Union of India v. Sonia Construction Co. , Allahabad
1988-10-31
AMARENDRA NATH VARMA, NARENDRA NATH MITHAL
body1988
DigiLaw.ai
JUDGMENT Amarendra Nath Varma, J. - The above appeal and the cross-objection are being disposed of by this judgment and decree. The appeal has been filed by the Union of India against the order dated 23-7-1984, passed by the learned Addl. Civil Judge, Allahabad, rejecting the objections filed by the appellant against an award dated 6-7-83 made in favour of the respondent and making the same rule of the court. 2. In the year 1976 in pursuance of tenders invited by the appellant, the offer of the respondent was accepted. A written contract was thereupon executed by the parties w hereunder the respondent was assigned the work of laying sewers and sewage disposal (oxidation pond) at the New Cantonment, Allahabad. The written contract also provided for application of the general conditions of contract laid down by the appellant for lump sum contracts. The general conditions. inter alia, contained a provision for reference of all disputes between the parties to the contract for the arbitration of a sole arbitrator to be named by the Engineer-in-Chief. In the execution of the works differences arose between the parties with regard to. the payment of the bills submitted by the respondent which eventually led to the reference of the dispute to the arbitration of sole arbitrator, namely, Sri R.B. Darade, the Superintending Engineer. 3. The arbitrator thereupon on a consideration of entire material brought on the record by the parties and their submissions. awarded a sum of Rs. 7,81,931.40 together with interest at 6% per annum thereon by means of an award dated 6-7-83 in favour of the respondent. The award was then filed in the court under S. 14(2) of the Act on 27-8-83 whereupon notices were issued to and duly served on the parties. In pursuance of the notices the appellant filed objections against the award praying therein that the same be set aside in respect of some specified claims in toto while in regard to some others. in part, and in respect of claims 6, 8 to 11, 15, 18 and 23 valued at Rs. 4,70,067.73 it be made rule of the court. 4. The respondent filed replies to these objections contesting the same both on the ground that they were barred by limitation as well as on merits. By the impugned order the learned Addl. Civil Judge has dismissed the objections and made the award rule of the court. 5.
4,70,067.73 it be made rule of the court. 4. The respondent filed replies to these objections contesting the same both on the ground that they were barred by limitation as well as on merits. By the impugned order the learned Addl. Civil Judge has dismissed the objections and made the award rule of the court. 5. Aggrieved by the aforesaid order the Union of India has filed this appeal claiming the relief that its objections against the award be allowed and that the award be not made a rule of the court. The contractor, on the other hand, has filed a cross-objection praying that the objections of the Union of India be dismissed as barred by limitation and as otherwise incompetent in law and at the same time it be awarded pendente lite and future interest at the rate of 18% per annum on the, decretal amount. 6. We take up the appeal first. Sri D.P. Singh, learned counsel for the Union of India, confined his submissions in support of appeal only to two objections raised against the award. They were (i) The arbitrator had no power to award interest and, inasmuch as he has awarded interest to the contractor at the rate of 6% per annum, the award is liable to be set aside on the ground that the same discloses an error of law which is apparent on the face of ,record. (ii) The maximum deviation in the contract amount permissible under condition No. 7 of the general conditions of the contract being 10% and the tender of the respondent having been accepted for Rs. 13,34,952.83 the contractor could claim a maximum amount of only Rs. 14,68,448.11 and in as much as the arbitrator has accepted the claim of the contractor based on the quantum of work executed by him to the extent of Rs. 20,57,995.02 it committed a patent legal misconduct in that the deviation exceeds 10% of the contract amount. 7. The first point is easily disposed of. By U.P. Act No. 57 of 1976, para 7-A was added to the First Schedule to the Arbitration Act which provides : "7-A. Where and insofar as an award is for the payment of money, the arbitrators or the umpire may, in the.
7. The first point is easily disposed of. By U.P. Act No. 57 of 1976, para 7-A was added to the First Schedule to the Arbitration Act which provides : "7-A. Where and insofar as an award is for the payment of money, the arbitrators or the umpire may, in the. award, order interest at such rate as the arbitrators or umpire may deem reasonable to be paid on the principal sum awarded, from the date of the commencement of the arbitration, as defined in sub-s. (3) of S. 37, to the date of award, in addition to any interest awarded on such principal sum for any period prior to such commencement, with further interest at such' rate not exceeding 6 per cent per annum as the arbitrators or umpire may deem reasonable on such principal sum from t4e date of the award to the date of payment or to such earlier date as the arbitrators or umpire may think fit, but in no case beyond the date of the decree to be passed on the award." 8. The First Schedule to the Arbitration Act lays down the implied conditions of arbitration agreements as provided in S. 3 Arbitration Act, which states that an arbitration agreement, unless a different intention is expressed therein shall be deemed to include the provisions set out in the First Schedule in so far as they are applicable to the reference. It was not disputed by the learned counsel for the appellant that the arbitration agreement does not contain any clause which might indicate that no interest shall be chargeable on the principal amount which the arbitrator may award in favour of one or the other of the parties. That being so, the arbitrator in the present case became invested with the power to award interest in the express terms of para 7-A of the First Schedule. 9. Sri D.P. Singh, learned counsel for the Union of India, however, tried to wriggle out of the specific provisions of para 7-A aforesaid by submitting that the same shall have no application to the contracts which were executed prior to the insertion of para 7-A. The argument was based on the fact that the respondent's tender was accepted on,14- 8-76 whereas U.P. Act No. 57 of 1976 came into force on December 31, 1976. 10. We regret our inability to accept this submission.
