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Judgment
Jaswant Singh, J.—On January 23, 1969. the State of Jammu and Kashmir made an application under Sections 16, 17 and 30 of the
Arbitration Act for setting aside or in the alternative for remitting the award dated December 31, 1968, made and published by Shri Janki Nath
Wazir, the arbitrator appointed by the parties without the intervention of the court for adjudication of certain differences and disputes that had
arisen between them in respect of the principal agreement dated December 24, 1964, and the supplementary agreement dated April 19, 1968,
relating to the construction of 1100ft span bridge over Manswar Tawi at Chhamb in so far as it related to issues Nos. 4 and 5 and for passing a
decree in accordance therewith in so far as it related to Issue Nos. 1 and 3.
A notice in regard to the application was issued to the respondent M/s. Tirath Ram Ahuja Private Ltd. hereinafter referred to as the
contractors"" who filed two applications, one in January 31, 1969, for filing the aforesaid award and the other on June 10, 1969, for setting aside
the same in so far as it related to issues Nos. 1, 3 and 5, and held that the contractors were not entitled to any compensation for the loss suffered
by them as a result of Indo-Pak conflict of 1965, nor to the concessions and adjustments claimed by them in connection with the further execution
of the work but were liable to restore the material or its value to the extent of Rs. 43,860/-.
As these applications related to one and the same award they were consolidated by order dated August 22, 1969. and shall be disposed of
together by this judgment.
The facts giving rise to these applications are Pursuant to the decision of the State Government, the Superintending Engineer, Roads and
Buildings circle. Jammu, issued and published a notice on April 15, 1964 inviting tenders for the construction of the aforesaid bridge. In response
to this notice the contractors submitted their tender with their own designs and specifications of the bridge and offered to execute the work in lieu
of lump sum of payment of Rs. 35,26,800/- subject to the terms and conditions mentioned in their letter of June 1, 1964, Paras 16 and 20 of this
letter on which the contractors have sought to rest their claim ran as follows:-
Secured Advances: Our tender is based on the assumption that secured advances will be paid to us as soon as materials, machinery, equipment,
transport, staging and shuttering are brought to the site of work. These materials and equipment will be mortgaged to Government under the normal
Government procedure the value of secured advances will be recovered from our bills in 12 equal monthly instalments. To enable the work to
progress rapidly at a site which is far away from industrial and commercial centers, it is necessary that everything required for the completion of the
job is collected and kept in workable order before the work starts.
... ... ... ... ... ...
Para 20. Protection against raids......
a/-..................
b/-..................
c/- if, as a result of raids, our labour and staff have to run away and our property is looted or damaged or if there is any casualty amongst our staff
and worker we will be compensated for the losses suffered by us.
Some correspondence ensued between the Chief Engineer P.W.D., Roads and Buildings. Jammu and the contractors in regard to the aforesaid
offer and on July 4, 1964, the Secretary to Government. Works and Power Department, had a discussion in regard to the matter with the
contractors' Chief Engineer and the Chief Engineer P.W.D., Roads and Buildings, Jammu. Regarding the contractors' condition for compensation
for loss, if any, suffered by them as a result of raids from across the border it is stated in the minutes of the meeting Ex. R.W.I. that during the
course of the discussion the contractors' Chief Engineer agreed to cover their risks by an insurance with no extra cost to the Government.
Eventually the Government vide its order No. PW-427/WIP of 1964 dated September 7, 1964, accorded sanction to the fixation of the contract
for construction of the bridge in favour of the contractors for an amount of Rs. 33,50,000/- on the terms and conditions given in Annexure ""C"" to
the order and to the conditions embodied in the tender notice for the work issued by the Superintending Engineer, Roads ad Buildings, Jammu
under his No. 865-68 dated April 15, 1964. The sanction also inter alia stated that the contract shall be covered by the further condition that the
contractors shall cover all their risks by taking out a proper insurance policy at their own cost. Pursuant to this sanction an agreement was drawn
up between the parties on December 24, 1964. During the currency of the agreement there was an outbreak of hostilities between India and
Pakistan in August, 1965, resulting in suspension of the work. On the cessation of the hostilities. The Chief Engineer, P.W.D., Roads and
Buildings, Jammu, by his letter No. 4528,52 dated June 27, 1966 called upon the contractors to immediately resume the work. By their
communication dated July 20, 1966, the contractors while ex pressing their readiness to complete the work demanded that the Government should
reimburse them for the losses incurred by them due to Indo-Pak 'war. They further asked that since the materials worth Rs. 5,99,200/- had been
lost in enemy action, the advance made by the Government against the same be written off completely.
