Calcutta High Court
M/S Aka Logistic Private Limited vs Damodar Valley Corporation on 29 July, 2015
Author: Sanjib Banerjee
Bench: Sanjib Banerjee
AP No. 1211 of 2015
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
M/S AKA LOGISTIC PRIVATE LIMITED
-Versus-
DAMODAR VALLEY CORPORATION
For the Petitioner: Mr S. N. Mookherjee, Sr Adv.,
Mr Kishore Dutta, Sr Adv.,
Mr Neelesh Choudhury, Adv.,
Mr Anirudha Poddar, Adv.
For the Respondent: Mr D. N. Ray, Adv.
Heard on: July 27, 2015.
BEFORE SANJIB BANERJEE, Judge Date: July 29, 2015.
SANJIB BANERJEE, J. : -
The challenge here is to an interim arbitral award on the ground that it decides the rights of the parties finally and has required only the quantum due to the petitioner to be ascertained by an expert under Section 26 of the Arbitration and Conciliation Act, 1996. The ground urged by the petitioner is that there is error apparent on the face of the award in the flawed interpretation of a key clause of the agreement between the parties.
2. Pursuant to a tender process initiated in December, 2008, Damodar Valley Corporation issued a work order to the petitioner on June 25, 2009, inter alia, for liaising with the railways and coal companies for supply of coal to the Mejia Thermal Power Station of DVC, the uploading of coal rakes, the annual repair and maintenance of coal handling plants and the removal of technological waste from the relevant units. It is the admitted position that the work was undertaken by the petitioner for DVC about a fortnight prior to the issuance of the formal work order.
3. The matter in issue herein is the petitioner's claim on account of escalation. It is not in dispute that the counter-claim made by the petitioner has been rejected in its entirety by the impugned interim award; as has been the claim on another head made by the petitioning-contractor before the arbitrator. There is no grievance regarding the rejection of the counter- claim of the employer or the rejection of the other head of claim that had been carried by the contractor to the reference.
4. Clause 8.122 of the work order dated June 25, 2009 deals with price variation. Since the only issue here relates to the interpretation of such clause, the same is set out:
"8.122 The rates / prices will remain firm for Parts - A (i & ii) throughout the contract period. However, in case of extension or extensions after satisfactory completion of one (1) year of the contract period. Offered Prices for Parts B, C & D which shall remain firm for 1st year during execution of the contract will be subjected to variation (both upward and downward) giving weightage of 90% only w.r.to the corresponding initial Offered Rates. Adjustment / Payment is respect of Contractor's R.A. Bills during such extended period(s) will be made prior to ascertaining actual amount payable or adjustable, as the case may be, and this will be based on Notification / Circular issued by the Govt. of West Bengal from time to time in respect of periodical Wage Revision only."
5. The petitioner claims that the offered prices for the services rendered or to be rendered by the petitioner under Parts B, C and D of the work order are subject to variation on the basis of notifications or circulars issued by the State Government in respect of periodical wage revision. The petitioner asserts that the prices quoted for the relevant part by the petitioner are directly proportional to the revision in wages declared by the State Government.
6. The petitioner says that even though the petitioner was entitled to escalation on the basis of the difference in the wages declared by the State Government a year after the work being commenced under the work order, the petitioner's claims have been made on the erroneous basis of the increase in the rate of wages in September, 2010 as compared to June, 2010. The petitioner, however, accepts that since the original claim on escalation was made on such erroneous basis and it is the same claim which has been carried to the arbitral reference, the petitioner would abide by the same and not claim the difference on the basis of the rate of wages in September, 2010 over the rate of wages in June, 2009.
7. The petitioner reads the relevant clause as implying that all of the prices offered by the petitioner for the services to be rendered under Parts B, C and D of the work order would be subject to variation in terms thereof and the clause is not restricted to either the petitioner being reimbursed for any additional wage bill that it may have incurred or the petitioner being paid the additional expenses that the petitioner may have been exposed to for the prices of certain components going up in course of a year. The petitioner demonstrates that the parties had mistakenly proceeded on the basis of the wage revision by the Central Government as would be evident from paragraphs 16 to 25 of the statement of claim and the letters dated February 3, 2012, January 8, 2013 and June 18, 2013 addressed by the petitioner to DVC. The petitioner refers to the statement of defence filed by DVC and, in particular, to paragraph 11 thereof where DVC has specifically accepted the escalation to be based on the notifications and circulars issued by the State Government in respect of periodical wage revision. The petitioner suggests that though the petitioner's claim is based on Central notifications on periodical wage revision, in view of the categorical case made out by DVC in its statement of defence, the petitioner is entitled to take advantage thereof and claim exactly what is due to the petitioner under clause 8.122 of the work order as understood by DVC and as is evident from, inter alia, paragraphs 10 and 11 of the statement of defence.
