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        REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 3776 OF 2018  

(Arising out of Special Leave Petition (C) No. 558 OF 2014)  

M/s Oswal Woollen Mills Ltd.           .... Appellant(s)

Versus

M/s Oswal Agro Mills Ltd.               .... Respondent(s)

J U D G M E N T

R.K. Agrawal, J.

1) Leave granted.  

2) The present appeal is directed against the final judgment

and order dated 22.10.2013 passed by the High Court of Delhi

at New Delhi in FAO (OS) No. 211 of 2007 whereby a Division

Bench of  the  High Court  dismissed the  appeal  filed by  the

appellant herein while upholding the order dated 17.04.2007

passed by learned single Judge of the High Court.

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3) Brief facts:

(a) The  appellant  Company-M/s  Oswal  Woolen  Mills  Ltd.

and the respondent Company-M/s Oswal Agro Mills Limited

are Companies incorporated under the Companies Act and are

carrying  on  the  business  of  manufacturing  and  trading  of

vegetable oils, soaps, chemicals, petrochemicals, woolen and

related products.

(b) Both  the  parties  entered  into  an  agreement  dated

30.03.1982  in  terms  whereof  the  appellant  Company

appointed the respondent Company as its agent in accordance

with the Handbook of  Import Export Procedure, 1981-82 in

order to advice,  assist  and guide the appellant Company to

import materials under the REP licences for a CIF value of Rs.

1,85,95,100/- only with remuneration at the rate of 5% (per

cent)  of  the CIF value of  the  goods imported along with all

costs/expenditure incurred.

(c) Out  of  the  total  value  of  the  materials  to  be  imported

under  the  licences,  the  materials  to  the  value  of  Rs.

1,16,00,800/- only could be imported and the  material  CIF

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value  of  Rs.  69,94,300/-  could  not  be  imported  by  the

respondent-Company in the absence of the REP licences of the

said value which resulted in breach of contract.               

(d) Both the parties took legal recourse and the High Court,

on  an  application  under  Section  20  of  the  Arbitration  Act,

1940 (in short ‘the Act’) referred the dispute to Arbitration of

two  Arbitrators.   After  completion  of  the  arbitration

proceedings before the Arbitrators, the arbitrators, could not

reach to a consensus on the Award in terms of the Minutes of

the Meeting held on 19.02.1999 and the matter was referred to

the Umpire.

(e) The  appellant-Company  moved  an  application  dated

29.01.2000 before the Umpire seeking commencement of  de

novo proceedings.  On 31.01.2000, the said application was

dismissed as untenable.  Learned Umpire, passed an award

dated 21.02.2000, in favour of the respondent-Company to the

tune of Rs. 64,65,782/- along with the interest at the rate of

18% (per  cent)  with  effect  from 01.11.1991  till  the  date  of

realization.    

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(f) Being  aggrieved  by  the  Award  dated  21.02.2000,  the

appellant  Company  filed  objections  before  the  High  Court

under Sections 30 and 33 of the Act which was registered as

IA  No.  803  of  2001  in  CS (OS)  No.  795-A/2000.   Learned

single Judge of the High Court, vide judgment and order dated

17.04.2007, substantially rejected the objections to the Award

and  made  a  Rule  of  the  Court  with  slight  modifications.

Learned  single  Judge  also  observed  that  the

appellant-Company failed to satisfy that there was any serious

endeavour for getting the evidence recorded again before the

Umpire and waived the right of de novo trial by conduct.    

(g) Aggrieved by the judgment and order passed by learned

single  Judge  of  the  High  Court,  the  appellant-Company

preferred an appeal being FAO (OS) No. 211 of 2007 before a

Division Bench of the High Court.  The Division Bench, vide

judgment and order dated 22.10.2013, dismissed the appeal.   

(h) Aggrieved by the judgment and order dated 22.10.2013,

the appellant-Company has preferred this  appeal  by way of

special leave before this Court.     

