Calcutta High Court
Union Of India (Uoi) vs Saraswat Trading Agency on 20 November, 2001
Equivalent citations: (2002)2CALLT520(HC)
Author: A.K. Ganguly
Bench: Asok Kumar Ganguly
JUDGMENT A.K. Ganguly, J.
1. This application has been filed by Union of India for setting aside an award dated 9th September 2000 published by the arbitrator in connection with disputes and differences arising between the parties out of an agreement of handling of goods parcel and booked luggage for Itwari and other goods stations. The said agreement is dated 9th December 1991 with effect from 3rd August 1991.
2. There are few facts which may be noted for proper appreciation of the nature of the dispute in this case.
3. Challenging the award published by the departmental arbitrator, the respondent, the present award holder, filed a setting aside proceeding for setting aside the award given by the departmental arbitrator. On such application, this Hon'ble Court passed an order dated 12th February, 1999 and the award passed in respect of items 3, 4 and 5 were set aside.
4. From the order of the Hon'ble Court dated 12th February 1999 it appears that the learned judge found that the approach of the arbitrator was erroneous and as such the award against items 3, 4 and 5 of the claims were set aside but the award against items 1 and 2 were sustained. The learned judge appointed Mr. Gopal Chakraborty a learned member of the bar to adjudicate the claims against item No. 3, 4 and 5.
5. But by another order dated 1st July, 1999 passed by the Hon'ble Acting Chief Justice Satya Brata Sinha (as his Lordship then was) Mr. Anil Kumar Chowdhury another learned advocate of this Court was appointed arbitrator under Section 11 of the Arbitration and Conciliation Act 1996 (hereinafter called ACA 96) in terms of the previous order of this Court dated 12th February 1999.
6. The arbitrator by the impugned award awarded against claims 3, 4 and 5 a total sum of Rs. 32,71,773.99p. rounded off to Rs. 32,71,774/-along with an interest at the rate of 18% per annum on that amount till payment. The relevant claim being claim Nos. 3, 4 and 5 in respect of which the award has been made are set out below :
"Claim No. 3 : Claim for increase in rates from 3.8.91 to 31.12.92 during the contractual period being sum of Rs. 10,74,408/-.
Claim No. 4 : Claim for increase in rates from 1.1.93 to 31.8.94 during the extended period being sum of Rs. 14,45,481/-.
Claim No. 5. Payment of 18% interest on claim of contractor claim No. 3 and 4 on and from 1.11.94 till the date."
7. The basic facts of the case which have been noted in the impugned award are as follows :
"On or about 16th May 1990, South Eastern Railway opened a tender for 'Handling of Goods, Parcel and Booked Luggage' at Itwari and other group stations. The claimant was declared to be the lowest tenderer. The claimant was called upon by the respondent, from time to time, for negotiation and extension of validity of the offer. The said tender was ultimately awarded in favour of the claimant on 2nd August, 1991. It became effective from 3rd August, 1991 for a period of 3 years. On the day of entering into the contract, as per the circular dated 17th January, 1990, the base 'fair rate' of wages was indicated to be @ Rs. 31.15p; on an average, for the casual labour then in force.
The claimant started demanding enhancement/revision of rate, in view of the circular published on 16th April 1992 by which the minimum 'fair rate' was increased to @ Rs. 42.40p.; to be paid to the casual labourers with retrospective effect. In reply thereto, the respondent Railway refused any enhancement as per the circulars, on the ground that the agreement was a firm price contract and that in the agreement there was or it no clause for enhancement of rate; and, as such, the question of any enhancement did not arise. So the claimant, in the premises, terminated the contract by giving a notice, in terms of Clause 1(1) of the agreement. The said termination was accepted by the respondent Railway with effect from 31st December 1992. However, the respondent Railway requested the claimant to continue with the work at the existing rate, to avoid dislocation of the goods handling work. The claimant continued the work under protest. As the claimant was unable to continue with the work because the claimant was bound to pay the rate of 'fair wages', as per the circular and guidelines and clauses 17, 18 and 19 contained in the agreement, it became obligatory on the part of the claimant to comply with all the statutory formalities. The claimant continued the work till August, 1994 on the assurance of the respondent that his claim would be considered. Thereafter, several correspondence were exchanged between the parties and, ultimately, the Railway considered the claim of the claimant to the tune of Rs. 6,848/- for the period from 1.1.1993 to 31.8.1994, as a full and final settlement of the claimant's claim."
