Full Judgment Text
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PETITIONER:
MUNICIPAL CORPORATION OF DELHI
Vs.
RESPONDENT:
JAGAN NATH ASHOK KUMAR & ANR.
DATE OF JUDGMENT17/09/1987
BENCH:
MUKHARJI, SABYASACHI (J)
BENCH:
MUKHARJI, SABYASACHI (J)
OZA, G.L. (J)
CITATION:
1987 AIR 2316 1988 SCR (1) 180
1987 SCC (4) 497 JT 1987 (4) 25
1987 SCALE (2)695
CITATOR INFO :
APL 1989 SC 268 (17)
RF 1989 SC 890 (29)
RF 1989 SC 973 (11)
ACT:
Arbitration Act, 1940: ss. 20, 30, & 33-Arbitrator.
Sole judge of quality and quantity of evidence-When germane
and relevant reasons are indicated by the arbitrator award
not unreasonable-Whether time essence of contract-Mixed
question of law and fact.
Indian Evidence Act, 1872: s. 1-Applicability of to
proceedings before an arbitrator.
Words and Phrases: Word "reasonable"-Meaning of.
%
The respondent no. 1 was awarded a contract by the
petitioner Corporation for construction of staff quarters,
which was later rescinded on the ground that he could not
complete the work as per the schedule. A Single Judge of the
High Court referred the dispute to an arbitrator.
The arbitrator in his award submitted to the High Court
found that there was a delay of nearly four months in the
commencement of the work due to giving of the lay out etc.,
that there was also delay in the execution of sanitary work
by another contractor who was previously employed and that
this work was still incomplete at the time of the making of
the award, and as such complete site had not been made
available to the respondent-contractor in time. He further
found that there was provision in the agreement for
extension of time for completion of the contract as well as
for levy of compensation for delay, that subsequent to the
expiry of the stipulated period of completion the
petitioner-Corporation did not make time the essence of
contract by directing the claimant to complete the work
within a specified period but instead rescinded the
contract. He, therefore, held that the decision of
rescission of the contract was bad, wrongful, and hence the
claim of the respondent for Rs.23,820 was just. He also
allowed interest on the sum from the date of rescission of
the contract. Certain counter claims of the petitioner-
Corporation were also allowed by giving cogent }.1 reasons.
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Rejecting the objection to the award raised by the
petitioner, the Single Judge of the High Court directed the
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award to be made a rule of the Court. A Division Bench of
the High Court summarily dismissed the appeal against that
judgment and order.
In the special leave petition to this Court on the
question: Whether reasonableness of the reasons in the
speaking award was justiciable under Article 136 of the
Constitution.
Dismissing the special leave petition,
HEADNOTE:
HELD: 1.1 The reasonableness of the reasons given by an
arbitrator in making his award cannot be challenged in
proceedings under Article 136. [183E]
1.2 Appraisement of evidence by the arbitrator is
ordinarily never a matter which the court questions and
considers. Section 1 of the Evidence Act, 1872 in its rigour
is not intended to apply to proceedings before an
arbitrator. In the instant case, the parties have selected
their own forum and the deciding forum must be conceded the
power of appraisement of the evidence. The arbitrator is the
sole judge of the quality as well as quantity of evidence
and it will not be for the Supreme Court to take upon itself
the task of being a judge of the evidence before the
arbitrator. It may be possible that on the same evidence the
Court might have arrived at a different conclusion than the
one arrived at by the arbitrator but that by itself could be
no ground for setting aside the award of an arbitrator.
1186B-D]
Haji Ebrahim Kassam Cochinwall v. Northern Indian oil
Industries Ltd., A.I.R. 1951 Calcutta 230, referred to.
2. There was no violation of any principles of natural
justice in the instant case. It was not a case where the
arbitrator had refused cogent and material factors to be
taken into consideration. The award could not therefore, be
said to be vitiated by non-reception of material or non-
consideration of the relevant aspects of the matter. [186A-
B]
Mediterranean & Eastern Export Co. Ltd. v. Fortress
Fabrics Ltd., 11948] 2 All. E.R. 186, referred to.
