State Of Karnataka v. Hindustan Construction Co. Ltd., Bombay .

G.N Sabhahit, J.:— This appeal by the plaintiffs is directed against the judgment and decree dated 29-7-1976 passed by the Third Additional Civil Judge, Bangalore City, in Original Suit No. 150 of 1974, on his file, rejecting the application made under Sec. 30 read with Sec. 33 of the Arbitration Act, 1940 and directing that a decree be passed in terms of the award passed by the Arbitrators.

2. The Karnataka State entered into two agreements dated 21-9-1960 and 24-11-1960 with the respondent/defendant Hindustan Construction Co. Ltd., in the matter of construction of pressure Twin Tunnels at Vodenbyle and their approaches under the agreement dated 21-9-1960, referred to as Part I, and construction of Surge Tanks and Penstock Tunnels under agreement dated 24-11-1960, referred to as Part II, Disputes having arisen with regard to refund of payment of certain amount, the Contractor issued notice of arbitration dated 4-3-1971 under Clause 51 of the General Conditions of the Contract. The claimants appointed Shri N.D Daftarv as an Arbitrator on their behalf and the State of Mysore appointed Shri S.G Balekundry. Chief Engineer, as their Arbitrator Reference was entered upon on 14-5-1971 and the Arbitrators made an award on 28-4-1972 allowing certain claims made by the Contractor and they filed on application under Sec. 17 of the Arbitration Act, 1940, before the Civil Court. Bangalore City, to make the award into a decree of the Court. In the acid proceedings, the State of Karnataka, through the Engineer-in-chief (Electrical). Power Corporation limited and the Chief Engineer. S.V.P Cell, Water Development Organisation, made an application under Sec. 30 read with Section 33 of the Arbitration Act, 1940, to declare the award produced into Court by the Arbitrators as one made without jurisdiction and to set aside the same. According to them, the Arbitrators have misconducted themselves in the proceeding. The proceeding was registered as Original Suit No. 150 of 1974. Affidavits of the parties were filed and the learned Civil Judge raised the following issues as arising for his consideration in the suit.

(1) Whether the Arbitrators had no jurisdiction to arbitrate into the claim of the defendant?

(2) Whether the Arbitrators have misconducted themselves in passing the impugned award?

(3) Whether the plaintiff is estopped from challenging the jurisdiction of the Arbitrators?

(4) Whether the award is liable to be set aside?

(5) What order?

3. The learned Civil Judge, appreciating the material placed before him in the light of the arguments addressed before him answered Issue No. 1 holding that the Arbitrators had jurisdiction to adjudicate. He answered Issues Nos. 2, 3 and 4 in the negative and in that view, the learned Civil Judge dismissed the application to set aside the award and thereupon directed that a decree be passed in terms of the award. Aggrieved by the said judgment and decree, the State has instituted the above appeal before this Court.

4. The learned Advocate General strenuously urged before us that the Arbitrators could not entertain the dispute for adjudication and he further submitted alternatively that even if they had jurisdiction, they misconducted themselves in the proceeding. Hence, he submitted that the award passed by the Arbitrators should be set aside on allowing the appeal.

5. As against that, the learned Advocate appearing for the respondent/defendant (contractor) argued supporting the judgment and decree passed by the lower Court.

6. The points, therefore, that arise for our consideration in the appeal are:

(1) Whether the Court below was justified in holding that the Arbitrators had jurisdiction to entertain and adjudicate upon the dispute? and

(2) Whether the lower Court was justified in holding that the State of Karnataka failed to establish that the Arbitrators misconducted themselves during the proceeding?

7. Point No. 1:— Cl. 51 of the Contract provides for arbitration. It was, however, contended before us that the subject-matter being of a technical nature, it was not amendable for adjudication before the Arbitrators, but that the opinion of the Chief Engineer was final. The learned Civil Judge has dealt with this aspect in detail and has rightly pointed out that payment of dues could not be a technical matter as contained in Clause 20, that the last sub-clause (f) in Clause 20, speaking, of ‘any subject arising out of the contract’ should be construed ejusdom generis with sub-clauses (a) to (e) which speak of technical matter and that therefore the dispute regarding dues under escalation clause would not fall within the purview of Clause 20 and, as such, the subject-matter was amenable for adjudication under Clause 51 of the Contract. We see no reason to differ. We agree with the finding so given by the learned Civil Judge and we hold that the subject-matter was amenable for adjudication before Arbitrators.

