The Superintending Engineer, Tamil Nadu Housing Board vs S. Mariappan and Another

S.M. Ali Mohamed, J.—The above appeals and respective cross objections are against the common judgment of the learned single Judge in

arbitration matter.

Since the parties were the same and a common question was involved in respect of two awards, all the six original petitions were clubbed

together and a common judgment was delivered by the learned single Judge.

O.S.A. No. 148 of 1988 is filed against O.P. 156 of 1983 by the Superintending Engineer, Tamil Nadu Housing Board. Cross Objection No.

66 of 1991 is preferred by M. Paramasivam, the contractor in O.S.A. No. 148 of 1988. O.P. No. 156 of 1988 was filed by the arbitrator praying

to pass a decree in terms of the Award dated 21.3.1983 for a sum of Rs. 11,17,896 relating to construction of subsidised industrial houses at

Rajapalayarri.

O.S.A. No. 149 of 1988 is filed against O.P. No. 154 of 1983 by Superintending Engineer, Tamil Nadu Housing Board. Cross-objection No.

65 of 1991, is preferred by Paramasivam, the contractor, in O.S.A. No. 149 of 1988 against O.P. No. 154 of 1983. O.P. No. 154 of 983 was

filed by the Arbitrator praying to pass a decree in terms of the award dated 21.3.1983 for a sum of Rs. 9,71,782 relating to the construction of

''B'' and ''C types of blocks under the Tamil Nadu Government Rental Housing Scheme, Race Course Colony, Madurai.

O.S. A. No. 150 of 1988 is filed against O.P. No. 226 of 1983 by the Superintending Engineer, Tamil Nadu Housing Board. O.P. No. 266 of

1983 was filed by the Tamil Nadu Housing Board, Madurai Circle, Madurai, against the award relating to subsidised Industrial Housing Scheme,

Rajapalayam.

O.S. A. No. 151 of 1988 is filed against O.P. No. 267 of 1983 by the Superintending Engineer, Tamil Nadu Housing Board. O.P. No. 267 of

1983 was filed by the Superintending Engineer, Tamil Nadu Housing Board against the award passed by the Arbitrator relating to the construction

of ''B'' and ''C'' types of blocks under the Tamil Nadu Government Rental Housing Scheme, Race Course colony, Madurai.

O.P. No. 313 of 1983 was filed by the Contractor to set aside the award in so far as it disallows certain claims made by him to the arbitrator.

O.P. No. 314 of 1983 was filed by the contractor to set aside the award in so far as it disallows certain claims made by him to the Arbitrator.

The facts of the case summarised by the learned single Judge is as follows:

Two works, viz. (1) Subsidised Industrial Housing Scheme Houses at Rajapalayam and (2) the construction of B and C types of Blocks under the

Tamil Nadu Government Rental Housing Scheme, Race Course Colony, Madu-rai, were entrusted to the contractor under various agreements and

the period of contract is ten months for both the contract works from the date of handing over the site.

The total value of the-work in O.P. No. 266 of 1983, viz: Rajapalayam work is Rs. 27,94,678.40. The value of work completed by the

contractor is Rs. 23,67,306. After completing nearly 80%'' of the work, he made a claim for completing the balance of work of 80% excess of the

rate tendered by him. The works were not completed within the period of contract as per the said agreement. The petitioner applied for extension

of time to do the work till 9.3.1981 on the grounds that there was labour unrest and strike and that the rains obstructed the progress of the work.

He again applied for extension of time till 30.3.1982 on the plea that there was delay in supply of cement, nonavailability of diesel etc. All the

applications were recommended by the Executive Engineer, Madurai Housing Unit to the Superintending Engineer. He made the above claim of

80% excess of the value of the contract as compensation because the progress of the work was prolonged due to the reasons and on account of

the delay occasioned to him, he had to meet the expenditure on the proposal. On account of the delay caused to him by the department, he had to

meet the expenditure on this as project to a very great extent. The reasons set out are shown below:

(1) Delay and in adequate supply of cement; (2) Labour unrest and strike; (3) Heavy rain over a substantial period; (4) Delay in procurement of

bricks and metals from the places other than the one noted in the agreement; (5) Suspension of work to attend to the work connected with the

World Tamil Conference and (6) Nonavailability of diesel.

