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PETITIONER:

UPPER GANGES VALLEY ELECTRICITY SUPPLY COMPANY LTD.

Vs.

RESPONDENT:

U.P. ELECTRICITY BOARD

DATE OF JUDGMENT19/12/1972

BENCH:

CHANDRACHUD, Y.V.

BENCH:

CHANDRACHUD, Y.V.

KHANNA, HANS RAJ

VAIDYIALINGAM, C.A.

CITATION:

1973 AIR 683 1973 SCR (3) 107

1973 SCC (1) 254

CITATOR INFO :

RF 1989 SC 890 (18,30)

ACT:

Arbitration Act (10 of 1940), s. 30--Speaking award -Error

apparent on its face with respect to a severable Item-if

entire award should be set aside-Court, if may amend award

instead of remitting it.

HEADNOTE:

The respondent took over the appellant's Undertaking, in May

19591, but as the parties were at variance on the true

market value to ',- paid to the appellant, the matter was

referred to arbitration. As the arbitrators were unable to

agree on the question whether the appellant was entitled to

compensation for the 'service lines which were laid with the

help of contributions made by consumers, they referred the

question to the umpire. The umpire framed an issue and gave

a finding that the appellant was not entitled to claim from

the respondent the value of the portion of the service lines

which were laid at the cost of the consumers, for the sole

reason that they were, laid at the cost of the consumers.

The appellant filed an application under s. 30 of the

Arbitration Act, 1940, challenging the validity of the award

on the question. The lower court and High Court hold

against the appellant.

Allowing the appeal to this Court,

HELD : (1) The appellant's application for setting aside the

award could succeed only if there was an error of law on the

face of the award. The other conditions of s. 30 have no

bearing on the, case.

(2)The umpire had made a speaking award and there was no

question of the construction of any document incorporated

in or appended to the award. If it is transparent from the

award that a leggal proposition which forms its basis is

erroneous, the award is liable to be

set aside.[111 D]

Unionof India Y. Bugo Steel Furniture P. Ltd., [1967]

(1) S.C.R. 324, M/S. Allen Berry and Co. P., Ltd. v. The

Union of India, A.I.R. 1971 S.C. 696, followed.

(3)The conditions of licence, the provisions of the Act

namely, ss. 2(f), (1) and (n), 3(f), 7(1) as it stood at the

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time of taking over, Section 8 of the Indian Electricity

Act, 1910, Paragraph VI of, the Schedule to the Act, and the

legal position, all point only in one direction that the

appellant is entitled to receive compensation for the

service lines laid at the cost of the consumers. The

umpire, however, in his calculations, had expressly excluded

the value of the portion of service lines installed at the

cost of consumers. In making the exclusion, the umpire had

therefore mis-conducted himself in law rendering his award

erroneous on its face. [113G]

108

Calcutta Electric Supply Corporation v. Commissioner of

Wealth-tax, West Bengal, 82 I.T.R. 154 referred to.

(4)The reference to the arbitrations in the present case

was on the broad question of the fair market value of the

appellant's undertaking, and the parties did not refer any

specific question of law for the decision of the

arbitrators. Therefore, the decision in Durga Prasad

Chamria and Anr. v. Sewkishendas Bhatter, A.I.R. 1949 P.C.

334 has no application. [115B]

(5)The part of the award, which is invalid, being

severable from that which is valid, there is no

justification for setting aside the entire award. [115D]

(6)This Court should itself amend the award instead of

remitting it in the interests of justice and to avoid undue

delay in a dispute pending since 1959. [115E]

(7)The consumers' contribution for laying the service line

were made from April 1, 1958 to March 31, 1959. The, taking

over of the undertaking by the respondent being in May 1959,

the consumers' contribution would roughly represent the

market value of the service lines, even if, as required by

the first proviso to s. 7(1) as it then stood, due regard

was to be had to the nature and condition of the 'works', to

the circumstance that they ate in such a Position as to be

ready for immediate working, and to their suitability for

the purposes of the undertaking. Therefore, the sum

representing the consumers' contributions should be taken

into account in arriving at the price to be paid to the

appellant. [115G],

JUDGMENT:

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1314 of

1967.