8. POINT No. 2: The learned Advocate General submitted that the decision of the Arbitrators is contrary to the terms in the contract and as such, they have committed an error, which is apparent on the face of the record and so, he submitted that they misconducted themselves in the proceeding and their award is liable to be set aside.

9. As against that, the learned Advocate appearing for the respondent/defendant (Contractor) urged on us that there was no legal error apparent on the face of the record and this Court was not sitting in appeal, and that the jurisdiction of this Court was very much restricted and it has to confine itself to what was contained in Section 30 of the Arbitration Act, 1940, in the matter of setting aside the award.

10. The moot point, therefore, that arises for our consideration is: ‘whether there is any error of law apparent on the face of the record and what is the scope in finding out if there is an error apparent on the face of the record?’

11. In order to appreciate the rival contentions raised before us, it would be necessary to read the award in question. It is set down herein below for easy reference:—

“Before the Arbitrators

1. Sri S.G Balekundry, Chief Engineer, PWD Irrigation (North), Dharwar.

2. Sri N.D Daftary, Consulting Engineer 2. Ashok Nagar Society, 11th Road, North South; Juhu Parle Dev. Scheme, Bombay 56.

12. Claimants Hindustan Construction Co. Ltd. Construction House. Wal-Chand Hirachand Marg. Ballard Estate, Bombay-1.

13. Represented by Sri V. Narasimhamurthy, Advocate, Bangalore, Assisted by Sri Rajaram V. Iyer & Shri Vidwans Respondents: The State of Mysore, represented by Advocate General for Mysore and assisted by the Chief Engineer, Water Resources Development Organisation & the Engineer-in-Chief, (Elecl)., Mysore Power Corporation Ltd., Bangalore.

14. This is a reference started with the notice of arbitration dt. 4-3-1971 issued by H.C.C Ltd., relating to their contract for (1) construction of pressure Twin Tunnels and their approaches under the Agreement dt. 21st Sept. 1960, and (2) construction of Surge Tanks and Penstock Tunnels, under the Agreement dt. 24th November 1960. Under Clause 51 of the General Conditions of the Contract, the Claimants appointed Sri N.D Daftary, as an Arbitrator, on behalf of the Claimants and the State of Mysore appointed Sri S.G Balekundry, Chief Engineer, as their Arbitrator.

15. The reference was entered upon on 14th May 1971. In the Preliminary Meeting of the Arbitrators, which was held at Dharwar on 14-5-1971, they appointed Sri V.B Manerikaa as Umpire with his consent. Subsequently, 3 more sittings were held at Bangalore. During the course of the third sitting the Award was made and published.

16. The claimants filed two statements of claims under their letter dt. 19th July 1971 as under:—

1. Part I Regarding pressure Twin Tunnels and their approaches. Rs. 1,04,157.12 2. Part II Regarding Surge Tanks and Penstock Tunnels & Supplementary Contract, for Rs. 2,28,608.08

17. The Chief Engineer Water Resources Development Corporation and the Engineer-in-chief. (Elecl) Mysore Power Corporation Ltd. on behalf of the Respondents filed their Counter Statements in reply on 18-8-71. In the second hearing held at Bangalore on 19-12-1971 the Statements of Claims and the counter-statements were gone through and the counsel were heard with regard to their respective statements.

18. Since the time for making and publishing the Award as per the Arbitration Act had expired, the Claimants were asked to file an application before the Civil Judge. Bangalore, for extension of time by 8 months from the date of its last expiry i.e, 14-9-1971. The extention of time as prayed for was granted and was communicated to the Arbitrators by the Advocate for Claimants on 24-2-1972. In the meantime both parties supplied the necessary particulars regarding the claims as asked for. Both parties stated that they have no witnesses to produce in support of the case in this reference. No witness was therefore examined.

