P. A. Jacob v. State — 1991 DIGILAW 42 (KER)

JUDGMENT K. Sreedharan, J. 1. First respondent was the contractor for the work "P.I.P.R.B. Circle, formation of Kaviyoor Branch Canal, 3rd reach from Ch: 2.300 M - 3576M - including C.D. works". The agreement was executed between the parties on 24-11-1976. Disputes arose during the progress of the work and those disputes were referred to Chief Engineer (Arbitration), Thiruvananthapuram. Chief Engineer (Arbitration) on 22-5-1978 passed a "nil" award. Respondent filed O.P. (Arb) No. 59/78 under S.30 of the Arbitration Act, 1940, hereinafter referred to as 'the Act', to set aside the award. The Subordinate Judge's Court, Alappuzha, set aside the award by order dated 16-7-1980. Respondent then filed O.P. (Arb) No. 85/84 before the Subordinate Judge's Court, Alappuzha u/s. 20 of the Act for referring the disputes to a fresh Arbitrator appointed by court. This petition was transferred to the Subordinate Judge's Court, Pathanamthitta where it was re-numbered as O.P. (Arb.) 54/85. The court by judgment dated 25-9-1987 appointed Shri. Sankaragankan, retired District Judge as sole Arbitrator. -That order was challenged by the Government before this court in M.F.A. No. 94/88. A Bench of this court by judgment dated - 3-3-1989 appointed Shri. K. Ramakrishnan Nair, retired Chief Engineer (PWD) as the sole Arbitrator. The Arbitrator entered on reference on 22-3-1989. He passed an award on 15-7-1989 on disputes.(1) and (3) in the following terms: Dispute (1): "Extra rate for blasting hard strata is due and payable to the claimant. The respondents shall pay the claimant an amount of Rupees Two Lakhs Twenty eight thousand one hundred and thirty two (Rs. 2,28,132) only on this account. Dispute (3): The claimant is entitled to payment of interest on the amount payable to him as per dispute 1. The respondent shall pay the claimant for the amount of Rs. 2,28,132 interest at the rate of 9% from the date of passing the final bill for the work, ie. 15-5-1978 till the date on which I entered on the reference, ie. 22-3-1989. The amount to be paid on this account is Rupees Two Lakhs twenty two thousand four hundred and twenty eight (Rs. 2,22,428/-) only". All the other claims put forward by the claimant and the counter claims raised by the State were rejected. 2. The Arbitrator then filed the Award before the Subordinate Judge's court, Pathanamthitta under S.14 of the Act. The amount to be paid on this account is Rupees Two Lakhs twenty two thousand four hundred and twenty eight (Rs. 2,22,428/-) only". All the other claims put forward by the claimant and the counter claims raised by the State were rejected. 2. The Arbitrator then filed the Award before the Subordinate Judge's court, Pathanamthitta under S.14 of the Act. The prayer of the Government to set aside the award was rejected by that court. Thereupon it passed a judgment and decree in terms of the award on 30-11-1989. The judgment and decree were challenged before this court in M.F.A. 355/90 on the ground that the court below had no jurisdiction to receive the award and entertain it under S. .17 of the Act because the award ought to have been filed in the High Court in view of the fact that the Arbitrator was appointed by this Court. M.F.A. 355/90 was allowed and the judgment and decree passed by the Subordinate Judge's Court were set aside. That court was directed to return the award and the necessary records to the Arbitrator for filing the same before this court. In compliance with that judgment, the Arbitrator filed the award and connected records before this court and it is numbered as O.P. (Arb) No. 7282/1990. Notice under S.14(2) of the Act was served on the petitioner. Thereupon petitioner filed application under S.16, 30 and 33 of the Act for setting aside the award on disputes (1) and (3) passed by the Arbitrator. Petitioner's application is O.P. No. 8642/90. 3. Learned Government Pleader raised the following contentions for consideration: (i) Once the award passed by the Arbitrator was set aside, the court had no jurisdiction to refer the dispute to arbitration a second time; (ii) the award passed by Shri. K. Ramakrishnan Nair, Arbitrator appointed by this court in MFA 94/88 is beyond the jurisdiction of the Arbitrator. (iii) Award on dispute No. (3) granting interest at 9% per annum on the amount awarded on claim No. (1) is beyond the jurisdiction of the Arbitrator. I shall proceed to deal with these contentions in detail. 4. Point No. (1) When the claimant raised a dispute regarding the amount payable to him, it was referred to the Chief Engineer (Arbitration) as per the terms of the agreement. He entered on reference and passed a "nil" award on 22-5-1978. It was a non-speaking award. I shall proceed to deal with these contentions in detail. 4. Point No. (1) When the claimant raised a dispute regarding the amount payable to him, it was referred to the Chief Engineer (Arbitration) as per the terms of the agreement. He entered on reference and passed a "nil" award on 22-5-1978. It was a non-speaking award. That award was challenged by the claimant before the Subordinate Judge's Court in O.P.