Telangana High Court

The Food Corporation Of India vs M.V. Krishna Reddy, Major on 1 October, 2024

Author: P.Sam Koshy

Bench: P.Sam Koshy, N.Tukaramji

          THE HONOURABLE SRI JUSTICE P.SAM KOSHY
                                    AND
          THE HONOURABLE SRI JUSTICE N.TUKARAMJI

          CIVIL MISCELLANEOUS APPEAL No.648 of 2006
                                    AND
            CIVIL REVISION PETITION No.3819 of 2006

COMMON JUDGMENT:

(per the Hon'ble Sri Justice P.SAM KOSHY)

Heard Mr. Dominic Fernandes, along with

Mr. Allen Joseph, learned counsel for the appellant / Food Corporation

of India; and Mr.K.Prabhakar, learned counsel for the respondent

No.1/ Contractor.

2. The present appeal has been filed by the appellant under

Section 39 of the Arbitration, 1940 (for short the 'Act of 1940')

challenging the judgment dated 05.10.2005 in O.P.No.22 of 1996

passed by the XI Addl. Senior Civil Judge (FTC) City Civil Court,

Hyderabad (for short, 'the impugned judgment').

3. Vide the impugned judgment, the Court below dismissed the

petition filed by the appellant under Section 30 and 33 of the Act of

1940seeking to set aside the award dated 25.09.1995 passed by

respondent No.2 / Arbitrator.

4. The admitted facts relevant for adjudication of the present two

cases are that the appellant floated a tender for construction of food

grains godown in five units with capacity of 25,000 metric tons with

ancillary services at Cherlapalli under Ranga Reddy District. The

work was allotted to respondent No.1 / Contractor vide memo dated

18.12.1978 and an agreement was entered into on 22.02.1979. The

work was to be completed within sixteen months i.e. by 16.05.1980.

However, respondent No.1 had taken up the work and completed it

by 31.03.1981 and finally payment was made by the appellant to

respondent No.1 on 25.01.1985. Since certain disputes arouse

between respondent No.1 and the appellant, the respondent No.1

filed a petition vide O.S.No.680 of 1986 before II Addl. Senior Civil

Judge, City Civil Court, Hyderabad, invoking the arbitration clause

requesting for appointment of an Arbitrator to redress their disputes

that arouse between them. In the process, respondent No.2 was

appointed as an Arbitrator who was a Retired Chief Engineer of the

appellant's establishment. After proceeding with the arbitration

proceedings, respondent No.2 after due enquiry and evidence, had

passed an award dated 25.09.1995. While passing the award,

respondent No.2 accepted eight out of twelve claims made by

respondent No.1 and rejected the four claims. The total amount

awarded by respondent No.2 was Rs.26,64,567/- along with interest

at the rate of 18% per annum on the awarded amount payable from

23.09.1982 till the date of award dated 25.09.1995 and further till

realization.

5. The said award was questioned under Section 30 and 33 of the

Act of 1940 by the appellant before the XI Addl. Senior Civil Judge

(FTC), City Civil Court, Hyderabad vide O.P.No.22 of 1996. Along

with the said challenge by the appellant, the respondent No.1also

challenged the said award by a separate O.P. before the same Court

vide O.P.No.19 of 1996 seeking to set aside the award so far as four

claims that were rejected. Meanwhile, the respondent No.1 also filed

another petition before the same Court under Section 14 to 17 of the

Act of 1940 which was registered as O.S.No.325 of 1996 seeking for

a relief of making the award dated 25.09.1995passed by respondent

No.2 as "the rule of the Court". Since the three petitions were arising

out of the same award between the same parties, they were taken up

for an analogous hearing and the impugned judgment was passed on

05.10.2005dismissing the O.P.No.22 of 1996 filed by the appellant as

also the O.P.No.19 of 1996 filed by respondent No.1and

simultaneously O.S.No.325 of 1996 filed by respondent No.1was

decreed making the award dated 25.09.1995 as "the rule of the

Court". However, while granting the relief of interest on the claim

amount awarded, the Court below modified the award to the extent

that the rate of interest for the claim awarded would be 18% from

23.09.1982 till the date of decree i.e. 05.10.2005, and for the

subsequent period i.e. from the date of decree, the future interest

was granted at the rate of 12% till the date of realization.