19. We perused the records carefully and heard arguments advanced by both the Counsel.

20. As stated earlier, the Claimants had claimed interest charges on the amount recovered from them in excess under the Escalation Clause. However, the claim for interest was withdrawn by the claimants subsequently and necessary declaration to that effect was made on behalf of the claimants at the 3rd sitting at Bangalore. This was recorded, the respondents having no objection. We hereby unanimously make the following Award:

PART I

1. Claim on account of Escalation Clause 6:

21. The claimants have claimed a refund of Rs. 1,04,157.12, which they alleged were wrongly recovered from them by the respondents. We award refund of Rs. 12,564-00 (Rupees Twelve Thousand five hundred sixty four only).

2. The claimants have claimed interest at 12% on sums due to them.

22. Later on they withdrew the claim in view of Clause 29 of the Contract Agreement.

23. The claim is therefore recorded and we award Nil.

3. Costs: No costs are demanded. So no costs are awarded.

PART II

1. Claim on account of 1% rebate: The claimants have claimed reimbursement of Rs. 2,048.78 (i.e 80,900.70 wrongly deducted less Rs. 87,851.92 actually deductible) vide para 9 of the claim statement.

24. The respondents have admitted that ‘there is no dispute or controversy between the parties in this matter’, respondents having admitted the claim. Both the parties have confirmed this position before us.

25. No proceedings were therefore held as far as this claim is concerned and the matter was recorded.

2. Claims on account of Escalation Clause 6:

26. The claimants claimed Rs. 2,26,559.00 as due to them because of excess recovery already effected by the respondents.

27. We award to the claimants a sum of Rs. 2,06,072/- (Rupees Two lakhs, six thousand and seventy two) only which the respondents are directed to refund to the claimants at an early date.

3. Costs: No costs are demanded. So no costs awarded.

4. Interest: No interest is awarded nor is any claimed, the claim originally preferred in this connection being subsequently withdrawn.

28. Fees and Expenses of Arbitrators and their Stenographer etc.

29. We award as under:

(i) Fees of Arbitrators and their Stenographer should be shared by the two parties on 50:50 basis.

(ii) Expenses of Arbitrator Sri N.D Daftary should be met by the claimants Hindustan Construction Co. Ltd., in full.

(iii) Expenses of Arbitrator Sri S.G Balekundry and their Stenographer Sri Y.S Vajandar should be met by the respondents, the Government of Mysore.

(iv) Cost of Stamps for award should be met by the two parties equally.

(v) Cost of Miscellaneous expenses should be borne by the two parties equally.

I. Fees of Arbitrators and their Stenographer are as under:

(i) Arbitrator Sri N.D Daftarv Rs. 6,500.00 (ii) Arbitrator Sri S.G Balekundry. Rs. 6,500.00 (iii) Stenographer Sri Y.S Vajandar. Rs. 1,000.00 Total: Rs. 14,000.00

30. H.C.C Ltd., should pay 50% of the amount viz., Rs. 7,000.00 and the Government of Mysore should pay Rs. 7,000/-.

31. H.C.C Ltd., have already paid Rs. 6,500/- out of their share of Rs. 7,000/- as advance. They should pay the balance i.e Rs. 500/- very early to Sri Y.S Vajandar. Stenographer, office of the Chief Engineer, PWD, Irrigation (North) Dharwar.

32. Government of Mysore has not paid any amount so far. They should arrange to pay the amount of Rs. 7,000/- indicated as under:—

(i) Arbitrator Sri S.G Balekundry. Rs. 3,500/- (ii) Arbitrator Sri N.D Daftary. Rs. 3,500/- (iii) Stenographer Sri Y.S Vajandar Rs. 500/- Total: Rs. 7,000/- (Rs. 7,500/-?) II. Expenses: (i) Expenses of Arbitrator Sri N.D Daftary towards Boarding and Lodging, travel Etc., these should be met by H.C.C Limited in full. Rs. 3,140.00 (ii) Expenses of Arbitrator Sri S.G Balekundry, and V.Y Vajandar, Stenographer are met by the Government of Mysore in usual course as on Government Duty. Rs. NA III. Cost of Stamp paper The Cost of stamp paper is Rs. 400/- This should be met by H.C.C and Government of Mysore equally (Rs. 400/- is received from H.C.C Ltd., for the purpose). Rs. 400.00 IV. Cost of misc. items viz., Stationary, postage, telegrams etc., (This expenditure is to be met by the Government of Mysore and H.C.C Ltd., equally). Rs. 100.00 V. Grand Total: Rs. 17,640.00

