Oswal Woollen Mills Ltd. vs Oswal Agro Mills Ltd.
2013 Latest Caselaw 4820 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI
                                             Reserved on: 05.08.2013
                                           Pronounced on: 22.10.2013

+      FAO (OS) 211/2007, C.M. NO. 16579/2008 (for release of
amounts), 16580/2008 (for exemption) & 4443/2009 (for recording
of statement)
       OSWAL WOOLLEN MILLS LTD.              ..... Appellants
                       Through: Sh. Pramod. B. Agarwala, Mr.
                       Prashant Mehra and Mr. Apoorv Garg,
                       Advocates.

                          Versus

       OSWAL AGRO MILLS LTD.
                                                  ..... Respondents

Through: Mr. Rakesh Tiku, Sr. Advocate with Mr. Prakash Gautam and Mr. Vivek Ojha, Advocates.

CORAM:

HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE NAJMI WAZIRI

MR. JUSTICE S. RAVINDRA BHAT %

1. The present appeal is directed against the judgment and order of a learned Single Judge dated 17.04.2007 dismissing the appellant's challenge to an award preferred under Sections 30 and 33 of the Arbitration Act, 1940.

2. The brief facts are that on 30.03.1982, the Appellant - Oswal Woollen Mills Ltd. (hereinafter referred to as "Oswal Woollen") entered into an agreement with the Respondent herein Oswal Agro

FAO (OS) 211/07 Page 1 Mills Ltd. (hereinafter referred to as "Oswal Agro"). In terms of the agreement, Oswal Woollen appointed Oswal Agro as its agent under the Import Export Procedure Handbook 1981-82 for advising, assisting and guiding it (Oswal Woollen) to import material under REP Licences issued in its favour. The goods to be imported were Crude Palm Kernal Oil (CPKO). Oswal Woollen had 9 REP licenses for an aggregate CIF value of `1,85,95,100/-. In terms of Clause 4 of the agreement, Oswal Agro was to be paid a remuneration of 5% of the CIF value of the goods imported along with all cost and expenditure incurred for import of the material.

3. The agreement was followed by another agreement dated 13.09.1982 in terms of which the parties agreed that the material imported by Oswal Agro under the REP licenses (on behalf of Oswal Woollen) was be sold to Oswal Agro after Oswal Woollen processed oil at its factory premises. The oil after processing would be Palm Kernal Oil. The sale price of the processed oil by Oswal Agro was agreed to be the actual reimbursement of the landed cost of the imported oil plus 25% of CIF value of the imported material towards manufacturing charges.

4. Later some disputes arose between the Oswal Woollen and Oswal Agro with respect to the arrangement between the parties. As out of the total value of materials to be imported under the licenses, Oswal Woollen made available licenses to Oswal Agro of the value of `1,16,00,800/-. Thus, material value of CIF value of `69,94,300/- could not be imported by the Oswal Agro in the absence of the REP licenses for that value. Oswal Agro claimed losses on account of

FAO (OS) 211/07 Page 2 breach of contracts. These claims included:

(a) the amount of remuneration of Oswal Agro of 5% under the agreement dated 30.03.1982,

(b) loss of profit which Oswal Agro based on what it would have gained by the sale of the balance of un-imported oil on account of non-supply of the REP licenses.

(c) A third claim was also laid on account of cost of short supply of the oil after processing by the Oswal Woollen apart from the claim of interest.

5. Oswal Woollen disputed the aforesaid claims and, on the other hand, lodged counter claims against Oswal Agro on account of sale value of semi-refined oil, share / loss of profit and interest. This Court by its order dated 18.07.1991 referred the disputes to two arbitrators on the petitions filed under Section 20 of the Indian Arbitration Act, 1940 (hereinafter referred to as the Act) by both the parties. The two Arbitrators, who ultimately heard the matter, could not agree to a common award; therefore the matter was referred to the Umpire, Justice Charanjit Talwar (Retd.).

6. A letter was sent on behalf of Oswal Woollen on 21.05.1999 to the Umpire enclosing a copy of a Petition under Section 5 of the Act, 1940 and other provisions which had been moved on behalf of Oswal Woollen before this Court. The petition requested for de novo proceedings before the Umpire, inter alia, because:

"XXXXXX XXXXXX XXXXXX

6.4 In the submission of the Petitioner in view of the above the proceedings have to start de novo. It is

FAO (OS) 211/07 Page 3 significant to note that the first Respondent confronted with the question as to the date of the breach reduced its claim from Rs.28,000 per MT to Rs.14,500 per MT XXXXXX XXXXXX XXXXXX".

7. By the letter dated 24.05.1999 from Oswal Woollen to the Umpire, it was said that its counsel had objected to the fixing of the matter for hearing arguments because the case should have been heard de novo for various reasons. Later, on 12.01.2000 another letter was sent by Oswal Woollen to the Umpire which stated that:

"XXXXXX XXXXXX XXXXXX

While dealing with your above communication, the authenticity of which is not clear, I draw your attention to my letter dated 24.5.1999 whereby I had in reply to your order dated 22.5.1999 interalia recorded that the case should be heard de novo for various reasons. This request was not granted and you passed the order fixing the matter for arguments.

