Holding

The reasonableness of an arbitrator’s reasons and his appraisal of evidence cannot be challenged under Article 136; such awards are not subject to judicial review for unreasonableness.

Summary

The Municipal Corporation of Delhi (MCD) awarded a construction contract to Jagan Nath Ashok Kumar, which it later rescinded alleging delay. The contract contained an arbitration clause, and an arbitrator was appointed who held that the rescission was wrongful, awarded the contractor Rs.23,820 plus interest, and allowed certain counter‑claims of the MCD. The MCD objected to the award; the Delhi High Court made the award a rule of court and dismissed the MCD’s appeal. The MCD filed a Special Leave Petition before the Supreme Court challenging the reasonableness of the arbitrator’s reasons under Article 136. The Supreme Court held that the reasonableness of an arbitrator’s reasons, and his appraisal of evidence, are not justiciable under Article 136, that there was no violation of natural justice, and that the question of whether time was the essence of the contract is a mixed question of law and fact. Consequently, the petition was dismissed and leave refused.

Issues considered

Whether the reasonableness of reasons given in a speaking arbitral award is justiciable under Article 136 of the Constitution.
Whether a court may review an arbitrator’s appraisal of evidence under Section 1 of the Indian Evidence Act, 1872.
Whether there was any violation of natural justice in the arbitral award.
Whether ‘time’ was the essence of the contract – a mixed question of law and fact.
Whether an arbitral award can be set aside on the ground of unreasonableness.

Legislation cited

Arbitration Act, 1940s. 20, s. 30, s. 33
Indian Evidence Act, 1872s. 1

Subjects

ArbitrationReasonablenessArbitral awardJudicial reviewArticle 136Natural justiceTime as essence of contractEvidence Act

Judgment

A MUNICIPAL CORPORATION OF DELHI
v.
JAGAN NATH ASHOK KUMAR & ANR.

SEPTEMBER 17, 1987
B
(SABYASACHI MUKHARJI AND G.L. OZA, JJ.]

Arbitration Act, 1940: ss. 20, 30, & 33-Arbitrator. Sole Judge of
quality and quantity of evidence-When germane and relevant reasons
are indicated by the arbitrator award not unreasonable-Whether time
essence of contract-Mixed question of law and fact.
c
Indian Evidence Act, 1872: s. I-Applicability of to proceedings
before an arbitrator.

Words_ and Phrases: Word "reasonable"-Meaning of
D
The respondent no. 1 was awarded a contract by the petitioner·
Corporation for construction of staff quarters, which was later rescln·
ded on the ground that he could not complete the work as per the
schedule. A Single Judge of the High Court referred the dispute to an
arbitrator.
E
The arbitrator in his award submitted to the High Court found
that there was a delay of nearly four months in the commencement of
the work due to giving of the lay out etc., that there was also delay in the
execution of sanitary work by another contractor who was previously
employed and that this work was still incomplete at the time of the
making of the award, and as such complete site had not been made
F
available to the respondent-contractor in time. He further found that
there was provision in the agreement for extension of time for comple·
lion of the contract as well as for levy of compensation for delay, that
subsequent to the expiry of the stipulated period of completion the
petitioner-Corporation did not make time the essence of .:ontract by
G directing the claimant to complete the work within a specified period
but instead rescinded the contract. He, therefore, held that the decision
of rescission of the contract was bad, wrongful, and hence the claim of
the respondent for Rs.23,820 was just. He also allowed interest on the
sum from the date of rescission of the contract. Certain counter claims
of the petitioner-Corporation were also allowed by giving cogent
H reasons.

180
M.C.D. v. JAGAN NATH ASHOK KUMAR 181

Rejecting the objection to the award raised by the petitioner, the A
Single Judge of the High Court directed the award to be made a rule of
the Court. A Division Bench of the High Court summarily dismissed the
appeal against that judgment and order.

