Full Judgment Text
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CASE NO.:
Appeal (civil) 2078 of 1984
PETITIONER:
The State of Kerala etc. etc.
RESPONDENT:
M/s. Arya Refrigeration & A/C Co. etc. etc.
DATE OF JUDGMENT: 03/08/2004
BENCH:
S.N. VARIAVA & ARIJIT PASAYAT
JUDGMENT:
J U D G M E N T
WITH
IA No. 6 AND CIVIL APPEAL NO. 362/1988
ARIJIT PASAYAT, J.
These two appeals are interlinked and, therefore, taken up
together for disposal. Civil appeal no. 2078 of 1984 is by the State
of Kerala questioning correctness of the decision rendered by learned
Single Judge of the Kerala High Court directing deposit for
Rs.5,75,500/- in Court, upholding the directions of deposit given by
Sub Court, Trivandrum in E.P. No. 109 of 1981 in O.P. (Arbitration) No.
4 of 1979. Learned Single Judge held that there was nothing wrong with
the direction to warrant interference under Section 115 of the Code of
Civil Procedure 1908 (in short the ’Code’). Civil appeal no.362 of
1988 has been filed by M/s Arya Refrigeration and Air Conditioning Co.
Ltd. (hereinafter referred to as the ’claimant’) questioning
correctness of the judgment rendered by the Division Bench of the
Kerala High Court setting aside the decree in terms of the award given
by the two arbitrators appointed by the Court.
Though the case has a chequered history, it is not necessary to
deal with the factual position in detail, as the same is almost
undisputed. Claimant entered into an agreement with the State of Kerala
on 18.1.1965 for supply and erection of a 100 tonne ice-cum-cold
storage plant at Willington Island Cochin. The agreed amount was
Rs.9,40,000/-. Though some plants and machines were supplied, they
could not be installed because of non-construction of the building to
house them. As time passed, dispute arose between the parties and the
matter was referred to arbitrators in terms of clause 15 of the
agreement. There were two arbitrators who passed an award on
2.11.1978. The amount awarded by the arbitrators was Rs.5,05,500/-.
Soonafter the award was passed, the State Government cancelled the
contract and the same was terminated w.e.f. 17.11.1978. Claimant
questioned the cancellation and raised the claims. In view of the
cancellation of the contract the claimant referred the matters to
arbitration and nominated the arbitrator under Section 9 of the
Arbitration Act 1940 (in short the ’Act’). Notice was served on the
State but it did not nominate any arbitrator. Arbitration proceedings
continued, State did not participate before the sole arbitrator and
finally the award was passed on 17.5.1982 awarding Rs.22,72,500/- to
the claimant. The State questioned correctness of the award. But the
trial Court overruled objections of the State and made the award given
by the Arbitrator rule of the Court. The State questioned the
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correctness of the decree passed by the Subordinate Court in terms of
the award. By the impugned judgment dated 10.11.1986, a Division Bench
of the High Court, as noted above, set aside the award. Before this
Court also the matter was taken up. Parties finally agreed to settle
the dispute out of the Court, but later on requested for appointment of
an arbitrator by this Court to adjudicate the dispute. By order dated
13.12.1999 Mr. Justice B.M. Thulsidas, a retired Judge of the Kerala
High Court was appointed as an Arbitrator, though initially another
Arbitrator was appointed. As an interim measure, by order dated
16.4.1984 in civil appeal no. 2078 of 1984, it was directed that the
appellant-State should deposit Rs.5,75,500/- as awarded by the
Arbitrator with the registry of this Court. The claimant was permitted
to withdraw the amount with the stipulation that the claimant shall
return the amount together with interest @ 15% p.a. in case the appeal
is allowed. Mr. Justice Thulsidas has filed the award before this
Court. In the award the Arbitrator has held, after consideration of the
claimant’s claim and counter-claim of the State, that claimant is
liable to pay to the State a sum of Rs.28,12,554/- with interest @ 15%
from the date of award i.e. 11.12.2002 till payment or deposit. The
claimant was also directed to pay Rs.25,666/- by way of Arbitrators’
remuneration. The Arbitrator has held that out of the agreed amount of
consideration stipulated in the contract i.e. Rs.9,40,000/-, claimant
had received for the material supplied Rs.6,75,780/- as 80% of the
value and sales tax. The cost of material that was actually supplied
was Rs.8,40,730/- leaving balance of Rs.99,270/- which form cost of
labour, service and profit element. It was held that claimant was
entitled to receive Rs.2,83,000/- being the balance amount with
interest for 8 years i.e. 1966 to 1974. After adjustment of the sum of
Rs.47,000/- which was deposited as security deposit and has been
refunded in 1974, the claimant was finally held to be entitled
Rs.2,36,714/- with interest on the said amount @ 9%. It was further
held that the claimant was entitled to Rs.25,000/- as expenses with
interest @ 9% from January 1978 when the first award was given.