6. Aggrieved by the said common judgment dated 05.10.2005, the

appellant has further challenged the award before this Court under

Section 39 of the Act of 1940.

7. The contention of the learned counsel for the appellant was

that respondent No.2 has mis-conducted himself inasmuch as it

failed to properly appreciate the fact that the site was timely handed

over to respondent No.1 on 17.01.1979.However, the respondent

No.1 failed to complete the construction within the stipulated period

of time. According to the learned counsel for the appellant, except for

the contention of non-finalization of the levels at which the godowns

were to be constructed, there does not seem to be any other cogent

strong grounds raised or established by respondent No.1 explaining

the delay caused in finalization of the work. According to the learned

counsel for the appellant, the respondent No.2 has not properly

appreciated the various documents produced by the appellant

Corporation before him and in the process has given an improper

finding which otherwise is a perverse finding and which can be safely

brought within the purview of misconduct under the Act of 1940

entailing interference.

8. It was the contention of the learned counsel for the appellant

that the claim of respondent No.1 towards excavation of rock and

transportation was again contrary to the contract and also contrary

to the schedule rate agreed between the parties. It was also the

contention that respondent No.1 overlooked the fact that respondent

No.1 in fact performed his work without any pretext and it was at a

much belated stage he has raised the claim towards extra cost

incurred on the said head of excavation of rock and transportation.

9. It was further contended by the learned counsel for the

appellant that the respondent No.2 overlooked his overall deviation

limit of 50% provided in the agreement, rather has assumed the

deviation limit of 20% while awarding the claim under the said head.

It was further contended that respondent No.2 also failed in properly

appreciating the terms of agreement wherein it was clearly agreed

that the cost for transportation of cement from different sources had

to be arranged by respondent No.1 himself. However, the respondent

No.2 has gone out of the way in awarding the claim under the said

head in favour of respondent No.1 presuming that the appellant had

promised to reimburse respondent No.1 towards the said expenses

alleged to be extra cost borne by respondent No.1. Likewise, it was

also the contention that respondent No.1 also has given a perverse

finding so far as claim of respondent No.1 for escalation so far as the

price of cement and steel are concerned.

10. According to the learned counsel for the appellant, the

escalation was permissible only in the event of the entries being in

excess of 10% of the price prevailing at the time of acceptance of

tenders. However, the respondent No.1 did not produce any evidence

to substantiate this claim of his by showing the prices that was

prevailing at the time of acceptance of tenders and the price

prevailing at the time of execution of the work. In the absence of

which the finding so awarded by respondent No.2 under this head

can be safely brought under the purview of having misconducted

himself, ignoring the relevant provisions of the agreement. According

to the learned counsel for the appellant, admittedly the site was

handed over to respondent No.1 well in time and that admittedly

respondent No.1 could not execute his work within the stipulated

period of time and yet the respondent No.1 has claimed for price

escalation which firstly was not permissible under the contract and

that the escalation clause in the agreement was only so far as the

price escalation in respect of cement and steel and not for any other

items. So also the learned counsel for the appellant questioned the

awarding of lump sum compensation towards loss suffered by him in

the course of execution of the work.

11. Lastly, it was contended by the learned counsel for the

appellant that the rate of interest awarded by respondent No.2 was

also excessive and arbitrary.

12. Thus, for all the aforesaid reasons, learned counsel for the

appellant prayed for setting aside of the judgment passed by the

Court below so also for setting aside of the arbitration award.

13. Per contra, the learned counsel for respondent No.1 contended

that the instant appeal at the threshold deserves to be rejected as no

substantive cogent grounds have been raised by the appellant so far

as invocation of powers by this Court under Section 39 of the Act of

1940.