In the special leave petition to this Court on the question:
Whether reasonableness of the reasons in the speaking award was just- B
iciable under Article 136 of the Constitution.

Dismissing the special leave petition,

" HELD: 1.1 The reasonableness of the reasons given by an
arbitrator in making his award cannot be challenged in proceedings C
under Article 136. [183E]

1.2 Appraisement of evidence by the arbitrator is ordinarily
never a matter which the court questions and considers. Section 1 of the
Evidence Act, 1872 in its rigour is not intended to apply to proceedings
before an arbitrator. In the instant case, the parties have selected their D
own forum and the deciding forum must be conceded the power of
appraisement of the evidence. The arbitrator is the sole judge of the
quality as well as quantity of evidence and it will not be for the Supreme
Court to take upon itself the task of being a judge of the evidence before
the arbitrator. It may be possible that on the same evidence the Court
might have arrived at a different conclusion than the one arrived at by E
the arbitrator but that by itself could be no ground for setting aside the
award of an arbitrator. [186B-D]

Haji Ebrahim Kassam Cochinwall v. Northern Indian Oil Indus-
tries Ltd., A.I.R. 1951 Calcutta 230, referred to.
F
2. There was no violation of any principles of natural justice in
the instant case. It was not a case where the arbitrator had refused
cogent and material factors to be taken into consideration. The award
could not therefore, be said to be vitiated by non-reception of material
or non-consideration of the relevant aspects of the matter. [186A-B]
G
Mediterranean & Eastern Export Co. Ltd. v. Fortress Fabrics
Ltd., [1948] 2 All. E.R. 186, referred to.

3. Whether in a particular contract time was the essence of the
contract or not, is a mixed question of law and fact. In the instant case,
the reasons given by the arbitrator in holding that it could not be taken H
182 SUPREME COURT REPORTS (1988) 1 S.C.R.

A that time was the essence of the contract, were cogent and based on ~
materials on record and have a rational nexus with the conclusion .
arrived at by him. (184(:; 186A)

4. The word 'reasonable' have in law the prima facie meaning of
reasonable in regard to those circumstances of which the actor, called
B 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 'y
necessity of order in the social life. Therefore, where reasons germane
and relevant for the arbitrator to hold in the manner he did have been
indicated, it cannot be said that it was unreasonable. (187E-F; 184E) "
c Re a Solicitor, (1945) K.B. 368 at 371 of the Report) and Stroud's -,
Judicial Dictionary, Fourth Edition, page 2258, referred to. ~--.
In the instant case the arbitrator acted reasonably and rationally. '
The challenge &o the award was, therefore, rightly rejected by the High
D Court. [187G)

CIVIL APPELLATE JURISDICTION: Special Leave Petition
(Civil) No. 9524 of 1987.

From the Judgment and Order dated 25.5.1987 of the Delhi High
E CourtinF.A.O.No.58oft987.

•
R.B. Datar and Ranjit Kumar for the petitioner.

The Judgment of the Court was delivered by

F SABYASACHI MUKHARJI, J. The respondent No. 1 herein ~
was awarded the contract in question for the construction of staff }-
quarters for the Municipal Corporation of Delhi, the petitioner herein. ·
and the work had to be compiet«d within the stipulated period
mentioned in the contract. Since, however, the work was not being
done in the manner as the Delhi Municipal Corporation thought it
G ought to have been done, the petitioner wrote 29 letters during June,
1978 to July, 1980 regarding the timely completion of the work. It is
alleged that the work was not completed by the 15th of January, 1980
as per the schedule in the contract. Show cause notice was given to the A·
respondent-contractor. The contractor failed to give satisfactory reply
and according to the petitioner, the contract was rescind. Thereafter
H several other letters were written which are not material to refer.
M.C.D. v. JAGAN NATH ASHOK KUMAR [MUKHARJI, J.) 183

