S. Dinesh Babu v. C. Venugopalan and N. Sukumaran

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR.JUSTICE V.CHITAMBARESH** ## **&** **THE HONOURABLE MR. JUSTICE R. NARAYANA PISHARADI** **TUESDAY ,THE 15TH DAY OF JANUARY 2019 / 19TH POUSHA, 1940** ## **Arb.A.No. 31 of 2007** **AGAINST THE JUDGMENT DATED 16-10-2006 IN OPARB 189/2001 of II ADDL.DISTRICT COURT,ERNAKULAM** ## **APPELLANT/PETITIONER:** **S.DINESH BABU CHARTERED ENGINEER,, 44/1478, PRAYAG, CFC ROAD, KALOOR, KOCHI-17.** **BY ADV. SRI.P.M.POULOSE** ## **RESPONDENTS:** **1 C.VENUGOPALAN 50/710, H2, MILLAN BANYTH LANE, PONEVAZHI, ELAMAKKARA P.O.,, KOCHI-26. 2 SRI. N.SUKUMARAN RETIRED DISTRICT JUDGE, THRIVENI, WARRIAM ROAD,, KOCHI-16.** **THIS ARBITRATION APPEAL HAVING BEEN FINALLY HEARD ON 09.01.2019, THE COURT ON 15.01.2019 DELIVERED THE FOLLOWING:** Arb.A.No.31/2007 2 **“CR”** # **V.CHITAMBARESH &** ## **R.NARAYANA PISHARADI, JJ.** ************************** Arb.Appeal No.31 of 2007 ---------------------------------------------Dated this the 15[th] day of January, 2019 ## **JUDGMENT** ## **R.Narayana Pisharadi, J** What is meant by the expressions _“ex aequo et bono”_ and “ _amiable compositeur_ ” in the context of Section 28(2) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act')? Answer to this question is essential for the proper disposal of this appeal. 2. The appellant is a chartered engineer and contractor. The first respondent is an officer of a bank. He wanted to construct a residential building. He entered into an agreement with the appellant on 02.05.1996 for construction of the building. The proposed building had a plinth area of 1443 sq.ft. The rate agreed upon between the parties was Rs.315/- per sq.ft. The construction of the building had to be completed within a period Arb.A.No.31/2007 3 of eight months from the date of approval of the plan by the local authority. The appellant could not complete the work within the stipulated period due to various reasons. Then, disputes arose between the parties with regard to the amount to be paid to each other on breach/termination of the agreement. 3. As per the order dated 17.03.1999 in A.R.No.12/1998 filed by the first respondent, this Court appointed a retired District Judge as the sole arbitrator to decide the dispute between the parties. The parties adduced evidence before the arbitrator. CW1 and CW2 were examined and Exts.C1 to C14 documents were marked on the side of the first respondent/claimant. RW1 was examined and Exts.R1 to R6 documents were marked on the side of the appellant. 4. After meticulous analysis of the evidence adduced before him, the arbitrator found that the appellant is not entitled to get any amount from the first respondent/claimant. The arbitrator also found that the first respondent/claimant is entitled to get an amount of Rs.1,09,000/- from the appellant. An award was accordingly passed by the arbitrator. 5. The appellant filed application under Section 34(1) of Arb.A.No.31/2007 4 the Act in the District Court, Ernakulam as O.P.(Arb) No.189/2001 challenging the award passed by the arbitrator. As per the impugned judgment, the learned Additional District Judge found that the award passed by the arbitrator is reasonable and well considered and that there is no ground to set aside the award and dismissed the aforesaid application. 6. Notice was served on the first respondent. He has not entered appearance. We have heard Sri.P.M.Poulose, learned counsel for the appellant and perused the available records. 7. The plea of the first respondent/claimant before the arbitrator was that he paid Rs.3,84,000/- in instalments before the date 14.03.1996 and a further amount of Rs.50,000/- on 02.05.1996 to the appellant. His plea was that the appellant had stopped the construction of the building on 14.03.1996. The plea of the claimant was that the appellant had done work only for an amount of Rs.2,70,000/-. On the other hand, the appellant had raised counter claim before the arbitrator alleging that he had done extra work and he had constructed 1565 sq.ft as against the agreed area of 1443 sq.ft. The appellant pleaded that he had completed work worth Rs.4,40,000/- as per the agreement. He Arb.A.No.31/2007 5 had alleged that he had done additional work for Rs.1,20,000/-. He had received Rs.3,84,000/- from the first respondent. Therefore, he claimed an amount of Rs.1,86,000/- from the first respondent/claimant. 