Holding

A speaking award may be set aside only if its reasons are erroneous as a proposition of law or an untenable view; here the arbitrator's reasons were plausible, so the award could not be interfered with.

Summary

The Food Corporation of India (FCI) entered into a contract with Joginderpal to supply paddy for shelling into rice at a 70% yield, with a shelling charge of Rs 2.20 per quintal. A dispute led to the appointment of an arbitrator who, in a speaking award dated 22 January 1982, disallowed FCI's claims for a penalty of Rs 55,060.29 and for Rs 3,23,856.08 as cost of non‑delivery, providing reasons that the corporation had not proved actual loss. FCI sought to set aside the award under sections 30 and 33 of the Arbitration Act, 1940; the Subordinate Judge modified the award in FCI's favour, but the Additional District Judge reversed that decision, holding the award could not be interfered with. The High Court upheld the Additional District Judge’s order, and the Supreme Court affirmed that a speaking award can be set aside only if its reasons contain an error of law or an untenable view, which was not the case here. Consequently, the appeal was dismissed.

Issues considered

Whether a speaking award under the Arbitration Act, 1940 can be set aside or modified by a court on the basis of the arbitrator's reasoning.
Whether the arbitrator's award contained an error of law or a view that could not possibly be sustained, justifying interference under sections 30 and 33 of the Arbitration Act, 1940.

Legislation cited

Arbitration Act, 1940s. 14, s. 30, s. 33
Arbitration Act, 1948s. 14

Subjects

ArbitrationSpeaking awardAward set asideArbitration Act 1940Section 30Section 33Error of lawContract disputePaddy and rice

Judgment

FOOD CORPORATION OF INDIA
A
v.
JOGINDERPAL MOHINDERPAL

MARCH 3, 1989

B [SABYASACHI MUKHARJI AND S. RANGANATIIAN, JJ.]

Arbitration Act, 1940-Sections 14, 17, 30 and 33--Arbitrator
making a speaking award-Unless the reasons are erroneous as pro-
positions of law or view of the arbitrator cannot be substantiated-
A ward not liable to be set aside by Court.
c The Respondent entered into a contract with the appellant Food
Corporation of India on or about May 1979 whereunder the appellant- ~
Corporation was to give to the Respondent Paddy for being shelled/
converted into rice at the rate of 70% of the Paddy. The Paddy was to be
lifted from the godowns of the appellant. The shelling charge was fixed
D at Rs.2/20 p. per quintal. Some dispute having arisen between the
parties, the Respondent moved an application before the Subordinate
Judge for appointment of an arbitrator and the Sub-Judge appointed
the arbitrator who gave bis award on 22nd January 1982. In the award
the arbitrator did not allow some of the claims made by the appellant,
in particular, a claim of Rs.55,060/29 p which was claimed as a penalty ~
E @ Rs.2 per quintal for not lifting the balance of Paddy. The arbitrator
in disallowing the claim on that count, took the view that the appellant bas
to prove the actual losses suffered by it which the appellant failed to >-
prove. Another claim not allowed by the arbitrator related to
Rs.3,23,856/08. p. in respect of the cost of non-delivery of 137-39548

F
tonnes of rice @Rs.165 per quintal.

The Respondent made an application u/s. 14 of the Arbitration
Act, 1940 to make the award a rule of the Court. The appellant 6Ied the
1 '

objections u/s 30 and 33 of the Act. The Subordinate Judge, First Class,
on 2nd December, 1982, found that the award was liable to be set aside
and accordingly modified the award and passed a decree in favour of
G the appellant for the amount. On 2nd March, 1984, the Addi. Distt.
Judge, on appeal by the Respondent, reversed the order passed by the
Subordinate Judge. He held that the award was not liable to be cor- --f·
reeled/interfered with in the manner done by the Sub-Judge. Aggrieved
by the said order the appellant went in revision to the High Court. The
High Court on 11.12.84 dismissed the revision petition. Hence this
H appeal by the appellant-Corporation.
880
F.C.I. v. JOGINDERPAL [MUKHARJI, J.J 881

