THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA CIVIL REVISION PETITION No.3530 of 1996 And CIVIL MISCELLANEOUS APPEAL No.262 OF 1997 COMMON ORDER: (per Hon’ble Sri Justice V.V.S.Rao) These two cases arise out of common order dated 03.06.1996 in O.P.Nos.449 of 1993 (hereafter referred to as Government O.P.,) and 151 of 1993 (hereafter referred to as Contractor’s O.P.,), passed by the Court of the I Additional Judge, City Civil Court, Hydeabad. O.P.No.449 of 1993 was filed by Government of Andhra Pradesh under Sections 30 and 33 of the Arbitration Act, 1940 (the Act, for brevity) to set aside the arbitral Award dated 30.11.1992 and O.P.No.151 of 1993 was filed under Section 17 of the Act to make the award rule of the Court. By the said order, learned I Additional Judge allowed Government O.P., setting aside the award and dismissed the contractor’s O.P. In this order, appellant is referred to as contactor. The contract for ‘restoration of breached Maderu Reservoir near Errampally Village, Badwel Taluk in Kadapa District’ at an estimated value of Rs.36,28,728/- was awarded to the contract under Agreement, dated 13.12.1985 stipulating that the work has to be completed within a period of two years from the date of handing over of the site. The site was handed over on 30.12.1985. As the contractor could not complete the work by 29.12.1987, extension was granted upto 31.07.1988. The Government through its Irrigation Department terminated the contract on 18.07.1988 alleging default on the part of the contractor. He invoked arbitration. He filed the O.P.No.247 of 1989 on the file of the Court of I Additional Judge, City Civil Court, Hyderabad for appointment of arbitrator. The said Court appointed arbitrator on 21.12.1990. The arbitrator entered reference and the contractor raised sixteen claims, which were opposed by the Government. The contractor marked Exs.C.1 to C.50 and Exs.R.1 to R.25 were marked for Government. After considering evidence, arbitral Tribunal passed award on 30.11.1992. Claim Nos.1 and 15 were fully allowed and all other claims i.e., 2 to 14 and 16 were partly allowed. As noticed supra, both the parties approached civil Court. In Civil Revision Petition as well as Civil Miscellaneous Appeal filed by the contractor, learned counsel submits that the civil Court has committed grave error in coming to the conclusion that the award is not based on the evidence and it is not reasoned award. He would urge that arbitrator has given reasons and the question whether there are adequate reasons and whether they are erroneous cannot be gone into by civil Court. According to learned counsel, civil Court can set aside the award only on the grounds mentioned in Section 30 of the Arbitration Act and other grounds cannot be basis to disagree with the award. Per contra, learned Government Pleader for Arbitration submits that the contractor did not lead any evidence in support of his claims and therefore, the award passed by arbitral Tribunal on assumptions and surmises is unsustainable. Secondly, he submits that in the absence of any evidence, the findings recorded by arbitrator are perverse and when an award is passed based on perversity, it amounts to misconduct. He also submits that no reasons are assigned by arbitrator and therefore, civil Court was justified in interfering with the award. In Indu Engineering and Textiles Limited v Delhi Development Authority[1], on which reliance is placed by learned counsel for appellant, Supreme Court laid down that an award passed by arbitrator cannot be lightly interfered with unless it is shown that the reasons are not supported by any evidence. It was also held that the conforming Court cannot enter into facts of the case and travel beyond the terms of the contract. The relevant observations are as follows (Paras 7 and 8 of SCC). This Court, while dealing with the power of courts to interfere with an award passed by an arbitrator, had consistently laid stress on the position that an arbitrator is a Judge appointed by the parties and as such the award passed by him is not to be lightly interfered with. In the case on hand the only question that arose for consideration was whether the appellant was entitled to claim the enhanced price of hard coke for the quantity supplied by it to the respondent. Under the contract a specific quantity of the material was to be supplied during the period fixed under the agreement. Right from the beginning while submitting the tender the appellant had included a price escalation clause in which it was stipulated that any escalation of the price after submission of the tender will entitle the supplier to claim higher price