Case: Allen Berry &amp; Co. (P) Ltd Vs. Union Of India, New Delhi

1. By this appeal, under special leave, the appellant company Challenges the correctness of the judgment of the High Court of Punjab, dated February 19, 1963 refusing to set aside an umpires award, dated March 22, 1958. The award was in respect of certain disputes between the company and the Union of India in the matter of disposals of the United States surplus war materials left by the Government of the U. S. A. at the end of the last World War. These surplus materials called the U. S. Surplus Stores, consisted of vehicles and other stores. It was said that these were sold to the company by the Director-General, Disposals through correspondence and sale-notes. These contracts of sale were subject to the General Conditions of Contract (Form Con. 117). Clause 13 of these General Conditions provided that :"In the event of any question or dispute arising under these conditions or any special conditions of contract or in connection with this contract - the same shall be referred to the award of an arbitrator to be nominated by the Director General and an arbitrator to be nominated by the contractor, or in the case of the said arbitrators not agreeing, then, to the award of an Umpire to be appointed by the arbitrators in writing before proceeding on the referenceUpon every and any such reference, the assessment of the costs incidental to the reference and award respectively shall be in the discretion of the arbitrators, or in the event of their not agreeing, of the Umpire appointed by them."2. Disputes having arisen between the parties both as regards the contents and the quantity of the vehicles delivered under the contracts, they were referred, in the first instance, to two arbitrators nominated by the parties and ultimately to an umpire. The disputes were crystallized into nine claims by the appellant-company totalling Rs. 6,73,34.500/-, and several counter-claims by the Government of India. At the end of the arbitration, the umpire, by his said award, disallowed all the claims made by the company, except one for which he awarded Rs. 6,94,000/- and held, in respect of the counter-claims filed by the Government of India, that the appellant-company was liable to pay to the Government in all Rs. 36,23,682. 50 P. and costs amounting to Rs. 5,40,544. In the result after deducting the claim allowed to the appellant-company, the company was held liable to pay to the Government Rs. 34,70,226.50 P3. The award having been filed by the umpire in the Court of the District Judge, Delhi and the Government of India having thereupon applied for a decree in terms of the award, the company applied to the Court for setting aside the award urging several grounds for so doing The District Judge by an elaborate judgment declined to set aside the award. He however, held that the award suffered from an error apparent on the face of the award in respect of the appellants claim No. III (a), and further held that the counter-claims II IV, V and VI made by the Government were not covered by the reference, and consequently, the umpire had no jurisdiction to go into them. Declining, however, to set aside the award, he remitted it for reconsideration of the aforesaid items and also for readjustment of the amount of costs in the event of enhanced compensation being awarded to the company in respect of its claim No. III (a). Dissatisfied with the judgment of the appellate Court, the company filed an appeal before the High Court. The Union of India also filed certain cross-objections. The High Court heard the appeal and the cross objections together and by its aforesaid judgment dismissed both the appeal and the cross objections and upheld the judgment of the District Judge.

