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2020 DIGILAW 508 (KER)

State of Kerala v. Cheriyan & Kuriyan

2020-06-19

DEVAN RAMACHANDRAN

body2020
JUDGMENT : World over, Arbitration has become the preferred mode of dispute resolution over the past few years, particularly in commercial transactions. This preference has come to be since Arbitration is expected to adjudicate and resolve the dispute quickly – at least much faster than traditional court system – and since it involves lesser procedural complexities. 2. However, over time – and over multiple avenues of challenge -arbitration proceedings have also begun consuming long durations, thereby frustrating the very object for which it was designed. 3. The afore preface has no direct relevance with the facts or legal aspects involved in these cases, but I have indited it because I am now called upon to adjudicate, under the provisions of Section 34 of the Arbitration and Conciliation Act, the worth of two Arbitral Awards nearly seventeen years after the Arbitration proceedings commenced. 4. These appeals, at the instance of the State of Kerala, call into question the judgments of the District Court, Ernakulam in O.P(Arb)Nos.1442 of 2008 and 1443 of 2008. 5. The appellants content that the impugned judgments of the District Court as per which, two Arbitration Awards, that granted certain amounts to the respondents under a contract, have been upheld – are issued without proper analysis of the facts involved and incorrectly concluding that the said Awards are not liable to be set aside under Section 34(2) of the Arbitration and Conciliation Act, 1996, (hereinafter referred to as 'the Act' for short). 6. The appellants thus pray that the judgments of the District Court be vacated and consequently, that this Court allow their challenge to the Arbitration Awards under Section 34(2) of the Act, leading to them being set aside. 7. I have heard Shri. M.V. Anandan, learned Senior Government Pleader, appearing on behalf of the appellants and Shri. Paul Jacob, learned counsel appearing for the respondents, in both cases. 8. In brief, the elemental facts involved are that the respondents entered into two different contracts with the Government of Kerala for the purpose of repair of two sections of the National Highway-49 (Madhura-Kochi Road), which were both marked by the learned Arbitrator as Ext.A1. The work under the said contracts, both dated 03/10/2000, was completed on 30/04/2001 and completion certificates were issued by the competent Authority on 18/09/2001. The work under the said contracts, both dated 03/10/2000, was completed on 30/04/2001 and completion certificates were issued by the competent Authority on 18/09/2001. However, after the work was completed and between the time the payments against the bills of the respondents had been effected, they raised a claim for certain additional amounts to be paid to them on the allegation that they were forced to use larger quantities of materials, including 'course aggregates' and bitumen on account of the change of the design as suggested by the Authorities. 9. The respondents made four claims before the Authorities, namely, for reimbursement of the additional amounts spent by them on account of the change of design; for escalation of the rates of the materials used; the additional amounts for having spent higher rates for the materials used and for interest and other incidental expenses. 10. However, their afore claims were not accepted by the concerned Authorities, thus leading them to make a request before the Ministry of Surface Transport (MOST for short), through Ext.C11 dated 14/08/2002, for the appointment of a sole Arbitrator, in terms of Ext.A1 contracts and Ext.C4 supplemental agreements. This request was, however, not acceded to, thus constraining the respondents to approach this Court by filing Arbitration Request Nos.28 of 2003 and 29 of 2003, which culminated in a judgment appointing the Hon'ble Mr.Justice T.K. Shamsudheen (retired) as a sole Arbitrator. 11. The records disclose that the learned Arbitrator commenced two separate proceedings, numbered as A.R.No.28 of 2003 and A.R.No.29 of 2003, based on the claims placed before him by the respondents herein, which was contested by the appellants by filing their objections. The learned Arbitrator found that two broad objections had been raised by the appellants: Firstly, that the claims are hit by the provisions of limitation; and secondly, that the amounts claimed by the respondents cannot be granted, since only the rates as per Ext.A1 agreement would be eligible to them. 12. The learned Arbitrator, after assessing the materials produced on record by the parties – which, apart from Ext.A1 contracts, comprised of Annexure A along with Appendix 1 and 2 and Exts.C1 to C20 documents in both cases on the side of the respondents/claimant; and Exts.R1 to R15 on the side of the appellants/opposite parties -passed two Awards, both dated 23/06/2008, whereby only one of the claims of the respondents was allowed. Out of the four claims made by the respondents, the learned Arbitrator chose to reject three, finding them to be unsustainable, and to allow only that for reimbursement of the additional amounts spent by them, consequent to the change in the “Design Mix”. The claim for interest was also not granted, but it was provided in the Awards that in the event they were not honoured within a period of four months, the respondents will be entitled to interest at the rate of 9% per annum thereafter till payment. The respondents were also granted proportionate share of the expenses and declared that they are entitled to recover an amount of Rs.20,000/-, being the share of the fees of the Arbitrator, which the appellants did not honour. 