10. We regret our inability to accept this submission. With the insertion of para 7-A in the First Schedule the arbitrators became invested with the power to award interest up to a maximum of 6% p.a. on the principal amount. The dispute admittedly arose after this provision had already become law. In any case, the reference to the arbitration was made at the instance of the Engineer-in-Chief on May 18, 1981 vide his letter No. 13600/CC/ 243/E-8 of the Army Headquarters Engineer- in-Chiefs Branch, Kashmir House. It was in pursuance of this request of the Engineer-in-Chief that the arbitrator had entered upon the reference. By this date the arbitrator had become authorised by virtue of para 7-A of the First Schedule to award interest. The relevant date in our opinion is not the date on which the contract was executed but the date of reference to the arbitrator which alone is material in so far as the power of the arbitrator to award interest is concerned. We therefore reject the first contention urged on behalf of the appellant. 11. That takes us to the second submission made in support of the appeal therefore, however, we deal with the same we may briefly. comment on the legal position with regard to the parameters within which courts can interfere with awards rendered by arbitrators under the Arbitration Act. Right from the earliest decision on the subject in the celebrated case of Champsey Bhara & Co. v. Jivraj Balloo Spinning & Weaving Co. Ltd., AIR 1923 PC 66 . down to the latest pronouncements of the Supreme Court on precisely what are the legal implications of an error of law apparent on the face of the record so as to warrant it being set aside by courts, the settled legal view expressed is that in order to constitute an error apparent on the face the award such an error must emerge from a bare reading of the award itself or some document incorporated thereto as, for instance a note appended by the arbitrator stating the reasons for his decision. The error may be either express or implied in the sense at implicit in the award may be a proposition of law which is ex facie unsustainable.
The error may be either express or implied in the sense at implicit in the award may be a proposition of law which is ex facie unsustainable. Another postulate emerging from these decisions is that the error must be one of law and not of fact (see Coimbatore District Podu Thozillar Samgam v. Balsubramania Foundry, 1987 3 SCC 723 : AIR 1987 SC 2045 which has ruled that it is an error of law and not mistake of fact committed by the arbitrator which is justiciable). These legal premises have been accepted even in the decision in the case of Continental Construction Co. Ltd v. The State of Madhya Pradesh, 1988 2 SCJ 426 : AIR 1988 SC 1166 on which Sri D.P. Singh; placed heavy reliance. Yet another decision pertinent to the controversy is the case of the Executive Engineer, Irrigation v. Abhaduta Jena, AIR 1988 SC 1520 (para 22) in which it was observed : "If the arbitrator could not possibly have awarded interest on any permissible ground because such ground did not exist, it would' be open to the Court to set aside the aware relating to the award of interest on the ground of an error apparent on the record. On the other hand if there was the slightest possibility of the entitlement of the claimant to interest on one or other of the legally permissible grounds, it may not be open to the Court to go being the award and decide whether the award of interest was justifiable." (emphasis added) 12. With these legal premises we proceed to examine the validity of the appellant's contention. The award with which we are concerned is what is known as a non-speaking i award in the sense that the arbitrator has picked up various claims submitted by the contractor and without giving any reasons in support of his decision allowed the claim either in full or in part or even disallowed the, same. By way of example, we will extract here portions of the award "Claim No. 22. Interest 18% (eighteen per. cent) per annum prior to reference, interest pendente lite and interest up to the date of payment of award. The claim is allowed for interest 6% (six per cent) per annum on the total amount of Rs.
