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2012 DIGILAW 802 (CAL)

STATE OF WEST BENGAL v. Usha Ranjan Sarkar

2012-08-27

ASHIM KUMAR BANERJEE, SOUMEN SEN

body2012
Judgment Soumen Sen, J. The instant appeal is arising out of an order passed on 3rd June, 1993 in Award Case No.125 of 1991. The learned single Judge appears to have dismissed the said application on the ground that the challenge as to the jurisdiction of the High Court to pass an award in terms of the award under the Arbitration Act, 1940 (hereinafter referred to as the “1940 Act”) is unsustainable. 2. The real difficulties being faced in hearing the appeal are the absence of relevant documents and record since it appears that the appellant was extremely negligent, lackadaisical and lethargic in pursuing the said appeal. The said appeal was preferred in 1993 and thereafter the appellant did not take any steps for hearing of the appeal. 3. However, from the memorandum of appeal it appears that ground (i) to (v) are devoted to the jurisdiction of the learned single Judge in receiving the award and passing judgment upon the award. The ground (vi) and ground (vii) relate to the jurisdiction of the arbitrator in granting interim interest. 4. The learned Counsels for the parties have fairly submitted that the appeal Court should ignore ground (i) to ground (v) of the memorandum of appeal and instead hear the application for setting aside on merits. 5. Before we address our mind to any other issue, one thing needs to be emphasized and remembered is that the award is a non-speaking award. Since the scope of enquiry in considering an application for setting aside of a nonspeaking award has been argued and we were reminded of our limitation we first address on the scope width and power of the Court in considering such an application for setting aside of a non-speaking award. 6. Under the 1940 Act, there was no requirement and/or compulsion on the part of an arbitrator to give any reason in support of his conclusion. This has resulted in insertion of Section 31(3) of the Arbitration and Conciliation Act, 1996. The Parliament felt that the award shall state reasons upon which it is based unless parties have agreed otherwise or the award is on agreed terms under Section 30 of the 1996 Act. This has resulted in insertion of Section 31(3) of the Arbitration and Conciliation Act, 1996. The Parliament felt that the award shall state reasons upon which it is based unless parties have agreed otherwise or the award is on agreed terms under Section 30 of the 1996 Act. The position in England is similar and is summed up by Russel as follows:- “Under S.52(4) of the Arbitration Act, 1996 (corresponding to S.31(3) of the Arbitration and Conciliation Act, 1996) an award must contain the reasons for the determinations made by the tribunal unless either it is an agreed award or the parties have agreed to dispense with reasons. Parties to an arbitration, and particularly the losing party, are entitled to know the reasons for the tribunal’s decision by which they are bound, unless they have specifically agreed in writing to dispense with reasons. Further, reasons are efectively a prerequisite for any appeal against the tribunal’s decision, because in practice it will only be possible to argue that there has been an error of law if the tribunal has explained the basis of its findings by giving reasons. It is sufficient for the purposes of a reasoned award under S.52(4) of the Arbitration Act, 1996 that the tribunal complies with the parties’ requirements for reasons even if they fall short of what would usually be required under English Law. 7. The only reasons that have to be given are those “for” the award, i.e. those in favour, and not those of a dissenting arbitrator. It is, however, common practice for the reasons of any dissenters to be given also, and though these are sometimes included within the award document, they do not form part of the award itself.” 8. However, 1940 Act does not require any such reason to be stated by the Arbitrator unless the Arbitration Agreement requires the arbitrator to give any such reason. 9. The jurisdiction of the Court in considering a non-speaking award has been considered and in various decisions, however, for the present we deal with some of the decisions where the principles have been laid down. 10. It is well-settled position that under Arbitration Act, 1940 unless the contract so required, reasons were not required to be given. It is not necessary to give reasons and an award cannot be set aside merely because it is a non-speaking award. 11. In State of Orissa Vs. 10. It is well-settled position that under Arbitration Act, 1940 unless the contract so required, reasons were not required to be given. It is not necessary to give reasons and an award cannot be set aside merely because it is a non-speaking award. 11. In State of Orissa Vs. Dandasi Sahu ( 1988(4) SCC 12 ), the Hon’ble Supreme Court was considering an unreasoned award. It was held that arbitration is resorted to as a speedy method of adjudication of disputes. Awards without reason are not bad per se. An award can be set aside only on the ground of misconduct or on an error of law apparent on the face of the award. When the parties choose their own arbitrator to be the Judge in dispute between them, they cannot, when the award is good on the face of it, object to the decision either upon law or on facts. Therefore, when arbitrator commits a mistake either in law or in fact in determining the matters referred to him, where such mistake does not appear on the face of the award and the documents appended to or incorporated so as to form part of it, the award will neither be remitted nor set aside. 