B.K. Vashisht vs East International Ltd. And Anr.
2001 Latest Caselaw 1557 Del

JUDGMENT

V.S. Aggarwal, J.

1. This is a petition filed under Section 14 and 17 of the Arbitration Act, 1940 seeking filing of the award and for making it a rule of the court. In pursuance of the same notices had been issued and objections have been filed by the respondent under Section 30 and 33 of the Arbitration Act, 1940 (for short the Act). It has been asserted that the arbitrator had committed an error in not awarding the claim of the objectors towards load port claims and acted contrary to the terms of the charter party relating to load port laytime calculations. By not accepting the load port laytime calculations of the objectors the arbitrators travelled beyond the scope of the charter party and acted against the terms of the contract between the parties. Similarly it is asserted that they committed an error apparent in not awarding the claim of the charterers towards discharge port claims relating to discharge port laytime calculations. They committed grave error in awarding the claim of the vessel owners for demurrage at discharge and thus acted beyond the terms of the contract. They made a miscalculation of the demurrage at the discharge port between their revised time-sheet and laytime calculation. Plea has also been raised that the arbitrators erroneously awarded interest from 29.5.1990 to the date of the award when the vessel owners have no right to claim the same in view the charter party terms. The arbitrator even failed to follow the principles laid down by the Supreme Court by not providing for exchange rate of conversion of the present award which is in a foreign currency.

2. Notice was issued and the claimants/applicants contested the objections. It was alleged and pleaded that objections are barred by time. The objectors have not pointed any irregularity which would vitiate the award and therefore they are meritless. It is denied that arbitrator committed an error in not awarding the claim of the objectors towards load port claims. It is also denied that the arbitrators misconducted themselves by not accepting the claims of the objector with regard to discharge port laytime or that they misunderstood the proceedings by awarding the claim of the vessel owner for demurrage at discharge port in contravention of the charter party provisions.

3 During the course of arguments the plea that the objections were time barred as such had not been pressed. The short question that came up for consideration was as to whether the arbitrators have misconducted themselves or not. In this regard before proceedings further one can refer to the award of the arbitrators. The objectors had charted the claimants vessel for carriage of wheat from USA to India. The cargo was loaded at the port of Portland and discharged at the port of Tuticorin in East Coast of India. Under Clause 17(b) of the charter party 90% of the freight was payable by the charters within seven days upon arrival of the ship and cargo at the discharge port in India. The balance 10% freight together with demurrage, if any, and the adjustment of dispatch was payable within 120 days of completion of discharge. The objector paid US $ 8, 24,470.27 to the applicant towards 90% of the freight. The disputes arose and the petitioners/claimants had their 10% freight bill showing the balance due as US $ 1,17,968.87 from the objectors. In the meantime, the objectors had realised US$ 63,873.74 towards 10% freight. The case of the claimants was that vessel had incurred load port demurrage amount to US $ 10, 031.25 and incurred discharged port demurrage amounting to US $ 13,218.75. After adjustment of the demurrage commission at 3.75% claimants/applicant had laid the claim referred to above. They received US $ 63873.74 and the claim is for the balance. It is the balance amount which is in dispute besides the interest. The objectors made a counter statement stated that they have to pay demurrage for DHM 3.00.59 amounting to US $ 9122.92 at load port and entitled to get discharge port dispatch for DHM-3-15-26 amounting to US $ 5464.88. While arriving at discharge port dispatch objectors A.W.H. formula for calculating the allowable laytime. The arbitrators recorded their award and with respect to the formula to be adopted, it was held:

"Clause 15(a) & (b) of the Charter Party provides that cargo " to be discharged by the stevedore free of risk and expenses to the vessel on an average rate of 1500 tonnes per day basis 5 or more available workable hatch ...vessel can deliver at this rate". The per day discharge rate indicated in the Charter Party is applicable to the entire Bill of Lading Quantities for calculation of allowable laytime. If the intention of the respondents was to calculate the laytime on the basis of minimum/maximum quantity of cargo stored in the holds/hatches, it would have been so incorporated unambiguously in the Charter Party agreement. Since it was not clearly specified in the Charter Party agreement, the calculation of allowable laytime with reference to minimum/maximum quantities stored in holdes/hatches is not in accordance with the terms of the Charter Party agreement. Therefore, the Respondents erred in calculations laytime by adopting AWH Principle at the discharge port."

