Marson'S Electricals Ltd. vs Union Of India (Uoi), The Director ...
2005 Latest Caselaw 1374 Del

JUDGMENT

Swatanter Kumar, J.

1. By this order I would dispose of the above two petitions i.e. CS(OS) No. 848A/2000 and 894A/2000, both filed by the respective parties to the suit under Section 14 and 17 of the Arbitration Act, 1940 (hereinafter referred to as 'the Act') along with IA NO. 11298/2000 filed on behalf of the Contractor/Objector under Section 16, 30 and 33 of the same Act. The parties had entered into an agreement/contract dated 17th June, 1982. This contract contained an arbitration clause. Certain disputes arose between the parties which were referred to the Arbitrator. The said Arbitrator, Sh. B.N. Mani, the then Additional Legal Advisor to the Government of India, Ministry of Law, had pronounced his award. This award was set aside by the High Court vide its order dated 26.10.1999 passed in CS(OS) No. 1383A/1988. The award was remitted to the Arbitrator for determination of the issues particularly whether there was complete contract between the parties. In that award, the Arbitrator had awarded a claim of Rs. 76,896/-. It was the case of the Objector before the Court that there was no concluded contract, it suffered from mutual mistakes in regard to the basic terms of the contract and as such the provisions of Section 20 of the Indian Contract Act were attracted. The defendants had done risk-purchase at the cost of the Objector and had raised the claim of Rs. 1,28,908/- in the subsequent arbitration proceedings. After the case was remitted to the newly appointed Arbitrator Sh. B.L. Nishad in the same Ministry, he made and published the award on 9th March, 2000 and awarded the enhanced claim to the Union of India to the extent of Rs. 1,28,908.80 along with interest @ 18% per annum from 18th April, 1988. Both the parties filed petitions requiring the Arbitrator to file the award and the proceedings before the Court. The Arbitrator filed his award in this court, to which only the contractor filed objections praying that the award is liable to be set aside on the following grounds:-

(a) The Arbitrator has exceeded the reference as well as the jurisdiction, as he has determined on the merits which were not covered by the order of remittance passed by the High Court in earlier proceedings being Suit No. 1383A/1988.

(b) The Arbitrator has still failed to decide the vital issue in regard to existence of a valid and proper contract.

(c) Lastly, it is stated that the Arbitrator could not have given the interest to the claimants and even otherwise, the award is not based on any evidence.

2. However, these objections of the Objector are countered by the Counsel appearing for the Union of India, as it is contended that in terms of the order dated 26.10.1999, the High Court had remanded the matter and the Arbitrator was having complete jurisdiction to entertain the claim and pass a fresh order. It is further stated that the award is based on records, and claim of the claimant has been rightly allowed.

3. There is no dispute to the fact that the earlier award made by Dr. B.N. Mani dated 18th April, 1988 was set aside by this Court with particular emphasis on whether there was a valid existing contract between the parties or not? The objector claims to have filed objections before the Arbitrator specifically on this ground. During the course of hearing, the learned counsel appearing for the Objector even filed written submissions wherein more specific objections have been raised on the following grounds:-

(a) The Arbitrator has drawn the personal knowledge at the back of the petitioner and based his findings on such knowledge.

(b) The Arbitrator has exceeded the reference.

(c) Under the terms of the contract, the Arbitrator is required to give the reasons, but while making the award, the Arbitrator has not given any reasons and the award suffers from an error apparent on the face of the award, as well as non-application of mind. Resultantly, the Arbitrator has misconducted himself and the proceedings. In support of these contentions, it is stated that the Arbitrator was to examine the existence of a contract and find out whether already sum of Rs. 76,896/- was payable or not, but the Arbitrator in an arbitrary manner and without giving any reasons have enhanced the said amount to a sum of Rs. 1,28,908/- with interest @ 18% per annum from 18th April, 1988 till the award is made rule of the court. It is apparent that under the previous award, the claim of the Union of India in relation to risk-purchase loan was allowed to the limited extent of Rs. 76,896/- and no interest was awarded to the claimant. In the present award, the Arbitrator certainly has given no reasons as to why the claim of the claimant was enhanced and in absence of a specific reference why interest @ 18% per annum has been awarded in favor of the claimant. The award does not even refer to the facts of the case, particularly when the Arbitrator was acting on an order of remittance by the High Court with a specific query. He has also not recorded any findings as to whether there is an existing or binding contract between the parties or not? All that has been stated is that the respondent had accepted the contract on 19th August, 1982 and therefore, a concluded contract has been reached between the parties. This was a finding without any basis and the detailed objections of the Contractor were not even referred to. Furthermore, the Arbitrator appears to have looked into the records/the purchase file of the Union of India, without even giving notice to the Contractor or even informing him that there was something in that file which was considered to be adverse to the claim of the Contractor. It has been recorded in the award "I have also perused the Purchase Files brought before me, on my direction." According to the Contractor, this was done in absence of the contractor, and definitely the arbitration records produced before the Court do not reflect in the orders or otherwise that the file was examined by the Arbitrator in presence of the parties and the contractor was put to notice with regard to any adverse factor which was to be considered by the Arbitrator in deciding the claim between the parties. This apparently shows that the Arbitrator has violated the principles of natural justice as well as has imported the knowledge which he received from the records of the Union of India without putting the same to the claimants. Reference in this regard can be made to the judgment of the Supreme Court in the case of Dewan Singh v. Champat Singh and Ors., ; G.L. Textiles Co. v. Union of India 2004 (3) R.A.J. 685 (Del) and a judgment of Division Bench of Mumbai High Court in the case of Pancham International v. UOI in Appeal No. 959/2000 in Arb. P. No. 216/2000.

