Holding

The High Court exceeded its jurisdiction; the arbitrator’s award is restored and interest is payable from the date mentioned in the demand notice (1 April 1983).

Summary

The appellant contracted to transport waste and finished products for the respondent. A dispute arose and the appellant invoked Section 20 of the Arbitration Act, 1940, leading to a sole arbitrator’s award of Rs 5,29,864.55 with 18% interest from 1 April 1983. The City Civil Court confirmed the award, but the High Court later reduced the amount to Rs 1,72,347 and limited interest to start from the notice date of 14 June 1984. The appellant appealed, contending that the High Court had exceeded its jurisdiction under Section 30 of the Arbitration Act by treating the award as an appeal, and that interest should be payable from the date specified in the demand notice (1 April 1983) per Section 3(1)(b) of the Interest Act, 1978. The Supreme Court held that the High Court indeed overstepped its jurisdiction and could not substitute its own view for that of the arbitrator, and it affirmed that interest must be calculated from the date mentioned in the notice. Consequently, the High Court’s judgment was set aside and the arbitrator’s award restored.

Issues considered

Whether the High Court exceeded its jurisdiction under Section 30 of the Arbitration Act, 1940 by interfering with and modifying the arbitrator’s award.
From which date interest is payable under Section 3(1)(b) of the Interest Act, 1978 – the date of the demand notice or the date the notice was actually served.

Legislation cited

Arbitration Act, 1940s. 20, s. 2D, s. 30
Interest Act, 1978s. 3(1)(b)

Subjects

ArbitrationSection 30 jurisdictionArbitrator's awardInterest ActInterest calculationContract interpretationTransport contract

Judgment

..A,·

B.V. RADHA KRISHNA A
v.

- SPONGE IRON INDIA LTD.

MARCH 4, 1997

[AM. AHMADI, CJ!. AND K. VENKATASWAMI, J.] B

Arbitration Act, 194()-Section 2D-'-Contract to execute work-Dis-
pute-Amount due withheld-Matter Referred to Arbitration-Award by Ar-
bitrator for payment of dues with interest-Challenge before High
Court~Interference by High Court-Held, not justified-High Court exceeded C
its jurisdiction in substituting its views for those of Arbitrator.

Interest Act 1978: Section 3(l)(b )-Entitlement of interest-Held, ap-
pellant entitle to interest from the date mentioned in the demand notice.

The appellant entered into a contract to transport the waste and D
finished products of the respondent company. Certain dispute arose be-
tween the parties and the appellant issued notice. to the respondent for
settling the bills and claims. On failure to settle the bills, the appellant
approached the City Civil Court under section 20 of the Arbitration Act,
1940. The Arbitrator in his award determined a sum of money with interest E
which was withheld by the respondent. The respondent unsuccessfully
challenged the award before the City Civil Court. On further appeal, the
High Court reduced the amount and interest payable to the appellant.
Hence the present appeal.

The contention of the appellant was t,hat the High Court exceeded F
its jurisdiction by interfering with the award of the Arbitrator. It was also
contended that in view of Section :3(1)(b) of the Interest Act 1978 interest
would be available from the date mentioned in the demand notice.

Allowing the appeal, this Court
G
HELD : 1. The High Court exceeded its jurisdiction under section
30 of the Arbitration Act 1940 by dealing with the issue as an appellate
court. The Arbitrator has taken into account the o,ral evidence of both the
parties and also the documentary evidence placed before him. Despite the
settled law, the, High Court has ~ubstituted its own view in place uf the H
707
708 SUPREME COURT REPORTS (1997] 2 S.C.R.

A Arbitrator's view as if it was dealing with an appeal. [710-E, G, 716-A]
State of Rajasthan v. Puri Constrnction Co. Ltd. and Anr., [1994) 6
SCC 485 and Hindustan Constrnction Co. Ltd. v. UOI & Ors., [1995) 3 SCC
8, relied on.
-
B 2. The High Court was also wrong in awarding interest from the date
of notice and not from the date mentioned in the notice. [717-A]

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1745-46
of 1997.

C From the Judgment and Order dated 29.9.95 of the Andhra Pradesh
High Court in C.M.A. No. 1277/88 and C.R.P. No. 3695/88.

