IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 29-07-2005 CORAM THE HONOURABLE MR. JUSTICE P.K. MISRA AND THE HONOURABLE MR. JUSTICE N. KANNADASAN O.S.A.Nos.7 & 8 OF 2000 and CROSS OBJECTION No.73 OF 2000 The Government of Tamil Nadu, Rep. by the Chief Engineer, M/s. National Highways (Pamban Bridge Project), Chennai 600 005. .. Appellant in both OSAs and 1st Respondent in Cross objection 73/2000. Vs. 1. M/s. Nilakantan & Brothers Construction Pvt. Ltd., Chennai 600 018. 2. Mr.Justice S.Padmanabhan, (Arbitrator), Retired Judge, High Court, Madras. .. Respondent in OSA.7/2000 and Respondents 1 & 2 in OSA.No.8/2000 and Cross Objector and 2nd Respondent in Cross Objection No.73 of 2000. Appeals and Cross Objection filed under Clause 15 of the Letters Patent and Order XXXVI Rule 11 and 1 of the O.S. Rules against the common order passed in Application 3200/98 in O.P.Nos.558 of 1995 and 328 of 1996 dated 24.12.1998 & 17.2.99. For Appellant : Mr.R. Muthukumaraswamy in both Appeals Addl. Advocate General & R1 in Cross assisted by Objections Mr. Senthil Nathan, A.G.P (C.S) and Mrs. Dakshiani Reddy Govt. Advocate (C.S.) https://hcservices.ecourts.gov.in/hcservices/ For Respondent & Respondent-1 : Mr.R. Murari in both OSAs and for Cross Objector --- COMMON JUDGMENT P.K. MISRA, J These two appeals have been filed by the State Government under Section 39 of the Arbitration Act, 1940. O.S.A.No.7 of 2000 is directed against the order in O.P.No.558 of 1995, which has been filed by Respondent No.1, for filing the award and making it a Rule of Court. O.S.A.No.8 of 2000 is filed against the order in O.P.No.328 of 1996 dismissing the application of the appellant under Section 30/33 of the Act to set aside the award. 2. The relevant facts are narrated hereunder :- By agreement dated 10.10.1974, Respondent No.1 was awarded the contract relating to construction of a bridge across Pamban Strait. Value of the contract was Rs.5,13,08,000/- and the work was to be completed within 48 months from 17.11.1974, the date on which the site was handed over. The period for completion of the work was extended by the Government from time to time and was last extended till 31.12.1980. On account of a severe cyclone on 24.11.1978, Respondent No.1 suffered heavy loss in the shape of damage to the machineries. Respondent No.1 filed C.S.No.765 of 1980 to resolve the dispute. On 29.12.1980 the contract was terminated by the Government. Learned single Judge passed order on 19.8.1983 appointing the Chief Engineer as Arbitrator, to resolve the disputes. However, Respondent No.1 filed O.S.A.No.21 of 1984 and the Division Bench by order dated 27.11.1986 appointed Respondent No.2, a retired Judge of the High Court, to decide the disputes. Respondent No.1 filed Claim Petition on 31.12.1986 claiming various amounts under different heads. The substance of the claims is as follows:- “ Claim No.1 : Compensation for loss suffered on account of overheads and profits due to breach of contract including termination – Rs.226.351 lakhs. Claim No.2 : Compensation for loss due to Cyclone – Rs.29,92,166.08 Claim No.3 : Compensation for taking over the infrastructure and materials at site – Rs.76,36,090/- corrected later to Rs.89,23,722.45 Claim No.4 : Compensation for loss on account of idle labour machinery equipment – Rs.82,12,000/- https://hcservices.ecourts.gov.in/hcservices/ Claim No.5 : Settlement of final bills – Rs.22,98,976/- Claim No.6 : Payment of design fee Rs.15,83,784/- Claim No.7 : Interest Claim No.8 : Cost” 3. The present appellant apart from resisting the aforesaid claim, made a counter claim for Rs.11,41,27,936/-, which included the additional costs of Rs.10 crores in getting the work completed through another contractor. 4. The arbitrator by award dated 16.12.1988, while rejecting Claim No.4, passed award in respect of Claim Nos.1,2,3,5 & 6. The Arbitrator awarded Rs.2,26,35,000/-, Rs.78,94,672/- and Rs.15,83,784/- under Claim Nos.1, 3 and 6 respectively. The arbitrator has also awarded interest at the rate of 16.5% and costs under Claim Nos.7 & 8. The counter claim made by the Government was rejected in toto. 5. The appellant filed O.P.No.275 of 1989 to set aside the award. Learned single Judge by order dated 14.6.1994 confirmed the award in respect of Claim Nos.2 and 5 and set aside the award relating to Claim Nos.1, 3 and 6 and remitted the matter to the arbitrator for fresh consideration on these three claims. Thereafter, the arbitrator has passed a fresh award in respect of these three claims as under : Claim No.1 - Rs.2,26,35,000/- Claim No.3 - Rs. 78,94,682/- Claim No.6 - Rs. 15,83,784/- Total Rs.3,21,13,466/- The arbitrator has also directed payment of interest at the rate of 16.5% from the date of reference till the date of award. Thereafter, the learned single Judge while confirming the award in respect of Claim Nos.1, 3 and 6, reduced the rate of interest to 12% in respect of Claim Nos.1, 3 and 6. Appeals have been filed by the Government against the said decision of the learned single Judge. 