K.Sodaran vs Stateof Kerala on 18 February, 2011

[Cites 22, Cited by 0]

Kerala High Court

K.Sodaran vs Stateof Kerala on 18 February, 2011

The appellant is the claimant in O.P.(Arb.)No.4 of 1995 on the file of the Principal Sub Court, Thiruvananthapuram, an application filed under Section 17 of the Arbitration Act, 1940 (hereinafter referred to as 'the Act") for making the award passed by the arbitrator dated 5.12.1994 for 30,23,455/- with 16% interest per annum from 21.10.1988 as rule of the court. The respondents have also filed an application under Section 30 of the Act, to set aside the award passed by the arbitrator. The court below by order dated 18.2.2011 partly set aside the award passed by the arbitrator, by limiting the same to one entitling the appellant to realise 10,00,000/- from the respondents, together with interest at the rate of 12% per annum from 21.10.1988. Aggrieved by the said order passed by the court below, the appellant is before this Court in this appeal.

2. We heard the arguments of the learned counsel for the Arb.A.No.3/12 -2- appellant and also the learned Government Pleader for the respondents.

3. The reference before the arbitrator arises out of the contract relating to Kallada Irrigation Dam Project at Parappar. The work relates to drilling 'A' holes and grouting and drilling holes for contract grouting in fault one and grouting drilling 'D' holes, pursuant to Agreement No.1/83-84/SC/KIP dated 11.4.1983 entered into between the appellant and the 1st respondent State, acting through the 2nd respondent, namely, the Superintending Engineer, Kallada Irrigation Project (RB) Circle, Kottarakkara.

4. The fact that the appellant could not complete the work in question as per the original time schedule in the agreement is not in dispute. The appellant would contend that, it was because of the breach of contract committed by the respondents he could not complete the work in time, as provided in the agreement. The appellant would contend further that, the respondents accepting their breach of contract extended the time for completion of the work from time to time without claiming Arb.A.No.3/12 -3- any liquidated damages. Thereafter, he completed the work and handed over the same to the respondents. Since there arose disputes and differences with regard to the execution of the work, the matter was referred to the sole arbitrator, namely, Sri.Joseph Thomas, Chief Engineer (Retd.), Public Works Department, as per Clauses 51 and 52 of the agreement.

5. Before the arbitrator, the appellant raised various claims under the heads (A) to (I). The respondents raised a preliminary objection that the appointment of the arbitrator on 30.8.1988 was after the expiry of 30 days of the defect liability period of six months, which expired on 10.5.1988. The arbitrator overruled the preliminary objection holding that his appointment as arbitrator is not beyond the prescribed time limit.

6. The arbitrator, after considering the pleadings and materials on record, passed an award dated 5.12.1994 for 19,89,955/- in favour of the appellant under Claim (B), which relates to compensation for the loss and damages sustained due to breach of contract committed by the respondents, and for 10,33,500/- under Claim (C), which relates to compensation for Arb.A.No.3/12 -4- the loss and damages sustained due to idling of establishment. On Claim (H) regarding payment of interest, the arbitrator found that the appellant is entitled for interest at the rate of 16% per annum from 21.10.1988, the date on which the arbitrator entered on reference, till date of payment or decree, whichever is earlier. Therefore, the arbitrator awarded the appellant a total sum of 30,23,455/- together with interest at the rate of 16% per annum from 21.10.1988 till the date of payment or decree whichever is earlier. The arbitrator has also ordered release of security (bank guarantee) furnished by the appellant. The other claims made before the arbitrator, namely, Claim (A), (D) to (G) and (I) were rejected.

7. The respondents have filed a counter claim before the arbitrator demanding recovery of 2,64,644/-, contending that the rates already paid in respect of certain extra items of work are on a higher side. However, the arbitrator rejected the counter claim holding that the respondents are not entitled for refund of the aforesaid amount.

8. The appellant filed O.P.(Arb.)No.4 of 1995 before the Arb.A.No.3/12 -5- court below, under Section 17 of the Act, for making the award passed by the arbitrator as rule of the court. The respondents have also filed an application under Section 30 of the Act, to set aside the award passed by the arbitrator. The court below by order dated 18.2.2011 partly set aside the award passed by the arbitrator, by limiting the same to one entitling the appellant to realise 10,00,000/- from the respondent, together with interest at the rate of 12% per annum from 21.10.1988.

9. The main issue that arises for consideration in this appeal is as to whether the court below was justified in interfering with the award passed by the arbitrator, in exercise of its powers under Section 30 of the Act.

