Appeal No.144 of 2000,Arbitration Petition No. 210 of 1998,Arbitration Award No. 18 of 1998

5th October, 2000

Petitioner Counsel: Mr. T.R.ANDHYARUJINA, Mr.D.J.KHAMBATTA , Mr. H.N.VAKIL
Respondent Counsel: Mr.ROHIT KAPADIA with Mr.S.R.RAJGURU

Cases Cited:
U.P.S.E.B. vs. Atma Steels, AIR 1998 SC 846 [Para 7,11]
King and Duveen and Others, 1913 2 K.B. 32 [Para 13]
Champsey Bhara & Company vs. Jivraj Balloo Spinning & Weaving Company Ltd., AIR 1923 PC 66 [Para 14]
Hodgkinson vs. Fernie, 1857 8 G.B.N.S. 182 [Para 14]
M/s. Kapoor Nilokhero Co-op. Dairy Farm Society Ltd. vs. Union of India, 1973 1 SCC 708 [Para 15]
U.P.Hotels vs. U.P.State Electricity Board, 1989 1 SCC 359 [Para 16]
Hitchins vs. British Coal Reining Processes Ltd., 1936 2 ALL ER (Rep) 191 [Para 16]
Indian Aluminium Co.Ltd. Vs. Kerala State Electricity Board, 1975 2 SCC 414 [Para 16]
Belwal Spinning Mills Ltd. vs. U.P.State Electricity Board, AIR 1997 SC 2793 [Para 17]
Tarapore and Company vs. Cochin Shipyard Ltd., Cochin, (1984) 2 SCC 680 [Para 18]
M/s. Sudarsan Trading Co. vs. The Govt. of Kerala, AIR 1989 SC 890 [Para 19]
State of Orissa vs. M/s. Lall Brothers, AIR 1988 SC 2018 [Para 20]
State of Andhra Pradesh vs. R.V.Rayanim, AIR 1990 SC 626 [Para 21]
Durga Prasad Chamria vs. Sewkishendas Bhattar, AIR 1949 PC 334 [Para 22]
State of Rajasthan vs. Puri Construction Co.Ltd, 1994 6 SCC 485 [Para 23]
Thawardas Pherumal vs. Union of India, AIR 1955 SCC 468 [Para 24]
F.R.Absalom Ltd. vs. Great Western (London) Garden Village Society, 1933 AC 592 [Para 24]
Banwari Lal Kotiya vs. P.C.Aggarwal, AIR 1985 SC 1003 [Para 25]
Union of India vs. A.L.Rallia Ram, AIR 1963 SC 1685 [Para 26]
Alopi Prasad & Sons Ltd. vs. Union of India, AIR 1960 SC 588 [Para 26]
Lubrizol (India) Ltd. vs. Lubrizol Corporation U.S.A, 1998(1) ALL MR 435 [Para 27]

JUDGMENT

B.N.SRIKRISHNA, J.:- This Appeal is directed against the judgment and order of the learned Single Judge (D.K.Deshmukh, J.) dated 17th December 1999 allowing the petition and setting aside the Arbitration Award No.18 of 1998. When this Appeal came up for admission, Counsel on both sides requested that the Appeal be finally heard at that stage itself. We have acceded to this request.

2. Appeal admitted. Notice made returnable forthwith. Respondents waive notice through Counsel. By consent, Appeal is finally heard.

3. The Appellants are licensees under the Indian Electricity Act, 1960 who supply electric energy to consumers. The Respondent is Union of India which owns the Western Railway.

4. On 7th July 1971, a Power Supply Agreement was executed between the Appellants and the Respondent, Western Railway, for supplying electricity to the Railways. Clause 20 of the Power Supply Agreement contains an arbitration clause which reads as under :-

"20.0 In the event of any dispute or difference at any time arising between the Government and the Companies in regard to any meter arising out of or in connection with this Agreement such dispute or difference shall be referred to the arbitration of two Arbitrators one to be appointed by each party hereto and an Umpire to be appointed by the Arbitrators before entering upon the reference and decision or award of the said Arbitrators or Umpire shall be final and binding on the parties hereto and any reference made under this clause shall be deemed to be a submission to arbitration under the Arbitration Act, 1940, or any statutory modification thereof for the time being in force. The venue of arbitration shall be Bombay."

5. Sometime on or about 7th June 1993, the Respondent discovered that Feeder No.36 red phase of Current Transformer (hereinafter referred to as "CT") had become inter-turn short resulting in low output from its secondary winding. The said CT was replaced on 13th June 1993. By letters dated 22nd June 1993 and 16th July 1993 the Respondent informed the Appellants of the aforesaid facts and that the offtake of electricity of Western Railway between October 1991 to June 1993 (19 months) was lower to the extent of 34 per cent as compared to the average offtake recorded for the thirty previous months (April 1989 to September 1991). On 26th July 1993, the Appellants forwarded a supplementary bill for the unrecorded power consumption in the amount of Rs.8,89,32,347.50. By the letter dated 6th August 1993 the Respondent informed the Appellants that payment for under-registration by the meter could be permitted only for the maximum period of three months as per the Agreement dated 7th July 1971. By their letter of 27th September 1993, the Appellants insisted that they were entitled to be paid for the period of under-registration at the same rates as in the Agreement and in the total sum as indicated in the supplementary bill.

6. By letters of 2nd June 1995 and 27th July 1995, the Appellants desired that the dispute/difference which had arisen between the parties be referred to arbitration as per Clause 20 of the Agreement dated 7th July 1971 and appointed one A.D.Limaye, retired Assistant General Manager of Bombay Electric Supply and Transport Undertaking, as their Arbitrator and called upon the Respondent to nominate its Arbitrator. By the letter dated 2nd February 1996, the Respondent nominated one A.K.Sinha, Financial Adviser and Chief Accounts Officer, as its Arbitrator. The arbitration proceedings were carried on thereafter. The Arbitrators failed to agree and, by their letter dated 25th September 1996, referred the dispute to the Umpire, N.C.Narasingham.

