w w w . L a w y e r S e r v i c e s . i n



Union of India, Rep. by the Chief Engineer, N.E. Zone, S.F. Falls, Shillong v/s India Engineering Services & Another

    F.A.No. 46 of 1980 & Civil Revision No. 103 of 1983

    Decided On, 25 July 1983

    At, High Court of Gauhati

    By, THE HONOURABLE MR. JUSTICE K.N. LAHIRI & THE HONOURABLE MR. JUSTICE T.C. DAS

    For the Appellant: S. Ali, Central Govt. Standing Counsel. For the Respondent: J.P. Bhattacharjee, R. Gogoi, B. Devi, Advocates.



Judgment Text

Lahiri, J.

1. We propose to dispose of the appeal under section 39 of the Arbitration Act, 1940, for short 'the Act' and the connected Civil Revision. These are directed against the judgment and decree of the Assistant District Judge, Darrang at Tezpur in Misc. (Arbitration) Case No.2 of 1979 confirming the Award of the Arbitrator and rejecting the objection.

2. The relevant facts are that tenders were invited by the Chief Engineer, C.P.W.D., N.E. Zone for provision of married accommodation for key personnel at Misamari,. Respondent No.1 submitted tender which was accepted on 24.11.72 for and on behalf of the President of India. A formal contract of agreement in writing in proper form was executed by the parties on December 21, 1972. The value of the works allotted to the Respondents was Rs.22,78,113.51. Time was the essence of the contract and the works were directed to be completed in two phases. Dispute arose as to the rightful claim of the Respondents. In accordance with the terms of agreement Col. G.M.E. Mallappa, V.S.M., Director of Utilities, Engineer-in-Chief’s Branch, New-Delhi, was appointed sole Arbitrator. The Respondents contractor claimed Rs.6,97,853.87 on two heads containing 13 items. The parties submitted their case and counter case before the Arbitrator who gave opportunities to both the parties and upon hearing made the award and published the same with appropriate notice to the parties. The contractor filed application in the Court of the Assistant District Judge along with a copy of the order of award for passing a decree in terms of the award. The present appellant submitted an application for setting aside the award contending that the Arbitrator made the award beyond the terms of the agreement between the parties and without considering the relevant matters and thereby mis-conducted himself. The Court rejected the petition and passed a decree in terms of the award. Hence this appeal along with a revision under section 115 of the Code of Civil Procedure.

3. Mr. S. Ali, learned Senior Standing Counsel, Central Govt., has assailed the award on the ground that it does not contain any reason which is violative clause 70 of the Contract Agreement, and the award in respect of Items A 1,3,5,7.8 and 9 amounting to Rs.3,64,109/- related to and arose out of suspension work to which the petitioner was not entitled to under Clause 9 of the Contract. In allowing the said claim, the Arbitrator, it was contended, went beyond the agreement and thereby mis-conducted himself and the award is liable to be set aside to that extent. The court below erred in law in rejecting the application of the appellant. It is the common case of the parties that the award is a non-speaking one.

4. The precise question is whether it is permissible for the court to look into the clauses of the agreement and to set aside the award if found to be contrary to the terms of the agreement and whether an award contrary to the terms of the agreement amounts to misconduct on the part of the Arbitrator. Reference to the sole Arbitrator was made under Clause 70 of the agreement which prescribes the procedure in respect of the Arbitration proceedings. It says clearly that the decision of the arbitrator shall be final and binding on both the parties unless it is set aside under section 30 of 'the Act'. The award is non-speaking and it does not refer to any proposition of law nor does it refer to any agreement or document. Only in the recital of the award there is mention about the contract. Mr. Ali refers to claims of the Respondent in Item A 1,3,5,8 and 9 and submits that those were claims in respect of delay in completion of the work due to an order of suspension issued by the Chief Engineer and under Clause 9 of the Contract, so contractor was not entitled to compensation. However, Mr. Ali has very fairly conceded that the time was the essence of the contract and the works were delayed not due to the circumstances set forth in Clause 11 of the Contract. Admittedly the delay in execution of the works was not due to non-availability of Government stores or for non-availability or breakdown of Government Tools and Plant and as such, it is not covered by Clause 11(B) of the terms of the contract and the petitioner was entitled to compensation for the delay. It is conceded by Mr. Ali that the works were delayed not for the reasons mentioned in Clause 11(B) and as such, the claimant was entitled to compensation. But Mr. Ali submits that the suspension of work was due to an order made by the Chief Engineer acting under Clause 9, of the agreement. On reading Clause 11 along with Clause 9, we find that if due to reasonable and justifiable cause, the work is suspended say, any defect in the contract work or some other just and reasonable cause, the work may be kept under suspension by the Chief Engineer and the contractor may not get any compensation. However, in the absence of any materials to show that the order of suspension of work was not arbitrary or capricious, a penal suspension or suspension of the like nature due to any default of the contractor; Clause 9 does not assist the appellant. In the instant case, there is no material whatsoever to show that the suspension of work was due to any just or sufficient ground. The power under Clause 9 of the Contract cannot be exercised to circumvent the provisions of Clause 11. Therefore, if work was kept under suspension without just and reasonable ground, the contractor is entitled to compensation. We extract Clause 11(B);

