Rajasthan High Court

State vs M/S Ferro Concretc Constructio on 6 January, 2023

Bench: Birendra Kumar

        HIGH COURT OF JUDICATURE FOR RAJASTHAN
                    BENCH AT JAIPUR

            S.B. Civil Miscellaneous Appeal No. 373/2006

State of Rajasthan Department of Irrigation Department through
its Executive Engineer, Bisalpur Project, Construction Division -
III, Deoli District-Tonk (Rajasthan) and Officer-in-charge of the
case.
                                                                    ----Appellant
                                   Versus
M/s     Ferro   Concrete       Construction        (India)      Private   Limited,
Bhgirathpura, Indore (M.P.)
                                                                 ----Respondent

Connected With S.B. Civil Miscellaneous Appeal No. 3175/2006 Ferro Concrete Construction (India) Pvt. Ltd. Bhagirathpura, Indore-452 003.

----Appellant Versus State of Rajasthan through the Secretary to Government, Irrigation Department, Government Secretariat, Jaipur.

                                                                 ----Respondent


For Appellant(s)           :    Ms. Sheetal Mirdha, AAG with
                                Mr. Prateek Singh (respondent in CMA
                                3175/2006)
For Respondent(s)          :    Mr. GP Sharma with
                                Mr. Mahesh Chand Gupta (appellant in
                                CMA 3175/2006)



           HON'BLE MR. JUSTICE BIRENDRA KUMAR

                                 JUDGMENT

Judgment reserved on                           :                     28.11.2022

Judgment pronounced on                         :                     06.01.2023





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1. The backdrop leading to these appeals under Section 39 of

the Arbitration Act, 1940 (hereinafter referred as the Act) is that

the State of Rajasthan through Irrigation Department entered into

a work agreement with M/s. Ferro Concrete Construction (India)

Pvt. Ltd. (hereinafter referred as the "contractor") on 6.2.1988.

The contract work was for designing and constructing upstream

and downstream coffer dams including referred work at Bisalpur

dam site.

2. With the progress of work, the contractor raised different

bills and part payment was made. After conclusion of the work,

the contractor raised the final bill and on non payment of full

demand, addressed a letter dated 14.5.91, raising the grievance

and requested for appointment of an arbitrator as per clause 23 of

the agreement between the parties. Accordingly, a retired Chief

Engineer of Irrigation Department was appointed as the sole

arbitrator on 23.11.91. The learned Arbitrator after giving

opportunity to the parties to put forward objections, lead evidence

and after hearing the parties, made award dated 7.3.1995 that

the contractor would be entitled to Rs. 1,78, 17,146 (one crore

seventy eight lacs seventeen thousand one hundred forty six)

along with 15% interest from 18.12.1991 till date of payment or

date of decree whichever is earlier. The award was filed in the

Court under Section 31 of the Act of 1940. The department raised

objections before the Court in view of provisions of Section 33 of

the Act and after hearing the parties, the Court of the learned

District Judge affirmed the arbitral award by order dated

16.8.2005 with modification that interest awarded by the

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arbitrator w.e.f. 18.12.91 to the tune of 15% was set aside and

9% simple interest was awarded from the date of decree till the

date of actual payment for the reason that 9% was just and

prevailing rate of interest.

3. S.B. Civil Misc. Appeal No. 373/2006 has been brought by

the Department challenging the arbitral award as well as order of

the Court, above referred.

4. S.B. Civil Misc. Appeal No. 3175/2006 has been filed by the

contractor aggrieved by reduction of interest by the Court.

5. Ms. Sheetal Mirdha, learned counsel for the appellant

/Department contends that the award suffers from misconduct of

the proceedings in as much as the learned Arbitrator has gone

against the terms and conditions of the agreement rather ignored

the specific provisions of the agreement while making the award.

The court concerned did not consider that there was misconduct

by the arbitrator in making the award hence it was a fit case to

set aside the award.

6. Mr. G.P. Sharma, learned counsel for the contractor besides

supporting the arbitral award contends that the learned court has

wrongly reduced the quantum of interest and made it applicable

from the date of decree though the arbitrator was competent

enough to award interest after the enforcement of the Interest

Act, 1978. Learned counsel submits that the cause of action arose

only after the Interest Act came into force.

