IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated: 16.03.2009 CORAM THE HONOURABLE MR.JUSTICE S. RAJESWARAN O.P. No.650 of 2004 Central Warehousing Corporation 4/1 Siri Conatitutional Area, Khel Geon Marg, New Delhi - 110016 Represented herein by its Regional Manager Mr.P.E.Prasad, Chennai 600 015. .. Petitioner Vs. 1. M/s.National Lorry Transport, No.8A, Trichy Main Road, Salem 636 006. 2. Shri Rajkumar Sole Arbitrator 102/57 Silver Oaks, DLF City I, Gurgaon Haryana 122 002. .. Respondents Petition filed under Section 34(2)(a) (iv) and (v) of the Arbitration and Conciliation Act 1996 to set aside the Award dated 23.05.2004 passed by the second respondent. For Petitioner : Mr.V.Lakshmi Narayanan for M/s.A.J. Abdul Razak For Respondents : Mr.P.Jagadeesan for R1 **** O R D E R The petitioner is challenging the award dated 23.05.2004 passed by the second respondent, under Sec.34(2)(a) (iv) and (v) of the Arbitration and Conciliation Act 1996. 2. The petition averments are as under: The first respondent was awarded by the petitioner a regular contract for loading/unloading, handling and transportation of food grains/fertilizers at Central Warehousing Corporation godown at Madurai Unit No.I & II, for a period of two years with effect from 24.11.1993 to 23.11.1995. An agreement was entered into between the parties on 23.11.1993, according to which, the contract is for a period of two years with effect from 24.11.1993 which is extendable for a period of six months at the discretion of the petitioner. 3. According to the petitioner, the first respondent stopped the work abruptly on and from 23.01.1995 and thereby committed breach of contract. The abrupt stoppage of work by the first respondent resulted in heavy loss to the petitioner apart from losing valuable goodwill built over the years. As the work was abandoned by the first respondent, the H & T operations had to be carried out for the unexpired contract period by appointing another contractor at the risk and cost of the first respondent. Clause XIX of the contract provides for referring the disputes to the sole Arbitration of any person appointed by the Managing Director, Central Warehousing Corporation, New Delhi. Due to the sudden stoppage of work by the first respondent on 23.01.1995, disputes arose between the parties and the Managing Directors of the Corporation on 6.12.1996 appointed one Thiru S.K.Bhatnagar, I.A.S. (Retd) as the sole Arbitrator to adjudicate upon and to give an award. 4. The said Arbitrator held eight hearings and completed the arbitration proceedings on 30.05.1999. Unfortunately, he passed away before the award could be passed and thereafter, the Managing Director appointed the second respondent herein on 28.08.2001, as the sole Arbitrator to continue the proceedings. 5. The second respondent instead of proceeding with the work of arbitration at the stage where it was left by his predecessor, started proceeding afresh and thereby, new claim statement and counter statement were sought to be filed. By the award dated 23.05.2004, the second respondent disallowed the major portions of the claim of the petitioner and allowed major portions of the counter claims of the first respondent. Aggrieved by the award dated 23.05.2004, the petitioner filed the above Original petition under Sec.34 of the Arbitration and Conciliation Act, 1996. 6. Heard the learned counsel for the petitioner and the learned counsel for the first respondent. I have also gone through the entire materials available on record including the impugned award dated 23.05.2004. 7. The learned counsel for the petitioner submits that according to clause XIX of the agreement dated 23.11.1993, in the event of the Arbitrator to whom the matter was originally referred to being transferred or vacated his office or being unable to act for any reason, the Central Warehousing Corporation, at the time of such transfer, vacation of office or inability to act, can appoint another person as Arbitrator. Such a person shall be entitled to proceed with the reference from the position at which it was left by his predecessor. The learned counsel contended that instead of proceeding from where the previous arbitrator had left, the second respondent conducted a de-nova proceeding which is not in accordance with the arbitral agreement and therefore, the award is liable to be set aside. The learned counsel further submitted that the award passed by the arbitrator was not in consonance with the specific provisions contained in the contract and therefore the award is vitiated. It is his further contention that the findings of the Arbitrator that the demurrage charges (DC) wharfage charges (WC) are to be shared between the petitioner and the first respondent in the ratio of 90:10, is perverse and therefore, the award is vitiated and is liable to be set aside. The learned counsel further urged that some of the relevant documents were omitted to be considered and some of the findings were based on no evidence. He further submitted that the arbitrator is also guilty of awarding interest on the amounts awarded as there was no provision in the contract to ward such interest. In support of his submissions, the learned counsel for the petitioner relied on the following decisions: 1. 