Kerala High Court
State Of Kerala, Represented By The ... vs N.K. Aboobacker, Govt. Contractor on 30 May, 1995
Equivalent citations: AIR1995KER327, AIR 1995 KERALA 327, 1996 (2) ARBI LR 339, ILR(KER) 1995 (3) KER 225, (1995) 1 KER LT 850, (1996) 2 ARBILR 339
Bench: K.T. Thomas, N. Dhinakar
JUDGMENT Thomas, J.
1. These appeals arise apparently from two different awards passed by the same arbitrator, but they have sprouted from one contract work the amplitude of which grew much wider during the period of its execution. That contract work, with different shades of details, was undertaken by one contractor. When disputes arose between him and the Government, such disputes were referred to one arbitrator who passed three different awards upon the same evidence. We find it convenient to deal with these two appeals in one common judgment. The remaining third award was passed by the same arbitrator on certain disputes which sprouted from the same contract work undertaken by the same contractor. But, that is subject matter of another appeal (M.F.A. No. 89/95). After hearing both sides, we deem it more convenient to dispose of the said appeal by a separate judgment. Hence we have delinked that appeal from these two. All the same, we may perhaps make some reference to the said appeal also in this judgment.
2. The contract was in respect of a particular work attached to the Kallada Irrigation Project (KIP). The tender submitted by the respondent in these appeals was accepted and agreement was executed between him and the Government on 9-5-1984. The work was "formation of Left Bank Main Canal of the K.I.P. (from chain 47005 to 48254 -- M)". It included certain ancillary work such as driving a tunnel etc. While the work was being executed, the State entered into some suppli-mentary agreements with the respondent in respect of certain extra items of work connected with the main work.
3. After completion of the work, the respondent made claims for damages and compensation alleging that there were several acts of omission and commission which amounted to breach of contract on the part of the State Government. According to him, there was inordinate delay in handing over the site, there was delay in supply of cement, steel, gelatine and other materials, there were intermittant interruption of electric supply which resulted in huge loss of working hours. Respondent complained that on account of series of defaults, his cost of work increased far higher. Respondent claimed a consolidated sum of Rs. Three crores as his loss in the matter. The State Government repudiated this claim and then he invoked the arbitration clause in the agreement. The claims were eventually referred to Shri P. S. Chandran, Superintending Engineer, as the sole arbitrator. In award No. I, (which gave rise to M.F.A. No. 1289/94) the arbitrator awarded a sum of Rs. 2,85,79,500/- (Rs. Two crores eighty five lakhs seventy nine thousand and five hundred only) in favour of the contractor which together with interest awarded at the rate of 18 per cent per annum has swelled up to Rs. 3,38,36,621 /- (Rs. Three crores thirty eight lakhs thirty six thousand and six hundred twenty one only).
4. In a separate claim, respondent wanted compensation for the increased cost of construction over and above the rates covered by the supplimentary agreements. Such claim was based on the contention that the supplimentary agreements were void as he was coerced into signing them though the rates shown therein were far below the real cost rate. This claim was also (when repudiated by the State Government) referred to the same arbitrator. He passed an award in favour of the respondent by directing the State Government to pay a sum nearing Rs. 6 crores (Rs. 5,76,69,173/-) as swelled up from Rs. 4,87,89,326/- till the date of award.
5. When the respondent moved the Sub Court for passing a decree in terms of each, award the State Government filed petitions for setting aside the awards on various grounds including the allegation of misconduct of the arbitrator. Learned Sub Judge dismissed the petitions of the State Government and allowed the applications filed by the respondent and passed the impugned decrees in favour of the respondent.
6. These appeals were filed only after a long delay. However, the delay was condoned in both appeals. Learned Advocate General, during the course of his arguments blamed different officers for the delay alleging that they collided with the respondent to see that the huge awarded amount would pass into the hands of the respondent without any hitch. He requested us to bear in mind what the Supreme Court has reminded in G. Ramegowda v. Special Land Acquisition Officer, Bangalore, AIR 1988 SC 897 that "in litigations to which Government is a party there is same aspect which, perhaps, cannot be ignored; if appeals brought by Government are lost for such defaults, no person is individually affected; but what, in the ultimate analysis, suffers is public interest. The decisions of Government are collective and institutional decisions and do not share the characteristics of decisions of private individuals". Learned Advocate General made a frontal attack on Shri P. A. Dev who was the Government Pleader appointed for conducting the arbitration case before the arbitrator, by alleging that the said Government Pleader was virtually doing disservice to the Government as he supported the claims of the respondent and further alleged that it was the said Government Pleader who advised the Government that there was no scope for challenging the awards in the court. Learned Advocate General showed us a letter which that Government Pleader wrote to the Government expressing his complete agreement with the reasons shown in the awards. The Leader of the Bar went to the extent of submitting that the whole proceedings, right from the commencement of the arbitration proceedings till the passing of the awards were an exercise for plundering huge public money for which some Government agencies worked clandestinely.
