Full Judgment Text
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CASE NO.:
Appeal (civil) 8337-8339 of 1997
PETITIONER:
Union of India
RESPONDENT:
M/s. V. Pundarikakshudu and Sons and Anr.
DATE OF JUDGMENT: 09/09/2003
BENCH:
CJI & S.B. SINHA.
JUDGMENT:
J U D G M E N T
S.B. SINHA, J :
The appellant and the first respondent herein entered into a
contract for construction of an auditorium complex at Willington
Nilgiris for a sum of Rs. 64,79,982.95. The work commenced on 16.3.1979
and was to be completed on 15.3.1981. However, there had been amendment
to the said agreement owing to increase in the scope of work. An extra
time of six months was also given to the contractor in terms of the said
amendment. The time for completion of the contract was extended from
16.9.1981 to 30.6.1982 and 1.7.1982 to 31.12.1982. The contract amount
was also increased, because of the aforementioned amendment therein
owing to increase in the scope of work, to Rs. 85.10 lakhs. Although
the period of contract was over and the appellant did not grant any
further extension, the same was purportedly terminated by the appellant
herein on 28.2.1983, i.e., after the due date for completion of work,
namely, 31.12.1982. Disputes and differences having arisen, the
arbitration agreement was invoked by the Respondent No.1 and the claims
and counterclaims of the parties were referred to one Brigadier M.M.L.
Sharma who was appointed by the Engineer-in-Chief of the appellant.
Before the arbitrator the first respondent submitted a claim for a total
sum of Rs. 23,59,534.72 comprising 23 claims whereas the claim of the
appellant herein amounted to Rs. 90,58,167.42 comprising 8 claims.
The sole arbitrator awarded a sum of Rs. 14,31,463/- in favour of
the first respondent and a sum of Rs. 33,95,000/- in favour of the
appellant herein. The award was filed in the District Court of
Nilgiris.
Original Petition No. 29 of 1986 was filed by the respondent No. 1
herein under Sections 15, 16, 30 and 32 of the Arbitration Act praying
to very modify or set aside to claim No. 1 under ’B’ Claim of the
Government in Award dated 6.2.1986 and confirm the award in Claim ’q’ of
the contractor made including the interest and decree in favour of the
petitioner or in the alternative to set aside the award dated 6.2.1986.
Original Suit No. 31 of 1986 was filed by the first respondent for
passing a judgment and decree in terms of the award passed in favour of
the Plaintiff in claims serial No. ’A" claims of the contractor by the
2nd defendant and directing the first respondent to pay the plaintiff Rs.
14,31,462 whereas Original Suit No. 47 of 1986 was filed by the Union of
India for a decree and judgment in terms of the Award for a sum of Rs.
33,95,000/- with interest at 18% per annum with costs.
The learned District Judge upheld the said objections of the first
respondent holding: as the arbitrator made an award in favour of the
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first respondent presumably upon arriving at a finding that the
appellant herein was responsible for causing delay in completion of the
contract; the award made in favour of the appellant must be held to be
inconsistent therewith.
It was further held that the appellant herein ’pushed in’ some
calculation sheets on the last date of hearing which was accepted by the
arbitrator without assigning any reason and without prior intimation to
the first respondent which amounted to misconduct on the part of the
arbitrator. The Court further took into consideration the fact that the
Union of India admittedly caused 1654 days’ delay in accepting the
designs and as the said admission was not taken into consideration by
the arbitrator, that part of the award was vitiated.
The District Judge further held that having regard to the fact
that the arbitrator had awarded compensation to the first respondent on
various items including Claim A towards additional amount claimed due to
escalation in prices of materials and men at 25% of the work done at the
contract rates, loss sustained due to under-utilisation of cantering and
shuttering materials, loss sustained due to underutilization,
compensation for loss sustained on overheads due to prolongation of
work, the impugned award cannot be sustained.
