M/S OSWAL WOOLLEN MILLS LTD. versus M/S OSWAL AGRO MILLS LTD. on 13 April 2018

SUPREME COURT REPORTS

[2018] 3 S.C.R.

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M/S OSWAL WOOLLEN MILLS LTD.

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M/S OSWAL AGRO MILLS LTD.

(Civil Appeal No. 3776 of 2018)

BAPRIL 13, 2018

[R. K. AGRAWAL AND R. BANUMATHI, JJ.]

Arbitration Act, 1940 – ss.3, 20, 30, 33 and Art.4 of the FirstSchedule – Disagreement between arbitrators – Reference to Umpire– Issue as to whether Umpire is to hear the matter de novo or fromCthe stage of disagreement between the Arbitrators – Agreementbetween appellant and respondent – Breach of agreement – Matterreferred for Arbitration by two Arbitrators – In view of lack ofconsensus between the Arbitrators, matter referred to the Umpire –Umpire passed an award in favour of the respondent – ObjectionsDfiled by appellant, rejected by High Court holding that the appellantdid not make any serious endeavour for getting the evidencerecorded again before the Umpire and waived the right of de novotrial by conduct – Division Bench dismissed the appeal by appellant– On appeal, held: The very essence of the law of arbitration is tosettle the matter efficiently in a time bound manner – When theEUmpire enters upon a Reference and replaces the arbitrators, he isneeded to review the evidence and submissions only on those mattersabout which the arbitrators had disagreed – However, if either ofthe party makes an application for de novo hearing, the Umpire isbound to allow the same, subject to the condition that the applicationFis made at the earliest and is not being used as last armory to turnthe case around – An objection on the ground that the Umpire hasnot reheard the evidence may be waived by the conduct of the parties– In the instant case, the belated application filed by appellant on29.01.2000 for commencement of proceedings de novo was notasking for re-hearing/re-recording of the evidence but was actuallyGfor reviewing the order of the two Arbitrators and thus was nothingbut a last armory to turn the case around – Conduct of the appellantamounts to waiver – No infirmity or error in the approach andjudgments passed by the courts below – Waiver.

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Arbitration – ‘De novo’ hearing – Meaning of – Discussed.Interpretation of Statutes – Purposive interpretation – Whento be given – Discussed.

Dismissing the appeal, the Court

HELD: 1.1 The very essence of the law of arbitration is tosettle the matter efficiently in a time bound manner. Hence, whenthe Umpire enters upon a Reference and replaces the arbitrators,he is needed to review the evidence and submissions only onthose matters about which the arbitrators have disagreed unlesseither party applies for the rehearing of the evidence of the partiesor their witnesses. The Umpire can surely go through theevidence recorded by the previous arbitrators but without beinginfluenced by the opinion expressed by them in that regard andeven the notes taken by previous arbitrators can be relied if thereexist special provisions in the agreement permitting him to doso. However, if the party makes an application for de novo hearing,the Umpire is bound to allow the same, subject to the conditionthat the application is made at the earliest and the applicant isnot using it as last armory to turn the case around. An objectionon the ground that the Umpire has not reheard the evidence maybe waived by the conduct of the parties; the evidence alreadyrecorded before the previous arbitrator would remain valid andit would not be open for the parties to get the same recordedafresh later on. It is a well settled proposition that where a partyseeking to impeach an Award has made no application to theUmpire for rehearing of the evidence, the same would generallyoperate as a waiver by conduct. [Para 13][1070-A-D]

1.2 The word de novo hearing should be given a purposiveinterpretation and it should be understood as a fresh hearing ofthe matter on the basis of pleadings, evidence and documents onrecord. If the party wants to re-examine a witness or objects tothe documents admitted, the Umpire is to hear the parties anddecide the application in the interest of justice. [Para 15][1071-C]

1.3 The very first communication dated 24.05.1999, onwhich the appellant-Company had relied upon was a letter writtento the Umpire with regard to the pending proceedings in the said A

