Bhag Sahakari Karkhana Ltd. Vs. M/S Krupp Industries Ltd.  Insc 258 (7 May 2002)
Lahoti & B.N. Agrawal R.C. Lahoti, J.
granted in both petitions.
appellant is a co-operative sugar factory manufacturing sugar from sugarcane. On
17.11.1992 an agreement was entered into between the appellant and the
respondent for design, manufacture, procurement and supply of machinery and
equipments for moderanisation with continuous fermentation process based on
"Encillium Process", developed and patented by Council for Scientific
and Industrial Research, New
Delhi and National
Chemical Laboratory, Pune. Disputes arose between the parties. The agreement
dated 17.11.1992 contained an arbitration clause pursuant whereto the disputes
were referred for arbitration by two arbitrators, one appointed by each of the
parties. By their award dated 20th June, 1999,
the learned Arbitrators directed an amount of Rs.151.97 lacs to be paid by the
respondent to the appellant in full and final settlement of all claims by and
between the parties.
award was filed in the Court of the Civil Judge, Senior Division, Sangamner.
Both the parties preferred objections against the award. After hearing the
learned counsel for the parties, by its judgment dated 6.5.2000 the learned
Civil Judge directed the award to be remitted back to the learned arbitrators
for rendering a fresh award consistently with the directions given by the
learned Civil Judge. The appellant preferred a revision laying challenge to the
direction of the Court remitting the award while the respondent preferred an
appeal submitting that on the view taken by the learned Civil Judge, Senior
Division the award itself should have been set aside and there was no occasion
for remitting the award to the arbitrators. The learned Single Judge of the
High Court heard the revision and the appeal together.
impugned order the learned Judge has dismissed the civil revision and allowed
the appeal. As a result the order of the learned Civil Judge, Senior Division
remitting the award to the arbitrators has been set aside and the award to the
extent of Rs.107.54 lacs and the interest thereon in the sum of Rs.28.74 lacs
has been set aside. The rest of the award has been made a rule of the Court.
Feeling aggrieved by the impugned judgment of the High Court these petitions
have been filed by the appellants seeking leave to file appeals by special
have heard the learned counsel for the parties at length who have apart from
making legal submissions carried the Court through the pleadings, the relevant
correspondence between the parties, several documents and the proceedings
before the arbitrators.
it is not necessary for us to deal with the same in very many details as we
have formed an opinion that the impugned judgment of the High Court deserves to
be set aside and the order of the learned Civil Judge deserves to be restored.
perusal of the judgment of the learned Civil Judge, Senior Division shows the
learned Judge having formed an opinion that the award suffered from an error
apparent on its face. There was an omission on the part of the learned
arbitrators to consider a few relevant documents available on record which in
the opinion of the learned Civil Judge if taken into consideration the finding
of the arbitrators would not have been what it is. The learned Civil Judge also
formed an opinion that there was a violation of the principles of natural
justice inasmuch as the parties were not afforded a hearing on the issue on
which the learned arbitrators had based their decision.
learned Civil Judge was of the opinion that on totality of the facts and
circumstances of the case instead of setting aside the award the same deserved
to be remitted to the arbitrators with the request to render the award afresh.
The High Court has however formed an opinion that to the extent to which the
award has been set aside by the High Court it was beyond the scope of reference
to the arbitration and hence there was no question of the parties being
afforded an opportunity of re-arguing the same question before the arbitrators
as the arbitrators could not assume jurisdiction over an issue which was not
referred to them.
On 19th October, 1994 the appellant served a notice on
the respondent setting out several disputes arising between the parties.
