Calcutta High Court
West Bengal Industrial ... vs Star Engineering Co. on 25 July, 1986
Equivalent citations: AIR1987CAL126, AIR 1987 CALCUTTA 126
ORDER Pratibha Bonnerjea, J.
1. The petitioner has taken out this application for setting aside the award , dt. 6th Mar., 1985 on several grounds set out in para 20 of the petition. The award is for Rs. 5,50,000/- in favour of the respondent and is a non-speaking award.
2. The main claim of the respondent was for idle labour. It was alleged that Rs. 2,50,000/- was paid by the respondent by way of advance to the labourers but no work could be done as the land was not made available to the respondent by the petitioner for filling up the same with good earth. To obtain possession of these lands, the petitioner was to pay compensation to the owners of, the land and to hand over the same to the respondent but the petitioner had failed and neglected to pay the owners for which no work could be proceeded with. Another claim was for Rs. 1,00,000/- for labourers sitting idle from 19th Jan., 1983 due to the fact that the petitioner failed to finalise payment with the bargadars and local plot holders who obstructed and suspended the work of the respondent resulting in heavy loss as aforesaid The third claim for idle labour for Rs. 1,00,000/- was on the ground that earth could not be excavated from 24-1-1984 due to the obstruction by the local people as the petitioner had failed to pay 15% of their compensation as agreed between them which resulted in labourers sitting idle. In respect of respondent's claims for idle labour to the extent of Rs. 4,50,000/- the petitioner attacked the award on the following ground : --
"For that the arbitrator purported to make an award on improper evidence or inadmissible or inadequate evidence which is contrary to the principle of law of evidence."
3. But the Evidence Act is not applicable to arbitration proceeding. The arbitrator has to follow the principles of natural justice in conducting the arbitration proceeding. It is not for the Court to judge whether the evidence before the arbitrator was improper or inadmissible or inadequate. The arbitrator was the sole Judge of the law and of the facts. If he had taken the decision on the basis of whatever evidence was on record and had allowed the claim, his award cannot be challenged on the basis of inadequacy or inadmissibility or impropriety of evidence, particularly when both the parties had the full opportunity to argue their respective cases and adduce evidence. Total absence of evidence or arbitrator's failure to take into consideration a very material document on record or admission of the parties in arriving at the finding are however good grounds for challenging the proceeding for legal misconduct of the arbitrator.
4. The second attack on the award that the claim for idle labour due to local resistances or disturbances beyond the control of the petitioner was expressly excluded by Clause 19 of the contract. Hence this claim could not be entertained by the arbitrator as it was beyond the scope of the arbitration. The arbitrator acted without jurisdiction in entertaining this claim. In my opinion, whether the situation was created due to any act of the petitioner or not certainly could be investigated by the arbitrator.
5. Mr. Bhabra appearing for the respondent submits that this award is a non-speaking award and as such Court has no jurisdiction to look into the terms of the contract as the same have not been incorporated in the award. Hence this award cannot be touched. Dr. Banerjee on the other hand submits that it is not a case of error appearing on the face of the award. It is a question of jurisdiction. If a claim is expressly excluded by the contract, the arbitrator will have no jurisdiction to entertain the same. The Court certainly has the jurisdiction to look into the contract to find out whether the dispute is covered by the arbitration agreement or not. He invites my attention to the grounds (IV) and (V) of the petition and submits that although the wordings used therein are not very happy but they indicate clearly that the question of arbitrator's jurisdiction was challenged by the petitioner. Dr. Banerjee strongly relies on (Thawardas Pherumal v. Union of India) in support of his contention that in that case the arbitrator misconstrued Clause 6 and ignored Clause 6 of the contract in making the award and as such the award was set aside as it resulted in failure of justice. In Thawardas's case it was recorded in para 20 ".....Clause 6 expressly relieves the Union Government of all liability under this head of claim and that the arbitrator was wrong in awarding any sum on that account." Mr. Bhabra, however, points out that in Thawardas's case the award was a speaking award and Clause 6 of that agreement was incorporated in the award. The arbitrator had recorded his construction of Clause 6 of the contract in the award. Therefore, the Court got the jurisdiction to look into it. Mr. Bhabra also cites (Union of India v. D. Bose) para 16 where the Division Bench of this Court held that in Thawardas Pherumal's case the award was a speaking award and that was why the Court could look into the records