Case: N. Chellappan Vs. Secretary, Kerala State Electricity Board &amp;Another

2. By a contract dated 21-4-1964, the construction of the Kuttiyadi Dam was entrusted by the Kerala State Electricity Board (for short the Board) to Shri Chellappan, the appellant. The work was left unfinished and therefore dispute arose between the appellant and the Board by reason of the non-execution of the work. While these disputes were pending, a second contract dated 15-7-1967 was entered into between the appellant and the Board for the execution of the remaining part of the work on or before 31-5-1969. On 4-6-1968, the appellant stopped the work and the Chief Engineer terminated the second contract on 15-10-1968. The Board thereafter carried on with the unfinished work. On 22-8-l970, five points were referred for the decision of two arbitrators, both retired Chief Engineers, one to be nominated by the Board and the other by the appellant. The arbitrators entered on the reference and they nominated Shri G. Kumara Pillai, a retired Judge of the Kerala High Court as umpire. The arbitrators did not make the award within the time-limit which was extended from time to time and which expired on 18-12-1971. Thereupon the appellant filed O. P. No. 11 of 1972 on 28-1-1972 for revoking the authority of the arbitrators under Sections 5 and 11 of the Arbitration Act. The grounds for the application were that the arbitrators did not make the award within the time-limit for submission of the award and that they were disqualified by bias from proceeding with the arbitration. The prayer in the application was that Shri Kumara Pillai may be directed to enter upon the reference in his capacity as umpire and to proceed with the arbitration. The arbitrators filed statements explaining the reasons for the delay in making the award and denying the bias attributed to them. One of the arbitrators in his statement submitted that he has no objection to his being discharged as he no longer wished to be an arbitrator. In this O. P. the appellant filed another application on 21-3-1972 to appoint Shri Kumara Pillai as a sole arbitrator in place of the two arbitrators. By an order dated 22-6-1972, the court allowed O. P. 11 of 1972 and revoked the authority of the arbitrators and directed the umpire to enter upon the reference in his capacity as umpire and also allowed the application (I. A. 1918/72) to appoint Shri Kumara Pillai as the sole arbitrator. On 5-2-1972, the Board filed O. P. No. 19 of 1972 for extension of time for passing the award by the arbitrators. This was disposed of by an order dated 22-6-1972 stating that since O. P. 11 of 1972 had been allowed, it had become unnecessary to extend the period. The umpire entered on reference in his capacity as umpire on 30-6-1972. Both the appellant and the Board participated in the proceedings before the umpire without demur and the umpire made the award in favour of the appellant for nearly Rs. 30 1akhs on 15-2-1973. The umpire filed the award in court on 30-2-1973 (sic) and prayed by O. P. 21 of 1973 that notice of the filing of the award be issued to the parties and that the award be made a rule of the Court. Notice was ordered on the application on 21-3-1973. The Board filed an application on 22-3-1973 (I. A. 895 (a) ) challenging the award under Sections 16, 30 and 33 of the Arbitration Act and praying to set aside the award. On 24-3-1973, the appellant filed an application to pass a decree in terms of the award and for interest at 15 per cent from the date of the decree. The appellant filed his objection on 26-3-1973 to the Boards application to set aside the award. The case was posted for hearing on 4-4-1973. On that day the Board filed an application - I. A. 1l76 of 1973 - stating that it was necessary to file a detailed affidavit in rejoinder to the objections filed by the appellant to the application of the Board to set aside the award and praying for an adjournment of the hearing, The application for adjournment was allowed. The matter came up for hearing on 6-4-1973. On that day, the Board filed I. A. 1223 of 1973 praying for time for filing the affidavit in rejoinder. On the same day, the appellants counselsubmit that I shall not be pressing the fresh points raised in the affidavit for the purpose of todaysI. A. 1223 of 1973, the Board had stated that it was prepared to satisfy the court that the application under Sections 16, 30 and 33 of the Arbitration Act was prima facie maintainable and that it was necessary to adjourn the hearing for evidence and for final argument. The endorsement on the petition dated 6-4-1973 is: "Call on the adjourned date." On 10-4-1973 the court passed final orders dismissing the application filed by the Board to set aside the award and passed a decree in terms of the award with interest at 6 per cent. from the date of the decree till the realisation of the amount. All these orders were passed in O. P. 21 of 1973. On I. A. No. 1223 of 1973, the Court passed the order "rejected" on 10-4-1973.3. In the appeal filed by the Board against the decree, the High Court came to the conclusion that the umpire as sole arbitrator had no jurisdiction to pass the award as the orders revoking the authority of the arbitrators to pass an award and appointing the umpire as sole arbitrator were bad in law and that no sufficient opportunity was given to the Board to substantiate its objection to the award. The Court further held that the umpire made a mistake in respect of two matters referred. The Court, therefore, set aside the order in O. P. 11 of 1972 as well as the Award and the decree and remitted the case to the Court below for fresh disposal according to law.

