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Lakshmanan, J.—O.P. No. 530 of 1989 was filed under S.14(2) of the Arbitration Act (hereinafter referred to as ""the Act""), by the
Arbitrator Mr. S. Kannan, to receive the award on file and issue notice of filing the award to the respondents, viz., Raj Corporation and Rajathi
Carbide Industries Private Limited, Karaikal. O.P. No. 584 of 1989 was filed by the first respondent in O.P. No. 530 of 1989 under S.30 of the
Act against M/s. Rajathi Carbide Industries Private Limited, Karaikal, to set aside the award dated 12.10.1989 made by the Arbitrator Mr. S.
Kannan, Retired District and Sessions Judge, and Advocate in C.S. No. 520 of 1988 (A.A.) on the file this Court.
The facts in brief are as under:- M/s. Raj Corporation is carrying on business at Pudupet, Madras. M/s. Rajathi Carbide Industries Private
Limited, Karaikal, is carrying on business at karaikal. The Arbitrator was directed by this Court to arbitrate the dispute between the parties in
respect of the arbitration agreement on 27.1.1988. The parties to the proceedings have filed their statement of claims, reply statement and the
rejoinder. The defendant in the suit has also filed independent statement of claim for which the plaintiff has filed a reply statement. The defendant
has also filed a typed set of documents as Annexure I and typed papers regarding the various proceedings in the suit as Annexure II. A partner of
the plaintiff in C.S. No. 520 of 1988 has examined himself as P.W. 1 before the Arbitrator. One S. Kumaralingam was examined as P.W. 2.
Exhibits A1 to A4 were marked on the plaintiffs side. The Works Manager in the concern of the defendant was examined himself as D.W.1.
Exhibits B1 B76 were marked by consent.
Before the Arbitrator Mr. G.V.S. Iyer appeared on behalf of the plaintiff and Mr. K. Yamunan appeared on behalf of the defendant. The
defendant firm is having its factory for the manufacture of Calcium Carbide at Suralgudi village, Thirunallar in Karaikal. The petitioner and the first
respondent in O.P. No. 584 of 1989 entered into an agreement on 27.1.1988, vide Ex. B1. By the aforesaid agreement the first respondent
appointed the petitioner as their Marketing agents for marketing the product of calcium carbide sold by them to the plaintiff. The Arbitrator in his
Award, has clearly extracted the essential terms of the agreement. The agreement was for a period of one year from 1.2.1988 to 31.1.1989. In
pursuance of the aforesaid agreement, the petitioner paid to the respondent on 27.1.1988, Rs. 1,50,000/- by draft and Rs. 50,000/- by cheque
towards advance of Rs. 2,00,000/- payable by him. It is seen from the records that the cheque given by the petitioner was not honoured. Ex. B5
which is the Bank intimation regarding the same by the Bunk. Subsequently on 8.2.1988 the petitioner paid cash of Rs. 50,000/- to the respondent
under Ex. B6 which fact has been admitted by the respondent in his statement (sic) claim. Thereafter the respondent despatched the first load of 10
tonnes on 15.2.1988. The petitioner has paid the value of this consignment within time. The respondent then supplied the second load 10 tonnes on
19.3.1988 and on 18.4.1988 the third load of 10 tonnes was supplied by the respondent to the petitioner. The petitioner failed to pay the value of
the aforesaid two loads within the time stipulated. Since payment was not made, the respondent stopped supplying further consignments to the
petitioner. The plea of the respondent is that quality goods duly tested by the petitioner'' representative were alone despatched. Though as per the
agreement the petitioner has to pay (sic) further sum of Rs. 1,00,000/- towards advance, (sic) the first week of April, 1988, he did not pay the
same. At this stage, on 28.4.1988, the petitioner filed a suit in C.S. No. 520 of 1988 and also got an ad interim ex parte injunction order in
Application No. 2312 of 1988. By that order the respondent was restrained until further orders from selling calcium carbide of any quality or
quantity to anybody in the market. The respondent appeared through counsel and filed Application No. 2456 of 1988 for vacating the order of
injunction. On the basis of the interim arrangement agreed to by both parties consent order was passed on 17.5.1988. By the consent order, the
petitioner agreed to pay the cost of two loads, namely loads 2 and 3 within 20 days from that date. The respondent also agreed to supply four
loads to the petitioner during the period from 20.5.1988 to 20.6.1988, on the basis that payment for each load must be made by the petitioner
within seven days of intimation of despatch of each load. The parties also agreed to take directions from the court regarding further supply after
20.6.1988. Thus, it is seen that as per the consent order, the petitioner has to pay the value of the two loads before 7.6.1988. But he had chosen
