Union of India Vs. M/S. Vs. Pundarikakshudu and Sons and Anr  Insc
441 (9 September 2003)
& S.B. Sinha. S.B. Sinha, J :
appellant and the first respondent herein entered into a contract for
construction of an auditorium complex at Willington Nilgiris for a sum of Rs.
64,79,982.95. The work commenced on 16.3.1979 and was to be completed on
15.3.1981. However, there had been amendment to the said agreement owing to
increase in the scope of work. An extra time of six months was also given to the
contractor in terms of the said amendment. The time for completion of the
contract was extended from 16.9.1981 to 30.6.1982 and 1.7.1982 to 31.12.1982.
The contract amount was also increased, because of the aforementioned amendment
therein owing to increase in the scope of work, to Rs. 85.10 lakhs. Although
the period of contract was over and the appellant did not grant any further
extension, the same was purportedly terminated by the appellant herein on
28.2.1983, i.e., after the due date for completion of work, namely, 31.12.1982.
Disputes and differences having arisen, the arbitration agreement was invoked
by the Respondent No.1 and the claims and counterclaims of the parties were
referred to one Brigadier M.M.L. Sharma who was appointed by the Engineer-in-Chief
of the appellant.
the arbitrator the first respondent submitted a claim for a total sum of Rs. 23,59,534.72
comprising 23 claims whereas the claim of the appellant herein amounted to Rs.
90,58,167.42 comprising 8 claims.
sole arbitrator awarded a sum of Rs. 14,31,463/- in favour of the first
respondent and a sum of Rs. 33,95,000/- in favour of the appellant herein. The
award was filed in the District Court of Nilgiris.
Petition No. 29 of 1986 was filed by the respondent No. 1 herein under Sections
15, 16, 30 and 32 of the Arbitration Act praying to very modify or set aside to
claim No. 1 under 'B' Claim of the Government in Award dated 6.2.1986 and
confirm the award in Claim 'q' of the contractor made including the interest and
decree in favour of the petitioner or in the alternative to set aside the award
Suit No. 31 of 1986 was filed by the first respondent for passing a judgment
and decree in terms of the award passed in favour of the Plaintiff in claims
serial No. 'A" claims of the contractor by the 2nd defendant and directing
the first respondent to pay the plaintiff Rs. 14,31,462 whereas Original Suit
No. 47 of 1986 was filed by the Union of India for a decree and judgment in
terms of the Award for a sum of Rs. 33,95,000/- with interest at 18% per annum
learned District Judge upheld the said objections of the first respondent
holding: as the arbitrator made an award in favour of the first respondent
presumably upon arriving at a finding that the appellant herein was responsible
for causing delay in completion of the contract; the award made in favour of
the appellant must be held to be inconsistent therewith.
further held that the appellant herein 'pushed in' some calculation sheets on
the last date of hearing which was accepted by the arbitrator without assigning
any reason and without prior intimation to the first respondent which amounted
to misconduct on the part of the arbitrator. The Court further took into
consideration the fact that the Union of India admittedly caused 1654 days'
delay in accepting the designs and as the said admission was not taken into
consideration by the arbitrator, that part of the award was vitiated.
District Judge further held that having regard to the fact that the arbitrator
had awarded compensation to the first respondent on various items including
Claim A towards additional amount claimed due to escalation in prices of
materials and men at 25% of the work done at the contract rates, loss sustained
due to under-utilisation of cantering and shuttering materials, loss sustained
due to underutilization, compensation for loss sustained on overheads due to
prolongation of work, the impugned award cannot be sustained.
learned District Judge furthermore laid emphasis on the claim towards extra
expenditure incurred in dismantling of work done due to delays in decisions wherefor
a sum of Rs. 12,500/- was awarded stating:
it is clear that there was a delay on the part of the department in taking
of the delay in taking decisions, the Arbitrator has awarded the amount for
delay solely on the part of the contract. I failed to understand why the sole
arbitrator should have awarded Rs.12,500/ under claim No.V(a) of the
to clause 54 of the Contract, the District Judge said:
condition 54 makes it abundantly clear that if there was any default on the
part of the contractor the Union of India has got every right to impound the
materials of the contractor, and at any time sell the materials and appropriate
the proceeds towards any losses. Curiously enough under claim No.VI the
Arbitrator has passed an award stating that the materials should be returned to
approximate costs of the materials has been given as Rs.3,71,000/- by the
contractor. Once again, it has to be stated that if the sole Arbitrator has
come to the conclusion that the default was on the part of the contractor, he
is not justified in directing the Union of India to hand over the materials.
