Jammu & Kashmir High Court
Union Of India vs M/S D.Khosla on 9 May, 2022
Author: Sanjeev Kumar
Bench: Sanjeev Kumar
h475
HIGH COURT OF JAMMU & KASHMIR AND LADAKH
AT JAMMU
MA No.104/2014
IA No.106/2015
Reserved on : 17.02.2022
Pronounced on : 09.05.2022
(through virtual mode)
Union of India ...Appellant(s)
Through:- Mr. Pranav Kohli, Sr. Advocate with
Mr. Rahul Sharma, Advocate
V/s
M/s D.Khosla ...Respondent(s)
Through:-Mr. Sourabh Malhotra, Advocate
Coram: HON'BLE MR. JUSTICE SANJEEV KUMAR, JUDGE
JUDGMENT
1. Union of India through Chief Engineer (P) Sampark is in appeal under Section 39 of J&K Arbitration Act, 2002 (1945 A.D.) [ "the Act"] against the order and judgment of the Principal District Judge, Jammu ["the Court below"] dated 11.01.2014 passed in File No.41/Award titled M/s D Khosla and Company v. Chief Engineer (P) Sampark. The Court below vide its judgment dated 11.01.2014, impugned in this appeal, has dismissed the application of the Union of India filed under Section 30 and 33 of the Act for setting aside the arbitral award dated 04.01.2008 passed by Brig (Retd.) B.V.Ahuja, the sole arbitrator.
2. Before adverting to the grounds of challenge pleaded and urged by the appellant-Union of India to sustain challenge to the impugned order of 2 MA No.104/2014 the Court below, it would be necessary to allude to the background facts leading upto the filing of instant appeal.
Pursuant to an NIT issued by appellant for allotment of work of "Design and Construction of Permanent Bridge over River Tain at km 80.50 on Akhnoor-Poonch Road in J&K State under Project Sampark" the respondent- contractor was found to be the successful bidder and accordingly, a contract agreement was entered into between the Union of India and the contractor on 21.01.1987. The lumpsum value of the contract to be executed by the contractor was Rs.1,34,70,000 with the completion period of 36 months. The date of commencement of work was stated as 27th November, 1987 and was to be completed and handed over by the contractor by or before 26th November, 1990. It appears that on account of certain delays and technical problems, the work could not be completed within the stipulated period. On the request of the contractor, time to complete the work in question was extended from time to time and as per the last extension granted, the contractor was to complete the work by 31st March, 1993. It appears that the contractor during the currency of the contract approached the appellant for interim arbitration on the ground that certain disputes between the parties were affecting both, progress of the work and the payments. The Union of India did not oblige in the beginning but later agreed to interim arbitration, which, however, did not materialize thereafter. But, instead, the contract was terminated on 14.06.1993. Feeling aggrieved by the termination of the contract agreement by the appellant, the contractor approached the designated authority (Director General of Border Roads) for appointment of an arbitrator under Clause-70 of the General 3 MA No.104/2014 Conditions of the contract. The designated authority did not act on the request of the contractor, which constrained him to approach the Court of Principal District Judge, Jammu for appointment of an arbitrator in terms of Clause 70 of the General Conditions of Contract to adjudicate upon the disputes between the parties arising out of the contract. While the matter was pending consideration of the Court below, the designated authority appointed Brig. Sudhir Kumar as sole arbitrator to arbitrate the dispute between Union of India and the contractor. The Civil Court, however, did not accept the appointment of the arbitrator made by the designated authority under the contract agreement and appointed Brig. (Retd.) B.V.Ahuja, as sole arbitrator in the matter. The order of the Court below appointing Brig. B.V.Ahuja as sole arbitrator was called in question by the Union of India before a Single Judge of this court and after having failed before the Single Judge, before the Division Bench of this Court. In short, the order passed by the District Judge, appointing Mr. B.V.Ahuja as sole arbitrator was upheld.
The sole arbitrator entered the reference and issued notices to Union of India and the contractor on 16th August, 1996 to put forth their respective claims and counter claims. Both the parties filed their statement of claims/counter claims and also filed statement of defense to the statement of claims filed by the opposite party. It may be noted that the Division Bench, which upheld the appointment of Mr. B.V.Ahuja, as sole arbitrator, directed the appointed arbitrator to conclude the proceedings within four months.
