Union Of India vs M/S D.Khosla And Company
2022 Latest Caselaw 738 j&K

                                      h475




      HIGH COURT OF JAMMU & KASHMIR AND LADAKH
                      AT JAMMU

                                             CFA No.18/2014
                                             IA Nos.91/2014, 2/2015, 3/2015 &
                                             1/2017

                                                Reserved on :17.02.2022
                                                Pronounced on : 09.05.2022
                                               (through virtual mode)

Union of India                                                          ...Appellant(s)


                           Through:- Mr. Pranav Kohli, Sr. Advocate with
                                     Mr. Rahul Sharma, Advocate
      V/s

M/s D.Khosla and Company                                           ...Respondent(s)
                          Through:-Mr. Sourabh Malhotra, Advocate


Coram: HON'BLE MR. JUSTICE SANJEEV KUMAR, JUDGE


                                 JUDGMENT

1. Union of India through Chief Engineer (P) Sampark is in appeal

under Section 39 of J&K Arbitration Act, 2002 (1945 A.D.) [ "the Act"]

against the order and judgment of the Principal District Judge, Jammu ["the

Court below"] dated 11.01.2014 passed in File No.42/Award titled M/s D

Khosla and Company v. Chief Engineer (P) Sampark. The Court below

vide its judgment dated 11.01.2014, impugned in this appeal, has dismissed

the application of the Union of India filed under Section 30 and 33 of the

Act for setting aside the arbitral award dated 04.01.2008 passed by Brig

(Retd.) B.V.Ahuja, the sole arbitrator.

2. Before adverting to the grounds of challenge pleaded and urged by

the appellant-Union of India to sustain challenge to the impugned order of

the Court below, it would be necessary to allude to the background facts

leading upto the filing of instant appeal.

Pursuant to an NIT issued by appellant for allotment of work of

"Design and Construction of Permanent Bridge Over River Niara Tawi at

65.51 on Akhnoor-Poonch Road in J&K State under Project Sampark" the

respondent-the contractor was found to be the successful bidder and

accordingly, a contract agreement was entered into between the Union of

India and the contractor on 14.06.1987. The lumpsum value of the contract

to be executed by the contractor was Rs.90,59,000/- with the completion

period of 24 months. The date of commencement of the work was stated as

8th August, 1988 and was to be completed and handed over by the

contractor by or before 7th August, 1990. It appears that on account of

certain delays and technical problems, the work could not be completed

within the stipulated period. On the request of the contractor, time to

complete the work in question was extended from time to time and as per

the last extension granted, the contractor was to complete the work by 31 st

March, 1993. It appears that the contractor during the currency of the

contract approached the appellant for interim arbitration on the ground that

certain disputes between the parties were affecting both, progress of the

work and the payments. The Union of India did not oblige in the beginning

but later agreed to interim arbitration, which, however, did not materialize

thereafter. But, instead, the contract was terminated on 14.06.1993. Feeling

aggrieved by the termination of the contract agreement by the appellant, the

contractor approached the designated authority (Director General of Border

Roads) for appointment of an arbitrator under Clause-70 of the General

Conditions of the contract. The designated authority did not act on the

request of the contractor, which constrained him to approach the Court of

Principal District Judge, Jammu for appointment of an arbitrator in terms of

Clause 70 of the General Conditions of Contract to adjudicate upon the

disputes between the parties arising out of the contract. While the matter

was pending consideration of the Court below, the designated authority

appointed Brig. Sudhir Kumar as sole arbitrator to arbitrate the dispute

between Union of India and the contractor. The Civil Court, however, did

not accept the appointment of the arbitrator made by the designated

authority under the contract agreement and appointed Brig. (Retd.)

B.V.Ahuja, as sole arbitrator in the matter. The order of the Court below

appointing Brig. B.V.Ahuja as sole arbitrator was called in question by the

Union of India before a Single Judge of this court and after having failed

before the Single Judge, before the Division Bench of this Court. In short,

the order passed by the District Judge, appointing Mr. B.V.Ahuja as sole

arbitrator was upheld.

The sole arbitrator entered the reference and issued notices to Union

of India and the contractor on 16th August, 1996 to put forth their

respective claims and counter claims. Both the parties filed their statement

of claims/counter claims and also filed statement of defense to the

statement of claims filed by the opposite party. It may be noted that the

Division Bench, which upheld the appointment of Mr. B.V.Ahuja, as sole

arbitrator, directed the appointed arbitrator to conclude the proceedings

within four months.

The proceedings commenced as above; parties were asked to lead

evidence; on the conclusion of the evidence of both the parties, the matter

was slated for final arguments on 3rd October, 2007. The matter was

adjourned on couple of hearings. As it has come out from the arbitration

award that on the hearing that took place on 17 th December, 2007, both the

parties appeared before the Arbitrator but on the last and final hearing,

which took place on 28th December, 2007, it was only the contractor, who

was present whereas there was nobody present on behalf of the Union of

India. The matter was heard by the arbitrator in the absence of the Union of

India and the award was passed on 4th January, 2008. The Arbitrator

awarded the following claims in favour of the contractor.

