C. Srinivasa Rao and etc. vs P. Ramankutty and Others

S. Thangaraj, J.—In these Original Petitions, the Tamil Nadu Housing Board, represented by it''s Chairman, The Superintending Engineer,

World Bank Circle and the Executive Engineer, S & S Division III, Tamil Nadu Housing Board, entered into six different agreements with the

Contractor P. Ramankutty for the execution of the Work. Subsequently, disputes arose between parties and they approached this Court by way of

Civil Suits and applications. One Mr. C. Srinivasa Rao, Chief Engineer (Rtd.) Railways was appointed as Arbitrator and the learned Arbitrator

passed six different awards under six different agreements, entered into between the parties. Learned Arbitrator has filed six different Original

Petitions u/s 14(2) of the Arbitration Act, 1940, for receiving the awards and to pass a decree in terms of the said awards. Aggrieved by the

awards. The Tamil Nadu Housing Board has filed Original Petitions challenging the said awards passed by the Arbitrator. All these Original

Petitions were heard together as requested by both the parties and almost every ground raised in those petitions are similar apart from some

specific grounds raised in particular original petitions. There is no necessity to take up every ground individually and on the contrary since the major

grounds are one and the same in each and every original petitions they can be analysed together and the specific grounds pertaining to any specific

original petition will be also answered separately and as such the grounds raised in the various original petitions need not be stated separately as

they are going to be considered in the following paragraphs.

(i) O.P. No. 428/95 filed by the Arbitrator u/s 14(2) of the Arbitration Act, 1940 and O.P. No. 585/96 filed by the Tamil Nadu Housing Board

u/s 30 of the Arbitration arc in respect of agreement No. WBC 68/ 1982-83 dated 16-3-1983.

(ii) O.P. No. 429/95 filed by the Arbitrator and O.P. No. 584/96 filed by the Tamil Nadu Housing Board are in respect of agreement in WBC

70/82 dated 16-3-1983.

(iii) O.P. No. 432/95 filed by the arbitrator and O.P. No. 583/1995 filed by the Tamil Nadu Housing Board are in respect of agreement WBC

69/82-83 dated 16-3-1983.

(iv) O.P. No. 433/95 filed by the arbitrator and O.P. No. 799/95 filed by the Tamil Nadu Housing Board are in respect of agreement No.

29/1977-78 dated 3-2-1978.

(v) O.P. No. 434/95 filed by the arbitrator and O.P. No. 801/95 filed by the Tamil Nadu Housing Board are in respect of agreement No. 3/77-78

dated 30-6-1977.

(vi) O.P. No. 431/95 filed by the arbitrator is in respect of agreement No. 25/1977-78.

(vii) O.P. No. 269/1995 filed by the Tamil Nadu Housing Board also in respect of the said Agreement No. 25/1977-78 dated 9-6-1995.

All these six awards are in respect of the contracts in favour of the contractor Mr. P. Ramankutty. Both the parties have requested the Court to

take up all twelve Original petitions together and they made common arguments in respect of the said Original Petitions and we have to consider

the various grounds raised by the parties concerned.

Learned Senior counsel appearing for the Tamil Nadu Housing Board has strenuously contended that these six awards passed by the learned

arbitrator under these agreements are untenable and error apparent on the face of the award; therefore the same has to be set aside. It was also

further argued that the arbitrator was biased and hence the awards have to be set aside.

(i) One of the major arguments on the side of the Housing Board was that in O.P. Nos. 428, 429, 432/95, 583, 584 and 585/96 the approach

road was already formed by a different contractor by name Sivaganapathy Subramaniam for whom the Housing Board has already settled the

amount and the learned arbitrator in Agreement No. WBC 68/82-83 has allowed a sum of Rs. 35,000 and in Agreement No.WBC 70/82-83 has

allowed a sum of Rs. 1 lakh which is totally untenable and as such the award is liable to be set aside. The approach road was already there, the

Housing Board has filed various documents for the proof of the contract in favour of one Sivaganapathy Subramaniam and also the documents to

prove the payment made in favour of the said contractor.