4 MA No.104/2014
The proceedings commenced as above, parties were asked to lead evidence, on the conclusion of the evidence of both the parties, the matter was slated for final arguments on 3rd October, 2007. The matter was adjourned on couple of hearings. As it has come out from the arbitration award that on the hearing that took place on 17 th December, 2007, both the parties appeared before the Artbitrator but on the last and final hearing, which took place on 28th December, 2007, it was only the contractor, who was present whereas there was nobody present on behalf of the Union of India. The matter was heard by the arbitrator in the absence of the Union of India and the award was passed on 4th January, 2008. The Arbitrator awarded the following claims in favour of the contractor.
S.No. Amount claimed Amount awarded by the arbitrator
Claim No.1 Rs.7,62,402.00 Rs.7,62,402.00
Claim No.2 Rs.25,43,480.00 Rs.25,43,480.00
Claim No.3 13,32,000.00 Rs.13,32,000.00
Claim No.4 Rs.5,33,000.00 Rs.5,33,000.00
Claim No.5 Rs.69,32,071.94 Rs.69,32,071.94
Claim No.6 Rs.7,063.23 Nil
Claim No.7 Rs.24,500.00 Nil
5 MA No.104/2014
Claim No.8 Rs.2,60,936.00 Rs.2,60,396.00
Claim No.9 Rs.41,20,073.72 Rs.41,20,073.72
Claim No.10 Rs.23,728.00 Nil
Claim No.11 Rs.42,200.00 Nil
Claim No.12 Rs.1,11,290.00 Rs.1,11,290.00
Claim No.13 Rs.70,000.00 Rs.70,000.00
Claim No.14 Rs.1,50,000.00 Rs.1,50,000.00
Claim No.15 Rs.3,50,879.00 Rs.3,30,532.85
Claim No.16 Rs.7,56,70,040.08 Rs.5,66,38,253.74 Claim No.17 Rs.36,74,000.00 Rs.36,74,000.00 Claim No.18 18% Interest per Interest @ 18% per annum from annum from the the date of cancellation of the termination of the contract i.e.14.06.1993 to the date award of reference i.e. 27.07.1996.
However, no interest is awarded on the amount awarded under claim No.16.
6 MA No.104/2014
Claim No.19 Interest @ 18% Interest @ 18% per annum on
per annum from claim No.1 to 17, except on claim
the date of No.16, from the date of reference
reference to the to the date of publication of the
date of award.
publication of the
award
Interest @ 18% Interest @ 18% per annum for all
Claim No.20 per annum on all the claims from the date of
the claims from publication of the award upto the
the date of date of payment or upto the court
publication of the decree, in the event of non-
award upto the payment of the total awarded
date of payment amount against all claims earlier, or upto the court by the Union of India.
decree Claim No.21 Rs.9,05000.00 as The parties to bear their own costs cost of arbitration The Arbitrator, thus, awarded a total amount of Rs.7,74,57,500.25 along with interest @ 18% per annum in the manner detailed above. So far as the amounts claimed by the Union of India are concerned, the arbitrator has awarded the same in the following manner:-
7 MA No.104/2014
S.No. Amount claimed Amount awarded
Claim No.(a) Rs.2,23,98,575.00 Nil
Claim No.(b) Rs.10,95,442.00 Nil
Claim No.(c) Rs.1,00,000.00 Nil. Parties to bear their
own respective cost of
arbitration
Claim No.(d) Rs.30,000.00 Nil
Claim No.(e) Rs.62,84,243.00 Rs.47,13,182.25
Claim No.(f) Rs.22,65,539.00 Nil
Claim No.(g) No amount specified Nil
Claim No.(h) Rs.50,000.00 Nil
Claim No.(i) Rs.88,720.56 Nil
The Union of India has, thus, been awarded an amount of Rs.47,13,182.25 without awarding any interest.
This is in a nutshell the proceedings conducted by the arbitrator and the award passed by him
3. Feeling aggrieved by award passed by the sole arbitrator, the Union of India filed an application under Section 30 and 33 of the Act for setting aside the award on several grounds before the Court below. The application was contested by the contractor and on the basis of pleading of both the 8 MA No.104/2014 parties, the Court below vide its order dated 01.06.2010 framed the following issues:-
"1. Whether the arbitrator has travelled beyond the ambit of contract agreement? OPR
2. Whether the award amount is disproportionately excessive? OPR
3. In case issue No.1 and 2 are answered in affirmative, whether the arbitrator is guilty of misconduct? OPR"
4. From a reading of the impugned order passed by the Court below, it transpires that the parties did not lead any evidence and instead argued the matter on the basis of documents and records. The Court below considered the matter in the light of rival contentions and after making claim-wise discussion, upheld the award vide its judgment dated 11.01.2014, impugned in this appeal.
