Holding

An arbitrator's findings of fact recorded in an award made a rule of court are binding and cannot be interfered with by a court, rendering the High Court's setting aside of the award untenable.

Summary

The Rajasthan State Road Transport Corporation entered into an agreement with Indag Rubber Ltd. for a retreading plant and material, guaranteeing that retreaded tyres would achieve 46,000 km or 95% of the life of new tyres. The corporation alleged that the tyres failed to meet this guarantee and claimed compensation, while the company contended that the corporation’s method of assessing tyre performance was improper and that the corporation had breached the agreement by not using the company’s repair material. A sole arbitrator found in favour of the corporation, quantifying a loss but refusing additional damages, and the District Judge made the award a rule of court. The High Court Single Judge set aside the award, holding that the assessment method did not conform to the warranty clause. The Supreme Court held that the arbitrator’s findings of fact, once made a rule of court under Section 33(b) of the Arbitration Act, 1940, cannot be disturbed by a court, and therefore restored the award, reducing the interest rate from 12% to 6% per annum.

Issues considered

The scope of judicial review of an arbitrator's findings of fact when the award is made a rule of court under Section 33(b) of the Arbitration Act, 1940.
Whether the method of assessing tyre performance as required by the warranty clause was correctly applied.
The appropriate rate of interest on the awarded amount.

Legislation cited

Arbitration Act, 1940s. 33(b)

Subjects

ArbitrationRule of CourtFindings of FactWarranty ClauseTyre PerformanceInterest RateSection 33(b) Arbitration Act

Judgment

RAJASTHAN STATE ROAD TRANSPORT CORPN. A
v.
JN DAG RUBBER LTD.

SEPTEMBER 5, 2006

[H.K. SEMA AND A.K. MATHUR, JJ.) B

Arbitration:
'
Arbitration Act, 1940: Section 33(b).
c
Arbitration award-Rule of court-Validity of-An agreement was
executed between a company and a Corporation for purchase of cold
processing re-treading plant and re-treading material-According to the
warranty for re-treaded tyres, the company was required to guarantee
pe1formance of 46, 000 KMs average life or 95% of new tyres-The Corporation D
informed the company that re-treaded tyres used on its buses in their eight
regions were not giving the guaran1eed kilometerage resulting in a loss to
the Corporation-Company emphasized that the method of assessment adopted
by the Corporation was not proper-A sole arbitrator concluded that the
Corporation suffered a loss-District Judge made award as rule of the court-
On appeal, a Single Judge of the High Court set aside the judgment and E
decree passed by the District Judge on the grounds that comparative
assessment of new tyres with the re-treaded tyres was to be made in each
region in similar conditions-Correctness of-Held: All the materials have
been considered by the arbitrator and, after taking into consideration the
average of each tyre in each region of the Corporation, he has worked out F
t · that the performance of the re-treaded tyres was not to the extent of 95ra--
This was a finding of fact-Single Judge not justified in selling aside this
finding of fact-Hence, view taken by the Single Judge cannot be sustained

An agreement was executed between the respondent-company and the
appellant-Corporation for purchase of cold processing re-treading plant and G
re-treading material. According to the warranty for re-treaded tyres, the
respondent-company was required to guarantee performance of 46,000 KMs
average life or 95% of new tyres.
;

743 H
744 SUPREME COURT REPORTS (2006] SUPP. 5 S.C.R.
... ,r
A The appellant-Corporation informed the respondent-company that re-
treaded tyres used on its buses in their eight regions were not giving the
guaranteed kilometerage resulting in a loss to the Corporation. The
respondent-company emphasized that the method of assessment adopted by the
appellant-Corporation was not proper.
B A sole arbitrator appointed by the parties decided all the issues in favour
of the appellant-Corporation and concluded that the appellant-Corporation
suffered a loss but declined to grant damages claimed by the appellant-
Corporation. The District Judge made the award as a rule of the court.

c On appeal, a Single Judge of the High Court set aside the judgment
and decree passed by the District Judge on the grounds that comparative
assessment of new tyres with the re-treaded tyres was to be made in each
division in similar conditions; that the method of assessment was not in
conformity with reference to the warranty clause and that the comparative
assessment of performance of re-treaded tyres with new ones was improper.
D Hence the appeal.

