food Corporation of India, (supra) was where
the disputes regarding the merit of the case were pending in
the Court and such disputes instead of being decided by the
Court adjudication had been referred to an arbitrator by the
Court, in such cases the arbitrators deciding in the place
of the Court, would have the same powers to grant interest
pendente lite as the Courts have under Section 34 of the
Civil Procedure Code. Instant case is not such a proceeding.
In that view of the matter this part of the award, which
was affirmed by the High Court of granting of interest, must
be deleted. We do so accordingly.
Shri K. Parasaran, learned Attorney General, assures us
that the amount awarded as modified, would be paid within 8
weeks from today.
The appeal is thus disposed of without any order as to
costs.
R.S.S. Appeal disposed of.