Reserve Bank of India vs M/s. Raj Engineering Contractors

Varghese Kalliath, J.—This appeal arises from O.P. (Arbitration) No. 150/82 on the file of the Principal Sub Court, Trivandrum between the appellant and the respondent in regard to the contract for the construction of Class III Staff Quarters and ancilliary structures at Silver Oak Plot, Trivandrum. Certain disputes and differences arose and those disputes were referred for arbitration and the arbitrator filed his award on 18-5-1982. Respondent wanted the court to pass a judgment and decree on the award fled by the arbitrator. Appellant filed objection in the matter and contended that the award is vitiated u/s 30 of the Arbitration Act (hereinafter referred to as ''the Act'') and prayed that the award may be set aside or it has to be remitted for fresh consideration. The court below considered the question as to whether there is any ground u/s 30 of the Arbitration Act to set aside the award. The court below found that there is no ground to set aside the award and so passed the judgment and decree in terms of the award. The appellant challenges this judgment and decree. Prolonged and elaborate arguments were advanced before this Court by counsel on both sides.

The court below, in paragraph 4 of her judgment said that a perusal of the award would show that therein the arbitrator has stated in detail the claims raised by the claimant as well as the objections and the counter claims raised by the respondent. She also said that the preamble to the award would further show that the arbitrator has considered all the objections and contentions raised by the parties and that the award was passed after having weighed and considered the allegations and the evidence produced by the parties; According to the learned Judge, the award is not a reasoned one. She has said that the arbitrator has not stated any reason for arriving at his conclusion. As per the award under claim No. 4 the respondent is directed to pay the claimant a sum of Rs. 6,73,000/- in full and final settlement of claims on the work and under claim No. 5 the security deposit and the retention amount lying in the hands of the respondent are directed to be released to the claimant. The arbitrator rejected all other claims and counter claims.

The court below said that since it is not a reasoned award and so the jurisdiction of the court is very limited to interfere with the award. It also said that there is no document of any note appended or incorporated with the award which would show that the arbitrator has decided any legal question which is the basis of the award and that such decision is erroneous. The court further observed that the fact that the arbitrator has awarded a lump sum amount to the claimant is not a ground to hold that the arbitrator has misconducted himself and the proceedings. It is also held that even if the arbitrator has committed any error either of law or fact that also is not a ground to hold that he has misconducted himself. The objections of the appellant are found to be untenable and the court rejected the same. The court accepted the award and a decree was passed in terms thereon directing the respondent to deposit the amount awarded in court within two months from the date of the judgment and further directed that in default of it, the claimant will be entitled to realise the award amount with 6% interest thereon per annum from the date of the judgment.

The agreement between the parties is dated 2nd June, 1978. The agreement is not an incorporated document in the award. This court is not justified in considering this appeal to discuss the various clauses in the agreement stipulating the terms and conditions of the contract.

The point raised by counsel for the appellant before us is that the arbitrator has incorporated the pleadings in the award and so this Court can look into the pleadings and determination of the various claims would show apparent error of law on the face of the award and so the award is liable to be set aside. This aspect as such is not seen taken before the lower court. In the appeal memorandum also this case is not seen taken among the various grounds challenged in this appeal. But we permitted the counsel to argue the point exhaustively.

Counsel for the appellant relied very strongly what according to him is an incorporation of pleadings in the award and according to the respondent, only a narrative of the history and a statement spotlighting the nature, of disputes that arose between the parties which occasioned the arbitration and that does not form part of the award and cannot be treated as incorporation of the pleadings in the award. We feel that we must advert that part of the award for examining the sustainability of the argument advanced by counsel for the appellant. We propose to quote the relevant portions of the award which is claimed by counsel for the appellant as part of the pleadings before the arbitrator, and according to counsel for the respondent, is only a narrative which preceded the unreasoned award. It is stated in the award thus:-

