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PETITIONER:

M/S. AROSAN ENTERPRISES LTD.

Vs.

RESPONDENT:

UNION OF INDIA & ANR.

DATE OF JUDGMENT: 16/09/1999

BENCH:

B.N.Kirpal, Umesh C. Banerjee

JUDGMENT:

BANERJEE,J.

These two Appeals by the grant of Special Leave and

arising out of the Judgment of the Delhi High Court focus

two singularly singular questions pertaining to (i) the time

being the essence of the contract and (ii) authority of the

High Court in the matter of interference with an Arbitral

Award under the Repealed Act of 1940 (The Arbitration Act,

1940). For effectual disposal of these two questions,

noticed above, reference to certain factual details in this

judgment is inevitable and adverting thereto it appears that

on October 4, 1989 Union of India floated an invitation to

tender for purchase of sugar to meet the urgent requirement

of anticipated scarcity in the Indian market during the

Dussehra and Diwali festivals in November, 1989 which

however, and without much of a factual narration, culminated

in an Agreement dated 24th/25th October, 1989 with M/s.

Arosan Enterprises, being the Appellants herein, for the

supply of 58000 metric tonnes of sugar. The Contract as

above inter alia contained the following terms: (a) That

the claimant shall supply 58,000 M.T. of sugar (net weight

plus minus 5% at sellers option). (b) That the claimant

shall arrange shipment of entire quantity of the contracted

sugar so as to reach Indian Ports not later than 31st

October, 1989; shipment within the contracted delivery

period was to be the essence of the contract. In case of

delay the seller was to be deemed to be in contractual

default with a right to the buyer to cancel the contract.

The buyer could however extend the delivery period at a

discount as may be mutually agreed between the buyer and the

seller. (c) That price payable was to be U.S. Dollar 480

per metric tonne. (d) That the seller had to establish an

unconditional irrevocable performance guarantee in favour of

the buyer by any Indian Nationalised Bank at New Delhi for

10% of the total contract value of the maximum guaranteed

quantity to be shipped, within 7 days of the contract. (e)

That the payment was to be made to the seller by irrevocable

letter of credit (L/C) covering 100% value of the contract

quantity. The L/C was to be established by the buyer within

seven days of the receipt of an acceptable performance Bank

Guarantee. (f) The performance Bank guarantee (PBG) was to

be by any Indian Nationalised Bank at New Delhi and was to

be kept valid for a minimum period of ninety days beyond the

last date of contract shipment period." The factual score

further depicts that on 24th October, 1989, itself the

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appellant did furnish a performance bank guarantee for $

29,28,000 and upon bank guarantee being furnished, the

Government of India assigned the contract to the Food

Corporation of India (FCI) under clause 20 of the Agreement.

FCI also in its turn opened a Letter of Credit for the full

value of the contract though, however, as the records depict

that while on 26th October, 1989, the Letter of Credit was

opened by FCI but its authentication was not effected within

the delivery date i.e. 31st October, 1989. Be it noted

that in terms of the payment clause, the payment was to be

made by the buyer by way of irrevocable letter of credit

covering 100% of the contract quantity and letter of credit

was to be established by the buyer within seven days from

the receipt of performance bank guarantee and it is upon

completion of the period of 7 days from the date of

acceptance of the performance guarantee, the letter of

credit should have been authenticated and that was to be

effected by about 31st October, 1989. In the contextual

facts the authenticated bank guarantee was effected only on

2nd November, 1989 i.e. after the expiry of the date of the

delivery - It is on this score detailed submissions have

been made by both Mr. Rohtagi appearing in support of the

appeal and Mr. Dholakia appearing for FCI and Mr.

Rawal, the learned Addl. Solicitor General for the Union of

India and it is in K.N. of some assistance. this

perspective certain further factual details would be The

telex messages from Food Corporation of India dated 3rd, 7th

and 8th November, 1989 go to show that in fact there was the

anxiety of the buyer to obtain the goods and it is on these

anxious inquiries, Mr. Rohtagi contended that the time for

delivery obviously stands extended and the essence of the

contract been given a go-by. The facts further depict that

while the correspondence were had between the parties as

regards the delivery schedule, Government of India by a

letter dated 8th November transmitted an intimation which

was despatched on 9th November, 1989, canceling the contract

at the risk and cost of the appellant herein. Subsequently,

however, on 11th November, 1989, the Government of India

unilaterally by its letter withdrew the letter of

cancellation and on 15th November, 1989 the appellant

informed the FCI that by reason of the cancellation, the

cargo arranged already, has gone out of control and that a

new cargo was being arranged by reason wherefor FCI was

asked to fix a new delivery date and consequently steps

would be taken in regard thereto. Needless to refer here,

that the letter of withdrawal of cancellation, however, did

not contain any fixed date or new date of delivery. There

was, however, as the records depict, total silence from FCI,

and consequently, the appellants on 24th and 30th November,

1989 further reminded the cooperation to fix the delivery

date and take necessary steps to effect the payment under

the law of trading. Significantly, both FCI and Government

of India maintained a total silence in regard thereto in

spite thereof. On the factual matrix it further appears

that subsequently a meeting was held between the claimants

and the Union Minister for Food and Civil Supplies wherein

it was agreed that on the claimants paying a sum of Rs.5

lacks towards the expenses incurred by the Government in

opening the letter of credit and claimants giving up any

claim for damages, the performance bank guarantee would be

released - this aspect of the matter has however been very

emphatically disputed by respondents and both the learned

senior Advocates appearing on behalf of the respondents

contended that the Court would not be justified in assessing

this aspect of the matter to be of any relevance in the

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contextual facts. We shall refer to this aspect of the

