RAM ENGINEERING CONSTRUCTIONS v. COMMISSIONER, PONDICHERRY MUNICIPALITY.
2009-03-17
S.PALANIVELU
body2009
DigiLaw.ai
Judgment S. Palanivelu, J. The averments found in the petition filed under Section 34(1) of the Arbitration and Conciliation Act, 1996, are as follows : (i) The petitioner is a partnership firm engaged in engineering contract work in and around Pondicherry. The first respondent - Commissioner invited tenders for providing and laying cement concrete pavements in the New Bus Stand in Orleanpet, Pondicherry. The petitioner was one among the tenderers, who quoted the lowest tender which was accepted and the work was awarded for the total cost of Rs. 25,14,978 on 25.05.1993. Original contract period was 12 months, however, it was reduced to 7 months. The agreement was entered to the effect that the work had to be completed in two phases. The petitioner could not commence the work since the site was not available to them till December 1993. The first phase of work was completed on 15.10.1994 and the second phase was completed in October 1995. The payment of Rs. 2,54,495 was made by the first respondent. However, it was not increased with the then existing schedule of rates for the second phase. As per the calculation, the petitioner was entitled to Rs. 4,07,268. (ii) At the request of the petitioner, the matter was referred to arbitrator, second respondent, who passed award on 20.09.1999. In the award, a compensation of Rs. 2,28,066 was assessed to be paid to this petitioner against his claim. But, without any reason, the arbitrator directed the payment less 50% thereby directing to pay Rs. 1,14,033 alone, which is unjustified, arbitrary and contrary to all canons of natural justice. Hence, the award is liable to be set aside. The alternative prayer is also made to direct the arbitrator to make an additional arbitral award as to claims already made by the petitioner. In the counter filed by the first respondent, the following is stated : There was a little delay on account of administrative procedures and this respondent took a lenient view in the case of the petitioner and chose to award compensation for the delay as well as for the escalation in the prices of materials and the cost of labour. The second respondent conducted thorough enquiry, examined the documents, witnesses and finally passed the award which could be justified. The request of the petitioner is far-fetched and the claim has to be dismissed outright.
The second respondent conducted thorough enquiry, examined the documents, witnesses and finally passed the award which could be justified. The request of the petitioner is far-fetched and the claim has to be dismissed outright. The contents contained in the counter filed by the second respondent are thus : The petition is not maintainable. The allegations in the petition are not in accordance with the provisions of the Arbitration Act. The second respondent having found justification in passing the award under challenge as regards the second phase. There is a delay in work completion and the first respondent explained extended period of work and also paid a sum of Rs. 1,68,876 towards compensation. The petitioner has not substantiated his enhanced rate of cost. Out of the claim amount, Rs. 1,68,876 was already paid and the balance was Rs. 2,28,066. Since the petitioner has not acted as per the agreement and without obtaining proper orders from the first respondent regarding the enhancement of rates with respect to second phase of work, 50% of Rs. 2,28,066 was directed to be paid by this respondent. In view of the fact that the delay was caused only due to the administrative reasons and not by any wilful or wanton attitude of the first respondent, no interest was ordered by this respondent. Hence, the petition has to be dismissed as unsustainable. Tenders were invited by the first respondent for providing and laying cement concrete pavements in the New Bus Stand in Orleanpet, Pondicherry. The petitioner, engaged in engineering constructions, also participated in the process, who quoted the lowest tender of Rs. 25,14,978, which was accepted by the first respondent and an agreement was also entered into between them for completion of work within 12 months, however, it was reduced to 7 months and the work was completed in two phases. First phase of work was completed on 15.10.1994 and the second phase in October 1995. The petitioner made a claim for Rs. 4,07,268 before the first respondent and also requested to refer the dispute to an arbitrator and the second respondent was appointed as arbitrator. By means of his award dated 20.09.1999, he fixed Rs. 2,28,066 payable to the petitioner but directed the first respondent to pay 50% of the above said amount.