(ii) For the purpose of idling the labour, the learned arbitrator has awarded certain amounts which the Tamil Nadu Housing Board resisted by

saying that no contractor will keep his men idle for months together and pay them the wages, that the arbitrator by allowing such amount has

exhibited total non-application of mind which would amount to judicial misconduct.

(iii) The next objection was that the arbitrator has awarded certain amounts and for loss of profit due to over stay on the work spot. The learned

arbitrator has awarded certain amounts which were objected to by the Tamil Nadu Housing Board on the ground that the period had to be

extended because the contractor could not finish the work as agreed to by the parties in the agreement and at no stretch of imagination the Tamil

Nadu Housing Board can be held responsible for such overstay in the work spot.

(iv) In his award the learned arbitrator has cancelled the penalty imposed by the Housing Board which was also objected on the ground that

without looking into Clause 60 of the Madras Detailed Standard Specifications the arbitrator has awarded amounts by cancelling the penalty rightly

imposed by the Housing Board.

(v) It was also argued on the side of the Housing Board that after payment of the final bill, no fresh claim can be made for such work and even then

the learned arbitrator has awarded certain amounts which is not in consonance with the prevailing rules.

(vi) The Tamil Nadu Housing Board has contended that without looking into the Measurement Book regarding the work done, the learned

arbitrator has awarded certain sums of money to the contractor which amounts to non-application of mind on the part of the arbitrator.

(vii) The main objection raised by the Tamil Nadu Housing Board is the award of interest on the said sum to be paid by the Housing Board to the

Contractor which is totally against the provisions of Madras Detailed Standard Specifications.

These are all the main grounds on which the learned senior counsel for the Tamil Nadu Housing Board has putforth his arguments though there

were some other grounds shown by him in particular cases.

Learned Counsel appealing for the Contractor has argued that the learned arbitrator has assigned reasons for arriving at the conclusions and he

has not paid any amount as claimed by the Contractor, that the arbitration costs claimed by the Contractor has not been paid, that many of the

claims made by the Contractor were either dismissed or modified and in no case the arbitrator has awarded the amount as claimed by the

Contractor and as such the award is well reasoned and well considered and therefore cannot be set aside. After hearing the arguments advanced

on the side of the Tamil Nadu Housing Board the learned Counsel for the Contractor has contended that this Court cannot act like an appellate

Court and the award has to be viewed as held by the Supreme Court in various judgments. In support of the said argument, the learned Counsel

has cited some decisions of the Supreme Court.

(i) When we peruse the award concerned in O.P. No. 428/95 and O.P. No. 585/96 it is true that the arbitrator has either allowed part of claim or

disallowed it in entirety and for the total claim of Rs. 16,20,409 the arbitrator has allowed Rs. 9,05,078/-.

(ii) In the award concerning O.P. No. 429/95 and O.P. No. 584/96 the learned arbitrator has awarded Rs. 9,45,056/- for the total claim of Rs.

16,93,462/-.

(iii) In the award concerning O.P. Nos. 432/ 95 and 583/96 the learned arbitrator has awarded Rs. 10,25,898/- against the total claim of Rs.

16,68,591/-.

(iv) The learned arbitrator has awarded Rs. 5,83,5517- against the total claim of Rs. 8,09,918/- against which the Parties have filed O.P. Nos.

433/95 and 799/95.

(v) In the award pertaining to O.P. Nos. 434/ 95 and 801/95 against the total claim of Rs. 126,25,107/-, the arbitrator has awarded Rs.

14,07,139/-only.

(vi) In the award against which O.P. Nos. 269/ 95 and 431/95 are filed by the parties, the arbitrator has awarded Rs. 6,29,666/- against total

claim of Rs. 14,12,677/-.