XXXXXX XXXXXX XXXXXX"

8. On 31.01.2000 application for de novo hearing was filed by Oswal Woollen before the Umpire. Oswal Agro replied to the application and opposed it. The Umpire by order dated 31.01.2000 dismissed Oswal Woollen application for de novo hearing inter alia, holding as follows:

"XXXXXX XXXXXX XXXXXX

......................I have heard learned counsel for the claimant and gone through the application. In my considered view, the Arbitrators or the Umpires have no jurisdiction to direct de novo proceedings as has been

FAO (OS) 211/07 Page 4 sought in the present case because that would mean directing the parties to file fresh pleadings and fresh evidence. The respondent wants me to hold as if the matter had not been heard at all earlier and further that the entire trial stands vitiated.

That plea is untenable. However, I am required to go through the entire record and evaluate the evidence afresh and give my findings without being influenced by the reasons stated by the Arbitrators. To that extent as an Umpire, I have proceeded de novo. I have gone through the record; I have heard the counsel for the claimant at length and I am prepared to hear the counsel for the respondent.

XXXXXX XXXXXX XXXXXX"

9. The Umpire made and published his award dated 21.02.2000. In its terms an amount of `64,65,782/- was awarded to Oswal Agro with interest @18% per annum from 01.11.1991 till date of realization and costs.

10. Oswal Woollen filed objections to the award before this Court under Sections 30 & 33 of the Act. By the impugned judgment dated 17.04.2007, the Single Judge substantially rejected the objections and made the award rule of the Court with slight modifications. Hence the present appeal is filed.

Findings of the Single Judge

11. By the impugned order, the learned Single Judge rejected the contention that in the absence of de novo proceedings the award was liable to be set aside. The appellant's contentions were rejected; it was held that:

FAO (OS) 211/07                                              Page 5
        "XXXXXX            XXXXXX                   XXXXXX

18. On consideration of the arbitral award, I am of the view that the respondent has failed to satisfy that there was any serious endeavour for getting the evidence again recorded before the Umpire and, thus, it is a case of waiver by conduct. It is trite to say that in view of the aforesaid legal principles enunciated and discussed, the proceedings before the Umpire have to begin de novo. This will be despite the fact that the same evidence had already been adduced before the arbitrators. The Umpire cannot refuse to hear the witness again and if on request of a party to do so, fails to do so, the award would be bad for misconduct. This legal principle is, however, qualified by the principles of waiver by conduct of parties. The respondent participated in the arbitration proceedings and made no application to the Umpire for re-hearing the evidence. The reliance really placed is in an application filed under Section 5 of the said Act before the High Court of Delhi, a copy of which was placed before the Umpire. The dispute related to quantum of fee. If the respondent was serious in its endeavour that it should get an opportunity to get the evidence recorded afresh, an application could easily have been filed. It is only from oblique references that the respondent seeks to derive such an intent. The commentary of S.D.Singh relied upon by the learned counsel for the respondent itself provides that where a party seeking to impeach an award made no application to the Umpire for re-hearing of the evidence, the same would generally operate as a waiver by conduct. This aspect is clearly an afterthought which arose during the culmination of the proceedings before the Umpire. The respondent refused to extend time for making the award and simultaneously was not conducting the hearing which was expedited by the Umpire. The respondent at no stage applied for all or any of the evidence to be recorded afresh. It must thus be held that the respondent

FAO (OS) 211/07 Page 6 waived the right by conduct.

XXXXXX XXXXXX XXXXXX"

12. Dealing with the first claim made by Oswal Woollen, it was held that:

"XXXXXX XXXXXX XXXXXX

19. .....................Really speaking, no submission was advanced disputing this claim and, in fact, the submission of learned counsel for the respondent was that no other amount on account of any alleged loss could be granted to the petitioner in view of the provisions in the contract for 5% remuneration as calculated in terms of claim 1.

XXXXXX XXXXXX XXXXXX"

13. The Single Judge next dealt with the second claim, regarding loss of profits on account of non-supply of the balance processed oil and held that:

"XXXXXX XXXXXX XXXXXX

22. I am unable to accept the contention of the learned counsel of the respondent for the reason that the two agreements have to be read as a whole. In any case, the second agreement dated 13.9.1982 provided for processing and supply at pre-determined rates to the petitioner. The combined arrangement was that the petitioner would utilize the REP licenses for import on behalf of the respondent and earn a commission of 5% on the same. Thereafter the goods would be processed by the respondent and supplied to the petitioner and such sale would be at predetermined rates. Since part of the imports did not take place on account of failure of the respondent to give the REP licenses, the amount which

FAO (OS) 211/07 Page 7 the petitioner would have earned on further sale in the market certainly can be recovered from the petitioner.

