1
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.
2
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
3
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.
4
(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.
5
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
6
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.
7
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
8
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
9
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.”
10
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
11
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
12
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:
13
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.
14
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.
15
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
16
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
17
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
18
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
19
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.
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.
2
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
3
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.
4
(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.
5
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
6
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.
7
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
8
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
9
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.”
10
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
11
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
12
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:
13
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.
14
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.
15
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
16
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
17
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
18
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
19
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.
