Case: State of Rajasthan Vs. Puri Construction Co. Ltd. and Ors

reappraise the evidence intrinsically with a close scrutiny for finding out that the conclusion drawn from some facts, by the arbitrator is, according to the understanding of the court, erroneous. Such exercise of power which can be exercised by an appellate court with power to reverse the finding of fact, is alien to scope and ambit of challenge of an award under the Arbitration Act. Where the error of finding of facts having a bearing on the award is patent and is easily demonstrable without the necessity of carefully weighing the various possible view points, the interference with award based on erroneous finding of fact is permissible. Similarly, if an award is based by applying a principle of law which is patently erroneous and but for such erroneous application of legal principle, the award could have been made, such award is liable to be aside by holding that there has been legal misconduct on the part of the arbitrator. In ultimate analysis, it is a question of delicate balancing between the permissible limit of error of law and fact and patently erroneous finding easily demonstrable from the materials on record and application of principle of law forming the basis of the award which is patently erroneous. It may be indicated here that however objectively the problem may be viewed, the subjective element inherent in the judge deciding the problem, is bound to creep in and influence the decision. By long training in the art of dispassionate analysis, such subjective element is, however, reduced to minimum. Keeping the aforesaid principle in mind, the challenge to the validity of the impugned award is to be considered with reference to judicial decisions on the subject. 31. The contentions about factual errors and omissions apparent on the face of record as raised in the written argument are essentially errors and omissions in not properly considering the materials on record, in misreading and misconstruing such materials and consideration of some documents and statements out of their contexts. The arbitrators have given the award by referring to various documents and statements available on record and indicating the reasons for basing the findings. Even if it is assumed that on the materials on record, a different view could have been taken and the arbitrators have failed to consider the document and materials on record in their proper perspective, the award is not liable to be struck down in view of judicial decisions referred to hereinbefore. Error apparent on the face of the record does not mean that on closer scrutiny of the import of documents and material 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. It does not appear to us that the findings made by the arbitrators are without any basis whatsoever and are not referable to documents relied upon and such findings are so patently unjust or perverse that no reasonable man could have arrived to such findings. Hence, on the score of alleged misreading, misconstruction, misappreciation of the materials on record or failure to consider some of the materials in their proper perspective, the impugned award is not liable to be set aside. It has been urged that computation of lump sum damage in the absence of any material showing actual loss suffered by the contractor is patently unjust and improper warranting interference by this Court. Lump sum award by itself is not illegal as held a number of decisions of this Court. The contractors case was that because of delay in handing over the site and for non supply or delayed supply of materials essential for the construction work thereby putting obstacles and hindrances to execute the work within the stipulated time and ultimately repudiating the contract and seizing machineries etc. of the contractors, he not only suffered huge loss but was practically reduced to bankruptcy. It is the case of the contractor that on account of illegal seizure of costly machineries by the appellant, he was prevented from undertaking other works of contract, A part of machineries seized by the appellant have been sold for Rs. 20 lakhs. In the award, the arbitrators have recorded that the appellant admitted that the remaining machineries would cost about Rs. 5 lakhs. That apart, constructions of labour quarters, laying of roads etc. at substantial cost incurred by the contractor have been utilised by the appellant after repudiation of contact. It may be stated here that the first part of construct work of Mahi Bajaj Sagar Dam was given to M/s. R.S. Sharma. A lump sum award of Rs. 75,41,755 was awarded in favour of M/s. R.S. Sharma. The machineries of M/s. Sharma were not seized by the appellant. Such lump sum award of more than Rs. 75 lakhs without indicating how such quantum was determined has been upheld by this Court and the decision is reported in State of Rajasthan v. R.S. Sharma & Co. (supra). The respondent contractor has urged that the machineries including those seized and sold at depreciated value will now cost about 2.5 crores of rupees. Considering the magnitude of work involving costly machineries and materials, if the two arbitrators in their wide experience have quantified the total damage and has given the award for Rs. 1 crore in favour of the respondent, it cannot be held that such award is so patently unjust and irrational and shocking to the conscience of the court, that the same should be interfered with. As already indicated, in the case of other contractor concerning first part of the work in Mahi Bajaj Sagar Dam, namely, R.S. Sharma & Co. the arbitrators quantified damages to the extent of over Rs. 75 lakhs without indicating how such damages had been quantified. But challenge to such award by the State of Rajasthan failed and the award has been upheld by this Court.