Bangalore Water Supply and Sewerage Board vs C.N. Krishnamurthy

A.V. Chandrashekara, J.—The present appeal is filed u/s 37(1)(b) of Arbitration and Conciliation Act, 1996, challenging the final order passed in Arbitration Suit No. 69 of 2003 on 8-9-2009 by the learned VI Additional City Civil Judge, Bangalore. The appellant herein was the plaintiff in the said suit. Respondents 1(a) to 1(c) and respondent 2 were defendants 1(a) to 1(c) and 2 respectively in the Arbitration Court. Parties will be referred to as plaintiff and defendants as per their ranking in the Trial Court. Award passed by the second defendant-D. Ramamurthy herein has been upheld by the learned VI Additional City Civil Judge, Bangalore City, in A.S. No. 69 of 2003 u/s 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ''the Act'' for brevity). It is this affirmation of the award made by the learned VI Additional City Civil Judge, which is called in question on various ground as set out in the appeal memo.

The plaintiff-BWSSB was the respondent-objector before the Arbitrator and the respondent--C.N. Krishnamurthy, was the claimant before the Arbitrator. He died during the pendency of the arbitration suit and hence legal representatives were brought on record.

Plaintiff-BWSSB had invited tenders on 16-8-1991 for the work relating to replacement of Digestor Domes at ''V'' Valley, Sewage Treatment Plant, Bangalore. The last date for receipt of tender was 23-10-1991 and the time stipulated for completing the entire work was 12 months including monsoon period. Option had also been given to submit the tender for the own design of the tender. Tender submitted by C.N. Krishnamurthy based on his own alternative design for Rs. 1,60,50,408.93 was accepted on 14-1-1992 by the plaintiff and a written contract was entered into between the parties to that effect on 24-2-1992. Work order was issued on 29-2-2002 and the site was handed over to the contractor on 1-3-1992.

As per Clause 5(1) of the contract entered into on 24-2-1992, the alternative design submitted by the contractor should be got proof checked at Indian Institute of Science, Bangalore at his cost only and in modification/alternative suggested by them would be done by the contractor without insisting for any cost. As per Clause 5(ix) the period of contract was 12 months from the date of clearance of the designs by the Indian Institute of Science and for any delay suitable penalty as detailed in Clause 2 of the conditions of the contract would be levied.

The work, according to the BWSSB, was not completed on or before 21-7-1993 by the contractor and the same was dragged on for several years and was ultimately completed on 31-3-2000. The total extent of delay was about 80 months. Pursuant to a claim put forth by the contractor, BWSSB partly decided the claims in favour of the contractor regarding escalation but other claims were rejected. Hence, contractor submitted to the jurisdiction of the Chief Engineer, who awarded a sum of Rs. 13,46,524/- towards the escalation of cost, but before the quantum was finally determined and before the payment of final bill amount was made, the contractor approached the Hon''ble High Court of Karnataka, claiming that Clause 29 of the contract provided for resolution of dispute through arbitration and therefore, Arbitrator had to be appointed. Petition so filed u/s 11 of the Act, was dismissed and he chose to file a writ petition and the same was allowed. Consequent upon the order of the Hon''ble High Court of Karnataka in the writ proceedings before the Division Bench D. Ramamurthy, was appointed as Arbitrator. Contractor filed his claim petition and plaintiff filed his objections. Plaintiff requested the Arbitrator to give his ruling that Clause 29 of the agreement does not constitute arbitration agreement and to try it as a preliminary issue. But after hearing both the sides, the arbitrator held that Clause 29 is an arbitral agreement. The same was challenged before the Arbitral Court u/s 34 of the Act.

Arbitrator Sri. Ramamurthy, was appointed by the Division Bench of the High Court of Karnataka in W.P. No. 7332 of 2001 (GM-BWSSB), dated 18-4-2002. Ramamurthy was appointed by the consent of the parties as an Arbitrator by the Hon''ble High Court of Karnataka and the Arbitrator so appointed was directed to enter upon reference within 15 days and thereafter to issue notices to the parties and proceed with the arbitration. Therefore, the question that the Arbitrator had no authority to go on with the arbitration proceedings, cannot be accepted. In view of the Arbitrator being appointed with the consent of the parties it is to be deemed that Clause 29 in the agreement is an arbitration clause for all practical purposes. So that is what exactly is opined by the learned District Judge in his judgment passed vide A.S. No. 69 of 2003 on 8-9-2009. Even otherwise the said order of the Division Bench has become final so far as appointment of Arbitrator is concerned.

