IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN THURSDAY, THE 26TH MARCH 2009 / 5TH CHAITHRA 1931 MFA.No. 653 of 2000(B) ---------------------- OP.1/1997 of SUB COURT,NEYYATTINKARA .................... APPELLANTS/PETITIONERS: -------------- 1. UNION OF INDIA, REP. BY THE CHIEF ENGINEER, R.C.P.O., D.D.A. BUILDING 'A' BLOCK SAFDARJUNG ENCLAVE, NEW DELHI-110 029. 2. THE CHIEF ENGINEER, R.C.P.O., .DO. 3. THE ENGINEER-IN-CHIEF, ARMY HEADQUARTERS, KASHMIR HOUSE, NEW DELHI. BY ADV. SRI.P.PARAMESWARAN NAIR,ASST.SOLICITOR RESPONDENT/RESPONDENT: --------------- R.R.CONSTRUCTIONS, A REGISTERED PARTNERSHIP FIRM HAVING ITS REGIONAL OFFICE AT P.B. NO.829, KOWDIAR P.O., TRIVANDRUM (PRESENT T.C.NO.4/2270). ADV. SRI.K.L.VARGHESE SMT.SANTHA VARGHESE THIS MISC. FIRST APPEAL HAVING BEEN FINALLY HEARD ON 02/01/2009, ALONG WITH MFA NO.91 OF 2000, THE COURT ON 26/03/2009 DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR & V.K.MOHANAN, JJ. .................................................................... M.F.A. Nos.653 & 91 of 2000 .................................................................... Dated this the 26th day of March, 2009. JUDGMENT Ramachandran Nair, J. The connected appeals, one filed by the Union of India represented by Chief Engineer, Army and the other filed by the contractor namely, RR Constructions, a registered firm in Trivandrum, arise from the judgment and decree passed by the Subordinate Judge, Neyyattinkara in O.P. (Arbitration) No.1/1997 dated 21.11.1998. We have heard Standing counsel appearing for the Union Government and Sri.K.L.Varghese, counsel appearing for the contractor. 2.The work awarded to the contractor was for construction of MES Key Personnel Quarters and office accommodation. Though the contractor completed first phase of the work, the contract was cancelled on account of alleged delay in execution of work. The dispute between the awarder and the contractor was referred to Single Arbitrator who passed an award allowing most of the claims in terms of the claim petition filed by the contractor. The award was challenged 2 under Section 30 of the Arbitration Act before the Sub Judge who upheld the award substantially, but cancelled it in regard to claim under clause "h" on ground of misconduct. The contractor has filed the appeal for setting aside the judgment and decree of the Sub Judge and to restore claim "h" allowed by the Arbitrator which is for an amount of Rs.19,20,000/-. The other appeal is filed by the Union of India challenging the judgment and decree upholding the remaining part of the award except under the head "h" claimed by the contractor. It is the settled position that award is liable to be interfered with by the Sub Court under Section 30 of the Arbitration Act only if the Arbitrator is found to be guilty of misconduct. Standing Counsel appearing for the Union of India submitted that C.M.P. No.5364/2002 was filed in M.F.A. No.653/2000 for amendment of the appeal for the purpose of challenging the remaining part of the judgment and decree upholding the award pertaining to various other claims which were not specifically challenged in the appeal filed by the Government. We notice from the appeal filed by the Union of India that the challenge is specifically against the award of claim "j" confirmed by the Sub Court 3 which is for an amount of Rs.7.36 lakhs. In the first place, after going through the award and after hearing the parties, we do not think even a prima facie case of misconduct is established on the Arbitrator by the petitioner in C.M.P. No.5364/2002 and therefore, we reject this petition. This leaves us with the two appeals, out of which appeal filed by the Union Government is against judgment of the Sub Court upholding the claim awarded under claim "j" and in the appeal filed by the contractor, the challenge is only with regard to judgment of the Sub Court cancelling the claim awarded under claim "h". 3. On going through the judgment of the Sub Court and after hearing both sides, we notice that the claims "h" and "j" are interconnected, both pertaining to the claim of compensation by the contractor for seizure and retention of materials and equipments of the contractor by the awarder at the time of cancellation of the contract. Claim "h" is allowed by the Arbitrator by stating as follows: "The claim 'h' is confined to hire charges of machineries taken over by the Respondents. Annexure 'h' denotes the calculation of hire charges by the claimants. The Respondents statements is that the machineries, T & P etc. are still lying there as they were at the time of taking over and were not utilised by the Department. 4 Except for the above statement the Respondents had not considered it necessary to substantiate the same during my inspection on 12.3.'97. I was just shown a lorry bearing the legend: "R.R. constructions" left in the open; no other material or machinery was shown to me. The lorry itself was in a state of utter disrepair and one is actually distressed by the callousness with which it is kept. In the circumstances I find that the deprived party is entitled to damages, consequent on the confiscation. Damages can be by way of hire charges and the ultimate value the items fetch after use. The cost of these properties are considered under claim 'j'. Under this claim of 'h' I award that the claimants shall be paid by the Respondents a sum of Rs.19,20,900/- (Rupees Nineteen Lakhs Twenty Thousand and Nine Hundred only) in full and final settlement of all claims under this item." Similarly claim J which also pertains to value of machineries, T&P, lorry, centering and other construction materials etc. taken possession by the awarder at the time of cancellation of contract, is allowed by the Arbitrator by stating as follows: "Presenting exbt. G - 1 as the inventory of items admittedly taken over by them, the Respondents did not come up with any systematic assessment except a lump sum amount of Rs.63254.67 which is said