From the six awards passed by the arbitrator, it is clear that he has not awarded any claim as made by the claimant and on the contrary he has

neither rejected the claim in entirely nor modified the same and awarded a sum which according to him was reasonable in the circumstances of the

case.

Section 30 of the Arbitration Act. 1940 which is applicable to the instant cases deals with grounds for setting aside the award.

Grounds for setting aside award. -- An award shall not be set aside except on one or more of the following, namely,--

(a) that an arbitrator or umpire has misconducted himself or the proceedings;

(b) that an award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become

invalid u/s 35;

(c) that an award has been improperly procured or is otherwise invalid.

The main arguments advanced on the side of the Tamil Nadu Housing Board may fall u/s 30-(a) that the arbitrator has misconducted the

proceedings or u/s 30-(c) ""otherwise invalid"" as the other grounds shown in the said Section are not applicable to the instant case.

In Sudarsan Trading Co. Vs. Government of Kerala and Another, the Supreme Court held-

In the instant case the Court had examined the different claims not to find out whether these claims were within the disputes referable to the

arbitrator, but to find out whether in arriving at the decision, the arbitrator had acted correctly or incorrectly. This, in our opinion, the Court had no

jurisdiction to do, namely, substitution of 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. Whether a particular amount was liable to be paid or damages liable to be sustained was a decision

within the competency of the arbitrator in this case.

From this decision it is clear that the Court cannot act like an appellate Court and it is within the competency of the arbitrator to decide the liability

to pay a particular amount or damage, and the Court cannot interfere with such decisions taken by the arbitrator.

Their Lordships of the Supreme Court have reiterated the said principle in almost every decision and whenever the Court acted like an appellate

Court while considering the award, Their Lordships held that such evaluation of evidence is not within the jurisdiction of the Court and the Court

should act within the settled principles of law.

Their Lordships of the Supreme Court in B.V. Radha Krishna Vs. Sponge Iron India Ltd., after considering the various earlier decisions on that

point held-

Bearing in mind the principles laid down by this Court in the abovenamed cases, if we look into disposal of the matter by the High Court, it would

be evident that the High Court has substituted its own view in place of the arbitrator''s view as if it was dealing with an appeal. That is exactly what

is forbidden by the decisions of this Court.

Learned Senior Counsel appearing for the Tamil Nadu Housing Board has taken me through the terms of agreement, various documents

marked before the arbitrator and the decision taken by the arbitrator without considering those documents. However, if the Court has to act, as

argued on the side of the Tamil Nadu Housing Board, it will amount to reappraisal of evidence substituting the Court''s view which is forbidden.

Since various points have been raised by the learned Senior Counsel appearing for the Tamil Nadu Housing Board, it is better to consider the

same within the permitted limit.

(a) The arguments on the side of the Tamil Nadu Housing Board that the approach road was already formed by the different Contractor by name

Sivaganapathy Subramaniam to whom the Tamil Nadu Housing Board has already paid the amount, the Contractor herein cannot claim any

amount towards the formation of the road and the award passed by the arbitrator in this regard is liable to be set aside. Learned arbitrator under

the sub-head of claim No. 1 in his award has dealt with the formation of approach road to the project building and has clearly stated that the

previous Contractor has formed a road to the length of 400 mts., whereas the main approach road and branch roads had to be laid for 5 kms., the

remaining portion of the formation of the approach road was completed by the Contractor herein. Learned arbitrator has given his conclusions

regarding the formation of the road and considered the views expressed by the Tamil Nadu Housing Board as well as the arbitrator and came to

the conclusion of awarding Rs. 35,000 for the formation of roads against the claim of Rs. 70,000/- made by the Contractor. The reasons stated by

the learned arbitrator reveal that the Tamil Nadu Housing Board would have paid the amount for the work done by the previous Contractor and

that will not lead us to inference that the Contractor herein was making claim towards the approach road already formed by another Contractor.