7. Shri M. A. George, learned counsel who argued for the respondent strongly resented against the above allegations made against persons who were not parties in these appeals. He leaded that no prejudice may be entertained against the respondent on account of such allegations. We accept the said stand of Shri M. A. George, particularly since those officers are not parties to these appeals and had no opportunity to defend themselves. Hence we refrain from expressing any comment on the above contentions of the learned Advocate General.
8. Learned Advocate General then mounted a fusillade of onslaughts on the two awards by taking us into several details in order to impress upon us that the, arbitrator has misconducted himself and the proceedings in granting such colossal amount from public fund to one single individual without any rhyme or reason under the umbrage of a contract work.
9. Shri M. A. George invited our attention to a series of decisions of the Supreme Court to highlight the extremely limited scope for judicial interference with awards passed by arbitrators. A plethora of decisions was cited before us starting with the decision of the Judicial Committee of the Privy Council in Champsey Bhara & Co. v. Jivraj Balloo Spinning and Weaving Company Ltd., AIR 1923 PC 66. Learned counsel reminded us of the duty of the court in dealing with arbitration awards by citing decisions like Guru Nanak Foundation v. Rattan Singh & Sons, AIR 1981 SC 2075. We do not think it necessary to catalogue all the decisions here as legal position has not been altered from that laid down in Chapsey Bhara & Company's case. After making a survey through the decisions from Champsey Bhara onwards, Sabyasachi Mukharji, J. (as His Lordship then was) has stated in Sudarsan Trading Co. v. Government of Kerala, AIR 1989 SC 890 that 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".
10. Learned Advocate General tried to draw a distinction that approach to speaking awards must be different from non-speaking awards and contended that the decisions cited by the opposite side are not very germane in deciding the question whether the awards are vitiated by misconduct. According to him, when the arbitrator is bound by the terms of the contract to make reasoned award, he cannot adopt subturfuge and escape by giving no reasons for awarding a whopping amount. He further argued that granting unconscienably bulky amount vastly disproportionate to the work undertaken is prima facie evidence of misconduct on the part of the arbitrator. In driving the point home, the Advocate General pointed out the following features as historical preface of these awards :
11. As per the agreement dated 9-5-1984 entered into between the respondent and the Government the total amount of work was only for Rs. 311/4 lakhs (Rs. 31,24,778/-) out of which there was deletion of work for Rs. 61/4 lakhs later. The respondent had completed the entire work covered by the said agreement (except a small portion costing about Rs. 3 lakhs) by 30-6-1987. In respect of that completed work he raised certain other claims involving a huge amount as loss due to the delay alleged against the Government. That claim was then referred to arbitration and one Shri T. Janardhanan Nair, a retired Superintending Engineer was appointed from the panel submitted and the said arbitrator passed an award granting a sum Rs. 85 lakhs to him. The respondent collected the said amount together with interest from the Government. The present awards were over and above the award made by Shri T. Janardhanan Nair.
12. Before we proceed to deal with the details of the awards, we would remind ourselves of what is meant by misconduct in Section 30 of the Arbitration Act. If bias of the arbitrator could be discerned from the award, it would afford inherent evidence for misconduct. Bias can either be due to predisposition towards one party or prejudice towards another party. The Supreme Court, in a recent judgment in State of Rajasthan v. Puri Construction Co. Ltd. 1994 (6) JT 412 (1994 AIR SCW 5061), after mentioning that by and large the courts have disfavoured interference with arbitration award on account of error of law and fact on the score of misappreciation and misreading of the materials on records, has stated thus (at page 5079 of AIR SCW) :
"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 of 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 arbitrator so that award by the arbitrator does not perpetrate gross miscarriage of justice and the same is not reduced to mockery 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."