to send a cheque dated 6.6.1988 for Rs. 1,27,500/- with a covering letter, marked is Ex. B26. Since on a prior occasion the cheque issued by the
petitioner has bounced the respondent was not willing to accept payment by cheque. Therefore, they sent a telegram to that effect and also sent a
letter dated 10.6.1988 returning the cheque issued by the petitioner and requested the petitioner to pay either by cash or by D.D. Thereafter only
on 15.6.1988 as per Ex. B.30 letter, the petitioner had sent a draft for Rs. 1,27,500/-. As per consent order the respondent has to supply four
loads during the period 20.5.1988 and 20.6.1988. According to the respondent since the payment for the two loads was not received as per the
terms of the consent order they could send only on 20.6.1988 the then available 8 tonnes of calcium carbide. On 20.6.1988 itself the respondent
filed Application No. 2823 of 1988 requesting this Court to grant further time of six weeks for supply of the balance of the goods as per the
consent order. In the meanwhile, on 21.6.1988 the petitioner filed Contempt Application No. 189/1988, on the ground that in violation of the
consent order dated 17.5.1988 the respondent without supplying to the petitioner the agreed quantity of calcium carbide has been supplying the
same to several other persons. The respondent has filed his counter to the aforesaid Application and opposed the Application for extension of
time. All the petitions were then pending. Apart from the Application mentioned above, the petitioner also filed Application No. 3895 of 1988
praying for a direction to the respondent to supply to the petitioner the calcium carbide due as per agreement and consent order and also to
restrain the respondent by an injunction from selling calcium carbide to any other party without first supplying to the petitioner the quantities due.
For the fourth load of 8 tonnes supplied by the respondent on 20.6.1988 the petitioner had again chosen to send a cheque for the value of the
consignment under Ex. B37. The respondent on 30.6.1988 returned the cheque and requested the petitioner to make the payment either in cash or
D.D. Thereafter only on 5.7.1988 with the covering letter Ex. B39, the petitioner has sent the draft. After receiving the draft for the value of the 4th
load the respondent has despatched the fifth load of 10 tonnes of 12.8.1988. For the 5th load the petitioner has paid on time the value by Demand
Draft with the covering letter Ex. B52 dated 19.8.1988. According to the respondent even for the 6th load, the payment was not made on time.
The petitioner on 21.9.1988, after unilaterally deducting Rs. 2607.89 for the alleged bad quality of the goods, has sent the Demand Draft for the
balance of Rs. 61,142.11. The respondent accepted the draft without prejudice. However, it was pointed out that the deduction of Rs. 2607.89
was not justified. The petitioner was insisting on the respondent to make further supplies. The respondent sent the 7th load of 12 tonnes on
5.12.1988. Even for this load, the petitioner did not pay within seven days and the payment was made only on 24.1.1989. Even at that time the
petitioner unilaterally deducted Rs. 14,981-25 and has sent Demand Draft for the balance of Rs. 61,518-75. When matters stood thus, the
Contempt Application filed by the petitioner was disposed of by this Court on 31.3.1989 on the basis of a joint endorsement made by the parties.
The Contempt Application was dismissed as unnecessary in view of the joint endorsement made by the parties. Thereafter, the respondent had
supplied three loads, viz. 8th 9th and 10th load, during the months of April, May and June, 1989 and the price of the same has been adjusted out
of the advance of Rs. 2 lakhs available with the respondent. On 13.6.1989 this Court appointed Mr. Kannan as Arbitrator and by the same order
dismissed all the pending applications, as unnecessary.
Before the Arbitrator, the following points were raised for determination;
(1) Who has committed breach of agreement dated 27.1.1988 marked as Ex. B1?.
(2) Has it been made out that the quality and packing of the goods supplied as loads 2, 3, 4, 6 and 7 were bad and not according to the
specifications stipulated in the agreement?
(3) Is the plaintiff justified in deducting Rs. 2607.89 in respect of the 6th load for alleged bad quality?
(4) Is the plaintiff entitled to deduct Rs. 14,981.25 in respect of the 7th load for alleged bad quality?
(5) If, on point No. 1 it is found that the plaintiff has committed breach of the contract is the defendant entitled to rescind the contract and contend
that he cannot be called upon to supply the balance of 500 tonnes of calcium carbide?
(6) Is the plaintiff entitled to get Rs. 12,65,000/- as damages as claimed in his statement of claim besides the cost of the proceedings from the
defendant?
(7) Is the defendant entitled to get Rs. 20,000/- from the plaintiff as expenses incurred in defending the suit and all connected proceedings?
