Delhi High Court
Prem Chand Sharma And Co. vs Dda And Anr. on 8 November, 2005
Equivalent citations: 2005(3)ARBLR472(DELHI), 127(2006)DLT696, 2005(85)DRJ305
Author: Sanjay Kishan Kaul
Bench: Sanjay Kishan Kaul
JUDGMENT Sanjay Kishan Kaul, J.
Page 2020 IA 8388/1989 ( Under Section 30 & 33 of the Arbitration Act, 1940)
1. The petitioner was awarded the contract by the respondent-DDA for construction of 168 houses of MIG category, pocket A-13, Kalkaji Extension, New Delhi in pursuance to agreement no. I/HD/XXI/A/81-82. Disputes arose between the parties and in view of clause 25 of the terms and conditions of the agreement, providing for settlement of disputes by arbitration. Sh. A P Paracer was appointed sole arbitrator by the appointing authority being the engineer-member DDA vide a letter dated 22.04.1987. The counter claims were also referred for adjudication vide a letter dated 10.10.1988. The arbitrator made and published the award dated 24.06.1989. The respondent-DDA aggrieved by the same has filed the present objections.
2. It has to be kept in mind that while scrutinising the objections u/s 30 & 33 of the Act, it is not the function of this court to sit as a court of appeal against an original decree. This court is not to re-appreciate Page 2021 the evidence and an award would not call for interference on the ground that this court may come to a different conclusion than what has arrived at by the arbitrator on the basis of material placed before him. It is only when the findings are perverse or there is misconduct in law or there is personal misconduct of the arbitrator, would this court be called upon to interfere with the same. In this behalf a judgment of the Division Bench in DDA v. Bhagat Construction Co.(P)Ltd. and Anr.,2004 (3) Arb.LR 481 and of the apex court in Food Corporation of India v. Joginderpal Mohinderpal and Anr., & Gujarat Water Supply & Sewerage Board v. Unique Erectors (Gujarat) (P) Ltd. and Anr., may be referred.
3. In view of the aforesaid principle, learned counsel for the respondent fairly stated that some of the claims would actually require re-appraisal of evidence. This is not permissible within the scope of section 30 & 33 of the Act. In this behalf claims no. 1 & 2 may be referred which relate to refund of rebate for regular monthly payment. It is only when the payments have been made within the time can the respondent be entitled to the rebate. A similar position is also there in case of claim no.3 regarding over weight of steel which is based on appraisal of evidence.
4. Claim no 4 arises from the price escalation clause 10-C. It is not in dispute that the amount under this clause would be payable on account of statutory increase if during the progress of the work the price of any material incorporated in the work and of wages of labour increase more than ten per cent. The grievance of the respondent is that the arbitrator has erroneously relied upon the CPWD cost index which does not amount to a statutory increase. It is thus contended that the cost escalation made on the basis of the CPWD cost index could not form the basis of awarding an amount under clause 10-C of the conditions of the contract.
5. A reading of the award shows that these CPWD tabulations were contested on the ground that they were not binding on the respondent-authority and further the CPWD rates of escalation do not reveal the basis on which the escalation has been worked out. The arbitrator found that the building cost index circulated by the CPWD is rightly recognized method of working out the cost escalation and the respondent had given no convincing reason why this methodology should not be adopted for purposes of objection under clause 10-C. I find no infirmity in the approach of the arbitrator. The CPWD rates are not private rates but are rates of escalation of statutory authorities which have been relied upon for purposes of arriving at the escalation figure. It is not as if the respondent has produced some other material to come to the conclusion that a different figure of escalation should have been awarded under clause 10-C. I thus find no merit in the objections.
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6. There is a serious contest about the award of claim no.5 on account of cutting and straightening of bars which was alleged not to be covered by the agreement item. The arbitrator found that the extra portions are not covered by the agreement and as such the claimant was entitled to extra payment.
7. The issue raised is no more res integra in view of the recent judgment of this court in CS(OS) 2488/2000 titled Narain Das R. Israni v. DDA decided on 28.10.2005. The earlier judgments of this court were considered, to come to the conclusion that the definition clause dealing with this item was not exhaustive but illustrative and thus such work would be covered within the parameters of the clause. The exception to this was if the contractor puts the DDA to notice that he would be charging extra for this work and there was no response of the DDA and the work was done accordingly. Learned counsel for the petitioner fairly conceded that there is no such notice available in the record which could be relied upon by the petitioner to carve out the exception.
