State of Kerala v. T P George — 1989 DIGILAW 78 (KER)

JUDGMENT M.M. Pareed Pillay, J. 1. The respondent (claimant) entered into contract dated 30-5-1981 with the appellants for the work of K. I. P. formation of L. B. Main Canal Driving Tunnel. Certain disputes arose between the parties and the differences were referred to a sole arbitrator. The arbitrator passed an award on 12-3-1985 and filed the same before the Sub Court, Trivandrum. Appellants filed application to set aside the award, whereas the respondent sought a decree in terms of the award. The Sub Judge overruled the objection of the appellants and passed a decree in terms of the award by judgment and decree dated 31-3-1986. This is challenged in the above appeal. 2. Learned Government Pleader confined his arguments against the award under claims 12 (i), (k) and (j). Government Pleader also challenged the interest awarded by the arbitrator. 3. Under claims 12 (i) and (k) the respondent claimed 40% increase over and above the agreed rates for the work done after 4-8-1983. The claim was to the tune of Rs. 2,51,697.06. The entire amount was awarded by the Arbitrator. The agreement is dated 30-5-1981. The respondent obtained the contract by bidding 41% above the estimate. Time for completion of the work was 21 months from the date of handing over the site. The site was handed over on 5-6-1981. The work ought to have been completed on 4-3-1983. The work was not completed during the period of contract and the term, of contract was extended up to 30-9-1983. There was a second extension and the period was extended to 31-3-1984. 4. Contention of the Government Pleader appearing for the appellants is that the award under claims 12 (i) and (k) is totally against the provisions in the agreement. Under claims 12 (i) and (k) arbitrator awarded 40% increase over and above the agreed rate for all works done after 4-3-1983, the original date for completion. It is submitted that the respondent has agreed not to claim any amount over and above the contracted amount and hence the arbitrator was not justified in traversing beyond the agreement and in awarding amount 40% above the contract rate. In the supplementary agreement dated 30-10-1983 there is no provision to revise the rate. Appellants contended that the award made by the arbitrator is against the conditions in the agreement. In the supplementary agreement dated 30-10-1983 there is no provision to revise the rate. Appellants contended that the award made by the arbitrator is against the conditions in the agreement. It is further contended that the benefit for price escalation awarded by the arbitrator is clearly in violation of the original agreement. The specific contention of the appellants is that having agreed not to claim any escalation on account of increase in the rate of labour or materials the respondent cannot make any valid claim on that score and the arbitrator went wrong in totally disregarding the very agreement solemnly entered into by the parties. It is specifically mentioned in the agreement that the contractor shall not claim any enhanced rate or compensation whatsoever for or on account of extra items due to the increase in rate of labour, or materials or on any other ground. 5. Can the arbitrator overlook the specific agreement and award any amount in excess to the respondent is the moot point to be considered. Learned counsel for the respondent submitted that the arbitrator has given sufficient reasons in awarding the excess amount and hence the award cannot be assailed, It is contended that the arbitrator has considered the wage increase and the consequent hardship suffered by the respondent and so the criticism against the award is unjustified. Learned Government Pleader submitted that the arbitrator cannot traverse beyond the terms of the contract and as he did so the award is liable to be set aside. 6. An arbitrator cannot overlook the terms of the contract or agreement. He cannot in a rough shod manner or in an imperious attitude ignore what a party to the contract had agreed and impose an award on the opposite party. He cannot travel beyond the terms of the agreement and if he does so, the award is liable to be set aside. If an arbitrator shuts his eyes to the terms of the agreement and makes an award which is totally opposed to the agreement, he certainly exceeds his jurisdiction and the award cannot be legally sustained. It is useful to refer to State of Kerala v. Raveendranathan (1987-1-KLT 604) where is held thus: "An arbitrator cannot say that he does not care what the contract says. He is bound by it. It must bear his decision. He cannot decide outside its bounds. It is useful to refer to State of Kerala v. Raveendranathan (1987-1-KLT 604) where is held thus: "An arbitrator cannot say that he does not care what the contract says. He is bound by it. It must bear his decision. He cannot decide outside its bounds. If he did, he exceeded his jurisdiction, and the award would be liable to be set aside." 