Lakshmi Ice Factory and Another vs Union of India (UOI) and Another

J.N. Wazir, C.J.—These are two applications, one by the Union of India through Mr. B.L. Suri u/s 14 of the Arbitration Act for making the

award a rule of the Court and Anr. by Messrs Lakshmi Ice Factory through Mr. I.D. Grover to set aside that award. In this judgment the Lakshmi

Ice Factory will be described as the Petitioner and the Union of India as Respondent. Both these applications will be disposed of by this order.

The facts which gave rise to these applications briefly stated are these:

Messrs Lakshmi Ice Factory, Pacca Danga, was given a contract for supply of ice to the Army at a certain rate. The Petitioner could not supply

the quantity of ice required by the Army authorities and the contract with the Petitioner for supply of ice was, therefore, rescinded and the ice was

purchased from other ice factories at a higher rate. The total loss suffered by the Army on account of breach of contract was claimed from the

Petitioner. A dispute arose between the Army authorities and the Petitioner in regard to the amount claimed. A suit was filed by the Petitioner in the

Court of the Additional District Judge seeking injunction against the Army authorities restraining them from recovering the amount claimed on

account of the loss suffered by them. The suit was resisted by the Respondent on the ground that the dispute according to the contract ought to

have been referred to arbitration. This plea found favour with the Additional/District. Judge and it was ordered that the dispute be referred to

arbitration, in terms of Cl. 21 of the contract between the parties. Lt. General Varma invited claims of the parties and fixed 16th December, 1960

for proceeding with the reference but before this date Lt. General Varma proceeded on leave and Major General Gupta issued notice to the

parties calling upon them to appear before him on 16th December the date already fixed by Lt. General Varma. On 5th December clarification

was sought on behalf of the Petitioner whether Major General Gupta was acting as an arbitrator. On 10th December 1900 Major General Gupta

was appointed as an arbitrator and information of his appointment reached the Petitioner on the 15th. Mr. Grover put in his appearance on behalf

of the Petitioner before the arbitrator on 16th December. It is common ground that a prayer was made on behalf of the Petitioner that an

opportunity be given for adducing evidence. The arbitrator refused to do so and proceeded with the reference. He examined claims of the parties

and gave an award allowing Rs. 26,954.33 nP. to the Respondent against the Petitioner.

Mr. Grover on behalf of the Petitioner has challenged this award on the ground that refusal on the part of the arbitrator to afford opportunity to

the Petitioner to produce evidence amounted to legal misconduct and vitiated the award. Counsel appearing for the Respondent raised a

preliminary objection that no direct application u/s 30 or Section 33 lies without initial application being filed u/s 14 of the Arbitration Act. This

contention is without any force. There is already an application made by the Respondent praying that the award be made rule of the Court, in face

of this application it was not necessary for the Petitioner to file an application u/s 14 of the Arbitration Act. The Petitioner has taken all the grounds

in his application challenging the award which is sought to be made la rule of the Court. The preliminary objection is, therefore, overruled.

The question for consideration is whether the refusal on the part of the arbitrator to afford the Petitioner an opportunity to adduce documentary

and oral evidence in support of the allegation in the claim petition amounts to Judicial misconduct and vitiates the award. The Petitioner filed three

applications, in one of which he named the counsel whom he wanted to engage and prayed that the arbitration proceedings be conducted at

Jammu so that he may not be put to un necessary expense by taking his counsel and witnesses outside Jammu; by the second application he

wanted to know as to who was appointed an arbitrator and in the third he specifically prayed that he may be allowed an opportunity to adduce

evidence in support of his contentions. No reply was received by him in regard to these applications. It appears that Lt. General Varma went on

leave and a notice was received from Major General Gupta Informing the parties to appear on 16th December at Udhampur at 11 A.M. to enable

him to proceed with the reference.

The Petitioner wrote a letter pointing out that under Cl. 21 of the agreement when an arbitrator vacates his office or proceeds on leave Anr. person

has to be appointed to act as an arbitrator, and as no such appointment was made, notice from Major General Gupta was not valid. The Petitioner

was informed by telegram that Major General Gupta was appointed an arbitrator and this fact was confirmed by Anr. letter which was received by

the Petitioner on 15th December. The Petitioner appeared before the arbitrator on 16th and on that date written statement was filed on behalf of

the Respondent in which all the points in support of the claim put forward by the military authorities against the Petitioner were mentioned. On

behalf of the Petitioner request was made to the arbitrator to afford him opportunity to adduce evidence. It is common ground that the request on

the part of the Petitioner was not acceded to and the award was made by the arbitrator allowing the claim of the Respondent against the Petitioner

to the extent of Rs. 26,954.39 nP. The learned Counsel for the Respondent argued that the Petitioner already knew the case which was contained

in the written statement filed by the Respondent and it was not necessary to adjourn the case to some other date for affording opportunity to the

Petitioner to produce evidence. There is no substance in this argument. The written statement on behalf of the Respondent was filed before the

arbitrator on the 16th December and on that date the Petitioner came to know about the contents of that written statement. It was not possible for

the Petitioner to have produced evidence in regard to the matters contained in the written statement of which he had no previous knowledge. After

all it cannot be gainsaid that the Petitioner was informed about the appointment of the arbitrator on the 15th December and in the notice already

served on him there was no Indication that the parties should produce evidence, if they so desire on the 16th of December. The words used in the

notice were only these ""appear before the arbitrator.

It is true that strict rules of evidence and procedure are not applicable to arbitration proceedings but there is a thing known as natural justice and

it would be contrary to fundamental principles of natural justice if a person be refused an opportunity to adduce evidence in support of his claim

and without proper enquiry liability for a large sum is fixed on him. In my opinion if an award is made without proper enquiry and without allowing,

a party, if he so desires, to adduce evidence in support of its contentions, it amounts to judicial mis-conduct on the part of the arbitrator. In this

view I am fortified by a ruling of the Punjab High Court The State of Bombay Vs. Nilkanth Shripad Bhave and Another, in which it has been held:

It is a well-known proposition of law that although an arbitrator is allowed considerable latitude in the procedure adopted by him at the hearing it is

essential that he should afford the parties reasonable opportunity of being heard and of presenting their case. If he makes an award without

complying with this essential requirement he does so at the peril of his award being declared invalid and inoperative in the eye of law.

To the same effect is a ruling of the Andhra Pradesh High Court Chinoy Chalani and Co. v. Y. Anjiah AIR 1958 AP 384 in which it is laid down:

Arbitrators should perform their quasi-judicial functions in a judicial manner and should not make a farce of the enquiry before them They should

give full opportunity to the parties to adduce their evidence and also allow them to be heard.

Where the Defendant was given an opportunity to file the statement within three days and though that statement was filed the arbitrators without

going through the same and without giving an opportunity to the Defendant to be heard or fixing a further date for hearing gave their award and no

date was fixed even for the award,

Held that it was impossible to hold that the award was passed after full enquiry and, therefore, the arbitrators were guilty of judicial mis-conduct.

In the present case the arbitrator refused the prayer of the Petitioner to produce oral and documentary evidence in support of his contentions,

without any valid reason. Under these circumstances the arbitrator has clearly misconducted himself and his award cannot be allowed to stand. I,

therefore, allow the application of the Petitioner and set aside the award. The application made by the Union of India is dismissed. The parties are

left to bear their own costs.