7. On 14th January 1997 and 28th January 1997, the Umpire received the documents from both the Arbitrators. On 13th March 1997 and 4th April 1997, the Appellants filed their Statement of Claim, to which the Respondent filed a reply. On 15th April 1997, the Umpire entered upon the Reference. After hearing the parties on various dates, the Umpire made an Award on 13th March 1998 awarding a sum of Rupees Four crores to the Appellants together with interest at 12 per cent per annum from August 1993 till the passing of the Court decree. On 29th June 1998, the Respondent filed Arbitration Petition No.210 of 1998 under Section 34 of the Arbitration and Conciliation Act, 1996 challenging the Award on the ground of an error of law apparent on the face of the Award. The Respondent contended that the Umpire had decided the question of law directly contrary to the decision of a judgment of the Supreme Court. By the impugned judgment dated 17th December 1999, the learned Single Judge allowed the Petition, in terms of prayer (a), by holding that the view taken on the issue of law by the Umpire was directly contrary to the judgment of the Supreme Court in the case of U.P.S.E.B. v. Atma Steels, AIR 1998 SC 846. The learned Single Judge also held that the Umpire had no jurisdiction to enter upon the Reference as the subject matter of dispute was fully covered by the provisions of Section 26 of the Indian Electricity Act, 1910 which precluded arbitration by a private person. Being aggrieved by the said judgment of the learned Single Judge, the Appellants are in Appeal before this Court.

8. Before we take up the respective contentions of the parties, it is necessary to notice the provisions of Section 26 of the Indian Electricity Act, 1910. The Act makes detailed provisions for supply of electricity by licensees and provides for the rights and liabilities of the licensees and the consumers. Section 26 of the Indian Electricity Act, 1910 provides for the contingency of a dispute regarding the correctness of the meter recording the supply of electric energy to the consumer. The said Section reads as under :-

"26. Meters - (1) In the absence of an agreement to the contrary, the amount of energy supplied to a consumer or the electrical quantity contained in the supply shall be ascertained by means of a correct meter, and the licensee shall, if required by the consumer, cause the consumer to be supplied with such a meter;

Provided that the licensee may require the consumer to give him security for the price of a meter and enter into an agreement for the hire thereof, unless the consumer elects to purchase a meter.

(2) Where the consumer so enters into an agreement for the hire of a meter, the licensee shall keep the meter correct, and, in default of his doing so, the consumer shall, for so long as the default continues, cease to be liable to pay for the hire of the meter.

(3) Where the meter is the property of the consumer, he shall keep the meter correct, and, in default of his doing so, the licensee may, after giving him seven days notice, for so long as the default continues, cease to supply energy through the meter.

(4) The licensee or any person duly authorised by the licensee shall, at any reasonable time and on informing the consumer of his intention, have access to and be at liberty to inspect and test, and for that purpose, if he thinks fit, take off and remove, any meter referred to in sub-section (1) ; and, except where the meter is so hired as aforesaid, all reasonable expenses of, and incidental to, such inspecting, testing, taking off and removing shall, if the meter is found to be otherwise than correct, be recovered from the consumer; and, where any difference or dispute arises as to the amount of such reasonable expenses, the matter shall be referred to an Electrical Inspector, and the decision of such Inspector shall be final:

Provided that the licensee shall not be at liberty to take off or remove any such meter if any difference or dispute of the nature described in sub-section (6) has been determined as therein provided.

(5) A consumer shall not connect any meter referred to in sub-section (1) with any electric supply-line through which energy is supplied by a licensee, or disconnect the same from any such electric supply-line, but he may by giving not less than forty-eight hours notice in writing to the licensee require the licensee to connect or disconnect such meter and on receipt of any such requisition the licensee shall comply with it within the period of the notice.

(6) Where any difference or dispute arises as to whether any meter referred to in sub-section (1) is or is not correct, the matter shall be decided, upon the application of either party, by an Electrical Inspector; and where the meter has, in the opinion of such Inspector ceased to be correct, such Inspector shall estimate the amount of the energy supplied to the consumer or the electrical quantity contained in the supply, during such time, not exceeding six months, as the meter shall not, in the opinion of such Inspector, have been correct; but save as aforesaid, the register of the meter shall, in the absence of fraud, be conclusive proof of such amount or quantity:

Provided that before either a licensee or a consumer applies to the Electrical Inspector under this sub-section, he shall give to the other party not less than seven days notice of his intention so to do.

(7) In addition to any meter which may be placed upon the premises of a consumer in pursuance of the provisions of sub-section (1), the licensee may place upon such premises such meter, maximum demand indicator or other apparatus as he may think fit for the purpose of ascertaining or regulating either the amount of energy supplied to the consumer, or the number of hours during which the supply is given, or the rate per unit of time at which energy is supplied to the consumer, or any other quantity or time connected with the supply:

Provided that the meter, indicator or apparatus shall not, in the absence of an agreement to the contrary, be placed otherwise than between the distributing mains of the licensee and any meter referred to in sub-section (1):

Provided, also that, where the charges for the supply of energy depend wholly or partly upon the reading or indication of any such meter, indicator or apparatus as aforesaid, the licensee shall, in the absence of an agreement to the contrary, keep the meter, indicator or apparatus correct; and the provisions of sub-sections (4), (5) and (6) shall in that case apply as though the meter, indicator or apparatus were a meter referred to in sub-section (1).

Explanation - A meter shall be deemed to be "correct" if it registers the amount of energy supplied, or the electrical quantity contained in the supply, within the prescribed limits of error, and a maximum demand indicator or other apparatus referred to in sub-section (7) shall be deemed to be "correct" if it complies with such conditions as may be prescribed in the case of any such indicator or other apparatus."

If the dispute between the parties is covered by the provisions of Section 26(6) of the Indian Electricity Act, 1910, then it is obvious that the dispute is not arbitrable except by the Electrical Inspector as provided in Section 26(6). Further, even if the Electrical Inspector were to arbitrate upon the dispute, the only period of dispute which could be considered would be the period of six months immediately prior to the date on which the defect was noticed. Sub-section (6) of Section 26 of the Indian Electricity Act, 1910 provides that, barring the dispute for the aforesaid six months, the register of the meter shall, in the absence of fraud, be conclusive proof of the amount or quantity or electric energy supplied to the consumer. In other words, a statutory irrebuttable presumption is raised that prior to the period of six months the meter is deemed to be good and the parties are concluded by the reading of the meter.