  S.No.           Amount claimed      Amount awarded by the arbitrator


  Claim No.1      Rs.32,58,578.00     Rs.32,58,578.00


  Claim No.2      Rs.3,02173.00       Rs.3,02,173.00


  Claim No.3      Rs.20,14,068.91     Rs.20,14,068.91


  Claim No.4      Rs.6,06,500.00      Rs.6,06,374.00


  Claim No.5      Rs.16,532.82        Nil





Claim No.6    Rs.50,06,047.95     Rs.50,06,047.95


Claim No.7    Rs.1,40,488.50      Rs.1,40,488.50


Claim No.8    Rs.1,25,000.00      Rs.1,25,000.00


Claim No.9    Rs.11,665.00        Nil


Claim No.10   Rs.5,000.00         Nil


Claim No.11   Rs.1,50,000.00      1,50,000.00


Claim No.12   Rs.70,000.00        Rs.70,000.00

Claim No.13 Rs.9,65,56,567.48 Rs.7,23,52,488.35

Claim No.14 Rs.25,14,000.00 Rs.25,14,000.00

Claim No.15 18% Interest per Interest @ 18% per annum on

annum from the claim No.1 to 14, except on claim

termination of the No.13 from the date of

award cancellation of contract i.e.

14.06.1993 to the date of reference

i.e. 27.07.1996

Claim No.16 Interest @ 18% Interest @ 18% per annum on

per annum from claim No.1 to 14, except on claim

the date of No.13, from the date of reference

reference to the to the date of publication of the

date of award.

publication of the

award

Claim No.17 Interest @ 18% Interest @ 18% per annum for all

per annum on all the claims from the date of

the claims from publication of the award upto the

the date of date of payment or upto the court

publication of the decree, in the event of non-

award upto the payment of the total awarded

date of payment amount against all claims earlier,

or upto the court by the Union of India.

decree

Claim No.18 Rs.9,55000.00 as The parties to bear their own costs

cost of arbitration

The Arbitrator, thus, awarded a total amount of Rs.8,65,39,218.70

along with interest @ 18% per annum in the manner detailed above. So far

as the amounts claimed by the Union of India are concerned, the arbitrator

has awarded the same in the following manner:-

 S.No.                     Amount claimed        Amount awarded


 Claim No.(a)              Rs.17,27,245.00       Nil





 Claim No.(b)            Rs.7,16,583.00          Nil


 Claim No.(c)            Rs.1,00,000.00          Nil. Parties to bear their
                                                 own respective cost of
                                                 arbitration

 Claim No.(d)            Rs.30,000.00            Nil


 Claim No.(e)            Rs.62,84,243.00         Rs.47,13,182.25


 Claim No.(f)            Rs.10,34,235.00         Nil


 Claim No.(g)            Rs.4,390.00             Nil


 Claim No.(h)            Rs.50,000.00            Nil

The Union of India has, thus, been awarded an amount of

Rs.47,13,182.25 without awarding any interest. This is in a nutshell the

proceedings conducted by the arbitrator and the award passed by him

3. Feeling aggrieved by the award passed by the sole arbitrator, the

Union of India filed an application under Section 30 and 33 of the Act for

setting aside the award on several grounds before the Court below. The

application was contested by the contractor and on the basis of pleadings of

both the parties, the Court below vide its order dated 01.06.2010 framed

the following issues:-

"1. Whether the arbitrator has travelled beyond the ambit of

contract agreement? OPR

2. Whether the award amount is disproportionately excessive?

OPR

3. In case issue No.1 and 2 are answered in affirmative, whether

the arbitrator is guilty of misconduct? OPR"

4. From a reading of the impugned order passed by the Court below, it

transpires that the parties did not lead any evidence and instead argued the

matter on the basis of documents and records. The Court below considered

the matter in the light of rival contentions and after making claim-wise

discussion, upheld the award vide its judgment dated 11.01.2014,

impugned in this appeal.

5. The Union of India is aggrieved and has challenged the impugned

order of the Court below, inter alia, on the following grounds:-

i) The Court below has not appreciated that the award dated

04.01.2008, impugned before it, was a nullity, in that, the

arbitrator having been directed by the Division Bench of this

Court to conclude the arbitration proceedings by 18.12.2007

could not have proceeded beyond the said period and

published the award on 04.01.2008, more so when the

Division Bench of this Court had not granted any extension.

ii) The Court below did not appreciate that a bare reading of the

award of the arbitrator clearly suggested and demonstrated

that it was one sided award passed without taking into account

the case projected by Union of India before the arbitrator.

iii) The Court below has failed to consider and appreciate that the

manner in which the arbitrator had conducted his proceedings

was demonstrative of the legal misconduct of the arbitrator.

iv) The huge amount of more than eight with exorbitant interest

@ 18% per annum awarded, in the given facts and

circumstances of the case, shocks the conscious of the Court

and, therefore, cannot be maintained.

v) The award is outcome of vengeance against Union of India for

having taken up the matter of appointment of arbitrator upto

the level of Supreme Court.

vi) The arbitrator did not provide adequate opportunity to Union

of India to defend its case and, therefore, without formally

proceeding ex-parte against the Union of India, conducted the

proceedings at the final stage at the back of Union of India.

