Kerala High Court
A.K.Francis & Company vs The Fertilizers & Chemicals Travancore on 30 April, 2010
Author: Pius C. Kuriakose
Bench: Pius C.Kuriakose, C.K.Abdul Rehim
IN THE HIGH COURT OF KERALA AT ERNAKULAM
Arb.A.No. 4 of 2007()
1. A.K.FRANCIS & COMPANY,
... Petitioner
Vs
1. THE FERTILIZERS & CHEMICALS TRAVANCORE
... Respondent
2. M.SWAMIDASAN, RETIRED EXECUTIVE
For Petitioner :SRI.P.P.JACOB
For Respondent :SRI.A.M.SHAFFIQUE (SR.)
The Hon'ble MR. Justice PIUS C.KURIAKOSE
The Hon'ble MR. Justice C.K.ABDUL REHIM
Dated :30/04/2010
O R D E R
PIUS C. KURIAKOSE &
C. K. ABDUL REHIM, JJ.
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Arbitration Appeal Nos.4, 5, 6 & 7 of 2007
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Dated this the 30th day of April, 2010
JUDGMENT
Pius C. Kuriakose, J These appeals under Section 37(1) of the Arbitration and Conciliation Act, 1996 have been preferred against the common order passed by the Second Additional District Court, Ernakulam in Arbitration O.P. Nos.8/02, 55/02 and 168/02. The appellant was contractor to the first respondent/ Company and the Original Petitions were filed by the first respondent/Company before the District Court under Section 34 of the Arbitration Act for setting aside the award passed by the Arbitrator. Arbitration Appeal No.4/07 pertains to the order in Arbitration O.P. No.55/02, Arbitration Appeal Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -2- No.5/07 pertains to the order in Arbitration O.P. No.168/02, Arbitration Appeal No.6/07 pertains to the order in Arbitration O.P.8/02 and Arbitration Appeal No.7/07 pertains to the order in Arbitration No.168/02. For the sake of convenience, the appellants in the 1st 3 appeals will be referred to as the Contractor and the respondents therein will be referred to as the Company. The facts pertaining to Arbitration O.P. No.8/02 as pleaded by the respondent before the court below are as follows:-
2. The company called for tenders for the work of ASCI Projects, the first floor extension for Administrative building, civil works. The contractor firm undertook the construction work. The validity period was six months. The company was under
the apprehension that the tender could not be Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -3- finalised within a period of six months. The contractor was requested for an extension of the validity period and the contractor vide their letter dated 16/09/91 informed that they are ready to extend the validity as required by the company provided 22% increase in the already quoted rate is allowed. The increase requested was unacceptable to the contractor and therefore indent dt.16/09/91 was issued accepting the offer of the contractor within the validity period of the offer. Work order was issued on 17/09/91 and formal agreement was executed on 25/09/91. The work was to be completed within a period of nine months concluding on 10/07/92. The contractor was unable to mobilise sufficient men and materials required for completing the work within the agreed period. Hence, they came up with Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -4- several excuses such as labour problems, changes in plans and patterns, non-availability of departmental materials, scarcity of sand etc. etc.. Though site was handed over to the contractor on 11/10/91 they started the work only on 07/11/91. There was delay in production of stamp paper for executing the agreement and hence, the formal agreement could be executed only on 25/11/91 which led to delay of about one month in handing over of the site. Work was completed actually only on 24/04/93 and as per the agreement a sum of Rs.88,238/- had to be levied as liquidated damages. This amount was recovered from the contractors final bill. Time was the essence of the contract. Hence, delay in execution of the work could not be excused. At the request of the contractor the dispute was referred to arbitration Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -5- and the second respondent Sri.M.Swamidasan, a retired Executive Engineer of the KSHB was appointed as the sole arbitrator by this Court. The contractor filed a claim of Rs.9,84,676.57 and sought for an enhancement of at least 50% over the rates agreed. Second respondent passed an award in favour of the Contractor for an amount of Rs.6,52,141/- as Principal amount with interest thereon at the rate of 12% amounting to Rs.6,13,012.56/-. Alleging that the award is vitiated and is in conflict with the public policy of India and contending that the award was induced by fraud and corruption, the company filed the original petition under Section 34 for setting aside the award.
