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PETITIONER:

GUJARAT WATER SUPPLY & SEWERAGE BOARD

Vs.

RESPONDENT:

UNIQUE ERECTORS (GUJARAT) (P) LTD. & ANR.

DATE OF JUDGMENT24/01/1989

BENCH:

MUKHARJI, SABYASACHI (J)

BENCH:

MUKHARJI, SABYASACHI (J)

RANGNATHAN, S.

CITATION:

1989 AIR 973 1989 SCR (1) 318

1989 SCC (1) 532 JT 1989 (1) 285

1989 SCALE (1)170

CITATOR INFO :

D 1989 SC2259 (5,8)

E&F 1990 SC 685 (12)

R 1990 SC1340 (14,16,17)

E&R 1992 SC2192 (5)

ACT:

Arbitration Act, 1940: Sections 14, 17, 29, 30 and

33--Award-Setting aside of--No evidence to support conclu-

sion--Based on legal proposition which is erroneous--Award

of arbitrator to be read reasonably as a whole--Unreasoned

award--Effect of--Error apparent on face of award--What

is--interest pendente lite--Cannot be granted-interest for

period between date of award and date of decree can be

allowed in cases governed by Interest Act, 1978.

Interest Act, 1978: Section 3(1)(a)--Arbitration pro-

ceedings-grant of interest by Court.

Words & Phrases.

'reasonable '--Meaning of.

HEADNOTE:

In 1978 the State Government undertook the construction

of the 'Bhavnagar City Water Supply Scheme', and on 12th

January, 1979, two contracts in respect thereof were awarded

to respondent No. 1. On 29th March, 1981, respondent No. 1

filed a civil suit with regard to measurements recorded by

the Deputy Engineer and alleged underpayments. On 14th June,

1981, he gave notice to the State Government and the peti-

tioner Board requesting for reference of the disputes to an

arbitrator as provided for under clause 30 of the Agreement,

and gave notice under section 8 of the Arbitration Act, 1940

calling upon the petitioner to concur in the appointment of

one Shri G.G. Vaidhya. On 6th August, 1981 respondent No. 1

filed a civil miscellaneous application for appointment of

the said Shri G.G. Vaidhya as the sole arbitrator after

withdrawing the civil suit. The petitioner contended that

the application was not maintainable. The Civil Judge howev-

er appointed the said Shri G.G. Vaidhya as sole arbitrator.

The arbitrator gave an interim award holding that only two

claims were not arbitrable and that the other claims were

arbitrable.

The High Court having dismissed the appeal, a further

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appeal was filed in this Court. This appeal was, however,

disposed of by con-

319

sent on 30th November, 1983 to the effect that a retired

Secretary, Public Department who was at that time sitting

member of the petitioner-Board be appointed as the sole

arbitrator to decide all the disputes between the parties.

On 8th July, 1985, this sole arbitrator made a lump sum

award. The Civil Judge directed that the decree be passed in

terms of the award, rejecting the objections of the peti-

tioner.

The High Court by a common judgment dismissed the two

appeals of the petitioner challenging the award.

In the appeals to this Court by special leave, it was

contended: (1) that the arbitrator had committed an error of

law in not deciding or disclosing his mind about the arbi-

trability of the claim or counterclaims, (2) in the award no

basis or indication was given as to which claim was reject-

ed, and further what amount was awarded as claim and what

amount towards element of interest, (3) there was an error

apparent on the face of the award inasmuch as the basis on

which interest had been awarded had not been disclosed and

whether the interest has been awarded from the date of the

institution of the proceedings, (4) that the granting of

interest pendente lite was contrary to the decision of this

Court and (5) that the non-speaking award had resulted in

great prejudice to the petitioner inasmuch as against the

claim of Rs.1 lakh, Rs.57 lakhs had been awarded.