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Amatter before the High Court and the application that was filedbefore the High Court to which the appellant-Company wasreferring to in the said letter was an application filed under Section5 of the Act for the dispute relating to quantum of fee of theUmpire. Though the appellant-Company in the said letter madea note with regard to the de novo hearing of the matter but theBsame seems to be an additional armory that the appellant wasputting behind its back as it did not demand de novo trial of thesaid matter either in the communication or thereafter in theproceedings. The appellant-Company next referred tocommunication dated 12.01.2000 but the same was also withCregard to the pending proceedings before the High Court. It wasonly on 29.01.2000 that the appellant-Company had filed anapplication for de novo hearing of the case i.e., at a stage wherethe final arguments on the side of the respondent-Company hadfinished and the date was fixed for final argument from the side ofappellant-Company. If the appellant-Company was serious in itsDendeavor that it should get an opportunity to get the evidencerecorded afresh, an application could easily have been filed beforestarting the proceedings before the Umpire. It was only fromoblique references that the appellant-Company sought to derivesuch intent. This aspect was clearly an afterthought which aroseEduring the culmination of the proceedings before the Umpire.Further, even the sum and substance of the highly belatedapplication dated 29.01.2000 for commencement of proceedingsde novo clearly shows that it was not asking for re-hearing/re-recording of the evidence but was actually requesting for reviewof the order of the two Arbitrators. From the above, there is noFdoubt that the conduct of the appellant-Company amounts towaiver and the application filed on 29.01.2000 was nothing buttrying a last armory to turn the case around. The Umpire wasright in dismissing the said application. [Para 17][[1071-F-H;1072-A-D]G

1.4 The question of whether the claims were tenable ornot are based on the contract and which of them had to be grantedwere within the exclusive domain of the Arbitrators. In this case,the Award considered the totality of circumstances, and weighedthe relevant facts on balance while proceeding to award damages.HThe award does not disclose a manifestly erroneous approach; M/S OSWAL WOOLLEN MILLS LTD. v. M/S OSWAL AGROMILLS LTD.

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nor does it omit to consider and apply legal principles to the factspresented before the Arbitrators. There is no infirmity or errorin the approach and judgments passed by the courts below. [Paras20, 21][1073-G-H; 1074-A-B]

Ravindra Kumar Gupta and Company v. Union of India(2010) 1 SCC 409 : [2009] 16 SCR 142; MunicipalCorporation of Delhi v. Jagan Nath Ashok Kumar andAnother (1987) 4 SCC 497 : [1988] 1 SCR 180 – reliedon.

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Case Law Reference

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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3776of 2018.

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From the Judgment and Order dated 22.10.2013 of the High Courtof Delhi at New Delhi in FAO(OS) No. 211 of 2007.

Basava Prabhu S. Patil, Sr. Adv., Aayush Agarwala, Anuj P.Agarwala, Pramod B. Agarwala, Advs. for the Appellant.

Dhruv Mehta, Sr. Adv., Bharat Arora, Ms. Anupama, Rohit Singh,EMs. Prerna Mehta, Advs. for the Respondents.

The Judgment of the Court was delivered by

R. K. AGRAWAL, J. 1. Leave granted.

2. The present appeal is directed against the final judgment andorder dated 22.10.2013 passed by the High Court of Delhi at New Delhiin FAO (OS) No. 211 of 2007 whereby a Division Bench of the HighCourt dismissed the appeal filed by the appellant herein while upholdingthe order dated 17.04.2007 passed by learned single Judge of the HighCourt.

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3. Brief facts:

(a) The appellant Company-M/s Oswal Woolen Mills Ltd. andthe respondent Company-M/s Oswal Agro Mills Limited are Companiesincorporated under the Companies Act and are carrying on the businessof manufacturing and trading of vegetable oils, soaps, chemicals,petrochemicals, woolen and related products.

