Corporation of India Vs. Joginderpal Mohinderpal 
INSC 76 (3 March 1989)
Sabyasachi (J) Mukharji, Sabyasachi (J) Rangnathan, S.
1989 AIR 1263 1989 SCR (1) 880 1989 SCC (2) 347 JT 1989 (2) 89 1989 SCALE
Act, 1940--Sections 14, 17, 30 and 33--Arbitrator making a speaking
award--Unless the reasons are erroneous as propositions of law or view of the arbitra-
tor cannot be substantiated--Award not liable to be set aside by Court.
Respondent entered into a contract with the appel- lant Food Corporation of India on or about May 1979 whereun- der
the appellantCorporation was to give to the Respondent Paddy for being shelled/
converted into rice at the rate of 70% of the Paddy. The Paddy was to be lifted
from the go- downs of the appellant. The shelling charge was fixed at Rs.2/20
p. per quintal. Some dispute having arisen between the parties, the Respondent
moved an application before the Subordinate Judge for appointment of an
arbitrator and the Sub-Judge appointed the arbitrator who gave his award on 22nd January 1982. In the award the arbitrator did
not allow some of the claims made by the appellant, in particular, a claim of
Rs.55,060/29 p which was claimed as a penalty Rs.2 per quintal for not lifting
the balance of Paddy.
arbitrator in disallowing the claim on that count, took the view that the
appellant has to prove the actual losses suffered by it which the appellant
failed to prove. Another claim not allowed by the arbitrator related to Rs.3,23,856/08.
p. in respect of the cost of non-delivery of 137-39548 tonnes of rice @ Rs. 165
Respondent made an application u/s. 14 of the Arbi- tration Act, 1940 to make
the award a rule of the Court. The appellant filed the objections u/s 30 and 33
of the Act. The Subordinate Judge, First Class, on 2nd December, 1982, found that the award was liable to be set aside and
accordingly modified the award and passed a decree in favour of the appellant
for the amount. On 2nd
March, 1984, the Addl.
Distt. Judge, on appeal by the Respondent, reversed the order passed by the
Subordinate Judge. He held that the award was not liable to be corrected/interfered
with in the manner done by the Sub-Judge. Aggrieved by the said order the
appellant went in revision to the High Court. The High Court on 11.12.84
dismissed the revision petition. Hence this appeal by the
Dismissing the appeal, this Court,
That the arbitrator has chosen to make a speaking award in the instant case,
that is he has given reasons for his conclusions. Since the arbitrator has
chosen to give reasons, unless it is demonstrated to this Court that such
reasons are erroneous as such as propositions of law or a view which the
arbitrator has taken is a view which it could not possibly be sustained in any
view of the matter, then the challenge to the award of the arbitrator cannot be
sustained. [886H; 887A-B] Even assuming that there was some mistake, such a mis-
take is not amenable to be corrected in respect of the award by the Court. This
was a fair order passed after considering all the records. The conclusion
arrived at by the arbitrator is a plausible conclusion. The Court has no
jurisdiction to interfere or modify the award in the manner sought for by the
appellant. [887G-H] The Addl. Distt. Judge was justified in correcting the
order of the Subordinate Judge and the High Court was also justified in not
interfering with the order of the Addl. Distt. Judge. [887H; 888A] Mukkudduns
of Kimkunwady v. Inamdar Brahmins of Soorpai, 3 MIA 380; M/s. Sudarsan Trading Co. v. The Government of Kerala & Anr.,  1 Jt.
Today SC 339; Champsey Bhara & Co.
v. Jivraj Balloo Spinning & Weaving Co. Ltd., L 1922 IA 324, followed.
Construction Pvt. Ltd. v. Union of India,  1 SCC 411, referred to.
APPELLATE JURISDICTION: Civil Appeal No. 1945 and 1946 of 1989.
the Judgment and Order dated 11.12.1984 of the Punjab and Haryana High Court in C.R. No. 1794 and 1795 of 1985.
L.M. Singhvi and Y.P. Rao for the Appellant. .
J.P. Gupta and S.K. Agarwal for the Respondent.