The petitioner made a claim for Rs. 4,07,268 before the first respondent and also requested to refer the dispute to an arbitrator and the second respondent was appointed as arbitrator. By means of his award dated 20.09.1999, he fixed Rs. 2,28,066 payable to the petitioner but directed the first respondent to pay 50% of the above said amount. It is strongly contended by the petitioner's side that without assigning any reason, 50% of the amount fixed by the arbitrator has been deducted and the reason for refusing grant of interest is also not sustainable. The arbitrator, in his award, has stated that the claim for the interest of the contractors is not justifiable since the delay caused is only normal in observing usual but mandatory procedure in obtaining approval at higher levels/government. In the concluding portion of the award, there is no reason assigned whatsoever for lessening the award of Rs. 2,28,066 by 50%. It is the quintessence of the learned counsel for the appellant that as per the provisions of the Arbitration and Conciliation Act, 1996 (in short 'the Act'), the award does not contain required reasons for arriving at the award amount and also for deducting 50% in the said award and also for rejecting the claim for interest and hence it is not sustainable. Conversely, Ms. R. Mala, learned counsel appearing for the first respondent, would submit that unless misconduct on the part of the arbitrator is alleged and established, the award could not be set aside and that the counter of the second respondent contains reasons for his decision. In the award, it is nowhere stated for what reason 50% of the award amount should be deducted. But only in the counter filed by the second respondent, it is stated that since the petitioner has not acted as per the agreement and without obtaining order from the first respondent as to enhancement of rates during the second phase of work, he is not entitled for 50% of the award. Insofar as the rejection of claim of interest is concerned, the second portion of the award contains reasons which are to the effect that the delay was caused by the official procedures in obtaining approval at higher level. However, for the default caused, the arbitrator/umpire has directed payment of interest at 10% per annum.
Insofar as the rejection of claim of interest is concerned, the second portion of the award contains reasons which are to the effect that the delay was caused by the official procedures in obtaining approval at higher level. However, for the default caused, the arbitrator/umpire has directed payment of interest at 10% per annum. He has allowed 90 days for payment of award amount and in default, it shall carry interest at the rate of 10% till the date of settlement. Learned counsel for the appellant would rely upon a decision of the Hon'ble Supreme Court of India in AIR 2003 SC 2629 = 2003 (2) Arb. LR 5 (SC) - Oil & Natural Gas Corpn. Ltd. vs. Saw Pipes Ltd., in which it is held that if the award is contrary to the substantive provisions of law or the provisions of the Act or against the terms of the contract, it would be patently illegal, which could be interfered under Section 34 of the Act. However, such failure of procedure should be patent affecting the rights of the parties. It is further observed as under : "Section 24 provides for hearing of the parties. Under sub-section (1)(a) of Section 28 there is a mandate to the arbitral tribunal to decide the dispute in accordance with the substantive law for the time being in force in India. Admittedly, substantive law would include the Indian Contract Act, the Transfer of Property Act and other such laws in force. Under sub-section (3), arbitral tribunal is directed to decide the dispute in accordance with the terms of the contract and also after taking into account the usage of the trade applicable to the transaction. Under Section 31(3) the award has to be reasoned. The question is whether the award could be set aside, if the arbitral tribunal has not followed the mandatory procedure prescribed under Sections 24, 28 or 31(3), which affects the rights of the parties. If it is held that such award could not be interfered, it would be contrary to basic concept of justice.
The question is whether the award could be set aside, if the arbitral tribunal has not followed the mandatory procedure prescribed under Sections 24, 28 or 31(3), which affects the rights of the parties. If it is held that such award could not be interfered, it would be contrary to basic concept of justice. If the arbitral tribunal has not followed the mandatory procedure prescribed under the Act, it would mean that it has acted beyond its jurisdiction and thereby the award would be patently illegal which could be set aside under Section 34." He also garnered support from a decision of the Supreme Court in AIR 1975 SC 1259 - K. P. Poulose vs. State of Kerala, wherein Their Lordships have held that if any decision of the arbitrator is rationally inconsistent, the award would suffer from a manifest error apparent ex facie. Repelling the arguments of the learned counsel for the appellant, armed with the authorities of the Supreme Court, the learned counsel for the first respondent would submit that unless any ground is found available as provided under Section 34 of the Act, the award could not be set aside and that no such grounds are available in the present matter. Section 34 of the Act sets out grounds upon which an arbitral award could be set aside. The enumeration in Section 34 of the Act goes thus : "34. Application for setting aside arbitral award - (1) Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).
The enumeration in Section 34 of the Act goes thus : "34. Application for setting aside arbitral award - (1) Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3). (2) An arbitral award may be set aside by the court only if - (a) the party making the application furnishes proof that - (i) a party was under some incapacity; or (ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or (iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration : Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or (v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or (b) the court finds that - (i) The subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or (ii) The arbitral award is in conflict with the Public Policy of India. xxx xxx xxx" Section 31 of the Act provides the statutory requirements for the arbitral award which contains reasons and also lists exceptions to this rule. The relevant provisions for the purpose of these proceedings under Section 31 of the Act are as follows : "31. Form and contents of arbitral award - (1) An arbitral award shall be made in writing and shall be signed by the members of the arbitral tribunal.