Dismissing the appeal, this Court, A

"' "' HELD: That the arbitrator has chosen to make a speaking award
in the instant case, that is he has given reasons for his conclusions. Since
the arbitrator has chosen to give reasons, unless it is demonstrated to
this Court that such reasons are erroneous as such as propositions of B
law or a view which the arbitrator has taken is a view which it could not
• 'I'
possibly be sustained in any view of the matter, then the challenge to the
:J- award of the arbitrator cannot be sustained. l886H; 887A-BJ
.,. ~ Even assuming that there was some mistake, such a mistake is not
amenable to be corrected in respect of the award by the Court. This was
a fair order passed after considering all the records. The conclusion c
arrived at by the arbitrator is a plausible conclusion. The Court has no
x jurisdiction to i_nterfere or modify the award in the manner sought for
by the appellant. l887G-H)

The Addi. Distt. Judge was justified in correcting the order of the D
Subordinate Judge and the High Court was also justified in not interfer-
ing with the order of the Addi. Distt. Judge. [887H; 888A)

Mukkudduns of Kimkunwady v. Inamdar Brahmins of Soorpai,
3 MIA 380; M/s. Sudarsan Trading Co. v. The Government of Kera/a &
+ Anr., (1989) 1 JI. Today SC 339; Champsey Bhara & Co. v. Jivraj E
Ba/loo Spinning & Weaving Co. Ltd., L 1922 IA 324, followed.

- Puri Construction Pvt. Ltd. v. Union of India, [1989) I SCC 411,
referred to.

t and 1946
1'
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1945 F
of 1989.
I

From the Judgment and Order dated 11.12.1984 of the Punjab

• and Haryana High Court in C.R. No. 1794 and 1795 of 1985 .

DL L.M. Singhvi and Y.P. Rao for the Appellant. G
G.L. Sanghi, J.P. Gupta and S.K. Agarwal for the Respondent.

The Judgment of the Court was delivered by

SABYASACHI MUKHARJI, J. Special leave granted. H
882 SUPREME COURT REPORTS [1989] 1 S.C.R.

This appeal arises from the decision of the High Court of Punjab
A & Haryana, dated 11th December, 1984 dismissing the Civil Revision
filed by the appellant. It appears that there was a contract entered into
"' ~

by the parties on or about 15th May, 1979 which provided that the
appellant would give to the respondent paddy to convert these into ~---~

rice after lifting paddy from the godown of the appellant. There was an
B agreement between the parties for shelling of paddy into rice, after ....,.
lifting the paddy from the godown of the appellant, at the rate of 70%
of the paddy. The shelling charge was Rs.2.20 per quintal. The learned
Subordinate Judge, First Class, directed on or about 17th March, 1980
appointment of an arbitrator on an application by the respondent. On
22nd Janua'ry, 1982, the arbitrator gave his award. The arbitrator did
··~
. .
not allow the claims of the appellant as claimed as per the terms of the
c agreement. The arbitrator allowed certain claims. It is necessary, in
view of the contentions that have been raised, to refer to the award of .;..
the arbitrator. After setting out the history the arbitrator dealt with
tne various contentions. It is not necessary to refer to all the conten-
!ions and points urged before the arbitrator and upon which he has
D made his award. It is sufficient if the relevant portions are dealt ,with.
The arbitrator, inter alia, dealt with a claim of Rs.55,060.29 which had
claimed as penalty at Rs.2 per qt!. for not lifting the balance of the
paddy weighing 2765-3093 mts. The arbitrator noted that he had held
that there was justification for the millers, millers being respondent
~·
herein, not to lift the paddy. Assuming, however, the arbitrator noted,
E that if it was decided that the millers were at fault in not lifting this
paddy, the arbitrator expressed the opinion that the appellant could
not recover the amount claimed by way of penalty. He expressed the
view that in order to enable the appellant to claim the amount, it had
to be shown that the actual losses were suffered by the Corporation.
-
F
Otherwise, it could not be claimed as pre-estimated damages. Other-
wise, it would only be penalty which could not be recovered. No
evidence had been led for how many days the bags of the paddy re-
mained in the godowns of the Corporation, the arbitrator noted, and
i I

