Datt Builders Ltd. Vs. State of Kerala  INSC 1600 (17 September 2009)
SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 3089 OF
2006 M/s. Som Datt Builders Ltd. ...Appellant Versus State of Kerala
...Respondent AND CIVIL APPEAL NO. 3090 OF 2006 State of Kerala ...Appellant
Versus M/s. Somdatt Builders Ltd. ...Respondent JUDGEMENT R.M. Lodha, J.
These two appeals by special leave arise from the Judgment and
Order dated June 3, 2005 passed by the High Court of Kerala and hence were
heard together and are being disposed of by this common judgment.
The State of Kerala represented by the Chief Engineer, National
Highway, Public Works Department awarded a contract to M/s. Som Datt Builders
Limited (for short, `contractor') relating to road work of National Highway-47.
The works were : (i) four laning and strengthening of Alwaye-Vyttila;
laning and strengthening of Vyttila-Aroor and (iii) four laning of
Aroor-Cherthala stretches. The terms and conditions mentioned in the special
and general conditions of the contract (Sections IV & III respectively)
were integral part of the conditions specified in the contract. Under the
contract, the contractor was to complete the works within forty-two months.
work could not be completed within the agreed period is not in dispute. It is
also an admitted position that the time for completion of work was extended on
two occasions; in all by 25 months. The case of the contractor is that the
extension of time was not for any fault of theirs and as a matter of fact they
had to continue the site office in Cochin; that they also incurred additional
expenditure in relation to their work at Cochin and that further expenditure
towards equipment ownership charges in respect of the machinery worth crores of
rupees continued to 2 be employed for the work. The contractor, therefore,
raised claims under diverse heads before the Engineer on February 22, 1998.
According to the contractor, the Engineer took decision concerning claim no. 1
but the said decision was not implemented and regarding other claims, no decision
was taken necessitating the contractor to seek reference of the dispute to
On January 11, 1999 an arbitral tribunal comprising three
Arbitrators was constituted and all claims of the contractor were referred for
adjudication to the arbitral tribunal.
On March 20, 1999 the contractor submitted their claim along with
supporting documents before the arbitral tribunal. Claim no. 1 made by the
contractor related to additional cost on account of extended stay for reasons
not attributable to them. Claim no. 1 as per statement of claim is under three
heads, namely; (i) Equipment ownership charges for Rs. 10,43,49,369/-; (ii)
Site over-heads for Rs. 9,16,31,609/-; and (iii) Head Office over-heads for Rs.
2,45,68,507/-- totaling Rs.22.05,40,405/-.
3 Claim no. 4B amounting to Rs. 3,33,924.69 related to additional
expenditure incurred due to change in foundation from well foundation to open
5 in the sum of Rs. 2,85,93,625/- was raised by the contractor towards
compensation for the loss suffered on account of strikes by various local
unions, bundh and interference by police and other authorities.
6 for Rs. 2,46,817/- was raised by the contractor for reimbursement of the
provident fund contributed by the contractor @ 10%.
The statement of defence was submitted on behalf of the State
Government along with supporting documents before the arbitral tribunal on
October 30, 1999.
The contractor submitted its rejoinder on November 27, 1999 while
an additional statement of defence was filed by the State Government on March
The arbitral tribunal passed its award on December 20, 2003. As
regards, claim no. 1, the arbitral tribunal awarded an amount of Rs.
7,61,41,460/-. The arbitral tribunal awarded a sum of Rs. 2,86,985.23 towards
claim no. 4B; Rs. 1,00,26,900/- 4 towards claim no. 5 and Rs. 2,31,821/-
towards claim no. 6. It is not necessary to deal with the other claims as they
are not the subject matter of these two appeals.
A petition under Section 34 of the Arbitration and Conciliation
Act, 1996 (for short, `Act,1996') was filed by the State of Kerala before the
District judge, Ernakulam for setting aside the award dated December 20, 2003
on diverse grounds, inter alia, that the award was not a reasoned award.
The 2nd Additional District Judge, Ernakulam to whom the case was
transferred, dismissed the petition filed by the State of Kerala vide his
judgment and Order dated February 23, 2005. He held that there were sufficient
reasons recorded by the arbitral tribunal for allowing each claim.
The State of Kerala then approached the High Court by filing an
appeal against the judgment and order of the 2nd Additional District Judge
dismissing their petition under Section 34 of the Act, 1996.
The Division Bench heard the appeal and vide its judgment dated
June 3, 2005 allowed the appeal in part and set aside the award relating to
claim nos. 1 and 4B on the ground 5 that the findings thereon do not have
supporting reasons being violative of Sections 28(3) and 31(3) of the Act,
1996. The Division Bench also set aside the interest awarded on these two
counts claimed under claims 7B and 7C.
