Priya Holdings Co. (P) Ltd. vs Auto General Engineering Co.
2001 Latest Caselaw 1945 Del

JUDGMENT

V.S. Aggarwal. J.

1. In pursuance of the arbitrator having filed the award and the proceedings notices had been issued to the parties. Objections have been preferred by the objector (Auto General Engineering co.) which are being contested.

2. The relevant facts are that on 29th September, 1983 an agreement was entered into between the parties. The objector entered into an agreement for sale with the applicant (Priya Holdings Pvt. Ltd.) for sale of the total recoveries of the ship CAPT COASTAS E. Material terms of the agreement were:-

"That the material terms and conditions of the Agreement are set out hereinafter :-

(i) Liability to pay customs duty was that of the objector;

(ii) The objector was to give irrevocable authority to a sister concern of the petitioner, namely, M/s Hindustan Ship Breakers (hereinafter referred to as 'Hindustan'), enabling it to take deliveries of the scrap of ship breaking;

(iii) The liability of payment of sales-tax and other levies and charges, if nay, on the scrap of the ship was exclusively of the petitioner;

(iv) The consideration for selling the entire scrap and any other material whatsoever of the ship was Rs. 62,00,000/-. of which Rs. 6,00,000/- was paid on signing of the Agreement, Rs. 46,00,000/- (Rupees Forty six lacs only) was payable on the starting of the dismantling work; and the balance sum of Rs. 10,00,000/- was payable within 90 days from the start of dismantling work. For the said sum of Rs. 10,00,000/- the petitioner was to establish an unconditional irremovable and without Recourse Internal Letter of Credit/Letter of Guarantee to the benefit of the objector through a Schedule Bank."

3. Shri B K Gupta had signed the agreement on behalf of the applicant because Hindustan was sister concern of the applicant. In pursuance of the agreement the following considerations had been paid:

(i) Rs. 6,00,000/- by cheque dated 29.9.1983 drawn on Corporation Bank;

(ii) Rs. 45,00,000/- by Demand Draft dated 7.11.1983 drawn on Corporation Bank;

(iii) Rs. 10,77,500/- by Cheque dated 7.11.1983 drawn Corporation Bank.

4. The case of the complainant was that respondent had prepared a number of invoices for sale of the recoveries of the ship. It was necessary to prepare such invoices because the sale of the recoveries was subject to payment of sales tax in the State of Gujarat. The rate of the sales tax depending on the type of scrap sold. One of the invoices dated 29th December, 1983 was with respect to the crane in question. It was described as one number mobile crane powered by internal combustion engine. The price of the crane was appearing from the invoice to be Rs. 9,70,720/-. The sales tax was 7% "C" Tax was 3% and surcharge 1% bringing the total to Rs. 10,77,500/-. The claimant is alleged to have paid the said amount vide cheque of 7th November, 1983. The claimants assertions was that it did not get the possession of the crane because it was detained by the custom authorities. The respondent had declared the value of the crane to be only Rs. 50,000/-. The crane was stated to have still not been cleared. The applicant claimed Rs. 10,77,500/- as the price of the crane with interest.

5. As is apparent from the award, claim and the pleadings the respondents plea was that single indivisible consideration for sale of Rs. 62 lakhs, pricing of parts of recoveries separately was commercially not feasible and physically impossible. Only one invoice was issued which was the one annexed in the counter statement. All other invoices in the statement of claim of he claimant were alleged to be false. It was pleaded that payment of sales tax is the germane in the context of the dispute. Regarding the sum of Rs. 10,77,500/- purported to have been paid by cheque respondents assertion was that on payment of Rs. 6 lakh on 29th September, 1983 and further sum of Rs. 45 lakhs on 7th November, 1983 there was a balance of Rs. 11 lakhs. The claimant offered to pay the balance amount of Rs. 11 lakhs much prior to the stipulated dated provided a discount of Rs. 22,500/- was given. It was accepted and therefore the payment of Rs. 10,77,500/- was made.

6. The learned arbitrator had gone into the material on the record and concluded that claimant is entitled to recover from the objector a sum of Rs. 10,77,500/-. Keeping in view the decision of the Supreme Court in the case of Executive Engineer Irrigation v. Abaaduta Jena 1987(2) SCALE 675 *** the interest as such had not been awarded.