10. The law with regard to the scope and ambit of the jurisdiction of the courts to interfere with the award passed by an arbitrator has been settled in a catena of judgments of the Apex Court. In State of Rajasthan v. Puri Construction Co. Ltd. (1994 (6) SCC 485) the Apex Court held that, the arbitrator is the final arbiter for the dispute between the parties and it is not open to challenge the award on the ground that the arbitrator Arb.A.No.3/12 -6- has drawn his own conclusion or has failed to appreciate the facts.

11. In Sudarsan Trading Co. v. Govt. of Kerala (1989 (2) SCC 38) the Apex Court held that, there is a distinction between disputes as to the jurisdiction of the arbitrator and the disputes as to in what way that jurisdiction should be exercised. There may be a conflict as to the power of the arbitrator to grant a particular remedy. One has to determine the distinction between an error within the jurisdiction and an error in excess of the jurisdiction. Court cannot substitute its own evaluation of the conclusion of law or fact to come to the conclusion that the arbitrator had acted contrary to the bargain between the parties. Whether a particular amount was liable to be paid is a decision within the competency of the arbitrator. By purporting to construe the contract the court cannot take upon itself the burden of saying that this was contrary to the contract and as such beyond jurisdiction. If on a view taken of a contract, the decision of the arbitrator on certain amounts awarded is a possible view though perhaps not the only correct view, the Arb.A.No.3/12 -7- award cannot be examined by the court. Where the reasons have been given by the arbitrator in making the award the court cannot examine the reasonableness of the reasons. If the parties have selected their own forum, the deciding forum must be conceded the power of appraisement of 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.

12. In Municipal Corporation of Delhi v. Jagan Nath Ashok Kumar (1987 (4) SCC 497) the Apex Court held that, appraisement of evidence by the arbitrator is ordinarily never a matter which the court questions and considers. It may be possible that on the same evidence the court may arrive at a different conclusion than the one arrived at by the arbitrator but that by itself is no ground for setting aside the award. In the said decision, the Apex Court held further that, it is difficult to give an exact definition of the word 'reasonable'. Reason varies in its conclusions according to the idiosyncrasies of the individual and the time and circumstances in which he thinks. In cases not Arb.A.No.3/12 -8- covered by authority, the verdict of a jury or the decision of a judge sitting as a jury usually determines what is 'reasonable' in each particular case. The word reasonable has in law prima facie meaning of reasonable in regard to those circumstances of which the actor, called on to act reasonably knows or ought to know. An arbitrator acting as a judge has to exercise a discretion informed by tradition, methodised by analogy, disciplined by system and subordinated to the primordial necessity of order in the social life. Therefore, where reasons germane and relevant for the arbitrator to hold in the manner he did, have been indicated, it cannot be said that the reasons are unreasonable.

13. In Arosan Enterprises Ltd. v. Union of India (1999 (9) SCC 449) the Apex Court reiterated 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 proceedings under Section 30 of the Arbitration Act. In the event 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 Arb.A.No.3/12 -9- 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. In the said decision, the Apex Court held further that, 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 materials on record. The court as a matter of fact cannot substitute its evaluation and come to the conclusion that the arbitrator 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.

14. In ONGC Ltd. v. SAW Pipes Ltd. (2003 (5) SCC

705) the Apex Court, after referring to its decision in Arosan Enterprises Ltd's case (supra), held as follows:

" It is true that if the arbitral tribunal has committed mere error of fact or law in reaching its conclusion on the disputed question submitted to it for adjudication then the court would have Arb.A.No.3/12 -10- no jurisdiction to interfere with the award. But, this would depend upon reference made to the arbitrator: (a) if there is a general reference for deciding the contractual dispute between the parties and if the award is based on erroneous legal proposition, the court could interfere; (b) it is also settled law that in a case of reasoned award, the court can set aside the same if it is, on the face of it, erroneous on the provision of law or its application; and (c) if a specific question of law is submitted to the arbitrator, erroneous decision in point of law does not make the award bad, so as to permit it being set aside, unless the court is satisfied that the arbitrator had proceeded illegally."

15. In Kwality Manufacturing Corporation v. Central Warehousing Corporation (2009 (5) SCC 142) the Apex Court held that, the scope of interference by courts in regard to arbitral awards is limited. A court considering an application under Section 30 or 33 of the Act, does not sit in appeal over the findings and decision of the arbitrator. Nor can it reassess or re- appreciate evidence or examine the sufficiency or otherwise of the evidence. The award of the arbitrator is final and the only Arb.A.No.3/12 -11- grounds on which it can be challenged are those mentioned in Sections 30 and 33 of the Act. Therefore, on the contentions urged, the only question that arose for consideration before the High court was, whether there was any error apparent on the face of the award and whether the arbitrator misconducted himself or the proceedings.