Allowing the appeal, the Court

HELD: I. The arbitrator, in his detailed award, has recorded his finding
on the basis of the average performance of new vehicle tyres with that of the
E
re-treaded tyres of the Company and on that basis he has worked out the
assessment. [751-AI

2. All the materials have been considered by the arbitrator and, after
taking into consideration the average of each tyre in each region of the
F Corporation, he has worked out that the performance of the re-treaded tyres
was not to the extent of 95%. This was a finding of fact recorded by the
arbitrator and the same was made rule of the court by the District Judge. But . '
the Single Judge erroneously took upon himself to sit as a court of appeal
and disturbed this finding of fact. The view taken by Single Judge of the High
Court cannot be sustained. [752-D, E, F[
G
B. V. Radha Krishna v. Sponge Iron (India) Ltd., [1997[ 4 SCC 693, State
ofRajasthan v. Puri Construction Co. Ltd, [1994[ 6 SCC 485 and K.P. Poulose
v. State of Kera/a, [1975[ 2 SCC 236, relied on.

H \
-
RAJASTHAN STATE ROAD TRANSPORT CORPN. 1·. INDAG RUBBER LTD. [AK MATHUR, J.] 745
;
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7032 of2001. A
From Judgment and Order dated 22.12.2000 of the High Court of
Judicature for Rajasthan. Jaipur Bench, Jaipur in S.B. Civil Misc. Appeal No.
618/2000.

Sushi! Kumar Jain, Sarad Singhania and H.D. Thanvi for the Appellant. B
S. Ganesh, P. Vengupoal, Surekha Raman and Dileep P. (for Mis. K.J.
John & Co.) for the Respondent.

The Judgment of the Court was delivered by
c
A.K. MATHUR, J. This appeal is directed against the order dated
22.12.2000 passed by learned Single Judge of the High Court of Judicature for
Rajasthan, Jaipur Bench, Jaipur in S.B. Civil Misc. Appeal No.618 of 2000
whereby learned Single Judge set aside the order passed by the District
Judge, Jaipur City in CMA (Arb.) No.256of1997 confirming the award dated D
4.4.1997 passed by the Arbitrator and issuing a decree in terms of the award
in favour of the Rajasthan State Road Transport Corporation (hereinafter to
be referred to as the Corporation).

The facts giving rise to this appeal are that an agreement was executed
between lndag Rubber Limited (hereinafter to be referred to as the Company) E
and the Corporation on 24. 7. I991 for purchase of cold processing retreading
plant and retreading material. According to Clause 3 of the agreement, in the
cold processing plant of the company no other retreading material except of
lndag would be used during subsistence of the contract provided the company
supplies retreading material regularly and uninterruptedly as per the need of F
the Corporation. Clause 4 contemplated that the corporation would purchase
retreading material from the company at the prevailing rates against the rate
contract of the Association of State Road Transport Undertaking. Clause 5
deals with warranty for retreaded tyres, according to which the company was
required to guarantee performance of 46000 KMs average life or 95% of new G
tyres in each division in similar condition whichever is less and the performance
would be assessed initially after 12 months on the commissioning of plant and
· production of tyres and subsequently on quarterly basis, and on failure of
guaranteed kilometers, the company is bound to compensate on pro rata
basis. Clause 10 pertains to arbitration. As per the arbitration clause any
H
746 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.

A dispute between the parties regarding interpretation of the terms and conditions
or their fulfillment, both the parties shall refer the dispute to the Chairman of
the Corporation who after hearing both the parties shall give the decision
which shall be final and binding on the parties.