Court's reasoning:
6. The principle is that the Court. while examining an award will look at documents accompanying and forming part of the award. Thus, if an arbitrator were to refer to the Pleadings of the parties so as to incorporate them into the award, the Court can look at them. In some cases however, Courts extended the principle and set aside the award on a finding that the contract, though only referred to but not incorporated into the award as part of it, had been misconstrued and such misconstruction had been the basis of the award. Thus, inLandauerv. Asser, 1905 (2) KB184 the dispute between buyers and sellers of goods was as to who was entitled to certain sums paid upon a policy of insurance upon the goods. This was referred to arbitration and the umpire made his award basing it on the construction he placed on the contract, namely, that as the parties to the contract were "by the terms thereof" principals, their interest and liability in insurance was defined to be the value of the invoice plus 5 per cent. On an application to set aside the award, the Court of Appeal held that inasmuch as the umpire had referred to the contract and the terms there of, it was justified in looking at the contract, and having done so, found that he had based his decision entirely upon the terms of the contract. It also found that since the contract, if properly construed, did not justify the decision, the award was bad on the face of it and was liable to be set aside. A similar view appears also to have been taken inF. R. Absalom Ltd.v. Great Western (London) Garden Village Society Ltd. 1933 AC592. Where the award set out the relevant words and Clause 30 of the contract and also the conclusion of law on the meaning of those words, Lord Russell said that since the award recited the contract and referred in terms to the provisions of Clause 30, thereby incorporating it into the award, and then stated the construction which the arbitrator placed upon that clause, the Court was entitled to look at that clause to ascertain if the construction placed by the arbitrator was erroneousThe test is, does the arbitrator come to a finding on the wording of the contract. If he does, he can be said to have impliedly incorporated the contract or a clause in it whichever be the case. But a mere general reference to the contract in the award is not to be held as incorporating it. The principle of reading contracts or other documents into the award is not to be encouraged or extended. (see Babu Ram v Nanhemal C. A. No. 107 of 1966 D/- 5-12-1968 (SC) ). The rule thus is that as the parties choose their own arbitrator to be the Judge in the dispute between them, they cannot, when the award is good on the face of it, object to the decision either upon the law or the facts. Therefore, even when an arbitrator commits a mistake either in law or in fact in determining the matters referred to him, but such mistake does not appear on the face of the award or in a document appended to or incorporated in it so as to form part of it, the award will neither be remitted nor set aside notwithstanding the mistake13. The dispute between the parties, thus, clearly was that whereas the company claimed that the sale was of all vehicles borne on the records of Moran Depot, irrespective of whether they were actually lying there on July 11, 1946 or not, the Government claimed that the company was entitled to those actually lying in the Depot. According to the respondents, the contract of sale was to be found in the sale-note, and therefore, any subsequent explanations or assurances given by any officer or Officers of the Department could not vary or alter the term of the contract. These explanations and assurances were given only to remove the misunderstanding of the company over the question of the scope and extent of the sale made to it15. The dispute, amongst other disputes. referred to the umpire and crvstallized by him in the form of issues on the pleadings of the parties involved, as already stated, the question first as to what was sold, and secondly, arising out of that, the question whether besides the said salenotes 160 and 197, the subsequent clarifications or explanations were binding on the Government. These were, no doubt, questions partly of fact and partly of law. But questions both of fact and law were referred to the umpire and prima facie his findings on them would bind the parties unless, as explained earlier, the umpire has laid down any legal proposition, such as a construction which is made the basis of the award and is on the face of the award an errorTrue it is that this is not a case where a question of law is specifically referred to. It is clearly a case falling in the category of cases, like 1923 AC 395   where in deciding the questions referred to him the umpire has to decide a point of law. In doing so, the umpire, no doubt, laid down the legal proposition that the clarifications or assurances given subsequent to the dates of the said sale-notes by an officer or officers of the department were not binding on the respondents nor could they affect the scope of the Sales. That answer the umpire was entitled to give. But the fact that he answered a legal point does not mean that he has incorporated into the award or made part of the award a document or documents, the construction of which, right or wrong, is the basis of the award. The error, if any in such a case cannot be said to be an error apparent on the face of the award entitling the court to consider the various documents placed in evidence before the umpire but not incorporated in the award so as to form part of it and then to make a search if they have been misconstrued by him. This, in our understanding, is the correct principle emerging from the decisions which counsel placed before us. In any event, this is not a case where the umpire, in the words of Lord Dunedin, "tied himself down to a legal proposition" which on the face of the award was unsound. The award makes it clear in so many words that he took into account the entire evidence, including the documents relied on by counsel and then only came to the conclusion that it did not assist the company in its contention as to the