2007(2) SCC 453 (Ramnath International Construction (P) Ltd. Vs Union of India) 2. 2004(13) SCC 44 (Travancore Devaswom Board Vs Thanath International) 3. A.I.R. 1960 Punjab 478 (V 47 C 172) Union of India Vs M/s.United Timber Works of Jamna Nagar, Jagadhari) 4. 2000(4) Raj 206 (DEL) (Delhi Development Authority Vs M/s.Hargobind Jaggi) 5. A.I.R. 2003 SC 1495 (Food Corporation of India Vs Surendra Devendra and Mahendra Transport Co.) 6. 2006(4) SCC 445 (Hindustan Zinc Ltd. Vs Friends Coal Carbonisation) 7. A.I.R. 1987 DEL 148 ( M/s.Bombay Ammonia Pvt. Ltd. Vs Union of India) 8. 1999(8) SCC 122 (Steel Authority of India Ltd. Vs J.C.Budharaja, Government and Mining Contractor) 9. 2006 EWHC 727 (TCC) (Kershaw Mechanical Services Ltd. Vs Kendrick Construction Ltd.) 10. A.I.R. 2002 SC 2659 (M/s.Shyama Charan Agarwala and sons Vs Union of India) 11. 2007(5) C.T.C. 17 (Sree Kamatchi Amman Constructions Vs The Divisional Railway Manager- Works, Palghat Division, Southern Railway, Palghat, Kerala and others) 12. A.I.R. 1999 SC 2184 (Food Corporation of India Vs Sreekanth Transport) 13. A.I.R. 1999 SC 3627 (Rajasthan State Mines & Minerals Ltd. Vs Eastern Engineering Enterprises and another) 14. MANU/TN/8071/2007(A.I.R. 2007 NOC 1316 (MAD) (Tamil Nadu Civil Supplies Corporation Ltd. Vs R.Sampath and another) 8. Per contra, the learned counsel for the first respondent submitted that having participated in De- nova proceeding initiated by the second respondent without any demur and having not objected to the jurisdiction of the tribunal at the right time, it is not possible for the petitioner to submit that the de-nova enquiry conducted by the second respondent arbitrator is bad. He further contends that the award is a reasoned one based on the evidence and no grounds have been made out by the petitioner as available under sec.34 of the Arbitration and Conciliation Act 1996. He further submits that the arbitrator has correctly decided the claims and counter claims on the basis of the contract entered into between the parties and therefore, it is not open to the petitioner to assail the award as if this court was sitting in its appellate jurisdiction. In support of his submissions, the learned counsel for the first respondent relied on the following judgments: 1. 2006(1) RAJ 258 (DEL) (Union of India Vs M/s.Pradeep Vinod Construction Co.) 2. 2006(1) RAJ 556 (DEL) (M/s.LLoyd Insulations (India) Pvt. Ltd. Vs M/s.Cement Corporation of India Ltd.) 3. 2006(1) RAJ 699 (DEL) (Hindustan Construction Corporation Ltd. Vs Delhi Development Authority) 4. A.I.R. 2005 SC 2071 (Bhagawati Oxygen Ltd. Vs Hindustan Copper Ltd.) 5. A.I.R. 2002 SC 1157 (Inder Sain Mittal Vs Housing Board, Haryana and others) 6. 2004(4) RAJ 1 (DEL) (Sharma Associates and Contractors Pvt. Ltd. Vs Progressive Constructions Ltd.) 7. 2004(3) RAJ 99 (CAL) (Union of India Vs Pam Development Pvt. Ltd.) 8. 2004(1) RAJ 135 (BOM) (Union of India Vs Chawla Interbild Construction Company Private Limited) 9. 2004(4) RAJ 299(DEL) (Bharat Heavy Electricals Ltd. Vs Globe Hi Fabs Ltd. 10. 2004(4) RAJ 365 (BOM) (Union of India Vs Arctic (India) 11. 2004(1) RAJ 646 (KAR) (Karnataka State Board Transport Corporation and another Vs M.Keshava Raju) 12. 2005(4) RAJ 378 (DEL) (Union of India, Thiru Deputy Chief Engineer (TS), Northern Railway, Baroda House Vs Suchita Steels (India) Thru its partner) 13. 2005(4) RAJ 24 (CAL) (Union of India Vs M/s.Pam Developments Pvt. Ltd.) 14. A.I.R. 2007 SC 817 (Krishna Bhagya Jala Nigam Ltd. Vs G.Harischandra Reddy and another) 15. A.I.R. 2007 NOC 1158 (Food Corporation of India and others Vs.Niyaz Mohammed and others) 16. A.I.R. 1988 SC 205 (Prasun Roy Vs Calcutta M.D.Authority) 17. A.I.R. 2005 SC 2795 (State of Rajasthan Vs M/s.Nav Bharat Construction Co.) 18. A.I.R. 1997 SC 1324 (B.R.Radhakrishna Vs Sponge Iron India Ltd.) 19. A.I.R. 1997 SC 925 (State of Orissa Vs B.N.Agarwalla) 9. I have considered the rival submissions carefully with regard to facts and citations. 10. Though this Original petition could be decided by this court without the help of any citations, I am referring to the decisions cited by both the learned counsel, appearing for both the parties, since they have taken pains to produce a pleathora of judgments in support of their arguments. 