'Reasoned Order' Passed By Arbitrator/District Court Cannot Be Interfered With U/S 37 Of A&C Act: Karnataka High Court

Brief Facts:

There was an agreement of sale of standing timber between the owner of the property and Rajagopal Hebbar (Appellant). An application was given for cutting permit on 02.04.1986. The forest officer submitted the report on 06.12.2018. An order rejecting the application to fell the trees was passed on 25.03.1981. Writ petitions were filed. The petitions were allowed by an order passed on 16.03.1999 and it was held that there is deemed provision to cut and remove the timber. This was challenged before the writ appellate Court but was dismissed.

The arbitrator passed the award on 18.06.2014, which was challenged before the Addl. District Judge and set aside on the ground that there is no quantification of damages. The Appellant filed appeals against the judgment and decree dated 22.04.2016 in which the Addl. District Judge, Mangalore modified the award passed by the Arbitrator.

Contentions of the Parties:

By the Appellant's Counsel:

• In one appeal, the sale consideration for timber is Rs.1.10 lakh and in the other two appeals, the sale consideration is Rs.80 thousand each with 50% of the amount paid upfront.
• District Court committed an error in concluding that the quantum of damage is not stipulated in the agreement and therefore assessment of damage of compensation carried out by the Arbitrator is not in accordance with basic tenets of assessment of damages. There is proof of the damages by way of the value of trees on the land. Therefore, the District Court committed an error invoking Section 73 of the Contract Act.
• The Trial Court's finding that the number of trees on the land was not ascertained at the time of the agreement and therefore damages cannot be awarded is erroneous.
• The counsel referred to Hindusthan Tea Company v. K. Shashikanth & Co., in which it was held that when the award is reasoned, it is not open to challenge merely for a wrong conclusion or misappreciation of facts or acting contrary to section 70 of the Contract Act.
• In Sumitomo Heavy Industries v. ONGC, it was observed that calling the award rendered after considering the material on record “perverse” is highly unfair to the Arbitrator.
• In Associate Builders v. DDA, it was held that merits of an arbitral award can only be looked into under Section 34(2)(b)(ii) when in conflict with public policy.
• In Harish Chandra & Co. v. State of UP, it was held that courts are precluded from reappraising evidence if the Arbitrator has given cogent reasons.
• Atlanta Infrastructure Ltd. v. Municipal Corporation of Greater Mumbai also held that the Arbitrator's reasoning on compensation for direct expenses, loss of productivity, and overheads was well founded and interference was unwarranted.
• In Fateh Chand v. Balkishan Dass, it was held that the measure of damages in the case of a breach of stipulation by way of penalty is governed by Section 74 of the Indian Contract Act. The Court can award reasonable compensation not exceeding the penalty stipulated, having regard to all the circumstances of the case.
• The counsel also referred to Ram Narain Mahato v. State of Madhya Pradesh, 1970 (1) SCC 25 which observed that where the contract is not for sale of ascertained goods, a contract for the sale of logs, though doubtless a contract for the sale of goods, does not pass property in the goods unless they are ascertained. Where goods are not ascertained or may not exist at the time of the contract, no property in the goods can pass to the purchaser by virtue of the contract itself.
• The District Court's reasoning is erroneous in that the trees are not unascertained. The award was well-reasoned but there is a flaw in modifying the award of the Arbitrator. Hence, it requires interference.

By the Respondents' Counsel:

• The award was passed after 9 years and rightly passed an order to refund the amount.
• When the quantum was not stipulated, the question of damages did not arise.
• The District Court took note of section 73 and 74 as well as Sale of Goods Act and rightly concluded that it requires modification.

Observations:

The point for consideration before the court was whether the court could invoke section 37(e) of the Arbitration and Conciliation Act, 1996.

The court noted that there is no dispute with regard to the principle that when a reasoned order has been passed by the Arbitrator, the same cannot be interfered with.

The court held that the District Judge had taken note of Section 73, Section 74 of Contract Act and Section 21 of the Sale of Goods Act while considering the grounds which have been urged in the Arbitration suit. It did not find any error committed by the District Court in modifying the award passed by the Arbitrator.

The court held that the District Court rightly concluded that advance amount as well as the expenses which have been incurred has to be refunded with interest at 12%.

The court observed that compensation awarded must consider the girth and circumference of the timber from the years 1984 and 1985 when the contract was executed. At the time of the agreement, the number of trees and the standing timber were unascertained. It noted that determining the value of timber in 2005, nearly two decades later, was inconsistent with the provisions of law and principles of assessment of damages.

The court noted that the District Court factored in the remote and indirect losses while assessing compensation taking into account the extraordinary delay on account of no permission given to fell the tree and the absence of an express contractual term for damages in case of breach. The District Court also accounted for the delay caused by legal proceedings.

The court held that the District Court exercised the powers within the scope of Section 34 of the Arbitration Act and appropriately modified the award. It held that the Arbitrator rightly concluded the case with respect to the assessment of compensation.

The court refused to interfere with the same. It dismissed the appeals.

Case Title: Mr. N. Rajgopal Hebbar vs. Mrs. Padmavathi & Ors.

Case Number: MISCELLANEOUS FIRST APPEAL NO.5460/2016 (AA) C/W MISCELLANEOUS FIRST APPEAL NO.5461/2016 (AA) MISCELLANEOUS FIRST APPEAL NO.5462/2016 (AA) IN M.F.A.NO.5462/2016

Date of Judgment: 29.11.2024