"(B) If the works be delayed:

(a) by reason of non availability of Government stores, mentioned in Schedule ‘B’; or

(b) by reason of non-availability or breakdown of Govt. Tools and Plant, mentioned in Schedule ‘C’; then in such event, notwithstanding the provisions he rein before contained the C.E. may in his discretion grant such extension of time...........

(c) No claim in respect of compensation or otherwise, howsoever arising, as a result of extensions granted under Conditions (A) and (B) above shall be admitted".

It is, therefore, seen that if the works are delayed due to the stated reasons and extensions are granted the contractor is not entitled to compensation. However, if the works are delayed not on the grounds covered by condition 11, a contractor is surely entitled to compensation. This position is not disputed by Mr. Ali. Similarly, Mr. Ali does not dispute that if the powers of suspension is not justified and there is a delay, a contractor is entitled to compensation for the loss sustained by him even if the suspension of the work is under the cover or cloak of Clause 9. In the instant case, there is no material to justify the action of the Chief Engineer under Clause 9. Similarly, the delay caused was not covered by Condition 11 of the Contract and as such, there does not appear to be any error apparent on the face of the award.

5. Arbitrator and litigations are two alternative means to settle disputes. When the parties decide to refer the matter to an Arbitrator, they cannot treat the proceedings as litigation, as known in common parlance. The Arbitration Act, 1940, prescribes the principles within which the Arbitrator is allowed to make his award final and binding on the parties. Only on limited grounds and circumstances, the court can remit the matter for reconsideration of the Arbitrator or set aside the award, say, where an Arbitrator has misconducted himself in the proceedings or an arbitration or award has been improperly procured, the court may in its discretion set aside the award. The court cannot interfere with an award unless the provisions of "the Act" are violated or when the award is liable to be set aside under section 30 of "the Act". An Arbitrator is empowered to adjudicate and grant the jurisdiction by the parties in the form of an agreement, which the arbitrator cannot disregard nor can it acquire more power and jurisdiction upon himself by deciding matter which were not referred to it. Nevertheless, an Arbitrator is entitled to consider the question whether he has jurisdiction to act to satisfy himself that it is worthwhile to proceed and an award which expressly or impliedly refers to such finding is not invalid. Generally speaking, a party is entitled to protest that the arbitrator has acted either without authority, orbeyond the scope of the agreement of reference. It is the common case of the parties that under Clause 70 of the agreement, all disputes between the parties to the contract, other than those specifically excluded could be referred to the sole Arbitrator. An Arbitrator decides matters 'arising out of a contract'. In Heyman vs. Darwins Ltd. (1942) AC 356, Lord Porter, has stated that the words 'arising out of a contract' have a wider meaning than the words 'under a contract' and this view has been reiterated by Lord Justice Sellers in Government Of Gibraltar vs. Kenney (1965) 2 QB 410. It is the common case of the parties that the claims of Respondent 1 had arisen out of the contract and duly covered by clause 70 of Agreement. In Champsey Bhata Company vs. The Jivraj Balloo Spinning & Weaving Company Ltd., 50 Ind. App. 324; AIR 1923 PC 66 Lord Dunedin laid down the principles when an award suffers from an error of law on the face of it. His Lordship observed as follows:

'An error in law on the face of the award means, in their Lordships’ view, that you can find in the award or a document actually incorporated thereto, as for instance a note appended by the arbitrator stating the reasons for his judgment, some legal proposition which is the basis of the award and which you can then say is erroneous. It does not mean that if in a narrative a reference is made to a contention of one party that opens the door to securing first what the contention is, and then going to the contract on which the parties rights depend to see if that contention is sound.'