13. In Secretary to Government, Transport Department v. Munuswamy Mudaliar, 1988 (Supp) SCC 651 : (AIR 1988 SC 2232) Sabyasachi Mukharji, J. (as his Lordship then was) observed that "reasonable apprehension of bias in the mind of a reasonable man can be a ground for removal of the arbitrator. A predisposition to decide for or against one party, without proper regard to the true merits of the dispute is bias". In yet another recent decision in Union of India v. Jain Associates, 1994 (3) JT 303 : (1994 ' AIR SCW 2507) Supreme Court observed thus (at pages 2512 & 2513 of AIR SCW) :
"If the award is disproportionately high having regard to the original claim made and the totality of the circumstances it would certainly be a case of non-application of mind amount to legal misconduct....... It is, there-fore, clear that the misconduct under Section 30(a) does not necessarily comprehend or include misconduct of fraudulent or improper conduct or moral lapse but does not comprehend and include actions on the part of the arbitrator on the face of the award are opposed to rational and reasonable principles resulting in excessive award or unjust result or like circumstances which tend to show non-application of the mind to the material facts by the arbitrator or umpire. In truth he points to the fact that the arbitrator or umpire had not applied his mind and not adjudicated upon the matter although the award prefaces to determine them. Such situation would amount to misconduct."
14. Looking at the two impugned awards from the said legal angle, we are constrained to observe, even at the outset, that they reflect a sort of insatiable thirst to overpour a huge largesse on the contractor. A bias sprouted from a predisposed mind of the arbitrator is transparent in the two awards. The arbitrator's partiality towards the contractor is reflected at very many portions of the awards particularly when he blindly accepted many of the claims of the contractor even when such claims were multifoldedly higher than the agreed rates. We will give our reasons for reaching the above conclusions.
15. In these cases, the arbitrator was duty bound to give reasons for his awards. As per Clause 52 of the agreement (which is the arbitration clause) the award shall state the reasons for the amount awarded if the award exceeds Rs. 1 lakh. If an arbitrator declined to give reasons for the amount, then it would prima facie, amount to misconduct. In award No. I, the arbitrator found that Government is guilty of breach of contract. He held thus: "I, therefore, find that the claimant is entitled to compensation of losses and damages sustained due to the breach of contract committed by the (respondents) Government". After reaching that finding the arbitrator concluded thus : "Having regard to all the aid factors I find that claimant is entitled to Rupees 2,85,79,550/- as compensation of losses and damages sustained due to the breach of contract committed by the respondent (Government) for works done after 30-6-1987 excluding the other claims claimed in other arbitration proceedings as well as over and above the payment already made through the earlier award".
16. When the arbitrator was duty bound to give reasons "for the amount awarded "can he simply give one figure as the above? Should he not have given reasons for the assessment under each head where loss occasioned or sustained? How did he reach that figure? This is a typical case where a man claimed Rs. 3 crores as his loss and the arbitrator awarded 90% of that amount without showing how he reached that figure. Should not the parties know how he reached that figure, unless he is not required to give a reasoned award?
17. A glaring feature stirring at us is the following: The claim of Rs. 3 crores made in the award in award No. I is built up on the following facts also inter alia :
(a) In paragraph 24 of the claim in award No. I, the huge financial losses by way of idling as well as protraction of the execution "caused due to non-supply of power" is one head of claim. That was granted by the arbitrator. But the same claimant had claimed in award No. III (which is the subject matter of the other appeal) the same loss and the same arbitrator had awarded a sum of Rs. 6,91,083/- (vide claim 'F' at page 73 of the award).
(b) In paragraph 28 of the claim in award No. I, respondent made a claim on the basis of "the failure of the department to supply guaranteed materials" which resulted in breach of the contract affecting the tunnel driving. It must be remembered that the same claim was made by the same respondent in the other award also and the arbitrator has awarded a sum of Rs. 65,25,264/- (vide Claim 'G' at page 77 of the award No. III).
In this context we point out that a further sum of Rs. 80 lakhs was awarded by the arbitrator for the same item of work by way of compensation (vide page 48 in Award No. III).
(c) In paragraph 27 of the claim in award No. I, respondent pointed out that there was change of the tunnel to siphen tunnel and that when he made a request for supply of departmental materials there was abnormal delay in sanctioning such supply. Hence he claimed damages under that head. But the same contractor made the same claim in award No. III and the arbitrator has awarded a sum of Rs. 11,79,075/ - (vide claim 'J' at page 82 of award No. III).
(d) Respondent claimed damages for non-supply of the departmental materials at the cite in the claim in award No. I (vide para 28). The same claim was made by him in the other award also and the arbitrator has awarded Rs. 21 lakhs (vide claim 'K' at page 88 in award No. III).
18. It must be remembered that there is no dispute that claims F, G, J, K in award No. III are exactly the same as the four claims referred to above in award No. I also.
