Santhanam and another vs R. Chandravelu and The Tamil Nadu Housing Board

In these Original Petitions, the Tamil Nadu Housing Board, represented by its Chairman, and the Superintending Engineer, World Bank Circle,

entered into various three different agreements with the Contractor R. Chandravelu 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.R. Santhanam, Advocate was appointed as

Arbitrator and the learned Arbitrator passed an award under three different agreements, entered into between the parties. Learned Arbitrator has

filed 3 different. Original Petitions u/s 14(2) of the Arbitration Act, 1940 for receiving the award and to pass a decree in terms of the said award.

Aggrieved by the awards the Tamil Nadu Housing Board has filed Original Petitions challenging the said award 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. 48 of 95 filed by the arbitrator u/s 14(2) of the Arbitration Act, 1940 and O.P.No.823 of 98 filed by the Tamil Nadu Housing Board

u/s 30 of the Arbitration Act are in respect of agreement No. WBCR / 82 of 86 - 87.

(ii) O.P.No. 67 of 1995 filed by the Arbitrator and O.P.No.886 of 1995 filed by the Tamil Nadu Housing Board are in respect of agreement in

WBCR 26 of 89-90, dated 22.8.1990.

(iii) O.P.No. 47 of 1995 filed by the Arbitrator and O.P.No. 839 of 1995 filed by the Tamil Nadu Housing Board are in respect of agreement in

WBCR No. 7/89-90, dated 24.1.1989.

The three awards passed by the learned arbitrator are in respect of the contracts awarded to Mr. Chandravelu. The contractor and the Tamil

Nadu Housing Board have entered into three contracts. Learned Senior counsel appearing for the Tamil Nadu Housing Board and the Contractor

have requested the Court to take up all these six Original Petitions concerning Contractor Chandravelu together and they advanced common

arguments. Accordingly, all these six original petitions were heard together. Learned arbitrator has passed three awards and most of the major

grounds agitated before this Court are common in all the three awards and they can be considered together and some of the specific grounds

raised in these Original Petitions can be considered separately.

Learned senior counsel appearing for Tamil Nadu Housing Board has taken me to the documentary evidence and advanced elaborate

arguments to show that all the three awards passed by the arbitrator are liable to be set aside.

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

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

(b) that an award had 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 arguments advanced by the Tamil Nadu Housing Board would fall u/s 30-c ""otherwise invalid"". The bone of contention was that the arbitrator

without looking into the specific provisions of the agreement, entered into between the parties, and also the real meaning conveyed by the

documents had come to an incorrect conclusion which would amount to error apparent on the face of the award.

Learned arbitrator in his separate awards has considered the various claims made by the contractor and has given the answer:

(i) In the award dated 2.11.94 in respect of agreement No. WBCR 82/86-87 the learned arbitrator has rejected claim Nos.5 and 6 and in Claim

No.7 for Rs.5 lakhs he has awarded Rs.50,000 only.

(ii) In the award dated 23.11.1994 in respect of agreement No. WBCR 26/89-90 dated 22.8.90 the learned arbitrator under Claim No.1 for the

claim of Rs. 437 for the earth work done to a distance of 150 mts. has allowed Rs. 387 and for pending bills for the claim of Rs.2,000 has allowed

Rs. 1715 and rejected claim Nos.2,3,4,6,8,10 and 11. Under claim No.7 for the claim of Rs.37,250 the arbitrator has allowed Rs.21,850 only.

(iii) In the award dated 3.11.1994 in respect of Agreement No. WBCR 7/89-90, dated 24.1.1989 the learned arbitrator has rejected Claim

Nos.2, 3, 4, 6, 7, 8 and 10. Claim No.9 was partly allowed.

In all the three Original Petitions the learned arbitrator has directed the parties to bear the expenses of the arbitration in equal moieties. Even a

cursory glance of the award, passed by the learned arbitrator, would go to show that he has not awarded all the claims made by the claimant as

prayed for, that major part of the claims were disallowed and some were modified and for passing such award, the learned arbitrator has given

reasons.

Learned senior counsel appearing for the Tamil Nadu Housing Board has taken me through the various documents to show that the

petitioner/contractor was responsible for the delay and he was written number of letters to the concerned Engineer to extend the time of the

contract and on occasions the time was extended by imposing fine. If time was essence of the contract, then the Officers of the Tamil Nadu

Housing Board ought not to have extended the time at any cost and it could have even cancelled the contract by showing the failure on the part of

the petitioner to execute the contract as agreed in the agreement.

In Hind Construction Contractors by its Sole Proprietor Bhikamchand Mulchand Jain (Dead) by Lrs Vs. State of Maharashtra, the Supreme

Court held that the question whether or not time was of the essence of the contract would essentially be a question of the intention of the parties to

be gathered from the terms of the contract. In that case, in a contract between a State Government and a Contractor for construction of an

aqueduct across a river within the stipulated period of 12 months, power was conferred upon the Executive Engineer to grant extension of time for

completion of work on reasonable grounds and further provision was made for levying and recovering penalty/compensation from the Contractor

at specified rates for the unfinished work after the expiry of the fixed date, such provisions would exclude the inference that time was intended to

be of the essence of the contract. It was further held that the rescission of such a contract on the part of the State Government without fixing any

further period making time the essence and directing the Contractor to complete the work within such period, was clearly illegal and wrongful and,

thereby the State Government committed a breach of the contract with the result that the security deposit of the Contractor could not be forfeited.

