Gujarat High Court
Bharat Sanchar Nigam Limited vs Ms Khurana & on 30 October, 2015
Author: Vipul M. Pancholi
Bench: Vipul M. Pancholi
C/FA/6269/1998 CAV JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
FIRST APPEAL NO. 6269 of 1998
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE VIPUL M. PANCHOLI
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1 Whether Reporters of Local Papers may be
allowed to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the
fair copy of the judgment ?
4 Whether this case involves a substantial
question of law as to the interpretation
of the Constitution of India or any order
made thereunder ?
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BHARAT SANCHAR NIGAM LIMITED....Appellant(s)
Versus
MS KHURANA & 1....Defendant(s)
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Appearance:
MS PJ DAVAWALA, ADVOCATE for the Appellant(s) No. 1
MR KG SUKHWANI, ADVOCATE for the Defendant(s) No. 1
NOTICE SERVED for the Defendant(s) No. 2
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CORAM: HONOURABLE MR.JUSTICE VIPUL M. PANCHOLI
Date : 30/10/2015
CAV JUDGMENT
1. Appellant - Bharat Sanchar Nigam Limited (hereinafter referred to as 'BSNL' for short) has preferred this appeal against the judgment and order dated 20.08.1998 passed by City Civil Page 1 of 34 HC-NIC Page 1 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT Court, Ahmedabad in CMA No.534 of 1996 with CMA No.35 of 1997 with CMA No.6 of 1997, whereby CMA No.6 of 1997 filed by the present appellant has been rejected, whereas CMA No.534 of 1996 and CMA No.35 of 1997, filed by the contractor as well as the arbitrator, are allowed.
2. Heard learned advocate Ms. P.J.Davawala for the appellant and learned advocate Mr. Paras K. Sukhwani for the respondent.
3. Learned advocate Ms. P.J.Davawala appearing for the appellant submitted that the contract of construction of telephone exchange building at Bapunagar, Ahmedabad, was awarded by the appellant department to one M/s. M.S.khurana, Engineers & Builders (hereinafter referred to as 'contractor'). The said contract was executed between the parties vide agreement No.20/TCD/89-
90. The contractor had completed the work of the construction of the building after the due date and in the meantime during the course of the execution of the contract work and after completion of the same certain disputes and difference arise between the parties. The contractor, therefore, invoked provisions of clause 25 of the agreement and pursuant to the same, one Mr. S.K.Ahuja, Chief Engineer (Arbitration), Department of Telecommunication, Page 2 of 34 HC-NIC Page 2 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT Ministry of Communications, New Delhi, was appointed as the sole arbitrator to adjudicate the disputes between the parties. The contractor filed his claim, whereas, the department filed counter claims before the sole arbitrator and thereafter the sole arbitrator, after considering the evidence produced on record, passed his award. The sole arbitrator, thereafter sent a copy of the original award with its record to the City Civil Court, Ahmedabad for making the award rule of the Court and for passing the decree accordingly. The appellant, in the meantime, filed CMA No.6 of 1997 and challenged the award made by the sole arbitrator. The contractor also filed CMA No.534 of 1996 for direction against the arbitrator to file the original award in the Court and also for making the award rule of the Court. All the aforesaid applications were heard together and by way of common judgment, the learned Judge, City Civil Court, Ahmedabad, by common judgment dated 20.08.1998 rejected CMA No.6 of 1997 filed by the present appellant and allowed the other two applications.
4. Learned advocate Ms. Davawala submitted that the appellant has, therefore, filed this appeal. Learned advocate Ms. Davawala mainly contended that the City Civil Court has erred in not exercising the jurisdiction which is vested in Page 3 of 34 HC-NIC Page 3 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT it. The City Civil Court has erred in considering that the arbitrator has disallowed the double rate recovery of cement and steel for excess quantity beyond the permissible variation and the same is against the interest of the appellant department. It is contended that it was specifically pointed out before the City Civil Court that the arbitrator has erroneously arrived at the decision to award double rate recovery of cement by ignoring the provisions of agreement, material documents and oral submissions, inspite of that the City Civil Court has ignored the same. She further contended that it was also specifically pointed out before the City Civil Court that the arbitrator has traversed beyond his jurisdiction by putting unnecessary restriction on adjustment of the amount of compensation from the award sum and thereby the arbitrator has misconducted himself. It is further contended that the City Civil Court has not properly appreciated the fact that the arbitrator has committed an error by disallowing the recovery made by the appellant department under Clause 29(a) and thereby acted beyond his jurisdiction. It is further contended that the arbitrator while passing an award made observations in Clause 3 (viii) as under:
"(viii) Levy of compensation under clause 2:- Since this subject matter is outside Page 4 of 34 HC-NIC Page 4 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT the jurisdiction of arbitrator in view of Supreme Court judgment (Visvanath Sood v.
Union of India) AIR 1989 SC page 952 as such no argument was heard. However, respondent is at liberty to take up the matter at appropriate forum. No recovery on this account is allowed from the award."