vii) Most of the claims awarded by the arbitrator are way beyond

the terms and conditions of the contract and, therefore, outside

the submission and jurisdiction of the arbitrator. This aspect

has not been considered by the Court below.

viii) The award passed by the arbitrator suffers from error apparent

on the face of record and, therefore, was not sustainable. The

Court below has completely ignored this aspect and has put its

seal of approval on all the claims awarded by the arbitrator.

ix) That the arbitrator by awarding interest at a rate as high as

18% per annum past, pendente lite on all items excluding item

No.13 and 18% per annum future interest on all claims, has

mis-conducted himself as well as the proceedings. The Court

below by putting its seal of approval on the aforesaid

exorbitant rate of interest has even acted against the spirit of

Section 29 of the Act.

x) The Court below has not appreciated that the arbitrator, who

awarded huge sums in favour of the contractor arbitrarily,

rejected the counter claims of Union of India except claim

No.(e), which, too, appears to have been awarded to strike

balance and justify the award of almost all the claims except

claims for meager amount in favour of the contractor.

6. The appeal is vehemently opposed by the Contractor. Learned

counsel appearing for the contractor relying upon several pronouncements

of the Supreme Court on the issues raised in the appeal, submitted that the

Union of India has not made out a case for interference with the award of

the arbitrator, as upheld in toto by the Court below.

7. Having heard learned counsel for the parties and perused the material

on record, it is necessary to first set out Section 30 and Section 33 of the

Act.

Section 30 reads thus:-

"30. Grounds for setting aside award-An award shall not be set aside except on one or more of the following grounds, namely :-

(a) that the arbitrator or umpire has mis-conducted 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 the award has been improperly procured or is otherwise invalid."

Section 33 reads as under:-

"33. Arbitration agreement or award to to be contested by application.-Any party to an arbitration agreement or any person

claiming under him desiring to challenge the existence or validity of an arbitration agreement or an award or to have the effect of either determined shall apply to the Court and the Court shall decide the question on affidavits :

Provided that where the Court deems it just and expedient, it may set down the application for hearing on other evidence also, and it may pass such orders for discovery and particulars as it may do in a suit."

8. Since there is no challenge laid by the appellant to the existence or

validity of the arbitration agreement, as such, Section 33 of the Act may

not call for any elaborate discussion in the instant case. The entire case of

the appellant rests on the grounds of challenge enumerated in Section 30 of

the Act.

9. Before adverting to the rival contentions, a quick recapitulation of

the legal position with regard to the grounds of challenge available to an

aggrieved party seeking setting aside of the arbitrator's award may be

profitable.

10. An award of the arbitrator can be challenged only on the grounds

enumerated in Section 30 of the Act and on no other ground. The Court

hearing an application for setting aside award or hearing appeal against the

order of the Court below refusing to set aside the award does not sit in

appeal over the decision of the arbitrator. The award of the arbitrator can be

interfered with only, if it is the result of corruption, fraud or when there

is/are errors apparent on the face of award. In case of a speaking award, the

Court can look into the reasons for the award. However, in case of

unreasoned award, it is not open to the Court to probe the mental process of

the arbitrator and speculate as to what impelled the arbitrator to arrive at

his conclusion. For example, in the instant case, too, the arbitrator has set

down the claims and then awarded certain amounts without giving any

reason in support of his conclusion. As per the terms and conditions of the

contract, the arbitrator was under no obligation to pass a reasoned award. In

the absence of any reasons given for making an award, it may not be open

to the Court to interfere with the award by re-appreciating the facts and

law. The arbitrator is a forum selected by the parties of their own and,

therefore, the arbitrator must be conceded the power of appreciation of

evidence. As is said that arbitrator is sole judge of the quality as well as

quantity of evidence and it will not be for the Court to take upon itself the

task of being a judge on the evidence before the arbitrator. (See Hindustan

Steel Works Construction Ltd. v. C. Rajashekhar Rao, (1987) 4 SCC

93 and Municipal Corporation of Delhi v. M/s Jagan Nath Ashok

Kumar and another, (1987) 4 SCC 497.

11. An award, as is well settled, may be set aside on the ground of errors

apparent on the record of award but the award would not be invalid merely

because by a process of inference and arguments it may be demonstrated

that the arbitrator has committed some mistake in arriving at his

conclusion. The award can also be interfered with by the Court, if it is

found that the arbitrator has travelled beyond his jurisdiction and has

awarded claims which would be beyond the scope of submission. The

award will also be bad, if the arbitrator, who himself is a creature of the

contract agreement travels beyond the terms and conditions of the contract

and awards claims on the excepted items. Such award would be invalid and

can very well be interfered with by the Court.

12. The arbitrator's award which, on the face of it, is arbitrary, irrational

and awards claims, which are shockingly disproportionate and defy logic,

would also be invalid in law.

13. In paragraph No.20 of the judgment rendered in the case of

Himachal Pradesh State Electricity Board v. R.J.Shah and Company,

(1999) 4 SCC 214, the Supreme Court has held thus:-

"20. The reading of the decision cited above shows that the principle followed was that by purporting to construe the contract the court could not take upon itself the burden of saying that the award was contrary to the contract and a such the arbitrators had acted beyond their jurisdiction."