K. Madhava Reddy D. Prakash Reddy and G. Prabhakar for the
Appellant. ·
D T.V.S.N. Chari for the Respondent.

The Judgment of the Court was delivered by

K. VENKATASWAMI, J. Leave granted.
E Heard learned counsel for the parties. The short question that arises
for our consi.deration is whether the High Court was justified in interfering
with the award by reducing the amount for the· work done as well as
allowing the interest only from the date of notice demanding the amount.

F The appellant contractor undertook the work of transportation of
waste and finished products within the plant of the respondent. company
commencing from 16.4.1982 to 31.3.1983. The agreement in respect of that
contract was executed by both th& parties on 8.6.1982. As certain disputes
arose between the parties in respect of transportation work the appellant
issued notices to the respo~dent calling upon them to settle the bills and
G claims raised by him. As the respondent failed to settle the bills, the
appellant moved the City Civil Court, Hyderabad under Section 20 of the
Arbitration Act (hereinafter referred to as "the Act") for appoµitment of
a Sole Arbitrator to adjudicate upon the dispute between the parties. Mr.
Justice K. PullJl.ayya (retired Judge of the High Court of Andhra Pradesh)
H was appointed as Sole Arbitrator by order dated 31.10.1985. The learned
._,,(
B.V. RADHAKRISHNAv. SPONGE IRON(!.) LTD. [K. VENKATASWAMl,J.) 7(.'f}
. i!
Arbitrator by the award dated 1.8.1986, after giving opportunity.to both' the A
parties, determined the amount of Rs. 5,29,864.55 as payable by the respon-
dent Company to the appellant. In addition to that the Arbitrator also
awarded interest at the rate of 18 per cent per annum on the said about
from 1.4.1983 till the date of award being made the rule of Court.

The appellant moved the City Civil Court. Hyder.a bad by filing O.S. B
No. 1027 of 1986 for making the award of the Arbitrator. as rule of the
Court and also prayed for the grant of interest at the rate of 21 per cent
per annum from the date of decree till the date of realisation of the
amount. The respondent Company, on the other hand, filed O.P. No.
349/86 challenging the award. The learned Judge City Civil Court by a C
common judgment dated 30.8.1988 decreed the suit filed by the appellant
for making the award as rule of the Court by awarding 20% intere.st from
the date of decree till the date of realisation of the amount and dismissed ·
the O.P. filed by the respondent challenging the award. .

Aggrieved by the common judgment and order of the City Civil D
· Court, the respondent Company moved the High Court in C.M.A. No.
1277/88 and C.R.P. No. 3695/88 against O.P. No. 349/86 and O.S. No.
1027/86 respectively.

The Division Bench of the High Court, by a common judgment dated ·
29.9.1995, partly allowed the appeal as well as the Revision Petition by E
reducing the amount from Rs. 5,29,864.55 to Rs. 1,72,347 and interest at'
18% from 14.6.1984 instead of from 1.4.1983. The appellant is aggrieved by
the said judgment of the High Court.
.
Mr. K. Madhava Reddy, leaq1ed Senior Counsel appearing for the. F '
appellant submitted that the High Court exceeded its jurisdiction in inter-
fering with the well considered award of the arbitrator by examining the .
matter as a regular appellate court. Learned counsel also invited our
attention to the discussion made by the Arbitrator as well as by. the High
Court regarding the relevant clause in the agreement and in particular to
the expression 'one kilometre lead'. We find from the Award. that the G .
Arbitrator has taken into account the oral evidence of both the parties and
also the documentary evidence placed before him to come to the con-
clusion that the version of the respondent Company 'one kilometre lead'
means 'one kilometre by one side' is not correct by way of understanding
~- H
710 SUPREME COURT REPORTS [1997] 2 S.C.R.

A This finding of the Arbitrator was upset by the High Court by going
into the question as if sitting in appeal to render a contrary view. This,
according to the learned counsel, is not the jurisdiction of the High Court ,,
as this is not an error apparent on the face of the record. He further argued
that it is settled law that the Court while exercising power under Section
B 30 of the Arbitration Act cannot re-appreciate all the materials on the
record for the· purpose of recording a finding whether in the facts and
circumsiances of a particular case the award in question could have been
made. In support of this contention he placed reliance on Hindustan
Constrnction Company Ltd. v. Governor of Orissa and Others, [1995] 3 SCC
8.
c
The learned counsel for the respondent however strenously argued
supporting the judgment of the High Court. According to him the High
Court has placed a correct interpretation on the clause in the agreement
in question by referring to various dictionary and other technical meaning
to be given to the word 'lead' occuring in the clause. He also submitted
D that the High Court has explained the oral evidence of R.W.5 and there-
fore, the view taken by the High Court should be accepted in preference
to the view taken by the Arbitrator.