8. In view of the aforesaid, this claim cannot be sustained and is set aside.
9. Learned counsel for the respondent also further fairly stated that other than claims no 14, 16 & 17 either the claims have been disallowed or withdrawn or are based on appreciation of evidence, the same are not to be seriously contested. Thus the submissions were made only in respect of claims no. 14, 16 & 17 under one head. The grievance of the respondent is that there is overlapping claims which have been awarded under these clauses.
10. Learned counsel for the respondent submits that under section 73 of the contract both loss of profitability and escalation cannot be granted simultaneously. In this behalf learned counsel has referred to judgment of the apex court in Union of India v. Jain Associates & Anr . The award was really a non speaking award and the crucial question which was considered was where there was no application of mind to the claims and counter claims on account of the fact that there were overlapping claims which had been allowed in toto. Two of the claims in question were founded on loss of profitability and loss of damages based upon delay, latches and negligence resulting in breach of contract. It was held that these were claims arising u/s 73 of the Contract Act and in the given circumstances of the case there was non application of the mind.
11. Learned counsel for the petitioner on the other hand has emphasised that all these three claims fall under different heads.
12. Claim no. 14 is in respect of damages due to prolongation of contract beyond the stipulated date of completion on account of non fulfillment of the obligations by the DDA. It may be noticed that in subsequent contracts, for performance of contract beyond the stipulated period of time for no fault of the contractor, a specific provision has been made by incorporating clause 10-CC. Unfortunately in the contract in question there was no such provision. Page 2023 Thus claim no.14 is in respect of what is in subsequent contracts incorporated in clause 10CC. Claim no.17 is specific in respect of site expenses and other overheads incurred by the petitioner beyond the stipulated date of completion. The material fact is the finding arrived at that it is on account of the respondent's fault that the contract got delayed by almost two and a half years. The arbitrator considered the material placed before him and relied upon the cost index of the CPWD. In respect of claim no.14 insofar as the materials were supplied by the respondent, they were specifically excluded in respect of price escalation and only the net amount has been awarded. The expenses for over heads have been considered on the basis of evidence produced by the contractor as per Exhibit C-35 which has found to be acceptable by the arbitrator. Thus there is apparently no overlapping on account of these two claims.
13. It cannot be said that claim no. 14 has any overlapping with claim no.4. Claim no.4 is on account of statutory increase in material and labour during the currency of the contract and is covered by clause 10-C. Claim no. 14 is for a period beyond the stipulated date of contract and thus principles analogus to the subsequently incorporated clause 10CC would apply. Claim no.16 deals with issues of loss of profitability. This claim is based on the fact that if the contract would have been concluded within the stipulated period of time, the energy and the work force of the contractor would have been put to execution of a new contract which the contract stands deprived of being compelled to use the manpower and resources for completion of the contract beyond the stipulated date of time on account of the fault of the respondent. Here again, in my considered view, there does not appear to be any overlapping on this account.
14. The judgment relied upon by the respondent in Union of India v. Jain Associates & Anr (Supra) arise out of a situation where it was not clear as to the head under which the damages had been awarded as everything was clubbed under one head. The claims were similar for damages on account of prolongation of contract. It is in that context that the observations were made by the apex court.
15. Learned counsel for the petitioner, to substantiate his plea, has referred to the judgment of the Learned Single Judge of this court in Samyukt Nirmata V. Delhi Development Authority; 1997 (1) Arbitration Law Reporter 583. It has further been stated that the appeal filed against this order being FAO(OS) 173/97 was also dismissed by the Division Bench. Learned counsel submits that in the said case also on similar parameters the amounts awarded by the arbitrator under these kinds of heads had been upheld by the Learned Single Judge especially on account of the fact that the arbitrator is the sole judge of the quality as well as the quantity of evidence and it is not for the court to take upon itself the task of being a judge of the evidence before the arbitrator.
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16. Learned counsel for the petitioner also referred to the judgment of the apex court in Sudarsan Trading Co. v. Govt of Kerala; where it was held that insofar as the interpretation of a contract is concerned, it is a matter for the arbitrator and on which this court cannot substitute its own decision. So long as the view taken by the arbitrator is a plausible view, though perhaps not the only correct view, the award cannot be examined by the court. In such a situation, the High Court was held to have no jurisdiction to examine different items awarded clause by clause by the arbitrator and to hold that under the contract these were not sustainable in the facts found by the arbitrator.
17. Learned counsel for the petitioner lastly referred to the judgment of the apex court in Arosan Enterprices Ltd v. Union of India and Anr.; 1999(3) Arbitration Law Reporter 310 where it was observed as under while interpreting the provisions of sections 30 & 33 of the said Act.