9. Before the learned Single Judge, the Respondent impugned the Award on the following grounds :-

(a) The dispute between the parties arose in connection with the Current Transformer which is a part and parcel of the meter; the dispute being one in connection with the reading of the meter, it ought to be arbitrated upon exclusively by the Electrical Inspector by virtue of Section 26(1) of the Indian Electricity Act. Consequently, the Arbitrators had no jurisdiction.

(b) The Umpire clearly erred in law in holding that a dispute with regard to the functioning of the Current Transformer did not amount to a dispute with regard to the functioning of the meter since the Supreme Court in Atma Steel's case (supra) has, in terms, held that a Potential Transformer or a Current Transformer is an apparatus attached to a meter which is part and parcel thereof and falls within the term "meter" as used in Section 26 of the Indian Electricity Act.

10. The Appellants, obviously, are unable to contest the position that the finding on the issue of law made by the Umpire was contrary to the law laid down by the Supreme Court in Atma Steel's (supra). They have, however, taken up the stand that the parties had specifically referred the question of law as to whether the CT was a "meter" within the meaning of Section 26 of the Indian Electricity Act, and the question as to whether the dispute was arbitrable, to the decision of the Arbitrators; that the Umpire having decided the two issues of law specifically referred to him, the Award was not assailable even if the decision of the Umpire on the two issues of law specifically referred was erroneous. Thus, it appears to us that the Appeal hinges on the narrow issue as to whether the two questions of law decided by the Umpire were specifically referred to arbitration so as to be immune from judicial intervention. A number of authorities were cited at the bar by both sides which we shall deal with.

11. In U.P.S.E.B. v. Atma Steels and others, AIR 1998 SC 846, the Supreme Court was specifically concerned with the issue as to whether a Potential Transformer (PT), which was used to step down voltage from 11000 Volts to 110 Volts to enable the meter to record the amount of consumption, could be said to be a part and parcel of the meter, as understood under Section 26(7) of the Indian Electricity Act. The Supreme Court took the view that the only function done by the PT was stepping down, which was necessary to enable the ascertaining or regulating of the amount of energy supplied to the consumer. Consequently, the Supreme Court held that PT had to be regarded as "meter" within the meaning of Section 26(7) of the Indian Electricity Act. What was said by the Supreme Court with regard to PT applies with equal force to a Current Transformer (CT). A CT is an equipment which enables the electric current from being reduced from about 400 Amperes to 5 Amperes so that it could pass through the meter without damaging the meter. In our view, the CT would, on a parity of reasoning, be a part and parcel of the equipment intended to ascertain or regulate the amount of electric supply to the consumer. Consequently, we have no doubt that CT would be a "meter" within the meaning of Section 26 of the Indian Electricity Act, 1910. The dispute between the parties was admittedly a dispute about the under-registration on account of inter turn shorting in the CT. In other words, it was with respect to a defect in the "meter". Consequently, Section 26 of the Indian Electricity Act vested the exclusive jurisdiction of deciding the dispute in the Electrical Inspector.

12. This, then takes us to the limits of judicial interference with an Arbitration Award under Section 34 of the Arbitration and Conciliation Act, 1996. Despite judicial interference with an Arbitration Award having been drastically circumscribed under the Arbitration and Conciliation Act, 1996, it is not disputed that an Award can still be set aside if it contains an error apparent on a question of law. An Arbitrator's Award may be set aside for error of law appearing on the face of it, though the jurisdiction is not lightly to be exercised. Since a question of law can always be dealt with by means of a special case, this is one matter that can be taken into account while deciding whether the jurisdiction on this ground should be exercised. The jurisdiction is one that exists at common law independently of statute. In order to be a ground for setting aside the award, an error in law on the face of the award must be such that there can be found in the award, or in a document that is actually incorporated with it, some legal proposition which is the basis of the award and which is erroneous. If a specific question of law is submitted to the arbitrator for his decision and he decides it, the fact that the decision is erroneous does not make the award bad on its face so as to permit its being set aside; and where the question referred for arbitration is a question of construction, which is, generally speaking, a question of law, the arbitrator's decision cannot be set aside only because the court would itself have come to a different conclusion; but if it appears on the face of the award that the arbitrator has proceeded illegally, as, for instance, by deciding on evidence which was not admissible, or on principles of construction which the law does not countenance, there is error in law which may be ground for setting aside the award. (Halsbury's Laws of England, 4th Edn., Vol.2, para 623).

13. In the matter of an arbitration between King and Duveen and Others, 1913 2 K.B. 32, Channell, J. opined that though it was a well established principle of law that if a mistake of law appears on the face of the award of an arbitrator, that makes the award bad, and it can be set aside, it was equally clear that if a specific question of law was submitted to an arbitrator for his decision, and he does decide it, the fact that his decision is erroneous does not make the award bad on its face so as to permit of its being set aside. Otherwise it would be futile ever to submit a question of law to an arbitrator. On the facts before it, that Court was of the view that the question of law had been specifically referred to the arbitrator and decided erroneously by the arbitrators, but that did not make the award liable to be set aside.

14. In Champsey Bhara & Company v. Jivraj Balloo Spinning and Weaving Company Ltd., AIR 1923 PC 66, Lord Dunedin reiterated the law on this subject, quoting the words of Williams, J. in the case of Hodgkinson v. Fernie, (1857) 8 G.B.N.S. 182, as under :-

"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 a lawyer or a layman, he is constituted the sole and final judge of all questions both of law and in fact... The only exception 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 necessarily arises on 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 learned Judge further observed as under:-

"...... An error in law on the face of the award means, in their Lordships view, that you can find in the award or a document actually incorporated thereto, as for instance, a note appended by the arbitrator stating the reasons for his judgment, some legal proposition which is the basis of the award and which you can then say is erroneous. It does not mean that if in a narrative a reference is made to a contention of one party that opens the door to seeing first what that contention is and then going to the contract on which the parties rights depend to see if that contention is sound."

This classic enunciation of the principle by the Privy Council has remained the bedrock for all subsequent development of the law.