14. Equally relevant are the observations made by the Supreme Court in

paragraph Nos.24 and 25 of the judgment rendered in the case of Associate

Engineering Company v. Govt. of Andhra Pradesh and others, (1991)

4 SCC 93, which, for facility of reference are reproduced hereunder:-

"24. The arbitrator cannot act arbitrarily, irrationally, capriciously or independently of the contract. His sole function is to arbitrate in terms of the contract. He has no power apart from what the parties have given him under the contract. If he has travelled outside the bounds of the contract, he has acted without jurisdiction. But if he has remained inside the parameters of the contract and has construed the provisions of the contract; his award cannot be interfered with unless he has given reasons for the award disclosing an error apparent on the face of it.

25. An arbitrator who acts in manifest disregard of the contract acts without jurisdiction. His authority is

derived from the contract and is governed by the Arbitration Act which embodies principles derived from a specialised branch of the law of agency (see Mustill & Boyd's Commercial Arbitration, Second Edition, p. 641). He commits misconduct if by his award he decides matters excluded by the agreement (see Halsbury's Laws of England, Volume II, Fourth Edition, Para 622). A deliberate departure from contract amounts to not only manifest disregard of his authority or misconduct on his part, but it may tantamount to a mala fide action. A conscious disregard of the law or the provisions of the contract from which he has derived his authority vitiates the award."

15. As is held by a three-Judge Bench of the Supreme Court in the case

of State of Andhra Pradesh and others v. R.V.Rayanim and others

(1990) 1 SCC 433 that in the matter of challenging the award there are

often two distinct and different grounds, one is error apparent on the face of

award and the other is that the arbitrator has exceeded his jurisdiction. In

the latter case, the Court can look into arbitration agreement but in the

former it cannot, unless agreement was incorporated or recited in the

award. The award may be remitted or set aside on the ground that the

arbitrator, in making it, had exceeded his jurisdiction and evidence of

matters not appearing on face of it will be admitted in order to establish

whether the jurisdiction was exceeded or not, because nature of dispute is

something which has to be determined outside the award----whatever might

be said about it in the award or by the arbitrator. In a case of error apparent

on the face of record, it has to be established that an item or amount, which

the arbitrator has no jurisdiction to take into consideration, has been

awarded or granted.

16. In another case of West Bengal State Warehousing Corporation

and another V. Sushil Kumar Kayan and others, (2002) 5 SCC 679,

Hon'ble the Supreme Court in paragraph No.11 held thus:-

" In order to determine whether the arbitrator has acted in excess of his jurisdiction what has to be seen is whether claimant can raise a particular claim before the arbitrator. If there is a specific term in the contract or the law which does not permit to the parties to raise a point before the arbitrator and if there is a specific bar in the contract to the raising of the point then the award passed by the arbitrator in respect thereof would be in excess of his jurisdiction."

17. Legal position with regard to the scope of interference by the Court

with the arbitral award under Section 30 of the Act is summed up by the

Supreme Court in Rajasthan State Mines and Minerals Limited v.

Eastern Engineering Enterprises and another, (1999) 9 SCC 283. Para

44 whereof is reproduced hereunder:-

"44. From the resume of the aforesaid decisions, it can be stated that:

(a) It is not open to the Court to speculate, where no reasons are given by the arbitrator, as to what impelled arbitrator to arrive at his conclusion.

(b) It is not open to the Court to admit to probe the mental process by which the arbitrator has reached his conclusion where it is not disclosed by the terms of the award.

(c) If the arbitrator has committed a mere error of fact or law in reaching his conclusion on the disputed question

submitted for his adjudication then the Court cannot interfere.

(d) If no specific question of law is referred, the decision of the Arbitrator on that question is not final, however much it may be within his jurisdiction and indeed essential for him to decide the question incidentally. In a case where specific question of law touching upon the jurisdiction of the arbitrator was referred for the decision of the arbitrator by the parties, then the finding of the arbitrator on the said question between the parties may be binding.

(e) In a case of non-speaking award, the jurisdiction of the Court is limited. The award can be set aside if the arbitrator acts beyond his jurisdiction.

(f) To find out whether the arbitrator has travelled beyond his jurisdiction, it would be necessary to consider the agreement between the parties containing the arbitration clause. Arbitrator acting beyond his jurisdiction is a different ground from the error apparent on the face of the award.

(g) In order to determine whether arbitrator has acted in excess of his jurisdiction what has to be seen is whether the claimant could raise a particular claim before the arbitrator. If there is a specific term in the contract or the law which does not permit or give the arbitrator the power to decide the dispute raised by the claimant or there is a specific bar in the contract to the raising of the particular claim then the award passed by the arbitrator in respect thereof would be in excess of jurisdiction.

