C. M. D. A. v. Nikunja Behari Haldar — 1993 DIGILAW 45 (CAL)

JUDGMENT 1. THIS appeal by Calcutta Metropolitan development Authority is against a judgment and order dated 29th august, 1990 passed by a learned Judge of this Court. This appear arises out of an arbitration under Section 30 read with Section 33 of the arbitration Act, 1940. 2. THE award under challenge is one reasoned award made and published by a retired Chief Justice of this Court. By the said award the learned Arbitrator made an award item wise for a sum of Rs. 6,42,790. 49p. The respondent made a claim for Rs. 18,65,018/- on various items of claim. The operative portion of the impugned award is as follows: "the respondent Calcutta Metropolitan Development authority shall pay to the Claimant: the respondent shall pay to the claimant interest @ 15% per annum on the aforesaid sum from the date of judgment to be passed on the award till repayment thereof. The respondent Calcutta Metropolitan development Authority shall pay to the Claimant a sum of rs. 35,258/ being the cost of the Reference assessed by me including the cost of the Stenographer and the clerk, of taking and transcribing deposition and minutes of the proceeding. I have set and subscribed hereunto my hand and sign this 12th day of May, 1990. 3. THE respondent in this appeal challenged the said award dated 12th may, 1990 before the Court of first instance only in respect of two portions of the said award. The one relating to the sum of Rs. 4,98,771.06p which had been ordered to be deducted from the claim of the petitioner on the ground that the respondent was entitled to the said amount by way of penalty being the 10% of the gross value of the tender work. The other one is relating to a ward of Rs. 61,743.26p being the value of excess work done by the petitioner after 27th September, 1984. The respondent claimed that this part of the award may be rectified by enhancing the value of the said excess work to Rs. 7 lakhs. The respondent, therefore, prayed before the court of first instance that the said award dated 12th May, 1990 should be set aside or rectified by deleting the deduction of the said sum of Rs. 4,98,771.06p and by substituting the dues of the petitioner from Rs. 61,743.28p to Rs. 7 lakhs. The respondent, therefore, prayed before the court of first instance that the said award dated 12th May, 1990 should be set aside or rectified by deleting the deduction of the said sum of Rs. 4,98,771.06p and by substituting the dues of the petitioner from Rs. 61,743.28p to Rs. 7 lakhs for the value of the excess work done by the petitioner after 27th September, 1984. At the hearing before the Court of first instance, the respondent did not press the second ground, namely, the said claim regarding extra work done after 24th September, 1984. 4. THE appellant contesting the said petition taken out by the respondent for setting aside of the award to the extent as indicated above, contended before the Court of first instance, inter alia, that the respondent under the provision of Section 30 of the Arbitration Act could not pray for partial setting aside of the award and as such the application was not maintainable. The appellant also submitted that the Arbitrator had considered entire evidence on record and having been satisfied that the imposition of penalty under Clause 2 of the Tender agreement being not arbitrable rightly affirmed the imposition of penalty under Clause 2 of the contract between the parties and as such did not commit any illegality whatsoever in deducting the said amount of penalty from the total claim of the petitioner. It may be mentioned that in the arbitration proceeding, it was urged before the learned Arbitrator that the Deputy Director of the appellant had imposed penalty under Clause 2 of the Tender agreement for failure of the respondent to complete the work within the time stipulated in the contract. Such imposition of penalty was under clause 2 of the Tender agreement at the rate of 1% of the tender amount. The learned Arbitrator calculated the said penalty at the rate of 1% of the tender amount at Rs. 4,98,771. 06p and deducted the said sum from the total sum awarded under item (a) of the Award for the value of 29% of tender work executed by the respondent upto 27th September, 1984. The learned Arbitrator calculated the said penalty at the rate of 1% of the tender amount at Rs. 4,98,771. 06p and deducted the said sum from the total sum awarded under item (a) of the Award for the value of 29% of tender work executed by the respondent upto 27th September, 1984. The only point pressed by the respondent in this appeal before the court of first instance was that the learned Arbitrator by allowing the said deduction on account of penalty imposed under Clause 2 of the Tender agreement had in fact allowed the claim of the appellant which was not made by the appellant before the learned Arbitrator and further in fact the learned Arbitrator by allowing the said deduction had actually considered something which was solely for the Deputy Director of the Appellant to decide, and not arbitrable and could not be the subject matter of the reference. 5. THE respondent had drawn the attention of the Court of first instance to a decision of the Supreme Court reported in AIR 1989 S. C. 952 (Viswanath Sood -vs.