(8) What is the proper award that can be passed in this case?
The Arbitrator on the question as to who has committed breach of the contract, on a consideration of the entire materials on record and the
evidence adduced by both parties came to the conclusion that the petitioner in O.P. 584/89 has miserably failed to prove, even with regard to the
third load that the quality and the packing were bad and therefore, he was justified in not paying the price on lime. The Arbitrator in paragraph 26
of his Award held as follows:
There is considerable force in the contention that deliberately wrong facts have been averred in the affidavit with a view to get an order of
injunction from the Court. It is difficult to accept the plea that by mistake a wrong statement was made in the affidavit filed before the High Court.
A business man like P.W. 1 cannot be heard to state so.
In paragraph 30, the Arbitrator again held as follows:
The defendant who has not received the value of the goods supplied as early as 19.3.1988 and 18.4.1988 till 15.6.1988 cannot be reasonably
expected to comply with his obligation to deliver 4 loads during the period 20.5.1988 to 20.6.1988 as per the terms of the consent order. There
are no merits in the contention that the supply by the defendant is not dependent upon the payment to be made by the plaintiff.
Again the Arbitrator held as follows:
The plaintiff ought to have paid the value of load No. 4 within the time stipulated. On the contrary the plaintiff has purposely again sent a cheque
dated 28.6.1988 along with his letter Ex. B37 to the Defendant. The Defendant has immediately by his letter dated 30.6.1988 (Ex. B38) returned
the cheque and has asked the plaintiff to send a draft or pay in cash. This conduct of the plaintiff in sending again a cheque is, to say the least,
totally unfair. Only subsequently on 5.7.1988 along with Ex. B.39 letter the plaintiff has sent the D.D. Therefore, even in respect of load No. 4, the
plaintiff has failed to act up to the terms of the contract.
The Arbitrator again held on the testimony of P.W. 1 as follows:
Therefore, no credence can be attached to the testimony of P.W. 2 that he signed the records without testing the quality.
Apart from the above unsatisfactory oral evidence the plaintiff has not adduced any acceptable evidence for showing that the quality of the 6th load
was bad. Letters Al to A3 can in no way help the plaintiff. As admitted by P.W. 1 these letters do not show that the complaint was regarding the
quality in respect of calcium carbide supplied by the defendant. Thus the facts proved show that the plaintiff has committed breach of the contract
in not paying the amount due for the 6th load on time.
Again in paragraph 38 of his Award, the Arbitrator on a consideration of the entire materials placed before him, held as follows:
Thus the plaintiff has miserably failed to show that the 7th load supplied by the defendant was of bad quality or that it was not properly packed.
Therefore, the plaintiff is at fault in not sending the money for this load as stipulated. The plaintiff has thus committed breach of the contract and
also of the terms of the consent order.
It is very relevant to note the findings of the Arbitrator in paragraph 39 of his Award.
Thus my discussion will reveal the following:
(1) The plaintiff has committed default in not paying the advance of Rs. 50,000/- on time.
(2) The plaintiff has not paid the balance of Rs. 1 lakh towards advance by the first week of April, 1988.
(3) The plaintiff has filed this suit on 28.4.1988 by false alleging in his affidavit that Rs. 3 lakhs has been paid toward advance (when only two lakhs
had been paid) and by suppressing the fact of non-payment of the value of loads 2 and 3
(4) The plaintiff has miserably failed to prove that the quality and packing of the goods supplied by the defendant were bad. (There is no complaint
of bad quality in respect on loads 1, 4 and 5).
(5) The plaintiff has failed to pay the amount on time for loads 2, 3, 4, 6 and 7.
(6) The plaintiff has not fully paid the value of the loads and 7.
(7) The defendant has delayed sending the 2nd load and he must have sent at least 4 loads earlier to load No. 2 and after the despatch of load No.
The plaintiff who is the promisee in respect of acceptance of goods sent has not chosen the rescind the contract nor has he chosen to claim
compensation for delayed supply at the appropriate time. The plaintiff has also not adduced any evidence to award any compensation to him
(assuming that he could have so claimed for delayed supply).
In view of the above, the Arbitrator held that the petitioner has committed breach of contract On point No. 2 the Arbitrator held that the petitioner
has failed to show that the quality and packing of the goods supplied as loads 2, 3, 4, 6 and 7 were bad.