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A(b) Both the parties entered into an agreement dated 30.03.1982in terms whereof the appellant Company appointed the respondentCompany as its agent in accordance with the Handbook of Import ExportProcedure, 1981-82 in order to advice, assist and guide the appellantCompany to import materials under the REP licences for a CIF value ofRs. 1,85,95,100/- only with remuneration at the rate of 5% (per cent) ofBthe CIF value of the goods imported along with all costs/expenditureincurred.

(c) Out of the total value of the materials to be imported under thelicences, the materials to the value of Rs. 1,16,00,800/- only could beimported and the material CIF value of Rs. 69,94,300/- could not beCimported by the respondent-Company in the absence of the REP licencesof the said value which resulted in breach of contract.

(d) Both the parties took legal recourse and the High Court, on anapplication under Section 20 of the Arbitration Act, 1940 (in short ‘theAct’) referred the dispute to Arbitration of two Arbitrators. AfterDcompletion of the arbitration proceedings before the Arbitrators, thearbitrators, could not reach to a consensus on the Award in terms of theMinutes of the Meeting held on 19.02.1999 and the matter was referredto the Umpire.

(e) The appellant-Company moved an application dated 29.01.2000Ebefore the Umpire seeking commencement of de novo proceedings.On 31.01.2000, the said application was dismissed as untenable. LearnedUmpire, 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 therate of 18% (per cent) with effect from 01.11.1991 till the date ofrealization.F

(f) Being aggrieved by the Award dated 21.02.2000, the appellantCompany filed objections before the High Court under Sections 30 and33 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 judgmentGand order dated 17.04.2007, substantially rejected the objections to theAward and made a Rule of the Court with slight modifications. Learnedsingle Judge also observed that the appellant-Company failed to satisfythat there was any serious endeavour for getting the evidence recordedagain before the Umpire and waived the right of de novo trial by conduct.

(g) Aggrieved by the judgment and order passed by learned singleJudge of the High Court, the appellant-Company preferred an appealbeing FAO (OS) No. 211 of 2007 before a Division Bench of the HighCourt. 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, theappellant-Company has preferred this appeal by way of special leavebefore this Court.

4. Heard Mr. Basava Prabhu S. Patil, learned senior counsel forthe appellant-Company and Mr. Dhruv Mehta, learned senior counselfor respondent-Company and perused the records.

Point(s) for consideration:-

5. The only point for consideration before this Court is whetheran Umpire has to hear the matter de novo on a Reference or from thestage of disagreement between the Arbitrators?

Rival contentions:-

6. Learned senior counsel for the appellant-Company contendedthat the Division Bench erred in interpreting the scope of Article 4 toSchedule 1 of the Act to mean that the Umpire has to hear the Referenceonly from the stage at which the Arbitrators disagreed and not de novo.Learned senior counsel while relying upon Article 4 to Schedule I of theAct contended that de novo proceedings are essential when theArbitrators have disagreed and the Umpire is appointed to decide thedispute. He further contended that when Umpire enters into Reference“in lieu of Arbitrators” he steps in the shoes of the Arbitrators and hasthe same duties as that of Arbitrators. Accordingly, the Umpire cannotdepart from the requirement that an arbitrator should personally recordthe 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 requestof a party for the same, fails to do so, the Award would be bad formisconduct.

7. Learned senior counsel further contended that the DivisionBench has simply affirmed the findings of learned single Judge on thequestion of waiver, damages ought to be awarded, without appreciatingthe contentions advanced especially when it was established from thedocuments on record that the appellant-Company had never waived its A

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Aright of de novo hearing but had been insistent throughout before theUmpire to start proceedings de novo. For the purpose, the appellant-Company placed reliance on communication dated 24.05.1999 and12.01.2000 addressed to the Umpire and the application dated 29.01.2000filed for de novo hearing of the matter.

B8. Arguing next with respect to damages granted to the respondent-Company, it was contended by learned senior counsel that under thefirst agreement, goods were to be imported and 5% commission was tobe paid. Therefore, to award damages for the goods not processed andnot delivered because the same were not imported under the firstagreement is untenable. Learned senior counsel finally contended thatClearned single Judge as well as the Division Bench erred in law andinterference by this Court is sought for in the matter.