12. In Rajasthan State Mines & Minerals Ltd. Vs. Eastern Engg. Enterprises ( 1999(9) SCC 283 ) this Court opined: “44. (a) 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. (b) It is not open to the court 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. (c) If the arbitrator has committed a mere error of fact or law in reaching his conclusion on the disputed question submitted for his adjudication then the court cannot interfere. (e) In a case of a non-speaking award, the jurisdiction of the court is limited. The award can be set aside if the arbitrator acts beyond his jurisdiction. (f) To find out whether the arbitrator has travelled beyond his jurisdiction, it would be necessary to consider the agreement between the parties containing the arbitration clause. The arbitrator acting beyond his jurisdiction is a different ground from the error apparent on the face of the award. The award can be set aside if the arbitrator acts beyond his jurisdiction. (f) To find out whether the arbitrator has travelled beyond his jurisdiction, it would be necessary to consider the agreement between the parties containing the arbitration clause. The arbitrator acting beyond his jurisdiction is a different ground from the error apparent on the face of the award. (g) In order to determine whether the arbitrator has acted in excess of his jurisdiction what has to be seen is whether the claimant could raise a particular claim before the arbitrator. If there is a specific term in the contract or the law which does not permit or give the arbitrator the power to decide the dispute raised by the claimant or there is a specific bar in the contract to the raising of the particular claim then the award passed by the arbitrator in respect thereof would be in excess of jurisdiction.” 13. In Continental Construction Ltd. Vs. State of U.P. ( 2003(8) SCC 4 ) it was, inter alia, held:- “16. The award is a non-speaking one. It is trite that the court while exercising its jurisdiction under Section 30 of the Arbitration Act, 1940 can interfere with the award only in the event the arbitrator has misconducted himself or the proceeding or there exists an error apparent on the face of the award. 14. The learned Civil Judge and the High Court have not found that the umpire acted arbitrarily, irrationally, capriciously or independent of the contract. No finding has been arrived at that the umpire has made conscious disregard of the contract which was manifest on the face of the award.” 15. In Ispat Engineering & Foundry Works Vs. Steel Authority of India Ltd. ( 2001(6) SCC 347 ) it was accordingly held that since the parties chose their own arbitrators to adjudicate the disputes between them, the parties cannot object to such an adjudication or decision either upon the law or on the facts except however as envisaged in terms of Section 30 of the Act of 1940. 16. The reappraisal of evidence by the court is not permissible. 17. The award of the arbitrator is ordinarily final and conclusive unless a contra intention is disclosed in the agreement itself. 18. 16. The reappraisal of evidence by the court is not permissible. 17. The award of the arbitrator is ordinarily final and conclusive unless a contra intention is disclosed in the agreement itself. 18. 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 and it is not open to the court to attempt to assess the mental process by which the arbitrator has reached his conclusion where it is not disclosed by the terms of the award. 19. The arbitrator or umpire, as the case may be, has no authority or jurisdiction to abdicate the terms of the contract or what the parties desired under the contract. 20. The same view is reiterated in D.D. Sharma Vs. Union of India ( 2004(5) SCC 325 ) and Asian Techs Limited Vs. Union of India & Ors. ( 2009(10) SCC 354 ) 21. In Rajendra Construction Co. Vs. Maharashtra Housing & Area Development Authority & Ors. ( 2005(6) SCC 678 ), the Supreme Court held as follows:- “15. After considering the relevant provisions of law, legal position in England, America and Australia and after referring to leading decisions on the point, this Court held that an award passed under the (old) Act was not liable to be set aside or remitted only on the ground that no reasons had been recorded in support of such award. The Court also referred to the Hand Book of Arbitration Practice by Ronald Bernstein wherein it was stated: “The absence of reasons does not invalidate an award. In many arbitrations the parties want a speedy decision from a Tribunal whose answer Yes or No; or a figure of X. Such an award is wholly effective; indeed, in that it cannot be appealed as being wrong in law it may be said to be more effective than a reasoned award.” 