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]13. Considering the facts and circumstances of the case, it is quite evident that the appellant was aware of Shri Rohatgis appearance as a counsel for the respondent in an appeal before this Court but despite such knowledge, appellant did not raise any objection either before the arbitrators or before this Court during the pendency of the arbitration proceedings but the appellant chose to make various submissions from time to time before the arbitrators and invited adjudication on the reference to arbitration. In this connection, reference may be made to a decision of this Court in Neelakantan & Bros. Construction v. Superintending Engineer National Highways, Salem and Ors. reported inAIR1988SC2045 , In that case the arbitrator, a senior engineer entered upon the reference and proceeded for some time but in view of his transfer he could not complete the same and successor of his office had taken up the arbitration case from the stage wherefrom the said arbitrator entering upon the reference had left and the said successor in office thereafter gave the award in question. Questioning the validity of the award it was contended that as the former arbitrator had entered upon the reference and statements of the parties were filed before him and witnesses were also examined before him, the successor engineer has no jurisdiction to proceed with the arbitration matter from the stage left by the arbitrator. Such challenge to the invalidity of the award was, however, not accepted by this Court by holding that as the fact of taking over the arbitration proceedings by the successor engineer was known to the parties and no objection was raised about his continuing with the arbitration proceedings, the parties had acquiesced to the functioning of the said successor engineer. Accordingly, a party who had acquiesced to the arbitration by the successor engineer was precluded from objecting to such arbitration and giving award or the reference. Referring to the Comments on Russel on Arbitration 18 Edition 105, it has been pointed out in the said decision that attending and taking part in proceedings with full knowledge of the relevant fact will amount to acquiescence. This Court has also referred to an old decision of the Judicial Committee in Chowdhri Murtaza Hossein v. Mussunat Bibi Bechunnissa reported in 3 I.A. 209. Reliance was also made to the observations in the decision of the Calcutta High Court in the case of Jupitor Calcutta Insurance Co. Ltd. reported in AIR 1956 Cal 1472 Reference was also made to another decision of this Court in N. Chellappan v. Secretary Kerala Electricity Board reported in[1975]2SCR811 holding that acquiescence defeat the right of the appellant at a later stage. Similar view was also expressed in another decision of this Court in Prasun Roy v. Calcutta Metropolitan Development Authority and Anr. reported in [1987]3SCR569 . Similar view has also been expressed in a recent judgment of this Court in Reserve Bank of India v, 5.5. Investments and Ors. reported in [1992]3SCR871 . In the said decision, this Court has negatived the contention that Umpires entering upon the reference was invalid by holding that a party objecting to the Umpires entering upon the reference, had agreed to extend the time to enable the Umpire to make the award. Having agreed to extend such time, it must be held that such party had waived its objection to the umpires entering upon the reference.14. In the instant case, admittedly both the parties agreed to extend the time for finally making the award by the joint arbitrators despite the knowledge that Shri Rohatgi had represented one of the parties in a case before this Court. No objection to his functioning was either raised before the arbitrators or before this Court in the pending special leave petition but the appellant had taken part in all the sittings before the arbitrators and made oral and written submissions and invited the adjudication on the reference. It is, therefore, quite evident that even if there was any disability of one of the arbitrators, inspite of the knowledge of such disability, the appellant had participated in the arbitration proceedings, agreed to the extension of time for making the award and invited adjudication on the reference. Accordingly, the appellant cannot be permitted to raise any objection about the validity of the award on the score of disqualification of one of the arbitrators. That apart, such objection has not been filed within the period of limitation but the same has been sought to be raised after 270 days of the notice of filing the award before this Court. therefore, the aforesaid objection as to the validity of the award on account of the alleged disqualification of one of the arbitrators is devoid of any substance and must be rejected.15. The challenge to the invalidity of the award on account of various errors and omissions apparent on the face of the record as alleged by the appellant in the written argument for the appellant may be summarised as follows:(a) the arbitrators clearly misconstrued clause 8 of the special conditions in the contract and the arbitrator failed to take into account that clause 2 to the special conditions only death with the handing over of the site and that clause 8 only dealt with the measurements prior to start of the work which was to be done on the request of the contractor to enable him to prepare the bill.(b) the arbitrators misread the statement at page 148 Vol. II relating to the dates of handing over site and the dates of taking of measurements. Several dates mentioned in the award in the respect are contrary to the statements at page 148 Vol. II.(c) the arbitrators have taken the date of handing over of the flank block 23 prior to monsoon of 1976. Such finding is contrary to the record placed before the arbitrators.(d) the arbitrators misread the statement of Sri Adi Anklesaria, because the arbitrators have only referred to answer to question No. 27, They have failed to consider the notes to question No. 147 wherein the said witness explained that it was not necessary in the case of construction of dam that the entire site should be made available before the work could start.(e) the arbitrators have again misread the statements of Sri Adi Anklesaria in holding that the progress of the claimant was so fast that the claimant was directed to go slow to avoid flooding of Banswara township. It is contended that the documents on record clearly contradict the finding that the contractor was asked to go slow.