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The Hindustan Construction Company Ltd., Bombay Vs. State of Uttar Pradesh - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtAllahabad High Court
Decided On
Case NumberF.A.F.O. Nos. 445 and 446 of 1977
Judge
Reported inAIR1985All93
ActsArbitration Act, 1940 - Sections 29 and 30
AppellantThe Hindustan Construction Company Ltd., Bombay
RespondentState of Uttar Pradesh
Appellant AdvocateS.C. Budhwar, Adv.
Respondent AdvocateM.S. Negi, Adv.
DispositionAppeals allowed
Excerpt:
arbitration - error of law - sections 29 and 30 of arbitration act, 1940 - reference to the contract in the opening paragraph of the award or in paragraph prior to the declaration made in the award - a mere narration - not referred to as being relied upon for the purpose of interpreting any particular clause of the contract - held, not open to the court to hold whether the interpretation of the term of contract contained an error of law apparent on the face of the award. - - in the latter case the arbitrator is not bound like the arbitrator to whom a case has been referred by the court, by the terms of the reference. but a mere general reference to the contract in the award is not to be held as incorporating it the principle of reading contracts or other documents into the award is.....a. banerji, j.1. these two first appeals from orders raise identical questions of law and can, therefore, be conveniently decided by a common order.2. first appeal from order no. 445 of 1977 arises out of a decision dated 5-7-1977 in civil miscellaneous case no. 184 of 1976 between state of uttar pradesh v. the hindustan construction company limited of bombay (hereinafter referred to as the 'company').3. the company entered into an agreement for construction of civil works on yamuna hydel project, stage ii, part i. the company undertook the construction of diversion across river tons at ichari, intake works, head race tunnel, surge tank underground power house at chibro with its appurtenant works, exit works at chibro and a syphon tunnel below river tons at chibro. the contract was.....
Judgment:

A. Banerji, J.

1. These two First Appeals from Orders raise identical questions of law and can, therefore, be conveniently decided by a common order.

2. First Appeal from Order No. 445 of 1977 arises out of a decision dated 5-7-1977 in Civil Miscellaneous Case No. 184 of 1976 between State of Uttar Pradesh v. The Hindustan Construction Company Limited of Bombay (hereinafter referred to as the 'Company').

3. The Company entered into an agreement for construction of Civil Works on Yamuna Hydel Project, Stage II, Part I. The Company undertook the construction of diversion across river Tons at Ichari, intake works, head race tunnel, surge tank underground power house at Chibro with its appurtenant works, exit works at Chibro and a Syphon tunnel below river Tons at Chibro. The contract was executed on 5-2-1966. One of the stipulations in the contract was that certain materials were to be furnished by the Government Para 12.05(c) related to the supply of steel It stated :

'Steel-- Government will issue steel to the contractor if available in the stores of the engineer-in-charge. The weight of the steel shall be based on the supplier's sectional tables. The contractor shall pay for all steel, issued to him at the F. O. R Dehradun prices of steel at column I rates plus extra charges as notified by the Government of India as applicable on March 31, 1963 plus two per cent Central Sales Tax. In addition a sum of Rs. 35.00 per tonne or Rs. 50.00 per tonne will be charged on the steel in lieu of handling, transportation and storage charges according as it is issued at Dehradun stores or Dakpathar/Dhakrani/ Dhalipur stores respectively.'

4. It appears that fabrication work in steel was required to be made for execution of the project. Subsequently, it transpired that the steel to be used had to be imported Since the Company had a factory at Poona, a supplemental agreement was entered into on 15-3-1969. This agreement purported to modify Para 12.05 (c) of the principal agreement It will be relevant to quote the same.

' And whereas Government imported certain steel plates from Japan for fabrication of penstocks and appurtenant liners required for the said work and the Contractor has requested the Government to deliver the said steel P.O. R Poona, the delivery to the Contractor has arranged to get fabrication work done on its behalf by its sub-contractor Messrs Indian Hume Pipe Company, Poona and the Government has agreed to arrange delivery F. O. R. Poona on conditions firstly, that the rate to be recovered from the Contractor shall be as mentioned in Clause 12.05 (c) and secondly that no payment to the Contractor shall be made for transport or handling etc. of fabricated materials from poona to work site and thirdly, that the Steel plates so delivered shall be secured by a Bank Guarantee to the satisfaction of the Govt. and lastly that instead of the procedure for recovery against steel laid down in Clause 5.03 (i) of the Principal Agreement, the recovery for the aforesaid steel shall be made from the Contractor progressively as the finished work for furnishing and installing the said liners is measured and paid for in the intermediate bills.'