Since he has come to the conclusion that the Union of India is responsible for
the breach of contract, the sole arbitrator has directed the Union of India to
return the materials as the Union of India cannot take recourse under condition
54 of the General conditions of the contract IAFW 2249. On the background of
this we have now considered the amount awarded to the Union of India under
claim No.1, 2 and 4 under claim No.1 Rs.33,64,000/- has been awarded by the
sole arbitrator towards extra expenditure involved to complete the incomplete
item of work left by the defaulting contractor. Once again going back to
contractor is claim under claim No.6n it is clear that the findings of the (end
of the original's 31st page) arbitrator under claim No.V of 'A' claim of the
contractor and claim 1 of 'B' of the Government of India is inconsistent. Since
the arbitrator has already come to the conclusion that the breach of contract
was due to the 1st respondent and has directed the Union of India to return the
materials to the contractor, the sole arbitrator should not have awarded
Rs.33,64,000/- towards excess expenditure involved to complete the incomplete
items of work left by the defaulting contractor. On the face of it the arbitrator
awarded Rs.33,64,000/- under claim No.1 of 'B' claim of the Government is not
the award of Rs.3,95,000/- by the sole arbitrator is inconsistent and is a
misconduct, the order of the Arbitrator in respect of claim No.1 of 'B' claim of
the Union of India in the award dated 6.3.1986 has to be set aside."
Aggrieved thereby three appeals being A.A.O. No. 364 of 1995, A.A.O. No. 366 of
1995 and A.A.O. No. 367 of 1995 were filed by the appellant against the order
of District Court dated 21.2.1994 in O.P. No. 29/86, O.S. No. 31 of 1986 and
O.S. No. 47/86 respectively.
reason of the impugned judgment dated 6.1.1997 the said appeals were dismissed.
however, appears that the appellants herein also filed S.L.P.
(Civil)....8317-8318/97 arising out of the judgment and order dated 06/01/97 in
Appeal Nos. 242/95 and 243 of 1995 of the High Court of Madras questioning the
award made in favour of the first respondent herein. The same was dismissed by
this Court by an order dated 24.11.1997.
N.N. Goswami, the learned senior counsel appearing on behalf of the appellant
would submit that the High Court as also the District Judge committed a
manifest error in setting aside the award made by the arbitrator in favour of
the appellant in so far as it failed to take into consideration that the award
was a non-speaking one.
learned counsel would contend that the appellant could be blamed for making
delay in the matter and completion of job till 1982 but no finding has been
arrived at nor could be arrived at on the basis of materials on records that
thereafter it was at fault. No material has been shown in the impugned
judgments which support the views taken by the courts below that the appellant
was responsible for the delay caused beyond 31.12.1982. Mr. Goswami would urge
that the District Judge had no jurisdiction to analyse the materials on records
as if it has an appellate jurisdiction over the award of the arbitrate. The
learned counsel would contend that the jurisdiction of the High Court in
setting aside an award being limited, the impugned judgments cannot be
sustained. In support of the said contention, strong reliance has been [(1989)
2 SCC 38].
M.N. Rao, the learned senior counsel appearing on behalf of the respondent, per
contra, would submit that a finding of fact has been arrived at to the effect
that the award of the arbitrator was inconsistent. The learned counsel would
submit that while considering the validity or otherwise of an award the Court
is not precluded from considering the totality of the circumstances. It was
pointed out that having regard to the fact that the appellant admitted the
delay of 1654 days on its part, the same ought to have been taken into
consideration by the arbitrator, which was relevant for resolution of the
dispute between the parties. The claims raised by the appellant basing on the
purported breach of contract on the part of the first respondent herein must be
held to be mala fide. The learned counsel has placed strong Orissa [(1990) 1
short question which arises for consideration in these appeals is as to whether
the District Judge and the High Court, Madras exceeded their jurisdiction in passing the impugned judgments.
not in dispute that the claims and counterclaims of the parties centred round
determination by the arbitrator as to whether the appellant or the first
respondent had committed a breach of contract.
