MARKFED VANASPATI & ALLIED INDUSTRIES A v.

UNION OF INDIA

SEPTEMBER 14, 2007

(TAR UN CHA TIER.JEE AND DAL VEER BHANDARI, JJ.) B

Contract-Non-performance of-Invoking of force majeure clause in agreement-Under a contract for supply of rapeseed oil, supplier failed to supply the specified quantity of oil-Plea of ban by Government on use and C processing of rapeseed oil by manufacturers-Held, High Court was right in holding that on facts force majeure clause could not be attracted since the ban covered use of rapeseed oil for manufacturing Vanaspati, and manufacturing rapeseed oil was not banned or restricted-Arbitration.

Arbitration-Non-speaking award by arbitrator-Court cannot probe D into mental process of arbitrator-Court should endeavour to support a nonspeaking arbitration award provided it adhered to parties' agreement and was not invalidated due to arbitrator's misconduct-Contract.

The parties entered into a contract for supply of the specified quantities of rapeseed oil. It was the case of the respondent-Union of India that the E supplier-appellant failed to supply the oil as per the delivery schedule and, therefore, the contract was cancelled. The dispute was referred to arbitration.

The stand of the supplier was that it was unable to supply the oil because of the ban by the Government on use of processing of rapeseed oil by manufacturers. The arbitrator gave a non-speaking award against the supplier, and the single Judge of the High Court made the award rule of the court. The Division Bench of the High Court dismissed the appeal of the supplier.

In the instant appeal filed by the supplier company, the arguments were confined only to the plea with regard to force majeure clause in the agreement. G

Dismissing the appeal, the Court

HELD: 1. The Division Bench of the High Court, while affirming the judgment of the single Judge has correctly observed that the force majeure

957 H

A clause could not be attracted in the facts and circumstances of this case. This was so because the ban was on the use of rapeseed oil for manufacturing ' Vanaspati but manufacture of rapeseed oil was not debarred or restricted. f Para 7 and 8) (960-C-E)

2. Arbitration is a mechanism or a method of resolution of disputes that B unlike court takes place in private, pursuant to agreement between the parties.

The parties agree to be bound by the decision rendered by a chosen arbitrator after giving hearing. The consistent and settled legal position is that the scope of interference is extremely limited in a non-speaking award. The Court cannot probe into the mental process of the arbitrator. The endeavour of the Court should be to honour and support a non-speaking arbitration award C provided it adhered to the parties' agreement and was not invalidated due fo.

arbitrator's misconduct. Considering the judgments of the single Judge and the Division Bench of the High Court, no interference is called for.

(Para 9, 15, 18 and 19) (960-F; 962-A, F-H; 963-AJ

Mis Sudarsan Trading Co. v. Govt. of Kera/a & Anr., (198912 SCC 38; D State of A.P. v. R. V. Rayanim, (1990) 1 SCC 433; Bijendra Nath Srivastava v.

Mayank Srivastava & Ors., (199416 SCC 117; New India Civil Erectors (P) Ltd v. Oil & Natural Gas Corporation., (1997) l l SCC 75; Rajasthan State Mines & Minerals Ltd v. Eastern Engineering Enterprises & Anr., (1999) 9 SCC 283; State of Bihar & Ors. v. Hanuman Mal Jain, (1997) 11 SCC 40, P. V.; Subha Naidu & Ors. v. Govt. of A.P. & Ors., (1998) 9 SCC 407; Star E Construction and Transport Co. & Ors. v. India Cements Ltd, (200113 SCC

351 and D.D. Sharma v. Union of India, (2004) 5 SCC 325, relied on.

Russell on Arbitration 19th Edition at Page 110, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2668 of2007.

F From the Judgment and Order dated 17.04.2006 of the High Court of Delhi at New Delhi in F.A.0. No. 206 of2006.

L. Nageshwar Rao, K.G. Bhagat, Vineet Bhagat, Hari Kumar G. and Neha Jain (Dabasis Misra) for the Appellant.

G Vikas Singh, ASG., Shilpa Singh, Shiva Lakshmi and R.C. Kathia (for D.S. Mabra) for the Respondents.

The Judgment of the Court was delivered by

DAL VEER BHANDARI, J. 1. This appeal is directed against the judgment H of the Division Bench of the Delhi High Court dated 17.4.2006 passed in FAO

MARKFEDVANASPATI&ALLIEDINDUS.v. U.0.1.(BHANDARI, J.J 959 ·

(OS) No. 206/2006.