3. It was urged by the company that the arbitrator proceeded on the wrong assumption Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -6- that the contract came into existence only on 25/11/91, the date on which the stamped agreement was executed between the parties. It is urged that the contract was concluded on the day the offer was accepted. In this case the offer (tender submitted by the contractor) was accepted vide telex of indent dt.16/09/91. The letter of the Contractor dated 16/09/91 requesting for 22% enhancement on the rates had no relevance since the company decided to accept the offer within its validity period itself without opting for extension of time. 22% enhancement was requested by the Contractor mainly based on expected changes in the rate of building materials at the time of commencement of the work. But since the extension earlier sought by the company was not opted question of enhancement on the Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -7- rate of building materials will not arise. It is urged that the contractor never bargained for an increase in rates of labour charges. Nevertheless, the arbitrator permitted increase of 22% on the quoted rates inclusive of labour charges. It is urged that the arbitrator has not indicated the reasons for increase in his award and there was no evidence adduced by the contractor to prove that there was actually increase in the rates within the period of completion of the contract. It is urged that there was specific clause in the agreement that all prices shall remain static and will not be subject to any escalation including those on account of delays due to Force Majeure.
The Arbitrator being a creature of the contract document has no right to circumvent the provisions of the contract and escalate the rates in Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -8- violation of the terms of the contract. It is urged that cement and steel were supplied to the Contractor by the company free of cost and the contractor had to account for the materials and any excess material drawn by them not used at the work had to be returned to the store and receipt obtained and credit to be given for the quantities so returned. Provision was also made for cutting allowance and return of scraps as regards steel supplied. The Arbitrator held that since the award was executed within the township area coming under the security cover arranged by the company, the contractor has no liability to account for shortage of materials and on that basis Rs.29,654/- was awarded by the arbitrator towards costs of unaccounted departmental material returned by the contractor. This was in Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -9- violation of the terms of the contract.
4. It is urged that labour problems and rains are the two excuses made by the contractor for the delay. Labour management came exclusively within the domain of the contractor and rain was specifically made by the parties to be not a reason for escalation and hence, the arbitrator was not justified in enhancing the rates.
5. The 22% increase on the principal work and 50% escalation for the extra work executed by the contractor is awarded by the arbitrator.
6. The arbitrator ordered release of the retention amount of Rs.70,042/- ignoring that the amount stood already adjusted towards the final bill. The arbitrator ordered return of a sum of Rs.53,310/- which was excess sales tax amount paid to the department by the petitioner. Before Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -10- passing these orders, the arbitrator did not go through the detailed account statement. The contractor was unable to point out any reason touching on the obligations of the petitioner as per the contract leading to the delay. Hence, the finding of the Arbitrator that delay was caused by both sides is against public policy. The award smacks of malafides, arbitrariness, unfairness, unreasonableness and error of jurisdiction throughout.