(h) The award made by the Arbitrator disregarding the terms of the reference or the arbitration agreement or the terms of the contract would be a jurisdictional error which requires ultimately to be decided by the Court. He cannot award an amount which is ruled out or prohibited by the terms of the agreement. Because of specific bar stipulated

by the parties in the agreement, that claim could not be raised. Even if it is raised and referred to arbitration because of wider arbitration clause such claim amount cannot be awarded as agreement is binding between the parties and the arbitrator has to adjudicate as per the agreement. This aspect is absolutely made clear in Continental Construction Co. Ltd.(supra) by relying upon the following passage from M/s. Alopi Parshad Vs. Union of India [1960] 2 SCR 703 which is to the following effect: - There it was observed that a contract is not frustrated merely because the circumstances in which the contract was made, altered. The Contract Act does not enable a party to a contract to ignore the express covenants thereof, and to claim payment of consideration for performance of the contract at rates different from the stipulated rates, on some vague plea of equity. The parties to an executory contract are often faced, in the course of carrying it out, with a turn of event which they did not at all anticipate, a wholly abnormal rise or fall in prices, a sudden depreciation of currency, an unexpected obstacle to execution, or the like. There is no general liberty reserved to the courts to absolve a party from liability to perform his part of the contract merely because on account of an uncontemplated turn of events, the performance of the contract may become onerous.

(i) The arbitrator could not act arbitrarily, irrationally, capriciously or independently of the contract. A deliberate departure or conscious disregard of the contract not only manifests the disregard of his authority or misconduct on his part but it may tantamount to mala fide action.

(j) The arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks just and reasonable; the arbitrator is a tribunal selected by the parties to decide the disputes according to law."

18. It is, thus, trite that, though, the scope of interference by the Court

with the arbitral award is minimalistic, yet award of the arbitrator can be

set aside, if it has been made by the arbitrator acting arbitrarily, irrationally,

and capriciously or independently of the contract. A deliberate departure or

conscious disregard of the contract not only manifests disregard of his

authority or misconduct on his part but it may tantamount to mala fide

action. It is, thus, well settled that the arbitrator is creature of the contract

between the parties and, therefore, if he ignores the specific terms of the

contract, it would be a question of jurisdictional error, which could be

corrected by the Court and for that limited purpose the agreement is

required to be looked into. Reference to the points of contract is, therefore,

must for arriving at a conclusion with regard to whether the arbitrator has

exceeded his jurisdiction or not.

19. It is in the light of legal position adumbrated herein above, award

passed by the arbitrator needs to be examined. Learned senior counsel

appearing for the appellant has laid more emphasize on his contention that

the learned arbitrator has not only ignored the terms and conditions of the

contract while awarding certain items/claims but has also exceeded his

jurisdiction by awarding claims even on the excepted matters.

20. The argument of Mr. Malhotra, learned counsel appearing for the

respondent, however, is that this Court may not enter into the mental

process of the arbitrator and that even if two views are possible on the

interpretation of the different clauses of the contract, the interpretation put

by the arbitrator is to be accepted. The Court does not sit in appeal while

considering application under Section 30 of the Act for setting aside the

award. Instant case is a case of appeal against judgment of the learned

District Judge rejecting application of the appellant under Section 30 of the

Act and, therefore, jurisdiction of this Court to interfere is far less.

21. With a view to appreciate the rival contentions, we need to consider

few important terms and conditions of the contract as also certain claims

awarded by the arbitrator.

22. Clause-70 of the General Conditions of the Contract in question

provides for arbitration and is, thus, reproduced hereunder:-

"70. Arbitration.- All disputes, between the parties to the Contract(other than those for which the decision of the C.W.E. or any other person is by the Contract expressed to be final 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. Unless both parties agree in writing such reference shall not take place until after the completion or alleged completion of the Work or termination or determination of the Contract under Condition Nos. 55, 56 and 57 hereof. Provided that in the event of abandonment of the Works or cancellation of the Contract under Condition Nos. 52, 53 or 54 hereof, such reference shall not take place until alternative arrangements have been finalized by the Government to get the Works completed by or through any other Contractor or Contractors or Agency or Agencies. Provided always that commencement or continuance of any arbitration proceeding hereunder or otherwise shall not in any manner militate against the Government's right of recovery from the contractor as provided in Condition 67 hereof. 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. The Arbitrator shall be deemed to have entered on the reference on the date he issues notice to both the parties, asking them to submit to him their statement of the case and pleadings in defence. The Arbitrator may proceed with the arbitration, exparte, if either party, inspite of a notice from the

Arbitrator fails to take part in the proceedings. The Arbitrator may, from time to time with the consent of the parties, enlarge, the time upto but not exceeding one year from the date of his entering on the reference, for making and publishing the award. The Arbitrator shall give his award within a period of six months from the date of his entering on the reference or within the extended time as the case may be on all matters referred to him and shall indicate his findings, along with sums awarded, separately on each individual item of dispute. The venue of Arbitration shall be such place or places as may be fixed by the Arbitrator in his sole discretion. The award of the Arbitrator shall be final and binding on both parties to the Contract."

23. From a reading of arbitration clause, it clearly transpires that the

parties have agreed to settle all disputes between them pertaining to the

contract except those matters upon which the decision of C.W.E. or any

other person is by the contract expressed to be final and binding. This

relates to the excepted items with regard to which the jurisdiction of the

arbitrator is taken away by the parties to the contract.

