Fixopan Engineers (P) Ltd. vs Union Of India (Uoi) Through ...
2005 Latest Caselaw 1129 Del

JUDGMENT

Swatanter Kumar, J.

1. The Plaintiff, M/s. Fixopan Engineers (P) Limited, was awarded a rate contract by the Defendants. This contract was awarded for the supply of high density polythene pipes for supply of potable water for the period- 1st October, 1983 to 30th September, 1984. In terms of the clause 24 of the agreement executed between the parties, the matter was referred to arbitration of an Arbitrator. According to the Plaintiff, in terms of the same clause, the award of the Arbitrator shall be final and binding on the parties. After reference to the Arbitrator in relation to the disputes between the parties, the Arbitrator passed an award dated 23rd April, 1998. This award was filed in this court and notice of the filing of the award was issued to the parties. According to the Plaintiff/Objector, the notice was served on 8th October, 1998 and the plaintiff filed objections to the award.

2. Before the award could be filed in this court, the Objector had filed a suit under Section 14 and 17 of the Arbitration Act praying that the Sole Arbitrator Sh. S.B. Sharan, Additional Legal Advisor, Ministry of Law, Government of India, New Delhi, be directed to file the award in this Court. This was registered as Suit No. 1048/1998. Notice in this suit was issued vide order dated 23rd November, 1993. It was noticed that the award has been filed in this court and was registered as Suit No. 1828/1998. As such, both these Suits were listed together for hearing from time to time. Thus, it would be appropriate to dispose of both these suits by this judgment.

3. The objections were filed by the Objector within the stipulated time. The objections taken by the Objector/plaintiff can broadly be stated as under:-

1. Under the terms of the contract, the Arbitrator was obliged to give reasons for granting or refusing any claim of a party in excess of Rs. 1 lakh. No such reasoning has been recorded by the Arbitrator.

2. The Executive Engineer, who awarded the works to the Plaintiff and placed the order for further work was not having the financial competence to place such an order. It is also argued that the Arbitrator ought to have taken note of instruction no.2, issued for 'Direct Demanding Officers', which was regularly followed by the Department to the knowledge of the others.

3. Even otherwise, the award by the Arbitrator is not a reasoned award and thus, is in conflict with the terms of reference and the agreement entered into between the parties.

4. The Arbitrator had misconducted himself and the proceedings by not appreciating the fact that the letter dated 8th March, 1984 was not a cancellation order, but in fact, a declaration that orders were placed illegally and were therefore null and void.

5. The respondents having received advantages under the terms of the same agreement, could not have questioned the validity of the said agreement. The Arbitrator has fallen in error of law in not giving advantages to the Respondents in this regard.

6. The award of the Arbitrator is suffering from errors of law.

4. The essence of the objections raised on behalf of the Objector relates to non-application of mind, giving a finding which is not based on reasoning and the findings are also contrary to the record, and terms of the agreement. The court cannot re-appraise the evidence produced before the Arbitrator and the jurisdiction of the Court in examining the reasons given by an Arbitrator is a very limited one. In support of this contention, the learned counsel appearing for the Union of India relied upon the judgments of the Supreme Court in the case of The Upper Ganges Valley Electricity Supply Co. Ltd. v. The U.P. Electricity Board , and a judgment of this Court in the case of Anand Brothers Pvt. Ltd. v. Union of India .

5. It would be appropriate to examine the merits of the contentions raised by the respective parties in regard to the point that Arbitrator has given no reason in support of the findings. Clause 24 of the agreement admittedly executed between the parties, reads as under:-

In the event of any question, dispute or difference arising under these conditions or any special condition of contract or in connection with this contract (except as to any matter the decision of which is specially provided for by these or the special conditions) the same shall be referred to the Arbitration of an Officer in the Ministry of Law, appointed to be the Arbitrator by the Director General of Supplies and Disposals. There will be no objection that the Arbitrator is a Government Servant and that he had to deal with the matters to which the contract relates or that in the course of his duties as a Government Servant he has expressed views on all or any of the matters in dispute or differences. The award of the Arbitrator shall be final and binding on the parties to this contract.

If the value of the claims in a reference exceeds Rs. One lakh, the Arbitrator shall give reasoned-awards.