9. Per contra, learned senior counsel for the respondent-Companystrenuously submitted that the application filed by the appellant-Companyis misconceived, not maintainable and the relief sought is vague. TheDapplication was moved when the hearing before the Umpire had alreadystarted and the claimant had concluded his arguments. The very firstapplication for the same was filed on 29.01.2000 in spite of the fact thatthe first hearing before the Umpire took place on 24.04.1999 which gotdismissed by a detailed order categorically recording that the UmpireEcannot sit over or review the order of the Arbitrators which wasunanimous and the application was a belated application with mala fideintentions.

10. Learned senior counsel further submitted that the understandingand interpretation of Article 4 has to be in consonance with reason andFlogic, meaning thereby, the stage at which the Arbitrators disagree wouldbe the stage at which the Umpire commences upon and proceeds withthe reference. Therefore, the Umpire is not duty bound to record thesame evidence all over again, more so, when both the parties were givenample opportunities for presenting their case. Learned senior counselfurther submitted that the Umpire, vide Award dated 21.02.2000, hasGcategorically noted that the appellant-Company unduly delayed theproceedings and has specifically mentioned the dates wherein noappearance was put in by the other side which resulted in waiver byconduct. Therefore, the plea of de novo proceedings is erroneous andagainst the settled legal proposition of law. Learned senior counsel finallyHsubmitted that there was no irregularity in the reasoned orders passed by learned single Judge and the Division Bench of the High Court andno interference is sought for by this Court in the matter.

Discussion:-

11. The first and the foremost point that arises for consideration iswhether in a case where the matter has been referred to the Umpireowing to disagreement between the Arbitrators, the Umpire has to confinehimself only to hear the issues on which the arbitrators disagreed or hehas to hear the matter afresh. Further, what does the word de novohearing means? By virtue of Section 3 of the Act, unless otherwiseagreed, the provisions of the First Schedule are deemed to be incorporatedin the arbitration agreement. In this view of the matter, it is necessary toscrutinize Article 4 of the First Schedule of the Act as the same relatesto the matter in controversy which reads as under:- “4. If the arbitrators have allowed their time to expire withoutmaking an award or have delivered to any party to the arbitrationagreement or to the umpire a notice in writing stating that theycannot agree, the, umpire shall forthwith enter on the reference inlieu of the arbitrators.”

12. From a bare perusal of the above, it is clear that an Umpireenters on a Reference “in lieu of the Arbitrators” and the Act does notcontemplate any distinction with regard to the conduct of proceedingsby the Arbitrators or the Umpire. It is an undeniable fact that on referenceof the matter to the Umpire, the Arbitrators become functus officio.The Umpire takes upon himself the exclusive authority of determiningthe disputes. He takes the place of Arbitrators, as the expression “inlieu of the Arbitrators” conveys. Unless there is an agreement to thecontrary, defining or demarcating the powers of the Umpire, he isexpected to discharge the same functions as Arbitrators with all theattendant powers, duties and obligations.

13. Either going by the very nature of functions entrusted to theUmpire or by the provisions of the First Schedule, it is crystal clear thatthere is no qualitative difference between the Arbitrators and the Umpirewith regard to the methodology and modalities to be adopted for reachinga just and fair conclusion. It is trite to say that an Arbitrator is bound toobserve the principles of natural justice and conform to the fundamentalsof judicial procedure. It is his duty to afford a reasonable opportunity tothe parties concerned. However, it would also be illogical to contend A

