# UNIO:'ll OF INDIA v. BUNGO STEEL FURNITURE PVT. LTD

- **Citation:** [1967] 1 S.C.R. 324
- **Court:** Supreme Court of India
- **Decided:** 1966-09-14
- **Case number:** Civil Appeals Nos. 373 and 543 of 1965
- **Bench:** V. ilAMASWAMI, V. BllARGAVA, Raghubar Dayal
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/unio-ll-of-india-v-bungo-steel-furniture-pvt-ltd-3828
- **Pages:** 7

## Headnote

8
ArbitraJion-Error of law apparent on the face of award, lVhat islurisdicrion of court to exmnine evidence.
Code of Civil Procedure (Act 5 of
1908), s. 34--Applicability to
arbitraJion proceedings-Jurirdiction of arbitrator to award future interest.
The disputes between the appellant and respondent in regard lo certain
contracts were referred to arbitration. The award was sought to be set
aside on the grounds that the arbitrator committed an error : (i) with
C
respect to the deduction of an amount, and (ii) ·by granting future interest
from the date of award till tlie date when the court passed a decree in
terms ot the award.
For the purpose of establishing the first error the
appellant relied on affidavits filed and statements made by t!>e parties before the .arbicrator.
HELD : (i) The award of an arbitrator can be set asidl.! on the ground
of error of law on the face of the award, only when in the a\l+ard or in
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a docwnent incorporated with it there is found some legal
proposition
which is the basis of the award and which is erroneous. The court bu
no jurisdiction to investigate into the merits of the case and to examine
the documentary and oral evidence on the record . for the purpose of
finding our .. whether or not the arbitrator has committed an error of law.
13~7 A-BJ
Champsey Bhare & Co. v. Jivraj Ba!loo Spinning & Weaving Co. Ltd.
F.
50 I.A. 324, applied.
(ii) The arbitrator had jurisdiction to grant interest on the amount of
the award from the date of the award till the date of the decree as all
questions including that of interest were referred to the arbitrator.
It is
an implied
term
of the reference
that
the
arbitrator
will
decide
the dispute according to existing law and g;,.., such relief wilh regard to
interest as a coun could· give if it decided the dispute. Though, in terms,
F
<. 34 of the Civil Procedure Code does not apply to arbitralion proceedings, the principle of that section may be npplied by the arhilrator for
award:ng interest in cases where a court of la\v could grant a decree for
interest under the section. [329 A-DJ
Seth Thawardas Pheruma/ v. Unio11
of India, I 1955J 2 S.C.R. 48,
explained.
Firm Madan/al Ros/Jania/ Jfaha;an
v.
The Hukumchand Mills Ud.
G
/11dore. [1967J I S.C.R. 105, followed.
Ov1L ArPF.LLATE JURISDICTION : Civil Appeals Nos. 373 and
543 of 1965.
Appeals from the judgment and decree/order dalcd the August
I, 1962 of the Calcutta High Court in Appeals Nos. 132 and
32
of 1961.
H
N. S. Bindra and R. N. Sachthey, for the appellant (in the both
arpeals).
UNION v. BUNGO FURNITURE co. (Ramaswami, !.)
325
A
A. K. Sen, Uma Mehta, P. K. Chatterjee and P. K. Bose, for the
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respondent (in both the appeals).

## Text

UNIO:'ll OF INDIA
A
v.
BUNGO STEEL FURNITURE PVT. LTD.
September 14, 1966
(V. ilAMASWAMI, V. BllARGAVA AND RAGHUBAR DAYAL, JJ.)
8
ArbitraJion-Error of law apparent on the face of award, lVhat islurisdicrion of court to exmnine evidence.
Code of Civil Procedure (Act 5 of
1908), s. 34--Applicability to
arbitraJion proceedings-Jurirdiction of arbitrator to award future interest.
The disputes between the appellant and respondent in regard lo certain
contracts were referred to arbitration. The award was sought to be set
aside on the grounds that the arbitrator committed an error : (i) with
C
respect to the deduction of an amount, and (ii) ·by granting future interest
from the date of award till tlie date when the court passed a decree in
terms ot the award.
