Case Note & Summary
This appeal by special leave arose from an arbitration award made under the Arbitration Act, 1940 in a dispute concerning the purchase of an electricity undertaking. The appellant was the licensee company which held a licence under the Indian Electricity Act, 1910 to supply electric energy in the districts of Bijnor and Moradabad, originally granted to Messrs Martin & Co. in 1929 and later assigned to the appellant. The Government of Uttar Pradesh exercised its option to purchase the undertaking by notice dated January 31, 1957, and after extension the respondent Uttar Pradesh State Electricity Board, constituted on April 1, 1959 and to which the option stood transferred under Section 71 of the Electricity (Supply) Act, 1948, informed the appellant on May 1, 1959 that it would purchase the undertaking for Rs 25,38,407. The respondent made a provisional payment of Rs 15 lakhs on May 4, 1959, accepted under protest, and took over the undertaking on May 4/5, 1959. Disagreement over the true market value led to arbitration before two arbitrators. The only surviving question was whether the appellant was entitled to compensation for service lines laid with the help of consumer contributions. The arbitrators differed and referred this issue to an umpire, Shri Randhir Singh, who by award dated November 27, 1961 held that the appellant was not entitled to claim from the respondent the value of the portion of service lines laid at the cost of consumers. The umpire fixed the fair market value of the assets at Rs 23,81,670 and after adjustments found the appellant had received Rs 9,8,568 in excess. The appellant challenged the award under Section 30 of the Arbitration Act, 1940 before the Civil Judge, Moradabad, who partly upheld the valuation but set aside the rest due to a misunderstanding. On appeal, the Allahabad High Court by judgment dated April 15, 1966 held the umpire was justified and dismissed the appeal and cross-objections. The appellant then appealed to the Supreme Court. The principal legal issue was whether the umpire's award disclosed an error of law on its face because the umpire excluded the value of service lines installed at the cost of consumers. The appellant contended that the umpire legally misconducted himself in not awarding compensation for service lines and that the award was erroneous on its face. The respondent contended that the umpire was justified because the service lines were laid at the cost of consumers. The Supreme Court examined Section 30 of the Arbitration Act, 1940 and the scope of interference, reaffirming that an award could be set aside only for misconduct, invalid procurement, or error of law apparent on the face of a speaking award. The Court then examined the Indian Electricity Act, 1910, including the definition of service lines in Section 2(l), the consumer contribution clause in the first proviso to Paragraph VI(1) of the Schedule, and the option to purchase under Section 7(1), and concluded that these provisions and the conditions of licence all pointed to the appellant's entitlement to compensation for service lines laid at consumer cost. The Court distinguished Durga Prasad Chamria and held that the reference to arbitration was on the broad question of fair market value, not a specific question of law. Since the invalid part of the award was severable, the Court held the entire award need not be set aside. In view of the long pendency since 1959, the Court decided to amend the award itself rather than remit it. The Supreme Court allowed the appeal, set aside the High Court and Civil Judge decisions to the extent contrary, and held that the consumer contributions from April 1, 1958 to March 31, 1959 amounting to Rs 2,38,255 should be taken into account in arriving at the price payable to the appellant. The award was amended accordingly, and the invalid portion relating to service lines was severed from the valid portion.
Headnote
A) Arbitration Law - Setting Aside Award - Error of Law on Face of Award - Arbitration Act, 1940, Section 30 - The Court considered whether the umpire's award could be set aside under Section 30. It followed Union of India v. Bungo Steel Furniture P. Ltd. and M/S. Allen Berry and Co. P. Ltd. v. The Union of India, holding that an award is not to be set aside merely because it is erroneous in fact or law, except for corruption, fraud, or error of law apparent on the face of the award. The umpire made a speaking award, and a transparently erroneous legal proposition forming its basis rendered the award liable to be set aside. Held that the appellant's application could succeed only on error of law on the face of the award. (Paras 111-112) B) Electricity Law - Compensation for Service Lines - Consumer Contributions Count Towards Value - Indian Electricity Act, 1910, Sections 2(f), 2(l), 2(n), 3(f), 7(1), 8 and Paragraph VI of the Schedule - The dispute concerned whether the licensee was entitled to compensation for service lines laid partly at the cost of consumers. The Court examined the definition of service lines, the obligation to supply, and the consumers' contribution clause, concluding that consumers contributed to the capital cost of service lines and those contributions represented part of the value of the undertaking. Held that the appellant was entitled to receive compensation for service lines laid at the cost of consumers; the umpire's exclusion of that value was erroneous on its face. (Paras 112-113) C) Arbitration Law - Severability of Award - Invalid Part Severable - Arbitration Act, 1940, Section 30 - The Court addressed whether the entire award should be set aside when only a part is invalid. Following the principle that a valid award may be partly upheld, it held that the invalid portion relating to service lines was severable from the rest of the award. Held that there was no justification for setting aside the entire award. (Para 115 D) D) Arbitration Law - Amendment of Award - Court's Power to Amend Instead of Remit - Arbitration Act, 1940, Section 30 - The Court considered whether to remit the award or amend it. In the interests of justice and to avoid undue delay in a dispute pending since 1959, the Court held that it should itself amend the award rather than remit it. (Para 115 E) E) Electricity Law - Quantum of Compensation - Consumer Contribution Amount - Indian Electricity Act, 1910, Section 7(1) and first proviso - The umpire had found consumer contributions from 1 April 1958 to 31 March 1959 to be Rs 2,38,255. The Court held that this amount roughly represented the market value of the service lines, even considering due regard to nature and condition of works, readiness for immediate working, and suitability. Held that the sum representing consumers' contributions should be taken into account in arriving at the price payable to the appellant. (Para 115 G)
Issue of Consideration
Whether the appellant was entitled to compensation for service lines laid with the help of consumer contributions; whether the umpire's award was liable to be set aside under Section 30 of the Arbitration Act, 1940 on the ground of error of law on the face of the award; whether the invalid part of the award was severable from the valid part; whether the Supreme Court could amend the award instead of remitting it
Final Decision
Appeal allowed. The Supreme Court held that the appellant was entitled to compensation for service lines laid at the cost of consumers. The umpire's award was erroneous on its face to the extent it excluded the value of service lines installed at consumers' cost. The Court directed that the sum representing consumers' contributions from 1 April 1958 to 31 March 1959 (Rs 2,38,255) be taken into account in arriving at the price payable to the appellant, and amended the award accordingly instead of remitting it, while severing the invalid part from the valid part.
Law Points
- An award can be set aside under Section 30 of the Arbitration Act
- 1940 only for arbitrator misconduct
- invalid procurement
- or error of law on the face of the award
- an error of law apparent on the face of a speaking award is a valid ground for interference
- under the Indian Electricity Act
- 1910
- a licensee is entitled to compensation for service lines even if laid with consumer contributions
- because those contributions form part of the value of the undertaking
- an invalid severable part of an award does not vitiate the whole award
- the court may itself amend the award instead of remitting it to avoid undue delay