from the other party. This clause was subsequently revised only to the effect that the price escalation will be applicable when there is statutory enhancement in the price of the commodity. No dispute was raised before the arbitrator or the court that the escalated price claimed by the appellant was not the statutorily enhanced price of hard coke. It was also not in dispute that even accepting the appellant’s claim for escalated price of the commodity, it was entitled to the claim only in respect of a part of the quantity supplied and not the entire quantity. In these circumstances, the arbitrator had not attached importance to the non-mention of the enhanced price of hard coke in course of negotiations between the parties. The view taken by the arbitrator, in the circumstances of the case, was a plausible one and the same could not be said to be suffering from any manifest error on the face of the award or wholly improbable or perverse one. As such it was not open to the Court to interfere with the award within the statutory limitations laid down in Section 30 of the Act. The Single Judge, therefore, rightly declined to interfere with the award passed by the arbitrator and made it rule of the court. ….. As noted earlier, the Division Bench in appeal filed under Section 39 of the Act, reversed the order passed by the Single Judge and set aside the award holding that there was no material before the arbitrator for accepting the claim of the appellant. The Division Bench exceeded the limits of its jurisdiction in entering into the facts of the case and in interpreting the agreement between the parties and correspondence, which was a part of the said agreement. What was the price of the commodity to be paid by the respondent to the appellant was essentially a question of fact. Even assuming that the arbitrator had committed an error in coming to the conclusion that the appellant was entitled to the claim of the escalated price of the commodity (hard coke) under the terms of the agreement and the Division Bench felt that the conclusion should have been otherwise, it was not open to it to interfere with the award on that score. Another fallacy committed by the Division Bench in the judgment is recording the finding that the escalation clause in the agreement had prospective operation with effect from 14-5-1981 i.e. the date on which the agreement was entered into by the parties. As noted earlier, under the agreement a specified quantity of the commodity was to be supplied by the appellant to the respondent within the period specified in the agreement and the appellant, while submitting its tender, had made it clear that any subsequent upward change in the price of the commodity will entitle it to claim at such rate and subsequently the price escalation clause was modified in a manner not relevant for deciding the dispute referred to the arbitrator, the question of the price escalation clause having prospective effect was of no consequence. In another decision relied on by learned counsel for contractor in G.Ramachandra Reddy v Union of India[2], Supreme Court deals with this aspect in the following manner. We may, at the outset, notice the legal principles governing the dispute between the parties. Interpretation of a contract may fall within the realm of the Arbitrator. The Court while dealing with an award would not reappreciate the evidence. An award containing reasons also may not be interfered with unless they are found to be perverse or based on a wrong Proposition of law. If two views are possible, it is trite, the Court will refrain itself from interfering. {See State of U.P. v. Allied Constructions [(2003) 7 SCC 396]}. In Pure Helium India (P) Ltd. v. Oil & Natural Gas Commission [(2003) 8 SCC 593], this court, upon referring to the decisions in Allied Constructions (supra), K.R. Raveendranathan v. State of Kerala [(1998) 9 SCC 410], H.P. Seb v. R.J. Shah & Co. [(1999) 4 SCC 214], Rajasthan State Mines & Minerals Ltd. v. Eastern Engg. Enterprises [(1999) 9 SCC 283], Food Corporation of India v. Surendra, Devendra & Mahendra Transport Co. [(2003) 4 SCC 80] and Shyama Charan Agarwala & Sons v. Union of India [(2002) 6 SCC 201], opined as under: "41. The principles of law laid down in the aforementioned decisions leave no manner of doubt that the jurisdiction of the court in interfering with a non-speaking award is limited. 