19. What is granted in award No. III in respect of claims F, G, J and K added with the amount awarded under item No. 13 in claim 'A' put together would come to Rupees 1,85,74,668/-. The same amount cannot, even if one is to grant the entire amount claimed, be granted over again. What the arbitrator has done in effect with the claim of compensation for breach of contract is this. He awarded a sum of Rs. 4,71,54,168/- when the maximum claim itself was only 3 crores of rupees. He made it by granting Rs. 2,85,79,500/- in award No. I and by granting the balance in award No. III under a camouflage that it is a different claim. We have shown above that some items were mere duplication and the total amount granted has thus far exceeded even the claim itself. This aspect alone is, normally sufficient to reach the irresistible conclusion that this arbitrator has crossed even the limits of misconduct by awarding such whopping sum to one person which act is reminiscent of a legendary monarch granting huge largesse to his bards.
20. The over enthusiasm of the arbitrator in enriching the respondent had blind-folded him so tightly that even claims made up of patently mistaken data were simply granted by the arbitrator. We would substantiate it with the help of two glaring instances picked up from Award No. III (which is involved in M. F. A. No. 15/95). But before we proceed to them, we may point that arbitrator made a self-introspection in the award that he has passed the award "after having weighed and considered the details, statements, analysis, files, estimates, data, measurement books, drawing, structural details, conveyance chart, agreement and evidence produced". Now two glaring instances:
(i) Under item No. 53 in claim 'A', arbitrator awarded a sum nearing Rs. 5 lakhs (Rs. 4,87,365/-) for providing "ladder engagements at the transition portion". The said amount was granted as the said amount was claimed by the contractor. There is no other reason. But the contractor made an obvious arithmetical error (we do not know whether it was inadvertent or deliberate) by multiplying the rate claimed per ton as the rate per kilogram. Rs. 14,000/- was claimed per ton. Total weight involved in the item was only 162.455 Kg. The contractor in his claim multiplied Rs. 14,000/- with 162.455 and reached the figure at Rs. 4,87,365/-. The entire amount so claimed was awarded: What a huge difference it would have brought about if the claim was correctly calculated? Could there be a more eloquent evidence for the callous non-application of mind on the part of the arbitrator?
(ii) Under Item No. 42 in 'A' the arbitrator has awarded a little above Rs. 6 1/2 lakhs (Rs. 6,54,145/-) for "constructing sub-structure -- like -- structure including foundation of cut and cover flume". Here also the entire amount was awarded as claimed; for which no reason is given. But the point is that, here the contractor committed an obvious mistake in reaching that figure while making the claim. He claimed under this head Rs. 3,250/- per metric ton (M3). But he stated in the claim that he was given only Rs.215/- per metric ton as per the agreement. So he claimed the balance. But the fact is that in the agreement, the agreed rate was not Rs. 215/- per M3, but was Rs. 825/- per M3. (That fact is not (disputed before us). The claim was made as Rs. 61/2 lakhs on the wrong impression that the agreed rate was Rs. 215/- per M3. Arbitrator had no compunction in awarding the amount of Rs. 6,54,155/-. What a culpable non-application of mind :
21. In addition to the duplication of claims made by the contractor and the implicit acceptance made by the arbitrator in respect of Item No. 13 in claim 'A' (which was discussed in paragraph 17 of this judgment), a second duplication of claim and acceptance is also highlighted by the learned Advocate General. In that item "conveyance of muck" was also included in "conveying and dumping the muck the lines and levels". After granting the entire amount claimed under this head the arbitrator granted another sum of Rupees 6,7,9,800/- under claim 'H' in the same award (vide pages 77 to 80 of award No. III). This is simply because the contractor repeated the same claim at a later stage also.
22. That apart, we find it irreconcilable to judicial conscience as to how the arbitrator can simply award the entire amount of Rs. 4,000/- per Qubic Metre when the agreed rate was Rs. 437/ - per Q.M. (Even that was an enhancement from Rs. 299/- when the supplemental agreement was executed). This happened in respect of item No. 13 under claim 'A'. What is the range of swelling up in the enhanced claim? How implicitly the arbitrator allowed it, as though he himself was the claimant as well. However under item Nos. 39 and 40 of Claim 'A' the contractor claimed Rs. 67,230/- and Rs. 2,40,450/- (total Rupees 3,07,680/ -) for "pressure grouting the digging between the tunnel and concrete in weakzone of the tunnel........". The entire claim was granted without reduction of a pie. But the same arbitrator duplicated it in his award (vide claim 'N' pages 88 to 94) simply because the contractor repeated the same claim for the same amount over again (It is not disputed before us that both claims mentioned in this para are one and the same).