Appeal by special leave from the judgment and decree dated

April 15, 1966 of the Allahabad High Court in F.A.F.O. No.

279 1963.

B. Sen and S. N. Mukherjee, for the appellant.

C. B. Agarwala, O. P. Rana and Ravinder Bana, for the res-

pondent.

The Judgment of the Court was delivered by

CHANDRACHUD, J. On February 5, 1929 the Governor-in Council

of the then Government of the United Provinces granted to

Messrs. Martin & Co. a licence under section 3 of the

Indian Electricity Act, 1910 for supply of electric energy

within the Districts of Bijnor and Moradabad. Messrs.

Martin & Co., who were Managing Agents of the apppllants

company, assigned that licence to it. By a notice dated

January 31, 1957 the Government of Uttar Pradesh exercised

its option to purchase the Undertaking of the appellant on

the expiry of two years from the date of the notice. This

period was on appellant's request, extended till May 4,

1959. The respondent-Uttar Pradesh State Electricity, Board

was constituted on April 1, 1959 and under section 71 of the

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Electricity (Supply) Act, 1948, the option of the Government

of Uttar Pradesh to purchase electrical undertakings stood

transferred to the respondent.

By a letter dated May 1, 1959 respondent informed the appel-

lant that it had decided to purchase the Undertaking on

payment of a sum of Rs. 25,38,407/-, being the fair market

value of all its assets, inclusive of solatium. On May 4,

1959 respondent made a provisional payment of rupees 15

lakhs to the appellant which, the latter accepted under

protest. The Undertaking was eventually taken over by the

respondent on May 4/5, 1959.

Being unable to agree on the true market value of the Under-

taking, parties referred their differences to two

arbitrators. Out of the several contentions raised before

the arbitrators, we are concerned with one only : Whether,

in the computation of the market value of its Undertaking,

the appellant was entitled to compensation for the "service

lines" which were laid with the help of contributions made

by consumers. On this question, arbitrators were unable to

agree and therefore they referred it to the decision of an

umpire, Shri Randhir Singh.

Out of the eight issues framed by the umpire, issues 1 (a),

1 (b), 7 and 8 only are relevant. These issues read thus :

Issue No. 1 (a) : Is the Board entitled to get a credit for

the amount of consumers' contribution paid for the service

lines, laid on their premises and at their cost ?

Issue No. 1 (b) : What is the amount of the Consumers'

contribution for the period 1st of April, 1958 to 4/5 May,

1959 ?

Issue No. 7 : Has any excess- payment been made by the Board

to the Company ? If so are the Board entitled to a refund,

and interest thereon ? What should be the rate of interest

if any ?

Issue No. 8 : What was the fair market value of the

Undertaking on the midnight of 4/5 May 1959 ?

Issue No. 1 (a) : "The Company is not entitled to claim from

the Board the value of the portion of the service lines

which were laid at the cost of the consumers."

Issue No. 1 (b) : "The Consumers' contribution from 1.4.58

to 31st of March, 1959 is Rs. 2,38,255/-. The amount of the

contribution from 1.4.59 to 415 May, 1959 has not been

proved."

On Issue No. 8, the umpire found that on the date of

purchase, the fair market value of the assets of the

Undertaking was

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Rs. 23,81,670/-. As the appellant had already received a

sum of rupees 15 lakhs from the respondent and as the

respondent was entitled to a refund of Rs. 9,80,238/- on

account of security deposits held by the appellant, the

Umpire came to the conclusion by his award dated November

27, 1961 that the appellant had received Rs. 9,8,568/- in

excess of the amount of the fair market value. On Issue No.

7, the Umpire accordingly held that the respondent had made

an excess payment of the. aforesaid amount to the appellant

which the latter was liable to refund with future interest

as awarded.

The appellant, by an application under section 30 of the

Arbitration Act, 1940 challenged the validity of the award

in the court of the Civil Judge, Moradabad on the ground

that the Umire had legally misconducted himself in not

awarding compensation for the service lines. The learned

Judge upheld a part of the award, to the extent to which the

market value of the Undertaking was fixed at Rs. 23,81,670/-

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but he set aside the rest of it. Obviously, he

misunderstood the appellant's contention in regard to its

right to receive compensation for the service lines. He

mixed up that claim with the claim in regard to security

deposits and overlooked considering the main question

whether the appellant was entitled to compensation for the

service lines.