7. In State of Kerala v. Poulose (1987-1-KLT 781) the contractor agreed that he shall not claim enhanced rates of compensation on account of increase in rate of labour, materials or any other ground, but the arbitrator ignored it and passed award. In the above case this Court held that the arbitrator cannot arrogate jurisdiction that does not exist in him and that would be a ground to impeach the award. The basic tenet of a contract is that the contracting parties are bound by the solemn contract they have made and one cannot unilaterally retract it to the disadvantage of the other. Arbitrator by his award cannot go to the rescue of such a person. The following passage in 1987-1-KLT 781 lucidly states the legal position: "When the contract itself is final in regard to certain matters, it is not open to the arbitrator to ignore it, go beyond it, find jurisdiction and make an award wandering away from the contract into regions far beyond his ken," Having agreed that the respondent will not claim any enhanced fate or compensation, he could not have claimed the very same thing before the arbitrator. The award made by the arbitrator in total disregard of the agreement is without jurisdiction. The error is apparent on the face of the award. 8. In a case where the award is passed by the arbitrator confining within the scope of his authority, it will be as effective and binding as a decision of the Court. In a case where the arbitrator misdirected himself and has exceeded his jurisdiction the award cannot be sustained on the reasoning that the agreement for reference to arbitration should be liberally construed so as to lean in favour of upholding the award. 9. In a case where the arbitrator misdirected himself and has exceeded his jurisdiction the award cannot be sustained on the reasoning that the agreement for reference to arbitration should be liberally construed so as to lean in favour of upholding the award. 9. It is contended by the counsel for the respondent that the arbitrator has taken into account the escalation in price of materials and wages, and so it cannot be held that the arbitrator lacked jurisdiction is passing the award or that he has misconducted himself or the proceedings. It is submitted that the arbitrator was aware of the clause whereby the respondent agreed that he will not claim enhanced rates later and as the arbitrator was allowed to arbitrate into that aspect of the matter also and as the arbitrator found reasons for awarding the amount, the aforesaid clause will not militate against the award. Such an argument would run counter to the very terms of the agreement. As the arbitrator is not a conciliator and as the arbitrator cannot reject the very terms of the agreement entered into between the parties, he cannot pass an award on equitable grounds or on his satisfaction that the respondent really is entitled to such an award. In other words, arbitrator cannot pass an award ignoring the terms of the agreement and on sympathetic considerations. That is not certainly the function of the arbitrator. 10. The limits of the jurisdiction of the Court to challenge the award are very well settled. It is the settled legal position that while considering objections under S.30 of the Arbitration Act, the Court does not act as an appellate Court, It can only interfere with the award if the arbitrator misconducted himself or the proceedings or the award has been made after the issuance of an order by the court superseding the arbitration or after the arbitration proceedings have become invalid under S.35 of the Act or the award has been improperly procured or is otherwise invalid. As it is not open to the respondent to claim enhanced rates on account of rise in price of materials and labour, the award by the arbitrator cannot be sustained as he misconducted himself in not deciding the specific objection raised by the State regarding the legality of the extra claim of the respondent. 11. As it is not open to the respondent to claim enhanced rates on account of rise in price of materials and labour, the award by the arbitrator cannot be sustained as he misconducted himself in not deciding the specific objection raised by the State regarding the legality of the extra claim of the respondent. 