5. The agreement also contained an arbitration clause, contained in, para No. 6.01. This stipulated that in case there was a dispute between the Government and the contractor on the question of rates, measurements, specifications or any other matter in relation to this work, such a dispute shall be referred for arbitration to two arbitrators, one to be nominated by t he contractor and the other by the Government, who shall select an umpire by mutual agreement and the decision of the arbitrators or the umpire, as the case may be, shall be final and binding on the contracting parties. Both parties nominated their arbitrators. The arbitrators, after several hearings, gave their Award and the same was filed before the District Judge. There were six items in dispute. It is not necessary to refer to the first five items, for the present appeal is not in respect of the same. Claim No. (6) by the Company was for variation in Railway freight for fabricated (partly and / or fully) steel liners etc. from Poona to Harrawala. A sum of Rs. 71,919/- was awarded in favour of the company. Interest at 8 per cent per annum on the above amount from the date of Award up to the date of payment or till the date of decree, whichever was earlier, was also ordered to be paid.

6. Aggrieved, the State Government filed an application (Civil Miscellaneous Case No. 184 of 1976) in the Court of the District Judge under Section 30, Arbitration Act praying that the Award be set aside. The District Judge by his order set aside the Award in respect of the aforementioned Ed. Claim No. (6) amounting to Rs. 71,919/- holding that the Arbitrator has misconducted himself in making the Award against the terms of the agreement On the question of payment of interest, the District Judge held that although the arbitrator had inherent power to grant interest but he could not do so in contravention of the agreement which specifically prohibited payment of interest The learned District Judge set aside the Award in respect of the sum of Rs. 71,919/- awarded on account of Variation of Railway freight under Claim No. (6) as also the interest allowed on the said sum at 8 per cent per annum. The rest of the Award was made the rule of the Court. The Parties were directed to bear their own costs.

7. It is against the above decision that F. A. F. O. No. 445 of 1977 has been filed.

8. F. A. F. O. No. 446 of 1977 has been filed by Patel Engineering Co. Ltd. against the judgment of the District Judge, Dehradun dated 5th July, 1977 and identical dispute was raised before the arbitrators. The Award granted Patel Engineering Co. Ltd. (hereinafter referrred to as the 'Appellant Company') Rs. 88,205=00 for variation in Railway freight for the transport of semi-fabricated penstocks, steel liners of pressure shaft, MRT liners etc. from Poona to Harrawala and was ordered to pay interest at the rate of 8 per cent per annum on the said amount from the date of the Award up to the date of payment or date of decree whichever was earlier. In this case the original agreement was of 18-2-1966 and the Agreement No. 3/ 1965-66 (Stage II, Part II) of the aforementioned project The Supplemental agreement was dated 22-4-1971. The Award was made on 21-8-1976 and the State of U. P. filed an application under Section 30 of the Act before the District Judge praying that the Award be set aside. The District Judge set aside the aforesaid Award in favour of the Appellant Company and also set aside the grant of interest The appellant Company has now filed an appeal against the above order and it is F. A. F. O. No. 446 of 1977.

9. We have heard learned counsel for the appellants Sri S. C. Budhwar and Sri N, P. Misra, Chief Standing Counsel to the State Government.

10. Mr. Budhwar, learned counsel in both the appeals raised two contentions. Firstly, that the learned District Judge erred in setting aside the Awards ( which are subject-matter of these appeals) when there was no error of law apparent on the face of the record in the Award. Secondly, the District Judge was not right in setting aside the grant of interest in the Award.

11. Learned counsel further urged that the learned District Judge erroneously relied upon the decision of a learned single Judge of the Delhi High Court in the case of Metro Electric Co. v. Delhi Davelopment Authority, : AIR1976Delhi195 . Learned counsel urged that the aforesaid decision did not lay down the correct law and in any event it has been set aside on appeal by the Division Bench of the High Court in the case of Metro Electric Co. v. Delhi Development Authority, New Delhi AIR 1980 Delhi 266. The Division Bench has referred to the decision of the Supreme Court in the case of Allen Berry & Co. v. Union of India : [1971]3SCR282 .