By way of example, we will extract here portions of the award "Claim No. 22. Interest 18% (eighteen per. cent) per annum prior to reference, interest pendente lite and interest up to the date of payment of award. The claim is allowed for interest 6% (six per cent) per annum on the total amount of Rs. 7,81,931.40 (Rupees Seven lakhs eighty one thousand nine hundred and thirty one and paise forty only) with effect 'from 01 March 1979 to the date of payment of the award or "(B). Claims of the Respondent Award Claim No. 1. For Rs. 1,49,434.66 (Rupees One lakh forty nine thousand four hundred thirty four and paise sixty six only) on account of compensation for delay in completion of the work under the contract agreement. The claim is not allowed Claim No. 2. For Rs. 2,39,948.74 (Rupees Two lakhs, thirty nine thousand nine hundred forty eight and paise seventy four only) on account of recovery o f the risk and cost excess expenditure incurred by the Government in getting the incomplete work completed after the cancellation of the contract. The claim is partly allowed Tor the recovery of the amount of Rs. 27,111.79 (Rupees twenty seven thousand one hundred eleven and paise seventy nine only)." 13. All the claims have been dealt within similar fashion, i e., without giving any reasons in support of the amount either awarded or disallowed by him. The claim of the contractor for interest was disposed of by the arbitrator as follows. 14. It is plain that the award does not, on its face, disclose any error of law. Nor is there implicit in the findings of the arbitrator any proposition of law which is ex facie or even otherwise erroneous. Further, admittedly no document or note has been appended to the award. The question of any error of law arising from any document or note appended to the award hence does not arise. Still further, the arbitrator has not discussed or purported to interpret the terms of the contract or the general conditions applicable thereto which could enable this Court to embark upon an enquiry whether the arbitrator was guilty of legal misconduct, having misunderstood or misinterpreted the terms thereof.
Still further, the arbitrator has not discussed or purported to interpret the terms of the contract or the general conditions applicable thereto which could enable this Court to embark upon an enquiry whether the arbitrator was guilty of legal misconduct, having misunderstood or misinterpreted the terms thereof. In this view, it is impossible to hold that the award discloses any error of law, as distinct from an error of fact, which could be characterised as apparent on its face. 15. Sri D.P. Singh, however, placed strong reliance on the decision of the Supreme Court in the Continental Construction Co.'s, AIR 1988 SC 1166 . (supra) and submitted that in that case their Lordships had examined the terms of the contract even though the award was non-speaking to find out whether the arbitrator had not committed a legal error by awarding to the contractor an amount on account of escalation in prices contrary to the contract. It was, therefore, urged that there was no legal bar to examining the terms of the contract to ascertain whether or not the award is contrary to the terms of the agreement between the parties, even though the award may be non-speaking. 16. We are unable to agree. The decision in Continental Construction Co.'s case (supra) is clearly distinguishable. In that case the award itself disclosed that the arbitrator had awarded to the contractor a certain amount on account of escalation in the prices of the materials. Their Lordships further observed that there was a clear finding by the Arbitrator that the contract had not been rendered ineffective under S. 56, Contract Act under abnormal rise in prices. On these facts appearing on the face of the award their Lordships held that the arbitrator had misconducted himself in view of the specific clause in the contract which barred grant of extra amount on account of escalation in prices. 17. That, however, is not the case here. On the facts disclosed in the award it cannot be said that the arbitrator has awarded any amount to the respondent illegally or contrary to the terms of the contract. Clause 7 of the general conditions on which the learned counsel relied deals with the circumstances and the extent to which deviations from the works as described in the tender documents were permissible.
Clause 7 of the general conditions on which the learned counsel relied deals with the circumstances and the extent to which deviations from the works as described in the tender documents were permissible. Essentially it is more in the nature of an injunction against the Accepting Officer rather than the contractor. It enjoins that the Accepting Officers hall not vary either by way of addition to and/or. deduct ion from the works and that, if he does so, he would do it in a manner that the Contract Sum is not varied on the whole by more than the percentage prescribed in the tender documents. The clause read as a whole indicates that it is not absolute in its terms. In any case, it cannot be read in isolation divorced from the rest of the conditions of the contract which seem to indicate that many of the items and matters dealt with by the contract were provisional and tentative. 18. If, therefore, the deviation limit was exceeded under the orders of the Accepting Officer as pleaded by respondent in his reply to the objections vide para 17, the claim of thy; respondent could not be negatived merely on the ground of the supposed deviation from the prescribed limits. In para 17 of the reply the respondent has expressly pleaded that this aspect of the matter was placed before the arbitrator who gave the award in favour of the appellant after taking into consideration all the evidence, records, like 'M B side orders', final bills, conditions of contract agreement and other documents and details of work carried out by the respondent at the risk and cost of the appellant. It has further been pleaded by the respondent that the Amount of the contract agreement was provisional and so were the quantities. Further, Sri Mulidhar took us through the various clauses of the contract which clearly indicate that the quantities of the materials fixed in the contract were provisional. See, for example, Schedule A, Part 11 - Sewer Lines, appearing at page 7 of the contract signed by the parties. Under this Schedule it is expressly stated that all quantities are provisional. 19.