of the case to find out whether there was any error of law or not in making the award. According to him, the present award being a non-speaking award, the Court has no jurisdiction to look into Clause 19 of the contract. Strong reliance is also placed by Mr. Bhabra on (Alopi Prasad v. Union of India) para 16 and (1923) 50 Ind App 324 : (AIR 1923 PC 66) (Champsey Bhara & Co. v. Jivraj Balloo Spinning and Weaving Co.) in support of his contention that in case of a non-speaking award where the ground taken for setting aside the award is error appearing on the face of the award, the Court cannot investigate the records of the arbitrator nor can it try to probe into the mind of the arbitrator unless the award itself or from any document incorporated therein or in a note appended thereto by the arbitrator the reasons for his finding appear which will show that the basis of the award is a wrong proposition of law. This proposition is undisputed. The law on the point has been settled long back and no authority is needed to establish the same. But what happens when a non-speaking award is challenged on the ground that the dispute decided was outside the scope of the reference, being expressly excluded by the agreement of the parties? This is a question of inherent jurisdiction of the arbitrator. In such a case, in my opinion, the Court has the jurisdiction to look into the contract to find out whether the dispute is within the scope of the reference or not. Once the Court finds that it is within the scope of the reference, the matter ends. If not, then the award must be set aside as the reference will be invalid. In this case, award has been challenged on the ground of arbitrator's jurisdiction to entertain a claim under Clause 19. Looking at Clause 19 of the agreement, I find that the liability for idle labour cannot be foisted on the petitioner if that was due to the reasons beyond the control of the petitioner. But I have already pointed out that the arbitrator had the jurisdiction to find out why the situation was created and who was responsible for the same. If it was due to any act of the petitioner, then the petitioner would be liable. If it was due to any reason beyond its control, then the petitioner would not incur any liability. The arbitrator is the sole Judge to decide the same on evidence on record and he has decided accordingly. This dispute was within the scope of the reference.
6. The last claim made by the respondent was for Rs. 2,00,000/- alleged to have been paid to the land owners in respect of 240 metres of private land being the common passage over which the respondent was to carry the earth in terms of the contract to fill up the site. According to the petitioner, this dispute is outside the scope of reference under Clause 15 of the contract which provides : --
"Approach road to the site and service roads within the land dividing the plots in the sectors to facilitate movement of machines and equipments, earth, fitting, etc., will have to be constructed and maintained by the contractor at his own cost. If such roads are to be constructed through any private land the contractor shall have to make necessary arrangement with the owners of the land for construction of such roads for which no extra payment will be made. The contractor may have to construct temporary bridges or culverts on the canals or waterways for facilities of the work and movement of machinery etc. The cost for the same, if any, shall be included in the rate after inspection of the site and before submission of the offer"
7. The petitioner's counsel Dr. Banerjee submits that the petitioner was not liable for any expenditure incurred by the respondent for arranging a common passage for carrying earth equipments, or machineries as the same has been already included in the agreed rates recorded in the agreement. The respondent is not entitled to receive any extra payment on this head as this claim has been expressly excluded by Clause 15 of the contract. This dispute is outside the scope of the reference and the arbitrator had no jurisdiction to decide this dispute. Arbitrator's attention was invited to this clause and his jurisdiction was challenged but it is clear that he had entertained this claim otherwise he could not have awarded Rs. 5,50,000/-. The other claim for idle labour was for Rs. 4,50,000/- and claim for common passage was Rs. 2,00,000/-. Hence without inclusion of the claim for common passage, the figure could not come to Rs. 5,50,000/-. There is a great force in this argument and I accept the same. The right of the respondent to claim extra payment on this head is clearly excluded by Clause 15 of the contract. It is outside the scope of the reference. A simple arithmetical calculation would establish that arbitrator must have allowed at least Rs. 1,00,000/- on account of common passage as otherwise he could not have arrived at the figure of Rs. 5,50,000/-. But it will be a matter of speculation only whether the arbitrator has allowed this claim of the respondent partially or in its entirety. In any case, the arbitrator has acted without jurisdiction in entertaining the dispute under Clause 15 of the agreement and allowing this claim.