The above dispute was referred to the arbitrator, the Superintending Engineer, Anna Nagar Circle, Tamil Nadu Housing Board, Madras. The

Arbitrator, viz. Superintending Engineer,"" Tamil Nadu Housing Board, Madras, found the reasons given by the contractor as correct and

reasonable and passed an award. The Arbitrator came to the conclusion that the Tamil Nadu Housing Board is responsible, for the delay in

supplying materials to the petitioner which had resulted in the delay in completing the work and the delay had caused to meet the increase in cost of

expenditure. Further, it is seen from the Letters of the Executive Engineer, Madurai to the Superintending Engineer, Madurai while recommending

the extension of time, that the reasons set forth by the petitioner are reasonable. The reason for the delay on account of non-availability of diesel

was also held to be reasonable as it was so recommended by the Executive Engineer. Similarly, the suspension of work for a period of three

months in connection with the World Tamil Conference is proved to be true and consequently for the reasons stated in the award, the arbitrator

admitted the claim of the contractor for payment of compensation to an extent of Rs. 11,17,896.

As regards the Madurai work, which is the subject matter of O.P. No. 267 of 1983, the contractor claimed a compensation of 80% on the value

of the contract as the progress of the work was prolonged due to the following reasons resulting in heavy expenditure: (1) Delay in supply of

cement, (2) Suspension of progress of work for attending the works connected with the World Tamil Conference, and (3) Non-availability of

materials due to unsettled market position. The same was denied by the Tamil Nadu Housing Board. But for the reasons stated in the award, the

Arbitrator admitted the claim of the petitioner are reasonable for payment of compensation to the extent of Rs. 9,71,782.

In a well considered judgment, the learned single Judge dismissed O.P. Nos. 226,267,313 and 314 of 1989 and allowed O.P. Nos. 154 and

156 of 1983. Aggrieved by the judgment, both the Superintending Engineer and the contractor have filed the above appeals and cross-objections.

It was contended by Mr. Raghunathan, learned Counsel for the Superintending Engineer that the learned single Judge failed to see that the

award of the arbitrator is vitiated for the error apparent on the face of the award and therefore the same is liable to be set aside. It was also

contended that the arbitrator misconducted himself and misconducted the arbitration proceedings and therefore, the award was liable to be set

aside. On the other hand, Mr. K.T. Pal Pandian, learned Counsel for the contractor submitted that there was no error apparent on the face of the

award and the learned Judge has taken a correct view of the matter. In the cross-objection No. 66 of 1981 in O.S.A. No. 148 of 1988, he urged

that the learned Judge ought to have decreed the award for a total sum of Rs. 27,94,735.90 and in any event, the learned single Judge errored in

law in not allowing the interest from the date of award or at any rate, from the date of decree. In .cross objection No. 65 of 1991 in O.S.A. No.

149 of 1988 he had pointed out that the learned Single Judge ought to have decreed the award for a total sum of Rs. 19,43,564 and in any event,

the learned single Judge erred in law in not allowing interest from the date of the award or at any rate from the date of the decree.

The learned single Judge considered both the submissions of the parties and held as follows:

In respect of the award which is the subject matter of O.P. No. 266 of 1983, the arbitrator referred to condition No. 13 of the agreement which

stipulates that the price for the finished Items of works should be furnished taking into account the issue rates for materials to be supplied by the

respondent and condition No. 12 provides that the contractors should make their own arrangements for procurement of materials, both controlled

and non-controlled items, if they are not available in the General stores of the Department. As per the condition in Annexure 1 to the Agreement

condition, cement and steel will be supplied by the department and the costs recovered at the rates noted. To � a petition filed by the contractor,

claiming compensation, the Legal Adviser''s opinion was sought and accordingly, he gave his opinion which suggested settlement of claims

amicably by joint discussion between both parties. The arbitrator has observed that even from the report of the Executive Engineer, it is seen that .