matter later more fully in this judgment, but to complete

the factual score, it appears that on 25th January, 1990 the

Government of India canceled the contract on the ground that

the seller had failed to fulfill its contractual obligations

within stipulated time which was mentioned to be on 31.10.89

and the performance bank guarantee of the claimants was also

forfeited by FCI. It is by reason of such a forfeiture,

however, that the matter was referred to arbitration in

terms of the arbitration clause in the agreement between the

parties. There being however, no dispute, as regards the

arbitration clause, we deem it convenient not to set out the

same in extenso and suffice it would be further to note that

Sri Justice S.N. Shankar, the former Chief Justice of the

High Court of Orissa and Sri K. C. Diwan, an Advocate were

appointed as Arbitrators in terms therewith and who in their

turn made and published their award to the effect that the

claimants were entitled to the refund of the performance

bank guarantee amount of $ 29,28,000. The claim of the

claimant-appellant herein, however, on account of interest

was rejected. It is this Arbitral award which was

challenged before High Court and the learned Single Judge

found that FCI's letter dated 8th November, 1989 clearly

depicted that they were still interested in taking delivery

of the goods and therefore the claimant was justified in

asking for fixation of a fresh delivery date. The learned

Single Judge further found that the findings of the

Arbitrators in regard to extention of the delivery period

and failure to fix the fresh date has resulted in breach of

the contract on the part of the Government and the same

being purely based on appreciation of materials on record,

question of interference therewith would not arise since by

no stretch it can be termed to be an error apparent on the

face of the record. The award, therefore, was sustained by

the learned Single Judge. In an appeal therefrom however,

the finding of the Single Judge was reversed and the Bench

of the Delhi High Court dealing with the Appeal in question

recorded that the buyer, being the Appellant herein, had in

fact impliedly accepted 14/15th November, 1989 as the new

date of delivery by which the seller was bound to deliver

and the failure of the seller to supply by the said date

constituted a breach of contract justifying the cancellation

and thus set aside the judgment and order of the learned

Single Judge as also the arbitral award. The Bench further

ordered that the findings of the Arbitrators to the effect

that the buyer was obliged to fix fresh dates of delivery

was an error of law on the face of the record and as such

there was a breach committed by the seller. It is against

this order of the Division Bench of the High Court that a

Special Leave Petition was filed before this Court and this

Court by an order dated 4th September, 1995 granted special

leave in pursuance whereof this matter has come up for final

disposal before this Bench. Turning now on to the issues as

noticed above namely, whether time was the essence of the

contract or not, it would be convenient to note the relevant

extracts of the Arbitral award pertaining to the issue in

question. The Arbitrators, inter alia, found: "The

withdrawal of the letter of cancellation (vide Ex.A.21) had

the effect of reviving the original contract dated 24/25

October, 1989 with all its terms except that sugar had to be

delivered by 31 October, 1989. Stipulation in clause 3 of

the contract that shipment with contract delivery period is

of the essence of the contract" also stood revived. Letter

of Credit had been established on the basis of the original

contract which stipulated a fixed time for delivery but as

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no time for delivery was fixed in the letter withdrawing the

cancellation (Ex.A- 21), the claimants naturally felt

concerned and repeatedly requested the respondent to do the

needful.

...........

Evidence adduced thus clearly shows that the

Respondents sent no reply whatever to the request of the

claimants asking for specification of the delivery time and

for the needful being done in regard to L/C in the changed

circumstances after the withdrawal of the letter of

cancellation. On the contrary, all of a sudden they

canceled the contract again by the letter dated 25.1.1990

Ex.A36. In our view, this conduct of the respondents was

unjustified and illegal in the facts of this case.

..........

Then again it would be seen that the ground of

cancellation taken in the letter of second cancellation

Ex.A36 is the same as had been taken earlier in letter

Ex.A17, namely failure to fulfill the contractual obligation

within the stipulated time of 31st October, 1989. The

respondents had already waived this ground. They were

precluded from canceling the contract on the same ground

again after its revival. The cancellation by Ex.A36 thus on

a non-existent ground and illegal."

.......

The Arbitrators further held that

"We further find that L/C opened by the respondents

was with reference to the contract which stipulated a fixed

time for delivery (namely 31st October, 1989) but after

revival of the contract the position had changed materially.

The original contract had been canceled and this

cancellation had been withdrawn and in the contract that

stood after withdrawal of the cancellation no time for

delivery was stipulated. It was incumbent on the

respondents to apprise this position to the Bank and make

suitable changes in the L/C. The claimants could receive

from the Bank, the amount secured by L/C for their benefit

only after satisfying the bank, that they had shipped the

contracted sugar in accordance with the terms of the

contract. There is nothing on the record to show that the

respondents took any steps to inform the Bank of the changed

position so that shipping documents presented by the

claimants after 31st October, 1989 could be examined by the

bank in the light of the new situation."

.........

The argument is without merits. If the contract was

revived on the understanding why was not this fact

communicated to the claimants in reply to their persistent

queries about the date of delivery and why was the L/C not

suitably modified and the bank issuing the L/C informed

accordingly. In fact, there is no foundation in the

pleadings for such a plan.

.........

Admittedly in spite of these requests of the claimant

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for extension of delivery period no fresh delivery date was

notified by the respondents. Thus the extension of delivery

period was never granted nor intimated to the

supplier/claimant."

........

The Arbitrators therefore came to a conclusion that

there is a breach of the contract committed by the

respondents herein and consequently forfeiture of the

performance bank guarantee was illegal and not sustainable.

The learned Single Judge in the application for setting

aside the award was pleased to record: "The cancellation of

the contract on 25.1.1990 on the basis of non-delivery of

material by 31st October, 1989 was usually misconceived,

untenable and illegal because 31st October, 1989 had

admittedly ceased to be delivery date........It appears that

the argument that 14th November, 1989 or 15th November, 1989

were the fresh delivery dates is an after-thought. If the

respondents believed that these were the delivery dates,

nothing prevented them from saying so at the relevant time.

The claimant repeatedly asked them to fix fresh delivery

date. Respondents could reply that these were the dates."

.........

These show that the original delivery date of the

contract had become part of the letter of credit. Unless

the same was modified and the modified date had been

notified to the banks, the banks would be paying under the

credit at their own risk. No bank would be willing to take

such a risk. The result that follows is that the payment to

the supplier/claimant would have been in jeopardy unless the

letter of credit was amended. The intention in the original

contract was that the supplier should get immediate payment

through irrevocable letter of credit. Without amendment of

the letter of credit, the said intention of the contract

could not be fulfilled. The supplier was justified in

ensuring that he would get the payment for the material

supplied by him before the supplies were made."

In the facts of the matter under consideration the

learned Single Judge found that FCI by its letter dated 8th

November, 1989 clearly depicted in no uncertain terms that

they were still interested in taking delivery of the goods

and which as a matter of fact according to the learned

Single Judge changed the entire complexion of the matter.

The other issue in which the learned Single Judge delved

into is in regard to the Court's authority of interference

vis--vis the award - this aspect of the matter would be

dealt with later in this judgment alongwith the second

issue, as such we refrain ourselves from making any comment

thereon at this juncture. Turning attention on to the first

issue, the Division Bench of the High Court proceeded mainly

on certain presumptions to wit: (i) the telex message from

the seller dated 8.11.89 was sent to the buyer after receipt

of the cancellation and thus constituted a representation

against the cancellation and it was pursuant to this

representation that the buyer had issued the letter dated

11th November, 1989 withdrawing the letter of cancellation.

(ii) the presumption of the High Court went also on to the

effect that the buyer had therefore impliedly fixed

14th/15th November, 1989 as the new date of delivery by

which time, the seller was bound to deliver and the failure

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of the seller to supply by the said date constituted the

breach of contract justifying the cancellation in January,

1990 These presumptions of the High Court in our view are

wholly unwarranted in the contextual facts for the reasons

detailed below but before so doing it is to be noted that in

the event the time is the essence of the contract, question

of their being any presumption or presumed extension or

presumed acceptance of a renewed date would not arise. The

extension if there be any, should and ought to be

categorical in nature rather than being vague or in the

anvil of presumptions. In the event the parties knowingly

give a go by to the stipulation as regards the time - the

same may have two several effects: (a) parties name a

future specific date for delivery and (b) parties may also

agree to the abandonment of the contract - as regards (a)

above, there must be a specific date within which delivery

has to be effected and in the event there is no such

specific date available in the course of conduct of the

parties, then and in that event, the courts are not left

with any other conclusion but a finding that the parties

themselves by their conduct have given a go by to the

original term of the contract as regards the time being the

essence of the contract. Be it recorded that in the event

the contract comes within the ambit of Section 55, the

remedy is also provided ther ein. For convenience sake

Section 55 reads as below: "55. When a party to a contract

promises to do a certain thing at or before a specified

time, or certain things at or before specified times, and

fails to do any such thing at or before the specified time,

the contract, or so much of it as has not been performed,

becomes voidable at the option of the promisee, if the

intention of the parties was that time should be of the

essence of the contract.