(Arb) 59/78. On 16-7-1980 the Subordinate Judge's Court set aside the award. On 9-5-1983 the claimant moved the Chief Engineer (Arbitration) to revive the claim. He took the view that he had no jurisdiction to re-entertain the claim as he became functus officio on passing the first award. In view of this stand taken by the Chief Engineer (Arbitration) in his order dated 2-6-1984, the claimant moved the Subordinate Judge's Court under S.20 of the Act for appointing an Arbitrator. That court by order dated 25-9-1987 referred the dispute to Shri. Sankaragankan, retired District Judge, for arbitration. State challenged that order before this court in MFA 94/88. Before this court it was contended that the matters in dispute cannot be referred to a second arbitrator. Dealing with this issue this court observed:- "In this case, as stated earlier, the award alone was set aside under Ext. Al order and the court did not supersede the reference nor hold that the arbitration agreement shall cease to have effect with reference to the disputes referred. With regard to the terms of the agreement, Clause.24 of Ext. A5 is very wide and it does not preclude the Arbitrator from proceeding further in the matter when the arbitration agreement subsists. In this case, the named Arbitrator is the Chief Engineer, Arbitration, who has declined jurisdiction as per his proceedings Ext. A4 and in these circumstances the court has got the power to appoint another Arbitrator in his place, either under S.8(1)(b) or S.20 (4) of the Arbitration Act". This court changed the Arbitrator and appointed Shri -1C Ramakrishnan Nair as the sole Arbitrator. 5. The question whether on setting aside an award is it possible to refer the matter to an Arbitrator without a fresh/arbitration agreement came up for consideration before the Supreme Court in Juggilal v. General Fibre Dealers ( AIR 1962 SC 1123 ). This court changed the Arbitrator and appointed Shri -1C Ramakrishnan Nair as the sole Arbitrator. 5. The question whether on setting aside an award is it possible to refer the matter to an Arbitrator without a fresh/arbitration agreement came up for consideration before the Supreme Court in Juggilal v. General Fibre Dealers ( AIR 1962 SC 1123 ). Their Lordships took the view that where an award has been set aside the court may by order supersede the reference and shall thereupon order that the arbitration agreement shall cease to have effect with respect to the difference referred. S.19 leaves it to the discretion of the court when it decides to set aside an award, whether to supersede the reference or not. The court may not supersede the reference at all in which case though the award may be set aside the reference will continue. If the court orders supersession of the reference then the consequence of the arbitration agreement ceasing to have effect follows. Where the court decides not to supersede the reference and leaves arbitration agreement to subsist, 'a further arbitration can take place. Their Lordships stated:- "Where it decides to supersede the reference it has to order that the arbitration agreement shall cease to have effect with respect to the difference referred; but where it decides not to supersede the reference the arbitration agreement subsist and if there is machinery provided in the arbitration agreement for making a further reference or for continuing the same reference, further arbitration can take place". 6. Under S.19 of the Act the Court has got discretion to decide whether reference itself should be superseded when it sets aside award. If it decides to supersede, it has necessarily to order that the arbitration agreement shall cease to have effect with respect to difference referred. If there is no such order and if the award alone is set aside, the arbitration agreement subsists. In such a situation, further arbitration can take place. In the instant case this court has specifically found in M.F.A. 905/88 that the arbitration agreement has not been superseded and that it continues to be in force even after the decision of the Subordinate Judge's Court setting aside the earlier award passed by the Chief Engineer (Arbitration) on 22-5-1978. In such a situation, further arbitration can take place. In the instant case this court has specifically found in M.F.A. 905/88 that the arbitration agreement has not been superseded and that it continues to be in force even after the decision of the Subordinate Judge's Court setting aside the earlier award passed by the Chief Engineer (Arbitration) on 22-5-1978. In these circumstances, I do not find any merit in the contention raised by the learned Government Pleader that the reference to arbitration by Shri K, Ramakrishnan Nair is without jurisdiction. 7. Point No. (ii) It is common case that the award passed by Shri K. Ramakrishnan Nair is a non-speaking award. Being a non-speaking award it is not open to the civil court to ' interfere with the same, except in cases where the award is vitiated by error apparent on its face or where the arbitrator has exceeded his jurisdiction or has misconducted himself in the proceeding. (Vide M/s. Sudarsan Trading Company v. Government of Kerala (1989 (1) KLT 534). The award passed by Shri . Ramakrishnan Nair does not fall in any of the above mentioned categories warranting interference by this court. Therefore I find no ground to interfere with his award on dispute No. (1). 8. Point No. (iii): The arbitrator awarded interest on the money found due to the claimant on dispute No.