M/S COCHIN SHIPYARD LTD Vs M/S APEEJAY SHIPPING LTD
Bench: DIPAK MISRA,PRAFULLA C. PANT
Case number: C.A. No.-009187-009187 / 2015
Diary number: 36262 / 2014
Advocates: E. M. S. ANAM Vs
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 9187 of 2015 (@ SLP(C) NO. 34309 OF 2014)
M/s Cochin Shipyard Ltd. ... Appellant
Versus
M/s Apeejay Shipping Ltd. ... Respondent
J U D G M E N T
Dipak Misra, J.
In this Appeal, by special leave, the appellant calls in
question the legal tenability of the order passed by the
learned single Judge of the High Court of Kerala in O.P. (C)
No. 482 of 2013 whereby he has granted liberty to the
respondent to substantiate its objection preferred under
Sections 30 and 33 of the Arbitration Act, 1940 (for brevity,
“the 1940 Act”) by adducing evidence which would be
considered within the ambit and scope of the aforesaid
provisions.
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2. The facts which are essential to be stated for the
adjudication of this appeal are that an agreement was
entered into between the parties on 29.11.1980. As per the
terms and conditions of the agreement, the appellant, a
Government undertaking, had agreed to build and deliver a
cargo ship to the respondent for the price of Rs. 32.527
crores. Certain differences arose between the parties which
led to an arbitration proceeding and a former Judge of this
Court was appointed as the arbitrator/sole umpire to
resolve the disputes between the parties. As facts would
unveil, the learned arbitrator after holding series of sittings
passed an award on 15.07.2009. After the award was sent
to the civil court, the claimant-appellant moved the Court
for passing a decree under Section 17 of the 1940 Act in
terms of the award and the respondent filed O.P. (Arb.) No.
30 of 2009 under Sections 30 and 33 to set aside the award.
During the pendency of the said petition, the respondent
almost after expiry of two years filed an application, that is,
I.A. No. 5625 of 2011 seeking permission to examine the
learned arbitrator and the General Manager of the
respondent as witnesses. The learned Additional
Subordinate Judge, vide order dated 23.12.2011, rejected
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the application holding that there was no justification to
examine the arbitrator; that the Court while considering the
objections under Sections 30 and 33 of the 1940 Act does
not sit in appeal over the arbitrator’s award; that the Court
does not assess or re-appreciate the evidence; that the
award passed by the learned arbitrator can only be assailed
on the grounds as engrafted under Sections 30 and 33 of
the 1940 Act; and that no reason had been disclosed by the
respondent, the applicant before the Subordinate Judge, to
examine the witness No. 2, that is, the General Manager.
3. The aforesaid rejection of the application constrained
the respondent to file a Writ Petition before the High Court
which concurred with the view expressed by the court below
opining that there was no necessity to examine the
arbitrator as a witness as more than five years had elapsed
since the award was passed. The High Court further
appreciated the reasoning expressed by the rule making
Court and ruled that even if umpire would be examined, no
fruitful purpose will be served and, accordingly, gave the
stamp of approval to the same. However, the High Court
granted liberty to the writ petitioner to produce other
available evidence to substantiate its claim and specifically
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permitted to examine its employee as a witness in the
proceeding. The High Court further observed that his
evidence would be appreciated bearing in mind the scope of
Sections 30 and 33 of the 1940 Act and, accordingly,
modified the order passed by the civil court. Be it noted,
further liberty was granted to summon the entire record
including the orders passed in the course of the arbitral
proceeding.