The court in dealing with an application to set aside an award is not to consider whether the view of the arbitrator on the evidence is justified as the arbitrator’s adjudication is generally considered binding on the parties, for he is the tribunal selected by the parties and power of the court to set aside the award is restricted to cases set out in Section 30. It is not open to court to attempt to probe the mental process by which the arbitrator has reached his conclusion where it is not disclosed in the award. When it is impossible to show, from what is seen on the face of the award, what mistake the arbitrator made, it cannot be said to be an error apparent on the face of the award. In the instant case it is impossible for us to see what mistake the Arbitrator made and whether he misconstrued conditions 9 and 11 of the terms of Contract, as on the face of the award we do not find any discussion nor do they appeal from any of the papers accompanying or forming part of the award. The disputes fell within arbitration clause and the Arbitrator had jurisdiction to determine them. It was within the scope of Arbitration Clauses and, therefore, it was no part of the province of the court to enter into the merits of disputes. This view finds support in A.M Mair & Co vs. Gordhandas Sagarmull, AIR 1951 SC 9. In Union of India vs. Salween Timber and Construction Co., AIR 1969 SC 488, where it has been ruled by their Lordships that the tests for determining whether a dispute is one 'arising out of the contract' or 'in connection with the contract' is whether recourse to the contract by which both the parties are bound is necessary for the purpose of determining whether the claim of the Respondents is justified or otherwise. If it is necessary to take recourse to the terms of the contract for the purpose of deciding the matter in dispute, it must be held that the matter is within the scope of the arbitration clause and the arbitrator has jurisdiction to decide the case. As such, the Arbitrator had jurisdiction to decide the disputes arising out of the contract. In Bunco Steel Furniture Ltd. vs. Union of India, AIR 1967 SC 378 it has been held that if an Arbitrator, in deciding a dispute, does not record his reasons and does not indicate the principles of law on which he has proceeded the award is not vitiated on that count. It is only when the Arbitrator proceeds to give his reasons or lay down the principles on which he has arrived at a decision that the court is competent to examine whether he has proceeded contrary to law and entitled to interfere if such an error in law is apparent on the face of the award itself. Their Lordship relied on James Clark (Brush Materials) Ltd. vs. Cartnis (Merchants Ltd., (1944) 1 KB 566 where it was held that the court was not entitled to draw any inference as to the findings by the arbitrator of facts supporting the award, but must take it at its face value. In Firm Nandalal Roshanlal Mahajan vs. Hukumchand Mills Ltd., AIR 1967 SC 1030, their Lordships have held that an arbitrator is not bound to give a separate award for such claim but can give a lump sum award. It has been further held that an Arbitrator’s award on fact and law is final and there is no appeal from his verdict and the court cannot review its award and correct any mistake in its adjudication unless objection to the legality of the award is apparent on the face of it. It has been held that when the Arbitrator has given no reason for the award nor is there any legal proposition as the basis of the award, the contention that there are errors of law on the face of the award must be rejected.

6. In the instant case, learned counsel for the appellant desired to build up a case of valid suspension of work under Clause 9 and thereby has pleaded before us that the compensation awarded by the arbitrator for the delay in the execution of the work was violative of Condition 9 of the Contract. There is no material that the appellant acted within the four corners of Condition 9, yet the appellant desired to set aside a valid award. If the appellant had done something lawful in terms of Condition 9 in promoting the interest of the Government and had not employed any unlawful means, certainly the contractor would have no cause of action in respect of damages; Vide Mogul Steamship Co. vs. Moghegor (1982) A.C.25. The proposition is also to be found in Crofter Hard-Woven Harris Tweed Co. vs. Veitch, (1942) A.C.435. If the act of suspension could be shown to be legitimate, lawful and in accordance with the terms of the agreement it could have been urged that there was some case for the appellant. Even under the Contract Act, the act of the appellant in suspending the contract is required to be justified in a civil action. However, if the act did not come within the four corners of Condition 9 of the Contract, the appellants have had no right to deny the rightful claim of compensation awarded in favour of the contractor. The view finds support in AIR 1959 A.P. 551(554), Y.C. Rattayya vs. D. Venkata Ramayya. In M/s. Alopi Parsad & Sons vs. Union of India, AIR 1960 SC 588, wherein their Lordships reiterated the view that an award may be set aside on the ground of error on the face thereof, only when the award or any document incorporated with it, as for instance, a note appended by the arbitrators, stating the reasons for his decision, there is found some legal proposition which is the basis of the award and which is erroneous. However, in the instant case we do not find any such legal proposition on the basis of which the award was made, which can be said to be erroneous on the face of the award. In M/s. Allen Berry & Co. vs. Union of India, AIR 1971 SC 696, their Lordships referred to the observation in Hodokinson vs. Fernyle, (1857) 3 CB (NS) 189 and quoted the observations of Williams J., which we extract below:

'Where a cause or matters in difference are referred to an arbitrator, whether a lawyer or a layman, he is constituted the sole and final Judge of all questions both of law and fact........The only exceptions to that rule are, cases where the award is the result of corruption or fraud, and one other, which though it is to be regretted, is now, I think, firmly established, viz., where the question of law necessarily arises on the face of the award, or upon sorre paper accompanying and forming part of the award'.