Judgment of the Court was delivered by SABYASACHI MUKHARJI, J. Special leave
This appeal arises from the decision of the High Court of Punjab & Haryana,
dated 11th December,
1984 dismissing the
Civil Revision filed by the appellant. It appears that there was a contract
entered into by the parties on or about 15th May, 1979 which provided that the appellant
would give to the respondent paddy to convert these into rice after lifting
paddy from the godown of the appellant. There was an agreement between' the
parties for shelling of paddy into rice, after lifting the paddy from the godown
of the appel- lant, at the rate of 70% of the paddy. The shelling charge was
Rs.2.20 per quintal. The learned Subordinate Judge, First Class, directed on or
about 17th March, 1980 appoint- ment of an arbitrator on
an application by the respondent.
On 22nd January, 1982, the arbitrator gave his award. The
arbitrator did not allow the claims of the appellant as claimed as per the
terms of the agreement. The arbitrator allowed certain claims. It is necessary,
in view of the contentions that have been raised, to refer to the award of the
arbitrator. After setting out the history the arbitrator dealt with the various
contentions. It is not necessary to refer to all the contentions and points
urged before the arbitrator and upon which he has made his award. It is
sufficient if the relevant portions are dealt with. The arbitrator, inter alia,
dealt with a claim of Rs. 55,060.29 which had claimed as penalty at Rs.2 per qtl.
for not lift- ing the balance of the paddy weighing 2765-3093 mts. The
arbitrator noted that he had held that there was justifica- tion for the
millers, millers being respondent herein, not to lift the paddy. Assuming,
however, the arbitrator noted, that if it was decided that the millers were at
fault in not lifting this paddy, the arbitrator expressed the opinion that the
appellant could not recover the amount claimed by way of penalty. He expressed
the view that in order to enable the appellant to claim the amount, it had to
be shown that the actual losses were suffered by the Corporation.
it could not be claimed as pre-estimated damages.
it would only be penalty which could not be recovered. No evidence had been led
for how many days the bags of the paddy remained in the godowns of the Corpora-
tion, the arbitrator noted, and what losses were incurred for getting it
shelled from other quarters. The arbitrator referred to the affidavit of one
Mr. M.S. Rawat, Asstt. Manager, that the Corporation had to get the unlifted
paddy shelled by transporting to other centre as well as getting the same
shelled at heavy additional expenditure. The arbi- trator noted that there was
not an iota of evidence on that point. So no actual losses stated to have been
suffered by the Corporation and no proof thereof was there. The arbitra- tor
further noted that an amount by way of penalty could be permitted if some
losses were proved. He, accordingly, dismissed the claim of the appellant for Rs.
The next claim dealt with by the arbitrator was the claim of Rs.3,23,856.08
claimed by the Corporation as the cost of non-delivery of 137-39549 tonnes of
rice at the rate of Rs. 165 per qtl. of paddy. The claim of the appellant was
based on the basis that the appellant had converted the undelivered rice into
paddy by multiplying it with 100/70 and it came to 123,87.11 tonnes. The
arbitrator dealt with this question as follows:
the rate of Rs. 165 per qtl. its price works at Rs.3,23,856.08. According to provi-
sions of clause g(i) of the Contract, in the event of failure to supply rice
within pre- scribed specification, the millers are liable to pay to the
Corporation for the quantities of rice short supplied at the penal rate of 11/2
times the economic cost of the concerned variety of the paddy equivalent to the
short- ages. In the contract no definition of 'Eco- nomic Cost' is furnished
nor is the expression any where defined in any law. However, Shri Pritam Singh
in the statement attached to the affidavit work it out at Rs. 110 per qtl. The
procurement price of paddy is Rs.85 per qtl.
shown therein. He has added to it market fee and other charges including cost
of gunny Rs.2 and interest charges at Re. 1. Under the above clause of the
contract, the Corporation has added 50% penalty and thus has claimed the price
at Rs. 165 per qtl.