12. The submission of the learned counsel was that the Award being a non-speaking order and there being no indication whatsoever in the Award that the arbitrators had referred to any particular document for coming to a conclusion on Claim No. (6), it could not be held that there was an error apparent on the face of the record. In other words, the contention was that an Award by its very nature is a non-speaking order, reasons are not likely to be found in an Award; the Award can only be set aside provided there is an error of law apparent on the face of the record If there was any particular document referred to in the Award and that had been erroneously interpreted it could give rise to a contention that there was an error of law apparent on the face of the record But where no such reference was made it was not open to the District Judge to substitute his own reasons or to interpret a particular document and to say that the said document has been erroneously interpreted Learned counsel in support of his contention cited a number of decisions.

13. Learned Chief Standing Counsel in reply contended that the view taken by the learned District Judge was unexceptionable. His decision is correct on both the points and the appellants are not entitled to any relief He urged that there is an error of law apparent on the face of the Award for it awarded a sum of money in respect of Railway freight from Poona to Harrawala when it was specifically prohibited under the supplemental agreements dated 15-3-1969 and 22-4-1971. He sought to make a distinction between the cases which go before the arbitator on reference by Court and those which go by virtue of a clause for arbitration in the contract itself. In the latter case the arbitrator is not bound like the arbitrator to whom a case has been referred by the Court, by the terms of the reference. Learned counsel contended that since the subsequent arbitration agreement had not been taken into consideration in the present case by the arbitrator it amounted to an error of law apparent on the face of the record On the question of interest he urged that the learned District Judge was right in refusing interest as the awarding of interest was prohibited under the agreement.

14. We will now consider the first point.

The learned District Judge held that the Claim No. (6) related to payment on account of extra expenditure incurred by the Company due to the enhancement of the Railway freight The learned District Judge held that the supplemental agreement dated 15-3-1969 completely precluded payment of any freight for conveying any of the fabricated material from Poona to the work-site. He further held that the award of compensation in this respect by the arbitrators was in direct contravention of the supplemental agreement in view of the pronouncement in the case of Metro Electric Co. v. Delhi Development Authority : AIR1976Delhi195 . He, therefore, held that it was liable to be set aside.

15. In the above case the contract authorised the contractor to ask for increased rates for the work provided there was increase in the price of the material to be used as a result of fresh law or statutory rule or order and due to slow progress of the construction work The learned single Judge held that since the rise in price of the material was not due to any of the clauses mentioned in the agreement the arbitrator in allowing claim for increased rates exceeded his jurisdiction and acted beyond the scope of the agreement and committed an error of law- apparent on the face of the Award and consequently the Award was set aside. The learned single Judge noticed the view of the Privy Council and the Supreme Court wherein it was stressed that a Court, while considering an award under Section 30 of the Act does not sit in appeal over the Award itself and that the Award should be set aside only if it involves not merely an error of law but when the said error is apparent on the face of the Award. He also reiterated the view taken by their Lordships of the Supreme Court; 'Thus even if the award contains an error of law, it will be valid unless the error is apparent on its face' However, he observed that each case has to be considered on its own merits.

16. An appeal was taken against the above decision before the Division Bench of the same High Court. The decision of the Division Bench is reported in, AIR 1980 Delhi 266 (Metro Electric Co. v. Delhi Development Authority). The Division Bench set aside the decision of the learned single Judge who made the Award the rule of the Court. It was held there that the findings of the learned single Judge that there was an error of law apparent on the fact; of the record and that the arbitrator had committed a misconduct were erroneous. Reference was made to the decision of their Lordships of the Supreme Court in the cases of Alien Berry & Co v. Union of India : [1971]3SCR282 and Firm Madanlal Roshanlal v. Hukumchand Mills : [1967]1SCR105 .

17. In the case of Alien Berry & Co. (supra) their Lordships of the Supreme Court laid down the law in the following words:

'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 impliedly 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 as incorporating it The principle of reading contracts or other documents into the award is not to be encouraged or extended ..............The rule thus is that as the parties choose their own arbitrator to be the Judge in the dispute between them, they cannot when the award is good on the face of it, object to the decision either upon the law or the facts. Therefore, even when an arbitrator commits a mistake either in law or in fact in determining the matters referred to him, but such mistake does not appear on the face of the award or in a document appended to or incorporated in it so as to form part of it, the award will neither be remitted nor set aside notwithstanding the mistake.'