With a view to completing the construction of the bridge without further loss of time and settling the controversy between them, the parties
entered into a supplementary agreement on April 19, 1968. Clause 1 of this agreement provided:-
That the admissibility or otherwise of the claim preferred by the contractor vide his letter number nil dated 20th July, 1966 against the Government
for the losses alleged to have been suffered by him as a result of Indo-Pak conflict 1965, including the losses, if any. suffered by contractor in
respect of the work executed by him before the said conflict under the terms and conditions of the principal agreement or under the provisions of
any law for the time being in force in the State shall be referred to for arbitration of a retired Judge of the High Court nominated by the mutual
consent of the parties.
Pursuant to the above Clause in the supplementary agreement there was a submission of reference to the sole arbitration of Shri Janki Nath Wazir
the erstwhile Chief Justice of the State The arbitrator entered upon the reference and directed the contractors to present their statement of claim
and on its receipt called upon the State to file its written statement.
In the course of their claim the contractors claimed compensation for the following Items:-
a/- Loss of Materials, Stores. Machinery etc valuing Rs. 5,02,011.12 collected at the site of the work and detailed in the statement forming
Annexure to the claim.
b/- Loss of components manufactured and brought to the site of the work valuing Rs. 1,34,805/-
c/- Loss of work done by them after the record of the measurments for the running bill No. 6 for which bill No. 7 for Rs. 52,647.26 was submitted
by them.
d/- The expenditure to be incurred by them for rectifying the apparent and latent defects in the existing works.
The contractors further asserted that during the execution of the work they had brought to the site materials detailed in Para 26 of their statement
of claim against which a sum of Rs. 5,39,200/-was paid to them as secured advances that out of the said material Rs. 20,000/-worth material was
consumed in the work and the rest of the material valuing. Rs. 5,19,200/- had been left over at the site at the time of evacuation from the Chhamb
area during the Indo-Pak conflict that materials worth Rupees 1,30,460/- were pulled out from the site and restored to the Government with the
result that the material worth Rupees 3,88,740/- was lost due to the said conflict. Accordingly they contended that they were not liable to refund
the amount of Rs. 3,88,740/- the demand for which was made by the Government.
In regard to the adjustments and concessions asked by them but not agreed to by the Government the contractors alleged that the cost of
material and labour had increased and further that they had paid carriage and road toll on the materials brought from outside the State, which will
have to be brought over again to the site. The contractors accordingly claimed the following:-
a/- Enhancement of 20 % (25 % ?) on the rates stipulated in the principal agreement on the balance of the work yet to be done, amounting to
Rupees 5,25,271/-
b/- Carriage and road toll at Lakhanpur Toll Post in respect of materials to be brought over again to the site of the work from outside the State.
The State resisted the claim of the contractors mainly on the grounds that be fore the agreement dated December 24, 1964, relating to the
construction of the bridge in question was signed by the parties, some of the conditions quoted by the contractors were discussed at a meeting
between the Chief Engineer, Roads and Buildings Jammu, and the Secretary to Government, Works and Power Department, and the Chief
Engineer of the Contractors, as a result whereof it was agreed by the Chief Engineer of the Contractors that they would cover their risks by an
insurance with no extra cost to the Government, that on account of this agreement the conditions mentioned in sub-paras (b) and (c) of Para 20 of
the contractors letter dated June 1, 1964, were not in corporated in the aforesaid agreement, that the Government order sanctioning the fixation of
the contract for the work also excluded the liability of the State in that behalf and expressly stated that the contractors would have to cover all their
risks by taking cut proper insurance policy at their own cost, and that the State was not therefore, liable for the losses, if any, caused to the
contractors on account of the raids. It was further pleaded by the State that the material valuing Rs. 5,39,200/- against which secured advances
had been given were pulled out by the contractors be fore the outbreak of the Indo-Pak conflict and the latter were liable to refund the value of the
same.
The points in contest between the parties were put by the arbitrator in the form of the following issues:-
1/- Whether under the terms and conditions of principal agreement between the parties dated 24th December, 1964 or under the provisions of any
law for the time being in force in the State, the claimant is entitled to be compensated by the respondent.
a/- For the Loss of the materials, stores, equipments, machinery etc. collected by him at the site of the work for the construction of the bridge over
the river Marwar-Tawi at Chhamb. and,
b/- for the loss in respect of the work which has been executed by him in connection with the aforesaid construction, allegedly suffered by him as a
result of Indo-Pak conflict of 1965. O.P. claimant.
2/- If issue No. 1 is found in favour of the claimant, what is the quantum of loss suffered by the claimant?.
