Louis Dreyfus and Co. Ltd. vs V.S. Balasubbaraya Chettiar and Son

Rajamannar, C.J.—This is an appeal against the judgment of Balakrishna Aiyar, J. setting aside an award made on the 25th November

1952 in the following circumstances. On 30th January, 1952, the respondents, a registered firm of yam merchants carrying on business at Madras,

agreed to buy from the appellant, Messrs. Louis Dreyfus and Co. Ltd., a company carrying on business at Madras ten bales of cotton yarn in

hanks (2 crores) (XX) reels 1/80s combed Egyptian Warp Twist manufactured in Italy 5lb. bundles, 50 bundles per bale at 187 per lb. C. I. F,

Madras in two lots of five bales each. By another contract, the respondents agreed to buy seven more bales of the same kind of yarn at 180 d. per

lb. C. I. F.

On intimation received by the respondents that the said seventeen bales were due to arrive they paid for the drafts and obtained the respective bills

of lading, took delivery on the 14th April, 1952 of the five bales on the 8th May, 1952, another five bales and on the 12th May 1952 the remaining

seven bales. The respondents'' case is that when they opened the bales delivered on the 14th April, 1952 and examined the yarn contained in the

bales they found that the yarn delivered was not according to the contract but was inferior and not fit for warp for handloom weaving. The

respondents therefore claimed from the appellant company damages for breach of warranty which they assessed in a sum of Rs. 10224.

The appellant company denied their liability. In accordance with a clause in the contracts which provided for settlement of disputes and differences

by arbitration, the respondents appointed one Mr. D. C. Lyth of Messrs. Gordon Woodroffe and Co., as arbitrator and the appellant company

appointed Mr. L. K. Pinto of Messrs. Rallis (India) Ltd., as arbitrator on their side. The arbitrators enquired into the claim. Oral and documentary

evidence was adduced before the arbitrators who also heard arguments of the counsel on both sides. The arbitrators found that the yarn supplied

by the appellant company was of a type and quality consistent with the contracts and that the respondents were not entitled to recover any sum of

money from the appellant company as damages. They assessed the costs of the arbitration and award at Rs. 1000 and directed the costs to be

borne by the respondents.

The standard indent form of the appellant company under which the respondents agreed to purchase yarn contained the following among other

clauses :

Certificate of I. C. I. ( Institute Cotoniere Italiano) will be final and binding on both buyers and sellers for the quality of the goods.

The appellant company relied on test certificates issued by the said institute certifying that the contract goods bore the characteristics of upper

Egyptian cotton yarn warp twist. The respondents relied on a certificate issued by the Government Textile Institute that the average lea-breaking

strength of the yarn was 20 lbs. and also on the evidence of two handloom weavers who were the customers of the respondents to the effect that

some of the yarn supplied to them through the respondents was found unsuitable for warp during the process of weaving.

The respondents'' case was that the yam delivered by the appellant company under a previous contract had a lea-breaking strength of 26.3 lbs.

The arbitrators found that there was no enforceable term in the contracts that yarn agreed to be delivered under the contracts would be of the

same quality of yam as previously delivered by the appellant to the respondents, that the respondents'' contention that the yarn delivered was

inferior to the stipulated quality in the contracts was not tenable, that the test certificates issued by the Institute Cotoniere Italiano showed that the

yam supplied was as per description in the contracts and that yam with lea-breaking strength of 20 lbs. was being regularly used in India and in

other markets for warp. The arbitrators were, therefore, of the unanimous opinion that the yarn supplied by the appellant company was of a type

and quality consistent with the contracts and that the claim made by the respondents was not sustainable.

The respondents filed a petition under Sections 30, 31 and 33 of the Indian Arbitration Act praying that the said award may be set aside.

Balakrishna Aiyar, J. who finally heard and disposed of the petition held that the arbitrators assumed without proof that the certificates issued by

the Institute Cotoniere Italiano related to the yam actually shipped to Madras and that as the case went on the unproved assumption which went

into the roof of the matter the award should be set aside. The learned Judge accordingly set aside the award and also superseded the reference

and directed that the arbitrators'' agreement shall cease to have effect.

The test certificate issued by the Institute Cotoniere Italiano contained the following statement: (the extract is from one of them).

The following Survey operations have been performed by the surveyor of this Institute, Mr. Ricardo Orlandini on the following lot of yam declared

to constitute 5 bales.....Brand...... quality Upper Egyptian combed English count 1/80''s twist wary,

Make up: Double cross reel in bundles of 5 lbs (20 knots of XO hanks of 1680 yards each)....... Two bales have been opened and examined and

precisely these bearing serial numbers 7-10 and from them samples have been drawn for test of condition, count lea strength and......tickets have

been stuck on one side of all the five bales forming the lot; these tickets have been applied with wet seal of I.C.I. Drawing of samples and also the

survey tests have been carried out according to the rules laid down in the tables U.N.I.