If it was not the intention of the parties that time

should be of the essence of the contract, the contract does

not become voidable by the failure to do such thing at or

before the specified time; but the promisee is entitled to

compensation from the promisor for any loss occasioned to

him by such failure. If, in case of a contract voidable on

account of the promisor's failure to perform his promise at

the time agreed, the promisee accepts performance of such

promise at any time other than that agreed, the promisee

cannot claim compensation for any loss occasioned by the

non-performance of the promise at the time agreed, unless,

at the time of such acceptance, he gives notice to the

promisor of his intention to do so."

Incidentally the law is well settled on this score on

which no further dilation is required in this judgment to

the effect that when the contract itself provides for

extension of time, the same cannot be termed to be the

essence of the contract and default however, in such a case

does not make the contract voidable either. It becomes

voidable provided the matter in issue can be brought within

the ambit of the first paragraph of Section 55 and it is

only in that event that the Government would be entitled to

claim damages and not otherwise. In Pollock & Mulla's

Indian Contract & Specific Relief Acts, three several cases

have been very lucidly discussed, where time can be termed

to be the essence of contract: "1. Where the parties have

expressly stipulated in their contract that the time fixed

for performance must be exactly complied with. 2. Where

the circumstances of the contract or the nature of the

subject matter indicate that the fixed date must be exactly

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complied with and 3. Where time was not originally of the

essence of the contract, but one party has been guilty of

undue delay, the other party may give notice requiring

contract to be performed within reasonable time and what is

reasonable time is dependant on the nature of the

transaction and on proper reading of the contract in its

entirety." In the contextual facts, the Division Bench

relied on the Telex messages of the seller, as noticed

above, as a representation against cancellation but the fact

remains that there was in fact a definite indication of

expression of stand of the Government as regards the

withdrawal of the letter of cancellation. The issue arises

as to the true effect of the withdrawal of the cancellation.

Incidentally on the factual score it appears that after

withdrawal of the first letter of cancellation the

Government again for the second time canceled the Agreement

by a letter dated 25th January, 1990 to the following

effect: 1. "Your attention is invited to the contract

mentioned above for supply of 58000 MTs of imported sugar,

Clause 3 whereof stipulates that the seller shall arrange

shipment of the entire quantity so as to reach Indian ports,

basis coast as per Clause 4(1) ibid not later than 31st

October, 1989 2. As you have failed to fulfil the

contractual obligation within stipulated time and the time

being the essence of the contract, the contract is hereby

cancelled at your risk and cost 3. The performance Bank

Guarantee tendered with reference to the above contract is

also forfeited for the reasons mentioned above." There is

therefore, a cancellation of an agreement which once stood

canceled and withdrawn: can it be termed to be an otherwise

valid termination after recalling of the letter of

cancellation in the month of November, 1989. The High Court

has dealt with the entire correspondence in extenso between

the parties during this interegnum and as such we refrain

ourselves from dealing with the same in detail, suffice it

to record that as a matter of fact from the date of

recalling of the cancellation letter, there were consistent

reminders about the dispatch instruction, about the arrival

of vessels and as to the port of landing which were for the

Respondents herein, to fix, in terms of the Agreement but

there was a total silence from the Respondent's end.

Admittedly and there cannot possibly be any doubt as regards

the cancellation of Agreement on the expiry of the time if

the time is treated to be the essence of the contract, but

in the contextual facts when as a matter of fact, there was

a letter of cancellation in terms of the contract and

assuming by reason of failure to supply as per the Agreement

between the parties - but that cancellation stands

withdrawn. There is, therefore, a waiver of the breach if

there be any, as regards non- performance of the contract

and it is on this score that the High Court has gone wrong

on the issue of duty to speak and it is on this score that

the presumption of the High Court to the effect that the

cancellation was on the representation of the seller, is

totally unwarranted. Fixation of a future date of

performance in the absence of any evidence by the Appellate

Court, is not only unjustified but wholly untenable in law.

Court cannot possibly fix a date on its own for performance

of the contract. It is thus necessary to detail out herein

below the observations of the Appellate Court on this count.

The Appellate Court in paragraph 29 of the judgment observed

as below: "29. The delivery was to be effected by 31st

October, 1989. On the representation of the seller as

contained in their messages dated 8th and 9th November 1989

the cancellation was withdrawn. That is the only conclusion

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possible. Any other conclusion will be wholly erroneous.

We therefore, cannot accept the submission that the

withdrawal of cancellation was not on the representation of

the seller. On this view the respondents were bound in law

to accept delivery if effected by 14th/15th November, 1989.

It is implicit that the buyers had consented to take

delivery by 14th/15th November, 1989. The contention of

learned counsel for the seller that the mention of 31st

October, 1989 by the respondents in letter dated 25th

January, 1990- also shows that the respondents did not treat

14th/15th November, 1989 as the extended delivery date

cannot be accepted. Since delivery was not made at all, the

mention of 31st October, 1989 in the letter of cancellation

(25th January, 1990) by itself would not show that the buyer

did not treat 14th/15th November, 1989 as delivery date. It

thus cannot be said that the cancellation was on

non-existent grounds. The contract also stipulates that the

buyer may extend the delivery period at a discount as may be

mutually agreed to between buyer and seller. In this state

of affairs the further contention that the supply could not

be made by 14th/15th November, 1989 on account of non

amendment of the delivery period in the contract and non

amendment of letter of credit cannot be accepted. This plea

is clearly an after thought. Our attention has not been

drawn to any legal proposition which casts an obligation,

under these circumstances, on the buyer to fix a fresh date

of delivery. The effect of accepting the contention of the

seller would be that prior to 8th November, 1989, on the

facts and circumstances of the present case, the breach was

on the part of the seller but the buyer having withdrawn the

cancellation and not having specified the fresh date of

delivery, 31st October, 1989 having already passed, the

breach would be on the part of the buyer. The contention on

the face of it is fallicious. It has to be rejected."

In paragraph 30 of the judgment the Bench observed:

"30. Apart from the urgent need for supply of sugar,

otherwise too, in commercial transaction of this nature, in

law, ordinarily time is of essence (See: M/s. China Cotton

Exporters Vs. Beharilal Ramcharan Cotton Mills Ltd., AIR

1961 SC 1295). Further, in the present case, the contract

itself stipulates that the supply within the contracted

delivery period was to be the essence of the contract. In

this view, the delivery of sugar firstly before 31st

October, 1989 and later by 14th/15th November, 1989 was of

essence and non supply within the aforesaid periods by the

seller would show that the seller is in breach of the

contract. The buyer having withdrawn the cancellation of

the contract on seller's representation that the delivery

will be made by 14th/15th November 1989 could not have

refused to accept delivery within the said period. It is

also not possible for us to accept the contention that the

cancellation was not withdrawn on the representation of the

seller. On account of non-supply of sugar upto 8th

November, 1989 and even failure to supply the shipping

particulars the contract was cancelled by the buyer.

