Deo Kumar Saraf v. Union of India — 1988 DIGILAW 391 (CAL)

JUDGMENT This is an application for setting aside a speaking award dated 28.8.86. The petitioner entered into a contract with the respondent for certain construction works and a work order was issued by the respondent on 6.1.82. Subsequently a formal written contract was executed by and between the parties relating to the said contract. This contract contained an arbitration clause. The existence and validity of the contract and the arbitration agreement are admitted by the parties. The time to complete the work was admittedly extended till 25.2.83. 2. Disputes and differences having arisen relating to the said contract, the petitioner had to stop construction work due to nonpayment of his running bills as well as for other breaches of terms of the contract by the respondent. By a letter dated 4.2.83, the respondent directed the petitioner to show cause by 25 2 83 the delay in execution of the work. The petitioner showed cause by his letter dated 22.2.83. Thereafter the respondent by its letter dated 23.283 imposed penalty of Rs. 10,000/- on the petitioner and informed him that the said amount would be recovered from his security deposit. The respondent thereafter by its letter dated 25.2.83 purported to rescind the said contract and forfeit the security deposit. By that letter, the petitioner was informed that the balance work would be completed by another agency at the risk and costs of the petitioner. 3. Under the circumstances, the petitioner requested the Chief Engineer, Eastern Zone, C.P.W.D. to appoint an arbitrator for adjudication of the disputes raised by the petitioner. By a letter dated 26.12.83, the Chief Engineer appointed an arbitrator for adjudicating upon the disputes raised by the petitioner as also the question of "counter-claim of the Government, if any". It is the petitioner's case that no demand for any counter-claim was even made by the respondent before the reference was started and there was no occasion for the petitioner to deny the same. Therefore, there was no counter-claim nor any dispute regarding the same which could be referred to arbitration on 26.1283 as was done by the letter dated 26.1283. 4. The validity and the legality of the award dated 28.8.86 have been challenged on several grounds set out in para 33 of the petition. 5. Therefore, there was no counter-claim nor any dispute regarding the same which could be referred to arbitration on 26.1283 as was done by the letter dated 26.1283. 4. The validity and the legality of the award dated 28.8.86 have been challenged on several grounds set out in para 33 of the petition. 5. The petitioner pressed the ground (d) alleging that the arbitrator had mis-conducted the proceeding by disallowing damage suffered by the petitioner by way of loss of profit on account of the wrongful termination of the contract by the respondent. The arbitrator in his award has held :- "Thus the recission of the contract on 25.2.82 (Ext. R-9) is considered to be unjustified." 6. The damage bas been disallowed on the ground that-"The claimant has not given sufficient evidence to substantiate his claim. The claim is, therefore, not held to be justified". The Counsel for the respondent submits that the petitioner bas withdrawn his claim for general damage. The loss of profit is a special damage and requires proof to establish the same, The claim for special damage is Rs.19,500/- which has not been establised in evidence before the arbitrator. The arbitrator is the sole judge of facts and of law. The Court has no jurisdiction to re-assess the evidence and come to a different finding from that of the arbitrator. The arbitrator was perfectly justified in disallowing this claim for damage. The petitioner, on the other hand, submits that the refusal to allow this claim on the ground of unsatisfactory evidence is improper. The value of the entire Walk was admittedly to be Rs.4,79,782/- as would be clear from Ext. R-1 annexed to the counter-statement of fact filed by the respondent in the arbitration proceeding. The value of the work executed by the petitioner is also admitted to be Rs.3,01,289/- as would be established from Ext. R-24, another annexure to the said counter-.statement of fact. Therefore, the balance value of the unexecuted work was Rs. 1,78,498/- which the petitioner was prevented from executing due to the wrongful termination of the contract by the respondent. If the balance work could have been executed, the petitioner would have earned 11% profit thereon. R-24, another annexure to the said counter-.statement of fact. Therefore, the balance value of the unexecuted work was Rs. 1,78,498/- which the petitioner was prevented from executing due to the wrongful termination of the contract by the respondent. If the balance work could have been executed, the petitioner would have earned 11% profit thereon. The question is whether the arbitrator