22. The Court then proceeded to state: “19. It is now well settled that an award can neither be remitted nor set aside merely on the ground that it does not contain reasons in support of the conclusion or decisions reached in it except where the arbitration agreement or the deed of submission requires him to give reasons. The Court then proceeded to state: “19. It is now well settled that an award can neither be remitted nor set aside merely on the ground that it does not contain reasons in support of the conclusion or decisions reached in it except where the arbitration agreement or the deed of submission requires him to give reasons. The arbitrator or umpire is under no obligation to give reasons in support of the decision reached by him unless under the arbitration agreement or in the deed of submission he is required to give such reasons and if the arbitrator or umpire chooses to given reasons in support of his decision it is open to the court to set aside the award if it finds that an error of law has been committed by the arbitrator or umpire on the face of the record on going through such reasons. The arbitrator or umpire shall have to give reasons also where the court has directed in any order such as the one made under Section 20 or Section 21 or Section 34 of the Act that reasons should be given or where the statute which governs an arbitration requires him to do so.” 23. In the opinion of this Court, it could not be disputed that in India, it has been “firmly established” that it was not obligatory on the arbitrator or umpire to record reasons in support of the award when “neither any arbitration agreement nor any deed of submission” required reasons to be recorded. In that case also, it was urged, as has been done in the instant case, that if no reasons are disclosed by the arbitrator, it would not be possible for the court to find out whether the award passed is in accordance with law. The Court, however, negatived the contention observing that if the parties wanted reasons to be recorded in support of the award to be passed by the arbitrator or umpire it was open to them to make a provision in the agreement/contract itself to that effect. But in the absence of any stipulation in the contract, the court could not say that arbitrator was duty-bound to record reasons and if reasons are not recorded in support of the award, the award was vulnerable and liable to be set aside or should be remitted to the arbitrator. But in the absence of any stipulation in the contract, the court could not say that arbitrator was duty-bound to record reasons and if reasons are not recorded in support of the award, the award was vulnerable and liable to be set aside or should be remitted to the arbitrator. According to this Court, such an order would amount to virtually introducing by judicial verdict an amendment to the Act. No doubt, if the reasons are recorded by the arbitrator or umpire in support of the award, they can be considered by the court and if those reasons disclose an error apparent on the face of the record, the award can be set aside by a competent court of law. But in the absence of such requirement under the agreement itself, the party could not insist for reasons in support of the award nor a court of law can interfere with non-speaking award. 24. It was, however, urged that recording of reasons in support of the order is part and parcel of “natural justice” and on that count also, unreasoned award should be treated as null and void and ineffective. We are unable to uphold the argument. A similar contention was raised in Chokhamal and negatived by this Court observing that the said doctrine applies to administrative law field. In the decisions pertaining to administrative law, this Court has always insisted for recording of reasons in support of the order or decision. The Court observed that it would apply to “public law” field and not to “private law” field like arbitration agreement. 25. The Court stated: “35. It is no doubt true that in the decisions pertaining to Administrative Law, this Court in some cases has observed that the giving of reasons in an administrative decision is a rule of natural justice by an extension of the prevailing rule. It would be in the interest of the world of commerce that the said rule is confined to the area of Administrative Law. We do appreciate the contention, urged on behalf of the parties who contend that it should be made obligatory on the part of the arbitrator to give reasons for the award, that there is no justification to leave the small area covered by the law of arbitration out of the general rule that the decision of every judicial and quasi-judicial body should be supported by reasons. But at the same time it has to be borne in mind that what applies generally to settlement of disputes by authorities governed by public law need not be extended to all cases arising under private law such as those arising under the law of arbitration which is intended for settlement of private disputes.” 26. This Court noted that a consistent view has been taken by all courts that an award was not liable to be set aside merely because reasons were not given except where the arbitration agreement or the deed of submission or an order made by the court under Sections 20, 21 or 34 of the Act or the statute governing the arbitration required the arbitrator or umpire to give reasons for the award.” 27. Keeping such principles in mind let us now see the challenge to the award. Apart from the grounds mentioned in the memo of appeal, we find from the application filed under Section 30 or 33 of the Arbitration Act, 1940 two specific pleas have been taken in paragraphs 22 and 23 which are reproduced hereinbelow:- “22. That in view of the principles as laid down by the Hon’ble Supreme Court of India in the case of the Executive Engineer (Irrigation), Balimela & others-Vs-Abhaduta Jena & others reported in 1988(1) Scc 418 = AIR 1988 SC 1520 that “in regard to pendenti lite interest, that is, interest from the date of reference to the date of Award, the claimants would not be entitled to the same for the simple reason that the arbitrator is not a Court within the meaning of Section 34 of the C.P.C now were the reference to arbitration made in the course of Suits”, the contractor was or is not entitled to interim interest as prayed for by him in the arbitration and as such, the said award made by the Arbitrator, is bad and liable to be set aside. 