The grievance of the Corporation was that retreaded tyres used on its
B
buses, such tyres could not achieve the guaranteed kilometers as per warranty
clause 5, whereupon the company was infonned of such deficiency in its
retreaded tyres. The Corporation informed the company through their various
letters dated 27.2.1993, 30.3.1993, 12.5.1993, 29.6.1993, 15.7. l 993, 20.1.1994 and
,.
16. 7.1994 that retreaded tyres used on its buses in their eight regions· were
C not giving the guaranteed kilometerage resulting in loss to the corporation to
the tune of Rs. I, 19 ,53,430.92 paise with 18% interest. Therefore, the Corporation
called upon the company to make payment of the aforesaid loss calculated
on the basis of pro rata on each retreaded tyre. The Corporation also claimed
a sum of Rs.25 lacs towards damages. Therefore, the total amount claimed
D by the Corporation worked out to Rs.1,44,53,430.92 paise. The Company
denied its liability and submitted that the Corporation has wrongly construed
the agreement because the essential feature of warranty clause 5 was that
comparative assessment of new tyre life with retreaded tyre was to be made
in each division in similar conditions. It was also submitted that as per clause
E 3 complete retreading material which also included repair material was to be
purchased from the Company only because of the reason that after a tyre is
worn out it is first repaired so as to give it basic strength before it is retreaded
thereby repairing of tyre was essential part of the process of retreading.
Surprisingly enough the Corporation did not purchase any repair material
from the company resulting in breach of clause 3 of the agreement. According
F to the company, since improper repair material was used by the Corporation,
therefore, 25% to 30% of the tyres allegedly removed prematurely had caused
damages on account of bursting, cutting of the tyres, which could not have
been used or considered for assessment of a retreaded tyre's life. It is alleged
that the Company by its letters dated 14.11.1991, 16.11.1991, 17.1.1992 and
-
G 7.5.1992 had infonned the Corporation that while assessing perfonnance of
retreaded tyres, the tyres removed from wheels prematurely due to bursts
should be treated separately like one side wear or spotty wear, run flat etc.
should not be taken into account. For the perfonnance of remaining tyres only
comparison should be made with the new tyres. The Company also advised
H that the repair material should be purchased from the company and it was also
RAJASTHAN STATE ROAD TRANSPORT CORPN. r. INDAG RUBBER l TD. [A.K. MATHUR. JJ 74 7

mentioned that the tyres should be compared in similar condition and since A
the new tyres were fitted on the rear axle, therefore the performance was
bound to be lower and thus assessment of performance of the retreaded tyres
was not in similar conditions. It was also pointed out that performance
should be compared with new tyres of the same design as on rear axles in
each division before comparison with performance of lndag retreaded tyres. B
It was also pointed out by communication dated 14.5.1990 that the perfonnance
of retreaded tyres when used on the front wheels should be compared with
new tyres' perfonnance on the front wheels fitted to the vehicles operated on
similar routes likewise the tyres used on rear axle. It was also submitted that
since the Corporation used retreaded tyres in conditions not similar to one
in which new tyres were used, therefore, their performance was bound to vary. c
The Company emphasized that the method of assessment adopted by the
Corporation was not proper. The Company cited the case of Maharashtra
State Road Transport Corporation and submitted that new tyres were fitted
· on the same axle of the bus as of retreaded tyres and then the performance
was to the extent of 97 to 99 % with that of the new tyre. It was submitted D
that because of not employing the same method of assessment the result has
varied. The Company cited the example of Ajmer Division and pointed out
that performance of retreaded and new tyres is satisfactory. It was also
pointed out that the perfonnance was likely to vary Divisionwise because
Jaipur- Delhi national highway route could give a better result than the Jaipur E
Lalsot route as it is not having similar condition as that of Jaipur Delhi
National Highway. The company also joined the issues with regard to
calculation of loss. On the basis of these pleadings, a sole arbitrator was
appointed i.e. the Principal Secretary, Home and Justice, Government of
Rajasthan. The arbitrator framed the following three issues for determination.
F
"(1) Whether the retreaded tyres which failed for other reasons
like burst etc. should be taken into account while assessing performance
of the retreaded tyres ?

(2) Whether the claimant was required to use repair material supp!:ed
by lndag only ? and G
(3) Whether the retreaded tyres and new tyres were used in similar
conditions for the purpose of assessing their comparative
perfonnance?"