2. The respondent, Union of India, issued tender dated 29th June, 1989 for purchase of oil. The appellant offered to supply 1600 metric tons of different categories ofoil vi de quotation dated 15th July, 1989, the details of which are as under:-

1. 200 MT@ 24, 150/- per MT by 31.8.89 (Refined Cotton Seed Oil)

2 500 MT@ Rs.21,500/- per MT by 31.8.1989 (Rapeseed Oil)

3. 300 MT@ Rs.24,550/- per MT by 30.9.1989 (Refined Soyabeen Oil)

4. jQO MT@ Rs.22,000/- per MT by 30.9.1989 (Rapeseed Oil).

3. The respondent-Union of India accepted the offer given by the appellant and consequently the respondent issued tender in the fonn of a letter dated 22nd August, 1989. The appellant failed to supply the oil as per

the delivery schedule. The time for supply was extended, reserving the D respondent's right to levy liquidated damages. All the supplies could not be

~· delivered. The contract was cancelled and the appellant resorted to force majeure clause.

4. The dispute was referred to an arbitrator. The sole arbitrator made and published his award on 20th June, 1995. The appellant prayed before the E arbitrator thac in view of the extension of time on various occasions, the time was not the essence of the contract. The appellant has admitted various delays including in furnishing security, but stated that the same were unintentional.

5. It may be pertinent to mention that the objections regarding limitation F and jurisdiction were given up by the appellant before the Division Bench of the High Court. Before the Division Bench, the appellant sought the benefit of the force majeure clause because the government had banned the use and process of rapeseed oil by manufacturers. The Division Bench specifically noted in the impugned judgment that no other argument was advanced by the G learned counsel appearing for the appellant. Therefore, we requested the learned counsel for the appellant to confine his submissions oniy with regard to force majeure clause argued before the Division Bench of the High Court in this case. On the basis of the documents referred to the court by the learned counsel for the appellant, it is clear that the ban was imposed for the use of rapeseed oil for manufacturing Vanaspati but manufacturing of rapeseed H

A oil was not debarred or restricted. Therefore, even the plea of force maje~e

clause taken by the appellant was found to be totally devoid of any merit.

6. The arbitrator in the instant case gave a non-speaking award, which was made rule of the court by the order of the learned Single Judge on 21st February, 2006. The appellant preferred FAO (O.S.) No. 206/2006, before the B Division Bench of the High Court, which was also dismissed on I 7th April,

2006. The appellant has preferred special leave petition against the said impugned judgment of the Division Bench. This Court granted leave on 14th May, 2007.

7. The Division Bench, in the impugned judgment, while affirming the judgment of the learned Single Judge has correctly observed that the ban was on the use of rapeseed oil for manufacturing Vanaspati but manufacture of rapeseed oil was w; c debarred or restricted.

8. We have heard Mr. L. Nageshwar Rao, the learned senior counsel for D the appellant, and Mr. Vikas Singh, the learned Addi. Solicitor General for the respondent, Union of India. In this case, the award has been made rule of the court by the learned Single Judge of the High Court and the findings of '-.... learned Single Judge have been affirmed by the Division Bench. The Court in the impugned judgment held that the force majeure clause could not be attracted in the facts and circumstances of this case. This was so because E the ban covered the use of rapeseed oil for manufacturing Vanaspati, yet manufacturing rapeseed oil was not debarred or restricted. We concur with the learned Single Judge's findings, which were affirmed by the Division Bench.

9. The consistent and settled legal pos1t1on is that the scope of F interference is extremely limited in a non-speaking award. The legal position has been consistently followed in number of judicial decisions. The findings of some of those judgments are recapitulated as under.

IO. In Mis Sudarsan Trading Co. v. Govt. of Kera/a & Anr., [1989) 2 G sec 38 in para 29 at page 53, Sabyasachi Mukharji, J. speaking for the Court observed that the court in a non-speaking award cannot probe into the reasoning of the award. The Court further observed that only in a speaking award the court may look into the reasoning of the award, and it is not open to the court to probe the mental process of the arbitrator and speculate, where no reasons are given by the arbitrator as to what impelled him to arrive at his H conclusion. Furthermore, the reasonableness of the arbitrator's reasons cannot

MARKFED V ANASPA TI & ALLIED INDUS. v. U.0.1.[BHANDARI, J.] 961

be challenged. The arbitrator's appraisement of the evidence is never a matter A for the court to entertain.

l l. This Court in State of A.P. v. R. V. Rayanim, [1990] 1 SCC 433 in para 6 at page 437, dealt with a non-speaking award. The court observed that it is not open to the court to probe the mental process of the arbitrator where he has not provided the reasoning for his decision.