The case for the claimant is mainly that they could not complete the work within the originally agreed time of completion due to laches and delays on the part of the respondents to fulfill their obligations in this reciprocal contract. As instances in support of this contention, he would point out that there was inordinate delay in supply of drawing some of which were supplied even after the original date of completion, delay in supply of cement and steel, want of working space, hindrances from other agencies such as plumbing contractors, necessity for revision of, drawings, excess quantities and extra items. It is also their case that the agreement and the terms provided therein apply only to, the periods contemplated therein. In so far as the contract ran into a period beyond the originally agreed term, they would urge that they should be compensated therefor by granting rates compatible with the actual escalation of which they would say that the various revisions in the Schedule of rates effected by the State Public Works Department would be a fair index. Another important claim the claimant has pressed is the rate increases he would urge for carrying out quantities of works in excess of One Hundred and Ten per cent of originally agreed quantities. One of the claims made is for escalation in costs beyond the originally agreed period in terms of the "built in" escalation clause in the agreement. All the claims pressed by the claimant would come under one or the other of the above category of claims.

After stating broadly the nature of the claim in the award as stated above, the arbitrator said thus:-

The main planks of the defence are the following:- that a special feature of the agreement between the parties is the "built in" escalation clause which is to take care of the fluctuations not only within the originally agreed period, but during ''Authorised'' extensions also and as such a reference to any other datum such as the State P.W.D. Schedule is not only inapplicable but quite unnecessary also, that the extended period can at worst be treated only as an ''authorised'' extension entitling the claimant to the escalation contemplated although they would plead that delays were occasioned only due to the default of the claimant entitling him to no escalation at all, that they deny all the allegations laid at their door by the claimant because the material drawings were supplied in time and even if a few were supplied late there would not have been any difference in the position as the claimant was ready to put them to use only when they were actually supplied, the position regarding supply of cement and steel was also much the same as that of the drawings, the want of working space, if at all being a factor the claimant ought to have taken note of even at the time of the tener etc. The respondents would also point out that even conceding there might have been certain difficulties in performing a contract, the parties are not entitled to plead for a variation of the terms embodied in contract on that ground alone or consideration of equity and the like would not be attracted to make changes from the agreed provisions. In the matter of applicability of the provision in the agreement to periods beyond that provided in the agreement it is their contention that in so far as there is provision for ''authorised'' extensions, the provisions in the original agreement shall be deemed to apply till virtual completion of the work. On this basis they would object to the application of any formula other than those provided for in the agreement for any period till the completion of the work. In the matter of the additional claims in respect of excess quantities over One Hundred and Ten percent of the originally agreed quantities the respondents would contend that the rates applicable would be those worked out in accordance with Clause (I) (not legible) of the agreement irrespective of the quantity of such excess. They would also submit that it is beyond the scope of arbitration to delve into the sufficiency of those provision which have the free consent of both parties to the agreement. As far as the amount of Rupees Two Lakhs Thirty One Thousand and One Hundred and Fifty Nine and paisa Five only (Rs. 2,31,159.05) included in the statement II is concerned, the respondents would say that having made a claim for escalation during the extra Contractual period on a basis foreign to the agreement as per statement. I accompanying the claim petition, the claimant cannot have the best of both worlds by claiming under the agreement and the ''built in'' escalation clause contained in it and that they deny their liability to make any payment in accordance with it.

The arbitrator has adverted to the objections filed by the respondent herein in regard to the counter claims of the appellant herein. Finally, the arbitrator has said thus:-

NOW WHEREAS the above disputes arose between the claimants and the respondents out of a contract in writing for the work of "Construction of Class III Staff Quarters and ancilliary Structures at Silver Oak Plot, Trivandrum" under Contract Agreement for the work dated: 2nd Day of June, 1978;

AND WHEREAS I am empowered to act as Sole Arbitrator in the above disputes by Agreement between the parties;

NOW, Therefore, I, M.V. ITTYCHERIA, the Chief Engineer (Arbitration) as Sole Arbitrator having taken upon myself the burden of the reference and having heard and duly weighed and considered the allegations and the evidence produced by both parties before me, do, hereby make and publish this final Award in writing of and concerning the matters referred to me.

I HEREBY AWARD AND DIRECT AS FOLLOWS:-

The claim for an amount of Rupees Two Lakhs Thirty One Thousand One Hundred and Fifty Nine and paisa Five only (Rs. 2,31,159.05) as per statement No. II attached to the claim petition is declined.

The claim for an amount of Rupees Twenty Three Thousand Two Hundred and Seventy Two only (Rs. 23, 272/-) as per statement No. IV is declined.

