Union of India Vs. Bungo Steel
Furniture Pvt. Ltd.  INSC 165 (14 September 1966)
14/09/1966 RAMASWAMI, V.
BHARGAVA, VISHISHTHA DAYAL, RAGHUBAR
CITATION: 1967 AIR 1032 1967 SCR (1) 324
CITATOR INFO :
R 1971 SC 696 (5) RF 1972 SC1507 (28,30) F
1973 SC 683 (10) F 1975 SC 230 (13) RF 1980 SC1896 (107) F 1988 SC1791 (10) R
1988 SC2018 (9) RF 1990 SC1340 (13,16) R 1992 SC 732 (10,26,30,33) E&R 1992
Arbitration-Error of law apparent on the face
of award, what is Jurisdiction of court to examine evidence.
Code of Civil Procedure (Act 5 of 1908), s.
34Applicability to arbitration proceedings-Jurisdictin of arbitrator to award
The disputes between the appellant and
respondent in regard to certain contracts were referred to arbitration. The
award was sought to be set aside on the grounds that the arbitrator committed
an error : (i) with respect to the deduction of an amount, and (ii) by granting
future interest from the date of award till the date when the court passed a
decree in terms of the award. For the purpose of establishing the first error
the appellant relied on affidavits filed and statements made by the parties
before the arbitrator.
HELD : (i) The award of an arbitrator can be
set aside on the Around of error of law on the face of the award, only when in
the award or in a document incorporated with it there is found some legal
proposition which is the basis of the award and which is erroneous. 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. [327 A-B]
Champsey Bhare & Co. v. Jivraj Balloo Spinning & Weaving Co.
Ltd. 50 I.A. 324, applied.
(ii) The arbitrator had jurisdiction to,
grant interest on the amount of the award from the date of the award till the
date of the decree as all questions including that of interest were referred to
the arbitrator. It is an implied term of the -reference that the arbitrator
will decide the dispute according to existing law and give such relief with
regard to interest as a court could give if it decided the dispute. Though, in
terms, s. 34 of the Civil Procedure Code does not apply to arbitration
proceedings, the principle of that section may be applied by the arbitrator for
awarding interest in cases where a court of law could grant a decree for
interest under the section. [329 A-D] Seth Thawardas Pherumal v. Union of
India,  2 S.C.R.
Firm Madanlal Roshanlal Mahajan v. The
Hukumchand Mills Ltd. Indore,  1 S.C.R. 105, followed.
CIVIL APPELLATE JURISDICTION : Civil Appeals
Nos. 373 and 543 of 1965.
Appeals from the judgment and decree/order
dated the August 1, 1962 of the Calcutta High Court in Appeals Nos. 132 and 32
N. S. Bindra and R. N. Sachthey, for the
appellant (in the both appeals).
325 A. K. Sen, Uma Mehta, P. K. Chatterjee
and P. K. Bose, for the respondent (in both the appeals).
The Judgment of the Court was delivered by
Ramaswami, J. These appeals are brought by certificate from the judgment of the
Calcutta High Court dated August 1, 1962 in Appeals Nos. 32 and 132 of 1961 by
which the High Court allowed the appeals'against the Union of India
(hereinafter called the 'appellant') in part and modified the award of the
arbitrator and the/judgment of Mallick, J.
The disputes relate to 3 contracts for the
supply of bedsteads by the respondent-Bungo Steel Furniture Pvt.