XXXXXX XXXXXX XXXXXX"

As regard the award of damages on account of loss of profit, it was held that:

"25. Here again, on a consideration of the matter, I am unable to accept the plea of the learned counsel for the respondent. The claim of HLL has been taken as the basis to determine the price which would have been obtained by the petitioner from the material. It is not necessary that the petitioner should first obtain a supply order and then only be entitled to claim the damages. The basis of the damages is that once the goods would have come into the hands of the petitioner, they would have been sold at a particular market price. Indisputably, the balance quantity which was not supplied was 1965.21 MT and, thus, the damages have to be calculated on that account of supply.

XXXXXX XXXXXX XXXXXX

"29. .......No plea was raised and no evidence was adduced to substantiate that the basis of price fixation with HLL was inclusive of certain inputs which would not apply in case of delivery at a different place and, thus, certain elements are liable to be excluded......."

On the third claim on account of cost of short supply of the oil, the impugned judgment held that:

"XXXXXX XXXXXX XXXXXX

32. The premise of the aforesaid submission is that a process loss has to be taken into account. In my considered view, this plea of the respondent cannot be

FAO (OS) 211/07 Page 8 accepted since the agreement dated 13.9.1982 did not contain any such clause. A commercial contract was entered into by the parties. Both the parties would be aware whether there was any processing loss or not. If no such processing loss was envisaged, the same cannot be added. It has to be presumed that while structuring the prices, the parties agreed on the total quantity to be supplied Thus, the obligation was to supply an equivalent quantity irrespective of any alleged processing loss.

XXXXXX XXXXXX XXXXXX"

14. The counter-claim of Oswal Agro was dealt with in the following manner:

"36. ....... The counter-claim pleaded by learned counsel for the respondent of Rs.7,08,744/-- is based on the reply to the counter-claim by the petitioner. In fact, the plea of the petitioner, as stated above, was that the amounts were liable to be adjusted against the claims/damages suffered. No doubt this Court does not sit as a court of appeal, as stated above, but where a finding is capable of being derived on the admitted pleadings of the parties, the counter-claim to that extent ought not to have been rejected by the Umpire. In fact, as stated above, the real plea in respect of the counter-claim is only for this amount of Rs.7,08,744/- which, in my considered view, is liable to be allowed in favour of the respondent."

With regard to rate of interest, the impugned order held:

"41. In view of the aforesaid legal position, it cannot be doubted that the award of rate of interest of 18% per annum by the Umpire is without jurisdiction or was not permissible. In fact, the respondent itself claimed interest at such rate. I, however, deem it appropriate to confine the said rate of interest till the date of the award. Insofar as the period from the date of the award till the date of

FAO (OS) 211/07 Page 9 recovery is concerned, in view of the declining rate of interest, I deem it appropriate to award interest at 12% per annum simple interest on the principal amount."

Contentions of the Appellant

15. Oswal Woollen, arguing with respect to de novo proceedings, contends that the learned Single Judge fell into error in holding that evidence need not have been recorded afresh. It was argued that having held that the Umpire had to, in terms of the 1940 Act, conduct de novo proceedings, the Single Judge should not have brushed aside the argument about nullity of the entire proceeding and award, holding that Oswal Woollen had waived its right, or was estopped. Mr. Pramod. B. Agarwala, the learned counsel, submitted in this regard that even the conclusion about the Appellant having waived its right to seek de novo proceedings was premised on an erroneous appreciation of the record. The appellant's various letters, right from inception of the proceedings before the Umpire were testimony to its reservations about the legality of carriage of proceedings from the stage the arbitrators had developed a disagreement. Counsel submitted that at the first hearing before the Umpire on 24.04.1999 itself along with the letter of 21.05.1999 Oswal Woollen had made its intention known requiring de novo proceedings, and also referred to letter dated 24.05.1999 and Application dated 31.01.2000.

16. It was submitted that the oral evidence of Shri K.L. Jain could not be relied upon because when his deposition is read with the written statement filed by Oswal Agro in Hindustan Lever Ltd's suit, it discloses a total contradiction. He was also not produced for cross-

FAO (OS) 211/07 Page 10 examination. In case of such contradictions the Umpire should not have relied on the evidence of Shri K.L. Jain especially when Oswal Woollen had never consented to read the evidence of Shri K.L. Jain and had requested for de novo trial. Reliance on the same would amount to misconduct and error apparent. Counsel relied on Article 4 of Schedule I of the 1940 Act, to say that de novo proceedings are essential under the circumstances. The said provision reads as under:

"4. If the arbitrators have allowed their time to expire without making an award or have delivered to any party to the arbitration agreement or to the umpire a notice in writing stating that they cannot agree, the, umpire shall forthwith enter on the reference in lieu of the arbitrators"

Oswal Woollen also relied on Russel on Arbitration (21st Edition), to the effect that -

"Umpire's jurisdiction and duty with regard to evidence and the hearing.....................The umpire has a duty to hear the evidence of the parties and their witnesses, if application is made to him by either party, even if the same evidence has already been adduced before the arbitrators (but not the Umpire). The umpire may not take any part of the evidence from the notes of the arbitrators, unless the parties both agree............"