16. In Madhya Pradesh Housing Board v. Progressive Writers and Publishers (2009 (5) SCC 678) the Apex Court reiterated that, the award of the arbitrator is ordinarily final and the courts hearing applications under Section 30 of the Act do not exercise any appellate jurisdiction. Reappraisal of evidence by the court is impermissible. In the above decision, the Apex Court noticed its earlier decision in Ispat Engineering & Foundry Works v. Steel Authority of India Limited (2001 (6) SCC

347) wherein it was held that, reappraisal of evidence by the court is not permissible and as a matter of fact, exercise of power to reappraise the evidence is unknown to a proceeding under Section 30 of the Arbitration Act, 1940. After referring to the observations of Lord Dunedin in Champsey Bhara & Co. v. Arb.A.No.3/12 -12- Jivraj Balloo Spinning & Weaving Co. Ltd. (AIR 1923 PC

66), which stands accepted and adopted by the Apex Court in Union of India v. Bungo Steel Furniture (P) Ltd. (AIR 1967 SC 1032) that, the court had no jurisdiction to investigate into the merits of the case or to examine the documentary and oral evidence in the record for the purposes of finding out whether or not the arbitrator has committed an error of law, the Apex Court reiterated that, the court as a matter of fact, cannot substitute its own evaluation and come to the conclusion that the arbitrator had acted contrary to the bargain between the parties.

17. Following the principles laid down in the decisions referred to supra, relied on by the learned counsel for the appellant, the Apex Court restated the law with regard to the scope and ambit of the jurisdiction of court to interfere with the award passed by an arbitrator, in Ravindra Kumar Gupta & Co. v. Union of India (2010 (1) SCC 409), holding that it is impermissible for the court to re-appreciate the evidence led by the parties before the arbitrator. When the arbitrator has duly scrutinised and evaluated the evidence and given elaborate Arb.A.No.3/12 -13- reasons with regard to the claim in question, the findings recorded by the arbitrator cannot be said to be either perverse or based on no evidence. The conclusions so made by the arbitrator cannot be substituted by the court with its own opinion on appreciation of the evidence, which course is not permissible while examining objections to the award under Section 30 of the Act.

18. In Associated Engineering Co. v. Government of A.P. (1991 (4) SCC 93), a decision relied on by the learned Government Pleader, the Apex Court held that, the arbitrator cannot act arbitrarily, irrationally, capriciously or independently of the contract. His sole function is to arbitrate in terms of the contract. He has no power apart from what the parties have given him under the contract. If he has travelled outside the bounds of the contract, he has acted without jurisdiction. But if he has remained inside the parameters of the contract and has construed the provisions of the contract, his award cannot be interfered with unless he has given reasons for the award disclosing an error apparent on the face of it.

Arb.A.No.3/12 -14-

19. In State of Rajasthan v. FERRO Concrete Construction (P) Ltd. (2009 (12) SCC 1), another decision relied on by the learned Government Pleader, the Apex Court held that, Section 30 of the Arbitration Act, 1940, inter alia, provides that an award can be set aside on the ground that an arbitrator had misconducted himself or the proceedings, or that the award had been improperly procured or is otherwise invalid. An error apparent on the face of the award, is a ground for setting aside the award under Section 30 or for remitting the award to the Arbitrator under Section 16(1)(c) of the Act. The Apex Court held further that, in a reasoned award if the claim of a contractor is equated to proof of the claim, then it is obviously a legal misconduct and an error apparent on the face of the award. While the quantum of evidence required to accept a claim, may be a matter within the exclusive jurisdiction of the arbitrator to decide, if there was no evidence at all and if the arbitrator makes an award of the amount claimed in the claim statement, merely on the basis of the claim statement without anything more, it has to be held that the award on that account would be Arb.A.No.3/12 -15- invalid.

20. In the instant case, a reading of the award passed by the arbitrator would show that, the arbitrator has stated elaborate reasons for awarding 19,89,955/- in favour of the appellant, under Claim (B) as compensation for the loss and damages sustained due to breach of contract committed by the respondents. The reasoning of the Arbitrator in awarding 19,89,955/- under Claim (B), as contained in pages 13 to 15 of the award, is as follows;

"I have verified the terms and conditions in the original agreement and supplemental agreements. The pleadings of both sides and records produced by both sides have been scrutinised. Agreement contemplates that the entire work was to be completed within 10 months from the date of order to start the work. The said period of 10 months expired on 30.11.1983. On scrutiny of exhibits and the relevant correspondence file produced before me by the respondents, it is revealed that the time was extended upto 15.12.1987 without levying liquidated damages. Apparently, the factors responsible for protraction of execution are not attributable to the claimant. Further, as per the terms in the agreement, the respondents were vested with the power to levy liquidated damages to Arb.A.No.3/12 -16- declare the contractor as a defaulter and to terminate the agreement at the risk and cost of the claimant if he defaulted agreement provisions. The time extension was granted for reasons not attributable to the contractor. Hence, I find that the claimant is not responsible for the delay in execution of work.