only about 733.00 metric tonnes of cement was supplied as against the requirement of 1,162 metric tonnes during the period of contract and that

the cost of the materials had risen by about 40% and further concentration was diverted for three months due to World Tamil Conference and all

importance was given to the said work and that the Department has not informed well in advance the contractor to procure the materials intimating

that the same were not available at the Departmental Stores. In regard to the delay due to Labour unrest and heavy rain, etc., the contention of the

contractor is probabilised as seen from the recommendation made by the executive Engineer wherein the representation of the contractor for the

above reasons was recommended as reasonable. The representation of the contractor about non-availability of diesel was accepted by the

Executive Engineer who in turn addressed to Sales Manager and Administrative Manager of the Indian Oil Corporation, Madurai, to spare 300

litres of diesel per day for supply to the contractor. As already stated, the Executive Engineer admitted the Labour unrest, increase in price and

diversion of the work and the concentration of the work to the World Tamil Conference for over a period of three months. It is only on that basis,

compensation was awarded to the contractor. Similarly in respect of the award passed in O.P. No. 267 of 1983 it was observed by the Arbitrator

that regarding the delay on inadequate supply of cement, the Executive Engineer, Housing Board, Madurai, in his letter dated 2.5.1982 has stated

that the statement of inadequate supply of cement is true. The contention of the contractor that a quantity of 35 metric tonnes of cement was

transferred from this work to other works is probabilised by the report made by the respondent dated 5.3.1983 that 22.5 metric tonnes of cement

was transferred from this work to the work connected with the World Tamil Conference. Further, it is reported by the Housing Board that the

works connected with the World Tamil Conference were awarded at 14% excess over the schedule rates of 1980-81 and when a project was

taken on war footing basis, the demand for labour and materials will be high and the rates would be there. The Executive Engineer also reported

that the work in respect of about Rs. 3,00,000 pertaining to the World Tamil Conference given to the petitioner, namely, contractor was a priority

work to be completed before 31.12.1981. Therefore, all importance was given to that work and concentration was diverted for over a period of

three months. The legal Adviser also gave opinion that the claim of the contractor was maintainable in court of law and u/s 65 of the Indian

Contract Act and also recommended to settle the matter by joint discussion. The Arbitrator considered all these matters and passed the Award.

Section 30 of the Arbitration Act, 1940 deals with the grounds for setting aside the award which is as follows:

An award shall not beset aside except on one or more of the following grounds, viz:

(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 first contention of the learned Counsel for the appellant is based on the ground (a) of Section 30 of the Arbitration Act that the arbitrator

has misconducted himself or the proceedings since he passed an award on the basis of totally irrelevant and in admissible consideration. On the

other hand, the counsel for the contractor contended that the delay has occurred because of the failure on the part of the department in supplying

the materials and diverting the materials and the work to other important work and consequently there has been escalation of prices and was

entitled to compensation.

Learned Counsel for the appellant relied on a ruling in case of West Bengal Industrial Infra-Strictire Development Corporation Vs. Star

Engineering Co., , wherein the learned single Judge has held that an award cannot be challenged on the ground of inadequacy or in admissibility or

impropriety of the evidence. The above ruling does not in any way support the contention of the learned Counsel for the appellant, but as a matter

of fact, it supports the contention of the learned Counsel for the contractor. Learned Counsel for the ''appellant also relies upon another ruling in

case of Jagdish Chander Vs. Hindustan Vegetable Oils Corporation and Another, , wherein it was held that u/s 30 of the Arbitration Act, one of

the grounds on which the award can be set aside, is, if an arbitrator ''has misconducted himself or the proceedings''. ""As I understand this

provision, apart from legal mis-conduct which must be apparent on the face of the award, there can be a misconduct which is personal to the

arbitrator like where the arbitrator was related to one of the parties and therefore, biased or has accepted a bribe. The other type of misconduct

which is referred to in Section 30 is the misconduct of the proceedings. If proceedings are held in violation of the principles of natural justice, it

would amount to the arbitrator having misconducted the proceedings. For example if evidence is improperly shut out or evidence is taken behind

the back of one of the parties or sufficient opportunity is not granted to any of the parties to present its case or defend itself before the arbitrator

then the award may be set aside u/s 30(a) of the Arbitration Act"".

The above ruling does not support the contention of the learned Counsel for the appellant. In the instant case, the learned Single Judge has held

that the arbitrator has given sufficient opportunities to both parties and after observing all the formalities, the arbitrator has passed the award.