Likewise, the appellant relied on SD Singh's The Law of Arbitration, note 30, p. 358 as well as American Jurisprudence (2nd Edition, Vol.

5), in paragraph 123, which states that "hearing before the new appointee must be formed without benefit of former hearings." The judgment of the Mysore High Court in State of Mysore v. R.J. Shah &

FAO (OS) 211/07 Page 11 Co. Ltd. & Anr., AIR 1969 Mysore 237; the judgment of this Court in M/s. Magnum Films V. M/s. Golcha Properties, AIR 1986 Delhi 320, and that of the Madhya Pradesh High Court in State of Madhya Pradesh V. M/s Preconco, Indore, AIR 1987 MP 284 were also relied upon.

17. Arguing next with respect to Claim No. 1, i.e. grant of damages on account of 5% profits/commission for unimported or balance goods, it was contended that under the first agreement goods were to be imported and 5% commission was to be paid. At best Oswal Agro was entitled to 5 % commission on the short import. The second agreement was for processing the material imported and selling of the same at rates agreed. If there was no import there was no processing and therefore there could not be any sale of the material at the agreed price. Therefore, to award damages for the goods not processed and not delivered because the same were not imported under the first agreement is untenable. Claim for losses beyond the same could not be awarded under the said contract, as this would be being against the principles of Section 73 of the Contract Act.

18. In regard to the second claim, i.e. damages calculated at `2700/- PMT on 1965.21 MT of the quantity which could not be processed, it was argued that Oswal Woollen's obligation was only to process the imported material and deliver the same thereafter at agreed rates to Oswal Agro and, thus, it (i.e Oswal Woollen) could not be held liable beyond the quantity of material supplied. Since this claim arose out of non-utilization of REP licenses and the goods were never processed, no damages could be awarded on this account. It was

FAO (OS) 211/07 Page 12 contended that the award of damages for loss of profit at ` 2700/- PMT on 1965.21 MT suffers from an error apparent on the face of the award and, thus, even if such amount is payable, the very basis of such calculation is erroneous. The calculation is based on the debit note raised by HLL on the petitioner for non-delivery of supply. The debit note of HLL discloses the contracted value which could not be supplied as 1275.95 MT and not 1965.21 MT.

19. It was submitted that the application to bring on record the plaint in Suit No. 13/1986 filed by HLL against Oswal Agro in Bombay High Court was made in the 30th meeting after conclusion of evidence and submission of written arguments. Since pleadings and evidence were concluded even before the production of the document, there could not be any pleading on this in the written statement before the Arbitrators. Therefore, it is contended that the finding of the Single Judge is erroneous.

20. On Claim No. 3, i.e. damages for short supply of 300 MT processed oil, it was argued by counsel for Oswal Woollen that the relevant records in this behalf were not available on account of a fire in its factory. Therefore, an application was moved to examine an expert witness. The expert witness established that the process loss for converting from the crude form of oil was at least 5.25% and no evidence was produced by the petitioner to show a lesser loss. Thus, if the process loss is calculated on the total amount of delivery made, the shortfall would be much less.

Contentions of the Respondent

FAO (OS) 211/07 Page 13

21. It was argued on behalf of Oswal Agro that there was hardly any serious endeavor for getting evidence recorded again before the Umpire. This amounted to waiver by Oswal Woollen through its conduct. Further, it was contended that the plea is a mixed question of fact and law and cannot thus be agitated in Appellate Jurisdiction.

22. The respondent Oswal Agro relied upon an order dated 30.01.1997, where both the Arbitrators had unanimously declined the request of Oswal Woollen to summon Shri K.L. Jain for cross examination and had instead permitted the production of any other person conversant with the suit pending in the Bombay High Court and the transaction between Oswal Agro and Hindustan Lever Ltd. For this, Shri Vijay Gupta was produced. It was contended that the sum and substance of the highly belated application, dated 29.01.2000, by Oswal Woollen for commencing proceedings de novo, clearly shows that it was not asking for re-hearing of the evidence but was actually asking for review of the order of the two Arbitrators, dated 30.01.1997, for re-examination of Shri K.L. Jain. Following averment was relied upon:

"12. The Respondent submits that in the statement of facts and claims and in particularly in Exh.C-52 the Claimant had claimed the ruling price "as on the date of breach" at Rs.28,000/- per MT. In the Written Statement filed by them in Bombay Suit, which was also signed and verified by Shri K.L. Jain, it was submitted by the Claimant that at the date of the breach, the ruling price was Rs.14,500/- and that breach was committed on 26th September, 1983. The Claimant, however, did not stop here and, at the fag end of the hearing once again shifted their stand totally and made a total departure from their

FAO (OS) 211/07 Page 14 pleadings and evidence and contended that the breach was committed in May-June, 1983. The Applicant in view of the consistent change in stand and, production of the documents at late stage had no opportunity to file their pleadings or lead evidence on the matters that came into existencc as a result of constant shifting by the Claimant of their stand."

