Central Warehousing Corporation Construction Cell vs P. Devendra Raju

Y. Bhaskar Rao, J.—C.M.A. No. 70 of 1988 is filed by the Central Warehousing Corporation Construction Cell against the judgment and decree dated 15-10-1987 of the lower Court in O.P. No. 328 of 1984 filed for passing judgment and decree in terms of the award dated 12-11-1984. C.M.A. No. 72 of 1988 is also filed by the Central Warehousing Corporation Construction Cell against the dismissal of O.P. No. 2 of 1985 filed for setting aside the award dated 12-11-1984 to the extent of allowing Claim Nos. 1, 2, 3, 8, 9, 11, 12 and 14.

The facts of the case are that the respondent/contractor entered into contract with the appellant vide contract dated 3-10-1978 for the construction of 5000 M.T. capacity godown with ancillary buildings for Rs. 11,05,050-80. The said work was commenced by the respondent/contractor during the first week of November, 1978 and was completed on 10-4-1980 after a period of 17 months as against the stipulated period of six months. The respondent/contractor raised several claims to the tune of Rupees Twelve lakhs under different heads. The appellant disputed the claims as improper and the dispute was referred to the Arbitrator. The parties have filed claims and counter-claims and objections before the Arbitrator. The Arbitrator by his award dated 12-11-1984 allowed claims 2 and 3 in full and claims 1, 8, 9, 11 and 12 in part with interest and dismissed the rest of the claims. O.P. No. 328 of 1984 is filed by the Contractor to make the award a rule of the Court and O.P. No. 2 of 1985 is filed by the appellant to set aside the award dated 12-11-1984 to the extent of allowing of claims 1, 2, 3, 8, 9, 11, 12 and 14. The lower Court after considering the entire material on record, dismissed the O.P. filed by the appellant and allowed the O.P. filed by the Contractor and made the award a rule of the Court by its judgment dated 15-10-1987 and also granted subsequent interest at 12% per annum on the amounts awarded from the date of decree till realisation. Against that the present appeals are filed.

The learned Counsel for the appellant Sri K. Jagannadha Rao contended that Clause 25 of the contract provides that where the total amount of the award exceeds Rs. 50,000/-, the Arbitrator must give reasons for the award, but in the present case the Arbitrator has not given any reasons and that therefore the award is vitiated by the error apparent on the face of record and therefore the same is liable to be set aside.

The learned Counsel for the respondent-Contractor Sri Anantha Babu contended that the Arbitrator is bound by the terms of the contract and there is no condition in the appointment order that the Arbitrator has to pass a reasoned award. He further contended that even if it is taken for the sake of argument that the Arbitrator has to give reasons for the award, the award passed by the Arbitrator is with reasons. He also contended that the award cannot be scrutinised by the Court to adjudicate the reasonableness of the reasons given by the Arbitrator, that there are no merits in the appeals and the appeals are Liable to be dismissed.

In view of the above said contentions, the important question that arises for consideration is, where a contract provides that the Arbitrator must give reasons in cases where the total amount of the award exceeds Rs. 50,000/-, whether violation of the same amounts to error apparent on the face of record, thereby vitiating the award.

It is relevant to refer to Clause 25 of the Contract, which reads as under:

"Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions herein before mentioned and as to the quality of workmanship of materials used on the work or as to any other question, claim, right, matter or thing whatsoever, in any way arising out of or relating to the contract, designs, drawings, specifications, estimates, instructions orders or these conditions or otherwise concerning the works, or the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to the sole arbitration of the person appointed by the Managing Director, Central Warehousing Corporation at the time of dispute or if there be no Managing Director, Central Warehousing Corporation the administrative head of the said Central Warehousing Corporation at the time of such appointment. There will be no objection to any such appointment that the arbitrator so appointed is a Corporation employee, that he had to deal with the matters to which the contract relates and that in the course of his duties as Corporation employee he had expressed views on all or any of the matters in dispute or difference. The arbitration to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason, such Managing Director or administrative head as aforesaid at the time of such transfer, vacating office or inability to act shall appoint another person to act as arbitrator in accordance with the terms of the contract. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor. It is also a term, of this contract that no person other than a person appointed by such Managing Director or administrative head of the Central Warehousing Corporation as aforesaid should act as arbitrator and if for any reason, that is not possible, the matter is not to be referred to arbitration at all. In all cases where a total amount of the award exceeds Rs. 50,000/- the Arbitrator shall give reasons for the award."

The above clause makes it clear that whenever dispute arises, the matter has to be referred to the Arbitrator and the Arbitrator has to be appointed as per the terms mentioned therein. Further, when total amount of the award exceeds Rs. 50,000/-, the Arbitrator has to give reasons for the award.

It is to be noticed that the Arbitrator is a creature of the contract. Both the parties agree for appointment of Arbitrator whenever dispute arises in pursuance of the contract. The terms of contract are binding on the parties and they have to claim their rights as per the terms of the contract. The Arbitrator also, while deciding the dispute has to interpret the terms of the contract to come to a correct conclusion. Wherever there is mis-interpretation or wrong interpretation or the Arbitrator travels beyond the terms of contract, it has been held that the same amounts to error apparent on the face of record and the award shall be set aside.

