State of Kerala Vs. E.A Cheriyan Kunju [Kerala High Court, 05-06-1996]

Contents

Arbitration Act, 1940 – In this case, the respondent asked for Rs. 2,25,000/- and the arbitrator has granted an amount of Rs. 2,19,678/- making a show of application of mind by reducing the amount by paltry amount of Rs. 5,322/-. This would really show the dishonest way in which the arbitrator behaved while passing the award.

# ILR 1997 (1) Ker. 14 : AIR 1997 Ker. 1

IN THE HIGH COURT OF KERALA AT ERNAKULAM

T.V. Ramakrishnan and K.A. Mohamed Shafi JJ.

State of Kerala and another Vs. E.A Cheriyan Kunju

M.F.A. No. 809 of 1995

05-06-1996

Advocates: For Appellant: S.Narayanan Poti. For Respondent: S.Sreekumar

JUDGMENT

Ramakrishnan,J.

1. This is an appeal filed under

# Section 39 of the Arbitration Act

(for short, ‘the Act’). As per the impugned judgment, the learned sub-Judge, Thiruvananthapuram has refused to set aside an award passed in favour of the respondents by a sole arbitrator and has passed a decree in terms of the award under Section 17 of the Act. The State of Kerala and the Superintending Engineer, Kallada Irrigation Project (Right Bank) Circle, Kottarakkara are the appellants. The sole respondent in the appeal is the Contractor in whose favour the decree has been passed in terms of the award.

2. The appellants have entrusted to the respondent the work of Kallada Irrigation Project (K.I.P.)-RBC-SBC-Lining the Ivarkala Distributory No. 1 from Ch. O to 4085 m. Sub-channel No. 1 from Ch. O to 3300 m and channel No. 11 from Ch. O to 2140 m pursuant to Agreement No. 27/SE/KP/85-86 dated 10-2-1986. Certain disputes and differences arose between the contracting parties in the execution of the above work. In view of the provisions contained in Clauses 51 and 52 of the Local Competitive Bidding Specification (for short ‘LCB’ specification) forming part of the agreement, those disputes and differences were referred to a sole arbitrator with the consent of both parties. The arbitrator accordingly entered on reference received statements as pleadings from the parties, took evidence from both sides and passed and published his award on “23-6-1993. The arbitrator has filed the award in court on 1-7-1995. On filing the award in Court, suo motu proceedings were initiated under Section 17 of the Act. The respondent contractor prayed for a decree in terms of the award. The appellant on the other hand filed a detailed objection and prayed for setting aside the award under Section 30 of the Act. The learned sub-Judge has overruled the objections and has passed a decree in terms of the award except in respect of the rate of interest and granting interest on the amount awarded at 16.5% per annum from 23-12-1988 till 23-6-1993 and 12% from 1-7-1993 to the date of the decree and 9% thereafter till payment.

3. Some more facts are relevant and necessary and can be stated thus : Regarding certain factual details of the case, there is no dispute and they can be stated first : The tender for the work in question was one invited in accordance with LCB specification. The P. A. C. (Probable Amount of Contract) shown in the tender notification was Rs. 6,80,230/-. The respondent submitted his tender on 27-12-1985 with the increased P. A. C. of Rs. 9,10,500/-. The tender as submitted by the respondent was accepted and selection notice was issued on 30-1-1986. The original agreement entrusting the work of the respondent on the basis of his tender was executed on 18-2-1986. The period of the works was 5 months from the date of issue of work order. The work order was issued on 7-3-1986. As per records, the initial levels seems to have been finalised by the Executive Engineer (E. E.) only on 12-9-1986. It was approved by the Superinteding Engineer (S. E.) on 29-3-1987. As the work was not completed in time, the period of completion was extended on three occasions as per three supplementary agreements executed between the parties till 30-6-1987. Supplementary agreement Nos. 1, 3 and 4 were agreements executed only for the purpose of extending the period from time to time. They were respectively executed on 30-9-1986, 31-1-1987, and 8-6-87. All extensions were for a period of three months each. On 30-9-1986, supplementary agreement No. 2 was executed entrusting certain extra items of work for a like amount of Rs. 2,34,968/- at the rates mentioned therein. The respondent ultimately abandoned the work with effect from 31-3-1987. Thereafter, the contract was terminated on 1-3-1988, as per the order passed by the S. E. The work was thereafter completed by entrusting it to a new contractor at the cost of the respondent. It is the common case of the parties that substantial quantity of work was carried out before the work was abandoned, though there is dispute regarding the exact extent of the work done. According to the appellants, work done will only be about 75%. But, according to the respondent, it is 90%. There is no dispute regarding the quantity of cement supplied and the part payment made to the respondent as indicated In the schedule given below :

Sl No. Date Quantity of cement in bags
1. 12-3-1996 600
2. 8-4-1986 600
3. 23-4-1986 400
4. 13-6-1986 400
5. 30-6-1986 400
6. 22-7-1986 600
7. 20-7-1986 -70 (Transferred 70 bags as per departmental order to a different work site)
8. 22-8-1986 400
9. 8-10-1986 600
10. 17-10-1986 400
11. 4-11-1986 600
12. 21-11-1986 600
13. 1/1987 400
14. 3/1987 400
15. 3/1987 400
16. 9/1987 350
7150-70
7080

Details of part payment indicating the quantity of cement used and earth removed

Sl.Number Particulars of part bills Total amount of bill Quantity of cement treated as used and materials value including that of cement Cheque amount after deducting all recoveries Rs. Quantity of earth removed
1 2 3 4 5 6
1 CC I & part/
22-3-1986
76,708 575 bags 19,800 52,155 605 cubic metre
2 CC II & part/
30-9-1986
3,49,606 2715 bags 55,148 2,30,289.60 1406 cubic metre
3 CC III &part/
26-12-1986
1,82,308 1536 bags 75,742 84,577.45 606 cubic metre
4 CC IV & part/
3-3-1987
67,164 560 bags (No recovery) 65,542 505 cubic metre
5 CC V & part/
27-3-1987
87,341 647 bags 26,400 59,001 659 cubic metre
Total 7,63,127 6033 bags 1,77,090 4,91,565.05 3781 cubic metre

4. The nature of the work entrusted as detailed in the schedule attached to the original agreement can generally be indicated thus; (1) Clearing grass and over-growth of vegetation and small trees and removal of rubbish up to a distance of 150 meters etc. outside the periphery of the area cleared; (2) Earth work excavation in the classes of soil (silt clearance) from the bottom of the canal and depositing the spoil on bank or at places pointed out by the Engineer in charge; (3) Earth work filling with suitable earth available from silt clearance and lining excavation; (4) Supplying and laying 100 micron LDPE Black heavy duty film of suitable width; (5) Lining the bottom and sides of the canal with vibrated cement concrete; (6) Plastering with cement mortar 1:3:9 mm. thick over lining concrete floated hard and trowelled smooth adding scot No. 1 water proofing compound 2% by weight of cement; (7) Forming transverse contraction joints wherever necessary filled with bitumen mastic filler etc. The extra works entrusted as per supplementary agreement No. 2 were stripping benching or treching and preparing the foundation of embankment by removing objectionable soil, earth work filling with suitable earth cut and conveyed from borrow pit etc., Turfing the slopes of embankment with sods including trimming, dressing and all leads and lifts, and Trimming dressing and sectioning canal bed and side slopes to receive the lining as per specification. The schedules attached to the original agreement would indicate that the machineries necessary and shown as readily available with the contractor are Cement Mixtures, Pump Sets and other small tools. The materials to be supplied by Government are Cement. Bitumen and Water Proofing compound (free of cost).