28. 28. Furthermore, the question as to whether the Arbitrator can give a nonspeaking award in an arbitration, where the state and its instrumentalities are parties has since been decided by the Hon’ble Supreme Court in the case of Raipur Development Authority & others-Vs-M/s. Chokhamal Contractors & others reported in AIR 1990 SC 1426 = 1989(2) SCC 721 which, inter alia, runs as follows:- (Judgment dated 4.5.89) “Governments and their instrumentalities should as a matter of policy and public interest if not as a compulsion of law-ensure that wherever they enter into agreements for resolution of disputes by resort to private arbitrations, the requirement of speaking awards is expressly stipulated and ensured.” 29. Mr. Jishnu Saha, learned Counsel appearing on behalf of the petitioner/appellant made a valiant attempt to reopen the issue and submitted that if from a reading of the award it appears to the Court that the said award is perverse and illegal in the sense that it pricks the conscience of the Court then this Court should exercise its power in tearing the said award and pass appropriate orders. It was, however, argued that the challenge thrown to the award on the ground of interest cannot be urged any more in view of the subsequent decision of the Supreme Court in Secretary, Irrigation Department, Government of Orissa & Ors. Vs. G.C. Roy ( 1992(1) SCC 508 ) and the subsequent decisions, namely, i) Bhagawati Oxygen Ltd. Vs. Hindustan Copper Ltd. ( 2005(6) SCC 462 ): ii) State of Rajasthan & Anr. Vs. Ferro Concrete Construction Pvt. Ltd. ( 2009(12) SCC 1 We appreciate such fairness in the argument on behalf of the State Counsel. 30. It is submitted that although the ground of perversity and absurdity of the award has not been urged but if it appears from the reading of the award that the said award is perverse, ex facie, absurd and patently illegal, the power of the Court to set aside such an award is undoubted. In order to demonstrate such perversity, it was argued that in the statement of claim, the respondent claimed an award of Rs.1,34,93,091.00/-out of which according to Mr. Saha item nos. 2,4,6 and 8 could not have been considered at all. In order to demonstrate such perversity, it was argued that in the statement of claim, the respondent claimed an award of Rs.1,34,93,091.00/-out of which according to Mr. Saha item nos. 2,4,6 and 8 could not have been considered at all. The said items are reproduced hereinbelow:- Sl.No. Description Amount claimed (2) Payment for the work executed for The portion measured but not billed for And balance portion not measured for Rs.25,00,000.00 (4) For less measurement in 5th.R.A. Bill Dated 29.3.86 Rs. 1,38,306.00 (6) 10% Escalation Rs.16,94,701.00 (8) Interest upto 31.5.89 & 18% per annum On 76,16,305.00 Rs.39,98,560.00 31. It is submitted that if these four claims are disallowed then the principal claim would be much less than Rs.75,54,608/-. It was further submitted that the claimant has prayed for Rs.39,98,560.00/-on account of interest upto 31st May, 1989 at the rate of 18% per annum on 76,16,305.00/-. The arbitrator allowed interest of Rs.30,10,152/-till the date of entering upon reference in full and final settlement of all disputes and claims. It is submitted that such amount of interest would be an interest upon interest which is not permissible. We are unable to accept the said submission. 32. We must admit at this stage that the main ground of challenge, we are unable to appreciate in absence of required documents and pleadings. In fact, the learned Counsel for the State also was unable to make any effective submission and accepted such shortcomings. There are inadequate materials on record to really appreciate the argument made on behalf of the State. It appears that a sum of Rs.76,16,305/-was the principal sum as on May 31, 1989 and the award was passed on January 30, 1991. The interest for the said period appears to have been calculated at Rs.30,10,152/-. It was, however, contended that the arbitrator has exceeded his jurisdiction in considering claim for escalation. In fact, because of the nature of the non-speaking award, it is not possible for the Court to really enter into the minds of the arbitrator and, in fact, the arbitrator has awarded a much lesser amount than what was claimed by the petitioner. Even the principal claim of the respondent/claimant which appears to be Rs.76,16,305/-on 31st May, 1989 has been reduced. 33. Even the principal claim of the respondent/claimant which appears to be Rs.76,16,305/-on 31st May, 1989 has been reduced. 33. It is contended on behalf of the respondent that the enormity of the sum awarded by itself should not shock the conscience of the Court and reminded this Court of the observation in Dandasi Sahu (supra) where the Hon’ble Supreme Court speaking through Justice Sabyasachi Mukherjee as His Lordship then was that the fact that merely the awarded amount is quite high or that a large amount has been awarded, does not vitiate the award. His Lordship in Paragraph 11 has given the reasons as to why the said awarded sum did not shock the conscience of the Court. We agree with the submission made by Mr. Mitra that the large amount awarded by the arbitrator by itself cannot be said to be shockingly high so as to shock the conscience of the Court to set aside the said award. 