what losses were incurred for getting it shelled from other quarters.
The arbitrator referred to the affidavit of one Mr. M.S. Rawat, Asstt.
Manager, that the Corporation had to get the unlifted paddy shelled by
G transporting to other centre as well as getting the same shelled at
heavy additional expenditure. The arbitrator noted that there was not
an iota of evidence on that point. So no actual losses stated to have ~-
been suffered by the Corporation and no. proof thereof was there. The
arbitrator further noted that an amount by way of penalty could be
permitted if some losses were proved. He, accordingly, dismissed the
H claim of the appellant for Rs.55,090.19.
F.C.I. v. JOGINDERPAL IMUKHARJI, J.] 883
A
The next claim dealt with by the arbitrator was the claim of
Rs.3,23,856.08 claimed by the Corporation as the cost of non-delivery
of 137-39549 tonnes of rice at the rate of Rs.165 per qt!. of paddy. The
claim of the appellant was based on the basis that the appellant had
converted the undelivered rice into paddy by multiplying it with 100/70
and it came to 123,87.11 tonnes. The arbitrator dealt with this question B
as follows:

"At the rate of Rs. 165 per qt!. its price works at
Rs.3,23,856.08. According to provisions of clause g(i) of
the Contract, in the event of failure to supply rice within
prescribed specification, the millers are liable to pay to the
Corporation for the quantities of rice short supplied at the c
penal rate of 1 'h times the economic cost of the concerned
variety of the paddy equivalent· to the shortages. In the
contract no definition of 'Economic Cost' is furnished nor
is the expression any where defined in any law. However,
Shri Pritam Singh in the statement attached to the affidavit D
work it out at Rs.110 per qt!. The procurement price of
paddy is Rs.85 per qt!. as shown therein. He has added to it
market fee and other charges including cost of gunny Rs.2
and interest charges at Re. l. Under the above clause of the
contract, the Corporation has added 50% penalty and thus
has claimed the price at Rs.165 per qt!. E

I do not think that the Corporation is entitled to such a
-< , fantastic rate particularly when the expression 'economic
rate' has not been defined. Even if the statement of Shri
Pritam Singh is accepted the maximum price of the rice at
~· that time should be Rs.100 per q\I. exclusive of gunny bag F
f and interest charges to which in my opinion the Corpora-
I ' tion is not entitled. The market rate did not exceed that
amount at that time. So the calculated at this rate the price
of the undelivered rice will come to Rs. l,96,277.00. to
which the Corporation is entitled. I may add here that the
above amount has been allowed to the Corporation besides G
from the evidence on the record I believe that the rice was
short delivered. When the paddy had been accepted by the
millers unconditionally and without any reservation, they
were bound to give to the Corporation 70% of the yield. As
they did. not do it, so they are liable to pay the price of the
undelivered rice. H
884 SUPREME COURT REPORTS [1989] 1 S.C.R.

I have already stated above that the rice after shelling to be ~
A
delivered to the Corporation under clause,g(i) of the con-
tract had to conform to the specification laid down by the
Punjab Government under the Punjab Rice Procurement
Price Control Order, 1968 issued on the 22nd October,
1968, as amended from time to time. The Corporation
B states that the rice accepted by them was done subject to ~
the quality rice which was permissible under clause g(ii) of
~
the contract. This has been duly proved from the evidence
placed on the record by the Corporation. Even Shri Anil
Kumar, a partner of the millers firm admitted that they ~
received an analysis report in respect of the rice which was
accepted by the Corporation to continue that the Corpora-
c lion was mentioned and that they did not appeal against the
...._
ctit, though there was a provision in the said order'to do so.
It, therefore, means that the quality cut was admitted to
have been correctly assessed under the said Punjab Rice
Order and to that the millers submitted. This item is, there-
D fore, allowed."