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Athat the Umpire has to start de novo ipso facto. The very essence ofthe law of arbitration is to settle the matter efficiently in a time boundmanner. Hence, when the Umpire enters upon a Reference and replacesthe arbitrators, he is needed to review the evidence and submissionsonly on those matters about which the arbitrators have disagreed unlesseither party applies for the rehearing of the evidence of the parties orBtheir witnesses. The Umpire can surely go through the evidence recordedby the previous arbitrators but without being influenced by the opinionexpressed by them in that regard and even the notes taken by previousarbitrators can be relied if there exist special provisions in the agreementpermitting him to do so. However, if the party makes an application forCde novo hearing, the Umpire is bound to allow the same, subject to thecondition that the application is made at the earliest and the applicant isnot using it as last armory to turn the case around. An objection on theground that the Umpire has not reheard the evidence may be waived bythe conduct of the parties; the evidence already recorded before the previous arbitrator would remain valid and it would not be open for theDparties to get the same recorded afresh later on. It is a well settledproposition that where a party seeking to impeach an Award has madeno application to the Umpire for rehearing of the evidence, the samewould generally operate as a waiver by conduct.

14. Having said that the Umpire is bound to hear the matter deEnovo on an application filed by the parties, subject to the satisfaction ofother necessary conditions in accordance with the law of arbitration andbefore examining whether the conduct of the appellant-Company amountsto waiver or not, it is necessary to examine the meaning of the word denovo hearing before the Umpire to whom the matter is referred in case Fof disagreement between the Arbitrators. Learned senior counsel forthe appellant-Company contends that hearing a matter de novo meansthe matter is to be started afresh i.e., from the very point from wherethe arbitrators had started. In other words, it would mean that the matterbrought on record: pleadings, evidence; before the arbitrators at the first instance would become nullity i.e., the proceedings including statementsGof 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 partieswould 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 H

the lacuna in the evidence already recorded before the previousarbitrators. Further, it would give an unnecessary option to the dishonestlitigant to obliterate the evidence already recorded which would haveadverse effect on them. Further, the witnesses to be examined afresh isa glaring anomaly that would ensue that the witnesses may not be availableor might give a totally different version or a version inconsistent withtheir previous version, owing to the fact of faded memories. Such aninterpretation of the word de novo trial would result in undue hardshipto the parties and will defeat the very purpose of the Act and renderarbitration ineffective.

15. Hence, firstly, the word de novo hearing should be given apurposive interpretation and it should be understood as a fresh hearingof the matter on the basis of pleadings, evidence and documents onrecord. If the party wants to re-examine a witness or objects to thedocuments admitted, the Umpire is to hear the parties and decide theapplication in the interest of justice.

16. Having held that the a party do have a right to call for denovo hearing subject to the waiver of the same by conduct, now comesthe question whether in fact and circumstances of the present case theconduct of the appellant-Company amounts to waiver or not. It wascontended that the appellant-Company has from the very beginning ofthe hearing before the Umpire had demanded de novo trial of the matterand in support of that it relied upon the communication dated 24.05.1999,12.01.2000 addressed to the Umpire and application dated 29.01.2000filed for de novo hearing of the matter.

17. However, having perused the records, it was found that thevery first communication dated 24.05.1999, on which the appellant-Company has relied upon is a letter written to the Umpire with regard tothe pending proceedings in the said matter before the High Court andthe application that is filed before the High Court to which the appellant-Company was referring to in the said letter was an application filedunder Section 5 of the Act for the dispute relating to quantum of fee ofthe Umpire. Though the appellant-Company in the said letter made anote with regard to the de novo hearing of the matter but the sameseems to be an additional armory that the appellant is putting behind itsback as it hasn’t demanded de novo trial of the said matter neither inthe communication nor thereafter in the proceedings. The appellant-Company next referred to communication dated 12.01.2000 but the same AB

