Union of India vs Pawan Kumar Gupta and Another

Gh. Hasnain Massodi, J.—Late Shri Shiv Charan Gupta S/o Shri Lal Chand Gupta R/o ward No.8 Udhampur, way back in 1977 bagged a

contract for construction of ""Married Accommodation for JCOs, Havaldars and other ranks,"" at Dhar Road, Udhampur. The terms and conditions

of the contract were reflected in contract agreement No.CEJK-37/77-78. In addition to the terms and conditions agreed upon, the General

Condition of Contract (CCC) IAFW -2249, were to be read as part of the contract entered into by the parties. The contract work was completed

on 15.12.1979. The contractor after payment was made, complained that amount on different counts payable to the contractor, was not so paid

by the contract awarding authority/officer of Union of India. The contractor in all submitted as many as 19 claims. The Competent Authority, (Lt.

Gen -- Engineer-in-Chief on 11.01.1983 appointed Shri K.S Tekchandani, S.E as sole arbitrator and referred the disputes that had arisen

between the parties out of the contract in question, to the appointed arbitrator. Shri Tekchandani put in his papers on 6.1.1987 without taking the

arbitration proceedings to their logical end. No consequential steps were taken for appointment of a new arbitrator constraining the contractor to

approach this Court with arbitration application registered as 243 AA of 1986. The application was disposed of on March 6, 1987 with a

direction to the Engineer-in-Chief Army HQs to take steps for appointment of arbitrator. The Court Order prompted the Competent Authority to

appoint vide order/ communication dated 2.5.1 991 Shri Brigadier Y. W. Joshi. Brigadier Joshi -- the 2nd arbitrator also has left the job half way.

The competent authority finally vide No.13600/NC/89/E8 dated 27.7.1993 appointed Shri MMS Nanda Chief Engineer, as the sole arbitrator to

settle the disputes between the parties. Shri Nanda entered upon the reference concluded the arbitration proceedings and made, signed and

published award on 29.7.1995. The arbitrator in all allowed 5 of the 19 claims and held the respondents liable to pay the awarded amount on

account of the claims allowed alongwith interest @ 18 % p.a on the awarded amount from the date of reference to the date of award. The

arbitrator disallowed other 14 claims set up by the respondents.

The respondents thereafter on 15.9.2005 approached this court with an application u/s 14 of the Jammu & Kashmir Arbitration Act 1940 for a

direction to the arbitrator to file the award in the Court and with the further prayer to make the award rule of the Court. The application was

allowed and the arbitrator directed to filed the award. The award was accordingly filed and registered as AA No.204/1996. The parties filed their

objections to the award. The respondents supported the award and asked for it being made rule of the court. The petitioners on the other hand

questioned the award on the grounds that the arbitrator had mis-conducted himself and the proceedings and that the arbitrator had traveled beyond

his powers by awarding interest in favour of the respondents.

The Court on 1.8.2000 upon perusal of the pleadings settled the following issues:

1) Whether the Arbitrator has mis-conducted himself and the proceedings as alleged in the petition, if so what is its effect? O.P. Petitioner

2) In case issue No. 1 is proved in the affirmative, what is its effect on the Award in question dated 29.7.1995?

3) Relief.

The parties were asked to adduce evidence in shape of affidavits in support and rebuttal of the case set up by them respectively. During

pendency of the proceedings Shri Shiv Charan Gupta the petitioner in the application A.A No.214/95 and A.A.No.204/1996 passed away and

his son Shri Pawan Kumar Gupta as legal representative of the deceased was brought on the record.

Col. J.K. Virwani, Commander Works Engineer, Udhampur filed affidavit on behalf of the petitioners were as Shri Pawan Kumar Gupta L/R of

the petitioner Shiv Charan Gupta filed affidavit on behalf of the respondents. The record of arbitral proceedings was also produced to facilitate just

disposal of the matter. Heard and considered.

Issues settled in the matter may now be taken for adjudication.

1) Whether the Arbitrator has mis-conducted himself and the proceedings as alleged in the petition, if so what is its effect? O.P. Petitioner

It is well settled law that the Court while dealing with an application u/s 30 r/w section 33 of the J&K Arbitration Act 1940 is not expected to sit

in appeal against the award, scrutinize evidence adduced before the arbitrator, analyze and evaluate the evidence and to opine on the merits and

the conclusions drawn by the arbitrator. The role of the Court while dealing with a non speaking award is further restricted. The court has not

before it the material that weighed with the arbitrator or the reasons that persuaded the arbitrator to accept or reject the claim(s).