5. Though the arbitrator has observed that levy of compensation under clause 2 is the subject matter outside the jurisdiction of arbitrator and no argument was heard, inspite of that the arbitrator observed that no recovery of the amount of compensation is allowed from the award. Thus, the arbitrator has acted beyond his jurisdiction.
6. Lastly, learned advocate for the appellant submitted that the arbitrator has wrongly awarded interest at the rate of 12%, which is on higher side and therefore the City Civil Court ought to have reduced the rate of interest. Learned advocate, therefore, submitted that present appeal be allowed.
7. Learned advocate Ms. Davawala has placed reliance upon the decision rendered by the Hon'ble Supreme Court in the case of Himachal Pradesh Nagar Vikas Pradhikaran v. Aggarwal & Co., reported in 1997(1) Arb. LR 275. In the said decision, in para 5, the Hon'ble Supreme Court Page 5 of 34 HC-NIC Page 5 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT has observed as under:
"5. It is submitted by Shri H.K. Puri, learned counsel for the appellant that the enhancement of 25% is relatable to the tendered rates for the works executed by the respondent and does not relate to the rates of raw material supplied by the appellant. He also submitted that cement and steel were supplied by the Department at the contract. Thus, escalation in price of raw materials supplied by the appellant the entire burden was borne by the appellant and, therefore, no extra payment could have been intended to be made under the award in respect to those items. Therefore, the High Court was not right in directing payment thereof. We find force in the contention. It is contended by Shri Upadhyay, learned counsel for the respondent, that when the Arbitrator recorded a finding that delay in execution was on account of the laches on the part of the Executive Engineer and awarded 25% more than the agree normal rate, as per the contract and the award having been allowed to become final, it is not open to the appellant to deny 25% escalation charges for the period. In other words, it amounts to interference with the award which has attained finality. In support thereof, the learned counsel relied upon paragraph 12 of the judgment in P.M.Paul v. Union of India[1989 supp. (1) SCC 368]. Therein, the question was whether the contractor was entitled to escalated rates due to delay in execution of the award on the part of the Department. As seen, There is no dispute on the proposition that when the award has been made awarding escalation charges, necessarily the increased rates of the cost of securing the material for performance of the Page 6 of 34 HC-NIC Page 6 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT contract are required to be compensated by paying the amount to the extent of the escalated charges. It is seen that under Clause 10 of the contract, the appellant was required to supply the material at the rates prevailing as on the date of the execution and it was entitled to deduct the same from the amounts payable after the execution of the contract. In other words, when the iron and cement were supplied, during the relevant period, even after the expiry of the year for which the award came t be made, necessarily it included the increase in rates. It is stated that they did not charge increased rates but the rates prevailing as on the dates and the amount worked out came to Rs. 23,25,785/-. The respondent is not entitled to 25% of the escalated costs in that behalf. The very object of awarding escalated cost was that the contractor had secured the material from the open market at the price prevailing at the relevant time and used the same for execution of the work. In view of the fact that iron and that iron and cement were not procured by the respondent during the extended time and actual price for which they were supplied has been worked out as detailed earlier, the respondent is not entitled to 25% more on that material supplied by the Department itself. Under these circumstance, The High Court was clearly in error in directing payment of the said amount."
8. Learned advocate Ms. Davawala has also drawn attention of this Court to a decision of the Hon'ble Supreme Court rendered in the case of New India Civil Erectors (P.) Ltd. v. Oil and Natural Gas Corporation, reported in AIR 1997 SC 980. In Page 7 of 34 HC-NIC Page 7 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT the said decision, the Hon'ble Supreme Court observed as under:
"8. Claim No.9: The appellant claimed an amount of Rs.32,21,099.89p. Under this head, against which the arbitrators have awarded a sum of Rs.16,31,425/-. The above claim was made on account of escalation in the cost of construction during the period subsequent to the expiry of the original contract period. The appellant's claim on this account was resisted by the respondent-corporation with reference to and on the basis of the stipulation in the corporations' acceptance letters dated 10th January, 1985 which stated clearly that "the above price is firm and is not subject to any escalation under whatsoever ground till the completion of the work".
The Division Bench held, and in our opinion rightly, that in the face of the said express stipulation between the parties, the appellant could not have claimed any amount on account of escalation in the cost of construction carried on by him the expiry of the original contract period. The aforesaid stipulation provides clearly that there shall be no escalation on any ground whatsoever and the said prohibition is effective till the completion of the work. The learned arbitrators, could not therefore have awarded any amount on the ground that the appellant must have incurred extra expense in carrying out the construction after the expiry of the original contract period. The aforesaid stipulation between the parties is binding upon them both and the arbitrators. We are of the opinion that the learned single Judge was not right in holding that the said prohibition is confirmed to the Page 8 of 34 HC-NIC Page 8 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT original contract period and does not operate thereafter. Merely, because the time was made the essence of the contract and the work was completed within 15 months, it does not follow that the aforesaid stipulation was confirmed to the original contract period this is not a case of the arbitrators construing the agreement. It is a clear case of the arbitrators acting contrary to the stipulation/condition contained in the agreement between the parties. We therefore, affirm the decision of the Division Bench on this Count as well [claim No.9].