1. In 2007(2) SCC 453 (cited supra), the Hon'ble Supreme Court held that the award of damages ignoring the terms of the contract amounted to legal misconduct on the part of the arbitrator. 2. In 2004(13) SCC 44 (cited supra), the Hon'ble Supreme Court held as under: "12. The law on the subject is well settled. In the case of Alopi Parshad & Sons Ltd. v. Union of India1 this Court has held that the Contract Act, 1872 does not enable a party to a contract to ignore the express covenants thereof. It is held that the Contract Act does not permit a party to claim payment of consideration for performance of contract at rates different from the stipulated rates, on some vague plea of equity. It is held that in the performance of a contract, one often faces, in the course of carrying it out, a turn of events which are not anticipated e.g. an abnormal rise or fall in prices, sudden depreciation of currency, an unexpected obstacle to execution or the like. It is held that these do not affect the bargain that has been made. It is held that there is no general liberty reserved to the courts to absolve a party from liability to perform his part of the contract, merely because on account of an uncontemplated turn of events, the performance of the contract has become onerous. It is held that compensation quantum meruit is awarded when the price is not fixed by the contract. It is held that for work done or services rendered pursuant to the terms of contract, compensation quantum meruit cannot be awarded." 3. In A.I.R. 1960 Punjab 478 (cited supra), it was held that an award allowing compensation on grounds of equity for loss of profit in the absence of proof that any damages had been sustained, is liable to be set aside under sec.30 of the Arbitration and Conciliation Act 1940 on the ground of patent error of law. 4. In 2004(4) RAJ 206 (DEL) (cited supra), the Delhi High Court after finding that as per the terms of the contract that contractor is responsible for all demurrage charges and wharfage charges owing to late removal of consignment, held that the award given in favour of the contractor giving demurrage and wharfage charges, is not valid. 5. In A.I.R. 2003 SC 1495 (cited supra), the Hon'ble Supreme Court after finding that there was specific bar to the raising of a claim regarding the transit, demurrage and wharfage charges, the award made by the arbitrator in respect these would be in excess of the jurisdiction. 6. In 2006(4) SCC 445 (cited supra), the Hon'ble Supreme Court held that if the award passed is contrary to the terms of the contract, such award would be open to interference by the court under Sec.34 of the Act 1996 as being patently illegal and being opposed to the public policy of India. 7. In A.I.R. 1987 (DEL) 148 (cited supra), the Delhi High Court observed as under: "4. Legal misconduct means and includes some honest though erroneous breach of duty causing miscarriage of justice. If there has been mishandling of the arbitration proceedings or serious neglect of duties on the part of the arbitrator which is likely to lead substantial miscarriage of justice, the Court is justified in setting aside the award. 7. In the instant case, the arbitrator had directed the respondent Union of India to produce the documents sought to be produced by the petitioner but he did not pursue the matter further. The documents sought to be produced by the petitioner before the arbitrator are not available on the record of the proceedings of the arbitrator. In other words, it means that the arbitrator failed tod o his duty and his failure or negligence has resulted in substantial miscarriage of justice to the petitioner. On this ground, alone the award is liable to be set aside." 8. In 1999(8) SCC 122 (cited supra), the Hon'ble Supreme Court held that award passed in disregard of express terms of the contract would be arbitrary, capricious and is without jurisdiction. 9. In (2006) EWHC 727 TCC (cited supra), the Queen's Bench held that the principal document which should be considered in any appeal under Sec.69 of the Arbitration Act 1996 was the arbitral award itself and in addition to that, the court should also receive any document referred to in the award which the court needed to read in order to determine a question of law arising out of the award. It was further observed in the above judgment that there was no philosophy or ethos of the 1996 Act which should deter the court from answering any question of law raised in the event that the arbitrator has erred. 10. In A.I.R. 2002 SC 2659 (cited supra), the Hon'ble Supreme court observed that if the arbitrator ignored the relevant clauses in the agreement and came to a perverse conclusion, the High Court can very well set aside the award on this aspect. 