15. M/s. Kapoor Nilokheri Co-op. Dairy Farm Society Ltd. v. Union of India and Others, (1973) 1 SCC 708, was pressed into service in support of the proposition that where the party had specifically stated before the Arbitrator that its claims were based on the agreement, and on nothing else, and all that the Arbitrator had to decide was as to the effect of an agreement between the parties, the Arbitrator had really to decide a question of law, i.e. of interpreting the document, which was specifically submitted to him and his decision was not open to challenge.

16. U.P.Hotels and others v. U.P.State Electricity Board, (1989) 1 SCC 359, reiterates that where a specific question of law has been left for the decision of the Arbitrator, the Award was not liable to be set aside even if the Arbitrator erroneously decided the said question of law. The Supreme Court in its judgment approvingly referred to the observations of Justice Macnaghten in Hitechins V. British Coal Reining Processes Ltd., (1936) 2 ALL ER (Rep) 191. where the learned Judge observed, ".....it was permissible to look at the whole of the pleadings delivered in the arbitration, and it appears therein that the respondents affirmed and the applicants denied that the respondents were entitled to terminate the agreement as the applicants refused to attend daily at the site, and that this was a specific question submitted to the decision of the arbitrator." On the facts, the Supreme Court was of the view that in the case before it the view taken by the Umpire on Section 49 of the Electricity Supply Act, 1948 was a possible view in the light of the decision of the Supreme Court in Indian Aluminium Co.Ltd. v. Kerala State Electricity Board, (1975) 2 SCC 414, that though a question of law had arisen during the course of the arbitration proceedings and had been decided by the Umpire on a view which was a possible one to take, even on the assumption that such a view was not right, the award was not amenable to interference or correction by the Court of law as there was no proposition of law which could be said to be the basis of the award of the Umpire and which was erroneous.

17. In Belwal Spinning Mills Ltd. v. U.P.State Electricity Board and another, AIR 1997 SC 2793, the Supreme Court pointed out that under Section 26(6), the estimate of supply of energy by the Inspector is to be made for a period not exceeding six months prior to the date of raising the dispute to the Electrical Inspector and further that simply on the finding that the meter had ceased to be correct by the Electrical Inspector, the licensees may not be justified in contending that a particular meter had ceased to be correct from a particular point of time. By the amendment of sub-section (6) of Section 26, the legislature has intended to put an end to such disputes between the licensee and the consumer and has set at rest any dispute relating to any period anterior to the statutory period of estimation by providing that in case of dispute as to functioning of meter, the reading of the meter for the period beyond the period of statutory estimation shall be final.

18. Tarapore and Company v. Cochin Shipyard Ltd., Cochin and another, (1984) 2 SCC 680, was one of the cases where a similar contest as to whether a question of law had been specifically referred for the Arbitrator's decision arose for consideration of the Supreme Court. The Supreme Court had no difficulty in answering the question in the affirmative, since the different issues specifically referred by the parties to the sole Arbitrator specifically included the first question as to the interpretation of clause 40 of the General Conditions of Contract and that the second and third questions were to be answered, if the answer to question No.1 was in the affirmative. Based on the rival positions a specific issue was framed whether a claim for compensation would fall within the purview of the first part of the arbitration clause. That was the specific issue referred to the Arbitrator inviting him to specifically decide the issue. Parties, therefore, agreed to submit the specific issue even with regard to the scope, ambit, width and the construction of the arbitral clause to the Arbitrator. The Arbitrator was thus required and called upon first to decide whether the dispute was arbitrable and, if the answer was in the affirmative, then alone to proceed to decide the other issues. Scanning the correspondence placed on record, the Supreme Court reiterated its finding that the issue of law was specifically referred for the decision of the Arbitrator and was not to be incidentally decided while deciding the dispute referred to the Arbitrator upon his jurisdiction to entertain the dispute being questioned. After referring to a number of authorities, both in England and in India, the Supreme Court summarised the position in law (vide paragraph 32) in the following words :-

"32. On a conspectus of these decisions, it clearly transpires that if a question of law is specifically referred and it becomes evident that the parties desired to have a decision on the specific question from the arbitrator about that rather than one from court, then the court will not interfere with the award of the arbitrator on the ground that there is an error of law apparent on the face of the award even if the view of law taken by the arbitrator does not accord with the view of the court. This view of law taken in England was stated by this Court to be the same in this country and since the decision in Seth Thawardas case which follows earlier decisions in England and India, it has not been departed from. The view canvassed for by Mr. Pai that common law courts were very reluctant to part with their jurisdiction has hardly any relevance where a specific question is referred to the arbitrator for his decision. Even if the decision of the arbitrator does not accord with the view of the court, the award cannot be set aside on the sole ground that there is an error of law apparent on the face of it."

19. The case of M/s. Sudarsan Trading Co. v. The Govt. of Kerala and another, AIR 1989 SC 890, was pressed in service to contend that an Arbitrator's award is immune from judicial intervention for it is not open to court to probe the mental process of the Arbitrator and speculate as to what impelled the Arbitrator to arrive at this conclusion. This judgment, in our view, is not of assistance in deciding the present Appeal.

20. State of Orissa and others v. M/s.Lall Brothers, AIR 1988 SC 2018, dealt with a case of an unreasoned award in which a lump sum had been awarded. In the absence of reasons, the Supreme Court held that it was not open to probe the mental process of the Arbitrator and interfere with the award. This too, is not relevant to the point under consideration.

21. To the same effect are the observations of the Supreme Court in State of Andhra Pradesh and another v. R.V.Rayanim, AIR 1990 SC 626, which renders a non-speaking award almost immune from challenge unless there is error apparent on the face of record and points out that only in a speaking award the Court could look into the reasoning of the award and it is not open to the court to probe the mental process of the Arbitrator and speculate where no reasons are given by the award. This has no application to the facts before us.

22. In Durga Prasad Chamria and another v. Sewkishendas Bhattar and others, AIR (36) 1949 Privy Council 334, the Privy Council reiterated the principle that if the reference was of such a nature that the Arbitrator must be treated as having been appointed by the parties to decide, amongst others, specific questions of law which the Arbitrator is said to have decided wrongly, there was no scope for interference with the award.