9. So far as the position of the law on the subject is concerned, there is hardly any dispute between the parties. It is sufficient to refer to the well considered decision of this Court in Sudarshan Trading Company V. Government of Kerala [A.I.R.[1989] S.C. 890], within it has been held: "........... if the parties set limits to action by the arbitrator, then 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..... Therefore it appears to us that there are two different and distinct grounds involved in many of the cases. One is the error apparent on the face of the award, and the other is that 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".
9. Learned advocate Ms. Davawala also drawn the attention of this Court to another decision of Page 9 of 34 HC-NIC Page 9 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT the Hon'ble Supreme Court rendered in Rajasthan State Mines & Minerals Ltd. v. Eastern Engineering Enterprises and Another, reported in (1999) 9 SCC 283, in which, in para 44, the Hon'ble Apex Court has observed as under:
"44. From the resume of the aforesaid decisions, it can be stated that:
(a) it is not open to the Court to speculate, where no reasons are given by the arbitrator, as to what impelled arbitrator to arrive at his conclusion.
(b) It is not open to the Court to admit to probe the mental process by which the arbitrator has reached his conclusion where it is not disclosed by the terms of the award.
(c) If the arbitrator has committed a mere error of fact or law in reaching his conclusion on the disputed question submitted for his adjudication then the Court cannot interfere.
(d) If no specific question of law is referred, the decision of the Arbitrator on that question is not final, however much it may be within his jurisdiction and indeed essential for him to decide the question incidentally. In a case where specific question of law touching upon the jurisdiction of the arbitrator was referred for the decision of the arbitrator by the parties, then the finding of the arbitrator on the said question between the parties may be binding.
(e) In a case of non-speaking award, the jurisdiction of the Court is limited. The award can be set aside if the arbitrator acts beyond his jurisdiction.Page 10 of 34
HC-NIC Page 10 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT
(f) To find out whether the arbitrator has travelled beyond his jurisdiction, it would be necessary to consider the agreement between the parties containing the arbitration clause. Arbitrator acting beyond his jurisdiction is a different ground from the error apparent on the face of the award.
(g) In order to determine whether arbitrator has acted in excess of his jurisdiction what has to be seen is whether the claimant could raise a particular claim before the arbitrator. If there is a specific term in the contract or the law which does not permit or give the arbitrator the power to decide the dispute raised by the claimant or there is a specific bar in the contract to the raising of the particular claim then the award passed by the arbitrator in respect thereof would be in excess of jurisdiction.
(h) The award made by the Arbitrator disregarding the terms of the reference or the arbitration agreement or the terms of the contract would be a jurisdictional error which requires ultimately to be decided by the Court. He cannot award an amount which is ruled out or prohibited by the terms of the agreement. Because of specific bar stipulated by the parties in the agreement, that claim could not be raised. Even if it is raised and referred to arbitration because of wider arbitration clause such claim amount cannot be awarded as agreement is binding between the parties and the arbitrator has to adjudicate as per the agreement. This aspect is absolutely made clear in Continental Construction Co. Ltd.(supra) by relying upon the following passage from M/s. Alopi Parshad Vs. Union of India [1960] 2 SCR 703 which is to the following Page 11 of 34 HC-NIC Page 11 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT effect:-
"There it was observed that a contract is not frustrated merely because the circumstances in which the contract was made, altered. The Contract Act does not enable a party to a contract to ignore the express covenants thereof, and to claim payment of consideration for performance of the contract at rates different from the stipulated rates, on some vague plea of equity. The parties to an executory contract are often faced, in the course of carrying it out, with a turn of event which they did not at all anticipate, a wholly abnormal rise or fall in prices, a sudden depreciation of currency, an unexpected obstacle to execution, or the like. There is no general liberty reserved to the courts to absolve a party from liability to perform his part of the contract merely because on account of an uncontemplated turn of events, the performance of the contract may become onerous."
(i) The arbitrator could not act arbitrarily, irrationally, capriciously or independently of the contract. A deliberate departure or conscious disregard of the contract not only manifests the disregard of his authority or misconduct on his part but it may tantamount to mala fide action.
(j) The arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks just and reasonable; the arbitrator is a tribunal selected by the parties to decide the disputes according to law."
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10. In view of the aforesaid decisions, learned advocate Ms. Davawala submitted that the arbitrator has exceeded his jurisdiction while passing the award and therefore the City Civil Court ought to have allowed the application filed by the appellant department. However, the same has been wrongly dismissed. Thus, the present appeal be allowed.