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7. Thus, the point for consideration is whether the impugned

award suffers from misconduct of the arbitrator or the

proceedings?

8. Ms. Sheetal Mirdha, learned Additional Advocate General, for

the Department contends that clause 22 of the contract between

the parties stipulates that "the contractor shall not be entitled to

claim any interest upon any payment, any arrears or upon any

balance, which may be found due to him at any time." Learned

counsel has placed reliance on the judgment of the Hon'ble

Supreme Court in Sayeed Ahmed and Company v. State of

Uttar Pradesh and Ors. reported in (2009) 12 SCC 26 for

submission that the Arbitrator could not have awarded interest not

only for pre reference period rather for the period pendente lite

arbitration.

9. In the aforesaid judgment, the Hon'ble Supreme Court said

that the aforesaid bar of payment of interest in the event of any

provision in the contract, operates only till the date of award and

not thereafter.

10. Learned counsel has next placed reliance on the judgment in

Union of India Vs. Krafters Engineering and Leasign Private

Limited reported in (2011) 7 SCC 279 for submission that if

the agreement prohibits payment of interest, the Arbitrator has no

power to award interest. If there would have been no prohibition

in the agreement, the arbitrator could award interest depending

on the facts of the case.

11. No doubt while awarding interest, the learned arbitrator has

ignored the specific bar of payment of interest in the agreement

(5 of 11) [CMA-373/2006]

between the parties but the aforesaid misconduct has been

corrected by the court below by setting aside the aforesaid portion

of the award and directed payment of simple interest of 9% from

the date of decree. Therefore, as of now, the appellant cannot

challenge the correctness of the award for the aforesaid reason.

12. This Court has carefully gone through the contents of the

agreement between the parties with the assistance of the parties

and is of the firm view that there is no provision in the agreement

which directly or indirectly prohibits any particular payment which

the arbitrator has allowed in favour of the contractor. The

arbitrator has turned down some of the claims of the contractor,

being deductions made by the Department against payment of

income tax etc., therefore, the award cannot be faulted on the

ground that certain amounts allowed by the arbitrator under the

referred head were not payable to the contractor as per the

contract. The court below has also examined the issue and turned

down the objection of the Department.

13. The law regarding scope of interference with the Arbitral

award has already been settled by a catena of judicial

pronouncements. In Rajasthan State Mines and Minerals

Limited Vs. Eastern Engineering Enterprise & Anr., reported

in (1999) 9 SCC 283, the Hon'ble Supreme Court stated the law

in para 44 as follows:

"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.

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(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. The 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

(7 of 11) [CMA-373/2006]

passage from M/s. Alopi Parshad v. Union of India MANU/SC/0114/1988 : [1988]3SCR103 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."

14. In Atlanta Ltd. v. Union of India reported in (2022) 3

SCC 739, the Hon'ble Supreme Court stated as follows:

"10. The consistent view taken in several judicial pronouncements is that the Court does not sit in appeal over an Award passed by an Arbitrator and the only grounds on which it can be challenged are those that have been specified in Sections 30 and 33 of the Arbitration Act, namely, when there is an error on the face of the Award or when the learned Arbitrator has mis-conducted himself or the proceedings. In this context, we may usefully refer to Kwality Manufacturing Corporation v. Central Warehousing Corporation8, where it has been observed as follows:

(8 of 11) [CMA-373/2006]

"10. At the outset, it should be noted that the scope of interference by courts in regard to arbitral Awards is limited. A court considering an application under Section 30 or 33 of the Act, does not sit in appeal over the findings and decision of the arbitrator. Nor can it reassess or reappreciate evidence or examine the sufficiency or otherwise of the evidence. The award of the arbitrator is final and the only grounds on which it can be challenged are those mentioned in Sections 30 and 33 of the Act. Therefore, on the contentions urged, the only question that arose for consideration before the High Court was, whether there was any error apparent on the face of the award and whether the arbitrator misconducted himself or the proceedings." [emphasis added]

