Case: A.K. Patil and Company & Another Vs. Tata Finance Limited & Another

Dr. B.P. SARAF, J.By this appeal, the appellants seek to challenge the order of the learned Single Judge dated 15th December, 1994 rejecting the arbitration petition of the appellants for setting aside the award of the arbitrator dated 28th December, 1990.2. The material facts of the case, briefly stated, are as follows. Appellant No. 1, M/s. A.K. Patel & Company is a partnership firm and appellant No. 2 is its partner. Respondent No. 1, Tata Finance Limited is a company carrying on the business of financing. The respondent No. 2 is the arbitrator. Appellant No. 1 (hereinafter referred to as "the appellant-firm") wanted to purchase a Tata-Hitachi Hydraulic Buclehoe Excavator (for short "machinery") manufactured by Tata Engineering and Locomotive Company Limited ( for short "Telco") and for that purpose approached the respondent No. 1 ( hereinafter referred to the respondent-Company) to finance the said purchase. The respondent-Company accepted the above proposal of the appellant-firm. Accordingly, on 23rd March, 1986, the appellant-firm and the respondent-Company entered into an agreement whereby the respondent-Company agreed to sell and the appellant firm agreed to purchase the machinery on hire purchase basis on the terms and conditions set out therein. Under the above agreement, the appellant firm was to pay to the respondent Company a sum of Rs. 4,06,620.00 as initial payment and the balance price of the machinery amounting to Rs. 18,00,000.00 and finance charges amounting to Rs. 3,78,000.00, in all a sum of Rs. 21,78,001.00, in 16 monthly installments of Rs. 1,21,000.00. The respondent Company thereupon placed an order with Telco for supply of the said machinery and directed Telco to deliver the same on its behalf to the appellant firm at village Vasai in Maharashtra. Accordingly, Telco supplied the machinery to the appellant firm at Vasai and forwarded the invoice to the respondent Company for payment. The respondent Company made the payment of the invoice to Telco. In terms of the agreement, freight for transportation of the machinery to the Vasai in Maharashtra was paid by the appellant firm. The appellant firm also paid the installments to the respondent Company in terms of the agreement, though there was some delay in payment of some of the installments.3. In the meantime, the respondent Company was informed that it was liable to pay sales tax to the Government of Maharashtra in respect of the machinery supplied by it to the appellant firm on hire purchase basis. As under condition 3(j) of the conditions of the agreement set out in the First Schedule to the agreement, the appellant firm was liable to pay the sales tax that might be payable on account of the machinery and to indemnify the respondent Company against any claim of sales tax, time, penalty or other dues made against the respondent Company by the sales tax authorities under the sales tax law of any State, the respondent Company asked the appellant firm to pay the sales tax payable by it on the hire purchase installments in respect of the said machinery. The appellant firm did not pay the same. In the meantime, the respondent Company paid sales tax on the said machinery under the Bombay Sales Tax Act to the Government of Maharashtra.4. Situated thus, the respondent Company issued a formal notice dated 19th January, 1990 to the appellant firm calling upon them to pay an amount of Rs. 4,10,081.00, which comprises of sales tax amounting to Rs. 2,58,462.00 and interest thereon. On the failure of the appellant firm to pay the above amount despite notice, the dispute in regard to the liability of the appellant firm to pay the same was referred to one Mr. Anand Poojari for arbitration. The respondent Company filed its statement of claim before the arbitrator. The appellant firm also filed its reply challenging the claim on the ground that on a proper construction of the provisions of the sales tax law the sales tax paid by the respondent company under the Bombay Sales Tax Act, was not payable and hence it was not liable to indemnify the respondent Company against the same. The arbitrator, on consideration of the arbitration agreement and the facts of the case, arrived at a conclusion that the respondent Company had correctly paid sales tax to the Government of Maharashtra and that it was entitled to recover the same from the appellant firm. Accordingly, the arbitrator awarded a sum of Rs. 4,21,552.00 to the respondent Company by way of reimbursement of Maharashtra Sales Tax paid by it along with interest and additional finance charges for delayed payment of hire instalments, with interest at the rate of 18 per cent from 1st April, 1990 till the award is converted into a decree. The award was made and published on 28th December, 1990.5. The appellant firm challenged the above award before the learned Single Judge by filing arbitration petition on the ground, inter alia, that no sales tax was payable by the respondent company under the provisions of the Bombay Sales Tax Act and the payment of sales tax made by the respondent Company was made by them erroneously and, therefore, the arbitrator acted contrary to the provisions of the law in making the award and directing the appellant firm to pay the amount of sales tax and interest amounting to Rs. 4,21,552.00 to the respondent Company. The learned Single Judge did not accept the above contention of the appellant firm. He was of the opinion that having actually paid sales tax under the Bombay Sales Tax Act to the Government of Maharashtra, on the machinery in question, the respondent Company was entitled to recover the same from the appellant in terms of clause 3(j) of the agreement. The learned Single Judge held that the arbitrator did not commit any error in