4. It must further held that the shifting of the vessel i.e. 5.9.88 before the expiry of laytime will not count for laytime. However the objectors claim for deduction of 10 minutes on 14.9.1988 was disallowed. The vessel was recorded to have initially been nominated at the port of Mangalore. In order to avoid vessel being kept idle due to waiting the claimants had approached the objectors for diverting the vessel to Tuticorin port on certain conditions. There was no objection to divert the vessel to new Tuticorin port subject to the condition that waiting time at Mangalore suffered by the vessel was not to be counted up to the vessel sales from new Tuticorin Port. The arbitrators recorded that claimants without making any alterations or additions had accepted the terms of the respondents and the claim to that effect, therefore was not accepted. The objectors claim for overtime charges had also not been accepted. With these basic findings the claimants were held entitled to refund of a sum of US $ 37600.81 besides interest at the rate of 11% p.a. from 25th September, 1990 till the date of the award.

5. On behalf of the petitioners it had been urged that since it is an award given by a domestic tribunal therefore, it cannot be set aside because re-evaluation of the evidence and finding is not permitted in law. The learned counsel for the claimant relied upon the decision of the Supreme Court in the case of State of Orissa & Anr. v. Kalinga Construction Co. (P) Ltd. . The Supreme court concluded that on conclusions of facts valuation of the evidence would only be permissible if there is an error apparent on the face of the record and not otherwise. The same view had been expressed by the Supreme Court in the case of Maharaj Dhiranj Himmatsinghji & Ors. v. State of Rajasthan & Anr. . The Supreme court in this regard had held:

"The Award is reasoned one. The objections which have been raised against the Aware 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. Strong reliance was placed by the appellant's learned counsel on an old Madras decision in Yogambal Boyee Ammani Ammal v. Naina Pillai Markayar (1909) 2nd 33 Mad 15. In our view, on the facts of this case challenge to the Award is not permissible by taking the stand that the Arbitrator acted contrary to the provisions of S.70 of the Contract Act. In these premises the objection filed to the Award has to be rejected. We direct the Award to be made a rule of the Court."

6. Identical are the findings in the case of Gujarat Water Supply and Sewerage Board v. Unique Erectors (Gujrat) (P) Ltd. & Anr. (1989) 1 SCC 531. It was concluded and held authoritatively that reasonableness of the award cannot be put to judicial review. When the parties have agreed and proceeded on basis that arbitrator should decide claimwise and meritwise then the arbitrator would be competent to go into the facts and the findings would be binding. The arbitrators award would only be set aside if it is erroneous or there is an error apparent on the face of the record. The scope of interference by the court had been mentioned in paragraph 9 which is being reproduced below for the sake of facility:

"The Scope and extent of examination by the Court of the award made by an arbitrator has been laid down in various decisions. It has to be noted that there is a trend in modern times that reasons should be stated in the award though the question whether the reasons are necessary in ordinary arbitration awards between the parties is pending adjudication by the Constitution Bench of this Court. Even, however, if it be held that it is obligatory for the arbitrator to state reasons, it is not obligatory to give any detailed judgment, an award of an arbitrator should be read reasonably as a whole to find out the implication indications of the grounds should be discernible to find out the mind of the arbitrator for his action even if it be enjoined that in all cases of award by any arbitrator reasons have to be stated. The reasons should not only be intelligible but should also deal either expressly or impliedly with the substantial points that have been raised. Even in a case where the arbitrator has to state reasons, the sufficiency of the reasons depends upon the facts and the circumstances of the case. The Court, however, does not sit in appeal over the award and review the reasons. The court can set aside the award only if it is apparent from the award that there is no evidence to support the conclusion or if the award if based upon any legal proposition which is erroneous. See the observations of this Court in India Oil Corporation Ltd. v. India Carbon Ltd."

