Kerala State Construction Corpn. ... vs National Building Construction ...
1998 Latest Caselaw 553 Del

JUDGMENT

K.S . Gupta, J.

1. Petitioner filed application under Section 17 of the Arbitration Act alleging that it had entered into four agreements with the respondent to execute certain items of work undertaken to be performed by it to the Lybian Government. On disputes having arisen between the parties, petitioner filed Suit Nos. 211-A, 212-A, 213-A and 214-A of 1982 under Section 20 of the Arbitration Act for appointment of arbitrator as provided in the arbitration clause in the agreements, to adjudicate upon the disputes. As per the directions of the court in the said suits, Secretary to the Govt.

of India, Ministry of Works and Housing, New Delhi appointed Harish Chandra, Chief Engineer, NDZ-1, CPWD as arbitrator vide O.M. No.0-17031-45-81-PS dated 26th October, 1982. On the said arbitrator entering on the reference both the parties filed their claims, counter-claims, replies and documents. Arbitrator has made and published the award on 29th November, 1991 and has also filed the same in court on 7th February, 1992 as per filing register No.2444. It is further alleged that substantial portions of the claims raised by the petitioner have been rejected and only portions of claims 1 to 8, 13 and 15 have been awarded. Similarly, the arbitrator has awarded substantial amount by way of counter claims to the respondent. The arbitrator has awarded L.D.10,06,805.944 and Rs.15,00,000/- against the respondent and the petitioner has been directed to pay L.D. 9,45,240,486 to the respondent. It was prayed that the award dated 29th November, 1991 be made the rule of the court and the petitioner be allowed interest @ 18% p.a. on the amount payable to it by the respondent from the date of the award till the date of decree and until payment.

2. Respondent filed objections being I.A.No.4588/93 Under Sections 30 and 3 of the Arbitration Act against the award in question. It is alleged that both the parties are Govt. corporations engaged in the business of building construction. It is not disputed that on respondent being awarded construction work in Libya the respondent under an agreement dated 17th October, 1997 and three agreements dated 27th July, 1979 gave part of the work to the petitioner on the terms and conditions set out in the said agreements and that disputes having arisen between the parties, the matter was referred to the sole arbitrator Harish Chandra as alleged. However, it is stated that reference was made for adjudication to the said arbitrator in his capacity as the Chief Engineer, CPWD, NDZ and he having retired before making the award, he became functus officio and as such the award in question is bad in the eye of law. Further, that one of the claims No. 8 was for L.D.1,63,997.852 towards the cost of material taken over by the respondent from the petitioner and the arbitrator while allowing claim for the said amount in full failed to give credit for L.D.1,07,135.682 which admittedly have been given by the respondent to the petitioner. Thus, the amount which could be awarded against the said claim, if any, was only L.D.56,862.170 and the award on aforesaid claim No. 8 is, therefore, liable to be set aside. It is further stated that on receipt of the copy of the award from the arbitrator the respondent filed application under Section 13(d) of the Act on 27th December, 1991 but the arbitrator failed to dispose of the same nor did he rectify the mistake which is apparent on the face of the record. It was prayed that the award in question be set aside or in the alternative, it be remitted back to the arbitrator for reconsideration or the error which is apparent on the face of the record be rectified.

3. Petitioner has contested the objections by filing reply. It is alleged that an arbitrator has to make the award within four months of his entering on the reference. In the present case extension was granted for making the award on more than 10 occasions by the court with the consent of both the parties. If the respondent had any objection to the arbitrator continuing with the arbitration proceedings on account of his holding a different post than the one that he held at the time he was appointed, the respondent should have objected to the extension of time granted to the arbitrator to pass the award. Not only the respondent did not raise any objection to the extensions but it actively took part in the arbitration proceedings conducted by the arbitrator even after his retirement. Respondent is, therefore, estopped from contending that the arbitrator had become functus officio when he retired from CPWD. It is further stated that claim No. 8 relates to costs of material and equipments taken over by the respondent from the petitioner when the contract was terminated. The arbitrator had looked into various statements filed by both the parties and arrived at the sum payable against said claim No. 8 and it is now not open to question the correctness of the said figure. What was sought to be changed by filing the application under Section 13(d) of the Act by the respondent was a specific part of the award instead of a clerical error.