3. Whether in a particular contract time was the
essence of the contract or not, is a mixed question of law
and fact. In the instant case, the reasons given by the
arbitrator in holding that it could not be taken
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that time was the essence of the contract, were cogent and
based on materials on record and have a rational nexus with
the conclusion arrived at by him. [184C;186A]
4. The word ’reasonable’ have in law the prima facie
meaning of reasonable in regard to those circumstances of
which the actor, called on to act reasonably, knows or ought
to know. An arbitrator acting as a Judge has to exercise a
discretion informed by tradition, methodized by analogy,
disciplined by system, and subordinated to the primordial
necessity of order in the social life. Therefore, where
reasons germane and relevant for the arbitrator to hold in
the manner he did have been indicated, it cannot be said
that it was unreasonable. [187E-F; 184E
Re a Solicitor, [1945] K.B. 368 at 371 of the Report)
and Stroud’s Judicial Dictionary, Fourth Edition, page 2258,
referred to.
In the instant case the arbitrator acted reasonably and
rationally. The challenge to the award was, therefore,
rightly rejected by the High Court. [187G]
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JUDGMENT:
CIVIL APPELLATE JURISDICTION: Special Leave Petition
(Civil) No. 9524 of 1987.
From the Judgment and order dated 25.5.1987 of the
Delhi High Court in F.A.O.. No. 58 of 1987.
R.B. Datar and Ranjit Kumar for the petitioner.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, J. The respondent No. 1 herein was
awarded the contract in question for the construction of
staff quarters for the Municipal Corporation of Delhi, the
petitioner herein and the work had to be completed within
the stipulated period mentioned in the contract. Since,
however, the work was not being done in the manner as the
Delhi Municipal Corporation thought it ought to have been
done, the petitioner wrote 29 letters during June, 1978 to
July, 1980 regarding the timely completion of the work. It
is alleged that the work was not completed by the 15th of
January, 1980 as per the schedule in the contract. Show
cause notice was given to the respondent-contractor. The
contractor failed to give satisfactory reply and according
to the petitioner, the contract was rescind. Thereafter
several other letters were written which are not material to
refer.
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There was an arbitration clause in the agreement. On 2nd
November, 1982 an application was filed under section 20 of
the Arbitration Act, 1940 (hereinafter called ’the Act’) in
the Delhi High Court. A learned Single Judge of the said
High Court directed reference of the dispute and directed
the Commissioner of the Municipal Corporation or anyone
nominated by him to enter into reference. The Commissioner
on 17th of March, 1983 appointed one Shri S.M. Hasnain,
Arbitrator and Superintending Engineer No. II, of the
Municipal Corporation of Delhi as the arbitrator. He is
respondent No. 2 in this petition. The said arbitrator
entered upon the reference and thereafter on 21st of August,
1984 submitted his award allowing some claims of the
contractor and some counter-claims of the Municipal
Corporation. The Municipal Corporation filed its objections
to the said award. The learned Single Judge of the High
Court by his judgment and order dated 22nd of October, 1986
directed that the award be made a rule of the Court. A
Letters Patent Appeal was filed thereafter but the same was
summarily dismissed by a Division Bench of the Delhi High
Court on 25th May, 1987. The petitioner seeks leave in this
petition under Article 136 of the Constitution to challenge
the said order. As the learned Division Bench did not give
reasons, we must refer to the order of the learned Single
Judge.
The arbitrator gave reasons in support of the award.
The question is whether reasonableness of the reasons in a
speaking award is justiciable under Article 136 of the
Constitution. We are of the opinion that such reasonableness
of the reasons given by an arbitrator in making his award
cannot be challenged in a proceeding like the present. It is
desirable, however, that we state our reasons for so
holding.
In order to appreciate this the award of the arbitrator
must be looked into. The arbitrator in his award has dealt
with various claims, one of the main claims was the claim of
23,850 out of which 8,300 was in the form of fixed deposit
receipt carrying interest and the balance amount of 15,520
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was deducted as security of 10% from the bills of the
claimant. According to the claimant this amount had wrongly
been forfeited by the Corporation at the time of rescission
of the contract and that the same should be refunded to him.
It was held by the arbitrator that there was provision in
the agreement for extension of time for completion of the
contract, as well as for levy of compensation for delay.