3/- Whether the claim of the claimant is admissible for the following:-
a/- enhancement of 25 % on the rates stipulated in the principal agreement dated 24-12-1964 on the balance of the work yet to be done
amounting to Rs. 5,25,271/-.
b/- Road toll to be paid at Lakhanpur Toll Post and for the carriage of the materials referred to in"" Clause (b) and whether these matters fall within
the purview of the terms of reference. O.P. claimant.
4/- Whether the materials detailed in Para 26 of the claim for which secured advances amounting to Rs. 5,39,200/-have been paid by the
respondent to the claimant less materials admittedly consumed in the work and admittedly returned by the (claimant) were pulled out by the
claimant from site of the bridge before the outbreak of the conflict and therefore the claimant is liable to restore the same for the value thereof to
the respondent and what is that value?... O.P. respondent.
5/- If issue No. 4 is found against the respondent wholly or partly, whether under the terms and conditions of the principal agreement dated 24-12-
64 or under the provisions of any law for the time being in force in the State, the respondent is entitled to claim from the claimant refund of Rs.
3,88,740/- out cf the amount of Rs. 5,39,200/- paid to him as secured advances (Rs. 5,39,200/-minus Rs. 20.000/- and Rs. 1,30,460/-) or any
lesser amount in respect of the aforesaid materials not accounted for, having been lost during the aforesaid conflict, O.P. respondent.
After recording the evidence adduced by the parties, the arbitrator gave a reasoned and analytical award. He came to the conclusion that:-
the demand for compensation made in Clause (c) of Para 20 of their letter dated June 1, 1964 submitting the tender had been abandoned by the
contractors when they were required to cover all the risks involved in the work by insurance and they agreed to do so.
He accordingly held that there was no agreement express or implied between the parties whereby the State agreed to compensate the contractors
for any loss that might be suffered by the contractors as a result of Indo-Pak conflict. The arbitrator further held that there was no substance in the
contractors' contention that the demand for, compensation contained in Para 20 of their letter dated June 1, 1964, was revived because no
insurance company was prepared to undertake insurance against border raids. He further observed that it was the Central Government alone who
had to insure the goods and property insurable under the Emergency Risks (Goods) Insurance Act, (Act No. 62 of 1962) and the the Emergency
Risks (Factories) Insurance Act (Act No. 63 of 1962) against emergency risks and not any insurance company and the proper quarter to
approach for information about the possibility of insurance was the Central Government and not any Insurance Company and that the contractor
had failed to pursue that course. He further observed that there was likewise no force in the contention of the contractors that the further condition
in the Government order regarding insurance was not destructive of Cl. (c) of Para 20 of their aforesaid letter regarding compensation. He further
remarked that the further condition in the Government order regarding insurance had been agreed to by the contractors in supersession of Clause
(c) of Para 20 of their aforesaid letter of June, 1. 1964.
The arbitrator also held that u/s 65 of the Contract Act the contractors were not entitled to any compensation for the loss suffered by them as a
result of Indo-Pak conflict of 1965.
In view of his aforesaid findings, the arbitrator decided Issue No. 1 against the contractors. In face of these findings the arbitrator did not think
it necessary to consider Issue No. 2.
In regard to Issue No. 3 the arbitrator held that the concessions and adjustments referred to in the issue not having been mentioned in the
supplementary agreement dated April 19, 1963, the same were by necessary implication given up by the contractors and rejected by the State and
the question of referring them for arbitration did not arise and consequently did not form the subject matter of the arbitration agreement. He
therefore decided this issue against the contractors. He also added that after the arguments on this issue were over the contractors' counsel did not
press this issue.
Regarding Issue No. 4 which related to five items of material for which secured advances were made to the contractors the arbitrator gave his
finding as follows:-
Out of the material for which secured advances had been paid to the contractors, they had pulled out from the site of work 51 Tons H.T. Wire, 53
Nos of anchors and 130 rft sheathings, all valuing Rs. 1,63,860/- out of which they had restored only 40 tons of H.T. wire worth Rs. 1,20,000/-.
The Contractors have received an advantage worth Rs. 43,860/- and are, therefore, liable to restore the material or its value to the extent of Rs.
43,860/-.
With regard to Issue No. 5 the arbitrator observed that the facts admitted or proved in the proceedings before him showed that the contractors
were paid Rs. 5,39,200/- as secured advances against the materials delivered at the site of the work out of which materials worth Rupees
20,000/- were used in the work materials worth Rs. 1,20,000/- were returned to the State and the materials worth Rs. 43,860/- were pulled out
but not returned or accounted for by the company thus leaving materials worth Rs. 3,55,340/- which had been destroyed and lost as a result of
Indo-Pak conflict, that secured advance was paid by means of a bill in respect of particular material delivered at site by the claimant after the same
was checked and verified by the officers of the department, that irrespective of strictly legal position of the parties in respect of such materials, the
parties understood that the material was the property of the State but remained in the custody of the contractors and they remained responsible for
its proper storage and custody until it was used in the work, that this position was further clear from the fact that the materials worth Rs.