11. On the other hand, learned advocate Mr. Sukhwani submitted that no error is committed by the arbitrator while passing an award nor the Civil Court has committed any error while rejecting the application filed by the present appellant and therefore this Court may not interfere with the same. Learned advocate Mr. Sukhwani submitted that the scope of interference by the Civil Court in the award passed by the arbitrator is very limited. He has relied upon the judgment rendered by the Division Bench of this Court on 22.03.2013 in First Appeal No.1379 of 1992 and submitted that the arbitrator is not required to give reasons in detail in the award and the award can be set aside only on the ground of error of law on the face of it i.e. if the award is based upon any legal proposition which is erroneous. Learned advocate Mr. Sukhwani has submitted that the Civil Court has no jurisdiction to sit in appeal over the award and Page 13 of 34 HC-NIC Page 13 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT review the reasons assigned by the arbitrator and the award cannot be set aside merely because by process of inference and arguments it could be demonstrated that the arbitrator has committed some mistake in arriving at his conclusion. He further contended that the award cannot be interfered with even in the case where on an interpretation of any contract or documents, two views are plausible and the arbitrator accepts one view while the other view is more appealing to the Court. He would contend that the award can be set aside by the Civil Court if the arbitrator has misconducted himself or the arbitrator has acted contrary to or gone beyond the terms of the reference. Learned advocate Mr. Sukhwani has also placed reliance upon the order dated 30.07.2015 passed by the Division Bench of this Court in First Appeal No.609 of 2006 and allied matter, wherein the Division Bench has taken the same view.
12. Learned advocate Mr. Sukhwani submitted that in the present case the appellant has failed to demonstrate that arbitrator has misconducted himself or has acted contrary to or gone beyond the terms of the reference.
13. Learned advocate Mr. Sukhwani has, thereafter, placed reliance upon the decision Page 14 of 34 HC-NIC Page 14 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT rendered by the Hon'ble Supreme Court in the case of M/s. A.T. Brij Paul Singh and Bros. v. State of Gujarat, reported in AIR 1984 SC 1703 and more particularly the observations made by the Hon'ble Supreme Court in para 9, which reads as under:
"9. It was not disputed before us that where in a works contract, the party entrusting the work commits breach of the contract, the contractor would be entitled to claim damages for loss of profit which he expected to earn by undertaking the works contract. What must be the measure of profit and what proof should be tendered to sustain the claim are different matters. But the claim under this head is certainly admissible. Leaving aside the judgment of the trial court which rejected the claim for want of proof, the High Court after holding that the respondent was not justified in rescinding the contract proceeded to examine whether the plaintiff-contractor was entitled to damages under the head 'loss of profit.' In this connection, the High Court referred to Hudson's Building and Engineering Contract (1970), tenth edition and observed that 'in major contracts subject to competitive tender on a national basis, the evidence given in litigation on many occasions suggests that the head-office overheads and : profit is between 3 to 7% of the total price of cost' which is added to the tender. In other words, the High Court was of the view that the claim under this head was admissible. The High Court, however, addressed itself to the question whether adequate proof is tendered to sustain the claim. In this connection, it was observed that the loss of profit when it is sought Page 15 of 34 HC-NIC Page 15 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT to be recovered on the percentage basis has to be proved by proper evidence. Having settled the legal position in this manner, the High Court proceeded to reject the claim observing that the bare statement of the partner of the contractor's firm that they are entitled to damages in the nature of loss of profit @ 20% of the estimated cost is no evidence for the purpose of establishing the claim. The High Court further observed that the appellant has not proved by any primary documents the basis of its pricing for the purpose of quotation in reply to the tender and more so when it has quoted at 7 % less than the original estimated cost and in this view of the matter the claim for loss of profit is unsustainable."
14. Learned advocate Mr. Sukhwani has also placed reliance upon the decision of the Hon'ble Supreme Court in Dwarka Das v. State of M.P. and another, reported in AIR 1999 SC 1031, in which, in para 9, the Hon'ble Supreme Court observed as under:
"The claim of the petitioner for payment of Rs. 20,000 as damages on account of breach of contract committed by the respondent- State was disallowed by the High Court as the appellant was found to have not placed the material on record to show that he had actually suffered any loss on account of the breach of contract. In this regard the appellate court observed: "It is not his case that for due compliance of the contract he had advanced money to the labourers or that he had purchased materials or that he had incurred any obligations and on account of breach of contract by the defendants he Page 16 of 34 HC-NIC Page 16 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT had to suffer loss on the above and other heads. Even in regard to the percentage of profit he did not place any material on record but relied upon assessment of the profits by the Income Tax Officer while assessing the income of the contractors from building contracts." such a finding of the appellate court appears to be based on wrong assumptions. The appellant had never claimed Rs. 20,000 on account of alleged actual loss suffered by him. He had preferred his claim on the ground that had he carried out the contract he would have earned profit of 10% on Rs. 2 lacs which was the value of the contract. This Court in A.T.Brij Pal Singh and Ors. v. State of Gujarat, [1984] 4 SCC 59) while interpreting the provisions of Section 73 of the Contract Act, has held that damages can be claimed by a contractor where the government is proved to have committed breach by improperly rescinding the contract and for estimating the amount of damages court should make a broad evaluation instead of going into minute details. It was specifically held that where in the works con-tract, the party entrusting the work committed breach of contract, the contractor is entitled to claim the damages for loss of profit which he expected to earn by undertaking the works contract. Claim of expected profits is legally admissible on proof of the breach of contract by the erring party. It was observed :
"What would be the measure of profit would depend upon facts and circumstances of each case. But that there shall be a reasonable expectation of profit is implicit in a works contract and its loss has to be compensated by way of damages if the other party to the contract is guilty Page 17 of 34 HC-NIC Page 17 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT of breach of contract cannot be gainsaid. In this case we have the additional reason for rejecting the con-tention that for the same type of work, the work site being in the vicinity of each other and for identical type of work between the same parties, a Division Bench of the same High Court has accepted 15 per cent of the value of the balance of the works contract would not be an unreasonable measure of damages for loss of profit......... Now if it is well-established that the respondent was guilty of breach of contract inasmuch as the rescission of contract by the respondent is held to be unjustified, and the plaintiff-contractor had executed a part of the works contract, the contractor would be entitled to damages by way of loss of profit. Adopting the measure accepted by the High Court in the facts and circumstances of the case between the same parties and for the same type of work at 15 per cent of the value of the remaining parts of the work contract, the damages for loss of profit can be measured."