18. In view of the above view taken by the learned single Judge of the Delhi High Court : AIR1976Delhi195 is no longer good law. In the case of N. Chellappan v. Kerala State Electricity Board : [1975]2SCR811 the scope of Section 30 of the Arbitration Act was considered by their Lordships who observed (at p. 235) :

'In the award, the umpire has referred to the claims under this head and the arguments of the Board for disallowing the claim and then awarded the amount without expressly adverting to or deciding the question of limitation. From the findings of the umpire under this head it is not seen that these claims were barred by limitation. No mistake of law appears on the face of the award. The umpire as sole arbitrator was not bound to give a reasoned award and if in passing the award he makes a mistake of law or of fact, that is no ground for challenging the validity of the award. It is only when a proposition of law is stated in the award and which is the basis of the award, and that is erroneous, can the award be set aside or remitted on the ground of error of law apparent on the face of the record.'

'........An error of law on the face of the award means 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 (See Lord Dunedin in Champsey Bhara and Co. v. Jivraj Balloo Co., 1923 AC 400), AIR 1923 PC 66. In Union of India v. Bungo Steel Furniture Pvt. Ltd., : [1967]1SCR324 this Court adopted the proposititon laid down by the Privy Council and applied it. 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 of law.'

19. In the case of Union of India v. Bungo Steel Furniture Pvt. Ltd. (supra) one of the questions to be considered was whether the arbitrator committed an error of law in holding that the appellant had deducted Rs. 357,500/-from the bills of the Company with regard to contract other than the three contracts of bedsteads which were the subject-matter of the case and whether the said amount could be substracted from the price of steel credited to the appellant. Learned counsel for the Appellant referred to certain affidavits and statements made before the Arbitrator whereupon the Court observed :

'........ it is well settled that 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 of law and that the award of the arbirator 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, for instance a note appended by the arbitrator stating the reasons for his decision there is found some legal preposition which is the basis of the award and which is erroneous....................... In the, present case, the affidavits filed by the parties before the arbitrator are not incorporated in the award and it is, therefore, not permissible for the Court to examine these affidavits in order to ascertain whether the arbitrator has committed any error of law.'

20. In the case of Firm Madanlal Roshanlal v. Hukumchand Mills : [1967]1SCR105 their Lordships held :

'The arbitrator could give a lump sum award. He was not bound to give a separate award and correct any mistake in his adjudication, unless an objection to the legality of the award is apparent on the face of it.'

Their Lordships relied on an observation made in the case of Privy Council in Champsey Bhara and Co. v. Jiyrai Balloo Spinning and Weaving Co. Ltd. 50 Ind App 324 = AIR 1923 PC 66 which stated :

'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.'

21. In the above case their Lordships held that the arbitrator gave no reason for the award and their Lordships did not find in the award any legal proposition which was the basis of the award, far less a legal proposition which was erroneous. Their Lordships further observed :

'It is not possible to say from the award that the arbitrator was under a misconception of law. The contention that there are errors of law on the face of the award is rejected.'

22. Keeping in view the aforesaid observations of their Lordships it will be proper to hold that if the arbitrator refers specifically to any term of the contract in the Award it can then be said that he has incorporated the contract into the Award. It will be only then that the Court exercising power under Section 30 of the Act will be justified to look at the contract. In case the arbitrator did not rest his decision on any clause of the contract nor referred to it specifically the Court will not be entitled to look at the contract. In the present case neither the contract nor any clause thereof has been referred to by the arbitrator in the Award. It is, therefore, not permissible for the Court to look into the contract or the supplemental contract to hold that a particular clause of the latter had been erroneously interpreted or that one of the conditions of the said agreement has been breached.

23. An argument was raised by the learned counsel that the Award makes a reference to the contract in the present case. The only reference which is to be found in the Award in the opening para of the Award, reads as follows :

'Whereas certain disputes arose between the claimants and the Respondents on the contract no. l/SE/65-66 for the construction of Civil Works on Yamuna Hydel Project, Stage II, Part I'

This para only refers to the contract which is the subject-matter of adjudication by the arbitrators. In other words, it makes a reference to the adjudication and gives the name of the contract, but does not in fact make the reference for the purpose of having relied on it. There is no mention in the body of the Award and particularly in respect of Claim No. 6 to any clause of the agreement or agreements. There is, however, a reference to the Award in the following words just before the declaration :