Arbitrator was of the view that it was no fault of the claimant
and, therefore, it was entitled to balance amount of Rs.99,270/-
together with interest @ 9% in 1966 till 10.1.1973 when the claimant
gave notice to the State that departmental works of erection would not
be taken up. The Arbitrator worked out the entitlement at
Rs.1,66,010/-. On the above basis total claim of the claimant came to
Rs.5,25,774/-.
Taking note of the amounts of claimed to have been paid to the
claimant, the Arbitrator noted as follows:
(1) A sum of Rs.2,68,550/- was paid on 17.7.1979.
(2) As per order dated 26.2.1982 a sum of Rs.2,00,000/- was deposited
on 23.11.1982.
(3) A sum of Rs.5,00,000/- was paid as per order dated 1.12.1983 in
MFA No. 515/83.
(4) In terms of order dated 12.3.85 of this Court, an amount of
Rs.5,75,000/- was paid.
Thus altogether Rs.15,43,550/- was received by the claimant in course
of the proceedings. On this the interest payable was fixed at 9%.
Together with interest, the amount was fixed at Rs.21,29,350/- and with
interest @ 15%, it was held that the State was entitled to receive
Rs.28,12,554/- from the claimant. 15% interest was also stipulated
keeping in view the order passed by this Court.
Learned counsel appearing for the claimant submitted that the
award of the arbitrator is liable to be vacated on the following
grounds:
(1) Arbitrator disregarded fundamental terms of contract and exceeded
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his jurisdiction.
(2) Arbitrator misdirected himself in law in the sense that he
neglected to look into the terms of contract.
(3) Interest which was to be paid to the claimant was to be fixed on
the basis of "The Interest On Delayed Payments to Small Scale and
Ancillary Industrial Undertakings Act, 1993". The liability for
interest was to be fixed in terms of Sections 3, 5 and 6 of the
said Act which has not been taken note of.
It was further pointed out that the arbitrator has failed to notice
that there was no payment of Rs.2,00,000/- as held. Only material
which was adduced before the arbitrator was to show that there was a
deposit but there was no withdrawal of the amount. The sum of
Rs.47,000/- has been adjusted more than once. The arbitrator did not
notice that there were certain special conditions which govern the
agreement, which were not taken note of. 15% interest on Rs.5,75,000/-
is included wrongly because it is nowhere directed that 15% was to be
paid by the claimant. It was only observed that in case appeal is
allowed, the State would be entitled to 15%. In essence, the award was
characterized to be outcome of misconduct.
In response, learned counsel for the State submitted that award
given by the arbitrator is a reasoned award and the scope for
interference with the reasoned award is extremely limited. Nothing has
been shown to show that the arbitrator overlooked any relevant piece of
material or that the award suffered from any patent illegality.
Though there was some dispute about the applicability of the Act
in view of the accepted position at all stages that the Act applied to
the proceedings, such challenge is without any foundation.
It has to be noticed that the arbitrator has given a very well
reasoned and detailed award. It could not be shown as to in what way
the fundamental terms of the contract were disregarded. The arbitrator
has referred to various clauses of the contract and the effect thereof.
The findings are in no way perverse or unreasonable. We do not find
substance in the plea of learned counsel for the claimant that the
award suffered from any infirmity. So far as applicability of the
Interest On Delayed Payments Act is concerned, it appears that before
the arbitrator no claim in that regard was made. In order to attract
the provisions of the said Act, the factual aspect like the prevailing
bank rate of interest were to be brought on record. This has not been
done. So the plea in that regard is also without any substance. We,
however, find substance in the plea relating to computation of the
amounts receivable by the claimant. As rightly submitted, there was
nothing on record to show that the claimant had withdrawn the amount
which was deposited with the Subordinate Court, Trivandrum. Similarly,
a sum of Rs.47,000/- has been adjusted more than once. Necessary
adjustment in this regard has to be made. So far as the plea relating
to 15% rate of interest is concerned, it has to be noted that this
Court directed that in case appeal is allowed, State would be entitled
to interest @ 15%. That situation has not come. It would, therefore,
be proper to apply 9% rate of interest on the sum of Rs.5,75,000/-.
With the above modifications and computation award of the
arbitrator is made rule of the Court and entire respective amounts be
worked out and decree drawn up accordingly.
The appeals are disposed of on the above terms leaving the
parties to bear their respective costs.