5. The Union of India is aggrieved and has challenged the impugned order of the Court below, inter alia, on the following grounds:-
i) The Court below has not appreciated that the award dated 04.01.2008, impugned before it, was a nullity, in that, the arbitrator having been directed by the Division Bench of this Court to conclude the arbitration proceedings by 18.12.2007 could not have proceeded beyond the said period and published the the award on 04.01.2008, more so when the Division Bench of this Court had not granted any extension.
ii) The Court below did not appreciate that a bare reading of the award of the arbitrator clearly suggested and demonstrated 9 MA No.104/2014 that it was one sided award passed without taking into account the case projected by Union of India before the arbitrator.
iii) The Court below has failed to consider and appreciate that the manner in which the arbitrator had conducted his proceedings was demonstrative of the legal misconduct of the arbitrator.
iv) The huge amount of more than seven crores with exorbitant interest @ 18% per annum awarded, in the given facts and circumstances of the case, shocks the conscious of the Court and, therefore, cannot be maintained.
v) The award is outcome of vengeance against Union of India for having taken up the matter of appointment of arbitrator upto the level of Supreme Court.
vi) The arbitrator did not provide adequate opportunity to Union of India to defend its case and, therefore, without formally proceeding ex-parte against the Union of India, conducted the proceedings at the final stage at the back of Union of India.
vii) Most of the claims awarded by the arbitrator are way beyond the terms and conditions of the contract and, therefore, outside the submission and jurisdiction of the arbitrator. This aspect has not been considered by the Court below.
viii) The award passed by the arbitrator suffers from error apparent on the face of record and, therefore, was not sustainable. The Court below has completely ignored this aspect and has put its seal of approval on all the claims awarded by the arbitrator. 10 MA No.104/2014
ix) That the arbitrator by awarding interest at a rate as high as 18% per annum past, pendente lite on all items excluding item No.16 and 18% per annum future interest on all claims, has mis-conducted himself as well as the proceedings. The Court below by putting its seal of approval on the aforesaid exorbitant rate of interest has even acted against the spirit of Section 29 of the Act.
x) The Court below has not appreciated that the arbitrator, who awarded huge sums in favour of the contractor arbitrarily, rejected the counter claims of Union of India except claim No.(e), which, too, appears to have been awarded to strike balance and justify the award of almost all the claims except claims for meager amount in favour of the contractor.
6. The appeal is vehemently opposed by the Contractor. Learned counsel appearing for the contractor relying upon several pronouncements of the Supreme Court on the issues raised in the appeal, submitted that the Union of India has not made out a case for interference with the award of the arbitrator, as upheld in toto by the Court below.
7. Having heard learned counsel for the parties and perused the material on record, it is necessary to first set out Section 30 and Section 33 of the Act.
Section 30 reads thus:-
"30. Grounds for setting aside award-An award shall not be set aside except on one or more of the following grounds, namely :-
(a) that the arbitrator or umpire has misconducted himself or the proceedings;11 MA No.104/2014
(b) that an award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under section 35;
(c) that the award has been improperly procured or is otherwise invalid."
Section 33 reads as under:-
"33. Arbitration agreement or award to to be contested by application.-Any party to an arbitration agreement or any person claiming under him desiring to challenge the existence or validity of an arbitration agreement or an award or to have the effect of either determined shall apply to the Court and the Court shall decide the question on affidavits :
Provided that where the Court deems it just and expedient, it may set down the application for hearing on other evidence also, and it may pass such orders for discovery and particulars as it may do in a suit."
8. Since there is no challenge laid by the appellant to the existence or validity of the arbitration agreement, as such, Section 33 of the Act may not call for any elaborate discussion in the instant case. The entire case of the appellant rests on the grounds of challenge enumerated in Section 30 of the Act.
9. Before adverting to the rival contentions, a quick recapitulation of the legal position with regard to the grounds of challenge available to an aggrieved party seeking setting aside of the arbitrator's award may be profitable.