Their Lordships of the Supreme Court relied on Champsey Bhata & Co. vs. Jivraj Balloo Spinning & Weaving Co. Ltd., (1983) AC 430, Landauer vs. Asser (1905) 2 KB 184, Absalon Ltd. vs. Great Western (London) Garden Village Society Ltd., (1933) AC 592 and quoted with approval the observations from Clacono Costa FU and Pea vs. British Italian Trading Co. Ltd., (1962) 2 All E.R. 260 which we extract herein below:

'It seems to me, therefore, that, on the cases, there is none which compenesus to hold that a mere reference to the contract in the award entitles us to look at the contract. It may be that in particular cases a specific reference to a particular clause of a contract may incorporate the contract, or that clause of it, in the award. I think that we are driven back to the first principles in this matter, namely, that an award can only be set aside for error which is on its face. It is true that on award can incorporate another document so as to entitle one to read that document as part of the award and, by reading them together, find an error on the face of the award'.

In M/s. Allen Berry (supra) the appellant claimed that the award was liable to be set aside on six grounds: (1) that the contracts of the sale entered into by the company were misconstrued by the umpire and such mis-construction appeared on the face of the award; (2) that the umpire, as well as the High Court, failed to take into consideration several documents which deciding the scope of the sales; (3) that in respect of claim No.(VI) of the Government, the umpire acted beyond his jurisdiction as those questions did not fall within the scope of the reference; (4) that the umpire did not act according to law but acted as a conciliator and based his award more on conjecture and surmises; (5) that his conclusion on ground rent awarded to the Government was based on no evidence; and (6) that the costs awarded to the Government were altogether disproportionate. Their Lordships have held that even when an arbitrator commits a mistake either in law or in fact in determining the matters referred to him but such mistakes do not appear on the face of the award or in a document appended to or incorporated in it so as to form an integral part of it, the award will neither be remitted nor set aside notwithstanding the mistake. Relying on Giacomo Costa (supra) and Hodkinson (supra) their Lordships held that ordinarily the decision of the umpire even though it be on a question of law, would be binding on the parties unless the case falls within the exception mentioned in the cases just alluded. Their Lordships held that all the questions were referred to the umpire and his findings were binding on the parties unless a legal proposition such as a legal construction which was made on the basis of the award was erroneous on the face of it. Their Lordships rejected the contentions (1) and (2) holding that there was no error of law apparent on the face of the award. There was no mis-construction of the terms of the contract or the documents which appeared to be erroneous on the face of the award. In respect of the contention No.3, their Lordships held that it was not possible to say that the umpire had gone beyond his jurisdiction in rejecting the claim of the appellant and accepting the counter-claim of the respondent. Their Lordships rejected the other contentions. However, we are not concerned with the contentions No.4, 5, 6. In short, their Lordships have held that even when an arbitrator commits a mistake either in law or in fact in determining the matters referred to him but such mistakes do not appear on the face of the award or in the documents appended to or incorporated in the award so as to form the part of it, the award cannot be remitted or set aside notwithstanding any mistake. Their Lordships ruled that the principle of reading the contract or other document into the award should not be encouraged or extended and relied on Baburam vs. Nanhemal, C.A. No. 107 of 1966 decided on 5.12.68 (SC) 1969 SCD 262.

8. In M/s Kapoor Nilokheri Co-Op. Dairy Farm & Society Ltd. vs. Union of India, AIR 1973 SC 1338 the claimants specifically stated that their claims were based on the agreement and accordingly the arbitrator decided as to the effect of the agreement. It was held that his decision was not open to challenge by any of the parties. In reaching the conclusions, their Lordships relied on Russel on Arbitration, 17th Edn., page 182 as well as Durga Prosad vs. Sewkishendas, AIR 1949 PC 334 and Grulam Jilani vs. Muhammad Hassan (1901) 29 Ind App 51 (PC).