Disposing of the appeals, the Court,

HELD: 1(a) There is a trend in modern times that reasons

should be stated in the award though the question whether

the reasons are necessary in ordinary arbitration awards is

pending adjudication by the Constitution Bench of this

Court. Even if it be held that it is obligatory for the

arbitrator to state reasons, it is not obligatory to give

any detailed judgment. [325E]

1(b) An award Of an arbitrator should be read reasonably

as a whole to find out the implication and the meaning

thereof. Short intelligible indications of the grounds shall

be discernible to find out the mind of the arbitrator for

his action. [325F]

l(c) The Court does not sit in appeal over the award and

review the reasons. The Court can set aside the award only

if it is apparent from the award that there is no evidence

to support the conclusion or if the award is based upon any

legal proposition which is erroneous. [325G-H]

320

Indian Oil Corporation Ltd. v. Indian Corbon Ltd.,

[1988] 3 SCC 36, referred to.

l(d) It is one thing to say that an award is unintelli-

gible and it is another thing to say that the award was bad

because it was a nonspeaking award. [326F]

In the instant case, the arbitrator, in pursuance to the

order of this Court had to decide which of the disputes were

arbitrable and which were not. Reading the award along with

the preamble, it appears clear that the arbitrator had

decided the arbitrability and the amount which he has award-

ed was on the points which were arbitrable. In such circum-

stances it will not be in consonance with justice to refer

the matter to the Constitution Bench or to await the dispos-

al of the point by the Constitution Bench. [326B, G]

2. Reasonableness as such of an award unless per se

preposterous or absurd is not a matter for the Court to

consider. Appraisement of evidence by the arbitrator is

ordinarily not a matter for the Court. It is difficult to

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give an exact definition of the word 'reasonable'. The word

'reasonable' has in law, prima facie meaning of reasonable

in regard to those circumstances of which the actor, called

upon to act reasonably, knows or ought to know. The award in

the instant case cannot be condemned as unreasonable.

[327C-D]

Municipal Corporation of Delhi v. M/s. Jagan Nath Ashok

Kumar & Anr., [1987] 4 SCC 497 referred to.

3. The grant of interest pendente lite is however one

infirmity in. the award which is apparent on the face of the

award which in the interest of justice should be corrected.

[327E]

Executive Engineer (Irrigation) Balimela and Ors. v.

Abhaduta Jena & Ors., [1988] 1 SCC 418 and State of Orissa &

Ors. v. Construction India, [1987] Supp. SCC 709 referred

to.

In the instant case, April 2, 1984 is the date of the

reference to arbitration, on August 22, 1984 the arbitrator

entered upon the reference. July 8, 1985 is the date of the

award and July 19, 1985 the date of publication of the

award. The latter date should be taken as the date of the

award. Since the reference to arbitration was made after the

commencement of the Interest Act, 1978 the arbitrator under

section 3(1)(a) of the said Act was entitled to award inter-

est from August 6,

321

1981 till August 21, 1984. He could not have awarded inter-

est for the period from August 22, 1984 till the date of

publication of the award viz. July 19, 1985. [327G-H; 328A]

4. So far as interest for the period from the date of

the award (July 19, 1985) till the date of the decree is

concerned, interest should be allowed for this period, on

the principle that this Court can, once proceeding under

sections 15 to 17 are initiated, grant interest pending the

litigation before it, i.e. from the date of the award to the

date of the decree. It may be doubtful whether this can be

done ln cases arising before the Interest Act, 1978 in view

of the restricted scope of section 29 of the Arbitration

Act. [328D-E]

5. The interest awarded by the arbitrator for the period

from August 22, 1984 till the date of award is deleted; and

the interest on the principal sum is confined to 9% from

August 6, 1981 till August 21, 1984. However, exercising

powers under section 3 of the Interest Act, 1978 and section

29 of the Arbitration Act, 1940, the Court directed that the

principal sum or unpaid part thereof should carry interest

at the same rate from the date of the award (July 19, 1985)

till the date of actual payment. [329A-B]

JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 41819 of

1989.

From the Judgment and Order dated 29.4.1988 of the

Gujarat High Court in F.A. Nos. 848-849 of 1986.

V.B. Patel, D. Patel, T.H Pandey and R.P. Kapur for the

Appellant.

Soli J. Sorabjee, Atul Setalwad, N.J. Mehta, P. Shah,

S.K. Sharma, S. Sharma and P.H. Parekh for the Respondents.

The Judgment of the Court was delivered by

SABYASACHI MUKHARJI, J. This is an application for leave

to appeal under Article 136 of the Constitution from the

judgment and order of the High Court of Gujarat dated 29th

April, 1988.