See, for example, Schedule A, Part 11 - Sewer Lines, appearing at page 7 of the contract signed by the parties. Under this Schedule it is expressly stated that all quantities are provisional. 19. If will thus be seen that the question whether the deviation limit has been exceeded or not, and, if so, whether the deviation was ordered by the Accepting Officer or someone authorised by him are not pure questions of law so as to justify interference by this Court with the award. The argument raised by the appellant, to our mind, clearly implies determination of several questions of fact and assessment of the evidence on record, in particular, the orders and the circumstances on the basis of which constructions were carried out by the respondent. 20. Such an exercise is wholly. impermissible in law in these proceedings as the error which was attempted to be established by the learned counsel for the appellant was not of law but essentially one of fact. As ruled by their Lordships of the Supreme Court in the case of Executive Engineer, Irrigation, AIR 1988 SC 1520 (supra) even if there is a possibility of the entitlement of the claimant to the amount awarded to it by the arbitrator, the Court cannot in these proceedings set aside or modify the award. 21. In the premise, the appeal filed by the Union of India is liable to be dismissed. We may, however, mention that no other objections filed against the award before the Court below were pressed before us by the learned counsel for the appellant and, rightly so, as they raise pure issues of fact not capable of being determined in an objection filed against the award. 22. That brings us to the cross-objection. The first point raised by Shri Murlidhar in support of the cross-objection was that the Court below should have awarded interest to the respondent, having found that the respondent was entitled to payment of money. It was contended that there did not exist any valid ground why interest should not have been awarded in terms of S. 29 on the principal amount as adjudged by the award and confirmed by the decree from the date of the decree to the date of realization.
It was contended that there did not exist any valid ground why interest should not have been awarded in terms of S. 29 on the principal amount as adjudged by the award and confirmed by the decree from the date of the decree to the date of realization. In regard to the quantum of interest, however, though the respondent claimed interest at the rate of 18%, Sri Murlidhar very cordially submitted that award of interest at the rate of 9% from the date of decree till realisation would fairly meet the ends of justice. 23. We think the learned counsel for the respondent is right. The Court below was not justified in not awarding any interest whatsoever to the respondent. The respondent having been held to be entitled to the amount claimed by it and awarded by the arbitrator and the Court having affirmed the award, ought to have granted interest to the respondent in the absence of any circumstance justifying denial of interest to the respondent. None has been mentioned by the Court below for not awarding the interest. We think that in the totality of (circumstances, the respondent ought to be granted interest as was done in the case of Hindustan Steel Works Construction Ltd v. C. Rajasekhar Rao, 1987 4 SCC 93 at 9% per annum from the date of decree until the realisation of the amount awarded. 'The cross-objection is hence entitled to succeed in part. 24. Next Sri Murlidhar made a somewhat half hearted attempt to assail the finding of the Court below on the issue of limitations. It was urged that even before the notices issued by the Court were formally served on the Chief Engineer, the appellant had come to know of the filing of the award. If the limitation is computed from the date of knowledge the objection filed by the appellant would be clearly barred by limitation. This very submission was advanced before the Court below and was, in our opinion, rightly rejected. Dealing with this argument the Court below has observed that no material was brought on record to establish the allegation that the Chief Engineer had received the information about the filing of the "award prior to the service of notice issued by the Court.
This very submission was advanced before the Court below and was, in our opinion, rightly rejected. Dealing with this argument the Court below has observed that no material was brought on record to establish the allegation that the Chief Engineer had received the information about the filing of the "award prior to the service of notice issued by the Court. Sri Murlidhar was totally unable to .point out any material whatever sustaining .he plea that the Chief Engineer had derived knowledge about the filing of the award prior to the service of notice on him. That being so, on the admitted fact that the Union of 'India had filed the objection within thirty rays from the date of the service of the notice issued by the Court, the objection filed by the appellant under S. 14(2) could not be said to be barred by limitation. II 25. Sri Murlidhar also invited our attention to the same decisions which have been noticed by the Court below on the question whether the limitation for filing objections has to be computed from the date of formal service of notice issued by the Court under S. 14(2) or from the date of knowledge. We fully endorse the view expressed by the Court below that these decisions do not support the respondent's contention. All that has been stressed in these decisions is that to calculating the period of limitation personal service of the notice issued by the Court may not be relevant. But, at the same time, the limitation has to be calculated only from the date of intimation of the filing of the award) issued by the Court. As observed above, the' respondent has totally failed to prove that the Chief Engineer had received the intimation from the Court about the filing of the award otherwise than through personal service. 26. We, therefore, hold that the objection filed by the appellant against the award was within time. 27. In the result, while the appeal fails and is dismissed with costs, the cross objection succeeds in part and is allowed. The respondent shall be entitled to payment of interest on the amount awarded in its favour by the arbitrator at per annum from the date of the decree till its realization. The parties will, however, bear their own costs in the cross-objection