We are afraid we cannot accept the contention of the learned counsel
E appearing for the respondent Company. We are of the view that the
learned counsel for the appellant is right in contending that the High Court
exceeded its jurisdiction under Section 30 of the Arbitration Act by dealing
with the issue as an appellate court. Regarding the issue in question, the
Arbitrator has observed as follows :

F "The next point that requires consideration is whether R.W.-l's
contention that one kilometre lead mentioned in Ex. R-1 means,
~ne kilometre by one side but not to and fro as contended by the
claimant, is acceptable?

R.W.1 asserts in his evidence that in all transport contracts it ·
G would be mentioned only as lead which would mean by one side" .
... In fact, R.W.-l's version that "one kilometre lead means "one
· kilometre by one side" is contradicted by their own witness R.W.-
5, to whom a part of P.W.-l's present contract was given under
· the work order Ex. R-8 dated 14.3.1983. R.W.-5 deposed that one
H kilometre lead includes to and fro. He further clarified that though
B.V. RAD HA KRISHNA v. SPONGE IRON(!.) LTD. [K. VENKATASWAMI, J.] 711

the word "lead" does not mention the word 'to and fro", it is meant A
or understood as a and fro. R.W.-5's evidence that the lead of 1
k.m. means one kilometre to and fro falsifies R.W.-l's version in
this regard. P.W.-l's evidence on this aspect is that in the case of
internal transport, the word "lead" only is mentioned and it would
mean to and fro. If the lead is only one side, the tender notice B
would specifically mention as "one side". In support of his conten-
tion he relied upon Ex.C-2 the Tender Notice issued by the
Singarani Collaries Co. Ltd. Bellampally, dated 5.11.1985 publish-
ed in the Indian Express, Hyderabad edition dated 19.11.1985.
Under Ex. C-2 Sealed Tenders are invited from reputed transport
contractors for transport of coal is self dumping lorried at the C
following place :

"One Way distance Approx. quantity
in K.M's (Approx.) in tonnes by/month

SRP 2A to 9,000 D
RAP-I CSP

It is therefore, clear that Ex. C-2 which relates to transport
contract specifically mentions as "one way distance", Ex. C-2
clarifies that as the lead is for one side, it is mentioned specifically E
as "one way distance".

R.W.-1 was confronted with Ex. C-2 in the Cross-examination
and he admitted that Ex. C-2 relates to the transport contract.

R.W.-1, of course, says that Ex.C-2 relates to that Company F
(Singareni Collories). It is true that Ex. C-2 relates to Singareni
Colleries, but it is also Government Company. All the Government
companies have to follow the same rules pertaining to the transport
contracts. Even R.W.-1 stated in his evidence that in all the
transport contracts it would be mentioned as lead only and would G
not be mentioned as one way lead. But Ex. C-2 proves that the
view expressed by R.W.-1 is not correct.

Since R.W.-5 who is the witness of the respondent-company
and who transported and dumped 22,000 M. Ts. of material from
out of P.W.l's contract, unequivocally stated that one kilometres H
712 SUPREME COURT REPORTS , (1997] 2 S.C.R.

A lead mentioned in tender notice is meant and understood as one
kilometre lead to and fro and since Ex. C-2 also specifically
mentions as one side lead, P.W.-l's version is accepted and R.W.-
l's version cannot be accepted.

From my above discussion. I hold that the claimant transported
B 10.195.80 M.Ts of material within one kilometre leacl to and fro,
as contended by the claimant but not the entire material of
47,463.29 M.Ts. As contended by the respondent Company."

As against the above discussion and conclusion of the Arbitrator, the High
C Court on the same issue observed as follows:

"....... (T)he learned Arbitrator did not discuss the meaning of the
term 'lead' used in ordinary or engineering parlance. He relied on
two factors, namely, the tender notice of another Company (Ex.
C-2) and the so-called admission of R.W.-5 which we shall refer
D to later.