H
748 SUPREME COURT REPORTS (2006] SUPP. 5 S.C.R.

A The arbitrator after hearing the parties and taking into consideration the
docun{ents on record decided all the issues in favour of the Corporation by
its award dated 4.4.1997 and concluded that the Corporation suffered a loss
to the tune of Rs. I, 19,53,430.92 paise. However, the arbitrator declined to
grant additional sum of Rs.25 lacs claimed as damages by the Corporation.
B After that award dated 4.4.1997 was produced in the Court of the District
Judge on 24.5.1997, the District Judge issued notice to both the parties and
after considering the matter and hearing the parties made the award as a rule
of the court by its order dated 22.11.1999. Aggrieved against the said order,
the Company filed an appeal before the High Court of Rajasthan and the
matter came up before the learned Single Judge for disposal. Learned Single
C Judge after examining the matter held that the essential feature of the warranty
clause for comparative assessment of new tyres with the retreaded tyres was
necessary to be made in each division in similar condition. Learned Single
Judge further held that method of assessment was not in conformity with
reference to warranty clause 5 that comparative assessment of performance
D of retreaded tyres with new ones, was improper. It was also observed that as
per figures shown by the Corporation they had used 14,395 retreaded tyres
from June, 1991 to May, 1992 out of which total tyres received after completing
retreaded life were 7,797. Learned Single Judge also held that as per the
inspection report dated 19.11.1991 total 148 tyres were inspected. Similarly, on
E 20.11.1991 30 tyres were inspected. It was also observed that apart from joint
inspection report, three other inspections were held for 452 tyres on 4.10.1991,
135 tyres on 29.10.1991 and 522 tyres on 12.11.1991 and as per these joint
inspection reports, the Corporation claimed that the tyres had not performed
according to their warranty as stipulated in Clause 5 of the agreement. Learned
Single Judge further held that the inspection reports as well as other ..
F documentary evidence led by both the parties did not show comparative
assessment of retreaded and new tyres with a view to find out as to the
guaranteed kilometerage as stipulated in clause 5 of the agreement. Learned
Single Judge concluded that in his considered opinion, the significant aspect
bearing material to the dispute under the arbitration as to the award of
G compensation on pro rata basis has totally been ignored not only by the
arbitrator but also by the District Judge under the impugned award and
decree. Learned Single Judge further observed that the arbitrator did not
apply his mind to the joint inspection reports or calculation sheet on the basis
of which the Corporation has claimed compensation considering only
H performance of retreaded tyres without making comparative assessment of
RAJASTHAN STATE ROAD TRANSPORT CORPN. v. INDAG RUBBER LTD. [AK. MATl-IUR, J] 749

performance of both retreaded and new tyres. On the basis of the above A
finding, learned Single Judge set aside the judgment and decree passed by
the District Judge, Jaipur City confirming the award dated 4.4.1997 passed by
the arbitrator and remanded back the matter to the Corporation for fresh
adjudication of the dispute by appointing an arbitrator other than the one
who has passed the award earlier. Aggrieved against this impugned order B
passed by learned Single Judge, High Court of Rajasthan at Jaipur, the
present Special Leave Petition was filed by the Corporation.

We have heard learned counsel for the. parties and perused the records.

Learned counsel for the appellant strenuously urged before us that the C
learned Single Judge has upset the finding of fact recorded by the arbitrator
and has examined the matter like an appellate authority w;1ich is not open to
the learned Single Judge. Learned counsel for the appellant submitted that the
arbitrator after recording necessary evidence and after examining the whole
material on record, came to the finding that the claim of the Corporation D
deserves to be accepted partially. But the learned Single Judge sitting as a
court of appeal has upset the finding of fact recorded by the arbitrator.
Learned counsel for the appellant in support of his submission invited our
attention to a decision of this Court in the case of B. V. Radha Krishna v.
Sponge Iron India Ltd., reported in [ 1997] 4 SCC 693 and submitted that it
is not open to the learned Single Judge to sit as a court of appeal while E
disposing of the award of the arbitrator which was made the rule of the court.
In the above decision, it was observed as under:

"Bearing in mind the principles laid down by this Court in the
abovesaid cases, if we look into disposal of the matter by the High F
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 hesitation to set aside the judgment of
the High Court on this issue."
1
G
In this connection, 1earned counsel for the appellant invited our attention.
to a decision of this Court in the case of State of Rajasthan v. Puri Construction
Co. Ltd. & Anr., reported in [ 1994] 6 SCC 485 wherein it was observed as
under:

H
750 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.