9. In N. Chellappan vs. Secretary Kerala State Electricity Board, AIR 1975 SC 230, their Lordships quoted with approval from Russel on Arbitration," 17th Edn. page 215 which we extract below- "If the parties to the reference either agree before hand to the method of appointment, or afterwards acquiesce in the appointment made, with lull knowledge of all the circumstances, they will be precluded from objecting to such appointment as invalidating subsequent proceedings. Attending and taking part in the proceedings with full knowledge of the relevant fact will amount to such acquiescence".

Their Lordships also relied on Chowdhri Mustafa Hussein vs. Mt. Bibi Bechunnissa (1878) 3 Ind App. 209(PC) and quoted with approval the passage.

"On the whole, therefore, their Lordships think that the appellant, having a clear knowledge of the circumstances on which he might have founded an objection to the arbitration proceeding to make their award, did submit to the arbitration going on; that he allowed the arbitrators to deal with the case as it stood before them, taking his chance of the decision being more or less favourable to himself; and that it is too late for him, after the award has been made, and on the application to file the award, to insist on this objection to the filing of the award."

Their Lordships held that when the umpire as the sole arbitrator awarded a sum to the contractor on account of certain claims made by him after considering the argument of the Board for disallowing it, but without expressly adverting to the question of limitation the award was not vitiated on account of any mistake of error apparent on the face of the award. The umpire as the sole arbitrator is not bound to give a reasoned award and if in passing the award he makes a mistake of law or of fact, that is no ground for challenging validity of the award. It is only when an erroneous proposition of law is stated in the award and which is the basis of the award, can the award be set aside or remitted on the ground of error of law apparent on the face of the record.

10. Mr. Ali has referred to K.P. Poulose vs. State of Kerala, AIR 1975 SC 1259 in support of his contention. There, the arbitrator rejected the claim which was found by the court to be rationally inconsistent on bare perusal of the award itself. Their Lordships held that the award suffered from manifest error apparent ex-facie. The arbitrator had reached inconsistent conclusions which were apparent on his own finding recorded in the award and ignored material documents in reaching the said inconsistent conclusion and accordingly their lordships remitted the award.

11. In the result on scrutiny of the award made by the Arbitrator, we find that it in a non-speaking award which does not refer to any proposition of law nor does it refer to any terms of any agreement or document. The Arbitrator has made the award on the basis of the reference made to it and acted within the limits of the Arbitration Act, 1940. There is no debate at the bar that any of the provisions of the Act was violated by the Arbitrator. The Arbitrator has decided the matters arising out of the contract in accordance with Clause 79 of the agreement. We do not see any error in law on face of the award or in any document incorporated thereto or appended along

Please Login To View The Full Judgment!

with the award. No legal proposition was made as the basis of the award which we can say was erroneously decided. The arbitrator has decided the claim of the contractor on the basis of the materials placed by the parties before him. Mr. Ali, learned Sr. Standing Counsel, Central Govt., has invited us to attempt to prove the mental process by which the arbitrator reached his conclusion although the process is not disclosed in the award. Ex-facie we do not find any error of law on the face of the records, nor do we find that the award suffers from error apparent ex-facie. The disputes fall within the four corners of the arbitration clause and the arbitrator determined the dispute and we cannot enter into the merits of the dispute by taking resort to the terms of the contract between the parties. While deciding the dispute, the arbitrator has not recorded his reasons nor has he indicated the principles of law on which he proceeded to make the award and as such it cannot be said that the arbitrator proceeded to decide contrary of law committed error of law which is apparent on the face of the award. Under these circumstances and on authority of the decisions referred, we conclude that there is no error apparent on the face of it. Mr. Ali desired to build up a case of valid suspension under Clause 9 of the Contract In our opinion, we cannot enter into the controversial question that the award was made without due consideration of the terms of the Contract including Clauses 9 and 11. Mr. Ali has conceded that there is no material on record to show that the alleged order of suspension of work was valid order and came within the four corners of condition No.9. We cannot declare an award to be illegal or erroneous on the assumption that the arbitrator had failed to take note of the relevant Clauses of the Contract. As such the contentions of the learned counsel for the appellant fail. Mr. Ali, learned Sr. Standing counsel for the appellant has measurably failed to establish that there was any legal and valid order of compensation for which the contractor was disentitled to any compensation. Learned counsel has fairly conceded that a contractor is entitled to compensation if there is delay caused due to circumstances not covered by Clause 11 of the Contract. Therefore, the contractor is entitled to compensation if the case is not covered by Clause 11. We do not find any material to hold that the part of the award impugned by the appellant is erroneous or illegal on the face of it. 12. In the result the appeal fails and is dismissed hereby. The connected Civil Revision also stands dismissed for the reasons set-forth above. We direct the parties to bear the respective costs.
O R