6. The Arbitrator has allowed the claims of the Union of India in excess of Rs. 1 lakh. After noticing the facts of the present case and the written submissions submitted by the parties, the operative part of the award reads as under:-

After having gone through the pleadings of the case as well as other documents on record and also after hearing arguments from all the parties it appears that the contract between the claimants and the Respondents was a valid and concluded contract. The fact that the Executive Engineer who had placed the four supply orders was not having the financial capacity to do so was not the concern of the Claimants as it was the internal matter of the Respondent No. 2 and the Claimants were perfectly right in procuring the raw materials and for taking all other necessary steps for timely and due execution of the contract. The cancellation of the contract was not in accordance with the terms and conditions of the contract. According to the Break Clause three months' notice was necessary. Without giving such notice the contract was cancelled by Respondent No. 2 within the delivery period despite the fact that there was no lapse on the part of the claimant-contractor. The Respondent No. 2 had no jurisdiction to cancel the purchase order as the Respondent No. 1 only had the authority to do so and that could be done only in accordance with the terms and conditions applicable to the contract. This was thus a total breach of contract by Respondent No. 2. As the Claimants have suffered heavy losses on account cancellation of the contract due to no fault on their part, they are entitled for the damages as claimed by them. The contentions of the Respondents denying the claim of the claimants are not legally tenable. The reduced amount of Rs. 18,59,150/- claimed on account of damages after mitigating the loss to the extent as fas as possible is justified, as the same is duly supported by documents and has been claimed on the basis of the judgment of the Hon'ble Supreme Court in case No. 1984 4 SCC 59 of Brijpal Singh v. State of Gujarat. In the circumstances, the following Award is made:-

A W A R D

1.The claim of the Claimants against the Respondent No. 1 & 2 for Rs. 17,890.84 as balance payment for stores supplied is allowed.

2.The claim of the claimants for interest on the amount mentioned at Serial No. 1 above, @ 18% per annum from the date amount was due till realisation of the payment is allowed.

3.The claim of the Claimants for Rs.18,59,150/- on account of damages is allowed.

4.Claim of the Claimants for interest on the amount mentioned at Serial No. 3 above, is disallowed being not justified.

5. Parties to bear their own costs.

Signed under my hand this twenty-third day of April, 1998.

(S.B. SHARAN)

SOLE ARBITRAtor

7. It is the contention of Kerala Water Authority that the claims have been allowed without recording any reasons. The bare reading of the above findings of the Arbitrator shows that the only reason given for allowing the damages and claim of the Contractor is "the contention of the Respondents denying the claim of the Claimants are not legally tenable." The reasoning given by the Arbitrator is certainly not in consonance with the terms of the contract entered into between the parties. The obligation is placed upon the Arbitrator in terms of Clause 24 that if the value of the claim in a reference exceeds Rs. 1 lakh, the Arbitrator shall give reasoned award. 'Reason' wherever contractually or statutorily is explicitly or impliedly required, then it is the soul of the final decision. Reasoning would be an expression of mind which shall provide before the Appellate or other Forum, the grounds for proper adjudication. Absence of such reasoning normally would vitiate the conclusion, unless in the facts and circumstances of the case, no other view was possible. What is the evidence in support of the claim allowed by the Arbitrator, how the said claim and particularly the damages, were computed, is a matter which required, if not a detailed, then at least some deliberation by the Arbitrator in that regard. It may not be extensive deliberation on the issue, but it should certainly be somewhat akin to the concept of proper reasoning.

8. Learned counsel appearing for the Objector has rightly placed reliance upon the case of Jajodia (Overseas) Pvt. Ltd. v. Industrial Development Corporation of Orissa Ltd. , Raipur Development Authority and Ors. v. M/s. Chokhamal Contractors and Ors. (1989) 2 Supreme Court Cases 721 and Union of India v. V.K. Bahri and Anr. AIR 1980 Delhi 265. A consistent view has been taken in these judgments and particularly in the case of Jajodia (Overseas) Pvt. Ltd. (supra) where the Supreme Court held that mere giving of answers to the issues in the award would not show that it is a speaking award. Of course, it was also stated in the same judgment that court should be very circumspect in setting aside an award, but where an award was required to be a speaking award and in terms of the contract, it had no reasons, the Supreme Court in the above judgment held as under :-

A speaking or reasoned award is one which discusses or sets out the reasons which led the arbitrator to make the award. Setting out the conclusions upon the questions or issues that arise in the arbitration proceedings without discussing the reasons for coming to these conclusions does not make an award a reasoned or speaking award. In the award in this case the arbitrator only answered the issues that were framed without discussing or setting out the reasons for the answers. The award is, therefore, not a speaking or reasoned award.

