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2005 DIGILAW 773 (MAD)

The State of Tamil Nadu & Another v. R. Thangaraj

2005-04-29

A.R.RAMALINGAM, P.K.MISRA

body2005
Judgment :- (Appeals filed under Section 39 of the Arbitration Act against the common order made in Arbitration O.P.Nos.1/1989 and 3/1989 dated 22.12.1994 by the learned Subordinate Judge, Ramanathapuram.) Common Judgment P.K. Misra, J. The facts giving rise to the present appeals are as follows: - Respondent in the appeals was entrusted as a Contractor to do the work of construction of Rubble Mound Break Water at Valinokkam in Ramanathapuram District as per Agreement No.11/SE/83-84 dated 25.11.1983. The total value of the work was Rs.33,85,540/- and time for completion of the work was four months from the date of handing over the site. The site was handed over on 4.12.1983. However, the contractor could not complete the work within the stipulated time and on the basis of his applications, extension had been granted and ultimately he had completed the work on 30.4.1985. Thereafter, the contractor raised various claims to the tune of Rs.27 lakhs. In O.S.No.50 of 1996 filed before the Subordinate Judge, Ramanathapuram, for appointment of arbitrator, an Advocate was appointed as arbitrator. The arbitrator submitted his award on 9.1.1989 allowing some of the claims of the contractor. The present appellants filed O.P.No.1 of 1989 under Section 30 of the Indian Arbitration Act to set aside the award. The respondent had filed O.P.No.3 of 1989 for making the award a Rule of the Court. The Subordinate Judge modified a portion of the award and made it a Rule of the Court with a further direction to pay interest at the rate of 9% from the date of the award till payment. Aggrieved by the decision of the Subordinate Judge, the present two appeals have been filed by the State. 2. The arbitration proceedings commenced on 10.8.1987. The claimant had initially made claims under 30 heads as per his application dated 22.7.1985 and subsequently, on 1.4.1986, he made some additional claims. During the arbitration proceedings, both the parties amicably resolved Claim No.11, which was recorded accordingly. The Arbitrator had rejected Claim No.3, Claim No.6, Claim No.8, Claim No.9, Claim No.10, Claim No.12, Claim No.17, Claim No.18, Claim No.19, Claim No.21, Claim No.23, Claim No.24, Claim No.25, Claim No.27, Claim No.28, Claim No.29, Claim No.31, Claim No.32, Claim No.33 and Claim No.34. Even though the arbitrator had allowed Claim No.15, such award has been set aside by the Subordinate Judge. Even though the arbitrator had allowed Claim No.15, such award has been set aside by the Subordinate Judge. In respect of Claim No.2, the arbitrator had awarded a compensation of Rs.6,57,000/-. This has been modified by the Subordinate Judge, who has observed that the claimant was entitled only to Rs.1,67,535. 3. The present appeals are only relatable to Claim No.1, Claim No.2, Claim No.4, Claim No.5, Claim No.7, Claim No.13, Claim No.14, Claim No.16, Claim No.20, Claim No.22, Claim No.26, Claim No.30 and Claim No.35, which is the claim relating to payment of interest. Incidentally the arbitrator has granted 12% interest from the date of commencement of the proceedings i.e., 10.8.1987, on the amount awarded. The Subordinate Judge has modified the amount to Rs.14,32,380/- and has observed that interest from the date of the award shall be calculated at 9%. 4. It is well known that the Subordinate Judge while deciding a matter under Sections 30 & 33 of the Arbitration Act, 1940 and the High Court while deciding an appeal against such decision of the Subordinate Judge, do not sit as an appellate authority over the award of the arbitrator and the scope of interference is only limited to correct the error apparent on the face of the award. 5. Claim No.7, Claim No.14, Claim No.16 and Claim No.22 are more or less relating to additional work or extra work. The Subordinate Judge has referred to various materials produced before him and come to a particular conclusion that the findings of the arbitrator are basically the findings of fact and it cannot be said that there is any error apparent of the face of the award so far as these items are concerned. Therefore, the contention raised in the grounds of appeal relating to such items is unacceptable and liable to be rejected. Claim No.1 is also somewhat similar in nature and need not arrest the attention of the appellate court any further. The contention relating to Claim No.5 is also unacceptable inasmuch as the arbitrator has come to a particular conclusion after referring to the materials on record. Similarly Claim No.26 is too insignificant and does not require any remedial measure by the court. 6. The contention relating to Claim No.5 is also unacceptable inasmuch as the arbitrator has come to a particular conclusion after referring to the materials on record. Similarly Claim No.26 is too insignificant and does not require any remedial measure by the court. 6. So far as the award relating to Claim No.35 is concerned, since it is now well settled that the arbitrator has jurisdiction to consider the question of pendelite interest and thereafter the Court has jurisdiction to grant further interest as per Section 29 of the Act, neither the award of the arbitrator nor the order passed by the Subordinate Judge can be found fault with keeping in view the limited scope of interference in such matters. 7. The award relating to Claim No.2, Claim No.4, Claim No.13 and Claim No.30 requires more careful consideration. 