Both the parties are aggrieved by the judgment of the Division
Bench. Civil Appeal No. 3089 of 2006 has been preferred by the contractor
aggrieved by the said judgment to the extent the award relating to claim nos. 1
and 4B has been set aside whereas Civil Appeal No. 3090 of 2006 is at the
instance of the State of Kerala dissatisfied with the award relating to claim
nos. 5 and 6.
It is appropriate that few clauses of Conditions of the Contract
referred to by the Learned Senior Counsel during the course of arguments are
noticed by us first.
Clause 1.1 (a)(i) defines `Employer' as follows :
means the Governor of the State (India) or his successors in office and
assigns. The Chief Engineer-in-charge of the Project will be the assignee for
Clause 1.1 (a)(iv) defines `Engineer' thus :
means the Superintending Engineer of the PWD, appointed as the Project Director
of this Contract or any other person appointed by the Employer, by notice in
writing to the Contractor, to act in replacement of the Engineer."
The procedure for claims is set out in clauses 53.1 to 53.5 which
read thus :
Notwithstanding any other provision of the Contract, if the Contractor intends
to claim any additional payment pursuant to any Clause of these Conditions or
otherwise, he shall give notice of his intention to the Engineer, with a copy
to the Employer, within 28 days after the event giving rise to the claim has
the happening of the event referred to in Sub-Clause 53.1, the Contractor shall
keep such contemporary records as may reasonably be necessary to support any
claim he may subsequently wish to make. Without necessarily admitting the
Employer's liability, the Engineer shall, on receipt of a notice under
Sub-Clause 53.1, inspect such contemporary records and may instruct the
Contractor to keep any further contemporary records as are reasonable and may
be material to the claim of which notice has been given. The Contractor shall
permit the Engineer to inspect all records kept pursuant to this Sub-Clause and
shall supply him with copies thereof as and when the Engineer so instructs.
Within 28 days or such other reasonable time as may be agreed by the Engineer,
of giving notice under Sub-Clause 53.1, the Contractor shall send to the
Engineer an account giving detailed particulars of the amount claimed and the
grounds upon which the claim is based. Where the event giving rise to the claim
has a continuing effect, such account shall be considered to be an interim
account and the Contractor shall, at such intervals as the Engineer may
reasonably require, send further interim accounts giving the accumulated amount
of the claim and any further grounds upon which it is based. In cases where
interim accounts are sent to the Engineer, the Contractor shall send a final account
within 28 days of the end of the effects resulting from the event. The
Contractor shall, if required by the Engineer so to do, copy to the Employer
all accounts sent to the Engineer pursuant to this Sub-Clause.
the Contractor fails to comply with any of the provisions of this Clause in
respect of any claim which he seeks to make, his entitlement to payment in
respect thereof shall not exceed such amount as the Engineer or any arbitrator
or arbitrators appointed pursuant to Sub-Clause 67.3 assessing the claim
considers to be verified by contemporary records (whether or not such records
were brought to the Engineer's notice as required under Sub-Clauses 53.2 and
Contractor shall be entitled to have included in any interim payment certified
by the Engineer pursuant to Clause 60 such amount in respect of any claim as
the Engineer, after due consultation with the Employer and the Contractor, may
consider due to the Contractor provided that the Contractor has supplied
sufficient particulars to enable the Engineer to determine the amount due. If
such particulars are insufficient to substantiate the whole of the claim, the
Contractor shall be entitled to payment in respect of such part of the claim,
as such particulars may substantiate to the satisfaction of the Engineer. The
Engineer shall notify the Contractor of any determination made under this
Sub-Clause, with a copy to the Employer."
As regards settlement of dispute, the relevant clauses are 67.1 to
67.4 which provide as follows:
If a dispute of any kind whatsoever arises between the Employer and the
Contractor in connection with, or arising out of, the Contract or the execution
of the Works, whether during the execution of the Works or after their
completion and whether before or after repudiation or other termination of the
Contract, including any dispute as to any opinion, instruction, determination,
certificate or valuation of the Engineer, the matter in dispute shall, in the
first place, be referred in writing to the Engineer, with a copy to the other
party. Such reference shall state that it is made pursuant to this Clause. No
later than 8 the eighty-fourth day after the day on which he received such
reference the Engineer shall give notice of his decision to the Employer and
the Contractor. Such decision shall state that it is made pursuant to this
the Contract has already been repudiated or terminated, the Contractor shall,
in every case, continue to proceed with the Works with all due diligence and
the Contractor and the Employer shall give effect forthwith to every such
decision of the Engineer unless and until the same shall be revised, as
hereinafter provided, in an amicable settlement or an arbitral award.