For the purpose of establishing the first error the
appellant relied on affidavits filed and statements made by t!>e parties before the .arbicrator.
HELD : (i) The award of an arbitrator can be set asidl.! on the ground
of error of law on the face of the award, only when in the a\l+ard or in
D
a docwnent incorporated with it there is found some legal
proposition
which is the basis of the award and which is erroneous. The court bu
no jurisdiction to investigate into the merits of the case and to examine
the documentary and oral evidence on the record . for the purpose of
finding our .. whether or not the arbitrator has committed an error of law.
13~7 A-BJ
Champsey Bhare & Co. v. Jivraj Ba!loo Spinning & Weaving Co. Ltd.
F.
50 I.A. 324, applied.
(ii) The arbitrator had jurisdiction to grant interest on the amount of
the award from the date of the award till the date of the decree as all
questions including that of interest were referred to the arbitrator.
It is
an implied
term
of the reference
that
the
arbitrator
will
decide
the dispute according to existing law and g;,.., such relief wilh regard to
interest as a coun could· give if it decided the dispute. Though, in terms,
F
<. 34 of the Civil Procedure Code does not apply to arbitralion proceedings, the principle of that section may be npplied by the arhilrator for
award:ng interest in cases where a court of la\v could grant a decree for
interest under the section. [329 A-DJ
Seth Thawardas Pheruma/ v. Unio11
of India, I 1955J 2 S.C.R. 48,
explained.
Firm Madan/al Ros/Jania/ Jfaha;an
v.
The Hukumchand Mills Ud.
G
/11dore. [1967J I S.C.R. 105, followed.
Ov1L ArPF.LLATE JURISDICTION : Civil Appeals Nos. 373 and
543 of 1965.
Appeals from the judgment and decree/order dalcd the August
I, 1962 of the Calcutta High Court in Appeals Nos. 132 and
32
of 1961.
H
N. S. Bindra and R. N. Sachthey, for the appellant (in the both
arpeals).
UNION v. BUNGO FURNITURE co. (Ramaswami, !.)
325
A
A. K. Sen, Uma Mehta, P. K. Chatterjee and P. K. Bose, for the
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respondent (in both the appeals).
The Judgment of the Court was delivered by
Ramaswami, J. These appeals are brought by certificate
from the judgment of the Calcutta High Court dated August I,
1962 in Appeals Nos. 32 and 132 of 1961 by which the High Court
allowed the appeals against the Union of India (hereinafter called
the 'appellant') in part and modified the award of· the arbitrator
and the judgment of Mallick, J.
'
The disputes relate to 3 contracts for the supply of bedsteads
by the respondent-Bungo Steel Furniture Pvt. Ltd.-(hereinafter called the 'Company') to the appellant, namely, contract
No. A.T. 3116 for the supply of 17202 bedsteads, contract No.
A.T. 767 for the supply of 30,000 bedsteads and contract No.
A. T. 816 for the supply of 7,000 bedsteads. Each of these contracts contained the usual arbitration clause embodied in cl. 21
of the general conditions of contract in form No. W.S.B. 133.
The disputes arising between the. Company and the appellant
out of the three contracts were referred to the arbitration of Sir
Rupen Mitter. The award of the arbitrator is dated September 2,
1959. The arbitrator found that the Company was entitled to
be credited with the sum of Rs. 11,64,423/- on account of the price
(inclusive of the price of steel) of the bedsteads supplied under the
three contracts made up of (a) a sum of Rs. 4,12,848/- for the
price ·of 17,202 bedsteads supplied under contract No. AT.
3116 at Rs. 24/- per bedstead, (b) Rs. 7,05,000/- for the price of
30,000 bedsteads supplied under contract No. A.T. 767 at Rs. 23/8/-
per bedstead and (c) Rs. 46,575/- for the price of 2,025. bedsteads
·supplied under contract No. A.T. 816. The appellant undertook to supply the requisite steel at basic rates and the price of
steel so supplied was payable by the Company on presentation
of material release orders called. 'M.R.Os'. The arbitrator found
that the Company was entitled to a credit for Rs. 3,42,737 /- for
payment on M.R.Os. for the price of steel and the appellant was
entitled to credits for Rs. 29,188/- on account of railway freight
and transport charges, for Rs. 9,71,030/- on account of payments
made to the Company directly and for Rs. 4,95,060/- on account
of price of steel supplied to the Company. The arbitrator also
found that the appellant had ded°'cted Rs. 3,57,500/- from bills
of the Company on account of the price of steer and upon that
finding the arbitrator subtracted the sum of Rs. 3,57,500/- from the
price of steel credited to the appellant.
