Jajodia (Overseas) Pvt. Ltd. v. Industrial Development Corporation Of Orissa Ltd. .

S.P Bharucha, J.— These are cross-appeals and they can be disposed of by a common judgment. The Industrial Development Corporation of Orissa Ltd. (IDCO) is the appellant in Civil Appeal No. 571 of 1980 and Jajodia (Overseas) Private Ltd. (JOPL) is the appellant in Civil Appeal No. 572 of 1980.

2. IDCO and JOPL entered into an agreement whereunder IDCO agreed to supply to JOPL 5000 tonnes of M.S Rounds for export on the terms and conditions mentioned therein. The goods were not supplied. By a letter dated September 12, 1969, IDCO cancelled the agreement and intimated to JOPL that its offer, which had culminated in the agreement, should be treated as withdrawn. There was some correspondence between the parties. Thereafter the claim against IDCO for damages for breach of contract made by JOPL was referred to the Chief Secretary to the Government of Orissa, the arbitrator named in the agreement, for adjudication. The Chief Secretary declined to act as arbitrator. Thereupon JOPL filed a suit under Section 20 of the Arbitration Act, 1940, in the Calcutta High Court praying that the agreement be taken on file and the dispute between JOPL and IDCO be referred to an arbitrator to be nominated by the court. That plaint was returned to JOPL to be presented before the proper court. It was presented in the court of the Subordinate Judge, Bhubaneswar on April 4, 1973, the learned Subordinate Judge appointed Mr H. Mohapatra, a retired Judge of the Patna High Court “to act as the arbitrator to give his award on the disputes between the parties as enumerated in their respective pleadings and the order of this Court. Reference be made to him requesting him to make the award by June 30, 1974. Copy of the plaint, written statement and the order of this Court be sent to the arbitrator.”

3. The arbitrator entered upon the reference and after hearing parties and considering the material placed upon the record before him, gave an award on September 24, 1985. In the preamble to the award the arbitrator set out briefly some of the facts afore-mentioned. The arbitrator stated that issues had been settled for adjudication and that the parties produced a large number of documents, examined witnesses and advanced elaborate arguments. The arbitrator, having given careful consideration to all the written statements, documents and evidence and the arguments, set out the conclusions to which he had come upon the issues raised. He concluded:

“In the result, my award is that Jajodia Overseas Pvt. Ltd. is entitled to recover from the Industrial Development Corporation of Orissa Rs 11,00,344 only (eleven lakhs three hundred forty-four) with pendente lite interest at the rate of 6 per cent per annum from April 28, 1974 to the date of award (September 24, 1975).”

4. The award was challenged by IDCO before the Subordinate Judge, Bhubaneswar. JOPL supported the award and prayed that it be made a rule of the court with future interest. The learned Subordinate Judge dismissed IDCO's petition and made the award a rule of the court ordering that JOPL was entitled to future interest at the rate of 6 per cent per annum.

5. The judgment and order of the learned Subordinate Judge was impugned before the Orissa High Court. The learned Single Judge who heard the appeal rejected all contentions raised on behalf of IDCO except one: he found that in answering three issues the arbitrator had arrived at inconsistent conclusions which had a bearing on the question whether or not damages should be awarded. The inconsistency was not a trifling or inconsequential matter and, being apparent on the face of the award, the learned Judge held that the arbitrator had been guilty of legal misconduct so that the award was set aside. The learned Judge directed that the records pertaining to the arbitration proceeding be sent back to the arbitrator, who was directed to give a fresh award, after giving an opportunity of hearing to both parties, keeping in view the findings and observations made in the judgment.

6. Against the judgment and order of the Orissa High Court, both JOPL and IDCO are in appeal. JOPL contends that there is no inconsistency upon the face of the award which vitiates it. On behalf of IDCO it is contended that the award is bad and that, in any event the High Court was in error in sending the matter back to the arbitrator for making a fresh award.

7. It was submitted by Mr B.M Patnaik, learned counsel for IDCO, that:

(i) No disputes which were referred to the Chief Secretary by JOPL and which were contained in the plaint and the written statement before the Subordinate Judge, Bhubaneswar, and were referred by the said Subordinate Judge to the arbitrator were considered by the arbitrator because these documents were not mentioned in the award. Consequently, the arbitrator had acted without jurisdiction.

(ii) That the award of damages was based on no evidence or material.

(iii) The answer by the arbitrator to issue No. 2, set out in the award, showed that the arbitrator had construed the agreement between the parties. As such, the agreement was incorporated in the award and it was, therefore, open to the court to see if the arbitrator had in anywise misconstrued the agreement.

(iv) The arbitrator had referred to the statement of claim and the counter filed before him and had given findings. As such, the statement of claim and the counter were incorporated in the award so that the whole matter was open before the court.

(v) The award was a speaking award inasmuch as the answers to the issues were the reasons for the award.