It has been held in Natwar Lal Shamal Das and Co. Vs. Minerals and Metals Trading Corporation of India, :

The non-speaking awards cannot be assailed on the ground of no evidence. Of the quality and sufficiency of evidence the Arbitrator is the sole

Judge. The Court cannot be a Judge. It is for the Arbitrator to weigh the evidence adduced by the parties. He has not to give any reason why he

has accepted the claim of a party. Therefore, if an award is a non speaking award the court cannot say that the Arbitrator's decision is based on

good evidence or insufficient evidence or no evidence at all.

The principle of law also finds expression in Rajendra Construction Company Vs. Maharashtra Housing and Area Development Authority and

Others, where Supreme Court quoted with approval following passage from handbook of arbitration practice by Ronald Berstein.

The absence of reasons does not invalidate an award. In many arbitrations the parties want a speedy decision from a Tribunal whose standing and

integrity they respect, and they are content to have an answer Yes or No; or a figure of X. Such an award is wholly effective; indeed, in that it

cannot be appealed as being wrong in law it may be said to be more effective than a reasoned award.

Section 30 of J&K Arbitration Act 1940 that governs the case in hand details the grounds that may persuade the court to set aside the award.

The grounds envisioned are that the arbitrator or umpire has misconducted himself or the proceedings; that the award has been made after the

issue of order superseding the arbitration proceedings has become invalid u/s 35 or that an award has been improperly procured or is otherwise

invalid. The petitioners in their application u/s 30/33 have alleged misconduct of proceedings by the arbitrator on the ground that the arbitrator has

not made a speaking award. The petitioners in their application have not made any positive assertion that arbitrator under the agreement arrived at

between the parties and governing the contract, was required to pass a reasoned and speaking award. However, it is pleaded that having regard to

the fact that award was made for grant of Rs.25,000/-, the award should have been ""self explanatory"". It would be advantageous to extract the

following passage from para 3 of the petition:

Though the agreement is silent as far as speaking award is concerned but normally the court can go through this fact when award is more than

Rs.25,000/-. In this instant case the award is more than Rs.25,000/-. As such it should be with self explanatory one.

Though the petitioners, as pointed out above, have not taken up a specific plea that the arbitrator was duty bound to make a reasoned and

speaking award, yet the expression ""self explanatory"" may very well be taken to be petitioners insistence on the award being reasoned.

The other grounds urged in the petition relate to mis-appreciation of evidence or absence of evidence before the Arbitrator and such matters,

as emphasized above, are not to be taken up and dealt with by the court while dealing with a petition u/s 30/33 J&K Arbitration Act 1940 more

so when the award is a non speaking award.

It thus becomes imperative to examine whether in terms of contract the arbitrator was required to make a speaking and reasoned award. The

contract entered into by the parties as already pointed out is governed by General Condition of Contracts (GCC) IAFW-2249 Condition 70 of

IAFW-2249 as it stood at the time of contract in question between the parties, deserves to be noticed, the relevant part reads as under:

The Arbitrator shall give his award within a period of six months from the date of his entering on the reference or within the extended time as the

case may be on all matters referred to him and shall indicate his findings, alongwith sums awarded, separately on each individual item of dispute.

It is argued by Ld. Counsel for the petitioners that the arbitrator having regard to clause 70 of General Conditions of Contract, was required to

make a reasoned and speaking award which admittedly has not been done by the arbitrator in the present case. Ld. Counsel for the petitioner to

buttress his arguments places reliance on law laid down in:

1) M/S Goralal v. Union of India AIR 2004 SC 4956 2) Union of India v. Wazir Chand Bhatia 2008 (2) JKJ 536 (HC).

In AIR 2004 SC 4956 where Condition 70 of IAFW 2249 was subject matter of the proceedings as in the present case the Supreme Court

held that the arbitrator under clause 70 of IAFW 2249 is required to give a reasoned and speaking award. The Supreme Court observed:

The point for determination in this case is: Whether the Arbitrator ought to have given reason in support of his findings, alongwith the sums

awarded, on each items of dispute. To decide this point, we have to go by the text and the context of Clause 70 of the arbitration agreement

quoted above. Under the said Clause, the Arbitrator was required to identify each individual item of dispute and give his findings thereon alongwith

the sum awarded. In this context, one has to read the word ""findings"" with the expression ""on each item of dispute"" and if so it is clear that the

word ""finding"" denotes ""reasons"" in support of the said conclusion on each item of dispute. The word ""finding"" has been defined in Words and

Phrases, Permanent Edition 17, West Publishing Co.' to mean ""an ascertainment of facts and the result of investigations"". Applying the above test

to Clause 70, we are of the view that the Arbitrator was required to give reasons in support of his findings on the items of dispute alongwith the

sums awarded. We make it clear that this order is confined to the facts of this case and our interpretation is confined to clause 70 of the arbitration

agreement in this case."" Emphasis supplied.