4. On the pleadings of the parties the following issues were framed on 24th February, 1994:

     1.   Whether  the award is liable to be set aside in view of  the      objections filed.
 

     2.   Relief.
 

5.   The parties were permitted to lead evidence on affidavits.
 


 

6. Objections taken in the objection petition are two-fold. In regard to the objection that Harish Chandra, sole arbitrator had no jurisdiction to proceed with the arbitration proceedings and pass the award in any capacity other than the Chief Engineer, CPWD, in para No. 5 of the counter-affidavit of T.S.Krishnamoothy, Secretary of the petitioner-company it is averred that the arbitration proceedings commenced on 4/9th April, 1985 and during the first seven hearings said Harish Chandra was the Chief Engineer. During 8th and 9th hearings he was Additional Director General and during 10th to 30th hearing he was Director General of Works and he retired from service on 31st December, 1989. Thereafter, he became member, UPSE. In para No.6 it is further averred that on the applications filed under Section 28 of the Arbitration Act time for making the award was extended from time to time with the consent of the parties and in none of the proceedings for extension, respondent ever raised objection to the arbitrator being not competent to proceed in the matter. Respondent has not contraverted the said averments by filing rejoinder affidavit. Relying on the decisions in Jupiter General Insurance Company Ltd. Vs. Corporation of Calcutta, , Smt. Pratima Sarkar Vs. Corporation of Calcutta and others, , N. Chellapa Vs. Secretary Kerala State Electricity Board and Another, , Prasun Roy Vs. Calcutta Metropolitan Development Authority, , M/s. Neelkanta and Bros. Construction Vs. Superintending Engineer National Highways, Salem and Another, and an unreported decision of the Supreme Court in SLP 10391/94 - Union of India Vs. Vijay Traders the submission made by Sh. G. Vishwanath Iyyer, Sr. Advocate appearing for the petitioner was that as the respondent had acquiesced in the continuance of Harish Chandra as arbitrator after he ceased to hold the post of Chief Engineer, CPWD the respondent is procluded from challenging the award on the ground referred to above. Unreported judgment in above SLP 10391/94, copy whereof is placed on recorded is the direct decision on the issue at hand. Order reads thus:

"In view of the conduct of the petitioner, the High Court was right in saying that it had acquiesced in the continuance of the arbitrator who had retired during the pendency of the arbitration proceedings. On this ground alone the petition for special leave is liable to be dismissed and is accordingly dismissed."

In view of this decision, the objection referred to above is repelled being without merit.

7. This brings me to yet another objection about the arbitrator having failed to give credit for L.D.1,07,137.682 while passing the award in question. Claim No. 8 counter-claims 1 and 2 and the verdict of the arbitrator thereon as noted in the award, which are relevant run as under:-

CLAIM NO.8 The claimants claim a sum of L.D.1,63,997.852 The claim is justified for from the respondents towards an amount of cost of materials L.D.1,63,997.852.

& equipments taken over by the respondents from the claimants.

COUNTER-CLAIM NO.1 The respondents claim a sum of:-

     (a)  Amount to be             LD 6,98,817.718 recovered 
     advances, loans etc.     against Deduction under 
                              counter-claim No.1(b) 
                              has separately been claimed 
                              by M/s.K.S.C.C. under their 
                              claims Nos. 5 & 6 and awards 
                              already given against their 
                              claims which include these 
                              items. Hence a total 
                              sum of LD 9,44,300,000(LD) 
                              Nine lakhs forty four                      
     (b)  Deduct amount            thousand three hundred  
     already recovered        only is justified against 
     as Security              the counter claims Nos. 1 & 2 of M/               
     deposit final bills etc. (-) LD.1,96,.608 M/s.N.B.C.C.
                              LD.5,02,278.110           
     This claim of LD 5,02,278.110 
     was subsequently modified to
     LD 5,27,168,823 by the respondent.
     COUNTER CLAIM NO.2
     The respondents claim 
     a sum of LD 3,76, 525,826 
     (against their original counter-claim of 
     LD 4,74,427.290) from the claimants 
     being the expenditure incurred on 
     purchase of construction materials 
     for works executed on behalf of 
     the claimants M/s.K.S.C.C.
 

