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1995 Supreme(AP) 345
Andhra Pradesh High Court
Judges : D.H.NASIR, P.VENKATRAMA REDDY
Great Eastern Shipping Co.Ltd. - Appellant
Versus
Food Corporation of India - Respondent
AAO.No.714/88
Decided On : 07-13-95
Advocates Appeared :
M/s. Vilar V. Afzulpurkar, Sri. K.V. Subba Rao
Headnote:ARBITRATION ACT, 1940, Secs.14, 17, 30(a) and 33 and Schedule Conditions Nos.4 and 6 - Award passed by umpire to whom reference was made by appointed arbitrators as per arbitration clause without notice to parties but hearing arbitrators - Petition filed by one party to make award a rule of the court and petition by other party to set aside award - Decree passed by court confirming award - Not sustainable.
HELD: On reference of the matter to the umpire, the arbitrators become functus offficio. The umpire takes upon himself the exclusive authority of determining the dispute. He takes the place of arbitrator, 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 arbitrator with all the attendant powers, duties and obligations. 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 continuation of the proceedings before the umpire. The process of arbitration starts de novo before him, as he takes the role of the primary and exclusive authority to decide. It necessarily implies there from that the umpire is bound to observe the rules ensuring fair-play and justice and improvise the procedure in conformity with the principles of natural justice just as the arbitrators are bound to do. In other words, there is no qualitative between the arbitrators and the umpire with regard to the methodologies and modalities to be adopted for reaching a just and fair decision. It is rite to say that an arbitrator is bound to observe the principles of natural justice and conform to the fundamentals of judicial procedure. It is his duty to afford a reasonable opportunity to the parties concerned.
In the instant case, the basics of fair-play and justice were not kept in view by the Umpire. The very fact that the umpire chose to hear the arbitrators would be indicative of the fact that the umpire evidently wanted some clarification or the umpire would have thought that by such hearing, he would be able to appreciate the rival contentions in a better perspective. If so, there is absolutely no reason why the parties or their counsel should not have been heard. The very fact that there was difference of opinion amongst the arbitrators was itself a relevant consideration to afford hearing to the parties. The arbitrator does not represent the interests of a particular party by whom he is nominated. The arbitrator is not even a conciliator. He is in the position of a quasi-Judge. The hearing given to arbitrators is not a substitute for the hearing of parties.
The decision reached by the umpire is vitiated in law as it amounts to misconducting the proceedings within the meaning of section 30 (a) of the Arbitration Act.
( 1 ) THESE two C. M. As. (CMAs. 714/88 and 759/86) are directed against the common judgment in O. P. No. 229 of 1986 and O. P. No. 195 of 1986 on the file of Principal Subordinate Judge, Visakhapatnam. O. P. No. 195 of 1986 was filed under Section 14 of the Arbitration Act, 1940 by the Food Corporation of India (respondent herein) to make the award (Ex. A3) passed by the umpire on 6. 7. 1984 a rule of the court. O. P. No. 229 of 1986 was filed by the appellant herein under Sections 30 and 33 of the Arbitration Act to set aside the award.
( 2 ) THE appellant entered into a contract with the respondent for transporting bulk wheat from the Port of Sydney (Australia) to the Port of Visakhapatnam and in connection therewith, a charter party agreement was entered on 1. 9. 1976. A part of the consignment of wheat was damaged. The damaged wheat was sold by the respondent and a sum of Rs. 54,108. 00 was recovered. The respondent called upon the appellant to make good the loss suffered by them. On the refusal of the appellant, the dispute was referred to the arbitration of two persons nominated by each of the parties as per the terms of the agreement. The relevant arbitration clause reads as follows :"clause 53 : Any dispute arising under the Chapter shall be settled in accordance with the provision of the Arbitration Act, 1940, in India, each party appointing an Arbitrator, and the Arbitrators in the event of disagreement, appointing an Umpire whose decision shall be final and binding upon both the parties hereto, Arbitrators to be commercial men. This clause applies to any event occurring outside Australia. "the respondent claimed a sum of Rs. 3,63,616. 00 towards damages and this fact is recited in the award made by the umpire. That includes the cost of the wheat, proportionate freight and insurance charges and survey charges.
( 3 ) THE Arbitrators could not come to an agreed decision. Hence, in terms of the arbitration clause extracted above, they referred the matter to an umpire by name Mr. R. S. Cooper. The umpire heard the two Arbitrators on 23. 6. 1984, perused the documents and passed the impugned award by which he decided that the appellant herein was liable to the claimant in terms of the contract of carriage for damages in the sum of Rs. 3,63,616. 00. The two supplementary claims for Rs. 5,298. 00 and Rs. 4,704. 00 were, however, rejected. The Arbitrators intimated the parties that the umpire has passed the award. The respondent filed an application under Sections 14 and 17 of the Arbitration Act in the court of the Principal Subordinate Judge, Visakhapatnam and prayed for a decree in terms of the award. The appellant in its turn filed an application to set aside the award. As already stated, the court has passed the decree confirming the award while overruling the objections filed by the appellant. Hence these appeals.
( 4 ) IT may be mentioned that against the order and decree making the award the rule of the court, the appellant ought to have filed a revision as an appeal does not lie. However, on this ground, we are not inclined to reject the appeal in famine. The appeal has been pending here for seven years. No objection has been raised on behalf of the respondent that an appeal does not lie. By filing an appeal instead of revision, it does not affect the substance of the matter. We consider it just and proper to permit the appeal (CMA 759/86) to be converted into revision more especially when no prejudice whatsoever will be caused to the respondent on this count.
( 5 ) NOW we proceed to deal with the first and foremost objection put foreword by the learned Counsel for the appellant against the award. It is his case - in fact it is an undisputed Act - that the umpire, after entering on reference, did not give any notice to the parties and the parties were not called upon to appear before him. Instead, the umpire chose to hear the Arbitrators who, as already mentioned, were nominated by the part