11. In 2007(5) C.T.C. 17 (cited supra), a Division Bench of this court held as under: "62. Thus, interest could be awarded only in the absence of any specific stipulation or prohibition in the contract. In the absence of an Agreement by the parties to contract, Section 31(7)(a) provides that the Arbitral Tribunal may award interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date of which award was made pre-award period. Section 31(7)(a) underlines the discretion of the Arbitral Tribunal to award interest it deems reasonable. 63. Learned counsel for Railway has vehmently contended that as per clause 16(2) of GCC no interest is payable to the contractor and the Arbitrators have rightly declined interest and the same cannot be interfered with. Clause 16(2) of the Standard General Conditions of Contract reads as follows: "No interest will be payable upon the earnest money or the security deposit or amounts payable to the Contractor under the Contract, by Government Securities deposited in terms of sub-clause (1) of this clause will be rapayable (with) interest accrued thereon." 64. The above provision makes it clear that no interest as per the term of Agreement between the parties and no interest on the amount is due and payable by the Railways. Referring to Clause 16(2), express terms of the agreement between the parties, Arbitrators declined to grant interest for pre- reference period." 12. In A.I.R. 1999 SC 3627 (cited supra), the Hon'ble Supreme Court held that if the award is made by the Arbitrator disregarding the terms of the reference (or) the arbitration agreement (or) the terms of the contract, it would be a jurisdictional error which requires ultimately to be decided by the court. The arbitrator cannot award an amount which is ruled out or prohibited by the terms of the agreement. 13. In A.I.R. 1999 SC 2184 (cited supra), the Hon'ble Supreme Court observed that "Excepted matters" in the agreement are generally excluded from the purview of the arbitrator. 14. In MANU/TN/8071/2007 (A.I.R.NOC 1316(MAD))(cited supra), I held that if a clause in the agreement stipulates that the contractor shall not be responsible for the delay which may arise on account of reasons beyond his control and if there is a strike by the contractor's labourers on account of any dispute between the contractor and the labourers as to wages, the same should not be deemed to be a reason beyond the contractor's control and the contractor alone is responsible for any loss suffered. 15. In 2006(1) RAJ 258 (DEL) (cited supra), the Delhi High Court observed that when the arbitrators are technical people and when they considered the ramifications at site as also various obligations and counter obligations of the parties, the award cannot be said to be falacious. The Delhi High Court further observed that the expression "amounts payable to the contractor under contract" would mean the amounts which have to be paid in normal course to the party and it cannot be said that if the amount is unreasonably detained, no interest would be payable. 16. In 2006(1) RAJ 556 (DEL) (cited supra), the Delhi High Court observed that no objection is taken before the arbitrator, about a matter on the ground that it is an excepted matter, it cannot be objected to later on before the High Court while assailing the award. 17. In 2006(1) RAJ 699 (DEL) (cited supra), the Delhi High Court observed that when the arbitrator himself is a technical person who can make assessment on the basis of his knowledge and experience, such award need not be interfered with just because there is no specific evidence. The effective assessment by a technical person acting as an arbitrator on the basis of his knowledge and experience is permissible. It is further observed that once the arbitrator holds that the breach is on the part of the party who awarded the contract, the question of detention of Earnest Money does not arise. In the above judgment, the Delhi High Court went on to hold that future interest as well as interest for the period prior to date of award on Security Deposit is permissible. 18. In A.I.R. 2005 SC 2071 (cited supra), the Hon'ble Supreme Court held that Sec.34 C.P.C. had no application to arbitration proceedings and it was within the power of the arbitrator to award interest for all the three stages. 19. In A.I.R. SC 1157 (cited supra), the Hon'ble Supreme Court held that when a party acquiesced to the invalidity by his conduct and by participating in the proceedings and taking chances therein, he cannot thereafter object to the award which goes against him on the ground that the Arbitrator has no jurisdiction to pass the award. The Hon'ble Supreme Court further observed that in such cases the party is estopped from challenging the validity of the award as it is deemed that the right of the award to raise objection has been waived. 