(f) the arbitrators failed to take into account the letter dated May 6, 1975, written by the claimant (Ex.R-44) wherein the claimant himself expressed difficulty in commencing the work before October 15, 1975 and sought to utilise the said period for the construction of other enabling works.(g) the finding of the arbitrators about the delay in handing over the site to the contractor is wrong.(h) the arbitrators have committed a fundamental error in awarding damages on account of alleged delay in carrying out the measurements prior to the work being started without going into the question whether the claimant suffered any loss on account of any such delay. In this connection, it is also alleged that the arbitrators have not recorded any finding that the target was ever completed or exceeded by the contractor in any of the working seasons, and in the absence of such evidence and in view of evidence to the contrary, there was no question that the claimant had suffered any loss as a result of any delay in getting the measurement done for being able to start work on the site in his possession.(i) there is no material on record that the claimant ever sought measurement of particular site but the same was delayed and refused by the appellant.(j) that the finding of the arbitrators that there was a delay on the part of the State in supplying the material is erroneous and contrary to the records and arbitrators have failed to take into account special conditions to which the materials were to be supplied by the States on availability. In the absence of any evidence produced by the claimant that as a result of delay in supplying the materials, the construction work was held up and the claimant had suffered loss, the award of damages on the basis of the finding of about non supply of materials in time, tantamounts to an error apparent on record.(k) that the actual proof of loss suffered by the claimant is sine-quo non for award of damages and in the absence of finding of actual loss suffered by the claimants, the award of damages is patently erroneous. In this connection, it has been urged that the arbitrators have misused the letters of Chief Engineer with regard to shortage of gelatin (Ex.R-148). It is contended that the letter of the engineer was written in the context of future requirement of entire project but the same did not deal with the requirement of the contractor.(l) the statement with regard to the shortage of cement referred by Shri Anklesaria has also been read out of context. The arbitrators in recording the finding of delay in supplying the cement ignored the plea of the appellant in the written statement and there was not even one incident to show that on account of non availability of cement, the claimants work suffered.(m) the finding of the arbitrator that the claimant was entitled to extension has been assailed by contending that the arbitrators failed to take into account the plea of the appellant raised at page 164 Vol. II of the written submissions that the claimant had failed to apply for extension of time within the stipulated period as per clause 5 and has also failed to give cogent reason for extension.23. After considering the respective contentions of the parties and submissions made by the learned Counsel of the parties and the award impugned, it appears to us that the arbitrators have not taken into consideration any matter outside the scope of reference. On the basis of agreement between the parties and in terms of the nomination of the respective arbitrator by the parties, the dispute and differences covered by the written agreement had been referred for arbitration by the said arbitrators. It is nobodys case that the arbitrators are incompetent to enter upon the reference. It is also not the case of the either of the parties that any extraneous matter has been taken into consideration by the arbitrators. There is also no allegation that reasonable opportunity of being heard has not been given to either of the parties by the arbitrators or the arbitrators have considered any document behind the back of any party. It prima facie appears to us that in basing the findings in the award, the arbitrators have referred to and relied upon the materials on record and it cannot be reasonably contended that there was no basis whatsoever to base the findings made by the arbitrators upon consideration of the materials on record.24. In our view, the appellant has failed to demonstrate any finding made by the arbitrator is either fanciful or not referable to be materials on record. What has been sought to be contended by the appellant is that the arbitrators have failed to properly appreciate various clauses of the agreement between the parties relating to the project of Mahi Bajaj sagar Dam. The appellant has also contended that the evidence given by Shri Anklesaria has been misappreciated, misunderstood and has been appreciated out of context. The arbitrators have considered the deposition of Sri Anklesaria and reports of the Chief Engineers out of their context and on misappreciation and misreading of the materials on record, the erroneous findings are arrived at.25. 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 Sudarshan Trading Co. v. Government of Kerala and Anr. reported in [1989]1SCR665 it has been held 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. (emphasis supplied). 