1,20,000/- pulled out from the site were returned by the contractors to the State and that if the materials were only a security for the loan the
contractors need not have returned the materials worth Rs. 1,20,000/-to the State as the total amount of the loan was liable to be paid in lump or
by adjustment out of their bills for the work done. He further held that the, relation of the parties as clear from the circumstances and as understood
by them was undoubtedly that of a bailer and bailee and the responsibility of the contractors in respect of the materials thus bailed to them was
limited to that laid down in S. 151 of the Contract Act. He further held that the material in respect of which the con tractors received its value as
advance having been destroyed in the Indo-Pak conflict they were not responsible to refund the value of the material thus destroyed. He
accordingly decided Issue No. 5 against the State. In the result the arbitrator awarded and adjudged as follows:-
1/- That M/s. Tirath Ram Ahuia Private Ltd. is not entitled to any compensation for the losses alleged to have been suffered by them as a result of
the Indo-Pak conflict of 1965 (described in detail in Para 26 of the claim presented before me) nor to the concession and adjustments claimed by
him in connection with the further execution of the work.
2/- That the Government is not entitled to the return of the unaccounted material in respect of which secured advances had been paid to the said
M/s. Tirath Ram Ahuia Private Ltd. nor to the refund of the value therefor except to the extent of Rs. 43,860/- the value of the material pulled out
of the site and not returned by him.
3/- That the concerned officers of the Public Works Department (Road and Buildings) shall debit the said amount of Rs. 43,800/- to the account
of the said firm Tirath Ram Ahuia Private Ltd. in the final bill for the work.
4/- That each party shall bear his own costs.
The State has sought the setting aside of the award in so far as it has gone against it on the ground that the secured advances were given to the
contractors as on account of payments for the work done or to be done by them as the contract was for the construction and completion of the
bridge and the property in the material vested in the contractors till such completion, that the arbitrator committed an error of law apparent on the
face of the award in holding that the relationship between the parties was that of a bailer and a bailee, that the goods against which secured
advances were made were owned and possessed by the contractors and remained all along in their possession and there was no transfer of
possession legal or constructive of the same in favour of the Government, that the arbitrator committed an error of law apparent on the face of the
award in holding that the legal or constructive possession of the goods in question was transferred to the Government and there was a bailment in
respect thereof, that there was no formal contract in writing regarding the bailment or hypothecation of the goods in question in favour of the
Government and in the absence of such formal agreement the arbitrator committed an error of law apparent on the face of the award in holding that
the contract of bailment between the parties was constituted that the goods were all along in the possession of the contractors who took
responsibility for their safe custody and the arbitrator committed an error of law in placing the burden of proof of issue Nos. 4 and 5 on the
Government, that it was proved that all the goods in question were pulled out by the contractors before the Indo-Pak hostilities of 1965 broke out
and the arbitrator committed an error of law apparent on the face of the award in holding that this was not proved, that none of the parties to the
arbitration claimed any relief on the basis of or relied upon the doctrine of frustration of contract in relation to Issues Nos. 4 and 5 and the
arbitrator mis-conducted himself in setting up a new case not pleaded by the parties and deciding these issues on the basis thereof while none of
the parties had an opportunity to prove or rebut the case on the basis of the above doctrine.
In the objections taken by the contractors for setting aside the portion of the award which has gone against them, they have contended that
reference to and incorporation of their letter dated June 1, 1964, as an integral part of the agreement clearly showed that condition 20 of the said
letter had at no time been abandoned, dropped or modified; that the arbitrator has erred in holding (a) that their Chief Engineer had at the meeting
held on July, 4. 1964, agreed to the withdrawal of condition No. 20 of their letter dated June, 1, 1964, and consented to cover the risks against
border raids by an appropriate insurance policy, (b) that condition No. 20 of their aforesaid letter was superseded by Government order No. PW-
427-WIP of 1964 dated September, 7, 1964, (c) that by the execution of the formal agreement dated December 24, 1964, the said condition was
dropped or in any case modified, (d) that they could have obtained an insurance policy under the Emergency Risks (Goods) Insurance Act. 1962.
(Act 62 of 1962) and the Emergency Risks (Factories) Insurance Act 1962. (Act 63 of 1962) to protect themselves against losses arising by
reason of conflict between India and Pakistan; that the nature of the materials which they purchased for use in the construction of the bridge was
specifically excluded from the ambit of the aforesaid Emergency enactments; that their establishment was not a factory within the meaning of the
said two Acts and therefore, the provisions thereof were not applicable to them. The contractors have further contended that the arbitrator has
erred in holding that they were not entitled to compensation for the damages and losses suffered by them as a result of war between India and
Pakistan in 1965. that they had in connection with the construction of the bridge brought to the site several machineries, equipments, stores etc
which could not be pulled out as the thrust and push of the armed forces from Pakistan side was sudden and lightning, that the loss having been
suffered by them as a result of their carrying out their contractual obligations due to an act of State, the State was liable to compensate them.
