People Co-Operative Labour & ... vs Union Of India And Anr.
1997 Latest Caselaw 1010 Del

JUDGMENT

C.M. Nayar, J.

(1) This petition has been filed under Section 14 of the Indian Arbitration Act, 1940 for filing of the Award dated March 7, 1988 alongwith proceedings and for making the same Rule of the Court.

(2) The brief facts are that the petitioner entered into a contract with the respondent-Union of India through the Executive Engineer, Floor Control DrainageDivision-V, Delhi Administration, regarding the work "Formation of designed section of Ghazipur-Drain and desalting of Cunnette from Rd 0 to Rd 6180 M". The agreement bearing No. EEV/FCD/ACS/Agt. 8 was executed between the parties. Clause 25 of the agreement contained the procedure for settlement of disputes by arbitration. The mm may be reproduced as follows:

"CIAUSE- Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions hereinbefore mentioned and as to the quality of workmanship or materials used on the work or as to any other question, claim, right, matter or thing whatsoever, in any way arising out of or relating to the contract, designs, drawings, specifications, estimates, instructions orders or these conditions or otherwise concerning the works, or the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to the Sole Arbitration of the person appointed by the Chief Engineer, Central Public Works Department, in-charge of the work at the time of dispute or if there be no Chief Engineer, the Administrative Head of the said Central Public Works Department at the time of such appointment. It will be no objection if any such appointment that the Arbitrator so appointed is a Government servant, that he had to deal with the matters to which the contract relates and that in the course of his duties as Government servant he had expressed views on all or any of the matters in dispute or difference. The Arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason, such Chief Engineer or Administrative Head as aforesaid at the time of such transfer, vacation of office or inability to act, shall appoint another person to act as Arbitrator in accordance with the terms of the contract. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor. It is also a term of this contract that no person other than a person appointed by such Chief Engineer or Administrative Head of the C.W.P.D. as aforesaid should act as Arbitrator and, if for any reason that is not possible, the matter is not to be referred to arbitration at all. In all cases where the amount of the claim in dispute is Rs. 50,000.00 (Rupees fifty thousand) and above, the Arbitrator will give reason for the award. Subject as aforesaid the provisions of the Arbitration Act, 1940 or any statutory modification or re-enactment thereof and the rules made thereunder and for the time being in force shall apply to the arbitration proceeding under this clause.

IT is a term of the contract that the party invoking arbitration shall specify the dispute or disputes to be referred to arbitration under this clause together with the amount or amounts claimed in respect of each such dispute. It is also a term of the contract that if the contractor(s) do/does not make any demand for arbitration in respect of any claim(s) in writing within 90 days of receiving the intimation from the Government that the bill is ready for payment, the claim(s) of the contractor(s) will be deemed to have been waived and absolutely barred and the Government shall be discharged and released of all liabilities under the contract in respect of these claims. The Arbitrator(s) may from time to time with consent of the parties enlarge the time for making and publishing the award."

(3) The disputes having arisen between the parties, the Appointing Authority appointed respondent No. 2 Shri D.P. Sehgal as an Arbitrator to adjudicate the same. The said Arbitrator rendered his Award on 7th March, 1988. The following claims which were raised by the petitioner may be reproduced as follows : "CLAIMNo. 1 The claimant claims refund of earnest money/security deposits of Rs. 39,288.00 Claim No. 2 The claimant claims Rs. 4,63,582.75 on account of work done. Claim No. 3 The claimant claims Rs. 1,08,180.90 for the additional work but not measured by the Department. Claim No. 4 The claimant claims Rs. 1,81,128.00 on account of payment under Clause Xc of the agreement. Claim No. 5 The claimant claims Rs. 75,290.00 as interest on Claims No. 2,3 & 4 for the period 6.7.1982 to 2.2.1983. Claim No. 6 The claimant claims interest of 20% p.a. pre-suit, pendente lite and future. Claim No. 7 The claimant claims Rs. 5,000.00 towards cost of arbitration proceedings." 4. The respondent filed its counter claims which read as under: "Counter-Claim No. 1 The respondents claim Rs. 8949.00 on account of balance amount of security deposit. Counter Claim No. 2 The respondents claim Rs. 7,95,739.00 towards the cost of completing the alleged balance work. Counter Claim No. 3 The respondents claim Rs. 81,474.00 towards compensation under Clause 2 of the agreement. Counter Claim No. 4 The respondents claim Rs. 350.00 for non-submission of the labour reports by the claimants. Counter Claim No. 5 The respondents claim Rs. 7,000.00 for non-employment of Graduate Engineer by the claimants. Counter Claim No. 6 The respondents claim Rs. 200.00 on account of cost imposed by the Court. Counter Claim No. 7 The respondents claim Rs. 40,737 .00 for the alleged violation of Clause 19(g) by the claimants. Counter Claim No. 8 The respondents claim Rs. 20,000.00 towards cost of arbitration proceedings.