33. The parties should arrange to pay the amount of their share of expenditure early. The entire amount of Rs. 17,640/- less Rs. 6,500/- paid already by H.C.C Ltd., as advance towards the fees of Arbitrators and Rs. 400/- towards purchase of stamp papers, should be paid by H.C.C Ltd., in the first instance. They can recover the amount to be paid by the Government of Mysore later, along with the amount payable to them by the Government of Mysore, under this Award.

Bangalore.

Dt. 28-4-1972.

Sd/- S.G Balekundry & N.D Daftary

Joint Arbitrators.”

34. The learned Advocate General submitted that this Court can look into the concerned Agreements between the parties as they were the basis of the award. He further submitted that the Arbitrators could not ignore the express terms contained in the agreements before they could award any sum under the escalation clause in favour of the Contractor and he further submitted that by looking into those clauses, it would be clear that the Contractor was not entitled to any such sum and, as such, according to him, the Arbitrators committed an error of law which was apparent on the face of the record. It was that way that he submitted that the Arbitrators misconducted themselves in the proceeding.

35. As to what is apparent on the face of the record and as to what documents this Court can look into for considering the award, there have been authentic decisions of the Supreme Court in cases more than one. In fact, the locus classicus on the subject is Champsey Bhara & Co. v. Jivrai Balloo Co., (AIR 1923 PC 66), wherein Lord Dunedin enunciated:

“An error in law on the face of the record means that you can find in the award or a document actually incorporated thereto as for instance, a note appended by the Arbitrator stating the reasons for his judgment, some legal proposition which is the basis for the award and which you can then say erroneous and it does not mean that if in a narrative a reference is made to a contention of one party that opens the door to seeing first what that contention is and then going to the contract on which the party's rights depend to see if that contention is sound.”

36. In D.S Blaiber & Co. v. Leopold Newborne (London) Limited, (1953) 2 Lloyd's Rep. 427 at page 420. Lord Justice Denning said:

“As I read the case, it the arbitrator says: ‘on the wording of this clause I hold’ so and so then that clause is impliedly incorporated into the award because he invites the reading of it: but if an arbitrator simply says: ‘I hold that there was a breach of contract’ then there is no incorporation.”

37. The Privy Council decision in Champsey Bhara & Co. v. Jivrai Balloo Co., (AIR 1923 PC 66), has been followed in innumerable cases in India and in England.

38. In Allen Berry & Co. v. Union of India, ((1971) 1 SCC 295 : AIR 1971 SC 696), and in N. Chillappan v. Kerala S.E Board, ((1975) 1 SCC 289 : AIR 1975 SC 230), the Supreme Court has approved the observations, quoted above, made by the Privy Council.

39. In Allen Berry & Co. v. Union of India, ((1971) 1 SCC 295 : AIR 1971 SC 696), the Supreme Court of India, speaking on the aspect, in para-9 of the judgment, has stated thus:

“9. The question whether a contract or a Clause of it is ‘incorporated’ in the award is a question of construction of the award. The test is, does the arbitrator come to a finding on the wording of the contract, if he does, he can be said to have impliedly incorporated the contract or a clause in it whichever be the case. But a mere general reference to the contract in the award is not to be held as incorporating it.

The principle of reading contracts or other documents into the award is not to be encouraged or extended. (See Baburam v. Nanhemal, (Kanhayilal) C.A No. 107 of 1966 decided on 5-12-1968*).”

40. The rule thus is that as the parties choose their own arbitrator to be the Judge in the dispute between them: they cannot, when the award is good on the face of it object to the decision either upon the law or on facts. Therefore, even when an arbitrator commits a mistake either in law or on 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.