- Union of India and Anr.) The respondent urged before the Court of first instance that the relevant clause being Clause 2 of the tender Agreement stipulated compensation to be paid by the contractor for delay and the decision in this regard of the concerned authority on the amount of compensation was final under the said clause, and further, such decision of the concerned authority regarding compensation was not arbitrable and could not be the subject matter of the reference in the arbitration. It was also urged on behalf of the respondent before the Court of first instance that clause 25 of the contract being the arbitration clause specifically excluded such decision as to compensation or imposition of penalty being an excepted matter under the said arbitration clause, the opening words being "except where otherwise provided in the contract". 6. IT was also urged on behalf of the respondent before the Court of first instance that in fact there has been no imposition of penalty under Clause 2 of the Tender Agreement as would toe gathered from the notice annexed to the petition and it would be gathered from the notice annexed to the petition and it would appear that there was no final order of the concerned authority imposing any penalty under Clause 2 of the Tender Agreement. It is also submitted by the respondent before the Court of first instance that it would be more evident from the fact that the appellant as a respondent in the arbitration proceedings did not raise any claim on that account by way of counter claim in its counter statement of fact. It is, therefore, the contention on behalf of the respondent before the learned Judge that the learned Arbitrator committed an error by allowing deduction for the said sum of Rs. 4,98,771.06p as the imposition of penalty earning under excepted matter was not arbitrable and could not be subject matter of the reference, and further, there was no claim for such amount by the appellant in the arbitration proceedings before the learned Arbitrator. It is also the contention of the respondent before the Court of first instance that even if there was any claim on this account by the appellant, the learned arbitrator, following the decision of the Supreme Court in Viswanath Soods case, could not entertain such claim and make an award in respect thereof. The learned Judge of the Court of first instance considering the notice imposing the alleged penalty found that the said notice dated 29th June, 1984 was for imposition of penalty from a future date and there was nothing on record to show that any imposition of penalty had ultimately been made. Referring to Viswanath Sood's case in AIR 1989 S.C. 952 , the learned Judge observed that the concerned authority had to make an administrative decision as to whether the full penalty would be imposed or not and also the authority concerned had the power to waive the penalty. The learned Judge also observed that according to the said decision of the supreme Court, the imposition of penalty under clause 2 of the Tender agreement (an identical clause as in the present was considered by the supreme. Court) was not automatic and further, such imposition of penalty, if made, was not arbitrable. The learned Judge also observed that the learned Arbitrator found that he was not justified in awarding amount of penalty as the same was not arbitrable relying on the said decision of the supreme Court but himself calculated the amount of penalty which was not admittedly arbitrable, and deducted the said amount from the claim of the respondent. 7. The learned Judge also observed that the learned Arbitrator found that he was not justified in awarding amount of penalty as the same was not arbitrable relying on the said decision of the supreme Court but himself calculated the amount of penalty which was not admittedly arbitrable, and deducted the said amount from the claim of the respondent. 7. THE learned Judge in the Judgment under appeal ultimately held that portion of the award allowing, deduction was bad and should be set aside by deleting the said sum of Rs. 4,98,771. 06p from the claim (a) of the award. The learned Judge accordingly allowed the respondent's application and directed that the portion of the award by which the learned Arbitrator had ordered Rs. 4,98,771,06p to he deducted from claim (a) to the award be deleted. The learned Judge further directed that the amount of interest payable to the petitioner would be worked out on the basis of the award as modified by the judgment under appeal. 8. SIMILAR contentions as raised before the Court of first instance were also raised before us by the respective parties. It is submitted by the learned Counsel for the appellant that the learned Arbitrator was well within his competence to allow the deduction for the said sum of Rs. 4,98,771.06p as that was by way of penalty imposed by the concerned authority under the provisions of the Tender Agreement and the learned arbitrator could not ignore such assessment of penalty by the concerned authority while making that deduction. The learned Counsel has also submitted that the decision of the concerned authority under the provisions of the Tender Agreement with regard to the imposition of penalty could not be questioned by the learned Arbitrator, which the learned arbitrator, according to the counsel for the appellant, rightly held. According to the learned Counsel for the appellant, what the learned arbitrator did in arriving at a figure was arithmetical calculation and did not adjudicate upon the question as to penalty. It was also submitted by the learned Counsel for the appellant that clause 9a of the Tender Agreement specifically provided that the