The appellant filed an appeal in the High Court of Allahabad

against that judgment while the respondent filed its cross-

objections. By a judgment dated April 15,1966 the High

Court held that the Umpire was justified in refusing to

award compensation to the appellant for the service lines.

'the appeal as well as the cross-objections were dismissed

by the High Court. This appeal by special leave is directed

against that judgment.

The only point of dispute in the appeal is whether the

appellant is entitled to compensation for the service lines.

Before considering this question, it is necessary to

emphasise that these proceedings arise, not out of a suit

but out of an application made under section 30 of- the

Arbitration Act, 1940 for setting aside an award. That

section provides that an award shall not be set aside except

on one or more of the grounds therein mentioned. Two of the

three grounds on which alone an award is liable to be set

aside under section 30 are that the arbitrator or umpire has

misconducted himself or the proceedings, or (ii) that the

award has been improperly procured or is otherwise invalid.

It is well settled that if parties constitute an arbitrator

as the sole and final judge of the disputes arising between

them, they bind themselves as a rule to accept the award as

final and conclusive. An award is Ordinarily not liable to

be set aside on the

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ground that either on facts or in law, it is erroneous. In

Hodgkinson v. Fernie(1) the true principle_was states thus :

"Where a cause or matters in difference are referred to an

arbitrator. He is constituted the sole and

final judge of all questions both of law and

fact... The only exceptions to that rule are,

cases where the award is the result of

corruption or fraud, and one other, which

though it is to be regretted, is now, I think,

firmly established, viz., where the question

of law necessarily arises on the face of the

award, or upon some paper accompanying and

forming part of the award."

This view was cited with approved in Union of India v. Bungo

Steel Furniture P. Ltd.(2) and was recently adopted in Mls.

Allen Berry and Co. P. Ltd. v. The Union of India. (3) It is

therefore plain that the appellant's application for setting

aside the award can succeed only if there is an error of law

on the face of the award. The other conditions of section

30 have no. bearing on the case.

It is unnecessary to consider the comprehension of the

expression "on the face of the award" because the Umpire has

made a speaking award and there is no question here of the

construction of a document incorporated in the award or

appended to it. If it is transparent from the award that a

legal proposition which forms its basis is erroneous, the

award would be liable to be set aside.

In order to find the true legal position, it is necessary to

look at a few provisions of the Indian Electricity Act, 1910

(herein, "the Act"). Section 2(1) of the Act defines a'

"service "line" as meaning any electric supply-line, through

which energy is, or is intended to be, supplied (i) to a

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single consumer either from a distributing main or

immediately from the supplier's premises or (ii) from a

distributing main to a group of consumers on the same

premises or on adjoining premises supplied from the same

point of the distributing main. Under section 2(c),

"consumer" means any person who is supplied with energy by a

licensee or by the Government. Under section 3(f) the

provisions contained in the Schedule to the Act are to be

deemed to be incorporated' with and to form part of every

licence granted under the Act, save in so far as they are

expressly added to, varied or excepted by the licence.

Paragraph VI(1) of the Schedule casts on the licensee an ob-

ligation, subject to certain exceptions, to supply electric

energy to the opner or occupier of premises situated within

the area of

(1) 1857 (3) C.B. (N.S.) 189.

(3) A.LR. 1971 S.C. 696.

(2) [1967] 1 S.C.R. 32,4.

112

supply, within one month of the requisition. Under clause

(b) of the first provision to Paragraph VI(1), however, the

licensee is not bound to comply with such requisition

unless, among other things, the person making the

requisition, if required by the licensee so to do, pays to

the licensee the cost of so much of any service line as may

be laid down or placed for the purposes of the supply upon

the property in respect of which the requisition is made.

Section 7 of 'the Act, as it stood then, conferred on the

State Government an option to purchase the undertaking of a

licensee " on payment of the value of all lands, buildings,

works, materials and plant of the licensee suitable to, and

used by him for, the purposes of the undertaking-." The

first proviso to section 7(i) said that "the value of such

lands, buildings, works, materials and IC plant shall be

deemed to be their fair market value at the time of

purchase, due regard being had to the nature and condition

for the time being" of such lands, buildings, works etc.