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To appreciate the questions involved herein, few facts

have to be emphasized. In 1978, the State Government of

Gujarat undertook a scheme known as 'Bhavnagar City Water

Supply Scheme'. The

322

Scheme was divided into two parts: (i) Raising Main; and

(ii) Gravity Main. Raising Main was divided into two sec-

tions, namely, 10.1 k.ms. and 7.4 k.ms. steel welded pipe-

line. On or about 15/16th December, 1978, the State Govern-

ment issued letter of approval to the bargain between the

parties on certain terms.

On 12th January, 1979, two contracts were awarded to the

respondent No. 1 for Rs. 1,29,39,691 and Rs.94,30,435 which

provided the dates of completion as February 1979 and the

3rd week of September, 1980 respectively. On 29th March,

1981 the respondent No. 1 filed the Civil Suit No. 588 of

1981 in the City Civil Court with regard to measurements

recorded by the Deputy Engineer and alleged underpayments.

On 4th June, 1981, the respondent No. 1 gave notice to the

State Government and the petitioner-Board requesting for

reference of the alleged disputes to the arbitrator under

clause 30 of the agreement. On or about 8th July, 198 1 the

respondent No. 1 gave notice under Section 8 of the Arbitra-

tion Act, 1940 (hereinafter called 'the Act') calling upon

the petitioner to concur in the appointment of one Shri G.G.

Vaidhya. On 21st July, 1981, he withdrew the Civil Suit No.

588 of 1981. On 6th August, 1981, the respondent No. 1 filed

Civil Miscellaneous Application No. 231 of 1981 in the Court

of Civil Judge, (SD), Ahmedabad for appointment of the said

Shri G.G. Vaidhya as the sole arbitrator. On 7th November

1981, the petitioner filed reply contesting the arbitrabili-

ty of the various claims made in the application and inter

alia contending that the application was not maintainable.

On or about 15th December, 1981 the learned Civil Judge

appointed Shri G.G. Vaidhya as the sole arbitrator with a

direction that he should first decide as to which disputes

fell within the purview of clause 30 of the agreement. On

5th May, 1982, Shri Vaidhya gave an interim award holding

that the claims at S. Nos. 10(g) and 10(1) only were not

arbitrable and further that the other claims were arbitra-

ble. A petition was filed in High Court which was dismissed

and then there was an application to this Court under Arti-

cle 136 of the Constitution which was disposed of by consent

on 30th November, 1983. The said order inter alia provided

that the parties had agreed to settle the matter amicably

and one Shri Mohanbhai D. Patel, Retired Secretary, Public

Works Department, Gujarat and at that time Sitting Member of

the petitioner-Board was appointed as the sole arbitrator in

place of Shri Vaidhya to decide all disputes between the

parties relating to the following works:

"i) providing, fabricating, laying and joint-

ing 1000 mm dia. 10,000 M long steel welded

pipe line under Bhavnagar

323

Emergency Water Supply Scheme based on She-

trunji Dam--Agreement No. 5/2-1 of 1978-79.

ii) providing, fabricating laying and jointing

1000 mm dia 7,400 M long steel welded pipe

line under Bhavnagar Emergency Water Supply

Scheme based on Shetrunji Dam Agreement No.

B-2/2 of 1978-79."

It was further provided that all disputes concerning the

said two works in question should be referred to the sole

arbitrator and the Board could also be entitled to put

counter-claims before him. The consent terms also provided

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the following terms:

"That the arbitration proceedings shall be

started de novo meaning thereby that the

earlier appointment and proceedings before the

Sole Arbitrator Shit G.G. Vaidhya shall be

inoperative and void.

That the Board shall have a right to agitate

all points both in fact and in law before the

Sole Arbitrator as per the terms and condi-

tions of the contract including the question

of arbitrability within the meaning of clause

30 of the contract.

Both parties shall have a right to be repre-

sented by an Advocate and/or their representa-

tives.

The expenses of arbitration shall be borne

by .both the parties as per rules of Govern-

ment in this behalf. That both parties shall

agree to extend time as and when necessary for

competition of arbitration proceedings.

That a formal agreement for arbitration shall

be executed between the parties defining the

scope of Arbitration. _

That the provisions of the Indian Arbitration

Act, 1940 shall apply to the proceedings

before this Sole Arbitrator."