10. An award of the arbitrator can be challenged only on the grounds enumerated in Section 30 of the Act and on no other ground. The Court hearing an application for setting aside award or hearing appeal against the order of the Court below refusing to set aside the award does not sit in appeal over the decision of the arbitrator. The award of the arbitrator can be 12 MA No.104/2014 interfered with only, if it is the result of corruption, fraud or when there is/are errors apparent on the face of award. In case of a speaking award, the Court can look into the reasons for the award. However, it is not open to the Court to probe the mental process of the arbitrator and speculate where no reasons are given by the arbitrator as to what impelled the arbitrator to arrive at his conclusion. For example, in the instant case, too, the arbitrator has set down the claims and then awarded certain amounts without giving any reason in support of his conclusion. As per the terms and conditions of the contract, the arbitrator was under no obligation to pass a reasoned award. In the absence of any reasons given for making an award, it may not be open to the Court to interfere with the award by re-appreciating the facts and law. The arbitrator is a forum selected by the parties of their own and, therefore, the arbitrator must be conceded the power of appreciation of evidence. As is said that arbitrator is sole judge of the quality as well as quantity of evidence and it will not be for the Court to take upon itself the task of being a judge on the evidence before the arbitrator. (See Hindustan Steel Works Construction Ltd. v. C. Rajashekhar Rao, (1987) 4 SCC 93 and Municipal Corporation of Delhi v. M/s Jagan Nath Ashok Kumar and another, (1987) 4 SCC 497.
11. An award, as is well settled, may be set aside on the ground of error apparent on the record of award but the award would not be invalid merely because by a process of inference and arguments it may be demonstrated that the arbitrator has committed some mistake in arriving at his conclusion. The award can also be interfered with by the Court, if it is found that the arbitrator has travelled beyond his jurisdiction and has 13 MA No.104/2014 awarded claims which would be beyond the scope of submission. The award will also be bad, if the arbitrator, who himself is a creature of the contract agreement travels beyond the terms and conditions of the contract and awards claims on the excepted items, such award would be invalid and can very well be interfered with by the Court.
12. The arbitrator's award which, on the face of it, is arbitrary, irrational and awards claims, which are shockingly disproportionate and defy logic, would also be invalid in law.
13. In paragraph No.20 of the judgment rendered in the case of Himachal Pradesh State Electricity Board v. R.J.Shah and Company, (1999) 4 SCC 214, the Supreme Court has held thus:-
"20. The reading of the decision cited above shows that the principle followed was that by purporting to construe the contract the court could not take upon itself the burden of saying that the award was contrary to the contract and a such the arbitrators had acted beyond their jurisdiction."
14. Equally relevant are the observations made by the Supreme Court in paragraph Nos.24 and 25 of the judgment rendered in the case of Associate Engineering Company v. Govt. of Andhra Pradesh and others, (1991) 4 SCC 93, which, for facility of reference are reproduced hereunder:-
"24. 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 14 MA No.104/2014 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.
25. An arbitrator who acts in manifest disregard of the contract acts without jurisdiction. His authority is derived from the contract and is governed by the Arbitration Act which embodies principles derived from a specialised branch of the law of agency (see Mustill & Boyd's Commercial Arbitration, Second Edition, p. 641). He commits misconduct if by his award he decides matters excluded by the agreement (see Halsbury's Laws of England, Volume II, Fourth Edition, Para 622). A deliberate departure from contract amounts to not only manifest disregard of his authority or a misconduct on his part, but it may tantamount to a mala fide action. A conscious disregard of the law or the provisions of the contract from which he has derived his authority vitiates the award."
15. As is held by a three-Judge Bench of the Supreme Court in the case of State of Andhra Pradesh and others v. R.V.Rayanim and others (1990) 1 SCC 433 that in the matter of challenging the award there are often two distinct and different grounds, one is error apparent on the face of award and the other is that the arbitrator has exceeded his jurisdiction. In the latter case, the Court can look into arbitration agreement but in the former it cannot, unless agreement was incorporated or recited in the award. The award may be remitted or set aside on the ground that the arbitrator in making it had exceeded his jurisdiction and evidence of 15 MA No.104/2014 matters not appearing on face of it will be admitted in order to establish whether the jurisdiction was exceeded or not, because nature of dispute is something which has to be determined outside the award----whatever might be said about it in the award or by the arbitrator. In a case of error apparent on the face of record, it has to be established that an item or amount, which the arbitrator has no jurisdiction to take into consideration, has been awarded or granted.
16. In another case of West Bengal State Warehousing Corporation and another V. Sushil Kumar Kayan and others, (2002) 5 SCC 679, Hon'ble the Supreme Court in paragraph No.11 held thus:-
" In order to determine whether the arbitrator has acted in excess of his jurisdiction what has to be seen is whether claimant can raise a particular claim before the arbitrator. If there is a specific term in the contract or the law which does not permit to the parties to raise a point before the arbitrator and if there is a specific bar in the contract to the raising of the point then the award passed by the arbitrator in respect thereof would be in excess of his jurisdiction."