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Ais also with regard to the pending proceedings before the High Court. Itis only on 29.01.2000 that the appellant-Company has filed an applicationfor de novo hearing of the case i.e., at a stage where the final argumentson the side of the respondent-Company have been finished and the datewas fixed for final argument from the side of appellant-Company. If theappellant-Company was serious in its endeavor that it should get anBopportunity to get the evidence recorded afresh, an application couldeasily have been filed before starting the proceedings before the Umpire.It is only from oblique references that the appellant-Company seeks toderive such intent. This aspect is clearly an afterthought which aroseduring the culmination of the proceedings before the Umpire. Further,Ceven the sum and substance of the highly belated application dated29.01.2000 for commencement of proceedings de novo clearly showsthat it was not asking for re-hearing/re-recording of the evidence butwas actually requesting for review of the order of the two Arbitratorsespecially for re-examination of Shri K.L. Jain. It is the case of theappellant-Company that the Arbitrators were wrong in permittingDproduction of some other witness, by name, Shri Vijay Gupta instead ofShri K.L Jain. From the above, there is no doubt that the conduct of theappellant-Company amounts to waiver and the application filed on29.01.2000 is nothing but trying a last armory to turn the case around.The Umpire was right in dismissing the said application.E18. Learned senior counsel for the appellant-Company contendedon merits of the case, however, the law is well settled with regard to thescope and ambit of the jurisdiction of the courts to interfere with anarbitration award as has been settled in a catena of judgments of thisCourt and it would be sufficient to quote Ravindra Kumar Gupta and FCompany vs. Union of India (2010) 1 SCC 409 wherein it was held asunder:-

FCompany vs. Union of India (2010) 1 SCC 409 wherein it was held asunder:- “9. The law with regard to scope and ambit of the jurisdiction ofthe courts to interfere with an arbitration award has been settledin a catena of judgments of this Court. We may make a referenceGhere only to some of the judgments. In State of Rajasthan v. PuriConstruction Co. Ltd. this Court observed as follows:

“26. The arbitrator is the final arbiter for the dispute betweenthe parties and it is not open to challenge the award on theground that the arbitrator has drawn his own conclusion or hasHfailed to appreciate the facts. In Sudarsan Trading Co. v. Govt.

of Kerala it has been held by this Court that there is a distinctionbetween disputes as to the jurisdiction of the arbitrator and thedisputes as to in what way that jurisdiction should be exercised.There may be a conflict as to the power of the arbitrator togrant a particular remedy. One has to determine the distinctionbetween an error within the jurisdiction and an error in excessof the jurisdiction. Court cannot substitute its own evaluationof the conclusion of law or fact to come to the conclusion thatthe arbitrator had acted contrary to the bargain between theparties. (emphasis in original) Whether a particular amountwas liable to be paid is a decision within the competency of thearbitrator. By purporting to construe the contract the courtcannot take upon itself the burden of saying that this wascontrary to the contract and as such beyond jurisdiction. If ona view taken of a contract, the decision of the arbitrator oncertain amounts awarded is a possible view though perhapsnot the only correct view, the award cannot be examined bythe court. Where the reasons have been given by the arbitratorin making the award the court cannot examine thereasonableness of the reasons. If the parties have selectedtheir own forum, the deciding forum must be conceded thepower of appraisement of evidence. The arbitrator is the solejudge of the quality as well as the quantity of evidence and itwill not be for the court to take upon itself the task of being aJudge on the evidence before the arbitrator.”

19. In Municipal Corporation of Delhi vs. Jagan Nath AshokKumar and Another (1987) 4 SCC 497, it was held by this Court thatappraisement of evidence by the arbitrator is ordinarily never a matterwhich the court questions and considers. It may be possible that on thesame evidence, the court may arrive at a different conclusion than theone arrived at by the arbitrator but that by itself is no ground for settingaside the award.

20. Following the above judgments, we are of the opinion that thequestion of whether the claims were tenable or not are based on thecontract and which of them had to be granted were within the exclusivedomain of the Arbitrators. In this case, the Award considered the totalityof circumstances, and weighed the relevant facts on balance whileproceeding to award damages. The award does not disclose a manifestly AB

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Aerroneous approach; nor does it omit to consider and apply legal principlesto the facts presented before the Arbitrators.

21. In view of the above discussion, we do not find any infirmityor error in the approach and judgments passed by the courts below.There is no merit in this appeal and the appeal is, therefore, dismissedBwith no order as to costs.

Divya Pandey

Appeal dismissed.

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