7. As pleaded by the company, O.P.55/02 pertains to the work of construction of the first floor of the Administrative building of the Petro Chemical Division of the FEDO. The tender submitted by the contractor was accepted vide indent dated 06/11/92 and subsequent work order dated 11/11/92. As per the terms of the Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -11- agreement, the entire work had to be completed in all respects within a period of three months from the date of handing over of the site. Site was handed over on 20/01/93. The partition was to be effected by using 12 mm. thick prelaminated medium density fibre boards (decoration of both sides) natural teak finished Duratuff or equivalent and necessary teakwood beadings. The boards could not be procured on 11/03/93. The contractor sought for permission of the company to use high bond particle boards. This request was immediately granted by letter dt.17/03/93. The work had to be completed by 19/04/93 as per the original agreement. Innumerable excuses such as non-availability of materials, labour problems, non-payment of advance etc. were raised by the Contractor who completed the work only on Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -12- 03/06/93. In this case also, at the request of the contractor the second respondent was appointed as sole arbitrator. The contractor claimed Rs.1,10,152.56/- stating that they are entitled for enhancement of 50% over and above the agreed rates. The second respondent awarded Rs.5,16,320/- with interest at 18% per annum from 01/08/93. This enhancement according to the Company was in gross violation of the terms of the contract which were to the effect that under no circumstances, there will be escalation of rates. The accounts showing the gross value of the bill less the statutory and other deductions and the balance amount due to the Contractor was produced before the Arbitrator. Retention amount was also adjusted. Arbitrator's calculation will show that there is double payment. Even the Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -13- Sales Tax paid is ordered to be recovered. The rate of interest awarded is the maximum permissible. Calculation errors also crept into the arbitration award.
8. O.P.162/02 pertains to construction of two blocks of 'P' type quarters and allied works and the Udyogamandal township area coming under tender No.C-100 dated 18/02/91. In this case tender could not be finalised within a period of six months and the company requested for an extension of time. The contractor informed that they are prepared to extend the validity of tender without any change in the terms and conditions or increase in the prices offered and already agreed upon. Prior to that the contractor had sent a letter on 16/09/91 indicating that if there is any change in the rate of the building materials at the time of Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -14- commencement of work, the same should be taken into account and negotiated. But by letter dt.04/10/91 that letter was withdrawn. On the basis of the letter dated 04/10/91 work was offered to the contractor and the work was to be completed in all respects within a period of twelve months. A concluded contract came into being on 21/12/91 when the telex of indent was issued. Site was handed over on 01/01/92. In this case also as in the two earlier cases, the contractor was unable to mobilise sufficient men and materials in completing the work within the agreed period. The contractor came forward with innumerable excuses which is labour troubles, delay in issuing drawing, departmental materials etc. etc. It was also stated by the contractor that the location of the building was changed subsequently. Even Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -15- though the contract was finalised on 21/12/91 formal stamped agreement was executed only on 30/07/92 as the bank guarantee which the contractor was liable to provide security was provided only on 22/06/92. The company had not contributed the delay in completing the work. As is evidenced from the minutes of the review meeting held between the parties on 15/06/92, in this case also time was the essence of the contract and the company was entitled to impose liquidated damages initially up to 30/06/93 and finally up to 16/08/94. In this case also at the instance of the contractor second respondent was appointed as the Arbitrator. The contractor filed claim statement for Rs.18,83,146.90/-. He also claimed that he is entitled to enhancement of at least 50% of the rates agreed upon. The arbitrator Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -16- granted 35% increase in the rates and opposed the award of Rs.18,31,507/- together with interest at the rate of 12% per annum. It is contended that this award is also un-sustainable for the reasons stated in the earlier award and that the agreement between the parties prohibit enhancement of the rates under any circumstances. Cost of unaccounted departmental materials retained by the first respondent amounting to Rs.87328/- is ordered to be re-paid. Even though there is no stipulation for contract for watchmen charges Rs.30,000/- is accounted towards watchmen charges. This was done in the absence of any evidence adduced by the contractor that watchmen was provided by him at a salary of Rs.2000/- per mensem.