The claim for Rupees Four Thousand Three Hundred and Twenty Only (Rs. 4,320/-) in respect of the Telephone (hire and call charges) is declined.

The respondents shall pay the claimant a sum of Rupees Six Lakhs and Seventy Three Thousand Only (Rs. 6,73,000/-) in full and final settlement of all his claims on the work.

The security deposit and the retention amounts lying in the hands of the respondents shall also be released to the claimant as per the terms of the agreement.

The claim for interest is declined.

The parties shall suffer their respective costs in these proceedings.

All other claims and counterclaims are rejected.

Before parting with this case I wish to place on record my great indebtedness to Learned Counsel who appeared for both sides, the legal Officers and Engineers of the respondents who spared no effort to elucidate the issues involved to enable me to arrive at a conclusion.

From the award, it is clear that claims 1, 2 and 3 are declined. But the arbitrator said that the appellant herein shall pay to the claimant a sum of Rs. 6,73,000/- in full and final settlement of all his claims on the work. The arbitrator also directed the appellant herein to release the security deposit and the retention amount to the respondent herein. The arbitrator also said that ''All other claims and counter claims are rejected''. Certainly in the operative portion of the award, particularly in regard to claim No. 4 of the award directing payment of Rs. 6,73,000/-, the arbitrator has not given the basis for awarding such an amount. He has not stated any reason which forms the basis for awarding such an amount to the respondent herein.

The learned counsel for the appellant submits that on a reading of the whole award, it is possible for this Court to know the reason panting under item 4 an amount of Rs. 6,73,000/-. Further, counsel submitted that this amount can only represent an amount claimed as costs of escalation during the tenure of the contract period itself, which according to counsel is forbidden by the terms of the agreement itself. Of course, he submitted that the agreement itself provided for some built in escalation clause and all amounts due to the respondent herein on the basis of the built in escalation clause has been paid. But now what has been awarded is an amount on account of escalation of costs beyond the originally agreed terms of the built in escalation clause in the agreement. Further he submitted that the built in escalation clause is intened to take care of the fluctuations not only within the originally agreed period, but during authorised extensions also and as such, a reference to any other datum such as the State P.W.D. schedule is not applicable. Counsel submitted that since the agreement itself has provided for authorised extensions the built in escalation clause alone is applicable for the authorised extension period and submitted that if a proper application of the built in escalation clause in the agreement is made the claimant-respondent herein is not entitled to any amount and the amount now awarded is clearly against the provisions of the terms and conditions of the agreement. In advancing this argument, counsel is faced with a serious difficulty that he could not refer to the agreement. He submits that the incorporation of the pleading will enable him to advance an argument that the arbitrator has misconducted himself in granting an award opposed to the terms and conditions, of the agreement. In short, the award is the result of a thoroughly wrong understanding and interpretation of the built in escalation clause in the agreement and that error is explicit and can be seen on the face of the award.

As we said earlier, counsel for the respondent herein strongly contended that the statement alleged to be incorporation of the pleadings did not form part of the award and did not incorporate the pleadings and so it is not possible to determine on what reason and on what basis the arbitrator has awarded an amount of Rs. 6,73,000/-. Learned counsel very strongly contended that the award is a non-speaking award purely devoid of any reason and that the arbitrator has not given any proposition of law as the basis for awarding an amount of Rs. 6,73,000/-. When awarding the said amount, counsel submitted that the arbitrator has said only that The respondents shall pay the claimant a sum of Rupees Six Lakhs and Seventy Three Thousand Only (Rs, 6,73,000/-) in full and final settlement of all his claims on the work''. He submitted that it is not even possible to speculate in the circumstances that the arbitrator has awarded Rs. 6,73,000/- for the claim of escalation in costs or opposed to the built in escalation clause in the agreement. There is no reference to the escalation in costs when awarding the amount of Rs. 6,73,000/-. Counsel submitted that if the arbitrator has said that the amount is awarded in full and final settlement of the claim of the respondent herein on account of escalation in costs, then there is at least justification for contending that the amount represented escalation in costs claimed by the respondent herein. If the amount awarded is not really referable to escalation in costs, it is not at all possible for this Court to investigate the scope of the built in escalation clause in the agreement and there is absolutely no necessity for this Court to make such an enquiry.