Thereupon the seller supplied the shipping particulars and

made a representation that the supply would be made on or

before 14th/15th November, 1989. Under these circumstances

the cancellation of the contract was withdrawn. The letter

dated 11th November, 1989 withdrawing the cancellation

states that on reconsideration of the matter the

cancellation is withdrawn. In the letter dated 11th

November, 1989 the absence of specific reference to the

representation of the seller that the delivery would be made

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by 14th/15th November, 1989. Under these circumstances, is

of no consequence. As already noticed above, the letter

dated 11th November, 1989 was personally handed over to the

representative of the seller. On receipt of that letter the

seller did not write to the buyer to specify the fresh date

of delivery or to ask for amendment of the letter of credit.

The next letter thereafter is dated 15th November, 1989.

The seller did not say in this letter that pursuant to what

had been stated by it in message dated 8th November, 1989

the Ships had entered Indian waters and as such the buyer

should incorporate fresh date of delivery and amend the

letter of credit so that shipping documents could be

furnished by seller to the buyer and that without these

amendments the bank may not pay the amount covered by the

letter of credit. On the other hand, the seller in the

letter dated 15th November, 1989 stated that the cargo had

gone out of its control and fresh cargo would be arranged

which will be arriving at Indian port within a few days.

The seller asked for minimum 15 days time to supply the

cargo and requested for delivery period being extended upto

30th November, 1989 with consequential amendments in the

letter of credit for acceptance of the documents. The buyer

was not obliged in law to extend the delivery period. The

silence on the part of the buyer by not sending reply to the

letter dated 15th November, 1989 and also not sending any

reply to the subsequent letters dated 20th November, 1989,

24th November, 1989, 4th December, 1989 and 20th December,

1989 only shows that the buyer was not willing to extend

delivery period after 15th November, 1989. The sugar was

required for the urgent need of Dussehra/Diwali festivals of

November, 1989 and the supply not having been made till

14th/15th November, 1989 the buyer was jus tified in not

extending the delivery period.

Turning now on to the issue of duty to speak, can it

be said that silence on the part of the buyer in not

replying to the letters dated 15th November, 1989, 20th

November, 1989, 24th November, 1989, 4th December, 1989 and

20th December, 1989 only shows that the buyer was not

willing to extend the delivery period after 15th November,

1989 - the answer cannot but be in the negative, more so by

reason of the fact that fixation of a second delivery dated

by the Appellate Bench of the High Court as noticed above,

cannot be termed to be in accordance with the law. There

was, in fact, a duty to speak and failure to speak would

forfeit all the rights of the buyer in terms of the

Agreement. Failure to speak would not, as a matter of fact,

jeopardise the sellers interest neither the same would

authorise the buyer to cancel the contract when there has

been repeated requests for acting in terms of the agreement

between the parties by the seller to that effect more so by

reason of a definite anxiety expressed by the buyer as

evidenced in the intimation dated 8th November, 1989 and as

found by the Arbitrator as also the Learned Single Judge.

As noticed above, the entire judgment of the Appellate Bench

proceeds on the basis of certain presumptions, we are afraid

however that reliance thereon cannot but be termed to be

fallacious for inter alia the reasons mentioned herein

below: (a) The first letter of cancellation of contract was

received by the seller on 9th November, 1989 after issuance

of both the seller's telex dated 8.11.89 and 9.11.89 to the

buyer and therefore the same could not amount to

representations against the cancellation as is being held by

the Appellate Court. (b) The observation of the Appellate

Bench pertaining to the amendment of the delivery date in

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the letter of credit (i.e. upto 29th January, 1990) does

seem to be erroneous in the contextual facts of the matter

under consideration. The date of delivery was specific in

the letter of credit itself and in the event of non-delivery

within the period, there might be some complications and as

such request for extension of delivery date was made though

however, without any response from the buyer's end, when, in

fact, the conduct itself shows that the delivery date as

mentioned in the letter of credit was not adhered to and the

parties were ad-idem on the score of extension. (c) The

letter of withdrawal of cancellation in any event does not

refer to any representation and nor does it fix any date of

delivery as has been so thought of by the High Court. The

Appellate Court's presumption as to the fixation of the

delivery date being 14th/15th November, 1989 in the normal

course of event and had it been so, there would have been an

express intimation from the buyer of such a specific

extension. (d) Diverse intimations as noticed above from

the seller's end to the buyer, went unattended and not one

letter was sent in reply thereto recording therein that

14th/15th November, 1989 ought to be the fresh date of

delivery. (e) When the contract was finally cancelled on

25th January, 1990, the Respondents stand was that the

delivery date breached by the claimant was 31st October,

1989 and not 14th/15th November, 1989 as has now been fixed

by the Appellate Bench of the High Court. (f) The Appellate

Bench, in fact, has not been able to appreciate the

importance of the date of delivery in the letter of credit

specially in an international commercial contract, since

without the date of delivery being altered in the letter of

credit itself and the bank being informed accordingly,

question of release of any amount to the seller by their

bank would not arise. (g) The Appellate Bench as a matter

of fact has gravely erred in having an implied delivery date

when the parties in fact did not stipulate at any point of

time such a date. Let us now at this juncture consider this

aspect of the matter in slightly greater detail. The

irrevocable letter of credit was issued by the Indian

Overseas Bank, Janpath favouring the Appellant herein for $

27,840,000 drawn on applicants for credit at site for 100%

invoice value covering shipment of 58000 million tonnes net

weight, plus/minus 5% to be packed in Polylined jute bags of

50 kgs net weight `accompanied by the following documents".

The letter of credit by itself records that the name of the

Indian Port would be advised by the Government by means of

an amendment to the credit and it further records that the

credit is valid for negotiation upto three months from the

date of letter of credit subject to negotiation within 21

days from the date of report of Independent/Joint Surveyor

referred to in clause 5 of the documents. These documents

include inter alia the following: (a) Beneficiary

certificate to the effect that all the terms and conditions

of the contract dated October, 24, 1989 and its annexures

between beneficiary and the applicants for the credit, have

been fully complied with - one original and two copies. (b)

Certificates of inspection of quality, weight and packing in

original and 5 copies; at the ports of discharge signed and

issued by the applicants for the credit at the cost of the

beneficiary, based on minimum 5 random sampling and 5 check

weightment certifying (a) quality. (c) Photocopy of the

signed contract between beneficiary and applicants for the

credit (d) Documents with discrepency should not be

negotiated without banks prior approval. Incidentally, be

it noted that the contract itself envisaged appointment of a

Surveyor. Clause 9 of the Agreement provides: "9.