The results of the several tests carried out were set out and finally the opinion is thus given;

Following all these tests the Institute expresses the following opinion: The lot possesses the characteristics of warp yam Upper Egyptian combed.

There is. note that out of hanks drawn as samples and put into a cover which was sealed and signed both by the representative of the firm as also

by the surveyor and that the sealed samples were left in the custody of the firm. The certificate refers to the inscription on the bales: Louis Dreyfus

and Co., Ltd., 1/80 Combed Egyptian Warp 5 lbs. nett. Made in Italy and also the marks on each bale:

The learned Judge considered that the evidence that the goods shipped to Madras were identical with the goods which had been tested by the

surveyor of the Italian Institute was so little that it would be permissible to conclude that if the arbitrators had really applied their minds to the

question they might well have come to a different conclusion. In the opinion of the learned Judge the fact that the bales examined by the Italian

Institute bore the mark of the respondents'' firm did not lead to the inference that the bales which were submitted for examination to the Institute

were those actually shipped to Madras. Tickets had been stuck on one side of all the bales forming the lot with the seal of the Italian Institute and

the bales arrived with these tickets. As regards this the learned Judge says:

Now we do not know who stuck these tickets. This however, is not very important. What is more important is that we do not know whether they

were so stuck as to make it difficult or impossible for other yarn to be substituted in the bales. From the remark that the tickets had been stuck on

one side of the bales the reasonable inference would be that they had not been so stuck as to make substitution difficult or impossible. A ticket

stuck on a wrapper has not the same protective value as a seal so affixed as to make tampering difficult.''''

The conclusion of the learned Judge is thus expressed:

The arbitrators in the present case proceeded on an unproved assumption which goes to the roof of the matter and substantially affects the justice

of the case. The petition must, therefore, be allowed. The award is set aside.

Hence the above appeal.

The learned Advocate General for the appellant company contended that the learned Judge had no jurisdiction to set aside the award because

there was no ground specified in Section 30 of the Indian Arbitration Act established in this case. Section 30 is in these terms :

An award shall not be set aside except on one or more of the following grounds, namely,

(a) that the arbitrator or umpire has misconducted himself or the proceedings;

(b) that an award has been made after the issue of an order by the court superseding the arbitration or after arbitration proceedings have become

invalid u/s 35;

(c) that an award has been improperly procured or is otherwise invalid.

Admittedly grounds (b) and (c) would not avail the respondents. The only question is ""Have the arbitrators misconducted themselves or the

proceedings?"" The learned Judge posed the question thus: ""Does the assumption of the arbitrators that the goods surveyed by the Italian Institute

and the goods received in Madras were one and the same, constitute misconduct u/s 30 of the Act?"" He then referred to a decision of the Bombay

High Court and answered the question in the affirmative. The learned Judge evidently relied on the observations in the decision that an arbitrator

though not bound by the technical and strict rules of evidence must not disregard the rules of evidence which are founded on fundamental principles

of justice and public policy.

It was pointed out in that decision that an award should not be readily set aside unless the court saw that there had been something radically wrong

and vicious in the proceedings. There can be no quarrel with this statement of the law but the learned Advocate General contended that there was

no legal misconduct committed by the arbitrators, that the question which arose for their decision was a pure question of fact on which they were

entitled to come to a conclusion on the evidence adduced before them and even assuming that their finding was erroneous, that would not amount

to misconduct in law. There is considerable force in this contention. The only question before the arbitrator was whether the yarn supplied by the

sellers, that is, the appellants, was of a type and quality stipulated in the contract. There is no doubt that the arbitrators dealt with this question.

The appellant company relied on the certificates issued by the Institute Cotoniere Italiano and there was an express term in the contract that the

certificate of the institute will be final and binding on both the buyers and sellers for the quality of the goods. If the certificates related to the goods

actually despatched to the respondents it would not be open to the buyers in the absence of proof of fraud to produce other evidence as regards

the quality of the goods. What the learned Judge has held is that the arbitrators assumed, as though it were a matter which did not require proof,

that the certificates related to the yarn actually shipped to Madras. We fail to see anything in the reasons given for the award to justify this finding.

With respect to the learned Judge we think that this itself is an unproved assumption. Presumably it was contended before the arbitrators -- and the

parties were represented by counsel -- that there was no proof that the yarn supplied was the yarn in respect of which the certificates were issued.