making the award. In that view of the matter, the learned Single Judge dismissed the arbitration petition of the appellant firm and made the award a rule of the Court. In this appeal, the appellant firm seeks to challenge the above order of the learned Single Judge.6. We have heard Mr. Shyam Dewan, learned Counsel for the appellants, who submits that there is an error apparent on the face of the award. According to Mr. Dewan, under clause 3(j) of the conditions of the agreement, the appellant firm being required to pay sales tax that may be payable on account of the sale of the machinery under the agreement, the amount should be legally recoverable under the Sales Tax Act. In the instant case, according to the Counsel, no sales tax was leviable on the transaction in question and in that view of the matter, the appellant firm had asked the respondent Company to refer the disputed question in regard to the levy of sales tax on the transaction in question for determination to the Commissioner under section 52 of the Bombay Sales Tax Act. The respondent Company did not do so and paid the sales tax. In such a situation, according to the Counsel for the appellants, it cannot be said that the amount paid by the respondent Company as sales tax was legally recoverable under the sales tax law. Counsel, therefore, submits that the arbitrator committed an error apparent on the face of the award in holding that the appellant firm was liable to pay to the respondent Company under condition 3(j) of the conditions of the contract the amount paid by it by way of sales tax.7. The submission of the learned Counsel for the respondent Company Mr. P.N. Mody, on the other hand, is that the award does not suffer from any infirmity which might justify interference of the Court. According to the learned Counsel, the arbitrator, on construction of condition 3(j) of the conditions of the contract having arrived at a categorical finding that the respondent Company was entitled to recover the sales tax paid by it on the machinery in question from the appellant firm, it was not open to the appellant firm to challenge the same before the Court merely because it feels that the above finding of arbitrator is not correct. Counsel therefore submits that the learned Single Judge rightly rejected the arbitration petition of the appellant firm and there is no cogent reason to interfere with the same.8. We have carefully considered the rival submissions of the learned Counsel for the parties. There is no dispute about the fact that under condition 3(j) of the conditions of the agreement, the appellant firm is liable to pay sales tax that may be payable on account of sale of the machinery under the agreement and to idemnify the respondent Company against any claim of sales tax, fine, penalty or other dues made against it by any sales tax authorities under the sales tax law of any State. On the factual side also, there is no controversy about the fact that the respondent Company did pay sales tax on the transaction in question under the Bombay Sales Tax Act to the Government of Maharashtra. The arbitrator, on construction of the relevant condition of the agreement and the facts of the case, arrived at a conclusion that the respondent Company had correctly paid the Maharashtra Sales Tax in respect of the Machinery supplied to the appellant firm and that it was entitled to recover the same from the appellant firm. It is this conclusion of the arbitrator which is sought to be challenged before us by the appellant firm.9. We have perused the award of the arbitrator. On a careful consideration of the same, we do not find any such error therein which may justify interference of the Court with the same. The scope and ambit of the powers of the Court to interfere with the award of an arbitrator is well settled by a catena of decisions of the Supreme Court. It is a settled principle of law that an award made by an arbitrator is conclusive as a judgment between the parties and the Court is entitled to set aside the same only if the arbitrator has misconducted himself in the proceedings or when the award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under section 35 of the Arbitration Act or where an award has been improperly procured or is otherwise invalid. An award being a decision of the arbitrator chosen by the parties to decide the dispute submitted to him is ordinarily not liable to challenge on the ground that it is erroneous. It is ordinarily final and conclusive. The courts cannot exercise appellate jurisdiction over the decision of the arbitrator. Wrong or right, it is binding on the parties if it is reached fairly after giving adequate opportunity to the parties to place their grievances in the manner provided by the arbitration agreement. An award can, however, be challenged if there is an error of law on the face of the award, but an award is not invalid merely because by a process of interference and agreement it may be demonstrated that the arbitrator has committed some mistake in arriving at his conclusion. (Jivarajbhai v. Chintamanrao)1, A.I.R. 1990 S.C. 214, 220. An error in law on the face of the award means that one can find in the award or a document actually incorporated thereto some legal proposition which is the basis of the award and which one can then say is erroneous. ( Champsey Bhare & Co. v. Jivraj Baloo Spinning and Weaving Co. Ltd.)2, A.I.R. 1923 P.C. 60, 69.10. Equally well-settled is the principle that an error of construction of an agreement or even an error of law in arriving at a conclusion is not amenable to correction by the Court. (U.P. Hotels v. U.P. State Electricity Board)3, A.I.R. 1989 S.C. 268, 274, (Sudarson Trading Co. v. Government of Kerala)4, A.I.R. 1989 S.C. 890. Nor is a mistake of fact committed by the arbitrator justiciable in an application