not think that the Corporation is enti- tled to such a fantastic rate
particularly when the expression 'economic rate' has not been defined. Even if
the statement of Shri Pritam Singh is accepted the maximum price of the rice at
that time should be Rs. 100 per qtl. exclusive of gunny bag and interest
charges to which in my opinion the Corporation is not entitled. The market rate
did not exceed that amount at that time. So the calcu- lated at this rate the
price of the undeliv- ered rice will come to Rs.1,96,277.00. to which the
Corporation is entitled. I may add here that the above amount has been allowed
to the Corporation besides from the evidence on the record I believe that the
rice was short delivered. When the paddy had been accepted by the millers
unconditionally and without any reservation, they were bound to give to the
Corporation 70% of the yield. As they did not do it, so they are liable to pay
the price of the undelivered rice.
have already stated above that the rice after shelling to be , delivered to the
Corpo- ration under clause g(i)of the contract had to conform to the
specification laid down by the Punjab Government under the Punjab Rice Pro- curement
Price Control Order, 1968 issued on the 22nd October, 1968, as amended from
time to time. The Corporation states that the rice accepted by them was done
subject to the quality rice which was permissible under clause g(ii) of the
contract. This has been duly proved from the evidence placed on the record by
the Corporation. Even Shri Anil Kumar, a partner of the millers firm admitted
that they received an analysis report in respect of the rice which was accepted
by the Corporation to continue that the Corporation was mentioned and that they
did not appeal against the cut, though there was a provision in the said order
to do so. It, therefore, means that the quality cut was admitted to have been
correctly assessed under the said Punjab Rice Order and to that the millers
submitted. This item is, therefore, allowed." The respondent filed an
application under section 14 of the Arbitration Act, 1948 (hereinafter referred
to as 'the Act') for filing of the award and prayed for making the award the
rule of the court. The appellant on 25th May, 1982 filed objections under
sections 30 and 33 of the Act. The learned Subordinate Judge, First ClasS, on 2nd December, 1982 found that the award was liable to
be set aside and modified the award and passed a decree in favour of the
appellant for the amount. On 2nd March, 1984,
the Additional District Judge allowed the appeal by respondent and reversed the
Subordinate Judge's order.
thereby, the appellant went in revision before the High Court. The High Court
on 11th December, 1984 dis- missed the revision petition.
Aggrieved thereby, the appel- lant has come up before this Court. It is,
therefore, neces- sary to decide whether the High Court was right.
mentioned hereinbefore, the learned Subordinate Judge had modified the award
and passed a decree in favour of the appellant for the amount. The learned
Additional District Judge, however, allowed the appeal of the respondent and
reversed the decision of the learned Subordinate Judge. The High Court did not
interfere with that decision because the High Court did not find any ground to
interfere. The 885 question therefore is, whether the learned Additional Dis- trict
Judge in the first appeal was right in holding that the award was not liable to
be corrected in the manner done by the learned Subordinate Judge. The
jurisdiction to inter- fere by the Court of law of an award made by the
arbitrator chosen by the parties is circumscribed. In India, there is a long history of
arbitration. Arbitration is a mode of set- tlement of disputes evolved by the
society for adjudication and settlement of the disputes and the differences
between the parties apart from the courts of law. Arbitration has a tradition;
it has a purpose. Arbitration, that is a refer- ence of any particular dispute
by consent of the parties to one or more persons chosen by the parties with or
without an umpire and an award enforceable by the sovereign power were
generally unknown to ancient India. Hindus recognised deci- sions of Panchayats
or bodies consisting of wealthy, influ- ential and elderly men of the Community
and entrusted them with the power of management of their religions and social
functions. The sanction against disobedience to their deci- sion was
excommunication, or ostracism and exclusion from all religions and social
functions of the community. An agreement to abide by the decision of a Panchayat
and its decision with regard to the line of boundary was held not to be
conclusive, since a reference to arbitration and award properly so called did
not exist. See the observations in Mukkudduns of Kimkunwady v. Inamdar Brahmins
of Soorpai, 3 MIA 380. See also Bachawat's Law of Arbitration at page 1.