7. This was explained further by the Supreme Court in the case of Food Corporation of India v. Joginderpal Mohinderpal & Anr. . it was held that even if there is an erroneous conclusion the same would not be taken to be a ground that the arbitrator has misconducted itself. The Supreme Court went on to hold that no precise definition can be given as to what would be misconduct on the part of the arbitrator. More recently the Supreme Court in the case of Indu Engineering & Textiles Ltd. v. DDA 92 (2001) DLT 485 (SC) referred to the scope of interference by the court with award passed by the arbitrator and held that the scope is limited. The three grounds for setting aside of the award were mentioned to be that the arbitrator has misconducted himself; that the arbitrator has been made after issue of an order by the court superseding the arbitration or that it has been improperly procured. The Supreme court thereafter concluded as to what normally could be the grounds for interference by the court and held that some of the well recognised grounds are:

"(1) Violation of principle of natural justice in passing the award;

(2) Error apparent on the face of the award;

(3) The arbitrator has ignored or deliberately violated a clause in the agreement prohibiting dispute of the nature entertained;

(4) The award on the face of it is based on a proposition of law which is erroneous, etc."

8. Indeed this principle had never been disputed even by the objectors learned counsel. It is well settled that arbitrator is a tribunal or a person appointed to decide the dispute. Since the parties had already agreed in this regard normally the findings of the arbitrator would be binding on the parties. The court would not scrutinise the evidence as if it was an appeal being heard. A wrong conclusion even would be binding on the parties unless it is vitiated on the grounds of fraud or misconduct of the arbitrator. As referred to above, it is difficult to precisely the describe exhaustively as to what would be a misconduct. Normally it would be a misconduct if there is an error apparent on the face of the award or there is violation of the principles of natural justice. As referred to above, in the case of Indu Engineering (supra) however the arbitrator has ignored or violated the clause in the agreement then the courts indeed can interfere. To the same effect is the decision of the Supreme Court in the case of State of UP v. Ram Nath International Construction (P) Ltd. . While the Supreme Court concluded that it is not open to the court to attempt to probe the mental process by which the arbitrator has reached his conclusion still it was held that the arbitrator is a creation of an agreement itself. He is duty bound to enforce the terms of the agreement and cannot adjudicate a matter beyond the agreement itself. It is open to the court to examine those clauses of the agreement and find out the correctness and conclusion of the arbitrator with respect to those clauses.

9. It is this particular fact which is being highlighted by the objectors. It is claimed that the arbitrator has ignored the terms of the agreement and there is an error apparent on the face of the record. It is in this backdrop that court has to see if the conclusion of the arbitrator in this regard are correct or not.

10. As has already been reproduced above clause 15 (a) and (b) of the Charter Party provided that "cargo to be discharged by stevedore free of risk and expenses to the vessel on an average rate of 1500 Tonnes per day basis 5 or more available workable hatch ..." It has been highlighted that this is an error apparent on the face of the record.

11. What is laytime has been explained by Michael Brymore Summerskill in his book "Laytime" Summerskill (fourth edition) in the following words:

"LAYTIME is the time during a shop is lying, for the purpose of loading or discharging, as distinct from moving, with the object of carrying her cargo from one place to another. Lord Esher M R once said:

"There must be a stipulation as to the time to be occupied in the loading and in the loading of the cargo. There must be a time, either expressly stipulated, or implied. If it is not expressly stipulated, then it is a reasonable time which is implied by law: but either the law or the parties fix a time, during which, although the ship is at t he disposal of the charter to load or to unload the cargo he does not pay for the use of ship. That is the meaning of lay days."