The claim made by the contractor under Scheme 1 relates to the claim for compensation to cover infructuous overhead expenses and under this head, he had claimed a sum of Rs. 1,11,02,310/-. The calculation has been made at page No. 12 of the award passed by the learned Arbitrator and overhead expenses have been granted for the period from 22-7-1992 to 19-4-1995 for 33 months. A sum of Rs. 22,06,931/- has been disallowed as the work commenced only on 19-4-1995.

Claim 2 relates to the compensation to cover loss of profit. Under this head he had claimed a sum of Rs. 1,65,93,465/-. This has been worked out at 15% of the value of the work for the period from 22-7-1992 to 31-3-2000 for a period of 92 months aggregating in all to Rs. 1,84,57,969/-.

Claim 3 relates to the compensation claimed to cover loss on account of idle labourers and workmen. Under this head, he had claimed a sum of Rs. 16,20,000/-. Ultimately, the learned Arbitrator has awarded a sum of Rs. 14,10,460/- only.

Claim 4 relates to compensation to cover loss on account of idling of plants and equipments. Under this head he has claimed a sum of Rs. 20,35,200/- Arbitrator has awarded a sum of Rs. 5,93,600/- only.

Under claim 5 contractor has claimed a sum of Rs. 13,56,666/- under the head on account of centering materials getting deteriorating due to delay of over three years. A sum of Rs. 9,81,666/- only has been awarded under this head.

Claim 6 relates to the refund of excess amount of interest wrongly recovered by the plaintiff on account of mobilization advance. Claim had been made to an extent of Rs. 15,02,300/-. Under this head a sum of Rs. 15,02,300/- only has been awarded after due calculation.

Under claim 7, a sum of Rs. 39,46,079/- was claimed, relating to the payment for the extra work of removing the sludge from the digestors at correct rates and for correct quantity. Under this head, the learned Arbitrator has held a sum of Rs. 39,46,079/- will be the reasonable amount and the same has been awarded.

Claim 8 relates to the compensation claimed to recover loss incurred in first erecting and subsequently dismantling the stage work in two digestors. Claim preferred under this head was to an extent of Rs. 1,36,000/-. Only 30% of the claim amount i.e., Rs. 40,800/- has been awarded by the Arbitrator.

Claim 9 relates to the refund of amounts of penalty wrongfully imposed and unauthorisedly recovered from the claimant and this was to an extent of Rs. 44,262/-. The learned Arbitrator has awarded a sum of Rs. 14,145/- only under this head for the period from 11-5-2000 to 30-6-2002.

Claim 10 relates to the claim made for payment at market value of the extra items of works and a sum of Rs. 3,36,476/- has been claimed before the Arbitrator and under this head a sum of Rs. 3,36,476/- has been awarded i.e., entire claim has been upheld.

Claim 11 relates to the payment made on account of escalation in respect of civil works to an extent of Rs. 20,24,223/-. This has been calculated for the period from 1-4-1996 to 31-3-2000. Under this head a sum of Rs. 14,80,005/- has been awarded.

Claim 12 relates to the amount claimed for escalation in respect of electrical and mechanical works and under this head Rs. 5,97,440/- had been claimed. After due calculation a sum of Rs. 5,97,440/- has been awarded.

Under claim 14 a sum of Rs. 3,45,882/- had been claimed as refund of excess amount of work contract tax recovered from D1''s bills. The entire amount claimed has been allowed.

Under claim 15, a sum of Rs. 2,54,115/- is claimed for refund of earnest money and security deposit. A sum of Rs. 1,37,404/- has been awarded by the Arbitrator.

Claim 16 relates to claim for release of bank guarantee pledged to the Executive Engineer. He has ordered for immediate reference of Bank guarantees and that has been upheld by the Arbitral Court.

Under claim 17, a sum of Rs. 2,20,520/- had been claimed as refund of reserve amount unlawfully deducted and retained by the Executive Engineer of BWSSB from 17th running bill paid to the contractor. A sum of Rs. 2,20,490/- has been awarded under this head and the same has been upheld by the learned District Judge.

The Arbitrator has further awarded that the final bill under claim 18 should be settled expeditiously and the amount due must be paid forthwith without imposing any penalty and without making any other deduction or recovery unless intimated to defendant 1 before the expiry of defect liability period i.e., before 31-3-2001. That finding has also been upheld.