8. Alongwith the affidavit of Meera Shankar, Deputy Manager (Law) dated 6th May, 1994, respondent has filed a statement showing the modified position of counter-claim No.1 (Annexure-B). Relying on items at serial Nos. 8 and 10 thereof on page 2 it was contended by Sh. arvind Minocha, appearing for the respondent that the respondent had allowed adjustment for L.D. 1,07,135.683 to the petitioner towards the cost of the material and equipments received back and, therefore, against aforesaid claim No.8 the arbitrator should have awarded L.D.56,862.169 instead of L.D.1,63,297.852 and that error apparent on the face of the record needs to be corrected. Reliance was placed on the decisions in Juggilal Kamlapat Vs. General Fibre Dealers Ltd. and Ardeshar Irani Vs. The State of M.P., . On the other hand, while supporting the award on claim No.8 strong reliance was placed by Sh. Iyyer particularly on the decisions in Jivarajbhai Ujamshi Sheth and others Vs. Chintamanrao Balaji and others, , Bungo Steel Furniture Pvt, Ltd. Vs. Union of India, , Bijendra Nath Srivastava (Dead through L.Rs. Vs. Mayank Srivastava and others, (1994) 6 SCR 117 and State of Rajasthan Vs. Puri Constriction Co. Ltd. & Another (1994) 6 SCR 485.

9. In Jivarajbhai Ujamshi's case (Supra) it was held that:-

"The court in dealing with an application to set aside the award has not to consider whether the view of the arbitrator on the evidence is justified. The arbitrator's adjudication is generally considered binding between the parties, for he is a tribunal selected by the parties and the power of the Court to set aside the award is restricted to cases set out in S.30. 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. On the assumption that the arbitrator must have arrived at his conclusion by a certain process of reasoning, the court cannot proceed to determine whether the conclusion is right or wrong. It is not open to the court to attempt to probe the mental process by which the arbitrator has reached his conclusion where it is not disclosed by the terms of his award."

10. In Bungo Steel Furniture's case (supra) it was held by the Apex court thus:-

"It is now a well-settled principle that if an arbitrator, in deciding a dispute before him, does not record his reasons and does not indicate the principles of law on which he has proceeded, the award is not on that account vitiated. It is only when the arbitrator proceeds to give his reasons or to lay down principles on which he has arrived at his decisions that the court is competent to examine whether he has proceeded contrary to law and is entitled to interfere if such error in law is apparent on the face of the award itself."

11. In Bijendra Nath Srivastava's case (Supra) the Supreme court held:-

"The arbitrator's award is generally considered binding between the parties since he is the tribunal selected by the parties. The power of the court to set aside an award is restricted to the grounds set out in Section 30 of the Act, An award might be set aside on the ground of an error on the face of it when the reasons given by the decision, either in the award or in any document incorporated with it, are based upon a legal proposition which is erroneous. In the absence of any reasons for making the award, it is not open to the court to interfere with the award. The court cannot probe the mental process of the arbitrator and speculate, where no reasons are given by the arbitrator, as to what impelled the arbitrator to arrive at his conclusion. An award is not invalid merely because by a process of inference and argument it may be demonstrated that the arbitrator has committed grave mistake in arriving at his conclusion."