17. Legal position with regard to the scope of interference by the Court with the arbitral award under Section 30 of the Act is summed up by the Supreme Court in Rajasthan State Mines and Minerals Limited v. Eastern Engineering Enterprises and another, (1999) 9 SCC 283. Para 44 whereof is reproduced hereunder:-
"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.16 MA No.104/2014
(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.
(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 17 MA No.104/2014 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 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."
18. It is, thus, trite that, though, the scope of interference by the Court with the arbitral award is minimalistic, yet award of the arbitrator can be set aside, if it has been made by the arbitrator acting arbitrarily, irrationally, 18 MA No.104/2014 and 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. It is, thus, well settled that the arbitrator is creature of the contract between the parties and, therefore, if he ignores the specific terms of the contract, it would be a question of jurisdictional error, which could be corrected by the Court and for that limited purpose the agreement is required to be looked into. Reference to the points of contract is, therefore, must for arriving at a conclusion with regard to whether the arbitrator has exceeded his jurisdiction or not.
19. It is in the light of legal position adumbrated herein above, award passed by the arbitrator needs to be examined. Learned senior counsel appearing for the appellant has laid more emphasize on his contention that the learned arbitrator has not only ignored the terms and conditions of the contract while awarding certain items/claims but has also exceeded his jurisdiction by awarding claims even on the excepted matters.
20. The argument of Mr. Malhotra, learned counsel appearing for the respondent, however, is that this Court may not enter into the mental process of the arbitrator and that even if two views are possible on the interpretation of the different clauses of the contract, the interpretation put by the arbitrator is to be accepted. The Court does not sit in appeal when considering the application under Section 30 of the Act for setting aside the award. Instant case is a case of appeal against judgment of the learned District Judge rejecting application of the appellant under Section 30 of the Act and, therefore, jurisdiction of this Court to interfere is far less. 19 MA No.104/2014
21. With a view to appreciate the rival contentions, we need to consider few important terms and conditions of the contract as also certain claims awarded by the arbitrator.
22. Clause-70 of the General Conditions of the Contract in question provides for arbitration and is, thus, reproduced hereunder:-
"70. Arbitration.- All disputes, between the parties to the Contract(other than those for which the decision of the C.W.E. or any other person is by the Contract expressed to be final and binding) shall, after written notice by either party to the Contract to the other of them, be referred to the sole arbitration of an Engineer officer to be appointed by the authority mentioned in the tender documents. Unless both parties agree in writing such reference shall not take place until after the completion or alleged completion of the Work or termination or determination of the Contract under Condition Nos. 55, 56 and 57 hereof. Provided that in the event of abandonment of the Works or cancellation of the Contract under Condition Nos. 52, 53 or 54 hereof, such reference shall not take place until alternative arrangements have been finalized by the Government to get the Works completed by or through any other Contractor or Contractors or Agency or Agencies. Provided always that commencement or continuance of any arbitration proceeding hereunder or otherwise shall not in any manner militate against the Government's right of recovery from the contractor as provided in Condition 67 hereof. If the Arbitrator so appointed resigns his appointment or vacates his office or is unable or unwilling to act due to any reason whatsoever, the authority appointing him may appoint a new Arbitrator to act in his place. The Arbitrator shall be deemed to have entered on the reference on the date he issues notice to both the parties, asking them to submit to him their statement of the case and pleadings in defence. The Arbitrator may proceed with the arbitration, exparte, if either party, inspite of a notice from the Arbitrator fails to take part in the proceedings. The Arbitrator may, from time to time with the consent of the parties, enlarge, the time upto but not exceeding one year from the date of his 20 MA No.104/2014 entering on the reference, for making and publishing the award. The Arbitrator shall give his award within a period of six months from the date of his entering on the reference or within the extended time as the case may be on all matters referred to him and shall indicate his findings, along with sums awarded, separately on each individual item of dispute. The venue of Arbitration shall be such place or places as may be fixed by the Arbitrator in his sole discretion. The award of the Arbitrator shall be final and binding on both parties to the Contract."
23. From a reading of the arbitration clause, it clearly transpires that parties have agreed to settle all disputes between them pertaining to the contract except those matters upon which the decision of C.W.E. or any other person is by the contract expressed to be final and binding. This relates to the excepted items with regard to which the jurisdiction of the arbitrator is taken away by the parties to the contract.