(5) The learned Counsel for the respondent-Union of India has first assailed the Award on the ground that the Arbitrator entered upon the reference on 7th November, 1984 and gave his Award on 7th March, 1988 whereas he retired from his position in August, 1985 prior to the date of the Award which is liable to be set aside on this short ground. Reliance is placed on the judgment of the Supreme Court as reported in Union of India and Others v. M/s. Prabhat Kumar & Bros. and Another, . In this case the Supreme Court was dealing with Condition 70 of the General Conditions of contract which may be reproduced as follows:

"ARBITRATION-ALL disputes between the parties to the contract (other than those for which the decision of the Cwe or any other person is by the Contract expressed to be viable and binding) shall, after written notice by either party to the Contract to the other of them, be referred to the sole arbitration of an Engineer Officer to be appointed by the authority mentioned in the tender documents."

IF the Arbitrator so appointed resigns his appointment or vacates his office or is unable or unwilling to act due to any reason whatsoever, the authority appointing him may appoint a new Arbitrator to act in his place."

(6) The facts and findings arc recorded in paragraphs 3,4 and 5 which make the following reading:

"3.The Arbitrator appointed In terms of Condition-70 conducted the proceedings until he retired voluntarily from the Government service on 17th Septetber, 1990. The respondent-contractor then filed an application before the Senior Sub-Judge, Ferozpur under Section 28 of the Arbitration Act, 1940 seeking extension of time for the Arbitrator to make the award. Objection was raised by the Union of India, the present appellant, on the ground that the Arbitrator having retired from Government service was no longer competent to function as an Arbitrator and no further time could be granted to enable him to make an award. It was further submitted that in terms of Condition 70, a new Arbitrator had to be appointed. This contention of the appellant was rejected by the learned Sub-Judge and time was accordingly granted as prayed for by the respondent. Appeal filed by the Union of India was rejected by the learned District Judge. The Civil Revision filed by the Union of India was rejected by the High Court by the impugned order.

4.The question which now arises in this appeal is covered by the order of this Court dated November 13,1991 which is Annexure P-4 to this appeal.

5.We are of the view that the Arbitrator who had been appointed by the Government ceased to be the Arbitrator on his retirement from Government service on 17th September, 1990. In terms of Condition 70, the Union of India is competent to appoint a new Arbitrator. Accordingly, we set aside the impugned orders of the High Court and the Courts below."

(7) It Is contended in view of the above judgment that the Arbitrator ceased to be an Arbitrator on his retirement from Government service and, therefore, he could not adjudicate and settle the disputes between the partics. The Award is liable to be set aside on that short ground. This contention of the learned Counsel for the respondent is misconceived as the judgment as cited above will have no application to the facts of the present case. The reading of Condition 70 as referred to above will Indicate that the disputes arising in the case were referred to the sole arbitration of an Engineer Officer to be appointed by the authority mentioned in the tender documents and on his retirement he will obviously cease to act as an Arbitrator. In the present case Clause 25 of the agreement does not lay down any such stipulation. It only states that all questions and disputes "shall be referred to the sole arbitration of the person appointed by the Chief Engineer, Central Public Works Department, in-charge of the work at the time of dispute or if there be no Chief Engineer, the Administrative Head of the said Central Public Work Department at the time of such appointment." Reading of the above provision clearly lays down that the Chief Engineer is required to refer the dispute to any person and not necessarily to a departmental or Government officer Furthermore when the Arbitration retired, he addressed a communication to the Chief Engineer on the aub)eet and the following reply dated 11th November, 1985 Wm received which maybe reproduced as follows:

"OFFICEOF Thb Chief Engineer (I & F) Delhi Administration :ISBT Building : K. GATE: DELHI.