In this case also exactly something has happened. The time of the contract was extended either at the request of the contractor or by imposing fine.

When the Tamil Nadu Housing Board has adopted such practice, it cannot blame the petitioner/contractor that he was responsible for the delay.

On the contrary, the rescission of such a contract on the part of the Tamil Nadu Housing Board shows that it has committed breach of contract.

Learned arbitrator has held that the Tamil Nadu Housing Board was responsible for the delay, as a result of which the work could not be

completed within the stipulated time.

The argument advanced on the side of the Tamil Nadu Housing Board on the question of failure to complete the work within the stipulated time

as well as on the other ground would amount to decide whether the arbitrator had acted correctly or incorrectly, this Court has no jurisdiction to

decide such question.

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

It was urged by the learned senior counsel appearing for the Tamil Nadu Housing Board that as per the contract the Housing Board is entitled to

forfeit the deposit and retention monies in case of any lapses on the part of the contractor and the arbitrator has committed an error apparent on

the face of the award by allowing the said claim made by the contractor. Learned arbitrator in his award has clearly held that the Housing Board

was responsible for the lapses and therefore the termination of the contract was not proper and on that ground allowed the said claim of the

contractor. When once the Housing Board has acted in terms of the contract and thereby made liable for the delay, it cannot refuse to refund the

deposit and retention monies. The court which looks into the contract within the settled principles of law cannot act like an appellate forum.

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

ground held-

Bearing in mind the principles laid down by this Court in the abovesaid cases, if we look into the 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.

Therefore this Court cannot act like an appellate Court to import its own reasoning in the place of the reasons given by the arbitrator. The Court

cannot come to a different conclusion because another view of the matter is possible. When once the arbitrator has held that the Housing Board

was responsible for the delay, unless it is shown that it is an error apparent on the face of the award or that the arbitrator has committed a

jurisdictional error, this court cannot interfere as if it deals with an appeal. For these reasons the arguments advanced on the side of the Tamil Nadu

Housing Board cannot be accepted.

The contractor has claimed compensation for the loss of profit and the learned arbitrator has allowed 10% of the actual work done by the

contractor towards compensation. The respondent Housing Board has taken serious objection for allowing such a claim. The arbitrator has

allowed a portion of the claim made by the contractor in respect of the cement clotted due to rain and also for the failure on the part of the Housing

Board in taking safety measures to store them properly anticipating in the event of rain. Allowing any amount in this regard was also resented to by

the Housing Board.

In U.P. Hotels and Others Vs. U.P. State Electricity Board, the Supreme Court held-

Even assuming that there was an error of construction of the agreement or even that there was an error of law in arriving at a conclusion, such an

error is not an error which is amenable to correction even in a reasoned award under the law. In order to set aside an award, there must be a

wrong proposition of law laid down in the award as the basis of the award.

In Bijendra Nath Srivastava (Dead) through LRs. Vs. Mayank Srivastava and others, the Supreme Court held--

The reasonableness of the reasons given by the arbitrator cannot however, be challenged. The arbitrator is the sole Judge of the quality as well as

the quantity of the evidence and it will not be for the court to take upon itself the task of being a judge of the evidence before the arbitrator"".

In State of Rajasthan Vs. Puri Construction Co. Ltd. and Another, the Supreme Court held -

The arbitrator is the final arbitrator 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. .....Error apparent on the face of the record does not mean that on closer

scrutiny of the import of documents and materials on record, the finding made by the arbitrator may be held to be erroneous. Judicial decisions

over the decades have indicated that an error of law or fact committed by an arbitrator itself does not by constitute misconduct, warranting

interference with the award.

In State of U.P. Vs. M/s. Ram Nath International Const. Pvt. Ltd., the Supreme Court held-

Award of an arbitrator can be set aside by a court only on the grounds indicated in Section 30 of the Arbitration Act. It is not open to the Court

to reassess the evidence to find whether the arbitrator has committed any error or to decide the question of adequacy of evidence and the court

cannot sit on the conclusion of the arbitrator by re-examining and reappreciating the evidence considered by the arbitrator.

The bone of contention on the side of the respondent, Tamil Nadu Housing Board is, the amount awarded by the learned Arbitrator is towards

the loss of profit for the extended period to complete the work.

The petitioner has relied on a decision of the Supreme Court in A.T. Brij Paul Singh and Others Vs. State of Gujarat, , wherein it was held that

where in a works contract, the party entrusting the work commits breach of the contract, the contractor would be entitled to claim damages for

loss of profit which he expected to earn by undertaking the works contract. What must be the measure of profit and what proof should be

tendered to sustain the claim are different matters. But the claim under this head is certainly admissible.