13. The Awards of the learned Arbitrator were challenged by the appellants herein by preferring O.P(Arb)Nos.1442 of 2008 and 1443 of 2008 before the District Court, Ernakulam, which led to the impugned judgments being issued, dismissing the same. 14. As recorded above, the learned Arbitrator has granted only one of the claims of the respondents; and axiomatically, I am required to assess the issues raised in these appeals singularly from the stand -point of the said claim and nothing else. 15. The appellants, as I have already noticed above, contend vehemently that the claims preferred by the respondents before the learned Arbitrator were badly hit by limitation and further that no amounts would have been awarded by the learned Arbitrator to the respondents in excess of what was expressly agreed by them in Ext.A1. 16. On the question of limitation, I see that the learned Arbitrator has, after adverting to the relevant clauses of Ext.A1 agreement relating to the initiation of arbitration proceedings, found that the claim was preferred within the time frames stipulated therein. This view of the learned Arbitrator has been affirmed by the learned District Judge in the impugned judgments. 17. As regards the claim for reimbursement of the additional amounts spent by the respondents for the work, on account of the changed “Design Mix” is concerned, the learned Arbitrator granted the entire claim under such head, which has also been approved by the learned District Judge. 18. 17. As regards the claim for reimbursement of the additional amounts spent by the respondents for the work, on account of the changed “Design Mix” is concerned, the learned Arbitrator granted the entire claim under such head, which has also been approved by the learned District Judge. 18. When I evaluate the merits of the contentions of the appellants in the afore scenario, I must upfront say that any challenge to an Arbitral Award is statutorily possible only under Section 34(2) of the Act. As is well known, Section 34 of the Act permits an Arbitral Award to be set aside by a Court solely on the grounds as are enumerated under Sub Clause 2 thereof. Pertinently, the pleadings in the memorandum of these appeals do not even impel a contention that any of such grounds in Section 34 (2) of the Act are deserving to be called into question in these cases except alleging that the learned Arbitrator has misconducted himself in allowing the Awards, because he has incorrectly assessed the merits of the claims made by the respondents. 19. That said, when one closely looks through Section 34(2) of Act, the afore mentioned contention is not one that is available to the State to challenge the Arbitral Awards; particularly because it is now well established, through a catena of judgments, that no Court cannot sit as an Appellate one over the Arbitral Award, but can only assess the challenge against it strictly under the enumerated criterion in Section 34 of the Act. 20. Obviously, therefore, a challenge as now made by the appellants on the ground that the Awards must be declared to be in error because the Arbitrator has misconducted himself in evaluating the merits of the claims cannot be judicially countenanced. This is rendered irrefutable from the judgment of the Hon'ble Supreme Court in Associate Builders v. Delhi Development Authority [ (2015) 3 SCC 49 ], wherein the law has been affirmatively declared that a Court cannot act as a Court of appeal over the Award and that interference is permissible only when the findings of the Arbitrator are arbitrary, capricious or perverse; or when the conscience of the court is shocked; or when the illegality is not trivial but goes to root of the matter; thus affirmatively concluding that an Arbitral Award cannot be set aside merely because another view is possible. 21. 21. The binding views of the Hon'ble Supreme Court in the afore judgment is unmistakable that an Arbitrator is the ultimate master of the quantitative and qualitative evidence while drawing the Arbitral Award and therefore, even an Award based on little evidence or on evidence, which may not measure up in quality to a trained legal mind, cannot be declared invalid if it is found that the Arbitrator's approach is neither arbitrary nor capricious. 22. I, therefore, proceed to now analyze the impugned judgments of the learned District Judge and the contentions of the appellants under the guidance of the afore declarations by the Hon'ble Supreme Court. 23. As indited afore, the appellants assail the Awards of the learned Arbitrator and the judgments of the learned District Court broadly on two grounds, namely, (a) that the claims are hit by limitation; and (b) that going by Ext.A1 contracts, no escalation in the rates as recorded in the Tender Schedule can be asked for by the respondents. 