Learned arbitrator has given his conclusion stating that the Contractor herein has formed the approach road to reach the work site which was not

formed by the previous Contractor and towards the cost of such approach road he has awarded Rs. 35,000 which cannot be interfered by this

Court since sound reasons have been given by the arbitrator.

(b) The Contractor has claimed certain amounts for the purpose of idling the labour and it was argued on the side of the Tamil Nadu Housing

Board that no contractor would keep the labour idle and the amount allowed by the arbitrator would exhibit non-application of mind which would

amount to judicial misconduct. If the Contractor was ready to do the work on any particular day or days and the Tamil Nadu Housing Board had

failed to provide work on that day, the Contractor is liable to pay the labour charges and in such event the Contractor would raise a claim for idling

of the labour. It was not shown on the part of the Tamil Nadu Housing Board that on no one of the days it was responsible for idling of labour and

it was only the Contractor, who was responsible for not doing the work. On the contrary a general argument was advanced on the side of the

Tamil Nadu Housing Board stating that no Contractor would keep the labour idle for number of days. It is a question of fact and the learned

arbitrator has found that the Tamil Nadu Housing Board was responsible for keeping the labour idle without providing the work. Hence, on that

ground he has awarded some amount. It was not shown by the Tamil Nadu Housing Board that it had sufficient work to provide and therefore

there was no reason for the idling of labour and on the contrary the argument was on the general terms that no contractor would keep the labour

idle for days together. In these circumstances, it cannot be said that the amount awarded by the learned arbitrator, for the purpose of idling the

labour, is liable to be set aside.

(c) It was argued on the side of the petitioner that the arbitrator has awarded certain amounts for loss of profit due to overstay on the work spot

and as the Tamil Nadu Housing Board was not responsible for such overstay, the award is liable to be set aside. To substantiate this argument, the

learned Senior Counsel appearing for the Tamil Nadu Housing Board has relied on a decision of the Supreme Court in Continental Construction

Co. Ltd. Vs. State of Madhya Pradesh, . In the said decision while the work was in progress, the Contractor was required to meet extra

expenditure on labour charges and materials due to revision in wage scales and escalation of prices. Alterations and substitutions of works also led

to extra expenses. There were certain items for which rates were not provided but all the same work had to be done. The Contractor therefore,

advanced claims for compensation. There was no terms in the contract between the parties for making extra cost towards rises in prices of

materials and labour within and beyond contract period. The Government of Madhya Pradesh have objected to the said claim and raised a

question before the arbitrator to find out the legality of the claim regarding extra cost towards rises in prices of materials and labour. The arbitrator

has not decided the said question, however he allowed the claim. When the matter went to the Supreme Court, it was held (at p. 1171 of AIR)-

There was a clear finding of the arbitrator that the contract was not rendered ineffective in terms of Section 56 of the Contract Act due to

abnormal rise in prices of material and labour. This being so and the Contractor having completed the work, it was not open to him to claim extra

cost towards rise in prices of materials and labour. The arbitrator misconducted himself in not deciding this specific objection raised by the State

regarding the legality of extra claim of the appellant.

Such a situation has not arisen in this case. The claim made in the instant case is regarding loss of profit due to overstay and not for extra cost

towards rise in prices of materials and labour. In| the instant case no question was raised by the Tamil Nadu Housing Board that the claim is not

within the terms of the contract and the legality of the claim was also not challenged before the arbitrator. The arbitrator on the contrary has given

cogent reasons for arriving at the decision regarding the claims. Therefore this decision of the Supreme Court cannot be applied to the instant case

both on facts and on law.