11. In Tarapore and Company v. Cochin Shipyard Ltd., (AIR 1984 SC 1071) the Supreme Court held that if the rate initially quoted by the contract became irrelevant due to subsequent pries escalation, the contractor's claim for compensation for the excess expenditure due to the price rise could not be turned down on the ground of absence of price escalation clause in that regard in the contract. The above decision was pressed into service by the contractor in AIR 1988 SC 1166 case. The Supreme Court did not accept the above contention on the ground that in the latter case there are specific clauses which barred consideration of extra claims in the event of price escalation and that made all the differences. The Supreme Court held that the basis of the bargain between the parties in both the cases were entirely different. The contention that the dictum laid down in AIR 1988 SC 1166 has no application to the facts of the case in hand is not tenable in view of the solemn agreement by the respondent that he will not claim enhanced rates. If by the terms of the contract the respondent is not entitled to claim any enhanced rates the arbitrator cannot certainly award it for any reason whatsoever. 12. As the respondent was bound by the terms of the contract and it provided that the respondent would not be entitled to claim any amount more than the rate's specified in the contract the arbitrator was patently wrong in ignoring it and affording undue benefit to him. As this is a case where the arbitrator has misconducted himself and the proceedings and that he has exceeded his jurisdiction the amount awarded under claims 12 (i) and (k) amounted to error of law apparent on the face of the award and that it also, amounted to procurement of the award improperly and without any legitimacy in the claim. We therefore hold that the award under claims 12 (i) and (k) should not have been allowed by the arbitrator. We therefore hold that the award under claims 12 (i) and (k) should not have been allowed by the arbitrator. The award by the arbitrator to that extent is hereby set aside. 13. It has next to be considered as to whether the arbitrator could validly award interest from the date of award. The general statutory provisions in regard to the award of interest by a court are contained in the Interest Act, 1978 and the CPC. Interest Act, 1978 provides for the award of interest up to the date of institution of the proceedings. The act does not provide for interest pendente lite. S.34 CPC enables a court to award interest from the date of decree to the date of payment. That section applies to arbitrations in suits for the reason that where a matter is referred to arbitration in a suit, the arbitrator will have all the powers of a Court in deciding the dispute. S.34 does not otherwise apply to arbitration as arbitrator is not a court within the I meaning of S.34 CPC. In Executive Engineer (Irrigation) v. Abhaduta Jena ( 1988 (1) SCC 418 ) the Supreme Court held that S.34 applies to arbitrations in suits for the simple reason that where a matter is referred to arbitration in a suit, the arbitrator will have all the powers of the court in deciding the dispute and that S.34 does not otherwise apply to arbitrations as arbitrators are not courts within the meaning of S.34 CPC. Though in the definition of 'Court' under the Interest Act, 1978 arbitrator is also included the provisions of the Act do not empower the arbitrator to grant interest after the date of award. Under S.34 CPC a Court is empowered to award interest from the date of decree till the date of payment. But that power an arbitrator cannot have for the simple reason that the arbitrator is not a Court. Definition of the Court under the Interest Act 1978 which includes arbitrator, cannot have any overriding or all pervasive effect giving him the powers of a Court to award interest as provided under S.34 CPC. The Supreme Court has held in State of Orissa v. Dandasi Sahu ( AIR 1988 SC 1791 ) and in P.C.I v. M/s. Surendra Devandra and Mahendra Transport Co. ( AIR 1988 SC 734 ) that the arbitrator cannot award interest pendente lite. 14. The Supreme Court has held in State of Orissa v. Dandasi Sahu ( AIR 1988 SC 1791 ) and in P.C.I v. M/s. Surendra Devandra and Mahendra Transport Co. ( AIR 1988 SC 734 ) that the arbitrator cannot award interest pendente lite. 14. In Union of India v. Bungo Steel Furniture ( AIR 1967 SC 1032 ) the Supreme Court held that in that case the arbitrator was justified in awarding interest from the date of award, This decision is not helpful to the respondent in the case in hand. In the Supreme Court case all the disputes including the question of awarding interest were referred for arbitrator's decision. So the arbitrator had jurisdiction to decide the question of interest, which was a dispute between the parties. Moreover, that was a case where reference to arbitrator was made in the course of a suit. That is not the position so far as the present case is concerned. In suits where the matter is referred to arbitration in the suit the arbitrator will have all the powers of a Court in deciding the dispute. If not, S.34 CPC cannot have any application. In other words, as in the present case, where a matter is not referred to arbitration in a suit the arbitrator cannot invoke S.34 CPC. to grant interest from the date of award. In the present case the arbitrator was not justified in granting interest from the date of award. 