A sum of Rs. 11,99,936/- had been claimed vide claim 19, under the head payment of interest on the amounts legitimately and lawfully due to the claimant, but wrongfully withheld by the plaintiff. This is in regard to the interest to be awarded. 18% interest has been awarded on these amounts from the date of award to the date of payment. This has also been upheld by the learned District Judge.

Various grounds had been raised before the District Judge u/s 34 of Arbitration and Conciliation Act, 1996, inclusive of one regarding the arbitral clause found vide Clause 29. The final award passed on 15-8-2003 had been challenged before the learned District Judge. The award in question passed by the learned Arbitrator has been upheld in toto. Being aggrieved by the said dismissal of the suit bearing A.S. No. 69 of 2003, plaintiff-BWSSB has come up with an appeal u/s 37(1)(b) of the Act. Various grounds have been urged in the appeal memo.

The Arbitral Court is stated to have erred in holding Clause 29 as an arbitral clause providing for arbitration in respect of the dispute between the parties touching the contract in question. This decision of the learned Arbitrator dated 4-4-2003 is stated to be unsustainable in law and facts.

Arbitrator is stated to have not adopted a proper approach to the real state of affairs and that the interest awarded is excessive. Arbitrator has not discussed about the delay of more than 21 months for which the contractor was solely responsible. It is further contended that it was incumbent upon the contractor himself to have got the designs referred to M/s. Structural Engineer Research Centre, Madras, and the plaintiff cannot be blamed for the delay caused in that regard. Claims made in claims 1 to 9 were unsustainable in-law and on facts and those claims could not have been upheld by the Arbitrator, is one more contention taken up in this appeal.

According to the learned Counsel for the appellant various decisions referred to by the learned Arbitrator and the learned Judge of the Arbitral Court have no application to the facts of the case and that the award passed by the second respondent-Arbitrator is opposed to law, facts and probabilities and is in conflict with public policy of India.

Hence, it is prayed to allow the appeal and set aside the judgment passed in A.S. No. 69 of 2003 by VI Additional City Civil Judge, Bangalore, and to consequently, to set aside the award dated 8-9-2009 made in A.S. No. 69 of 2003.

We have heard the learned Counsel for the parties at length. We have perused the appeal memo as well as the entire documents and the records of A.S. No. 69 of 2003 and the award and its connected papers secured from the Trial Court. The following points arise for our consideration in this appeal:

(a) Whether the learned VI Additional City Civil Judge, Bangalore is justified in dismissing the arbitration suit bearing No. 69 of 2003?

(b) Whether any interference is called for by this Court and if so, to what extent?

Section 37(2) of the Act provides for appeals against setting aside or refusing to set aside an arbitral award passed u/s 34 of the Act. Of course Section 37(2) confers power on the Court for judicial intervention. Before going to the scope of Section 37, it is better to know the scope of 34 of the Act. Recourse can be had by a person aggrieved by an arbitral award. Sub-section (2) of Section 34 of the Act contemplates the grounds on which an award can be set aside. Sub-section (2) of Section 34 is reproduced below:

"34. (2) An arbitral award may be set aside by the Court only if.--

(a) the party making the application furnishes proof that--

(i) a party was under some incapacity; or

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or

(iii) the party making the application was not given proper notice of the appointment of an Arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv) the Arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:

Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or

(v) the composition of the Arbitral Tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or

(b) the Court finds that.--

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force; or

(ii) the arbitral award is in conflict with the public policy of India.

Explanation.--Without prejudice to the generality of sub-clause (ii) of clause (b), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81".

On going through the provisions of sub-section (2) of Section 34, it is evident that the scope of intervention against an arbitral award by District Court is very limited.

What is argued before us is that there was no arbitration clause in the agreement and Clause 29 of the contract does not provide for arbitration. Of course his contention had been upheld by the Hon''ble High Court of Karnataka in CMP No. 97 of 1999, dated 7-11-2000. The contractor had approached the Court against the order passed u/s 11(6) of the Act. Ultimately petitioner i.e., the contractor had been directed to approach the Civil Court for appropriate relief in accordance with law in regard to the rejected claims.

Thereafter the contractor approached the Division Bench of the Hon''ble High Court of Karnataka in W.P. No. 7332 of 2001 (GM-BWSSB) to quash the order passed by the learned Single Judge on 7-11-2000 in CMP No. 97 of 1999. Ultimately the said writ petition was allowed. Mr. D. Rama Murthy, was appointed as the Arbitrator with the consent of the parties and accordingly, the arbitral proceedings commenced before Mr. Rama Murthy. That point has been taken into consideration by the learned Judge in A.S. No. 69 of 2003. Therefore, the appellant cannot turn around and say low that Clause 29 is not a clause providing for arbitration. That point has been properly dealt with by the Division Bench of the High Court of Karnataka and that has become final.