8. Most of the grounds under which the award was challenged by the appellant in the application filed under Section 34(1) of the Act pertain to factual findings made by the arbitrator on the basis of the evidence adduced by the parties before him. However, learned counsel for the appellant contended that the award is in conflict with the public policy of India as erroneous findings have been made by the arbitrator which are patently illegal and therefore, the award is liable to be set aside under Section 34(2)(b)(ii) of the Act. 9. Applications under Section 34 of the Act are summary proceedings with provision for objections by the defendant/respondent, followed by an opportunity to the applicant to prove the existence of any ground under Section 34(2) of the Act. (See **Fiza Developers v. AMCI (I) Pvt Ltd : (2009) 17 SCC 796** ). The grounds for setting aside the award are specific. Therefore, necessarily a person who files an Arb.A.No.31/2007 6 application under Section 34 of the Act will have to plead the facts necessary to make out the ingredients of any of the grounds mentioned in sub-section (2) and prove the same. Section 5 of the Act provides that notwithstanding anything contained in any other law for the time being in force, in matters governed by Part I of the Act, no judicial authority shall intervene except where so provided in the Act. The only question that arises in an application under Section 34 of the Act is whether the award requires to be set aside on any of the specified grounds in sub-section (2) thereof. Section 34 of the Act makes it clear than an arbitral award can be set aside on the grounds enumerated in sub-section (2) and on no other ground. 10. Sufficiency and quality of the evidence are matters of decision by the arbitrator. He is the sole judge of the quality as well as the quantity of evidence. Where reasons have been given by the arbitrator in making the award, the court cannot examine the reasonableness of the reasons. While considering the challenge to an award, the court cannot sit in appeal over the award. The court cannot reappreciate the evidence for the purpose of finding whether on the facts and circumstances, the Arb.A.No.31/2007 7 award in question could have been made. In the anxiety to render justice to the party to arbitration, the court cannot reappraise the evidence intrinsically with a close scrutiny and find that the conclusion drawn by the arbitrator on facts, according to the understanding of the court, is erroneous. Such exercise of power, which can be made by an appellate court with power to reverse findings of facts, is alien to the scope and ambit of challenge to an award under the Act. Only when errors of finding of facts having a bearing on the dispute are patent and is easily demonstrable without the necessity of carefully weighing the evidence, interference with the award is possible on the ground of patent illegality. Errors which do not appear on the face of the award cannot be a ground for the court to set aside the award. Award can be set aside on the ground that it is in conflict with the public policy only when the illegality goes to the root of the matter. 11. We have perused the award passed by the arbitrator. We are convinced that the decision of the arbitrator is based on meticulous analysis of the evidence adduced before him by the parties. We do not find that the award is patently illegal for any Arb.A.No.31/2007 8 reason. 12. Sri.P.M.Poulose, learned counsel for the appellant has pointed out that the arbitrator rejected the request made by the appellant for appointment of an expert for conducting inspection of the building and that the arbitrator conducted personal inspection of the building without any authorisation by the parties. Learned counsel would contend that the act of the arbitrator conducting personal inspection of the building was in contravention of the provision contained in Section 28(2) of the Act. 13. Section 28(2) of the Act reads as follows: "The arbitral tribunal shall decide _ex aequo et bono_ or as _amiable compositeur_ only if the parties have expressly authorised it to do so". 