the Employer or the Contractor be dissatisfied with any decision of the
Engineer, or if the Engineer fails to give notice of his decision on or before
the eighty-fourth day after the day on which he received the reference, then
either the Employer or the Contractor may, on or before the seventieth day
after the day on which he received notice of such decision, or on or before the
seventieth day after the day on which the said period of 84 days expired, as
the case may be, give notice to the other party, with a copy for information to
the Engineer, of his intention to commence arbitration, as hereinafter
provided, as to the matter in dispute. Such notice shall establish the
entitlement of the party giving the same to commence arbitration, as
hereinafter provided , as to such dispute and, subject to Sub-Clause 67.4, no
arbitration in respect thereof may be commenced unless such notice is given.
Engineer has given notice of his decision as to a matter in dispute to the
Employer and the Contractor and no notice of intention to commence arbitration
as to such dispute has been given by either the Employer or the Contractor on
or before the seventieth day after the day on which the parties received notice
as to such decision from the Engineer, the said decision shall become final and
binding upon the Employer and the Contractor.
Where neither the Employer nor the Contractor has given notice of intention to
commence arbitration of a dispute within the period stated in Sub-Clause
the related decision has become final and binding, either party may, if the
other party fails to comply with such decision, and without prejudice to any
other rights it may have, refer the failure to arbitration in accordance with
Sub-Clause 67.3. The provisions of Sub-Clauses 67.1 and 67.2 shall not apply to
any such reference."
Mr. V.A. Mohta, learned senior counsel for the contractor
submitted that the High Court was not justified in holding that no reasons have
been assigned by the Arbitral Tribunal in support of their award in respect of
claim nos. 1 and 4B. He referred to : definitions of `Employer' and `Engineer';
communication dated April 23, 1998 from the Project Director to the Chief
Engineer, PWD, National Highways (which according to him is a decision by the
Engineer as regards claim no. 1) and the communication dated May 11, 1998 from
the Chief Engineer to the Director General (Road), Ministry of Surface
(Transport), New Delhi and submitted that delay in completion of work is 10 admitted
by the Employer to be not attributable to the contractor and, therefore no
further reasons were required to be given by arbitral tribunal while passing an
award for claim no. 1. Mr. V.A. Mohta also submitted that High Court erred in
setting aside the award in respect of claim no. 4B even though valid reasons
have been given in support of the said claim by the arbitral tribunal and the
same are clearly discernible from the award itself. In the alternative, learned
senior counsel submitted that if at all the High Court felt that there are no
reasons in support of the award, it ought to have remitted the matter to the
arbitral tribunal to give further reasons.
regard, he relied upon Section 34(4) of the Act, 1996.
On the other hand, Mr. T.L.V. Iyer, learned senior counsel for the
respondent supported the view of the High Court insofar as claim nos. 1 and 4B
are concerned. He, however, assailed the High Court's view with regard to claim
nos. 5 and 6 and submitted that the award in respect of these 11 two claims are
not supported by reasons and award is legally flawed to that extent.
It is true that communication dated April 23, 1998 sent by the
Project Director to the Chief Engineer, National Highways does deal with claim
no. 1 submitted by the Contractor on February 22, 1998 and he recommended
overall equipment ownership charges and site over-heads for 12 months and
further recommended the claim for Rs.13,01,42,462/-. It is also seen that the
Chief Engineer (employer) vide his communication dated May 11, 1998 to the
Director General (Road), Ministry of Surface (Transport) referred to the
aforesaid communication of the Project Director as a `decision' under clause
67.1 by the Engineer and requested the Ministry of Surface (Transport) to settle
the contractor's claim. Concededly, the aforesaid two documents are referred to
by the arbitral tribunal in the award and arbitral tribunal has also noticed
the arguments advanced on behalf of the parties in support of their respective
stand but reasons are not at all discernible in support of its finding that the
period of completion was extended by the respondent for 18 = months 12 due to
reasons not attributable to the contractor. Having perused the award carefully,
we have not been able to find reasons in support of claim no. 1. The position
is no better in respect of award for claim no. 4B. As a matter of fact, no
reason whatsoever has been assigned for awarding that claim.
Section 31(3) mandates that the arbitral award shall state the
reasons upon which it is based, unless - (a) the parties have agreed that no
reasons are to be given or (b) the award is an arbitral award under Section 30.
That the present case is not covered by clauses (a) and (b) is not in dispute.
