The State of Kerala Etc.
Etc. Vs. M/S. Arya Refrigeration & A/C Co  Insc 424 (3 August 2004)
S.N. Variava & Arijit
Pasayat with Ia No. 6 and Civil Appeal No. 362/1988 Arijit Pasayat, J.
These two appeals are interlinked and, therefore, taken up together for
disposal. Civil appeal no. 2078 of 1984 is by the State of Kerala questioning
correctness of the decision rendered by learned Single Judge of the Kerala High
Court directing deposit for Rs.5,75,500/- in Court, upholding the directions of
deposit given by Sub Court, Trivandrum in E.P. No. 109 of 1981 in O.P.
4 of 1979. Learned Single Judge held that there was nothing wrong with the
direction to warrant interference under Section 115 of the Code of Civil
Procedure 1908 (in short the 'Code'). Civil appeal no.362 of 1988 has been
filed by M/s Arya Refrigeration and Air Conditioning Co.
Ltd. (hereinafter referred to as the 'claimant') questioning correctness of
the judgment rendered by the Division Bench of the Kerala High Court setting
aside the decree in terms of the award given by the two arbitrators appointed
by the Court.
Though the case has a chequered history, it is not necessary to deal with
the factual position in detail, as the same is almost undisputed. Claimant
entered into an agreement with the State of Kerala on 18.1.1965 for supply and
erection of a 100 tonne ice-cum-cold storage plant at Willington Island Cochin.
The agreed amount was Rs.9,40,000/-. Though some plants and machines were
supplied, they could not be installed because of non-construction of the
building to house them. As time passed, dispute arose between the parties and
the matter was referred to arbitrators in terms of clause 15 of the agreement.
There were two arbitrators who passed an award on 2.11.1978. The amount awarded
by the arbitrators was Rs.5,05,500/-.
Soonafter the award was passed, the State Government cancelled the contract
and the same was terminated w.e.f. 17.11.1978. Claimant questioned the
cancellation and raised the claims. In view of the cancellation of the contract
the claimant referred the matters to arbitration and nominated the arbitrator
under Section 9 of the Arbitration Act 1940 (in short the 'Act'). Notice was
served on the State but it did not nominate any arbitrator. Arbitration
proceedings continued, State did not participate before the sole arbitrator and
finally the award was passed on 17.5.1982 awarding Rs.22,72,500/- to the
claimant. The State questioned correctness of the award. But the trial Court
overruled objections of the State and made the award given by the Arbitrator
rule of the Court. The State questioned the correctness of the decree passed by
the Subordinate Court in terms of the award. By the impugned judgment dated
10.11.1986, a Division Bench of the High Court, as noted above, set aside the
award. Before this Court also the matter was taken up. Parties finally agreed
to settle the dispute out of the Court, but later on requested for appointment
of an arbitrator by this Court to adjudicate the dispute. By order dated
13.12.1999 Mr. Justice B.M. Thulsidas, a retired Judge of the Kerala High Court
was appointed as an Arbitrator, though initially another Arbitrator was
appointed. As an interim measure, by order dated 16.4.1984 in civil appeal no.
2078 of 1984, it was directed that the appellant-State should deposit
Rs.5,75,500/- as awarded by the Arbitrator with the registry of this Court. The
claimant was permitted to withdraw the amount with the stipulation that the
claimant shall return the amount together with interest @ 15% p.a. in case the
appeal is allowed. Mr. Justice Thulsidas has filed the award before this Court.
In the award the Arbitrator has held, after consideration of the claimant's
claim and counter-claim of the State, that claimant is liable to pay to the
State a sum of Rs.28,12,554/- with interest @ 15% from the date of award i.e.
11.12.2002 till payment or deposit. The claimant was also directed to pay
Rs.25,666/- by way of Arbitrators' remuneration. The Arbitrator has held that
out of the agreed amount of consideration stipulated in the contract i.e.
Rs.9,40,000/-, claimant had received for the material supplied Rs.6,75,780/- as
80% of the value and sales tax. The cost of material that was actually supplied
was Rs.8,40,730/- leaving balance of Rs.99,270/- which form cost of labour,
service and profit element. It was held that claimant was entitled to receive
Rs.2,83,000/- being the balance amount with interest for 8 years i.e. 1966 to
1974. After adjustment of the sum of Rs.47,000/- which was deposited as
security deposit and has been refunded in 1974, the claimant was finally held
to be entitled Rs.2,36,714/- with interest on the said amount @ 9%. It was
further held that the claimant was entitled to Rs.25,000/- as expenses with
interest @ 9% from January 1978 when the first award was given.