8. Claim No.2 refers to non-payment of 20% advance on the value of the work and interest thereon. The Arbitrator has awarded a sum of Rs.6,57,000/-, as the amount which ought to have been given as advance. As already indicated, the arbitrator has directed payment of Rs.6,57,000/- representing 20% of the advance on the value of the work as the same had not been given. However, the Subordinate Judge has held that the claim of the claimant relate to interest payable on the aforesaid sum of Rs.6,57,000/- and not the amount itself, and therefore, the award has been modified and the Court below has held that the claimant is entitled to Rs.1,67,535/-, obviously the interest amount calculated at the rate of 18% on Rs.6,57,000/-, which had not been given as an advance by the present appellants. The arbitrator observed: - "... There is no direct proof to substantiate this claim of Rs.6,57,000/- and interest thereon. However, it is clear from the record that the delay in sanctioning the advance was due to the time taken by Govt. The contention of the defendants is that there is no clause in Ex.A1 to pay any advance and as such the Plaintiff is not entitled for this claim. But the document show that the Plaintiff had actually applied for the advance and that the first defendant addressed the Government for the sanction of advance and that the Government had actually sanctioned Rs.5,00,000/- as advance. But the document show that the Plaintiff had actually applied for the advance and that the first defendant addressed the Government for the sanction of advance and that the Government had actually sanctioned Rs.5,00,000/- as advance. This will be clear from condition No.10 and page 107 in Ex.A1 so there is no doubt that there is breach of contract and the Plaintiff is entitled for compensation for the breach." 9. A bare perusal of the aforesaid reasoning given by the arbitrator clearly shows the error apparent on the face of the award itself, and therefore, to that extent, the Subordinate Judge has rightly set aside the award. However, the Subordinate Judge directed payment of Rs.1,67,535/- as interest payable on this amount. Neither the arbitrator nor the Subordinate Judge has found anywhere that there was any obligation on the part of the State to pay any advance under the terms of the contract. Though it may be usual for the Government to sanction such advance to facilitate the work, in the absence of any mandatory enforceable obligation to pay a particular amount as advance, no interest was payable. Even the Arbitrator and the Trial Court have not come to any specific conclusion that in fact the Contractor was forced to borrow money by paying interest. In the absence of any such finding by the Subordinate Judge, there is no justification for the Subordinate Judge to award a sum of Rs.1,67,535/- towards Claim No.2 after having set aside the award of the arbitrator regarding payment of compensation of Rs.6,57,000/-. This part of the order passed by the trial court is therefore required to be set aside. 10. Claim No.4 relates to Rs.3,11,808.34 towards escalation cost of materials and labour. The reasoning of the arbitrator is to the following effect: - "Claim No.4: This claim relates to a sum of Rs.3,11,808.34/- towards escalation in cost of materials and labour. I have already stated that time is not the essence of contract since extension of time was granted by the dept. itself. The Plaintiff has marked Exs.A54 to A61 to substantiate this claim. Ex.B8 to B11 had been marked on the defence side. The defendants brought to my notice special condition No.IX at page 107 of Ex.A1 and argued that since it was agreed between the parties that the State Govt. itself. The Plaintiff has marked Exs.A54 to A61 to substantiate this claim. Ex.B8 to B11 had been marked on the defence side. The defendants brought to my notice special condition No.IX at page 107 of Ex.A1 and argued that since it was agreed between the parties that the State Govt. did not agree to give any escalation charges, the Plaintiff is not entitled for this claim. He is also brought to my notice para 24 and page 29 of Ex.A1 which stipulates the same condition. The leaned counsel for the Plaintiff however argued that the special condition 9 at page 107 of Ex.A1 relates to the period and that since the defendants themselves have not made any counter claim the Plaintiff is entitled for this claim,. He argued that if any loss occurs due to natural causes, to any party to the contract, the party who incurred the loss is entitled to compensation under the law of contract. The arguments of learned counsel for the plaintiff are acceptable. I therefore allow this claim and award a sum of Rs.3,11,808.34/-." (Emphasis Supplied) 11. The only reasoning of the arbitrator seems to be that even though as per Condition No.IX to the effect that the State Government was not agreeable to pay any escalation charges, the State Government having not made any counter claim, the claimant is entitled for this claim. When there is a specific clause in the contract, which has been referred to by the arbitrator in his award including the payment of any escalation cost, it is obvious that the arbitrator has committed an error apparent on the face of award by granting such escalation cost. The arbitrator has nowhere found that the delay in completion of the work was on account of any default by the State Government. Merely because the State Government had not made any counter claim, it cannot be a ground to award escalation charges to the contractor, even though there is a specific clause in the contract excluding payment of escalation charges. The Subordinate Judge has not at all considered these aspects and has confirmed the award more or less in a routine manner. This part of the award, as confirmed by the Subordinate Judge, is required to be set aside. 