Learned counsel for the appellant submitted that if the pleading is incorporated in the award and that such of the pleading incorporated in the award would indicate the terms of the contract, on the format of that pleading the court can decide the question whether there is any error of law apparent on the face of the award. According to counsel for the appellant, the introductory statement made by the arbitrator found in the award is really an incorporation of the pleading and that pleading is sufficient for the court to say that the award is patently against one of the most important clauses in the agreement, viz., built in escalation in costs clause. Counsel for the respondent submitted that it is true that the court is entitled in examining an award, to look at documents accompanying and forming part of the award - see Hodgkinson v. Fernie (1857) 3 C. B. (N.S.) 189 at p. 202. Further he submitted that if there are pleadings, ''and the arbitrator so refers to them as to incorporate them into the award'' the court can look into it. If the term in the contract is specifically referred to this principle may even enable the court to examine that term in the contract-See (1933) AC 592 at p. 611 (Absalom Ltd. v. Great Western, etc. Village Society) and (1962) 2 All E. R. 53 (Giacomo Costa Fu Andrea v. British Indian Trading Co.).

Counsel for the respondent very emphatically submitted that even if there is reference to pleading in the introductory portion of the award it is not at all possible by reading the award ''the arbitrator so refers to them as to incorporate them into the award''. Counsel submits that the statement relating to the contentions of the parties contained in the preamble of the award is only an itemization of the claims and contention in the form of a narrative. What the arbitrator has done is only a simple and convenient method of indicating matters in respect of which the arbitrator was asked to make an award and is not a reference by him to the pleadings so as to incorporate them into his award. He submits that the pleadings were not to be looked at in these circumstances and even if looked at it is not possible to find out an error of law on the face of the award. The point raised is really a difficult one. We are grately indebted to both counsel for their precise analysis of the desideratum required for holding what is the content and scope of the proposition that the pleading referred in the award is pleading so referred to by the arbitrator in his award to be incorporated in it and for the citation of the authorities which bear upon what seems to us to be a very difficult point.

In this case, the only point urged before us by counsel for the appellant is that there is error of law apparent on the face of the award and that error is made apparent on the pleadings incorporated in the award. Though in certain cases, attempts to establish that pleadings fell into a special category and whether or not referred to in an award were always available for the court to look at with deference to the counsel for the appellant, we have to say that counsel did not make any attempt before us to establish that pleading fell into a special category and that it can be looked at always by the court whether or not referred to in an award. But he only says that in this case pleadings were so referred to by the arbitrator in his award to be treated as one incorporated in it.

In (1969) 3 W. L. R. 1051 (Belsfield Court Construction Co. Ltd. v. Pywell,) counsel argued that primarily at all events pleadings are in a special category and whether they are in fact referred to in any way whatever in the award or not, they must always be available for a court to look at if there is alleged to be an error on the face of the award when examined with the pleadings. This argument was not accepted by the court and the court held that the pleadings were not documents of such a specialised nature in relation to an arbitration that they can always be looked at, indeed whether the arbitrator has referred to them in the award specially or by implication or not. This happened because there is an error of law on the face of the award always be looked at by the court only on the award and the documents and notes incorporated or appended to the award. Willis J. said thus:-

I pass, therefore, to Mr. Spafford''s first submission, namely, that no authority really is required at all for the proposition that pleadings can be looked at in this case because they can be looked at in this case because they can be looked at in every case. Pleadings, he says, are documents of such a specialised nature in relation to an arbitration that they can always be looked at, indeed whether the arbitrator has referred to them in the award specifically or by implication or not. In my judgment, there is no basis for that submission to be found in the authorities. At this point in time I would have thought that with a line of cases which starts as far back as 1857, if pleadings are documents which can always be referred to, there would have been some indication of this in the cases to which I have been referred, and if that had been the case, I would not have thought that so authoritative a book as Russell on Arbitration, 17th ed. (1963) would have referred to pleadings as p. 318 in the way in which they are there referred to. It is possible, I suppose, that Mr. Spafford may be right in this sense, that his first proposition is the explanation of the somewhat cursory manner in which pleadings were dealt with in both Absalom''s case (1933) A. C. 592 and the Kelantan case (1923) A. C. 395, but I do not think he is, sympathetic though I am to his submission. I think I am bound to hold pleadings are not in a special case and that they have got to be looked at in exactly the same narrow and critical way in which the courts have looked at contracts and clauses in contracts.