To the same effect is the judgment in Mohd. Salamatullah and Ors. v. Government of Andhra Pradesh, AIR (1977) SC 1481. After approving the grant of damages in case of breach of contract, the court further held that the appellate court was not justified to interfere with finding of fact given by the trial court regarding quantification of the damages even if it was based upon guess work. In both the cases referred to hereinabove. 15% of the contract price was granted as damages to the contractor. In the instant case however the trial court had granted only 10% of the contract price which we feel was reasonable and permissible, Page 18 of 34 HC-NIC Page 18 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT particularly when the High Court had concurred with the finding of the trial court regarding breach of contract by specially holding that "we therefore see no reason to interfere with the finding recorded by the trial court that the defendants by rescinding the agreement committed breach of contract." It follows there- fore as and when the breach of contract is held to have been proved being contrary to law and terms of the agreement, the erring party is legally bound to compensate the other party to the agreement. The appellate court was, therefore, not justified in disallowing the claim of the appellant for Rs. 20,000 on account of damages as expected profit out of the contract which was found to have been illegally rescinded."
15. Learned advocate Mr. Sukhwani thereafter has drawn the attention of this Court to a decision rendered by the Hon'ble Supreme Court in Vishwanath Sood v. Union of India and another, reported in AIR 1989 SC 952. In paragraph Nos. 8 and 9, the Hon'ble Supreme Court observed and held that:
"8. We have gone through the judgment of the Division Bench of the High Court and we have also considered the arguments advanced on both sides. With great respect, we find our- selves unable to agree with the interpretation placed by the Division Bench on the terms of the contract. Clause 2 of the contract makes the time specified for the performance of the contract a matter of essence and emphasises the need on the part of the Page 19 of 34 HC-NIC Page 19 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT contractor to scrupulously adhere to the time schedule approved by the Engineer-in charge. With a view to compel the contractor to adhere to this time schedule, this clause provides a kind of penalty in the form of a compensation to the Department for default in adhering to the time schedule. The clause envisages an amount of compensation calculated as a percentage of the estimated cost of the whole work on the basis of the number of days for which the work remains uncommenced or unfinished to the prescribed extent on the relevant dates. We do not agree with the counsel for the respondent that this is in the nature of an automatic levy to be made by the Engineer-in charge based on the number of days of delay and the estimated amount of work. Firstly, the reference in the clause to the requirement that the work shall throughout the stipulated period of the contract be proceeded with due diligence and the reference in the latter part of the clause that the compensation has to be paid "in the event of the contractor failing to comply with" the prescribed time 298 schedule make it clear that the levy of compensation is conditioned on some default or negligence on the part of the contractor. Secondly, while the clause fixes the rate of compensation at 1 per cent for every day of default it takes care to prescribe the maximum compensation of 10 per cent on this ground and it also provides for a discretion to the Superintending Engineer to reduce the rate of penalty from 1 per cent. Though the clause does not specifically say so, it is clear that any moderation that may be done by the Super- intending Engineer would depend upon the circumstances, the nature and period of default and the degree of negligence or default that could be Page 20 of 34 HC-NIC Page 20 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT attributed to the contractor. This means that the Superintending Engineer, in determining the rate of compensation chargeable, will have to go into all the aspects and determine whether there is any negligence on the part of the contractor or not. Where there has been no negligence on the part of the contractor or where on account of various extraneous circumstances referred to by the Division Bench such as vis major or default on the part of the Government or some other unexpected circumstance which does not justify penalising the contractor, the Superintending Engineer will be entitled and bound to reduce or even waive the compensation. It is true that the clause does not in terms provide for any notice to the contractor by the Superintending Engineer. But it will be appreciated that in practice the amount of compensation will be initially levied by the Engineer- in-charge and the Superintending Engineer comes into the picture only as some sort of revisional or appellate authority to whom the contractor appeals for redress. As we see it, clause 2 contains a complete machinry for determination of the compensation which can be claimed by the Government on the ground of delay on the part of the contractor in completing the contract as per the time schedule agreed to between the parties. The decision of the Superintending Engineer, it seems to us, is in the nature of a considered decision which he has to arrive at after considering the various mitigating circumstances that may be pleaded by the contractor or his plea that he is not liable to pay compensation at all under this clause. In our opinion the question regarding the amount of compensation leviable under clause 2 has to be decided only by the Superintending Engineer and no Page 21 of 34 HC-NIC Page 21 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT one else.