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Inspection/survey at load port(s) The quality, quantity and

packing at the load port(s) shall be supervised and

certified by independent surveyors ominated by the Buyer at

Sellers cost. The certificate of such nominated surveyors

based on not less than 5 random sampling and 5 check

weightment shall be final. The report of such surveyors

shall, inter-alia, cover the following. "Load ports in

Clause 9 above was subsequently amended to the port of

discharge, the clause however, envisages the appointment of

an independent Surveyor nominated by the buyer at the

sellers cost and report of the surveyor is of considerable

importance since the contract itself provides the far of

activities of the Surveyors and the coverage under the

Certificate and the same are: i) Cleanliness and fitness of

the holds of vessel for receiving sugar prior to

commencement of loading; ii) Quality and specifications;

iii) Weight gross and net; iv) Packing v) Total number of

bags; vi) Arkings vii) Date of commencement and completion

of leading viii) Radioactivity-free certificate ix) Current

crop of country of origin, mentioning crop years x) Load

Rate xi) LOA/BEAM and xii) Arival Draft" Whilst on the

subject of documentary evidence and the presumption of the

Appellate Bench as regards the fixation of date of delivery,

it would be convenient to note the Shipment as also Price

Clause in the Agreement. The Shipment Clause reads as

below: "3. Shipment Period: Sellers shall arrange

shipment quantity so as to reach Indian Ports basis coast as

per Clause 4(i) not later than 31st October, 1989. Date of

tendering notice of readiness of the vessel as per clause

13(vii) here of shall be the date of delivery period.

Shipment within contract delivery period is of the essence

of this contract. In case of any delay in reaching the

shipments before the delivery period at Indian Port, it is

clearly understood that except for the reasons of force

majeure, the seller will be deemed to be in contractual

default/ and the buyer will have the absolute right to

cancel the contract at the cost and risk and responsibility

of the seller and claim for damages, costs, losses, expenses

to from the seller. The Buyer, may however, extend the

delivery period at a discount as may be mutually agree to

between the Buyer and the Seller. Any cargo(es),

under-loading/afloat on the date of this contract cannot be

supplied." The Price Clause reads as below: "4. Price I.

In polylined jute bags, per metric tonne net weight, cost,

insurance and freight, free out, one safe Indian port at

Buyer's option. US 480.00 PMT (US DOLLARS FOUR HUNDRED

EIGHTY ONLY) PER M.T. In case sugar is shipped in Polylined

polypropylene bags, the above price will be subject to a

discount of US 2.00 per metric tonne net weight of full

cargo. The above price is based on discharge at one safe

Indian port at Buyer's option, on the west Coast if the

vessel carrying sugar is coming from the West of India, or

on the East Coastal vessel carrying sugar is coming from the

East of India for this purpose. Tuticorin will be

considered as a West Coast Indian port. II. Opposite Coast

Discharge The Buyer has the option to discharge the sugar at

a port on the coast other than the basis coast as per Clause

4(1) above by paying additional charges @ US$ 1.50 on the

net weight of the full cargo. III. Two Port Discharge

Buyer has the option to discharge the sugar at two ports on

any one coast for which the Buyer shall pay additional

charges US $ 1.50 PMS on the net weight of full cargo. In

case the second discharge port is Calcutta or Haldia, the

Buyer shall pay additional charges US $ 2.00 PMS on the net

weight of full cargo instead of US $ 1.50 PMS. For

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discharge at two ports on the coast other than the basis

coast as per Clause No.4(1) above, the additional charges

for two port discharge payable under this clause shall be

over and above that payable under Clause No.4(ii) above." It

needs to be noted here that the Clause as regards any cargo

being under-loading/afloat on the date of the contract has

been subsequently deleted. The contract term as regards the

shipment period expressly provide thus that the Shipment

should reach Indian ports not later than 31st October, 1989

but the issue is whether in the contextual facts time was

the essence of the contract and in the event the answer is

in the affirmative, then and in that event whether there was

subsequent extension of time and what is the effect

therefor. Herein before in this judgment we did refer to

the effect of subsequent extension, but the issue as regards

the factum of the time being the essence of the contract was

left to be dealt with at the later stage and as such, it

would be convenient to note the same at this juncture.

Clause 3 of the Agreement namely the Shipment period

expressly records that Shipment within contract delivery

period was of the essence of the contract and it was clearly

understood between the parties that except for reasons of

force majeure the Seller would be deemed to be in default

and buyer would have the absolute right to cancel the

contract at the cost, risk and responsibility of the seller.

This particular clause however itself provided that the

buyer may however extend the delivery period at a discount

to be mutually agreed to between the buyer and the seller:

the contract therefore, envisaged specifically an extension

of the period on a mutually agreed term. The Price Clause

also is of some relevance in the matter of appreciation of

the Agreement between the parties vis--vis the time.

Clause 4 (ii) records that the buyer had the option to

discharge the sugar at a port on the coast, other than the

basic coast by paying additional charge and in terms of

Clause 4(iii) the buyer had the option to discharge the

sugar at two ports upon payment of additional charge. It is

therefore, apparent that different rates have been provided

for different ports and specific naming of the port is thus

required before delivery is expected in the matter. On the

wake of this factual detail as appears from the record and

by reason of non-fulfilment of the buyers' obligations in

terms of the agreement, can it be said that the time was the

essence of the contract? In our view the answer to this all

important question is in the negative. The contract itself

provides reciprocal obligations and in the event of

non-fulfilment of some such obligations and which have a

direct bearing onto them - strict adherence of the time

schedule or question of continuing with the notion of the

time being the essence of the contract would not arise. The

obligations are mutual and the terms of the agreement are

inter-dependent on each other. Incidentally, paragraph 761

of Halsbury"s Laws of England (4th Ed: Vol.41) seems to be

very apposite in this context. The passage reads as below:

"761. Place of Delivery uncertain. Where the place of

delivery is not indicated by the contract , and is within

the option of the seller or of the buyer respectively, it is

a condition precedent to the liability of the buyer or of

the seller respectively to accept or to deliver the goods

that he should receive notice of the place of delivery."

If any credence is to be given to the above noted

passage in Halsbury's Laws of England being read with the

terms of the contract, we do not find any justification for

the Appellate Bench of the High Court to come to a

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conclusion that in fact time was the essence of the

contract, since the condition precedent has not yet had

taken place, neither the requirement of appointment of

Surveyor has been complied with: the contract ought to be

read with the time clause but subject however to certain

other conditions. The essential point is that the seller

must be instructed in accordance with the terms of the

contract as to the way in which he can perform his duty in

terms of the agreement and effect delivery upon the goods

being put on board - In the event the Port of Discharge is

not named -can the goods be put on board or can the seller

be made responsible for his failure to put the goods on

board? The answer cannot but be in the negative. In the

contextual facts, the goods were on the high seas and to be

diverted to the Ports of India, shortly, as such nomination

of the port, was an essential requirement, in order to make

the seller liable for breach and entitlement of the buyer to

claim damages. In this context a passage from Benjamin's

Sale of Goods Act (4th Edition) seems to be rather

appropriate: Paragraph 20-040 reads as below: "The

essential point is that the seller must be instructed, in

accordance with any relevant terms of the contract, as to

the way in which he can perform his duty to put the goods on

board. If no shipping instructions are given, or if

shipping instructions are not given within the time allowed

by the contract, the seller is not liable in damages for

non-delivery; and the buyer is liable in damages for

non-acceptance."