4. At the very outset, we are obliged to state that the
respondent has not challenged the order passed by the High
Court and, therefore, as far as examination of the umpire is
concerned, it stands foreclosed. As far as liberty to examine
the witness to substantiate the claim for the rule making
Court is concerned, it is contended by Mr. Ranjit Kumar,
learned Solicitor General for the appellant, that the
respondent has been allowed to examine the employee as a
witness to prove the misconduct of the learned arbitrator in
conducting of the arbitral proceedings as the grounds had
been raised pertaining to grant of adequate opportunity to
the respondent and the recording of minutes. In essence,
the stand of the respondent was that there had been
violation of the principles of the natural justice by the
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learned arbitrator. It is urged by the learned senior counsel
for the appellant that it is totally unwarranted to examine
witnesses for the purpose of substantiating the claims
before the Court which has the authority to accept the
objection under Sections 30 and 33 of the 1940 Act or to
pass a decree in terms of the award. In essence, the attack
on the order by Mr. Ranjit Kumar is that the witness No. 2,
General Manager, could not have been permitted by the
High Court to be examined as a witness in the Court to
prove any kind of legal misconduct, for the same has to be
demonstrated from the records of the arbitral proceedings
as well as the evidence adduced before the learned
arbitrator. It is further contended that the witness sought
to be examined had already been examined before the
learned arbitrator and his evidence can be read by the trial
court to discern and decide if there is any perversity of
approach by the arbitrator. Learned Solicitor General, to
bolster his submissions, has placed reliance on Arosan
Enterprises Ltd. v. Union of India and Another1, Inder
Sain Mittal v. Housing Board, Haryana and Others2,
1 (1999) 9 SCC 449 2 (2002) 3 SCC 175
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State of U.P. v. Allied Constructions3, State Bank of
India v. Ram Das and Another4, D.D. Sharma v. Union
of India5, Hari Om Maheshwari v. Vinitkumar Parikh6,
Bhagawati Oxygen Ltd. v. Hindustan Copper Ltd.7 and
Oil and Natural Gas Corporation v. Wig Brothers
Builders and Engineers Private Limited8.
5. Resisting the aforesaid submissions, Mr. Vivek
Tankha, learned senior counsel for the respondent, would
contend that adducing of oral evidence in a proceedings
under Sections 30 and 33 of the 1940 Act is not prohibited
and in the obtaining factual matrix the High Court has
correctly exercised its discretion by granting the liberty to
the respondent and, therefore, the order cannot be found
fault with. It is urged by him that to establish the legal
misconduct on the part of the learned arbitrator as asserted
by the respondent, it is necessary to examine the General
Manager so that he can throw light on the proceedings
before the learned arbitrator and, in fact, that is the only
way it can be proven. It is further propounded by him that
3 (2003) 7 SCC 396 4 (2003) 12 SCC 474 5 (2004) 5 SCC 325 6 (2005) 1 SCC 379 7 (2005) 6 SCC 462 8 (2010) 13 SCC 377
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this Court in Fiza Developers and Inter-Trade Private
Limited v. AMCI (India) Private Limited and Another9
while dealing with Section 34 of the Arbitration and
Conciliation Act, 1996 (for brevity, “the 1996 Act”) has
clearly held that evidence can be adduced. Learned senior
counsel has drawn inspiration from the authorities in K.P.
Poulose v. State of Kerala and Another10, Union of
India v. Jain Associates and Another11 and Food
Corporation of India v. Chandu Construction and
Another12.
6. We have already indicated hereinbefore that the rule
making Court had declined the prayer to examine the
learned arbitrator as well as the General Manager. The said
order was the subject matter of assail in the Writ Petition
under Article 227 of the Constitution. We have noted the
submissions of the learned senior counsel for the appellant
that the application preferred under Section 151 of the Code
of Civil Procedure read with Order XVI Rule 1 of the Code of
Civil Procedure was filed for substantiating the plea of legal
misconduct alleged in the application. The learned senior
9 (2009) 17 SCC 796 10 (1975) 2 SCC 236 11 (1994) 4 SCC 665 12 (2007) 4 SCC 697
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counsel has drawn our attention to the various paragraphs
of the petition and the relevant clauses to highlight the right
to call for the learned arbitrator as a witness has been
foreclosed. The purpose to examine the General Manager,
serial No. 2 in the list, is to substantiate its stand/claim as
has been observed by the High Court. Therefore, the thrust
of the matter is whether on the basis of the allegations of
legal misconduct the High Court should have allowed
examination of the witness.
7. To appreciate the controversy in proper perspective, it
is pertinent to refer to Sections 30 and 33 of the 1940 Act.
They read as under:-
“Section 30. Grounds for setting aside award.– An award shall not be set aside except on one or more of the following grounds, namely:-
(a) that an 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 under section 35;
(c) that an award has been improperly procured or is otherwise invalid.