It can never be doubted that the pleadings can be looked into only if it is incorporated in the award just like an incorporation of other documents like the contract, etc. Admittedly, in this case the contract as such has not been incorporated in the award. So it is not open to the court to go behind the award and look at the contract or any clause of the contract. To determine the question whether a contract or a clause in a contract has been incorporated to an award by implication from the incorporation of pleadings in the award is a very difficult one. On the authority of D.S. Blaiber & Co. Ltd. v. Leopold Newborne (London) Ltd. (1953) 2 Lloyd''s Rep. 427 we have to say that only if the arbitrator says: "On the wording of this clause I hold" so-and-so, then alone that clause is impliedly incorporated into the award because he invites the reading of it; but if an arbitrator simply says: "I hold that there was a breach of contract," then there is no incorporation. We refer to (1923) A.C. 480 (Champsey Bhara & Co. v. Jivraj Balloo Spinning and Weaving Company. Ltd.) and what Lord Dunedin said. Williams in the case of Hodgkinson v. Fernie. (1857) 3 C.B. (N.S.) 189 regretted that the setting aside of awards for errors of law on the face of them. But it is established that the error of law on the face of the award is a ground to set aside. Lord Dunedin in his speech in Champsey''s case said that "Now the regret expressed by Mr. Justice Williams in Hodgkinson v. Fermie, Sup., has been repeated by more than one learned Judge, and it is certainly not to be desired that the exception should be in any way extended. An error in law on the face of the award means, in their Lordships'' view, that you can find in the award or a document actually incorporated thereto, as for instance a note appended by the arbitrator stating the reasons for his judgment, some legal proposition which is the basis of the award and which you can then say is erroneous. It does hot mean that if in a narrative a reference is made to a contention of one party that opens the door to seeing first what that contention is, and then going to the contract on which the parties'' rights depend to see if that contention is sound. Here it is impossible to say, from what is shown on the face of the award; what mistake the -arbitrators made. The only way that the learned Judges have arrived at finding what the mistake was is by saying: "inasmuch as the arbitrators awarded so-and-so, and inasmuch as the letter shows that the buyer rejected the cotton, the arbitrators can only have arrived at that result by totally misinterpreting r. 52", but they were entitled to give their own interpretation to r.52 or any other article, and the award will stand unless, on the face of it, they have tied themselves down to some special legal proposition which then, when examined, appears to be unsound." We may refer to a later case (1933) AC. 592 (F.R. Absalom Ltd. v. Great Western (London) Garden Village Society Ltd.). In this case the arbitrators had specifically referred to a clause in the contract and had said that having regard to the provisions of Clause 30 certain results followed. Question was raised whether in those circumstances Clause 30 should be regarded as incorporated in the award and should be looked at. The House of Lords hald that it could. Lord Wright in his speech has given the reason for it: ''''The award is expressly based on the provisions of Clauses 26 and 30, and hence the position here is quite different from that in Champsey Bhara & Co v. Jivraj Balloo Spinning and Weaving Company, sup, where the terms of the contract were held not to be incorporated." (emphasis added) Referring to the two cases, viz., Champsey Bhara''s case and F.R. Absalom''s case, Lord Justice Somervell in Blaiber & Company''s case said that one on one side of the line and one on the other and that His Lordship had no doubt that in the case considered by His Lordship (D.S. Blaimber & Co. Ltd. v. Leopold Newborne (London) Ltd) that the court was not entitled to look at the contract. His Lordship said that "It is referred to generally in the recital and I do not think it would make any difference if it had been referred to generally in the award or in matters introductory to the finding which was not in form a recital. I do not find here that the learned arbitrators have on the face of their award based their decision on the contruction of any particular term in the contract". In the same case (D.S. Blaiber & Company''s case) Lord Justice Denning forthrightly said that he had a strong suspicion that the arbitrators Went wrong in law, but the Judges are not able to say so without looking at the contract, because the terms of the contract may vary the ordinary legal rights and implications. Lord Justice Denning said that "The difficulty is that we are not at liberty to see this contract. It is not expressly incorporated into the award, nor can I see that it is impliedly incorporated. As I read the cases, if the arbitrator says : "On the wording of this clause I hold" so-and-so, then that clause is impliedly incorporated into the award because he invites the reading of it; but if an arbitrator simply says: "I hold that there was a breach of contract", then there is no incorporation". Further. His Lordship said that in the case considered, there was only a simple recital of a contract Which is not incorporated into the award and therefore the court was not able to look at it. It is significant to note what Lord Justice Denning said in the context where he entertained a strong suspicion that the arbitrators went wrong in law. His Lordship said that "I have no regrets on this score. It seems to me that, when traders go to lay arbitrators to decide a dispute between them, then the matter ought in the ordinary way to be left to those lay arbitrators without their decision being queried thereafter in point of law. The lay arbitrators have decided according to the justice of the case as they see it. If people want to raise point of law then they ought to ask at the time for a case to be stated on a point of law. If no such request is made, they should leave the law to the arbitrators. Applications should not be encouraged which seek to set aside the award on the ground of error on the face of it in point of law.