With regard to the contention regarding error apparent on the face of the award, the law is well settled by various rulings of the Supreme

Court. In Jivarajbhai Ujamshi Sheth and Others Vs. Chintamanrao Balaji and Others, , it is held as follows:

An award made by an arbitrator is conclusive - as a judgment between the parties and the Court is entitled to set aside an award 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 u/s 35 of the Arbitration Act or where an award has been improperly procured or is

otherwise invalid (Section 30 of the Arbitration Act). An award may be set aside by the court on the ground of error on the face of the award, but

an award is not invalid merely because by a process of inference and agreement it may be demonstrated that the arbitrator has committed some

mistake in arriving at his conclusion. As observed in Champsey Bhara and Company v. Jivraj Balloo Spinning and Weaving Company Limited

(1923) 44 M.L.J. 706 : 50 I.A. 324 : AIR 1923 P.C. 66 : 1923 M.W.N. 596 : 731C. 436.

An error in law on the face of the award means, in their Lordships'' view, that you can find in the award or a document actually incorporated

thereto, as for instance a note appended by the arbitrator stating the reasons for his judgment, some legal proposition which is the basis of the

award and which you can then say is erroneous. It does not mean that if in a narrative a reference is made to a contention of one party, that opens

the door to seeing first what that contention is, and when going to the contract on which the parties'' right depend to see if that contention is sound.

The court in dealing with an application to set aside an award has not to consider whether the view of the arbitrator on the evidence is justified. The

arbitrator''s adjudication is generally considered binding between the parties, for he is a tribunal selected by the parties and the power of the court

to set aside the award is restricted to cases set out in Section 30. It is not open to the court to speculate, where no reasons are given by the

arbitrator, as to what impelled the arbitrator to arrive at his conclusion. On the assumption that the arbitrator must have arrived at his conclusion by

a certain process of reasoning, the court cannot proceed to determine whether the conclusion is right or wrong. It is not open to the court to

attempt to probe the mental process by which the arbitrator has reached his conclusion where it is not disclosed by the terms of his award.

In Union of India (UOI) Vs. Bungo Steel Furniture Pvt. Ltd., , it was held as follows:

The award of an arbitrator can be set aside on the ground of error of law on the face of the award, only when in the award or in a document

incorporated with it as for instance a note appended by the arbitrator setting the reasons for his decision, there is found some legal proposition

which is the basis of the award and which is erroneous. The court has no jurisdiction to investigate into the merits of the case and to examine the

documentary and oral evidence on the record for the purpose of finding out, whether or not the arbitrator has committed an error or law.

In Allen Berry and Co. Pvt. Ltd. Vs. The Union of India (UOI), New Delhi, , it has been held by the Supreme Court as follows:

The question whether a contract or a clause of it is incorporated in the award is a question of construction of the award. The test is, does the

arbitrator come to a finding on the wording of the contract. If he does, he can be said to have implied incorporated the contract or a clause in it

whichever be the case. But a mere general reference to the contract in the award is not to be held an incorporating it. The principle of reading

contracts or other documents into the award is not to be encouraged or extended.

At page 292 of the said decision, it was held as follows:

But questions both of fact and law were referred to the umpire and prima facie his findings on them bind the parties unless, as explained earlier, the

umpire has laid down any legal proposition, such as a construction which is made the basis of the award and is on the face of the award an error.

Applying the ratio of the rulings of the Supreme Court, in the instant case, we find that there is no violation of Section 30(a) of the Arbitration

Act and the arbitrator has not misconducted himself or the proceedings. In this connection, the learned Judge has held as follows:

...It cannot be said that the award passed by the Arbitrator is without any evidence and there is absolutely nothing to hold that there was any error

apparent on the face of the award or that the arbitrators misconducted himself in the said proceedings so as to warrant any interferences either u/s

30 or Section 16 of the Arbitration Act. The ratio laid down in the various decisions relied on by the learned Counsel for the contractor also affirm

the said view. 1 find that the arbitrator has followed the procedure and has given sufficient opportunity to both parties and after observing all the

formalities has passed the award.

We find no ground to differ from the view expressed by the learned single Judge.