Section 2 (n) defines "work' to include electric, supply

line and any building, plant, machinery, apparatus and any

other thing of Section 2(f) defines "electric supply line"

as meaning a wire, conductor or other means used for

conveying, transmitting or distributing energy.

It is patent from these provisions that the appellant was

entitled to receive compensation for the service lines laid

with the help of contributions made by consumers. Section 7

(1 ) of the Act conferred upon the appellant the right to

receive the fair market value of "works' amongst other

assets. Under section 2(n) "'works" includes an electric

supply-line and by reason of the definitions in sections

2(f) and (1), a supply-line includes a service line.

Under paragraph VI (2) of the Schedule, any service line

laid for the purpose of supply in pusuance of a requisition

made by a consumer has to be maintained by the licensee,

"notwithstanding that a portion of it may have been paid for

by the person making the requisition"; the licensee,

however, has the right to use such service fine "for the

supply of energy to any other person". Under section, 8 of

the Act, if neither the State Electricity Board nor the

State Government nor the local authority is willing to

purchase a licensee's undertaking and the licence is

revoked, the licensee has the right to dispose of "all

lands, buildings, works, materials and plant belonging to

the undertaking in such manner as he may think fit".

An interesting sidelight of the issue involved in this

appeal is H that in 1923, the Government of India in its

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Department of Industries and Labour, had sought the opinion

of the officiating

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Advocate-General, Bengal, on the, "question of ownership of

the service line the cost of which has been paid for by the

consumer". Shri B. L. Mitter who was then the officiating

Advocate-General opined that "the property in a service line

is in the licensee It makes no difference whether the

consumer pays for any portion under schedule rule VI( 1 )

(b). The service line is part of the "Works' (Sec. 2) (n)

and the licensee maintains it. Schedule VI(2)". In 1924, a

copy of this opinion was forwarded by the Government of

India to The Government of the United Provinces., When years

later, the same question cropped over once again, the

Government of Uttar Pradesh informed all the electric supply

undertakings in the State by their letter dated December 5,

1952 that the Government had decided "that the ownership of

a service line vests in the licensee irrespective of whether

the cost of the whole or part of it, has been paid for by a

consumer or not".

On March 10, 1953, the, Government of Uttar Pradesh sent an

intimation to all the electricity supply companies in the

State including the appellant that the Governor of Uttar

Pradesh had, under section 21 (2) of the Act, given his

sanction to an amendment or modification in the existing

conditions of the licences by the addition of a new clause

4. That clause reads thus :

"The whole of the service line, irrespective of the payment

made by the consumer, shall be and remain the property of

the company to whom and at whose cost it shall be maintained

and the Company reserves the rights to extend. alter,

remodel or replace the said service line or cable to afford

a supply to other consumers, should this be necessary."

Finally, it is of some relevance that in Calcutta Electric

Supply Corporation v. Commissioner of Wealth-tax, West

Bengal(1), it was held by this Court that service lines laid

with the help of contributions made by consumers for a part

of the licensee's wealth for the purposes of computing the

net wealth under Wealth-tax Act, 1957.

The conditions of the licence, the provisions of the Act and

the legal position point only in one direction : that the

appellant is entitled to receive compensation for the

service lines laid at the cost of the consumers. In the

award. the Umpire has made calculations for arriving at the

market value of the appellant's undertaking and has

expressly excluded therefrom the "value of the portion of

services installed at the cost of the consumers." In

(1) 82 I.T.R. 154.

9-L631 SupCI 73

114

making this exclusion, the Umpire misconducted himself in

law, thereby rendering the award erronous on its face.

The reason for this error may easily be this : Under section

7 of the Act to which we have called attention, the licensee

was entitled to the "payment of the value of all lands,

buildings, works" etc. This section, along with certain

others, was amended by the Electricity (Amendment) Act, 32

of 1959, which came into force on September 5, 1959. By

this amendment, a new section 7A was inserted in the Act in

order to provide for the "Determination of purchase price".