Counsel for the respondent submitted that what been referred to by counsel for the appellant as the incorporation of the pleading in the award is only a narrative of the nature of the dispute between the parties. He has pointed out that when the arbitrator'' awarded an amount of Rs. 6,73,000/- under claim No. 4 he did not say that it is based on a particular clause in the contract and so it cannot be considered as one which will come under the category of cases represented by F. R. Absalom Ltd. v. Great Western (London) Garden Village Society Ltd. But it will be on the other side of the line, viz., the cases of the sort represented by Champsey Bhara & Co. Willis, J. in 1969 3 W.L.R. 1051 after quoting what Lord Justice Denning said in Blaiber case, said thus:-

Now in this case, as it seems to me the reference to the claiman ''s'' claim and the respondents counterclaim and the itemisation of the 22 items under the claim and the counter claim is simply a convenient method adopted by the arbitrator of making clear the items in respect of which he was making or not making an award. It is simply an indication that in respect of the matters which were referred to him in detail he has in fact taken them into account in considering the evidence and in considering his final award.

We may refer to the decision reported in (1963) 1 Q.E. 201 (Giacomo Costa Fu Andrea v.. British Italian Trading Co. Ltd). Lord Diplock considered in this case ( (1963) 1 Q.B. 201) all the important case in regard to incorporation of the document. This was a case where an umpire''s award was incorporated by reference in the award of the arbitrator. The court held that "the mere reference to the contract in the umpire''s award did not incorporate the contract so as to entitle the court to read it as part of the award and so find an error of law on the face of the award; whether a contract was so incorporated in an award was a question of construction and intention, and a general reference to the contract in that part of the award dealing with consequence of the finding of fact, without any reference to the contractual provisions from which the finding flowed, was insufficient to incorporate the contract in an award". Reference was made to the dicta of Lord Dunedin Champsey Bhara & Co. v. Jivraj Balloo Spinning and Weaving Co. Ltd. (1923) A. C. 480 and of Denning L.J. in Blaiber & Co. Ltd. v. Leopold Newborne (London) Ltd. (1953) 2 Lloyd''s Rep. 427 and also F.R. Absalom Ltd. v. Great Western (London) Garden Village Society Ltd. (1953) A. C. 592. Lord Diplock said: "I would strongly deprecate any suggestion that awards made by commercial arbitrators have to be examined with a toothcomb to make sure that they have used exactly correct technical legal terms of art". It has to be noted in this case (1963) 1 Q.B. 201) that referring to the three cases where the court deemed it fit to refer to the contract Lord Diplock said thus:

This case seems to me to be far away from either. Absalom''s case or the Landauer case or the Arcos case. The principle of reading contracts or other documents into the award is not, in my judgment, one to be encouraged or extended, and in my view we are not entitled in this court, on an award where there is a purely general reference to "the contract"- and a reference only in that part of the award which deals with the consequences of the finding of fact to look at the contract and search it in order to see whether there is an error of law.