It is relevant to refer to the decisions on the subject. In Union of India v. V. K. Bahri AIR 1980 Delhi 265 the Union of India filed an application u/s 14 of the Arbitration Act, 1940 for making the award dated 12-7-1976, passed by one Mr. M.K. Koundinya, arbitrator, a rule of the Court. After the award being filed by the Arbitrator, notice was issued inviting objections. Objections under Secs.30 and 33 of the Act were filed by the other party contending that as per Clause 25 of the Contract the arbitrator has to give reasons for the award in cases where amount of claim and counter-claim exceeded Rs. 50,000/- but no reasons were given despite the fact that the aggregate amount of the claim and the counter claim was Rs. 53,833/-. While considering that case, the High Court of Delhi held:

"The arbitrator acquired jurisdiction to adjudicate on the disputes arising between the parties on the basis of the arbitration agreement comprised in Clause 25. This clause states that in case the claim is in excess of Rs. 50,000/- the arbitrator shall mention his reasons for the award. The use of the word ''shall'' makes it obligatory for the arbitrator to mention the reasons. This does not appear to be an idle exercise or a formality. In case the arbitrator does not mention the reasons for the award, the scope of filing objections against the award is diminished to a great extent. There cannot be any doubt in this behalf. Moreover, mention of reasons brings more of conviction to the mind in regard to the correctness of the conclusion arrived at in the form of the award. The need in this behalf becomes appreciable in cases where the stakes are high. It cannot, therefore, be gainsaid that the requirement that the arbitrator to be appointed in terms of arbitration clause would mention his reasons in support of the award, in the event of the claim being in excess of Rs. 50,000/ -, was a deliberate and intentional one. Inasmuch as this agreement is the fountain-head for acquiring jurisdiction by the arbitrator in the matter of taking proceedings culminating into making of the award, it is binding on the parties in every way and it is also binding on the arbitrator who is expected to function within the limits imposed or recognised therein. It would, therefore, clearly amount to an illegality on the part of the arbitrator to disregard the provision in regard to mentioning reasons in cases wherein he is required to do so and the situation would attract Clause (c) of Sub-section (1) of Section 16 of the Act."

In Govt. of A.P. v. P.V. Subbanaidu, 1990 (1) ALT 54 a Division Bench of this Court held:

"An arbitrator is a creature of the agreement. He cannot re-write the contract between the parties. He cannot modify or amend the contract between the parties, he cannot create new heads of claims. He cannot revise the rates prescribed in the contract. So long as the contract is not held to be invalid or inoperative, the terms and conditions of the contract have to be respected by him. An arbitrator is on no higher footing than a Court."

The above observation of this Court makes it clear that the arbitrator is a creature of contract and is bound by the terms of the contract.

In Chief Engineer, Panchayat Raj Dept. v. B. Balaiah 1985 (1) APLJ 224 a Division Bench of this Court held:

"Broached from the above perspective, though hitherto it was not compulsive to assign reasons in support of the award, its efficiency stemmed from social imperatives and the march of law as an inbuilt indiscipline and necessitated in the public interest that the arbitrator is to assign reasons in a dispute between the State and a person, so that when its legality is impugned the Court would test it on the anvil of law."

In Raipur Development Authority Vs. M/s. Chokhamal Contractors etc. etc., the question before the Supreme Court was whether an award passed under the Arbitration Act is liable either to be remitted u/s 16(1)(c) of the Act or liable to be set aside u/s 30(c) thereof merely on the ground that no reasons have been given by the arbitrator or umpire in support of the award. The submission before the Supreme Court was that giving reasons in the award is in consonance with the rules of natural justice which must be observered by the arbitrator or umpire as he discharges a judicial function. The Supreme Court repelling that contention held that the award passed under Arbitration Act is not liable to be set aside merely because no reasons are given except where the arbitration agreement provides for the same or the Court directs in any order such as the one made u/s 20 or Section 21 of Section 34 of the Act that reasons should be given or where the statute which governs an arbitration requires him to do so. Thus, it is clear that where the contract provides for giving of reasons, the arbitrator is under an obligation to do so, but in the absence of any such contract it is not obligatory on the part of the arbitrator to give reasons except in cases where the statute governing the arbitration requires him to do so.

Sri Anantha Babu, the learned Counsel for the respondent secondly contended that the award in the present case one supported by reasons and that once reasons are given the said reasons cannot be scrutinised on the ground that they are not reasonable.

In this case, the arbitrator has allowed claim Nos. 1(a), 1(c), 2, 3, 8, 9, 11, 12, 14 and 15. Among the above claims, which were allowed, the arbitrator has not given any reasons at all for allowing Claim Nos. 1(c), 9, 11 and 14. He, however, while allowing Claim Nos. 1(a), 2, 3, 8 and 12 stated certain things. Whether such references or statements actually amount to reasons is the issue to be determined.