Therefore, it could not be taken that time was the essence
of the contract. The arbitrator had opined that according to
the respondents’ own admission there was delay of nearly
four
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Months in the commencement of the work due to giving of the
layout etc. There was also delay in the execution of
sanitary work by another contractor previously employed by
the petitioner and this work was still incomplete at the
time of the making of the award and as such complete site
had not been made available to the present contractor in
time. Further there was provision in the agreement for
extension of time or levy of compensation for delay and,
therefore, according to the arbitrator time could not be
considered in such a contract to be the essence of the
contract. Furthermore, subsequent to the expiry of the
stipulated period of completion, the Corporation did not
make time the essence of the contract by directing the
claimant to complete the work within a specified period but
instead rescinded the contract. In those circumstances it
was held by arbitrator that the decision of rescission of
the contract has bad, wrongful and hence the claim of
Rs.23,820 was considered to be just. We do not find any lack
of reason in the reasons given by the arbitrator. Whether in
a particular contract time was the essence of the contract
or not is a mixed question of law and fact. But the reasons
given by the arbitrator appear to be reasonable and have
rational nexus with the conclusion arrived at by him. It was
stated that it was admitted on behalf of the Corporation
that there was initial delay of four months. This was
controverted by the Corporation. They say that there was no
admission. This, in our opinion was a significant factor
that there was some delay and in spite of the delay the
corporation gave letters to the contractor to complete the
work and in the contract itself there was provision for
extension of time. In our opinion, where reasons germane and
relevant for the arbitrator to hold in the manner he did
have been indicated, it cannot be said that it was
unreasonable. Another factor the arbitrator had noted was
that the site was not available due to the conduct of
another contractor previously employed by the petitioner.
This factor is also a relevant factor. The fourth item of
the award was a claim for damages for Rs.60,000(). This
amount was not granted on the ground that the claimant was
not able to prove this amount. The fifth item in the award
was a claim for interest at 18 % per annum on certain items
from the date of rescission of the contract to the date of
payment of decretal amount. The arbitrator allowed the
interest as the amount had been withheld due to unjustified
and wrongful rescission of the contract. Reasons given by
the arbitrator appear per se not unreasonable. The
arbitrator has not awarded any costs. There were also
counter claims by the Corporation against the contractor.
The first counter claim was forfeiture of Rs.23,820 on
account on the rescission of the contract. Inasmuch as the
rescission was held to be unjustified in the facts of this
case, the forfeiture was also held to be wrongful. There was
a claim of
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Rs.32,640 as payment of compensation at 10% of Rs.3,28,400,
but as the time was not the essence of the contract and the
rescission of the contract was unjustified, this claim could
not be sustained and it was so rejected by the arbitrator.
The next claim was for Rs.85,620 for the execution of the
remaining work at the risk and cost of the respondent. The
arbitrator found that the contractor had as far as possible
discharged his contractual obligation and the rescission of
the contract was unjustified and wrongful. Therefore, the
Corporation’s claim for getting the work executed at the
risks and costs of the contractor was unjustified and the
claim was so logically rejected and no amount was awarded on
that score. The next claim was for Rs.2739 on account of
mild steel Lying with the contractor. On examination it was
found that some quantities of steel had been consumed in the
work and as such recovery could only be made for the balance
quantity of 1172 kgs. at the recovery rate of Rs.1.50 per
kg. and the claim was, therefore, allowed in favour of the
Corporation for Rs.1,758. The Corporation further claimed a
sum of Rs.6,083.20 on account of non-return of certain
steel. After taking into account the steel consumed in the
work and after allowing for permissible variation and
wastage, it was held that recovery claim for Rs.3,862 only
was justified. The award was made accordingly. There was
another claim of Rs.6,473 on account of penal rate recovery
of mild steel. It was held for good reasons indicated in the
award that the claim for Rs.5,620 was justified. The
Corporation claimed Rs.13,578 for penal rate recovery of
cement for the quantity in excess of the theoretical
consumption. After going into the material the arbitrator
found that the cement issued to the claimant was consumed in
the work and the claim of the Corporation for the penal rate
recovery was not justified. The next was the claim for
Rs.1400 by the Corporation on account of non-return of 700
empty cement bags to the Municipal store. This was enquired
into and found to be justified and a sum of Rs.1400 was
awarded in favour of the Corporation. There was a further
claim of Rs.65 for adjustment of cost of steel on account of
three transfer entries. From the documents produced the
claim was awarded in favour of the Corporation. The next
claim was for interest at the rate of 12% per annum w.e.f.
1.9.81 on the amount of alleged counter-claim preferred
against the claimant. As it was held that the rescission of
the contract was unjustified and wrongful, the Corporation
was at liberty to recover its justified claims from the dues
of the claimant at its disposal and pay the balance amount
to the claimant within a reasonable time. There was a
further claim for Rs.10,000 as arbitration costs and the
claim was rejected. It appears to be very reasonable and
fair award.