5. On abandoning the work, the contractor has put forward claims for various amounts under different heads alleging that as a result of abnormal delay in finalising and approving the initial levels, supply of departmental materials, non-availability of departmental staff to supervise the work, entrustment of additional extra works, non-measurement of work done and non-payment of amount for such works, draught and blockage of money due to him on the basis of the orders of the S. E., K. I. P. Circle, Quilon. The work got considerably protracted resulting in huge loss to him for which the department alone is responsible. The respondent has alleged that in spite of such defaults and omissions on the part of the department, he has completed 90% of the work. He was disabled from completing the work due to non-payment of value of the work done and non-sanctioning of sufficient time for com-petition. Though all authorities subordinate to S. E. has recommended sanctioning of extension of the period, the S. E. has refused to extend the period and has passed orders terminating the contract illegally. The claims put forward by the respondent were rejected and thereafter the respondent has sought for appointment of an arbitrator in accordance with the terms contained in LCB specification. Pursuant to the request of the respondent, originally, the sole arbitrator was appointed on 23-12-1988. However, the said arbitrator for his own reasons returned the records to the Chief Engineer, K. I. P., Kottarakkara and thereafter the present arbitrator who has passed the award was appointed on 12-7-90. Before the arbitrator, the respondent has put forward in paragraph 12 of his claim statements, claims (a) to (r), under various heads. In support of his claims, the respondent has produced Exts. C1 to C34 documents. On their side, the appellants have produced Exts. R 1 to R 8 and certain other documents in response to the directions issued by the arbitrator apart from producing the original as well as supplementary agreements and the correspondence file kept in connection with the work entrusted to the respondent. No oral evidence was adduced by the parties before the arbitrator. The arbitrator has conducted an inspection of the site on 23-1-93 along with parties. In the award, the arbitrator has specifically referred to the documents and papers submitted by both parties before him specifically in the introductory part of the award. Before the arbitrator, the appellants have disputed the right of the contractor to get any amount as claimed in the claim statement. They have in the objection filed made a counter claim alleging that it was only due to the default or neglect of the respondent that the work was not completed within the time originally fixed and extended from time to time till 30-6-1987. The appellants have justified the action of termination of the contract and completing the balance work by entrusting the work to a new contractor at the cost of the respondent. The appellants have also raised a counter claim against the respondent. Preliminary objection regarding the jurisdiction of the arbitrator to conduct the proceedings and to pass an award was also raised on the basis that the original appointment of the arbitrator itself was beyond the time specified in Clause 52 of the LCB specification and as such bad in law.

6. The arbitrator was bound and has passed a reasoned award. As per the award, even before going into the different claims, the arbitrator has rejected the preliminary objection and upheld the validity of the order appointing the arbitrator and his jurisdiction to conduct the proceedings and pass the award. The arbitrator has fully allowed claim (m), partly allowed claim Nos. a, c, g, h, o, p, q and rejected in full the claim Nos. b, d, e, f, i, j, k, l, n, r as per the award in question. The counter claim put forward by the appellant was also rejected based upon the award passed with reference to the claim (m).

7. Before the learned Sub Judge, the appellants have prayed for setting aside the award alleging that the sole arbitrator has misconducted himself and the proceedings. It was also submitted that the award is liable to be set aside on the ground of errors apparent on the face of the award. Further, they have also contended that the rejection of the preliminary objection by the arbitrator is illegal.

8. The learned Advocate General Shri S. Narayanan Potti has before us reiterated all the contentions raised by the appellants before the learned Sub Judge. In support of the contention that the decree and judgment under appeal are liable to be set aside as unsustainable in law. On behalf of the respondent, learned Counsel Shri S. Sreekumar has fully supported the award and decree passed in favour of the respondent.

9. Before considering the merits of the separate awards passed on various claims by the arbitrator and made part of the decree, we may proceed to consider the sustainability of the preliminary objection.

10. As already indicated, the preliminary objection raised was that since the arbitrator in this case was originally appointed beyond the time specified in Clause 52 of the LCB specification which exclusively governs the matter, his appointment is bad and he has no jurisdiction to conduct the proceedings and to pass an award. The relevant part of Clause 52 of the LCB specification is as under: ;

“Neither party is entitled to bring a claim to arbitration if the arbitrator has not been appointed before the expiry of thirty days after defect liability period.”

It was submitted that, the arbitrator was appointed long after the expiry of 30 days from the defect liability period and as such his appointment is bad in law. Clause 18(e) of the LCB specification defines defect liability period as under;

“The Contractor shall be responsible to make good at his own expense, within such period as may be stipulated by the………… any defect which may develop or may be noticed before the expiry of six months from the certified date of completion and which is attributable to the contractor. All notices of such defect shall be given to the contractor promptly. In case the Contractor fails to make good the defects, the Executive Engineer may employ other persons to make good such defects, and all expenses consequent thereof and incidental thereof shall be borne by the contractor.

In the event Government takes over portions of work as they are completed, the liability of the contractor under this Clause for those portions shall extend to a period of six months from the actual dates on which portions of the works are taken over.”

In the facts and circumstances of the case, the defect liability period would extend for a period of six months from the actual date on which the work was taken over by the Government. Going by the termination order passed in this case, Government should be deemed to have taken over the partly completed work on 1-3-1988. As such, the defect liability period would extend only up to 1-9-1988. Going by the date of take over of the partly completed work as the period of commencement of the defect liability period the arbitrator should have been appointed at least before 1-10-1988. In this case, arbitrator was originally appointed only on 23-12-1988, long after the expiry of the above period. It was submitted that participation in the proceedings by the appellants after raising the objection regarding jurisdiction, may not preclude the appellants from challenging the award as one passed without jurisdiction on grounds like waiver and estoppel.

11. The above contention was forcefully met by the learned Counsel for the respondent pointing out that Clause 52 cannot be treated as the only provision exclusively governing the arbitration proceedings and appointment of the arbitrator. It was submitted that Clauses 51 and 52 compendiously regulates the arbitration proceedings and the appointment of arbitrator. In fact, the provisions in Clauses 51 and 52 together lays down the procedure to be followed for the purpose of settlement of the disputes through arbitration proceedings and the appointment of arbitrators for that purpose. Before getting an arbitrator appointed for settlement of disputes under Clause 52, one has to satisfy the requirements of Clause 51 of the L.C.B. specification. Without complying with the requirements of Clause 51, it may not be possible to seek appointment of an arbitrator under Clause 52. It was submitted that if the time taken for complying with the requirements of Clause 51 is also taken into consideration in determining the question whether the arbitrator in this case was appointed within the time as provided in Clause 52, it can be seen that the appointment of the arbitrator was within the time specified in Clause 52 and the preliminary objection raised is without any merit.

12. Clauses 51 and 52 to the extent necessary for examining the correctness of the contention raised by the parties are thus:

“51. settlement of disputes: If the contractor considers any work demanded of him to be outside the requirements of the contract, or considers any drawings, record or ruling of the authority executing agreement on any matter in connection with or arising out of the contract or the carrying out of work to be unacceptable, he shall promptly ask the authority executing agreement in writing for written instructions or decision. Thereupon the authority executing agreement shall give his written instructions or decision within a period of thirty days of such request.

Upon receipt of the written instructions or decision the Contractor shall promptly proceed without delay to comply with such instructions or decision.

If the authority executing agreement fails to give his instructions or decision in writing within a period of thirty days after being requested, or if the contractor is dissatisfied with the instructions or decision of the authority executing agreement, the contractor may within thirty days after receiving the instructions or decision appeal to…………….. who shall afford an opportunity to the contractor to be heard and to offer evidence in support of his appeal. This officer shall give a decision within a period of sixty days after the contractor has given the said evidence in support of his appeal.

If the Contractor is dissatisfied with this decision, the contractor within a period of thirty days from receipt of the decision shall indicate his intention to refer the dispute to arbitration, failing which the said decision shall be final and conclusive.”

