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PETITIONER:

MUNICIPAL CORPORATION OF DELHI

Vs.

RESPONDENT:

JAGAN NATH ASHOK KUMAR & ANR.

DATE OF JUDGMENT17/09/1987

BENCH:

MUKHARJI, SABYASACHI (J)

BENCH:

MUKHARJI, SABYASACHI (J)

OZA, G.L. (J)

CITATION:

1987 AIR 2316 1988 SCR (1) 180

1987 SCC (4) 497 JT 1987 (4) 25

1987 SCALE (2)695

CITATOR INFO :

APL 1989 SC 268 (17)

RF 1989 SC 890 (29)

RF 1989 SC 973 (11)

ACT:

Arbitration Act, 1940: ss. 20, 30, & 33-Arbitrator.

Sole judge of quality and quantity of evidence-When germane

and relevant reasons are indicated by the arbitrator award

not unreasonable-Whether time essence of contract-Mixed

question of law and fact.

Indian Evidence Act, 1872: s. 1-Applicability of to

proceedings before an arbitrator.

Words and Phrases: Word "reasonable"-Meaning of.

%

The respondent no. 1 was awarded a contract by the

petitioner Corporation for construction of staff quarters,

which was later rescinded on the ground that he could not

complete the work as per the schedule. A Single Judge of the

High Court referred the dispute to an arbitrator.

The arbitrator in his award submitted to the High Court

found that there was a delay of nearly four months in the

commencement of the work due to giving of the lay out etc.,

that there was also delay in the execution of sanitary work

by another contractor who was previously employed and that

this work was still incomplete at the time of the making of

the award, and as such complete site had not been made

available to the respondent-contractor in time. He further

found that there was provision in the agreement for

extension of time for completion of the contract as well as

for levy of compensation for delay, that subsequent to the

expiry of the stipulated period of completion the

petitioner-Corporation did not make time the essence of

contract by directing the claimant to complete the work

within a specified period but instead rescinded the

contract. He, therefore, held that the decision of

rescission of the contract was bad, wrongful, and hence the

claim of the respondent for Rs.23,820 was just. He also

allowed interest on the sum from the date of rescission of

the contract. Certain counter claims of the petitioner-

Corporation were also allowed by giving cogent }.1 reasons.

181

Rejecting the objection to the award raised by the

petitioner, the Single Judge of the High Court directed the

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award to be made a rule of the Court. A Division Bench of

the High Court summarily dismissed the appeal against that

judgment and order.

In the special leave petition to this Court on the

question: Whether reasonableness of the reasons in the

speaking award was justiciable under Article 136 of the

Constitution.

Dismissing the special leave petition,

HEADNOTE:

HELD: 1.1 The reasonableness of the reasons given by an

arbitrator in making his award cannot be challenged in

proceedings under Article 136. [183E]

1.2 Appraisement of evidence by the arbitrator is

ordinarily never a matter which the court questions and

considers. Section 1 of the Evidence Act, 1872 in its rigour

is not intended to apply to proceedings before an

arbitrator. In the instant case, the parties have selected

their own forum and the deciding forum must be conceded the

power of appraisement of the evidence. The arbitrator is the

sole judge of the quality as well as quantity of evidence

and it will not be for the Supreme Court to take upon itself

the task of being a judge of the evidence before the

arbitrator. It may be possible that on the same evidence the

Court might have arrived at a different conclusion than the

one arrived at by the arbitrator but that by itself could be

no ground for setting aside the award of an arbitrator.

1186B-D]

Haji Ebrahim Kassam Cochinwall v. Northern Indian oil

Industries Ltd., A.I.R. 1951 Calcutta 230, referred to.

2. There was no violation of any principles of natural

justice in the instant case. It was not a case where the

arbitrator had refused cogent and material factors to be

taken into consideration. The award could not therefore, be

said to be vitiated by non-reception of material or non-

consideration of the relevant aspects of the matter. [186A-

B]

Mediterranean & Eastern Export Co. Ltd. v. Fortress

Fabrics Ltd., 11948] 2 All. E.R. 186, referred to.