8. The petitioner refers to the interim award of January 4, 2015 to suggest that the arbitrator erred in his interpretation of clause 8.122 of the work order as would be evident from paragraph 10.14 thereof:
"10.14. I am therefore of the view that the respondent is liable to pay the enhancement of Minimum Wage with effect from 19.8.2010. Although the second year commenced from 11.6.2010 but the liability to pay differential rate of the respondent arises only with effect from 19.8.2010 i.e., the day with effect from which the claimant was asked to pay the Central Minimum Wages, provided there was a difference."
9. The petitioner shows that it was the same thought that was carried into the following paragraph of the interim award as would be evident from the opening sentence thereof. The petitioner questions the directions issued to the expert at paragraph 10.21 of the impugned award:
"10.21. Exercising my authority under Section 26 of The Arbitration & Conciliation Act, 1996, I do hereby appoint Sri Aloke Mitra of M/s N.C. Mitra & Company, Chartered Accountants of 10, Old Post Office Street, Kolkata - 700 001 to go into the records of the Claimant and certify the following :-
a) What was the rate of minimum wage as on 10.6.2009?
b) What was the prevailing minimum wages between 11.06.2010 and
18.8.2010?
c) What was the rate of minimum wages as on 19.08.2010 after
implementation of The Central Minimum Wages by the claimant?
d) What amount the claimant actually paid on account of minimum wages between 11.6.2010 and 15.3.2014 and how much amount has been received by the claimant on account of Minimum Wages between the said period?
e) What amount the claimant is entitled to be reimbursed between 19.08.2010 and 15.3.2014 on account of differential amount of Minimum Wages, after giving credit for the sum of Rs. 9,24,05,234/- ?"
10. It is necessary, in the context, to notice the operative part of the impugned award at paragraph 12.09 thereof:
"12.09. I, therefore, pass this Interim Award to the following extent:-
A) That the Claimant is entitled to Claim No. 1 being the differential amount of minimum wages which came into being due to upward revision of variable DA;
B) That the Expert appointed herein shall quantify the amount payable by the Respondent to the Claimant based on the principle discussed in Pr.10.15 and 10.21, 10.22 and 10.23 herein above and submit a Report to the Tribunal within a period of 2 months from the date of communication of the Interim Award;
C) The Claimant is directed to communicate this Award to the Expert and deposit the fees of the Expert assessed at Rs. 25,000/- (Rupees Twenty five Thousand) only at the first instance to enable the Expert to quantify the difference of Minimum Wages;
D) As regards Claims No. 2 & 4 of the Claimant, the same would be considered at the stage of final Award.
E) Claim No. 3 of the Claimant stands rejected.
F) The counter claims raised by the respondent are also rejected."
11. The petitioner has referred to the judgments reported at (2010) 5 SCC 294 (Amravati District Central Cooperative Bank Limited v. United India Fire and General Insurance Company Limited) and (2011) 5 SCC 758 (J. G. Engineers Private Limited v. Union of India) for the recognition therein that an award would be suspect if a clause of the contract is found to have been erroneously interpreted in deciding a substantial matter in issue.
Paragraph 23 of the opinion in Amravati District Central Cooperative Bank Limited enunciates the legal position:
"23. The award of the arbitrator is liable to be set aside as there is a clear error apparent on the face of the award. The award is a speaking award. It extracts the relevant clauses of the insurance policy including the excess clause. It then proceeds to put an interpretation thereon which is contrary to the express words of the contract and opposed to the well- recognised insurance practices and principles. Hence the award was rightly set aside by the High Court. If the amount of each and every embezzlement had been separately recorded in the award of the arbitrator, the Court could have calculated the amount that was due, instead of remitting the matter to the arbitrator for fresh decision. But that is not possible, as the particulars are not available."
12. In J. G. Engineers Private Limited, the court found, at paragraph 28 of the report, that when a contract was in clear and unambiguous terms, an award made in violation of such terms would fall foul of Section 28(3) of the Act and would be considered to be patently illegal and, therefore, liable to be set aside under Section 34(2) (b) of the Act.
13. The petitioner has also cited a judgment reported at 1951 SCR 277 (Firm Sriniwas Ram Kumar v. Mahabir Prasad) for the proposition that if the defendant admits an alternative case not made out in the plaint, it will remain bound thereby. The decision has been cited by the petitioner in support of its contention that clause 8.122 of the work order refers to circulars and notifications issued by the State Government in respect of periodical wage revision, which has been accepted by DVC at paragraphs 10 and 11 of its statement of defence, though the petitioner had founded its claim on Central Government circulars as to periodical wage revision.
14. The respondent suggests that since the award indicates that it is interim in nature, it cannot be regarded as having attained any element of finality for a challenge being launched thereto under Section 34 of the Act. The respondent refers to the observation in a subsequent order passed by the arbitrator on the petitioner's application for correction of the award made under Section 33 of the Act. The arbitrator observed, while dismissing the application under Section 33 of the Act, that the claimant (the petitioner herein) "will be entitled to re-urge the points raised at the final hearing after the Report of the expert is received provided such argument is relevant for consideration ..."