procedure for payment of the contractor's bill would not affect the usual rights of CMDA (the appellant) to deduct from contractor's bill any sum due to CMDA on account of penalties, over payments etc. It was also submitted by the learned Counsel for the appellant that clause 9a of the Tender Agreement specifically provided that the procedure for payment of the contractor's bill would not affect the usual rights of CMDA (the appellant) to deduct from contractor's bill any sum due to CMDA on account of penalties, over payments etc. Therefore, it is the submission on behalf of the appellant that when there has been an imposition of penalty by the concerned authorities in terms of clause 2 of the Tender Agreement and such decision not begin arbitrable was final and binding on the parties and the appellant, was entitled to have deduction of the sum as fixed by way of penalty under clause 2 of the Tender Agreement by the concerned authority, from the claim of the respondent made before the learned Arbitrator in the instant arbitration proceedings. 9. IT is submitted on behalf of the appellant that the learned Arbitrator by the impugned award made an award in favour of the respondent for the sum of Rs. 6,42,790.41p and if the deduction on account of penalty as made by the learned Arbitrator from the claim (a) in the award is deleted then the amount of award would be enhanced by a further sum of Rs. 4,98,771.06p and that would amount to making a new award, namely, awarding for sum of Rs. 11,41,561.59p. It is the submission on behalf of the appellant that the Court cannot make a new award by substitution. 10. THE learned Counsel for the respondent has argued, as has been clearly acknowledged by the learned Arbitrator following the ratio of the said decision of the Supreme Court in Viswanath Sood's case, that the question as to imposition of penalty was not arbitrable and could not be the subject matter of the reference. It is submitted that the learned arbitrator committed an error by allowing such deduction on account of imposition of penalty from the respondent's claim. It has also been argued on behalf of the respondent that whether the appellant was entitled to deduct the amount being imposed by way of penalty from the respondent's claim was not a matter of dispute or reference before the learned arbitrator. It has also been argued on behalf of the respondent that whether the appellant was entitled to deduct the amount being imposed by way of penalty from the respondent's claim was not a matter of dispute or reference before the learned arbitrator. The learned Arbitrator by allowing such deduction allowed certain claim in this regard in favour of the appellant although there was no such claim before the learned Arbitrator as to the deduction of the amount imposed by way of penalty. It is also argued on behalf of the respondent that the Supreme Court in Viswanath Sood's case (Supra)clearly laid down that the question as to whether there should be any imposition of penalty and at what rate is a matter for the concerned authority to decide in accordance with the provision contained in Clause 2 of the Tender Agreement and any question relating to imposition of penalty or whether it was deductible or not from the contractor's claim cannot be a matter of arbitration before the learned Arbitrator as that would come under the excepted matter under Clause 25 of the Tender Agreement. It is, therefore, the contention on behalf of the respondent that such deduction should be deleted and the award should be modified accordingly. In repelling the contention of the appellant that if the deduction is deleted then that would amount to making a new award, the counsel for the respondent submits that it is fallacious argument and the court under the provisions of the Arbitration Act has power to modify the Award by deleting the unauthorised deduction and in fact the same has been done by the Supreme Court in the said case of Viswanath Sood and this power of modification by the Court is well recognised under the provisions of the arbitration Act. 11. WE have set out the operative portion of the award earlier in this judgment. It would appear that the learned Arbitrator has worked out the claim in (a) of the Award as follows: 12. IT would appear from the above that the learned Arbitrator has deducted first, the moneys received under 1st and 2nd R. A. Bills (Running account bills), and second, the penalty imposed under Clause 2 of the tender Agreement. It would appear that the learned Arbitrator has worked out the claim in (a) of the Award as follows: 12. IT would appear from the above that the learned Arbitrator has deducted first, the moneys received under 1st and 2nd R. A. Bills (Running account bills), and second, the penalty imposed under Clause 2 of the tender Agreement. The deduction on account of moneys received under r. A. Bills appears to be permissible as this is the subject matter of the reference, and in computing the claim the learned Arbitrator should give credit for the moneys already received. Now, we have to consider whether the deduction on account of penalty imposed under Clause 2 of the Tender Agreement is permissible or can form part of the Award. It will appear from the reasoning of the Award that the learned Arbitrator has observed relying on the decision of the supreme Court in Viswanath Sood's case, AIR 1983 S. C. 953 that the amount of compensation imposed under clause 2 was a matter which had to be decided in accordance with that clause only and could not be the subject matter of the reference. In Viswanath Sood's case (Supra) it is held by the Supreme Court that the question as to imposition of penalty is not arbitrable being an excepted matter and cannot be the subject matter of the reference. It may be mentioned that the Supreme Court considered in the said decision the scope of clauses 2 and 25 of the Tender Agreement identical to the Clauses 2 and 25 of the instant Tender Agreement. 