9. The Division Bench has construed the expression in clause 2 in parenthesis that "the Superintending Engineer's decision shall be final" as referring only to a finality qua the department; in other words, that it only constitutes a declaration that no officer in the department can determine the quantification and that the quantum of compensation levied by the Superintending Engineer shall not be 299 changed without the approval of the Government. After refer- ring to certain judicial decisions regarding the meaning of the word "final"
in various statutes, the Division Bench concluded that the finality cannot be construed as excluding the jurisdiction of the arbitrator under clause 25. We are unable to accept this view. Clause 25 which is the arbitration clause starts with an opening phrase excluding certain matters and disputes from arbitration and these are matters or disputes in respect of which provision has been made elsewhere or otherwise in the contract. These words in our opinion can have reference only to provisions such as the one in parenthesis in clause 2 by which certain types of determinations are left to the administrative authorities concerned. If that be not so, the words "except where other- wise provided in the contract"
would become meaningless. We are therefore inclined to hold that the opening part of clause 25 clearly excludes matters like those mentioned in clause 2 in respect of which any dispute is left to be decided by a higher official of the Department. Our conclusion, therefore, is that the question of awarding compensation under clause 2 is outside the purview of the arbitrator and that the compensation, Page 22 of 34 HC-NIC Page 22 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT determined under clause 2 either by the Engineer-in-charge or on further reference by the Superintending Engineer will not be capable of being called in question before the arbitrator."
16. Learned advocate Mr. Sukhwani also placed reliance upon the decision of the Hon'ble Supreme Court in Sir Chunilal V. Mehta and Sons Ltd. v. Century Spinning and Manufacturing Co.Ltd., reported in AIR 1962 SC 1314(1). In the said decision, in para 11, the Hon'ble Supreme Court observed as under:
"11. A perusal of cl. 14 clearly shows that the parties have themselves provided for the precise amount of damages that would be payable by the Company to the Managing Agents if the Managing Agency agreement was terminated before the expiry of the period for which it was made. The clause clearly states that the Managing Agent shall receive from the Company as compensation or liquidated damages for the loss of appointment a sum equal to the aggregate amount of the monthly salary of not less than Rs. 6,000/- for and during the whole of the unexpired portion. of the term of Agency. Now, when parties name a sum of money to be paid as liquidated damages they must be deemed to exclude the right to claim an unascertained sum of money as damages. The contention of learned counsel is that the words "not less than" appearing before "Rs. 6,000/-"
in cl. 14 clearly bring in el. 10 and, therefore, entitle the appellant to claim 10% of the estimated profits for the unexpired period by way of damages. But if Page 23 of 34 HC-NIC Page 23 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT we accept the interpretation, it would mean that the parties intended to confer on .the Managing Agents what is in fact a right conferred by a. 73 of the Contract Act and the entire clause would be rendered those. Again the right to claim liquidated damages is enforceable under is. 74 of the Contract Act and where such a right is found to exist no question of ascertaining damages really arises. Where the parties have deliberately specified the amount of liquidated damages there can be no presumption that they, at the same time, intended to allow the party who has suffered by the breach to give a go-by to the sum specified and claim instead a sum of' money which was not ascertained or ascertainable at the date of the breach. Learned counsel contends that upon this view the words "not less than" would be rendered otiose. In our opinion 562 these words, as rightly-pointed out by the High Court, were intended only to emphasis the fact that compensation will be computable at an amount not less than Rs. 6,000 p.m. Apparently, they thought it desirable to emphasis the point that the amount of Rs. 6,000 p.m. was regarded by' them as reasonable and intended that it should not be reduced by the court in its discretion.
17. After relying upon the aforesaid decisions rendered by this Court as well as Hon'ble Supreme Court, learned advocate Mr. Sukhwani submitted that the arbitrator has rightly observed in the award in Clause 3(viii) with regard to levy of compensation under clause 2 that in view of the decision rendered by the Hon'ble Supreme Court reported in AIR 1989 SC 952, the subject matter Page 24 of 34 HC-NIC Page 24 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT is outside the jurisdiction of the arbitrator with a liberty to the present appellant to take up the matter at appropriate forum. Thus, the arbitrator has held that no recovery on this account is allowed from the award. Thus, the arbitrator has not committed any error while making such observations. Learned advocate Mr. Sukhwani further contended that since no escalation was allowed by the present appellant under clause 10CC for the prolonged period to the contractor, the arbitrator awarded 25% of Rs.45,54,528/- to cover the increased cost and also extra expenditure towards establishment and overhead expenses. Thus, the arbitrator has not awarded such amount only for the cost of the material supplied by the department. Thus, the decision rendered by the Hon'ble Supreme Court in the case of Himachal Pradesh Nagar Vikas Pradhikaran (supra) is not applicable.