“52. Arbitration : All the disputes or differences in respect of which the decision has not been final and conclusive shall be referred for arbitration to a sole arbitrator appointed as follows:

Within thirty days of receipt of notice from the Contractor of his intention to refer the dispute to arbitration the Chief Engineer, Projects III shall send to the contractor a list of three officers of the rank of Superintending Engineer or higher, who have not been connected with the work under this contract. The Contractor shall within fifteen days of receipt of this list select and communicate to the Chief Engineer the name of one officer from the list who shall then be appointed as the sole arbitrator. If contractor fails to communicate his selection of name, within the stipulated period, the Chief Engineer shall without delay select one officer from the list and appoint him as the sole arbitrator. If the Chief Engineer fails to send such a list within thirty days, as stipulated, the Contractor shall send a similar list to the Chief Engineer within fifteen days. The Chief Engineer shall then select one officer from the list and appoint him as the sole arbitrator within fifteen days. If the Chief Engineer fails to do so, the Contractor shall communicate to Chief Engineer the name of one officer from the list, who shall then be the sole arbitrator.

The arbitration shall be conducted in accordance with the provision of the Indian Arbitration Act, 1940 or any statutory modification thereon. The decision of the sole arbitrator shall be final and binding on the parties thereon. The arbitrator shall determine the amount of costs of arbitration to be awarded to either parties.

Performance under the contract shall continue during the arbitration proceeding and payments due to the Contractor shall not be withheld unless they are subject-matter of the arbitration proceedings.

All awards shall be in writing and in case of awards amounts to Rs. 1.00 lakh and above such awards shall state the reasons for the amount awarded.

Neither party is entitled to bring a claim to arbitration if the arbitrator has not been appointed before the expiry of thirty days after defect liability period.”

On a careful reading of the provisions contained in the above two Clauses, we are of the view that the two Clauses are liable to be treated as supplementary to each other and without complying with the requirements of Clause 51, one cannot seek the appointment of an arbitrator as provided under Clause 52 of the LCB specification. It is only such dispute or differences in respect of which the decision taken by the competent authority under Clause 51 has not become final and conclusive that are referable for arbitration to a sole arbitrator appointed as per the procedure indicated in Clause 52 of the specifications. This would make it clear that all disputes arising between the parties are liable to be taken up for the first time with the departmental authorities for settlement in accordance with the provisions in Clause 51 and only such disputes which still remain unresolved are referable for arbitration through a sole arbitrator appointed in accordance with the procedure prescribed in Clause 52. Thus when a Contractor raises his disputes before the departmental authorities, the authority concerned is required to take a decision and communicate the same to the contractor who may take up the matter in appeal before, the C.E. if he is not satisfied with the decision. The C.E. is then required to take a final decision and communicate the same to the contractor. It is only thereafter the contractor can request for arbitration and appointment of an arbitrator under Clause 52 if he is not satisfied with the decision of the C.E. Thus under Clause 51, both parties to the dispute are required to take various steps for the purpose of resolving the dispute between the parties itself and it is only thereafter the question of reference to arbitration and appointment of arbitrator will arise for consideration. On request from the contractor as provided in Clause 52 it is for the C.E. of the Project to appoint the arbitrator as provided in the said clause. As such, for deciding the question whether the sole arbitrator in this case was appointed within the time specified in Clause 52 of the LCB specification, we have to see whether the respondent has taken all steps to comply with the requirements of Clause 51 within the time allowed for appointment of the arbitrator under Clause 52 and if so, whether there is any delay in the appointment of the arbitrator after excluding the period spent for complying with the procedure prescribed by Clause 51, which is a condition precedent to be complied with for getting an arbitrator appointed under Clause 52.

13. Turning to the facts relevant for deciding the point we find that the respondent has as provided in Clause 51 issued a letter dated 28-6-1988 dealing with the claims he is having against the department to S.E. and requesting him to admit the claims and to make payment thereof. The said letter was received by the S.E. on 30-6-1988. However, no reply was received by the respondent till 8-8-1988, on which day the respondent has issued a similar letter dealing with the claims to the C.E. which was acknowledged by C.E. on 11-8-1988. The respondent received a reply from the S.E. to his letter dated 28-6-1988 rejecting his claims and informing him that large amounts are due to the department from him only on 19-9-1988. Thereafter, the C.E. also rejected the appeal as per his letter dated 29-9-1988. On 11-10-1988, the respondent issued a letter to the C.E. as provided in Clause 52 expressing his desire to leave the entire matter for adjudication through arbitration and requesting him to forward a list of names of three officers of the rank of S.Es./ Higher officers so as to enable him to select one among them and to communicate his name to the C.E. so that he can be appointed as the sole arbitrator as contemplated under Clause 52 of the LCB specification. The said letter was received by the C.E. on 13-10-1988. Pursuant to the said letter, the C.E. has duly intimated the names of three persons as per his communication dated 17-11-1988 which was received by the respondent only on 30-11-1988 itself. On 8-12-1988, the respondent has chosen Shri V.P. Moideen Kutty, Rtd. Superintending Engineer, as his nominee to be appointed as the sole arbitrator. Accepting the above choice Shri V.P. Moideen Kutty was admittedly appointed as the sole arbitrator on 23-12-1988.

14. From the above facts, it is clear that the respondent has initiated action to comply with the requirements of Clause 51 on 28-6-1988 before the expiry of the defect liability period itself. The claims put forward by the respondent pursuant to the provisions contained in Clause 51 was rejected only by the communication of the S.E. dated 19-9-1988. The appeal preferred before the C.E. was rejected only on 28-9-1988. Thus, exactly a period of three months was taken for completing the proceedings under Clause 51 of the LCB specification. If the above period is excluded, it has to be held that originally the arbitrator was appointed within the period of 7 months from 1-3-1988, the date on which the partly completed work was taken over by the department and there is no delay in the appointment of the arbitrator in this case. As such, we find no merit in the preliminary objection raised by the appellants before the arbitrator, the court below and before us. We would accordingly reject the said contention and confirm the finding on that point.

15. Before going into the merits of the other contentions, it may be useful to analyse and understand the net results of the separate awards passed under various heads of claims, with reference to the mutually agreed cost of the work entrusted as per the original and supplementary agreement No. 2, the cost of the work done, the part payments received by the respondent and the amount for which the balance work left over by the respondent was got done through a new contractor by the department. The sanctioned P.A.C. shown in the tender notice was Rs. 6,80,230/-. The mutually agreed cost of work shown in the original and supplementary agreement is Rs. 11,45,468/- (Rs. 9,10,500/- + 2,34,968/-). As per the Final Bill which was produced before the arbitrator and forming part of his records, the total value of the work done till the date of abandonment of the work including the value of departmental materials is Rs. 7,81,351/-. Amount covered by the part bills already sanctioned comes to Rupees 7,63,127/-. Deducting the cost of departmental materials, the cost of work done and already paid to the contractor will come to Rs. 4,91,000/-. The balance due to the contractor as per final bill is Rs. 18,224/-. The amount shown as due from the contractor in the final bill comes to Rs. 91,037/ -. It is while matters stood thus that as per the award, a total amount of Rs. 9,83,174/- has been awarded to the contractor as compensation under claims (a), (c), (g) and (h) granting interest at 16.5% from 23-12-1988 till the date of decree or payment whichever happens earlier. In effect, it would mean that over and above Rs. 4,91,000/- already paid as cost of work done, the contractor has been further awarded an equal amount as compensation and that too with 16.5% interest per annum from 23-12-1988. The balance of work left undone by the respondent was got done through another contractor on the basis of an agreement showing the cost of work as Rs. 2,17,818/-. This in brief is the financial implications of the award as far as the parties to the appeal are concerned.