24. Claim No.1 pertains to outstanding payments for the value of work done by the contractor. Once the arbitrator has held cancellation of the contract as unfair and not in consonance with law, he was well within his right to award outstanding payment for the work done by the contractor.
24. Claim No.2: Extra Expenditure incurred due to change in site of foundation----It is the contention of Mr. Pranav Kohli, learned senior counsel appearing for the appellant, that claim No.2 is awarded by the arbitrator on account of extra expenditure incurred by the contractor due to change in the site of foundation. It is submitted that shifting of centre line by 15 meter towards upstream side from the proposed site (i.e. 30 meters upstream side from existing bridge) was approved on no additional cost basis. He further submits that the design requirement remained unaltered, 21 MA No.104/2014 therefore, the contractor was not entitled to any kind of extra payment. It is submitted that this was in accordance with Clause 21 (b)(iii) and Clause 21(b) of the contract agreement.
25. In order to examine the argument of learned counsel for the appellant, it is necessary to have a look at Clause-12(b)(iii) and 21(b) of the contract agreement, which for facility of reference are reproduced hereunder:-
Clause 12(b)(ii) and (iii) of the contract agreement "12. Approval of Design:-
...............................
(ii) The details, drawings and design calculations as and when submitted by the contractor will be examined by DGBR (Director General Border Roads), New Delhi and shall be subject to his approval. The contractor shall be bound to make all such modifications in the said details, drawings
(iii) If as a result of the scrutiny aforedescribed any modifications in the contractor's drawings and calculations etc are rendered necessary in order to ensure that the designs are safe and comply with the various requirements laid down in these tender documents, the contractor shall not be entitled to any extra payment on this amount.
........................................."
Clause 21(b) of the contract agreement "21. Rates/Lump Sum quoted:--------------------------
(a) ..xxxxxxxxxxxx
(b) The Accepting Officer may, on his absolute discretion change the site of bridge(s) and alter the design requirement date. In the even of this deciding to change the site, the contractor shall not be entitled to any extra payment as long as the design requirement remains unaltered. Any change in the design requirements (other than clear carriage way) and load classification) whether in consequence of the change of site or otherwise, will however, be treated as a deviation and its 22 MA No.104/2014 financial affect shall be worked out in accordance with the provisions made else where in the contract.
(c) Xxxxxxxxxxxxxxxxxxxxxxxxx"
26. From a bare reading of Clause-21(b), it comes out that the Accepting Officer can change the site of bridge and alter the design requirement data. In the event of change in site of bridge, the contractor shall not be entitled to any extra payment as long as the design requirement remains unaltered and any change in the design requirement will be treated as deviation and its financial affect shall be worked out in accordance with the provisions made in the contract agreement. It is submitted that since there was no change in design criteria due to change in centre line, claim No.2 put forth by the contractor was not sustainable in terms of clause 21(b) of the contract agreement but the arbitrator in total ignorance of the provisions of Clause 21(b) of the contract agreement, has allowed the claim in favour of the contractor.
27. Further Clause 12(b)(iii) of the contract agreement provides that if as a result of the scrutiny, any modifications in the contractor's drawings and calculations etc are rendered necessary in order to ensure that designs are safe and comply with various requirements laid down in the tender documents, the contractor shall not be entitled to any extra payment on this account.
28. By ignoring Clause 12 and 21 of the contract and acting in derogation thereof, the arbitrator has admittedly travelled beyond his jurisdiction and has acted contrary to the terms and conditions of the contract of which he was a creature. I am aware that interpretation of a 23 MA No.104/2014 particular clause by the arbitrator may not be open to scrutiny by this Court, however, instant case is not of interpretation to any clause but is a apparent case of ignoring clause-12 and 21 of the contract agreement. As per Clause-12 and 21, no claim could have been raised by the contractor on account of extra expenditure incurred due to change in the site of foundation and adjudicated upon by the arbitrator in his favour.
29. Claim No.3 pertains to extra amount for undertaking deeper foundation. The arbitrator has accepted the claim and awarded Rs.13,32,000/-. It is submitted that as per the contract agreement, the contractor was required to undertake excavation upto RL 987 meters at Akhnoor side abutment and upto 976 meters at Akhnoor side pier but on the request of the contractor, it was agreed that excavation on Akhnoor side Pier shall be done upto RL 978 for laying foundation level against NIT specification of 976, however, the arbitrator without any evidence has recorded that the contractor has excavated on Akhnoor side pier till RL 983, which is contrary to the record. So far as Akhnoor side abutment is concerned the excavation was done till RL982.00 i.e. NIT level only.
