Delhi High Court
Kochhar Construction Works vs Delhi Development Authority And Anr. on 22 May, 1998
Equivalent citations: 74(1998)DLT118, 1998(46)DRJ638
Author: S.N. Kapoor
Bench: S.N. Kapoor
JUDGMENT S.N. Kapoor, J.
1. The petitioner M/s Kochhar Construction Works filed a petition under Sections 14, 17 and 29 of the Arbitration Act, 1940 for filing the award given by Shri K.K. Reddy dated 29lh August 1994 and making it rule of the court.
2. Delhi Development Authority, the respondent filed objection against the award vide IA 1858/95.
3. Relevant fads in brief are as follows:
3.1 The petitioner entered into a contract with the respondent No.1 for the work of construction of 84 LIG DUS at D-l/C Janak Puri, New Delhi vide agreement No. 73/EE/HDV1I 81-82. Certain disputes arose and in terms of the arbitration Clause, the matter was referred to Shri K.K. Reddy who gave the award.
4. The award is being challenged by the objectors DDA basically on the ground that learned Arbitrator has only indicated conclusions reached by him and failed to give any reasons or to disclose his thought process or the basis for awarding various amounts in respect of claim No. 1 (items 2,3 & 4) and claim Nos. 8, 9 & 10
5. Before proceeding further and considering individual claims, the relevant part of Clause 25 of the agreement is being reproduced for proper appreciation. It reads as under:
In all cases where the amount of claim in dispute is Rs.50,000/- (Rupees fifty thousand) and above, the arbitrator will give reasons for the award."
6. This very clause as well as similar clauses came to be interpreted time and again in numerous cases as referred to by learned counsel for parties. Learned counsel for the petitioner relies upon following judgments:
1. Kochhur Construction Works v.. Delhi Development Authority, Suit No. 2009/94 decided on 5th February 1996.
2. Naraindas R.Israni v.. Union of India, 1993 (l)ALR 233.
3. Goa Daman and Diu Housing Board v. Ramakant V.P. Darvotkar, .
4. MCD v.. Jagan Nath Ashok Kumar and Anr., .
7. Learned counsel for the objector relies upon:
1. Ashok Ohri v.. DDA, 1997 (1) ALR 181
2. NDR Israeli v. Delhi Development Authority, Suit No. 2501A/87 decided on 28th January 1992.
3. College of Vocational Studies v. S.S. Jaitley, AIR 1987 Del 134.
4. Anant Raj Agencies v. DDA, Suit No. 2341A/86 decided on 13th July 1989.
5. New India Civil Erectors (P) Ltd. v. ONCC, .
8. Deciding arbitration matters sometimes may amount to walking on razor's edge as would be evident herein after. There is a duty cast on the court that the court should not unnecessarily try to find fault with the award and should lean to a limited extent in favour of upholding the award and at the same time it is the duty of the court to ensure that the arbitrator does not exceed the limit set by the arbitration agreement.
9. It is axiomatic that the arbitrator being creature of the agreement must operate within the four corners of the agreement and cannot travel beyond it. The arbitrator had to follow the limits set for him and the court can find that he exceeded his jurisdiction on proof of such excess. There are two different and distinct grounds involved in many such cases. One is the error apparent on the face of the record and the other is that the arbitrator exceeded his jurisdiction. In the latter case, the courts can look into the arbitration agreement but in the former, it cannot, unless the agreement was incorporated or recited in the award (See New India Civil Erectors (P) Ltd. v. ONGC, (supra) (para 9 and 11). The arbitrator being sole judge of the quality and quantity of evidence, it would be unwise for the court to take upon itself the task of being a judge on the evidence before the arbitrator for appraisement of the evidence by the arbitrator is never a matter which the court should question and consider. The court is also not required to consider the reasonableness of reasons (see PCI v. Jagan Pal).