the disputes raised therein reads as under :
today, we have spent Rs.107.54 lakhs on the said plant, which it is abundantly
clear that will not give required results as agreed not even optimum to the
norms laid down by the excise rules. Therefore, Rs.107.54 lakhs will be
straight way loss to my client and there will be also loss of interest at the
rate of 18% per year from 1st May, 1993
onwards. In the circumstances my clients have instructed me to call upon you
which I hereby do to reimburse the loss suffered by my clients to the tune of
Rs.237.83 lakhs within a week from today." On 26.12.1994 once again a
notice was served by the appellant on the respondent appointing its own
arbitrator calling upon the respondent to appoint its and in the contents of
the notice it was specifically stated that they were the questions, disputes
and differences mentioned in the notice dated 19.10.1994 which shall be
referred to the arbitration. During the pendency of the arbitration proceeding,
on 24th July, 1995, a memorandum of understanding was arrived at between the
parties which suggests that it was the dispute referred to in the notice dated
19.10.1994 for which trial-runs were being conducted. The notice dated
12.9.1995 served by the appellant on the respondent reiterates that it was the
failure on the part of the respondent to manufacture and supply the plant and
comply with the terms of agreement that had caused total failure entitling the
appellant for refund of total amount of advance paid by the appellant to the
respondent. In its reply dated 30.9.1995 the respondent had told the appellant
that the matter was already before the arbitrators and the respondent reserved
the right to file an appropriate written statement before the arbitrator
disputing the claim made by the appellant and it was not necessary to give a
detailed reply in response to the appellant's notice. We have also perused the
statements of claim and their responses filed by the parties before the
arbitrators. We find that the claim for Rs.107.54 lacs and the interest thereon
raised by the appellant against the respondent was very much before the
arbitrators and the parties also proceeded on the assumption that this dispute
was before the arbitrators and liable to the adjudicated upon by them.
no. 10, 11 and 12 framed by the arbitrators are:
Does the claimant prove that it spent Rs.107.54 lacs on the plant and the plant
has gone waste for not getting the guaranteed performance?
the claimant entitled to Rs.107.54 lacs as actual damages?
the claimant entitled to Rs.45.46 lacs as interest on the said amount of
issues are widely worded and include within their sweep the dispute arising for
decisions and as was adjudicated upon by the award.
arbitration agreement between the parties opens as under:
Arbitration If at any time there should be any question, dispute or difference
between the parties in respect of any matter arising out of or in relation to
this agreement, either party may give to the other party notice in writing of
the existence of such question, dispute or differences and the same shall be
referred to arbitration " & Anr., (1984) 4 SCC 679, this Court has
held : "Whether a given dispute inclusive of the arbitrator's jurisdiction
comes within the scope or purview of an arbitration clause or not primarily
depends upon the terms of the clause itself; it is a question of what the
parties intend to provide and what language they employ. Expressions such as
'arising out of' or 'in respect of' or in connection with' or 'in relation to'
or 'in consequence of' or 'concerning' or 'relating to' the contract are of the
widest amplitude." In our opinion, it is the substance of the claim made
before arbitrators which has to be seen.
Court would not construe the nature of claim by adopting too technical an
approach or by indulging into hair-splitting. Else the whole purpose behind
holding arbitration proceedings as an alternate to civil court's forum would
stand defeated. We have carefully perused the arbitration clause and the
disputes referred and adjudicated upon by the arbitrators. We find it difficult
to sustain the finding of the High Court that the arbitrators had determined an
issue which was beyond the scope of reference to the arbitration. The disputes
did arise out of the contract between the parties and the arbitrators were
seized of the disputes within the scope of reference to them. The parties have
also joined in the contest before the arbitrators having understood the scope
of controversy, as already stated hereinabove.
(c) of sub-section (1) of Section 16 contemplates an award being remitted to
the arbitrators or Umpire for reconsideration upon such terms as the Court
thinks fit where an objection to the legality of the award is apparent upon the
face of it. As held recently (2001) 4 SCC 241 the jurisdiction to remit an
award by the Court to the arbitrators is a discretionary jurisdiction conferred
on the Court and so long as the said discretion has been judicially exercised
an Appellate Court would not be justified in interfering with the exercise of
discretion unless the discretion is misused. In our opinion no fault can be
found with the discretion exercised by the learned Civil Judge, Senior
Division. The High Court has erroneously formed an opinion that part of the
award was beyond the jurisdiction of the arbitrators.
the foregoing reasons the appeals are allowed. The judgment of the High Court
is set aside and that of the learned Civil Judge, Senior Division is restored.
The award shall stand remitted to the arbitrators in the terms as directed by
the learned Civil Judge, Senior Division. However, the time of six months
appointed for giving the award shall run from the date of communication of this
order to the arbitrators.
appeals stand disposed of in the terms abovesaid. No order as to the costs.
LAHOTI ) ..................J.
AGRAWAL ) May 7, 2002.