8. The arbitrator further noted that the claimant respondent was aggrieved by the said offer and sent his request to several authorities but ultimately a 'High Level Committee' of the respondent considered the claim of the claimant for a period from 1.1.1993 to 31.8.1994, the period when the contract was not in existence and they took the base rate as a 'fair rate' of the casual labourers on the day of entering into the contract i.e. @Rs. 38.70p. (average rate). But, according to the claimant, the base rate should be fixed at the time of opening of the tender which was Rs. 31.15p. The compensation of Rs. 3,61,058/- offered by respondent was not acceptable to the claimant; and, as such, the disputes and differences arose between the parties.
9. While dealing with claim No. 3 the arbitrator accepted that at the time of formation of the contract the claimant quoted the rates on the basis of circular dated 17.1.1990. The arbitrator also noted that under Clause 14 of the agreement the claimant was under an obligation to pay not less than the fair wage to the labourers engaged by him on the work.
10. It has however been explained in Clause 14 of the agreement what is meant by fair wage. By fair wage it was meant the wage including the allowance notified at the time of inviting tender.
11. In the said clause it has also been made clear if the Railway administration at any time considers the mode adopted by the contractor of paying the workers objectionable, they have the power of changing the system within one week of a notice given to that effect. It is not disputed that in the instant case in terms of the circular dated 17.1.1990 a wage was fixed namely at Rs. 31.15.p.
12. In terms of Clause 14 of the contract, the Railway administrators, if they consider the mode of payment of the worker is objectionable, had the right to change the system of that payment. This is clear from the perusal of Clause 14 of the contract. It is nobody's case that a notice under Clause 14 of the agreement was issued by the railways to the respondent claimant.
13. The contract is one of fixed remuneration contract. This is clear from Clause 4(1) of the said contract. The said clause is set out below : "Clause 4(1). The remuneration of the contractor shall be as follows :
(a) A fixed sum for every unit of weight or wagon of goods, parcels and booked luggages subjected to handling operations mentioned in Clause 2(i) as set out in detail in the schedule of rates hereto.
(b) A sum of Rs. 23,500/- (Rupees Twenty Three Thousand Five Hundred Only) per month for the work detailed in Clause 2(ii) above, as shown in section VIII of the schedule of rates hereto.
(c) A sum of Rs. 44,000/- (Rupees Forty Four Thousand only) per month for all handling operations in respect of parcels and booked luggage as set out in section VII of the schedule of rates attached herewith."
14. Along with the contract there is also a schedule of rate and it appears that there is no scope for escalation. In the award itself there is no finding that the work in question was of a type which was not specified in the attached schedule as an item of work. Therefore, the rates for such work have been specified in the schedule.
15. In the background of this factual position arising from the contract between the parties, the award of the arbitrators in respect of claim No. 3 on the alleged ground that subsequent circulars issued by the General Manager of the Railways enhancing the fair wage are attracted to the contract in this case is not based on any reason. There can be no warrant for the view of the arbitrator that since circulars were issued from time to time they were incorporated in the agreement by implication. The said view of the arbitrator finds place in para 2(h) of the award which I quote hereinbelow :
"2(h). While considering the circulars and guidelines, time to time, issued by the Railway Board in respect of escalation of the rate of "fair wage", to be paid to the casual labourers, I further hold, they are binding on the parties, as if, the said circulars/guidelines are incorporated in the agreements by implication. The respondents are not permitted to take the plea of non-incorporation of the said clause in the agreements. Further, in identical cases in respect of other parties, the Railways have incorporated the escalation clause during subsistence of the contract, by executing a supplementary agreement with retrospective effect, the cases, by way of example, placed before me are of M/s. Allahabad Labour Supply Agency, M/s. P.R. Wason and S.R. Tah, M/s. Parcel Handling Sahkari Shram Sanvida Samiti Ltd. etc.; copies whereof, have been supplied during the hearing, and placed before me. The respondents have not denied the factum or validity thereof. They are naturally, binding on the parties. As such, I hold that the Government would not at all like to discriminate between the claimants, in one hand, and the parties referred to therein, on the other, since the parties are similarly situated or placed."
16. Since this a speaking award, the mental process of the arbitrator is apparent from the award and it needs no probe. From the face of the record it is clear that the arbitrator has founded the award against claim No. 3 not on the basis of the contract between the parties but on the basis of an alleged contract, which according to arbitrator, has been expanded 'by implication' in view of certain circulars/guidelines which the arbitrator thought were incorporated in the agreement. There is no clause of automatic incorporation of subsequent circulars in the agreement. Therefore, this idea of incorporation of subsequent circulars in the agreement is totally alien to and inconsistent with the terms of the agreement. By giving an award on such a basis, the arbitrator, in my judgment, has travelled beyond the terms of his jurisdiction which is clearly circumscribed by the terms of the contract.