Section 33. Arbitration agreement or award to be contested by application.– Any party to an arbitration agreement or any person claiming
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under him desiring to challenge the existence or validity of an arbitration agreement or an award or to have the effect of either determined shall apply to the Court and the Court shall decide the question on affidavits:
Provided that where the Court deems it just and expedient, it may set down the application for hearing on other evidence also, and it may pass such orders for discovery and particulars as it may do in a suit.”
8. In the present case, the issue that has travelled to this
Court does not even remotely relate to Section 33 of the
1940 Act. It centres around Section 30 of the 1940 Act.
Though certain grounds have been provided under Section
30, we only require to deal with the ambit and sweep of legal
misconduct on the part of the learned arbitrator inasmuch
as there are allegations as regards non-consideration of
relevant documents, ascription of reasons of passing of the
award which do not flow from the material on record and
further the conduct of the arbitrator during the arbitral
proceedingsin recording of the minutes. The assail does not
pertain to personal misconduct or moral misconduct of the
learned arbitrator.
9. In this regard, reference to a three-Judge Bench
decision in Firm Madanlal Roshanlal Mahajan v.
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Hukumchand Mills Ltd., Indore13 would be apposite. In
the said case, issue arose with regard to misconduct. It was
contended before this Court that the learned arbitrator was
guilty of misconduct as he had amended an issue behind
the back of the appellant. Repelling the said submission, the
Court opined :-
“Counsel then submitted that by amending an issue behind the back of the appellant, the arbitrator was guilty of misconduct. This contention has no force. The arbitrator had raised two issues. The second issue referred to the respondent's claim in respect of 46-1/2 bales a claim for loss in respect of the bales. At the time of the writing of the award, the arbitrator corrected this issue so as to show that the claim was for the price of the bales. By this amendment, the appellant suffered no prejudice. The parties well knew that the respondent claimed the price of 46-1/2 bales and fought the case before the arbitrator on that footing.”
10. In the said authority, the Court referred to the decision
in Champsey Bhara & Company v. Jivraj Balloo
Spinning and Weaving Company Ltd.14 wherein it has
been laid down :-
"An error in law on the face of the award means, in their Lordship's view, that you can find in the award or a document actually incorporated thereto, as for instance a note
13 AIR 1967 SC 1030 14 AIR 1923 PC 66
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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."
Be it noted, the proposition laid down in Champsey
Bhara & Company (supra) has also been followed in Firm
Madanlal Roshanlal Mahajan (supra).
11. In K.P. Poulose (supra) while dealing with the concept
of misconduct, a three-Judge Bench was dealing with the
speaking award where the reasons had been ascribed by the
learned arbitrator. A contention was raised that the learned
arbitrator was guilty of legal misconduct in conducting the
proceedings, for two very material documents were
absolutely ignored by the arbitrator resulting in miscarriage
of justice. The Court referred to the said two documents
and took note of the finding recorded by the arbitrator in the
award but made an observation which was inconsistent
with his conclusion that the contractor had no right to extra
payment for the particular work. In that context, the Court
proceeded to observe as follows:-
“We now come to the award. Although the arbi- trator has held that “jetting, however, is not an authorised extra covered by the agreement”, he has made the following significant observation which is inconsistent with his conclusion that
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the contractor has no right for extra payment for the jetting:
“The Chief Engineer has rejected the claims of the contractor on grounds of non-inclusion of this (jetting) in the agreement which was executed subsequent to the direction issued by the department to adopt jetting. The Chief Engineer’s decision totally ignores the next sentence in that letter ‘Meanwhile you may execute the agreement’. By this sentence the issue of extra payment for jetting is left open even after the execution of the agreement.”
If the above is the conclusion of the arbitrator, rejection of the claim on the ground that “jetting, however, is not an authorised extra covered by the agreement” cannot be anything but rationally inconsistent. The award, therefore, suffers from a manifest error apparent ex facie.”
12. After so stating, the three-Judge Bench opined that
under Section 30(a) of the 1940 Act an award can be set
aside when an arbitrator has misconducted himself or the
proceedings and misconduct under Section 30(a) has not a
connotation of moral lapse. It further observed that it
comprises legal misconduct which is complete if the
arbitrator on the face of the award arises at an inconsistent
conclusion even on his own finding or arrives at a decision
by ignoring the very material documents which throw
abundant light on the controversy to help a just and fair
decision. On that backdrop, the Court opined that there
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was a legal misconduct.