15. In the present case, the parties have not referred the matter of future interest to the arbitrator. Hence the arbitrator did not get jurisdiction to award future interest from the date of award till payment. S.29 of the Arbitration Act is exhaustive of the whole law on the subject of interest on award. S.29 enables the Court to grant interest from the date of decree at such rates as the Court deems reasonable, to be paid on the principal sum of as adjudged by the award and confirmed by the decree. Though S.29 expressly makes provision for awarding interest on award from the date of decree, it is silent as to whether interest can be awarded on the principal sum adjudged for any period prior to the passing of the decree. As already pointed out, under the Interest Act of 1978 the arbitrator cannot grant interest pendente lite. Though S.29 expressly makes provision for awarding interest on award from the date of decree, it is silent as to whether interest can be awarded on the principal sum adjudged for any period prior to the passing of the decree. As already pointed out, under the Interest Act of 1978 the arbitrator cannot grant interest pendente lite. There is no provision under the Arbitration Act or under the Interest Act 1978, empowering the arbitrator to grant interest from the date of award. 16. S.41(a) of the Arbitration Act provides that the provisions of the CPC. shall apply to all proceedings before the Court, and to all appeals, under the Act. S.41(b) states that the Court shall have for the purpose of and in relation to, arbitration proceedings, the same power of making orders in respect of any of the mailers set out in the second schedules as it has for the purpose of, and in relation to, any proceedings before the Court. The proviso makes it clear that nothing in clause (b) shall be taken to prejudice any power which may be vested in an arbitrator or umpire for making orders with respect to any of such matters. The contention that S.34 CPC. be invoked by the arbitrator is not tenable. In the present case the parties agreed to the appointment of an arbitrator to resolve the controversy between them. It is not a case where the court appointed the arbitrator. Though S.34 CPC. can apply to arbitrations in suits where the matter is referred to arbitration in a suit, in a case where the appointment of the arbitrator is without the junction of the Court, S.34 cannot have any application. As S.29 of the Arbitration Act does not empower an arbitrator to award interest from the date of award and as there is no other provision empowering him to do so under the Act and as S.34 CPC. cannot have any application in a case where the arbitrator has been appointed in terms of the agreement between the parties and not by the Court the arbitrator cannot legally grant interest from the date of award. The award of interest by the arbitrator is without jurisdiction and beyond his powers. The award to that extent is hereby set aside. 17. Another contention of the Government Pleader is that the arbitrator was not justified in granting claim 12(j). The award of interest by the arbitrator is without jurisdiction and beyond his powers. The award to that extent is hereby set aside. 17. Another contention of the Government Pleader is that the arbitrator was not justified in granting claim 12(j). It was the contention of the respondent that the contract for the work was awarded to him and agreement was executed on the basis of the common practices and procedures adopted by the department in other contract works of similar nature like the Pumba Irrigation Project, Periyar Valley Irrigation Project, Pazhassi Irrigation Project etc. It is contended that the electricity connection should have been classified as 'agricultural' rather than 'commercial'. It was also contended by the respondent that both the parties entered into the contract regarding recovery of current bills based on a wrong understanding. That contention was found tenable by the arbitrator and he passed the award to the effect that 75% of the current charge in excess of 25 paise per unit and proportionate surcharge / fixed charge be reimbursed to the respondent for the electrical energy consumed by him on account of this contract. The award to this effect cannot be legally challenged. For the foregoing reasons we hold that the arbitrator was not justified in allowing the claims 12(1) and (k). The same stands set aside. Granting of interest from the date of award is also set aside. The M. F. A. is partly allowed as stated above with no order as to costs.