The respondent· filed an application under section 14 of the
Arbitration Act, 1948 (hereinafter referred to as 'the Act') for filing of
the award and prayed for making the award the rule of the court. The -.\-
appellant on 25th May, 1982 filed objections under sections 30 and 33
E of the Act. The learned Subordinate Judge, First Class, on 2nd
December, 1982 found that the awatd was liable.to be set aside and
modified the award and passed a decree in favour of the appellant for
the amount. On 2nd March, 1984, ihe Additional District Judge
allowed the appeal by respondent anq reversed the Subordinate
-
F
Judge's order.

Aggrieved thereby, the appellant went in revision before the
-?~
High Court. The High Court on 11th December, 1984 dismissed the
revision petition. Aggrieved thereby, the appellant has come up
before this Court. It is, therefore, necessary to decide whether the
High Court was right.
G
As mentioned hereinbefore, the learned Subordinate Judge had
modified the award and passed a decree in favour of the appellant for
the amount. The learned Additional District Judge, ho:wever, allowed
the appeal of the respondent and reversed the decision of the learned
Subordinate Judge. The High Court did not interfere with that deci-
- ...

H sion because the High Court did not find any ground to interfere. The
F.C.I. v. JOGINDERPAL [MUKHARJI, J.J 885

question therefore is, whether the learned Additional District Judge in
A
the first appeal was right in holding that the award was not liable to be
corrected in the manner done by the learned Subordinate Judge. The
jurisdiction to interfere by the Court of law of an award made by the
arbitrator chosen by the parties is circumscribed. In India, there is a
long history of arbitration. Arbitration is a mode of settlement of
disputes evolved by the society for adjudication and settlement of the B
disputes anq the differences between the parties apart from the courts
of law. Arbitration has a tradition; it has a purpose. Arbitration, that
is a reference of any particular dispute by consent of the parties to one
or more persons chosen by the parties with or without an umpire and
an award enforceable by the sovereign power were generally unknown
to ancient India. Hindus recognised decisions of Panchayats or bodies
consisting of wealthy, influential and elderly men of thr'CQmmunity
c
)!- and entrusted them with the power of management of their religions
and social functions. The sanction against disobedience to their deci-
sion was excommunication, or ostracism and exclusion from all reli-
gions and social functions of the community. An agreement to abide
by the decision of a Panchayat and its decision with regard to the line D
of boundary was held not to be conclusive, since a reference to arbitra-
tion and award properly so called did not exist. See the observations in
Mukkudduns of Kimkunwady v. Inamdar Brahmins of Soorpai, 3 MIA
-j.- 380. See also Bachawat's Law of Arbitration at page 1.

When power came to the East India Company, they framed E
Regulations in exercise of the power .vested in them by the British
Government. Some of these Regulations were touching arbitration.
Bachawat gives description of the evolution of the Arbitration Act,
1940. Therefore, arbitration as a mode for settlement of disputes
between the parties, has a tradition in India. It has a social purpose to
fulfil today. It has great urgency today when there has been an explo- F
i sion of litigations in the courts of law established by the sovereign
power. New rights created, or awareness of these rights, the erosion of
faith in the intrinsic sense of fairness of men, intolerant and uncom-
promising attitudes are all the factors which block our courts. The
courts are full of litigations, which are pending for long time. There-
fore, it should be the endeavour of those who are interested in the G
t administration of justice to help settlement by arbitration, if possible.
It has also a social efficacy being the decision by the consent of the
parties. It has greater scope of acceptance today when there is a cer-
tain erosion of faith in view of the failure to appreciating the functions
of the courts of law. It has also the advantage of not only quickness of
decision but of simplicity of procedure. But in proceedings of arbitra- H
886 SUPREME COURT REPORTS 11989] 1 S.C.R.