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4) Heard Mr. Basava Prabhu S. Patil, learned senior counsel

for  the  appellant-Company  and  Mr.  Dhruv  Mehta,  learned

senior  counsel  for  respondent-Company  and  perused  the

records.

Point(s) for consideration:-

5) The  only  point  for  consideration  before  this  Court  is

whether  an  Umpire  has  to  hear  the  matter  de  novo on  a

Reference  or  from  the  stage  of  disagreement  between  the

Arbitrators?

Rival contentions:-

6) Learned  senior  counsel  for  the  appellant-Company

contended that the Division Bench erred in interpreting the

scope of Article 4 to Schedule 1 of the Act to mean that the

Umpire has to hear the Reference only from the stage at which

the Arbitrators disagreed and not  de novo.   Learned senior

counsel while relying upon Article 4 to Schedule I of the Act

contended that  de novo proceedings are essential  when the

Arbitrators  have  disagreed  and  the  Umpire  is  appointed  to

decide the dispute.  He further contended that when Umpire

enters into Reference “in lieu of Arbitrators” he steps in the

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shoes of the Arbitrators and has the same duties as that of

Arbitrators. Accordingly, the Umpire cannot depart from the

requirement that  an arbitrator should personally record the

evidence on which he is to rely for the purpose of giving his

decision. The Umpire cannot refuse to hear the witness again;

and if on request of a party for the same, fails to do so, the

Award would be bad for misconduct.  

7) Learned  senior  counsel  further  contended  that  the

Division  Bench has  simply  affirmed the  findings  of  learned

single Judge on the question of waiver, damages ought to be

awarded,  without  appreciating  the  contentions  advanced

especially  when  it  was  established  from the  documents  on

record that the appellant-Company had never waived its right

of  de novo hearing but had been insistent throughout before

the Umpire to start proceedings de novo. For the purpose, the

appellant-Company placed reliance on communication dated

24.05.1999 and 12.01.2000 addressed to the Umpire and the

application dated 29.01.2000 filed for  de novo hearing of the

matter.

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8) Arguing  next  with  respect  to  damages  granted  to  the

respondent-Company,  it  was  contended  by  learned  senior

counsel  that  under  the  first  agreement,  goods  were  to  be

imported and 5% commission was to be paid.  Therefore, to

award damages for the goods not processed and not delivered

because the same were not imported under the first agreement

is untenable.  Learned senior counsel finally contended that

learned single Judge as well as the Division Bench erred in law

and interference by this Court is sought for in the matter.

9) Per  contra,  learned  senior  counsel  for  the

respondent-Company  strenuously  submitted  that  the

application filed by the  appellant-Company is  misconceived,

not  maintainable  and  the  relief  sought  is  vague.   The

application was moved when the hearing before the Umpire

had  already  started  and  the  claimant  had  concluded  his

arguments.  The very first application for the same was filed

on 29.01.2000 in spite of the fact that the first hearing before

the Umpire took place on 24.04.1999 which got dismissed by a

detailed order categorically recording that the Umpire cannot

sit  over  or  review  the  order  of  the  Arbitrators  which  was

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unanimous and the application was a belated application with

mala fide intentions.

10) Learned  senior  counsel  further  submitted  that  the

understanding  and  interpretation  of  Article  4  has  to  be  in

consonance with reason and logic, meaning thereby, the stage

at which the Arbitrators disagree would be the stage at which

the Umpire commences upon and proceeds with the reference.

Therefore, the Umpire is not duty bound to record the same

evidence all over again, more so, when both the parties were

given ample opportunities for presenting their case.  Learned

senior counsel further submitted that the Umpire, vide Award

dated  21.02.2000,  has  categorically  noted  that  the

appellant-Company unduly delayed the proceedings and has

specifically mentioned the dates wherein no appearance was

put in by the other side which resulted in waiver by conduct.

Therefore, the plea of  de novo proceedings is erroneous and

against  the  settled  legal  proposition  of  law.  Learned  senior

counsel finally submitted that there was no irregularity in the

reasoned  orders  passed  by  learned  single  Judge  and  the

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Division Bench of the High Court and no interference is sought

for by this Court in the matter.