23. The judgment of the Supreme Court in State of Rajasthan v. Puri Construction Co.Ltd. and another, (1994) 6 SCC 485, indicates the general limits of judicial intervention in an arbitral award.

24. On behalf of the Respondents, heavy reliance is placed on the judgment of the Supreme Court in Thawardas Pherumal and another v. Union of India, AIR 1955 SC 468, to contend that an arbitration award would be immune from judicial scrutiny, even if it decides erroneously on a question of law, only where the question of law was specifically submitted for the decision of the Arbitrator. The observations of the Supreme Court (vide paragraph 11) are important and they are as under :-

"11. In India this question is governed by section 16(1)(c) of the Arbitration Act of 1940 which empowers a Court to remit an award for reconsideration "where an objection to the legality of the award is apparent upon the face of it."

This covers cases in which an error of law appears on the face of the award. But in determining what such an error is, a distinction must be drawn between cases in which a question of law is specifically referred and those in which a decision on a question of law is incidentally material (however necessary) in order to decide the question actually referred.

If a question of law is specifically referred and it is evident that the parties desire to have a decision from the arbitrator about that rather than one from the Courts, then the Courts will not interfere, though even there, there is authority for the view that the Courts will interfere if it is apparent that the arbitrator has acted illegally in reaching his decision, that is to say, if he has decided on inadmissible evidence or on principles of construction that the law does not countenance or something of that nature. See the speech of Viscount Cave in - Kelantan Government v. Duff Development Co.Ltd., 1923 AC 395 at p.409(A). But that is not a matter which arises in this case."

The Supreme Court opined that the law in India was the same as in England and had been set out with clarity by the House of Lords in F.R.Absalom Ltd. v. Great Western (London) Garden Village Society, 1933 AC 592 (B). The Supreme Court summed up the law by saying :

"An arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks is just and reasonable. He is a tribunal selected by the parties to decide their disputes according to law and so is bound to follow and apply the law, and if he does not, he can be set right by the Courts provided his error appears on the face of the award. The single exception to this is when the parties choose specifically to refer a question of law as a separate and distinct matter."

Conversely, the Supreme Court pointed out, "If, therefore, no specific question of law is referred, either by agreement or by compulsion, the decision of the arbitrator on that is not final however much it may be within his jurisdiction, and indeed essential, for him to decide the question incidentally." (Emphasis ours). The reason as to why such an award in which the question of law is specifically referred to the decision of the Arbitrator would be immune from challenge, even if it decides the question of law erroneously, is indicated by the Supreme Court (Vide paragraph 14) as under :

".... We stress the word specifically because parties who make a reference to arbitration have the right to insist that the tribunal of their choice shall decide their dispute according to law, so before the right can be denied to them in any particular matter, the Court must be very sure that both sides wanted the decision of the arbitrator on a point of law rather than that of the Courts and that they wanted his decision on that point to be final."

Finally, the Supreme Court clinched the argument by saying:

"Therefore, when a question of a law is the point at issue, unless both sides 'specifically' agree to refer it and agree to be bound by the arbitrator's decision, the jurisdiction of the Courts to set an arbitration right when the error is apparent on the face of the award is not ousted. The mere fact that both parties submit incidental arguments about a point of law in the course of the proceedings is not enough. The language of Lord Wright in 1923 AC 592 at P.616 (B), a case similar to this so far as this point is concerned, is apposite here -

"There is here no submission of any specific question of law as such and as a specific question of law ; no doubt incidentally, and indeed necessarily, the arbitrator will have to decide some questions on the construction of the building contract, but the two matters submitted are both composite questions of law and fact; there is no express submission of the true effect of the contract on the basis of undisputed facts, as in the 1923 AC 395(A), or as a separate and distinct matter on facts to be separately assumed or found, as in - In re King and Duveen, 1913-2 KB 32 at p.36 (1) .......

The arbitrator was not being asked simply and specifically to decide, upon some agreed or assumed basis of fact, the true interpretation of either clause 26 or clause 30 of the conditions or of both together, he was being required to make an award on the two matters submitted on whatever questions of fact and law might emerge."

The Supreme Court quoted with approval the observations of the House of Lords that in the absence of a specific reference about the construction of the contract the jurisdiction of the Courts was not taken away. The observations of Lord Russell of Killowen, approvingly quoted by the Supreme Court were :-

"No specific question of construction or of law was submitted. The parties, had, however, been ordered to deliver pleadings, and by their statement of claim the contractor had claimed that the arbitrator should under his powers revise the last certificate issued etc.......

It is at this point that the question of the construction of condition 30 arose as a question of law, not specifically submitted, but material in the decision of the matters which had been submitted. This question of law the arbitrator has decided; but if upon the face of the award he has decided it wrongly his decision is, in my opinion, open to review by the Court."

25. In Banwari Lal Kotiya v. P.C. Aggarwal, AIR 1985 SC 1003, the Supreme Court set at rest a doubt which had arisen in the interpretation of its observations made in Thawardas Pherumal's case (supra) by saying,..... These observations must be read in the proper perspective and not in a truncated manner or divorced from the context of specific issue which arose for determination before the Court in that case. So considered it will be clear that these were neither intended to apply generally to all references nor to lay down the wide proposition that there can be no reference to arbitration except through the Court under S.20 unless both parties join in it." The Supreme Court re-affirmed its observations in Thawardas Pherumal's case (supra) and said:

"........A reference requires the assent of both sides, if one side is not prepared to submit a given matter to arbitration when there is an agreement between them that it should be referred, then recourse must be had to the Court under section 20 of the Act and the recalcitrant party can then be compelled to submit the matter under sub-section (4). In the absence of either, agreement by both sides about the terms of reference, or an order of the Court under section 20(4) compelling a reference, the arbitrator is not vested with the necessary exclusive jurisdiction. Therefore, when a question of law is the point at issue, unless both sides specifically agree to refer it and agree to be bound by the arbitrator's decision, the jurisdiction of the Court to set an arbitration right when the error is apparent on the face of the award is not ousted. The mere fact that both parties submit incidental arguments about a point of law in the course of the proceedings is not enough."

and explained that the observations were on specific question of law. The Supreme Court explained the true effect of its observations as under :-

".........The true effect of these observations is that even in the case of an arbitration agreement which squarely falls within the definition of that expression as given in S.2[a] [and which is not a bare arbitration agreement] there would be included in it a consensual actual reference by the parties of all their disputes including questions of law that may arise later but the arbitrator's award on such questions of law would not be within his exclusive jurisdiction since specific question or questions of law cannot be said to have been referred to him as required by the law of arbitration but though the reference would be valid the award and his decisions on questions of law if erroneous on the face of it would be liable to be set aside by the Court. This is far from laying down the wide proposition that there can be no reference to arbitration except through the Court under S.20 unless both the parties join afresh in the actual reference."