6. Cross Objection has been filed by Respondent No.1 claiming that reduction of rate of interest from 16.5% to 12% is illegal and not justified. 7. Learned Additional Advocate General appearing for the appellant has raised the following contentions :- https://hcservices.ecourts.gov.in/hcservices/ (1) The decision rendered by the learned single Judge on the earlier occasion setting aside the award being appealable and no appeal having been filed against the said decision, the conclusions reached by the learned single Judge in the earlier decision became final and the arbitrator committed error of law apparent on the face of record in coming to the contrary decision ignoring the findings rendered by the learned single Judge. (2) Even assuming that no appeal was maintainable against such decision of the single Judge, the observations made by the single Judge in the judgment were binding on the arbitrator and the arbitrator has committed errors of law apparent on the face of record by ignoring such findings. (3) Even otherwise, the arbitrator has committed errors apparent on the face of record in passing the award in respect of Claim Nos.1,3 and 6. 8. Learned counsel appearing for Respondent No.1 has supported the award of the arbitrator and the subsequent decision of the learned single Judge. However, he has also submitted that the arbitrator having awarded 16.5% as interest, as in the previous occasion, there was no scope for the learned single Judge to reduce the rate of interest and to that extent, the cross objection should be allowed. 9. The first question which is to be decided is whether the earlier decision of the learned single Judge in remitting the award to the arbitrator for fresh consideration in respect of Claim Nos.1, 3 and 6 was appealable. 7. Section 39(1) of the Arbitration Act is as follows:- "(1) An appeal shall lie from the following orders passed under this Act and from none others to the court authorised by law to hear appeals from original decrees of the court passing the order: An order-- (i) to (v) omitted (vi) setting aside or refusing to set aside an award: Provided that the provisions of this section shall not apply to any order passed by a Small Causes Court." Under this specific terms of section 39(1)(vi), the order of the Court, setting aside or refusing to set aside the award, is thus made appealable. 10. Section 16 of the Arbitration Act empowers the Court to remit the award to the arbitrator for reconsideration of such terms as it thinks fit under three circumstances :- (a) where the award has left undetermined any of the matters referred to arbitration or where it determines any matter not referred to arbitration and such matter cannot be separated without affecting the determination of the matters referred; or https://hcservices.ecourts.gov.in/hcservices/ (b) where the award is so indefinite as to be incapable of execution; or (c) where an objection to the legality of the award is apparent upon the face of it. Section 16(1)(c) therefore contemplates remitting the award to the arbitrator for fresh consideration where the objection to the legality of the award is apparent upon the face of it. 11. Section 30, which contemplates the grounds for setting aside the award and is as follows :- (a) an arbitrator or umpire has misconducted himself or the proceedings; (b) an award has been made after the issue of an order by the court superseding the arbitration or after arbitration proceedings have become invalid under Section-35; (c) an award has been improperly procured or is otherwise invalid. 12. While interpreting Section 30(a) and 30(c), it has been universally accepted that the court can interfere with the award if it is found that there is error of law apparent on the face of the award. Such a ground is considered in the light that the arbitrator has misconducted the proceedings as contemplated in Section 30(a) or the award is otherwise invalid as contemplated in Section 30(c). When the court finds an error of law apparent on the face of the award, the court sets aside the award. Under Section 19, where the award is set aside, the court by order may supersede the reference and thereby the matter is concluded. On the other hand, the court may remit the award for fresh consideration under Section 16(1)(c) where the objection to the legality of the award is apparent on the face of it. To this extent, the scope of section 16(1)(c) and Section 30(a) or 30(c) are overlapping. 