41. Again, in N. Chellappan v. Kerala S.E Board ((1975) 1 SCC 289 : AIR 1975 SC 230), Mathew, J. who spoke for the bench, in paras 12 and 13 of the judgment, speaking on the aspect, has observed:

“The High Court did not make any pronouncement upon this question in view of the fact that it remitted the whole case to the arbitrators for passing a fresh award by its order. We do not think that there is any substance in the contention of the Board. In the award, the umpire has referred to the claims under this head and the arguments of the Board for disallowing the claim and then awarded the amount without expressly adverting to or deciding the question of limitation. From the findings of the umpire under this head it is not seen that these claims were barred by limitation. No mistake of law appears on the face of the award. The umpire as sole arbitrator was not bound to give a reasoned award and if in passing the award he makes a mistake of law or of fact, that is no ground for challenging the validity of the award. It is only when a proposition of law is stated in the award and which is the basis of the award, and that is erroneous, can the award be set aside or remitted on the ground of error of law apparent on the face of the record.”

42. His Lordship quotes with approval ‘Russel on Arbitration’. 17th Edition, page 322, thus:

“Where an arbitrator makes a mistake either in law or in fact in determining the matters referred, but such mistake does not appear on the face of the award, the award is good notwithstanding the mistake, and will not be remitted or set aside.

The general rule is that, as the parties Choose their own arbitrator to be the judge in the disputes between them, they cannot, when the award is good on its face, object to his decision, either upon the law or on the facts.”

43. Continuing further, his Lordship rules in para-13 of the judgment thus:

“An error of law on the face, of the award means that you can find in the award or a document actually 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 you can then say is erroneous (See Lord Dunedin in Champsey Bhara and Co. v. Jivrai Balloo Co., 1923 AC 480 : (AIR 1923 PC 66). In Union of India v. Bungo Steel Furniture Pvt. Ltd., (1967) 1 SCR 324 : (AIR 1967 SC 1032) this Court adopted the proposition laid down by the Privy Council and applied it. The Court has no jurisdiction to investigate into the merits of the case and to examine the documentary and oral evidence on the record for the purpose of finding out, whether or not the arbitrator has committed an error of law.”

44. Adverting to the facts of the present case, it is obvious that there is no clause of the contract quoted or relied upon in the award reproduced above.

45. Though in Part II of the award, in para-2, it is stated: ‘Claims on account of Escalation. Clause 6’, that is not construed or relied upon while awarding the claim. For the award simply says that the claimants claimed Rs. 2,26,559.00 as due to them because of excess recovery already effected by the respondents and that they award to the claimants a sum of Rs. 2,06,072/- only which the respondents are directed to refund to the claimants at an early date.

46. Merely referring to a clause to identify the claim would not amount to relying, on the clause or basing the award in the clause.

47. It is no doubt true that while narrating the facts in the preamble, the arbitrators have referred to the contracts and have also stated:

“We perused the records carefully and heard arguments advanced by both the Counsel.”

48. That would not amount to incorporating the contracts in the award or basing the award construing the clauses of the contracts.

49. The mere fact that the contract is referred to in the preamble of the award does not make that contract a document which is incorporated in the award so that this Court can look into that for the purpose of seeing whether there is an error of law. If, however, the arbitrators went further and set out one at least of the material clauses, it would be permissible for this Court to look at the contract.

50. Vide: Nils Heime Akt. v. G. Merel & Co. Ltd., (1959) 2 Lloyd's Rep. 292.

51. It is held in W.J Alan & Co. Ltd. v. El Nasr Export & Import Co., (1971) 1 Lloyd's Rep. 401 at page 406, that if the arbitrator has generally referred to a document it does not mean that he has incorporated the document in the award. It is further held, that a mere recital or a mere reference even in the body of an award to a document does not incorporate it in the award.

52. That being so, it is obvious that this Court cannot look into the clauses of the contract to find out whether what the arbitrators have awarded is legal or illegal.

53. In fine, it may be stated that where any difference is referred to an arbitrator, normally his decision should stand. There is an exception to this rule and that is an error of law apparent on the face of the award either because a question of law arises on the face of the award or upon some paper accompanying or forming part of the award. An error of law on the face of the award means that we can find in the award or document actually incorporated or accompanying it some legal proposition which on its consideration could be said to be erroneous. This exception cannot be extended to a mere narrative in the award. A mere narration of materials in general terms in an award without particularising any document or any piece of evidence will not permit an investigation into the terms of the contract or other materials placed before the arbitrator to discover whether there is error on the face of the award. Similarly where the terms of the contract are stated in the award for the only purpose to earmark the origin of the disputes which had arisen between the parties, it would be impermissible to hold that the arbitrator had incorporated in the award any material for his conclusion and that, would be enough for the Court to consider such material to test whether there is error apparent on the face of the award. It is the duty of the arbitrator to look into all evidence and materials placed before him and, if in the narrative he makes mention of this fact, it can never be equated to his consideration of any particular piece of evidence or document for the purpose of his conclusion. That is what is done on the facts of the present case.