The appellant thereafter applied to the Calcutta High Court
for setting aside the award on the ground that there was an error
of law apparent on the face of the award and the arbitrator had
326
SUPREME COURT
REPORTS
[1967] I S.C.R.
also exceeded his authority in awarding interest. The application was dismissed by Mallick, J. hy his judgment dated July 27,
1960 and a decree was granted to the Company on the basis of
the award. The appellant preferred two appeals to the High Court
from the judgment of Mallick. J .. namely, Appeals Nos. 32 and
132 of 1961. ·These appeals were heard by the Division Bench
consisting of Bachawat and Laik JJ. who allowed the appeal in
part and reduced the principal amount adjudged to be payable
under the award by Rs. 30.970'- and modified the award accordingly.
The first question to be considered in these appeals is whether
the arbitrator committed an error of law in holding that the appellant had deducted Rs. 3,57,500/- from the bills of the Company
with regard to contracts other than the three contracts of bedsteads
which are the subject matter of the present case, and whether the
arbitrator could subtract the aforesaid amount of Rs. 3,57,500;-
from the
price of steel credited to the appellant.
On behalf
of the appellant it was contended by Mr. Bindra that the deduction of Rs. 3,57,500/- had been made from the bills submitted by
the Company for the price of the bedsteads supplied under the
three contracts Nos. A. T. 3116, A. T. No. 767 and A. T. 816 and
the arbitrator should not have debited the appellant with this amount.
It is not possible for us to ac!cept this argument. l)le award of
the arbitrator does not show on its face that the amount of Rs.
3,57,500/- has been deducted from the bills submitted by the Company for the price of the bedsteads under the three contracts. The
relevant portion of the award states:
"I hold that the steel of different categories amounting to 1908 tons and odd of the value of Rs. 4,95,060/-
calculated at basic rates had been supplied by the Government to the Company. I further hold that the
whole quantity of steel had been used in making the
7000 bedsteads under A. T. 3116, A. T. 767 and 7000
bedsteads under
A.T. 816 leaving no surplus. I also
hold that the Company paid for the price of steel on
the M.R.Os. Rs. 3,42,737i- and that the Government had
deducted Rs. 3,57,500/- from bills. I hold that the Company did not supply any steel from its own stock.:.•
There
were
conflicting statements of the
parties in the affidavits filed by them before Mallick, J. in connection with the application for setting aside the award. The affidavit filed by ·the
appellant dated January 5. !957 before the arbitrator suggests
that at least part of the deductions were made from bills submitted
by the Company in other contracts. On behalf of the appellant
Mr. Bindra referred to the affidavits and the statements made before the arbitrator, but it is well-settled that the Court has no jurisA
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UNION v. BUNGO FURNITURE co. (Rama.swami, J.)
327
diction to investigate into the merits of the case and to examine
the documentairy and oral evidence on the record for the purpose
of finding out whether or not the arbitrator has committed an error
of law and that the award of the arbitrator can be set aside on the
ground of error of law on the face of the award only when in the·
award or in a document incorporated with it, as for instance a
note appended by the arbitrator stating the reasons for his decision, there is found some legal proposition which is the basis of
the award and which is erroneous. In the present case, the affidavits filed by the parties before the arbitrator are not incorporated
in the award and it is therefore. not permissible for the court to
examine these affidavits in order to ascertain whether the arbitrator
has committed any error of law.
In Hodgkinson v. Fernie(') the
law on this point has been clearly stated by William,
J, as
follows:
"The law has for many years been settled, and remains so at this day, that where a cause or matters in
difference are referred to an arbitrator, whether a lawyer or a layman, he is constituted the sole and fiml judge
of all questions both of law and of fact. .......... .
