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SUPREME COURT OF INDIA
S.C. AGRAWAL AND B.P. JEEVAN REDDY, JJ.
Trustees of The Port of Madras, Appellant
Versus
Engineering Construction Corporation Limited, Respondent.
Civil Appeals Nos. 1175-76 of 1976,
Decided on 14-8-1995.
Arbitration Act - Sections 16,30 and 33 - Contract Act - Section, 46 - Disputed Claim - Payment of penalty - Interminable item consuming complex and expensive Court procedures impelled jurists to search for an alternative forum less formal more effective and speedy for resolution of disputes avoiding procedural claptrap and led them to Arbitration However way in which proceedings Act are conducted and without an exception challenged in Courts has made lawyers laugh and legal philosophers weep- Experience shows and law reports bear ample testimony that proceedings Act have become highly technical accompanied by unending every stage providing a legal trap to unwary- Informal forum chosen by parties for expeditious disposal of their disputes has by decisions of Courts been clothed with complexity- This case amply demonstrates same –Held, Board was guilty of any deliberate delay any negligence or that it was remiss in taking steps required for importing and or supplying machinery matter did not lay in its hands- In such situation there was no room for importing theory of reasonable time and for punishing Board for something of which it was not guilty- Secondly explanation to Section 46 makes it abundantly clear that question what is reasonable time each particular case a question whether machinery was imported and supplied to contractor within a reasonable time or not was thus a question of fact and not a question of law- No such contention was raised before learned umpire nor did he record a finding on said aspect- It was not open Division Bench to record said finding of fact for first time at stage of letters patent appeal and hold on that basis that Board is guilty of not performing its obligation within a reasonable time- In short this is not a case where Division Bench has interfered on ground that award suffers from an error of law apparent on face of award- This is a case where a new ground and that too factual in nature was made out for first time at Letters Patent appeal stage for setting aside award- Indeed a reading of judgment of Division Bench shows that Bench approached matter as if it was sitting in first appeal over award judgment does not even indicate on which ground is it setting aside award- It does not say either that award is vitiated by an error of law apparent on face of it nor does it say that learned umpire was guilty of any misconduct in conducting proceedings or otherwise- Court are of firm opinion that this could not have been done - Appeals allowed
Key Points: - The judgment discusses the standard for an "error of law apparent on the face of the award" under Sections 16(1)(c) and 30(c) of the Arbitration Act and clarifies that such error must appear on the face of the award or incorporated documents; it cannot be inferred from external reasoning (!) (!) . - It deals with whether the Board’s undertaking to import machinery created rights and obligations and whether delays breach an implied promise under Section 46 of the Contract Act; the Division Bench held there is an implied undertaking to supply within a reasonable time, which could justify compensation; this view is contrasted with the umpire’s finding (!) (!) (!) (!) . - The Court holds that the Division Bench set aside the award not on misconduct or obvious legal error on the face of the award, but on a new factual ground raised at the Letters Patent stage; hence the appeals were allowed and the award restored (!) (!) (!) . - The decision discusses the proper scope of re-appraisal of evidence and the limits of revisiting findings of fact by appellate tribunals in arbitration appeals (!) (!) . - It emphasizes that in reasoned awards, the court can interfere if an erroneous proposition of law is stated on the face of the record; otherwise, it should uphold the award where possible (!) (!) . - The award was remitted for fresh consideration to align with the appellate interpretation of the Board’s obligations regarding timely supply of machinery (!) (!) . - The Port Trust’s tender and contract framework, including time extensions and penalties, were central to the dispute over delays in machinery import and compensation (!) (!) (!) . - The Supreme Court ultimately allowed the appeals and restored the learned Single Judge’s decision, with costs awarded to the appellant (!) (!) .
JUDGMENT
B.P. JEEVAN REDDY, J.:- The facts of this case reminded us of what this Court observed in M/s. Guru Nanak Foundation v. M/s. Rattan Singh and Sons, (1981) 4 SCC 634 : (AIR 1981 SC 2075, Para 1) :
"Interminable, item consuming, complex and expensive Court procedures impelled jurists to search for an alternative forum, less formal, more effective and speedy for resolution of disputes avoiding procedural claptrap and this led them to Arbitration Act, 1940 (Act for short). However, the way in which the proceedings under the Act are conducted and without an exception challenged in Courts, has made lawyers laugh and legal philosophers weep. Experience shows and law reports bear ample testimony that the proceedings under the Act have become highly technical accompanied by unending proxility at every stage providing a legal trap to the unwary. Informal forum chosen by the parties for expeditious disposal of their disputes has by the decisions of the Courts been clothed with legalise of unenforseeable complexity. This case amply demonstrates the same."
2. The facts speak for themselves.
The Board of Trustees, Madras port Trust, invited tenders in the year 1957 for certain works at the port. Clause (4) of the Instructions for tender stipulated that the tenderer is required to indicate clearly in the letter forwarding the tender any deviation from the conditions and specifications mentioned in the Instructions. Clause (7) provided that until a formal agreement was entered into, the tender together with the Boards acceptance thereof shall constitute the binding contract between the parties. The respondent submitted its tender on November 11, 1957 along with a letter specifying certain deviations. The main deviation suggested was that the thirty months period specified for completing the work shall be subject to such delays as are due to causes beyond their control. In case of such delays, the respondent claimed to be entitled to not only extension of time but also to compensation. It further specified that the Board should make available to it the requisite foreign exchange for importing the plant and machinery required for executing the work. Soon thereafter, it was realised by both the parties that foreign exchange would not be released to the respondent for purchasing machinery on its own account. The parties then agreed that the Board should import the said machinery on its own account and should hire it out to the respondent for execution of the said work. The respondents tender was accepted by the Board on October 6, 1958. A formal contract was sent by the Board to the respondent for its signature. The respondent suggested several modifications and alterations which according to it were necessary to truly reflect the consensus arrived at between them. The modifications and alterations pertained mainly to the supply of imported plant and machinery and the spares. Certain correspondence passed between the parties but the Board refused to agree to any change in the draft agreement. On April 9, 1960 the respondent signed the agreement without incorporating the modifications suggested by it.
3. There were delays in importing the machinery. As against a period of about six months envisaged by the parties, it took about twelve months for importing the entire machinery. It was hired out to the respondent and it completed the work within the extended period, asked by it and granted by the Board. The total contract value was Rupees one crore and sixty three lakhs. After the work was completed, the respondent raised a dispute claiming additional amount on account of the delay in supplying the machinery and on certain other counts. It claimed a total amount of Rs. 14,93,654.78p. In terms of the arbitration clause contained in the contract, the respondent nominated Sri W. S. Krishnaswamy Naidu, a retired Judge of the Madras High Court as its arbitrator. The Board nominated another retired Judge of the Madras High Court, Sri Somasundaram, a
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