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2009 DIGILAW 229 (GAU)

State of Tripura v. R. N. Ghosh

2009-04-01

UTPALENDU BIKAS SAHA

body2009
JUDGMENT Utpalendu Bikas Saha, J. 1. The instant appeal under Section 39 of the Arbitration Act, 1940 is filed by the State Appellants against the judgment and decree dated 9.7.1999 passed by the learned Civil Judge (Senior Division) Court No. 1, West Tripura, Agartala in T.S. (Arb.) 15 of 1995 whereby and where under learned Civil Judge made the award of the sole arbitrator a rule of the court. 2. Heard Mr. S.M. Chakraborty, learned senior counsel assisted by Mr. S. Bhattacharjee, learned Counsel for the State Appellants as well as Mr. M.N. Indu, learned Counsel for the Respondent. 3. The brief facts of the case, in a nut shell, are as follows:- The Respondent-contractor was a successful tendered and was awarded with the work, namely, construction of 100 seated boarding house attached to the residential school at Ganganagar under Kamalpur Sub-Division, S.H. Building portion only by the Executive Engineer, Ambassa vide Agreement No.T/09/SE(I)/EE/AMB/93-94. The commencement of work was on 27.3.1994 and the date of completion of work was within 27.9.1994. But due to some unavoidable circumstances, the Respondent contractor could not complete the work within the stipulated period and requested the Appellant No. 2 to allow the Respondent contractor enhancement of rate by 30% and also to hand over the work site. The Appellant No. 2 did not agree to the said demand for enhancement of rate and ultimately cancelled the work order vide his letter dated 23.2.1995. Meanwhile, the Respondent contractor filed an application to the Chief Engineer, PWD. On 29.12.1994 as per Clause 25 of the said agreement to refer the dispute between the parties for arbitration. 4. As the Chief Engineer, PWD did not appoint any arbitrator, the Respondent contractor filed an application under Section 8(2) of the Arbitration Act, 1940 in the court of Assistant District Judge, Court No. 1, Agartala, West Tripura, which was registered as T.S. (Arb.) 15 of 1995. Upon hearing the parties, the learned Assistant District Judge directed the Chief Engineer, PWD to appoint an Arbitrator for deciding the dispute between the parties and accordingly, Mr. K.K. Sinha, the Superintending Engineer, Monitoring Cell, PWD, Agartala was appointed as sole arbitrator to arbitrate the matter vide Memorandum dated 18.7.1996. 5. The Respondent contractor filed the statements of facts and the Appellant No. 2 also filed the counter statements of facts before the sole arbitrator. K.K. Sinha, the Superintending Engineer, Monitoring Cell, PWD, Agartala was appointed as sole arbitrator to arbitrate the matter vide Memorandum dated 18.7.1996. 5. The Respondent contractor filed the statements of facts and the Appellant No. 2 also filed the counter statements of facts before the sole arbitrator. To decide the dispute between the parties, the sole arbitrator framed as many as six issues, which are as follows: 1. Whether the claimant-contractor is entitled loss of profit at the rate 20% of the tender value of this particular contract agreement? 2. Whether the action of cancellation of work order dated 11.3.1994 and closure of agreement vide No. F.AGT/47(64)/EE/AMB/1407-17 dated 23.2.1995 is a valid action of the Department? 3. Whether the claimant is entitled an amount of Rs. 50,000 what he spent as advance money for arranging wood for the required but ultimately stood in fructuous due to non-execution of the work in question? 4. Whether the claimant-contractor is entitled an amount of Rs. 50,000 what he spent as advance money for arranging required labourers for using in the said work but ultimately stood in fructuous? 5. Whether the claimant-contractor is entitled interest at the rate 18% per annum on the above amounts from the 27.9.1994 till the date of realization? 6. Whether the claimant-contractor is entitled an amount of Rs. 5000 being the cost of incidental thereto? 6. Upon hearing the parties and considering the statements of facts and the documents made available before him, the sole arbitrator decided the Issue No. 1 in favour of the Respondent-contractor and awarded a sum of Rs. 94,246, and interest(r) 10% on that amount from 29.12.1994 on account of loss of profit and Rs. 1250 on account of cost of proceeding and disallowed the other claims of the Respondent-contractor vide Award dated 20.4.1998 passed in case No. ARB/KKS/96(2). 7. Against the said award, the Appellant No. 2 filed the objection under Section 30 read with Section33 of the Arbitration Act, 1940 on the ground that the Arbitrator made the award perfunctory, arbitrary and unreasonable without appreciating the agreement and the relevant papers and documents. As such, the arbitrator committed misconduct in the arbitration proceeding. The learned Civil Judge rejected the said objection of the Appellant and made the award a rule of the court by the impugned judgment dated 9.7.1999. Being aggrieved, the Appellants have preferred the instant appeal. 8. Mr. As such, the arbitrator committed misconduct in the arbitration proceeding. The learned Civil Judge rejected the said objection of the Appellant and made the award a rule of the court by the impugned judgment dated 9.7.1999. Being aggrieved, the Appellants have preferred the instant appeal. 