The learned District Judge furthermore laid emphasis on the claim
towards extra expenditure incurred in dismantling of work done due to
delays in decisions wherefor a sum of Rs. 12,500/- was awarded stating:
"...Therefore it is clear that there was a delay on
the part of the department in taking decisions.
Because of the delay in taking decisions, the
Arbitrator has awarded the amount for delay solely on
the part of the contract. I failed to understand why
the sole arbitrator should have awarded Rs.12,500/
under claim No.V(a) of the contractor.
Referring to clause 54 of the Contract, the District Judge said:
"...Therefore condition 54 makes it abundantly clear
that if there was any default on the part of the
contractor the Union of India has got every right to
impound the materials of the contractor, and at any
time sell the materials and appropriate the proceeds
towards any losses. Curiously enough under claim
No.VI the Arbitrator has passed an award stating that
the materials should be returned to the contractor.
The approximate costs of the materials has been given
as Rs.3,71,000/- by the contractor. Once again, it
has to be stated that if the sole Arbitrator has come
to the conclusion that the default was on the part of
the contractor, he is not justified in directing the
Union of India to hand over the materials. Since he
has come to the conclusion that the Union of India is
responsible for the breach of contract, the sole
arbitrator has directed the Union of India to return
the materials as the Union of India cannot take
recourse under condition 54 of the General conditions
of the contract IAFW 2249. On the background of this
we have now considered the amount awarded to the Union
of India under claim No.1, 2 and 4 under claim No.1
Rs.33,64,000/- has been awarded by the sole arbitrator
towards extra expenditure involved to complete the
incomplete item of work left by the defaulting
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contractor. Once again going back to contractor is
claim under claim No.6n it is clear that the findings
of the (end of the original’s 31st page) arbitrator
under claim No.V of ’A’ claim of the contractor and
claim 1 of ’B’ of the Government of India is
inconsistent. Since the arbitrator has already come
to the conclusion that the breach of contract was due
to the 1st respondent and has directed the Union of
India to return the materials to the contractor, the
sole arbitrator should not have awarded Rs.33,64,000/-
towards excess expenditure involved to complete the
incomplete items of work left by the defaulting
contractor. On the face of it the arbitrator awarded
Rs.33,64,000/- under claim No.1 of ’B’ claim of the
Government is not sustainable.
Since the award of Rs.3,95,000/- by the sole
arbitrator is inconsistent and is a misconduct, the
order of the Arbitrator in respect of claim No.1 of
’B’ claim of the Union of India in the award dated
6.3.1986 has to be set aside."
Aggrieved thereby three appeals being A.A.O. No. 364 of 1995,
A.A.O. No. 366 of 1995 and A.A.O. No. 367 of 1995 were filed by the
appellant against the order of District Court dated 21.2.1994 in O.P.
No. 29/86, O.S. No. 31 of 1986 and O.S. No. 47/86 respectively.
By reason of the impugned judgment dated 6.1.1997 the said appeals
were dismissed.
It, however, appears that the appellants herein also filed S.L.P.
(Civil)....8317-8318/97 arising out of the judgment and order dated
06/01/97 in Appeal Nos. 242/95 and 243 of 1995 of the High Court of
Madras questioning the award made in favour of the first respondent
herein. The same was dismissed by this Court by an order dated
24.11.1997.
Mr. N.N. Goswami, the learned senior counsel appearing on behalf
of the appellant would submit that the High Court as also the District
Judge committed a manifest error in setting aside the award made by the
arbitrator in favour of the appellant in so far as it failed to take
into consideration that the award was a non-speaking one.