Mere fixation of a period of delivery or a time in

regard thereto does not by itself make the time as the

essence of the contract, but the agreement shall have to be

considered in its entirety and on proper appreciation of the

intent and purport of the clauses incorporated therein. The

state of facts and the relevant terms of the Agreement ought

to be noticed in its proper perspective so as to assess the

intent of the parties. The Agreement must be read as a

whole with corresponding obligations of the parties so as to

ascertain the true intent of the parties. In the instant

case, the Port of Discharge has not been named neither the

Surveyor is appointed - without whose certificate, question

of any payment would not arise - can it still be said that

time was the essence of the contract, in our view the answer

cannot but be a positive `No'. Mr. Dholakia, the learned

Senior Advocate as also Mr. Rawal, the learned Additional

Solicitor General, appearing for FCI and Union of India

respectively, strongly contended that the express words to

the effect that the delivery ought to be effected by 31st

October, 1989 ought to be taken with proper sanctity and the

party be held responsible for not effecting delivery within

the time stipulated in the Agreement and in this context

strong reliance was placed on the decision of this Court in

the case of China Cotton Exporters vs. Biharilal Ramcharan

Cotton Mills Ltd. (AIR 1961 SC 1295). We are afraid

however, that reliance on the decision of this Court in

China Cotton Case (supra) is totally misplaced. This Court

in the above noted decision was considering the true effect

of the word "therefore", which is totally absent here. For

convenience sake however, paragraph 6 of the judgment is

noted herein below: "6. We find thus that whatever may

have been said earlier in the printed portion of the

contract the parties took care, after specifying

"October/November, 1950" as the date of shipment to make a

definite condition in the remarks column, on the important

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question whether the shipment date was being guaranteed or

not and if so, to what extent. The words are: "This

contract is subject to import licence, and therefore the

shipment date is not guaranteed." Remembering, as we must,

that in commercial contracts, time is ordinarily of the

essence of the contract and giving the word "therefore" its

natural, grammatical meaning, we must hold that what the

parties intended was that to the extent that delay in

shipment stands in the way of keeping to the shipment date

October/November, 1950, this shipment date was not

guaranteed; but with this exception shipment

October/November, 1950, was guaranteed. It has been

strenuously contended by the learned Attorney-General, that

the parties were mentioning only one of the many reasons

which might cause delay in shipment and the conjunction

"therefore" was used only to show the connection between one

of the many reasons - by way of illustration and a general

agreement that the shipment date was not guaranteed. We do

not consider this explanation of the use of "therefore"

acceptable. If the parties intended that quite apart from

delay in obtaining import licence, shipment date was not

guaranteed, the natural way of expressing such intention -

an intention contrary to the usual intention in commercial

contracts of treating time as the essence of the contract -

would be to say: "This contract is subject to import

licence and the shipment date is not guaranteed." There

might be other ways of expressing the same intention, but it

is only reasonable to expect that anybody following the

ordinary rules of grammar would not use "therefore" in such

a context except to mean that only to the extent that delay

was due to delay in obtaining import licence shipment time

was not guaranteed.

The decision in China Cotton Exporter's (supra) cannot

possibly thus lend any assistance in the contextual facts of

the matter in issue. The facts being, totally different and

is thus clearly distinguishable. Further reliance was

placed by the Respondent in the decision of this Court in

the case of I.T.C. Ltd. vs. Debt Recovery Appellate

Tribunal and Others (1998 (2) SCC 70) wherein this Court

relying upon the decision in the case of U.P. Co- operative

Federation Ltd. v. Singh Consultants & Engineers (P) Ltd.

(1988 (1) SCC 174) observed in paragraph 17 of the report as

below: "17. It is now well settled that the question

whether goods were supplied by the appellant or not is not

for the Bank. This point has already been decided by the

decision of this Court in U.P.Coop. Federation case

referred to above. In that case it was stated (at p.193) by

Jagannatha Shetty, J. as follows: (SCC para 45)

"The bank must pay if the documents are in order and

the terms of credit are satisfied. The bank, however, was

not allowed to determine whether the seller had actually

shipped the goods or whether the goods conformed to the

requirements of the contract. Any dispute between the buyer

and the seller must be settled between themselves. The

courts, however, carved out an exception to this rule of

absolute independence. The courts held that if there has

been `fraud in the transaction' the bank could dishonour

beneficiary's demand for payment. The courts have generally

permitted dishonour only on the fraud of the beneficiary,

not the fraud of somebody else." (emphasis supplied)

It will be noticed from the italicised underlined

portion in the above passage that there will be no cause of

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action in favour of the bank in cases where the seller has

not shipped the goods or where the goods have not conformed

to the requirements of the contract. The Bank, in the

present case before us, could not, by merely stating that

there was non-supply of goods by the appellant, use the

words "fraud or misrepresentation" for purposes of coming

under the exception. The dispute as to non-supply of goods

was a matter between the seller and buyer and did not, as

stated in the above decision, provide any cause of action

for the Bank against the seller."

Reliance was also placed to the Law of Bankers'

Commercial Credits by Gutteridge and Megrah wherein the

authors stated that: "Banks issuing irrevocable credits

subject to the Uniform Customs are not concerned with the

sales contract or the goods; if it were otherwise credit

business would be impossible. In law the credit contract

stands by itself and is not to be interpreted to the point

of amendment or augmentation by reference to the contract of

sale or to any external document." The authors further laid

emphasis on the General Provision c of the Uniform Customs

which states that: "(c) Credits, by their nature, are

separate transactions from the sales or other contracts on

which they may be based and banks are in no way concerned

with or bound by such contracts."

Further emphasis was also laid by authors on Article

8(a) which provides that:: "(a) In documentary credit

operations all parties concerned deal in documents and not

in goods." Relying on the above, it was contended that the

plea as raised by the Appellant that the amendment to the

letter of credit is a requirement in order to obtain payment

cannot but be termed to a myth and as such should not be

relied upon - while it is true that the documents by

themselves make and create a separate agreement with the

Bank, and the Bank cannot possibly raise any dispute in

regard thereto as to whether the goods are actually been

supplied or not, but two factors ought to be kept in mind

apart from what we have stated herein before in this

judgment. The first being, to facilitate payment it is

better to have the extended delivery date on the letter of

credit itself by way of an amendment, so as to avoid any

future complication. This is not a rule of law or a

requirement of law but a matter of prudence. The second

aspect is the counter guarantee of the Nova Scotia Bank.

The counter guarantee also stipulates the delivery date and

in the event of some queries raised in regard thereto, the

party in whose favour such a letter of credit stands, would

be put to unnecessary and frivolous litigation for no fault

of the beneficiary. As noticed above it is not a

requirement of law but a matter of prudence. No exception

can possibly be taken to the views expressed by this Court

in ITC's case or the statement in the Law of Bankers'

Commercial Credits. Be it further noted that substance of

both citations noticed above is the enforceability of the

letter of credit by way of a separate transaction, in any

event, that would mean and imply litigation in the event of

there being any issue raised as regards the delivery period.