power came to the East India Company, they framed Regulations in exercise of
the power vested in them by the British Government- Some of these Regulations
were touching arbitration. Bachawat gives description of the evolution of the
Arbitration Act, 1940. Therefore, arbitration as a mode for settlement of
disputes between the parties, has a tradi- tion in India. It has a social
purpose to fulfil today. It has great urgency today when there has been an
explosion of litigations in the courts of law established by the sover- eign
power. New rights created, or awareness of these rights, the erosion of faith
in the intrinsic sense of fairness of men, intolerant and uncompromising
attitudes are all the factors which block our courts. The courts are full of
litigations, which are pending for long time. Therefore, it should be the endeavour
of those who are interested in the administration of justice to help settlement
by arbitra- tion, if possible. It has also a social efficacy being the decision
by the consent of the parties. It has greater scope of acceptance today when
there is a certain erosion of faith in view of the failure to appreciating the
functions of the courts of law. It has also the advantage of not only quick-
ness of decision but of simplicity of procedure. But in proceedings of arbitra-
886 lion there must be adherence to justice, equity, law and fair play in
actions. However, the proceedings of arbitra- tion must adhere to the
principles of natural justice and must be in consonance with such practice and
procedure which will lead to a proper resolution of the dispute and create
confidence of the people for whose benefit these processes are resorted to. It
is, therefore, the function of courts of law to oversee that the arbitrators
act within the norms of justice. Once they do so and the award is clear, just
and fair, the courts should, as far as possible, give effect to the award of
the parties and make the parties compel to adhere to and obey the decision of
their chosen adjudicator.
in this perspective that one should view the scope and limit of correction by
the court of an award made by the arbitrator. We should make the law of
arbitration simple, less technical and more responsible to the actual realities
of the situation, but must be responsive to the cannons of justice and fair
play and make the arbitrator adhere to such process and norms which will create
confidence, not only by doing justice between the parties, but by creating a
sense that justice appears to have been done. Sections 30 and 33 of the Act
provide for the grounds on which an award of the arbitrator can be set aside.
These were mainly, until recent changes made by statutory laws in England, in consonance with the English
principles of Common Law as adopted in India. So far as the material of the present purpose is concerned, an award
of the arbitrator can only be interfered with or set aside or modified within
the four corners of the procedure provided by the Act. It is necessary to find
whether the arbitrator has misconducted himself or the proceedings legally in
the sense whether the arbitrator has gone contrary to the terms of reference
between the parties or whether the arbitrator has committed any error of law
apparent on the face of the award. It is necessary to empha- sise that these
are grounds for setting aside the award but these are separate and distinct
grounds. Halsbury's Laws of England, Vol.
2 4th Edn., para 623 reiterates that an arbi- trator's award may be set aside
for error of law appearing on the face of it. Though this jurisdiction is not
to be lightly exercised. The award can also be set aside if, inter alia, the
arbitrator has misconducted himself or the pro- ceedings. It is difficult to
give an exhaustive definition what may amount to a misconduct on the part of
the arbitra- tor. This is discussed in Halsbury's Laws of England (supra). It
is not misconduct on the part of an arbitrator to come to an erroneous
decision, whether his error is one of fact or law, and whether or not his
findings of fact are supported by evidence. See the observations of Russell on
Arbitration, 20th Edn., page 422.
instant case, the arbitrator has chosen to make a speaking 887 award, that is
to say, he has given reasons for his conclu- sion. Whether he is obliged to
give such reasons or not is another matter but since the arbitrator has chosen
to give the reasons, unless it is demonstrated to this Court that such reasons
are erroneous as such as propositions of law or a view which the arbitrator has
taken is a view which it could not possibly be sustained on any view of the
matter, then the challenge to the award of the arbitrator cannot be sustained. As
has been emphasised in M/s Sudarsan Trading Co. v. The Government of Kerala
& Anr.,  1 Jt. Today SC 339 that an award could be set aside if the
arbitrator has misconducted himself or the proceedings or has proceeded beyond
jurisdiction. It could also be set aside where there are errors apparent on the
face of the award. But these are separate and distinct grounds. In case of
errors apparent on the face of the award, it can only be set aside if in the
award there is any proposition of law which is apparent on the face of the
award, namely, in the award itself or any document incorporated in the award.
See the observations of the Judicial Committee in Champsey Bhara & Co. v. Jivraj
Balloo Spinning & Weaving Co. Ltd., L 1922 IA 324.