Ltd.-(hereinafter called the 'Company') to
the appellant, namely, contract No. A.T. 3116 for the supply of 17202
bedsteads, contract No. A.T. 767 for the supply of 30,000 bedsteads and
contract No. A. T. 816 for the supply of 7,000 bedsteads. Each of these
contracts contained the usual arbitration clause embodied in cl. 21 of the
general conditions of contract in form No. W.S.B. 133. The disputes arising
between the Company and the appellant out of the three contracts were referred
to the arbitration of Sir Rupen Mitter. The award of the arbitrator is dated
September 2, 1959. The arbitrator found that the Company was entitled to be
credited with the sum of Rs. 11,64,423/on account of the price (inclusive of
the price of steel) of the bedsteads supplied under the three contracts made up
of (a) a sum of Rs. 4,12,848/for the price of 17,202 bedsteads supplied under
contract No. A.T. 3116 at Rs. 24/per bedstead, (b) Rs. 7,05,000/for the price
of 30,000 bedsteads supplied under contract No. A.T. 767 at Rs. 23/8/per
bedstead and (c) Rs. 46,575/for the price of 2,025 bedsteads supplied under
contract No. A.T. 816. The appellant undertook to supply the requisite steel at
basic rates and the price of steel so supplied was payable by the Company on
presentation of material release orders called 'M.R.Os'. The arbitrator found
that the Company was entitled to a credit for Rs. 3,42,737/for payment on
M.R.0s. for the price of steel and the appellant was entitled to credits for
Rs. 29,188/on account of railway freight and transport charges, for Rs.
9,71,030/on account of payments made to the Company directly and for Rs.
4,95,060/on account of price of steel supplied to the Company. The arbitrator
also found that the appellant had deducted Rs. 3,57,500/from bills of the
Company on account of the price of steel and upon that finding the arbitrator
subtracted the sum of Rs.
3,57,500/from the price of steel credited to
The appellant thereafter applied to the
Calcutta High Court for setting aside the award on the ground that there was an
error of law apparent on the face of the award and the arbitrator had 326 also
exceeded his authority in awarding interest. The application was dismissed by
Mallick, J. by his judgment dated July 27, 1960 and a decree was granted to the
Company on the basis of the award. The appellant preferred two appeals to the
High Court from the judgment of Mallick, J., namely, Appeals Nos. 32 and 132 of
1961. These appeals were heard by the Division Bench consisting of Bachawat and
Laik JJ. who allowed the appeal in part and reduced the principal amount
adjudged to be payable under the award by Rs. 30,970/_ and modified the award
accordinglyThe first question to be considered in these appeals is whether the
arbitrator committed an error of law in holding that the appellant had deducted
Rs. 3,57,500/from the bills of the Company with regard to contracts other than
the three contracts of bedsteads which are the subject matter of the present
case, and whether the arbitrator could subtract the aforesaid amount of Rs.
3,57,500/from the price of steel credited to the appellant. On behalf of the
appellant it was contended by Mr. Bindra that the deduction of Rs. 3,57,500/had
been made from the bills submitted by the Company for the price of the
bedsteads supplied under the three contracts Nos.'A. T. 3116, A. T. No. 767 and
A. T. 816 and the arbitrator should not have debited the appellant with this
amount. It is not possible for us to accept this argument. The award of the
arbitrator does not show on its face that the amount of Rs. 3,57,500/has been
deducted from the bills submitted by the Company for the price of the bedsteads
under the three contracts. The relevant portion of the award states:
"I hold that the steel of different categories
amounting to 1908 tons and odd of the value of Rs. 4,95,060/calculated at basic
rates had been supplied by the Government to the Company. I further hold that
the whole quantity of steel had been used in making the 7000 bedsteads under A.
T. 3116, A. T. 767 and 7000 bedsteads under A.T. 816 leaving no surplus. I also
hold that the Company paid for the price of steel on the M.R.0s. Rs.
3,42,737/and that the Government had deducted
Rs. 3,57,500/from bills. I hold that the Company did not supply any steel from
its own stock." There were conflicting statements of the parties in the
affidavits filed by them before Mallick, J. in connection with the application
for setting aside the award. The affidavit filed by the appellant dated January
5, 1957 before the arbitrator suggests that at least part of the deductions
were made from bills submitted by the Company in other contracts. On behalf of
the appellant Mr. Bindra referred to the affidavits and the statements made
before the arbitrator, but it is well-settled that the Court has no juris3 2 7
diction 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 and that the award
of the arbitrator can be set aside on the ground of error of law on the face of
the award only when in the award or in a document incorporated with it, as for
instance a note appended by the arbitrator stating the reasons for his decision,
there is found some legal proposition which is the basis of the award and which
is erroneous. In the present case, the affidavits filed by the parties before
the arbitrator are not incorporated in the award and it is therefore not
permissible for the court to examine these affidavits in order to ascertain
whether the arbitrator has committed any error of law. In Hodgkinson v.