9. The contractor filed counter affidavits in Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -17- all the three O.Ps. The Arbitrator remained ex parte. The contentions raised in the counter affidavits have been summarised by the learned District Judge in his order and are as follows:-
10. In the contract referred to in Arbitration O.P.8/02 the company requested for an extension of validity till 31/10/91 and the contractor accepted the request provided 22% increase in the already quoted rates was allowed. The said offer was unconditionally accepted by the company vide telex of indent dt.16/09/91. The averments to the contrary made by the company are false. The telex of indent does not say anything about the non-acceptance of the proposal made by the contractor regarding enhancement of rate. That apart there was delay caused on the part of the company also. The site Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -18- and final plans were not handed over in time. The contractor was asked to commence the work on provisional and incomplete plans. The programme of the work was issued only on 15/11/91. The contract was concluded on 25/11/91 and the time begins to run only from that date. Various problems faced by the Contractor were brought to the notice of the company. On 02/11/91 vide letter dt.27/01/93 the company asked the contractor to first complete the balance work and then submit the report for extension of time as well as claim for escalation of price for review. It is only based on such assurance given to the contractor that he completed the work and furnished all details of review of the works. The Tribunal had after considering the evidence in detail as well as the arguments placed on either Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -19- sides concluded that the levy of liquidated damages were not acceptable or proper. The company withheld various payments relating to other contract works which was carried out simultaneously and arbitrarily imposed various penalties without basis. This resulted in huge losses and damages to the contractor. The contractor became forced to approach this Court for getting an Arbitrator appointed since the company was not willing to settle the bills of the contractor. The allegations raised against the arbitral award are not acceptable on the grounds that it is opposed to public policy, induced by fraud and corruption and against the terms of the contract are unsustainable. The allegation that enhancement of rate was improperly granted is also incorrect. The contractor produced documents Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -20- before the arbitrator indicating that in similar cases of contract escalation of rates up to 200% was granted to other contractors by the company. In the instant case, the arbitrator had granted only very nominal increase in rates which cannot be faulted. Various deductions made unreasonably by the company were disallowed by the arbitrator after consideration of the evidence in detail. The District Court under Section 34 is not entitled to sit in appeal over the verdict of arbitrator. The District Court has no authority to enquire into the reasonableness of the award. The jurisdiction of the District Court under Section 34 is very limited.
11. The District Court enquired into three Arbitration O.Ps jointly and passed common order after formulating the following points:- Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -21-
1) Is the petitioner/company entitled to get arbitration award set aside ?
2) Reliefs and costs ?
The learned District Judge found on appreciating the entire evidence which was placed before him that the contractor has signed the contract with clear understanding that the rates under the contract was firm and final. In this context the learned District Judge relied on articles 13.3 and 15.4 of the agreement.
According to the learned District Judge, the arbitrator was very cryptic in his expressions and has in all three cases travelled beyond his jurisdiction while granting enhancement of rates both for the original works and also for the additional work which was found to be only a small quantity and not 25% of the original work as Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -22- found by the arbitrator. On the above reasoning it was found that the award as regards enhancement of rates in all the three cases has to be set aside. Referring to article 9.2 of the agreement the learned Judge found that the award to refund cost of materials amounting to Rs.29,654/- in O.P.8/02 and Rs.87,328/- in O.P.168/02 was not sustainable. According to learned District Judge, the reasons stated by the arbitrator for overcoming the agreed terms are flimsy and insufficient and accordingly, found that to the above extent also the award has to be set aside. The learned District Judge found that the order to re-pay the Sales Tax recovered in O.P.8/02 as well as in O.P.55/02 was quite improper since on the terms of the contract sales tax payment was the liability of the contractor. It Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -23- was noticed that on the terms of the contract retention amount is to be adjusted towards final bill and hence, that part of the award was found liable to be set aside. As regards the direction for payment of watchman charges it was found that the same was beyond the provisions of the contract and accordingly found that the award in so far as it directs payment of watchman charges was in excess of the limits of the powers of the arbitrator and found that that part of the award in O.P.168/02 is liable to be set aside. So also the District Judge found that the award of the Arbitrator for payment of a sum of Rs.1,98,550/- towards revocation of the Bank Guarantee was improper and found that that part of the award is liable to be set aside. Nevertheless, the direction for refund of cost of handrail and liquidated Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -24- damages set aside under O.P.8/02, was not interfered with as they are pure factual questions based on evidence and is outside the scope of court's jurisdiction under Section 34. Hence, the awards in O.P.8/02 was set aside only in part. Ultimately, except the finding of the arbitrator regarding refund of the liquidated damages withheld of Rs.88,348/- in O.P.8/02 and the cost of damages to handrail Rs.4347/- ordered in the same O.P. the awards were set aside.