24. It is the contention of Mr. Pranav Kohli, learned senior counsel

appearing for the appellant, that claim No.1 is awarded by the arbitrator on

account of cost of extra work done by the respondent. It is submitted that as

per NIT drawings of the contract agreement, the foundation level of

Akhnoor side abutment was reduced level (RL) 245.89m and Safe Bearing

Capacity stipulated was 79.T/Sq.m. However, on reaching foundation level

RL 245.89m, the plate load test to ascertain the suitability of the foundation

strata was conducted and the same was found to be 25T/Sq.m instead of the

required safe bearing capacity of 79 T/Sq.m. The contractor was,

accordingly, instructed to go two meter deeper by way of deviation and

accordingly, deviation order No.08 dated 04th November, 1991 was issued.

In compliance, the contractor went two meter deeper for which he was paid

in accordance with Annexure-1 to Schedule-A, which mentions the rates

for deviation for every one meter increase in depth level in bottom level

foundation. This, appellant submits, was in accord with Clause 11(b) of the

contract agreement.

25. In order to examine the argument of learned counsel for the

appellant, it is necessary to have a look at Clause-11(b) of the contract

agreement, which for facility of reference is reproduced hereunder:-

"11. Sub soil investigation:

(a) Sub soil investigation at the site has been carried out by the Regional Engineering College Srinagar. Their recommendation have been incorporated in the tender specifications and complete sub soil investigation reports available for reference at the office of Chief Engineer (Project) Sampark and HQ DGBR.

(b) The results obtained from bore holes are not to be assumed by the contractor as a warranty with regard to the nature of the sub-soil and is to be considered only as a guide. The contractor may carry out exploratory bore holes to ascertain stratum of foundations at his own cost. Any change in design construction procedure necessitated due to variation in soil strata from the bore hole data will be contractor's responsibility and the cost thereof will be deemed to be included in the lumpsum amount. However, any variations in the foundation level due to changes in soil parameters will be adjusted as per quoted rates and will be treated as deviation."......

26. From a bare reading of Clause-11 in particular clause(b), it clearly

comes to fore that sub-soil investigation at the site was carried out by

Regional Engineering College, Srinagar and their recommendations were

incorporated in the tender specifications. Clause 11 of the contract

agreement provides that the results obtained from bore holes are not to be

assumed by the contractor as a warranty with regard to the nature of sub-

soil and is to be considered only as a guide. The contractor may carry out

exploratory bore holes to ascertain the stratum of foundations at his own

cost. Any change in design construction procedure necessitated due to

variation in soil strata from the bore hole data will be contractor's own

responsibility and the cost thereof will be deemed to be included in the

lumpsum amount. However, any variation in the foundation level due to

changes in soil parameters will be adjusted as per quoted rates and will be

treated as deviation. Clause 11 is, therefore, very specific and categoric

that, if any change occurs in design construction procedure due to variation

of soil strata, it shall be the contractor's own responsibility for which he

would not be paid anything extra but the amount incurred on account of

such variation shall be deemed to be included in the lumpsum amount.

However, if variation in the foundation level is due to change in soil

parameters, the variation shall be treated as deviation and paid accordingly.

27. In claim No.1 of the award, the arbitrator without making any

reference to Clause-11 of the contract agreement has treated the work

necessitated due to variation of the foundation level because of change in

soil parameters as an extra item of work and awarded the claim by

reference to Annexure-II forming part of the contract, whereas the amount

was payable as per Annexure-1 of the contract.

28. By ignoring Clause 11 of the contract and acting in derogation

therefrom, the arbitrator has admittedly travelled beyond his jurisdiction

and has acted contrary to the terms and conditions of the contract of which

he was a creature. I am aware that interpretation of a particular clause by

the arbitrator may not be open to scrutiny by this Court, however, instant

case is not of interpretation to any clause but is a apparent case of ignoring

clause-11 of the contract agreement. The Union of India had paid the

contractor as per clause-11 and, therefore, no claim could have been raised

by the contractor and adjudicated upon by the arbitrator in his favour.

29. The arbitrator also appears to have ignored clause-21(c)(ii) of the

contract agreement, which requires the contractor to quote rate per meter of

depth for increase or decrease in the bottom level of foundation per

support. The contractor had quoted rates for pricing deviation as per

Annexure-I to Schedule-A. Otherwise also, Schedule-A of the contract

makes it mandatory for the tenderer to quote their rates for

increase/decrease per meters in the depth of bottom level foundation as per

Annexure-1 to Schedule-A.

30. Admittedly, the contractor had been paid strictly with the aforesaid

terms and conditions of the contract but the arbitrator set aside all those

terms and conditions of the contract and took up the deviation as an extra

amount of work to be paid in terms of Annexure-II forming part of the

contract.

31. Claim No.2. This claim relates to pit, which remained open due to

foundation level being dug two meters more deep. The arbitrator has

awarded a sum of Rs.3,02,173.00 on this account.

32. Learned counsel for Union of India refers to clause 3.2 of the

contract agreement, which deals with the foundation and relevant extract

whereof is reproduced hereunder:-

"The firm should carry out trench excavation and span excavation to large depth is not advisable. This disturb the bed and bank to a very large extent, therefore, to avoid disturbance only trench excavation should be followed. Tenderer has to devise suitable method to reach the foundation level either by trench excavation or by sinking well to required level. Lumpsum quoted rates by the contractor will be inclusive of whatever method adopted by him.