186
In this case, there was no violation of any principles
of natural justice. It is not a case where the arbitrator
has refused cogent and material factors to be taken into
consideration. The award cannot be said to be vitiated by
non-reception of material or non-consideration of the
relevant aspects of the matter. Appraisement of evidence by
the arbitrator is ordinarily never a matter which the Court
questions and considers. The parties have selected their own
forum and the deciding forum must be conceded the power of
appraisement of the evidence. In the instant case, there was
no evidence of violation of any principle of natural
justice. The Arbitrator in our opinion is the sole judge of
the quality as well as quantity of evidence and it will not
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be for this Court to take upon itself the task of being a
judge of the evidence before the arbitrator. It may be
possible that on the same evidence the Court might have
arrived at a different conclusion than the one arrived at by
the arbitrator but that by it self is no ground in our view
for setting aside the award of an arbitrator.
It is familiar learning but requires emphasis that
section 1 of the Evidence Act, 1872 in its rigour is not
intended to apply to proceedings before an arbitrator. P.B.
Mukharji, J. as the learned Chief Justice then was,
expressed the above view in Haji Ebrahim Kassam Cochinwall
v. Nothern Indian oil Industries Ltd., A.I.R. 1951 Calcutta
230 and we are of the opinion that this represents the
correct statement of law on this aspect. Lord Goddard, C.J.
in Mediterranean & Eastern Export Co. Ltd. v. Fortress
Fabrics Ltd., [1948] 2 All E.R. 186 observed at pages
188/189 of the report as follows:
"A man in the trade who is selected for his
experience would be likely to know and indeed to
be expected to know the fluctuations of the market
and would have plenty of means of informing
himself or refreshing his memory on any point on
which he might find it necessary so to do. In this
case according to the affidavit of sellers they
did take the point before the Arbitrator that the
Southern African market has slumped. Whether the
buyers contested that statement does not appear
but an experienced Arbitrator would know or have
the means of knowing whether that was so or not
and to what extent and I see no reason why in
principle he should be required to have evidence
on this point any more than on any other question
relating to a particular trade. It must be taken I
think that in fixing the amount that he has, he
has acted on his own knowledge and experience. The
day has long gone by when the Courts
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looked with jealousy on the jurisdiction of the
Arbitrators. The modern tendency is in my opinion
more especially in commercial arbitrations, to
endeavour to uphold Awards of the skilled persons
that the parties themselves have selected to
decide the questions at issue between them. If an
Arbitrator has acted within the terms of his
submission and has not violated any rules of what
is so often. called natural justice the Courts
should be slow indeed to set aside his award."
This in our opinion is an appropriate attitude.
In this case the reasons given by the arbitrator are
cogent and based on materials on record. In Stroud’s
Judicial Dictionary, Fourth Edition, page 2258 states that
it would be unreasonable to expect an exact definition of
the word "reasonable". Reason varies in its conclusions
according to the idiosyncrasy of the individual, and the
times and circumstances in which he thinks. The reasoning
which built up the old scholastic logic sounds now like the
jingling of a child’s toy. But mankind must be satisfied
with the reasonableness within reach; and in cases not
covered by authority, the verdict of a jury or the decision
of a judge sitting as a jury usually determines what is
"reasonable" in each particular case. The word "reasonable"
has in law the prima facie meaning of reasonable in regard
to those circumstances of which the actor, called on to act
reasonably, knows or ought to know. See the observations, in
Re a Solicitor [ 1945] K.B . 368 at 371 of the report .
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After all an arbitrator as a Judge in the words of
Benjamin N. Cardozo, has to exercise a discretion informed
by tradition, methodized by analogy, disciplined by system,
and subordinated to "the primordial necessity of order in
the social life". F
Indeed reading the award of the arbitrator, one would
say that he acted reasonably and rationally.
In the premises the award of the arbitrator was
assailed on trivial grounds and the challenge was rightly
rejected by the High Court. The respondent is entitled to
the costs of the challenge upto the High Court. So far as
the costs of this petition to this Court is concerned,
parties are directed to bear their respective costs. The
petition for leave to appeal is, therefore, dismissed and
the leave refused.
P.S.S. Petition dismissed.
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