L.M. Singhvi, learned counsel for the appellant, urged before us that the
arbitrator was wrong in not award- ing 50% of the added penalty as claimed by
the appellant, as mentioned hereinabove. The appellant had claimed the price of
Rs. 165 per qtl. The arbitrator was of the view that the expression 'Economic
Rate' had not been defined. It is true that the expression 'Economic Rate' has
not been used, but the expression 'Economic Cost' has been used. The arbitrator
has noted that the market rate did not exceed that amount at the time. The
amount of Rs. 100 per qtl. is mentioned of such a rate as the arbitrator had
noted, could only be pre- estimated damages but this was not so according to
the arbitrator. The arbitrator had construed the effect of clause g(i) of the
contract as mentioned hereinbefore. It cannot be said that such a construction
is a construction which is not conceivable or possible.
that is the position assuming even for the argument that there was some mistake
in the construction, such a mistake is not amenable to be connected in respect
of the award by the court. This was a fair order after considering all the records.
The conclusion arrived at by the arbitrator is a plausible conclusion. The
court has, in our opinion, no jurisdiction to interfere or modify the award in
the manner sought for by the appellant and in the manner done by the learned
Subordinate Judge in the first instance in this case. In that view of the
matter, the learned Additional District Judge was justified in correcting the
888 order of the learned Subordinate Judge and the High Court was also
justified in not interfering with the order of the Additional District Judge.
The award on the aspects can- vassed before us by Dr. L.M. Singhvi is a
plausible con- struction of clause g(i) of the contract. It cannot, in our
opinion, be interfered with either on the ground that there was error apparent
on the face of the award or on the ground that the arbitrator has misconducted
himself in not giving the effect to the penal rate as contemplated under clause
g(i) of the contract referred to hereinbefore in the award.
sought to urge that as per the terms of the contract the arbitrator was obliged
to award penal rate in terms of clause g(i) of the contract. The arbitrator has
apparently not done so. He has given reason why he has not done so. It was
submitted that he was wrong in not doing so.
not agree. The arbitrator has discussed the effect of clause g(i). He has noted
that unless there was evidence about which incidentally there was none, this
amount could not be treated as a pre-estimate of damage. If that be so then it
was penalty. It was not recoverable. Reasons may not be apparent, latent was
there. Dr. Singhvi's objection therefore cannot be accepted.
drew our attention to the observations of this Court in M/s Sudersan Trading
Co., (supra) at page 352 of the report where it was stated that if it was
apparent from the award that a legal proposition which formed its basis was
erroneous, the award was liable to be set aside.
sought to urge that when the arbitrator observed that "Corporation is not
entitled to recover such a claim particularly when the 'Economic Rate' has not
been defined", this, according to the statement of Dr. Singhvi, the arbi- trator
was mistaking the law, such a mistake of law is apparent on the face if it. It
has to be borne in mind, however, that wrong statement or conclusion of law,
assuming even that it was a wrong statement of law, was not wrong statement of
the proposition of law which was the basis for decision in this award. Error of
law as such is not to be presumed, if there is legal proposition which is the
basis of the award and which is erroneous as observed in Champsey Bhara &
Co, (supra), then only the award can be set aside.
was no proposition of law; there was a legal deduction of law arrived at to say
that the provisions of clause g(i) of the contract would be penal rate and such
penal rate cannot be sustainable without evidence of the damages suf- fered to
that extent. We are of the opinion that the arbi- trator had taken a view which
is plausible view. Beyond this, the court has nothing to examine. It is not
necessary for a court to examine the merits of the award with refer- ence to
the materials produced before the arbitrator. The Court cannot sit in appeal
over the 889 views of the arbitrator by re-examining and re-assessing the
materials. See the observations of this Court in Puri Con- struction Pvt. Ltd.
v. Union of India,  1 SCC 411.
aforesaid view of the-matter, it appears to us that the learned Additional
District Judge was right in the view it took and the High Court, therefore, was
justified in dismissing the revision. The appeal, therefore, fails and is
accordingly dismissed. No order as to costs.
view of the fact that the facts of this appeal are more or less identical to
the Appeal arising out of S.L.P. (C) No. 3392 of 1985, this appeal is also
dismissed. No order as to costs.
Appeals dis- missed.