10. In Goa Daman and Diu Housing Board v. Ramakant V.P. Darvotkar, (supra) the objection in consideration was that the arbitrator misconducted himself by giving the award without recording any reason for the same even though the claim was Rs.50,000 and above as provided in Clause 25 of the agreement between the parties. The relevant portion of para 12 reads as under:
12. "...There is, However, nothing to show that the Arbitrator misconducted himself or the proceedings in any other manner of there is anything to show that the awards have been improperly procured. There is no allegation, far less, any finding, that the Arbitrator was biased or unfair or he has not heard both the parties or he has not fairly considered the submissions of the parties in making the awards in question. In our opinion, it is evident from the four awards made by the Arbitrator that the Arbitrator has considered all the specific issues raised by the parties in the arbitration proceedings and came to his finding after giving cogent reasons. The above awards cannot under any circumstances be considered to be made by the Arbitrator without recording any reasons for the same. Therefore, in such circumstances, it is not proper to hold that the Arbitrator has misconducted himself or in the proceedings in the matter of giving the awards.
11. In case of reasoned award, the arbitrator is required to indicate the trend of his thought process but not Ms mental meanderings, the purpose of commercial arbitration being speedy/certainly and a cheaper remedy. When the finding of the arbitrator is based on no evidence, then certainly the court can go into such findings and set aside such an award as being perverse. The arbitrator is entitled to decide rightly or wrongly but if the error of law appears on the face of the award, then the court can interfere and set aside the award. Reasons are the links on the material documentary and oral evidence adduced before the arbitrator on which certain inferences are drawn and conclusions are made. There must be some rational nexus between the two indicated in the award. The arbitration may not set out every process of reasoning or may not deal with every point raised but must, when he is called upon to give reasons "to tell the 'reason' why he came to the particular conclusion. Where the arbitrator ignores some of the important documents, it has to be held that the findings given are without any reason whatsoever and as such the arbitrator may not only have misconducted, the arbitration proceedings, but would be exceeding the terms of reference under which he is required to give reasons for his findings (See College of Vocational Studies v.. S.S. Jaitely (supra).
12. As has been stated, the arbitrator when called upon to give a reasoned award, is still not required to write as detailed judgment as judges do. However, he is required to indicate the trend of his thought process but not his mental meanderings, the purpose of commercial arbitration being speed, certainty and cheaper remedy. ( see College of Vocational Studies v. S.S. Jaitely (supra).
12.1 As the parties choose their own arbitrator, they cannot, when the award is good, on the face of it, object to the decision either upon law or facts unless such mistake appears on the face of the award, on document appended or incorporated in it. It was the observations of the Supreme Court in Municipal Corporation of Delhi v. M/s. Jagan Nath Ashok Kumar, 1987(2) SCALE 695. The observations of Lord Goddard, C.J, in Mediterranean & Eastern Export Co. Ltd. v. Fortress Fabrics Ltd. (1948 2 All E.R. 186) were quoted with approval by saying that in our opinion this is an appropriate attitude and in addition to above observations in para 4 following observations were made:
"In this case, there was no violation of any principles of natural justice. It is not a case where the arbitrator has refused cogent and material factors to be taken into consideration. The award cannot be said to be vitiated by non-reception of material or non-consideration of the relevant aspects of the matter. Appraisement of evidence by the arbitrator is ordinarily never a matter which the Court questions and considers. The parties have selected their own forum and the deciding forum must be conceded the power of appraisement of the evidence. In the instant case, there was no evidence of violation of any principle of natural justice. The Arbitrator in our opinion is the sole judge of the quality as well as quantity of evidence and it will not be for the Court to take upon itself the task of being a judge of the evidence before the arbitrator. It may be possible that on the same evidence the Court might have arrived at a different conclusion than the one arrived at by the arbitrator but that by itself is no ground in our view for setting aside the award of an arbitrator.