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 taken 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 be for the court to take upon itself the task of being a judge on the evidence before the arbitrator.28. It may also be mentioned here in that it is not necessary to indicate in the award computation made for various heads and it is open to the arbitrator to give a lumpsum award. In this connection, reference may be made to the decisions made in State of Rajasthan v. R.S. Sharma and Co. reported in (1988)4SCC353 and in State of Orissa and Ors. v. Lall Brothers reported in AIR1988SC2018 and in Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd. Indore reported in [1967]1SCR10529. In the State of Orissa v. Lall Brothers (supra) it has been held that an award is conclusive as a judgment between the parties and the court is entitled to set aside an award only if the arbitrator has misconducted himself in the proceedings or when the 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 of the Arbitration Act or where an award has been improperly procured or is otherwise invalid under Section 30 of the Act. An award may be set aside by the Court on the ground of error on the fact of award, but an award is not invalid merely because by a process of inference and argument, it may be demonstrated that the arbitrator has committed some mistake in arriving at his conclusion (emphasis supplied).31. The contentions about factual errors and omissions apparent on the face of record as raised in the written argument are essentially errors and omissions in not properly considering the materials on record, in misreading and misconstruing such materials and consideration of some documents and statements out of their contexts. The arbitrators have given the award by referring to various documents and statements available on record and indicating the reasons for basing the findings. Even if it is assumed that on the materials on record, a different view could have been taken and the arbitrators have failed to consider the document and materials on record in their proper perspective, the award is not liable to be struck down in view of judicial decisions referred to hereinbefore. Error apparent on the face of the record does not mean that on closer scrutiny of the import of documents and material 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. It does not appear to us that the findings made by the arbitrators are without any basis whatsoever and are not referable to documents relied upon and such findings are so patently unjust or perverse that no reasonable man could have arrived to such findings. Hence, on the score of alleged misreading, misconstruction, misappreciation of the materials on record or failure to consider some of the materials in their proper perspective, the impugned award is not liable to be set aside. It has been urged that computation of lump sum damage in the absence of any material showing actual loss suffered by the contractor is patently unjust and improper warranting interference by this Court. Lump sum award by itself is not illegal as held a number of decisions of this Court. The contractors case was that because of delay in handing over the site and for non supply or delayed supply of materials essential for the construction work thereby putting obstacles and hindrances to execute the work within the stipulated time and ultimately repudiating the contract and seizing machineries etc. of the contractors, he not only suffered huge loss but was practically reduced to bankruptcy. It is the case of the contractor that on account of illegal seizure of costly machineries by the appellant, he was prevented from undertaking other works of contract, A part of machineries seized by the appellant have been sold for Rs. 20 lakhs. In the award, the arbitrators have recorded that the appellant admitted that the remaining machineries would cost about Rs. 5 lakhs. That apart, constructions of labour quarters, laying of roads etc. at substantial cost incurred by the contractor have been utilised by the appellant after repudiation of contact. It may be stated here that the first part of construct work of Mahi Bajaj Sagar Dam was given to M/s. R.S. Sharma. A lump sum award of Rs. 75,41,755 was awarded in favour of M/s. R.S. Sharma. The machineries of M/s. Sharma were not seized by the appellant. Such lump sum award of more than Rs. 75 lakhs without indicating how such quantum was determined has been upheld by this Court and the decision is reported in State of Rajasthan v. R.S. Sharma & Co. (supra). The respondent contractor has urged that the machineries including those seized and sold at depreciated value will now cost about 2.5 crores of rupees. Considering the magnitude of work involving costly machineries and materials, if the two arbitrators in their wide experience have quantified the total damage and has given the award for Rs. 1 crore in favour of the respondent, it cannot be held that such award is so patently unjust and irrational and shocking to the conscience of the court, that the same should be interfered with. As already indicated, in the case of other contractor concerning first part of the work in Mahi Bajaj Sagar Dam, namely, R.S. Sharma & Co. the arbitrators quantified damages to the extent of over Rs. 75 lakhs without indicating how such damages had been quantified. But challenge to such award by the State of Rajasthan failed and the award has been upheld by this Court.32. We are now left with the claim of further interest besides the interest awarded by the arbitrators in favour of the respondent on the said sum of Rs. 1 crore @ 15% per annum from September 30, 1986 till the date of payment of decree whichever is earlier.33. The Constitution Bench has pointed out that over the years, the English and Indian Courts have acted on the assumption that where the agreement does not prohibit and a party to the reference makes a claim for interest, the arbitrator must have the power to award interest pendente lite and until Jena case, almost all the courts in the country had upheld the power of the arbitrator to award interest pendente lite. It has also been indicated in the said Constitution Bench decision that the interest pendente lite is not a matter of substantive law, like interest for the period anterior to reference (pre-reference period). For doing complete justice between the parties, such power has always been inferred.34. In the case of Santosh Singh Arora v. Union of India reported in AIR1992SC1809 , relying on the said Constitution Bench decision in G.C. Roys case, this Court held that the appellant in the said case was entitled to be compensated for denial of his legitimate dues. This Court has allowed interest from December 18, 1968 when the arbitrator was named and not from November 21, 1983 when the matter was referred to the arbitration of Shri Justice A.C. Gupta. The respondent has claimed that interest be awarded from February 24, 1979 or from May 30, 1979 that is the date of the breach and the award should be modified and decreed on that basis by allowing interest @ 18% per annum.