8. It is submitted that the arbitrator has made the award for Rs. 5,50,000/- without applying his mind to the pleadings before him or the facts of this case. It is pointed out that there was no counter-claim by the petitioner in the counter-statement of facts filed in this reference. Still the arbitrator has held that Rs. 5,50,000/- is allowed in full and final settlement of all the disputes and claims and counter-claims of the parties. The arbitrator has also held that the claims and counterclaims have been merged and extinguished by the sum of Rs. 5,50,000/- awarded by him. What was the amount of the alleged counterclaims which merged or extinguished by adjustment or settlement against the claimant's claim leaving the balance of Rs. 5,50,000/- which was awarded by the arbitrator? It is submitted that the award is bad as it is based on mistake of facts due to non-application of mind by the arbitrator. In support of this contention, the petitioner's counsel relies on (1953) 91 Cal LJ 145 (Rajnarayan Misra v. Union of India) at p. 148 where the Court held : --
"There is authority for the view that mistake may amount to misconduct if it arises from culpable negligence."
This report, at p. 149, quoted with approval the observation of Tendal, J. from In Re : Hall & Hinds, (1841) 10 LJ PC 210 :-
"At the same time the mistake as a matter of carelessness, is so gross, as to amount, though not in a moral point of view, yet in the judicial sense of that word -- to misconduct on the part of the arbitrators."
Again at p. 150 of this report, the Court further quoted from the finding of Mr. Justice Brett in Flynn v. Robertson, (1869) IR 4 CP 324 (327) :
"I think it may fairly be said that the arbitratory has not applied his mind to the facts before him and so not really adjudicate on them."
The respondent's counsel cites , (Alien Berry and Co. v. Union of India) para 9 in support of his contention that an award cannot be set aside on the ground of mistake if the award is good on the face of it. He relies on the following observation : --
"The rule thus is that as the parties choose their own arbitrator to be the Judge in the dispute between them, they cannot, when the award is good on the face of it, object to the decision either upon the law or the facts. Therefore, even when an arbitrator commits a mistake either in law or in fact in determining the matters referred to him, but such mistake does not appear on the face of the award or in a document appended to or incorporated in it so as to form part of it, the award will neither be remitted nor set aside notwithstanding the mistake."
In Allenbury's case, the Supreme Court was considering the question of Court's jurisdiction to set aside the award on the ground of error appearing on the face of the record. It held that if the award was good on the face of the award it cannot be touched notwithstanding any mistake of law or fact in respect of the matter referred to the arbitrator. But in the present case, it is an admitted fact that no counter-claim was referred to the arbitrator. He adjudicated on an imaginary counter-claim. He adjusted and/or settled this imaginary counter-claim against the claimant's claim and made the award for the balance sum of Rs. 5,50,000/-. In Allenbury's case, the mistake was in respect of the facts actually referred to the arbitrator for his decision. But in the present case, the arbitrator was dealing with an alleged counter-claim --an imaginary state of affair. Allenbury's case has no application firstly because the award in this case is based on the fact not in existence and not referred to the arbitrator and secondly the ground taken was "misconduct of the arbitrator due to non-application of the mind by the arbitrator" to the facts of the case referred to him. In my opinion, this gross mistake has arisen from culpable negligence amounting to legal misconduct on the part of the arbitrator in making the award and as such this award cannot be upheld.
9. The last but not the least is the ground that the award allowing interest on the sum awarded at the rate of 10% after 8 weeks from the date of the award, if the said amount is not paid within that time is bad in law and the award should be set aside on this ground. It would be significant to note that no interest was claimed by the respondent in its statement of fact. Mr. Bhabra however invites my attention to the meeting of the arbitrator held on 28-1-85 and submits that during argument on that date the respondent had claimed interest to which the petitioner did not object. This being a private reference, the question of interest was brought within the scope of the reference by the conduct of the parties. Hence the arbitrator was well within his jurisdiction to decide the same. In view of the fact that this award is bound to be set aside. I do not think it is necessary to consider the question of arbitrator's jurisdiction to award interest under the circumstances pointed out by the respondent's counsel.
10. In that view of the matter, the award is set aside. The petitioner will be entitled to cost of this application.