Parties ought not to be allowed to be plunged into

litigation, as such both the citations do not have any

relevance apropos the submission made by the Appellants

herein. Apart therefrom and in any event in the matter of

compliance of the terms and conditions of letter of credit,

reference of a delivery date is a requirement since the

original contract stood incorporated in the letter of credit

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itself and the delivery date being shown therein as 31st

October, 1989. The requirement of a certificate that

original contract has been fully complied with, makes it

necessary that the delivery for the purpose of the contract

had to be extended since the original date by reason of

efflux of time has lapsed. The learned Single Judge of the

High Court looked at the matter from another point of view

as well and he observed: "Looking at it from another angle,

if amendment in the letter of credit was not necessary, the

respondents should say so in reply to the various letters of

the claimants in this connection...."

Whether the Respondents should have said it or not as

observed by the learned Single Judge, but the fact remains

that there was total silence and nothing prevented them from

stating that such an endorsement either is or is not

required but as noticed above, the Respondents herein has

maintained delightful silence on that score. In the

premises it would thus be safe to conclude that by reason of

the non-fulfillment of the three conditions as noted above,

question of time being the essence of the contract would not

arise and as such delivery was to be expected within a

reasonable time but before the expiry of the reasonable

time, diverse letters were sent asking for details but the

buyer maintained total silence when there was a duty to

speak as noted above. The Appellate Court's finding that

the contract stood extended upto 14th/15th October, 1989

does not have any factual support and as such totally

unwarranted and thus cannot be sustained. For the self -

same reason the finding of the Appellate Court as regards

the issue of law, warranting intervention of the High Court

vis--vis the award, cannot also be sustained. This is

apart from the fact that it is a factual issue upon proper

reading of the material documents on record. In any event

upon coming to a conclusion that facts detail out in the

judgment (under Appeal) unmistakably record that a new date

of delivery is available on record - Question of the same

being an issue of law does not arise in the facts of the

matter under consideration. The letter of the Government of

India dated 11.11.89 stated that the matter has since been

reconsidered and the letter of cancellation stands withdrawn

though however, without prejudice to rights and contentions

of the Government but there was as a matter of fact,

reconsideration of the entire issue and it is only on that

basis that the letter of cancellation was withdrawn. The

facts depict that on 15th November, 1989, an intimation was

sent by the Appellants to FCI stating that due to the

cancellation, the cargo already arranged for, has gone out

of control and a new cargo was being arranged. In the same

letter the Appellant further asked for fixation of a new

date of delivery and to make consequential amendment for

acceptance of documents under the letter of credit by the

Bank but no reply is sent. Letters of reminders have been

sent again on 20th November, 1989, 24th November, 1989 but

without any response whatsoever and subsequently the

cancellation came in January, 1990 as noticed above,

forfeiting the performance Bank Guarantee by FCI. In that

view of the matter, question of the time being the essence

would not arise in the contextual facts. More so by reason

of the fact that the cargo was a cargo afloat on the High

seas. Turning attention on to the other focal point, namely

the interference of the court, be it noted that Section 30

of the Arbitration Act, 1940 providing for setting aside an

award of an arbitrator is rather restrictive in its

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operation and the statute is also categorical on that score.

The use of the expression `shall' in the main body of the

Section makes it mandatory to the effect that the award of

an arbitration shall not be set aside excepting for the

grounds as mentioned therein to wit: (i) arbitrator or

umpire has misconducted himself; (ii) award has been made

after the supersession of the arbitration or the proceedings

becoming invalid; and (iii) award has been improperly

procured or otherwise invalid. The above noted three

specific provisions under Section 30 thus can only be taken

recourse to in the matter of setting aside of an award. The

legislature obviously had in its mind that the Arbitrator

being the judge chosen by the parties, the decision of the

Arbitrator as such ought to be final between the parties.

Be it noted that by reason of a long catena of cases,

it is now a well settled principle of law that reappraisal

of evidence by the court is not permissible and as a matter

of fact exercise of power by the Court to reappraise the

evidence is unknown to a proceeding under Section 30 of the

Arbitration Act. In the event of there being no reasons in

the award, question of interference of the court would not

arise at all. In the event, however, there are reasons, the

interference would still be not available within the

jurisdiction of the Court unless of course, there exist a

total perversity in the award or the judgment is based on a

wrong proposition of law: In the event however two views

are possible on a question of law as well, the Court would

not be justified in interfering with the award. The common

phraseology `error apparent on the face of the record' does

not itself, however, mean and imply closer scrutiny of the

merits of documents and materials on record: The court as a

matter of fact, cannot substitute its evaluation and come to

the conclusion that the arbitrator had acted contrary to the

bargain between the parties. If the view of the arbitrator

is a possible view the award or the reasoning contained

therein cannot be examined. In this context, reference may

be made to one of the recent decision of this Court in the

case of State of Rajasthan v. Puri Construction Co. Ltd.

(1994 (6) SCC 485) wherein this court relying upon the

decision of Sudarsan Trading Co.'s case (Sudarsan Trading

Co. v. Government of Kerala and Anr. (1989 (2) SCC 38)

observed in paragraph 31 of the Report as below:- "A court

of competent jurisdiction has both right and duty to decide

the lis presented before it for adjudication according to

the best understanding of law and facts involved in the lis

by the judge presiding over the court. Such decision even

if erroneous either in factual determination or application

of law correctly, is a valid one and binding inter parts.

It does not, therefore, stand to reason that the

arbitrator's award will be per se invalid and inoperative

for the simple reason that the arbitrator has failed to

appreciate the facts and has committed error in appreciating

correct legal principle in basing the award. An erroneous

decision of a court of law is open to judicial review by way

of appeal or revision in accordance with the provisions of

law. Similarly, an award rendered by an arbitrator is open

to challenge within the parameters of several provisions of

the Arbitration Act. Since the arbitrator is a judge by

choice of the parties and more often than not a person with

little or no legal background, the adjudication of disputes

by an arbitration by way of an award can be challenged only

within the limited scope of several provisions of the

Arbitration Act and the legislature in its wisdom has

limited the scope and ambit of challenge to an award in the

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Arbitration Act. Over the decades, judicial decisions have