The order of the Umpire with respect to the application for de novo proceedings observes as follows:

"The submission that the proceedings be commenced de novo is, thus, based on the two facts noted above. This application is not for summoning of additional evidence or for amendment of pleadings or for fresh evidence. It seems to be the case of the applicant that the Arbitrators were wrong in permitting production of Shri Vijay Gupta and, thus, that order "renders the pleadings and the evidence recorded as totally beyond the actual state of facts and renders the same undependable. In the submission of the facts reading of the said pleadings and the evidence would be against the interest of justice and fair play" as per paragraph 13 of that application. It is apparent that the applicant is asking me to sit as an appellate authority to review the unanimous order of the Arbitrators as set out in paragraph 9 of the application and the earlier order passed on 8th January, 1997 permitting the applicant to produce such documents as they may desire."

(emphasis added)

23. It was submitted that the judgment in R.J. Shah (supra) relied on by the Oswal Woollen was neither apt in the circumstances of this case nor does it support the contention of the appellant. In that case, at preliminary stage itself a disagreement between the Arbitrators had occurred and matter was referred to an Umpire.

FAO (OS) 211/07 Page 15

24. Dealing next with the claims, Learned Senior Counsel, Shri Rakesh Tiku, for the Respondent relied upon the some judgments to submit that the Court does not have the jurisdiction to delve into the question of whether a particular amount was liable to be paid by construing the contract in a particular matter. The Court cannot substitute its opinion over the arbitrator. The Court should not interfere with a plausible view taken by the arbitrator. The judgment in M/s. Ravindra Kumar Gupta & Co. v. Union of India, Civil Appeal No. 8019/2009 arising out of SLP(C) No. 3755 of 2008

"13. The law with regard to scope and ambit of the jurisdiction of the courts to interfere with an arbitration award has been settled in a catena of judgments of this Court. We may make a reference here only to some of the judgments. In the case of State of Rajasthan vs. Puri Construction Company Limited. and Anothers. (1994) 6 SCC 485, this Court observed as follows:

"The arbitrator is the final arbiter for the dispute between the parties and it is not open to challenge the award on the ground that the arbitrator has drawn his own conclusion or has failed to appreciate the facts. In Sudarsan Trading Co. v. Govt. of Kerala 1989 Indlaw SC 463 it has been held by this Court that there is a distinction between disputes as to the jurisdiction of the arbitrator and the disputes as to in what way that jurisdiction should be exercised. There may be a conflict as to the power of the arbitrator to grant a particular remedy. One has to determine the distinction between an error within the jurisdiction and an error in excess of the jurisdiction. Court cannot substitute its own evaluation of the conclusion of law or fact to come to the conclusion that the arbitrator had acted contrary to the bargain between the parties. Whether a particular amount was liable to be paid is a decision within the competency of

FAO (OS) 211/07 Page 16 the arbitrator. By purporting to construe the contract the court cannot take upon itself the burden of saying that this was contrary to the contract and as such beyond jurisdiction. If on a view taken of a contract, the decision of the arbitrator on certain amounts awarded is a possible view though perhaps not the only correct view, the award cannot be examined by the court. Where the reasons have been given by the arbitrator in making the award the court cannot examine the reasonableness of the reasons. If the parties have selected their own forum, the deciding forum must be conceded the power of appraisement of 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. In the case of Municipal Corpn. Of Delhi v. Jagan Nath Ashok Kumar 1987(4) SCC 497, it has been held by this Court that appraisement of evidence by the arbitrator is ordinarily never a matter which the court questions and considers. It may be possible that on the same evidence the court may arrive at a different conclusion than the one arrived at by the arbitrator but that by itself is no ground for setting aside the award. It has also been held in the said decision that it is difficult to give an exact definition of the word `reasonable'. Reason varies in its conclusions according to the idiosyncrasies of the individual and the time and circumstances in which he thinks. In cases not covered by authority, the verdict of a jury or the decision of a judge sitting as a jury usually determines what is `reasonable' in each particular case. The word reasonable has in law prima facie meaning of reasonable in regard to those circumstances of which the actor, called on to act reasonably knows or ought to know. An arbitrator acting as a judge has to exercise a discretion informed by tradition, methodized by analogy disciplined by system and subordinated to the primordial necessity or order in the social life. Therefore, where reasons germane and relevant for the arbitrator to hold

FAO (OS) 211/07 Page 17 in the manner he did, have been indicated, it cannot be said that the reasons are unreasonable."

Similar views expressed in Bihar Sponge Iron Ltd. (BSIL) v. Rail India Technical & Economic Services Ltd. (RITES), 132 (2006) DLT 489 and DDA v. Wee Aar Constructive Builders & Anr., FAO(OS) 10/1992. It is therefore, contended that this court should desist from interfering with the impugned judgment and order.