18. Learned advocate Mr. Sukhwani thereafter contended that the arbitrator has rightly awarded interest at the rate of 12% and the same cannot be said to be on higher side as contended by learned advocate for the appellant department and therefore this appeal be dismissed.
19. I have considered the submissions canvassed on behalf of the learned advocates appearing for Page 25 of 34 HC-NIC Page 25 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT the parties. I have also gone through the Record and Proceedings called for from the trial Court and the decisions relied on by the learned advocates for the parties. From the record, it has emerged that contract of construction of Telephone Exchange Building at Bapunagar, Ahmedabad was awarded by the appellant department to the respondent contractor. Certain disputes and difference arose between the parties. Contractor, therefore, invoked the provision of Clause 25 of the agreement and an arbitrator was appointed to adjudicate the dispute between the parties. Arbitrator passed an award which was sent to City Civil Court, Ahmedabad, for making the award rule of the Court and for passing the decree accordingly. Objections were filed by the appellant department. The respondent contractor also filed an application for passing the decree in terms of the award passed by the Arbitrator. Before the trial Court, the appellant had taken the following contentions:
"1. The arbitrator has erroneously arrived at the decision to award double rate recovery of cement by ignoring the agreement provisions, material documents and oral submission.
2. The arbitrator has traversed beyond his jurisdiction by putting unnecessary restriction on adjustment of the amount of compensation from the award sum. Hence, the arbitrator has misconducted himself.Page 26 of 34
HC-NIC Page 26 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT
3. The arbitrator has committed an error by disallowing the recovery made by the respondent under clause 29(a) by acting beyond his jurisdiction.
4. That the award sum is erroneously arrived at by the arbitrator and the learned arbitrator has ignored the facts, evidence and material placed before him."
20. The trial Court after considering the terms of the agreement and the award passed by the arbitrator, observed that it is settled position of law that the said Court cannot sit in appeal against the findings given by the arbitrator and cannot record its own findings in place of the findings of fact of the arbitrator and thereby rejected the objections taken by the present appellant and the award passed by the arbitrator was made rule of the Court and decree was accordingly drawn up in terms of the said award.
21. Thus, in view of the aforesaid facts, this Court is required to consider whether the trial Court has committed any error while passing the impugned order.
22. This Court in the order dated 22.03.2013 passed in F.A. No. 1379 of 1992 after considering the various decisions rendered by the Hon'ble Supreme Court, observed and held in para 17 as under:
Page 27 of 34HC-NIC Page 27 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT "17. From the various decisions referred to above, it could safely be stated that:
(a) In the award, the arbitrator is not required to give reasons in detail.
(b) The award can be set aside only on the ground of error of law on the face of it, i.e. to say, if the award is based upon any legal proposition which is erroneous.
(c) The Civil Court has no jurisdiction to sit in appeal over the award and review the reasons assigned by the arbitrator and the award cannot be set aside merely because by process of inference and arguments it could be demonstrated that the arbitrator has committed some mistake in arriving at his conclusion.
(d) The award cannot be interfered with even in the case where on an interpretation of any contract or documents, two views are plausible and the arbitrator accepts one view while the other view is more appealing to the Court.
(e) The award can be set aside by the Civil Court if the arbitrator has misconducted himself or the arbitrator has acted contrary to or gone beyond the terms of the reference."
23. Similarly, relying upon the aforesaid decision rendered by the Hon'ble Division Bench of this Court in F.A. No.1379 of 1992, another Hon'ble Division Bench of this Court in F.A. No.609 of 2006 and allied matter, observed in para 8 as under:
Page 28 of 34HC-NIC Page 28 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT "8. From a perusal of the materials on record, we are of the opinion that the objections raised by the appellant were duly considered by the trial court and thereafter the trial court took the view that the findings arrived at by the Arbitrator were just and proper and the trial court justifiably made the award of the arbitrator the rule of the Court. This court does not see any reason or cause to remit the award or to set aside the award.
As the parties had chosen their own Arbitrator, they cannot, when the award is good on the face of it, object to the decision either upon law or facts. In exercise of our powers under Section 39 of the Arbitration Act, it is not permissible for us to substitute the view of the Court below with our own opinion on appreciation of evidence. Such a course is not permissible to the High Court while examining objections to the award under Section 30 of the Arbitration Act, 1940.
Appeals therefore deserve to be
dismissed."
24. Thus, keeping in mind the decisions rendered by the Hon'ble Division Bench of this Court, the objections of the appellants are required to be considered. In the present proceedings, one of the contentions raised by learned advocate Ms. Davawala appearing for the appellant is that though the arbitrator has observed that levy of compensation under Clause 2 is the subject matter outside the jurisdiction of the arbitrator and no argument was heard, inspite of that the arbitrator observed that no recovery of the amount of compensation is allowed from the award.