8. Mr. Chakraborty, learned senior counsel submits that the impugned judgment of the court below is bad in law as the learned court below failed to appreciate that the sole arbitrator passed the award beyond the terms of the Agreement. He also submits that while deciding the Issue No. 1 in favour of the Respondent-contractor, the sole arbitrator himself was in confusion whether the Petitioner was entitled to loss of profit beyond the terms of Agreement, which would be evident from the findings of the sole arbitrator that according to the Respondent contractor, due to rise of price it became difficult for him to execute the work unless 30% extra is provided on the tender rate. Further observation of the sole arbitrator was that even if the work could have been executed in time, the anticipated assessed profit at the time of issue of work order would not have been earned by the claimant Mr. Chakraborty further submits that time is the essence of contract and it is the Respondent-contractor who failed to complete the work within the stipulated period of six months and there was no fault on the part of the Appellant No. 2. He finally contended that if an Arbitrator passes an award ignoring the terms of Agreement, then the same is liable to be set aside. In the instant case, it is admitted position that in the Agreement, there is no clause for allowing the Respondent-contractor loss of profit for committing breach of contract by the Appellants and also for non-execution of the work within the stipulated period. Hence, the arbitrator committed misconduct in the proceeding while passing the award, which was made a rule of court by the learned court below. 9. In support of his aforesaid contention, Mr. Chakraborty placed reliance in the case of Associated Engineering Co. vs. Government of Andhra Pradesh and another, AIR 1992 SC 232 , wherein the Apex Court held that the arbitrator cannot act arbitrarily, irrationally, capriciously or independently of the contract. His sole function is to arbitrate in terms of the contract. 9. In support of his aforesaid contention, Mr. Chakraborty placed reliance in the case of Associated Engineering Co. vs. Government of Andhra Pradesh and another, AIR 1992 SC 232 , wherein the Apex Court held that the arbitrator cannot act arbitrarily, irrationally, capriciously or independently of the contract. His sole function is to arbitrate in terms of the contract. He has no power apart from what the parties have given him under the contract. If he has traveled outside the bounds of the contract, he has acted without jurisdiction. But if he has remained inside the parameters of the contract and has construed the provisions of the contract, his award cannot be interfered with unless he has given reasons for the award disclosing an error apparent on the fact of it. A conscious disregard of the law or the provisions of the contract from which he has derived his authority vitiates the award. 10. In the instant case, according to Mr. Chakraborty, the sole arbitrator traveled beyond the agreement and as such, he committed misconduct in the process of arbitration for which itself, the impugned award is liable to be set aside. He also referred to the decision of the Apex Court in the case of K.P. Poulose vs. State of Kerala and another, AIR 1975 SC 1259 , wherein the Apex Court held that under Section 30(a) of the Arbitration Act, 1940, an award can be set aside when an arbitrator has misconducted himself in the proceeding. He further placed reliance in the case of Food Corporation of India vs. Chandu Construction and another, (2007)4 SCC 697 , wherein the Apex Court relying on the decision of the former judgment in the case of Associated Engineering Co. (supra) held that an arbitrator derives his authority from the contract and if he acts in disregard of the contract, he acts without jurisdiction. A deliberate departure from contract amounts to not only manifest disregard of his authority or a misconduct on his part, but it may tantamount to a mala fide action. 11. While resisting the submissions of Mr. Chakraborty, Mr. M.N. Indu, learned Counsel for the Respondent-contractor submits that the case in hand is fully covered by the decision of the Apex Court in the case of A.T. Brij Paul Singh and Bros. 11. While resisting the submissions of Mr. Chakraborty, Mr. M.N. Indu, learned Counsel for the Respondent-contractor submits that the case in hand is fully covered by the decision of the Apex Court in the case of A.T. Brij Paul Singh and Bros. vs. State of Gujarat, AIR 1984 SC 1703 , wherein the Apex Court held that where in a works contract, the party entrusting the work commits breach of the contract, the contractor would be entitled to claim damages for loss of profit which he expected to earn by undertaking the works contract. He also contended that under the law, the arbitrator is made the final arbiter. The award is not open to challenge on the ground that the arbitrator has reached to a wrong conclusion or has failed to appreciate facts. In support of his aforesaid contention, he relied on the decision of the Apex Court in the case of Hindustan Tea Co. vs. K. Sashikant and Co., AIR 1987 SC 81 . He also contended that the arbitrator is empowered to allow interest even if nothing is mentioned in the agreement regarding the payment of interest. In this contention, he referred to a decision of the Apex Court in the case of Secretary, Irrigation Department, Government of Orissa and Ors. v. G.C. Roy, AIR 1992 SC 732 , wherein the Apex Court held where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute along with the claim for principal amount or independently) is referred to the arbitrator, he shall have the power to award interest pendente lite. This is for the reason that in such a case it must be presumed that interest was an implied term of the agreement between the parties. 