The only exceptions to that rule, are, cases where the
award is. the result of corruption or fraud, and one other,
which though it is to be regretted, is now, I think, firmly
established, viz., where the question of law necessarilly
arises ori the face of the award, or upon some paper accompanying and forming part of the award. Though
the propriety of this latter may very well be doubted, I think
it may be considered as established."
The decision of this case was approved by the Judicial Committee in Champsey Bhara and Company v; Jivraj Ba/loo Spinning
and Weaving Company, Ltd.,(2) in which the appellants sol>i cotton
to the respondents by a contract which contained a submission
to arbitration of disputes as to quality, and a further clause submitting to arbitration all other disputes arising out of the contract.
Cotton was delivered, but the respondents objected to its quality,
and upon arbitration an allowance was awarded; the respondents
thereupon rejected the cotton. The appellants claimed damages
for the rejection. The dispute was referred to arbitration and the
award recited that the contract was subject to the rules of the
Bombay Cotton Trade Association, which were not further referred to; and that the respondents had rejected on the grounds
contained in a letter of a certain date. That letter stated merely
that as the arbitrators had made an allowance of a certain
amount the respondents rejected the cotton. The High Court
set aside the award, holding that it was bad on its face, in that
·under one of the rules of the Association the respondents were
(I) 3 C.B. (N. S,) 189 at p. 202.
(2) 50 I.A. 324.
328
SUPREME COURT REPORTS
[1967] I S.C.R.
entitled to reject without liability. It was held on appeal by the
A
Judicial Committee that the award could not be set aside and
though the award recited that the contract was subject to the rules
of the Bombay Cotton Trade Association, yet those rules were
not so incorporated in the award as to entitle the Court to refer
to them for ascertaining whether there was an error of law on
the face of the award. Applying the principle to the present case,
B
it is manifest that there is no error of law on the face of the award
and the argument of the appellant on this aspect of the case must
fail.
We next proceed to consider the argument of the appellant
that the arbitrator had no authority to award interest from the
date of the award dated September 2, 1959 to the date of the decree
C
granted by Mallick, J. i.e., August 2, 1960.
In support of this
contention Counsel for the appellant relied upon the following
observations of Bose, J. in Seth Thawardas Pherumal v. The Union
of India(').
"It was suggested that at least interest from the
date of 'suit' could be awarded on the analogy of secD
lion 34 of the Civil
Procedure Code, 1908.
But section 34 docs not apply because an arbitrator is not· a
'court' within the meaning of the Code nor does the
Code apply to arbitrators, and, but for section 34, even
a Court would not have the power to give interest after the
suit. This was, therefore, also rightly struck out from the
E
award."
This passage supports the argument of the appellant that
interest cannot be awarded by the arbitrator after the date of the
award but in later cases it has been pointed out by this Court that
the observations of Bose, J. in Seth Thawardas Pherumal v. The
Union of India(')
were not intended to lay down such a
broad and unqualified proposition (See CT. A. CT. Nachiappa
Chettiar and others v. CT. A. CT. Subramaniom Chettiar,(2) and
Satinder Singh v. Amrao Singh)('). In Seth Thawardas Pherumal
'v. The Union of India(•),
the material facts were
that the
arbitrator had awarded interest on unliquidated damages for a
period before the reference to arbitration and also for a period
subsequent to the reference. The High Court set aside the award
regarding interest on the ground that the claim for interest was
not referred to arbitration and the arbitrator bad no jurisdiction
to entertain the claim. In this Court, counsel for the appellant
contended that the arbitrator had statutory power under the Interest Act of 1839 to award the interest and, in any event, he had
power to award interest during the pendency of the arbitration
(I) (1955} 2 S. C.R. 48, 65.
(2) (1960} 2 S. C.R. 209, 238.
(3) 119611 3 S. C. R. 676, 695.
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UNION v. BUNGO FURNITURE co .. (Rama.swami, J.)
3 29'
proceedings under s. 34 of the Code of Civil Procedure, 1908.