On issue, Nos. 3 and 4, the Arbitrator found those points against the petitioner. On point No. 5, the Arbitrator has in paragraphs 42 to 48,
answered the point in favour of the respondent. He said that there are absolutely no merits in the contention that the respondent has to supply the
balance of 500 tonnes at the rate of Rs. 6375/- per tonne to the petitioner who is guilty of having committed the breach of the contract. In this
context, I must say the Arbitrator has elaborately considered the points placed before him and after considering the relevant provisions under S. 38
of the Sale of Goods Act and the arguments by both parties, he came to the conclusion that the respondent is entitled to rescind the contract and
cannot be called upon to supply the balance of 500 tonnes of calcium carbide. Likewise, the Arbitrator on a consideration of the entire materials
placed before him came to the conclusion that the plaintiff is not entitled to Rs. 12,65,000/- as damages as claimed a his statement of claim besides
costs of the arbitration proceedings, from the respondent. The reasons given by the arbitrator in his award (sic) convincing and cannot be assailed
on the part of the petitioner. Hence I confirm the finding of the arbitrator on the said point.
Point No. 7 relates to claim of Rs. 20,000/- by the respondent as damages for the expenses incurred in the arbitration proceedings and other
connected proceedings. The arbitrator has rejected the said claim holding that the respondent has not placed any material to substantiate the said
claim. That finding is confirmed. However, the arbitrator on point No. 8 passed the award in favour of the respondent in the following terms:
The plaintiff shall refund to the defendant the sum of Rs. 2607.89 and Rs. 14,981.25 deducted him for the alleged bad quality and packing of
goods in respect of loads 6 and 7.
The defendant shall pay to the plaintiff Rs. 10,109.25 as damages and also refund the excess sum of Rs. 8750/- with them with interest at 15%
per annum from this date (date of award) till date of payment as per finding on point No. 6
The defendant is entitled to adjust the amount payable by the plaintiff to him as per clause No. 1 above and pay only the balance payable as per
clause No. 2.
No other right or claim subsists between the parties in respect of the agreement Ex. B1
In the circumstances of the case the parties will bear their respective costs in this suit and in all the connected proceedings including this
Arbitration Proceedings
This Award is challenged by the petitioner in O.P. No. 584 of 1989. Mr. T. Chengalvarayan. Senior Advocate, reiterated the contentions raised
by the petitioner in the Original Petition and advanced elaborate arguments on the said points. According to the Learned Counsel, the arbitrator
has committed the error on the face of the record as summarised in the said Original Petition.
In support of his contention Mr. T. Chengalvarayan, Senior Advocate, has also placed strong reliance only on the decisions reported in
Mersey Steel and Iron Co. v. Naylor, Benzon & Co. 1884 9 Appeal Cases Vol. IX, 434 (House of Lards and Privy Council and Decro-wall
International v. Practitioners in Marketing Limited 1971 (2) All England Law Reporter 216 and certain provisions in the Law of Contract, sixth
Edition by Cheshire and Fifoot. Mr. K. Yamunan said that this Court has no jurisdiction to sit in appeal against the Award and also cited many
Supreme Court decisions on the point.
Mr. K. Yamunan, Learned Counsel appearing on behalf of the respondent placed strong reliance on the following decisions reported in.
a) U.P. Hotels and Others Vs. U.P. State Electricity Board, in which the Supreme Court held as follows:-
Held, that the view taken by the Umpire on S.49 was a possible view in the light of the decision of the Supreme Court. In the premises, a question
of law arose certainly during the course of the proceedings. Such a question has been decided by the Umpire on a view which was a possible one
to take. Even if there was no specific reference of a question of law referred to the Umpire, there was a question of law involved. Even on the
assumption that such a view was not right, the award was not amenable to interference or correction by the courts of law as there was proposition
of law which could be said to be the basis of the award of the Umpire and which was erroneous.
b) Puri Construction Pvt. Ltd. Vs. Union of India (UOI), in which the Supreme Court held as follows:
When a court is called upon to decide the objections raised by a party against an arbitration award, the jurisdiction of the court is limited, as
expressly indicated in the Act, and it has no jurisdiction to sit in appeal and examine the correctness of the award on merits.
c) Food Corporation of India Vs. M/s. Veshno Rice Millers, n which the Supreme Court held as follows:
An arbitrator''s award may be set aside for error of law appearing on the face of it, though this jurisdiction is not to be lightly exercise, the award
can also be set aside if, inter alia, the arbitrator has misconducted himself or the proceedings. It is difficult to give an exhaustive definition as to what
may amount to a misconduct on the part of the arbitrator. 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.