14. According to the learned counsel for respondent No.1, the plain

reading of the arbitration award dated 25.09.1995 and also reading

of the common judgment under challenge in the present appeal

would go to show that respondent No.2 at the first instance had

threadbare considered all the material pleadings and evidences and

had reached to the conclusion that the claimants were entitled for

eight out of twelve claims that they had raised and in the process

rejected four of their claims. This aspect was further scrutinized from

judicial point of view by the Court below while deciding the three

petitions and in the process of passing the impugned judgment.

15. It was also the contention of the learned counsel for respondent

No.1 that no cogent grounds seems to have been raised by the

appellant so as to hold that respondent No.2 has misconducted

himself. Rather, according to the learned counsel for respondent

No.1 it is a case where the appellant has been primarily focusing on

the documentary evidence adduced and which has been duly

considered and appreciated and only thereafter was the impugned

judgment passed. Under the said circumstances, it is difficult to take

a different view than which has been taken by respondent No.2 and

which also now stands confirmed by the Court below under Section

30 and 33 of the Act of 1940.

16. Lastly, it was contended by the learned counsel for respondent

No.1 that respondent No.2 himself having threadbare gone into the

merits of the case, which was further subjected to judicial review

under Section 30 and 33 of the Act of 1940, the scope of interference

gets reduced to the minimal and for the said interference also the

appellant was not in a position to show cogent strong materials and

the appeal therefore deserves to be dismissed and he prayed

accordingly.

17. Having heard the contentions put forth on either side and on

perusal of records, what is primarily to be decided in the instant case

is: 1) "Whether the impugned judgment and decree dated 05.10.2005

and also whether allowing of O.S.No.325 of 2006 making the award

rule of the Court was proper, legal and justified?" and 2) "Whether

the award dated 25.09.1995 passed by respondent No.2 (the sole

Arbitrator) warrants interference now under Section 39 of the Act of

1940 and also under Section 115 of CPC?"

18. While deciding the award passed by respondent No.2, what

needs to be appreciated is the fact that in the course of deciding the

dispute by way of arbitration, the respondent No.2 primarily took up

the case by deciding two issues. Issue No.1 was to ascertain whether

there was any breach of contract on the part of the appellant

enabling respondent No.1 in raising the claims under various heads.

Issue No.2 was, if there was a breach of contract, whether the

claimant would be entitled for the claims under various heads they

have sought for.

19. Dealing with issue No.1, in respect of the allegation of breach of

contract, respondent No.2 after threadbare going into the entire

factual matrix and all the details arising out of the agreement,went

on touching the facts such as:

"When the site itself is not available for commencement of the work at certain places and levels have not been finalized even after six months, the allegation that the petitioner was in a oscillating mood has no substance at all. In fact the contractor performed Muhurtham on 9-3-1979 with an earnest desire to commence the work and requested the Corporation to furnish the issues even after the finalization of levels by the railways in the last week of June, 1979. Under these circumstances, it is false and incorrect to allege that the contractor failed to plan the construction activity, failed to mobilize adequate men and material as per schedule and that the prolongation of time was mainly due to improper planning of the contractor. There is absolutely no negligence on the part of the contractor as alleged and therefore the claims put forth by the petitioner are perfectly justified and quite in order."

20. In the process of verification of the afore given facts, the

respondent No.2 found that in addition to handing over the

possession of site to respondent No.1, the appellant Corporation also

had to perform their part of the contract inasmuch as the site

handed over must be in such a condition that it is reasonable and fit

for immediate erection thereon so far as the building proposed.

Further, respondent No.2 found that the appellant was helpless till

27.06.1975 to hand over the site to respondent No.1 for want of

finalization of levels. The level was necessary and interlinked with

the fixing of rail level at the location of the proposed building. The

respondent No.2 also found that initially the agreement provided was

for platform to be constructed only on one site; however, in the

course of execution, platforms were constructed on both sides of the

godown. This additional work contributed for delay in the execution

of the contract and for all the aforesaid reasons extensively

deliberated upon by respondent No.2 in his finding to issue No.1 he

reached to the conclusion that the appellant being guilty of breach of

contract. As such, the issue No.1 was decided in favour of

respondent No.1.