42. The upshot of the above decisions is that if the claim of the claimant is not arbitrable having regard to the bar/prohibition created under the contract, the court can set aside the award but unless such a prohibition/bar is found out, the court cannot exercise its jurisdiction under Section 30 of the Act. The High Court, therefore, misdirected itself in law in posing a wrong question. It is true that where such prohibition exists, the court will not hesitate to set aside the award." In Sudarshan Trading Company v. Government of Kerala & Anr. [(1989) 2 SCC 38], the law was laid down in the following terms: "28. It was submitted before us that the High Court had exceeded its jurisdiction in acting in the manner it did on these aforesaid aspects. The first question, therefore, that arises for consideration in this case is, whether the award in question was a speaking award or not. In our opinion, the award was not a speaking award. An award can also be set aside if the arbitrator had misconducted himself or the proceedings or had proceeded beyond his jurisdiction. These are separate and distinct for challenging an award. Where there are errors apparent on the face of the award it can only be set aside if in the award there is any proposition of law which is apparent on the face of the award, namely, in the award itself or any document incorporated in the award." It was furthermore observed: "29. The next question on this aspect which requires consideration is that only in a speaking award the court can look into the reasoning of the award. It is not open to the court to probe the mental process of the arbitrator and speculate, where no reasons are given by the arbitrator, as to what impelled the arbitrator to arrive at his conclusion." Jurisdiction of the Court to interfere with an award made by an Arbitrator is limited. One of the grounds therefor is the error apparent on the face of the award. We have noticed hereinbefore some precedents operating in the field. What is an error apparent on the face of an award and legal misconduct is stated in State of Rajasthan v. Pure Construction Co. Ltd. & Ors. [(1994) 6 SCC 485], in the following terms: "As reference to arbitration of disputes in commercial and other transactions involving substantial amount has increased in recent times, the courts were impelled to have fresh look on the ambit of challenge to an award by the arbitrator so that the award does not get undesirable immunity. In recent times, error in law and fact in basing an award has not been given the wide immunity as earlier, by expanding the import and implication of "legal misconduct" of an arbitrator so that award by the arbitrator does not perpetrate gross miscarriage of justice and the same is not reduced to mockery of a fair decision of the lis between the parties to arbitration. Precisely for the aforesaid reasons, the erroneous application of law constituting the very basis of the award and improper and incorrect findings of fact, which without closer and intrinsic scrutiny, are demonstrable on the face of the materials on record, have been held, very rightly, as legal misconduct rendering the award as invalid." It was furthermore stated: "Error apparent on the face of the record does not mean that on closer scrutiny of the import of documents and materials on record, the finding made by the arbitrator may be held to be erroneous. Judicial decisions over the decades have indicated that an error of law or fact committed by an arbitrator by itself does not constitute misconduct warranting interference with the award." In Trustees of the Port of Madras v. Engineering Constructions Corporation Ltd. [(1995) 5 SCC 531], This Court opined: "14. ... A note of clarification may be appended, viz., where the parties choose to refer a question of law as a separate and distinct matter, then the Court cannot interfere with the award even if the award lays down a wrong proposition of law or decides the question of law referred to it in an erroneous fashion. Otherwise, the well-settled position is that an arbitrator "cannot ignore the law or misapply it in order to do what he thinks is just and reasonable". [See Thawardas Pherumal v Union of India] It was clarified: 20. The proposition that emerges from the above decisions is this: in the case of a reasoned award, the court can interfere if 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 appear from the award itself or from any document or note incorporated in it or appended to it. It is not permissible to travel beyond and consider material not incorporated in or appended to the award." Therefore, it is well settled that the Court can interfere if the award is based on the interpretation of law, which is unsound and if the award is based on evidence and the reasons assigned for conclusions are not sound or non-existent. This Court has perused the award and is convinced that while dealing with each claim, learned