In the defence statement, it is agreed that there was accumulation of silt/sediments. It is further stated in the defence statement that since the dam work was in progress clearing the entrance to adit in the right bank would affect the construction of the dam. The opening of right bank was cleared only by May, 1984. It shows that the clearing of gallery at the right bank adit was done much after the expiry of original time of completion. Agreement stipulates electric power will be provided by the respondents. It is stated in Para.8 of the defence statement that there was power-cut declared by Kerala State Electricity Board. The continuous flow of power was to be maintained by Kerala State Electricity Board. There was a number of exhibits which show that the claimant has notified the disruption of power supply. I find that the respondents failed to supply uninterrupted electricity as guaranteed in the agreement, which amounts to breach of contract.

It is seen admitted in Para.9 of the defence statement that there was some technical delay in finalising the proposal of work as directed by Dam Review Panel. Various exhibits Arb.A.No.3/12 -17- show that there was delay in taking decision of drilling secondary 'A' holes. Similarly, it is seen from the records that there was delay in paying mobilisation advance. It is further seen from the records that both sides of the gallery were closed by the other agency which was carrying out the dam work. The closure of entrance to gallery affected the progress of the work. The contentions of the claimant are supported by his notices to the respondents. The said aspect shows that there was no adequate facilities to carry out the work at site. I find it as lapse on the part of the respondents.

I have verified clause 50 of LCB condition. As per the said condition, no supplemental agreement is envisaged to be executed. I have verified M.Books. It is seen from the measurements recorded that there was further substantial measurements when time was extended after executing supplemental agreements. The statement of the claimant that in the absence of supplemental agreement no departmental personnel will supervise the work at site is not disputed by the respondent. The contractor having invested huge sums cannot resist the demand of the authorities to sign the supplemental agreement in the dotted lines due to necessity of payment for continued execution of work. Forfeiture of security deposit, value of the work done, etc., coupled with termination of work would ruin him beyond redemption. These circumstances compelled the claimant to sign the supplemental Arb.A.No.3/12 -18- agreement for extension of time. It is a fact that under such circumstances, one cannot exercise his free will voluntarily. I find that the execution of supplemental agreement without free will is void and not binding on the claimant.

I have verified the exhibits. The claimant has given timely notices to the respondents. There was several revisions of schedule of rates after 1982. It is seen from the M.Books that the payment for the work has been made at the quoted rate in the agreement. Price hike is a fact undisputed by all concerned. No increase in rate had been effected in the agreement. Hence I find that the claimant has sustained losses due to protracted execution. The execution has been dragged beyond the original period due to various breaches committed by the respondents. Cost of each breach cannot be evaluated separately. But the cumulative effect of all the breaches when taken together resulted in protraction of execution beyond the original period of completion. The claimant demanded compensation for the breach of contract taking into account the price hike during the period beyond the original time of completion. I find that the claimant is entitled for compensation of the losses sustained on the said account. I have enquired wages prevalent in the locality during the period when the work was in progress. Taking all the aspects into consideration as well as assessing the workable point of view, I fix 19,89,955/- as Arb.A.No.3/12 -19- compensation to be paid to the claimant for breach of contract committed by the respondents. The claimant is entitled for the said sum. I find it accordingly."

21. Similarly, the arbitrator has stated elaborate reasons in pages 16 to 18 of the award for awarding 10,33,500/- under Claim (C) for the loss and damages sustained by the appellant due to idling of establishment for a period of 530 days, at the rate of 1,950/- per day. The reasoning of the Arbitrator in awarding 10,33,500/- under Claim (C), as contained in pages 16 to 18 of the award, is as follows;

"I have verified the agreement conditions. I have also inspected the site. It was seen from the site that proper forced air circulation was necessary to carry out the work without chocking to death in the gallery as the working spot was much below the bed of river and closed completely except for two entrances. It is also understood from the records that there was leakage and seepage in the dam which resulted in accumulation of water in the gallery. The construction work of dam was also in progress. During the enquiry at site it was brought out that the construction materials of dam were stacked by the other agency at both entrances of the gallery. The department was eager to achieve maximum progress in the dam construction with the result this particular work Arb.A.No.3/12 -20- was stopped on several occasions. In the defence statement at Para.5 the respondent has stated that the opening at right bank side was cleared only by May, 1984. The claimant's letter also notified that the work at site had come to a stand-still during the said period. Even the statement made in the defence statement shows non- affording of facilities at the right bank side till May, 1984, which was about 16 months after the order to start the work.