NO.DEF/SW/Arb. 1/83-84/12252 Dated the November 11, 1985

To,

SHRID.P.SEHGAL,Director

CENTRAL Water Commiasion, (Retired) & Arbitrator, S-3/607, R.K. Puram, New Delhi-110022.

SUB:Payment of fee/honorarium to the Arbitrator.

Sir,

REFERENCE18 Invited to your letters No. 5/6/ARB/85-NWP/676 and 986 dated 10.8.1985 and 28.10.1985 on the subject cited above vide which requested to continue to act as an Arbitrator after 31.10.1985 your superannuation on the honorarium admissible as per order contain in D pars O.M. No. 17011/21/ 79-Estt. (Allowances) dated 29.9.1981.

IN this regard, I am directed to convey the approval of the Chief Engineer (I & F) for your continuing to act as an Arbitrator (after retirement) with cases remain pending with you on 31.10.1985.

YOURSfaithfully,      sd/-          

(R.P. SETH) Surveyor Of WORKS"

(8) In view of the above it is established that respondent No. 2 continued to act as an Arbitrator and respondent-Union of India participated in the proceedings and also gave approval in the communication as stated above. Therefore the law as laid down by the Supreme Court in Union of India and Others v. M/B. Prabhat Kumar & Bros and nother(supra) will have no application to the facts and circumstances of the present case. The contention raised by learned Counsel for the respondent Is liable to be rejected.

(9) The second plea which has been raised by learned Counsel for the respondent Is that the Arbitrator did not at all consider the counter claims of the respondent and, therefore, the Award is liable to be set aside or remitted back for reconsideration. Reliance is placed on the judgment of the Supreme Court as reported in JC.K George v. The Secretary to Government Water and Power Dept Trivandrum and Another, . Paragraph 13 of the judgment may be reproduced as follows : "13.The first question that falls for consideration in this case is whether the finding of the High Court setting aside the order of review made in I.A. No. 3780 of 1981 and setting aside the order made In O.P.(ArbL) No. 81 of 1981 dated August 18, 1981 whereby the case was remanded to the Arbitrator Is sustainable or not. Admittedly, the appellant filed a claim petition being Arbitration Case No. 131 of 1980 making certain claims before the Arbitrator. The respondents filed the counter-claims. The Arbitrator without considering the counter-claims kept the counter-claims for subsequent consideration and make an award. The Trial Court set aside the award and remitted the same to the Arbitrator for making a fresh award considering the claims and counter-claims filed by the parties. On an application for review, the Trial Court set aside the order and passed a decree in terms of the award. It is not disputed that the Arbitrator did not at all consider the counter-claims and kept the same for consideration subsequently while making award in respect of the claims filed by the appellant. Undoubtedly, this award made by the Arbitrator is not sustainable in law and the Arbitrator has misconducted himself and in the proceedings by making such an award. It is the duty of the Arbitrator while considering the claims of the appellant to consider also the counter-claims made on behalf of the respondents and to make the award after considering both the claims and counter claims. This has not been done and the Arbitrator did not at all consider the counter-claims of the respondents in making the award. As such the first award dated January 22, 1981 made by the Arbitrator in Arbitration Case No. 132 of 1980 is wholly illegal and unwarranted and the High Court was right in holding that the Arbitrator misconducted himself and the proceedings in making such an award and in setting aside the same and directing the Arbitrator to dispose of the reference in accordance with law considering the claim of the contractor and the counter-claim of the respondents. The order allowing the application for review by the Trial Court is also bad inasmuch as there was no mistake or error apparent on the face of the order dated August 18, 1981 made in O.P. (Arb.) No. 81 of 81 nor any sufficient reason has been made out for review of the said order. The order dated August 18,1981 is legal and valid order and the order dated March 18,1982 allowing the application for review being I.A. No. 3780 of 1981 and setting aside the order in O.P. (Arb.) 81 of 1981 dated August 18, 1981 is, therefore, bad and unsustainable."

10. The learned Counsel for the respondent has clearly stated that the Arbitrator has misconducted himself in respect of his findings for Counter Claims Nos. 2,3,6 and 7. The reading of Counter Claim No. 2 will indicate that the Arbitrator has given a contradictory finding. In the first instance he has stated that the claim is "hypothetical and is not tenable because the respondents failed to execute the balance works at the risk and cost of the claimants" and in the subsequent analysis he has provided an opportunity to the respondents to execute the balance work at the risk and costs of the claimants which is indicated for particular amounts as specified. Similarly for Counter Claims 3,6 and 7, the Arbitrator has merely stated that "the award is held up for want of documentary evidence and arguments". This indeed could not be done as it was the duty of the Arbitrator to give his Award in respect of the counter claims as raised by the respondent.