The learned counsel would contend that the appellant could be
blamed for making delay in the matter and completion of job till 1982
but no finding has been arrived at nor could be arrived at on the basis
of materials on records that thereafter it was at fault. No material
has been shown in the impugned judgments which support the views taken
by the courts below that the appellant was responsible for the delay
caused beyond 31.12.1982. Mr. Goswami would urge that the District
Judge had no jurisdiction to analyse the materials on records as if it
has an appellate jurisdiction over the award of the arbitrate. The
learned counsel would contend that the jurisdiction of the High Court in
setting aside an award being limited, the impugned judgments cannot be
sustained. In support of the said contention, strong reliance has been
placed on M/s. Sudarsan Trading Co. Vs. Government of Kerala and Another
[(1989) 2 SCC 38].
Mr. M.N. Rao, the learned senior counsel appearing on behalf of
the respondent, per contra, would submit that a finding of fact has been
arrived at to the effect that the award of the arbitrator was
inconsistent. The learned counsel would submit that while considering
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the validity or otherwise of an award the Court is not precluded from
considering the totality of the circumstances. It was pointed out that
having regard to the fact that the appellant admitted the delay of 1654
days on its part, the same ought to have been taken into consideration
by the arbitrator, which was relevant for resolution of the dispute
between the parties. The claims raised by the appellant basing on the
purported breach of contract on the part of the first respondent herein
must be held to be mala fide. The learned counsel has placed strong
reliance in support of his contention on Dandasi Sahu Vs. State of
Orissa [(1990) 1 SCC 214].
The short question which arises for consideration in these appeals
is as to whether the District Judge and the High Court, Madras exceeded
their jurisdiction in passing the impugned judgments.
It is not in dispute that the claims and counterclaims of the
parties centred round determination by the arbitrator as to whether the
appellant or the first respondent had committed a breach of contract.
The power of the appellant to terminate the contract and to put forth
the claim for extra expenditure involved to complete the incomplete
items of work left out by the first respondent revolved round the issue
as to whether it was a defaulter or not. The appellant could terminate
the contract and get the work completed through another agency entitling
it to lay the said claim, but its justifiability therefor indisputably
would depend upon the interpretation of clause 54 of the Contract. The
said clause empowers the appellant to cancel the contract, only if the
contractor "fails to complete the works, work order and items of work,
with individual dates for completion, and clear the site on or before
the date of completion". Thus, the ’failure’ must be on the part of
the contractors and not by reason of acts of omissions and commissions
of the appellant herein.
The following was furthermore contained in the said clause:
"The Government shall also be at liberty to use the
materials, tackle, machinery and other stores on Site
of the Contractor as they think proper in completing
the work and the Contractor will be allowed the
necessary credit. The value of the materials and
stores and the amount of credit to be allowed for
tackle and machinery belonging to the Contractor and
used by the Government in completing the work shall be
assessed by the G.E. and the amount so assessed shall
be final and binding.
In case the Government completes or decides to
complete the works or any part thereof under the
provision of this condition, the cost of such
completion to be taken into account in determining the
excess cost to be charged to the contractor under the
condition shall consist of the cost or estimated cost
(as certified by G.E.) of materials purchased or
required to be purchased and/ or the labour provided
or required to be provided by the Government as also
the cost of the Contractor’s materials used with an
addition of such percentage to cover superintendence
and establishment charges as may be decided by the
C.W.E., whose decision shall be final and binding."
The said clause could, thus, be invoked only on default on the
part of the contractor and not otherwise.
Apart from the findings of the District Judge, as noticed
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hereinbefore, the High Court also came to conclusion that the contract
could not have been terminated after the date of completion of work
holding:
"...Misconduct as defined under Section 30 is not a
moral lapse. If the Arbitrator on the face of the
award arrives at an inconsistent conclusion, it would
also amount to misconduct as per the decision reported
in Poulose vs. State of Kerala (AIR 1975 SC 1259).
Therefore, the finding of the learned District Judge
that there is an inconsistent conclusion by the
arbitrator who has admitted the delay on the part of
the Government in my opinion well-founded. It is more
so, when the Government has not chosen to set aside
that portion of the award which implies that there is
delay on the part of the Government."