What is important is to find out whether the word 'lead' means
the distance covered from the point of origin to the point of
destination only, or the return empty trip from the destination to
the point of origin should also be taken into consideration. If a
E distance of, say, 4 Kms was to be covered by way of 'lead', whether
it would mean that a distance of only 2 km frotn the point of origin
to the point of destination would be taken into account or, whether
the return trip of 2 km also would. be included within the meariing
of the word 'lead'. We have no doubt in our mind that, that is not
the meaning which could be attributed to the word 'lead'. "Lead"
F
means and for all practical purposes it is only the one way distance
to be covered from the point of origin to the point of destination
unless otherwise specified."

G
"The concise Oxford Dictionary, 1990 Edition, spells out dif-
ferent meanings of the word 'lead' used in different contexts. As
far as the present context is concerned, the meanings of the word
'lead' is stated to be as follows in the said dictionary:

H "Bring to a certain position or destination".
B.V. RAD HA KRISHNA v. SPONGE IRON(!.) LTD. [K. VENKATASWAML J.] 713

In Oxford Universal Dictionary. (Illustrated), the meaning of the A
word 'lead', under the sub-head "Engineering' is given as follows."

"The distance to which ballet, coal, soil etc. is to be conveyed
to its destination."

This meaning attributed to the word 'lead' in the Oxford B
Dictionary makes it abundantly clear that only one way distance
from the point of origin to the point of destination is to be taken
into account."

The High Court further observed :
c
"We are also of the view that 'it admits of one and only meaning
and the Arbitrator, on a consideration of irrelevant factor, namely,
tender notice of Singareni Colleries and going by a non-existent
admission of R.W.-5. understood the word 'lead' in a sense con-
trary to its plain meaning, without any factual or legal basis and, D
therefore, there is an error of law apparent on the face of the
award. The construction of a material portion of document is a
question of law, but not merely one of fact. There is no basis at
all for the Arbitrator's conclusion and the legal error is therefore
apparent."
E
The disposal of the matter by the High Court in the manne~ shown
above does no( come within the ambit of Section 30 of the Arbitration Act.
This Court, time and again, has pointed out the scope and ambit of section
30 of the· Act.. In State of Rajasthan v. Puri Constrnction Co. Ltd. and
Another, [1994] 6 SCC 485 after referring to decisions of this Court as well F
as English cases, the Court observed as follows :

On the scope and ambit of the power of interference by the
court with an award made by an arbitrator in a valid reference to
arbitration, various decision~ have been made from time to time
by Law Courts of India including this Court and also by the Privy G
Council and the English Courts. Both the parties have referred to
such decisions in support of their respective contentions. The
factual contentions of the respective parties are proposed to be
scrutinised and then the facts are proposed to be tested within the
conspectus of judicial decisions governing the issue involved. H
714 SUPREME COURT REPORTS [1997} 2 S.C.R.

A· This Court again observed in paras 26-28 as follows :

''The arbitrator is the final arbiter for the disputes 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 Kera/a it
B
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
c within the jurisdiction and an error in excess or 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 supplied)
Whether a particular amount was liable to be paid is a decision
·.vithin the competency of the arbitrator. By purporting to construe
D
the contract the court cannot take upon itself the burden of saying
that this was contrary to the contract and as such beyond jurisdic-
tion. If on .a view taken of a contract, the decision of the arbitrator
on certain amounts awarded is a possible view though perhaps pot
the only correct view, the award cannot be examined by the court.
E 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
F evidence and it will not be for the court to take upon itself the taks
of being a judge on the evidence before the arbitrator.