All spaces excavated not occupied by abutments, piers or other permanent works shall be refilled ......"

33. The award on claim No.2 is also, on the face of it, contrary to Clause

3.2 of the contract agreement. From a reading of discussion made by the

arbitrator under claim No.2, it is difficult to deduce as to whether the claim

has been awarded by interpreting clause 3.2 or by acting in derogation

thereof. The conspicuous act of the arbitrator not to refer to stand of the

appellant and the provisions of Clause 3.2 makes it abundantly clear that

the arbitrator brushed aside clause 3.2 and awarded the claim.

34. Claim No.3 pertains to loss occasioned to the contractor on account

of unprecedented floods. This claim has not been seriously disputed by the

appellant. It is, however, contention of Mr. Pranav Kohli, learned senior

counsel appearing for the appellant that there was no evidence before the

arbitrator to demonstrate that the flood level crossed 262.59 meter, which is

defined High Flood Level (HFL) in terms of the contract agreement.

35. Be that as it may, the arbitrator has found that the evidence produced

before him, in the shape of certificates issued by the government

authorities, substantiated the claim of the contractor. I do not find that

claim awarded is either in violation of the terms and conditions of the

contract agreement or beyond the terms of submission of the arbitrator.

36. Claim No.4. This claim of the contractor, which is awarded by the

arbitrator for a sum of Rs. 6,06,374.00, pertains to cost of re-designing of

Poonch side abutment and Akhnoor side abutment. Again, as pointed

above, the arbitrator has ignored specific terms and conditions of the

contract agreement incorporated in Clause-11(b) of the agreement.

37. Claim No.5. Under this heading, the contractor has raised a claim of

Rs.16,532.82 and the same has not been awarded by the arbitrator.

36. Claim No.6. This is a claim on account of escalation in the price of

labour, fuel etc. The claim has not been seriously contested by the appellant

nor do I find that the same violates any term and conditions of the contract

or is otherwise beyond jurisdiction of the arbitrator.

37. Claim No.7 pertains to the amounts payable to the contractor not

included in the bills. The total amount claimed under this head is

Rs.1,40,488.50. The Union of India has disputed this amount and claimed

that the entire amount for the work executed by the contractor stood paid.

This is a disputed question, which, on the basis of material before the

arbitrator, has been decided by him and no interference is, therefore, called

for.

38. Claim No.8. This claim pertains to extra expenses incurred by the

contractor in conducting mix design and cube test. Clause 17 of the

contract agreement deals with this aspect and the relevant extract of Clause

17 is reproduced hereunder:-

"17(g) Testing facilities shall be provided by the contractor at work site for testing concrete cubes and materials to be incorporated into work to the satisfaction of Engineer-in-Charge."

39. It is contended that the arbitrator acted in violation of Clause 17(g)

and exceeded his jurisdiction in awarding a sum of Rs.1,25,000/- for extra

expenses. In am in agreement with the learned counsel for the appellant

that on the face of clear stipulation in Clause 17(g) of the contract

agreement, the contractor could not have charged any amount incurred by

him to carry out mix design and cube tests. This claim, too, runs contrary to

the terms and conditions of the contract agreement and, therefore, not

sustainable.

40. Claim No.9 and 10: It may be pertinent to mention that this claim

pertains only to a meager sum of Rs.11,665/- and has not been awarded by

the arbitrator. Similar is the position with regard to claim No.10, which is

also for a meager sum of Rs.5000/-.

41. Claim Nos.11 and 12 pertain to refund of retention money. Claim

No.12 pertains to refund of security deposit. Both claims have been

awarded by the learned arbitrator.

42. Once the arbitrator came to the conclusion that termination of the

contract was unfair and illegal, the contractor was entitled to refund of his

security deposit as well as retention money. Therefore, no fault can be

found in the award insofar as claim No.11 and 12 are concerned.

43. Claim No.13, which was amended by the contractor through letter

dated 17.12.2007 pertains to hiring charges and cost of material etc. Once

the arbitrator after considering all aspects has concluded that the

cancellation of contact by the Union of India was not fair and in

consonance with law , he was well within his right to award compensation

on account of hiring charges for shuttering material, machinery and T&P,

office stores, quarters and camps. The arbitrator was also well within his

power to award cost of material. The important aspect, which the arbitrator

has not considered while awarding hiring charges for shuttering material,

machinery,, T&P, office stores, quarters and camps etc is that the arbitrator

has awarded hiring charges, which are way far hiring than the cost of this

material. It is well settled that hiring charges of any material or machinery

cannot exceed the actual value of such material and machinery. For a

contract of the value of Rs.90,59,000/-, the contractor could not expected to

have deployed the machinery and collected shuttering material, constructed

office stores, camps, quarters etc by incurring more than

Rs.10,00,00,000.00. The arbitrator has awarded Rs.6,60,05,918.43 as hiring

charges for shuttering material, machinery, T&P etc and Rs.1,29,874.50 as

hiring charges for office stores etc. While no fault can be found with award

of hiring charges for office stores, quarters etc and Rs.62,16,695.51 on

account of cost of material as on the date of termination but award granting

hiring charges for shuttering material, machinery, T&P etc, which have far

exceeded the cost of such material and machinery, cannot be sustained. The

arbitrator has committed an error, which is apparent on the face of award.