(1) at the rate of 9% per annum from the date of the passing of final bill for the work viz., 15-5-1978 till the date on which he entered on reference, viz. 22-3-1989. According to learned Government Pleader, the arbitration proceedings started in 1978 when it was referred to the Chief Engineer (Arbitration). That proceeding continued till Shri. K. Ramakrishnan Nair passed his award on 15-7-1989. Proceedings before Shri K. Ramakrishnan Nair is to be considered as a continuing arbitration proceeding-initiated in 1978 and the rights of the arbitrator to pass the award must be decided with reference to the date of initiation of the proceedings. It is contended that since the proceedings were initiated in 1978, before coming into force of the Interest Act,' 1978, the Arbitrator has no power to award interest on the amount fixed on the first claim. It is contended that since the proceedings were initiated in 1978, before coming into force of the Interest Act,' 1978, the Arbitrator has no power to award interest on the amount fixed on the first claim. Alternatively, it is contended that if the proceeding before Shri K. Ramakrishnan Nair is taken as a new arbitration proceeding then he has got the right to award interest only for the period between 19-8-1981, the date of coming into force of the Interest Act, 1978 and 22-3-1989, the date on which he entered on reference. 9. Can the proceeding which took place before Shri K. Ramakrishnan Nair be considered as a continuation of the arbitration proceeding initiated before the previous Arbitrator, the Chief Engineer (Arbitration). 10. Three matters are to be born in mind in arbitration proceedings, first arbitration agreement. Next comes the reference to arbitration and lastly the award. Under S.19 of the Act when an award is set aside the court may supersede the reference. The consequence will be the arbitration agreement shall cease to have effect. Where the court while setting aside the award refuses to supersede the reference, the reference will continue. In other words, if the court finds that arbitration agreement is of general terms it may not supersede the reference with the result that the reference as well as the arbitration agreement on which it is based survives. Where the reference and arbitration agreement survive the same dispute may go before the arbitrator again. (Vide Juggilal v. General Fibre Dealers AIR 1962 SC 1123 ). 11. In the instant ease it has already been held that the arbitration agreement has not been superseded and so the dispute can be referred to new arbitration. S.19 of the Act permits to have further arbitration on the same dispute. As observed by the Supreme Court in the decision referred to earlier even if it is true that the arbitrator is generally functus officio after he has made the award the court can remit the award for reconsideration under S.16 or to refuse to supersede the reference even though the award is set aside leaving it to the parties to take further action under the arbitration agreement for further arbitration. If under such circumstances, the dispute is referred to a new arbitrator, will it amount to a second reference? If under such circumstances, the dispute is referred to a new arbitrator, will it amount to a second reference? The Supreme Court categorically stated that it will not be a second reference. The petition filed by the claimant before the court can only be taken to be a prayer to arrange to continue the arbitration proceedings further. The only question that arose before the court Was as to who should be the arbitrator. The court allowed to continue the arbitration proceedings further before Sri. K. Ramakrishnan Nair. Thus I have no hesitation in holding that the arbitration agreement and reference subsisted even after the first award was set aside and the court had appointed Ramakrishnan Nair to continue that reference and to give his award. Thus the proceedings before Ramakrishnan Nair was only a continuation of the first reference. 12. When an award is set aside, but the reference is not superseded, a second reference to the arbitrator may sometimes be treated as a revival and continuation of the first reference. Where the court does not supersede the reference both reference and agreement continue to subsist. In such a case neither the reference nor the agreement comes to an end. When the original reference remain subsisting, it is impossible to have a second reference to arbitration. (Vide Baranagore J.F. Co. v. M/s. Hulaschand AIR 1958 Calcutta 490). 13. Coming to the facts of this case, the dispute was referred to the Chief Engineer arbitration, way back in 1978. He passed a "nil" award on 22-5-1978. That award was set aside by the court. But the arbitration agreement was not superseded. So the original reference continued. The contractor by letter dated 9-5-1983 requested the arbitrator, Chief Engineer arbitration to enter upon the reference. The arbitrator passed an order on 2-6-84 to the effect that he has become functus officio and that he is incapable of proceeding further. Then the contractor approached the court, not for making a fresh reference, but to appoint an arbitrator in the pending reference. The arbitrator passed an order on 2-6-84 to the effect that he has become functus officio and that he is incapable of proceeding further. Then the contractor approached the court, not for making a fresh reference, but to appoint an arbitrator in the pending reference. When this matter came before this court in M.F.A. 94 of 1988, P. Krishna Moorthy, J. speaking for the Bench observed: "If the award alone is set aside, the arbitration agreement subsists and if there is machinery provided in the arbitration agreement for making a further reference, further arbitration can take place." The learned Judge went on to observe: "In this case the named Arbitrator is the Chief Engineer, Arbitration, who has declined jurisdiction as per his proceedings Ext.A4 and in these circumstances the court has got the power to appoint another Arbitrator in his place, either under S.8(1)(b) or S.20(4) of the Arbitration Act." Thus it is abundantly clear that this court only changed the Arbitrator in a pending reference. Sri. Ramakrishnan Nair was substituted in the place of the earlier arbitrator, the Chief Engineer (arbitration). There was no new reference. Sri. Ramakrishnan Nair entered upon reference only on 23-3-89. That is not of any consequence because the reference was already made in 1978. That reference was continuing without any break. Pending reference was taken up by Mr. Ramakrishnan Nair because he was appointed arbitrator in the place of the earlier. 