In the case at hand, we feel that there are two hurdles. First we have to say that the arbitrator has referred the pleadings so as to incorporate them into the award, and futher we have to say that after the finding that the arbitrator so refers to the pleadings as to incorporate them into the award we are bound not only to look at the pleadings, but also bound to look into the contract not only some terms or clauses in the contract, but the whole contract. Certainly there is no reference to any particular clause of the contract as the basis of the award in what is alleged to be a pleading incorporate in the award according to counsel for the appellant and what according to counsel for the respondent only a narrative, that preceded the actual award,

Now we shall refer to certain decisions of the Supreme. Court on this point. In Allen Berry and Co. Pvt. Ltd. Vs. The Union of India (UOI), New Delhi, , the Supreme Court has quoted the dictum laid down in AIR 1923 66 (Privy Council) .

An error in law on the face of the award means,--that you can find in the award or a document actually incorporated thereto, as for instance, a note appended by the arbitrator stating the reasons for his judgment, some legal proposition which is the basis of the award and which you can then say is erroneous. It does not mean that if in a narrative a reference is made to a contention of one party that opens the door to seeing first what that contention is, and then going to the contract on which the parties'' rights depend to see if that contention is sound.

Counsel for the respondent submitted that in the award in question, there" is only a narrative as to the contentions of the parties and it is not correct to say that the award contains reference to pleadings much less reference to the contract or any clause in the contract.

In N. Chellappan Vs. Secretary, Kerala State Electricity Board and Another, , the Supreme Court has said thus:--

From the findings of the umpire under this head it is not seen that these claims were barred by limitation. No mistake of law appears on the face of the award. The umpire as sole arbitrator was not bound to give a reasoned award and if in passing the award be makes a mistake of law or of fact, that is no ground for challenging the validity of the award. It is only when a proposition of law is stated in the award and which is the basis of the award,'' and that is erroneous, can the award be set aside or remitted on the ground of error of law apparent on the face of the record.

Quoting Russell, Mathew, J. said: "Where an arbitrator makes a mistake either in law or in fact in determining the matters referred, but such mistake does not appear on the face of the award, the award is good notwithstanding the mistake, and will not be remitted or set aside. The general rule is that, as the parties choose their own arbitrator to be the Judge in the disputes between them, they cannot, when the award is good on its face, object to his decision, either upon the law or the facts". It has to be remembered that the court has no jurisdiction to investigate in merits of the case to find out whether or not the arbitrator has committed an error of law. Such a case will not come under the principle that an award can be set aside finding an error of law on the face of the award.

In Hindustan Tea Co. Vs. K. Sashikant Co. and Another, the award challenged was a reasoned one. The court said that even in a reasoned award it is not open to challenge on the ground that the arbitrator has reached a wrong conclusion or has failed to appreciate facts and further said that where the award which was a reasoned one was challenged on the ground that the arbitrator acted contrary to the provisions of section 70 of the Contract Act, even then the same could not be set aside. Again in a speaking award, the Supreme Court has held in Municipal Corporation of Delhi Vs. Jagan Nath Ashok Kumar and Another, that "reasonableness of the reasons in a speaking award is not justifiable under Article 136 of the Constitution".

In State of Orissa and Others Vs. Lall Brothers, Sabyasachi Mukharji, J. as he then was plainly said that "An award may be set aside by the court on the ground of error on the face of the award, but an award is not invalid merely because by a process of inference and argument it may be dempstrated that the arbitrator has committed same mistake in arriving at his conclusion". And that "It is not open to the court to speculate, where no reasons are given by the arbitrator, as to what impelled him to arrive at his conclusions". Counsel for the respondent submitted relying on this decision that it is impossible for this court without a process of inference on the basis of the argument advanced by counsel for the appellant to investigate whether the arbitrator has committed a mistake in arriving at his conclusion. Further he submitted that no reason is stated in awarding the amount of Rs. 6,73,000/- under claim No. 4 by the arbitrator and so this Court has to speculate the reason or reasons which compelled the arbitrator to arrive at his conclusion that the respondent is entitled to Rs. 6,73,000/-. We feel that this submission is legally right.

Counsel for the respondent submitted that even if we accept the whole argument of counsel for the appellant that there is an error of construction of certain clauses of the contract and that result ''in passing an award under claim No. 4 that itself will not be sufficient to set aside the award. To support this submission, he referred us to AIR 1989 SC 268 (U.P. Hotels etc. v. U.P. State Electricity Board) wherein the Supreme Court observed that "Even assuming that there was an error of construction of the agreement or even that there was an error of law in arriving at a conclusion, such an error is not an error which is amenable to correction even in a reasoned award under the law. In order to set aside an award, there must be a wrong proposition of law laid down in the award as the basis of the award". Counsel for the respondent submits that it is impossible to see in the award a statement of proposition of law to support the award Rs. 6,73,000/- under claim No. 4. We hold that the submission made by counsel for the respondent is valid and correct in law.