34. However, we give our reasons with regard to our limited interference with the lump sum interest in the award which we feel is patently arbitrary and absurd. 35. The arbitrator certainly has disallowed some claims in order to even reduce the principal claim of Rs.76,16,305/-to Rs.75,54,608/-. Moreover, it appears from the non-speaking award that the arbitrator had given reasonable, fair and equal opportunities to the parties to file pleadings and adduce evidence and further evidence and make their submissions and it was only after considering such pleadings and materials on record, the learned Arbitrator passed the award. In the award, learned Arbitrator has duly recorded “whereas the said Arbitrator, having heard, carefully examined and considered the matter in dispute and statement and counter statement of facts and documentary evidence tendered by the parties and submission of their respective representatives and all and singular things concerning the matter in dispute referred to him as aforesaid”. 36. In considering a non-speaking award, one of the considerations that must prevail with the Court and, in fact, has prevailed with the Court was that if the arbitrator considered all the materials on record and passed an award then as the Hon’ble Supreme Court said in D.D. Sharma Vs. 36. In considering a non-speaking award, one of the considerations that must prevail with the Court and, in fact, has prevailed with the Court was that if the arbitrator considered all the materials on record and passed an award then as the Hon’ble Supreme Court said in D.D. Sharma Vs. Union of India ( 2004(5) SCC 325 ) “the award being not a speaking one, averments made therein should be accepted at their face value unless contrary is proved by the party questioning validity of the award.” There is no allegation that the departmental arbitrator was biased or acted in violation of the principles of natural justice or has misconducted himself in the proceeding. 37. Mr. Jayanta Kumar Mitra, the learned senior Counsel appearing with Mr. Sabyasachi Chowdhury submits that if a ground is not taken in the memorandum of appeal, such ground cannot be urged at the time of hearing of the appeal. In fact, the memo of appeal was filed in 1993 and the matter is beingheard in 2012. The learned senior Counsel refers to Paragraph 25 of the said report which is reproduced hiereinbelow:- ( AIR 1956 Cal 321 ; Saha & Co. Vs. Ishar Singh Kripal Singh & Co.) “25. But I am of opinion that after an award has been made, a party, if he desires to challenge the validity of an arbitration agreement, can make his challenge only by way of advancing it as a reason for impugning the award as invalid. No independent application against the agreement would at that stage be maintainable. It follows that if a party desiring to challenge an arbitration agreement has not done so by way of asking the award to be set aside on that ground and has allowed a decree to be passed on the award, cannot thereafter launch an attack against the agreement. 38. The true view to take appears to me to be that after an award has been made, all grounds of objection to the award, including grounds of the non-existence or invalidity of the agreement or reference, and all other grounds of nullity must be taken in an application for setting aside the award and that no ground, not so taken, can be available after the time for making such an application has expired. All grounds not so taken must be deemed to have been waived.” 39. All grounds not so taken must be deemed to have been waived.” 39. It is true that in absence of proper grounds, the Court cannot decide the legality of the award other than the grounds mentioned in the application excepting a pure question of law. However, we feel in so far as the interest of Rs.30,00,000/-is concerned, the same is required to be reduced in view of Section 3 of the Interest Act, 1978 read with Section 34 of the C.P.C. It appears to us that the arbitrator entered reference by holding first sitting on 6th December, 1989. The principal amount as on 31st May, 1989 according to the claimant is Rs.76,16,305/-which, however, was reduced to 75,54,608/-thereby denying a sum of Rs.61,697.00/-to the claimant. On such reduced amount, the interest of Rs.30,10,152/-appears to be absurd, contrary to law and, accordingly with all the limitations that we have reminded ourselves, we feel that this portion of the interest is required to be reduced. We accordingly modify the award only to the extent that the sum of Rs.75,54,608.00/-would carry an interest at the rate of 10 per cent per annum from 6th December, 1989 till the counter-guarantee was furnished by the claimant for the purpose of withdrawing Rs.1.14 Crores. In addition to the aforesaid, the claimant would be entitled to all costs, charges and expenses incurred for furnishing such counter-guarantee and keeping it alive till the period it was kept alive upon furnishing a proper statement to the Executing Court and to the satisfaction of the learned Judge. The claimant shall refund the balance amount with interest at the rate of 5 per cent per annum from the date of payment of Rs.1.14 Crores to the respondent till July 31, 2012. The respondent is directed to deposit the balance amount after adjustment before the Executing Court within a period of three weeks from the date. The learned trial Judge would record a satisfaction of the decree after being satisfied that the appellant has received the balance amount. 40. The appeal succeeds in part, however, there shall be no order as to costs.