14. Reference to arbitrator was made in 1978. It was long prior to the coming into force of the new Interest Act of 1978. The Act came into force on 19-8-1981. As per the provisions of that Act, interest can be awarded upto the date of initiation of the proceedings. It is now settled position of law that the Arbitrator can award interest for the period prior to the commencement of the proceedings, if the commencement is subsequent to Interest Act of 1978. The Arbitrator cannot award interest from the date of reference to the date of award. (Vide Executive Engineer, Galimala v. Abnaduta Jena AIR 1988 SC 1520 ). 15. An argument was advanced on behalf of the contractor basing on S.37(5) of the Act. The Arbitrator cannot award interest from the date of reference to the date of award. (Vide Executive Engineer, Galimala v. Abnaduta Jena AIR 1988 SC 1520 ). 15. An argument was advanced on behalf of the contractor basing on S.37(5) of the Act. That section states that where the court orders an award to be set aside, the period between the commencement of the arbitration and the date of the order of the court shall be excluded in computing the period prescribed by the Limitation Act "for the commencement of the 'proceedings (including arbitration) with respect to the difference referred". Therefore the argument was that this section showed that after an award had been set aside, a fresh arbitration proceedings should he commenced by a second reference. I find it difficult to agree. I have already found that "under S.19 after an award is set aside, the reference may survive and in such case the proceedings can be continued before an arbitrator. So in such a situation S.37(5) has no application. Further an identical question was answered by a Division Bench of the Calcutta High Court in ( AIR 1958 Cal. 490 ) in the following terms: "The Section (S37(5)) undoubtedly suggests that there can be a case where, after an award has been set aside, a second reference may validly be made, because otherwise, there could be no point in prescribing a method for computation of limitation for the commencement of arbitration proceedings after an award had been set aside. But it is not laid down or implied in the section that in every case where an award is set aside, there may be a second reference. The section is concerned only with limitation and it is not its function to provide whether a second reference may or may not be made. So far as it deals with cases where ah award is set aside, its effect is only to provide that a particular period shall be excluded in computing the period of limitation for fresh arbitration proceedings, where such proceeding can otherwise be validly commenced. The section therefore does not in any way enlarge the law as to when a second reference is maintainable and provides no warrant for a contention that in every case where an award is set aside, there can be a second reference." I am in respectful agreement with this statement of the law. The section therefore does not in any way enlarge the law as to when a second reference is maintainable and provides no warrant for a contention that in every case where an award is set aside, there can be a second reference." I am in respectful agreement with this statement of the law. In the case before me the reference continued even after the award was set aside. So there was no possibility to have a second reference. In this view S.37(5) has no application to the facts of this case. 16. As stated earlier, the reference in the case was made way back in 1978. It means that the reference was long prior to the commencement of the Interest Act of 1978. Only in cases arising after the commencement of that Act can an arbitrator award interest upto the date of initiation of the proceedings. In cases which arose prior to the date of commencement of the 78 Act the Arbitrator has no power to award interest. As the date of reference is anterior to the coming in to force of the Interest Act of 1978, the arbitrator was clearly in error in awarding the interest for the period from the date of the final bill 15-5-78 till the date on which he entered on the reference 22-3-89. The Arbitrator has no jurisdiction to award interest for that period. Since this part of the award is one entered without jurisdiction, I quash the same. In the result, I allow O.P. No. 8642/1990 in part and set aside the award granting interest on the amount fixed under dispute (1) for the period between 15-5-78 and 22-3-89. In other words, the grant of Rs.2,22,428/- under dispute (3) is set aside. O.P.No. 7282/90 is disposed of by allowing the claimant a sum of Rs.2,28,132/- under dispute No.1. I pass a decree directing the State to pay the above sum of Rs.2,28,132/- with interest at the rate of 6% per annum from this date till the date of payment. Parties are directed to suffer their costs in these proceedings.