12. In the State of Rajasthan's case (Supra) it was laid down that:-

"Even if it is assumed that on the materials on record, a different view could have been taken and the arbitrators have failed to consider the documents and materials on record in their proper perspective, the award is not liable to be struck down in view of judicial decisions referred to hereinbefore. Error apparent on the face of the record does not mean that on closer scrutiny of the import of documents and materials on record, the finding made by the arbitrator may be held to be erroneous. An error of law or fact committed by an arbitrator by itself does not constitute misconduct warranting interference with the award."

13. Turning to the two decisions relied on behalf of the objector-respondent, in Juggilal Kamlapat's case (supra) it was, inter alia, held thus:-

"the arbitrator becomes functus officio after he has given the award; but that does not in our opinion mean that in no circumstances can there be further arbitration proceedings where an award is set aside or that the same arbitrator can never have anything to do with the award with respect to the same dispute.

Section 13(d), for example, gives power to the arbitrator to correct in an award any clerical mistake or error arising from any accidental slip or omission. Further S. 16 gives power to the court to remit the award to the arbitrator for reconsideration. Therefore, when it is said that the arbitrator is generally functus officio after he has made the award, it only means that he cannot change that award in any matter of substance himself. But that does not take away the court's power to remit the award for reconsideration under S. 16 or to refuse to supersede the reference even though the award is set aside leaving it to the parties to take such further action under the arbitration agreement for further arbitration if it is possible so to do under the terms of a particular arbitration agreement."

14. In Ardeshar Irani's case (supra) it was held that:-

"Where the facts of a case disclose a defect of a kind which would render the award invalid in the opinion of the court, the award must be set aside. The defect disclosed must have the effect of rendering the award invalid being so related to the award as the cause and effect, in order to invoke this clause.

But subject to this restriction, it is for the court to decide whether the defect is of such a kind as to render the award invalid."

15. Needless to repeat that under claim No.8, petitioner had claimed an amount of L.D.1,63,297.854 as the value of the material and equipments left by it at the site which was taken over by the respondent. Respondent did not admit this amount but only a lesser sum of L.D. 1,07,135. In counterclaims 1 and 2 respondent urged certain sums as due to it making its own adjustments including the said amount of L.D.1,07.135. However, the arbitrator also taking note of the statement filed in support of the counterclaims (Annexure B) independently arrived at the amount of L.D. 9,44,300 due to the respondent against the said counter claims. As is manifest from the ratio in aforementioned decisions relied on behalf of the petitioner, it was open to the arbitrator to arrive at his own conclusion. It is not open to the court to attempt to probe the mental process by which the arbitrator had reached his conclusion where it is not disclosed by the terms of the award which in the present case is a non-speaking one. Evidently, objection taken to the said effect is an attempt to re-open the award and have it reconsidered on merits which is not permissible in law.

16. Next submission advanced by Sh. Minocha was that as per the clause pertaining to financial terms and conditions of the agreement, the currency of payment agreed to between the parties was Libyan Dinar and the award of Rs. 15,00,000/- in Indian currency against claim No. 17 is an error apparent on the face of record. It is pertinent to state that said objection has not been specifically taken in the objection petition. Be that as it may, claim No.17 together with verdict of the arbitrator which are relevant read thus:-

The claimants claim a sum of L.D. 1,62,277.000 (against their earlier claim of Rs. 35,70,088.58) from the respondents on account of expenditure incurred in India, by way of expenses for the deployment of workers to Libya and bringing them back to india, bank guarantee commission etc.

The claim is justified for an amount of Rs.15,00,000/- (Rupees Fifteen lakhs only)

17. Claim under the said head seems to be in Indian currency initially. Therefore, even if the arbitrator awarded Rs. 15,00,000/- instead of its corresponding exchange rat in Libyan Dinars it will not in any way constitute an error much less an error apparent on the face of the record.

18. Consequently, Issue No. 1 is answered against the respondent.

19. For the foregoing discussion, objections filed by the respondent are dismissed and the award in question is made the rule of Court with interest pendente lite and future @ 9% per annum on the amount payable to the petitioner after allowing adjustment for the amount awarded by way of counterclaim to the respondent as on the date of award. Decree be drawn. No order as to costs.