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Punjab State And Another v. Chander Bhan Harbhajan Lal And Another
Factual and Procedural Background
Messrs Chander Bhan Harbhajan Lal (the contractors) entered into contracts with the State of Punjab, through the Executive Engineer, to supply boulders for construction of the Siswan super passage pursuant to work orders dated 26 August 1952 and 2 November 1954. Clause 5 of the work orders originally provided for reference of disputes to the Superintending Engineer; the parties later agreed that disputes would be referred to the Settlement Committee, Patiala.
The contractors claimed Rs. 33,019/2/- from the State for work done; the State counterclaimed for recovery of Rs. 18,691/-. The Settlement Committee (arbitrators) issued a conditional award on 28 February 1961: it awarded Rs. 9,812/- in favour of the contractors, but conditioned that if the Chief Engineer upheld the State's claim of Rs. 18,691/-, that recovery would be adjusted against the awarded amount.
On 6 April 1961 the contractors applied under Section 14(2) of the Arbitration Act to have the Settlement Committee file its award in court. The award was filed. On 4 July 1961 the contractors applied under Sections 15, 17, 30 and 33 of the Arbitration Act seeking modification of the award to remove the condition relating to Rs. 18,691/-, or alternatively that the second part of the award (the observations as to the recovery of Rs. 18,691/-) be set aside. They alleged the conditional award was imperfect and that the arbitrators had committed misconduct by leaving a question to the Chief Engineer, a stranger to the contract.
The State resisted the application. The Subordinate Judge, 1st Class, Ambala, framed the issue: “Whether the award is liable to be set aside or modified as per objection para No. 7 of the application?” The Subordinate Judge set aside the award as a whole, holding that the arbitrators had improperly delegated their functions to the Chief Engineer and that the conditional portion could not be separated from the rest of the award.
The State of Punjab and the Executive Engineer (appellants) appealed against that order. This opinion is the decision on that appeal.
Legal Issues Presented
- Whether the award of the Settlement Committee is liable to be set aside or modified on the ground that the arbitrators left a matter in dispute to be decided by a third person (the Chief Engineer), thereby delegating their judicial functions.
- Whether, if the award is flawed for delegation, the court should remit the award to the arbitrators under Section 16 of the Arbitration Act or set it aside.
Arguments of the Parties
Appellants' Arguments (State of Punjab & Executive Engineer)
- The learned counsel for the appellants argued the Subordinate Judge erred in setting aside the award because the arbitrators did not leave the decision with the Chief Engineer but merely invited his opinion.
- It was further contended that, instead of wholly setting aside the award, the proper course would have been to remit the award to the arbitrators for decision.
Respondents' Arguments (Contractors)
- The contractors applied to modify the award or set aside the portion concerning the Rs. 18,691/-, asserting that the conditional award was imperfect in form and contained an obvious error because it left the key question to the Chief Engineer, a person not party to the arbitration, and that the arbitrators were guilty of misconduct.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Juggobundhu Sahu v. Chand Mohan Saha, AIR 1916 Cal 806 | An arbitrator has no authority to delegate his functions to a stranger; delegation is a serious charge of judicial misconduct and can invalidate an award. | The court relied on this authority to support the conclusion that arbitrators cannot delegate their decision-making and that delegation vitiates the award; applied to hold the Settlement Committee's conditional award infirm. |
| Sheo Karan v. Kanhaya, AIR 1935 Lah 113 | An arbitrator cannot abdicate functions in favour of a third party; taking a third party's opinion is permissible, but undertaking to abide by that third party's decision is illegal. | The court cited this case to reinforce that the arbitrators' conditioning of their award on the Chief Engineer's decision constituted abdication and therefore made the award invalid. |
| Re: Tidswell, (1863) 33 Beav 213 (Romilly M.R.) | Remitting an award to arbitrators after setting it aside can be inexpedient because, even if the arbitrator is honest, there may thereafter be an unconscious disposition to favour one side; therefore remitting may not produce real relief. | The court applied this principle to refuse to remit the award to the arbitrators in the present case, observing that the arbitrators had already demonstrated commitment to the Chief Engineer's decision and a letter suggested the Chief Engineer had upheld the State's claim. |
Court's Reasoning and Analysis
The Court examined the language of the Settlement Committee's award. The award expressly stated that the contractors' award for Rs. 9,812/- was “subject to the condition that in case the Chief Engineer upholds the recovery [of Rs. 18,691/-], the same will be adjusted against this amount.” The Court read these words as demonstrating that the arbitrators intended the Chief Engineer's decision to be final and binding, not merely advisory.