I have verified the records concerning the issue of exhaust fans. Considering the site conditions, as I have already visited the site, I found that the exhaust fans provided were not adequate. The air circulation could not be effected properly in the absence of sufficient exhaust fans. I find that insufficiency of the exhaust fans affected the execution.

The Departmental files as well as the notices of the claimant state that there was flooding due to leakage of dam as well as due to seepage of water. During flooding no work in the gallery was possible. The presence of foul gas is also a fact as revealed from the records. It is admitted in Para.8 of the defence statement that there was power cut frequently at the site. It is a fact that in the absence of electricity no exhaust fans will work and no pumping out was possible thereby causing total stoppage of work. Breathing in the gallery was a problem for the workers. The notices of the claimant and the records of the Arb.A.No.3/12 -21- department proved stoppage of work for the said reasons in a number of occasions.

In Para.9 of the defence statement it is stated that there was some technical delay in finalising the proposals in respect of extra works. The respondents themselves stated about stoppage of work at different occasions for different reasons. The nature of this work was different from other construction works. It requires specially skilled workmen who are not readily available at short notices. Hence on each occasion, they cannot be retrenched and later recruited. Therefore, it was an apparent necessity to retain them by paying wages and accommodation facilities. Further the establishment at site could not be retrenched due to the subsistence of the contract and extension of its validity.

I have considered all these aspects and I find that the establishment of the claimant remained idle at site on several occasions for different reasons. I also find that the claimant was put to loss for retention of his establishment including the workers at site. I have ascertained the rates of skilled workers and establishment expenses also were considered. I find that a sum of 1,950/- was necessary per day to meet the expenses of idling. I find it accordingly. Similarly I have verified the records and assessed the actual period of idling. I find that the establishment of the claimant remained idled for 530 days during the currency of contract. Therefore, I find that the Arb.A.No.3/12 -22- claimant is entitled to be compensated at the rate of 1,950/- per day for a period of 530 days. The amount so due to the claimant is 10,33,500/-."

22. A reading of the award make it explicitly clear that, it was after considering the pleadings and materials on record, the arbitrator came to the conclusion that the appellant is entitled for a total sum of 30,23,455/- under Claims (B) and (C). Further, in the impugned order dated 18.2.2011, the court below has also concluded that the award passed by the arbitrator is a well considered one, taking into account the claim made by the appellant, the objections raised by the respondents and also the evidence on record. However, the court below partly set aside the award by limiting the same to one entitling the appellant to realise 10,00,000/- from the respondents, together with interest at the rate of 12% per annum from 21.10.1988. The reasoning of the court below for limiting the award to 10,00,000/-, as contained in pages 4 to 8 of the order, is as follows;

"Now regarding claim B which is with respect to compensation for loss and damages sustained due to breach of contract committed by the respondents, the Arb.A.No.3/12 -23- arbitrator after considering the claim and objections as well as evidence passed an award for 19,89,955/- in favour of the claimant. Of course the arbitrator has passed a well considered award taking into account all these aspects. The Arbitrator mainly found that the agreement contemplated 10 months as the period for completing the work. The period expired on 30.11.1983. The time was extended upto 15.12.1987 without levying liquidated damages. The arbitrator mainly held that the factors responsible for protraction of execution are not attributable to the claimant. As per the terms of agreement the respondents were vested with the power to levy liquidated damages to declare the contractor as a defaulter and to terminate the agreement at the risk and cost of the claimant, if he defaulted agreement provisions. Since the time was extended without imposing damages or fine the arbitrator came to the conclusion that the contractor was not responsible for the delay. Thus the arbitrator simply passed the breach on the respondents and held that the contractor is entitled to get compensation for breach of contract. The agreement stipulated that electric power will be provided by the respondents. The respondents admitted that there was power cut declared by Kerala State Electricity Board. The arbitrator further found that continuous flow of power was to be maintained by Kerala State Electricity Board.

Thus the arbitrator found that the respondents are Arb.A.No.3/12 -24- responsible for supplying electricity for the work. There was some technical delay in finalising the proposal of work as directed by Dam Review Panel. There was delay in paying mobilisation advance. The claimant demanded compensation for breach of contract taking into account the price hike during the period beyond the original time of completion. Considering all these circumstances, the arbitrator passed an award of 19,89,955/- in favour of the claim. This court cannot agree with the entire award. The award is little bit excessive.