12. This Court, in Bijendra Nath Srivastava v. Mayank Srivastava & Ors., [19.94] 6 SCC 117 in para 20 at page 133 and para 31 at page 138, observed that the arbitrator is under no obligation to give reasons in support of the decision reached by him, unless the arbitration agreement or deed of settlement so required. If the arbitrator or umpire chooses to give reasons in C support of his decision, then it would be open to the court to set aside the award upon finding an error of law. The reasonableness of the reasons given by the arbitrator cannot, however, be challenged. It is not open to the court to look for the reasons and proceed to examine whether they were right or erroneous. The arbitrator is the sole judge of the quality as well as the D quantity of the evidence. It will not be for the court to take upon itself the task of being a judge of the evidence before the arbitrator. The Court should approach an award with a desire to support it, if that is reasonably possible, rather than to destroy it by calling it illegal.

13. In New India Civil Erectors (P) Ltd v. Oil & Natural Gas E Corporation, [1997] 11 SCC 75 in para 7 at page 78, the Court observed while dealing with a non-speaking award that the attempt of the court should always be to support the award within the letter of law.

14. In Rajas than State Mines & Minerals Ltd. v. Eastern Engineering Enterprises & Anr., [1999] 9 SCC 283 in para 44 at page 309, the Court F observed that in a non-speaking award the jurisdiction of the court is limited.

It is not open to the court to speculate where no reasons are given by the arbitrator as to what impelled the arbitrator to arrive at his conclusion. It is also not possible to admit to probe the mental process by which the arbitrator has reached his conclusion where it is not disclosed by the terms of the G award. Similar view has been taken in the following cases, namely, State of Bihar & Ors. v. Hanuman Mal Jain, [ 1997] 11 SCC 40, P. V. Subha Naidu & Ors. v. Govt. of A.P. & Ors., [ 1998] 9 SCC 407, Star Construction and Transport Co. & Ors., v. India Cements Ltd, [2001] 3 SCC 351 and D.D. Sharma v. Union of India, [2004] 5 SCC 325.

15. The decided cases of this Court demonstrate that this Court has

consistently taken the view that scope of interference in a non-speaking award is extremely limited. The Court cannot probe into the mental process of the arbitrator. The court should endeavour to support a non-speaking arbitration award provided it adhered to the parties' agreement and was not invalidated due to arbitrator's misconduct.

16. Russell on Arbitration 19th Edition at Pages 110-111 described the entire genesis of arbitration as under:-

"An arbitrator is neither more or less than a private judge of a private court (called an arbitral tribunal) who gives a private judgment (called an award). He is a judge in that a dispute is submitted to him; he is not a mere investigator but a person before whom material is placed by. the parties, being either or both of evidence and submissions; he gives a decision in accordance with his duty to hold the scales fairly between the disputants in accordance with some recognized system of law and rules of natural justice. He is private in so far as (1) he is chosen. and paid by the disputants (2) he does not sit in public (3) he acts in accordance with privately chosen procedure so far as that is not repugnant to public policy (4) so far as the law allows he is set up to the exclusion of the State Courts (5) his authority and powers are only whatsoever he is given by the disputants' agreement (6) the effectiveness of his powers derives wholly from the private law of contract and accordingly the nature and. exercise of those powers must not be contrary to the proper law of the contract orthe public policy of England bearing in mind that the paramount public policy is that freedom of contract is not lightly to be inferred with."

17. Whatever has been mentioned by Russell in this paragraph is equally true for Indian Arbitrators. ·

18. Arbitration is a mechanism or a method of resolution of disputes that unlike court takes place in private, pursuant to agreement between the G parties. The parties agree to be bound by the decision rendered by a chosen arbitrator after giving hearing. The. endeavour of the court should be to ' . honour and support the award as far as possible.

19. We have perused the award and the judgment of the learned Single Judge by which the award has been made the rule of the Court and the H impugned judgment of the Division Bench of the High Court. In our considered

MARKFEDVANASPATI&ALLIEDINDUS.v. U.0.1.[BHANDARI, J.] 963

view, no interference is called for. The appeal being devoid of any merit is A accordingly dismissed. ln the facts and circumstances of the case, we direct the parties to bear their own costs.

RP.

Appeal dismissed.