On that basis the Court concluded that the arbitrators had, instead of deciding the disputed matter, left a vital question to be determined by a third person (the Chief Engineer). The Court treated this as an unlawful delegation of judicial function by the arbitrators and described it as a serious infirmity in the award.
To support this conclusion the Court relied on established authorities (as summarized in Russell's text and in the cited cases) holding that an award is bad if arbitrators direct parties to abide by a third person's decision or delegate judicial functions to a stranger, and that partial delegation vitiates an award when the defective part cannot be separated from the remainder.
The appellants' contention that the arbitrators merely invited the Chief Engineer’s opinion was rejected because the language of the award made the arbitrators' decision contingent on the Chief Engineer's view.
The Court then considered whether, if the award was invalid, it ought to remit the matter to the arbitrators under Section 16 of the Arbitration Act. Noting that no prayer for remittance had been made below on behalf of the appellants, and referring to a letter dated 15 May 1961 which indicated that the Chief Engineer had already upheld the State's claim, the Court concluded that the arbitrators were effectively committed to treating the Chief Engineer's decision as binding. Relying on Romilly M.R.'s observations in Re: Tidswell, the Court held that remitting the award would be inexpedient because the arbitrators' previous course made it unlikely that remittance would produce a fair or effective resolution.
Consequently, the Court affirmed that the award suffered from a "serious infirmity" due to delegation and that remittance to the arbitrators would not afford real relief; it therefore declined to remit and proceeded to dismiss the appeal.
Holding and Implications
Holding: The appeal by the State of Punjab and the Executive Engineer is dismissed; the conditional award of the Settlement Committee was held to be invalid because the arbitrators left a vital matter to the decision of the Chief Engineer (a third person), and the award was not remitted to the arbitrators.
Implications:
- Direct effect on the parties: The Court sustained the consequence that the award (or the impugned portions) cannot stand because of unlawful delegation; the appeal seeking reversal of the setting aside of the award failed and was dismissed with costs.
- The Court declined to remit the matter to the arbitrators in the circumstances of this case, particularly given the arbitrators' expressed commitment to the Chief Engineer's decision and the apparent subsequent action of the Chief Engineer (as evidenced by correspondence).
- No novel legal principle was announced; the Court applied established authorities regarding impermissible delegation by arbitrators and the discretionary considerations against remitting an award under Section 16 of the Arbitration Act.
Disposition recorded in the opinion: "Appeal dismissed." Costs awarded against the appellants (the State).