3. Whether in a particular contract time was the

essence of the contract or not, is a mixed question of law

and fact. In the instant case, the reasons given by the

arbitrator in holding that it could not be taken

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that time was the essence of the contract, were cogent and

based on materials on record and have a rational nexus with

the conclusion arrived at by him. [184C;186A]

4. The word 'reasonable' have in law the prima facie

meaning of reasonable in regard to those circumstances of

which the actor, called on to act reasonably, knows or ought

to know. An arbitrator acting as a Judge has to exercise a

discretion informed by tradition, methodized by analogy,

disciplined by system, and subordinated to the primordial

necessity of order in the social life. Therefore, where

reasons germane and relevant for the arbitrator to hold in

the manner he did have been indicated, it cannot be said

that it was unreasonable. [187E-F; 184E

Re a Solicitor, [1945] K.B. 368 at 371 of the Report)

and Stroud's Judicial Dictionary, Fourth Edition, page 2258,

referred to.

In the instant case the arbitrator acted reasonably and

rationally. The challenge to the award was, therefore,

rightly rejected by the High Court. [187G]

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JUDGMENT:

CIVIL APPELLATE JURISDICTION: Special Leave Petition

(Civil) No. 9524 of 1987.

From the Judgment and order dated 25.5.1987 of the

Delhi High Court in F.A.O.. No. 58 of 1987.

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

The Judgment of the Court was delivered by

SABYASACHI MUKHARJI, J. The respondent No. 1 herein was

awarded the contract in question for the construction of

staff quarters for the Municipal Corporation of Delhi, the

petitioner herein and the work had to be completed within

the stipulated period mentioned in the contract. Since,

however, the work was not being done in the manner as the

Delhi Municipal Corporation thought it ought to have been

done, the petitioner wrote 29 letters during June, 1978 to

July, 1980 regarding the timely completion of the work. It

is alleged that the work was not completed by the 15th of

January, 1980 as per the schedule in the contract. Show

cause notice was given to the respondent-contractor. The

contractor failed to give satisfactory reply and according

to the petitioner, the contract was rescind. Thereafter

several other letters were written which are not material to

refer.

183

There was an arbitration clause in the agreement. On 2nd

November, 1982 an application was filed under section 20 of

the Arbitration Act, 1940 (hereinafter called 'the Act') in

the Delhi High Court. A learned Single Judge of the said

High Court directed reference of the dispute and directed

the Commissioner of the Municipal Corporation or anyone

nominated by him to enter into reference. The Commissioner

on 17th of March, 1983 appointed one Shri S.M. Hasnain,

Arbitrator and Superintending Engineer No. II, of the

Municipal Corporation of Delhi as the arbitrator. He is

respondent No. 2 in this petition. The said arbitrator

entered upon the reference and thereafter on 21st of August,

1984 submitted his award allowing some claims of the

contractor and some counter-claims of the Municipal

Corporation. The Municipal Corporation filed its objections

to the said award. The learned Single Judge of the High

Court by his judgment and order dated 22nd of October, 1986

directed that the award be made a rule of the Court. A

Letters Patent Appeal was filed thereafter but the same was

summarily dismissed by a Division Bench of the Delhi High

Court on 25th May, 1987. The petitioner seeks leave in this

petition under Article 136 of the Constitution to challenge

the said order. As the learned Division Bench did not give

reasons, we must refer to the order of the learned Single

Judge.

The arbitrator gave reasons in support of the award.

The question is whether reasonableness of the reasons in a

speaking award is justiciable under Article 136 of the

Constitution. We are of the opinion that such reasonableness

of the reasons given by an arbitrator in making his award

cannot be challenged in a proceeding like the present. It is

desirable, however, that we state our reasons for so

holding.

In order to appreciate this the award of the arbitrator

must be looked into. The arbitrator in his award has dealt

with various claims, one of the main claims was the claim of

23,850 out of which 8,300 was in the form of fixed deposit

receipt carrying interest and the balance amount of 15,520

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was deducted as security of 10% from the bills of the

claimant. According to the claimant this amount had wrongly

been forfeited by the Corporation at the time of rescission

of the contract and that the same should be refunded to him.

It was held by the arbitrator that there was provision in

the agreement for extension of time for completion of the

contract, as well as for levy of compensation for delay.