If claim 1(a) is taken; the claim is for an amount of Rs. 1,750/- on the ground that the contractor has done earth work below 1.5M. The arbitrator found that the earth work done was not more than 1.5 M. He, however, stated that extra expenditure was incurred in fixing some shuttering etc., to prevent earth from slipping and for that awarded Rs. 1,000/-. It is to be noticed that the claim of the contractor is that he has done earth work below 1.5 M. and he has not claimed any extra amount for fixing up some shutterings. When such is the situation, the arbitrator has not given any reasons as to on what basis he awarded amounts for items other than those covered by the claims.

It is to be noticed that when award is to be passed supported by reasons, the reasons must indicate the mind of the arbitrator that he has considered the claims basing on material. It is relevant here to quote the following from the book of Principles of Administrative Law by M.P. Jain & S.N. Jain at page 240:

"If an adjudicator is obligated to give reasons for his conclusions, it will make it necessary for him to consider the matter carefully. The condition to give reasons introduces clarity and minimizes arbitrariness for ''compulsion of disclosure guarantees consideration''. The adjudicator will have to give such reasons for his decision as may be regarded fair and legitimate by a reasonable man and thus it will minimize chances of irrelevant or extraneous considerations from entering his decisional process, and it will minimize chances of unconscious infiltration of personal bias or unfairness in the conclusion. Giving of reasons also gives satisfaction to the party against whom the decision is made."

When there is no such indication of the mind, by assigning reasons, it cannot be said that the award does not suffer from arbitrariness rendering it vitiated. Similar is the case with regard to other claims, for which it is alleged that the arbitrator has given reasons. We have examined the records very thoroughly. We are satisfied that the decisions taken or statements made by the arbitrator on the claims which he has allowed cannot be said to be reasons. We may make it clear that we are not scrutinising the reasonableness or otherwise of the reasons given by the arbitrator but are simply endeavouring to find out whether the decision given or reference made by the arbitrator amounts to reason. Where there is an obligation on the arbitrator to give reasons as per the terms of the contract and the arbitrator simply decides the matter by referring the claims and gives some decision on each claim without reflecting the material considered by him, then it cannot be said that the award is a reasoned award as per the terms of the contract. Where it is not a reasoned award the Courts are not precluded from looking into those decisions or findings to find out whether actually reasons given or not. This endeavour cannot be said to amount to scrutinising the reasons given by the arbitrator and in case it is found that no reasons are assigned, it is always open to the Court to interfere with the said award.

In Gujarat Water Supply and Sewerage Board Vs. Unique Erectors (Gujarat) (P) Ltd. and Another, laid down:

"An award of arbitrator should be read reasonably as a whole to find out the implication and the meaning thereof. Short intelligible indications of the grounds should be discernible to find out the mind of the arbitrator for his action even if it be enjoined that in all cases of award by an arbitrator reasons have to be stated. The reasons should not only be intelligible but should also deal either expressly or impliedly with the substantial points that have been raised. Even in a case where the arbitrator has to state reasons, the sufficiency of the reasons depends upon the facts and the circumstances of the case"

From the above, it is clear that the reasons given by the arbitrator shall not only be intelligible but also shall deal with the substantial points. In this case, the appellant-corporation has specifically denied the claims of the contractor in its objections. It does not appear from the award, whether on the above stated claims he either expressly or impliedly dealt with the substantial points raised by the parties in the present case as laid down by the Supreme Court.

Further, it is relevant to notice the distinction between scrutinising the reasonableness of the reasons given by the arbitrator and to scrutinise whether there are reasons given at all. Where reasons are given, which reflect the material available and substantial points raised, then scrutinising the reasonableness of the said reasons amounts to scrutinising the reasons given by the arbitrator. In the latter case, where no reasons - except references or statements - at all are given, there does arise no question of scrutinising such non-assigned reasons inasmuch as it is a decision straightaway rendered unsupported by reasons. Therefore, the Court has ample power to scrutinise whether the award of the arbitrator is supported by reasons or not.

The learned Counsel for the respondent-contractor Sri Anantha Babu relied on decisions reported in Goa, Daman and Diu Housing Board Vs. Ramakant V.P. Darvotkar, , Food Corporation of India Vs. M/s. Veshno Rice Millers, , Sudarsan Trading Co. Vs. Government of Kerala and Another, and AIR 1990 1426 (SC) for the proposition that the Court cannot sit in appeal to scrutinise whether the reasons given by the arbitrator are reasonable or not. There is no doubt about the principle laid down by the Supreme Court. Apart from it, in the present case, there is a specific condition to the effect that the arbitrator has to give reasons where the total amount of the award exceeds Rs. 50,000/-. But, in all the above cases there is no such condition and in those circumstances the Supreme Court held that the Court cannot scrutinise the reasons given by the arbitrator whether they are reasonable or not. Therefore, the above said decisions are not applicable to the facts of the present case as facts of those cases are quite different from the facts of the present case.

In view of the above discussion, we hold that even in regard to claim Nos. 1(a), 2, 3, 8 and 12 there are no reasons as such assigned in support of the award by the Arbitrator. Therefore, the appeals are allowed, the judgment and decree of the Court below and the award of the arbitrator are set aside and the matter is remitted back to the Arbitrator u/s 16(1) of the Arbitration Act to pass reasoned award afresh according to law after giving notice to the parties. No order as to costs.