1. This appeal filed by the State of Punjab and the Executive Engineer, Arrear Division, Patiala, is directed against the order of learned Subordinate Judge, 1st Class, Ambala, whereby he set aside the award of the arbitrators. The brief facts of this case are that Messrs Chander Bhan Harbhajan Lal contractors, who are the respondents in this appeal and are hereinafter referred to as the contractors, entered into a contract with the Punjab State through the Executive? Engineer to supply boulders for construction of Siswan super passage vide work orders dated 26th August, 1952 and 2nd November, 1954. Clause 5 of the work orders provided that any dispute arising between the parties should be referred to the arbitration of the Superintending Engineer of the Circle. This clause was subsequently substituted by an agreement between the parties according to which the dispute was to be referred to the Settlement Committee, Patiala, instead of the Superintending Engineer. The contractors made a claim, for Rs. 33,019/2/- against the State with respect to the work done under the contract. This claim-was denied by the State of Punjab which in its turn made a claim for recovery of Rs. 18,691/- against the above contractors. The matter was, accordingly, referred to the arbitration of the Settlement Committee. The Settlement Committee on 28th February, 1961, gave a conditional award for payment of Rs. 9,812/- by the State of Punjab to the above mentioned contractors. The claim with respect to this amount, it may be stated, was admitted by the Executive Engineer. So far as the claim made by the State of Punjab for the recovery of Rs. 18,691/- against the contractors was concerned, the arbitrators in their award observed as under:—
“They have also claimed a recovery of Rs. 18,691/- on account of cost and carriage of boulders. It seems that the recovery was ordered by the Superintending Engineer in February, 1957, as he considered the record entries regarding 40570 of as suspicious. It now appears that the Chief Engineer made certain enquiries from the Superintending Engineer which he has now been able to submit to the Chief Engineer. The matter being still sub judice, it will not be proper for us to-order this recovery till the Chief Engineer has finally decided the matter. Since the representative of the department has already admitted the claim of the contractors for a certain amount, we make a conditional award in favour of the contractors for an amount of Rs. 9,812/- only (Rs. Nine thousand eight hundred and twelve only) subject to the condition that in case the Chief Engineer upholds the recovery, the same will be adjusted against this amount. Since the contractors have got only a period of 90 days to make the award a rule of Court, the department is advised to obtain the final orders of the Chief Engineer in this case within the stipulated time.”
2. On 6th April, 1961, the contractors filed an application under Section 14(2) of the Arbitration Act in the Court of Subordinate Judge, Ambala, praying that the Settlement Committee be directed to file the award made by it in Court so that further proceedings might be taken by the contractors. The award was thereafter filed and on 4th July, 1961, the contractors filed an application-under Sections 15, 17, 30 and 33 of the Arbitration Act. It was prayed by the contractors that the award given by the arbitrators be modified and the condition regarding the adjustment of a sum of Rs. 18,691/- if found due by the Chief Engineer against the amount awarded by the arbitrators be wiped off. In the alternative, the prayer made by the contractors was that second part of the award relating to the observations regarding recovery of Page: 425Rs. 18,691/- be set aside. According to the contractors, the conditional award was imperfect in form and contained an obvious error inasmuch as the question of the recovery of Rs. 18,691/- had been left open to be decided by the Chief Engineer who was a stranger to the contract. The arbitrators were, accordingly, stated to have been guilty of misconduct.
3. The above application of the contractors was resisted by the State of Punjab and the following issue was framed:
“Whether the award is liable to be set aside or modified as per objection para No. 7 of the application?”
4. The learned Subordinate Judge held that the arbitrators did not themselves decide the question about the recovery of Rs. 18,691/- regarding which claim had been made by the State of Punjab but left it open for decision by the Chief Engineer. According to the learned Subordinate Judge, the arbitrators could not do so and they were guilty of judicial misconduct inasmuch as they delegated their functions to the Chief Engineer. It was further observed that the portion of the award regarding claim for recovery made by the State could not be separated from the claim of the contractors. The award was, accordingly, set aside as a whole.