17. It is well settled that the jurisdiction of the arbitrator is to be found within the confines of the contract of which there is the creature. So while exercising jurisdiction he cannot extend the terms of the contract by implication or by introducing the doctrine of incorporation of certain notifications 'proprio vigore' to the terms of the contract between the parties. There can be no automatic amendment of the terms of the contract as a result of issuance of certain notification. The arbitrator cannot assume or presume an amendment of the terms of the contract by implication. But he has done so in the Instant case while awarding the amount against claim No. 3. This error in law is apparent on the face of the award and goes to the jurisdiction of the arbitrator and vitiates the award. This error is made by the arbitrator not by construction of the terms of the contract but as he consciously 'wanders outside the contract'. So he 'commits a jurisdictional error'. (See the judgment of the Apex Court in Associated Engineering's case, of the report).
18. Relying on the ratio in Associated Engineering (supra), the Apex Court again in Rajasthan State Mines and Minerals Ltd., , clarified the position in para 23 and page 300 of the report. The relevant excerpts are set out below :
"It is settled law that the arbitrator is the creature of the contract between the parties and hence 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 agreement is required to be considered. For deciding whether the arbitrator has exceeded his jurisdiction reference to the terms of the contract is a must."
19. The learned counsel for the respondent has however urged that claims 3, 4 and 5 have been referred to the adjudication of the arbitrator. Once these claims are referred to the adjudication of the arbitrator, the petitioner cannot urge that the arbitrator has no jurisdiction to decide those claims. In support of the aforesaid contention, the learned counsel relied on the decision in the case of Rajinder Krishan Khanna and Ors. v. Union of India and Ors., and also on the decision in the case of Olympus Super Structuure v. Meena Vijay Ketan, . The learned counsel further submitted that no ground on the question of jurisdiction was taken before the arbitrator. Therefore, now it cannot be urged that the award is beyond the jurisdiction of the arbitrator. In support of this submission, the learned counsel relied on the letter dated 8th September 1999 written for the General Manager, South Eastern Railway, Garden Reach which contains annexure 'A' with all the five claims.
20. From the order of this Court dated 12th February 1999, it is clear that the direction to the arbitrators to adjudicate the said claim and consider the rival contentions. This direction does not mean if upon such adjudication, the speaking award of the arbitrator shows that the arbitrator has clearly expanded the scope of the contract between the parties by implication and by invoking the doctrine of incorporation the award will remain sacrosanct and cannot be interfered with by this Court. This is exactly the situation pointed out in paragraph 29 in Associated Engineering case and in such a case there is an error apparent on the face of the award and since such an error vitiates the award as to goes to the root of the jurisdiction of the arbitrator. This is a jurisdictional error. By overstepping the limits of his authority under the contract the arbitrator cannot clothe himself with the jurisdiction to decide a dispute, even if it is referred to him, if the same does not fall squarely within the terms of the contract. This is clearly from the legal propositions formulated in subparagraphs (h) and (i) of paragraph 44 (page 223) of Rajasthan State Mines (supra).
21. The judgments referred to by the learned counsel for the respondents in Rajendra Krishna Khanna and Olympus Superstructure, referred to above, are not on this point. Both the judgments refer to Section 34 of ACA 96. Questions raised in both those decisions veer around the question of jurisdiction of an arbitral tribunal. Here the question is different. Here the dispute has been referred to the arbitrator. But in deciding the disputes, the arbitrator must follow the discipline of adhering to the terms of the contract. But if he errs here and seeks to clothe himself with jurisdiction by expanding the terms of the contract by implication and invoking the principle of incorporation, he commits an error. This error has been committed totally disregarding the terms of the agreement and specially Clause 33 of the agreement. Clause 33 of the agreement is set out below :
"Clause 33. Except as hereby otherwise provided, a verbal or written arrangement abandoning, varying or supplementing this contract or any of the terms hereof shall not be binding on the Railway Administration unless and until the same is endorsed on this agreement or incorporated in a formal instrument and signed by the parties hereto."
22. Thus this error is patent and palpable on the face of the record. Such an error being a jurisdictional one goes to the root of the matter and vitiates the award.
23. So the award against claim No. 3 cannot be sustained and is set aside.
24. Now coming to the award in respect of claim No. 4, it has been clearly stated in the award that the said claim was for "the period when there was no contract at all i.e. for the period of post termination of the contract from 1.1.93 to 31.8.94" (page 9 of the award).
25. The learned counsel for the petitioner submitted that since there is no contract for the period in question, the arbitrator couldn't give an award for the said period since his jurisdiction is derived from the contract.
26. But the legal position is slightly different. It has been repeatedly held that the arbitration clause survives despite the termination of the agreement. Of course if the contract is non-est into the sense that it never came really into existence or is void ab initio, in such a situation, the arbitration clause also cannot operate. The present case is not like that. In the present case there has been performance under the contract but there has been subsequent repudiation of the contract. So the performance under the contract may come to an end but the contract is still in existence for certain purposes in respect of disputes arising under it or in connection therewith. As the contract subsists for certain purpose, the arbitration clause also operates, (see Indian Drug and Pharmaceutical Ltd. v. Indo-Suris Synthetic Gem Manufacturing Co. Ltd., ).