26. Mr.Kapadia, learned Counsel for the Respondents, also placed heavy reliance on the observations of the Supreme Court in Union of India v. A.L.Rallia Ram AIR 1963 SC 1685. Here the Supreme Court, after scanning the correspondence, pointed out that in the two letters there was no reference to any specific question to be referred to the Arbitrators; nor can the filing of pleadings in support of their respective cases by the parties pursuant to the direction given by the Arbitrators, and the framing of issues arising thereon with the object of fixing the attention of the parties on the question to be decided for adjudication upon the dispute amount to a reference on specific questions, rendering the award binding upon the parties." After approving of the observations in Thawardas Pherumal [supra], the Supreme Court pointed out that in Alopi Prasad and Sons Ltd. v. Union of India, AIR 1960 SC 588, though the Arbitrators had undoubtedly raised issues, that by itself was not indicative of a question of law having been specifically referred for decision of the Arbitrators, for issues may be raised with a view to fix the attention of the parties on the points arising for adjudication. The Supreme Court observed [vide paragraph 16]:

"16. Undoubtedly, under an arbitration agreement which initially in terms general the parties may after disputes have actually arisen refer specific questions to arbitration. But each case must depend upon its facts. Filing of pleadings before the arbitrators, or even an agreement that certain issues arise on the pleadings will not always yield the inference that the parties agreed to refer specifically the questions incorporated in the issues to the arbitrator, so as to preclude themselves from challenging the award on the ground of error of law on the face of the award."

Merely because a question of law may be material for determination of the dispute, it would not amount to an issue of law specifically referred to the Arbitrators, in the opinion of the Supreme Court.

27. Finally, Mr.Kapadia, learned Counsel for the Respondents, referred to a judgment of the learned Single Judge of this Court [A.P.Shah, J.] in Arbitration Petition No.261 of 1996 [Lubrizol [India] Limited v. Lubrizol Corporation, U.S.A.] dated 8th September, 1997 (1998(1) ALL MR 435) which, after taking a review of all judgments cited, reiterates the same proposition of law.

28. A survey of the authorities cited at the bar, crystalises the issue to be decided by us in the Appeal as under :-

Whether the parties had specifically referred for arbitration the question of law on the issue of arbitrability of the claim of the Appellants and on the issue as to whether a defect in Current Transformer was equivalent to a defect in a "meter" within the meaning of Section 26(6) of the Indian Electricity Act, 1910 ?

29. The documents placed on record show that from the time the Appellants started supply of electricity to the Railways after executing the Power Supply Agreement, (dated 7th July 1971) upto 7th June 1993, there was no dispute between the parties. Under Clause 10.1 of the Power Supply Agreement dated 7th July 1971, all sums payable for supply of power are to be ascertained by a certified meter and the responsibility of maintaining the meters for properly measuring the maximum demand and energy consumption was upon the Appellants. It is only on 7th June 1993 that the Appellants noticed that Feeder No.36 red phase of Current Transformer had become inter-turn short resulting in low output from its secondary winding. The said Current Transformer was replaced on 13th June 1993. A comparison of the readings of the meter on and after 13th June 1993 with previous months led the Appellants to believe that the transformer meter of the Western Railways was under-registering the supply of electric energy. Then ensued lengthy correspondence on the subject.

(a) By the letter of 22nd June 1993, the Appellants informed the Respondent of the said fact and pointed out that the offtake of the Western Railway between October 1991 to June 1993 was lower to the extent of 34 per cent as compared to the energy off take recorded during the period April 1989 to September 1991, as a result of the inter turn shorting of the red phase of the meter CT. This led the Appellants to forward supplementary bill along with their letter dated 26th July 1993 in the total sum of Rs.8,89,32,347.50. This was really the genesis of the dispute.

(b) The supplementary bill was disputed by the letter of the Respondent dated 6th August 1993. The Respondent highlighted paragraph 10.1 of the Power Supply Agreement under which the responsibility of maintaining the recording meters in defect free condition was on the Appellants. The Respondents also pointed out paragraph 10.3. of the Power Supply Agreement and contended that a period of three months had been provided as corrective period during which the defective meter should be put back on accuracy. Thus, the Respondent claimed that, at the highest, a period of three months immediately prior to May 1993 may be considered as a period of under-registration for which a revised bill should be preferred. There was lengthy correspondence between the parties during which the parties reiterated their respective stands.

(c) The first indication for going to arbitration came by the letter of the Appellants dated 2nd June 1995. In this letter, the Appellants pointed out that, despite a number of discussions they had with the General Manager of Western Railway from July 1993 to May 1995, the issue with regard to under-billing to Western Railway had remained unsolved. Hence, the Appellants said. ".......we now wish to resort to Clause No.20 of the Power Supply Agreement dated 7th July 1971 entered into between the Companies and the Railways and refer the matter to two Arbitrators one each to be appointed by Tata Electric Companies and Western Railway." We may mention here that the subject of the letter is styled as "Supplementary Power Supply Bill - Western Railways Off take at Dharavi." By this letter the Appellants proposed to appoint their Arbitrator and called upon the Respondent to nominate its Arbitrator.

(d) By another letter dated 27th July, 1995, the Appellants appointed A.D.Limaye, Assistant General Manager (Supply), BEST as their Arbitrator in terms of Clause 20 of the Power Supply Agreement and called upon the Respondent to advise them of the name and address of the Respondent's Arbitrator "so as to expedite the settlement of the issue of payment of charges by Western Railway".