The relevant provisions for the purpose of these proceedings under Section 31 of the Act are as follows : "31. Form and contents of arbitral award - (1) An arbitral award shall be made in writing and shall be signed by the members of the arbitral tribunal. (2) For the purposes of sub-section (1), in arbitral proceedings with more than one arbitrator, the signatures of the majority of all the members of the arbitral tribunal shall be sufficient so long as the reason for any omitted signature is stated. (3) The arbitral award shall state the reasons upon which it is based, unless - (a) the parties have agreed that no reasons are to be given; or (b) the award is an arbitral award on agreed terms under Section 30. xxx xxx xxx (7)(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen per cent per annum from the date of the award to the date of payment." Learned counsel for the first respondent also cited a decision of the Supreme Court in 2007 SAR (Civil) 795 = 2007 (3) Arb. LR 437 (SC) - Markfed Vanaspati & Allied Industries vs. Union of India, wherein Their Lordships concluded that the decided cases of the court (Supreme Court) demonstrate that the court has consistently taken the view that scope of interference in a non-speaking award is extremely limited, that the court cannot probe into the mental process of the arbitrator and the court should endeavour to support a non-speaking arbitration award provided it adhered to the parties' agreement and was not invalidated due to arbitrator's misconduct. It is also held as follows : "18. Arbitration is a mechanism or a method of resolution of disputes that unlike court takes place in private, pursuant to agreement between the parties. The parties agree to be bound by the decision rendered by a chosen arbitrator after giving hearing. The endeavour of the court should be to honour and support the award as far as possible." As per the Supreme Court, it is the settled legal position that the scope of interference is extremely limited to a non-speaking award and even though the award is a non-speaking one, the court cannot explore the mental process of the umpire.
The endeavour of the court should be to honour and support the award as far as possible." As per the Supreme Court, it is the settled legal position that the scope of interference is extremely limited to a non-speaking award and even though the award is a non-speaking one, the court cannot explore the mental process of the umpire. In Markfed Vanaspati's case earlier decisions of the Supreme Court have also been incorporated which are as follows : "11. This court in State of A.P. vs. R. V. Rayanim, (1990) 1 SCC 433 = 1990 (1) Arb. LR 1 (SC) in para 6 at page 437, dealt with a non-speaking award. The court observed that it is not open to the court to probe the mental process of the arbitrator where he has not provided the reasoning for his decision. 12. This court in Bijendra Nath Srivastava vs. Mayank Srivastava, (1994) 6 SCC 117 = 1994 (2) Arb. LR 277 (SC) in para 20 at page 133 and para 31 at page 138, observed that the arbitrator is under no obligation to give reasons in support of the decision reached by him, unless the arbitration agreement or deed of settlement so required. If the arbitrator or umpire chooses to give reasons in support of his decision, then it would be open to the court to set aside the award upon finding an error of law. The reasonableness of the reasons given by the arbitrator cannot, however, be challenged. It is not open to the court to look for the reasons and proceed to examine whether they were right or erroneous. The arbitrator is the sole judge of the quality as well as the quantity of the evidence. It will not be for the court to take upon itself the task of being a judge of the evidence before the arbitrator. The court should approach an award with a desire to support it, if that is reasonably possible, rather than to destroy it by calling it illegal. 13. In New India Civil Erectors (P) Ltd. vs. Oil & Natural Gas Corporation, (1997) 11 SCC 75 = 1997 (1) Arb. LR 292 (SC) in para 7 at page 78, the court observed while dealing with a non-speaking award that the attempt of the court should always be to support the award within the letter of law. 14.