Discussion:-

11) The  first  and  the  foremost  point  that  arises  for

consideration is whether in a case where the matter has been

referred  to  the  Umpire  owing  to  disagreement  between  the

Arbitrators, the Umpire has to confine himself only to hear the

issues on which the arbitrators disagreed or he has to hear the

matter afresh. Further, what does the word  de novo hearing

means?  By virtue of Section 3 of the Act, unless otherwise

agreed, the provisions of the First Schedule are deemed to be

incorporated in the arbitration agreement.  In this view of the

matter,  it  is  necessary  to  scrutinize  Article  4  of  the  First

Schedule  of  the  Act  as  the  same  relates  to  the  matter  in

controversy which reads as under:-

“4.  If  the  arbitrators  have  allowed  their  time  to  expire without making an award or have delivered to any party to the arbitration agreement or to the umpire a notice in writing stating that they cannot agree, the, umpire shall forthwith enter on the reference in lieu of the arbitrators.”

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12)  From  a  bare  perusal  of  the  above,  it  is  clear  that  an

Umpire enters on a Reference “in lieu of the Arbitrators” and

the Act does not contemplate any distinction with regard to

the conduct of proceedings by the Arbitrators or the Umpire.

It is an undeniable fact that on reference of the matter to the

Umpire,  the Arbitrators become  functus officio.   The Umpire

takes upon himself the exclusive authority of determining the

disputes.  He takes the place of Arbitrators, as the expression

“in  lieu  of  the  Arbitrators”  conveys.   Unless  there  is  an

agreement to the contrary, defining or demarcating the powers

of the Umpire, he is expected to discharge the same functions

as  Arbitrators  with  all  the  attendant  powers,  duties  and

obligations.  

13) Either going by the very nature of functions entrusted to

the Umpire or by the provisions of  the First  Schedule,  it  is

crystal clear that there is no qualitative difference between the

Arbitrators and the  Umpire  with regard to  the  methodology

and  modalities  to  be  adopted  for  reaching  a  just  and  fair

conclusion.  It  is  trite  to say that  an Arbitrator  is  bound to

observe the principles of natural justice and conform to the

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fundamentals of judicial procedure. It is his duty to afford a

reasonable opportunity to the parties concerned. However, it

would also be illogical to contend that the Umpire has to start

de novo ipso facto. The very essence of the law of arbitration is

to settle the matter efficiently in a time bound manner. Hence,

when the Umpire enters upon a Reference and replaces the

arbitrators,  he  is  needed  to  review  the  evidence  and

submissions  only  on  those  matters  about  which  the

arbitrators have disagreed unless either party applies for the

rehearing of the evidence of the parties or their witnesses. The

Umpire can surely go through the evidence recorded by the

previous  arbitrators  but  without  being  influenced  by  the

opinion expressed by them in that regard and even the notes

taken  by  previous  arbitrators  can  be  relied  if  there  exist

special provisions in the agreement permitting him to do so.

However,  if  the  party  makes  an  application  for  de  novo

hearing, the Umpire is bound to allow the same, subject to the

condition that the application is made at the earliest and the

applicant  is  not  using  it  as  last  armory  to  turn  the  case

around. An objection on the ground that the Umpire has not

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reheard the  evidence  may be  waived by  the  conduct  of  the

parties;  the  evidence  already  recorded  before  the  previous

arbitrator would remain valid and it would not be open for the

parties to get the same recorded afresh later on. It is a well

settled proposition that where a party seeking to impeach an

Award has made no application to the Umpire for rehearing of

the evidence, the same would generally operate as a waiver by

conduct.