A ''However, in the anxiety to render justice to the party to arbitration,
the court should not reappraise the evidence intrinsically with a close
scrutiny for finding out that the conclusion drawn from some facts,
by the arbitrator is, according to the understanding of the court,
erroneous. Such exercise of power which can be exercised by an
B appellate court with power to reverse the finding of fact, is alien to
the scope and ambit of challenge of an award under the Arbitration
Act. If a question of law is referred to arbitrator and the arbitrator
comes to a conclusion, it is not open to challenge the award on the
ground that an alternative view of law is possible. Even if it is assumed
that on the materials on record, a different view could have been taken
c and the arbitrators have failed to consider the documents and materials
on record in their proper perspective, the award is not liable to be
struck down in view of judicial decisions referred to hereinbefore.
Error apparent on the face of the record does not mean that on the
closer scrutiny of the import of documents and materials on record,
D the finding made by the arbitrator by itself does not constitute
misconduct warranting interference with the award."

As against this, learned co:msel for the respondent-Company submitted
that in fact there was no material on which the finding was recorded by the
Arbitrator. In support thereof, learned counsel invited our attention to a
E decision of this Court in the case of K.P. Poulose v. State of Kera/a & Anr.,
reported in [1975] 2 sec 236 wherein it was held that the award can be set
aside on the ground of misconduct if relevant documents are not considered
by the Arbitrator. Therefore, we asked learned counsel for the appellant-
Corporation to substantiate the finding recorded by the arbitrator that it is
F based on the material on record. In pursuance to the direction given by this
Court, learned counsel for the Corporation filed an affidavit on 12.7.2006 and
submitted that the document wherein the details on divisionwise average
kilometer of new tyres and retreaded tyres along with average short-fall in
guaranteed kilometers for the various periods was on record of arbitrator and
G same was produced before us. The details were given of all the Divisions i.e.
Bharatpur, Jaipur, Sikar, Kota, Ajmer, Bikaner, Jodhpur and Udaipur. In all
these eight divisions for the various period i.e. from June 1991 to February,
I 994 the details have been given to substantiate the allegations that what was
the average mileage of the new tyre and what was the average mileage given
by the retreaded tyres and on that basis, the short-fall was given and
H
RAJASTHANSTATEROADTRANSPORTCORPN. v. INDAGRUBBERLTD. [AK MATHUR,J.] 75 J

accordingly, the amount of loss was worked out. These details which were A
placed before us formed part of the record before the arbitrator. The arbitrator
in his detailed award has recorded his finding on the basis of the average
performance of new vehicle tyres witht that of the retreaded tyres of the
Company and on that basis he has worked out the assessment in paragraph
17 of the award. Paragraph 17 of the award reads as follows : B
"The RSRTC has compared the performance of retreaded tyres with
the performance of new tyres in each division. In each division, as
mentioned earlier, the road conditions, the vehicles used, the weather
conditions, the general driving skills of the drivers and the level of
maintenance and upkeep of vehicles were similar for the new tyres as C
well as retreaded tyres. The retreaded tyres should have given a
kilometerage of 46,000 or 95 % of the life of new tyres. Therefore, the
assessment of the performance done by the RSRTC is strictly in
conformity with the provisions of clause 5 of the agreement.
Notwithstanding the acceptance by the respondent of an error of D
judgment in guaranteeing 46,000 kms for a retreaded tyre, from the
Statements enclosed by the claimant with its letters mentioned in para
5 of this order, it is clear that the retreaded tyres performance fell short
of the guaranteed level. I, therefore, find claim of the RSRTC to be
fully justified."
E
This is the finding of fact given by the arbitrator. As against this, learned
Single Judge as mentioned above, has held that there was no assessment in
each division in similar conditions. Therefore, the learned Single Judge set
aside the award but it is not factually correct. As mentioned above, there was
a comparative assessment given by the Corporation and that was part of the F
record before the arbitrator and on that basis the finding of fact was recorded
.)
by the arbitrator. Learned counsel for the respondents strenuously urged
before us that the performance of new tyres and of retreaded tyres on roads
like Jaipur-Delhi would be better as against the road of Jaipur-Lalsot. Therefore,
there was no assessment of performance of the new tyres vis-a-vis the
retreaded tyres supplied by the Company in similar conditions. In fact, an G
... average has to be taken of each division. It is not necessary that in each of
the divisions of the Corporation, the road conditions will be similar. Once the
company has entered into an agreement knowing fully well the conditions
obtaining in the State of Rajasthan that all the routes in the State are not the
H
752 SUPREME COURT REPORTS [2006) SUPP. 5 S.C.R.

