Say the ratio out loud before you open Reasoning — recalling it unprompted is exactly what the exam pays for.
Why it matters
It supplies the definition of legal misconduct that Indian arbitration law has used ever since, and it makes the crucial point that misconduct carries no suggestion of moral lapse. Students routinely get this wrong and write about dishonesty; the examiner wants the legal meaning.
Facts
A dispute between a Government department and a contractor went to arbitration. Two documents which threw light on the controversy were not placed before the arbitrator by the department, and the arbitrator decided without them. He also reached a conclusion inconsistent with his own finding.
Held
Misconduct in this sense has no connotation of moral lapse. It comprises legal misconduct, which is complete if the arbitrator, on the face of the award, arrives at an inconsistent conclusion even on his own finding, or arrives at a decision by ignoring very material documents which throw abundant light on the controversy and would help a just and fair decision. The arbitrator had misconducted the proceedings by ignoring the two material documents; and even though the department had not produced them, it was incumbent on him to get hold of all the relevant documents. The award suffered from a manifest error apparent on its face.
Reasoning
Step one — separate misconduct from dishonesty. The word describes a defect in the conduct of the reference, not the character of the arbitrator.
Step two — two distinct limbs. Internal inconsistency on the face of the award is one limb; disregard of material documents is the other. Either suffices.
Step three — the arbitrator's duty is active. He is not a passive umpire confined to what the parties choose to hand up. Where a document is plainly material, he must call for it. The same principle explains the further rule that an award made without the arbitration agreement itself before the tribunal is impermissible, since without it the rival contentions cannot be adjudicated at all.
Exam use
It opens: What is legal misconduct? — and it is the definition paragraph of any answer on the duties of an arbitrator.
Use the modern framing carefully. The case was decided under the 1940 Act. Under the 1996 Act the challenge runs through s. 34, whose grounds were narrowed by the 2015 amendment: patent illegality appearing on the face of the award is available for a domestic award, but an award cannot be set aside merely for an erroneous application of law or by re-appreciation of evidence.
Contrast it with Sudarshan Trading, M.C.D. v. Jagan Nath Ashok Kumar and Alopi Parshad, which hold that drawing one's own conclusions, weighing the evidence, or taking one view of a question of law specifically referred, are not grounds of challenge. The line between ignoring material and assessing it is the examinable distinction.
It does not decide anything about the standard of reasons in an award, which the 1996 Act now requires by s. 31(3) unless the parties agree otherwise or the award is on agreed terms.