Vijay Kumar Garg Contractor (P) ... vs Indian Oil Corporation Ltd.
2006 Latest Caselaw 330 Del

JUDGMENT

Sanjay Kishan Kaul, J.

IA No. 12629/1996 (Under Section 30 & 33 of the Arbitration Act, 1940)

1. The respondent Corporation issued a notification to tender (NIT) for the work of construction of a residential complex at Chandigarh and the petitioner was the successful tenderer. A letter of intent was issued on 18.04.1988 by the respondent followed by the work order dated 22.04.1988. The work was to commence from 15th day of the issuance of work order and was to be completed within a period of 15 months in terms of clause 5(a) of the work order. The stipulated date for commencement of work was, thus, 06.06.1988 and for completion of work was 06.08.1989.

2. The work could not be commenced in time due to the respondent being unable to obtain requisite permissions from the authorities in Chandigarh and in terms of the letter dated 09.09.1988 of the respondent, the stipulated date for commencement of work was deferred / modified to 01.09.1988. This power was apparently exercised in terms of clause 12 of the General Conditions of Contract, which is as under:

12. The Contractors shall on being so directed by the Engineering Manager postpone any work to be executed under this Contract and/or suspend further progress of all or any part of the work and shall not resume execution of the same until they receive written orders from the Engineering Manager to proceed. The Contractors shall not be entitled to claim any payment from the Corporation for damage arising from the postponement or suspension of such work. If, however, such postponement or suspension is more than six months, the Contractors may require the Engineering Manager either to give permission to proceed with the work or to treat the contract as cancelled in respect of the unexecuted portion of the work and the "Engineering Manager shall within 7 days from the issue necessary instructions to the Contractors, but in either of the events the Contractors shall not have any claim for damage, compensation or otherwise against the Corporation.

3. On execution of the contract, disputes and differences arose between the parties about their claims and counter claims with the result that Director (M) of the respondent vide letter dated 07.07.1993 appointed Shri R. Behari as the Sole Arbitrator. The Arbitrator entered upon reference and made and published his Award dated 20.05.1996.

4. The petitioner aggrieved by the same has filed objections under Sections 30 and 33 of the Arbitration act, 1940 (hereinafter to be referred to as, 'the said Act').

5. A perusal of the Award shows that the claims have been allowed and disallowed for each of the claim and counter claim. However, there is no reasoning given in the Award though initially it was sought to be contended by learned counsel for the respondent that the same is a reasoned award.

6. In order to appreciate whether an award is a reasoned award. The basic parameter of a reasoned award has to be kept in mind that at least the direction of thought process of the Arbitrator should be available even if the award is not giving detailed reasons in the form of a judgment. However, even this basic parameter is not fulfillled as all that has been stated is whether the claimant or the respondent is or is not entitled to the amount. Thus, the award is not a reasoned award.

7. In view of the aforesaid position and in view of the limitation in scrutinising an unreasoned award, it was put to learned counsel for the petitioner as to whether there was any requirement as per the arbitration clause requiring a reasoned award to be given or whether the parties at any stage had insisted on a reasoned award. Learned counsel for the petitioner fairly stated that there was no such requirement, though it was also not provided that it could be an unreasoned award. Thus, in my considered view, the award has to be scrutinised within the parameters of the scrutiny of an unreasoned award.

8. Learned counsel for the petitioner contended that when the time-period of contract is extended, then the time does not remain the essence of contract and, thus, the respondent could not be entitled to any amounts on account of delays, if any. In this behalf, learned counsel referred to judgment of the Supreme Court in M/s. Hind Construction Contractors by its sole proprietor Bhikhamchand Mulchand Jain (Dead) by L.R.'s v. State of Maharashtra, . In the said case, the Supreme Court held that even where the parties had expressly provided the time is essence of the contract, the stipulation would have to be read along with other provisions of the contract and such other provisions may on consideration of the contract exclude the inference that the particular date was intended to be fundamental. Thus, for instance, if the contract was to include the clause providing for extension of time in certain contingencies or for payment of fine or penalty for the work undertaken remaining unfinished on the expiry of the time provided, such clause would be considered as rendering ineffective the express provision relating to time being the essence of contract. In the particular case, the contract was for construction of an aqueduct across the river within the stipulated period of 12 months. The power was conferred on the Executive Engineer to grant extension of time for completion of work on reasonable grounds and for levying of penalty. It was held that such provisions could exclude the inference that the time was intended to be the essence of contract and the termination of such a contract on the part of the State Government without fixing any further period making time the essence of contract and directing the contractor to complete the work within such period of time was clearly illegal and wrongful.