(e) The Respondent by its letter of 2nd February 1996 addressed to R.K.Sinha, Financial Adviser and Chief Accounts Officer (C-II), informed him that he had been nominated as the Arbitrator from the Railway's side "to arbitrate upon the disputes arising out of contract agreement dated 7th July, 1971 made between M/s. Tata Hydro-electric Power Supply Company Limited and the President of India representing through the General Manager - Western Railway Administration, Bombay as indicated below ...". the dispute indicated below was as under :-

Claim No.	Nature of Claim	Amount of claim
1.	Supplementary power supply bill on account of recording less energy due to defect in meter- ing system for the period from October 1991 to June 1993.	Rs. 8.89 Crores.

The letter further proceeds to state, "You are requested to proceed with the reference and give your intelligible (sic) award on the matter referred to arbitration within 4 months." (Emphasis ours).

(f) On 11th March 1996, the Appellants filed their Statement of Claim in respect of supplementary power supply bill before the Arbitrators R.K.Sinha and A.D.Limaye. It is unnecessary to reproduce from this Statement of Claim for the Statement of Claim deals with the merits of the dispute including the history of the dispute. It also justifies grounds and highlights that the parties had entered into a power Supply Agreement containing an arbitration clause.

(g) On 14th October 1996, the Respondent filed its reply to the Statement of Claim before the Arbitrators. The Respondent pointed out that during the meeting held on 8th October 1996 in the office of the Arbitrators on the subject matter, the Appellants had handed over "some unsigned papers" giving their point of view further therein. Hence, the Respondent were giving their remarks on various points mentioned therein.

(h) A set of documents dated 8th October 1996 on the letterhead of the Appellants with two enclosures containing a chart of test results and a graph of the power consumption was shown to us. This document is styled as "Submission before the Arbitrators in respect of claim of the Companies with Western Railway - Western Railway's off-take at Companies Dharavi Receiving Station". This submission is unsigned. For the first time, in this submission, the Appellants raised the following contention :-

"Sec.26(6) not applicable.

During the defective period of Oct 91 to June 93 the meter was tested twice in November 91 and March 93. In both the cases the meter was not found to be defective by TEC as well as Rlys and hence the dispute does not fall within Sec.26(6) of I.E.Act 1910."

There were some technical submissions made with which we are not concerned.

(i) The submission of the Respondent at Item No.1 in its reply dated 14th October 1996 was purportedly to deal with this contention No.(1) about Section 26(6) of the Indian Electricity Act not being applicable. In paragraph 1 of the reply dated 14th October 1996, the Respondent refuted the contention of the Appellants that the CT was not an apparatus which was part and parcel of a "meter" referred to in sub-section (1) of Section 26 and maintained that it was an additional apparatus provided with the meter in the terminology of Section 26(7) read with Rules made thereunder and thus any defect in this apparatus (CT) would bring the matter within the scope of Section 26(6) of the Indian Electricity Act, 1910. The Respondent refuted the contention raised by the Appellants that defect in CT did not fall within the provisions of Section 26 of the Indian Electricity Act. It also refuted in detail the claim made in the supplementary bill. As we have already noted, the Arbitrators differed and consequently referred the matter to N.C.Narasingham who had been appointed as the Umpire.

(j) By a communication dated 29th November 1996 addressed by A.D.Limaye, Arbitrator appointed by the Appellants, it was pointed out (vide paragraph B), "After hearing both the sides and studying the submissions by TEC and W.R., and I observed and found the following :-

"(a) A doubt arose whether the matter under dispute falls under Section 26 of IE Act, 1910. In this connection, on 8.10.1996 TEC submitted that the matter did not fall under Section 26(6) of the I.E. Act and in support of this they had submitted various Court Judgments....."

The Arbitrator thereafter observed as under :-

"WR however could not satisfactorily explain as to how the matter falls under Section 26(6) of the Act they have merely stated (page B-235) that since Tata Electric Companies allege under registration of power, it reflects as a defective meter and hence falls under Section 26(6) of the IE Act. WR have remained silent as regards the Court cases referred by the Tata Electric Companies.

Apart from whether Section 26(6) is applicable or not in the present case, WR have argued out (page B-235) that since the current transformer was defective, the case falls under Section 26(7) of the Act treating the C.T. as an "apparatus"....."

The Arbitrator thereafter gave his view that CT cannot be treated as an apparatus within the meaning of Section 26(7) and that he was of the opinion that Section 26(6) and Section 26(7) of the Indian Electricity Act, 1910 were not applicable to the case before him. He also indicated his findings on the merits of the claim.

(k) R.K.Sinha, the Arbitrator appointed by the Western Railway, addressed a letter dated 29th November 1996 to the Umpire, N.C.Narsingham in which he stated :

".........After going through various submissions made by both the parties, the following issues are framed for my decision:

(1) Whether the Current Transformer (CT) is covered by Clause 10.1 and 10.3 of the Contract Agreement entered into between both the parties on 7.7.1971.

(2) Whether the defect in CT as admitted by the parties is a defect covered by Section 26(6) of the Indian Electricity Act.

(3) What is the remedy available to both the parties in the light of answers to the first two issues ? I proceed to give my findings and the arguments on which these findings are based."

The Arbitrator thereafter gave his findings on the several issues and concluded that CTs are very much covered by Clauses 10.1 and 10.3 of the Agreement; that the argument of the Appellants was not acceptable; that the dispute was covered by Section 26(6) of the Indian Electricity Act and consequently the Electrical Inspector had the sole jurisdiction to arbitrate. He opined that the arrears bills prepared by the Appellants were contrary to provisions of law and not binding on the Western Railway. On these grounds, he rejected the claim.

(l) Before the Umpire, the Appellants filed their Statement of Claim on 13th March 1997. The Appellants on their own mentioned in paragraph 20 of their Statement of Claim that the claim of Rs.8.89 crores which had been made on the Respondent was "outside the purview of Section 26(6) of the Indian Electricity Act, 1910" as the meter in question was perfect and was recording the electricity fed into it. During the period October 1991 to June 1993, the meter was tested twice in November 1991 and March 1993 and not found defective on both occasions. On the issue as to whether the CT would be covered by the expression "meter" used in Section 26(7) of the Indian Electricity Act, the Appellants maintained that it was not an "apparatus" as defined in Section 26(7) and hence Section 26(7) of the Indian Electricity Act, 1910 was not applicable. The Appellants cited a number of judgments in support of this legal proposition and also maintained that there was no question of arbitration by the Electrical Inspector and that the issue was arbitrable. Alternatively, the Appellants also claimed that their claim is fully justified under Section 70 of the Indian Contract Act, 1872 by placing reference on number of authorities cited in the Statement of Claim.