13. There cannot be any doubt that when the award is remitted to the arbitrator for fresh consideration on the basis of the conclusions contemplated in Section 16(1)(a) or 16(1)(b), such order is not appealable under any of the Clauses in Section 39. The question is whether an order remitting the award to the arbitrator for fresh consideration coming under Section 16(1)(c) on the ground that there is an error apparent on the face of the award is appealable or not. The contention of the learned Advocate General is to the effect that since the learned single Judge, on the earlier occasion, had set aside the award, such portion of the order of the learned single Judge must be taken to be appealable under Section 39(1)(vi), even though the learned single had ultimately remitted three claims for fresh consideration. Learned counsel appearing for the respondent has submitted that since the award was remitted for fresh consideration as contemplated under Section 16(1)(c), such order was not appealable. https://hcservices.ecourts.gov.in/hcservices/ 14. Learned Additional Advocate General has placed strong reliance upon the decision of Nagpur High Court reported in A.I.R. 1956 NAGPUR 245 (JAYANTILAL KESHAVLAL DAVE v. SURENDRA GANGSA JOHRAPURKAR). In the said case, after the award was passed, the trial court accepted certain part of the award and remitted for reconsideration only on certain other points. Such order accepting part of the award was challenged in appeal. A preliminary objection was raised to the effect that since the award had been remitted for fresh consideration, such order of the court was not appealable. The Division Bench of the Nagpur High Court observed as follows :- “ In our opinion, the preliminary objection raised by the learned counsel for the respondent is not tenable. The contention of the learned counsel for the respondent would have been well founded had the award in its entirety been remitted by the learned Judge for reconsideration. But the contention loses its force when, as in the instant case, the award is accepted in part and is remitted for reconsideration for the remaining part. ... When an award is accepted on certain points and is remitted for reconsideration only on the remaining points, then, in our opinion, the order would amount to a refusal to set aside an award on the points the award is accepted and, as such, will be appealable. The term “setting aside or refusing to set aside” occurring in Section 39(1)(vi) of the Act, in our opinion, will include setting aside or refusing to set aside an award in part as well. Where the Court accepts the award in part and in effect the Court refuses to set aside the award in its entirety which according to the contention of the appellant the Court should have done, the appeal is covered by Section 39(1)(vi).” 15. A perusal of the aforesaid decision makes it clear that the appeal was construed to be an appeal against that portion of the order of the trial court by which the trial court had accepted in part the award. In other words, the court observed that such portion was coming within the expression “refusing to set aside” the award. By extending the said analogy to the present case, it can be held that it would have been open to the State Government to file appeal against that portion of the decision of the learned single Judge, under which he had confirmed the part of the award as he had refused to set aside the award. Similarly, when part of the award is set aside, the aggrieved party can file appeal against that portion of the order by which the award is set aside. The ratio of the Division Bench decision of the Nagpur High Court is not directly applicable to the present case where the single Judge had not only set aside the part of the award but also remitted that part of the award for fresh consideration. 