They have further contended that the arbitrator has erred in holding (a) That the contractors had pulled out materials of the value of Rupees
1,63,860/- and not of the value of Rupees 1,20,000/- (b) That the contractors were not entitled to the additional expenditure which they had to
incur in bringing to the site for execution of the balance work, machineries, materials, stores etc. by replacing those which were lost and destroyed
during the Indo-Pak conflict, (c) That the damage caused by the enemy during the Indo-Pak conflict to the completed works at the site was the
Liability of the contractors, and that the nature of the work being an immovable property embedded to the soil belonging to the State the title and
right in such property passed to the State as and when the construction was executed and payment therefor was made to the contractors and the
damage to such property was therefore, the liability and the responsibility of the Government.
In view of the aforesaid objections, preferred by the parties, the following issues were framed vide order dated 22nd August 1969.
1/- Does the award suffer from any error of law apparent on the face of the record? If so, what is its effect on the award? O.P. Parties.
2/- Whether the arbitrator mis-conducted himself in applying the doctrine of frustration to the case before him O.P. State.
3/- To what relief, if any. are the parties entitled? O.P. Parties.
The learned counsel for both the parties having stated that they did not want to adduce any evidence in proof or dis-proof of the issues, the
arguments addressed by them were heard. Both the learned counsel have tried to support the award in so far as it has gone in favour of their client
and have tried to demolish it in so far as it has gone against them. They have not however, assailed the findings of the arbitrator in respect of issues
Nos. 3 and 4.
Mr. Amar Chand appearing on behalf of the State has urged that the contractors had all along remained the owners in possession of the
materials against which advances were made to them, that they had never taken up the position that they were bailees for the said materials, that
the relationship of bailer and bailee did not exist between the parties, that a valid and enforceable contract between the Government and the private
individual can only arise if it complies with the requirements of Section 122 of the Constitution of Jammu and Kashmir, that there could not be any
implied contract between the parties that no document in regard to bailment, mortgage, or pledge of the goods in question having been executed in
accordance with the formalities enjoined by the aforesaid provision of the constitution, the arbitrator could not have invoked Section 151 of the
Contract Act or the principles of implied bailment, that the parties could not be clothed with the status of bailer and bailee on the basis of the
statements of witnesses and that the arbitrator has committed an error of law apparent on the face of the award in holding that the State was not
entitled to claim refund of the value of the materials valuing Rs. 3,55,340/- which was destroyed or lost as a result of Indo-Pak. conflict of 1965.
Supporting the award in so far as it has gone in favour of the State, he has submitted that whereas in the supplementary agreement there was a
specific provision regarding the losses on account of border raids the Government got itself exonerated on that account by insertion of further
condition No. 1 in the Government order No. PW 427-WIP of 1964 dated September 7, 1964. He has further contended that since the arbitrator
has given a finding of fact regarding the loss on account of the border raids sustained by the contractors anterior to the supplementary agreement of
1968 and has not stated any principle of law which is the basis of the award and which is erroneous, the finding arrived at by him i.e. the arbitrator
in respect of Issue No. 1 cannot be set aside. He has further contended that an insurance policy was possible to be taken out in view of Mr. Raj
K. Nigam Deputy Secretary. Ministry of Finance, Department of Revenue and Insurance's letter Ex. R.W. 4 and since the contractors deliberately
abstained from taking out insurance policy no obligation was cast upon the Government to compensate them.
Mr. D.D. Thakur has on the other hand urged that the loss of the materials etc. in respect of which no advance was made to the contractors
was the responsibility of the Government, that the contractors' letter dated June 1, 1964, was an integral part of the agreement dated December
24, 1964, that the additional condition No. 1 imposed by Government order No. PW-427-WIP of 1964 dated September 7. 1964 did not
supersede Para 20 of the contractors' aforesaid letter, that at best the Government order superseded the said para of the said letter to the extent to
which an insurance policy was possible to be taken out i.e. the Government could not be liable for the loss in case it was possible for the
contractors to take out an insurance policy and not otherwise and that the arbitrator had erred in holding that Para 20 of the contractors' letter
dated June 1, 1964, was superseded by the Government order referred to above. He has further contended that there was neither any sale nor
supply of goods as such by his clients nor did they have any factory and accordingly neither the Emergency Risks (Insurance) Act, of 1962 nor the
Factories Insurance Act of 1962 applied to the present case. He has also urged that if upon a mistaken belief that the insurance policy was
available the company had agreed to take out the insurance and if as a matter of fact that belief was wrong the contractors could fall back upon
Para 20 of their letter of June 1, 1964, and that In asking the contractors to take out the insurance the Government did not intend that they should
not be compensated for the losses sustained by them as a result of border raids. He has also urged that the construction put by the arbitrator upon
the letters exchanged between the parties and the minutes of discussion, and the agreement dated December 24, 1964, is wrong and to that extent
there were errors apparent on the face of the award.