12. In these appeals preferred by the contractor various grounds are raised assailing the decision of the District Court and it is urged that there was no warrant at all for setting aside the awards.
13. Arbitration Appeal No.7/07 is preferred by the company against the order of the District Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -25- Court in Arbitration O.P.8/02 to the extent it sustained the award of the Arbitrator in refunding liquidated damages of Rs.88,348/- and damage of handrail amounting to Rs.4,347/-. In that Arbitration Appeal grounds have been raised assailing the order of the District Court to the above extent.
14. Very extensive submissions were addressed before us by Sri.B.Manimohan, the learned counsel for the appellant in Arbitration Appeal Nos.4, 5, and 6 of 2007 and also by Sri.A.M.Shaffique, senior advocate for the appellant/company in Arbitration Appeal 7/07. The main point which was raised by Sri.Manimohan was that the District Court acted in excess of the jurisdiction under Section 34 of the Arbitration Act in interfering with the conclusions of fact arrived Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -26- at by the Arbitrator on the basis of evidence. Mr.Manimohan relied on a large number of precedents to support the various propositions advanced by him. He relied on the judgment of the Supreme Court in Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan (1999 (5) SCC
651) to argue that the District Court was not justified in its interpretation of the clause in the contract which provides that under no circumstances increase in rates will be allowed. According to him, there are other clauses in the Arbitration agreement which will justify award of higher rates and when these clauses are harmoniously interpreted it will be possible to sustain the award of the arbitrator. Mr.Manimohan relied on the judgment of the Supreme Court in Gas Authority of India Ltd. v. Keti Construction (I) Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -27- Ltd. (2007(5) SCC 38) to argue that a ground that Arbitral Tribunal has no jurisdiction to pass a particular award was not to be accepted lightly. In the instant case, the question of jurisdiction was not raised by the company at the appropriate time and that at any rate not pursued seriously in evidence. It is therefore, not open to the company to challenge the award of the Arbitrator on the ground of absence of jurisdiction in a proceeding under Section 34. Very strong reliance was placed by Mr.Manimohan on the judgment of the Supreme Court in K.N.Sathyapalan (Dead) By Lrs. v. State of kerala & Anr. (JT 2006(10) SC 615). On the authority of the above decision, the learned counsel argued that even when the terms of the contract does not provide for escalation of rates, once it becomes evident that the contractor Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -28- is unable to complete the work within the stipulated time and that to a certain extent at least the delay is attributable to certain actions or inactions on the part of the principal and also in cases where it becomes evident that the delay is due to unforeseen circumstances then there will be justification in awarding escalation. Mr.Manimohan placed reliance on the judgment of the Supreme Court in Food Corporation of India v. M/s Ahmed & Co. and Anr. (JT 2006 (10) SC 62)to argue that escalation of rates was normal and routine incident arising out of gap of time during inflationary period in performing any contact of any time. Hence, even in the absence of a clause in the contract permitting escalation in rates, escalation can be allowed once the evidence reveals that the delay in execution is at least to a Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -29- certain extent due to laches on the part of the principal. Reliance was placed by the learned Advocate on the judgment of the Supreme Court in Food Corporation of India v. Indian Council of Arbitration (AIR 2003 SC 3011) to argue that the legislative intent underlying the various provisions of the Arbitration and Conciliation Act was to minimise the Supervisory role of courts in arbitral process, hence interfering lightly with the award of the Arbitrator will defeat such intent. Mr.Manimohan submitted that the appellant/ contractor is a small fry and considering the work actually executed by him the amounts awarded by the arbitrator are not at all excessive, and it was inequitable to have interfered the awards of the Arbitrator. The learned counsel vehemently pleaded that at least a portion of what was set Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -30- aside by the District Court be restored to the Contractor lest they should be put to more hardship.