4. It is also the case of the Objector that the reference was specific in relation to existence and validity of the contract, as such the Arbitrator could not have allowed or considered other claims including enhancement of claim and grant of interest as that would be beyond the purview and scope of the reference to the Arbitrator. In this regard, he has relied upon the judgment of the Supreme Court in the case of Orissa Mining Corporation Ltd. v. Prannath Vishwanath Rawlley ; Union of India v. G.S. Atwal & Co. and Rajinder Krishan Khanna v. Union of India .

5. The grounds taken by the Petitioner challenges the award factually, legally and all grounds are indicative of an error of jurisdiction on the part of the Arbitrator, the findings being contrary to the terms of the agreement and reference, and also that the award provides no reasons despite a specific stipulation in that regard in terms of the contract entered into between the parties. Another reason which questions the correctness of the award is that the Arbitrator has failed to act in accordance with the directions of the court wherein the award was set aside and matter was remanded with a specific direction that the findings with regard to the fact that there was a binding contract between the parties should be recorded by the Arbitrator. The various judgments cited on behalf of the petitioner certainly support the various grounds urged on behalf of the petitioner. In order to examine recording of no reasons or recording of contradictory findings, reference can be made to certain findings in the award. In addition to the Arbitrator recording just one line 'it is not allowed being unjustified', while granting interest @ 18%, all that the Arbitrator has recorded is that the claimant is entitled to 18% interest p.a. from 18th April, 1988 i.e. when the first award was made till actual payment of decree, whichever is earlier. The Arbitrator's conclusion is only based upon :-

The R/P A/T was placed on the lowest acceptable offer without any deviation and the supplies were completed by the R/P A/T holder. The claimant-UOI have incurred a loss of Rs. 1,28,908.80 on account of R/P loss to which they are entitled and the respondent-contractor are liable to pay.

R/P A/T was placed within the stipulated period of six months from the date of breach. The date of breach is 31-03-85. Thus, R/P contract was valid.

6. Remittance of the award to the Arbitrator was for a limited purpose. The Arbitrator apparently seems to have exceeded his jurisdiction and has travelled beyond the terms of the reference in terms of the High Court order in recording various conclusions relatable to different claims particularly disturbing the findings of the earlier Arbitrator awarding a particular amount to Union of India, when on the record and in terms of the order of the High Court there was no justification before the Arbitrator to record such findings. Besides these errors, it is also apparent from the arbitration records that no claim was raised by Union of India in regard to interest for the subsequent period which has been awarded by the Arbitrator.

7. The learned counsel appearing for the Union of India in support of their objections has relied upon the judgment of the Supreme Court in the case of Executive Engineer, Dhenkanal Minor Irrigation Division Orissa, Etc. v. N. C. Budharaj to contend that the Arbitrator has the jurisdiction to award pre-reference period interest on sums found due and payable. No doubt the question of law in relation thereto have been settled by the Supreme Court in this judgment but the court has to examine applicability of the said decision to the facts of the present case. The Arbitrator who was earlier appointed had awarded no interest on that sum and the Arbitrator in subsequent proceedings re-opened the whole proceedings and not only awarded a higher sum to the Union of India but even awarded interest thereupon. Once the matter was squarely outside the jurisdiction of the Arbitrator, its period and quantum would more or less be not relevant for this purpose. In the case of B.L. Gupta Construction Company (P) Ltd. v. Bharat Cooperative Group Housing Society Ltd. , the Court held that power of the Arbitrator to award interest pre-reference and pendente lite and the Arbitrator whether appointed through the process of the court or otherwise, has the power to grant interest in respect of pre-reference period subject to the limitation of Section 29 and the terms of the arbitration agreement in relation to the arbitration proceedings covered under the 1940 Act. Further, but more important principle enunciated by the court is that even the High Court while upsetting such a finding of grant of interest has to record proper reasons. The discretion of the Arbitrator is not so absolute in its terms that without even expressing anything in that regard the Arbitrator should grant interest in face of the award by an earlier Arbitrator where such relief was not granted. The applicability of the concept of reasoning has already been dealt with by the judgment of the Supreme Court in the case of Jajodia (Overseas) Pvt. Ltd. v. Industrial Development Corporation of Orissa Ltd. where the Court 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.

8. Normally lack of reasoning by itself may not be a sufficient ground for setting aside an award under Section 30 and 33 of the Act, but where such lack of reasoning is coupled with errors of law and acting beyond jurisdiction in excess of order of reference, the award would be liable to be interfered with. The Arbitrator ex-facie has not recorded reasons and findings in relation to existence and validity of contract as every other liability whatever has accrued there from. Absence of this finding would be a material irregularity of law leading to interference by this court in the impugned award.

9. For the reasons afore-recorded, there is merit in the contentions raised on behalf of the objector. Consequently, the objections are accepted, the award is set aside and remitted back to the Arbitrator for recording fresh findings after giving opportunity to the parties, as per the observations made in this judgment and in accordance with law.