13. NOW if the question of imposition of penalty is not arbitrable nor can it be the subject matter of the reference under clause 25 of the Tender agreement, being the arbitration clause, then this is entirely outside the purview of reference. The learned Arbitrator cannot take into consideration nor can take any notice of imposition of penalty while adjudicating upon or computing the respondent's claim in the reference. It appears that the learned Judge in the Judgment under appeal has found that the notice dated 29th June, 1984 was for imposition of penalty from a future date and there was nothing on record to show that any imposition of penalty had ultimately been made. It appears that the learned Judge in the Judgment under appeal has found that the notice dated 29th June, 1984 was for imposition of penalty from a future date and there was nothing on record to show that any imposition of penalty had ultimately been made. The question whether the appellant had imposed any penalty under Clause 2 of the Tender Agreement or the appellant could impose such penalty in the fact of the case is entirely outside the scope of the instant reference before the learned Arbitrator. It appears from the award that the learned Arbitrator, having found that the amount of compensation imposed under Clause 2 of the Tender Agreement cannot be the subject matter of the reference, himself calculated the amount of penalty, through not arbitrable, and deducted the same from the claim of the respondent. It seems to us that it is not within the competence of the learned Arbitration to allow such deduction on account of penalty not being the subject matter of the reference and nor even claimed by the appellant. In fact, the learned Arbitrator has by allowing such deduction, entertained and allowed a supposed claim of the appellant not being the subject matter of the reference. If said imposition of penalty (assuming such imposition was made) cannot be the subject matter of the reference, then the same cannot also be a part of the award. We are therefore of the view that the said sum of Rs. 4,98,771.06 has been wrongly taken into account while computing the respondent's claim in paragraph (a) of the Award and this figure should be deleted from the award. 14. A contention has been raised on behalf of the appellant that under clause 9a of the Tender Agreement a procedure for payment on contractor's bill has been prescribed. 4,98,771.06 has been wrongly taken into account while computing the respondent's claim in paragraph (a) of the Award and this figure should be deleted from the award. 14. A contention has been raised on behalf of the appellant that under clause 9a of the Tender Agreement a procedure for payment on contractor's bill has been prescribed. It is amongst others provided under clause 9a (ii) note (1) that the procedure will not affect the usual right of CMDA to deduct from contractor's bill (whether endorsed in favour of a bank or not) any sum due to CMDA on account of penalties, over payments etc., it is therefore, the submissions on behalf of the appellant that since the decision of imposition of penalty by a prescribed authority Is not arbitrable and is binding on the parties, the appellant has a right to deduct the amount imposed by the penalty from the contractor's claim, as has been done by the instant award. True, but this question is not within the scope of reference before the learned Arbitrator. It also appears from the record that by a letter dated 29th June, 1984 addressed to the respondent, the Deputy Director of the appellant informed the respondent that the respondent had failed to execute proportionate work in proportionate time and, as such, the respondent had made itself liable for penal measures under Clause 2 of the CMDA From no. 1 of the contract and the same was being imposed. The said letter also directed that such imposition was to take effect from 1st August, 1984 in case the short fall in the progress of the work could not be made up during this intervening period. It is further stated in the said letter that the compensation would be an amount equal to 1% per day of the tender amount for the period upto which the extent of progress attained remain short of requirement. It, therefore, appears from the said letter that the said imposition of penalty was to make effect from a future date and further that the same was conditional in case of default and only for the period of the default subject to the limit provided in Clause 2. There is nothing on record to show that any such imposition of penalty had ultimately been made as found by the learned judge or that there was default as specified or for what period. There is nothing on record to show that any such imposition of penalty had ultimately been made as found by the learned judge or that there was default as specified or for what period. It is, therefore not clear whether there has been any actual imposition of penalty and further it will appear that the appellant has not made any deduction on that account from the respondent's bill while passing running account bills. 