12. It is also a well-settled principle of law that challenge cannot be laid to the Award only on the ground that the Arbitrator has drawn his own conclusion or failed to appreciate the relevant facts. Nor can the Court substitute its own view on the conclusion of law or facts as against those drawn by the Arbitrator, as if it is sitting in appeal. This aspect has been highlighted in State of Rajasthan v. Puri Construction Co. Ltd. And Another10, where it has been observed thus:

"26. The arbitrator is the final arbiter for the dispute between the parties and it is not open to challenge the award on the ground that the arbitrator has drawn his own conclusion or has failed to appreciate the facts. In Sudarsan Trading Co. v. State of Kerala [Sudarsan Trading Co. v. State of Kerala, (1989) 2 SCC 38] it has been held by this Court that there is a distinction between disputes as to the jurisdiction of the arbitrator and the disputes as to in what way that jurisdiction should be exercised. There may be a conflict as to the power of the arbitrator to grant a particular remedy. One has to determine the distinction between an error within the jurisdiction and an error in excess 10 (1994) 6 SCC 485 CIVIL APPEAL NO. 1533 OF 2017 of the jurisdiction. Court cannot substitute its own evaluation of the conclusion of law or fact to come to the conclusion that the arbitrator had acted contrary to the bargain between the parties. Whether a particular amount

(9 of 11) [CMA-373/2006]

was liable to be paid is a decision within the competency of the arbitrator. By purporting to construe the contract the court cannot take upon itself the burden of saying that this was contrary to the contract and as such beyond jurisdiction. If on a view taken of a contract, the decision of the arbitrator on certain amounts awarded is a possible view though perhaps not the only correct view, the award cannot be examined by the court. Where the reasons have been given by the arbitrator in making the award the court cannot examine the reasonableness of the reasons. If the parties have selected their own forum, the deciding forum must be conceded the power of appraisement of evidence. The arbitrator is the sole judge of the quality as well as the 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."

15. Since this Court does not find that as of now the award

suffers from any misconduct of the arbitrator or the proceeding,

there is no reason to interfere with the award or the order of the

court below hence Appeal No. 373/2006 stands dismissed as

devoid of any merit.

16. Learned counsel for the contractor contends that the order of

the court below is fit to be set aside as it has been held by catena

of judicial pronouncements that the arbitrator has power to award

interest for pre-reference period as well as for the period during

arbitration. Therefore, the court has wrongly interfered with the

arbitral award to the extent of interest awarded by the arbitrator.

Learned counsel has placed reliance on State of U.P. Vs. Harish

Chandra and Co. reported in (1993) 1 SCC 63.

(10 of 11) [CMA-373/2006]

17. The case of Harish Chandra (supra) was distinguished by

the court below considering contents of terms of agreement in the

case on hand as well as terms of agreement in Harish Chandra

(supra). Since the terms of the agreement between the parties

specifically barred entitlement of interest in favour of contractor

on any payment or arrears or upon any balance, the arbitrator

could not have gone against terms of the agreement. The court

below has considered the observations of the Hon'ble Supreme

Court in State of Orissa v. B.N. Agarwalla reported in AIR

1997 SC 925 "there can be no dispute that if the terms of the

contract expressly stipulates that no interest would be payable

then, notwithstanding the provisions of the Interest Act, 1978 an

Arbitrator would not get the jurisdiction or right to award interest".

18. In view of the legal position stated above, this Court is not

inclined to interfere with the amount of interest decided by the

court below, therefore, Appeal No. 3175/2006 also fails and is

dismissed.

19. The department has placed reliance on following judgments:-

(a.) SAIL vs. J.C Budharaja, Govt. and Mining Contractor (1999) 8 SCC 122.

(b.) W.B State Warehousing Corp. vs. Sushil Kumar Kayan (2002) 5 SCC 679

(c.) Bharat Coking Coal Ltd. vs. Annapurna Construction (2003) 8 SCC 154

(d.) Rashtriya Chemical & Fertilizers Ltd. vs. Chowgule Bros. (2010) 8 SCC 563

(11 of 11) [CMA-373/2006]

for proposition that an arbitrator cannot go beyond terms of

the agreement between the parties, the terms of reference or

decide the law. The legal proposition is not controverted herein.