23. The awarding spree of the arbitrator continued unabatedly, e.g. under item No. 33 in claim 'A' he claimed Rs. 15,000/- per metre for "conveying and erecting tunnel supports with R.S. joists.......". In fact the department has agreed to pay Rs. 3,900/- per metre for this work (It must be remembered that for this work both sides had agreed to give the contractor Rs. 3151 - per metre and in the supplemental agreement, it was agreed to be enhanced to Rs. 3,900/- p. m.) But, just because the contractor claimed Rs. 15,000/-per metre for this work the arbitrator awarded the entire amount without a pie difference. This itself is capable of inflicting disturbance to judicial conscience. But when we noted that arbitrator again awarded almost an equal amount for the very same work as the contractor repeated that claim at a different portion of his claim petition (claim 'E') what was originally a conscious disturbance has snowballed into a shock of the judicial conscience. This can be seen at page 67 of award No. III. We note here that there is no dispute that this also is the same work. Here the arbitrator made a show of application of his mind by granting only Rs. 14,900/-per metre instead of Rs. 15,000/- per metre i.e. he reduced it by Rs. 100/-. We have no doubt that the arbitrator made a show that he did not grant the entire amount claimed, but he, without any qualm, awarded the claim unmindful of the vast disparity range i.e. 2600 per cent increase.
24. Learned Advocate General then proceeded to cite other instances in award No. III to demonstrate that the arbitrator was unquestionably partisan towards the contractor. Among them at least one more has to be specially mentioned in this judgment. It relates to claim 'B* in award No. III. That was in respect of a work called "slipping of the stuff in the tunnel". The work involved clearing and removal of such slipped off stuff inside the tunnel. When the contractor said that he cleared and removed 583.63 M3 slipped off muck and other stuff, the department accepted it and paid him at the rate of Rs. 1,800/- per M3. But before the arbitrator, the contractor claimed that he cleared and removed 1086.626 M3 of muck and other stuff from such slipped off portions. It is rather atrocious that the arbitrator simply awarded Rs. 9 lakhs (precisely Rs. 9,05,400/-) under that claim. This can be seen at page 63 of award No. III. We shall now show why we said that it was atrocious.
25. Arbitrator pointed out that "there is no specific averment to the effect that the entire quantity of slipped off stuff has been measured by the respondents" and further again said that "the quantity and rate claimed by the claimant is not disputed by the respondents (Government) categorically in their defence statement". Arbitrator then said that he verified the measurement recorded and concluded that the work for 1086.626 M3 had in fact been done. Here, we point out three aspects :
(1) There is specific averment in the counter filed by the Government that this work is only 583.63 M3. (2) There is a measurement book and in it the measurement is clearly shown as 583.63 M3. In fact the contractor had endorsed the correctness of the measurement by affixing his signature. Further again, at sheet No. 94 of the book, the contractor has declared that measurement taken and recorded therein are correct and complete (3) It is humanly impossible for any arbitrator to make a physical verification of the area where there was slipped off stuff in the tunnel.
26. In respect of the same claim as mentioned above another glaring evidence of the misconduct of the arbitrtor can be demonstrated. When the contractor claimed Rs. 2,000/- per M3 for the aforesaid work, arbitrator found it unreasonable and then granted only Rs. 1,800/- per M3 (vide page 65 of award No. III where the arbitrator holds "accordingly I find that the rate of Rs. 1,800/-per M3 is reasonable and I fix the same"). Now let us look at page 56 of the same award wherein he dealt with the identical work under item No. 34 of claim 'A'. He granted Rs. 2,000/- per M3 under that claim for the admitted portion of 583.63 M3.
27. We have not exhausted all the instances of the high-handedness indulged in by the arbitrator in passing the awards which were highlighted by the learned Advocate General. But even those adverted by us are enough to conclude that the two awards are highly contaminated and stinking.
28. Would the arbitrator have thought that all the above iniquities would escape the notice of others as the award was written in a volume? Of course, credit must certainly go to the octogenarian Advocate General for winching up all such odious scum to the surface. He said that he received much assistance in this task from Shri Babu Raj who retired as Chief Engineer and Shri V. Gopinathan, Assistant Executive Engineer (KIP) who spent many hours with him.
29. It must be said in fairness to Shri M. A. George, learned counsel for the respondent/contractor that when the above features were highlighted by the Advocate General in respect of award No. III (involved in M. F. A. No. 15/95) he submitted that the said award may be set aside on consent. The Advocate General, was not disposed to concede to it unless all the three awards were set aside on such consent. As there was no agreement for that course, we were constrained to deal with the points in extenso as we did above.
30. Our conclusion is that both awards (Award Nos. I and III) involved in these appeals are vitiated by misconduct of the arbitrator and hence such awards cannot be permitted to survive. We therefore, allow these two appeals and set aside the impugned decrees. The awards which gave rise to the decrees will also stand set aside bell, book and candle.