Case: Bungo Steel Furniture Pvt. Ltd Vs. Union Of India

was set aside by the High Court, in appeal from the judgment of the learned single Judge passing a decree on its basis, on the ground that the award of the Umpire with regard to the compensation for the wrongful cancellation of the contract was erroneous in law and the error appeared on the face of the award. In the award, the arbitrator held that under Contract No. A. T. 1,000, only 1,805 bins had been manufactured, and under the Second Contract No. A. T. 10,48,367 bins had been manufactured. These bins were accepted and the remaining component parts had not been assembled into more finished bins by the time when the contract was cancelled. He further held that the cancellation by the Government for the balance was wrongful. There was, however, no evidence relating to the manufacturing cost of the aforesaid remaining component parts. Thereupon, he proceeded to award, by way of compensation for the wrongful termination of the contract by the Government as aforesaid, to the company the amount representing the value of the steel used up in making the said component parts which had not been assembled into completed bins, and, therefore, he did not allow the Government credit for the value of the steel used up in manufacturing those component parts. He further held that after manufacturing the finished bins and component parts of unfinished bins, no surplus steel was left. 8. The High Court, in setting aside the award, was of the view that in this part dealing with compensation payable by the Government to the appellant, the learned Umpire had acted contrary to the principles recognised in law for assessing compensation. In our view, considering the principles which apply to the exercise of the power of a Court to set aside an award of an arbitrator, this order by the High Court was not justified. 9. It is now a well-settled principle that if an arbitrator, in deciding a dispute before him, does not record his reasons and does not indicate the principles of law on which he has proceeded, the award is not on that account vitiated. It is only when the arbitrator proceeds to give his reasons or to lay down principles on which he has arrived at his decisions that the Court is competent to examine whether he has proceeded contrary to law and is entitled to interfere if such error in law is apparent on the face of the award itself. 10. In the present case, the Umpire held that the cancellation of the contract by the Government for the balance of the bins was wrongful. He was, therefore, fully entitled to award compensation for that breach of contract to the appellant. He, however found that there was no evidence relating to the manufacturing cost of the aforesaid remaining component parts which, on principles applicable to breaches of contract, would ordinarily have been the amount awarded as compensation. Having no such evidence, the Umpire, it appears, proceeded to use his discretion to determine the compensation which he thought should be equitably made payable by the Government to the appellant. He had already arrived at the finding that the steel supplied by the Government, which had not been used up in completed bins, had already been consumed in making component parts. In these circumstances, having decided that compensation should be paid by the Government to the appellant, he fixed the amount of compensation at the value represented by the steel used up in making those component parts. This award is not to be interpreted as proceeding on any basis that the value of the steel used up in making the component parts was held by him on some principle to be the compensation payable by the Government. What he actually meant was that having mentally decided on the amount that was to be awarded as compensation, he came to the view that that amount can equitably be treated as being equal to the value of the steel used up in making the component parts. What the value of that steel in the component parts was at that stage was not computed by him. May be, the steel had become less serviceable and deteriorated in value. What was the consideration that led him to consider that the value of the steel was equal to, and not more or less than, the amount which he considered it right to award as compensation, was not indicated by him in his award. This is, therefore, clearly a case where the arbitrator came to the conclusion that a certain amount should be paid by the Government as compensation for wrongful termination of the contract, and in his discretion, he laid down that that amount is equal to the value of the steel as it existed after it had been converted into component parts. He did not hold that the Government was not entitled to the return of the unused steel. What he actually held was that the Government being entitled to the value of the unused steel, no separate direction in respect of it need be made, because the value of that steel was equal to the amount of compensation which he was awarding to the appellant; and thus, the two liabilities of the appellant to the Government and of the Government to the appellant were set off against each other. In the circumstances, it has to be held that the Umpire, in fixing the amount of compensation, had not proceeded to follow any principles, the validity of which could be tested on the basis of laws applicable to breaches of contract. He awarded the compensation to the extent that he considered right in his discretion without indicating his reasons. Such a decision by an Umpire or an Arbitrator cannot be held to be erroneous on the face of the record. We, therefore, allow the appeals with costs, set aside the appellate order of the High Court, and restore that of the learned single Judge. ORDER