12. He finally contended that it is the Appellant No. 2, the Executive Engineer who could not hand over the work site to the Respondent contractor to commence the aforesaid construction work and as such, the Respondent-contractor could not complete his work within the stipulated period of six months and thereafter, the price of materials rose beyond contemplation of the contractor. Hence he asked 30% enhancement of the rate for completion of work, which the Appellant authorities did not allow. In the result, the Respondent contractor was deprived of his profit, which he could have earned, had he executed the said construction work. Hence he asked 30% enhancement of the rate for completion of work, which the Appellant authorities did not allow. In the result, the Respondent contractor was deprived of his profit, which he could have earned, had he executed the said construction work. 13. This Court has given anxious thought to the submission of the learned Counsel for the parties. Also perused the impugned Award passed by the sole arbitrator as well as judgment and order of the learned Civil Judge. 14. For proper decision of the case, the question arises whether an arbitrator can travel beyond the terms of Agreement while passing the award on a reference? If not, whether the arbitrator by traveling beyond the terms of the Agreement had committed misconduct in the process of arbitration? 15. Section 30 of the Arbitration Act, 1940 speaks in what circumstances an award can be set aside. For ready reference, Section 30 of the Act is reproduced hereunder: 30. Grounds for setting aside award-An award shall not be set aside except on one or more of the following grounds, namely:- (a) That an arbitrator or umpire has misconducted himself or the proceedings. (b) That an award has been made after the issue of an order by the court superseding the arbitration or after arbitration proceedings have become invalid under Section 35. (c) That an award has been improperly procured or otherwise invalid. 16. In the instant case, the Appellants, Defendants therein, filed written objection before the learned trial court under Section 30 read with Section 33 of the Arbitration Act, 1940 on the ground that the arbitrator passed most perfunctory, arbitrary and unreasonable award without appreciating the original Agreement of the parties. Learned trial court while deciding the matter also stated, the Defendants put forward the ground of misconduct of the arbitrator in the proceeding. But the Defendants-objectors has not stated how he has misconducted the arbitration proceeding. Ultimately, the trial court held that allowing the claim of a party and disallowing a claim of other is not at all a misconduct as he has to decide the matter in the arbitration proceeding and he may allow the claim of a party in connection with the subject-matter of the arbitration proceeding The learned trial court also held that there is no error apparent on the face of it. 17. 17. To appreciate the findings of the trial court, it is necessary to examine what is really a misconduct and whether the award was passed by the arbitrator beyond the reference or the agreement and whether there is error apparent on the face of the award or the award was influenced by the extraneous circumstances. 18. In view of the decision of the Apex Court in K.P. Poulose (supra), misconduct under Section 30(a) has not a connotation of moral lapse. It comprises legal misconduct which is complete if the arbitrator on the face of the award arrives at an inconsistent conclusion even on his own finding or arrives at a decision by ignoring very material documents which throw abundant light on the controversy to help a just and fair decision. In Food Corporation of India (supra), the Apex Court noted about misconduct in paras 10 and 11 of the said report, which are reproduced hereunder: 10. While considering objections under Section 30 of the arbitration Act, 1940 (the Act), the jurisdiction of the court to set aside an award is limited. One of the grounds stipulated in the section on which the court can interfere with the award is when the arbitrator has 'misconducted' himself or the proceedings. The word 'misconduct' has neither been defined in the Act nor is it possible for the court to exhaustively define it or to enumerate the line of cases in which alone interfere either could or could not be made. Nevertheless, the word 'misconduct' in Section 30(a) of the act does not necessarily (sic only) comprehend or include misconduct or fraudulent or improper conduct or moral lapse but does comprehend and include actions on the part of the arbitrator which on the fact of the award, are opposed to all rational and reasonable principles resulting in excessive award or unjust result, Union of India vs. Jain Associates, (1994)4 SCC 665 . 11. It is trite to say that the arbitrator being a creature of the agreement between the parties, he has to operate within the four corners of the agreement and if he ignores the specific terms of the contract, it would be a question of jurisdictional error on the fact of the award, falling within the ambit of legal misconduct which could be corrected by the court. We may, however, hasten to add that if the arbitrator commits an error in the construction of contract that is an error within his jurisdiction. But, if he wanders outside the contract and deals with matters not allotted to him he commits a jurisdictional error [See Associated Engg. Co. vs. Government of A.P. (1991)4 SCC 93 ] and Rajasthan State Mines and Minerals Ltd. vs. Eastern Engg. Enterprises, (1999)9 SCC 283 . 