(11) The learned Counsel for the petitioner claimant contends that the Arbitrator has held Counter Claim No. 2 as not tenable as the respondent failed to execute the balance works at the risk and costs of the claimant. The work is yet to be completed. He contends that the findings recorded in respect of this counter claim must be read to mean that the Arbitrator has rejected the same. Moreover it is argued by him that the Arbitrator has used the market rate for executing the balance work whereas it should have been assessed on the basis of the rate as existing on the date and at the time of breach. Reference is made to the judgment as reported in The Bazpur Co-operative Sugar Factory Limited, Bazpur v. Surenara Mohan Agarwal, Khatauli, and Another, , wherein it has been held that damages can be made on the basis of difference between the market price and contract price. Reliance is also placed on the judgment of the Calcutta High Court as reported in Bijoy Singh v. Bilasroy and Co., wherein it has been held that "unless there is an extension of the due date the Arbitrator cannot award damages on the basis of the rate prevailing at alater date. ff the Arbitrators have given damages on a wrong basis the award is bad on the face of it. The Award, therefore, should be set aside." In view of the above it is contended that the findings as recorded in Counter Claim No. 2 are liable to be set aside. This contention cannot be accepted as the Arbitrator in the first instance has indicated that the counter claim is hypothetical and is not tenable but in ultimate analysis has granted opportunity to the respondents to execute the balance work at the risk and costs of the claimants. There is, therefore, no definite finding which has been recorded by the Arbitrator. This has accordingly to be remitted back for re-decision by the Arbitrator after assessing the evidence on record.

(12) The Supreme Court in K.P. Poulose v. State of Kerala and Another, has defined misconduct in the following manner in paragraph 6: "6.Under Section 30(a) of the Arbitration Act an award can be set aside when an Arbitrator has misconducted himself or the proceedings. 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. It is in this sense that the Arbitrator has misconducted the proceedings in this case. We, have, therefore, no hesitation in setting aside such an award. In the result, the judgment of the High Court is set aside and that of the Subordinate Judge is restored. The award of the Arbitrator thus stands quashed. The Arbitrator will complete the proceedings after considering all the relevant documents including Ext. Pi I and Ext. P16 after giving opportunity to the parties. The appeal is allowed with costs."

(13) The conclusions rendered by the Arbitrator in the present case will clearly fall in the definition of 'misconduct' as referred to in the above judgment.

(14) The question arises as to whether the entire Award is liable to be quashed or the counter claims of the respondent be remitted back for reconsideration- in accordance with law. The findings in respect of the claims may now be evaluated. With regard to Claim No. 1 the Arbitrator has directed the refund of the earnest money/security on the ground that the performance part of the contract including the defect liability period was over long back and the respondents failed to substantiate if they had incurred expenditure for rectification of defects or execution of the balance work. So far as Claim No. 2 is concerned the Arbitrator has come to the conclusion on appreciation of evidence that the petitioner-claimant was entitled to a sum of Rs. 2,48,115.58 for the work which had already been undertaken. The claims for interest and costs have been allowed in respect of Claim Nos. 6 and 7 and no argument has been made to assail the same. It will not be open for this Court to reconsider the evidence on record and, therefore, no interference is called for in the present proceedings. The Award in respect of the claims of the petitioner as adjudicated by the Arbitrator is, accordingly, confirmed.

(15) The learned Counsel for both the parties have, however, accepted that the Arbitrator has returned no findings in respect of Counter Claims 3,6 and 7. These are also liable to be remitted back to the Arbitrator.

(16) For the aforesaid reasons the Award in respect of claims of the petitioner is affirmed and made Rule of the Court. Decree in terms thereof shall be drawn. The petitioner shall also be entitled to interest at the rate of 12 percent per annum from the date of the decree till realisation.

(17) Counter Claims 2, 3, 6 and 7 are remitted back to the Arbitrator for reconsideration after providing an opportunity of hearing to both the parties. The matter has been pending for quite some time and it will be appropriate if the Arbitrator disposes of the same within four months from the date of communication of the Order.