9. Learned counsel for the petitioner also referred to judgment of the Supreme Court in Raipur Development Authority etc. etc. v. Chokhamal Contractors etc. etc., to advance the proposition whether reasons were mandatory as a ground had been taken about their being violations of the principles of natural justice and reasons not being given. The judgment is of not much assistance to the petitioner for the reason that what has been held is that an award is not liable to be set aside on the ground that no reasons have been given, though it has been observed that in government contracts, as a matter of policy in public interest, it should be ensured that arbitration clause provide for speaking awards by the arbitrator. In the present case, there is no such provision in the clause. The Supreme Court even observed that furnishing of reasons in support of a decision was not in violation of the principles of natural justice as the said principles had no application to cases arising under the law of arbitration, which is intended for settlement of private disputes.

10. Learned counsel for the petitioner also emphasised the fact that all the claims of the petitioner had been rejected and all the claims of the respondent had been allowed in toto on the basis of the exact figures of the respondent and, thus, the Arbitrator has not applied his mind.

11. Learned counsel for the respondent, on the other hand, referred to the limited scrutiny of the court in such matters. Learned counsel submitted that the initial delay did not in any manner affect the respondent as the petitioner had not mobilised the resources and this was the stand taken by the respondent. The postponement of the date of commencement was well within the powers of the respondent in view of clause 12 mentioned herein-above. It was in view thereof that the Arbitrator had arrived at a finding that the petitioner was not entitled to any such amounts. Learned counsel also emphasised the fact that in terms of clause 10(1) of the Special Conditions of Tender, it was specifically provided that the contractor was not entitled to claim any amount for compensation for delay in supply of drawings, decisions, running payment, etc. This was so provided since such drawings were to be given only for guidance of the contractor. The drawings had been duly supplied, but despite this, the contractor had delayed the work with the result that the respondent was well within its rights to recover liquidated damages. There was admittedly delay on the part of the contractor in completing the work.

12. Learned counsel referred to judgment of the Apex Court in T.P. George v. State of Kerala & Anr., (2001) 2 SCC 758 to emphasise that the test to be applied in case of an award of a reasonable person is as long as the award is reasonable, the court is not to substitute its own mind with that of the arbitrator.

13. Learned counsel also referred to judgment of the Apex Court in Indu Engineering & Textiles Ltd. v. Delhi Development Authority, to emphasise that unless the view taken by the arbitrator is vitiated by a manifest error on the face of the award or is wholly improbable or perverse, it is not open to the court within the statutory limitation set out in Section 30 of the said Act to interfere with the award. The arbitrator is a judge appointed by the parties and such an award passed by him is not to be lightly interfered with. The parameters were set out in para 5 as under:

5. The scope for interference by the court with an award passed by the arbitrator is limited. Section 30 of the Arbitration Act, 1940 (for short "the Act") provides in somewhat mandatory, terms that an award shall not be set aside except on one or more of the grounds enumerated in the provision. The three grounds set out in the section are:

(a) that an arbitrator or umpire has misconducted himself or the proceedings;

(b) that an award has been made after the issue of an order by the court superseding the arbitration or after arbitration proceedings have become invalid under Section 35;

(c) that an award has been improperly procured or is otherwise invalid.

Interpreting of statutory provision courts have laid stress on the limitations on exercise of jurisdiction by the court for setting aside or interfering with an award in umpteen cases. Some of the well-recognised grounds on which interference is permissible are:

(1) violation of the principle of natural justice in passing the award;

(2) error apparent on the face of the award;

(3) the arbitrator has ignored or deliberately violated a clause in the agreement prohibiting dispute of the nature entertained;

(4) the award on the face of it is based on a proposition of law which is erroneous, etc.

14. Learned counsel submitted that if the aforesaid parameters are applied, no interference would be called for.

15. Learned counsel also emphasized the fact that recital portion in the Award refers to claims and counter claims filed by the parties, the documents filed and the evidence placed by way of affidavit. Personal hearings were also granted. The Arbitrator after having examined and considered the pleadings of the parties, the documents placed on record and the evidence led by the respective parties has given the Award. Once this is so recorded even if the Award is without reasons, the same ought not to be interfered with in view of the Constitutional Bench judgment of the Supreme Court in Raipur Development Authority etc.(tm)s case (supra).

16. Learned counsel referred to judgment of the Supreme Court in M/s. Neelkantan and Bros. Construction v. Superintending Engineer, National Highways, Salem and Others, to advance the proposition that where an arbitrator has given no reasons for the award and there was no legal proposition, which was the basis of the award far less a legal proposition which was erroneous, the court could not review the award and correct any mistake in the adjudication by the arbitrator.