21. Thereafter, the respondent No.2 proceeded to decide the issue

No.2 in respect of various claims raised, and dealing with each of the

topics, respondent No.2 awarded the amount as shown in the table

below against each of the claims, viz.,

Claim Item Amount Claimed Amount Awarded

1. Rs.9,00,000/- Rs.7,28,667/-

2. Rs.1,80,000/- Rs.1,80,000/-

3. Rs.2,10,000/- Nil

4. Rs.2,00,000/- Rs.2,00,000/-

5. Rs.12,37,764/- Rs.4,62,500/-

6. Rs.17,39,768/- Rs.6,93,400/-

7. Rs.3,47,134/- Rs.2,00,000/-

8. Rs.3,48,660/- Nil

9. Rs.3,48,660/- Rs.2,00,000/-

10. Interest awarded at the rate of 18% per annum on the amounts awarded in respect of all the claim amounts awarded above from 23.09.1982 to Interest the date of award i.e. 25.09.1995 and from the date of award i.e. 25.09.1995 to the date of decree or realization which ever is earlier.

11. Interest on Security Deposit for the period from 17.05.1980 to Nil 05.09.1984

12. Costs Rs.75,000/- Nil

22. In the context of the aforesaid factual backdrop, what is now

necessary to be appreciated at this juncture is the judicial

precedents rendered by the Hon'ble Supreme Court so far as

interference for the High Court under Section 39 of the Act of 1940.

23. The Hon'ble Supreme Court in the case of H.P. State

Electricity Board v. R.J. Shah and Company 1 held at paragraph

No.17 held as under:

"17.Mustill and Boyd in their book Commercial Arbitration, 2nd Edn., at p. 554 have stated that "it is not always easy to distinguish between instances where there is a want of jurisdiction, and those where there is error of law or fact". This Court has, over the years, had occasions to deal with the cases of awards where there was want of jurisdiction in contradistinction to the cases where there was an error in exercise of jurisdiction. A series of decisions by different Benches of this Court have held that the award is liable to be set aside if there is error of jurisdiction but not if the error is committed in exercise of jurisdiction. We shall first refer to some of the decisions on this point given by different Division Benches consisting of two Judges before referring to decisions of larger Benches."

The aforesaid view was on the basis of a catena of decisions of

the Hon'ble Supreme Court on the said subject.

24. In the same judgment, in paragraph No.26, again the Hon'ble

Supreme Court laid down the principle as to what in fact has to be

verified when an award is under challenge. The relevant portion of

paragraph No.26 is reproduced herein under for ready reference, viz.,

(1999) 4 Supreme Court Cases 214

"26. In order to determine whether the arbitrator has acted in excess of jurisdiction what has to be seen is whether the claimant could raise a particular dispute or claim before an arbitrator. If the answer is in the affirmative then it is clear that the arbitrator would have the jurisdiction to deal with such a claim."

25. In the light of the observations made in paragraph No.26, if we

look into the facts of the present case, it will clearly reflect that there

is in fact no challenge by the appellant so far as the competence and

jurisdiction of respondent No.2 is concerned. There is also no

dispute so far as the claims raised by respondent No.1 firstly being

arbitral issue and secondly it was agreed between the parties for

resolving the differences and disputes only by way of an arbitration.

26. A three Judge Bench of the Hon'ble Supreme Court again in

the case of NTPC Limited v. Deconar Services Private Limited 2

dealing with the scope of interference by Courts in arbitral awards

under the Act of 1940 held at paragraph Nos.11 to 13 as under:

"11. Before proceeding further, it is necessary to make note of the scope of interference by courts in arbitral awards passed under the Arbitration Act, 1940. This Court has consistently held that the Court does not sit in appeal over an award passed by an arbitrator.