It is evident that the Electricity Board has made power cut which was a policy decision taken by the KSEB. Since the claimant was an A Class contractor, he must be aware of the same. Taking into account of these circumstances, the time was extended by the respondents without imposing liquidated damages. Under Clause 50 of LCB condition it is stated that if there is failure of the contractor to complete the work as per the stipulated dates referred above in supplying materials or equipment undertaken by respondent the contractor can get the time extended. Thus the work was extended without imposing damages. This was not properly considered by the arbitrator. The agreement does not contain any provision for payment of compensation for delayed execution of the work. The claimant has executed supplemental agreement with free will and volition. There is no point in contending that the supplemental agreements were executed by force. It is Arb.A.No.3/12 -25- agreed on in the supplemental agreement that the claimant will not make any further claim on the ground of price hike or during the period of extension. The arbitrator did not adopt any rational method for passing such a huge amount against claim B. Thus this court partly set aside the award limiting the amount of 7,50,000/-. Now regarding claim C it is with respect to compensation for loss and damages sustained due to idling of establishment. The arbitrator considering the claim and objection found that the claimant is entitled to get compensation @1,950/- per day for a total period of 530 days which was quantified into 10,33,500/-. The arbitrator held that due to frequent power failure, flooding of gallery on account of leakage of dam, closure of access to the gallery, intervention of other agencies, etc. During the enquiry at site it was brought to the notice of the arbitrator that the construction materials of the dam were stacked by the other agency both at the entrance of the gallery and that the exhaust fans provided were not adequate. The air circulation could not be effected properly in the absence of sufficient exhaust fans. The departmental files as well as the notices of the claimant state that there was flooding due to leakage of dam as well as due to seepage water. During the said time work could not be done. The presence of foul gas was also a fact as revealed from the records. In the absence of electricity no exhaust fans were working. Thus the arbitrator came to the Arb.A.No.3/12 -26- conclusion that there were idling of laborers and materials of the contractor for 530 days. This Court cannot accept the award as the arbitrator did not consider any data or circumstances for the conclusion that claimant sustained a loss of 530 days. It is also not revealed from the award. The respondents cannot be solely held responsible or idling of men and materials of the claimant. The claimant did not produce any bill or voucher for payment of wages @1,950/- per day. The agreement does not contain any provision for payment of compensation or idling men and materials. Thus the entire award is partly set aside. The award amount is limited to 2,50,000/-.

On claim H, the arbitrator has awarded interest @16% per annum on the awarded amount. This Court finds that the reasonable interest that can be awarded is 12% per annum."

23. A reading of the award would indicate that, the arbitrator has scrutinised the terms and conditions of the original agreement as well as the supplemental agreements, and also the records produced by both sides, namely, the estimates, M.Books, plotted sheets, L.F.Books, correspondence files maintained by the respondents, etc., and entered into various findings based on the materials produced before him. The arbitrator found that the appellant was not responsible for the delay in execution of work Arb.A.No.3/12 -27- and that, there was lapses on the part of the respondents in clearing the gallery (which was done much after the expiry of original time of completion), providing uninterrupted supply of electricity as guaranteed in the agreement, etc. The arbitrator ascertained the wages prevalent in the locality during the period when the work was in progress. Taking all these aspects into consideration the arbitrator fixed 19,89,955/- as compensation payable to the appellant for breach of contract committed by the respondents.

24. The arbitrator, after noticing the circumstances which compelled the appellant to sign supplemental agreements, concluded that the execution of supplemental agreements without free will is void and not binding on him. In O.P.Pathrose v. State of Kerala (2010 (12) SCC 100) the Apex Court had occasion deal with a similar contention in relation to the work for formation of Kottayam Branch Canal under the Kallada Irrigation Project. In that case, the arbitrator found that the supplemental agreements were executed on account of coercion and duress and on account of threats meted out by the respondents failing Arb.A.No.3/12 -28- which the final bill would not have been cleared. It was contended on behalf of the respondents that, the supplemental agreements were executed by the appellant with open eyes and there was no coercion and duress on the part of the respondents in executing those agreements. However, the Apex Court noticed that, during the course of arguments before the Arbitrator, it was admitted by the respondents that unless the supplemental agreements are executed payment will not be made, and no materials will be issued. Further, the refusal to execute supplemental agreements would be considered as a default and the respondents could terminate the agreement under Clause 45 of LCB condition. The arbitrator verified the measurement books and found that the appellant had undertaken substantial work before execution of supplemental agreements. Since there was considerable investment by the appellant before execution of supplemental agreements, the arbitrator concluded that the appellant was compelled to execute supplemental agreements for extension of time. While partly allowing the appeal, the Apex Court upheld the above reasoning of the arbitrator and set aside Arb.A.No.3/12 -29- the judgment of this Court in respect of claims (a) and (b). The factual matrix of the instant case is similar to those of the case dealt with by the Apex Court in the decision cited supra. In that view of the matter, the finding of the arbitrator that, the execution of supplemental agreements by the appellant without free will is void and not binding on him is neither perverse nor patently illegal, and the court below ought not to have interfered with the said finding in the award.

