SUPREME COURT OF INDIA

Before:- S. Rajendra Babu and Doraiswamy Raju, JJ.

Civil Appeal No. 7989 of 2001 (arising out of SLP (C) No. 16101 of 2000). D/d. 22.11.2001.

Union of India - Appellant

Versus

M/s. P. C. Ray and Co. (India) Pvt. Ltd. - Respondent

Arbitration Act, 1940, Section 20 - Dispute arising out of contract to cut trees in certain forest - Umpire finding in his award that an order passed under Defence of India Act was invalid - Single Judge of High Court setting aside award on ground that umpire had no such jurisdiction - Matter remanded by Division Bench by taking view that umpire had the requisite power - Held what was necessary to be considered was the impact of order under Defence of India Act and not its validity - Held, it is not necessary to interfere with the order made by the Division Bench except to indicate that the observations made by the High Court in relation to validity of the order or the scope of the Defence of India Act or the competence of the Arbitrator to hold the order as invalid are called for.

[Paras 8 and 9]

JUDGMENT

S. Rajendra Babu, J. - Leave granted.

2. A contract was entered into on August 31, 1951 between the appellant and the respondent for cutting of trees marked by the Chief Conservator of Forest in Andaman and Nicobar Islands.

3. Certain disputes between the parties having arisen in respect to this contract, a reference was made to arbitration for different periods. Ultimately an award was passed pursuant to such reference. In the course of the award a finding was given by the Umpire that the order passed on May 24, 1963 under the Defence of India Act is invalid.

4. When the Award was to be made the Rule of the Court, objections were raised by the appellant and the learned single Judge of the Calcutta High Court who dealt with the matter held as follows :

"The declaration given to the effect that a statutory order passed by the Union of India was invalid and not binding could not be made by the Umpire. In so much as the power derived from the agreement which was given by consent of the parties did not confer jurisdiction upon the Umpire to declare a statutory order to be invalid. In any event an order passed u/Section 45 of the D.I. Act and the Rules framed thereunder could not be questioned even before a Court of law. Therefore, holding that the order passed on 26th May, 1963 passed by the Union of India in exercise of the power conferred by Rule 25(1) of the D.I. Rules was invalid, the arbitrator acted beyond which was not permissible in law. As such it was beyond his jurisdiction. This was an error of law apparent on the face of the award, being in excess of jurisdiction. Under the circumstances on that ground the Award is liable to be set aside. An Arbitrator is bound to get in compliance with law. He cannot either ignore or misapply the law. Wrongly if, he goes so it is the duty of the Court to correct it and act it right,if such error appears on the fact of the award. An arbitrator is and to make his award in accordance with law. The Umpire did not have the power to declare a statutory order to be invalid. It is well settled that if erroneous law is stated in the award and it is on that basis of such award is passed, such award is liable to be set aside. The instant award is a speaking award and the reason for such decision are expressly stated in the award and then the award which is bad in law. Under the circumstances in the ground the such proposition of law laid down in the award is erroneous. On the ground that the arbitrator has exceeded its jurisdiction of the award and on the ground that the arbitrator has issued jurisdiction which it did not possess, are good ground for setting an award, the dispute that was referred before the arbitrator was the claim by way of damages by way of loss of profit which the company would have otherwise earned had not. The respondent Union of India wrongfully prevented the company from carrying out the contract. While deciding such dispute the arbitrator took upon himself to decide a question upon validity of the statutory order. Neither such question was referred nor it was within its jurisdiction to decide the same. The question which two arbitrator took upon himself to decide was not in fact within the submissions. The arbitrator was not in the position of the conciliator. He is not in a position to ignore the law and do what he thought just reasonable. He was a tribunal selected by the parties to decide their dispute in accordance with law. In the instant case the parties did not refer any question of law to the arbitrator i.e. the question of validity of the order passed under the D.I. Act was not referred to as separate and distinct matter. Save except the claim for damages."

5. When the matter was carried in appeal, the Division Bench held as follows :

"This order was not affecting the public at large, but was an order confined to a particular subject-matter viz. Work relating to particular forests in Andaman Islands, as taken on lease by the appellants on the basis of an agreement having earlier been executed between the parties. It was the contention of the appellants in the suit that it was because of the passing of this order that acts of omission and commission were committed by the respondents and the appellant suffered on account of such acts of omission and commission. For coming to a definite conclusion as to whether the appellants had actually suffered and whether any loss was caused to the appellants, it was inevitable that the Civil Court, if it was seized of the civil suit and was trying it, or alternatively the Arbitrator if the subject-matter was referred to him for arbitration, had to decide upon the correctness and validity of such an order. There is nothing either in the Defence of India Act or in the Defence of India Rules which prohibited adjudication by a competent forum to determine the correctness and validity of an order passed by an authority under the Act or the Rules. We actually do not find ourselves at all in agreement with the view of the learned single Judge that even a Court of Law did not have jurisdiction to go into the question relating to the validity of such an order. The Court was not to go into any question regarding the vires of any legislative enactment or for that matter the vires of a subordinate or delegated legislation. The only question before the Court or the Arbitrator as the case might have been was whether the executive order passed by an executive Authority, of course in the exercise of a statutory provision, was good, valid or correct or not, in the facts and circumstance of the particular case. Adjudication with regard to the merits of such an order surely was not outside the purview or jurisdiction of the Arbitrators, especially when the adjudication of the dispute between the parties resolved upon the correctness of this order."

6. The Division Bench of the High Court set aside the order made by the learned single Judge and remitted the matter to the learned single Judge for consideration in accordance with law.

7. Several issues had been raised before the Umpire which needed to be adjudicated upon and all those issues have been answered by the Umpire. Learned single Judge has not examined any one of those aspects. Therefore, the Division Bench remitted the matter for consideration by the learned single Judge.

8. We may state that it was not necessary either for the Umpire to decide the validity of the order dated May 24,1963 nor for the learned single Judge or for the Division Bench of the High Court to have examined that aspect of the matter. What really should have been considered was the impact of that order. That was lost sight of. Learned counsel for the respondent pointed out that the Umpire has considered the impact of the order and has given appropriate findings in the matter. If that is so, learned single Judge will have to consider in detail and given appropriate findings thereto and thereafter decide the matter.

9. In that view of the matter, we do not think it is really necessary to interfere with the order made by the Division Bench of the High Court except to indicate that the observations made by the High Court in relation to validity of the order or the scope of the Defence of India Act or the competence of the Arbitrator to hold the order as invalid are called for. Those portions of the order stand deleted and in other respects the order made by the Division Bench shall remain undisturbed. The appeal is disposed of accordingly. There will be no order as to costs.

10. It would be appropriate for the High Court to dispose of the matter as expeditiously as possible considering that the matter is very old.

Order accordingly.