7. Objections as such have been filed alleging that the applicant at all time knew that the dispute raised by the custom authorities was that crane was not required for operation of the ship as per conditions laid down in various Import Trade Control Regulations and Circulars. The applicant knew that there was no question of mis declaration of the true value of the ship. It was further alleged that the applicant did not produce Shri Vijay Prakash Garg who was the Assistant Branch Manager of the objector. He was not produced and adverse inferences could well have been drawn. Even Shri B K Gupta of Hindustan was not examined. It is reiterated in the form of objections that it was a single indivisible contract and consideration was Rs. 62 lakhs. Ship CAPT COSTAS E given, the arbitrator is alleged to have ignored the material evidence i.e. the letter of the applicant dated 8th June, 1984 being the notice issued to the objector claiming Rs. 16,99,500/- which clearly stated in great details particulars of the disputes between the parties. From the said document it is patent that the claim of the applicant/claimants could not succeed. Furthermore it is asserted that the arbitrator was in error in concluding that the objector could have raised the objections regarding the invoice being forged in the High Court. It has been pointed that the said invoice in controversy has not been produced and that the arbitrator was totally in error in concluding that Rs. 10,77,500/- was due. In the reply filed the contentions of the objector have been controverter.

8. The short question as already referred to above is as to whether the award is liable to be set aside in terms that the findings of the arbitrator are erroneous. The principle of law in this regard are not much in controversy. Reference can well be made to some of the precedents on the subject. A Division Bench of this court had considered this question in the case of Delhi Development Authority v. Alkaram, New Delhi AIR 1982 Delhi 364. It was reiterated that the arbitrator is the final Judge of fact. The court is bound by the findings of fact and cannot review the same unless they are totally not supported by evidence or there was no evidence in support of the findings. It is not open to the court to examine the adequacy of evidence which led the arbitrator to record his findings. The error must be apparent on the face of the record.

9. In the case of Associated Engineering Co. v. Govt. of Andhra Pradesh Supreme Court was also concerned with the question as to what would be an error apparent on the face of the record.

10. The Supreme Court in this regard after scanning through various precedents on the subject also held that :

"If the arbitrator commits an error in the construction of the contract, that is an error within his jurisdiction. But if he wanders outside the contract and deals with matters not allotted to him, he commits a jurisdictional error. Such error going to his jurisdiction can be established by looking into material outside the award. Extrinsic evidence is admissible in such cases because the dispute is not something which arises under or in relation to the contract or dependent on the construction of the contract or to be determined within the award. The dispute as to jurisdiction is a matter which is outside the award or outside whatever may be said about it in the award. The ambiguity of the award can, in such cases, be resolved by admitting extrinsic evidence. The rationale of this rule is that the nature of the dispute is something which has to be determined outside and independent of what appears in the award. Such jurisdictional error needs to be proved by evidence extrinsic to the award."

11. Yet in another decision rendered in the case of Steel Authority of India Ltd. v. J C Budharaja. Government and Mining Contractor .

The same principle of law was reiterated and was held:

"Further, the Arbitration Act does not give any power to the arbitrator to act arbitrarily or capriciously. His existence depends upon the agreement and his function is to act within the limits of the said agreement. In continental Construction Col Ltd. v. State of MP this court considered the clauses of the contract which stipulated that the contractor had to compete charges at the rates stipulated in the contract Despite this, the arbitrator partly allowed the contractor's claim. That was set aside by the court and the appeal filed against that was dismissed by this court by holding that it was jot open to the contractor to claim extra costs towards raise in prices of material and labour and that the arbitrator misconducted himself in not deciding the specific objection regarding the legality of the extra claim. In that case the court referred to the various decisions and succinctly observed: (SCC p. 88, para 5)

"If no specific question of law is referred, the decision of the arbitrator on that question is not final however much it may be within his jurisdiction and indeed essential for him to decide the question incidentally. The arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks is just and reasonable. The arbitrator is a tribunal selected by the parties to decided their disputes according to laws and so is bound to flow and apply the law, and if he does not he can be set right by the court provided his error appears on the face of the award."

12. Similar was the findings recorded by the Supreme Court in the case of Arosan Enterprises Ltd. v. Union of India and Anr. wherein in paragraphs 36 and 37 the principle of law as to when the court would be justified in interfering the award was re-stated:

36. Be if noted that by reason of a long catena of cases, it is now a well settled principle of law that reappraisal of evidence by the Court is not permissible and as a matter of fact exercise of power by the Court to reappraise the evidence is unknown to a proceeding under Section 30 of the Arbitration Act. In the event of there being no reasons in the award, question of interference of the Court would not arise at all. In the event, however, there are reasons, the interference would still be not available within the jurisdiction of the Court unless of course, there exist a total perversity in the award or the judgment is based on a wrong proposition of law: In the event however two views are possible on a question of law as well, the Court would not be justified in interfering with the award.