Court's reasoning:
5. We find it difficult to accept the reasoning of the High Court that the umpire had no jurisdiction to enter upon the reference. In the first place, the order in O. P. 11 of 1972 was an order passed on consent of the appellant and the Board. Quite apart from this, Rule 4 in the first schedule to the Arbitration Act authorises an umpire to enter upon the reference in case the arbitrators fail to make the award within the time specified.Whatever be the reason, since the arbitrators did not make the award within the extended time, the umpire, by virtue of the provision of rule could have entered upon the reference and made the award. It is, no doubt, true that the umpire expressed his unwillingness to enter upon the reference without an order of the Court. That was because the Board had filed an application for extension of time for the arbitrators to pass the award. We do not think that the umpire lost his jurisdiction to pass the award merely because he wanted an order from Court by way of abundant caution authorizing him to enter upon the reference.As we already said, paragraph of the order in O. P. 11 of 1972 leaves no room for doubt that it was a consent order.The Board made no endeavour to have that order vacated by filing a review if the statement in that order that it was passed on the basis of consent proceeded from a mistake of the court. On the other hand, we find that the Board participated in the proceedings before the umpire without any demur to his jurisdiction. The only inference from this conduct on the part of the Board is that it had no objection to the order revoking the authority of the arbitrators.Therefore, by acquiescence, the Board was precluded from challenging the jurisdiction of thethe parties to the reference either agree beforehand to the method of appointment, or afterwards acquiesce in the appointment made, with full knowledge of all the circumstances, they will be precluded from objecting to such appointment as invalidating subsequent proceedings. Attending and taking part in the proceedings with full knowledge of the relevant fact will amount to such acquiescence" (See "Russell on Arbitration", 17th Ed., p.Chowdhri Murtaza Hossein v. Mt. Bibi Bechunnissa, (1876) 3 Ind App 209 (PC) at p. 220 the Privy Councilthe whole, therefore, their Lordships think that the appellant, having a clear knowledge of the circumstances on which he might have founded an objection to the arbitrator proceeding to make their award, did submit to the arbitration going on; that he allowed the arbitrators to deal with the case as it stood before them, taking his chance of the decision being more or less favourable to himself; and that it is too late for him, after the award has been made, and on the application to file the award, to insist on this objection to the filing of theHigh Court said that acquiescence of the Board by participating in the proceeding before the umpire as sole arbitrator would not confer jurisdiction as there was inherent lack of jurisdiction in that the order in. O. P. 11 of 1972 was bad in law and that it did not clothe the umpire with any jurisdiction.We are of the view that even assuming that the order in O. P. 11 of 1972 was not passed on consent, the umpire had power to pass the award. As we said, the umpire could have entered upon the reference under Rule 4 of the First Schedule when the arbitrators failed to make the award within the extended time. Neither the fact that the umpire wanted an order from the court to enter upon the reference nor the fact that an application was made by the Board onto extend the time for the arbitrators to make the award would denude the umpire of his jurisdiction to enter upon the reference and pass an award under Rule 4 of the First Schedule. Therefore, when the Board without demur participated in the proceedings before the umpire and took the chance of an award in its favour, it cannot turn round and say that the umpire had no inherent jurisdiction and therefore its participation in the proceedings before the umpire is of no avail. The fact that the umpire did not purport to act in the exercise of his jurisdiction under Rule 4 of the First Schedule but under the order of the Court, would not make any difference when we are dealing with the question whether he had inherent jurisdiction. As the umpire became clothed with jurisdiction when the extended period for making the award by arbitrators expired, it cannot be said that he had no inherent jurisdiction. As we said, neither the fact that the umpire expressed his unwillingness to enter upon the reference without an order of the court nor the fact that an application to extend the period for making the award by the arbitrators long after the expiry of the period for making the award had the effect of depriving him of his jurisdiction under Rule 4 of the First Schedule. The High Court was, therefore, clearly wrong in thinking that acquiescence did not preclude the Board from challenging the jurisdiction of the umpire as sole arbitrator.We do not find any substance in the contention of the Board that the application for setting aside the award was not posted for evidence as normally such an application should be disposed of on the basis of affidavits. We do not think that there was any exceptional circumstance in this case so that the Court should have allowed the Board to adduce other evidence (see Section 33 of the Arbitration Act).The gist of the correspondence evidenced by the letters which passed between the parties would show that while the Board was insisting that the appellants claim for rain damage, flood damage and power failure had all been rejected and could no longer beand that tile second contract should be executed without any reference to these, the appellant was insisting on his claims under these heads being reserved for adjudication in such ways as may be open to him under law.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 thean 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).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 Bhara and Co. v. Jivraj Balloo Co., 1923 AC 480 = (AIR 1923 PC 66)). In Union of India v. Bungo Steel Furniture Pvt. Ltd., (1967) 1 SCR 324   = (AIR 1967 SC 1032  ) 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.The High Court did not express any final opinion on this question. No doubt, the agreement to refer makes it clear that there were no other questions of dispute or difference arising for settlement except those which were specifically detailed in the agreement and it was also stated in the agreement that all other questions and claims of the respondent were withdrawn and should be deemed to be abandoned. Whether the return of the security amount would fall under point 2 (d) would depend upon the answer to the question whether it is a claim of the Board. The question whether the Board can retain the amount under the contract is a claim of the Board falling within point 2 (d).