was right in refusing the claim for loss of profit in spite of the admitted value of the unexecuted work and the arbitrator's clear finding that the respondent was guilty of wrongful termination of the contract. The petitioner was claiming 11% profit on the value of this contract. In Gambhirmall Mahabir Prasad v. Indian Bank Ltd. & Anr., AIR 1963 Cal 163 it was held by this Court in Paragraph 66:- "Where it is established, however, that damages have been incurred for which the respondent should be held liable, the plaintiff may be accorded the benefit of every reasonable presumption as to the loss suffered. Thus the Court doing the best that can be done with insufficient material may have to from conclusion on matters on which there is no evidence and make allowances for contigencies even to the extent of making a guess work." 7. In (2) M/s. A. T. Brij Paul Singh & Bros. v. State of Gujarat, AIR 1984 SC 1703 , It was a case of works contract and the contractor had claimed damages for loss of profit on account of wrongful termination contract by the State of Gujarat. In that case, the contractor did not adduce any evidence to prove the special damage suffered by him by way of loss of profit and the High Court of Gujarat had rejected the claim on that ground. The Supreme Court held in paragraphs 10 and 11 thereof :- "What would be the measures of profit would depend upon facts and circumstances of each case. But that there shall be a reasonable expectation of profit is implied in a works contract and its loss has to be compensated by way of damages if the other party to the contract is guilty of breach of contract cannot be gainsaid. But that there shall be a reasonable expectation of profit is implied in a works contract and its loss has to be compensated by way of damages if the other party to the contract is guilty of breach of contract cannot be gainsaid. In this case, we have the additional reason for rejecting the contention that for the Same type of work site being in the vicinity of each other, and for identical type of work between the same parties, a Division Bench of the same High Court bas accepted 15 % of the value of the balance of the works contract would not be an-unreasonable measure of damages for loss of profit. We, therefore, of the opinion that the High Court was in error in wholly rejecting the claim under this head." para 11. "Now it is well-established that the respondent was guilty of breach of contract inasmuch as the recission of the contract by the respondent is held to be unjustified and the plaintiff-contractor had executed a part of the works contract, the contractor would be entitled to damages by way of loss of profit. Adopting the measure accepted by the High Court in the facts and circumstances of the case between the same parties and for the same type of work, at 15% of the value of the remaining part of the works contract, the damages for loss of profit can be measured." 8. The ratio of the two decisions reported in AIR 1963 Cal 163 and AIR 1984 SC 1703 is that once the Court has held that there is a breach of works contract the contractor would be entitled to damages by way of Joss of profit and the measure of damages if proved, the damage would be awarded on that basis. But if the damage is not satisfactorily proved, still the contractor would be accorded the benefit of every reasonable presumption as to loss of damages. The Court's jurisdiction to award damages cannot be confined to the evidence on records only. The Court is entitled to allow damages on any other reasonable basis, even on the basis of mere guess work. In the present case, the petitioner had claimed 11% profit. The Court's jurisdiction to award damages cannot be confined to the evidence on records only. The Court is entitled to allow damages on any other reasonable basis, even on the basis of mere guess work. In the present case, the petitioner had claimed 11% profit. The arbitrator, if he has not satisfied as to the rate claimed, certainly bad the jurisdiction to reduce the rate on the basis of pure guess work or on the basis of average rate of profit allowed to the contractor by the respondent in respect of works contracts. As the arbitrator was satisfied regarding the wrongful termination of the contract by the respondent, it was his duty to find out the average rate of profit allowed by the respondent in respect of works contracts to accorded all reasonable benefit to the petitioner for loss of profit for compensation the contractor for glaring breach of contract committed by the respondent in the present case. In view of the law as laid dawn by the aforesaid two case the finding of the arbitrator that in spite of termination of contract being wrongful, the damage could not be awarded due to unsatisfactory evidence on record, is a clear error of law apparent on the face of the record, as the arbitrator was bound to compensate the loss of profit even on the basis of his pure guess work. The arbitrator also legally mis-conducted himself and the proceeding by his failure to exercise his jurisdiction to award damages on the facts of this case resulting in miscarriage of justice. 