Under the relevant part of sub-section (2) of that section,

the market value of an undertaking is to be the value of all

lands, buildings, works etc. other than "service lines.

C .... which have been constructed at the expense of

consumers". The appellant's undertaking having been

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acquired on 4/5 May, 1959, the provisions of old section 7

and not of the newly added section 7A would govern his

rights. The Umpire made his award on November 27, 1961

relying, probably, on section 7A which had no application.

Learned counsel for the respondent is right that even a

mistake of law cannot vitiate the award unless the mistake

is apparent on the face of the award. But here, the Umpire

framed specific issues for decision, the first of these

being : whether the respondent was "entitled to get a credit

for the amount of consumers' contribution paid for the

service lines. laid on their premises and at their cost".

The finding of the Umpire on this issue was that "The

Company is not entitled to claim from the Board the value of

the portion of the service lines which were laid at the cost

of the consumers". The calculations made by the Umpire in

the award for ascertaining the true market value of the

appellants undertaking show that the " value of the portion

of services installed at the cost of the consumers" was

expressly excluded from the total market value of the assets

of the undertaking. It seems beyond the pale of controversy

that the Umpire did not award compensation to the appellant

in respect of the service lines for the sole reason that

they were laid at the cost of the consumers. Some market-

value the service-lines must have had, even if it be no more

than the scrap value. But to the way of thinking which the

Umpire adopted, that consideration had no relevance. The

service-lines were paid for by the consumers and that. for

the Umpire, was the end of the matter. That, patently, was

the wrong end,

Respondent drew our attention to the decision in Durga

Prasad Chamria and Anr. v. Sewkishendas Bhattar and Ors.(1)

in which it was held that if a question of law is

specifically referred to an

(1) A.T.R. 1949 P.C. 334.

115

arbitrator for his decision. it would be contrary to well-

established principles for a court of law to interfere with

the award, even if the court itself would have taken a

different view of the point of law, had it been before it.

This decision can have no application because the parties

here did not refer any specific question of law for the

decision of the arbitrators. The reference to arbitrators

was on the broad question as to what was the fair market-

value of the appellant's undertaking. Being unable to agree

on this question, the two arbitrators referred the matter to

an umpire. The umpire raised a question of law and decided

it. Parties had invited none to decide a specific question

of law.

We are Dot disposed to hold, as contended by the respondent,

that if a part of the award be found to be invalid, the

entire award should be set aside and remitted back for a

fresh decision. The error which has occurred in the award

of the Umpire relates to a matter which is distinct and

separate from the rest of the award. The part which is

invalid being severable from that which is valid, there is

no justification for setting aside the entire award.

Normally, we would have remitted the award for a decision in

the light of our judgment but that is likely to involve

undue delay and expense in a dispute which is pending since

1959. Learned counsel for the appellant was agreeable that

we should ourselves amend the award. Learned counsel for

the respondent demurred but- he was unable to indicate any

cogent reason why we should not adopt a course which. far

from causing any prejudice to the parties, was clearly in

the interests of justice.

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The Umpire has held that on the date of sale. the fair

market value of the appellant's undertaking was Rs. '23

81.670. He arrived at this figure after excluding from the

total market value, the sum of Rs. 2,38.255 which

represented the consumers' contributions to the cost of

laying the service lines. These contributions, according to

him, were made from April 1, 1958 to March 31, 1959. The

date of sale being 4/5 May, 1959 the consumers' contribution

will roughly represent the market value of the service,

lines even if, as, required by the first proviso to section

7(1) of the Act as it then stood, due regard is to be had to

the nature and condition for the time being of the "works"

to the state of repair thereof, to the circumstance that

they are in such a position as to be ready for immediate

working and to the suitability of the same for the purposes

of the undertaking.

Accordingly, we direct that the award of the Umpire will

stand amended to the extent that the fair market value of

the appellant's undertaking shall be Rs. 23,81,670 plus Rs.

2,38,255, plus

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Rs. 5,26,962/60 that is to say Rs. 31,46,887/60. We have

not allowed solatium on the additional amount, so as to off-

set reasonable depreciation in the value of the service

lines after they were laid.

The appeal is accordingly allowed to the extent indicated

and with costs.

V.P.S. Appeal

allowed.

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