37. The common phraseology "error apparent on the face of the record" does not itself, however, mean and imply closer scrutiny of the merits of the documents and materials on record. The court as a matter of fact, cannot substitute its evaluation and come to the conclusion that the arbitrator had acted contrary to the bargain between the parties. If the view of the arbitrator is possible view the award or the reasoning contained therein cannot be examined. ....

13. More recently the Supreme Court in the case of Sikkim Subba Associates v. State of Sikkim also held that if there are two views possible or plausible views then it is legitimate that the arbitrator to accept one or the other and also for the court not to interfere. The Supreme Court held:

"If there are two equally possible or plausible views or interpretations, it was considered to be legitimate for the arbitrator to accept one or the other of the available interpretations. It would be difficult for the courts to either exhaustively define the word "misconduct" or likewise enumerate the line of cases in which alone interference either could or could not be made. Courts of law have a duty and obligation in order to maintain purity of standards and preserve full faith and credit as well as to inspire confidence in alternate dispute redressal method of arbitration, when on the face of the award it is shown to be based upon a proposition of law which is unsound or findings recorded which are absurd or so unreasonable and irrational that no reasonable or right-thinking person or authority could have reasonably come to such a conclusion on the basis of the materials on record or the governing position of law to interfere. So far as the case before us is concerned, the reference to the arbitrator is found to be a general reference to adjudicate upon the disputes relating to the alleged termination of the agreement by the State and not a specific reference on any particular question and consequently, if it is shown or substantiated to be erroneous on the face of it, the award must be set aside.'

14. The principle therefore can conveniently be stated to be that regarding findings of fact the arbitrator is the final authority. The court will not re-appraise the evidence or come to a different conclusion. If the order is without jurisdiction or it travels beyond the contract on basis of which the arbitrator has been appointed in that case only the court would be justified in interference. If there are erroneous decision not based on any evidence or no reasonable person can come to such a finding the court can indeed interfere and it can well be stated in that event to be a legal misconduct.

15. In the present case the arbitrator has looked into the evidence and the reasons that prompted the arbitrator to give the award in question were that the price of the crane as appearing from the invoice annexed to the statement of claim was Rs. 9,77,500/- besides sales tax and C tax. The arbitrator found that the objector had not dispute this sum. It was further found that invoice of 29th December, 1993 was a genuine document and that the affidavit that was filed on behalf of the objector in this court in OMP 106/84 and is 6129/84 there was no allegation that the said invoice was fabricated or a forged document. The arbitrator found that now the same could not be assailed. The arbitrator had further recorded that the applicant had raised a loan on hypothecation of the crane expecting that it would be delivered shortly and therefore the invoice was a genuine document and lastly that objector had received on 7th November, 1983 Rs. 10,77,500/- as the price of the crane.

16. According to the learned counsel, Shri Garg was an employee of the objector was to be produced as a witness but the applicant later on did not produce him before the arbitrator and he went on to urge that forgery has been committed in connivance with the said Shri Garg. When a person intends to examine a witness and does not examine him there can be many reasons. Necessarily it does not imply that adverse inference should be drawn against him. Shri Garg was an employee of the objector though it is being stated that he was instrumental in forging the invoice in question but no action was taken against Shri Garg by the objector. When no action as such is being taken against such a person indeed the obvious is clear that such a contention cannot be accepted.

17. In that event it had been urged that objector was allotted ship CAPT COSTAS E by Metal Scrap Trading Corporation. The ship was not even within the shores of India and because of the said fact the objector had no physical means to verify the exact contents of the ship. He further contended that the petitioner had not produced before the High Court invoice in question and therefore question of disputing the same to be a forged one did not arise. The learned counsel further had a grievance that the arbitrator was in error in recording that Rs. 10,775 lakhs were paid by the petitioner towards the value of the crane. So far as these contentions are concerned indeed the evidence is not to be re-appraised. Except for the argument that the invoice has not been produced before this court and therefore the question of objecting to the validity of the same other pleas required re-appraisal of evidence. As already pointed out above the re-appraisal of evidence will not be permissible because in the present case as had been noticed above from the resume of facts the arbitrator has considered the evidence and recorded a finding. Even if two views are possible this court will not interfere. There was invoices that were more than one and the position as set up by the arbitrator therefore could hardly be described to be erroneous. There was not evidence led by the objector that the invoices in question on basis of which the amount was held to be due were forged. The invoices ran into series. Keeping in view the same the findings are obvious that this court will not interfere in findings of the arbitrator.

18. For these reasons the objections are dismissed. The award is made a rule of the court and decree in terms of the award is passed. The applicant would be entitled to interest on the principle amount from the date of the award till the final payment is made.