15. WE are, therefore, of the view that since the question of imposition of penalty is not arbitrable and not a subject matter of the reference and further there has been no claim in that respect by the appellant before the learned Arbitrator, the question whether the appellant is entitled to deduct under the contract not being an issue before the learned Arbitrator, cannot be gone into in the reference. Whether the appellant is entitled to deduct or not may be an issue in other proceedings. It. therefore, appears to us that the question whether under Clause 9a of the contract the appellant is entitled to deduct or not cannot be an issue in the reference and there can be no claim in that respect in the instant reference. 16. ANOTHER contention has been raised by the appellant that if such deduction is not permissible then that would amount to an error apparent on the face of the award and in that case the court has to set aside the whole award and court cannot modify the award by only directing that the portion of the award by which the Arbitrator has ordered Rs. 4,98,771.06 to be deducted from claim A of the Award should be deleted, as has been done by the learned Arbitrator in the impugned Award. We are unable to accept this contention of the learned counsel. It has been a settled proposition of law that where there is an error for the award and such error relates to a matter which is distinct and separable from the rest of the award, the part which is invalid is separable from that which is valid. In such a case it is not necessary to set aside the entire award. In fact in Viswanath Sood's case the Supreme Court also made an order for deletion of the portion of the award being the amount of penalty of Rs. 20,000 and sustained the rest of the award. In such a case it is not necessary to set aside the entire award. In fact in Viswanath Sood's case the Supreme Court also made an order for deletion of the portion of the award being the amount of penalty of Rs. 20,000 and sustained the rest of the award. 17. IT has also been argued on behalf of the appellant that the learned arbitrator has computed the claim in paragraph (a) of the Award at Rs. 3,49,687.98 and if the deduction of the said sum of Rs. 4,98,771.06 made in paragraph (a) of the Award is set aside, then the claim under claim (a) would come to Rs. 8,48,459.04. In such a cast, it will be a new award by the court which, according to the learned counsel for the appellant, the court cannot make. 18. THIS contention also appears to be fallacious. If there is any error apparent on the face of the award relating to a particular item that can always be deleted. It will appear from Viswanath Sood's case's, AIR 1989 S. C. 952, the Supreme Court held that the amount of compensation of Rs. 20,000/- awarded by the arbitrator in favour of the Government would stand deleted. It will also appear from Upper Ganges Valley Electricity Supply Company Ltd. in A. I. R. 1973 S. C. 683, referred to by the learned Counsel for the parties and also relied on by the learned Judge, the Supreme Court modified the award by adding a sum not allowed by the Arbitrator. In the case of Upper Ganges Valley the Umpire had held that on the date of sale the fair market value of the appellant's undertaking as Rs. 23,81,670/-and the Umpire arrived at such figure ignoring a sum of Rs. 2,38,255/-which represented the consumers contribution to the cost laying the service line. It was found by the Supreme Court that while computing the value of the appellant's undertaking the said amount begin consumers contribution, also be added. Accordingly, the Supreme Court amended the award, to the extent that fair market value of the appellant undertaking should be Rs. 23,81,670/- plus Rs. 2,38,255/- aggregating to Rs. 26,19,925/ -. It therefore, appears that the Court has power to amend the award if it is found by the Court that such amendment would be necessary. 19. Accordingly, the Supreme Court amended the award, to the extent that fair market value of the appellant undertaking should be Rs. 23,81,670/- plus Rs. 2,38,255/- aggregating to Rs. 26,19,925/ -. It therefore, appears that the Court has power to amend the award if it is found by the Court that such amendment would be necessary. 19. WE, therefore, hold that the imposition of penalty, if any, not being an item or dispute before the learned Arbitrator and being an excepted matter cannot be taken into consideration by the learned Arbitrator while computing the value of the work dome by the respondent. We also hold that the learned Arbitrator was not right in making a deduction to the extent of Rs. 4,98,771.06p while computing the value of the tender work executed by the respondent under paragraph A of the Award. We agree with the learned judge that such deduction of the amount imposed on account of penalty under Clause 2 of the Tender Agreement is not permissible and should be deleted from the award. 20. WE uphold the judgment and the order under appeal and the instant award should be modified as proposed by the learned judge in the judgement and order under appeal. For the reasons aforesaid, this appeal fails and is dismissed. There will be no order as to costs. 21. THE counsel for the appellant prayed for stay of operation of this judgment and order, such prayer is refused. All parties to act on a signed copy of the minutes of the operative part of the judgment on the usual undertaking. Appeal dismissed.