30. The arbitrator appears to have ignored the terms and conditions of the contract agreement and awarded the claim in favour of the contractor. Claim was, thus, not sustainable and therefore, wrongly upheld by the Court below.
31. Claim No.4 relates to inferior quality of cement and for default of the appellant for not giving prompt decision. This claim has not been seriously disputed by the appellant. However, contention of the appellant is 24 MA No.104/2014 that there was no evidence before the arbitrator to prove the allegation of inferior quality of cement.
32. Claim No.5 pertains to loss occasioned to the respondent on account of unprecedented floods. This claim has not been seriously disputed by the appellant. It is, however, contention of Mr. Pranav Kohli, learned senior counsel appearing for the appellant that there was no evidence before the arbitrator to demonstrate that the flood level crossed RL 997.540 meter, which is defined High Flood Level (HFL) in terms of the contract agreement.
33. Be that as it may, the arbitrator has found the evidence produced before him, in the shape of certificates issued by the government authorities, substantiated the claim of the contractor. I do not find that claim awarded is either in violation of the terms and conditions of the contract agreement or beyond the terms of submissions of the arbitrator.
34. Claim No.6: Under this heading, the contractor has raised a claim of Rs.7,063.23 and the same has not been awarded by the arbitrator.
35. Claim No.7: Under this heading, the contractor has raised a claim of Rs.24,500.00 and the same has not been awarded by the arbitrator.
35. Claim No.8: This claim of the contractor, which is awarded by the arbitrator for a sum of Rs. 2,60,396.00, pertains to cost of re-designing of sub-structure due to change in site of bridge. Again, as pointed above, the arbitrator has ignored specific terms and conditions of the contract agreement incorporated in Clause-12 and 21 of the agreement. This claim, too, was not sustainable and has, thus, been wrongly upheld by the Court below.25 MA No.104/2014
36. Claim No.9: This is a claim on account of escalation in the price of labour, fuel etc. The claim has not been seriously contested by the appellant nor do I find that the same violates any term and conditions of the contract or is otherwise beyond jurisdiction of the arbitrator.
37. Claim Nos. 10 and 11 were for meager sums and have not been awarded by the arbitrator.
38. Claim No.12: This claim again pertains to extra foundation treatment done by the contractor to the Akhnoor side pier pit. This claim has not been seriously disputed by the appellant.
39. Claim No.13 pertains to refund of retention money.
40. Claim No.14 pertains to refund of security deposit.
Both claims have been awarded by the learned arbitrator.
41. Once the arbitrator came to the conclusion that termination of the contract was unfair and illegal, the contractor was entitled to refund of his security deposit as well as retention money. Therefore, no fault can be found in the award insofar as claim No.13 and 14 are concerned.
41. Claim No.15 pertains to RAR payment against RAR 43. This claim has not been disputed by the appellant-Union of India.
42. Claim No.16, which was amended by the contractor through letter dated 17.12.2007 pertains to hiring charges and cost of material etc. Once the arbitrator after considering all aspects has concluded that the cancellation of contract by the Union of India was not fair and in consonance with law, he was well within his right to award compensation on account of hiring charges for shuttering material, machinery and T&P, office stores, quarters and camps. The arbitrator as also well within his 26 MA No.104/2014 power to award cost of material. The important aspect, which the arbitrator has not considered while awarding hiring charges for shuttering material, machinery, T&P, office stores, quarters and camps etc is that the arbitrator has awarded hiring charges, which are way far higher than the cost of this material. It is well settled that hiring charges of any material or machinery cannot exceed the actual value of such material and machinery. For a contract of the value of Rs.1,34,70,000/-, the contractor could not have deployed the machinery and collected shuttering material, constructed office stores, camps, quarters etc by incurring more than Rs.6,00,00,000.00. The arbitrator has awarded Rs.5,13,30,536.13 as hiring charges for shuttering material, machinery, T&P etc and Rs.2,28,552.61 as rent for office and stationery and Rs.50,79,165.00 as cost of material as on the date of termination but award granting hiring charges for shuttering material, machinery, T&P etc, which have far exceeded the cost of such material and machinery, cannot be sustained. The arbitrator has committed an error, which is apparent on the face of record. In such situation, the arbitrator could have at the maximum granted the contractor the cost of shuttering material, machinery and T&P deployed on the site rather than awarding highly inflated hiring charges of more than five crores.