16. At this stage we may usefully refer to the legal principles referred to and stressed by the learned Counsel on both sides in support of their respective contentions. On behalf of the appellants it was submitted that even though by and large the courts have disfavoured interference with arbitration awards on account of errors of law and fact on the score of misappreciation and misreading of the materials on record, and have shown definite inclination to preserve the award as far as possible, in recent times, error in law and fact basing an award has not been given the wide immunity as enjoyed earlier, by expanding the import and implication of “legal misconduct” of an arbitrator so that award by the arbitrator does not get undesirable immunity and perpetrate gross miscarriage of justice and the same is not reduced to mockery of a fair decision of the dispute between the parties to the arbitration. For the aforesaid reason, the erroneous application of law constituting the basis of the award and improper and incorrect findings of fact which without closer and intrinsic scrutiny, demonstrable on the face of the record, have been held to be legal misconduct rendering the award illegal. The court can set aside the award if it is apparent from the award that there is no evidence to support the conclusions or if the award is based upon any legal proposition which is erroneous (see

# State of Rajasthan v. Puri Construction Co. Ltd., (1994) 6 SCC 485 : 1994 AIR SCW 5061

and

# Gujarat Water Supply and Sewerage Board v. Unique Erectors (Gujarat) Pvt. Ltd.), AIR 1989 SC 973

An arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks is just and reasonable. He is a tribunal selected by the parties to decide their disputes according to law and so is bound to follow and apply the law, and if he does not, he can be set right by the courts provided his errors appear on the face of the record (see

# Tarapur & Co. v. Cochin Shipyard Ltd., Cochin, AIR 1984 SC 1072

and

# Union of India v. Jain Associates, (1994) 3 SCC 303

If the award is disproportionately high having regard to the original claim made and the totality of the circumstances it would certainly be a case of non-application of mind amounting to misconduct and when the arbitrator is found to be guilty of legal misconduct, it may not be possible to set aside the award in part unless the affected part of the award is clearly severable from the rest of it

# Dandasi Sahu v. State of Orissa, (1990) 1 SCC 214 : AIR 1990 SC 1128

‘Misconduct’ under Section 30(a) does not connote a moral lapse. It comprises legal misconduct which is complete if the arbitrator arrives at a decision by ignoring very material documents

# A. P. Paulos v. State of Kerala, AIR 1975 SC 1259

It is normally an implied term of an arbitration agreement that the arbitrator must decide the dispute in accordance with the ordinary law including the basic rules as to procedure. Subject to directions from court if any, so far as be practicable, the rules which prevail at the trial of an action in court, should be followed by the arbitrator

# Secretary, Irrigation Department, Govt. of Orissa v. G.C. Roy, AIR 1992 SC 732

and Halsbury’s Laws of England Vol. 2, pages 273 and 303). Interference on the ground of misconduct will be justified if the court is satisfied that the misconduct may have caused — not must have caused — a substantial miscarriage of justice unless those resisting the setting aside or remission could show that no other award could properly have been made then that which was in fact made notwithstanding the misconduct (Russel on Arbitration, 20th Edition, page 409).

17. Defending the award and the decree passed on the basis of the award, the learned Counsel for the respondent has cited a catena of decisions highlighting the limited jurisdiction of the appellate Court in appeals preferred against the decrees passing in according with the award passed by an arbitrator. We do not think that it is necessary for us to refer to all such decisions in this judgment as the proposition itself was not seriously disputed. That apart, the learned Counsel has specifically relied upon the following statement of law made by the Supreme Court reported in

# State of Rajasthan v. Puri Construction Co. Ltd., (1994) 6 SCC 484 : 1994 AIR SCW 5061

wherein also the Supreme Court has referred to many of the said decisions and stressed the limited scope of interference in appeal.

“26. The arbitrator is the final arbiter for the dispute between the parties and it is not open to challenge the award on the ground that the arbitrator has drawn his own conclusion or has failed to appreciate the facts. In Sudarsan Trading Co. v. Govt. of Kerala, it has been held by this Court that there is a distinction between disputes as to the jurisdiction of the arbitrator and the disputes as to in what way that jurisdiction should be exercised. There may be a conflict as to the power of the arbitrator to grant a particular remedy. One has to determine the distinction between an error within the jurisdiction and an error in excess of the jurisdiction. Court cannot substitute 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. Whether a particular amount was liable to be paid is a decision within the competency of the arbitrator. By purporting to construe the contract the court cannot take upon itself the burden of saying that this was contrary to the contract and as such beyond jurisdiction. If on a view taken of a contract, the decision of the arbitrator on certain amounts awarded is a possible view though perhaps not the only correct view, the award cannot be examined by the court. Where the reasons have been given by the arbitrator in making the award the court cannot examine the reasonableness of the reasons. If the parties have selected their own forum, the deciding forum must be conceded the power of appraisement of 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.”

It was submitted that the court should approach an award with a desire to support it, if that is reasonably possible rather than to destroy it by calling it illegal (see

# Champsey Bhara and Co. v. Jivraj Balloo Spg. and Wvg. Co. Ltd., AIR 1923 PC 66

# Jivarajbhai Ujamshi Sheth v. Chintamanrao Balaji; AIR 1965 SC 214

# Sudarshan Trading Co. v. Govt. of Kerala, AIR 1989 SC 890

and

# Raipur Development Authority v. Chokhmal Contractors, AIR 1990 SC 1426

Relying upon the decision in Trustees of the Port of Madras v. Engineering Constructions Corporation Ltd., AIR 1995 SC 2423, it was submitted that in the case of a reasoned award the court can interfere only in case the award is based upon a proposition of law which is unsound in law. The erroneous proposition of law must be established to have vitiated the decision. The error of law must also appear from the award itself or from any document or note incorporated in it or appended to it and then alone interference may be justified. It was submitted that the appellant has not even a case that the award is based upon a proposition of law which is unsound in law and the same has vitiated the decision of the arbitrator. As regards the contention that the award is vitiated by misconduct of the arbitrator, it was submitted that no particulars have been furnished with reference to the plea of misconduct. It was submitted that for sustaining such a plea, particulars of the misconduct have to be pleaded and proved in accordance with Order VI, Rule 2, C.P.C. Reliance was placed on the relevant observations of the Supreme Court in paragraph 13

# Bijendranath Srivastava v. Mayank Srivastava, (1994) 6 SCC 117 : AIR 1994 SC 2562

The fact that the award amount is quite high itself may not per se vitiate the award

# State of Orissa v. Dandasi Sahu, AIR 1988 SC 1791

Analysing the factual aspects of the case in the light of the above legal principles, it was strongly contended that there is no scope for interference on any of the grounds mentioned in the memorandum of appeal.

18. We may now proceed to deal with the other points raised in the appeal.

19. One of the main allegation on the basis of which some of the claims upheld by the arbitrator and objected to in the appeal are made is the one relating to the abnormal delay which has occurred in the matter of completing the work and the consequential loss alleged to have been suffered by the contractor. According to the contractor, the delay has occurred solely on account of various omissions and commissions on the part of the appellant and was not attributable to him at all. The respondent has indicated the various reasons for the delay in paragraphs 2 to 9 of the claim statement as follows:

“2. Immediately on receipt of election notice the claimant has made all arrangements with all enthusiasm and earnestness hoping to complete the work with the targetted period itself. But he was prevented from doing so on account of failure of the authorities to duly perform, honour and discharge, the guaranteed assurances and obligations to be so done on their part in this reciprocal contract.

3. Tender was submitted on 27-12-1985, selection notice issued on 30-1-1986. Initial levels were finalised by the Executive Engineer and sent to the Superintending Engineer only on 12-9-86 which is after the expiry of original time of completion. The initial levels were approved by the competent authorities viz. the Superintending Engineer on 29-3-87. This has caused disruption of work at the initial stage.

4. There was abnormal delay in supply of departmental materials which caused disruption of execution.

5. The construction works at site disrupted for more than one month due to nonavailability of departmental authorities as they were all engaged in connection with the work of partial commissioning of the Project. This caused delay in execution.

6. Execution of extra additional items and excess quantities caused delay in construction.

7. Non-masurements of all work done and non-payment thereto caused delay in execution as a result of financial strains.

8. The severe draught affected the progress of work considerably.

9. Blockage of payment due to him by the Executive Engineer as per the action of Superintending Engineer, KIP Circle, Quilon totally disrupted the execution.”

20. The appellant has totally denied the above allegations. They have also a contention that even if there was any delay on the part of the appellant as alleged, such delays have not caused any loss to the respondent as alleged by him.

21. The arbitrator has considered the case of delay and resultant protraction of work while dealing with the claim (a) and has found thus:

“From the above exhibits it is seen that there was delay in supply of departmental materials executions of extra items and excess quantity, blockage of funds, scarcity of water etc. None of the exhibits are countered by the respondents. Hence I have come to the conclusion that there are ample reasons for the protraction of the work beyond the original time of completion which were beyond the control of the claimant.”