16. In this connection, the decision reported in AIR 1968 DELHI 188 (MEHTA TEJA SINGH AND CO., v. FERTILIZER CORPORATION OF INDIA LTD. AND https://hcservices.ecourts.gov.in/hcservices/ ANOTHER) is sought to be distinguished by the learned Additional Advocate General. In the said case, the questions referred to the Division Bench were (i) Whether under Section 16 of the Arbitration Act it is open to the Court to remit a part of an award; and (2) whether in such a case, an appeal lies under Section 39(1)(vi) of the Act. The Chief Justice Dua, as His Lordship then was, observed :- “We are thus inclined, as at present advised, to hold that an order remitting a part of an award and affirming a part, does not necessarily amount to an order setting aside or refusing to set aside an award within the contemplation of Section 39(1)(vi) of the Act and it would thus not be appealable. We are not unmindful of the fact that a provision of law permitting appeals to the higher Courts, deserves to be liberally construed, but this liberal construction must not involve stretching of the language, for it has to be remembered that right of appeal is statutory, and, but for a statutory affirmative provision, no inherent right of appeal is claimable by an aggrieved suitor. In the case in hand, the language of Section 39(1)(vi) read in the light of Section 30, seems to us to be clear and the present case does not fall under this clause. There is no other clause in Section 39(1) which can reasonably be held to provide for an appeal against an order remitting or declining to remit an award. The decision of a learned Single Judge of the Punjab High Court in the State of Patiala and East Punjab States Union v. Messrs. Puran Chand Rangi Ram, 1966-68 Punj L.R. 694, would thus seem to lay down a correct rule of law. The learned Single Judge of the Punjab High Court agreed with the view taken in R.T.Perumal v. John Deavin, AIR 1960 Mad 43. It is true that in the Madras case, it was conceded by Mr.Nambiar at the Bar that there was no right of appeal against the order of the Court remitting the award to the arbitrator and the point was not decided on a discussion of the scheme of the Act, but, in our opinion the concession was rightly made. Clause (c) of Section 30, when it refers to the improper procurement of the award, would prima facie seem to us to contemplate the improper procurement of the award as a whole and not a part of it and if that be so, then the invalidity of the award otherwise would also seem to us to refer to the award as a whole and not to a part of it, for, both parts of this clause would get colour and content from each other. Looking at the scheme of the Act we are also inclined to think that Section 16 of the Act dealing with the power of the Court to remit the award, should be construed independently and the remission of the award or any matter contemplated by this section is not intended to include within its fold setting aside of the award or a part of it as contemplated by Section 30, which is apparently an exhaustive provision specifically dealing with setting aside of awards. We are also aware of a decision of the Supreme Court in B.S.Madhava and Co. v. Kapila Textile Mills, Ltd. Civil Appeal No.1094 of https://hcservices.ecourts.gov.in/hcservices/ 1963 decided by Subba Rao, J (as he then was) and J.C.Shah, J on 9.9.1964, in which it was observed that an order under Section 16 (1)(c) of the Act refusing to remit an award to the arbitrators or the umpire is not appealable under the Act. Now, if refusing to remit an award cannot be construed as a refusal to set aside an award and, therefore, not appealable, the remission of an award or any matter would also seem to us, on parity of reasoning, not to amount to setting aside the award or a part of it. If that be the correct way of looking at things, then obviously an order remitting to the arbitrator or umpire for reconsideration an award or any matter referred to arbitration, cannot be deemed to include an order setting aside an award or a part of it and then remitting the award or the matter, as the case may be. Before closing discussion on this point, we may point out that on behalf of the appellant Shri.T.P.S.Chawla actually conceded that if the entire award is remitted by an order, then that order would not be open to appeal. The only point which was sought to be made out was that in case there is a partial remit, then that order would clearly be appealable. For this distinction, we find no basis in law." 17. The observations made by the Division Bench seem to suggest that no appeal can be filed even if a part of the award is set aside and remitted for fresh consideration. 