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]The award was set aside by the High Court, in appeal from the judgment of the learned single Judge passing a decree on its basis, on the ground that the award of the Umpire with regard to the compensation for the wrongful cancellation of the contract was erroneous in law and the error appeared on the face of the award. In the award, the arbitrator held that under Contract No. A. T. 1,000, only 1,805 bins had been manufactured, and under the Second Contract No. A. T. 10,48,367 bins had been manufactured. These bins were accepted and the remaining component parts had not been assembled into more finished bins by the time when the contract was cancelled. He further held that the cancellation by the Government for the balance was wrongful. There was, however, no evidence relating to the manufacturing cost of the aforesaid remaining component parts. Thereupon, he proceeded to award, by way of compensation for the wrongful termination of the contract by the Government as aforesaid, to the company the amount representing the value of the steel used up in making the said component parts which had not been assembled into completed bins, and, therefore, he did not allow the Government credit for the value of the steel used up in manufacturing those component parts. He further held that after manufacturing the finished bins and component parts of unfinished bins, no surplus steel was left8. The High Court, in setting aside the award, was of the view that in this part dealing with compensation payable by the Government to the appellant, the learned Umpire had acted contrary to the principles recognised in law for assessing compensation. In our view, considering the principles which apply to the exercise of the power of a Court to set aside an award of an arbitrator, this order by the High Court was not justified9. It is now ad principle that if an arbitrator, in deciding a dispute before him, does not record his reasons and does not indicate the principles of law on which he has proceeded, the award is not on that account vitiated. It is only when the arbitrator proceeds to give his reasons or to lay down principles on which he has arrived at his decisions that the Court is competent to examine whether he has proceeded contrary to law and is entitled to interfere if such error in law is apparent on the face of the award itself10. In the present case, the Umpire held that the cancellation of the contract by the Government for the balance of the bins was wrongful. He was, therefore, fully entitled to award compensation for that breach of contract to the appellant. He, however found that there was no evidence relating to the manufacturing cost of the aforesaid remaining component parts which, on principles applicable to breaches of contract, would ordinarily have been the amount awarded as compensation. Having no such evidence, the Umpire, it appears, proceeded to use his discretion to determine the compensation which he thought should be equitably made payable by the Government to the appellant. He had already arrived at the finding that the steel supplied by the Government, which had not been used up in completed bins, had already been consumed in making component parts. In these circumstances, having decided that compensation should be paid by the Government to the appellant, he fixed the amount of compensation at the value represented by the steel used up in making those component parts. This award is not to be interpreted as proceeding on any basis that the value of the steel used up in making the component parts was held by him on some principle to be the compensation payable by the Government. What he actually meant was that having mentally decided on the amount that was to be awarded as compensation, he came to the view that that amount can equitably be treated as being equal to the value of the steel used up in making the component parts. What the value of that steel in the component parts was at that stage was not computed by him. May be, the steel had become less serviceable and deteriorated in value. What was the consideration that led him to consider that the value of the steel was equal to, and not more or less than, the amount which he considered it right to award as compensation, was not indicated by him in his award. This is, therefore, clearly a case where the arbitrator came to the conclusion that a certain amount should be paid by the Government as compensation for wrongful termination of the contract, and in his discretion, he laid down that that amount is equal to the value of the steel as it existed after it had been converted into component parts. He did not hold that the Government was not entitled to the return of the unused steel. What he actually held was that the Government being entitled to the value of the unused steel, no separate direction in respect of it need be made, because the value of that steel was equal to the amount of compensation which he was awarding to the appellant; and thus, the two liabilities of the appellant to the Government and of the Government to the appellant were set off against each other. In the circumstances, it has to be held that the Umpire, in fixing the amount of compensation, had not proceeded to follow any principles, the validity of which could be tested on the basis of laws applicable to breaches of contract. He awarded the compensation to the extent that he considered right in his discretion without indicating his reasons. Such a decision by an Umpire or an Arbitrator cannot be held to be erroneous on the face of the record. We, therefore, allow the appeals with costs, set aside the appellate order of the High Court, and restore that of the learned single Judge.