power of the appellant to terminate the contract and to put forth the claim for
extra expenditure involved to complete the incomplete items of work left out by
the first respondent revolved round the issue as to whether it was a defaulter
or not. The appellant could terminate the contract and get the work completed
through another agency entitling it to lay the said claim, but its
justifiability therefor indisputably would depend upon the interpretation of
clause 54 of the Contract. The said clause empowers the appellant to cancel the
contract, only if the contractor "fails to complete the works, work order
and items of work, with individual dates for completion, and clear the site on
or before the date of completion". Thus, the 'failure' must be on the part
of the contractors and not by reason of acts of omissions and commissions of
the appellant herein.
following was furthermore contained in the said clause:
Government shall also be at liberty to use the materials, tackle, machinery and
other stores on Site of the Contractor as they think proper in completing the
work and the Contractor will be allowed the necessary credit. The value of the
materials and stores and the amount of credit to be allowed for tackle and
machinery belonging to the Contractor and used by the Government in completing
the work shall be assessed by the G.E. and the amount so assessed shall be
final and binding.
case the Government completes or decides to complete the works or any part
thereof under the provision of this condition, the cost of such completion to
be taken into account in determining the excess cost to be charged to the
contractor under the condition shall consist of the cost or estimated cost (as
certified by G.E.) of materials purchased or required to be purchased and/ or
the labour provided or required to be provided by the Government as also the
cost of the Contractor's materials used with an addition of such percentage to
cover superintendence and establishment charges as may be decided by the
C.W.E., whose decision shall be final and binding." The said clause could,
thus, be invoked only on default on the part of the contractor and not
from the findings of the District Judge, as noticed hereinbefore, the High
Court also came to conclusion that the contract could not have been terminated
after the date of completion of work holding:
as defined under Section 30 is not a moral lapse. If the Arbitrator on the face
of the award arrives at an inconsistent conclusion, it would also amount to
misconduct as per the decision reported in Poulose vs. State of Kerala (AIR
1975 SC 1259).
the finding of the learned District Judge that there is an inconsistent
conclusion by the arbitrator who has admitted the delay on the part of the
Government in my opinion well-founded. It is more so, when the Government has
not chosen to set aside that portion of the award which implies that there is
delay on the part of the Government." The High Court further opined:
54 of the agreement provides for utilization of the materials machinery.,
completion of the incomplete work and sell the same at any time and appropriate
the sale proceeds towards the loss which may arise from the cancellation of the
contract. In the case on hand, the cancellation of the contract is after the
expiry of the time contended for completion of the contract.
materials, machineries etc. were ordered to be returned to the contractor or
pay the costs of the same to the contractor. The non-utlisation of the
materials has not been taken into consideration by the Arbitrator. It is
contended that no payment was made to the machineries and the contract was at
liberty to take in back the machineries and therefore the non- utilisation of
the materials cannot be said to be a conduct which would absolve the liability
of the Government. But, this contention is not tenable since when the
contractor has attempted to remove the materials on the work it has been
prevented and a complaint has also been lodged with the police.
awarding certain sum towards loss sustained by the Government on account of the
delay said to have been committed by the contractor, is inconsistent with the
award granted in favour of the contractor to get back the materials or value
thereof from the Government. When the order of the Arbitrator is inconsistent,
it amounts to a misconduct. Therefore, the learned District Judge has rightly
set aside the claim No.1 under 'B' claim of the Government and I am of the
opinion that it is not a matter to be interfered with this Court." It is
not the case of the appellant that the contractor was allowed to work after
31.12.1982 on grant of further extension for the completion of the work. The
rights and obligations of the parties were, thus, required to be considered as
on the said date and not thereafter.
fact that there had been delay of 1654 days on the part of the appellant in
accepting the designs and there had been an amendment of the Schedule of the
work stands admitted.
question as to whether one party or the other was responsible for delay in
causing completion of the contract job, thus, squarely fell for consideration
before the arbitrator. The arbitrator could not have arrived at a finding that
both committed breaches of the terms of contract which was ex facie
unsustainable being wholly inconsistent.