19. In the instant case, it appears from the record that though there was no provisions for awarding loss of profit as per the terms of agreement and contact, the arbitrator awarded the same traveling beyond the terms of the agreement which is the very material document conferring jurisdiction upon him to decide the reference. 20. In the case of M/s. A.T. Brij Paul Singh and Bros. (supra), as per the terms of contract, the work in question was to be executed within a period of fourteen months from the date fixed by the written order to commence the work. Indisputably, the Appellant of that case commenced the work, and completed sub-grading of the road in a distance of 5 miles and 5 furlongs and furnished cement concrete surface in the length of two and half miles. Certain disputes arose between the parties as a result of which the Respondent in that case rescinded the contract imputing that as the time was of the essence of the contract and as the Appellant failed to execute the work within the stipulated time he was guilty of committing breach of contract. The final bill in respect of the work done by the Appellant was prepared but the payment there under was accepted by the Appellant under protest. The Appellant thereafter filed a suit claiming Rs. 7 lakh by way of damages, goodwill, prestige and loss of expected profit. Rs. 3 lakh by way of damages on account of loss sustained while executing the work and Rs. 1 lakh as damages for the extra work done by the Appellant. The total claim was of Rs. 11 lakh. The State of Bombay as the Defendant resisted the suit on diverse grounds inter alia contending that the recession of the contract consequent upon the breach of contract committed by the Appellant was just, legal and valid. 1 lakh as damages for the extra work done by the Appellant. The total claim was of Rs. 11 lakh. The State of Bombay as the Defendant resisted the suit on diverse grounds inter alia contending that the recession of the contract consequent upon the breach of contract committed by the Appellant was just, legal and valid. The learned trial Judge dismissed the suit and the Plaintiff Appellant contractor preferred the appeal before the High Court, but the High Court substantially dismissed the appeal but allowed the appeal for a few items and decreed the Plaintiffs suit to the extent of Rs. 12,055.90p. However, the High Court did not agree with the trial court on the question justification or propriety of rescission of the contract by the Defendant and reversed the finding. Consistent with the finding the High Court proceeded to examine the principal contention whether the Appellant-contractor was entitled to recover damages for loss or expected profits and rejected the claim for want of proof. Hence the Appellant preferred the appeal before the Apex Court. The Apex Court considering the fact of that case held that "the Respondent was guilty of breach of contract inasmuch as the rescission of 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. So this case has no application, as the fact of that case is different than the fact of the case in hand. 21. In the instant case, the arbitrator in no where in his award stated that there was any breach of contract committed by the State Appellants and no issue was also framed on that aspect. While deciding the Issue No. 1, the arbitrator made clear finding that the claimant agreed in his own statement that the price of commodities and other related item have raised considerably within the agreement period and even as early as during 4th to 5th months after the issue of work order and are considerably rising after that period also. According to him, due to these rise it became difficult for him to execute the work unless 30% extra is provided on the tendered rate. According to him, due to these rise it became difficult for him to execute the work unless 30% extra is provided on the tendered rate. This is a clear indication that even if work could have been executed in time, the anticipated assessed profit at the time of issue of work order would not have been earned by the claimant, the Respondent contractor herein. But ultimately he decided the issue against his own findings and awarded an amount of Rs. 94,246.00. As the arbitrator admittedly traveled beyond the terms of the Agreement, according to this Court, he acted beyond the jurisdiction vested on him and he committed legal misconduct. When this Court is of the opinion that the arbitrator traveled beyond the terms of agreement while deciding the reference and acted without jurisdiction, for which itself the award is a bad in law and if the award itself is bad, then question of allowing interest on the said awarded amount does not arise. The learned trial court also failed to consider the aforesaid aspects while making the award as rule of court. Therefore, the same is called for interference by this Court. In the result, the impugned judgment and decree dated 9.7.1999 passed by the learned Civil Judge (Senior Division) is quashed. Consequently, the impugned award passed by the Arbitrator is also set aside. The appeal is allowed. No order as to costs. Appeal allowed.