tion there must be adherence to justice, equity, law and fair play in
A
actions. However, the proceedings of arbitration must adhere to the
principles of natural justice and must be in consonance with such
practice and procedure which will lead to a proper resolution of the
dispute and create confidence of the people for whose benefit these
processes are resorted to. It is, therefore, the function of courts of law
B to oversee that the arbitrators act within the norms of justice. Once
they do so and the award is clear, just and fair, the courts should, as far
as possible, give effect to the award of the parties and inake the parties
compel to adhere to and obey the decision of their chosen adjudicator.
It is in this perspective that ·one should view the scope and limit of
correction by the court of an award made by the arbitrator. We should
mike the law of arbitration simple, less technical and more responsible
c to the actual realities of the situation, but must be responsive to the
cannons of justice and fair play and make the arbitrator adhere to such
process and norms which will create confidence, not only by doing
justice between the parties, but by creating a sense that justice appears
to have been done. Sections 30 and 33 of the Act provide for the
D grounds on which an award of the arbitrator can be set aside. These
were mainly, until recent changes made by statutory laws in England,
in consonance with the English principles of Common Law as adopted
in India. So far as the material of the present purpose is concerned, an
award of the arbitrator can only be interfered with or set aside or
modified within the four comers of the procedure provided by the Act.
E It is necessary to find whether the arbitrator has misconducted himself
or the proceedings legally in the sense whether the arbitrator has gone
contrary to the terms of reference between the parties or whether the
arbitrator has committed any error of law apparent on the face of the
award. It is necessary to emphasise that these are grounds for setting
aside the award but these are separate and distinct grounds. Hals-
F bury's Laws of England, Vol. 24th Edn., para 623 reiterates that 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 exercised. The
award can also be set aside if, inter alia, the arbitrator has miscon-
ducted himself or the proceedings. It is difficult to give an exhaustive
definition what may amount to a misconduct on the part of the
G arbitrator. This is discussed in Halsbury's Laws of England (supra). 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. See the observations of
Russell on Arbitration, 20th Edn., page 422.

H In the instant case, the arbitrator has chosen to make a speaking
F.C.I. v. JOGINDERPAL [MUKHARJI, J.[ 887

award, that is to say, he has given reasons for his conclusion. Whether
;\ A
he is obliged to give such reasons or not is another matter but since the
arbitrator has chosen to give the reasons, unless it is demonstrated to
this Court that such reasons are erroneous as such as propositions of
law or a view which the arbitrator has taken is a view which it could not
possibly be sustained on any view of the matter, then the challenge to
the award of the arbitrator cannot be sustained. As has been empha- B
->- sised in Mis Sudarsan Trading Co. v. The Government of Kera/a &
Anr., [1989) 1 Jt. Today SC 339 that an award could be set aside if
the arbitrator has misconducted himself or the proceedings or has
c-i proceeded beyond jurisdiction. It could also be set aside where there
are errors apparent on the face of the award. But these are separate
and distinct grounds. In case of errors apparent on the face of the
award, it can only be set aside if in the award there is any proposition c
of law which is apparent on the face of the award, namely, in the award
)t itself or any document incorporated in the award. See the observations
of the Judicial Committee in Champsey Bhara & Co. v. Jivraj Ba/loo
Spinning & Weaving Co. Ltd., L 1922 IA 324.
D
Dr. L.M. Singhvi, learned counsel for the appellant, urged
before us that the arbitrator was wrong in not awarding 50% of the
added penalty as claimed by the appellant, as mentioned hereinabove.
The appellant had claimed the price of Rs.165 per qtl. The arbitrator
~ was of the view that the expression 'Economic Rate' had not been
defined. It is true that the expression 'Economic Rate' has not been E
used, but the expression 'Economic Cost' has been used. The
arbitrator has noted that the market rate.did not exceed that amount at
' the time. The amount of Rs.100 per qtl. is mentioned of such a rate as
the arbitrator- had noted, could only be pre-estimated damages but this
~·· was not so according to the arbitrator. The arbitrator had construed
the effect of clause g(i) of the contract as mentioned hereinbefore. It F
f)
I
cannot be said that such a construction is a construction which is not
conceivable or possible.