15. Sri.A.M.Shaffique, senior Advocate for the company was able to meet all the arguments of Mr.Manimohan regarding the jurisdictional competence of the District Court under Section 34 of the Arbitration and Conciliation Act to interfere with the award of the Arbitrator. The learned senior counsel relied on a large number of decisions in support of his argument inter alia he relied on the judgment of the Supreme Court in Delhi Development Authority v. R.S.Sharma & Company (2008(13) SCC 80), Venture Global Engineering v. Satyam Computer Services Ltd. (2008 (4) SCC 190), Numaligarh Refinery Ltd. v. Daelim Industrial Co. Ltd. (2007(8) SCC 466), Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -31- McDermott International Inc. v. Burn Standard Co. Ltd. (2006(11) SCC 181), Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd. (2003(5) SCC
705), Ispat Engineering & Foundry Works v. Steel Authority of India Ltd. (2001(6) SCC 347), Steel Authority of India Ltd. v. J. C. Budharaja (1999(8) SCC 122), Associated Engineering Co. v. Govt. of Andhra Pradesh (1991(4)SCC 93), The Municipal Corporation of Greater Bombay v. Thermal Engineering Corporation, Bombay (1997(2) Arb.LR
361) and State of Kerala v. N.E.Abraham (1998(2) ILR Ker. 700).
16. We have very anxiously considered the rival submissions addressed at the Bar in the light of the ratio emerging from the various decisions cited at the Bar by Mr.Manimohan and Mr. A.M.Shaffique. The main question which rises for Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -32- consideration is whether the District Court was justified in interfering with the award of the Arbitrator in the manner done presently within the scope of Section 34 of the Arbitration and Conciliation Act, 1996. We are of the view that the above question has to be answered in the positive in favour of the company and against the contractor. The Supreme Court has in Delhi Development Authority v. R.S.Sharma & Company (2008(13) SCC 80) dealt with the scope of Section 34(2) of the Arbitration and Conciliation Act 1996. It is laid down clearly that terms and conditions to the agreement are binding on both the parties and in the absence of specific clause with regard to the payment of extra cartage and in view of clause 3.16 in the contract which are subject matter of that case the claimant is not entitled to claim Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -33- extra cartage. The scope of section 34 of the Arbitration and Conciliation Act is again considered by the Supreme Court in Venture Global Engineering v. Satyam Computer Services Ltd. (2008 (4) SCC 190). Their lordships held inter alia under the above judgment that the aggrieved party is entitled to invoke right under Section 34 to have the award of the arbitrator set aside on the reason that the same is in conflict with the public policy of India. The public policy of India includes not only (a) the fundamental policy of India; or (b) the interest of India; or (c) justice or morality, but also the policy to interfere with anything which is patently illegal. The judgment of the Supreme Court in Numaligarh Refinery Ltd. v. Daelim Industrial Co. Ltd. (2007(8) SCC 466) was in a case which involves a question whether it was Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -34- open to a contracting party to claim variation of the rates in the teeth of the provision of the contract that rates are firm and fixed. Their lordships held that once the price is fixed there is no provision for giving any benefit of fluctuation on the exchange rate in terms of the contract. Therefore, the expression firm and fixed is clear answer to the question that if during the course of contract certain fluctuations have taken place in the market on that count the claimant cannot raise extra demand on account of upward trend in the exchange rate. The judgment of the Supreme Court in McDermott International Inc. v. Burn Standard Co. Ltd. (2006(11) SCC 181) and Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd. (2003(5) SCC 705) also deal with scope of the power of the court under Section 34(2) of the Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -35- Arbitration and Conciliation Act and keeping in mind the views expressed by the Supreme Court in those decisions it is not difficult to hold that the District Court under the impugned order did not transgress the limits of its powers under Section 34(2).