18. In the said decision, reference has been made to the observations of the Madras High Court reported in AIR 1960 Madras 43 (R.T. PERUMAL v. JOHN DEAVIN AND ANOTHER). It was observed as follows :- “7. Mr. Nambiar, however, contended that the order of remittal cannot be questioned in these appeals even if they were competent. He relied on a ruling of this Court in Subbiah Iyer v. Subramania Iyer, ILR 31 Mad 479, which was followed by the Lahore High Court in Baland Baksh v. Ram Chandra, 84 Ind Cas 693 (1): (AIR 1925 Lah 267). There were also other decisions cited to us, namely, George v. Vastian Soury, ILR 22 Mad 202 and Vengu Iyer v. Yegyam Iyer, 1950-2 Mad LJ 642: (AIR 1951 Mad 414), but in our opinion these decisions do not materially help us in this case because they all related to a different set of facts. In those cases the arbitration was in a pending suit but there are observations in the decision, ILR 31 Mad 479, which prima facie appear to support the contention of Mr.Nambiar namely, "It was not contended that an appeal would lie against a decree passed by the court in accordance with the award on the ground that the Court had improperly refused an application for an order of remittal under S.520, C.P.C. and the policy of the law appears to be to refuse to allow appeals https://hcservices.ecourts.gov.in/hcservices/ against decrees in accordance with awards on the ground either that an order under S.520 C.P.C. was improperly made or improperly refused." Much of the force of the observations is lost by the obvious fact that it was practically conceded that an appeal would not lie against a decree passed by the court in accordance with the award on the ground that there had been an improper refusal of an application for an order of remittal. Mr.Nambiar conceded that there was no right of appeal against the order of the Court remitting the award to the arbitrator. He also had to admit that the Court would have jurisdiction to remit an award only on one of the grounds specified in S.16 and under no other ground. If, therefore, the Court remitted an award on any ground other than those specified in that section such an order would be without jurisdiction. We than asked Mr.Nambiar what was the remedy of the party aggrieved by such an invalid remittal. Mr.Nambiar frankly stated that there was no remedy so far as he could see. We do not think that we could subscribe to this result unless we are forced to. In our opinion one of the grounds on which a revised award can be sought to be set aside is that it was the result of an invalid order of remittal. That was the first objection which the appellants took in their counter affidavits." The Delhi High Court has observed that the decision was based on a fair concession. 19. Even though not cited at the bar, we have come across a decision of a learned single Judge of the Orissa High Court in A.I.R. 1984 ORISSA 217 (DURYODHAN MOHAPATRA v. EXECUTIVE ENGINEER, IRRIGATION DIVISION), wherein it was observed :- “3. A preliminary objection was taken by the Additional Standing Counsel to the effect that this appeal is not maintainable. It was urged that the award has been remitted to the Arbitrator under Sec.16 of the Act and no appeal is provided under Section 39 thereof. Section 39 of the Act enumerates the orders passed under the Act which are appealable. It is submitted that an order remitting the award being not appealable under Sec.39 of the Act, this appeal is incompetent. Mr.Misra appearing for the appellant contends that an appeal shall lie from an order setting aside or refusing to set aside an award and as the order remitting the award in this case amounts to setting aside the award an appeal shall lie. Admittedly, S.39 does not provide an appeal against an order of the court remitting or refusing to remit an award. The Additional Standing Counsel relied on a decision reported in AIR 1976 Orissa 149, Chowdhury and Co. v. Govt. of Orissa, wherein it has been held that in a simple case of remission of the award no appeal as such would lie. It has, however, been observed in the said decision that https://hcservices.ecourts.gov.in/hcservices/ where the award has been made a rule of the Court in part and with respect to certain items of claim the court has refused to set aside the award and directs a remand, an appeal would lie on the ground that the court has refused to set aside the other part of the award. Mr.Misra, on the other hand, relies on a Full Bench decision of the Patna High Court reported in AIR 1967 Patna 407, Makeshwar Misra v. Laliteshwar Prasad Singh in support of the proposition that where the order passed by the court amounts to setting aside an award, appeal would lie against such an order. ..... It is clear from a plain reading of the section that the Court may, in its discretion, remit the award to the Arbitration for reconsideration under any of the grounds mentioned in Clauses (a), (b) and (c) of sub-section (1) of Sec.16. 4. All cases of remittance under Section 16 of the Act may not involve setting aside of the award in its entirety or even in part. Where the court shall set aside the