25. As to the first question which the appellant agitates in these proceedings, i.e. the unsustainability of the award under challenge, on the ground that the Umpire did not conduct de novo proceedings in the sense that fresh evidence was not recorded, it would be essential to recollect the provision prevailing at that time. Article 4, extracted earlier, merely enjoins the Umpire from "enter(ing) upon the reference" "in lieu of" the arbitrators who fail to reach an agreement. In State of Mysore v R.J. Shah & Co & Anr, AIR 1967 Mysore 237, it was held that:

"13. In the absence of express words empowering the arbitrators to decide in part and the umpire on the remainder on which the arbitrators differed, where the Umpire enters on the reference in lieu of the arbitrators, all the matters fall to be decided by him and not merely matters in respect of which the arbitrators have disagreed. The fact that the disagreement is in respect of jurisdictional issue makes no difference on the scope of the authority of the umpire when he enters on the reference in lieu of the arbitrators.

14. In the instant case, the arbitration agreement has not excluded the First Schedule of the Act, and does not provide for the Umpire to decide only matters on which

FAO (OS) 211/07 Page 18 the arbitrators have disagreed.."

Similar reasoning was adopted in M/s. Magnum Films v. M/s. Golcha Properties, AIR 1986 Delhi 320, where the court held that the word 'reference' clearly indicates that it is the entire reference and the Umpire should decide all the disputes and not confine himself to the area of difference between the arbitrators. A Division Bench of Madhya Pradesh High Court, in State of Madhya Pradesh v. Preconco, Indore, AIR 1987 MP 284 followed the same logic. In Great Eastern Shipping Co. Ltd. vs Food Corporation Of India & Anr 1996 (1) ARBLR 542 (AP) it was held that:

"It may be noticed from Condition No. 4 of the First Schedule to the Arbitration Act that the umpire enters on the reference "in lieu of the Arbitrators". Condition No. 6 also indicates that the Act does not contemplate any distinction with regard to the conduct of proceedings by the Arbitrator or the umpire. It is an undeniable fact that on reference of the matter to the umpire, the Arbitrators become functus officio. The umpire takes upon himself the exclusive authority of determining the dispute. He takes the place of Arbitrator, as the expression "in lieu of the Arbitrators" conveys. Unless there is an agreement to the contrary defining or demarcating the powers of the umpire, he is expected to discharge the same functions as Arbitrator with all the attendant powers, duties and obligations. Either going by the very nature of functions entrusted to the umpire or by the provisions of the First Schedule, it is crystal clear that there is no continuation of the proceedings before the umpire. The process of arbitration starts de novo before him as he takes the role of the primary and exclusive authority to decide. It necessarily implies therefrom that the umpire is bound to observe the rules ensuring fair-play and justice and improvise the procedure in conformity with the principles

FAO (OS) 211/07 Page 19 of natural justice just as the Arbitrators are bound to do. In other words, there is no qualitative difference between the Arbitrators and the umpire with regard to the methodology and modalities to be adopted for reaching a just and fair and decision. It is trite to say that an Arbitrator is bound to observe the principles of natural justice and conform to the fundamentals of judicial procedure. It is his duty to afford a reasonable opportunity to the parties concerned."

However, even the above decision is moot on the question as to whether the entirety of the proceedings which took place before the arbitrators would be effaced and be of no effect, or whether the Umpire would take over from the stage of disagreement and decide the dispute. In this context, although the authors whom the Appellants cite appear to be unanimous that the "entering upon reference" in lieu of the arbitrators implies de novo proceedings, there are certain obvious aspects which stare one in the face. The first of these is that the parties' positions are well known; the pleadings are completed and even the points in dispute are outlined; additionally documentary evidence - at the stage of the arbitrators' disagreement - too is part of the record. None of the authorities cited suggested that all these steps

- including discovery, and wherever the parties agree upon a summary procedure of confining the resolution of disputes through pleadings and written evidence- would be obliterated and that the entire arbitral proceedings would start afresh. Such a consequence would undermine the efficacy of arbitration as a effective mode of alternative dispute resolution. If such is the correct understanding of the process, it would be illogical to say that a part of the arbitral proceedings, i.e. the recording of oral deposition would have to be

FAO (OS) 211/07 Page 20 done all over again. Again, there can be situations where the arbitral proceedings are disrupted on account of death of a sole arbitrator; in such case, it cannot be said that with appointment of a new arbitrator, the entirety of previous proceedings would be effaced. Likewise, in the case of loss of mandate of the arbitrator, the new arbitrator would enter and proceed from the stage at which the proceedings ended. A glaring anomaly that would ensue if de novo proceedings, of the kind the appellants suggest were to take place is that the witnesses may not be available, or might give versions entirely differing from or inconsistent with what they testified earlier. Fading memories are the inevitable consequence of passage of time. This court is, therefore, of the opinion that Article 4 has to be understood and interpreted in consonance with reason and logic, i.e. that the stage at which the arbitrators disagreed would be the stage at which the Umpire enters upon and proceeds with the reference. As far as the question of waiver is concerned, this court does not find any infirmity with the conclusions recorded by the Single Judge on this score. With Respect To Claim 1 - Grant Of Damages On Account Of 5% Profit Of The Balance Goods, Not Imported:

26. Oswal Agro argues that the Single Judge correctly held that Oswal Woollen could not have really disputed the award in this respect. The award quantified an amount of `3,49,715/-. This was based on the unchallenged claim of the CIF value of the CPKO @ `3,500/- per MT; the balanced unimported quantity was 1965.21 MT; this too was admitted. Considering that the award recorded that there was an admission, and that Single Judge too proceeded to record that

FAO (OS) 211/07 Page 21 there was no argument on this aspect, there is no scope for interference on this aspect. The impugned judgment as to Claim No. 1 is consequently affirmed.

With Respect To Claim 2 - Damages Finally Claimed At 2700 PMT On 1965.25 MT Which Quantity Could Not Be Processed :

27. On the second claim, the reasoning of the Umpire is as follows:

"The second claim of the claimant is for loss on account of difference between the then prevailing market price and the average sale price of PKO (on the basis of past sale transaction between the claimant and the respondent) for the said balance quantity of 1965.21 MT.

The average past sale price at the rate of Rs. 11,890/- per MT of the commodity in question is not being disputed by the respondent. The claimant had, on the basis of the market price of Rs. 28,000/- per MT, as shown in the debit note (exhibit C-20), calculated the amount, being loss of profit, at Rs. 3,18,36,402.00 (1965.21X 28000 e 1965.21X1 1800).

During the course of arguments before the learned Arbitrators, claimant reduced its claim. Instead of the market rate of Rs. 28,000/- per MT, restricted it to Rs. 14,500, the price at which it had contracted to sell the goods to M/s. Hindustan Lever Limited. However, while reducing its claim, the claimant sought leave of the arbitrators to pursue its claim for further amount on this account in the event it was held liable to pay any damages to HLL by the Bombay High Court. That permission was granted.

XXXXXX XXXXXX XXXXXX

The evidence produced on behalf of the claimant, documentary as well as oral, establishes that:-

FAO (OS) 211/07 Page 22 (I) Out of the total face value of Rs. 2.38 crores of the nine licenses, the claimant was authorized to import the CIF value of approximately Rs. 1.85 crores, leaving a balance of about Rs. 52.35 lakhs to be utilized by the respondent.

(Il) In order to enable the claimant to import the material on behalf or the respondent to the extent of Rs. 1.85 crores, the claimant required:

(a) Letters of Authority;

(b) Exchange Control copies of licenses; and

(c) Custom Control copies of the licenses.

(iii) The claimant could import material of the value of only about Rs. 1.16 crores under the agreement dated 30th March, 1982;

(iv) Exhibit C-16, the document filed by the claimant, establishes that total imports made of CPKO by the claimant were 4026.4853 MT and this very quantity of imported PKO was supplied to the respondent for processing.

(y) The respondent, after processing, supplied 3683.540 MTs of PKCO to the claimant, leaving a balance of 314.160 MTs;

(vi) Imports against two licenses, being license nos. 2941863 and 2941862, for a value of approximately 27 lakhs, which were utilized by the claimant, were outside the agreements dated 30th March, 1982 and 13th September, 1982. Those two licenses do not find mention in the above two agreements.

(vil) Letter dated 26th September, 1983 by the claimant putting the respondent on notice that It had committed breach of contract by not furnishing all the import

FAO (OS) 211/07 Page 23 licenses, numbers of which were given thereunder and claiming damages, was not specifically replied to.

(viii) The contention of the respondent that it had written letters dated 3rd September, 1983; 17th October, 1983 and 1st November, 1983 asking for the return of original import licenses from the claimant, is to be discarded in view of the statement of its counsel made on 7th March, 1998, retracting those pleas in its written statement.

The totality of the evidence proves that the respondent committed breach of the two agreements and particularly of Clause no. 3 of agreement dated 13th September, 1982.

The claimant has, thus, proved its claim for loss on account of non-import of balance material of 1965.21 MT of oil @ Rs. 2,700/- per MT (Rs. 14,500/- minus Rs. 11,800/-) totalling to Rs. 53,06,067/00."

28. Considerable arguments were made on behalf of the appellant to persuade this court to hold that the award was unsustainable, because the Umpire on the one hand held that the copy of the suit filed by Hindustan Lever Ltd was inadmissible and yet proceeded to uphold the claim for damages based on the market rate of `14,500/- which was never proved. Here, it was emphasized that the testimony of Shri Jain could not be conclusive. This Court notices that the Award had taken into account the testimony of Shri Kaul who deposed on behalf of the appellant; he did not dispute the contract between the claimant and Hindustan Lever Ltd. This is evident from the following extract of the award:

       "XXXXXX            XXXXXX                    XXXXXX



FAO (OS) 211/07                                             Page 24

It seems that the respondent was aware that the claimant had entered into a contract with M/s Hindustan Lever Limited (HLL) for supply of PKO. Mr. Surinder Kaul, who was produced as an expert witness, has admitted in his cross-examination (answer to question no. 21) that he was shown by the respondent the record pertaining to a contract of the claimant with M/s Hindustan Lever Limited (HLL). Obviously he was referring to the contract which is the subject matter of the suit before the Bombay High Court. The fact that the claimant had agreed to sell the commodity to HLL is corroborated by the testimony of the respondent's witness.