The High Court further opined:
"Clause 54 of the agreement provides for
utilization of the materials machinery., tackle etc.
for completion of the incomplete work and sell the
same at any time and appropriate the sale proceeds
towards the loss which may arise from the cancellation
of the contract. In the case on hand, the
cancellation of the contract is after the expiry of
the time contended for completion of the contract.
The materials, machineries etc. were ordered to be
returned to the contractor or pay the costs of the
same to the contractor. The non-utlisation of the
materials has not been taken into consideration by the
Arbitrator. It is contended that no payment was made
to the machineries and the contract was at liberty to
take in back the machineries and therefore the non-
utilisation of the materials cannot be said to be a
conduct which would absolve the liability of the
Government. But, this contention is not tenable since
when the contractor has attempted to remove the
materials on the work it has been prevented and a
complaint has also been lodged with the police.
Therefore, awarding certain sum towards loss sustained
by the Government on account of the delay said to have
been committed by the contractor, is inconsistent with
the award granted in favour of the contractor to get
back the materials or value thereof from the
Government. When the order of the Arbitrator is
inconsistent, it amounts to a misconduct. Therefore,
the learned District Judge has rightly set aside the
claim No.1 under ’B’ claim of the Government and I am
of the opinion that it is not a matter to be
interfered with this Court."
It is not the case of the appellant that the contractor was
allowed to work after 31.12.1982 on grant of further extension for the
completion of the work. The rights and obligations of the parties were,
thus, required to be considered as on the said date and not thereafter.
The fact that there had been delay of 1654 days on the part of the
appellant in accepting the designs and there had been an amendment of
the Schedule of the work stands admitted.
The question as to whether one party or the other was responsible
for delay in causing completion of the contract job, thus, squarely fell
for consideration before the arbitrator. The arbitrator could not have
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arrived at a finding that both committed breaches of the terms of
contract which was ex facie unsustainable being wholly inconsistent.
Clause 54 of the contract could be invoked only when the first
respondent committed breach of the terms of the contract. An action in
terms thereof could be taken recourse to in its entirety or not at all.
If one part of the award is inconsistent with the other and furthermore
if in determining the disputes between the parties the arbitrator failed
to take into consideration the relevant facts or based his decision on
irrelevant factors not germane therefor; the arbitrator must be held to
have committed a legal misconduct.
In Bharat Coking Coal Ltd. Vs. M/s. Annapurna Construction (Civil
Appeal Nos. 5647-48 of 1997) disposed of on 29th August, 2003 this Court
noticed:
"So far as these items are concerned, in our opinion,
the learned sole arbitrator should have taken into
consideration the relevant provisions contained in the
agreement as also the correspondences passed between
the parties. The question as to whether the work
could not be completed within the period of four
months or the extension was sought for on one
condition or the other was justifiable or not, which
are relevant facts which were required to be taken
into consideration by the arbitrator.
It is now well settled that the Arbitrator
cannot act arbitrarily, irrationally, capriciously or
independent of the contract.
In Associated Engineering vs. Govt. of A.P.
[(1991) 4 SCC 93], this Court clearly held that the
arbitrators cannot travel beyond the parameters of the
contract. In M/s. Sudarsan Trading Co. v. The Govt. of
Kerala [(1989) 2 SCC 38], this Court has observed that
an award may be remitted or set aside on the ground
that the arbitrator in making it had exceeded his
jurisdiction and evidence of matters not appearing on
the face of it, will be admitted in order to establish
whether the jurisdiction had been exceeded or not,
because the nature of the dispute is something which
has been determined outside the award, whatever might
be said about it in the award by the Arbitrator. This
Court further observed that an arbitrator acting
beyond his jurisdiction is a different ground from the
error apparent on the face of the award.
There lies a clear distinction between an error within
the jurisdiction and error in excess of jurisdiction.