14) Having said that the Umpire is bound to hear the matter

de novo on an application filed by the parties, subject to the

satisfaction of other necessary conditions in accordance with

the  law  of  arbitration  and  before  examining  whether  the

conduct of the appellant-Company amounts to waiver or not,

it is necessary to examine the meaning of the word  de novo

hearing before the Umpire to whom the matter is referred in

case of disagreement between the Arbitrators.  Learned senior

counsel  for  the appellant-Company contends that  hearing a

matter  de novo means the matter is to be started afresh i.e.,

from the very point from where the arbitrators had started. In

other words, it would mean that the matter brought on record:

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pleadings, evidence; before the arbitrators at the first instance

would  become  nullity  i.e.,  the  proceedings  including

statements  of  claim,  reply  to  claims  and  counter  claims,

statements  and  cross-examinations  of  witnesses  before  the

Arbitrators  have  no  significance.  The  ascertained  point  in

dispute and the well known position of the parties would go in

vain and the Umpire should start again with the same process.

An inevitable outcome of the same is that a party is allowed to

overcome the  lacuna in the evidence already recorded before

the previous arbitrators. Further, it would give an unnecessary

option  to  the  dishonest  litigant  to  obliterate  the  evidence

already recorded which would have  adverse  effect  on them.

Further,  the  witnesses  to  be  examined  afresh  is  a  glaring

anomaly  that  would  ensue  that  the  witnesses  may  not  be

available or might give a totally different version or a version

inconsistent with their previous version, owing to the fact of

faded memories. Such an interpretation of the word  de novo

trial would result in undue hardship to the parties and will

defeat  the  very  purpose  of  the  Act  and  render  arbitration

ineffective.      

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15) Hence, firstly, the word de novo hearing should be given

a purposive interpretation and it should be understood as a

fresh hearing of the matter on the basis of pleadings, evidence

and documents on record. If the party wants to re-examine a

witness or objects to the documents admitted, the Umpire is to

hear the parties and decide the application in the interest of

justice.

16) Having held that the a party do have a right to call for de

novo hearing subject to the waiver of the same by conduct,

now comes the question whether in fact and circumstances of

the  present  case  the  conduct  of  the  appellant-Company

amounts  to  waiver  or  not.   It  was  contended  that  the

appellant-Company has from the very beginning of the hearing

before the Umpire had demanded  de novo trial of the matter

and in support of that it relied upon the communication dated

24.05.1999,  12.01.2000  addressed  to  the  Umpire  and

application dated 29.01.2000 filed for  de novo hearing of the

matter.

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17) However, having perused the records, it was found that

the very first communication dated 24.05.1999, on which the

appellant-Company has relied upon is a letter written to the

Umpire  with  regard to  the  pending proceedings  in  the  said

matter before the High Court and the application that is filed

before the High Court to which the appellant-Company was

referring to in the said letter was an application filed under

Section 5 of the Act for the dispute relating to quantum of fee

of  the  Umpire.   Though the  appellant-Company in the  said

letter made a note with regard to the  de novo hearing of the

matter but the same seems to be an additional armory that

the appellant is putting behind its back as it hasn’t demanded

de novo trial of the said matter neither in the communication

nor thereafter in the proceedings. The appellant-Company next

referred to communication dated 12.01.2000 but the same is

also with regard to the pending proceedings before the High

Court. It is only on 29.01.2000 that the appellant-Company

has filed an application for de novo hearing of the case i.e., at

a  stage  where  the  final  arguments  on  the  side  of  the

respondent-Company  have  been  finished  and  the  date  was

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fixed for final argument from the side of appellant-Company. If

the  appellant-Company  was  serious  in  its  endeavor  that  it

should get an opportunity to get the evidence recorded afresh,

an application could easily have been filed before starting the

proceedings  before  the  Umpire.   It  is  only  from  oblique

references that the appellant-Company seeks to derive such

intent.   This  aspect  is  clearly  an  afterthought  which  arose

during the culmination of the proceedings before the Umpire.

Further,  even the  sum and substance of  the highly belated

application  dated  29.01.2000  for  commencement  of

proceedings  de novo clearly shows that it was not asking for

re-hearing/re-recording  of  the  evidence  but  was  actually

requesting  for  review  of  the  order  of  the  two  Arbitrators

especially for re-examination of Shri K.L. Jain.  It is the case of

the  appellant-Company  that  the  Arbitrators  were  wrong  in

permitting production of some other witness, by name, Shri

Vijay Gupta instead of Shri K.L Jain. From the above, there is

no doubt that the conduct of the appellant-Company amounts

to waiver and the application filed on 29.01.2000 is nothing

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but trying a last armory to turn the case around.  The Umpire

was right in dismissing the said application.