'I.- There was an arbitration clause in the argeement. On 2nd November, A
1982 an application was filed under section 20 of the Arbitration Act,
1940 (hereinafter Called 'the Act') in the Delhi High Court. A learned
Single Judge of the said High Court directed reference of the dispute
and directed the Commissioner of the Municipal Corporation or any-
one nominated by him to enter into reference. The Commissioner on
17th o(March, 1983 appointed one Shri S.M. Hasnain, Arbitrator and. B
Superintending Engineer No. II, of the Municipal Corporation of
\,r' Delhi as the arbitrator. He is respondent No. 2 in this petition. The
said arbitrator entered upon the reference and thereafter on 21st of
August, 1984 submitted his award allowing some claims of the con-
tractor and some counter-claims of the Municipal Corporation. The
Municipal Corporation filed its objections to the said award. The C
} learned Single Judge of the High Court by his judgment and order
} dated 22nd of October, 1986 directed that the award be made a rule of
the Court. A Letters Patent Appeal was filed thereafter but the same
was summarily dismissed by a Division Bench of the Delhi High Court
on 25th May, 1987. The petitioner seeks leave in this petition under
Article 136 of the Constitution to challenge the said order. As the D ·
learned Division Bench did not give reasons, we must refef to the
order of the learned Single Judge.

The arbitrator gave reasons in support of the award. The ques-
tion is whether reasonableness of the reasons in a speaking award is
-1 justiciable under Article 136 of the Constitution. We are of the E
opinion that such reasonableness of the reasons given by an arbitrator
in making his award cannot be challenged in a proceeding like the
present. It is desirable, however, that we state our reasons for so
holding.

In order to appreciate this the award of the arbitrator must be F
\ looked into. The arbitrator in his award has dealt with various claims,
' .one of the main claims was the claim of Rs.23,850 out of which
Rs.8,300 was in the form of fixed deposit receipt carrying interest and
the balance amount of Rs.15,520 was deducted as security of 10% from
the bills of the claimant. According to the claimant this amount had
wrongly been forfeited by the Corporation at the time of rescission of G
the contract and that the same should be refunded to him. It was held
by the arbitrator that there was provision in the agreement for exten-
~- sion of time for completion of the contract, as well as for levy of
compensation for delay. Therefore, it could not be taken that time was
the essence of the contract. The arbitrator had opined that according
to the respondents' own admission there was delay of nearly four H
184 SUPREME COURT REPORTS [ 1988] I S. C.R.

months in the commencement of the work due to giving of the layout
A
etc. There was also delay in the execution of sanitary work by another
..+
contractor previously employed by the petitioner and this work was
still incomplete at the time of the making of the award and as such

- complete site had not been made available to the present contractor in
time. Further there was provision in the agreement for extension of
B time or levy of compensation for delay and, therefore, according to the
•
arbitrator time could not be considered in such a contract to be the
essence of the contract. Furthermore, subsequent to the expiry of the y
stipulated period of completion, the Corporation did not make time
the essence of the contract by directing the claimant to complete the
work within a specified period but instead rescinded the contract. In
those circumstances it was held by arbitrator that the decision of rescis-
c sion of the contract was bad, wrongful and hence the claim of
Rs.23,820 was considered to be just. We do not find any lack of reason )
in the reasons given by the arbitrator. Whether in a particular contract '
time was the essence of the contract or not is a mixed question of law
and fact. But the reasons given by the arbitrator appear to be reason-
D able and have rational nexus with the conclusion arrived at by him. It
was stated that it was admitted on behalf of the Corporation that there
was initial delay of four months. This was controverted by the Corpo-
ration. They say that there was no admission. This, in our opinion was
a significant factor that there was some delay and in spite of the delay
the Corporation gave letters to the contractor to complete the work
)-
E and in the contract itself there was provision for extension of time. In
our opinion, where reasons germane and relevant for the arbitrator to
hold in the manner he did have been indicated, it cannot be said that it
was unreasonable. Another factor the arbitrator had noted was that j
the site was not available due to the conduct of another contractor
previously emoloyed by the petitioner. This factor is also a relevant
F factor. The fourth item of the award was a claim for damages for
Rs.60,000. This amount was not granted on the ground that the clai- j
mant was not able to prove this amount. The fifth item in the award
was a claim for interest at 18% per annum on certain items from the
date of rescission of the contract to the date of payment of decretal
amount. The arbitrator allowed the interest as the amount had been
G withheld due to unjustified and wrongful rescission of the contract.
Reasons given by the arbitrator appear per se not unreasonable. The
arbitrator has not awarded any costs. There were also counter claims
by the Corporation against the contractor. The first counter claim was
forfeiture of Rs.23,820 on account on the rescission of the contract.
+
Inasmuch as the rescission was held to be unjustified in the facts of this
H case, the forfeiture was also held to be wrongful. There was a claim of
M.C.D. v. JAGAN NATH ASHOK KUMAR [MUKHARJI, J.) 185