24. I will now deal with these issues one after the other. 25. On the first issue, the learned Arbitrator found that there was no dispute between the parties with respect to the payment of bills until 12/07/2002, when the Chief Engineer refused to accede to the request of the respondents for disbursement of additional amounts forced to be spend by them on account of the change in “Design Mix” formula. 26. Shri.M.V.Anandan, learned Senior Government Pleader, vehemently refutes this finding of the learned Arbitrator by asserting that the alleged change in the “Design Mix” formula was, even as per the respondents, pursuant to Ext.C3 letter, dated 14/12/2000, issued by the Government Engineering College, Thrissur, and therefore, that the disputes between the parties began from that date. He further argues that, since the respondents continued to do the work, notwithstanding the alleged change in the “Design Mix” formula, it must be held that they acquiesced to the additional expenditure, if any; adding to this by contending that, in any event of the matter, they are not entitled to any escalation of rates because of their express agreement in Ext.A1 that they will not seek any such. 27. 27. When one examines these contentions on behalf of the appellants from the evidence on record, it becomes luculent that, as per Ext.A1 dated 03.10.2000 and Ext.C4 supplemental agreement, the Tender Schedule only fixed the rates for “Bituminous Macadam” and “Bituminous Concrete” without specifying the actual measurements or quantity to be used. The Tender Schedule, no doubt, contain certain tentative calculations with respect to the work involved, but since it does not, admittedly, include the “Design Mix” formula, the Contractor -the respondents herein – were obligated to complete the work as per such rates notwithstanding the quantity of the materials to be used. However, what is pertinent is that Ext.R5 specifications of the MOST -which concededly is to be construed as part of Ext.A1 contracts -expressly provided that the “Design Mix” formula must be obtained from the Thrissur Engineering College. It is in such circumstances that Ext.C3 “Design Mix” formula was obtained by the Assistant Executive Engineer, PWD, from the Government Engineering College, Thrissur; and the fact that it was obtained by the said Authority becomes absolutely clear from the covering letter of the College to the said “Design Mix” formula” -which is also marked as part of Ext.C3 -since it is addressed to the said Authority based on a requisition made by it. 28. Further, it is also uncontested before me that the work continued as per Ext.C3 “Design Mix” formula and that it was supervised by the competent Engineers and Authorities, who also were guided by the said formula. The work was completed on 30/04/2001 and a completion certificate was issued on 18/09/2001. Thereafter the process of finalizing of the bills of the respondents commenced, which also required taking of measurements of the work completed. It is during this time that a request was made by the respondents, through Ext.C7 letter dated 08/06/2002, seeking escalation of the rates of the articles supplied, which was rejected through Ext.C8 communication. Subsequently, the respondents issued Ext.C1 letter dated 14/08/2002, followed by Ext.C10 letter dated 08/10/2002, wherein, in addition to the afore claim, it was requested that their bills for reimbursement of the additional amounts, spent by them on account of the enhancement of the quantity of the materials used consequent to the change in “Design Mix” be also granted. 29. Subsequently, the respondents issued Ext.C1 letter dated 14/08/2002, followed by Ext.C10 letter dated 08/10/2002, wherein, in addition to the afore claim, it was requested that their bills for reimbursement of the additional amounts, spent by them on account of the enhancement of the quantity of the materials used consequent to the change in “Design Mix” be also granted. 29. Interestingly, the request of the respondents for reimbursement and escalation of rates were recommended by the Project Director through Ext.R3 letter dated 23/08/2001and Ext.C17 dated 11/06/2002, wherein, it has been unambiguously conceded by the said Authority that the claims made by the respondents are valid and deserving merit. The said Authority has also stated in his letters that the claim for reimbursement is genuine, since the respondents had to use more materials for the repair of the roads on account of the higher standards fixed through Ext.C3 “Design Mix” formula, thus requesting the higher Authority to consider the same positively. 30. However, through Ext.R15 letter dated 12/07/2002, the Chief Engineer rejected the afore recommendations of the Project Director in a single line, stating merely that the respondents “cannot claim any amounts, be that reimbursement or otherwise in excess of the Tender Schedule”(sic). This, obviously forced the respondents to issue Ext.C11 letter dated 14/08/2002 to the MOST, which was admittedly done as per Ext.A1 agreement and Ext.R10 general conditions, which, however, met with no answer, thus leaving no other option to the respondents than to approach this Court by filing Arbitration Request Nos.28 of 2003 and 29 of 2003, seeking that a sole Arbitrator be appointed which were allowed. 