This indicates that in case the arbitrator is acting within the four corners of the agreement and does not exceed his jurisdiction he may himself judge the quality as well as quantity of the evidence and he may also act upon certain estimates about the market value based on his experience who would know and have means of knowing about the market rates. To this extent the Court is supposed to accept and respect his views irrespective of the fact that whether he has disclosed the rates or not in the award.
13.1 From the foregoing it appears to be the settled law that a reasoned award must disclose some intelligible reasons dealing with substantial points raised before the arbitrator as well as intimating some nexus between the material on record and the conclusions arrived at by the arbitrator to indicate trend of thought process, mental meanderings need not be referred to nor he is required to give detailed reasons as judges do. The question of sufficiency or lack of sufficiency of reasons depends on facts of the particular case. As regards giving actual calculations in coming to the conclusion of awarding a certain amount there appears some slight conflict in the opinions but a slight indepth study indicates that there may be none. In N.D. Israni v.DDA Suit No. 250IA and 2004A of 1997 decided on 28.1.1992 a Single Judge made certain observations. If particular sentence is read in isolation there may not be appropriate appreciation of the observations made in totality of the circumstances. To appreciate it in proper perspective following observations of the learned Single Judge may be noted "He (the arbitrator) has not specified the claim allowed against each item. He has also not given any reasons as to how he arrived at the figure 96,117 and on what basis that calculation has been made. The finding thus suffer from the vice of lack of reasons".
Obviously it was a lump sum award without giving any intelligible reasons touching upon the points raised and indicating any nexus between the material on record and the conclusions arrived at.
13.2 In Anand Raj Agencies v. DDA Suit No. 2341A of 1986 another Single Judge took the view that though it is true that arithmetical calculations need not be given by the arbitrator, it is well settled that he must indicate his thought process. But on account of inconsistency in reasoning, unilateral change in the decisions taken by the Additional Chief Engineer and lack of basis to arrive at the figure of Rs.59,000/-. The reasons were not accepted as sufficient.
13.3 In Ashok Ohri v. DDA and Anr., 1997(1) ALR 181 the questions of calculations came again before this Court and a learned Single Judge observed in para 10 thus:
"On perusal of the findings recorded by the Arbitrator in respect of the aforesaid decision, I find that the Arbitrator has failed to indicate his thought process and has failed to give reasons and that he has arrived at the conclusion that the cost of the steel reinforcement in walls has been assessed at Rs. 19,222 at market rates. The arbitrator has failed to indicate as to what was the prevailing market rate of steel at that relevant point of time and for what quantity of steel he has awarded the aforesaid amount. Accordingly, the aforesaid award passed in Para (ii) of Claim 2 is also liable to be set aside, which I hereby do."
This also indicates that the calculation was not the sole basis of rejecting the award passed in Para (ii) of Claim 2.
13.4 A perusal of para 22 and 23 of the judgment in Alien Berry & Co. v. The Union of India, indicate that actual computation need not be given for it was held............"it was not incumbent on the umpire to decide number of operational vehicles outside the depot. Consequently, if he was satisfied that even though the company was not entitled to the said 600 vehicles claimed by it yet the authorities had delivered a substantial number of them and for any deficiency, had also delivered non operational vehicles, there could be no purpose in going into the details of vehicles delivered to the company".
13.5 In Krishna Construction Co. v. D.D.A., 1988(1) ALR 263 the arbitrator had given reasons by holding that the rates for pressed steel frames for windows had to be derived from Clause 12(iv) for a value of work up to Rs. 4,80,213 and beyond this the rate of pressed steel frames were derived from Clause 12A. These reasons were found sufficient indicating again that actual arithmetical computation need not been given. In NarainDas Israni v. Union of India, 1993 (1) ALR 233 this view was followed.
13.6 In H.L. Maggo v. D.DA. a Single Judge of this Court observed in para 6 that "......it is well settled by decisions of the Supreme Court that the Court cannot probe into the thought process of the arbitrator while giving the award against claim No.2. The arbitrator has categorically stated that "on consideration of the submissions and facts before him, which means that he has considered the material placed before him." This was found sufficient about some loss and computation of awarded amount for it was not totally but substantially found support from the record.