It must not be overlooked that there was evidence before the arbitrators that the samples tested by the Institute were samples of the yarn relating

to the contract with the respondents. It is mentioned in the certificate that each bale was found to beat the mark

Each bundle bore the inscription of the appellant company, Louis Dreyfus and Co. Ltd. The bales which arrived in Madras had tickets stuck on

one side of the bales applied with the wet seal of the Italian Institute. These facts, in our opinion, would certainly constitute evidence on which the

arbitrators could have been satisfied that the certificates related to the yam actually supplied. The learned Judge says ""All that I am concerned to

say is that the mere fact that tickets have been stuck on one side of the wrappings of the bales does not ensure that they have not been tampered

with."" In the first place there was no evidence even prima facie of any tampering. Apart from this we think that it was not open to the learned Judge

to canvass the findings of the arbitrators as if he was sitting as a court of appeal against their award.

There is also another aspect which may be mentioned. The evidence on which the respondents strongly relied in support of their case that the

yarn supplied was not according to the contract stipulation was a certificate issued by the Government Textile Institute. That is only to the effect

that the lea-breaking strength of the specimens of yarn sent to the institute was about 20 lbs. There is nothing in the contract between the parties

specifying the lea-breaking strength of the yarn to be supplied. According to the respondents yarn of lea-breaking strength of 20 lbs. will not be

suitable for warp. The arbitrators, however, say that the yarn with a lea-breaking strength of 20 lbs is regularly used in India and in other markets

for warp.

That apart, the certificate of the Italian Institute is that the samples tested by them possessed the characteristics of warp yarn upper Egyptian

Combed, and that is the quality specified in the contract, which also provides that the certificate of the Italian Institute will be final and binding on

the parties for the quality of the goods. We have discussed all these facts and circumstances not in the way of an appellate court which is entitled to

examine the correctness of the findings of fact of a trial court but only to see it the finding of the arbitrators can be said to be so perverse and

unsupported by the evidence adduced before them that we can say that the arbitrators have misconducted themselves or the proceedings before

them.

The arbitrators are the final Judges of matters of fact. It is not open to the court on application u/s 30 of the Indian Arbitration Act to say that in

the opinion of the court evidence was not sufficient to establish the conclusion at which the arbitrators arrived. It is not open to the court to

consider whether the conclusion of the arbitrators was right or wrong. It must be assumed that they considered all the evidence adduced before

them. In the words of Day J. in Dartington Wagon Co. v. Harding and Trouville Pier and Steamboat Co., 1891 1 QB 245 ,

We are not at liberty to investigate the evidence given in this case for the purpose of ascertaining whether the arbitrator came to a mistaken

conclusion as regards either law or fact.

Section 1 of the Indian Evidence Act expressly says that the provision of the Evidence Act do not apply to arbitration. It is true, however, that the

arbitrators cannot act contrary to natural justice. In the Bombay case, Aboobaker v. Reception Committee of 48th Indian National Congress, AIR

1957 Bom 410, referred to by the learned Judge all that was pointed out was that though an arbitrator is not bound by the technical and strict rules

of evidence he must not disregard the rules of evidence which are founded on fundamental principles of justice and public policy. The following

observation of Cockburn C. J. in In re Hopper, 1867 2 QB 367 was cited :

I would observe that we must not be ever ready to set aside awards where the parties have agreed to abide by the decision of a Tribunal at their

own selection, unless we see that there has been something radically wrong and vicious in the proceedings.

Can it be said that the arbitrators in this case have disregarded any such fundamental rules of evidence? Can it be said that there is something

radically wrong and vicious in their proceeding? We think not. The question was whether the yam supplied was according to the stipulated qualify.

There was a term in the contracts that the certificates of the Italian Institute would be final as regards quality of the goods. Such certificates were

produced by the sellers and they were accepted by the arbitrators. The arbitrators also found that the buyers had not established affirmatively that

the yarn supplied was not according to the stipulated quality.

The arbitrators were entitled to come to their own conclusion on the evidence adduced before them and it is not open to the court on an

application u/s 30 of the Indian Arbitration Act, to examine the correctness of their conclusion. With respect to the learned trial Judge, there is no

warrant for holding that if the arbitrators had really applied their minds to the question they might well have come to a different conclusion. In our

opinion the arbitrators had not misconducted themselves or the proceedings. The respondents have not established any of the grounds on which

alone an award may be set aside u/s 30 of the Indian Arbitration Act.

The appeal is, therefore, allowed and the respondents'' application is dismissed with cost throughout.