9. The second attack on the award is the ground (e) for refusing to allow a claim for idle establishment. The claim was for Rs. 9,500/-. This claim was rejected by the arbitrator on the following ground as recorded in the award :- "From claimant's own letter dated 12.12.82 (C/112) it is evident that work was stopped by him (claimant) on account of certain disputes. Under the circumstances, it was for him to disengage the establishment looking to the situation. There is no justification in continuing the establishment till the work was formally rescinded by the respondent. Accordingly, the claim is not held to be justified." 10. Under the circumstances, it was for him to disengage the establishment looking to the situation. There is no justification in continuing the establishment till the work was formally rescinded by the respondent. Accordingly, the claim is not held to be justified." 10. It is the petitioner's case that after stoppage of the work by his letter dated 12.12.82 (C/12) intimated the respondent that he was ready and willing to continue the work provided the respondent would perform its part of the obligations under the contract. The petitioner was expecting that the work could be started any moment as soon as the respondent would comply with the terms of the contract and for that purpose he had to keep his establishment ready. Moreover, under clause 36 of the contract at page 159 thereof, the petitioner as the contractor was under an obligation to maintain certain staff till the contract was over. In that view of the matter, if the petitioner would have disbanded his establishment before the contract was finally rescinded by the respondent, the petitioner himself would have been guilty of committing breach of clause 36 of the contract. Therefore, rejection of this claim by the arbitrator vitiated the award. In my opinion, this point has substance. In a recent Supreme Court decision (3) Commercial Construction Co. v. State of Madhya Pradesh, AIR 1988 SC 1166 there was an express form in the works contract that the contractor would not be entitled to claim extra cost. But the contractor claimed extra costs incurred by him in completing the contract due to rise in the prises of materials and labour charges. The State took objection that the contractor was not entitled to claim extra cost in view of the express agreed terms in the• contract. The arbitrator made and published a non-speaking award allowing the claims of the contractor. The State challenged the a ward but it was made a rule of the Court. The State preferred an appeal, The High Court remanded the matter and there upon the award was set aside by the District Judge. Thereafter the matter went upto the Supreme Court. It was argued on behalf of the contractor that it was a non-speaking award, there was no mistake of law apparent on the face of the record. The State preferred an appeal, The High Court remanded the matter and there upon the award was set aside by the District Judge. Thereafter the matter went upto the Supreme Court. It was argued on behalf of the contractor that it was a non-speaking award, there was no mistake of law apparent on the face of the record. The District Judge had erred in setting aside the award by looking into the terms of the contract which neither formed part of the award nor was appended to it. I must record here that the same submission bas been made by the Counsel for the respondent before me in the present case. In AIR 1988 SC 1166 , it was held in paragraphs 6 and 8 thereof dealing with the argument mentioned above :- "We are unable to agree. This being a general question, in our opinion, the District Judge rightly examined the question and found that the appellant was not entitled to claim for extra cost in view of the terms of the contract and the arbitrator misdirected himself by not considering the objection of the State before giving the award." 11. In this case, the Supreme Court dealt With several authorities on this point and further held in paragraph 8 :- "In the aforesaid light, we are of the opinion the High Court was right that the District Court was entitled to examine the contract in order to find out the legality of the claim of the appellant regarding extra cost toward rice in prices of material and labour. As pointed out by the learned District Judge, clauses 2.16 and 2.4 stated that the contractor had to complete the work inspite of rise of price of materials and also rise in labour charges at the rate stipulated in He contract................................. This being so and the contract having completed the work, it was not open to him to claim extra cost towards rise in prices of material and labour. The arbitrator mis-conducted himself in not deciding this specific objection raised by the State regarding the legality of extra claim of the appellant." 