54. It may further be noted that the award in question in the present case is not a speaking award. It is not a reasoned one and it is settled law that the awards could be non-speaking and unreasoned. (Vide Bungo Steel Furniture v. Union of India, AIR 1967 SC 378 and Allen Berry & Co. v. Union of India, (1971) 1 SCC 295 : AIR 1971 SC 696). The present award is one such.

55. The jurisdiction of the Court in interfering with non-speaking awards is very narrow. When parties agree and entrust the disputes arising between them to arbitration, they are deemed to have taken a decision to have implicit faith in the decision of the arbitrator, be he a lavman or a man well-versed in law. To a large extent, the jurisdiction of the ordinary Courts, for interfering with the conclusions arrived at by the arbitrator both on question of fact and on questions of law, is ousted by the agreement. What is contained in Sec. 30 the Arbitration Act is an exception.

56. It is settled law that the Court will be extremely slow in either finding fault with a non-speaking award much less in interfering with it or attempting to substitute its views, for it is recognised in this country, that awards need not be speaking awards. Whether it is desirable that arbitrators should give reasons or parties should insist on them to give reasons are matters to be regulated by statutory provisions and not by judicial pronouncements, however salutary or desirable they may be.

57. In A.M Mair & Co. v. Gordhandas Sagarmull, (AIR 1951 SC 9), the jurisdiction of Courts in interfering with awards is outlined by the Supreme Court of India in para-9 of the judgment thus:—

“If, therefore, we come to the conclusion that both the disputes raised by the respondents fall within the scope of the arbitration clauses, then there is an end of the matter for the arbitrators would have jurisdiction to adjudicate on the disputes, and we are not concerned with any error of law or fact committed by them or any omission on their part to consider any of the matters. In this view, it would not be for us to determine the true construction of the contract and find out whether the respondents' contention is correct or not. Once the dispute is found to be within the scope of the arbitration clause, it is no part of the province of the Court to enter into the merits of the dispute.”

58. As stated above, in Bungo Steel Furniture v. Union of India (AIR 1967 SC 378), the aspect of jurisdiction is further elucidated in para 9 of the judgment thus:—

“It is now a well settled principle that if an arbitrator, in deciding a dispute before him does not record his reasons and does not indicate the principles of law on which he has proceeded, the award is not on that account vitiated. It is only when the arbitrator proceeds to give his reasons or to lay down principles on which he has arrived at his decisions that the Court is competent to examine whether he has proceeded contrary to law and is entitled to interfere if such error in law is apparent on the face of the award itself.”

59. In Firm Madanlal Roshanlal v. Hukumchand Mills (AIR 1967 SC 1030), the Supreme Court was called upon to set aside an award on the ground that there were errors of law apparent on the face of the award. The request was declined by the Supreme Court thus:—

“In the present case, the arbitrator gave no reason for the award. We do not find in the award any legal proposition which is the basis of the award, far less a legal proposition which is erroneous. It is not possible to say from the award that the arbitrator was under a misconception of law. The contention that there are errors of law on the face of the award is rejected.”

60. These observations of the Supreme Court of India apply on all fours to the facts of the present case.

61. Thus, we are constrained to hold that this Court has no jurisdiction to look into the clauses of the contract to find out whether what the arbitrators have awarded is legal or not. There is no error of law apparent on the face of the award.

62. Hence, there is no substance in the contention raised before us by the learned Advocate General that the arbitrators have misconducted them selves in the proceedings.

63. In the result, the appeal is liable to be dismissed and we dismiss the same.

64. We make no order as to costs of this appeal on the peculiar facts of this case as it involves mainly questions of law.

65. Appeal dismissed.