9. In the present case, the Arbitrator has hardly recorded any reasons, and has merely made reference to the facts of the case and the contentions raised on behalf of either side. It is the appreciation of such contention by the Arbitrator which is the essence of proper reasoning, and total lack of discussion by the Arbitrator on this aspect, would certainly call for interference by this court, and to that extent the award would be liable to be set aside and remitted to the Arbitrator for giving proper reasoning after hearing the parties in accordance with law.

10. The other contentions raised on behalf of the Objector is that the concerned Officer had no authority (financial competence) to place orders upon the Contractor and as such the contract is not binding upon the Kerala Water Authority, and the claim based upon supply of such stores is liable to be set aside. While supporting this contention, the learned counsel also relied upon Article 299 of the Constitution of India to say that a contract beyond authority, cannot bind the Government. In this regard, he relied upon judgment in the case of State of Uttar Pradesh and Anr. v. Murari Lal and Brothers Ltd. , Chatturbhuj Vithaldas Jasani v. Moreshwar Parashram and Ors. , M/s. Motilal Padampat Sugar Mills Co. Ltd. v. The State of Uttar Pradesh and Ors. 1979 SC 621 and Union of India and Ors. v. India Tobacco Company Ltd., (1985) 4 Supreme Court Cases 370.

11. To examine the merits of this contention, reference to the clauses of the agreement between the parties and instructions issued to the Contractor by the Respondents, would be necessary. The terms of the contract have to be read along with such documents which were known to the contractor in normal course of business. At Page C-11 of the Arbitrator's Record, a document has been placed which is issued 'for official use only' and it indicates certain instructions which were issued to the Direct Demanding Officer. Even under Clause 4 of this letter, it is stated that there is no monetary limit for single supply order against this Rate Contract. Clause 10 of the same instructions read as under:-

10. DELIVERY: As per delivery required and stipulated in the supply orders to be placed against the Rate Contract. You have to effect supplies against supply orders received against this rate contract @ 30 M/Ts. Per month which is the minimum quantity you have committed against this rate contract.

12. Furthermore, the Director General of Supplies and Disposal had issued a list of Direct Demanding Officers for Polythene Pipes/PVC pipes and at serial No. 32 of the said instructions, which was given to the Contractor for his information. Executive Engineer, Public Works, Health Division was stated to be the proper demanding officer for such supplies for the concerned Department. In other words, at no point of time, the general terms and conditions or the specific terms of the contract executed between the parties made it known to the contractor that the said Demanding Officer had limited financial powers or could not place orders in excess. The instructions relied upon by the Objector are primarily of a restrictive nature and it was termed as a restrictive circular. This would show that the Contractor had no knowledge nor could he be deemed to have such a knowledge on any principle that the authority of the Officer who was fully competent as per terms of the contract and instructions issued to place orders upon the plaintiff, was in any way limited by financial implications. The Arbitrator ought to have taken notice of the provisions of Section 65 of the Contract Act wherein a party who had taken advantage of the terms of the contract and accepted the supplies on earlier occasions, could not be permitted to alter its stand in this regard to the prejudice of the other side. All the orders placed in the present case were in excess of Rs.25 lacs and no such protest or objections were raised by the respondents and the supplies earlier made by the respondents were duly accepted by the Objector. The learned Counsel for the Respondent could hardly refer to any record of the Arbitrator which could even demonstrate, much less establish the fact that the alleged financial restriction on powers of the Demanding Officer was a fact known to the Contractor and the parties intended to implement such a circular, which in any case was a restricted circular, meant for internal management of the respondents. It is also not in dispute that no action has been taken by the concerned authorities against the said Demanding Officer. In these circumstances, the Objector can hardly rely upon the provisions of Article 299 of the Constitution of India and the judgments relied would have no application. Thus, the claim allowed in favor of the Contractor on such premises would hardly call for any interference.

13. In view of my above reasoning, the award is severable in terms of the judgment of the Supreme Court in the case of The Upper Ganges Valley Electricity Supply Co. Ltd. (supra). The claim of damages of Rs. 18,59,150/- is unreasoned and is not relatable to the record of the Arbitrator. Furthermore, it is contrary to the terms of the agreement. The Arbitrator should have given proper reasons upon due deliberation for allowing or disallowing this claim. Consequently, the award in so far as it allows the claim in favor of the Contractor for a sum of Rs. 18,59,150/- is set aside and remitted to the Arbitrator who shall, after giving opportunity of hearing to the parties, record proper reasons in support or otherwise of his decision now to be taken. The remaining award calls for no interference. The objection raised by the Objector are without any merit and the same are not accepted.

14. Both the petitions are accordingly disposed of.