31. The sequence of the events chronicled above, render it indubitable that there was no dispute with respect to the respondents' claim for reimbursement of additional expenses or escalation of rates until Ext.R15 order was issued by the Chief Engineer on 12/07/2002. In fact, as is seen above, the Project Director raised no objection regarding the bills of the respondents; but on the contrary, through Exts.R3 and C17, recommended the same. 32. In fact, as is seen above, the Project Director raised no objection regarding the bills of the respondents; but on the contrary, through Exts.R3 and C17, recommended the same. 32. Ineluctably, therefore, the contentions of Shri.M.V.Anandan, learned Senior Government Pleader, that disputes arose between the parties at the time when the “Design Mix” formula, namely Ext.C3, had been obtained by the Assistant Executive Engineer, PWD, or at the time when the work was completed on 30/04/2001, cannot appeal to this Court at all because the fact that there is no such dispute is writ large in the express recommendations of the Project Director, namely Exts.R3 and C17. 33. Certainly, therefore, no cause of action had arisen to the respondents to raise a dispute either on 30/04/2001 when the work was over; or on 18/09/2001, when the completion certificate was issued; or on any other day until Ext.R15 letter had been issued by the Chief Engineer rejecting their claims. 34. Upon the Chief Engineer so rejecting their claims, the respondents approached the MOST with Ext.C11 request to appoint an Arbitrator, within a month thereafter and this is in consensus with the terms of Ext.A1 agreement -read along with Ext.R10 general conditions -which provided that, at the first instance, the party in dispute must approach the concerned Engineer within sixty days and thereafter the MOST within a further 180 days, requiring appointment of an Arbitrator. There is no doubt that this has been done and therefore, the learned Arbitrator and the learned District Judge have both found, correctly in my firm view, that the claim of the respondents cannot be held to be hit by limitation from any angle what so ever. 35. I, therefore, see absolutely no reason to interfere with these findings and am consequently of the certain opinion that the afore appeals, to such extent, must fail. 36. The second aspect projected by the appellants in these appeals is that the Awards granted by the learned Arbitrator were impermissible on account of Ext.A1 agreements. Though, as I have already said earlier, in Associate Builders (Supra) the Hon'ble Supreme Court has cautioned Courts from sitting as an Appellate one over Arbitral Awards, I deem it appropriate to evaluate and examine the same only to convince myself that the findings therein and the impugned judgments of the District Court are not patently in error. 37. Though, as I have already said earlier, in Associate Builders (Supra) the Hon'ble Supreme Court has cautioned Courts from sitting as an Appellate one over Arbitral Awards, I deem it appropriate to evaluate and examine the same only to convince myself that the findings therein and the impugned judgments of the District Court are not patently in error. 37. As per the claims of the respondents before the learned Arbitrator, the first among them was with respect to reimbursement of the amounts expended by them on account of use of higher quantities of material, consequent to the design changed as per Ext.C3, which has been granted. The other claims, which relate to escalation of rates of the materials used, have been rightly rejected by the learned Arbitrator, since Ext.A1 agreement -as also Ext.C4 supplemental agreement -makes it limpid that the rates fixed for the materials cannot be changed and this has been accepted by the respondents also. 38. However, Ext.A1 does not specify, in any manner, the actual quantity of materials to be used, except providing a rough estimate of the same; and therefore, when the “Design Mix” formula was changed on account of Ext.C3, which, in any case, was procured by the Assistant Executive Engineer of the PWD himself, the respondents made a claim for reimbursement of the amounts for the additional materials they were forced to use. It should be born in mind at this juncture that there is no dispute or complaint raised by the appellants as to the quality of work done and they do not say that the respondents have misconducted themselves as contractors of the work. 39. The only contention of the appellants is that even if the respondents have suffered larger amounts on account of use of higher quantity of materials, consequent to the change of “Design Mix” formula, they are not responsible to reimburse it because Ext.A1 agreement expressly forbids any claim for “escalation of rates”. There is no doubt that Ext.A1 prohibits escalation of rates but it does not prohibit a claim based on consumption of higher quantity of materials. There is no doubt that Ext.A1 prohibits escalation of rates but it does not prohibit a claim based on consumption of higher quantity of materials. This is perspicuous even from Ext.A1, because the Tender Schedule appended to it only provides a tentative estimate of the quantity of work, while fixing the rates of the materials as being inflexible; and hence when Ext.C3 “Design Mix” formula was obtained, it mandated the use of higher quantity of materials, which the respondents justifiably claimed. 