Rs.32,640 as payment of compensation at 10% of Rs.3,28,400, but as A
the time was not the essence of the contract and the rescission of the
contract was unjustified, this claim could not be sustained and it was so
rejected by the arbitrator. The next claim was for Rs.85,620 for the
execution of the remaining work at the risk and cost of the respondent.
The arbitrator found that the contractor had as far as possible dis-
charged his contractual obligation and the rescission of the contract B
was unjustified and wrongful. Therefore, the Corporation's claim for
'r getting the work executed at the risks and costs of the contractor was
unjustified and the claim was so logically rejected and no amount was
awarded on that score. The next claim was for Rs.2739 on account of
mild steel lying with the contractor. On examination it was found that
some quantities of steel had been consumed in the work and as such c
J recovery could only be made for the balance quantity of 1172 kgs. at
't. the recovery rate of Rs. l.50 per kg. and the claim was, therefore,
allowed in favour of the Corporation for Rs.!, 758. The Corporation
further claimed a sum of Rs.6,083.20 on account of non-return of
certain steel. After taking into account the steel consumed in the work
and after allowing for permissible variation and wastage, it was held D
that recovery claim for RscJ,862 only was justified. The award was
made accordingly. There was another claim of Rs.6,473 on account of
penal rate recovery of mild steel. It was held for good reasons indi-
cated in the award that the claim for Rs.5,620 was justified. The Cor-
poration claimed Rs.13,578 for penal rate recovery of cement for the
~- quantity in excess of the theoretical consumption. After going into the E
material the arbitrator found that the cement issued to the claimant
was consumed in the work and the claim of the Corporation for the
ll penal rate recovery was not justified. The next was the claim for
Rs. 1400 by the Corporation on account of non-return of 700 empty
cement bags to the Municipal store. This was enquired into and found
to be justified and a sum of Rs. 1400 was awarded in favour of the F
--\ Corporation. There was a further claim of Rs.65 for adjustment of cost
\ of steel on account of three transfer entries. From the documents
produced the claim was awarded in favour of the Corporation. The
next claim was for interest at the rate of 12% per annum w.e.f. 1.9.81
on the amount of alleged counter-claim preferred against the claimant.
As it was held that the rescission of the contract was unjustified and G
wrongful, the Corporation was at liberty to recover its justified claims
from the dues of the claimant at its disposal and pay the balance
i-._ amount to the claimant within a reasonable time. There was a further
claim for Rs.10,000 as arbitration costs and the claim was rejected. It
appears to be very reasonable and fair award:
H
186 SUPREME COURT REPORTS [1988] 1 S.C.R.