13. In New India Civil Erectors (P) Ltd. vs. Oil & Natural Gas Corporation, (1997) 11 SCC 75 = 1997 (1) Arb. LR 292 (SC) in para 7 at page 78, the court observed while dealing with a non-speaking award that the attempt of the court should always be to support the award within the letter of law. 14. In Rajasthan State Mines & Minerals Ltd. vs. Eastern Engineering Enterprises and another, (1999) 9 SCC 283 = 1999 (3) Arb. LR 350 (SC) in para 44 at page 309, the court observed that in a non-speaking award the jurisdiction of the court is limited. It is not open to the court to speculate where no reasons are given by the arbitrator as to what impelled the arbitrator to arrive at his conclusion. It is also not possible to admit to probe the mental process by which the arbitrator has reached his conclusion where it is not disclosed by the terms of the award. Similar view has been taken in the following cases, namely, State of Bihar vs. Hanuman Mal Jain, (1997) 11 SCC 40 = 1997 (2) Arb. LR 226 (SC); P. V. Subba Naidu vs. Govt. of A.P. and others, (1998) 9 SCC 407 = 1998 (Suppl.) Arb. LR 221 (SC); Star Construction and Transport Co. vs. India Cements Ltd., (2001) 3 SCC 351 = 2001 (1) Arb. LR 513 (SC); and D. D. Sharma vs. Union of India, (2004) 5 SCC 325 = 2004 (2) Arb. LR 119 (SC)." In (1989) 2 SCC 38 = 1989 (2) Arb. LR 6 (SC) - Sudarsan Trading Co. vs. Government of Kerala and another it is held by the Apex Court that the court may look into the reasoning of the award only in a speaking award and it is not open to the court to probe the mental process of the arbitrator and speculate, where no reasons are given by the arbitrator, as to what impelled him to arrive at his conclusion and the reasonableness of the arbitrator's reasons cannot be challenged and that the arbitrator's appraisement of the evidence is never a matter for the court to entertain. Learned counsel for the respondent also cited a Division Bench decision of this court reported in (2008) 3 MLJ 680 = 2009 (1) Arb.
Learned counsel for the respondent also cited a Division Bench decision of this court reported in (2008) 3 MLJ 680 = 2009 (1) Arb. LR 62 (Mad.) (DB) - Eastern Trading Company and others vs. Kalpana Lamps & Components Ltd. and another, in which the learned judges, after following the principles laid down by the Supreme Court, have reached the conclusion that except on the grounds as incorporated in. Section 34 of the Act, the court cannot take role of an arbitrator and pass an award. The following is the operative portion of the judgment : "15. It is a well-established legal principle that so long as the arbitrator has decided the matter in accordance with the terms of the contract and has acted within his authority, and according to the principle of fair play, the award of the arbitrator is ordinarily final and conclusive and power of the court to set aside the award is restricted to the instances set out under Section 34 of the Arbitration and Conciliation Act, 1996 and the reappraisal of the evidence by the court is not permissible. Useful reference can be had to the judgments of the Supreme Court in Ispat Engineering & Foundry Works vs. Steel Authority of India Limited, AIR 2001 SC 2516 = (2001) 6 SCC 347 = 2001 (2) Arb. LR 650 (SC); and ONGC Limited vs. Saw Pipes Limited, AIR 2003 SC 2629 = (2003) 5 SCC 705 = 2003 (2) Arb. LR 5 (SC)." As per the well nigh established legal principles, normally an arbitral award is final and conclusive and apart from the grounds mentioned in Section 34 of the Act, no other ground could be found out by the court for setting aside the award and even if the award is found not to be based on reason, the court cannot make an attempt to assess the mental calibre of the arbitrator at the time of passing the award and that to the extent possible, the court shall make endeavour to support the award, when no misconduct on the part of the arbitrator is awarded. As far as the present award under challenge is concerned, there is no contention that it was passed in contravention to the agreement in between the parties and that it is the end-product of the misconduct of the arbitrator.
As far as the present award under challenge is concerned, there is no contention that it was passed in contravention to the agreement in between the parties and that it is the end-product of the misconduct of the arbitrator. This court is unable to find out any ground which matches anyone of those contained in Section 34 of the Act. Absence of adducing reasons in the award is not one among the grounds found in Section 34 of the Act, but it is the statutory requirement under Section 31 of the Act. However, mere non-mentioning of the reasons would not make the award illegal as per the decision of the Supreme Court in Markfed Vanaspati & Allied Industries' case. This court, under law, cannot examine the reasons for the failure on the part of the arbitrator to furnish reasons in his award. The requirement of presence of reasons is to facilitate scrutiny by the court in an application for setting aside the award. While the court looks for the existence of reasons in the award as required by Section 31(3) of the Act, it is also bound to bear in mind the jurisdiction to entertain the challenge to an award which must be on any of the grounds available in Section 34 of the Act. The court below has rendered necessary findings that the Act does not give power to the court to travel beyond the limits given under Section 34(1) and (2) of the Act and the powers are limited and hence the petition is not maintainable. This court does not find any legal infirmity in the order impugned. As an award without sufficient reasons is liable to be set aside is not covered by Section 34 of the Act, the appellant is not entitled for the claims. As for the refusal to allow interest, the reasons assigned by the arbitrator are convincing. Hence, the civil miscellaneous appeal is liable to be dismissed in view of the discussions and observations following the ratio laid down by the Supreme Court. The order of the Principal District Judge, Pondicherry is confirmed. In fine, the civil miscellaneous appeal is dismissed. No costs.