Page 29 of 34HC-NIC Page 29 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT With regard to the said contention, the trial Court has specifically considered the said submission and rightly held that the arbitrator has not considered the said ground and has not permitted the claimant to agitate the same before him. Arbitrator was having the opinion that he has no jurisdiction to entertain such a ground. Liberty was reserved to take up the matter at appropriate forum and therefore no recovery of the compensation under clause 2 was allowed from the award. Thus, this Court is also of the opinion that no error is committed by the arbitrator or the learned trial Court.
24. The next contention of the learned advocate for the appellant is that the cement, steel and other material was required to be supplied by the department to the contractor for the prolonged period but as there was shortage, the appellant could not supply the same in time. However, the appellant had supplied the material to the contractor after procuring the same at higher price from the market and therefore no loss is caused to the contractor and therefore the arbitrator has wrongly awarded 25% extra towards the increase in price of material and labour for the prolonged period to the contractor.
25. With regard to the aforesaid contentions, it Page 30 of 34 HC-NIC Page 30 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT is borne out from the record that the arbitrator has awarded 25% extra over the agreement rates to cover the increased cost and extra expenditure towards establishment and overhead expenses. Thus, the arbitrator has not awarded 25% extra over the agreement rates qua the material i.e. cement and steel supplied by the department. Thus, in view of the aforesaid facts, no illegality is committed by the arbitrator nor any error is committed by the trial Court. The reliance placed by learned advocate for the appellant on the decision rendered by the Hon'ble Supreme Court in the case of Himachal Pradesh Nagar Vikas Pradhikaran (supra), is misconceived. The facts of the present case are different from the said case and therefore the same is not applicable in the facts of the present case.
26. There is no dispute with regard to the proposition laid down by the Hon'ble Supreme Court in the case of New India Civil Erectors (P.) Ltd. (supra) as well as Rajasthan State Mines and Minerals Ltd. (supra), relied on by the learned advocate for the appellant. However, the facts of the said cases are different and therefore the said decisions are not helpful to the appellant in the facts of the present case.
27. The last contention raised by the learned Page 31 of 34 HC-NIC Page 31 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT advocate for the appellant is with regard to the higher rate of interest awarded by the arbitrator and confirmed by the trial Court. It is contended that 12% interest is awarded by the arbitrator which is on higher side and therefore the same be reduced. With regard to the said contention, this Court is of the opinion that at the relevant time when the award was passed by the arbitrator and the decree was drawn by the trial Court, the same rate of interest was prevailing and therefore no error is committed while awarding the said rate of interest. Ordinarily, the High Court should not interfere in the rate of interest awarded by the arbitrator except in certain circumstances as per the decision rendered by the Hon'ble Supreme Court in the case of Manalal Prabhudayal v. Oriental Insurance Company Ltd., reported in (2009) 17 SCC 296. In the said decision, the Hon'ble Supreme Court observed in para 12 and 13 as under:
"12. Having considered the rival contentions of the parties, in our opinion, the appeal deserves to be allowed by granting relief to the appellant-firm. It is well settled that award of interest is in the discretion of court. Normally, when interest is granted, appellate, revisional or writ court would not interfere with exercise of discretion unless the discretion has been exercised arbitrarily or capriciously. It is equally well settled that like grant of interest, Page 32 of 34 HC-NIC Page 32 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT rate of interest is also in the discretion of the court and in the absence of any agreement between the parties, usually, the court would not interfere with rate of interest unless it is convinced that the direction of the lower court was ex facie bad in law.
13. As far as arbitration proceedings are concerned, it is well established that an arbitrator, in absence of any prohibition in an arbitration agreement, has power to award interest. Though it is not a "court"
within the meaning of Section 34 of the Code of Civil Procedure, 1908, an arbitrator has power to grant reasonable rate of interest at all the three stages; i.e. pre-reference period, pendente lite and post award period. "
Thus, in view of the aforesaid decision rendered by the Hon'ble Supreme Court, this Court is of the opinion that no interference is required.
28. In view of the aforesaid discussion, this Court is of the opinion that the objections raised by the appellant department were duly considered by the trial Court and thereafter the trial Court has taken the view that findings arrived at by the arbitrator were just and proper and trial Court justifiably made the award of the arbitrator the rule of the Court. This Court does not see any reason or cause to set aside the award as the parties had chosen their own arbitrator and they cannot, when the award is Page 33 of 34 HC-NIC Page 33 of 34 Created On Thu Nov 05 01:17:51 IST 2015 C/FA/6269/1998 CAV JUDGMENT correct on the face of it, object to the decision either upon law or facts. Thus, in exercise of powers under the provisions of the Arbitration and Conciliation Act, 1996, it is not proper for this Court to substitute the view of the Court below with the opinion of this Court on appreciation of evidence. Accordingly, the appeal deserves dismissal and accordingly the same is dismissed.
R & P be sent back to the trial Court.
(VIPUL M. PANCHOLI, J.) Jani Page 34 of 34 HC-NIC Page 34 of 34 Created On Thu Nov 05 01:17:51 IST 2015