Such a conclusion has been reached solely relying upon the contents of documents marked as Exts. C1 to C5, C7 to C9, C13, C19, C26, C32, C33 and C34. As the above conclusion is the basis for passing awards under various heads of claims, it is necessary to consider whether the arbitrator has arrived at the above conclusion in accordance with law.

22. From the facts and circumstances either admitted or established by the evidence on record, it is evident that though there was delay in finalisation of the initial levels by the Executive Engineer till 12-9-1986 and approved by the S.E. till 29-3-1987, such delay has never affected the due execution of the work. The initial levels were in fact taken immediately after handing over of the site and the respondent had also commenced and carried on the work even before the finalisation of initial levels by the E.E. In Ext. C2 letter dated 26-5-1986, the respondent himself has clearly stated that the earth work has been finished for the lining work continuously about three weeks. By 23-4-1986, 1600 bags of cement was also supplied for carrying on lining work. From the entries in Ext.R1 M.A.S. account of the work extracted in paragraph 3 above, it is evident that supply of cement commenced from 12-3-1996 and there was intermittent supply of cement till 9/1987. Further, from the details of part bills indicated in paragraph 3 above, it is again evident, that the 1st part bill for the work carried out was sanctioned in March, 1986, much before the finalisation of the initial levels by the E.E. even. 575 bags of cement was treated as used for the lining work already done, 60 cubic metre earth was treated as removed as per the bill. The total amount of the bill was Rs. 76,708/-. The next part bill was for Rs. 3,49,606/- and the second part payment was on 30-9-1986, just 18 days after the finalisation of the levels by the E.E. and long before the approval of the same by the S. E. By that time 2715 bags of cement was treated as used for the work till then carried out. 1406 c.m. of earth was also treated as removed. That would mean that substantial portion of the work was carried out even before the approval of the levels by the S.E. The 3rd, 4th, 5th part bills for Rs. 1,82,308/-, 67,164/- and Rs. 87,341/- were also finalised on 26-12-1986, 3-3-1987 and 27-3-1987 respectively even before 29-3-1987 the date of approval of the levels by the S.E. Thus the above indisputable facts would clearly show that by the time the initial levels were approved by the S.E. on 29-3-1987, practically the entire work (was) carried out by the respondent till the date of abandonment was over. The non-approval of the initial levels never stood in the way of commencement and progress of the work by the respondent. No material has also been produced to show that on account of such delay, work was protracted and delayed. It was submitted that the above facts and circumstances were not taken note of by the arbitrator while concluding that non-finalisation of levels have protracted the work and non-application of the mind is apparent from the award.

23. As regards the allegation that there was non-availability of departmental staff to supervise the work at the site, it was pointed out that the respondent has not raised such a contention in any of his letters to the department and produced before the arbitrator. No other evidence has also been produced to establish the said allegation. However, there is no indication in the award that the arbitrator has adverted to and applied his mind to the above aspect.

24. With respect to the allegation that draught and the consequent scarcity of water has considerably delayed the execution of the work, it was submitted that even if there was draught, its consequence cannot be put forward as a reason for claiming damages as it is an act of God in the light of the specific provisions in Clause 47 of the LCB specification. Further the respondent has raised a separate claim ‘g’ for Rs. 1,25,000/- to compensate the additional expenditure alleged to have been incurred by him for bringing water from Enath Ferry by means of hired lorries to tide over water scarcity. If water was thus brought to the site during draught as, contended by the respondent, work could not have been delayed on account of draught and scarcity of water.

25. As regards the delay in accepting the tender, handing over of the site and issuing work order also, it is to be noted that there was reasonable speed in completing the above transactions. Tender was submitted only on 27-12-1985 and the selection notice was issued on 30-1-1986. Agreement was executed on 18-2-1986 and the site was handed over on 20-2-1986. Order to start the work was issued on 7-3-1986. Again it is relevant to point out that till the date of abandonment of the work, the respondent has never raised a contention that there was inordinate delay and such delay has caused loss to him.

26. Regarding the delay in supply of departmental materials, the complaint was mainly in regard to the supply of cement. Though the respondents has complained about the delay in supply of cement in his letters Exts. C1 to C5, the entries in Ext.R1 M.A.S. Book as extracted in paragraph 3 above would clearly indicate that at regular intervals commencing from 12-3-1986, there was supply of cement except for a short period from 23-4-1986 to 13-6-1986 and 22-8-1986 to 10-8-1986. During the rest of the period, there was supply of cement at least twice in a month. From 12-3-1986 till 9/1987, altogether 7080 bags of cement was made available to the respondent. At the time when the work was abandoned, 1047 bags of cement was with the respondent. Relying upon the above details, it was submitted that there was reasonable flow of cement during the relevant period except for two short periods. However, the arbitrator has found that there was no fluency of cement and as a result work has to be stopped for 200 days, merely on the basis of Ext. C1 to C5 letters. The said conclusion has been challenged as a finding reached without adverting to the relevant entries in Ext.R1 M.A.S. Book and with a predisposition to favour the contractor.

27. Analysing the relevant facts on record as indicated above, we find that the arbitrator has neither taken note of nor applied his mind to such relevant facts, provisions of law, and contentions raised while arriving at the finding recorded by him on the question of alleged delay and protraction of work. The arbitrator has obviously referred to and considered specifically only the contents of the letters produced by the respondent and the fact that none of them were controverted by the appellant at the relevant time. The documents referred to and considered by the arbitrator would no doubt prove that the respondent was making repeated request to the department to make available to him sufficient quantity of cement pointing out the non-supply of cement regularly. He has also cautioned the department that due to the nonavailability of sufficient quantity of cement in time, the work is getting delayed, as a result of delay in the supply of departmental materials, he is incurring heavy loss for which he will be proceeding against the department and at the same time he will not be responsible for any loss caused as a result of non-completion of work in time. Further the respondent has pointed out that draught and entrustment of extra work also a reason for the delay in completion of the work in his application for extension of time. The correspondence would also show that the departmental officials have recommended extension finding the reasons stated by the contractor as genuine. However, a reading of the relevant portion of the award would clearly show that except relying upon the contents of the letters referred to, the arbitrator has not adverted to or applied his mind to any of the entries in Ext. R1 while holding that there was no fluency in the supply of cement and that has caused delay and protraction of work. We will further deal with this matter a little later while considering the sustainability of the individual awards passed under different heads.

28. It will be convenient at this stage to deal with another important point dealt with by the arbitrator while considering claim (a). The arbitrator has held that the three supplementary agreements executed by the parties for extension of the period of the contract are void on the ground that the contractor was compelled to execute such agreements without his free will. It was on the basis of the above finding that the arbitrator has granted amounts far in excess of the contract amount as compensation ignoring the provisions in the agreement which makes the contractor duty-bound to complete the work subject to the terms and conditions contained in the original agreement including the rate of payment for the work done. The relevant finding of the arbitrator is thus :

“I have verified supplemental agreements executed between the parties for extension of time. It is not disputed by both parties that unless supplemental agreement is executed no payment will be given for value of works done, no departmental materials will be issued, no departmental personnels will supervise the work at site. In other words the execution of work at site would come to a standstill. In such an eventuality the whole investment will be blocked. Further possibility of termination of agreement cannot be ruled out. Evidently I find that the claimant was compelled to execute such agreement in order to receive payment, from the department as well as to carry out the work at site. In fact the supplemental agreement is not voluntarily executed with free will. The supplementary agreements are therefore void. The claimant is entitled to for compensation of losses and damages sustained due to breach of contract committed by the respondents. I find it accordingly.”