In Municipal Corporation of India v. Jagan Nath Ashok Kumar,
it has been held by this Court that appaisement of evidence by the
arbitrator is ordinarily never a matter which the court questions
G 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. It has also been held in the said decision that it is
difficult to give an exact definition of the word. 'reasonable'. Reason
H varies in its conclusions according to the idiosyncrasies of the
___ ,.(
B.V. RADHAKRISHNAv. SPONGEIRON(J.)LTD. [K VENKATASWAMl,J.] 715

individual and the time and circumstances in which he thinks. In A
cases not covered by authority the verdict of jury or the decision
of a judge sitting as a jury usually determines what is 'reasonable
in each paFticular case. The word reasonable has in law prim a f acie
meaning of reasonable in regard to hose circumstances of which
the actor, called on to act reasonably knows or ought to know. An B
arbitrator acting as a judge has to exercise a discretion informed
by tradition, methodized by analogy, disciplined by system and
- subordinated to the primordial necessity of order in the social life.
Therefore, where reasons germane and relevant for·the arbitrator
to hold in the manner he did, have been indicated, it cannot be
said that the reasons are unreasonable. c
In this case, claims before the arbitrators arises from the
contract between the parties. It is well settled that if a question of
law is referred to arbitrator and the arbitrator comes to a con-
clusion, it is not open to challenge the award on the ground that D
an alternative view of law is possible. In this connection, reference
may be made to the decisions of this Court in Alopi Parshad and
Sons Ltd. v. Union of India and Kapoor Nilokheri Coop. Dairy Farm
Society. In Indian Oil Corpn. Ltd. v. Indian Carbon Ltd., this Court
has held that the court does not sit in appeal over the award and
review the reasons. The court can set aside the. award only if it is E
apparent from the award that there is no evidence to support the
conclusions or if the award is based upon any legal proposition
which is erroneous."

In Hindustan Constrnction Co. Ltd. v. Governor of Orissa and Others, F
(1995) 3 SCC 8 this Court observed on the scope of interference by the
Court as follows :

"It is well known that the Court while considering the question
whether the award should be set aside, does not examine the
question as an appellate court. While exercising the said power, G
the court cannot reappreciate all the materials on the record for
the purpose of recording a finding whether in the facts and cir-
cumstances of a particular case the award in question could have
been made. Such award can be set aside on any of the grounds
specified in Section 30 of the Act." H
716 SUPREME COURT REPORTS [1997) 2 S.C.R.

A Bearing in mind, the principles laid down by this Court in the above
said cases, if we look into disposal of the matter by the High Court; it would
be evident that the High Court has substituted its own view in place of the
Arbitrator's -view as if it was dealing with an appeal. That is exactly what
is forbidden by the decisions of this Court. Therefore, we have no hesita-
B tion to set aside the judgment of the High Court on this issue.

Learned counsel for the appellant also submitted that the High Court
went wrong in awarding interest only from 14.6.1984 on the ground that
the notice· demanding the amount was issued on that date only and there-
fore, the appellant was not entitled to any interest prior to that date.
C According to the learned counsel. Section 3(1)(b) of the Interest Act. 1976
in unequivocal terms specifies that interest would be available from the
date mentioned in the demand notice and without noticing that provision
the High Court has wrongly given interest from the date of the notice.

On the question of interest we think the learned counsel for the
D
appellant is right in placing reliance on Section 3(1)(b) of the Interest Act.
The appellant Company had issued notice on 14.6.1984 demanding pay-
ment of the specified amount and interest on that specified amount at the
rate of 21% per annum from 1.4.1983 till payment. Section 3(1)(b) of the
Interest Act, 1978 reads as follows :
E
"3. Power of court to allow interest. - (1) In any proceedings
for the recovery of any debt or damages or in any proceedings in
which a claim for interest in respect of any debt or damages already
paid is made; the Court may, if it thinks fit, allow interest to the
p person entitled to the debt or damages or to the person making
such claim, as the case may be, at a rate not exceeding the current
rate of interest, for the whole or part of the following period, that
is to say, -

(a) ................ .
G
(b) if the proceedings do nut relate to any such debt, then, from
the date mentioned in this regard in a written notice given by the
person entitled or the person making the claim to the person liable
that interest will be claimed, to the date of institution of the
H proceedings."
B.V. RAD HA KRISHNA v. SPONGE IRON (1.) LTD. [K. VENKATASWAMI, J.] 717

In view of this, the learned counsel appearing for the respondent A
Company could not support the order of the High Court in awarding
interest from the date of notice, namely, 14.6.1984 and not from the date
mentioned in the notice viz. 1.4.1983.

In the result, we set aside the judgment of the High Court and restore
the Award of the Arbitrator. There will be no order as tb costs. B
S.V.K.I. Appeal allowed.