12. The Subordinate Judge has not at all considered these aspects and has confirmed the award more or less in a routine manner. This part of the award, as confirmed by the Subordinate Judge, is required to be set aside. 12. Claim No.30 is somewhat connected with Claim No.4 in the sense that this claim relates to claim of Rs.97,056.50, being the extra supervision charges incurred for the expanded period. The arbitrator has opined that since the Department had accepted the contention of the Plaintiff and extended the period of contract, rejection of such claim by the Department was not acceptable. If the contractor could not complete the work and had sought for extension of time, it is not at all understood as to why the Government should be asked to bear the additional expenditure for the so called supervision charges for the expanded period, more particularly when the non-completion of the work was not on account of default on the part of the State Government, and particularly when the Contractor himself at the time of seeking for extension of time had never stipulated that additional supervision charges is to be paid. The reasoning given by the arbitrator on the face of it suffers from error and as such this part of the award should not have been accepted by the trial Court. 13. Claim No.13 is a claim for Rs.200,000/- being the loss incurred due to deletion of an item from the original agreement. The claim of the claimant was that before the revised estimate was prepared, he has collected the materials. The reasoning of the arbitrator is extracted hereunder: - "Claim No.13: This claim is for Rs.200,000/- being the loss incurred due to deletion of an item from the original agreement. The main contention of the Plaintiff is that a revised estimate deleting a particular item was prepared unilaterally by the dept. and before that the contractor collected materials etc. The deleted item is mentioned as item 5 in schedule A at page 30 of Ex.A1. The clause in para 34 and 74 of Ex.A1 applies only specification i.e. alteration for omission only to the quantity and not a particular item of work. It is therefore no bearing on this claim. The Plaintiff in Ex.A 112 has made this claim. The fact that the plaintiff has agitating about this claim in Ex.A109 to A116 is there and the dept. It is therefore no bearing on this claim. The Plaintiff in Ex.A 112 has made this claim. The fact that the plaintiff has agitating about this claim in Ex.A109 to A116 is there and the dept. without challenging the quantum had rejected it on the ground that the department has every right to alter or modify the agreement. I have already stated that the alterations and modification refer to only to specification and not the main work connected with the agreement. The claim is therefore allowed." 14. A mere perusal of the aforesaid conclusion clearly reflects the error on the part of the arbitrator in awarding a sum of Rs.2,00,000/-. If the contractor was aggrieved by the deletion of an item, it was always open to him to refuse the work. However, the contractor with eyes open had proceeded with the work. The contract itself, particularly, paras 34 and 74 of Ex.A-1 indicated that the Department had the discretion to alter or delete any item of the work. Therefore, there was no justification whatsoever for the arbitrator to award hefty sum of Rs.2 lakhs for an item of work, which was never undertaken. If at all the contractor was entitled to anything, that could be relating to value of the materials purchased by him before such deletion or value of the work, if any done before deletion. In this context, it is apparent that the arbitrator has awarded a sum of Rs.4,372.50 under Claim No.20, being the expenditure for centering for the work of concrete in surfacing the road portion. The arbitrator has observed while dealing with the said claim as follows: - "... I find from page 13 of Ex.A1 that item 5 referring the centering has been deleted in the agreement. The fact that this work has been carried out by the contractor has not been denied. Hence the plaintiff is entitled for this claim and I allow this claim for a sum of Rs.4372.50." In our opinion, there was no legal or factual justification for the arbitrator to award a sum of Rs.2 lakhs for an item of work which was deleted. 15. For the aforesaid reasons, the appeals filed by the State Government are allowed in part. 15. For the aforesaid reasons, the appeals filed by the State Government are allowed in part. A sum of Rs.1,67,535/- allowed by the Subordinate Judge towards Claim No.2, the award of the arbitrator as confirmed by the Subordinate Judge relating to payment of Rs.3,11,808.34/- in respect of Claim No.4, a sum of Rs.2,00,000/- payable under Claim No.13 and a sum of Rs.97,056.60/- payable under Claim No.30 are disallowed and the order of the Subordinate Judge as well as the award of the Arbitrator are to that extent set aside. The claimant / respondent is entitled to the balance amount, on which interest is to be calculated at the rate of 12% from 10.8.1987 till the date of the award i.e., 9th January, 1989, and at the rate of 9% thereafter till the date of payment. There is no order as to costs.