"33. Turning attention on the other focal point, namely the interference of the court, be it noted that Section 30 of the Arbitration Act, 1940 providing for setting aside an award of an arbitrator is rather restrictive in its operation and the statute is also categorical on that score. The use of the expression 'shall' in the main body of the section makes it mandatory to the effect that the award of an arbitration shall not be set aside excepting for the grounds as mentioned therein to wit: (i) Arbitrator or contract has misconducted himself; ii) award has been made after the supersession of the arbitration or the proceedings becoming invalid; and iii) award has been improperly procured or otherwise invalid.
34. The above noted three specific provisions u/s 30 can only be taken recourse to in the matter of setting aside of an award. The legislature obviously had in its mind that the arbitrator being the judge chosen by the parties, the decision of the arbitrator as such ought to be final between the parties.
35. Be it noted that by reason of a long catena of cases, it is now a well settled principle of law that reappraisal of evidence by the Court is not permissible and as a matter of fact exercise of power by the Court to reappraise the evidence is unknown to a proceeding u/s 30 of the Arbitration Act. In the even of there being no reasons in the award, question of interference of the Court would not arise at all. In the event, however, there are reasons, the interference would still be not available within the jurisdiction of the Court unless of course, there exist a total perversity in the award or the judgment is based on a wrong proposition of law: In the event however two views are possible on a question of law as well, the Court would not be justified in interfering with the award.
36. The common phraseology 'error apparent on the face of the record' does not itself, however, mean and imply closer scrutiny of the merits of documents and material on record: The Court as a matter of fact, cannot substitute its evaluation and come to the conclusion that the arbitrator Page 2025 had acted contrary to the bargain between the parties. If the view of the arbitrator is a possible view the award or the reasoning contained therein cannot be examined. In this context, reference may be made to one of the recent decision of tis Court in the case of State of Rajasthan v. Puri Construction Co. Ltd wherein this court relying upon the decision of Sudarsan trading Co. case. Sudarsan trading Co. V. Government of Kerala and another, observed in paragraph 31 of the Report as below:
"Court of competent jurisdiction has both right and duty to decide the lis presented before it for adjudication according to the best understanding of law and facts involved in the lis by the judge presiding over the Court. Such decision even if erroneous either in factual determination or application of law correctly, is a valid one and binding inter parts. It does not, therefore, stand to reason that the Arbitrator's award will be per se invalid and inoperative for the simple reason that the Arbitrator has failed to appreciate the facts and has committed error in appreciating correct legal principle in basing the award. An erroneous decision of a Court of law is open to judicial review by way of appeal or revision in accordance with the provisions of law. Similarly, an award rendered by a Arbitrator is open to challenge within the parameters of several provisions of the Arbitration Act. Since the Arbitrator is a judge by choice of the parties and more often than not a person with little or no legal background, the adjudication of disputes by an arbitration by way of an award can be challenged only within the limited scope of several provisions of the Arbitration Act and the legislature in its wisdom has limited the scope and ambit of challenge to an award in the arbitration Act. Over the decades, judicial decisions have indicated the parameters of such challenge consistent with the provisions of the Arbitration Act. By and large the Courts have disfavored interference with award on account of error of law and fact on the score of misappreciation and misreading of the materials on record and have sh own definite inclination to preserve the award as far as possible. As reference to arbitration of disputes in commercial and other transactions involving substantial amount has increased in recent times, the Courts were impelled to have fresh look on the ambit of challenge to an award by the Arbitrator so that the award does not get undesirable immunity. In recent times, error in law and fact in basing an award has not been given the wide immunity as enjoyed earlier, by expanding the import and implication of 'legal misconduct' of an arbitrators so that award by the arbitrator does not perpetrate gross miscarriage of justice and the same is not reduced to mockery of a fair decision of lis between the parties to arbitration. Precisely for the aforesaid reasons, the erroneous application of law constituting the very basis of the award and improper and incorrect findings of fact, which without closer and intrinsic scrutiny, are demonstrable on the face of the materials on record, have been held, very rightly, as legal misconduct rendering the award as invalid. It is Page 2026 necessary, however, to put a note of caution that in the anxiety to render justice to the party to arbitration, the court should not reappraise the evidences intrinsically with a close scrutiny for finding out that the conclusion drawn from some facts, by the Arbitrator is, according to the understanding of the Court, erroneous. Such exercise of power which can be exercised by an appellate court with power to reverse the finding of fact, is alien to the scope and ambit of challenge of an award under the Arbitration Act. Where the error of finding of facts having a bearing on the award is patent and is easily demonstrable without the necessity of carefully weighing the various possible viewpoints the interference with award based on erroneous finding of fact is permissible. Similarly, if an award is based by applying a principle of law which is patently erroneous, and but for such erroneous application of legal principle, the award could not have been made, such award is liable to be set aside by holding that there has been a question of delicate balancing between the permissible limit of error from the materials on record and application of principle of law forming the basis of the award which is patently erroneous. It may be indicated here that however objectively the problem may be viewed, the subjective element inherent in the judge deciding the problem, is bound to creep in and influence the decision. By long training in the art of dispassionate analysis, such subjective element is, however, reduced to minimum. Keeping the aforesaid principle in mind, the challenge to the validity of the impugned award is to be considered with reference to judicial decision on the subject.