In 2008 (2) JKJ HC 536, law laid down in AIR 2004 SC 4956 was followed.

Ld. Counsel for the respondents on the other hand insists that Condition 70 (supra) was interpreted in the background of amendment to it in

the year 1986 and that as the contract in question was arrived at between the parties in the year 1977-78 additions made to Clause 70 (supra) in

the year 1986 were not applicable to the present case and so was not the law laid down in the above referred cases. Ld. Counsel for the

respondents seeks to drawn support from law laid down in Build India Construction System Vs. Union of India (UOI), .

In case relied upon by the Ld. Counsel for the petitioner it has been held that Condition 70 (supra) does not provide for a speaking award

being given by the Arbitrator. The court observed that there is nothing in the arbitration clause (Condition 70) spelling out an obligation on the part

of the Arbitrator to give reasons for the findings arrived at by him. The Supreme Court noticed that on 4.9.1986, the Government of India,

Ministry of Defense, New Delhi, sanctioned an amendment in the General Conditions of Contract which required the Arbitrator to give reasons for

the award if value of the claim(s) or counter claim(s) in arbitration reference exceeds Rs.1,00,000/-. The amendment was come into effect on

3.10.1986. The court noticing that the amendment was to come into effect from 3.10.1986, held it not to apply to the contract before the Court

where the letter of acceptance was conveyed on 22.2.1985. The Court observed:

That amendment clearly cannot have any relevance for interpreting the arbitration clause contained in the Contract entered into between the parties

much before the date of amendment coming into effect.

It appears that the Government of India, as noticed in the above reported case made an amendment to the Condition 70 which reads as under:

Amendment No.Page No Particulars

48 1978 24 Condition 70 Sub para 9 Add the following at

the end of the sub paras:

Print ""If the value of the claims or counter claims in an

arbitration reference exceeds Rs. 1 lakh the

arbitration shall given reasons for the award

Sanction of the Government is also accorded for incorporation of the above mentioned amendment at the appropriate place in the earlier prints

of IAFW 2249.

The amendment shall come into effect from 3.10.1986.

The very fact that the Government of India found it necessary to carve out an exception through amendment as regards cases referred for

arbitration where the claim or counter claim exceeds Rs.1.00 lakh, is undisputedly indicative of the fact that Condition 70 in its un-amended form

did not require the arbitrator to make a speaking and reasoned award. Had it been intention at the time of formulating General Conditions of

Contract IAFW 2249 that the award made by the Arbitrator in terms of Condition 70 to the Conditions must be reasoned and speaking award,

there was no need to insert an amendment in the year 1986 and set apart a ""specie"" of cases where the Arbitrator was to mandatorily give a

reasoned and speaking award. When the court is called upon to interpret a term of contract, what the court is required to do is to gather the

intention of the parties from the recitals of the contract or any part thereof. Once the intention of the contracting parties is made evident by the

conduct of the parties subsequent to the contract, there is no necessity to play with ""words"" and place interpretation by going to the ""words"" and

phrases"" of the contract or a part thereof. In Build India Construction System Vs. Union of India (UOI), the amendment made in Condition 70 of

the GCC was pointedly brought to the notice of the Court and the Court having noticed the amendment held the un-amended Condition 70 not to

have required reasoned and speaking award. In both the cases relied upon by the Ld. Counsel for the petitioners, on the other hand the

amendment incorporated in the year 1986 in Condition 70 (supra) was not brought to the notice of the Court. In the circumstances Condition 70

(supra) was interpreted in absence of consideration of the amendment made in Condition 70. The Supreme Court in AIR 2004 SC 4956 was

pleased to make it clear that the order was confined to the facts of the case before the Court and the interpretation of Condition 70 of the

agreement applied to the case before the court.

The law laid down in Goralal (supra) was sought to be relied upon Rajendra Construction Company Vs. Maharashtra Housing and Area

Development Authority and Others, to convince the court that the Arbitrator was required to give a reasoned and speaking award. The Supreme

Court held that the Goralal case was decided in the fact situation before the Court.