(vi) There were inconsistencies in the answers to the issues and the arbitrator had, therefore, misconducted the proceedings.

(vii) In any event, if at all the matter had to go back, it should not go back to the arbitrator but to the arbitral Tribunal now constituted in the State of Orissa.

8. It is, we think, necessary first, to clear some cobwebs. A speaking or reasoned award is one which discusses or sets out the reasons which led the arbitrator to make the award. Setting out the conclusions upon the questions or issues that arise in the arbitration proceedings without discussing the reasons for coming to these conclusions does not make an award a reasoned or speaking award. The arbitrator has in the award before us only answered the issues that were framed. He has not discussed or set out the reasons for the answers. The award is, therefore, not a speaking or reasoned award.

9. That the arbitrator merely referred to the pleadings filed before him does not mean that the pleadings are incorporated in the award. As was said in the context of a contract, in a passage quoted by this Court with approval in Allen Berry and Co. v. Union of India (1971) 1 SCC 295, AIR 1971 SC 696 from the judgment of Diplock, L.J in Giacomo Costa Fu Andrea v. British Italian Trading Co. Ltd. (1962) 2 All ER 53:

“ ‘It seems to me, therefore, that, on the cases, there is none which compels us to hold that a mere reference to the contract in the award entitles us to look at the contract. It may be that in particular cases a specific reference to a particular clause of a contract may incorporate the contract, or that clause of it, in the award. I think that we are driven back to first principles in this matter, namely, that an award can only be set aside for error which is on its face. It is true that an award can incorporate another document so as to entitle one to read that document as part of the award and, by reading them together, find an error on the face of the award.’

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 arbitrator merely referred to the fact that parties had “filed their statements” before him and that he had given “careful consideration to all the written statements, documents and evidence and the arguments”. This is not such a reference as can be said to incorporate the pleadings before him in the award.

10. Reference was made to issue No. 2 and its answer and it was contended that the arbitrator had thereby made a specific reference to the agreement and it must, therefore, be held that the agreement was incorporated in the award. Issue No. 2 and the answer to it read thus:

“Issue Answer Was the said agreement a commission agency or export agency agreement? The agreement was not a commission agency or export agreement.”

In the first place, the pleadings before the Subordinate Judge, Bhubaneswar and the order of reference made by him are not placed by IDCO before us. If it was IDCO's case that no issue of law had specifically been referred to the arbitrator, it was its obligation so to show. But we shall proceed on the basis that a specific question of law was not referred. The submission on IDCO's behalf was that the arbitrator misconstrued the agreement and, therefore, the court was entitled to look into the agreement and determine whether the award was correct. We do not think that this broad submission is correct. It would appear that the arbitrator construed only such clause of the agreement as was relevant to decide whether the agreement was, as contended by IDCO, a commission or export agency agreement. Such clause alone would be incorporated in the award and could be looked at by the court to determine whether the arbitrator misconstrued it. We cannot accede to the submission that, by reason of the answer to issue No. 2, the entire agreement became incorporated in the award and that it was, therefore, open to the court to look into the entirety of the dispute in the arbitration proceedings and determine whether the award was correct.

11. Even assuming the incorporation of the agreement, an error apparent upon the face of the award had to be shown. We may refer with advantage to this Court's judgment in Bungo Steel Furniture Pvt. Ltd. v. Union of India (1967) 1 SCR 633, AIR 1967 SC 378. The court quoted the well-known passage from the judgment of Lord Dunedin in Champsey Bhara and Co. v. Jivraj Balloo Spinning and Weaving Co. Ltd. AIR 1923 PC 66 thus:

“An error in law on the face of the award means, in their Lordships' view, 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. It does not mean that if in 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 parties' rights depend to see if that contention is sound.”

It went on to observe:

“An award may be set aside by the court on the ground of an error of law apparent 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 has committed some mistake in arriving at his conclusion.”

12. It was argued on behalf of IDCO before the High Court that the pleadings before the Subordinate Judge, Bhubaneswar and the order of reference to the arbitrator made by him were not before the arbitrator and that, therefore, the arbitrator had acted without jurisdiction. The High Court rejected that contention and made reference to the order of the Subordinate Judge, which we have quoted above, which showed that it directed that the copy of the pleadings and of itself should be sent by the court to the arbitrator. Before us it was submitted that these pleadings and order had not been considered by the arbitrator, because he had not mentioned them in the award. Issues were framed by the arbitrator, obviously in consultation with the parties and arising upon the pleadings. There were several hearings. It is, in these circumstances, inconceivable that the issues would not have reflected the referred dispute between the parties. It is also significant that the pleadings before the Subordinate Judge, Bhubaneshwar, and the statement of claim and the counter filed before the arbitrator were not produced before us by IDCO so that we could determine whether the statement of claim filed by JOPL before the arbitrator raised claims different from those contained in the pleadings before the Subordinate Judge, Bhubaneswar.