17. The analysis of the aforesaid legal position, in my considered view, leaves no manner of doubt about the limited scope of scrutiny by the court in respect of an award. The court is not an appellate authority to scrutinize and correct the decision of the arbitrator, which may be erroneous on facts or on the basis of the evidence produced before the arbitrator. Even if the court was to come to a different conclusion than the arbitrator, there would be no occasion for interference with the award so long as the view taken by the arbitrator is a plausible one. The mode of arbitration is a methodology of settlement of disputes with a chosen arbitrator. No doubt, in the present case, the arbitrator has been appointed by the designated authority of the respondent Corporation, but one cannot lose sight of the fact that the parties entered into a contract which contained the arbitration clause and which in turn provided the methodology of appointment of an arbitrator. Thus, the parties had agreed to arbitration with the arbitrator to be appointed in a particular manner.

18. There is no requirement of reasons to be recorded in the award by the arbitrator where there is no such provision contained in the arbitration clause. This position cannot be disputed in view of catena of judgments including in Raipur Development Authority etc.(tm)s case (supra).

19. The Arbitrator gave both the parties adequate opportunity to file their pleadings in the form of claims and counter claims, documents in support thereof and led evidence and thereafter the opportunity of oral hearing was also granted. This fact is recorded in the Award and the Arbitrator has stated in the award, "After having examined and considered the pleadings of the parties, the documents, the evidence by them before me in the proceedings orally as well as in writing, I hereby give my award issue-wise as under".

20. The aforesaid, thus, makes it clear that the Arbitrator has applied his mind to the material placed before him. No doubt, in the particular case, all the claims of the petitioner have been rejected, while all the claims of the respondent had been allowed, but that cannot be a reason to set aside the Award.

21. It is important to note that various amounts, which have been awarded or rejected, relate to the matters such as deviation of work, rectification of work which had to be carried out and such other connected matters. Since the respondent spent amounts on the said works, the same were sought to be adjusted from the security deposit and other such monies of the petitioner available with the respondent. Liquidated damages have been levied on account of delay on the part of the petitioner in the execution of contract.

22. It is no doubt true that there was delay in the commencement of work on account of the respondent, but it has been found that such a power existed with the respondent under the contract to defer the date of commencement. Clause 12 in this behalf has been referred to. I am unable to accept the contention of learned counsel for the petitioner that such a power cannot be said to be vested under clause 12 as it mandated a condition of a prior direction by the Engineer Member and no such direction was available. This is a matter of scrutiny of the material before the arbitrator and the interpretation of the clause. The Arbitrator, in the present case, has not taken an implausible view of the terms of the contract and, thus, the respondent was well within its rights to postpone the date of commencement. Further, the postponement of the date of commencement of work would not imply that once the contract started, the petitioner would equally have a right to keep delaying the contract. There is a provision of liquidated damages which has been invoked.

23. The judgment of the Apex Court referred to by learned counsel for the petitioner in M/s. Hind Construction Contractors(tm)s case (supra) would not be of much assistance for the reason that it dealt with the issue of circumstances where time is the essence of contract. That was the case of termination of contract which is not so in the present case. In this case, damages have been levied on the petitioner for delay. Further, the present case is one where the Arbitrator has taken a view on the basis of the material before him and merely because there could be another plausible view, the same would be no ground to interfere with the Award.

24. The Arbitrator has found that the respondent Corporation is entitled to recover a total amount of Rs.9,04,641.16 from the petitioner on account of delay in the completion of work, deviations / discrepancies admitted by the petitioner and on account of defects, deviations and deficiencies in the completion of work for which rectification had to be done. Out of the said amount, the respondent had already recovered sums from the contractor(tm)s bills, certain other amounts were withheld and only a balance amount of Rs.37,455.98 was found due and payable by the petitioner to the respondent. The Arbitrator has directed the payment within 30 days, failing which the respondent would be entitled to interest @ 18% p.a. till realization. Insofar as the rate of interest is concerned, I consider it to be on the higher side and taking into consideration the prevailing commercial rates of interest at the relevant time and the rate of interest being allowed by this Court, simple interest @ 12% p.a. would suffice.

25. The application stands disposed of accordingly.

+ CS (OS) No. 2580/1996

26. The objections having been disposed of, the Award dated 20.05.1996 made and published by the Sole Arbitrator, Shri R. Behari is made Rule of the Court with the modification that the respondent is held entitled to simple interest @ 12% p.a. on the balance sum of Rs.37,455.98 from the date of the Award being 20.05.1996 till the date of decree. The respondent is also held entitled to future interest from the date of decree till the date of realisation @ 9% p.a. simple interest.

27. Parties are left to bear their own costs.

28. Decree-sheet be drawn up accordingly.