Thus, the role of the arbitrator is to arbitrate
within the terms of the contract. He has no power
apart from what the parties have given him under the
contract. If he has travelled beyond the contract, he
would be acting without jurisdiction, whereas if he
has remained inside the parameter of the contract, his
award cannot be questioned on the ground that it
contains an error apparent on the face of the
records."
It was held that if the arbitrator has committed a jurisdictional
error, the court can intervene. This Court in Bharat Coking Coal Ltd.
(supra) noticed its earlier decision in K.P. Poulose Vs. State of Kerala
[(1975) 2 SCC 236] wherein it was observed that the case of legal
misconduct would be complete if the arbitrator on the face of the award
arrives at an inconsistent conclusion even on his own finding or arrives
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at a decision by ignoring the very material documents which throw
abundant light on the controversy to help a just and fair decision.
In Union of India vs. Jain Associates and Another [(1994) 4 SCC
665], this Court upon following K.P. Poulose (supra) and Dandasi Sahu
(supra) held :
"8. The question, therefore, is whether the umpire
had committed misconduct in making the award. It is
seen that claims 11 and 12 for damages and loss of
profit are founded on the breach of contract and
Section 73 encompasses both the claims as damages. The
umpire, it is held by the High Court, awarded
mechanically, different amounts on each claim. He also
totally failed to consider the counter-claim on the
specious plea that it is belated counter-statement.
These facts would show, not only the state of mind of
the umpire but also non-application of the mind, as is
demonstrable from the above facts. It would also show
that he did not act in a judicious manner objectively
and dispassionately which would go to the root of the
competence of the arbitrator to decide the disputes."
In Dandasi Sahu (supra) this Court held that the award suffering
from non-application of mind by the arbitrator is liable to be set
aside. It was held:
"In this connection we have to keep in mind that we
are concerned with a situation where the arbitrator
need not give any reason and that even if he commits a
mistake either in law or in fact in determining the
matter referred to him, where such mistake does not
appear on the face of the award, the same could not be
assailed. The arbitrator, in the case of a reference
to him in pursuance of an arbitration agreement
between the parties, being a person chosen by parties
is constituted as the sole and the final judge of all
the questions and the parties bind themselves as a
rule to accept the award as final and conclusive. The
award could be interfered with only in limited
circumstances as provided under Sections 16 and 30 of
the Arbitration Act. In this situation we have to test
the award with circumspection. Even with all this
limitations on the powers of court and probably
because of these limitations, we have to hold that if
the amount awarded was disproportionately high having
regard to the original claim made and the totality of
the circumstances it would certainly be a case where
the arbitrator could be said to have not applied his
mind amounting to legal misconduct."
In M/s. Sudarsan Trading Co. (supra) this Court clearly held that
the Court can look to the agreement where the question arises as to
whether an award may be remitted or set aside on the ground that the
arbitrator in making it has exceeded its jurisdiction. Drawing
distinction between the disputes as to the jurisdiction of the
arbitrator and the dispute as to in what way that jurisdiction should be
exercised, this Court opined:
"The next question on this aspect which requires
consideration is that only in a speaking award the
court can look into the reasoning of the award. It is
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not open to the court to probe the mental process of
the arbitrator and speculate, where no reasons are
given by the arbitrator, as to what impelled the
arbitrator to arrive at his conclusion. See the
observations of this Court in Hindustan Steel Works
Construction Ltd. v. C. Rajasekhar Rao ((1987) 4 SCC
93). In the instant case the arbitrator has merely set
out the claims and given the history of the claims and
then awarded certain amount. He has not spoken his
mind indicating why he has done what he has done; he
has narrated only how he came to make the award. In
absence of any reasons for making the award, it is not
open to the court to interfere with the award.
Further-more, in any event, reasonableness of the
reasons given by the arbitrator, cannot be challenged.