(m) By the first reply of the Respondent filed on 4th April 1997, the Respondent refuted the contention of the Appellants that Section 26(6) of the Indian Electricity Act was not applicable and maintained that any defect in the CT does amount to defect in the "meter" and thus the matter fell within the compass of Section 26(6) of the Indian Electricity Act, 1910 as well as paragraph 10.3 of the Power Supply Agreement. The Respondent also dealt with the authorities referred to in the Statement of Claim and also cited some authorities in its own support.

(n) By the second reply dated 28th April 1997, further detailed submissions were made as to the exact nature of the CT by highlighting the technical purpose of the CT and also the merits of the dispute.

30. A detailed reference to the aforesaid documents became necessary to ascertain whether the issue of law decided by the Umpire had been specifically referred for arbitration. Against the background of the aforesaid documents, and the contentions urged therein from the time the dispute was submitted for arbitration, we are unable to hold that any specific issue of law was referred for arbitration. It is true that the Respondent contested the arbitrability of the dispute by urging that Section 26(6) and Section 26(7) of the Indian Electricity Act, 1910 bar the jurisdiction of the Arbitrators inasmuch as CT was a "meter" within the meaning of Section 26(6) of the Indian Electricity Act and so any dispute as to the consumption of electric energy on account of a defect in such "meter" was exclusively arbitrable by the Electrical Inspector by virtue of Section 26(6) of the Indian Electricity Act, 1910. It is no doubt true that, as a defence to the claim, the Respondent urged the provisions of Sections 26(6) and 26(7) of the Indian Electricity Act as a bar to the arbitrability of the claim. There is also no doubt that the question of law as to jurisdiction was a very material question which had to be answered. The Umpire had the claim of the Appellants on one hand, and the argument of lack of jurisdiction as a defence to the claim, apart from the defence on merits, before him. The Umpire, therefore, was required to decide the question of jurisdiction raised before him. We are unable to accept the submission of the learned Counsel for the Appellants that the decision of the Umpire on the issue of law was on a specific issue of law referred for arbitration. Consequently, we are unable to accept the contention of the Appellants that the finding on the issue of law made in the Award - which is undoubtedly contrary to the law laid down by the Supreme Court in Atma Steel (supra) - is immune from judicial scrutiny under Section 34 of the Arbitration and Conciliation Act, 1996. We agree with the learned Single Judge that the issue of law on which the Award contains a patently erroneous finding was not one specifically referred for arbitration. We also agree with the view of the learned Single Judge that there was no specific question of law referred to the Umpire and what was referred to the Umpire was the dispute arising from the claim made by the Appellants against the Respondent. The question of applicability of provisions of Section 26 of the Indian Electricity Act, 1910 incidentally arose as a part of the defence raised by the Respondent and was decided by the Umpire. Hence, the learned Single Judge was fully entitled to examine the correctness or otherwise of the decision of the Umpire on the question of law. Having found that the decision of the Umpire on the issue of law was directly contrary to the judgment of the Supreme Court in Atma Steel (supra), the learned Single Judge was justified in interfering with the Award. The Petition was rightly allowed and made absolute in terms of prayer clause (a).

31. Mr. Andhyarujina, learned Counsel for the Appellants, submitted that the issue as to whether a question of law has been specifically referred for arbitration can be inferred from the totality of the material on record, including the conduct of the parties, by a scrutiny of the following five factors :-

(a) Pleadings;

(b) Draft issues, if any, submitted;

(c) Correspondence between the parties;

(d) Award; and

(e) The conduct of the parties.

The learned Counsel submits that, if all these five factors are considered, it would be clear that although Western Railways were aware that Section 26(6) of the Indian Electricity Act, 1910 bars private arbitration of a dispute connected with the correctness of the functioning of a meter (including Current Transformer and Potential Transformer) and such a dispute was not arbitrable by virtue of the exclusive jurisdiction of the Electrical Inspector under Section 26(6), the Western Railway specifically raised the said question of law before the Arbitrator and called upon him to decide it. Hence, the inference should be that the specific question of law was referred for arbitration.

32. Mr. Andhyarujina highlighted that in paragraph 2.1 the Umpire states :

"2.1 The contention pur forward by the Railway is that the C T is encompassed by the definition of a meter, according to the proviso of sub-section 7 of Sec.26 of the I.E. Act, while the contention of TEC is that CT is not so encompassed. Both the parties forcefully argued their respective points of view and left the matter for a decision by the Umpire."

And contended that this paragraph definitely indicates that the question of law which had been forcefully argued by both the sides had been specifically left for the decision by the Umpire in the sense that it had been specifically referred for arbitration by the Umpire.

33. We find ourselves unable to accept this contention. It is undoubtedly true that the Umpire said that the matter was left for a decision by him. Having considered the matter in the light of all the five factors which the learned Counsel had highlighted, we are unable to persuade ourselves that the question of law was specifically referred for arbitration, notwithstanding the use of language by the Umpire that the parties had "left the matter for a decision by the Umpire".

34. Mr. Andhyarujina then urged an alternative contention that the claim of the Appellants based on quantum meruit recognised under Section 70 of the Indian Contract Act was arbitrable, at least for the period earlier than six months from the date of the defect being noticed. The contention is that, even assuming that Section 26(6) bars arbitration for the period before the statutory period of six months by any one other than the Electrical Inspector, the dispute for the prior period is arbitrable.

35. We are unable to accept this contention. The judgment of the Supreme Court in Belawal Spinning (supra) is a complete answer to this. Section 26(7) of the Indian Electricity Act, 1910 precludes the contention being accepted.

36. In our view, the judgment of the learned Single Judge dated 17th December 1999 is right and needs to be upheld. The Appeal is liable to be dismissed.

37. Appeal dismissed. No order as to costs.

38. Issuance of certified copy expedited.

Appeal dismissed.