14. Sri.P.M.Poulose has enlightened us on the meaning of the expressions “ _ex aequo et bono“_ and “ _amiable compositeur”_ on the basis of the ruling of the Delhi High Court in **Jai Singh v. DDA (MANU/DE/1254/2008** ). In this decision, it is stated as follows: Arb.A.No.31/2007 9 _“Black's Law Dictionary defines the term 'ex aequo et bono' as 'in justice and fairness' or 'according to equity and good conscience'. The word, 'amiable compositeur' is a French term. It means a person who adopts a flexible approach brimful with fairness and reality”._ 15. The Delhi High Court has also extracted the following passage from Russell on Arbitration (21st Edition). _“The Tribunal has a duty to decide a dispute in accordance with the legal rights of the parties, rather than in what the tribunal considers a fair and reasonable way, unless there is specific agreement between the parties to the contrary. The tribunal may be specifically instructed by the arbitration agreement to decide the disputes on some basis other than the law; an agreement to this effect has generally become known as an 'equity clause'. For example, the parties may agree that the tribunal is to decide the dispute in accordance with concepts variously known as 'honourable engagement', 'amiable compositeur' 'equity', 'ex aequo et bono', the 'general principles of law recognized by civilized nations' or the 'lex mercatoria'.”_ 16. The Latin phrase " _ex aecquo et bono_ " means according Arb.A.No.31/2007 10 to equity and conscience. In the context of arbitration, it refers to the power of arbitrator to dispense with consideration of the law and to take decisions on notions of fairness and equity. 'Amiable compositeur' is a French term which refers to an unbiased third party who is not bound to apply strict rules of law and who may decide a dispute according to justice and fairness. According to Black's Law Dictionary (eighth edition), the expression ' _'amiable compositor'', which is also termed as_ ' _'amiable compositeur'',_ means an unbiased third party, who suggests a solution. 17. Section 28 of the Act contains the rules applicable to the substance of the dispute and not rules regarding procedure. Section 28(1)(a) of the Act states that the arbitral tribunal shall decide the dispute in accordance with the substantive law for the time being in force in India. All that is intended by the provision contained in Section 28(2) of the Act is that, in the name of equity, the arbitrator shall not disregard the law and take decisions on notions of fairness and good conscience, unless expressly authorised by the parties to do so. 18. Section 19 of the Act contains provisions regarding the rules of procedure to be followed by the arbitrator in conducting Arb.A.No.31/2007 11 the proceedings. Section 19(1) of the Act provides that the arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 or the Indian Evidence Act, 1872. Sub-section (2) of Section 19 states that the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting its proceedings. It is provided in sub-section (3) of Section 19 that failing any agreement by the parties with regard to the procedure to be followed by the arbitral tribunal, it may conduct the proceedings in the manner it considers appropriate. 19. A combined reading of the provisions contained in sub-sections (1) to (3) of Section 19 of the Act would indicate that in the absence of any agreement between the parties, the arbitrator may conduct the proceedings in the manner in which he thinks it appropriate. It does not mean that the arbitrator is precluded from adopting a procedure in accordance with the provisions contained in the Code of Civil Procedure, 1908. Nothing in Section 19 of the Act prevents the arbitrator from following a procedure prescribed in the Code of Civil Procedure, 1908. 20. Order XVIII Rule 18 of the Code of Civil Procedure, Arb.A.No.31/2007 12 1908 provides for the power of the civil courts to inspect. It stipulates that the court may at any stage of a suit inspect any property or thing concerning which any question may arise and where the court inspects any property or thing, it shall as soon as may be practicable, make memorandum of any relevant facts observed at such inspection and such memorandum shall form part of the record of the suit. 21. An arbitrator, who conducts local inspection, commits no illegality. He only adopts a procedure which is prescribed by the Code of Civil Procedure. Local inspection is contemplated in civil jurisprudence. Then, the contention that it cannot be conducted in an informal process such as arbitration, is only misconceived. There is no merit in the contention that the arbitrator had misconducted himself by undertaking a personal inspection of the building. The arbitrator did not violate the provision contained in in Section 28(2) of the Act by conducting personal inspection of the building. 