A In this case, there was no violation of any principles of natural
justice. It is not a case where the arbitrator has refused cogent and
material factors to be taken into consideration. The award cannot be
said to be vitiated by non-reception of ntaterial or non-consideration
of the relevant aspects of the matter. Appraisement of evidence by the
arbitrator is ordinarily never a matter which the Court questions and
B considers. The parties have selected their own forum and the deciding
forum must be conceded the power of appraisement of the evidence.
In the instant case, there was no evidence of violation of any principle y
of natural justice. The Arbitrator in our opinion is the sole judge of the
quality as well as quantity of evidence and it will not be for this Court
to take upon itself the task of being a judge of the evidence before the
arbitrator. It may be possible that on the same evidence the Court
C might have arrived at a different conclusion than the one arrived at by
-
the arbitrator but that by itself is no ground in our view for setting
aside the award of an arbitrator.

It is familiar learning but requires emphasis that section 1 of the
D Evidence Act, 1872 in its rigour is not intended to apply to proceedings
before an arbitrator. P.B. Mukharji, J. as the learned Chief Justice
then was, expressed the above view in Haji Ebrahim Kassam
Cochinwall v. Nothem Indian Oil Industries Ltd., A.LR. 1951
Calcutta 230 and we are of the opinion that this represents the correct
statement of law on this aspect. Lord Goddard, C.J. in Mediterranean
E &: Eastern Export Co. Ltd. v. Fortress Fabrics Ltd., (1948] 2 All E.R. )...
186 observed at pages 188/ 189 of the report as follows:

"A man in the trade who is selected for his experience
would be likely to know and indeed to be expected to know
the fluctuations of the market and would have plenty of
F means of informing himself or refreshing his memory on
any point on which he might find it necessary so to do. In f
this case according to the affidavit of sellers they did take
the point before the Arbitrator that the Southern African
market has slumped. Whether the buyers contested that
statement does not appear but 'an experienced Arbitrator
G would know or have the means of knowing whether that
was so or not and to what extent and I see no reason why in
principle he should be required to have evidence on this
point any more than on any other question relating to a _,t
particular trade. It must be taken I think that in fixing the
amount that he has, he has acted on his own knowledge and
H experience. The day has long gone by when the Courts

'
M.C.D. v. JAGAN NATH ASHOK KUMAR IMUKHARJI, J.J 187

looked with jealousy on the jurisdiction of the Arbitrators.
The modem tendency is in my opinion more especially in A
commercial arbitrations, to endeavour to uphold Awards
of the skilled persons that the parties themselves have
selected to decide the questions at issue between them. If
an Arbitrator has acted within the terms of his submission
and has not violated any rules of what is so often called B
natural justice the Courts should be slow indeed to set
aside his award."

This in our opinion is an appropriate attitude.

In this case the reasons given by the arbitrator are cogent and
based on materials on record. In Stroud's Judicial Dictionary, Fourth C
Edition, page 2258 states that it would be .unreasonable to expect an
exact definition of the word "reasonable". Reason varies in its conclu-
sions according to the idiosyncrasy of the individual, and the times and
circumstances in which he thinks. The reasoning which built up the old-
scholastic logic sounds now like the jingling of a child's toy. But man- D
kind must be satisfied with the reasonableness within reach; and 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 the prima facie
meaning of reasonable in regard to those circumstances of which the
actor, called on to act reasonably, knows or ought to know. See the E
observations, in Re a Solicitor [1945] K.B. 368 at 371 of the report.

After all an arbitrator as a Judge in the words of Benjamin N.
Cardozo, has to exerci~e a discretion informed by tradition,
methodized by analogy, disciplined by system, and subordinated to
"the primordial necessity oforder in the social life". F

Indeed reading the award of the arbitrator, one would say that
·he acted reasonably and rationally.

In the premises the award of the arbitrator was assailed on trivial
grounds and the challenge was rightly rejected by the High Court.1:1'e G
respondent is entitled to the costs of the challenge u~to the High
Court So far as the costs of this petition to this Court 1s concerned,
partie~ are directed to bear their respective costs. The petition for
J... leave to appeal is, therefore, dismissed and the leave refused.

Petition dismissed. H
P.S,S.