13. In Jain Associates (supra), the Court referred to the
authority in K.P. Poulose (supra) and Dandasi Sahu v.
State of Orissa15 and observed thus:-
“... The arbitrator/umpire may not be guilty of any act which can possibly be construed as in- dicative of partiality or unfairness. Misconduct is often used, in a technical sense denoting irregu- larity and not guilt of any moral turpitude, that is, in the sense of non-application of the mind to the relevant aspects of the dispute in its adjudi- cation. In K.V. George v. Secretary to Government, Water & Power Department, Trivandrum, (1989) 4 SCC 595, this Court held that the arbitrator had committed misconduct in the proceedings by making an award without adjudicating the counter-claim made by the respondent...”
14. In this regard we may usefully refer to the authority in
Paradip Port Trust and Others v. Unique Builders16. In
the said case, a contention was raised that the award was
passed in violation of principle of natural justice inasmuch
as, certain documents were received without notice to the
Port Trust. Such a contention was raised before the High
Court and the said stand was abandoned after perusal of
the order sheet of the arbitrator which showed that at each
stage adequate opportunity was given to both the parties.
15 (1990) 1 SCC 214 16 (2001) 2 SCC 680
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Thereafter the court referred to the principles stated in
Jivarajbhai Ujamshi Sheth v. Chintamanrao Balaji17,
Puri Construction Pvt. Ltd. v. Union of India18, State of
Orissa v. M/s Lall Brothers19, Gujarat Water Supply and
Sewerage Board v. Unique Erectors (Gujarat) (P) Ltd.
and Another20, Rajasthan State Mines and Minerals
Ltd. v. Eastern Engineering Enterprises and Another21
and opined thus:-
“… It is not a case where the arbitrator has acted arbitrarily, irrationally, capriciously or independently of the contract. It is difficult for us to take a view that there has been a deliberate departure or conscious disregard of the contract to say that the arbitrator misconducted himself...”
15. In the case of Ispat Engineering & Foundry Works,
B.S. City, Bokaro v. Steel Authority of India Ltd., B.S.
City, Bokaro22, it has been held that reappraisal of evi-
dence by the court is not permissible and as a matter of
fact, exercise of power to reappraise the evidence is un-
known to a proceeding under Section 30 of the Arbitration
Act. The court as a matter of fact cannot substitute its own
17 (1964) 5 SCR 480 18 (1989) 1 SCC 411 19 (1988) 4 SCC 153 20 (1989) 1 SCC 532 21 (1999) 9 SCC 283 22 (2001) 6 SCC 347
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evaluation and come to the conclusion that the arbitrator
had acted contrary to the bargain between the parties.
16. At this juncture, we may refer to some other authori-
ties as regards the scope of Section 30 of the 1940 Act. In
Allied Constructions (supra), a three-Judge Bench after
referring to earlier judgments has opined that an award
passed by an arbitrator can be set aside only if one or other
condition contained in Sections 30 and 33 of the 1940 Act is
satisfied. The Court further opined that the term provided
for setting aside an award under Section 30 is restrictive in
its operation and unless one or other condition contained in
Section 30 is satisfied, an award cannot be set aside, for the
arbitrator is a Judge chosen by the parties and his decision
is final. It has been further observed that even in a case
where the award contains reasons, the interference there-
with would still be not available within the jurisdiction of
the court unless, of course, the reasons are totally perverse
or the judgment is based on a wrong proposition of law and
further an error apparent on the face of the record would
not imply closer scrutiny of the merits of documents and
materials on record.
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17. In Hari Om Maheshwari (supra), the Court after re-
ferring to the decisions in Arosan Enterprises Ltd. (supra)
and Allied Constructions (supra) opined thus:-
“From the above it is seen that the jurisdiction of the court entertaining a petition or application for setting aside an award under Section 30 of the Act is extremely limited to the grounds mentioned therein and we do not think that grant or refusal of an adjournment by an arbitrator comes within the parameters of Section 30 of the Act...”