54 of the contract could be invoked only when the first respondent committed
breach of the terms of the contract. An action in terms thereof could be taken
recourse to in its entirety or not at all.
part of the award is inconsistent with the other and furthermore if in
determining the disputes between the parties the arbitrator failed to take into
consideration the relevant facts or based his decision on irrelevant factors
not germane therefor; the arbitrator must be held to have committed a legal
Nos. 5647-48 of 1997) disposed of on 29th August, 2003 this Court noticed:
far as these items are concerned, in our opinion, the learned sole arbitrator
should have taken into consideration the relevant provisions contained in the
agreement as also the correspondences passed between the parties. The question
as to whether the work could not be completed within the period of four months
or the extension was sought for on one condition or the other was justifiable
or not, which are relevant facts which were required to be taken into
consideration by the arbitrator.
now well settled that the Arbitrator cannot act arbitrarily, irrationally,
capriciously or independent of the contract.
Associated Engineering vs. Govt. of A.P. [(1991) 4 SCC 93], this Court clearly
held that the arbitrators cannot travel beyond the parameters of the contract. In
M/s. Sudarsan Trading Co. v. The Govt. of Kerala [(1989) 2 SCC 38], this Court
has observed that an award may be remitted or set aside on the ground that the
arbitrator in making it had exceeded his jurisdiction and evidence of matters
not appearing on the face of it, will be admitted in order to establish whether
the jurisdiction had been exceeded or not, because the nature of the dispute is
something which has been determined outside the award, whatever might be said
about it in the award by the Arbitrator. This Court further observed that an
arbitrator acting beyond his jurisdiction is a different ground from the error
apparent on the face of the award.
lies a clear distinction between an error within the jurisdiction and error in
excess of jurisdiction.
the role of the arbitrator is to arbitrate within the terms of the contract. He
has no power apart from what the parties have given him under the contract. If
he has travelled beyond the contract, he would be acting without jurisdiction,
whereas if he has remained inside the parameter of the contract, his award
cannot be questioned on the ground that it contains an error apparent on the
face of the records." It was held that if the arbitrator has committed a
jurisdictional error, the court can intervene. This Court in Bharat Coking Coal
Ltd. [(1975) 2 SCC 236] wherein it was observed that the case of legal
misconduct would be complete if the arbitrator on the face of the award arrives
at an inconsistent conclusion even on his own finding or arrives at a decision
by ignoring the very material documents which throw abundant light on the
controversy to help a just and fair decision.
Union of India vs. Jain Associates and Another [(1994) 4 SCC 665], this Court
upon following K.P. Poulose (supra) and Dandasi Sahu (supra) held :
The question, therefore, is whether the umpire had committed misconduct in
making the award. It is seen that claims 11 and 12 for damages and loss of
profit are founded on the breach of contract and Section 73 encompasses both
the claims as damages. The umpire, it is held by the High Court, awarded
mechanically, different amounts on each claim. He also totally failed to consider
the counter-claim on the specious plea that it is belated counter-statement.
facts would show, not only the state of mind of the umpire but also
non-application of the mind, as is demonstrable from the above facts. It would
also show that he did not act in a judicious manner objectively and
dispassionately which would go to the root of the competence of the arbitrator
to decide the disputes." In Dandasi Sahu (supra) this Court held that the
award suffering from non-application of mind by the arbitrator is liable to be
set aside. It was held:
this connection we have to keep in mind that we are concerned with a situation
where the arbitrator need not give any reason and that even if he commits a
mistake either in law or in fact in determining the matter referred to him,
where such mistake does not appear on the face of the award, the same could not
be assailed. The arbitrator, in the case of a reference to him in pursuance of
an arbitration agreement between the parties, being a person chosen by parties
is constituted as the sole and the final judge of all the questions and the
parties bind themselves as a rule to accept the award as final and conclusive.
The award could be interfered with only in limited circumstances as provided
under Sections 16 and 30 of the Arbitration Act. In this situation we have to
test the award with circumspection. Even with all this limitations on the
powers of court and probably because of these limitations, we have to hold that
if the amount awarded was disproportionately high having regard to the original
claim made and the totality of the circumstances it would certainly be a case
where the arbitrator could be said to have not applied his mind amounting to
legal misconduct." In M/s. Sudarsan Trading Co. (supra) this Court clearly
held that the Court can look to the agreement where the question arises as to
whether an award may be remitted or set aside on the ground that the arbitrator
in making it has exceeded its jurisdiction. Drawing distinction between the disputes
as to the jurisdiction of the arbitrator and the dispute as to in what way that
jurisdiction should be exercised, this Court opined:
next question on this aspect which requires consideration is that only in a
speaking award the court can look into the reasoning of the award. It is not
open to the court to probe the mental process of the arbitrator and speculate,
where no reasons are given by the arbitrator, as to what impelled the
arbitrator to arrive at his conclusion. See the observations of this Court in
Hindustan Steel Works Construction Ltd. v. C. Rajasekhar Rao ((1987) 4 SCC 93).