before the Court. (Coombatore Dist. Samgam v. Bala Subramania Foundry)5, A.I.R. 1987 S.C. 2045. The reasonableness of the reasons given by the arbitrator for making the award also cannot be challenged before the Court. Nor is apraisement of evidence by the arbitrator a matter which the Court can question and consider. The arbitrator is the sole Judge of the quality as well as the quality (sic) of the evidence and it is not for the Court to take upon itself the task of being a Judge of the evidence before the arbitrator. Sudarson trading Co. v. Government of Kerala, (supra); (Delhi Municipal Corporation v. M/s. Jagan Nath Ashok Kumar)6, A.I.R. 1987 S.C. 2316. The only exception is a case where it is apparent by merely looking at the contract that the arbitrator has travelled totally outside the permissible territory and thus exceeded his jurisdiction in making the award. Such an error goes to the root of the jurisdiction of the arbitrator. In such a case, the award would be liable to be set aside. (Associated Engineering Co. v. Government of Andhra Pradesh)7, A.I.R. 1992 S.C. 232.11. In the instant case, it is nobodys case that the arbitrator exceeded his jurisdiction or acted without jurisdiction in accepting the claim of the respondent Company for reimbursement of sales tax. Obviously, the arbitrator has arrived at this conclusion on a construction of the condition 3(j) of the conditions of the contract and the facts of the case, in particular the fact that the respondent Company had actually paid the amount claimed by it from the appellant firm to the Government of Maharashtra as sales tax due under the Bombay Sales Tax Act. In arriving at this conclusion, the arbitrator cannot be said to have committed any error of law on the face of the award. The above decision was arrived at by him on construction of the condition of the agreement and appreciation of evidence before him. In such a situation in any event the Court can neither reappreciate the evidence nor question or consider the same or substitute its own view for that of the arbitrator.12. For the reasons set out above, we do not find any merit in the challenge of the appellants to the award of the arbitrator. In that view of the matter, in our opinion, the learned Single Judge was justified in dismissing the arbitration petition of the appellants and refusing to set aside the award.

Decision reasoning: 0[ds]In the instant case, according to the Counsel, no sales tax was leviable on the transaction in question and in that view of the matter, the appellant firm had asked the respondent Company to refer the disputed question in regard to the levy of sales tax on the transaction in question for determination to the Commissioner under section 52 of the Bombay Sales Tax Act. The respondent Company did not do so and paid the sales tax. In such a situation, according to the Counsel for the appellants, it cannot be said that the amount paid by the respondent Company as sales tax was legally recoverable under the sales tax law. Counsel, therefore, submits that the arbitrator committed an error apparent on the face of the award in holding that the appellant firm was liable to pay to the respondent Company under condition 3(j) of the conditions of the contract the amount paid by it by way of sales tax.We have carefully considered the rival submissions of the learned Counsel for the parties. There is no dispute about the fact that under condition 3(j) of the conditions of the agreement, the appellant firm is liable to pay sales tax that may be payable on account of sale of the machinery under the agreement and to idemnify the respondent Company against any claim of sales tax, fine, penalty or other dues made against it by any sales tax authorities under the sales tax law of any State. On the factual side also, there is no controversy about the fact that the respondent Company did pay sales tax on the transaction in question under the Bombay Sales Tax Act to the Government of Maharashtra. The arbitrator, on construction of the relevant condition of the agreement and the facts of the case, arrived at a conclusion that the respondent Company had correctly paid the Maharashtra Sales Tax in respect of the Machinery supplied to the appellant firm and that it was entitled to recover the same from the appellant firm. It is this conclusion of the arbitrator which is sought to be challenged before us by the appellanta careful consideration of the same, we do not find any such error therein which may justify interference of the Court with the same.In the instant case, it is nobodys case that the arbitrator exceeded his jurisdiction or acted without jurisdiction in accepting the claim of the respondent Company for reimbursement of sales tax. Obviously, the arbitrator has arrived at this conclusion on a construction of the condition 3(j) of the conditions of the contract and the facts of the case, in particular the fact that the respondent Company had actually paid the amount claimed by it from the appellant firm to the Government of Maharashtra as sales tax due under the Bombay Sales Tax Act. In arriving at this conclusion, the arbitrator cannot be said to have committed any error of law on the face of the award. The above decision was arrived at by him on construction of the condition of the agreement and appreciation of evidence before him. In such a situation in any event the Court can neither reappreciate the evidence nor question or consider the same or substitute its own view for that of the arbitrator.12. For the reasons set out above, we do not find any merit in the challenge of the appellants to the award of the arbitrator. In that view of the matter, in our opinion, the learned Single Judge was justified in dismissing the arbitration petition of the appellants and refusing to set aside the award.