arbitrator has not referred to any document nor appreciated each document wherever such document was referred to. It may not be out of place to mention that while dealing with some of the claims, learned arbitrator assumed and surmised hardship and prejudice of the contractor and was swayed by such things. After summarizing the claims made by the contractor, replies thereto by the Government and rejoinder filed by the contractor, learned arbitrator considered each claim with reference to the pleadings. After discussing these claims, learned arbitrator gave findings in favour of the contractor that the claim is just and fair, and accordingly awarded the amounts as he deemed fit. Learned Additional Judge while dealing with claim No.1, after noticing relevant portion from the award, observed as follows. A reading of the finding would clearly disclose that the arbitrator explained the circumstances, which might have compelled the contractor to withdraw his protest regarding measurement, recorded in M.Book, though no such explanation is offered from the contractor. Except presuming the reason for withdrawing the protest nothing is said about the claim of Rs.1,70,000/-. According to contractor this head is in respect of the payment of amount for the work done but not paid. The contractor has not placed any evidence to support his claim that he has done the work more than what is recorded in the M.Book. The arbitrator simply said that he does not find anything unjust as far as claim No.1 is concerned. But the law requires that there should be reasons for the conclusion. The conclusion of the arbitrator in respect of claim No.1 is not at all based on evidence. Learned Additional Judge then considered claims 2, 3, 4 and 5, and noticed that the arbitrator partly allowed these claims without there being any evidence and reasons for the conclusions. Similar are the observations of Court below insofar as claims 7, 8 and 9 are concerned as well as claims 10, 11, 12 and 13. In all these matters, Civil Court found that no evidence was placed by the contractor and arbitrator proceeded on surmises and assumptions. Learned Counsel for the contractor placed strong reliance on Ex.C2, which is a letter dated 27.6.1990 written by the Chief Engineer (Minor Irrigation) to the Government. Indeed the arbitrator appears to have relied on this document in support of the conclusions on claims 1 to 16, on which strong reliance was placed by the contractor. A perusal of Ex.C2 would show that contractor submitted a representation to the Minister for Irrigation on 22.4.1990. The Government vide Memo dated 02.5.1990 called for the report from the Chief Engineer. In the mean while, MLA, Maidukuru, by his letter dated 09.6.1990 appears to have recommended to the Minister the case of contractor for favourable consideration. In his report, the Chief Engineer while observing that the contractor completed first breach filling from LS 850’ to 1675’ upto TBL by June 1996, that he failed to totally complete the second breach from CH 2960’ to 3260’ and that he completed only 14.70% of the contract work. Then the Chief Engineer also observed as under. As the contractor was not showing the progress of work, the Executive Engineer has issued final notice No.1111M, dated 05.7.1988 and as the contractor has not taken any action to increase the labour strength and also accelerate the progress the Executive Engineer has terminated the work in his Lr.No.179M, dated 18.7.1988 under clause 60(a) of P.S. to A.P.S.S. The Chief Engineer also recommended for forfeiting EMD of Rs.1,00,000/- and refund of Rs.4,80,000/- on condition of contractor withdrawing writ petition being W.P.No.19554 of 1989 from the Court. We have given our due consideration to the said document as well as Ex.C28 on which reliance is placed and are not able to persuade ourselves to accept the plea that the Government admitted claims of the contractor. From this point of view, we are convinced that the arbitrator passed award without any evidence and the contractor failed to lead any cogent and convincing evidence in support of his claims. The Court below was therefore justified in setting aside the award and dismissing the O.P. filed by the contractor for making the award rule of the Court. We do not find any reason to interfere with the well settled order of the lower Court. In the result, for the above reasons, Civil Revision Petition and Civil Miscellaneous Appeal are dismissed. In the circumstances, we do not make any order as to costs. _______________ (V.V.S.RAO, J) ____________________ (B.N.RAO NALLA, J) .11.2009 pln/ys [1] (2001) 5 SCC 691 : AIR 2001 SC 2668 [2] AIR 2009 SC 2629