1974 (11) TMI 92 - SC - Companies Law

Whether the umpire as sole arbitrator had jurisdiction to enter upon the reference and pass the award? Whether the direction in the award to return the security deposit of ₹ 1,81,000 to the appellant can be said to be a matter arising, out of the second contract and referred to arbitration, under point 2(a) or point 2(d) of the points of reference? Held that - As already said, paragraph 5 of the order in O.P. 11 of 1972 leaves no room for doubt that it was a consent order. The Board made no endeavour to have that order vacated by filing a review, if the statement in that order that it was passed on the basis of consent proceeded from a mistake of the court. On the other hand, we find that the Board participated in the proceedings before the umpire without any demur to his jurisdiction. The only inference from this conduct on the part of the Board is that it had not objection to the order revoking the authority of the arbitrators. Therefore, by acquiescence the Board was precluded from challenging the jurisdiction of the umpire. As it was contended for the Board that point 2(a) of the reference related only to the sum still payable for the work done under the second contract and therefore the return of the security amount would not be covered by point 2(a). And, as regards point 2(d), the contention of the, Board was that it related to the claims of the Board against the respondent in respect of or under the agreement. The Board, therefore, contended that the matter was not referred to the arbitrators either under point 2(a) or 2(d). The High Court did not express any final opinion on this question - Allow the appeal and set aside the judgment of the High Court

Issues Involved:
1. Jurisdiction of the umpire as sole arbitrator.
2. Validity of the award passed by the umpire.
3. Claims related to the first and second contracts.
4. Return of the security deposit.

Detailed Analysis:

1. Jurisdiction of the Umpire as Sole Arbitrator
The primary issue was whether the umpire, acting as the sole arbitrator, had jurisdiction to enter upon the reference and pass the award. The court noted that the order in O.P. 11 of 1972, which appointed the umpire as the sole arbitrator, was passed on the consent of both parties. Rule 4 in the First Schedule to the Arbitration Act authorizes an umpire to enter upon the reference if the arbitrators fail to make the award within the specified time. The umpire's jurisdiction was not lost merely because he sought a court order for abundant caution. The Board's participation in the proceedings without demur precluded it from later challenging the umpire's jurisdiction. The High Court's reasoning that acquiescence did not confer jurisdiction was incorrect, as the umpire had inherent jurisdiction under Rule 4 of the First Schedule once the extended period for making the award expired.

2. Validity of the Award Passed by the Umpire
The High Court concluded that the umpire made a mistake regarding two matters referred and that the award was bad in law. The Supreme Court disagreed, stating that the umpire's findings did not show any error of law on the face of the award. The umpire was not bound to give a reasoned award, and any mistake of law or fact that does not appear on the face of the award does not invalidate it. The court emphasized that the general rule is that parties cannot object to the arbitrator's decision on law or facts when the award is good on its face.

3. Claims Related to the First and Second Contracts
The Board argued that the claim reserved by the appellant in his letter dated 1-7-1967 was barred by limitation and had been unequivocally rejected. The umpire awarded the appellant about Rs. 5 lakhs without expressly deciding the question of limitation. The Supreme Court held that no mistake of law appeared on the face of the award, and the umpire's findings did not indicate that the claims were barred by limitation. The court reiterated that it does not have jurisdiction to investigate the merits or examine the evidence to find out whether the arbitrator committed an error of law.

4. Return of the Security Deposit
The final issue was whether the direction in the award to return the security deposit of Rs. 1,81,000 to the appellant was a matter arising out of the second contract and referred to arbitration under point 2(a) or point 2(d) of the reference. The appellant contended that the security deposit, though given in connection with the first contract, was treated as part of the second contract. The Board argued that point 2(a) related only to the sum payable for work done under the second contract and point 2(d) related to claims of the Board against the respondent. The High Court did not express a final opinion on this question. The Supreme Court noted that whether the return of the security amount falls under point 2(c) depends on whether it is a claim of the Board.

Conclusion
The Supreme Court allowed the appeal, set aside the judgment of the High Court, and made no order as to costs. The umpire had jurisdiction to pass the award, and the award was valid as no error of law appeared on its face. The Board's participation in the proceedings without objection precluded it from challenging the umpire's jurisdiction. The claims related to the first and second contracts were not barred by limitation, and the return of the security deposit was a matter for the arbitrator to decide.

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