12. In this case, the Supreme Court also held that the arbitrator is not a conciliator and cannot ignore that the law or misapply it in order to do what be thinks "Was just and reasonable. The arbitrator mis-conducted himself in not deciding this specific objection raised by the State regarding the legality of extra claim of the appellant." 12. In this case, the Supreme Court also held that the arbitrator is not a conciliator and cannot ignore that the law or misapply it in order to do what be thinks "Was just and reasonable. The arbitrator is a Tribunal selected by the parties to decide their disputes according to law and so is found to follow and apply the law, and if he does not, be can be set right by the Court. 13. In my opinion, the principles laid down in this case apply in full force to the present case. This is also a speaking award. In view of the clear and express terms of the agreement that the petitioner will have to keep certain staff until the work is over, the arbitr8tor erred in holding that the petitioner should have disbanded his establishment because of stoppage of work before the contract was terminated. 14. The next attack on the award is ground (a) alleging that the arbitrator acted without jurisdiction in entertaining the alleged counterclaim of the respondent in the present reference. The arbitrator was appointed on 26.12.83 whereby the disputes raised by the petitioner were referred to him for adjudication. Along with that, the arbitrator was directed to entertain counter-claim of the respondent, It any. Therefore, If any counter-claim had been made earlier, which was disputed by the petitioner prior to 26.12.83, the arbitrator could have decided that counter-claim. He did not have the jurisdiction to adjudicate upon ail alleged counter-claim which may arise and disputed subsequently. The respondent made a counter-claim for the first time by is letter dated 28.10.85.Therefore, prior to 28.10.85, the petitioner did not have any occasion or opportunity to dispute such claims; The petitioner specifically took his point that there was no counter-claim at the time of the reference and the question of existence of any dispute regarding a non-existent claim, prior to reference did not arise in this case. The arbitrator did not have the jurisdiction to entertain the counter-claim subsequently raised and the petitioner's objection on this point ought to have been considered by the arbitrator. In my opinion, the petitioner is .right in his contention. In (4) Bharat Barrel Drum Mftg. (P) Ltd. v. Indian Oil Corporation Ltd., 84 CWN 673. The arbitrator did not have the jurisdiction to entertain the counter-claim subsequently raised and the petitioner's objection on this point ought to have been considered by the arbitrator. In my opinion, the petitioner is .right in his contention. In (4) Bharat Barrel Drum Mftg. (P) Ltd. v. Indian Oil Corporation Ltd., 84 CWN 673. I have held that no counter-claim or cross-clause can be entertained by the arbitrator unless there is a dispute in existence in respect to the same prior to the date of reference. This being a private reference, the scope of the reference could have been enlarged by adding new disputes provided both the parties agreed to the same either expressly of by their conduct. But in view of the fact that the petitioner had strongly objected against inclusion of this alleged counter claim in the reference on the ground mentioned above the arbitrator ought to have desisted from entertaining the same. The arbitrator had exceeded his jurisdiction in entertaining the said claim. The award is, therefore, without jurisdiction so far as Counter-claim is concerned. 15. The submissions of the respondent's Counsel an that an award can be challenged only on the following grounds :- 1) If a proposition of law is appearing or: the face of the record or in a document appended to the award; 2) such proposition forms the basis of the award; and 3) such preposition is wrong. 16. The rejection of the claim for loss of profit by the arbitrator on the ground of insufficiency of evidence in spite of holding that the contract was wrongfully terminated was a wrong proposition of law which was the basis of the award and was appearing on the face of the award, Moreover, in paragraph 33 of the petition, I find that all the charges are based on the arbitrator's mis-conducting the proceeding and mis-conducting himself as also on the ground of lack of inherent jurisdiction of the arbitrator in entertaining the counter-claim. In my opinion the petitioner bas been able to establish the grounds taken against the award. For all these reasons, in my opinion, the application succeeds. The award is set aside. "The petitioner is entitled to cost of this application from the respondent.