29. Admittedly it was on the basis of the written request of the respondent that time was extended thrice in this case as per the 3 supplementary agreements in question. There was no protest or objection raised by the contractor at the time when the supplementary agreements were executed against any of the terms and conditions contained in the agreement. Even after the execution of agreements, the contractor has not raised any objections against any of the terms in the supplementary agreements till the work was abandoned and the claims were put forward. If really the supplementary agreements were executed without his free will, he could have at least raised a dispute regarding the terms and conditions incorporated in the supplementary agreements even while the work was being continued by him. L.C.B. specification clearly permits raising of disputes during the continuation of the work also. Even in the claim statement, the respondent has not raised a specific point regarding the void nature of the supplementary agreements or that they were executed without his free will and as such they are void. No challenge against the validity of the supplementary agreements was raised in the claim statement or the reply statement filed before the arbitrator. Such a question was not specifically referred to the arbitrator and the arbitrator has also not treated it as a specific claim put forward by the contractor. In fact the claims were made only on the basis of the supplementary agreements also. Further it was submitted that no evidence whatsoever was produced before the arbitrator to establish the contention that he was compelled to execute the supplementary agreements against his will. Thus apart from a total absence of necessary pleadings, there was also no evidence on record in support of the case found by the arbitrator in favour of the contractor. No reasonable man could have found such a case purely on the basis of assumptions or conjectures. It ought to have been treated as a matter to be pleaded and proved. In the absence of a specific claim that the supplemental agreements are void, the arbitrator was bound to proceed on the basis that they are binding on the parties and he is bound to adjudicate the dispute in the light of the terms and conditions contained therein also. The arbitrator in the circumstances has misconducted himself and the proceedings in finding that the supplemental agreements is void.

30. The learned counsel for the respondent has on the other hand fully justified the conclusion. It was submitted that as the supplementary agreements formed part of the record of the case, the arbitrator had ample jurisdiction and was bound to consider the validity and binding nature of the agreements and to render a decision thereon. The question regarding the binding nature of the supplementary agreements is a matter incidentally arising for consideration while deciding the main issue and as such the decision cannot be challenged as one rendered illegally by misconducting himself and the proceedings, though there was no pleadings and contention raised to that effect in the claim statement. In support of his contention it was submitted that but for the execution of the supplementary agreements, no work could have been carried out and no payment would also have been made even for the work done. The entire work would have come to a stand still. As such the respondent was compelled to agree for all the terms included in the agreements though they were highly detrimental to his interest. In this connection, the learned counsel has relied upon the decisions in

# Central Indian Water Transport Corporation v. Brojnath, AIR 1986 SC 1571

and

# Superintending Engineer, Somasila Project, Nelloor Dist. v. R. Ramana Reddy, AIR 1990 AP 283

31. Evidently extensions were granted on the basis of the requests from the contractor in accordance with Clause 50 of the LCD specification. There was no protest or objection either at the time of execution of agreements or thereafter till the work was abandoned, against any of the terms and conditions in the agreements. Respondent has also not taken up a specific contention or claim to that effect either in the claim statement or further statements filed by him. The arbitrator has also not framed any point regarding the binding nature of the agreements for adjudication. As such the respondent had no opportunity to plead and establish that there was no compulsion on their part and that the supplimentary agreement were executed on the basis of mutual discussion and agreement. As the arbitrator was also bound to follow to the extent possible rules regarding pleadings and procedure followed in Civil Courts, in fairness the arbitrator should have insisted upon, pleadings and proof before going into the question of the void nature of the agreements. Thus the arbitrator has clearly misconducted himself in coming to a conclusion that the supplemental agreements are void without even insisting upon sufficient evidence to establish that the agreements were executed without the free will of the respondent who is a contractor having previous experiences of undertaking and executing work under the department by executing similar agreements. Regarding compulsion or absence of free will, it was a clear case of no evidence. Conclusion has been reached purely on assumption and not on any material evidence on record. As such we find that there is considerable force in the submission of the learned Advocate General on this point. We are inclined to hold that while holding that the supplementary agreements are void, the arbitrator is guilty of misconducting himself and the proceedings inasmuch as the arbitrator has considered the said question without any specific pleadings and evidence to establish the same. We find substantial support in this regard in the decision in

# Secretary, Irrigation Department, Government of Orissa v. G.C. Roy, AIR 1992 SC 732

wherein the Supreme Court has approvingly quoted the observation of Halsbury to the effect that “so far as practicable the rules which prevails in Court” shall be followed by the arbitrator also. The said finding is sufficient to set aside the conclusion reached by the arbitrator that the supplementary agreements are void. In the light of the above finding, it is not necessary to consider the applicability of the principles laid down by the Supreme Court in the decision reported in

# Central Indian Water Transport Corporation v. Brojnath, AIR 1986 SC 1571

and

# Superintending Engineer, Somasila Project, Nellor Dist. v. R. Ramana Reddy, AIR 1990 AP 283

to the facts of the case as we do not propose to take a final decision on the point in this appeal.

32. Having thus considered the general aspects of the case, we may now consider the particular claims and the separate awards passed in respect of each of them, Claims (a) and (h) are really claims based on the effect of the alleged unreasonable delay occurred in the matter of completion of work and can conveniently be considered together.

33. Claim (a) & (h): The above two claims have been described thus in paragraph 12 (a) and (h) of the claim statement:

“(a) The estimate is prepared on the basis of schedule rate of 1982. The claimant has submitted the tender with the definite view that he will be able to complete the work within the targetted period itself. But the execution could not be carried out as stipulated due to laches and lapses of authorities only. The factors responsible for protraction of execution are not attributable to the claimant but to the department alone. The cost of construction materials, petrol, diesel and other POL items increased exorbitantly. The transportation charges, wages of the workers too have recorded an unprecedented increase. The imposition of various taxes by both central and state Government added the cost. Taking into account the said factors, the Government revised schedule rate during 1984 and 1986. But no corresponding increase in rate has been effected in the agreement. All these caused increase in the cost of construction. He had to pay in par with the prevailing market rate whereby the claimant is subjected to huge financial losses and damages. The ‘ losses and damages caused to the claimant for all works excluding extra/additional items and excess quantities done after 6-8-1986 the date originally fixed for completion of work is Rs. 2,25,000/-. The claimant is entitled to be paid the said sum. This may be awarded to the claimant by the honourable arbitrator.”

* * * *

“(h) As already pointed out the execution at site was disrupted due to non-supply of cement. The inadequate and delayed supply of cement disrupted the execution causing idling of establishment. The claimant has informed the said aspects at times and notified that he is being subjected to losses and damages. Execution of work was disrupted for 229 days. The claimant has incurred an expenditure of Rs. 3750/- per day. The claimant is entitled to be paid at the said rate for the entire period of 229 days. This may be paid to the claimant by the honourable arbitrator.”

34. The allegation in paragraph 12(a) proceeds on the assumption that the contractor has suffered loss on account of the fact that the estimate of the work was prepared on the basis of the schedule of rate of the year 1982 for a work to be executed in 1986 at a time when the Government has revised its rates in 1984 and 1986 taking note of the exorbitant increase in the cost of construction materials, petrol, diesel and other POL items as well as transportation charges and wages of labourers. Since there was no corresponding increase granted to him in his rates he had to incur heavy loss in getting the work done. In this connection, it is important to note that the respondent himself has raised the depart-mentally sanctioned P. A. C. amount of Rs. 6,80,230/- to Rs. 9,10,500/- while submitting his tender in December 1985. It was the tender so submitted by him suitably enhancing P.A.C. that was ultimately accepted. It is only reasonable to assume that while submitting his tender he must have taken note of the increase in the cost of materials, labour and transport charges and other tax liabilities till then apart from providing for the expected further increase during the period of the contract and reasonable profit. In the circumstance, the main reason stated for the loss alleged to have been incurred cannot be sustained in law, if the above aspect of the matter was borne in mind while considering the claim. The arbitrator has not adverted to the above aspect. He seems to have totally ignored the same while allowing the claim. It was really a very important aspect which should have been taken note of. Omission to consider the above aspect would clearly indicate the non-application of mind. It would even indicate the predisposition of the arbitrator to favour the contractor with a finding that he has suffered loss on account of the adoption of 1982 rates for finalising the estimate for a work to be carried out in 1986 when rates were revised in 1984 and 1986.