In such situation, the arbitrator could have at the maximum granted the

contractor the cost of shuttering material, machinery and T&P deployed on

the site rather than awarding highly inflated hiring charges of more than six

crores.

44. Claim No.14. This is by way of compensation for the losses suffered

by the contractor for breach of contract and other faults on part of the

Union of India. The arbitrator, after considering all relevant evidence on

record, has awarded Rs.25,14,000.00 as compensation. Since the arbitrator

has, on facts, found termination of the contract unfair and contrary to the

terms and conditions of the contract, as such, the arbitrator was well within

his power to award compensation for breach of the terms and conditions of

the contract. There could be dispute between the parties with regard to the

quantification of the compensation but this Court hearing an appeal against

the order of the District Court, rejecting application of the appellant for

setting aside the award, cannot go into that aspect. The parties shall do well

to accept the findings of their chosen judge i.e. arbitrator.

45. Claim Nos.15, 16 and 17 pertain to grant of interest. The arbitrator

has awarded interest @ 18% per annum from the date of termination of the

contract till the date of payment or upto the Court decree. This constitutes

pre-reference, pendente lite and future interest. Award is unreasoned award

and, therefore, the arbitrator has not spelt out any reason for awarding this

amount.

46. Indisputably, 18% per annum is not contractual rate of interest. As a

matter of fact, the contract agreement does not provide for any rate of

interest to be awarded to the party being successful before the arbitrator in

getting his claim against other party. The Jammu & Kashmir Arbitration

Act, 2002 also does not make any provision for grant of interest @ 18%.

Even RBI does not permit grant of such exorbitant interest on the deposits

received by the banks. Even lending rate of interest is far less than the

interest awarded. By awarding interest @ 18% per annum, the arbitrator

has acted arbitrarily, irrationally, capriciously and has committed

misconduct.

47. From a reading of entire award, I have also found that the arbitrator

has not applied his mind at all and has awarded all the claims in toto except

those, which were for meager sum. Similarly, with a view to balance the

award and to make it look fair, the arbitrator has even gone to the extent of

awarding one of the counter claims to the Union of India.

48. I am aware of the limitations which are put on the Courts by law in

regard to interference with the arbitral awards but Court cannot shut its

eyes to the fact that arbitration has become an additional source of income

of the contractors. Here is a case where original allotment of contract is for

Rs.90,59,000.00 and the work was to be executed in twenty four months.

The date of commencement of the work is 8th August, 1988 and was

required to be completed by the contractor by 7 th August, 1990. Because of

certain changes in design due to variation in soil strata, the work could not

be completed by the contractor and was granted extension up to 31st March,

1993. He could not complete the work and, accordingly, Union of India

terminated the contract agreement on 14th June, 1993. By 14th June, 1993,

the contractor had executed only 45% of the work for which apart from the

payments, which have been released to him from time to time, the

arbitrator has awarded a total of Rs.8,65,39,218.70, which is more than

eight times the value of contract, that too along with pre-reference,

pendente lite and future interest interest @ 18% per annum.

49. Be that as it may, in view of the discussion made above, I am of the

considered view that the arbitrator has clearly exceeded his jurisdiction and

has awarded most of the items of claims by either ignoring the terms and

conditions of the contract or acting in derogation therefrom.

50. The appellate Court has not applied its mind and has endorsed the

award as it is. It is interesting to note that the District Court has not even

followed Section 34 of the Code of Civil Procedure for the purpose of

exercising its discretion to grant pendent lite and future interest. The Court

below has awarded 18% interest pendente lite and future, which is, ex facie

in violation of Section 34 of the Code of Civil Procedure.

51. For the foregoing reasons, the appeal is partially allowed. The award

passed by the arbitrator is set aside to the extent of claim Nos. (1), (2), (4),

(8), (13), (15), (16) &(17) and to the aforesaid extent the judgment of the

Court below is also set aside. The contractor-respondent is held entitled to

interest @ 6% per annum from the date of termination of contract till the

amount is actually paid. The Registry shall draw the decree-sheet

accordingly.

52. For determination of claims of the contractor i.e. claim Nos. (1), (2),

(4), (8), (13), (15), (16) &(17) , the matter is remitted back to the arbitrator.

However, if for any reason whatsoever, the learned Arbitrator, who has

passed the award, is not available or is otherwise incapable to conduct

further proceedings; matter shall be referred to Sh. Vinod Sharma, Retired

Chief Engineer, Resident of H.No.42, Sector-1-A, Trikuta Nagar, Jammu,

Mobile No. 9419180988, who shall enter the reference and decide the

claims of the contractor aforesaid within a period of four months. The

arbitrator is left free to determine his fee having regard to the 4th Schedule

of the Arbitration and Conciliation Act, 1996.

(Sanjeev Kumar) Judge

Jammu 09.05.2022 Vinod.

Whether the order is speaking : Yes Whether the order is reportable: Yes