Arbitrator was of the view that it was no fault of the claimant and,
therefore, it was entitled to balance amount of Rs.99,270/- together with
interest @ 9% in 1966 till 10.1.1973 when the claimant gave notice to the State
that departmental works of erection would not be taken up. The Arbitrator
worked out the entitlement at Rs.1,66,010/-. On the above basis total claim of
the claimant came to Rs.5,25,774/-.
Taking note of the amounts of claimed to have been paid to the claimant, the
Arbitrator noted as follows:
(1) A sum of Rs.2,68,550/- was paid on 17.7.1979.
(2) As per order dated 26.2.1982 a sum of Rs.2,00,000/- was deposited on
(3) A sum of Rs.5,00,000/- was paid as per order dated 1.12.1983 in MFA No.
(4) In terms of order dated 12.3.85 of this Court, an amount of
Rs.5,75,000/- was paid.
Thus altogether Rs.15,43,550/- was received by the claimant in course of the
proceedings. On this the interest payable was fixed at 9%.
Together with interest, the amount was fixed at Rs.21,29,350/- and with
interest @ 15%, it was held that the State was entitled to receive
Rs.28,12,554/- from the claimant. 15% interest was also stipulated keeping in
view the order passed by this Court.
Learned counsel appearing for the claimant submitted that the award of the
arbitrator is liable to be vacated on the following grounds:
(1) Arbitrator disregarded fundamental terms of contract and exceeded his
(2) Arbitrator misdirected himself in law in the sense that he neglected to
look into the terms of contract.
(3) Interest which was to be paid to the claimant was to be fixed on the
basis of "The Interest
On Delayed Payments to Small Scale and Ancillary
Industrial Undertakings Act, 1993". The liability for interest was to
be fixed in terms of Sections 3, 5 and 6 of the said Act which has not been
taken note of.
It was further pointed out that the arbitrator has failed to notice that
there was no payment of Rs.2,00,000/- as held. Only material which was adduced
before the arbitrator was to show that there was a deposit but there was no
withdrawal of the amount. The sum of Rs.47,000/- has been adjusted more than
once. The arbitrator did not notice that there were certain special conditions
which govern the agreement, which were not taken note of. 15% interest on
Rs.5,75,000/- is included wrongly because it is nowhere directed that 15% was
to be paid by the claimant. It was only observed that in case appeal is
allowed, the State would be entitled to 15%. In essence, the award was
characterized to be outcome of misconduct.
In response, learned counsel for the State submitted that award given by the
arbitrator is a reasoned award and the scope for interference with the reasoned
award is extremely limited. Nothing has been shown to show that the arbitrator
overlooked any relevant piece of material or that the award suffered from any
Though there was some dispute about the applicability of the Act in view of
the accepted position at all stages that the Act applied to the proceedings,
such challenge is without any foundation.
It has to be noticed that the arbitrator has given a very well reasoned and
detailed award. It could not be shown as to in what way the fundamental terms
of the contract were disregarded. The arbitrator has referred to various
clauses of the contract and the effect thereof.
The findings are in no way perverse or unreasonable. We do not find
substance in the plea of learned counsel for the claimant that the award
suffered from any infirmity. So far as applicability of the Interest On Delayed
Payments Act is concerned, it appears that before the arbitrator no claim in
that regard was made. In order to attract the provisions of the said Act, the
factual aspect like the prevailing bank rate of interest were to be brought on
record. This has not been done. So the plea in that regard is also without any
substance. We, however, find substance in the plea relating to computation of
the amounts receivable by the claimant. As rightly submitted, there was nothing
on record to show that the claimant had withdrawn the amount which was
deposited with the Subordinate Court, Trivandrum. Similarly, a sum of
Rs.47,000/- has been adjusted more than once. Necessary adjustment in this
regard has to be made. So far as the plea relating to 15% rate of interest is
concerned, it has to be noted that this Court directed that in case appeal is
allowed, State would be entitled to interest @ 15%. That situation has not
come. It would, therefore, be proper to apply 9% rate of interest on the sum of
With the above modifications and computation award of the arbitrator is made
rule of the Court and entire respective amounts be worked out and decree drawn
The appeals are disposed of on the above terms leaving the parties to bear
their respective costs.