35. The further finding that the loss on this account can be estimated at Rupees 2,19,678/- without any materials to support the same would clearly bring out the proclivity of the arbitrator to grant an undeserving award without a proper application of mind to the entire facts and circumstances of the case. The amount so awarded comes to more than 50% of the amount allowed as per the final bill for the work actually done by the respondent. The compensation claimed is towards the alleged increase in the cost of materials like petrol, diesel, POL items and labour and transportation charges. Treating the amount quoted by the respondent as one fixed in December 1985 even assuming that there was delay attributable to the depart ment, compensation can could have been awarded only after ascertaining and fixing the increase in the cost of the above materials for the period commencing from 8-8-1986 and ending with 31-3-1987. Absolutely no material was produced by the respondent to show that during the above period the cost of any of the materials have recorded an increase and if so the extent to which it has increased. The actual amounts paid by the respondent for the materials purchased and rate of wages and transport charges paid by the contractor could have been easily proved by producing his account books. Without any such evidentiary materials the arbitrator has determined the loss as indicated above doing a guess work. The procedure adopted for determining the loss cannot be upheld especially in a case like the one where the arbitrator is bound to give reasons for the amount awarded as per Clause 52 of the LCB specification. In

# State of Kerala v. Aboobacker (1995 (1) KLT 850) : (AIR 1995 Ker 327)

a Division Bench of this Court has taken the view that as per Clause 52 an arbitrator is duty bound to give his reasons for the assessment under each head where loss is found to have been caused. The Division Bench has observed thus in paragraph 16 of the judgment:

“When the arbitrator was duty bound to give reasons “for the amount awarded” can he simply give one figure as the above? Should he not have given reasons for the assessment under each head where loss occasioned or sustained? How did he reach that figure? This is a typical case where a man claimed Rs. 3 crores as his loss and the arbitrator awarded 90% of that amount without showing how he reached that figure. Should not the parties know how he reached that figure, unless he is not required to give a reasoned award ?”

In this case, the respondent asked for Rs. 2,25,000/- and the arbitrator has granted an amount of Rs. 2,19,678/- making a show of application of mind by reducing the amount by paltry amount of Rs. 5,322/-. This would really show the dishonest way in which the arbitrator behaved while passing the award.

36. Regarding claim (h) pertaining to the loss alleged to have been incurred due to idling of the establishment of the respondent as a result of delay in the supply of departmental materials also the procedure followed is to grant a comparatively fabulous amount of Rs. 5,90,000/- without indicating the basis or the manner in which the loss has been determined. The arbitrator has found that there was idling for 200 days and the loss sustained by the respondent can be estimated at Rs. 2,950/- per day as against a claim of 229 days and Rs. 3,750/- per day made by the respondent. Here also even assuming that there was delay attributable to the department, no evidence was adduced by the respondent to establish that he was forced to keep an establishment idling for a period of 229 days or even 200 days and to incur an expense of Rs. 3,750/- per day or Rs. 2,950/-per day as found by the arbitrator. If really the respondent has incurred any expenses as alleged it could have been easily proved by producing necessary accounts supported by vouchers. Such huge amount could not have been estimated and granted as loss incurred without any material evidence to establish the same especially when it is a matter which could have been easily proved. This again would clearly indicate the undue anxiety shown by the arbitrator in granting an undeserved award for an amount much more than the worth of the work already done and received by the respondent. There was not even a statement filed by the respondent regarding the nature and number of the machineries if any idling and the number of the labourers who were idling, leave alone any reliable data on such matters. We are in the circumstances inclined to accept the contention of the learned Advocate General that the awards passed with reference to claims (a) and (h) are awards passed by the arbitrator by misconducting himself and the proceedings and as such liable to be set aside under Section 30(a) of the Act.

37. Claim (c): Claim (c) pertains to the expenditure incurred by the claimant due to the additional lead, lite etc. for the earth work. In support of the claim, the claimant has alleged that in the schedule of agreement only 3010 m3 earth work for clearance of silt, at filling and loose earth portion was included to be carried out. But, he had to do additionally 4000 m3 earth work as per levels for forming the canal to the required bed width and slope at the cutting portion involving extra lead and lift since there was no Bed width and slope in the required manner. It was submitted that as a result of that the claimant has incurred heavy expenditure by way of additional lead, lift, cutting etc. and that he is entitled to get Rs. 50/- per m3 as expenditure incurred for executing the said work. The defence set up by the appellants was that the excess quantity of work carried out can only be paid in accordance with the relevant clauses in the LCB specification, especially Clause 31. The total quantity of work carried out by the respondent is only 6217 m3 and not as claimed by the respondent. The arbitrator has rejected the objection and has awarded expenditure at the rate of Rs. 47.50 per m3 for the extra work done by the respondent accepting the total quantity of work done as 6217 m3. There is no dispute regarding the total quantity of work done and the work originally entrusted. The dispute is only regarding the rate at which the work is to be paid. The original rate fixed is Rs. 5/m3. The rate claimed is Rs. 50/m3. The arbitrator has allowed Rs. 47.75/m3, without indicating the reason or basis on which a marginal reduction was made, probably to make a show of application of mind and fairness in making the award. As the original amount quoted by the respondent himself in December 1985 is only Rs. 5.m3, one would naturally expect an impartial arbitrator to give his reasons for granting Rs. 47.75/m3 for doing the same type of work in continuation of the original work entrusted and that too within a period of less than one year. On the sole ground that no reason has been stated for granting the amount, the award is liable to be set aside.

38. There is yet another ground on which the award has been challenged as one passed without applying the mind to all relevant facts and provisions of law. Thus it was submitted that even as per the findings of the arbitrator, the respondent is entitled to get payment for the extra work only in accordance with the provisions in Clause 31 which refers specifically to Clauses 32 and 32A for the purpose of-revising and fixing the rate of payment for the extra work carried out by a contractor when the extra work entrusted is either in excess or less than 30% of the original work entrusted. As the extra items of work in this case was admittedly more than 30% of the original work, the rate for excess work over 30% of the quantity provided, in the tender notice was bound to be revised and fixed in accordance with the procedure indicated in the latter part of Clause 31 which is to the following effect:

“However, the said revised item rate shall not exceed the item rate quoted, subject to adjustment in accordance with a price adjustment clause.”

As the provision in Clause 31 would directly apply for determining the rate payable for the extra items in excess of 30%, it was submitted that the award granting amounts far in excess of the amounts specified in the said provision is liable to be set aside as an award passed ignoring the relevant provisions of the agreement which will amount to a misconduct within the meaning of Section 30(a) of the Act.

39. As against the above contention, the learned counsel for the respondent has submitted that as the completion period of the work notified in the tender notice was less than one year ‘price adjustment clause’ (Clause 32A) may not have any application and as such the latter part of the provision in Clause 31 relied upon by the appellants may not apply to the case on hand. In the circumstances, the only provision applicable will be Clause 32 according to which the rates for extra items are to be fixed on the basis of mutual agreement. Since there is no mutually agreed rate, it is open to the arbitrator to fix any reasonable amount without reference to the restrictive provisions in Clause 31 relied upon by the learned Advocate General. As such, the non-advertance to the latter part of Clause 31 may not be of any consequence and it cannot be treated as a misconduct vitiating the award.

40. Regarding the above contention also, we find that the arbitrator has omitted to lake note of the latter part of the provisions in Clause 31 relied upon by the appellants even though he has referred to the earlier part of the above Clause while discussing the claim and making the award. In the light of the contention raised specifically by the appellant, the arbitrator should have in fairness referred to and considered the relevant part of Clause relied upon by the appellants and taken a decision in that regard giving his reasons. The omission to advert to the above provision of law is again indicative of the non-application of the mind amounting to a misconduct.