Counsel for the respondent referred as to the case reported in AIR 1989 SC 890 (M/s. Sudarsan Trading Co. v. The Government of Kerala and another) and submitted that this case is a complete answer to the question raised by counsel for the appellant. In this case (AIR 1989 SC 890) also there was a statement of the history of the case and the contentions raised by the parties. It was possible for the parties to contend that the arbitrator has incorporated as contended in the case at hand the pleadings, since there was an exhaustive statement of the rival contentions of the parties. The Supreme Court considered those aspects and said that "It is not open to the court to probe the mental process of the arbitrator and speculate, where no reasons are given by the arbitrator, as to what impelled the arbitrator to arrive at his conclusion. In the instant case the arbitrator has merely set out the claims and given the history of the claims and then awarded certain amount. He has not spoken his mind indicating why he has done what he has done; he has narrated only how he came to make the award. In the absence of any reasons ior making the award, it is not open to the court to interfere with the award. Further more, in any event, reasonableness of the reasons given by the arbitrator, cannot be challenged. Appraisement of evidence by the arbitrator is never a matter which the court questions and considers. If the parties have selected their own forum, 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 the quantity of evidence and it will not be for the court to take upon itself the task of being a judge on the evidence before the arbitrator." This Court in the judgment in State of Kerala v. Poulose (1987 (1) KLT 781) held that if an arbitrator or the umpire travels beyond his jurisdiction and arrogates jurisdiction that does not vest in him, that would be a ground to impeach the award and it is possible to impeach such an award even if it is a non-speaking award. This Court also said that if an arbitrator, even in a non-speaking award decides contrary to the basic features of the contract, that would vitiate the award. The Supreme Court Commented in paragraph 32 of the judgment in AIR 1989 SC 890 thus :

It may be mentioned that in so far as the decision given that it was possible for the court to construe the terms of the contract to come to a conclusion whether an award made by the arbitrator was possible to be made or not, in our opinion, this is not a correct proposition in law and the several decisions relied by the learned Judge in support of that proposition do not support this proposition. Once there is no dispute as to the contract, what is the interpretation of that contract is a matter for the arbitrator and on which court cannot substitute its own decision.

In paragraph 6 of the decision (AIR 1989 SC 890) the Supreme Court has adverted to in detail the contentions of the respondents. But the Supreme Court considered the statement of contentions only as a narrative, which cannot be taken as an incorporation of the pleadings like the incorporation of a document in an award. The decision also referred to the counter claims stated by the arbitrator and did not consider the statement of contentions and the counter claims as pleadings referred by the arbitrator as to incorporate them into the award so as enable; that the court may look at it.

We may now also refer to 1982 KLJ 236 (Alwaye Municipality v. K. A. Kochunni & Company and others). A Division Bench of this Court said that "An error of law on the face of the award means that we can find in the award or document actually incorporated or accompanying it some legal proposition which on its consideration could be said to be erroneous. This exception cannot be extended to a mere narrative in the award. (Emphasis added) To put it differently, mere narration of materials in general terms in an award without particularising any document or any piece of evidence- will not permit an investigation into the terms of the contract or other materials placed before the arbitrator to discover whether there is any error on the face of the award. Similarly, where the terms of the contract are stated in the award for the only purpose to earmark the origin of the disputes which had arisen between the parties, it Would be impermissible to hold that the arbitrator had incorporated in the award any material for his conclusion which would be an invitation for others to consider such materials to test whether there is an error apparent on the face of the award. On a consideration of the various aspects of the matter in the light of the decided cases, we feel that what is said to be the incorporation of pleadings by counsel for the appellant is only a mere narration of certain material facts, in general terms as an introduction to the actual award. We cannot consider that part of the award as part of the pleading and even if we feel that they form part of the pleadings, it is difficult for us to say that the arbitrator so refers to them as to incorporate them into the award, so that they may be looked at by the court. We see no error of law apparent of the face of the award.

In the result, the appeal is only to be dismissed. We do so. No order as to costs.