Supporting the award in so far as it is in favour of his clients Mr. Thakur has submitted that the nature of the secured advances has to be
determined in view of the circumstances and the relations existing between the parties that the material brought on the site was to be utilized for
construction of the bridge, that the facts and circumstances of the case showed that there was a payment of the price of the material brought on the
site, that the property in goods which were kept in the custody of the contractors passed to the Government, that there was a bailment of the
goods according to the Explanation to Section 151 of the Contract Act. that there was no question of the applicability of Section 122 of the State
Constitution to the facts of the case, that it was in pursuance of the agreement dated December 24. 1964, that the goods were brought to the site
by the contractors and payments were made by the Government and the latter bailed the goods to the contractors, that the whole thing was in
fulfilment of the contract already executed between the parties and that the arbitrator was right in holding that there was a relationship of bailer and
bailee between the parties.
Having given history of the case and the respective cases of the parties, let me now proceed to consider and determine the aforesaid three
issues framed vide order dated August 22, 1969.
ISSUE NO. 1
It is now well settled that an award of an arbitrator being a decision of a domestic tribunal chosen by the parties is binding upon them and
cannot be set aside unless it suffers from an error of law apparent on the face of it.
In Hodgkinson v. Fernie, (1857) 3 CB (NS) 189 at p. 202, the law on this point was clearly stated by William, J. as follows:-
The law has for many years been settled, and remains, so at this day, that, where a cause or matters in difference are referred to an arbitrator
whether a lawyer or a layman he is constituted the sole and final judge of all questions both of law and of facts........................
The only exceptions to that rule, are, cases where the award is the result of corruption, fraud, and one other, which though it is to be regretted, is
now, I think, firmly established viz. where the question of law necessarily arises on the face of the award or upon some paper accompanying and
forming the part of the award. Though the propriety of this latter may very well be doubted, I think it may be considered as established.
This decision was approved by the judicial Committee of the Privy Council in Champsey Bhara and Co. v. Jivraj Balloo Spinning and Weaving
Co. Ltd., 50 Ind App 324 : AIR 1923 PC 66. The following statement of law made by the committee in this case is worth quoting,
An error in law on the face of the award means in Their Lordships' view that you can find in the award or in the document actually incorporated
therefo, 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 say is erroneous.
In Alopi Parshad and Sons Ltd. Vs. Union of India (UOI), , Hon'ble Shah, J. speaking for the Court observed:-
The award of an arbitrator may be set aside on the ground of an error on the face thereof only when in the award or in any document incorporated
with it. as for instance, a note appended by the arbitrators, stating the reasons for his decision, there is found some legal proposition which is the
basis of the award and which is erroneous.
In Union of India (UOI) Vs. A.L. Rallia Ram, , it was held:-
The award of the arbitrator is ordinarily final and conclusive, unless a contrary intention is disclosed by the agreement. The award is the decision of
a domestic tribunal chosen by the parties, and the Civil Courts which are entrusted with the power to facilitate arbitration and to effectuate the
awards, cannot exercise appellate powers over the decision wrong or right the decision is binding if it be reached fairly after giving adequate
opportunity to the parties to place their grievances in the manner provided by the arbitration agreement. But it is now firmly established that an
award is bad on the ground of error of law on the face of it, when in the award itself or in a document actually incorporated in it, there is found
some legal proposition which is the basis of the award and which is erroneous. An error of law on the face of the award means ""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. It does not mean that if in a narrative a reference is
made to a contention of one party, that opens the door to setting first what that contention is, and then going to the contract on which the parties
rights depend to see if that contention is sound.
In Firm Madanlal Roshanlal Mahajan Vs. Hukumchand Mills Ltd., Indore, , it was held:-
The Court cannot review his award and correct any mistake in his adjudication, unless objection to legality of award is apparent on face of it When
arbitrator has given no reason for award, nor there is any legal proposition as basis of award, contention that there are errors of law on face of
award must be rejected.