17. In Ispat Engineering & Foundry Works v. Steel Authority of India Ltd. (2001(6) SCC 347), it has been clearly held that the arbitrator has no authority or jurisdiction to abdicate the terms of the contract which actually incorporate of that party's desire while executing the contract. The arbitrator derives authority from the contract and if the arbitrator acts in manifest disregard of the contract the award passed by him would be an arbitrary one. In our view the District Court was justified in taking view that the award passed by Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -36- the Arbitrator to the extent it was in conflict with express terms of the contract was arbitrary and hence, liable to be interfered with under Section
34. The judgment of the Supreme Court in Rajasthan State Mines and Minerals Ltd. v. Eastern Engineering Enterprises (1999(3) Arb.L.R 350(SC), according to us, is apposite to the facts which obtain in these cases. The Supreme Court held therein that if there is a specific term of the contract which does not permit or give the arbitrator the power to decide the dispute or there is a specific bar under the Contract to the raising of a particular claim (underline supplied) then the award passed by the arbitrator in respect thereof will be excess of jurisdiction. The Supreme Court held that if the award passed by the arbitrator is disregarding the terms of the reference or the Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -37- arbitration agreement or the terms of the contract will be a jurisdictional error which is liable to be decided by the court under section 34. The action of the learned District Judge in having interfered with the award passed by the arbitrator can be justified also on the principles laid down by the Supreme Court in New India Civil Erectors (P) Ltd. v. Oil & Natural Gas Corporation (1997(11) SCC
75) it is held therein that when the price is firm and is not subject to any escalation under whatsoever ground till the completion of the work in the face of the said express stipulation between the parties no claim should have been raised for any amount on account of escalation in the cost of construction carried out after the expiry of the original contract period. The judgment of the Supreme Court in Accociated Engineering Co. v. Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -38- Government of Andhra Pradesh (1991(4) SCC 93) also underlines that the function of the arbitrator is to arbitrate the dispute on the basis of the terms of the contract agreed upon by the parties. The above view is reiterated in the Division Bench decision of the Bombay High Court in Municipal Corporation of Greater Bombay v. Thermal Engineering Corporation, Bombay (1997(2) Arb.LR
361) and also by the Division Bench decision of the Kerala High Court in State of Kerala v. N.E.Abraham (1998(2) ILR Ker. 700). We are therefore, unable to accept the argument of Mr.Manimohan that the District Court exceeded its powers in interfering with the award of the arbitrator. The award of the arbitrator was substantially in conflict with the expressed provisions of the contract between the parties. It Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -39- was not within the powers of the arbitrator to award escalations in rates when the contract prevented award of such escalations on whatever reasons. There is no evidence in this case to hold that the company was in any way responsible for the delay caused on the side of the Contractor in completing the execution of the work. We therefore are of the view that the District Court was justified in interfering with the awards in O.P. Nos.55/02, 168/02 in full and with the award in O.P.8/02 in part.
18. As for the award in O.P.8/02 which is sustained by the District Judge to ascertain extent, i.e., that is refund of the liquidated damages of Rs.88,348/- and damages to handrail amounting to Rs.4,347/- we notice that the learned District Judge has sustained the same on Arbitration Appeal Nos.4, 5, 6 & 7 of 2007 -40- the reason that the necessary findings in support of the same are entered by the arbitrator on the basis of evidence available on record. The persuasive submissions of Mr.A.M.Shaffique, the learned senior counsel notwithstanding, we are not persuaded to hold that there is justification for interfering that part of the learned District Judge's order.
The result is that all the Arbitration Appeals will fail and will stand dismissed however, without any orders as to costs.
PIUS C. KURIAKOSE JUDGE C. K. ABDUL REHIM JUDGE kns/-