scope of the sales. Contentions 1 and 2 raised by Mr. Agarwal, therefore cannot be upheldThere is no dispute that out of these vehicles the company removed 291 vehicles alleging that the delivery of the balance of 256 vehicles was withheld. The company made a claim being claim No. VI for the price of these 256 undelivered vehicles. The respondents contention was that the sale to the company was confined only to the U.S.A. Surplus Stores, that these vehicles did not fall within that category, but were Reverse Land Lease vehicles belonging to the Government of India under an agreement between the U.S.A. and India. On these allegations the respondents laid counter-claim No. VI claiming the price of the 291 vehicles admittedly removed by the company when they were lying in Jodhpur Depot, CalcuttaThere is no dispute that out of these vehicles the company removed 291 vehicles alleging that the delivery of the balance of 256 vehicles was withheld. The company made a claim being claim No. VI for the price of these 256 undelivered vehicles. The respondents contention was that the sale to the company was confined only to the U.S.A. Surplus Stores, that these vehicles did not fall within that category, but were Reverse Land Lease vehicles belonging to the Government of India under an agreement between the U.S.A. and India. On these allegations the respondents laid counter-claim No. VI claiming the price of the 291 vehicles admittedly removed by the company when they were lying in Jodhpur Depot, CalcuttaIn our view, such an argument cannot be accepted. The reason is that once it is found that he was competent to decide the dispute as to whether the said 547 vehicles were not the subject-matter of the sale and 291 of them were removed unauthorisedly, he must to do justice between the parties in respect of disputes referred to him, order the company either to return them or to pay compensation for them. Since the first course was not possible after all these years, the second was the only and the obvious course. The dispute raised by the respondents that 291 vehicles were not included in the sale was co-extensive with and connected with the dispute that the company was bound to return them if it was found that they were not covered by the sale. On this reasoning it is not possible to say that the umpire went beyond his jurisdiction either in rejecting the companys claim No. VI or in accepting the corresponding counter-claim No. VI of the respondents22. Contention 4 relates to 600 vehicles which had been taken out of Moran Depot for operational purposes, but which the company claimed were part of the sale under sale-note 160. The umpire held (1) that these vehicles having been taken out of the Depot for operational purposes did not fall within the sale, and (2) in the alternative, that the evidence disclosed that a substantial number of vehicles in operational use were delivered to the company even though strictly speaking it was not entitled to them as they were not lying in the Depot on July 10, 1946. The umpire further held that if some of them per chance were not handed over, the respondents had sufficiently compensated the company by handing over several non-operational vehicles from outside the Depot to which the company was not entitled. Counsel argued that this part of the award was vague and without any evidence to support it, and therefore, the umpire behaved in this respect more like a conciliator than as an arbitrator23. Having held that sale-note 160 covered only those vehicles which were actually lying in Moran Depot on July 10, 1946, it was not incumbent on the umpire to decide the number of operational vehicles outside the Depot. Consequently, if he was satisfied that even though the company was not entitled to the said 600 vehicles claimed by it, yet the authorities had delivered a substantial number of them, and for any deficiency, had also delivered non-operational vehicles there would be no purpose in going into the details of vehicles delivered to the company. Even though, as the judgment of the Trial Court discloses (para 223), there was evidence, both oral and documentary, that the company had collected a number of vehicles lying at places outside the Depot and the vehicles so collected were recorded by the company, yet the company had withheld the production of those records. In view of these facts it is impossible to say that the umpire had acted without evidence, or that he behaved in the manner of a conciliator, or Rave findings on conjectures and surmises24. Our interference was invited next on the question of ground rent on the ground that the amount of such rent was fixed by the Umpire without any evidence. There is hard1y any substance in this contention. The sites: on which the various depots were situated, were requisitioned by the Government under the Defence of India Rules. The Government had a statutory obligation, therefore, to pay to the owners of those sites Compensation as provided by those Rules. Under the contracts of sale the company was bound to pay to the Government ground rent and other charges which the Government in its turn was liable to pay. It is, therefore, not correct to say that the umpire could award only that amount which the Government had actually paid and that the umpire should, therefore, have taken an account from the Government. It was never the case of the company that the Government had claimed ground rent higher than the compensation it was liable to pay25. The last objection was that the amount of costs awarded by the umpire to the respondents was disproportionate. It appears from the award that the umpire fixed the amount of costs after considering the statements of expenses incurred by the parties for the hearing before him tendered by the respective counsel for the parties. Considering the huge amounts claimed by the parties, the volume of evidence, both oral and documentary, adduced by them, the number of days occupied in recording that evidence and in arguing the case, we are not prepared to say that the discretion which the umpire exercised in the matter of costs was exercised in breach of any legal provision or unreasonably which can justify the Courts intervention