In a similar circumstance the Supreme Court in Hyderabad Municipal Corporation Vs. M. Krishnaswami Mudaliar and Mudaliar and Another, ,

where the work was not completed within the prescribed time for want of funds and at the request of the authorities the time was extended. The

Government did not intimate to the Contractor that no extra payment on account of increased rates would be paid to him or that he will have to

complete the work on the basis of original rates. When the matter went to the Supreme Court it was held that both in equity and in law the

Contractor was entitled to receive extra payment at 20% over and above the rates originally agreed upon. Therefore it is clear that where there

was no specific prohibition from making such claims, if the terms of the contract are such, so as to allow the Contractor to make such claims the

Contractor is entitled to receive such extra payments both in equity and in law. In the instant case also since there is no prohibition in the

circumstances of the case, the Contractor is entitled to make claim for loss of profit due to overstay.

(d) The Tamil Nadu Housing Board has objected to the cancellation of the penalty, imposed by them, by the learned arbitrator in the award.

Learned arbitrator has went into the rival contentions and differed with the Tamil Nadu Housing Board on two grounds on the question of levying

penalty. The first reason stated by the arbitrator was that the Tamil Nadu Housing Board has been extending the time to accommodate the

hindrance created by itself and therefore for the delay the Contractor was not solely responsible. Secondly, the contract provides for levying of

liquidated damages at the rate of Rs. 10 per day and there is no provision for levying of a lump sum penalty. As the Tamil Nadu Housing Board

has levied a lump sum penalty, the Contractor has not agreed with the penalty levied and therefore cancelled such penalty and passed an order for

refund of the said amounts to the Contractor. It is one of the claim made by the Contractor and Housing Board has sufficient opportunity to defend

the said claim. The Tamil Nadu Housing Board has also not denied that the contract provides for levying of damages at the rate of Rs. 10/- per

day. When the Tamil Nadu Housing Board has levied lump sum penalty on the Contractor, the cancellation of the same cannot be interfered with.

(e) It was contended on the side of the Tamil Nadu Housing Board that when final bill was paid and after paying of final bill, when once the

Contractor has signed the final bill, he cannot make any further claim and the Tamil Nadu Housing Board cannot allow such claims made by the

Contractor.

A Division Bench of the Karnataka High Court in S.C. Konda Reddy Vs. Union of India and Another, , considered the claim for compensation

after signing of the final bill or the final measurement recorded thereunder and held that the claim for compensation was independent of and in

addition to the final bill and the Contractor could not therefore be shut out either by estoppel or by waiver. Although the Contractor has withdrawn

the claim for additional payment, he did not withdraw that claim for any consideration. The Contractor was legitimately entitled to the payment for

the work shown in the final bill and the department making that payment, had only discharged its contractual liability and did not act in any manner

prejudicial to its interest. This decision of the Karnataka High Court would prove that signing the final bill or receiving the amount shown in the final

bill is independent of the claim for compensation made by the Contractor at a later stage and the Housing Board by making that payment had only

discharged the contractual liability. In these circumstances, the argument advanced on the side of the Tamil Nadu Housing Board that since the final

bill has been paid, the Contractor is not entitled to any further payment for damages, has no force.

(f) It was once again argued by the Tamil Nadu Housing Board that the learned arbitrator without looking into the Measurement-Book regarding

the work done has awarded certain sums of money to the Contractor which amounts to non-application of mind on the part of the arbitrator.

Learned arbitrator in his award has stated the claim made by the claimant and also the basis on which such claims were made. Once again he has

stated the arguments advanced on the side of the claimant and also that of the Tamil Nadu Housing Board opposing such claims and thereafter he

has given his decision. He has followed this method before coming into the final decision in each and every one of the claim. Therefore, it cannot be

said that the arbitrator has not seen the Measurement-Book which would amount to non-application of mind on his part. The arbitrator may decide

in any manner known to law and since another view of the matter is possible, the decision of the arbitrator cannot be interfered with. In such

circumstances the argument advanced on the side of the Tamil Nadu Housing Board cannot be accepted.

(g) The major objection raised by the Tamil Nadu Housing Board is awarding interest at the rate of 18% per annum on the total sum awarded

under each one of the claim.