The case reported as Build India Construction System Vs. Union of India (UOI), also appears not to have been brought to the notice of the

Supreme or the High Court while the Court was dealing with cases reported as AIR 2004 SC 4956 or 2008 (2) JKJ 536 (HC).

It needs no emphasis that parties to agreement are bound by terms of agreement and the terms of the agreement are to be interpreted in light of

the intention of the parties. In the present case, the agreement before us, arrived at in the year 1977. The work was completed in 1979. The

disputes surfaced immediately there after and a reference was made to the arbitration in the year 1983. The amendment in Condition 70 was made

in 1986 and was directed to come into force w.e.f 3.10.1986. The amendment or sub para 9 introduced by the amendment thus has no application

to the contract in question. In other words the Arbitrator was not required to give the reasoned or speaking award in terms of Condition 70. The

case set up by the petitioner that the Arbitrator by giving a non speaking award and not giving reasons in support of the award has mis-conducted

himself or the proceedings, is bereft of any merit.

The contention that the Arbitrator was not competent to award interest on the claims allowed, is equally devoid of any substance. The

respondents expressly laid a claim for interest on the amount withheld /not paid by the petitioners and the claim in this regard was duly reflected

and set up as claim No.5 in the list of as many as 19 claims put up by the respondents. It is not a case where no claim for interest was made by the

respondents and the Arbitrator oblivious to omission on the part of the respondents to lay a claim for interest, played a pro active role and went

out of way to award the interest.

In the present case as already sated the specific plea /claim as regards interest was made and the Arbitrator found the respondents entitled to

interest @ 18% p/a from the date first Arbitrator entered upon the reference till the date of decree was awarded. The contention that the interest

was awarded from the date the first Arbitrator entered into the reference unmindful of the fact that the some of the claims dealt with by the

Arbitrator were not submitted before the 1st. Arbitrator, is made unmindful of the fact that the claims referred to the contract work that was

entered into and completed way back in the year 1979. In the circumstances even If it is assumed that a claim was set up some time after the 1st.

Arbitrator entered upon the reference, is of no consequence in as much as the claim related to the contract work and that it was available on the

date 1st. Arbitrator entered upon reference.

It is well settled law that the Arbitrator has power to award pendent lite interest and even where the agreement is silent as to grant of interest, it

is to be presumed as implied term of contract. Reference in this regard may be made to law laid down in Secretary, Secretary, Irrigation

Department, Government of Orissa and others Vs. G.C. Roy, .

Earlier referred to in Raipur Development Authority Vs. M/s. Chokhamal Contractors etc. etc., , relied upon in Rajindera Construction

Company (supra).

In this case the Arbitrator awarded interest @ 18 % p.a on the principal amount from the date of the suits to the date of the awards also from

the date of awards to the date of payment or up to the date of the decrees whichever is earlier. The Court held that the Arbitrator had power to

award interest at all three stages. However, the Court in the facts and circumstances of the case reduced the rate of interest to 10% p.a.

In the circumstances the ground that the Arbitrator has misconducted the proceedings or exceeded his jurisdiction by awarding interest, is

bereft of any merit and deserves to be ignored.

However, having regard to the fact that the contract of construction was completed as back as on 1977 and that the award has been made in

the year 1995 and delay in disposal of the present matter is not in any manner attributable to the petitioners. It would be just proper, equitable and

in the interest of justice to reduce the rate of interest which is otherwise exorbitant and over and above the bank interest rates lending as well as

saving. All through the period reference remained pending before the Arbitrator and thereafter before this Court to reduce the interest rate on the

award amount to 10 % p.a.

Issue No. 2.

In case issue No. 1 is proved in the affirmative, what is its effect on the Award in question dated 29.7.1995?

Since issue No.1 has been answered in negative the issue No.2 is rendered inconsequential and does not call for an answer.

The petitioners endeavor to get the award dated 29.7.1995 set aside by pressing into service section 30 read with section 33 Jammu &

Kashmir Arbitration Act 1940 had not met success. Resultantly the petition for making the award rule of the court is to succeed and merits to be

allowed. The petition is accordingly allowed and the award made rule of the Court with the above modification as regards rate of interest on the

awarded amount. The petitioner accordingly shall pay the award amount alongwith the interest @ 10% p.a, thereon from the date the 1st.

Arbitrator entered upon the reference till final realization of the award amount. Decree sheet be drawn up accordingly.