25. A reading of the award would indicate that, the arbitrator has conducted site inspection, in which it was found that proper forced air circulation was necessary to carry out the work in the gallery, much below the river bed. Further, there was leakage and seepage in the dam, which resulted in accumulation of water in the gallery. The construction materials of dam were stacked by the other agencies at both entrances of the gallery, with the result the work awarded to the appellant was stopped on several occasions. In Para.5 of the defence statement the respondent has stated that the opening at right bank side was cleared only by May, 1984, which was about 16 months after the Arb.A.No.3/12 -30- order to start the work. The arbitrator has also found that, insufficiency of exhaust fans, absence of electricity due to power cut, technical delay in finalising the proposals in respect of extra works, etc. resulted in the delay in execution of work. The notices issued by the appellant and the records of the department proved stoppage of work for the said reasons in a number of occasions. Since the nature of work requires skilled workmen who were not readily available at short notices it was an apparent necessity to retain them by paying wages and accommodation facilities. After considering all these aspects, the arbitrator found that the establishment of the appellant remained idle at site on several occasions for different reasons. The arbitrator ascertained the rates of skilled workers and establishment expenses and found that a sum of 1,950/- was necessary per day to meet the expenses of idling. The arbitrator verified the records and assessed the actual period of idling as 530 days and awarded the appellant a sum of 10,33,500/- as compensation for the loss and damages sustained due to idling of the establishment.

26. In view of the law laid down by the Apex Court in the Arb.A.No.3/12 -31- decisions referred to hereinbefore, it is impermissible for the court to re-appreciate the evidence led by the parties before the arbitrator. When the arbitrator has duly scrutinised and evaluated the evidence and given elaborate reasons with regard to the claims in question, the findings recorded by the arbitrator cannot be said to be either perverse or based on no evidence. The conclusions so made by the arbitrator cannot be substituted by the court with its own opinion on re-appreciation of the evidence, which course is not permissible while examining objections to the award under Section 30 of the Act.

27. In the instant case, as we have already noticed, the court below has even found that the award passed by the arbitrator is a well considered one, taking into account the claim made by the appellant, the objections raised by the respondents and also the evidence on record. However, the court below scaled down 19,89,955/- awarded by the arbitrator as compensation for breach of contract committed by the respondents to 7,50,000/- stating that the award passed by the arbitrator in this regard is a little bit excessive. Similarly, the court below Arb.A.No.3/12 -32- scaled down 10,33,500/- awarded by the arbitrator as compensation for the loss and damages sustained due idling of the establishment to 7,50,000/- stating that the arbitrator did not adopt any rational method for awarding such a huge amount against that claim.

28. In view of the law laid down by the Apex Court in the decisions referred to hereinbefore, where the reasons have been given by the arbitrator in making the award the court cannot examine the reasonableness of the reasons. 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. It may be possible that on the same evidence the court may arrive at a different conclusion than the one arrived at by the arbitrator but that by itself is no ground for setting aside the award.

29. Section 30 of the Arbitration Act, 1940, inter alia, provides that an award can be set aside on the ground that an arbitrator had misconducted himself or the proceedings, or that the award had been improperly procured or is otherwise invalid. Arb.A.No.3/12 -33- An error apparent on the face of the award, is a ground for setting aside the award under Section 30 or for remitting the award to the Arbitrator under Section 16(1)(c) of the Act. In an application under Section 30 of the Act, the court has no jurisdiction to investigate into the merits of the case or to reexamine the documentary and oral evidence on the record for the purposes of finding out whether or not the arbitrator has committed an error of law.

30. However, as held by the Apex Court in FERRO Concrete Construction's case (supra), in a reasoned award if the claim of a contractor is equated to proof of the claim, then it is obviously a legal misconduct and an error apparent on the face of the award. While the quantum of evidence required to accept a claim, may be a matter within the exclusive jurisdiction of the arbitrator to decide, if there was no evidence at all and if the arbitrator makes an award of the amount claimed in the claim statement, merely on the basis of the claim statement without anything more, it has to be held that the award on that account would be invalid.

Arb.A.No.3/12 -34-

31. In the instant case, one of the findings made by the court below is that, the award passed by the arbitrator is a well considered one, taking into account the claim made by the appellant, the objections raised by the respondents and also the evidence on record. After arriving at such a finding, the court below has absolutely no jurisdiction to interfere with the award passed by the arbitrator. In such circumstances, the conclusion is irresistible that, while scaling down the amount awarded by the arbitrator the court below has exceeded its jurisdiction under Section 30 of the Act. In that view of the matter, we find absolutely no grounds to sustain the impugned order passed by the court below.