(2021) 19 Supreme Court Cases 694

In Kwality Mfg. Corpn. v. Central Warehousing Corpn. [Kwality Mfg.

Corpn. v. Central Warehousing Corpn., (2009) 5 SCC 142 : (2009) 2 SCC (Civ) 406] , this Court held as follows : (SCC pp. 146-47, para

10)

"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."

12.Further, it is also a settled proposition that where the arbitrator has taken a possible view, although a different view may be possible on the same evidence, the court would not interfere with the award. This Court in Arosan Enterprises Ltd. v. Union of India [Arosan Enterprises Ltd. v. Union of India, (1999) 9 SCC 449] , held as follows : (SCC p. 475, paras 36-37)

"36. Be it noted that by reason of a long catena of cases, it is now a well-settled principle of law that reappraisal of evidence by the court is not permissible and as a matter of fact exercise of power by the court to reappraise the evidence is unknown to proceedings under Section 30 of the Arbitration Act. In the event of there being no reasons in the award, question of

interference of the court would not arise at all. In the event, however, there are reasons, the interference would still be not available within the jurisdiction of the court unless of course, there exist a total perversity in the award or the judgment is based on a wrong proposition of law. In the event however two views are possible on a question of law as well, the court would not be justified in interfering with the award.

37. The common phraseology "error apparent on the face of the record" does not itself, however, mean and imply closer scrutiny of the merits of documents and materials on record. The court as a matter of fact, cannot substitute its evaluation and come to the conclusion that the arbitrator had acted contrary to the bargain between the parties. If the view of the arbitrator is a possible view the award or the reasoning contained therein cannot be examined."

13. From the above pronouncements, and from a catena of other judgments of this Court, it is clear that for the objector/appellant in order to succeed in their challenge against an arbitral award, they must show that the award of the arbitrator suffered from perversity or an error of law or that the arbitrator has otherwise misconducted himself. Merely showing that there is another reasonable interpretation or possible view on the basis of the material on the record is insufficient to allow for the interference by the court [see State of U.P. v. Allied Constructions [State of U.P. v. Allied Constructions, (2003) 7 SCC 396] ; Ravindra Kumar Gupta & Co. v. Union of India [Ravindra Kumar Gupta & Co. v. Union of India, (2010) 1 SCC 409 : (2010) 1 SCC (Civ) 130] and OswalWoollen Mills Limited v. Oswal Agro Mills Ltd. [OswalWoollen Mills Limited v. Oswal Agro Mills Ltd., (2018) 16 SCC 219 : (2019) 1 SCC (Civ) 426]]."

27. A similar view has been taken by yet another three Judge

Bench of the Hon'ble Supreme Court in the case of Atlanta Limited

through Its Managing Director v. Union of India Represented by

Chief Engineer, Military Engineering Service 3wherein again

dealing with the scope of interference by the Courts to arbitral

awards, the Hon'ble Supreme Court took the following view. The

relevant portion is reproduced herein under for ready reference, viz.,

"17. 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.

.... ... ...

28. We are of the opinion that once the learned sole arbitrator had interpreted the clauses of the contract by taking a particular view and had gone to great length to analyze several reasons offered by the appellant claimant to justify its plea that it was entitled for extension of time to execute the contract, the Division Bench of the High Court ought not to have sat over the said decision as an appellate court and seek to substitute its view for that of the learned arbitrator."

(2022) 3 Supreme Court Cases 739

28. Given the aforesaid judicial precedents of the recent past and

thereafter perusing the award passed by respondent No.2 on

25.05.1995, it will give a clear picture that respondent No.2 in fact

has given sufficient justification in the course of awarding the

amount under different heads. The award passed by respondent No.2

is lucid in its reasoning and gives a pragmatic interpretation to the

terms and conditions of the contract and it was for this very reason

that the Court below ordered for making the award "the rule of the

Court" and dismissed the petition preferred by respondent No.1 so

far as non-granting of compensation under different heads and also

dismissed the petition preferred by the appellant holding it to be