13.7 It is evident from the foregoing that while it may not be necessary to give the actual calculations but the reasons must disclose the thought process indicating nexus between the material on record and the conclusions arrived at. However there is bound to be some estimation even in cases of reasoned award based on the experience and qualification of the arbitrator especially the technically qualified arbitrators. How far lack of calculation is material or immaterial will depend on the facts and circumstances of each case.
14. Now, I proceed to decide the objections relating to various claims individually.
15. Claim No.l (item No.2) 15.1 In so far as claim No.l is concerned, it is required to be seen that clause 25 as referred to above is not attracted to this claim for initially no doubt the claim exceeded the amount of Rs.50,000/- for the claim amount was Rs. one lakhs, but subsequently, the claimant himself modified the claimed amount to Rs.37,553.31 including payment under Clause 10(c) in the statement of facts.
15.2 Moreover, on claim No.l, item No. 2 the quantities in respect of item No. 7.2 of the agreement and the Extra Item No. 16 have been arbitrarily reduced in the final bill. It is further indicated that respondent could not give any plausible reason lor such arbitrary reduction. Nor the measurement books were produced before the claimant and arbitrator Respite several chances given to the respondent. If in such circumstances, a sum of Rs.10,170.40 have been awarded, the reasons indicating thought process of the arbitrator though precise are very much evident and the only thing which is lacking is the actual calculation as to why the petitioner's claim Rs.11,971.60, Rs.10,170.40 was awarded.
15.3 Claim 1 (Item No.3) In regard to claim 1 item No,3, there is some difference of perception to the applicability of the broad co-efficient for working out the mild steel. While the respondent considered it as 0.2 kg. per mtr., the petitioner claimed at 0.222 kg per mtr. The argument of the respondent before the arbitrator was that the claimant never objected to such claims during the running bill payment stage. It is apparent that the co-efficient of 0.222 kg. per mtr. was accepted by the arbitrator and if on that basis he upheld the claim to the extent of Rs.2,103.93, this court cannot uphold the objection on the ground that the thought process has not been indicated, for the award is based on considerations of submissions and facts placed before him and it has to be presumed that the arbitrator has considered the material placed before him. , 15.4 Claim 1 (Item No. 4) In so far as penal recovery of Rs.3.91 MT of cement of the value of Rs.2,737 and objections relating thereto are concerned, it is evident that the arbitrator had given reason for the arbitrator noticed absence of notice under Clause 33 directing the petitioner to return the surplus cement and lack of evidence to prove that the cement was pilfered. The arbitrator certainly indicated his thought process and reasons for awarding a sum of Rs.2737 against item No.4.
15.5 Judging these objections in the light of settled (aw, I do not find any force in these objections relating to claim No.l items Nos. 2, 3 & 4.
16. Claim No. 8The petitioner claimed a-sum of Rs.12.50 lacs on account of damages due to prolongation of the work but gave the details of a sum of Rs.8,53,171.
16.1 According to the respondent/objectors, no amount could have been given under this head for this is in violation of Clause 1 of Specifications and Conditions of the contract as also Clause 10 of the agreement. It read as under: Specifications and Conditions:
"1. The contractor must get acquainted with the proposed site for the works and study specifications and conditions carefully before tendering. The work shall be executed as per programme approved by the Engineer-in-Charge. If part of site is not available for any reasons or there is some unavoidable delay in supply of materials stipulated by the Department, the programme of construction shall be modified accordingly and the contractor shall have no claim for any extras or compensation on this account."