If that is the position assuming even for the argument that there
was some mistake in the construction, such a mistake is not amenable
to be corrected in respect of the award by the court. This was a fair G
order after considering all the records. The conclusion arrived at by
the arbitrator is a plausible conclusion. The court has, in our opinion,
no jurisdiction to interfere or modify the award in the manner sought
for by the appellant and in the manner done by the learned Subordi-
nate Judge in the first instance in this case. In that view of the matter,
the learned Additional District Judge was justified in correcting the H
888 SUPREME COURT REPORTS (1989] 1 S.C.R.

A order of the learned Subordinate Judge and the High Court was also
justified in not interfering with the order of the Additional District
Judge. The award on the aspects canvassed before us by Dr. L.M.
Singhvi is a plausible construction of clause g(i) of the contract. It
cannot, in our opinion, be interfered with either on the ground that
there was error apparent on the face of the award or on the ground
B that the arbitrator has misconducted himself in not giving the effect to
the penal rate as contemplated under clause g(i) of the contract refer-
red to heteinbefore in the award. Dr. Singhvi sought to urge that as
per the terms of the contract the arbitrator was obliged to award penal
rate in terms of clause g(i) of the contract. The arbitrator has appa-
rently not done so. He has given reason why he has not done so. It was
submitted that he was wrong in not doing so. We do not agree. The
C arbitrator has discussed the effect of clause g(i). He has noted that
unless there was evidence about which incidentally there was none,
this amount could not be treated as a pre-estimate of damage. If that
be so then it was penalty. It was not recoverable. Reasons may not be
apparent, latent was there. Dr. Singhvi's objection therefore cannot
D be accepted,

Dr. Singhvi drew our attention to the observations of this Court
in Mis Sude:rsan Trading Co., (supra) at page 352 of the report where it
was stated that if it was apparent from the award that a legal proposi-
tion which formed its basis was erroneous, the award was liable to be
E set aside. Dr. Singhvi sought to urge that when the arbitrator observed
that "Corporation is not entitled to recover such a claim particularly
when the 'Economic Rate' has not been defined", this, according to
the statement of Dr. Singhvi, the arbitrator was mistaking the law,
such a mistake of law is apparent on the face if it. It has to be borne in
mind, however, that wrong statement or conclusion of law, assuming
F even that it was a wrong statement of law, was not wrong statement of
the proposition of law which was the basis for decision in this award.
Error of law as such is not to be presumed, if there is legal proposition
which is the basis of the award and which is erroneous as observed in
Champsey Bhara & Co, (supra), then only the award can be set aside.
There was no proposition of law; there was a legal deduction of law
G ariived at to say that the provisions of clause g(i) of the contract would
be penal rate and such penal rate cannot be sustainable without evi-
dence of the damages suffered to that extent. We are of the opinion
that the arbitrator had taken a view which is plausible view. Beyond
this, the court has nothing to examine. It is not necessary for a court to
examine the merits of the award with reference to the materials pro-
H duced before the arbitrator. The Court cannot sit in appeal over the
F.CJ. v. JOGINDERPAL [MUKHARJI, J.[ 889

views of the arbitrator by re-examining and re-assessing the materials. A
See the observations of this Court in Puri Construction Pvt. Ltd. ·v.
Union of India, [1989] 1SCC411.
.•
In the aforesaid view of the matter, it appears to us that the
learned Additional District Judge was right in the view it took and the B
High Court, therefore, was justified in dismissing the revision. The
'f· appeal, therefore, fails and is accordingly dismissed. No order as to
• costs.

:Mill'
/ Special leave granted.
I

In view of the fact that the facts of this appeal are more or less c
identicalto the Appeal arising out of S.L.P. (C) No. 3392 of 1985, this_
appeal is also dismissed. No order as to costs.

Y.L. Appeals dismissed.

-~·