Again in Union of India (UOI) Vs. Bungo Steel Furniture Pvt. Ltd., . it was held:-
It is well settled that 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 and the award of the arbitrator can be set
aside on the ground of error of law on the face of the award only when in the award or in a document incorporated with it, as for instance, a note
appended by the arbitrator stating the reasons for his decisions, there is found some legal proposition which is the basis of the award and which is
erroneous.
In Baldev Singh v. Union of India, AIR 1965 J. & K. 28, Hon'ble Ali, J. (as his Lordship then was) observed:-
A court while considering an award u/s 30 is not sitting in appeal over the award itself. The object of the Arbitration Act is that when parties to a
contract decide to get their dispute settled by an arbitrator, the decision of the arbitrator should be considered to be final. In other words the
arbitrator should be given complete freedom to decide the issue rightly or wrongly. If the Court sits in appeal over the award by going into
questions of fact or of law, as if it were a court of appeal, the entire object of the Arbitration Act would be frustrated. In these circumstances an
award should be set aside not merely because it involves an error of law but when an error of law is apparent on the face of the award. Thus even
if the award contains an error of law, it will be valid unless the error of law is apparent on the face of the award.
An error of law would be apparent on the face of the award only where the arbitrator had given certain reasons which reasons are either opposed
to any statutory requirements or which are legally erroneous. In other words, the question of an error apparent on the face of the award would
occur only where the award amounts to a speaking order. Where, however, no reasons are given by the arbitrator and the point of law argued is
not apparent from any material which has been made the basis of the award by the arbitrator, it cannot be said that such an error of law is an error
of law which is apparent on the face of the award.
It follows from the above rulings that the Court cannot examine the findings of fact arrived at by an arbitrator as a Court of appeal and his award
can be set aside only if in the award or in the document incorporated with it, there is some legal proposition which is the basis of the award and
which is erroneous Thus unless there is a legal proposition which is the basis of the award and which is erroneous the award cannot be set aside on
the ground of an error of law apparent on the face of the award.
In the present case the learned arbitrator did not as would be evident from the following passages make any legal proposition the basis of his
award.
The proper quarter to approach for information about the possibility of insurance was the Central Government and not any insurance company and
this was not done by the claimant. The Question whether insurance was possible under the aforesaid Acts, was, therefore, merely
academic......................
X X X X X X X
irrespective of the strictly legal position of the parties in respect of such materials, the parties understood it to be that the material was the property
of the respondent but remained in the custody of the claimant and he remained responsible for its ""proper storage and safe custody"" until it was
used in the work........................
X X X X X X X
Assuming that the relation between the parties was not that of the bailer and bailee and that the materials were the property of the claimant and
were in the nature of a security for the advance made against them, the result would not, in my opinion, be different. The rights and liabilities of the
parties En regard to this matter arose from, and had to be determined according to the agreement between the parties, of which the documents
mentioned in Para 2nd of the preamble were integral parts. Para 14 of the Chief Engineer's letter dated 8-6-1964 and the relevant reply of the
claimant dated 12-6-1964 and Clause 14 of the Annexure 'C' to Government order dated 7-9-1964 deal with this matter............
It is, therefore, unnecessary to go into the question as to whether the legal propositions stated by the arbitrator are correct or not. Assuming
without holding that legal propositions are wrong as the same did not form the basis of the award. I, cannot hold the award to be invalid.
That apart. It Is also now well settled that if a specific question is submitted to the arbitrator, and he answers it-the fact that the answer
involved an erroneous decision on a point of law does not make the award bad on its face so as to permit of its being set aside.
In re King and Duveen, (1913) 2 KB 32 Channell, J. said:-
It is no doubt a well established principle of law that if a mistake of law appears on the face of the award of an arbitrator, that makes the award
bad and it can be set aside. The decision of the House of Lords in British West-inghouse Electric and Manufacturing Co. v. Underground Electric
Rail Co. of London. (1912) AC 673, though that was in some respects a somewhat peculiar case, clearly shows that the general principle is as I
have stated; but it is equally clear that if a specific question of law is submitted to an arbitrator for his decision and he does decide it the fact that
the decision is erroneous does not make the award bad on its face so as to permit of its being set aside. Otherwise it would be futile ever to submit
a question of law to an arbitrator.
In Kelantan Govt. v. Duff Development Co., 1923 AC 395, Viscount Cave L.C. observed:-
Where a question of construction is specifically referred to arbitration the decision of the arbitrator on that point cannot be set aside because the
Court would have come to a different conclusion, unless it appears on the face of the award that the arbitrator has proceeded illegally e.g. that he
had decided on evidence which is inadmissible or on principles of construction which the law does not countenance; but the mere dissent of the
Court from the arbitrator's conclusion on construction is not enough for that purpose........................