16.2 From the perusal of the award, it appears that the date of commencement of the work was 30th January 1982, the stipulated date of completion was 29th October 1982 and the actual date of completion was 25th October 1985. In this connection, two questions arise: "firstly whether this court will look into the question relating to error of law or facts in the award specially, if it is not so apparent on the face of the award? and secondly, "whether it was reasonable for the arbitrator to consider that if instead of nine months, three years passed in completion of the work, the condition No.l mentioned above would not apply?"
16.3 In so far as the first question is concerned, even an arbitrator commits a mistake either in law or fact but such mistake does not appear on the face of the award or in a document appended to or incorporated in it so as to form part of it, the award would neither be remedied nor set aside notwithstanding the mistake (See Chapter VII of Arbitration and Conciliation Act, 1996, Tapan Kumar Pal v. Krishan Kant, , Union of India v. A.L. Rallia Ram, ).
But in TN Electricity Board Bridge Tunnel Construction, , the Supreme Court took the view that in case the arbitrator by a speaking award decides it on a wrong proposition of law, it will be an error apparent on the face of the record and liable to correction. If the arbitrator decides a dispute which is beyond the scope of reference or beyond the subject matter of the reference or he makes an award disregarding the terms of the agreement or terms of the contract, it would be a jurisdictional error beyond the scope of reference and he cannot clothe himself to decide conclusively that dispute as it is an error of jurisdiction which is to be ultimately decided by the court.
17. In the matter of challenge to the award, if there are two distinct and different grounds, namely that there is an error apparent on the face of the record and that the arbitrator has exceeded his jurisdiction. The arbitrator, while deciding the admitted dispute, in the latter case, the court can look into the arbitration agreement but under the former it cannot do so unless particular point or clause of the agreement was incorporated or cited in the award or evidence was made part of the agreement. In the case of jurisdictional error, "...there is no embargo on the power of the court to admit the contract into the evidence and to consider whether or not the umpire had exceeded the jurisdiction because of nature of the dispute is something which has to be determined, outside the award, whatever might be said about in the award or by the arbitrator. In the case of non-speaking award, it is not open to the court to go into the merits. Only in a speaking award, the court can look into the reasoning in the award and correct wrong proposition of law or error of law. It is not open to court to probe the mental process of the arbitrator and speculate when no reasons have been given by the arbitrator as to what impelled the arbitrator to arrive at his conclusion. But in case of exceeding the jurisdiction, the court, with reference to the terms of contract/arbitration agreement, would consider whether or not the arbitrator/umpire has exceeded his jurisdiction in awarding or refusing to award the sum of money awarded or omitted a consolidated lump sum."
18. In view of the above observations of the Supreme Court, in T.N. Electricity case, (supra), and the matter being related to question of jurisdiction with reference to the agreement between the parties, I consider the arbitration agreement and Condition No. 1 of Specifications and Conditions to decide whether arbitrator has exceeded his jurisdiction in this speaking award. One has to appreciate the implications of Clause 42. What would be deemed to be reasonable time limit to complete the contract. In the light of Sections 47 and 48 of the Contract Act, seeing the general conditions, it is apparent that Section 47 of the Contract Act is not attracted for the time for performance of the promise is subject to variation to a certain extent Section 48 provides that a promise is to be performed on a certain day, and the promisor has not undertaken to perform it without application by the promisee, it is the duty of the promiseto apply for performance at a proper place and within the usual hours of business. According to explanation of Section 48, the question "What is a proper time and place" is, in each particular case, a question of fact. While interpreting such a clause, one can think of some unavoidable delay in handing over site or in supply of materials but unavoidable delay has to be justified by the party who claims that the delay in supply of the material or handing over of the site was unavoidable. It may be mentioned that a delay which is not unavoidable is not covered in this general condition, that it is not a case where "the above price is firm and is not subject to escalation under whatever ground set for completion of the, work" as was the cast in New India Civil Erectors (P) Ltd. v. ONGC (supra).
19. Coming to the facts of the case, it is apparent from the award that all the items in claim No. 8 excepting the following items would otherwise relate to complete handing over of site, and supply of material etc.:
1. The development drawings could not be provided by the respondent which contributed to a delay or more than four months.