Bose, J. rejected this contention, but. it should be noticed that the
judgment of this Court in Seth Thawardas's caseO does not deal
with the question whether the arbitrator can award interest subsequent to the passing of the award if the claim regarding interest
was referred to arbitration. In the present case, all the disputes
in the suit, including the question of interest, were referred to the
arbitrator for his decision. In our opinion, the arbitrator had
jurisdiction, in the present case, to grant. interest on the amount
of the award from the date of the award till the date of the decree
granted by Mallick, J. The reason is· that it is ari implied term
of the reference that the arbitrator will decide the dispute according to existing law and give such relief with regard to interest as
a court could give if it decided the dispute. Though, in terms,
s. 34 of the Code of Civil Procedure does not apply. to arbitration
proceedings, the principle of that section will be applied by the
arbitrator for awarding interest in cases where a court of law in
a suit having jurisdiction of the subject-matter covered by s. 34
could grant .a decree for interest. In Edwards v. Great Western
Ry.(2) one of the questions at issue was whether an arbitrator
could or could not award interest in a case which wa~ within s. 28
of the Civil Procedure Act, 1833. It was held by the Court of
Common Pleas that the arbitrator, under a submission of "all
matters in difference", might award the plaintiff interest, notwithstanding the notice of action did not contain a demand of
interest; and, further, that, assuming a notice of action to have
been necessary, the want or insufficiency of such notice could not
be taken advantage pf, since the 5 & 6 Viet. C. 97, s. 3, unless pleaded specially. In the course of his judgment Jarvis C. J. observed :
"A further answer would be, that this is a submission, not only of the action, but qf all matters in difference;
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and the interest would be a matter in difference, whether
demanded by the notice of action or not. If the arbitrator could give. it, he might give it in that way, notwithstanding the want of claim of.interest in the notice."
This clearly decides t\J.at, although the Civil Procedure Act,
1833, speaks in terms of a jury, and only confers upon a jury a
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discretionary right to give. interest, none the less, if a matter was
referred to an arbitrator-a matter with regard to which a jury
could have given interest-an arbitrator may equally give interest,
and that despite the language used in that Act. The principle
of this case was . applied by the Court of Appeal in Chandris v:
Isbrandtsen-Moller Co. Inc.(') and it was held that though in terms
s. 3 of the Law Reform (Miscellaneous Provisions) Act, 1934
•
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giving the court power to award interest on any debt or damages
. (l) [ 1955 l 2 S. C. R. 48.
•
(2) (1851) 11 C. B. 588.
(3) (1951) 1 K. B. 240.
.330
SUPREME COURT REPORTS
(1967] I S.C.R .
-did not apply to an arbitrator, it was an impli1:d term of the contract that the arbitrator could award interest in a case where the
court could award it.
It was pointed out by the Court of Appeal
that the power of an arbitrator to award interest was derived from
the submission to him, which impliedly gave him power to decide
"all matters in difference" according to the existing law of contract,
exercising every right and discretionary remedy given 10 a court
of law; that the
Law Reform (Miscellaneous Provisions) Act
I 934, which repealed s. 28 of the Civil Procedure Act, 1833, was
not concerned with the powers of arbitrators; and !;hat the plaintiff
was entitled to the interest awarded by the arbitrator.
The legal position is the same in India.
In Bhwanidas Ram-
[(obind v. Harasukhdas Balkishandas(') the Division Bench of the
Calcutta High Court consisting of Rankin and Mookerjee, JJ.
held that the arbitrators had authority to make a decree for interest after the date of the award and expressly approved the decision of the English cases-Edwards v. Great Western Ry.,(2) Sherry
v. Oke(l) and Beahan v. Wolfe(•). The same view has heen expressed by this Court in a recent judgment in Firm Af,1da11/al Roshana/ Mahajan v. Tire llukamclzand Mills Ltd., lndore(5) We are accordingly of the opinion that the arbitrator had authority to grant
interest from the date of the award to the date of the decree of
Mallick, J. and !>1r. Bindra is unable to make good his argument on
this aspect of the case.
For these reasons we affirm the decree of the Calcutta High
Court dated August I, 1962 and dismiss these appeals with costs.
Y.P.S.
Appeals dismissed.
(2) (1851) 11 C.B. 588.
(4) (1832) I Al. & Na. 233.
(I) A.l.R. 1924 cal. 52i.
(3) (1835) 3 Dow. 349·1 H. & W. 119.
(5) )1967] S.C.R. 105. ·
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