M/S Oswal Woollen Mills Ltd. vs M/S Oswal Agro Mills Ltd.

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)

JUDGMENT

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. Signature Not Verified Digitally signed by ASHA SUNDRIYAL Date: 2018.04.13 15:11:15 IST Reason: 1

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

2 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 and

Conciliation 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

5 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 insisted 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

7 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

8 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

10 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

11 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

15 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 filled on 29.01.2000 is nothing

16 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

17 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

18 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.

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