Therefore, it could not be taken that time was the essence

of the contract. The arbitrator had opined that according to

the respondents' own admission there was delay of nearly

four

184

Months in the commencement of the work due to giving of the

layout etc. There was also delay in the execution of

sanitary work by another contractor previously employed by

the petitioner and this work was still incomplete at the

time of the making of the award and as such complete site

had not been made available to the present contractor in

time. Further there was provision in the agreement for

extension of time or levy of compensation for delay and,

therefore, according to the arbitrator time could not be

considered in such a contract to be the essence of the

contract. Furthermore, subsequent to the expiry of the

stipulated period of completion, the Corporation did not

make time the essence of the contract by directing the

claimant to complete the work within a specified period but

instead rescinded the contract. In those circumstances it

was held by arbitrator that the decision of rescission of

the contract has bad, wrongful and hence the claim of

Rs.23,820 was considered to be just. We do not find any lack

of reason in the reasons given by the arbitrator. Whether in

a particular contract time was the essence of the contract

or not is a mixed question of law and fact. But the reasons

given by the arbitrator appear to be reasonable and have

rational nexus with the conclusion arrived at by him. It was

stated that it was admitted on behalf of the Corporation

that there was initial delay of four months. This was

controverted by the Corporation. They say that there was no

admission. This, in our opinion was a significant factor

that there was some delay and in spite of the delay the

corporation gave letters to the contractor to complete the

work and in the contract itself there was provision for

extension of time. In our opinion, where reasons germane and

relevant for the arbitrator to hold in the manner he did

have been indicated, it cannot be said that it was

unreasonable. Another factor the arbitrator had noted was

that the site was not available due to the conduct of

another contractor previously employed by the petitioner.

This factor is also a relevant factor. The fourth item of

the award was a claim for damages for Rs.60,000(). This

amount was not granted on the ground that the claimant was

not able to prove this amount. The fifth item in the award

was a claim for interest at 18 % per annum on certain items

from the date of rescission of the contract to the date of

payment of decretal amount. The arbitrator allowed the

interest as the amount had been withheld due to unjustified

and wrongful rescission of the contract. Reasons given by

the arbitrator appear per se not unreasonable. The

arbitrator has not awarded any costs. There were also

counter claims by the Corporation against the contractor.

The first counter claim was forfeiture of Rs.23,820 on

account on the rescission of the contract. Inasmuch as the

rescission was held to be unjustified in the facts of this

case, the forfeiture was also held to be wrongful. There was

a claim of

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Rs.32,640 as payment of compensation at 10% of Rs.3,28,400,

but as the time was not the essence of the contract and the

rescission of the contract was unjustified, this claim could

not be sustained and it was so rejected by the arbitrator.

The next claim was for Rs.85,620 for the execution of the

remaining work at the risk and cost of the respondent. The

arbitrator found that the contractor had as far as possible

discharged his contractual obligation and the rescission of

the contract was unjustified and wrongful. Therefore, the

Corporation's claim for getting the work executed at the

risks and costs of the contractor was unjustified and the

claim was so logically rejected and no amount was awarded on

that score. The next claim was for Rs.2739 on account of

mild steel Lying with the contractor. On examination it was

found that some quantities of steel had been consumed in the

work and as such recovery could only be made for the balance

quantity of 1172 kgs. at the recovery rate of Rs.1.50 per

kg. and the claim was, therefore, allowed in favour of the

Corporation for Rs.1,758. The Corporation further claimed a

sum of Rs.6,083.20 on account of non-return of certain

steel. After taking into account the steel consumed in the

work and after allowing for permissible variation and

wastage, it was held that recovery claim for Rs.3,862 only

was justified. The award was made accordingly. There was

another claim of Rs.6,473 on account of penal rate recovery

of mild steel. It was held for good reasons indicated in the

award that the claim for Rs.5,620 was justified. The

Corporation claimed Rs.13,578 for penal rate recovery of

cement for the quantity in excess of the theoretical

consumption. After going into the material the arbitrator

found that the cement issued to the claimant was consumed in

the work and the claim of the Corporation for the penal rate

recovery was not justified. The next was the claim for

Rs.1400 by the Corporation on account of non-return of 700

empty cement bags to the Municipal store. This was enquired

into and found to be justified and a sum of Rs.1400 was

awarded in favour of the Corporation. There was a further

claim of Rs.65 for adjustment of cost of steel on account of

three transfer entries. From the documents produced the

claim was awarded in favour of the Corporation. The next

claim was for interest at the rate of 12% per annum w.e.f.

1.9.81 on the amount of alleged counter-claim preferred

against the claimant. As it was held that the rescission of

the contract was unjustified and wrongful, the Corporation

was at liberty to recover its justified claims from the dues

of the claimant at its disposal and pay the balance amount

to the claimant within a reasonable time. There was a

further claim for Rs.10,000 as arbitration costs and the

claim was rejected. It appears to be very reasonable and

fair award.