In the instant case the arbitrator has merely set out the claims and given the
history of the claims and then awarded certain amount. He has not spoken his
mind indicating why he has done what he has done; he has narrated only how he
came to make the award. In absence of any reasons for making the award, it is
not open to the court to interfere with the award.
in any event, reasonableness of the reasons given by the arbitrator, cannot be
of evidence by the arbitrator is never a matter which the court questions and
considers. If the parties have selected their own forum, the deciding forum
must be conceded the power of appraisement of the 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. See the observations of this Court in MCD v. Jagan
Nath Ashok Kumar ((1987) 4 SCC 497)." In that case the Court was concerned
with the first issue and not the second one wherewith we are concerned herein.
In the fact situation obtaining therein the court distinguished a large number
of authorities placed before it holding:
in the instant case the court had examined the different claims not to find out
whether these claims were within the disputes referable to the arbitrator, but
to find out whether in arriving at the decision, the arbitrator, had acted
correctly or incorrectly.
in our opinion, the court had no jurisdiction to do, namely, substitution of
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." Such is not the position here.
this case the District Judge as also the High Court of Madras clearly held that
the award cannot be sustained having regard to the inherent inconsistency
contained therein. The arbitrator, as has been correctly held by the District
Judge and the High Court, committed a legal misconduct in arriving at an
inconsistent finding as regard breach of the contract on the part of one party
or the other. Once the arbitrator had granted damages to the first respondent
which could be granted only on a finding that the appellant had committed
breach of the terms of contract and, thus, was responsible therefor, any
finding contrary thereto and inconsistent therewith while awarding any sum in favour
of the appellant would be wholly unsustainable being self contradictory.
Union of India while accepting the award made in favour of the first respondent
must be held to have accepted the finding that it committed a breach of
contract and the said finding has attained finality and would operate as res judicata
in view of the decisions of Furthermore, as noticed hereinbefore, the appeal
preferred by the appellant against the award of the arbitrator made in favour
of the first respondent herein has been dismissed.
[1993 Supp (2) SCC 146] this court held:
question is what happens where no appeal is filed, as in this case from the
decree in connected suit. Effect of non-filing of appeal against a judgment or
decree is that it becomes final. This finality can be taken away only in
accordance with law. Same consequences follow when a judgment or decree in a
connected suit is not appealed from.
Mention may be made of a Constitution Bench decision in Badri Narayan Singh v. Kamdeo
Prasad Singh (AIR 1962 SC 338 : (1962) 3 SCR 759 : 23 ELR 203). In an election
petition filed by the respondent a declaration was sought to declare the
election of appellant as invalid and to declare the respondent as the elected
candidate. The tribunal granted first relief only. Both appellant and
respondent filed appeals in the High Court. The appellant's appeal was
dismissed but that of respondent was allowed. The appellant challenged the
order passed in favour of respondent in his appeal. It was dismissed and
preliminary objection of the respondent was upheld.
Court observed, "We are therefore of opinion that so long as the order in
the appellant's Appeal No. 7 confirming the order setting aside his election on
the ground that he was a holder of an office of profit under the Bihar
Government and therefore could not have been a properly nominated candidate
stands, he cannot question the finding about his holding an office of profit,
in the present appeal, which is founded on the contention that that finding is
incorrect." As the appellant failed to get that part of the award which
was made by the arbitrator in favour of the first respondent, set aside, the
basic conclusion of the High Court cannot be faulted. The Court upon setting
aside the whole award could have remitted back the matter to the arbitrator in
terms of Section 16 of the Act or could have appointed another arbitrator, but
at this juncture no such order can be passed as the award in part has become
the reasons aforementioned, we are of the opinion that the impugned judgment
does not suffer from any legal infirmity. These appeals are, therefore,
dismissed. No costs.