It is argued before this Court that the award in question is opposed to public policy of India. What is public policy of India is not defined in Section 34 of the Act. Rather the same has been explained by the Hon''ble Supreme Court in the case of Oil and Natural Gas Corporation Ltd. Vs. SAW Pipes Ltd., .

If certain provisions of substantive law or laws of India are not complied with the Arbitrator, then an award would be opposed to public policy of India. In the present case, the learned Arbitrator has explained the reasons for arriving at the decision. He has taken all the claims separately and has made specific calculation with reference to the delay in executing the project and the various losses sustained by the contractor. In the case on hand, we have noticed that the claim petition filed before the Arbitrator discloses various amounts recoverable from the plaintiff under various heads. Awarding damages is also substantiated by the Arbitrator. Fair assessment has been done by the Arbitrator as to the damages caused to the claimant-contractor and those damages have been properly quantified. Even the escalation of cost in regard to the materials has also been properly considered.

The Arbitrator need not write a speaking award. In the case on hand, each claim is taken into consideration separately and good and valid reasons are assigned as to how the amount under various heads have been arrived at. We do not find any serious misconduct so far as the Arbitrator is concerned.

Apart from this, parties had been ably assisted by experienced Advocates and several decisions had been cited before him and they have also been taken into consideration. The award in question has been passed meticulously by going into the minutes of the contract. It is not shown to us as to how the award in question suffers from serious infirmities which could be considered as opposed to public policy of India. On perusal of Section 34 of the Act, it is clear that an arbitral award can be interfered only in certain set of circumstances. It is not the case that one of the parties was under some incapacity or that the award is opposed to some of the provisions of substantive law of the land. It is not the case of the appellant herein that the award is in respect of a dispute which is not contemplated by and not falling within the terms of the arbitration and compensation of the Arbitral Tribunal or the procedure adopted in accordance with the agreement of the parties. All efforts must be made to support an award, in the light of purpose for which the earlier Arbitration Act, 1940 was repealed and a new Act was enacted in 1996 in its place.

Catena of decisions of the Hon''ble Supreme Court and various High Courts have made it clear that in arbitration matters, lot of scope or elbow room is given to the Arbitrators. In fact, the learned District Judge has considered all the claims in detail before accepting the claims finalised by the Arbitrator in his award. The learned District Judge has adverted to the various decisions cited before him inclusive of Oil and Natural Gas Corporation Limited''s case. In fact in the case of State of Rajasthan Vs. Puri Construction Co. Ltd. and Another, , wherein the Hon''ble Supreme Court has held as follows:

"The Arbitrator is the sole Judge of the quality as well as the quantity of evidence and it will not be for the Court to take upon itself the task of being Judge on the evidence before the Arbitrator".

In the light of the law laid down by the Hon''ble Supreme Court and in view of the limited scope available u/s 34, we cannot extend the scope of Section 34 of the Act under the garb of Section 37(2).

Insofar as interest is concerned, the learned Arbitrator has awarded interest at the rate of 18% p.a. Section 31(7)(a) and 31(7)(b) of the Act provides for awarding interest. When the contract is silent about the rate of interest, the Arbitrator has to award 18% p.a. as interest and that is the mandate of clause (b) of sub-section (7) of Section 31 of the Act. Even on that ground, we do not find any infirmity in the rate of interest awarded by the Arbitrator.

Suffice to state that both the award of the Arbitrator and the judgment passed by the learned Arbitrator and the dismissal of the arbitration suit by the learned VI Additional City Civil Judge, Bangalore, do not warrant any interference. They are well-reasoned orders and judgments and hence we answer Point No. 1 in the affirmative.

Point No. 2

In view of our affirmative finding on Point No. 1, no interference is called for and the appeal is liable to be dismissed.

ORDER

Appeal filed u/s 37 challenging the judgment passed in A.S. No. 69 of 2003 which was pending on the file of the VI Additional City Civil Judge, Bangalore and the award passed by the learned Arbitrator Sri. D. Rama Murthy, is dismissed. Consequently, the impugned judgment passed in A.S. No. 69 of 2003 and the award passed by the learned Arbitrator are upheld.

In view of the facts and circumstances of the case, parties to bear their own costs.