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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.