With regard to the contention that the award is not a speaking award, a Constitution Bench of Supreme Court in Raipur Development

Authority v. Chokhamal Contractors AIR 1990 S.C. 1426 : (1989) 2 J.T. 285 : (1989) 1 K.L.T. 884 : (1989) 2 S.C.C. 721, has held that an

award is not liable to be set aside merely on the ground of absence of reasons. The Constitution Bench further held that where the arbitration

agreement itself stipulated reasons for the award, the arbitrator is under a legal obligation to give reasons. Therefore, the contention that the award

is non-speaking award has to be rejected.

With regard to the payment of interest, the Supreme Court has considered the matter in the case of Secretary, Irrigation Department,

Government of Orissa and others Vs. G.C. Roy, , wherein the Supreme Court has summarised the legal position with regard, to the award of

interests as follows:

On a conspectus of aforementioned decisions, the following principles emerge;

(i) A person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name.

It may be called interest, compensation or damages. This basic consideration is as valid for the period the dispute is pending before the arbitrator

as it is for the period prior to the arbitrator entering upon the reference. This is the principle of Section 34, C.P.C. and there is no reason or

principle to hold otherwise in the case of arbitrator;

(ii) An arbitrator is an alternative form for resolution of disputes arising between the parties. If so, he must have the power to decide all the disputes

or differences arising between the parties, if the arbitrator has no power to award interest pendente lire, the party claiming it would have to

approach the court for that purpose, even though he may have obtained satisfaction in respect of other claims from the arbitrator. This would lead

to multiplicity of proceedings;

(iii) An arbitrator is the creature of an agreement. It is open to the parties to confer upon him such powers and prescribe such procedure for him to

follow, as they think fit, so long as they are not opposed to law (The proviso to Section 41 and Section 3 of Arbitration Act illustrate this point).

All the same, the agreement must be in conformity with law. The Arbitrator must also act and make his award in accordance with the general law

of the land and the agreement,

(iv) 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. The award as, In re. Seth Thawardas

Pherumal Vs. The Union of India (UOI), , has not been followed in the later decisions of this Court. It has been explained and distinguished on the

basis that in that case there was no claim for interest but only a claim for unliquidated damages. It has been said repeatedly that observations in the

said judgment were not intended to lay down any such absolute or universal rule as they appear to, on first impression. Executive Engineer

(Irrigation), Balimela and Others Vs. Abhaduta Jena and Others, , almost all the courts in the country had upheld the power of the arbitrator to

award interest pendentelife. Continuity and certainty is a highly desirable feature of law.

(v) 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.

Having regard to the above considerations, we think that the following is the correct principle which should be followed in this behalf.

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

for principle 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. This does not mean that in

every case, the arbitrator should necessarily award interest pendentelite. It is a matter within his discretion to be exercised in the light of all the facts

and circumstances of the case, keeping the ends of justice in view.

It is further held in the above said case, by the Supreme Court, as follows:

Generally, the question of award of interest by the Arbitrator may arise in respect of three different periods, namely:

(i) for the period commencing from the date of dispute till the date the arbitrator enters upon the reference;

(ii) for the period commencing from the date of the Arbitrator''s entering upon reference till the date of making the award; and

(iii) for the period commencing from the date of making of the award till the date the award is made the rule of the court or till the date of

realisation, whichever is earlier.

In the instant case, it was not brought to the notice of the learned Single Judge that the agreement between the parties envisages payment of

interest. In any event, the contractor has hot claimed interest in his cross-objections, (i) for the period commencing from the date of dispute, till the

date the Arbitrator enters upon the reference; (ii) for -the period commencing from the date of the Arbitrator''s entering upon reference till the date

of making the award; but has limited his claim of interest for the period commencing from the date of making of the award and or at any rate from

the date of decree.

Upon the peculiar facts and circumstances of the case, the learned single Judge has exercised his discretion and has not granted any interest for

the period commencing from the date of the award or at any rate from the date of the decree. We find no reasons to interfere with the exercise of

the discretion of the learned single Judge with regard to the payment of interest.

In view of above, the above appeals and cross-objections are dismissed and the judgment and decree of the learned single Judge are

confirmed. On the peculiar facts and circumstances of the case, there shall be no order as to costs.