Fernie(1) the law on this point has been clearly stated by William, J, as
"The law has for many years been
settled, and remains so at this day, that where a cause or matters in
difference are referred to an arbitrator, whether a lawyer or a layman, he is
constituted the sole and final judge of all questions both of law and of
The only exceptions to that rule, are, cases
where the award is the result of corruption or fraud, and one other, which
though it is to be regretted, is now, I think, firmly established, viz., where
the question of law necessarily arises on the face of the award, or upon some
paper accompanying and forming part of the award. Though the propriety of this
latter may very well be doubted, I think it may be considered as
established." The decision of this case was approved by the Judicial Committee
in Champsey -Bhara and Company v. Jivraj Balloo Spinning and Weaving Company,
Ltd.,(2) in which the appellants sold cotton to the respondents by a contract
which contained a submission to arbitration of disputes as to quality, and a
further clause submitting to arbitration all other disputes arising out of the
contract. Cotton was delivered, but the respondents objected to its quality,
and upon arbitration an allowance was awarded; the respondents thereupon
rejected the cotton. The appellants claimed damages for the rejection. The
dispute was referred to arbitration and the award recited that the contract was
subject to the rules of the Bombay Cotton Trade Association, which were not
further referred to; and that the respondents had rejected on the grounds
contained in a letter of a certain date. That letter stated merely that as the
arbitrators had made an allowance of a certain amount the respondents rejected
the cotton. The High Court set aside the award, holding that it was bad on its
face, in that under one of the rules of the Association the respondents were
(1) 3 C. B. (N. S.) 189 at p. 202.
(2) 501.A. 324.
328 entitled to reject without liability. It
was held on appeal by the Judicial Committee that the award could not be set
aside and though the award recited that the contract was subject to the rules
of the Bombay Cotton Trade Association, yet those rules were not so
incorporated in the award as to entitle the Court to refer to them for
ascertaining whether there was an error of law on the face of the award.
Applying the principle to the present case,
it is manifest that there is no error of law on the face of the award and the
argument of the appellant on this aspect of the case must fail.
We next proceed to consider the argument of
the appellant that the arbitrator had no authority to award interest from the
date of the award dated September 2, 1959 to the date of the decree granted by
Mallick, J. i.e., August 2, 1960. In support of this contention Counsel for the
appellant relied upon the following observations of Bose, J. in Seth Thawardas
Pherumal v. The Union of India(1).
"It was suggested that at least interest
from the date of 'suit' could be awarded on the analogy of section 34 of the
Civil Procedure Code, 1908. But section 34 does not apply because an arbitrator
is not a court' within the meaning of the Code nor does the Code apply to
arbitrators, and, but for section 34, even a Court would not have the power to
give interest after the suit. This was, therefore, also rightly struck out from
the award." This passage supports the argument of the appellant that
interest cannot be awarded by the arbitrator after the date of the award but in
later cases it has been pointed out by this Court that the observations of
Bose, J. in Seth Thawardas Pherwnal v. The Union of India(1) were not intended
to lay down such a broad and unqualified proposition (See CT. A. CT. Nachiappa
Chettiar and others v. CT. A. CT. Subramaniam Chettiar,(2) and Satinder Singh
v. Amrao Singh)(3). In Seth Thawardas Pherumal v. The Union of India(4), the
material facts were that the arbitrator had awarded interest on unliquidated
damages for a period before the reference to arbitration and also for a period
subsequent to the reference. The High Court set aside the award regarding
interest on the ground that the claim for interest was not referred to
arbitration and the arbitrator had no jurisdiction to entertain the claim. In
this Court, counsel for the appellant contended that the arbitrator had
statutory power under the Interest Act of 1839 to award the interest and, in any
event, he had power to award interest during the pendency of the arbitration
(1)  2 S. C. R. 48,65.