On 31st March, 1984, Shri M.D. Patel was appointed as

the sole arbitrator jointly by the parties, and on 2nd

April, 1984 he accepted his appointment and directed the

parties to file their claim statements within 15 days.

Thereafter, the respondent No. 1 filed claim to the tune of

Rs.4,92,20,683 and a counter-claim to the extent of

324

Rs.26,87,217.40. On 22nd August, 1984 the parties appeared

before the arbitrator after filing of claims and counter-

claims.

On 1st October, 1984 the petitioner filed an application

before the arbitrator praying that preliminary issues be

raised and decided first as to which of the disputes were

arbitrable under clause 30 Of the agreement. On 8th July,

1985, a lumpsum award was made by the arbitrator, and on

19th July, 1985 the parties were informed about the signing

of the award. On the same day the award filed by the re-

spondent No.1's Advocate which was dated 8.7.1985 was regis-

tered as Civil Miscellaneous Application No. 144/85. There-

after, notice was issued on the same day and served on the

petitioner also on the same day. The petitioner filed objec-

tions to the award and the Objection Petition was registered

as Civil Miscellaneous Application No. 158/85. Reply to the

objections was filed by the respondent No. 1. On 17th June,

1986, however, the learned Civil Judge directed that decree

be passed in terms of the award. Two appeals were filed by

the petitioner. On the 29th April, 1988 the High Court by a

judgment dismissed the petition challenging the award and

upheld the award. Aggrieved thereby, the petitioner has

moved this Court as mentioned hereinbefore.

Various grounds were urged in support of this applica-

tion. It was contended, firstly, that there was an error

apparent on the face of the award and that the award was

bad. It was submitted that the arbitrator had committed an

error of law in not deciding or disclosing his mind about

the arbitrability of claims or counter-claims, more so when

the Board's application for deciding the same, was pending

before the arbitrator. Before the learned Trial Judge the

Board had submitted an application to the arbitrator seeking

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to raise a preliminary issue regarding arbitrability of the

claims. As noted by the learned Trial Judge, it appears that

the third meeting specifically mentioned that the claims

were placed before the arbitrator and their contentions

about the arbitrability were considered. So, these issues

were gone into and it appears that the parties had agreed

and proceeded on the basis that the claims may be examined

and it was not necessary to decide preissue of arbitrability

and it was agreed that aH the claims be decided claimwise.

So, it cannot be said that the arbitrator had acted arbi-

trarily in discussing all the questions raised before him

without first deciding the question of arbitrability or

non-arbitrability of an issue as such.

The Court in its judgment has discussed the conduct of

the parties. It appears that the Court found that the par-

ties themselves had

325

agreed that the arbitrator should decide claimwise and on

merit. The Court so found, and in or opinion, rightly. The

arbitrator so proceeded. There was no error committed by the

arbitrator in so conducting himself. It was, secondly,

contended that out of the numerous claims before the arbi-

trator, some of which, according to the petitioner, were ex

facie not arbitrable and some were withdrawn including the

claims for interest of Rs.54,61,073 and compound interest of

Rs.82,26,039. and in the award no basis or indication was

given as to which claim was rejected and further of the

amount which was awarded as claim and what amount towards

element of interest. It was, thirdly, contended that there

was an error apparent on the face of the award inasmuch as

the basis on which interest has been awarded has not been

disclosed and whether the interest has been awarded from the

date of the institution of the proceedings. It was, fourth-

ly, contended that granting of interest pendente lite was

contrary to the decision of this Court. It was, lastly,

contended that non-speaking award had resulted in great

prejudice inasmuch as against the claim of Rs. 1 lakh, Rs.57

lakhs have been awarded.

The scope and extent of examination by the Court of the

award made by an arbitrator has been laid down in various

decisions. It has to be noted that there is a trend in

modern times that reasons should be stated in the award

though the question whether the reasons are necessary in

ordinary arbitration awards between the parties is pending

adjudication by the Constitution bench of this Court. Even,

however, if it be held that it is obligatory for the arbi-

trator to state reasons, it is not obligatory to give any

detailed judgment. An award of an arbitrator should be read

reasonably as a whole to find out the implication and the

meaning thereof. Short intelligible indications of the

grounds should be discernible to find out the mind of the

arbitrator for his action even if it be enjoined that in all

cases of award by any arbitrator reasons have to be stated.