15. DVC contends that the perceived mistake of the arbitrator in the interim award is eminently amenable to correction at the final stage of the reference and in course of the ultimate award that will be rendered. DVC argues, as a corollary, that the interim award has to be regarded as interim, just as it says, and not treated as written in stone which is incapable of variation at the final stage by the arbitrator.
16. Just as it is possible for several decrees to be passed in a civil suit, it is possible for several awards to be passed in course of an arbitral reference. The nomenclature of such partial or interim awards is of no consequence, as long as the matter covered thereby and which is subjected to a challenge in proceedings under Section 34 of the said Act is final in the sense that such part of the award can no longer be modified by the arbitrator.
17. The most common form of an interim or partial award would be where an award is made for the admitted part of a money claim and the disputed part is reserved for adjudication. The amount covered by the interim or partial award in such a case cannot be undone in course of the subsequent adjudication in the reference.
18. In this case, several aspects of the claim and counter-claim carried to the reference have been finally adjudicated upon. Whatever else the arbitrator may provide for in the final order, the rejection of the entirety of the counter-claim or the rejection of the other head of claim lodged by the contractor cannot be revisited by the arbitrator. It is next to be seen whether the claim on escalation has been decided by the arbitrator for the award thereon to partake a character of finality that would make the same amenable to a challenge for setting aside the award on such count. It is evident from the interim award that the substance of the claim or the basis thereof and the extent of the petitioner's entitlement on account of escalation have been conclusively adjudicated upon. What is left is for the expert appointed by the arbitrator to report on the quantum and any challenge as to the quantum that may be launched by either party to the reference. The basis for arriving at the quantum on account of escalation has been decided in the impugned award. Thus, the challenge fashioned by the petitioner herein can be received and looked into under Section 34 of the said Act.
19. The matter may be viewed from another perspective. It is true that the arbitrator has observed in the subsequent order passed on the petitioner's application under Section 33 of the said Act that the arbitrator would permit the petitioner herein to "re-urge" the matters raised in the course of the application. An arbitrator may be entitled to revisit any substantial matter in issue if such matter has not culminated in an award and is open to further adjudication by the arbitrator. In a claim for damages or mesne profit or like matters, there are two components to the process of adjudication: the assessment of the basis for the claim and the quantification of the amount. Once the assessment of the basis is done and it is sealed in the form of an award - whatever be its nomenclature - it attains finality and only the arithmetic is left to be worked out. This arithmetic in the present case has been assigned by the arbitrator to an expert; but the calculation of the amount by the expert will be on the basis indicated in the impugned award. It will not be possible for the arbitrator to undo the basis while deciding on the quantum based on the recommendation of the expert. Conversely, if the arbitrator attempts to undo the basis for arriving at the quantum at the final stage it will be open to DVC to question the arbitrator's authority to do so and successfully resist it. An arbitrator has no inherent authority to review a decision as he is rendered functus officio upon pronouncing finally on a substantive matter in issue which is captured in an award.
20. Section 2(1)(c) of the said Act mandates that an arbitral award includes an interim award. Though the expressions "arbitral award" and "interim award" have not been elaborated on elsewhere in the statute, it is judicially accepted that for a pronouncement of an arbitral tribunal to be regarded as an award which is amenable to a challenge for it to be set aside, the substantive matter decided therein should be incapable of further adjudication in the remainder of the arbitral reference.
21. Clause 8.122 of the work order clearly governs all the prices offered by the contractor in respect of the services that were to be rendered by the contractor under Parts B, C and D thereof. The price variation clause (strictly specking, it is not an escalation clause as it covers both an upward and a downward revision) makes the prices offered in respect of Parts B, C and D of the work order directly proportional to the change in the periodical wages declared by the State Government such that the revised prices would vary to the extent of 90 per cent of the difference in the periodic wages. In other words, if the wages were to be revised from Rs. 100/- to Rs. 200/- leading to a 100 per cent increase in arithmetical terms, the price components offered by the contractor in respect of Parts B, C and D of the work order would stand enhanced by 90 per cent.
22. Since the relevant clause has been quoted in the impugned award and there is an obvious error in the interpretation thereof by the arbitrator which has resulted in flawed instructions being issued to the chartered accountants in paragraph 10.21 of the award and an erroneous direction, limited to such aspect, in the operative paragraph 12.09 thereof, the basis in the award on account of price variation is set aside and the matter remanded to the arbitrator for a fresh consideration in accordance with law.
23. AP No. 1211 of 2015 succeeds to the limited extent as indicated above by setting aside clauses B and C of operative paragraph 12.09 thereof and by requesting the arbitrator to reassess the matter in tune with the relevant clause of the work order and issue consequential directions thereupon.
24. There will be no order as to costs.
25. Affidavits have not been called for; as in most cases where an award is challenged, an affidavit by the party resisting the challenge can scarcely throw any light on the substantive merits of the matters in issue.
26. Urgent certified website copies of this judgment, if applied for, be supplied to the parties subject to compliance with all requisite formalities.
(Sanjib Banerjee, J.)