41. Claim (g): The claim relates to the excess expenditure alleged to have been incurred by the claimant for conveying water from Enath Ferry since there was scarcity of water due to severe draught. In support of the above claim, the claimant has alleged that the work site is at Kadambanadu which is in an elevated area where there is always scarcity of water. It was alleged that there was heavy draught during 1987 and no water was available during that period within the nearby wells. As a result, the claimant had to engage two lorries and workers for bringing water from Enath Ferry of Kallada River incurring an expenditure of Rs. 1750/- per day for 70 days. A total amount of Rs. 1,22,500/- was claimed towards this head.

42. The appellants have denied the entire claim. While denying the allegation regarding draught and consequential scarcity of water, it was submitted that even if there was any scarcity of water due to draught or other natural reason the respondent is not entitled to claim any compensation for the additional expenditure even if any incurred on account of such scarcity of water as draught can only be treated as an act of God.

43. In the award, relying upon Exts. C32 to C34 documents, the arbitrator has come to a conclusion that there was scarcity of water and the claimant had to make alternative arrangements to bring water from distant places which was not anticipated earlier. However, the arbitrator found that the amount of Rs. 1,750/- per day claimed by the respondent is on the higher side and fixed the extent of additional expenditure or loss at Rs. 1,250/- per day for a period of 60 days as against the 70 days claimed by the claimant. Accordingly, an amount of Rs. 75,000/- was awarded under the above head of claim.

44. In this case also the arbitrator has after finding that there was draught and scarcity of water has straightway granted a lump sum amount of Rs. 75,000/- as against a claim for Rs. 1,22,500/-. According to the respondent, he had to incur an additional expenditure of Rs. 1750/- per day for 70 days altogether to bring water from Enath Ferry by engaging lorries and labourers. The arbitrator found the claim to be excessive and restricted the total amount of expenditure per day to Rs. 1,250/- and the number of days to 60 and thus gave a total amount of Rs. 75,000/- as compensation. It is an award made without any evidentiary materials to prove any of the relevant aspects like engagement of lorries and workers for bringing of water from Enath Ferry, payment of wages and hire charges etc. The item of loss alleged should have been treated as something which is liable to be proved by adducing positive evidence. It should not have been left as matter for estimation by the arbitrator without any evidentiary basis. This again was according to us rightly pointed out by the learned Advocate General as an instance where the arbitrator has granted an undeserving award with a pre-disposed mind to favour the contractor.

45. Further, it was pointed out that Clause 47 of the LCB specification would preclude the respondent from claiming compensation for any loss caused as a result of draught and consequential scarcity of water and that was conspicuously omitted to be noted by the arbitrator. Relevant portion of Clause 47 is to the effect that “neither party shall be liable to the other party for any loss or damage occasioned or arising out of acts of God such as unprecedented flood, volcanic erruption, earth quake or other convulsions of nature”. As regards the effect of the above provision, learned counsel for the respondent has a case that draught cannot be treated as an act of God coming within the scope of the provision contained in Clause 47 of the LCB specification and as such non-advertance to the above provision cannot be treated as a material omission or irregularity which has affected the decision of the arbitrator. However, it is sufficient to note that the arbitrator has not referred to and considered the above provision and taken a decision thereon. As such, it may not be possible to say what would have been the conclusion of the arbitrator if he had adverted to the above provision and applied his mind to it. Omission to advert to the above provision was described as non-application of the mind amounting to misconduct on the part of the arbitrator. It has also been characterised as an action indicative of the pre-disposition entertained by the arbitrator to favour the respondent with a favourable award. It is indicative of the bias of the arbitrator also was the submission of the learned Advocate General.

46. Having due regard to the facts and circumstances of the case, we are inclined to accept the contention of the learned Advocate General regarding the award made with reference to claim (g) also.

47. We have already discussed the most important points discussed in the award. What remains to be considered are points intrinsically connected with the points already discussed by us. While discussing the points already dealt with by us, we have explained in detail the manner in which the arbitrator has conducted the proceedings and arrived at the basic conclusions. In the course of our discussions, we have adverted to the various irregularities and illegalities committed by the arbitrator such as non-advertance to important evidentiary materials and relevant provisions of the agreements amounting to non-application of mind, reaching conclusion without any evidentiary materials on points which required to be established by positive evidence indicative of the pre-disposed mind of the arbitrator to favour the respondent with immerited favourable conclusions and awards and failure to give reasons for awarding various amounts amounting to legal misconduct. The entire claim is based upon the basic allegation that there had been undue delay on account of illegal omissions and commissions on the part of the appellants amounting to breach of duty which protracted the work beyond the period of completion originally fixed causing substantial losses to the respondent for which he is entitled to get compensation. We have already shown how some of the reasons stated by the respondent for causing the delay are totally irrelevant or inconsequential, how the delay in taking some of the steps by the appellants never affected the commencement and progress of the work and how the arbitrator has reached certain vital conclusion without even a contention and supporting evidentiary materials, while coming to a conclusion that the delay was wholly attributable to the appellants and work was protracted on account of such delay causing loss to the respondent. While arriving at the above basic conclusion itself, the arbitrator has committed various irregularities as already indicated by us. The entire awards passed with reference to various heads of claim are essentially based upon the above conclusion. If the conclusion is found to be vitiated by misconduct of the arbitrator, the awards based upon such conclusion cannot be saved. Moreover, we have while considering independently the sustainability of the awards have found that while estimating the loss and passing award also the arbitrator is guilty of legal misconduct in as much as he has estimated the loss without any evidentiary basis and passed awards without giving reasons though he was bound to give reasons as per Clause 52 of the agreement. As such, on an anxious consideration of the entire aspects, we are inclined to take the view that the arbitrator has committed various irregularities and illegalities while passing the award amounting to legal misconduct as contemplated by Section 30(a) of the Act which has resulted in failure of justice and the particular awards (a), (c), (g) and (h) are liable to be set aside for reasons mentioned in Section 30(a) of the Act.

48. In the light of the above conclusion reached by us with regard to awards passed under the main heads of claim, we feel that it is not necessary for us to consider independently the sustainability of the awards passed in favour of the respondent with reference to claims (m), (o) and (q) which are claims intrinsically connected with the allegation of undue delay, protraction of work and con-sequential loss. The claim (q) in fact is one for interest on the amounts found due as compensation under various heads of claim and has no independent existence apart from the other claims. Similarly, claims (m) and (o) are also intrinsically connected with the alleged breach of contract and cannot be treated as an independent and severable claim requiring independent scrutiny before setting aside the same especially in view of our finding that the arbitrator is guilty of misconduct and major awards are vitiated by such misconduct and are liable to be set aside. Accordingly, we would set aside the awards under claims (m), (o) and (q) as well under Section 30(a) of the Act. For the same reason we would also set aside the award passed with reference to the counter claim.

49. As the awards are being set aside on the ground of misconduct, claims have to be adjudicated afresh. However, it may not be just or proper to refer the claims back to the same arbitrator since we have found the arbitrator to be guilty of misconduct. As such, we would refer the outstanding disputed claims, viz., claims (a), (c), (g), (h), (m), (o) and (q) and the counter claim to Sri. K. Ramachandran, Retired District Judge who is hereby appointed as arbitrator for adjudicating the claims and making an award in accordance with law after giving both parties sufficient opportunities to substantiate their respected claims as early as possible at any rate within a period of 6 months from today. It will be open to the arbitrator to fix up his remuneration.

50. As we are directing a fresh adjudication with reference to the claims indicated above, we make it clear that we have not expressed any final opinion about the merits of any of the claims in the counter claim and have attempted only to point out the illegalities and irregularities committed by the arbitrator while passing the award. We would also make it clear that the claims rejected by the arbitrator cannot be treated as outstanding claims or disputes requiring to be adjudicated afresh. As regards the claims rejected, the award as well as the decree confirming such rejection would stand. Claims (a), (c), (g), (h), (n), (o), (q) and counter claim alone survive for fresh adjudication and they alone are being referred by us for adjudication afresh.

51. As we have set aside the awards passed with reference to claims specifically indicated above, the decree passed with reference to the awards set aside by us would also stand set aside.

52. The arbitrator is directed to file his award in this Court.

Appeal is allowed as indicated above. Parties will bear their respective costs.

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