2. The road roller was not supplied in time.
3. Payment of running bills was not made regularly.
4. Payment against extra substituted items were delayed.
5. Secured advances against non-perishable materials were not made diligently.
20. The plea of the claimant before the arbitrator was that the respondent has committed breach of contract due to which the claimant suffered losses and be compensated. The submission of the respondent before the arbitrator was that enhancement of claim from Rs.2,50,000 to Rs.12.50 lacs was an after-thought. The arbitrator noted that the work which was to be completed in nine months was extended by a period of three years. The award in respect of this item reads as under:
From the facts of the case, it is clear that the work which was to be completed in 9 months was extended by a period of 3 years. From the documentary evidence as well as the arguments put forth by both the parties, it is evident that the respondent to a good extent was in breach of the contractual obligations as a result of which completion of the work was delayed by three years beyond the stipulated period.
The claimant, during the execution of the work was bringing to the notice of the respondent about its intention to claim the market rates for the work being carried out beyond the stipulated period of the contract.
Shortage of labour, execution of substandard work, diverting part of the existing labour force for removal of defects on the part of the claimant also added to the delay in the completion of the work to some extent.
Considering the pros and cons, I hold that the claim of the claimant is partly justified.
The respond not supplied materials such as cement, M.S. rounds, twisted deformed bars, door shutters, SCI, GI, PVC pipes etc, as such to calculate the extra cost involved on the basis of cost index (as worked out by the claimant in NJethod-2) will not be a reasonable proposition.
In the details of calculations made in Method-I, the claimant had taken into account average of rates of a similar work awarded up to 13.8.84. This does not give a correct picture as most of the work was completed much before August 84. Moreover the claimants added an amount of Rs.4,02,000/- towards establishment cost over and above the cost worked out on the basis of rates of works awarded during the extended period.
Since the tendered rates already cover the establishment costs, the same cannot be added again. The claimant was also compensated for the statutory increase in labour wages and cost of materials under Clause 10C of the contract.
Considering all the factors mentioned above, the claim is partly justified and respondent will pay Rs.2,05,000/- to the claimant.
21. It is also apparent from the respondent's submissions recorded by the arbitrator that the plea of unavoidable delay was not taken by the respondent/objectors. In the objection before this court also, the position is the same. It is evident that as has already been observed that in the absence of unavoidable delay, the contractor would be entitled to be compensated for the loss occasioned on account of breaches committed by the respondent objectors. It is also apparent from the award that shortage of labour, execution of substandard work, diverting part of the existing labour force for removal of defects on the part of the claimant also, added to the delay in completion of the work to some extent. The respondent was held responsible to a good extent in breach of contractual obligation leading to the delay by three years beyond the stipulated period. The arbitrator considering all the factors accepted the claim of the claimant and awarded a sum of Rs.2,05,000. The thought process is certainly indicated. For the aforesaid reasons and the reasons mentioned in the award, I feel that arbitrator being an expert of his field must have arrived at just conclusion and accordingly the award on this claim No. 8 does not call for any interference 22. Claim No. 9 This relates to awarding of 12% interest on sums awarded on claims No.4 w.e.f. 25th April 1986 up to the date of making of the award and future interest on the amount of the award. A perusal of the award does not leave any room to accept the submission including the objection relating to clause 25 for thought process is certainly indicated. Period and reason is also specified for this is based on delayed payments. As such, this objection has to be rejected and it is rejected accordingly.
23. Claim No. 10It relates to awarding cost of Rs.5000/- of arbitration proceedings. Seeing the thought process, I do not think that this is such a matter where detailed reasons were necessary. Consequently this objection has also got no substance.
24. The award is accordingly made rule of the court. The petitioner shall be entitled to get interest at the rate of 12% per annum from the date of decree till date of realisation. The decree sheet be prepared accordingly.