The reasons should not only be intelligible but should also

deal either expressly or impliedly with the substantial

points that have been raised. Even in a case where the

arbitrator has to state reasons, the sufficiency of the

reasons depends upon the facts and the circumstances of the

case. The Court, however, does not sit in appeal over the

award and review the reasons. The Court can set aside the

award only if it is apparent from the award that there is no

evidence to support the conclusion or if the award is based

upon any legal proposition which is erroneous. See the

observations of this Court in Indian Oil Corporation Ltd. v.

Indian Carbon Ltd., [1988] 3 SCC 36.

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326

In the instant case, the arbitrator by virtue of the

terms mentioned in the order of this Court had to decide

which of the disputes were arbitrable and which were not. It

is true that the arbitrator has not specifically stated in

the award that he had to decide the question of arbitrabili-

ty. The arbitrator has rested by stating that he had heard

the parties on the point of arbitrability of the claim and

the ,counter-claim. He has further stated that after 'con-

sidering all the above aspects' and 'the question of arbi-

trability or non-arbitrability' he had made the award on

certain aspects. Reading the award along with the preamble,

it appears clear that the arbitrator had decided the arbi-

trability and the amount he has awarded was on the points

which were arbitrable. The contention that the arbitrator

had not decided the question of arbitrability as a prelimi-

nary issue cannot also be sustained. A reference to the

arbitrator's proceedings which were discussed in detail by

the High Court in the judgment under appeal reveal that the

procedure adopted by the arbitrator, i.e., that he will

finally decide the matters, indicated that the parties had

agreed to and the arbitrator had proceeded with the consent

of the parties in deciding the issues before him and in not

deciding the question of arbitrability as a separate, dis-

tinct and preliminary issue. The arbitrator has made his

award beating all the aspects including the question of

arbitrability in mind. It was contended before us that the

arbitrator has made a non-speaking award. It was obliged to

make a speaking award, it was submitted by terms of the

order of this Court. We cannot sustain this submission

because it is not obligatory as yet for the arbitrator to

give reasons in his decision. The arbitrator, however, has

in this case indicated his mind. It appears to us that the

point that the non-speaking award is per se bad was not

agitated before the High Court. We come to that conclusion

from the perusal of the judgment under appeal though, howev-

er, this point has not been taken in the appellant's appeal.

It is one thing to say that an award is unintelligible and

is another to say that the award was bad because it was a

non-speaking award. The point taken was that the award was

unintelligible and not that it was non-speaking. But there

was nothing unintelligible about the award.

We were invited to refer the matter to the Constitution

Bench and await the disposal of this point by the Constitu-

tion Bench. The contract in this case was entered into in

1978. The proceedings for initiation of arbitration started

in 1981. The matter had come up to this Court before which

resulted in the order dated 30th November, 1983. Pursuant

thereto, the award has been made and no grounds specifically

were urged though they were taken in the appeal in the High

327

Court in the arguments before the High Court about the award

being bad because it is non-speaking. In those circum-

stances, it will not be in consonance with justice for us to

refer the matter to the Constitution Bench or to await the

disposal of the point by the Constitution Bench. It was

further submitted before us that the award was unreasonable

and that the arbitrator had awarded a large amount to money

but the original claim was not so large and as such the

award was disproportionate. This contention, as it is, it

appears from the judgment of the High Court, was not urged

and canvassed before the High Court. The claim and the

counter-claim together in its totality, in our opinion, does

not make the award amount disproportionate. Reasonableness

as such of an award unless the award is per se preposterous

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or absurd is not a matter for the court to consider. Ap-

praisement of evidence by the arbitrator is ordinarily not a

matter for the court. It is difficult to give an exact

definition of the word 'reasonable'. Reason varies in its

conclusions according to the idiosyncrasy of the individual

and the times and the circumstances in which he thinks. The

word 'reasonable' has in law prima facie meaning of reasona-

ble in regard to those circumstances of which the actor,

called upon to act reasonably, knows or ought to know. See

the observations on this point in Municipal Corporation of

Delhi v. M/s. Jagan Nath Ashok Kumar & Anr., [1987] 4 SCC

497. Judged by the aforesaid yardstick the award cannot be

condemned as unreasonable.