18) Learned  senior  counsel  for  the  appellant-Company

contended  on  merits  of  the  case,  however,  the  law  is  well

settled with regard to the scope and ambit of the jurisdiction of

the courts to interfere with an arbitration award as has been

settled in a catena of judgments of this Court and it would be

sufficient to quote Ravindra Kumar Gupta and Company vs.

Union of  India (2010)  1  SCC 409 wherein  it  was  held  as

under:-

“9. The law with regard to scope and ambit of the jurisdiction of the courts to interfere with an arbitration award has been settled in a catena of judgments of this Court. We may make a reference here only to some of the judgments. In State of Rajasthan v. Puri Construction Co. Ltd.  this Court observed as follows:  

“26.  The  arbitrator  is  the  final  arbiter  for  the  dispute between the parties and it is not open to challenge the award on the ground that the arbitrator has drawn his own conclusion or has failed to appreciate the facts. In  Sudarsan Trading Co. v. Govt. of Kerala it has been held by this Court that there is a distinction  between  disputes  as  to  the  jurisdiction  of  the arbitrator and the disputes as to in what way that jurisdiction should be exercised. There may be a conflict as to the power of the  arbitrator  to  grant  a  particular  remedy.  One  has  to determine  the  distinction  between  an  error  within  the jurisdiction and an error  in excess  of  the  jurisdiction.  Court cannot substitute its own evaluation of the conclusion of law or fact  to come to  the conclusion that  the  arbitrator had acted contrary  to  the  bargain  between  the  parties.  (emphasis  in original) Whether a particular amount was liable to be paid is a decision within the competency of the arbitrator. By purporting to construe the contract the court cannot take upon itself the

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burden of saying that this was contrary to the contract and as such beyond jurisdiction. If on a view taken of a contract, the decision  of  the  arbitrator  on  certain  amounts  awarded  is  a possible  view  though perhaps  not  the  only  correct  view,  the award cannot  be  examined by  the  court.  Where  the  reasons have been given by the arbitrator in making the award the court cannot  examine  the  reasonableness  of  the  reasons.  If  the parties have selected their own forum, the deciding forum must be  conceded  the  power  of  appraisement  of  evidence.  The arbitrator is the sole judge of the quality as well as the quantity of evidence and it will not be for the court to take upon itself the task of being a Judge on the evidence before the arbitrator.”

19) In  Municipal  Corporation  of  Delhi vs.  Jagan  Nath

Ashok Kumar and Another (1987) 4 SCC 497, it was held by

this Court that appraisement of evidence by the arbitrator is

ordinarily  never  a  matter  which  the  court  questions  and

considers. It may be possible that on the same evidence, the

court may arrive at a different conclusion than the one arrived

at by the arbitrator but that by itself is no ground for setting

aside the award.

20) Following  the  above  judgments,  we  are  of  the  opinion

that the question of whether the claims were tenable or not are

based on the contract and which of them had to be granted

were within the exclusive domain of the Arbitrators.  In this

case, the Award considered the totality of circumstances, and

weighed  the  relevant  facts  on  balance  while  proceeding  to

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award damages.   The award does not  disclose  a manifestly

erroneous approach; nor does it omit to consider and apply

legal principles to the facts presented before the Arbitrators.   

21) In  view  of  the  above  discussion,  we  do  not  find  any

infirmity or error in the approach and judgments passed by

the courts below.   There is no merit in this appeal and the

appeal is, therefore, dismissed with no order as to costs.  

...…………….………………………J.                (R.K. AGRAWAL)                                  

.…....…………………………………J.         (R. BANUMATHI)                         

NEW DELHI; APRIL 13, 2018.