22. The object of local inspection by the judge is not to collect evidence. Observations made by a judge in the course of his local inspection cannot be substituted for the evidence in the Arb.A.No.31/2007 13 case. Impressions gathered by him on local inspection do not constitute evidence in the case. It is to be remembered that the parties never get a chance of testing the correctness of the observations made by him by cross-examination of him. The scope of local inspection is primarily limited to make use of the observations made by the judge on inspection of the spot to enable him to appreciate the evidence adduced by the parties in a better manner. Logically it follows that conducting of the enquiry or the trial and examination of the witnesses should precede the holding of local inspection and not vice-versa. Notes of inspection or memorandum prepared by the judge will enable him to test the accuracy of the evidence given by the parties in matters capable of observation. Notes of inspection prepared by the judge on local inspection cannot form the foundation of the judgment in the case. 23. In the instant case, the award passed by the arbitrator is not based on the impressions gathered by him on local inspection. The award is based on the evidence adduced before him by the parties. When the award of the arbitrator is not based on the result of the personal inspection conducted by him, the Arb.A.No.31/2007 14 ## award is not vitiated (See **Ugam Singh v. Kesrimal: AIR 1971 SC 2540** ). 24. The arbitrator had dismissed the application made by the appellant for deputing an expert commissioner to inspect the building. It is axiomatic that experts in the field of civil engineering would, by reason of their technical knowledge and experience, be better equipped to assess the cost of construction of any building or a part of it. However, the arbitrator has given reasons in his order dated 04.06.2001 for not appointing an expert commissioner for inspection of the building. It is stated in his order that the construction of the building had been completed and therefore, an expert commissioner would not be able to locate the stage as it stood on the crucial date, that is, the date on which the appellant abandoned the construction of the building without its completion. The arbitrator found that it is a matter to be decided on available evidence. But, the arbitrator decided to conduct local inspection instead of deputing an expert commissioner for the reason that the two matters sought to be ascertained by the appellant with regard to the building could be ascertained even by a layman. These two matters were (i) Arb.A.No.31/2007 15 whether a part of the open terrace was converted into a separate prayer room and thus extra construction was made by the appellant and (ii) whether there was any car porch additionally constructed by the appellant. The arbitrator also found that appointment of an expert commissioner would involve further delay in the disposal of the case and extra expenditure and it could be avoided, if possible. In these circumstances, the refusal of the arbitrator to appoint any expert for inspection of the building cannot be found fault with. 25. The appellant has got another grievance that the report of the Advocate Commissioner and the expert (an engineer) regarding the inspection of the building conducted by them, without notice to him, during the course of the suit filed by the first respondent against him, were admitted in evidence by the arbitrator. The report of the Advocate Commissioner was not relied upon by the arbitrator for any purpose. This is specifically stated in the award. The arbitrator has only relied upon the report of the expert, that too, only after examination of the expert as CW2 before him. As per Section 19(4) of the Act, it is for the arbitrator to decide the admissibility, relevance, Arb.A.No.31/2007 16 materiality and weight of any evidence adduced before him. In the instant case, the arbitrator has relied upon the report of the expert only after examination of the expert as a witness. The procedure adopted by the arbitrator was not irregular or illegal. 26. In **Mcdermott International Inc. v. Burn Standard Co. Limited : (2006) 11 SCC 181** , the Apex Court has held as follows: _“The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice, etc. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, the scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court's jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it”._ 27. The learned Additional District Judge has considered the merits of the application filed by the appellant under Section 34(1) of the Act in the correct perspective. We do not find any Arb.A.No.31/2007 17 reason to interfere with the impugned judgment passed by the learned Additional District Judge. Consequently, we dismiss the appeal. No costs. (sd/-) **V.CHITAMBARESH, JUDGE** (sd/-) **R.NARAYANA PISHARADI, JUDGE** jsr/14/01/2019 True Copy PS to Judge