32. The learned Government Pleader would then point out the promulgation of Kerala Revocation of Arbitration Clauses and Reopening of Awards Act, 1998 by the Government of Kerala. Section 3 of the said Act provides for cancellation of arbitration clauses and revocation of authority of arbitrator. It was brought to our notice by the learned counsel for the appellant that, the provisions of the said Act were declared as unconstitutional by a Arb.A.No.3/12 -35- Division Bench of this Court in James Varghese and another v. State of Kerala and others (2013 (3) KLT 605). The said judgment is under challenge in S.L.P.(Civil)No.8491 of 2014 and connected cases pending before the Apex Court, in which the Apex Court granted an interim suspension of the judgment. However, it was ordered that, during the pendency of the appeal the State shall not take any coercive steps against the respondents therein, who have already been paid amounts due under various arbitral awards.

33. In the instant case, the award passed by the arbitrator is one dated 5.12.1994. As per sub-section (1) of Section 3 of the Kerala Revocation of Arbitration Clauses and Reopening of Awards Act, the arbitration clause in every agreement executed in terms of the Local Competition Bidding specification for various works of the Government of Kerala shall stand cancelled; the authority of an arbitrator appointed under an agreement referred to above shall stand revoked; and any agreement referred to above shall cease to have effect in so far as it relates to the matters in dispute or difference referred, with effect from the Arb.A.No.3/12 -36- commencement of the Act, i.e., with effect from 14.11.1997. Sub-section (2) of Section 3 of the said Act provides further that, nothing in sub-section (1) shall be a bar for any party to an agreement to file a suit in the court having jurisdiction in the matter to which the agreement relates and all questions regarding the validity or effect of the agreement between the parties to the agreement or persons claiming under them and all matters in dispute or difference between the parties to the agreement shall be decided by the court, as if the arbitration clause had never been included in the agreement. The period of limitation for filing such suits, as prescribed in Section 4 of the said Act, is within six months from the date of commencement of the said Act or within such period as is allowed by the provisions of the Limitation Act, 1963, in relation to such suits, whichever is later. Section 5 of the said Act deals with the power of the Government to file appeal against certain awards. Going by Section 5, where it appears to the Government that any award passed is not in accordance with the terms of the agreement or there was failure to produce relevant data or other particulars Arb.A.No.3/12 -37- before the arbitrator before passing the award or the award is passed for unconscionable amounts, they may file appeal against such award within ninety days of the date of commencement of the Act. We are of view that, the pendency of the appeals and the interim order granted by the Apex Court as stated above will not stand in the way of this Court considering the merits of this appeal.

34. As far as the rate of interest awarded by the arbitrator is concerned, the arbitrator awarded interest at the rate of 16% per annum on all amounts due, for the period from 21.10.1988 to the date of decree or date of payment whichever is earlier. However, the court below found that the reasonable interest that can be awarded is 12% per annum.

35. In State of Rajasthan v. FERRO Concrete Construction (P) Ltd. (2009 (12) SCC 1), a decision relied on by the learned Government Pleader, the Apex Court has reiterated that, in the absence of any specific contract in regard to rate of interest, pendente lite and future interest should not normally exceed 9% per annum. In that case, the Apex Court Arb.A.No.3/12 -38- was dealing with an award passed by the arbitrator under the provisions of the Arbitration Act, 1940. The principle laid down in FERRO Concrete Construction's case (supra) was followed in the judgment of the Apex Court in A.P.State Trading Corporation Ltd. v. G.V.Malla Reddy (AIR 2010 SCW 6337).

36. In view of the law laid down by the Apex Court in the decisions referred to supra, the learned counsel for the appellant fairly submitted that award of interest at the rate of 18% per annum by the arbitrator was an error apparent on the face of the award. In such circumstances, we hold that the appellant will be entitled for interest on 30,23,455/- found due under Claim (B) and Claim (C), only at the rate of 9% per annum, for the period from 2110.1988 to the date of decree or date of payment whichever is earlier.

In the result, this appeal is allowed setting aside the impugned order of the court below dated 18.2.2011 in O.P.(Arb.) No.4 of 1995, thereby restoring the award passed by the arbitrator dated 24.12.1994 awarding 30,23,455/- under Claims (B) and (C); however reducing the rate of interest for the amount Arb.A.No.3/12 -39- awarded to 9% per annum, for the period from 21.10.1988 to the date of decree or date of payment whichever is earlier.

No order as to costs.

Sd/-

P.R.RAMACHANDRA MENON, JUDGE Sd/-

ANIL K.NARENDRAN, JUDGE dsn True copy P.S.to Judge

Unlock Advanced Research with PRISMAI

Kerala High Court