to have been credited to the contractor's account. Apparently the machinery is not considered in which case this amount will be ridiculous and during my inspection I was not shown any evidence of machinery or T & P except a dilapidated lorry left in the open for years. The claimants categorically claimed the amount systematically worked out. Having 5 admitted that the "materials" belonging to "the contractor" were "correctly accounted for" at the time of taking over the Respondents are liable for the outcome thereof. Though the Respondents claimed that the inventory was prepared "in the presence of Mr.Mathew Philip, Managing Partner" the claimants' counsel argued at the final hearing that the inventory cannot be considered as conclusive as the claimants are not signatories to it. There was no argument against this from the other side. Thus we find that the "correctness" of the inventory is open to question. All in all, I find the claim deserves full consideration. Accordingly I award that the claimed sum of Rs.7,36,000/- (Rupees seven lakhs and Thirty Six Thousand Only) shall be paid to the claimants by Respondents in full and final settlement of all claims under this item." It is clear from the above findings of the Arbitrator that value of the materials and equipments stated to be taken over at the time of cancellation of contract by the awarder was fixed by the Arbitrator and awarded at Rs.7,36,000/- under claim 'j'. The claim under clause 'h' was therefore limited to hire charges claimed by the contractor for the very same equipments and materials. The Arbitrator has not even identified the items that were alleged to have taken over by the awarder. On the other hand, during his inspection on 12.3.1997, the Arbitrator noticed only one old abandoned lorry without any details about the equipments taken over and it's possible use and the hire 6 charges it may fetch after the cancellation of the award. The Arbitrator has awarded Rs.19,20,900/-. In fact, it is seen that value of entire materials taken over by the awarder was separately awarded under claim 'j'. During hearing, we asked the counsel for the contractor as to the model and make of the lorry which was found abandoned at the site by the contractor during inspection by the Arbitrator. We were told that the lorry was 35 years old as on the date it was put to use for construction purpose. While considering the validity of the award, the Sub Court found that there is no basis for awarding substantial amount of Rs.19,20,900/- under claim 'h' when the value of materials was separately awarded under claim 'j' of the claim petition. The Sub Court was of the view that the award of compensation under this head is towards compensation for remote and indirect loss which was not permissible under Section 73 of the Contract Act. As already stated by us, both claims pertain to compensation for value of the materials of the contractor taken over by the awarder at the time of cancellation of the contract. The Arbitrator conducted inspection of the site before passing the award and the only material he found is an abandoned 7 dilapidated lorry. The contractor has not substantiated his claim about the equipments and materials taken over by the awarder at the time of cancellation of the contract. In any case value of the entire materials claimed by the contractor is granted as compensation by the Arbitrator. However, for granting hire charges, the Arbitrator fixed the burden on the Awarder to prove about the materials taken over and the loss of hire charges caused to the contractor. We are of the view that the finding of the Arbitrator in this regard is perverse because it is for the contractor to prove in arbitration proceedings his loss in the form of hire charges for which evidence should have been produced about the equipments and materials hired by him or fit for hire. Since the award under clause 'h' is virtually duplication of the claim which is awarded under clause 'j' and since there is no basis for fixing the huge amount, the only conclusion is that there is misconduct on the part of the Arbitrator in favouring the contractor. We, therefore, uphold the judgment and decree passed by the learned Sub Judge in setting aside the claim 'h' awarded by the Arbitrator. 4. So far as the appeal MFA 653/2000 filed by the Government is 8 concerned, we do not find any justification to interfere because the challenge is against claim 'j' awarded by the Arbitrator which is for the value of materials of the contractor taken over by the department at the time of cancellation of the contract. Even though we find force in the contention of Central Government that the Arbitrator presumed taking over of goods and materials by reference to clause 54 of the contract, there is no evidence as to the equipments and items left by the contractor at the site at the time of cancellation of contract. In fact, inventory of the materials and equipments left by the contractor should have been prepared at the time of cancellation of the contract, which neither party bothered to do. In any case when the Arbitrator as well as the Sub Judge took the view that by virtue of clause 54 all the materials claimed by the contractor as lying at the site would have been taken over by the awarder, we do not find any misconduct in the Arbitrator in awarding the value of the materials which covers even the value of the very old truck. The contractor also has no case that awarder has any way made use of or utilised whatever is the equipments or materials left by him. In any case in view of the 9 findings by the Arbitrator confirmed by the Sub Court, we do not find any ground to interfere with the award of claim 'j' which is the basis on which the award under claim 'h' is cancelled by the Sub Court and confirmed by us above. We do not propose to interfere with the award in this appeal also. Consequently both M.F.As. are dismissed. C.N.RAMACHANDRAN NAIR Judge V.K.MOHANAN Judge pms