37. It is on the basis of this well settled proposition that the learned Single Judge came to a conclusion that the findings of the arbitrators in regard to the extension of delivery period and failure to fix the fresh date has resulted in breach of the contract on the part of the Government and the same being purely based on appreciation of material on record by no stretch it can be termed to be an error apparent on the face of the record entitling the court to interfere. The arbitrators have, in fact, come to a conclusion on a closer scrutiny of the evidence in the matter and re-appraisal of evidence by the Court is unknown to a proceeding u/s 30 of the Arbitration Act. Re-appreciation of evidence is to permissible and as such we are not inclined to appraise the evidence ourselves save and except what is noticed herein before pertaining to the issue as the time being the essence of the contract. In this context, reference may be made to a decision of this court in the case of M.Chellappan v. Secretary, Kerala State Electricity Board and another. Mathew, J speaking for the Three Judge Bench in paragraphs 12 & 13 observed as below:
"12. The High Court did not make any pronouncement upon this question in view of the fact that it remitted the whole case to the Arbitrators for passing a fresh award by its order. We do not think that there is any subsequence in the contention of the Board. In the award, the Umpire has referred to the claims under this head and the arguments of the Board for disallowing the claim and then awarded the amount without expressly adverting to or deciding the question of limitation. From the findings of the Umpire under this head it is not Page 2027 seen that these claims were barred by limitation. No mistake of law appears on the face of the award. The Umpire as sole arbitrator was not bound to give a reasoned award and if in passing the award he makes amistake of law or of fact, there is no ground for challenging the validity of the award. It is only when a proposition of law is stated in the award and which is the basis of the award, and that is erroneous, can the award be set aside or remitted on the ground of error of law apparent on the face of the record:
Where an Arbitrator makes a mistake either in law or in fact in determining the matters referred, but such mistake does not appear on the face of the award, the award is good notwithstanding the mistake, and will not be remitted or set aside.
The general rule is that, as the parties choose their own arbitrator to be the judge in the disputes between them, they cannot when the award is good on its face, object to his decision, either upon the law or the facts. (see Russell on Arbitration, 17 ed., page.322)
13. An error of law on the face of the award means 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( see Lord Dunedin in Champsey Ehara & Co. V.Jivraj Baloo Co.) In Union of India v. Bungo Steel Furniture Pvt.Ltd this court adopted the proposition laid down by the Privy Council and applied it. The Court has no jurisdiction to investigate into the merits of the case and to examine the documentary and oral evidence on the record for the purpose of finding out, whether or not the arbitrator has committed an error of law."
18. A reading of the aforesaid judgments leave no manner of doubt and which is a fact emphasised by various courts including the apex court, that the scope of the enquiry of this court in the present proceedings does not call for re-appraisal of the evidence by the court. In fact such re-appraisal is impermissible. The expression ' error apparent on the face of the record ' was held not to mean and imply closer scrutiny on merits of the documents and materials on record. It is not for the court to substitute its evaluation to come to a different plausible conclusion than that of the arbitrator.
19. In view of the aforesaid, the objections in respect of claims no. 14, 16 & 17 cannot be sustained and are rejected.
20. The last aspect to be considered is the issue of award of interest. Interest has been awarded at 18 per cent per annum. Learned counsel for the petitioner himself fairly confines the claim of interest to 12 per cent per annum till the date of decree.
21. I consider this a fair rate of interest taking into consideration the prevailing rates of interest at the relevant period of time. In view of the aforesaid, the objections are allowed to the extent of reduction of the rate of interest and rejection of claim no.5 and the application stands disposed of.
CS(OS) 1706A/1989 Page 2028 In view of the objection-petition having been disposed of, the award dated 24.06.1989 of the sole arbitrator Sh. A P Paracer is made rule of the court with modification that the claim no.5 stands disallowed and the rate of interest shall be 12 per cent per annum simple interest till the date of decree. Petitioner shall also be entitled to future interest at the rate of 9 per cent per annum from date of decree till date of realisation. In case the payment in terms of decree is made within 60 days from today, the respondent shall be exempted from paying future interest.
Petitioner shall be entitled to costs.
Decree sheet be drawn up accordingly.