There is, however, one infirmity in the award which is

apparent on the face of the award which in the interest of

justice as the law now stands declared by this Court, we

should correct, viz., the question of interest pendente

lite. The right to get interest without the intervention of

the Court and the powers of the court to grant interest on

judgment have been examined by this Court in Executive

Engineer (Irrigation) Balimela and Ors. v. Abhaduta Jena &

Ors., [1988] 1 SCC 418 which observations were also followed

by this Court in State of Orissa & Ors. v. Construction

India, [1987] Supp. SCC 709. In accordance with the princi-

ples stated therein and the facts in this case, it appears

that the principal amount awarded is Rs.57,65,273. This is

confirmed. In this case, 2nd April, 1984 is the date of the

reference to arbitration, on 22nd August, 1984 the arbitra-

tor entered upon the reference. 8th July, 1985 is the date

of the award and 19th July, 1985, is the date of the publi-

cation of the award.

The interest awarded, in the instant case, covers three

periods: (i) 6th August, 1981 to 21st August, 1984 prior to

the commencement of the arbitration proceedings; (ii) 22nd

August, 1984 to 19th July,

328

1985 pendente lite; and (iii) 19th July, 1985 to 17th June,

1986 (date of award to date of decree).

Having regard to the position in law emerging from the

decision of this Court in Executive Engineer (Irrigation)

Balimela & Ors. (supra) and section 29 of the Arbitration

Act, 1940 and section 34 of the Code of Civil Procedure, we

would modify the grant of interest in this case. The arbi-

trator has directed interest to be paid at 17% per annum

from 6.8.1981 upto the date of decree viz., 17.6.1986. Since

in this case the reference to arbitration was made after the

commencement of the Interest Act, 1978, the arbitrator under

section 3(1)(a) of the said Act was entitled to award inter-

est from 6.8.1981 till 21.8.1984 in view of this Court's

decision in Abhaduta Jena's case (supra). In the light of

the same decision, he could not have awarded interest for

the period from 22.8.1984 till the date of the publication

of the award viz. 19.7. 1985. So far as interest for the

period from the date of the award (19.7.1985) till the date

of the decree is concerned, the question was not specifical-

ly considered in Abhaduta Jena's case (supra) but special

leave had been refused against the order in so far as it

allowed interest for this period. We think interest should

be allowed for this period, on the principle that this Court

can, once proceedings under sections 15 to 17 are initiated,

grant interest pending the litigation before it, i.e., from

the date of the award to the date of the decree. It may be

doubtful whether this can be done in cases arising before

the Interest Act, 1978 in view of the restricted scope of

section 29 of the Arbitration Act. But there can be no doubt

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about the court's power to grant this interest in cases

governed by the Interest Act, 1978 as section 3(1)(a) which

was applied by Abhaduta Jena to arbitrators will equally

apply to enable this Court to do this in these proceedings.

In this connection, it is necessary to consider whether

the date of commencement of the arbitration proceedings

should be taken as the date of the reference or the date on

which the arbitrator entered upon the reference as the date

of the calculation of interest. In this case, the proceed-

ings commenced on 2nd April, 1984 and the arbitrator entered

upon the reference on 22nd August, 1984. Having regard to

the facts and the circumstances of the case, it is neces-

sary, in our opinion, to take 22nd August, 1984 as the date.

It is also necessary to consider whether the date of award

should be taken as the date of its making or its publica-

tion. The award was made on 8th July, 1985 and it was pub-

lished on 19th July, 1985, and, therefore, the latter date

would be taken as the date of the award.

329

We would, however, delete the interest awarded by the

arbitrator for the period from 22.8.1984 till the date of

the award and confine the interest on the principal sum of

Rs.57,65,273 to interest at 9 per cent from 6.8.1981 till

21.8.1984 (which has been worked out at Rs.29,82,443).

However, in exercise of our powers under section 3 of the

Interest Act, 1978 and section 29 of the Arbitration Act,

1940, we direct that the above principal sum or the unpaid

part thereof should carry interest at the same rate from the

date of the award (19.7.1985) till the date of actual pay-

ment.

The appeals are disposed of in the above terms.

N.V.K. Appeals disposed

of.

330