In the circumstances, it was obligatory for the arbitral tribunal to state
reasons in support of its award in respect of claim nos. 1 and 4B. By
legislative mandate, it is now essential for the arbitral tribunal to give
reasons in support of the award. It is pertinent to notice here that Act, 1996
is based on UNCITRAL Model Law which has a provision of stating the reasons
upon which the award is based. In Union of India v. Mohan Lal Capoor1, this
Court said, `reasons are the links between the 1 (1973) 2 SCC 836 13 materials
on which certain conclusions are based and the actual conclusions'.
In Woolcombers of India Ltd. v. Woolcombers Workers Union and
Another2, this Court stated :
giving of reasons in support of their conclusions by judicial and
quasi-judicial authorities when exercising initial jurisdiction is essential
for various reasons. First, it is calculated to prevent unconscious unfairness
or arbitrariness in reaching the conclusions. The very search for reasons will
put the authority on the alert and minimise the chances of unconscious
infiltration of personal bias or unfairness in the conclusion. The authority
will adduce reasons which will be regarded as fair and legitimate by a
reasonable man and will discard irrelevant or extraneous considerations...."
In S.N. Mukherjee v. Union of India3, the Constitution Bench held
that recording of reasons :
guarantee consideration by the authority; (ii) introduce clarity in the
decisions; and (iii) minimise chances of arbitrariness in decision making.
Learned senior counsel for the contractor referred to a decision
of Delhi High Court in the case of Delhi Electric Supply Undertaking v. Victor
Cable Industries Limited & Anr.4 and submitted that where the arbitrator
has referred to facts of 2 AIR 1973 SC 2758 3 (1990) 4 SCC 594 4 2006 (1) Arb.
LR-297 (Delhi) 14 the case and has noticed some reasoning which in view of
Arbitrator was sufficient to arrive at conclusion for granting relief, award
cannot be stated to be unreasoned. He also referred to yet another decision of
Delhi High Court in the case of M/s. Kumar Construction Company v. Delhi
Development Authority& Anr5 wherein it has been observed that the
Arbitrator is not expected to write elaborate judgment and where Arbitrator has
noticed contentions of the counsel, it cannot be said that Arbitrator failed in
stating reasons for the award.
The requirement of reasons in support of the award under Section
31(3) is not an empty formality. It guarantees fair and legitimate
consideration of the controversy by the arbitral tribunal. It is true that
arbitral tribunal is not expected to write judgment like a court nor it is
expected to give elaborate and detailed reasons in support of its finding/s but
mere noticing the submissions of the parties or reference to documents is no
substitute for reasons which the arbitral tribunal is obliged to give.
Howsoever brief these may be, reasons must be indicated in the award as that
would reflect thought process leading to a particular conclusion. To satisfy
the requirement of 5 64 (1966) DLT 553 15 Section 31(3), the reasons must be
stated by the arbitral tribunal upon which the award is based; want of reasons
would make such award legally flawed. In what we have discussed above, it
cannot be said that High Court was wrong in observing that no reasons have been
assigned by the arbitral tribunal as to whether the period of completion
extended by the employer for 18 = months was due to reasons not attributable to
the claimant. However, in our view, the High Court ought to have given the
arbitral tribunal an opportunity to give reasons.
course is available under Section 34(4) of the Act which reads thus :
receipt of an application under sub-section(1), the Court may, where it is
appropriate and it is so requested by a party, adjourn the proceedings for a
period of time determined by it in order to give the arbitral tribunal an
opportunity to resume the arbitral proceedings or to take such other action as
in the opinion of arbitral tribunal will eliminate the grounds for setting
aside the arbitral award."
We are informed by the learned senior counsel for the claimant
that all the three persons constituting arbitral tribunal are available and if
award is remitted to them for 16 recording reasons, there should not be any
impediment in their doing so. This course appears to us to be fair and
The award under claim no. 5 is inter-related to claim no. 1.
Objections to Claim no. 6 may also be re-examined by the Additional District
Judge now since petition under Section 34 is being restored to the file of that
We, accordingly, dispose of these two appeals by the following
judgment of the High Court dated June 3, 2005 and the judgment dated February
23, 2005 passed by the 2nd Additional District Judge, Ernakulam are set aside.
petition (O.P. Arb. 71/2004) by the State of Kerala against the award dated
December 20, 2003 is restored to the file of the 2nd Additional District Judge,
Ernakulam for fresh hearing and consideration of the objections in respect of
claim nos. 1, 4B, 5 and 6.
However, the 2nd Additional District Judge, Ernakulam shall first remit the
award to the Arbitral 17 Tribunal for stating their reasons in support of claim
nos. 1 and 4B and after receipt of the reasons from the arbitral tribunal
proceed with the hearing and disposal of objections .
Parties shall bear their own costs.