X X X X X X X X
This being so it appears to me that, unless it can be shown by something appearing on the face of the award that the arbitrator has proceeded
illegally. his award must stand.
The above view is fully supported by the authorities In Adams v. Great North of Scotland, Ely. 1891 AC 31, at p. 39 Lord Halsbury treated the
point as settled. After referring to Lord Thurlow's judgment in Knox v. Symmonds, (1791) 1 Ves Jun 369 he proceeds;-
And in the Court of Common pleas forty years ago. in a case in which the arbitrator had a question of law submitted to him according to the
ordinary forms of pleadings, the Court, having come to the conclusion that the decision of the arbitrator was. in the sense in which they understood
the words, erroneous in deciding upon a question of law on demurrer, nevertheless held that the parties, having submitted that question to the
arbitrator it was for the arbitrator to determine it; In their own language, the parties had agreed to accept the arbitrators decision upon the question
of law, as well as his decision upon the fact. In Doed Stimpson v. Emerson, (1847) 9 LT (OS) 199. In the Court of Queen's Bench thirty years
ago that decision was adopted as being the law which would guide the Court in the decision of such questions.
To the same effect are the decisions of this House in Holmes Oil Co. v. Pumpherston Oil Co., (1891) 18 (HL) 52 and of the Judicial Committee of
the Privy Council in Attorney General for Manitoba v. Kelly, (1922) 1 AC 268 and In re King and Duveen. (1913) 2 KB 32. at pp. 35, 36
Channell, J. stated the rule concisely as follows:-
It is no doubt a well established principle of law that if a mistake of law appears on the face of the award of an arbitrator that makes the award bad
and it can be set aside.........................but it is equally clear that if a specific question of law is submitted to an arbitrator for his decision and he
does decide it the fact that the decision is erroneous, does not make the award bad on its face so as to permit of its being set aside. Otherwise it
would be futile ever to submit a question of law to an arbitrator.
In Alopi Parshad and Sons Ltd. Vs. Union of India (UOI), . Hon'ble Shah. J. said:-
If the reference is of a specific question of law even, if the award is erroneous, the decision being of arbitrator selected by the parties to adjudicate
upon those questions the award will bind the parties.
Similar view was expressed in Union of India (UOI) Vs. A.L. Rallia Ram, .
In order, however, that the rule that 'an award is not open to question even on the ground of an error of law apparent on the face of it' should
apply, it must be clear that question of law was the point at issue and both sides specifically agreed to refer it for the decision of the arbitrator. The
rule will not apply where the parties make incidental submissions about a point of law in the pleadings and arguments in support of it. (See Seth
Thawardas Pherumal Vs. The Union of India (UOI), . The distinction between a specific reference of question of law and the questions of law
arising for determination by the arbitrator for the decision of the dispute was clearly brought out by Lord Russell of Killowen in F.R. Abasalon Ltd.
v. Great Western (London) Garden Village Society Ltd., 1933 AC 592 : 102 LJKB 648 in the following words:-
It is I think essential to keep the case where disputes are referred to an arbitrator in the decision of which a question of law becomes material
distinct from the case in which a specific question of law has been referred to him for decision.
The authorities make a clear distinction between these two cases, and, as they appear to me, they decide that in the former case, the Court can
interfere if and when any error of law appears on the face of the award, but that in the latter case no such interference is possible upon the ground
that it so appears that the decision upon the question of law is an erroneous one.
As in the present case a specific question of law appears from a perusal of agreement dated April 19, 1968, to have been referred to the
arbitrator for his decision, and he has not proceeded illegally his decision even though wrong, cannot be questioned and set aside.
In view of the above. I hold that the award does not suffer from any error of law apparent on the face of it and it is not open to question as a
specific question of law was referred for the decision of the arbitrator,
ISSUE No. 2
Although both the learned counsel for the parties have stated before me that they did not rely on the Doctrine of Frustration either in their
pleadings or in their arguments before the arbitrator yet that cannot afford a ground for setting aside the award as there being a submission on a
point of law, the arbitrator was required to give his decision thereon and there appears (from a perusal of Para 26 of the award) to have been
some discussion before the arbitrator about the applicability or otherwise of the said doctrine. Moreover the finding regarding the applicability of
the Doctrine of Frustration does not appear to have affected the result of the arbitration. Issue No. 2 is, therefore, decided accordingly, and it is
held that the arbitrator did not mis-conduct himself.
ISSUE No. 3
My finding with regard to this issue is that the award being valid, a decree has to be passed on the basis thereof.
For the foregoing reasons. I hold that there is no merit in both the applications for setting aside the award. Accordingly both the applications in
so far as they relate to the setting aside of the award are dismissed and a decree in terms of the award is passed. The parties shall bear their own
costs of this Court.