It is the duty of the shipowners to make their shop available to the charterers at the agreed place; it is the duty of the charters to make the cargo available and to bring it to the shop."

12. In other words broadly speaking laytime is the time during which shop is lying for the purpose of loading or discharge, as distinct from moving, with the object of carrying her cargo from one place to another. Reference with advantage can well be made to the decision of Sandgate (owners v. W S Partridge & Co. (1929) Vol 35 Lloyd's List Law Reports Page 9 and the subsequent decision of the Queen's Bench in the case of Compania De Navigacion Zita S A v. Louis Dreyfus & Oie. (1953) Vol. 2 Lloyd's List Law Reports Page 472. In the case of Compania De Navigacion (supra) the clause pertaining to the calculation of lay days was:

"Cargo to be loaded and stowed free of expense to owners at an average rate of not less than 150 metric tons per available workable hatch per weather working day (Sundays and Holidays excepted) provided vessel can receive at this rate...

13. The question for determination was as to how the said clause lay time had to be calculated. It was held that a fairer and more accurate method of fixing lay time is to fix a daily rate of loading. The clause instead of providing simply for a rate per day provides rate per hatch per day. If all the holds were of equal capacity this refinement would be unnecessary thereupon the court held:

"It is common ground that the word "workable" is intended to describe the state of a hatch that can still be worked because its hold is not yet full; see Sandgate (owners) v. W S Partridge & Co. (1929) 35 L1. L. Rep. 9. By this means the daily rate is reduced by 150 as each hold is filled. It follows, however, that if all goes smoothly and all the hatches are "available" - that is, there is nothing to prevent their being used - the time taken to load the shop will be the time taken to load the largest hold. So the charters say that the calculation required by Clause 5 can be conveniently expressed by saying that you get the lay time by dividing by 150 the largest quantity of cargo loaded in any one hold. For this they have the authority of Mr. Justice Hill in the Sandgate, where he says, at p. 13:

I suppose worked out most accurately you would take these several quantities [-that is, the quantity in each hold-] and start with 500 and go on reducing to 375 [-the rate in that case was 125 tons per working hatch per day], reducing to 250 and finally to 125; but you get exactly the same result, and the shipowner would have no difficulty in doing the arithmetic; if he took the quantity in the hold which contains the largest quantity and divided that by 125, them that would give you the period in which the discharge had to be carried out, and you would them take into account Sundays and holidays."

14. Almost identical was the subsequent decision of the Queen Bench in the case of Cargil Inc. v. Rionda De Pass Ltd. (1982) Vol 2 Lloy's Law Reports P 577. The words therein used in the charter party was:

"150 metric tons per workable hatch and pro rata with maximum 750 metric tons per weather working day, Saturday, Sundays and holidays excluded even if used...."

15. The answer provided was:

"...On the proper application of the clause in this form the time permitted for loading is governed by the quantity of cargo loaded into the hold into which the greatest quantity of cargo is loaded. On present figures the permitted loading time would therefore be calculated by dividing 2054 tonnes loaded into hold 2 by 150 tonnes, the contractual quantity per workable hatch per day, giving a time of 13.69 days or 13 days, 16 hours and 38 minutes"

16. Reverting back to the facts of the present case it is obvious that the charger party provided almost identical agreement which seems to be common in such like matters. Taking stock of the ratio decidendi of these decisions it is clear that lay time had to be calculated on basis of minimum/maximum quantity of cargo in the hatches. The laytime had to be calculated by adopting AWH principle at the discharge port. The arbitrators therefore had gone beyond the terms of the contract and consequently to that extent this court would interfere. The objections on that count must succeed.

17. For these reasons the objections are allowed and the award is set aside. It is remitted back to the arbitrators to calculate afresh in terms of what has been recorded above as to if any amount is still due to the applicant or not. In case the arbitrators are not available new arbitrators can well be appointed. Parties are left to bear their own costs.