40. The learned Arbitrator has found very clearly in the Awards that the amounts claimed by the respondents have not been objected to or contested to by the appellants and that their only defence was that they are not liable to pay in excess of the “rates” mentioned in Ext.A1. This finding of the learned Arbitrator has been confirmed by the learned District Judge also. I find no cause to interfere with this because, even if I am to accept the contentions of Shri. M.V. Anandan, learned Senior Government Pleader, it can only mean that the rates of the materials will remain inflexible as per Ext.A1, but the quantity certainly will have to be assessed, after the work was measured, depending upon the “Design Mix” used. 41. Further, it is without dispute that Ext.C3 “Design Mix” had been obtained in terms of the contract/agreement between the parties; and hence when it is unassailed that the respondents had completed the work based on such, under the supervisory guidance of the concerned Engineers and Authorities, they certainly become entitled to seek reimbursement of the cost of the additional materials, however, at the rates fixed as per Ext.A1. This is all that the learned Arbitrator has done, which has been approved by the learned District Judge. 42. Before I conclude, I must also record that the learned Senior Government Pleader has cited the judgments of the learned Supreme Court in Rajasthan State Mines & Minerals Ltd. v. Eastern Engineering Enterprises and Another [ (1999) 9 SCC 283 ]; State of Rajasthan v. Nav Bharat Construction Co. [ (2006) 1 SCC 86 ]; Rashtriya Chemicals and Fertilizers Ltd. v. Chowgule Brothers and Others [ (2010) 8 SCC 563 ] and State of Kerala and another v. E.A.Cheriyan Kunju [AIR 1997 Kerala 1]. [ (2006) 1 SCC 86 ]; Rashtriya Chemicals and Fertilizers Ltd. v. Chowgule Brothers and Others [ (2010) 8 SCC 563 ] and State of Kerala and another v. E.A.Cheriyan Kunju [AIR 1997 Kerala 1]. These precedents appear to be cited by the learned Senior Government Pleader in substantiation of his assertion that no Award can be issued against the terms of a concluded contract; and that no claim, which is not included in the reference before the Arbitrator, could have been answered by him. 43. I have absolutely no cause to differ with the above contentions of the learned Senior Government Pleader since I am also firm in my opinion, as has also been declared by the Hon'ble Supreme Court in the afore judgments, that no Arbitrator can go beyond the terms of a contract nor can it consider claims which are not raised before it, except in exceptional circumstances where such claims are found to be intrinsically incidental. 44. In the case at hand, there is no contention raised in these appeals or even before the District Court that the learned Arbitrator had travelled beyond the clauses of Ext.A1 agreement or that he had granted any claim which was beyond the terms of reference. On the contrary, as I have found above, the learned Arbitrator has made the Awards strictly in terms of Ext.A1 contract, after carefully analyzing the terms therein; and what has been awarded is claim No.1 of the respondents, which, therefore, cannot be seem to be beyond the terms of reference either. 45. I, therefore, find that the afore cited precedents, in fact, strengthen the opinion of this Court, rather than enervating it, when applied to the facts of these cases. 46. In the conspectus of my holdings and observations herein, it becomes needless to say that this Court cannot find the Awards of the learned Arbitrator or the judgments of the District Court to be in any manner in error, nor do I obtain any justifiable reason to set aside the same under Section 34 of the Act. As I have already noticed in the prefatory paragraphs, none of the ingredients as required under Section 34 of the Act have been even impelled by the State in challenging the Arbitral Awards and certainly, therefore, this Court can only reject these appeals as being without merits. 47. As I have already noticed in the prefatory paragraphs, none of the ingredients as required under Section 34 of the Act have been even impelled by the State in challenging the Arbitral Awards and certainly, therefore, this Court can only reject these appeals as being without merits. 47. Finally, I notice from the grounds raised in these appeals that there is no challenge to the future interest granted by the learned Arbitrator and I, consequently, do not intend to speak anything about it; especially because the rate of interest granted is in consonance with the applicable statutory prescriptions. Resultantly, these appeals are dismissed; and in view of the rather peculiar circumstances presented in them, I deem it appropriate not to make any order as to costs and to direct the parties to suffer their respective costs.