Appraisement of evidence by the arbitrator is never a
matter which the court questions and considers. If the
parties have selected their own forum, the deciding
forum must be conceded the power of appraisement of
the evidence. The arbitrator is the sole judge of the
quality as well as the quantity of evidence and it
will not be for the court to take upon itself the task
of being a judge on the evidence before the
arbitrator. See the observations of this Court in MCD
v. Jagan Nath Ashok Kumar ((1987) 4 SCC 497)."
In that case the Court was concerned with the first issue and not
the second one wherewith we are concerned herein. In the fact situation
obtaining therein the court distinguished a large number of authorities
placed before it holding:
"But, in the instant case the court had examined the
different claims not to find out whether these claims
were within the disputes referable to the arbitrator,
but to find out whether in arriving at the decision,
the arbitrator, had acted correctly or incorrectly.
This, in our opinion, the court had no jurisdiction to
do, namely, substitution of its own evaluation of the
conclusion of law or fact to come to the conclusion
that the arbitrator had acted contrary to the bargain
between the parties."
Such is not the position here.
In this case the District Judge as also the High Court of Madras
clearly held that the award cannot be sustained having regard to the
inherent inconsistency contained therein. The arbitrator, as has been
correctly held by the District Judge and the High Court, committed a
legal misconduct in arriving at an inconsistent finding as regard breach
of the contract on the part of one party or the other. Once the
arbitrator had granted damages to the first respondent which could be
granted only on a finding that the appellant had committed breach of the
terms of contract and, thus, was responsible therefor, any finding
contrary thereto and inconsistent therewith while awarding any sum in
favour of the appellant would be wholly unsustainable being self
contradictory.
The Union of India while accepting the award made in favour of the
first respondent must be held to have accepted the finding that it
committed a breach of contract and the said finding has attained
finality and would operate as res judicata in view of the decisions of
this Court in Sheodan Singh Vs. Daryao [(1966) 3 SCR 300].
Furthermore, as noticed hereinbefore, the appeal preferred by the
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appellant against the award of the arbitrator made in favour of the
first respondent herein has been dismissed.
In Premier Tyres Limited Vs. Kerala State Road Transport
Corporation [1993 Supp (2) SCC 146] this court held:
"The question is what happens where no appeal is
filed, as in this case from the decree in connected
suit. Effect of non-filing of appeal against a
judgment or decree is that it becomes final. This
finality can be taken away only in accordance with
law. Same consequences follow when a judgment or
decree in a connected suit is not appealed from.
5. Mention may be made of a Constitution Bench
decision in Badri Narayan Singh v. Kamdeo Prasad Singh
(AIR 1962 SC 338 : (1962) 3 SCR 759 : 23 ELR 203). In
an election petition filed by the respondent a
declaration was sought to declare the election of
appellant as invalid and to declare the respondent as
the elected candidate. The tribunal granted first
relief only. Both appellant and respondent filed
appeals in the High Court. The appellant’s appeal was
dismissed but that of respondent was allowed. The
appellant challenged the order passed in favour of
respondent in his appeal. It was dismissed and
preliminary objection of the respondent was upheld.
The Court observed,
"We are therefore of opinion that so long as the order
in the appellant’s Appeal No. 7 confirming the order
setting aside his election on the ground that he was a
holder of an office of profit under the Bihar
Government and therefore could not have been a
properly nominated candidate stands, he cannot
question the finding about his holding an office of
profit, in the present appeal, which is founded on the
contention that that finding is incorrect."
As the appellant failed to get that part of the award which was
made by the arbitrator in favour of the first respondent, set aside, the
basic conclusion of the High Court cannot be faulted. The Court upon
setting aside the whole award could have remitted back the matter to the
arbitrator in terms of Section 16 of the Act or could have appointed
another arbitrator, but at this juncture no such order can be passed as
the award in part has become final.
For the reasons aforementioned, we are of the opinion that the
impugned judgment does not suffer from any legal infirmity. These
appeals are, therefore, dismissed. No costs.