13. It was submitted that the award of damages was based on no evidence or material. The submission was based on the finding that the originals of the foreign sale contracts entered into by JOPL in respect of the goods under the agreement had not been sent to IDCO. That these original agreements had not been sent does not ipso facto lead to the conclusion that the arbitrator had no material before him upon which he could find that JOPL had suffered damage and assess the same in monetary terms.

14. This brings us to the question of the inconsistencies found by the High Court upon the face of the award. The issues and the answers to which the High Court referred are issue Nos. 6, 7(b) and 9(a).

15. In our view, it is necessary to reproduce issue Nos. 6, 7, 9 and 10 and their answers in extenso:

“Issues Answers 6. Did the claimant fulfil their obligations under the terms and conditions of the agreement? JOPL fulfilled their obligations under the agreement in question. 7. (a) Did the respondent accept or affirm the claimant's order for supply of 4000 tonnes as mentioned in para 4 of the statement of claim? IDC accepted or affirmed the JOPL's order for supply of 4000 tonnes. (b) Did the claimant send the original foreign sale contracts to the respondent? JOPL did not send the original foreign sale contracts to IDC. 9. (a) Were the acts mentioned in para 10 of the counter-statement covered by the agreement? The agreement provided for JOPL sending the original foreign sale contracts to the respondent at a certain stage. Reference to para 10 of the counter-statement of IDC. (b) Were the acts mentioned in para 11 of the counter-statement covered by the agreement? The agreement provided that JOPL would arrange for export licence (Reference to para 11 of the counter-statement of IDC). (c) Were the acts mentioned in para 12 of the counter-statement covered by the agreement? (JOPL) The agreement provided that JOPL would procure orders for export of 5000 metric tonnes of M.S Rounds within 3 months from the date of acceptance of the IDC's offer and they would follow up the indents placed by the respondent (IDC) for supply of billets and arrange for export licences, letter of authorisation from the Iron and Steel Controller in time (Ref. to para 12 of counter-statement of IDC). (d) Were the acts mentioned in para 13 of the counter-statement covered by the agreement? The ‘acts’ mentioned in para 13 of the counter-statement by IDC are covered by the previous three paragraphs (10, 11 and 12) of that statement and they have been already dealt with under sub-issues (a), (b) and (c) above. (e) If so, did the party concerned perform such Acts? The party concerned that is the JOPL performed their part of the work as was necessary under the agreement at relevant stage. 10. Was the respondent justified in cancelling the agreement? IDC was not justified in cancelling the agreement.”

16. It will be seen that the award says that the agreement provided for JOPL sending the original foreign sale contracts to the respondent “at a certain stage.” It also says that “JOPL fulfilled their obligations under the agreement in question” and that “JOPL performed their part of the work as was necessary under the agreement at relevant stage”. On the other hand, it says that “JOPL did not send the original foreign sale contracts to IDC.” The award then finds that “IDC was not justified in cancelling the agreement”. (emphasis supplied) Reading these issues and answers together and harmoniously, it is apparent that the agreement provided that JOPL should send to IDCO the original foreign sale contracts at a certain point of time and that it is found that JOPL had not sent the original foreign sale contracts to IDCO. It is also apparent that it is found that at the point of time at which IDCO purported to cancel the agreement, JOPL had performed all its obligations under the agreement. The conclusion is, therefore, that up to that point of time JOPL had not been obliged to send the foreign sale contracts to IDCO. So read, in our view, there are no inconsistencies upon the face of the award as can be characterised as errors that vitiate the award. An award has to be read as a whole and harmoniously. The grounds upon which an award can be set aside are limited. The court should be very circumspect about setting aside an award reached by an arbitrator for parties have agreed that the disputes that may arise or have arisen between them should be resolved not by a court of law but by arbitration.

Mr Patnaik pointed out that the Orissa High Court had recognised that “the malady of the racket of arbitration” affected its State (State of Orissa v. Gangaram Chhapolia (1983) 5 OLJ 214) and that this had been taken note of by this Court in State of Orissa v. Dandasi Sahu (1988) 4 SCC 12. The Court said:

“In our opinion, the evidence of such state of affairs should make this Court scrutinise the award carefully in each particular case but that does not make the Court declare that all high amounts of awards would be bad per se.”

We are in respectful agreement. We do not, having bestowed due care upon the award and the arguments advanced to assail it, find the award to be bad in law.

17. Having regard to the view that we take, the question of setting aside the award and sending the arbitration proceedings back to the arbitrator or to the arbitral Tribunal now created in the State of Orissa does not arise.

18. In the result, Civil Appeal No. 571 of 1980 (filed by IDCO) is dismissed. Civil Appeal No. 572 of 1980 (filed by JOPL) is allowed and the judgment and order of the Subordinate Judge, Bhubaneswar dated March 9, 1979 is restored.

19. There shall be no order as to costs.