indicated the parameters of such challenge consistent with

the provisions of the Arbitration Act. By and large the

courts have disfavoured interference with arbitration award

on account of error of law and fact on the score of

misappreciation and misreading of the materials on record

and have shown definite inclination to preserve the award as

far as possible. As reference to arbitration of disputes in

commercial and other transactions involving substantial

amount has increased in recent times, the courts were

impelled to have fresh look on the ambit of challenge to an

award by the arbitrator so that the award does not get

undesirable immunity. In recent times, error in law and

fact in basing an award has not been given the wide immunity

as enjoyed earlier, by expanding the import and implication

of "legal misconduct" of an arbitrator so that award by the

arbitrator does not perpetrate gross miscarriage of justice

and the same is not reduced to mockery of a fair decision of

the lis between the parties to arbitration. Precisely for

the aforesaid reasons, the erroneous application of law

constituting the very basis of the award and improper and

incorrect findings of fact, which without closer and

intrinsic scrutiny, are demonstrable on the face of the

materials on record, have been held, very rightly, as legal

misconduct rendering the award as invalid. It is necessary,

however, to put a note of caution that in the anxiety to

render justice to the party to arbitration, the court should

not reappraise the evidences intrinsically with a close

scrutiny for finding out that the conclusion drawn from some

facts, by the arbitrator is, according to the understanding

of the court, erroneous. Such exercise of power which can

be exercised by an appellate court with power to reverse the

finding of fact, is alien to the scope and ambit of

challenge of an award under the Arbitration Act. Where the

error of finding of facts having a bearing on the award is

patent and is easily demonstrable without the necessity of

carefully weighing the various possible viewpoints, the

interference with award based on erroneous finding of fact

is permissible. Similarly, if an award is based by applying

a principle of law which is patently erroneous, and but for

such erroneous application of legal principle, the award

could not have been made, such award is liable to be set

aise by holding that there has been a legal misconduct on

the part of the arbitrator. In ultimate analysis it is a

question of delicate balancing between the permissible limit

of error of law and fact and patently erroneous finding

easily demonstrable from the materials on record and

application of principle of law forming the basis of the

award which is patently erroneous. It may be indicated here

that however objectively the problem may be viewed, the

subjective element inherent in the judge deciding the

problem, is bound to creep in and influence the decision.

By long training in the art of dispassionate analysis, such

subjective element is, however, reduced to minimum. Keeping

the aforesaid principle in mind, the challenge to the

validity of the impugned award is to be considered with

reference to judicial decisions on the subject."

It is on the basis of this well settled proposition

that the learned Single Judge came to a conclusion that the

findings of the Arbitrators in regard to the extension of

delivery period and failure to fix the fresh date has

resulted in breach of the contract on the part of the

Government and the same being purely based on appreciation

of material on record by no stretch it can be termed to be

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an error apparent on the face of the record entitling the

court to interfere. The Arbitrators have, in fact, come to

a conclusion on a closer scrutiny of the evidence in the

matter and re-appraisal of evidence by the court is unknown

to a proceeding under Section 30 of the Arbitration Act.

Re-appreciation of evidence is not permissible and as such

we are not inclined to appraise the evidence ourselves save

and except what is noticed herein before pertaining to the

issue as the time being the essence of the contract. In

this context, reference may be made to a decision of this

Court in the case of M. Chellappan vs. Secretary, Kerala

State Electricity Board and Another (1975 (1) SCC 289).

Mathew, J. speaking for the Three Judge Bench in paragraph

12 and 13 observed as below: "12. The High Court did not

make any pronouncement upon this question in view of the

fact that it remitted the whole case to the arbitrators for

passing a fresh award by its order. We do not think that

there is any substance in the contention of the Board. In

the award, the umpire has referred to the claims under this

head and the arguments of the Board for disallowing the

claim and then awarded the amount without expressly

adverting to or deciding the question of limitation. From

the findings of the umpire under this head it is not seen

that these claims were barred by limitation. No mistake of

law appears on the face of the award. The umpire as sole

arbitrator was not bound to give a reasoned award and if in

passing the award he makes a mistake of law or of fact, that

is no ground for challenging the validity of the award. It

is only when a proposition of law is stated in the award and

which is the basis of the award, and that is erroneous, can

the award be set aside or remitted on the ground of error of

law apparent on the face of the record:

Where an arbitrator makes a mistake either in law or

in fact in determining the matters referred, but such

mistake does not appear on the face of the award, the award

is good notwithstanding the mistake, and will not be

remitted or set aside.

The general rule is that, as the parties choose their

own arbitrator to be the judge in the disputes between them,

they cannot, when the award is good on its face, object to

his decision, either upon the law or the facts. (see

Russell on Arbitration, 17th ed., p.322).

13. An error of law on the face of the award means

that you can find in the award or a document actually

incorporated thereto, as for instance, a note appended by

the arbitrator stating the reasons for his judgment, some

legal proposition which is the basis of the award and which

you can then say is erroneous (see Lord Dunedin in Champsey

Ehara & Co. v. Jivraj Baloo Co.). In Union of India v.

Bungo Steel Furniture Pvt. Ltd., this Court adopted the

proposition laid down by the Privy Council and applied it.

The Court has no jurisdiction to investigate into the merits

of the case and to examine the documentary and oral evidence

on the record for the purpose of finding out, whether or not

the arbitrator has committed an error of law."

In any event, the issues raised in the matter on

merits relate to default, time being the essence, quantum of

damages - these are all issues of fact, and the Arbitrators

are within their jurisdiction to decide the issue as they

deem it fit - the Courts have no right or authority to

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interdict an award on a factual issue and it is on this

score the Appellate Court has gone totally wrong and thus

exercised jurisdiction which it did not have. The exercise

of jurisdiction is thus wholly unwarranted and the High

Court has thus exceeded its jurisdiction warranting

interference by this Court. As regards issues of fact as

noticed above and the observations made herein above obtains

support from a judgment of this Court in the case of Olympus

Superstructures Pvt. Ltd. v. Meena Vijay Khetan & Ors.

(1999 (5) SCC 651) Before we conclude one significant

feature ought to be noticed. Admittedly, a meeting was held

between the claimants and the Minister of Food and Civil

Supply and according to the claimant, it was agreed that on

the claimants paying a sum of Rs.5 lakhs towards expenses

incurred by the Government in opening the Letter of Credit

and on the claimants giving up any claim for damages, the

Performance Bank Guarantee would be released. While some

discrepancy arise pertaining to the meeting in regard to the

above subject but the subsequent evidence disclosed as

appears from the record of the Arbitrators that the

Appellants herein purchased a Bank Draft for Rs.5 lakhs from

the State Bank of India and took it to the office of

Government of India on 27th November, 1989 but it was not

accepted. The Arbitrators as appears summoned relevant file

of the Government which was produced and the reasoned award

contain the following: "During the cross examination of

Shri S.K. Swamy the note made in this file by the Minister

referred to by S. Santokh Singh was vertabim repeated in

the question but to the witness Shri Swamy on 8th May, 1991.

How the claimants got the verbatim text of this note, if the

file was privileged, is not clear, but what we found was

that the note of the Minister on the file was exactly in the

same words as the question put to Mr. Swamy in his cross

examination dated 8.5.91. All facts stated by S. Santokh

Singh are mentioned in this note. This part of the

statement of S. Santokh Singh is thus sufficiently

corroborated by this note and S. Santokh Singh has also

produced the draft for Rupees five lakh mentioned by him in

his statement."

This aspect of the matter has also been totally

overlooked by the Appellate Bench of the High Court.

Needless to record that two Arbitrators Hon'ble Mr. Justice

S.N. Shankar, a retired Chief Justice of the Orissa High

Court and Shri K.C. Diwan, Senior Advocate upon appraisal

of evidence and have considered the matter in its entirety

and in proper perspective. As such, the question of

interference with the Arbitral Award does not and cannot

arise. In that view of the matter, these Appeals succeed.

The order of the Appellate Bench of the High Court stand set

aside and the order of the learned Single Judge of the Delhi

High Court stands restored. Each party however to bear its

own cost.