18. In Wig Brothers (supra) while dealing with the chal-
lenge under Sections 30 and 33 of the 1940 Act, the Court
opined that a court while considering a challenge to an
award under Sections 30 and 33 of the 1940 Act, does not
sit as an appellate court and it cannot reappreciate the ma-
terial on record. The Court further proceeded to state that
an award is not open to challenge on the ground that the ar-
bitrator had reached a wrong conclusion or had failed to ap-
preciate some facts, but if there is an error apparent on the
face of the award or if there is misconduct on the part of the
arbitrator or legal misconduct in conducting the proceed-
ings or in making the award, the court will interfere with the
award. In the said case reference was made to Rajasthan
State Mines and Minerals Ltd. (supra) and certain pas-
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sages were quoted. We think it seemly to reproduce the
said paragraphs:-
“22. … The rates agreed were firm, fixed and binding irrespective of any fall or rise in the cost of the work covered by the contract or for any other reason or any ground whatsoever. It is specifically agreed that the contractor will not be entitled or justified in raising any claim or dis- pute because of increase in cost of expenses on any ground whatsoever. By ignoring the said terms, the arbitrator has travelled beyond his ju- risdiction as his existence depends upon the agreement and his function is to act within the limits of the said agreement. This deliberate de- parture from the contract amounts not only to manifest disregard of the authority or misconduct on his part but it may tantamount to mala fide action.
23. It is settled law that the arbitrator is the crea- ture of the contract between the parties and hence if he ignores the specific terms of the con- tract, it would be a question of jurisdictional er- ror which could be corrected by the court and for that limited purpose agreement is required to be considered. …”
19. We have referred to series of decisions to appreciate
the concept of misconduct and how a party is entitled to
make it the fulcrum of assail in his objection under Sections
30 and 33 of the 1940 Act. Misconduct, as has been laid
down, does not always have a moral connotation. To elabo-
rate, it may not have any connection with the
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individual/personal conduct of the arbitrator. The said con-
duct would be in sphere of moral misconduct. As far as le-
gal misconduct is concerned, as the authorities would
demonstrate, the same must be manifest or palpable from
the proceedings before the arbitrator. To elaborate, a person
urging the ground of legal misconduct has to satisfy the
court from the records of the arbitral proceedings that there
has been a legal misconduct on the part of the arbitrator as
a consequence of which the award gets vitiated. The ques-
tion of adducing any kind of oral evidence to substantiate
the plea or stand or stance does not arise. It has to be
shown from the proceedings carried on before the arbitrator
and the evidence adduced before the arbitrator. Evidence
cannot be adduced in court to substantiate the challenge on
the score of legal misconduct. We are not entering upon
any discussion pertaining to moral misconduct as that is
not the issue in the case at hand. The decision in Fiza
Developers and Inter-Trade Private Limited (supra) has
been rendered by this Court while interpreting Section 34 of
the 1996 Act. The context being different, we are not in-
clined to apply the principles enumerated therein to the ob-
jection filed under Sections 30 and 33 of the 1940 Act, for
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the simon pure reason that the authorities are plenty to
make it limpid that the issue of legal misconduct on the part
of the arbitrator should be manifestly discernable from the
record.
20. In the instant case, the High Court has granted liberty
to the respondent herein to examine its General Manager to
substantiate its claim and further opining that the said evi-
dence should be considered within the parameters of Sec-
tions 30 and 33 of the 1940 Act. The learned senior coun-
sels for the parties have pressed their argument relating to
legal misconduct. Both the learned senior counsels for the
parties have construed the order that the said liberty has
been granted to establish the misconduct and precisely that
is the subject matter of challenge before us. Therefore, we
have clearly opined that to substantiate a stance of legal
misconduct on the part of the arbitrator, examination of any
witness in court is impermissible. It is because it must be
palpable from the proceedings and the learned single Judge
has already directed that the proceedings before the arbitra-
tor to be requisitioned by the civil court. Least to say, it will
be open for the respondent to establish the ground of legal
misconduct from the arbitral proceedings. We may hasten
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to add that we have not said anything as regards legal mis-
conduct pertaining to the present case, although we have
referred to certain authorities as regards the legal miscon-
duct.
21. In view of the aforesaid premises, the appeal is al-
lowed in part as far as it grants permission/liberty to the re-
spondent to examine any witness in court. The learned Civil
Judge would requisition the records from the learned arbi-
trator, if not already done, and the respondent would be at
liberty to advance its arguments for pressing the factum of
misconduct from the said records. There shall be no order
as to costs.
.............................J. [Dipak Misra]
..........................., J. [Prafulla C. Pant]
New Delhi November 06, 2015
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