20. In 2004(4) RAJ 1 (DEL) (cited supra), the Delhi High Court held that under sec.34 of the Act, 1996, the court can only correct the mistake of law and not the mistake of fact. Further, the court cannot re-evaluate the evidence as if it is the Court of Appeal. 21. In 2004(3) RAJ 99 (CAL) (cited supra), the Calcutta High Court observed that the arbitration court cannot interfere with the award on the ground that the decision is erroneous, if the award is otherwise proper. The arbitration court cannot sit in appeal over the views of the arbitrator by re- examining and re-assessing the materials produced before the arbitrator. The Calcutta High Court has also held that when the petitioner never raised the question of jurisdiction at the proper time before the arbitrator, he waived his right by not challenging the same and such objection regarding jurisdiction shall not be raised after the award is passed. 22. In 2004(1) RAJ 135 (BOM) (cited supra), the Bombay High Court observed that when a person waived his right to object to the jurisdiction of the arbitrator in respect of a claim, it is not open to him to assail the award under Sec.34 of the Act 1996 on the ground that the claim did not fall within the jurisdiction of the arbitrator. 23. In 2004(4) RAJ 299 (DEL) (cited supra), a Division Bench of the Delhi High Court observed that when 'contract' does not debar payment of interest on money, which has been illegally withheld by the employer after it became due, the award granting interest is not without jurisdiction nor the award is liable to be set aside on that count. The Division Bench of the Delhi High Court further held that liability to pay interest is based on the trust of equity and if the employer was at fault and the money was withheld unreasonably, the employer would be liable to pay interest. 24. In 2004(4) RAJ 365 (BOM) (cited supra), the Bombay High Court held that in view of the provisions of Sec.31(7)(b) of the Arbitration and Conciliation Act 1996, which provides for granting of interest at the rate of 18%, contention advanced of current rate of interest in respect of award passed subsequent to enactment of the Act, 1996 is unjustified and not valid. The Calcutta High Court has also upheld the award of the arbitrator in granting interest on wrongly withheld or retained amount and justified the same by observing that the said amount was wrongly withheld and interest could be granted. 25. In 2004(1) RAJ 646 (KAR) (cited supra), a Division Bench of the Karnataka High court observed that under Sec.16 of the Arbitration and Conciliation Act 1996, the tribunal is empowered to rule on its own jurisdiction as well as on objections with reference to the existence or validity of the arbitration agreement. It is further held that the party raising jurisdiction point should raise such plea at the earliest point of time. Having acquiesced in the jurisdiction of the arbitral tribunal without any demur or protest and having participated in the proceedings, the plea of jurisdiction cannot be raised later on after suffering an award. 26. In 2005(4) RAJ 378 (DEL) (cited supra), a Division Bench of the Delhi High Court held that the arbitrator is competent to award interest inspite of the prohibiting clause in Standard condition of Contract. 27. In 2005(4) RAJ 24 (CAL) (cited supra), a Division Bench of the Calcutta High Court held that when the authority of the Arbitrator was not challenged in the course of the proceedings and no objection was taken either by way of filing an application or even in the counter statement, it is deemed that the party waived its objection and therefore the party cannot challenge the award under Sec.34 of the Act 1996 on the ground that the dispute is not arbitrable. 28. In A.I.R. 2007 NOC 1158 (RAJ), (cited supra), the Jaipur Bench of the Rajasthan High Court held that in case where the Security Deposit is held beyond the contract period, then the employer is liable to pay interest on such deposits even though the clause in the contract provides that the employer is not liable for payment of any interest on Security Deposit. 29. In A.I.R.1998, SC 205 (cited supra), the Hon'ble Supreme court held that acquiescence to arbitration proceedings by participating in it for a long time without protest will debar him from challenging the same on the ground that there is no jurisdiction as the party shall not be allowed to play hot and cold simultaneously. 30. In A.I.R. 2005 SC 2795 (cited supra),