The Supreme Court further held, this Court cannot sit in appeal over the views of the arbitrator by re-examining and re-assessing the materials and
that even if an arbitrator to give an erroneous decision, it is not misconduct on his part, whether his error is one on fact or law and whether or not
his findings on facts are supported by evidence.
d) Municipal Corporation of Delhi Vs. Jagan Nath Ashok Kumar and Another, in which the Supreme Court held as follows:
The reasonableness of the reasons given by an arbitrator in making his award cannot be challenged in a Special Leave Petition. In the instant case,
there was no evidence of violation of any principle of natural justice. 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 is no ground
for selling aside the award of an arbitrator.
e) M/s. Om Parkash Baldev Krishan v. Union of India AIR 1984 Delhi 342 in which a Division Bench of Delhi High Court held as follows:
The question of construction of contract, generally speaking, is question of law. An arbitrator is a domestic tribunal appointed by the parties. His
decisions, right or wrong, are binding on the parties. An erroneous decision by him on a question of law does not vitiate the award unless the error
appears on the face of the award. It is seen from the above judgment that the decision of the arbitrator which is a domestic tribunal appointed by
the parties, are binding on the parties, whether right or wrong. An erroneous decision by him on a question of law does not vitiate the award unless
the error appears on the face of the award. In the instant case, the Learned Counsel for the petitioner was not in a position to point out any error
apparent on the face of the award. He was also not in a position to convince the Court that the arbitrator has misconducted himself and the
proceedings as alleged by them in the Original Petition.
I have been taken through the entire pleadings and the documents filed before the Arbitrator, inviting my attention the entire set of pleadings
and the documents filed by the respective parties they have addressed the arguments in support of their contentions.
In the instant case, the award passed by the arbitrator is not only a reasoned one, but also elaborate and detailed. It is well settled that in the
absence of mistake of law or of fact apparent on the face of the record, the Award of the Arbitrator is not open to challenge by any party. I do not
find any error apparent on the face of the record warranting interference with the award in question. In State of Orissa Vs. Dandasi Sahu, the
Supreme Court held as follows;
It is well-settled that when the parties choose their own arbitrator to be the judge in dispute between them, they cannot, when the award is good
on the face of it, object to the decision either upon law or on facts. Therefore, when arbitrator commits a mistake, either in law or in fact, in
determining the matters referred to him, where such mistake does not appear on the face of the award and the documents appended to or
incorporated so as to form part of it, the award will neither be remitted nor set aside.
In Hindustan Tea Co. v. K. Sashikant Co. 1986 1986 (supp.) S.C.C. 506 the Supreme Court has held as follows:
The award is reasoned one. The objections which have been raised against the Award are such that they cannot indeed be taken into consideration
within the limited ambit of challenge admissible under the scheme of the Arbitration Act. Under the law, the Arbitrator is made the final arbiter of
the dispute between the parties. The award is not open to challenge on the ground that the Arbitrator has reached a wrong conclusion or has failed
to appreciate facts.
In Chinnasamy v. Superintending Engineer 1989-2-M.L.J. 415 Nainar Sundaram and Bellie, JJ. have held that it is not the function of the court to
scrutinise the award on merits as if it is sitting in appeal on the verdict of the arbitrator. Applying the above ruling and the rulings in plethora of
decisions of the highest Court of the land and the highest Court of the State it is not possible to interfere with the award of the arbitrator. In my
considered opinion, it does not suffer from any error apparent on the face of the record. I have no jurisdiction to deal judicially with the merits of
the case determined by the arbitrator. It is not my function to scrutinise the award on merits as if I am sitting in appeal on the verdict of the
arbitrator. There is no scope for me to invoke the aid of S. 30 of the act for setting aside the award in question. As I see no cause to interfere with
the award or any of the mailers referred to arbitration for reconsideration, or to set aside the award, a definite and a positive result must follow,
and that is set out by the statute in S. 17. Under these circumstances, I have no other option except to pronounce the judgment according to the
award.
In view of the above decision of the Supreme Court I am unable to interfere with the Award passed by the arbitrator. The arbitrator, as stated
above, has formulated eight points for his decision on the basis of claims made by both parties. The Arbitrator has given an elaborate and reasoned
award running into 36 pages. The arbitrator who is a retired District & Sessions Judge, has taken great pains to formulate the points and
considered the respective rival submissions of both parties, and then passed the reasoned award by giving cogent and convincing reasons. Rarely I
come across such an Award. In my view, it is ""The Best Award"". I confirm the Award in its entirely respectfully following the Supreme Court
decisions cited supra. The two English decisions cited by the petitioner are not referred because of overwhelming and plethora of decisions of our
highest Court of the land available on the subject. In the result, O.P. No. 584 of 1989 is dismissed. In view of the order passed in O.P. No. 584
of 1980, no further orders are necessary in. O.P. No. 530 of 1989. However, there will be no order as to costs. There will be decree in terms of
the Award.