A Constitutional Bench of the Supreme Court of India in Secretary, Irrigation Department, Government of Orissa and others Vs. G.C. Roy,

considered the question of awarding interest in the arbitration award and laid the principle hereunder (at p. 749 of AIR) :

Where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (along with the

claim for principal amount or independently) is referred to the arbitrator, he shall have the power to award interest pendente lite. This is for the

reason that in such a case it must be presumed that interest was an implied term of the agreement between the parties and therefore when the

parties refer all their disputes -- or refer the dispute as to interest as such -- to the arbitrator, he shall have the power to award interest.

In O.P. Nos. 428, 429 and 432 of 1995 the learned arbitrator has awarded interest from 1-4-1985 to 31-3-1995, on which date the claimant has

restricted his claim for interest. In O.P. Nos. 433, 434 and 431/1995 he has awarded interest from 1-7-1979 to 31-3-1995 the date on which the

claimant has restricted his claim for interest. In all the cases the interest is awarded at the rate of 18% per annum.

In the decision stated supra Their Lordships of the Supreme Court have held that the arbitrator has power to award interest pendente lite.

The Supreme Court in The Board of Trustees for the Port of Calcutta Vs. Engineers-De-Space-Age, , held that even if prohibition of interest is

shown in the term of the contract, such prohibition will be applicable to the Commissioner or the Officers of the Department as the case may be

and not to an arbitrator, who shall have the power to award interest pendente lite.

Therefore the arguments advanced on the side of the Tamil Nadu Housing Board that under Clause 69 of the Madras Detailed Standard

Specifications no interest can be awarded by the arbitrator, is of no avail. The arbitrator shall award interest pendente lite. In Secretary, Irrigation

Department, Government of Orissa and others Vs. G.C. Roy, , Their Lordships of the Supreme Court have held that for reasons stated in the said

judgment that the decision in Executive Engineer (Irrigation), Balimela and Others Vs. Abhaduta Jena and Others, , ""insofar as it runs counter to

the above proposition, did not lay down correct law"".

In a later decision in Durga Ram Prasad Vs. Govt. of A.P., , Their Lordships of the Supreme Court again considered these two decisions and at

page 421 held-

In Secretary, Irrigation Department, Government of Orissa and others Vs. G.C. Roy, , the Constitution Bench was concerned with the case

whether the Contractor is entitled to interest pendente lite. The controversy, therefore, centres around the question whether the Contractor is

entitled to the interest pendente lite. The ratio therein, therefore, has no relevance for the purpose of this case. The ratio in Executive Engineer

(Irrigation), Balimela and Others Vs. Abhaduta Jena and Others, , on the abovequoted ratio is till good law. Accordingly, we are of the view that

the Contractor is not entitled to payment of interest in terms of clause 69 of MDSS for the period anterior to the reference for arbitration until the

final settlement of the amount due to the Contractor of his account is determined. In this case that dispute was determined by the arbitrator in his

award. Therefore, from the date of withholding till the date of award the appellant is not entitled to the payment of interest. The arbitrator has no

jurisdiction to arbitrate that dispute.

In the instant case also the interest awarded by the arbitrator in respect of the period anterior to reference for arbitration cannot be sustained.

However, the arbitrator herein in first three awards awarded interest from 1-4-1985 and in other three awards from 1-7-1979. Such payment of

interest anterior to the reference to arbitration is not sustainable and the Contractor is entitled to claim interest from the date of reference for

arbitration till the date of realisation and not for the earlier period. The award of the arbitration is modified accordingly as far as the claim of interest

is concerned.

In the result:--

O.P. Nos. 428, 429, 432, 433, 434 and 431 of 1995 are confirmed with the modification regarding the award of interest which should be paid to

the Contractor from the date of reference for arbitration till the date of realisation on the said sums in each petition at the rate of 18% per annum

and decree passed in each petition accordingly.

O.P. Nos. 585, 584, 583 of 1996, 799 and 269 of 1995 are dismissed.

The parties shall bear their respective costs.