BUNGO STEEL FURNITURE PVT. LTD. versus UNION OF INDIA

Citation: [1967] 1 S.C.R. 633 · Decided: 30-09-1966 · Supreme Court of India · Bench: RAGHUBAR DAYAL · Disposal: Appeal(s) allowed

Cited by 4 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

A 
BUNGO STEEL FURNITURE PVT. LTD. 
v. 
UNION OF INDIA 
September 30, 1966. 
S 
(V. RAMASWAMI, V. BHARGAVA AND RAGHUBAR DAYAL, JJ.) 
c 
D 
E 
' 
G 
H 
Arbitration-Award-Party contracting to obtain supply of 61ee/ blM-
Cancellation of contract after part supply-Arbitrator awarding damag1s 
for wrongful termination-Reasons or principles not indicated In Award--
If could be set aside on ground of error of law on face oJ the Award •. 
The Union of India entered into two contracts in November 1944 
and June 1945 with the appellants, which were subsequently modified ID 
February 1946, for the supply of 4,700 bins at·an agreed price inclusive 
of 'the cost of steel. The Government undertook to make available thf 
steel required for the manufacture of the bins and accordingly, supplied 
to the appellants steel valued at Rs. 2,53,521 for which amount credit 
was lo be given to the Government. After 2,172 bins bad been manu-
factured and supplied to the Union, the latter cancelled the contract for 
the supply of the balance 2,528 bins. 
Each of the contracts between the parties contained an arbitration 
clause and in accordance with this provision, the dispute arising out of 
cancellation of the contracts was referred to an arbitrator. The arlJitra,. 
tor found that the contract bad been wrongfully -lied; and that at 
the time of the cancellation the component parts of the balance 2,528 biu 
were ready but had not been assembled into finished bins. By way ot 
compensation for the wrongful termination of the contract by the Gov-
ernment, the Arbitrator awarded damages to the company of the amount 
representing the value of steel used up in making the component parts 
for bills which· bad not been 
assembled into completed binl. Thia 
amounted to Rs. 1,65,825. 
The Government made· an application to the Calcutta High Court tor 
oetting Hide the arbitrator's award on the ground that there wa a mt.. 
take of law apparent on the face of the award ill the estimation .0t 
damages for wrongful termination of the contract. A single Judge of the 
High Court Substantially conftrmed the arbitrator's award. The Govern-
ment took the matter 1n appeal to a Division Bench of the High Ceurt 
and the two appeals filed were allowed by that Bench and the award was 
set a•ide. 
· 
It was contended on behalf of the 
appellants that the High Court 
could not have interfered with the award of the arbitrator as ihere was 
no error on the face of the award; that the arbitrator was not bound to 
give reasons for .. timating the damages to which the appellant wu entit-
led and that he had not in fact giveJt anv such reasons. 
HELD : Allowing the appeal (per Bbargava and 
Raghubar Dayal, 
JJ.). The arbitrator in fi•ing the amount of compensation bad not pro-
ceeded to follow any principles. the. validity of which could be tested on 
the basis of laws applicable to breache• of contract. He awarded the 
compen•ation to. the extent that he considered right in his discretion with-
out indicating his reasons. 
Such a decioion by an Arbitrator could not 
be held to he erroneous on the face of the record. [642 A-:Sl 
634 
SUP!li!ME COURT lli!POllTS 
[1967] l S.C.R. 
The consideration that led the arbitrator to consider that the value of 
the steel was equal to, and ·not more or 1"'5 than, the amount which he 
considered it ri~t to award as compensation, was not indicated by him in 
his award. This was, therefore, clearly a case where the arbitrator came 
to the conclusion that a certain amount, should be paid by the Govern-
ment as compensation for wrongful termination of the contract, and in 
his discretion be laid down that the amount should be equal to the value 
of the steel as it existed after it had been converted into component part!. 
1641 F-GJ 
It is now a well settled principle that if an arbitrator, in deciding a 
dispute before him, does not record his reasons and does not indicate tho 
principles of law on which be has proceeded, the award is not on that 
account vitiated. It is only when 
the arbitrator proceeds to give hil 
reasons or to lay down principles on which he has arrived at his decisions 
that t)ie court " competent to examine whether he has proceeded or>n-
trary to law and is entitled to interfere if such error in law is apparent 
on the face of the award i!Self. (640 HJ 
(Per Ramaswami J., dissenting)-ln the present case the arbitrator 
bad estimated the measure of damages as equivalent to the value of steel 
used up in making the comp

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