(2)  2 S. C. R. 209, 238, (3)  3
S. C. R. 676, 695.
329 proceedings under s' 34 of the Code of
Civil Procedure, 1908. Bose, J. rejected this contention, but it should be
noticed that the judgment of this Court in Seth Thawardas's case(1) does not
deal with the question whether the arbitrator can award interest subsequent to
the passing of the award if the claim regarding interest was referred to
arbitration. In the present case, all the disputes in the suit, including the
question of interest, were referred to the arbitrator for his decision. In our
opinion, the arbitrator had jurisdiction, in the present case, to grant
interest on the amount of the award from the date of the award till the date of
the decree granted by Mallick, J. The reason is that it is an implied term of
the reference that the arbitrator will decide the dispute according to existing
law and give such relief with regard to interest as a court could give if it
decided the dispute. Though, in terms, s. 34 of the Code of Civil Procedure
does not apply to arbitration proceedings, the principle of that section will
be applied by the. arbitrator for awarding interest in cases where a court of
law in, a suit having jurisdiction of the subject-matter covered by s. 34 could
grant a decree for interest. In Edwards v. Great Western Ry.(2) one of the
questions at issue was whether an arbitrator could or could not award interest
in a case which was within s. 28 of the Civil Procedure Act, 1833. It was held
by the Court of Common Pleas that the arbitrator, under a submission of
"all matters in difference", might award the plaintiff interest,
notwithstanding the notice of action did not contain a demand of interest; and,
further, that, assuming a notice of action to have been necessary the want or
insufficiency of such notice could not be taken advantage of, since the 5 &
6 Viet. C. 97, s. 3, unless pleaded specially. In the course of his judgment
Jarvis C. J. observed "A further answer would be, that this is a
submission, not only of the action, but of all matters in difference; and the
interest would be a matter in difference, whether demanded by the notice of
action or not. If the arbitrator could give it, he might give it in that way,
notwithstanding the want of claim of interest in the notice." This clearly
decides that, although the Civil Procedure Act, 1833, speaks in terms of a
jury, and only confers upon a jury a discretionary right to give interest, none
the less, if a matter was referred to an arbitrator-a matter with regard to
which a jury could have given interest-an arbitrator may equally give interest,
and that despite the language used in that Act. The principle of this case was
applied by the Court of Appeal in Chandris v. IsbrandtsenMoller Co. InC.(3) and
it was held that though in terms s. 3 of the Law Reform (Miscellaneous
Provisions) Act, 1934 giving the court power to award interest on any debt or
damages (1)  2 S. C. R. 48. (3)  1 K. B. 240.
(2) (1851) 11 C. B. 588.
3 3 0 did not apply to an arbitrator, it was
an implied term of the contract that the arbitrator could award interest in a
case where the court could award it. It was pointed out by the Court of Appeal
that the power of an arbitrator to award interest, was derived from the
submission to him, which impliedly gave him power to decide "all matters
in difference" according to the existing law of contract, exercising every
right and discretionary remedy given to a court of law; that the Law Reform
(Miscellaneous Provisions) Act 1934, which repealed s. 28 of the Civil
Procedure Act, 1833, was not concerned with the powers of arbitrators; and that
the plaintiff was entitled to the interest awarded by the arbitrator.
The legal position is the same in India. In
Bhwanidas RamGobind v. Harasukhdas Balkishandas(1) the Division Bench of the
Calcutta High Court consisting of Rankin and Mookerjee, JJ. held that the
arbitrators had authority to make a decree for interest after the date of the
award and expressly approved the decision of the English cases-Edwards v. Great
Western Ry.,(2) Sherry, v. Oke(3) and Beahan v. Wolfe(4).
The same view has been expressed by this
Court in a recent judgment in Firm Madanlal Roshanal Mahajan v. The Hukamchand
Mills Ltd., Indore(5) We are accordingly of the opinion that the arbitrator had
authority to grant interest from the date of the award to the date of the
decree of Nallick, J. and Mr. Bindra is unable to make good his argument on
this aspect of the case.
For these reasons we affirm the decree of the
Calcutta High ,Court dated August 1, 1962 and dismiss these appeals with costs.
V. P. S.
(1) A.I.R. 1924 cal. 524.
(2) (1851) 11 C.B. 588.
(3) (1835) 3 Dow. 349-1 H. & W. 119.
(4) (1832) 1 Al. & Na. 233.
(5)  S.C.R. 105.