This decision of the Supreme Court clearly says that the claim for damages for loss of profit which the contractor expected to earn by undertaking

the works contract is admissible. By relying upon the above decision, it was argued on the side of the petitioner/contractor that the claim made by

him towards loss of profit is admissible, however, the learned arbitrator has not allowed the entire claim and he has allowed only 10% of the work

done by the contractor towards loss of profit. To strengthen the said argument, he has relied upon the same decision of the Supreme Court

wherein Their Lordships have confirmed the order passed by a Division Bench of the Gujarat High Court, 15% of the value of the balance of the

work contract as damages and held further that permitting 15% would not be an unreasonable measure of damages. Learned counsel appearing

for the petitioner/contractor has further contended that when the Supreme Court has permitted 15% the arbitrator has allowed only 10%.

Therefore the said sum granted by the learned arbitrator in his awards towards loss of profit cannot be said to be unreasonable.

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, wherein Their Lordships have considered the extra costs towards rise in prices of materials and labour

charges within and beyond the contract period. To arrive at a conclusion Their Lordships have considered the previous rulings on this point as well

as the report of the Judicial Committee and held that the arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what

he thinks is just and reasonable.

When we go through these two decisions carefully, the decision in A.T. Brij Paul Singh and Others Vs. State of Gujarat, deals with loss of profit

and not the extra costs towards rise in prices of materials and labour charges. The decision in Continental Construction Co. Ltd. Vs. State of

Madhya Pradesh, deals with rise in prices of materials, labour charges and not loss of profit. These two claims are distinct and separate. As the

decision in Continental Construction Co. Ltd. Vs. State of Madhya Pradesh, does not speak about the loss of profit, the same cannot be applied

to the instant case which deals with loss of profit. Therefore as decided by Their Lordships in A.T. Brij Paul Singh and Others Vs. State of

Gujarat, , the claim for loss of profit cannot be disallowed and the learned arbitrator has not committed any error on the face of the record by

allowing the said claim.

The Tamil Nadu Housing Board has raised objection to the grant of interest and also the date from which such an order has come into effect as

per the award passed by the learned arbitrator.

In the award concerned in O.P.Nos. 48 of 1995 and 823 of 1998 the learned arbitrator has awarded 12% interest per annum from 21.2.1994 till

the date of award on the awarded amount of Rs. 2,21,589.

In the award concerned in O.P.Nos. 67 of 1995 886 of 1995 the learned arbitrator has awarded 12% interest per annum on the sum of

Rs.80,752 from 21.2.1994 till the date of award.

In the award concerned in O.P.Nos. 47 of 1995 and 839 of 1995 the learned arbitrator has awarded 12% interest per annum on the sum of

Rs.1,67,892 from 21.2.1994 till the date of award.

Learned arbitrator has awarded interest from the date of commencement of the arbitral proceeding till the date of award.

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

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 disputes as to interest as such - to the arbitrator, he shall have the power to award interest.

This view is being followed and generally if the arbitrator awards interest pendente lite that cannot be interfered with by the Court. However, the

Tamil Nadu Housing Board has argued that there is a prohibition to award interest as per Clause 69 of the Madras Detailed Standard

Specifications, even if it is taken as a prohibition, awarding of interest by the officials of the Department is prohibited and not by the arbitrator. This

view is confirmed by the decision of the Supreme Court The Board of Trustees for the The Board of Trustees for the Port of Calcutta Vs.

Engineers-De-Space-Age, wherein it was held-

Strictly construed the term of the contract merely prohibits the Commissioner from paying interest to the contractor for delayed payment but once

the matter goes to arbitration the discretion of the Arbitrator is not, in any manner, stifled by this term of the contract and the Arbitrator would be

entitled to consider the question of grant of interest pendente lite and award interest if he finds the claim to be justified. We are, therefore, of the

opinion that under the clause of the contract the Arbitrator was in no manner prohibited from awarding interest pendente lite.

In the abovesaid case also there was a prohibition for payment of interest and the Supreme Court while considering the said prohibition held

(supra) that the prohibition was against the Commissioner from paying interest to the contractor for delayed payment and not for the arbitrator,

who is entitled to consider the question of grant of interest pendente lite. As the Constitutional Bench of the Supreme Court in Secretary, Irrigation

Department, Government of Orissa and others Vs. G.C. Roy, has held that the arbitrator can grant interest pendente lite, the argument advanced

on the side of the Tamil Nadu Housing Board that since there is a prohibition for the grant of interest, the arbitrator has no power to grant interest,

cannot be accepted. In the circumstances of the case, the arbitrator has rightly granted interest from the date of order of this Court (21.2.1994) for

arbitration till the date of award; therefore the grant of interest lies within the jurisdiction of the arbitrator.

In the result, O.P.Nos. 48, 67 and 47 of 1995 filed by the arbitrator u/s 14(2) of the Arbitration Act, 1940 are allowed and the respective awards

passed by the arbitrator are confirmed and decree passed in terms of the award and the Tamil Nadu Housing Board is liable to pay further interest

at 12% per annum on the sums awarded in each one of the award from the date of this decree till the date of realisation.

O.P.Nos. 823 of 98, 886 and 839 of 1995 are dismissed.

Parties shall bear their respective costs in all the six Original Petitions.