XXXXXX XXXXXX XXXXXX"

29. It can be seen that the arbitrator based his decision upon the materials on record, both in the form of documentary and oral evidence. It is not as if the award of damages on the quantity of goods not imported is based on no evidence. The measure of damages adopted was neither unreasonable, nor imaginary, but entirely based upon another transaction which the appellant was aware of. In these circumstances, the Court does not find any error in the findings of the learned single judge on this aspect.

The third claim for damages for unprocessed quantity of CPKO

30. The third claim was in respect of unprocessed quantity of 300 MT of oil. Here, the amount awarded was ` 8,10,000/- based on the figure of `2700/- as the difference between the market price of the quantity and the contracted amount.

FAO (OS) 211/07 Page 25

31. The award in respect of the third claim was based on the second contract between the parties, dated 13.09.1982. In that agreement, the imported material was to be processed by Oswal Woollen, and such processed material was to be delivered to Oswal Agro, at a pre- determined agreed rate. The relevant clauses are 3, 4 and 5, as reproduced under:

"3. We hereby agree that we shall sell the material imported under the above referred agreement after processing in our factories as per your requirements. We shall charge you the price of such processed oils which shall be equivalent to landed cost (excluding service charges paid to you under the above referred agreement) plus manufacturing charges mutually agreed and 25% of the C.IF. value of the goods imported.

4. The goods will be delivered to you ex-our factories at Madras and Ludhiana for the price fixed hereinabove.

5. PAYMENT: You shall make the payment of processed goods within 7 days for the delivery of the goods after deducting the amount paid by you on our behaIf in respect of the goods if any."

32. The loss claimed on account of short supply of processed oil was premised upon the actual short supply being 314 MT. The written submissions of the appellant admit short supply to the extent of 114 MT; the balance is disputed on account of process loss. The award refused to give any allowance for process loss. Though the appellants argue that this was an error, the fact remained that no evidence was led to show that process loss took place. On the other hand, their submissions during the arbitration proceedings admitted that short

FAO (OS) 211/07 Page 26 supply due to non-processing was to the extent of 114 MT. In the circumstances, the Court does not discern any infirmity with the award, nor any error in the findings and conclusions of the learned Single Judge.

33. The well settled legal position is that the Court while exercising jurisdiction under Section 30/33 of the Arbitration Act 1940 does second guess the arbitrator's decision in an appeal to re-assess the material, evidence and the terms of the contract assessed and interpreted by the arbitrators. It is also established that the court while exercising jurisdiction under the Act would not substitute its opinion for that of the arbitrators. In Hindustan Tea Co. v. K. Sashikant & Co., AIR 1987 SC 81, the Court held that the award of the Arbitrator ought not to be set aside for the reason that, in the opinion of the Court, the Arbitrator reached wrong conclusions or failed to appreciate the facts. It is only an error of law and not a mistake of fact, committed by the arbitrator, which is justiciable in the application/objection before the Court. If there is no legal proposition either in the award or in any document annexed with the award which is erroneous and the alleged mistakes or alleged errors are only mistakes of fact and if the award is made fairly, after giving adequate opportunity to the parties to place their grievances in the manner provided by the arbitration agreement, the award is not amenable to corrections of the Court. The Hindustan Construction Co. Ltd. v. Governor of Orissa and Ors. AIR 1995 SC 2189 reiterates that the Court cannot re-appreciate the material on the record. Trustees of the Port of Madras v. Engineering Constructions Corporation Ltd.,

FAO (OS) 211/07 Page 27 (1995) 5 SCC 531, set aside the decision of a Division Bench of the High Court of Madras, which reversed the Award on a question of fact and not a question of law.

34. Following the above judgments, this Court holds that the question of whether the claims were tenable or not are based on the contract and which of them had to be granted were within the exclusive domain of the arbitrator. In this case, the award considered the totality of circumstances, and weighed the relevant facts on balance while proceeding to award damages. The award does not disclose a manifestly erroneous approach; nor does it omit to consider and apply legal principles to the facts presented before the Arbitrator. In these circumstances, the Court finds no infirmity or error in the approach and judgment of the learned Single Judge, warranting interference. The appeal, being devoid of merit, is accordingly dismissed. There shall be no order as to costs.

S. RAVINDRA BHAT (JUDGE)

NAJMI WAZIRI (JUDGE) OCTOBER 22, 2013

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