A roads of Class 'A' category but there are roads of Class 'A', Class 'B' and
Class 'C' categories also. Therefore, the average perfonnance has been recorded
taking into consideration this aspect. It is unlikely that all over the State of
Rajasthan the road condition like Jaipur-Delhi will be available for all other
divisions. Therefore, in all the divisions the average performance has been
B taken into consideration. The assessment has been based on average of
similar conditions of the roads i.e. the good quality as well as the poor quality.
Therefore, average performance of the new tyres with the retreaded tyres has •
to be taken on the basis of roads available in Rajasthan. The average running
of the new tyres on these road conditions with that of the retreaded tyres was
C to be compared to find out whether the performance of retreaded tyres was
up to 95% average or not. After assessing the comparative assessment and
going through the materials on record the arbitrator has recorded his finding.
It was for the company if they wanted more information or wanted to allege
that the road conditions are not similar or that the performance of the tyres
which were fitted in the rear axle or on the front axle would not be the same,
D all these details if it wanted, it could have obtained from the Corporation but
they did not do so and only at this stage the company wants to bring this
factual controversy that retreaded tyres were not used in similar conditions.
This argument at this belated stage cannot be accepted as all the materials
have been considered by the arbitrator and after taking into consideration the
E average of each tyre in each region of the corporation has worked out that
the perfonnance of the retreaded tyres was not to the extent of 95%. This was
a finding of fact recorded by the arbitrator and the same was made rule of
the court by the District Judge. But the learned Single Judge erroneously took
upon himself to sit as a court of appeal and disturbed this finding of fact. In
our opinion, the view taken by the learned Single Judge of the High Court
F cannot be sustained.

Learned counsel for the respondent-company next submitted that the
arbitrator has awarded interest at the rate of 12% per annum from the date
of the award i.e. 4.4.1997. Learned counsel for the respondent submitted that
G it was excessive as long spell of time has expired since the date of the award.
Therefore, granting of interest at the rate of 12% per annum will be burdensome
for the company. Therefore, learned counsel for the respondent prayed that
some relief in interest be given. After bestowing our best of consideration,
we are of opinion that awarding of interest at the rate of 12% per annum from
the date of award i.e. 4.4.1997 till the realization of the amount will be too
H
RNASTHAN STATE ROADTRANSPORTCORPN. v. INDAG RUBBER LTD. [AK. MATHUR, J] 753

excessive. Therefore, looking to the peculiar facts and circumstances of this A
case, we reduce the rate of interest from 12% to 6% per annum. We allow this
appeal and set aside the judgment and order dated 22.12.2000 passed by
learned Single Judge of the High Court of Rajasthan at Jaipur in SBCMA
No.618 of 2000 and affirm the decree passed by the District Judge, Jaipur City
making the award rule of the Court. The appellant shall be entitled to interest B
at the rate of 6% per annum from the date of the award till realization of the
amount in question. No order as to costs.

v.s.s. Appeal allowed.

•
.