27. That is why an arbitration agreement is called 'an agreement inside an agreement'. It is further described as 'the parties make their commercial bargain........but in addition agree on Private Tribunal to resolve any issues that may arise between them' (see Union of India v. Mc Donnell Corporation 1993(2) Lloyd's Report 48).
28. Same principle have been laid down by Lord Macmillan in Heyman v. Darevia, 1942 Appeal Cases 356. At page 374 of the report, the following principles appear :
"..... what is commonly called a repudiation or a total breach of contract..... does not abrogate the contract though all further performance of the obligations undertaken by each party in favour of the other party may cease. It [i.e. the contract] survives for the purpose of measuring claims arising out of the breach, and the arbitration clause survives for determining the mode of their settlement. The purposes of [this] contract have failed, but the arbitration clause is not one of the purposes of the contract."
29. So the arbitration clause survives along with the jurisdiction of the arbitrator.
30. It cannot be disputed that in respect of claim 4, the Railway administration also found that the payment of a sum of Rs. 3,61,058/- is reasonable against the said claim. So the liability of the Railways to pay against that claim is not disputed. The dispute is over the quantum of that claim.
31. In deciding the quantum, the arbitrator has not committed any error which is apparent on the face of the record. Nor is there any error of law which goes to the root of the jurisdiction of the arbitrator. The calculations on facts made by the arbitrator, within his jurisdiction, are not to be scrutinized by this Court which does not sit in appeal over the intricacies of those factual calculations. So the award against claim No. 4 is affirmed.
32. In so far as claim No. 5 is concerned the same is a claim for interest based on the claimant's letter dated 19th September 1994. The arbitrator has held that Clause 31 of the agreement which bars granting of interest does not impose any prohibition in this case. The said clause is set out below :
"Clause 31. No interest or damage shall be paid to the contractor for delay in payment of the bill or any other amount due to the contractor for any reason whatsoever. The Railway Administration will, however, make every endeavour for payment of the bills or other amount due to the contractor within a reasonable time."
33. A bare look at the clause makes it clear that the prohibition contained in it is of a very sweeping nature. A plain reading makes it clear that no interest is payable in case of (i) delayed payment of the contractor's bill and also in the case of (ii) delayed payment of any other amount due to the contractor and this prohibition is applicable if the delay is occasioned (iii) for any reason whatsoever.
34. In the face of the clear terms of Clause 31, the arbitrator's finding that clause 31 is not applicable in the case of contractor's claim because it was a case of total denial of claim is a finding which is wholly de hors the terms of the contract.
35. Reference in this connection may be made to the decision of the Supreme Court in the case of Steel Authority of India Ltd. v. J.C. Bhdharaja, Government and Mining Contractor, is relevant in the present context and is set out below :
"It is to be reiterated that to find out whether the arbitrator has travelled beyond his jurisdiction and acted beyond the terms of the agreement between the parties, the agreement is required to be looked into. It is true that interpretation of a particular condition in the agreement would be within the jurisdiction of the arbitrator. However, in cases where there is no question of interpretation of any terms of the contract, but of solely reading the same as it is and still the arbitrator ignores it and awards the amount despite the prohibition in the agreement, the award would be arbitrary, capricious and without jurisdiction. Whether the arbitrator has acted beyond the terms of the contract or has travelled beyond his jurisdiction would depend upon facts, which however would be jurisdictional facts, and are required to be gone into by the Court. The arbitrator may have jurisdiction to entertain claim and yet he may not have jurisdiction to pass award for particular items in view of the prohibition contained in the contract and, in such cases, it would be a jurisdictional error. For this limited purpose reference to the terms of the contract is a must."
36. Following the aforesaid ratio which is squarely applicable here, the Court finds that granting of Interest by arbitrator disregarding the express provision in the agreement cannot be sustained. In this case no interpretation of the contract is involved. What is required is to apply the terms of the contract as they stand. So a mere look is necessary. But that look has to be with open eyes and not a look in which the eyes are blinkered. The arbitrator has failed to give that open look to the contract and thus acted in manifest disregard of the sweeping prohibition contained in clause 31 of the contract.
Therefore, the award against item No. 5 is set aside.
In view of the discussion above, the award is set aside as against item Nos. 3 and 5 and the award against item No. 4 is upheld. Since the award is clearly severable, the Court is upholding its good part and setting aside the parts which have been vitiated for the reasons discussed above.
This application is allowed to the extent indicated above. There will be no order as to costs.