186

In this case, there was no violation of any principles

of natural justice. It is not a case where the arbitrator

has refused cogent and material factors to be taken into

consideration. The award cannot be said to be vitiated by

non-reception of material or non-consideration of the

relevant aspects of the matter. Appraisement of evidence by

the arbitrator is ordinarily never a matter which the Court

questions and considers. The parties have selected their own

forum and the deciding forum must be conceded the power of

appraisement of the evidence. In the instant case, there was

no evidence of violation of any principle of natural

justice. The Arbitrator in our opinion is the sole judge of

the quality as well as quantity of evidence and it will not

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be for this Court to take upon itself the task of being a

judge of the evidence before the arbitrator. It may be

possible that on the same evidence the Court might have

arrived at a different conclusion than the one arrived at by

the arbitrator but that by it self is no ground in our view

for setting aside the award of an arbitrator.

It is familiar learning but requires emphasis that

section 1 of the Evidence Act, 1872 in its rigour is not

intended to apply to proceedings before an arbitrator. P.B.

Mukharji, J. as the learned Chief Justice then was,

expressed the above view in Haji Ebrahim Kassam Cochinwall

v. Nothern Indian oil Industries Ltd., A.I.R. 1951 Calcutta

230 and we are of the opinion that this represents the

correct statement of law on this aspect. Lord Goddard, C.J.

in Mediterranean & Eastern Export Co. Ltd. v. Fortress

Fabrics Ltd., [1948] 2 All E.R. 186 observed at pages

188/189 of the report as follows:

"A man in the trade who is selected for his

experience would be likely to know and indeed to

be expected to know the fluctuations of the market

and would have plenty of means of informing

himself or refreshing his memory on any point on

which he might find it necessary so to do. In this

case according to the affidavit of sellers they

did take the point before the Arbitrator that the

Southern African market has slumped. Whether the

buyers contested that statement does not appear

but an experienced Arbitrator would know or have

the means of knowing whether that was so or not

and to what extent and I see no reason why in

principle he should be required to have evidence

on this point any more than on any other question

relating to a particular trade. It must be taken I

think that in fixing the amount that he has, he

has acted on his own knowledge and experience. The

day has long gone by when the Courts

187

looked with jealousy on the jurisdiction of the

Arbitrators. The modern tendency is in my opinion

more especially in commercial arbitrations, to

endeavour to uphold Awards of the skilled persons

that the parties themselves have selected to

decide the questions at issue between them. If an

Arbitrator has acted within the terms of his

submission and has not violated any rules of what

is so often. called natural justice the Courts

should be slow indeed to set aside his award."

This in our opinion is an appropriate attitude.

In this case the reasons given by the arbitrator are

cogent and based on materials on record. In Stroud's

Judicial Dictionary, Fourth Edition, page 2258 states that

it would be unreasonable to expect an exact definition of

the word "reasonable". Reason varies in its conclusions

according to the idiosyncrasy of the individual, and the

times and circumstances in which he thinks. The reasoning

which built up the old scholastic logic sounds now like the

jingling of a child's toy. But mankind must be satisfied

with the reasonableness within reach; and in cases not

covered by authority, the verdict of a jury or the decision

of a judge sitting as a jury usually determines what is

"reasonable" in each particular case. The word "reasonable"

has in law the prima facie meaning of reasonable in regard

to those circumstances of which the actor, called on to act

reasonably, knows or ought to know. See the observations, in

Re a Solicitor [ 1945] K.B . 368 at 371 of the report .

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After all an arbitrator as a Judge in the words of

Benjamin N. Cardozo, has to exercise a discretion informed

by tradition, methodized by analogy, disciplined by system,

and subordinated to "the primordial necessity of order in

the social life". F

Indeed reading the award of the arbitrator, one would

say that he acted reasonably and rationally.

In the premises the award of the arbitrator was

assailed on trivial grounds and the challenge was rightly

rejected by the High Court. The respondent is entitled to

the costs of the challenge upto the High Court. So far as

the costs of this petition to this Court is concerned,

parties are directed to bear their respective costs. The

petition for leave to appeal is, therefore, dismissed and

the leave refused.

P.S.S. Petition dismissed.

188