43. Claim No.17: This is by way of compensation for the losses suffered by the contractor for breach of contract and other faults on part of the Union of India. The arbitrator, after considering all relevant evidence on record, has awarded Rs.36,74,000.00 as compensation. Since the arbitrator has, on facts, found termination of the contract unfair and contrary to the terms and conditions of the contract, as such, the arbitrator was well within 27 MA No.104/2014 his power to award compensation for breach of the terms and conditions of the contract. There could be dispute between the parties with regard to the quantification of the compensation but this Court hearing an appeal against the order of the District Court, rejecting application of the appellant for setting aside the award, cannot go into that aspect. The parties shall do well to accept the findings of their chosen judge i.e. arbitrator.
44. Claim Nos.18, 19 and 20 pertain to grant of interest. The arbitrator has awarded interest @ 18% per annum from the date of termination of the contract till the date of payment or upto the Court decree. This constitutes pre-reference, pendente lite and future interest. Award is unreasoned award and, therefore, the arbitrator has not spelt out any reason for awarding this amount.
44. Indisputably, 18% per annum is not contractual rate of interest. As a matter of fact, the contract agreement does not provide for any rate of interest to be awarded to the parties being successful before the arbitration in getting his claim against other party. The Jammu & Kashmir Arbitration Act, 2002 also does not make any provision for grant of interest @ 18%. Even RBI does not permit grant of such exorbitant interest on the deposits received by the banks. Even lending rate of interest is far less from the interest awarded. By awarding interest @ 18% per annum, the arbitrator has acted arbitrarily, irrationally, capriciously and has committed misconduct.
45. From a reading of entire award, I have also found that the arbitrator has not applied his mind at all and has awarded all the claims in toto except those, which were for meager sum. Similarly, with a view to balance the 28 MA No.104/2014 award and to make it look fair, the arbitrator has even gone to the extent of awarding counter claim to the Union of India.
46. I am aware of the limitations which are put on the Courts by law in regard to interference with the arbitral awards but Court cannot shut its eyes to the fact that arbitration has become an additional source of income of the contractors. Here is a case where original allotment of contract is Rs.1,34,70,000.00 and the work was to be executed in thirty six months. The date of commencement of the work is 27th November, 1987 and was required to be completed by the contractor by 26th November, 1990. Because of certain changes in site etc, the work could not be completed by the contractor and was granted extension up to 31st March, 1993. He could not completed the work and, accordingly, Union of India terminated the contract agreement on 14th June, 1993. By 14th June, 1993, the contractor had executed only 45% of the work for which apart from the payments, which have been released to him from time to time, the arbitrator has awarded a total of Rs.8,65,39,218.70, which is about eight times the value of contract, along with pre-reference, pendentilite and future interest @ 18% per annum.
47. Be that as it may, in view of the discussion made above, I am of the considered view that the arbitrator has clearly exceeded his jurisdiction and has awarded most of the items of claims by either ignoring the terms and conditions of the contract or acting in derogation thereof.
48. The appellate Court has not applied its mind and has endorsed the award as it is. It is interesting to note that the District Court has not even followed Section 34 of the Code of Civil Procedure for the purpose of 29 MA No.104/2014 exercising its discretion to grant pendente lite and future interest. The Court below has awarded 18% interest pendente lite and future, which is, ex facie in violation of Section 34 of the Code of Civil Procedure.
49. For the foregoing reasons, the appeal is partially allowed. Consequently, the award passed by the arbitrator is set aside to the extent of claim Nos. (2,) (3), (8), (16), (18), (19) & (20) and to the aforesaid extent the judgment of the Court below is also set aside. The contractor- respondent is held entitled to interest on the allowed items of claims @ 6% per annum from the date of termination of contract till the amount is actually paid. The Registry shall draw the decree-sheet accordingly.
50. For determination of claims of the contractor i.e. claim Nos. (2,) (3), (8), (16), (18), (19) & (20) , the matter is remitted back to the arbitrator.
However, if for any reason whatsoever, the learned Arbitrator, who has passed the award, is not available or is otherwise incapable to conduct further proceedings; matter shall be referred to Sh. Vinod Sharma, Retired Chief Engineer, Resident of H.No.42, Sector-1-A, Trikuta Nagar, Jammu, Mobile No. 9419180988, who shall enter the reference and decide the claims of the contractor aforesaid within a period of four months. The arbitrator is left free to determine his fee having regard to the 4 th Schedule of the Arbitration and Conciliation Act, 1996.
(Sanjeev Kumar) Judge Jammu 09 .05.2022 Vinod.
Whether the order is speaking : Yes Whether the order is reportable: Yes