5. Mr. Tejinder Singh Doabia learned counsel for the appellants has at the outset, argued that the Court below was in error in setting aside the award. According to the learned counsel, the arbitrators did not leave the decision about the claim of the State of Punjab with regard to the amount of Rs. 18,891/- to the Chief Engineer but they only invited his opinion about that matter. This contention is wholly devoid of force because in the award it is distinctly stated that the award in favour of the contractors for the amount of Rs. 9,812/- was subject to the condition that in case, the Chief Engineer upheld the claim of the Punjab State, the same would be adjusted against the amount awarded in favour of the contractors. The above words in the award leave no manner of doubt that according to the arbitrators the decision of the Chief Engineer about the claim for recovery of Rs. 18,691/- made by the State of Punjab was final and was not one which was liable to be reviewed by the arbitrators. The question as to whether the award of the arbitrators is invalid because of their having left a matter in dispute to be decided by a third person, was considered in English cases and the dictum laid down in those cases has been reproduced on page 231 of Russell's book on the Law of Arbitration, Sixteenth Edition, and reads as under:—
“An award is bad if the arbitrators, instead of deciding the matter submitted, award that the parties shall abide by the award of a third person whom they time or that the defendant shall account before such auditors as the plaintiff shall assign, and if he be found in arrears, shall pay the amount. A partial delegation of authority equally vitiates the award if the defective part cannot be separated from the rest.”
6. In case Juggobundhu Sahu v. Chand Mohan Saha, AIR 1916 Cal 806, a Division Bench of that Court observed as under:—
“As regards the first ground, it appears that when the award had been submitted, objection thereto was taken by the petitioner on the allegation that the arbitrator had delegated his authority to a stranger and that the award was in essence not the act of the arbitrator, but of that person. This was a serious charge of judicial misconduct, and, if established, would invalidate the award for it cannot be disputed that an arbitrator has no-authority to delegate his functions, except possibly the performance of what are called “ministerial acts.”
7. The matter was also considered in Sheo Karan v. Kanhaya, AIR 1935 Lah 113 and it was observed that an arbitrator could not abdicate his functions in favour of a third party, and that if the parties desired the arbitrator to take the opinion of some third person he could do so, but he acted illegally when he undertook to abide by the decision of the third person and to give his award in accordance with the wishes of the third person. I would, therefore, hold that as the arbitrators in the present case did not decide a vital matter themselves but left it for decision to the Chief Engineer the award given by them suffers from a serious infirmity and as such is liable to be set aside.
8. The other contention, which has been raised by the learned counsel for the appellants, is-that the Court below should have remitted the award to the arbitrators and should not have merely set aside the award. It is, however, not disputed that no prayer was made on behalf of the appellants in the Court below that the award should be-remitted to the arbitrators. Awards can be remitted to the arbitrators under Section 16 of the Arbitration Act but before the Court actually decides to remit an award, the facts of the particular case must not be ignored. In the present case I find that the arbitrators themselves have taken a position in the award already given by them that the, decision of the Chief Engineer with regard to the claim made by the State of Punjab against the contractors would be binding upon the parties. It would appear from the letter dated 15th May, 1961 sent by the Executive Engineer to the Chairman, Settlement Committee, that after the award dated 28th February, 1961 the Chief Engineer has already upheld the claim of the State of Punjab against the contractors for the recovery of Rs. 18,691/-. As the arbitrators already stand committed to the position that the decision of the Chief Engineer about the claim of the Punjab State against the contractors would be binding upon the parties, it may be difficult for them to get dislodged from that view. In the circumstances, even if no charge of partiality or dishonesty may be levelled against the arbitrators, it would still be not desirable to remit the award to them. I may in this context refer to the observations of Romily M.R In Re: Tidswell, (1863) 33 Beav 213, which have been reproduced on pages 285 and 286 of Russell's book on the Law of Arbitration, and read as under:
“The objection is, in my opinion, one which would make it inexpedient to (remit the award), because notwithstanding the perfect honesty and bona fides of an arbitrator, it is impossible, where an award has been set aside and sent back upon such grounds, that there should not be, in spite of himself, some disposition to favour one side and a disposition to make it appear that the objection to the award were useless and that the sending it back was productive of no good.”
9. I am, therefore, of the view that if the relief to be granted to the contractors is to be real and not illusory, the award in the present case should not be remitted to the arbitrators. The appeal, accordingly, fails and is dismissed with costs.
EH/AGT/D.V.C
10. Appeal dismissed.
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