'We do hereby make in writting and sign the award in regard to the matter referred to us and direct that the respondents pay to the claimants (exclusive of which is payable under Clause 11, 18(b) of the Contract) as under : --'. This does not refer to any particular clause which is the subject-matter of interpretation in the making of the award. The words '(exclusive of which is payable under Clauses 11, 18(b), of the Contract)' make it clear that the Award was in addition to what was claimable under Clauses 11 and 18(b) of the Contract. There is no dispute between the parties in regard to the additional amount payable under Clauses 11 or 18(b) of the contract. It is, therefore, obvious that the above reference to Clauses 11 and 18(b) of the contract does not have the effect of making reference to the contract for the purpose of relying upon it. This view finds suppport from the decision of the Karnataka High Court in the case of State of Karnataka v. Hindustan Construction Co. Ltd. Bombay, AIR 1984 Kar 95. The Division Bench was considering whether a mere narration of materials in general terms in an award without particularising any document or any piece of evidence will not permit an investigation into the terms of the contract or other materials placed before the arbitrator to discover whether there is error on the fact of the award or not, the Court answered the proposition in the negative. It went further to say : 'Similarly, where the terms of the contract are stated in the award for the only purpose to earmark the origin of the disputes which had arisen between the parties, it would be impermissible to hold that the arbitrator had incorporated in the award any material for his conclusion...................'

24. In the present case the reference to the contract in the opening paragraph of the Award or in paragraph prior to the declaration made in the Award was a mere narration, and was not referred to as being relied upon for the purpose of interpreting any particular clause of the contract or contracts.

25. The law enunciated by their Lordships of the Privy Council and Supreme Court is, therefore, clear and unambiguous. The law laid down in the cases of Alien Berry : [1971]3SCR282 (supra), N. Chellappan : [1975]2SCR811 (supra) and Bungo Steel Furniture : [1967]1SCR324 (supra) is well established and is being followed. Unless there is an error of law apparent on the face of the Award the Court exercising power under Section 30 of the Act has no jurisdiction to interfere. The error of law can be adjudged if there was a specific reference to any provision of the contract or any document appertaining to the Award which had been relied upon by the arbitrators. In such an event the Court exercising power under Section 30 of the Act may consider whether the interpretation betrays an error of law apparent on the face of the record. If the Award did not refer to any particular clause of the agreement or contract for its decision or where the Award did not refer to any other document which was relied upon, it would not be open to the Court to hold whether the interpretation of the term of contract contained an error of law apparent on the face of the Award. In the present case the learned District Judge has himself referred to a particular clause of the supplemental agreement and interpreted it to hold that Railway freight could not be awarded. This was clearly beyond his jurisdiction as the arbitrators in their Award had neither referred to the specific provisions of the supplemental agreement nor appended it as a part of the Award. Even if the decision of the arbitrators was erroneous on facts and contrary to law, it would not entitle the District Judge to set aside the Award.

26. An argument was raised that where the arbitrator does not refer to the contract or ignores if, it would amount to an error of law apparent on the face of the record. In our opinion, there is no scope for holding so after the law laid down by their Lordships of the Supreme Court. If the contract or the supplemental agreement has not been referred to at all, it would not give any power to the Court to consider whether the contract has been misconstrued. The argument is fallacious for another reason. There is nothing in the Award to show that the arbitrators had ignored any particular document or relevant material. This is nobody's case. Even the learned District Judge does not say so. The award will have to be treatd as a good Award unless it comes into one of the exceptions pointed out by their Lordships of the Supreme Court. The contention that the Award must on the face of it disclose to be just and fair would mean that the Court should sit in appeal over the Award which is clearly untenable in view of the provisions of Section 30 of the Act and the law laid down by their Lordships of the Supreme Court.

27. For the reasons indicated above the contention raised by the learned counsel for the appellant in regard to the first point has substance and must succeed.

28. We now come to the second point.

In regard to the question of payment of interest learned counsel argued that the view taken by the learned District Judge was patently erroneous for in the present case the intrest had been granted in the Award at 8 per cent annum 'from the date of the Award up to the date of payment or date of decree, whichever is earlier.' The award of intrest was not for a period during which the matter was before the arbitrators. The provision of grant of intrest is contained in para 5.10 which reads as follows :

'The contract agrees that no claims for interest or damages will be entertained or payable by the Government in respect of any moneys or balance which may be lying with Government owing to any dispute, difference or misunderstanding between the parties or in respect of any delay or omission on the part of the Engineer-in-charge in making intermediate or final payments or in any other respect whatsoever.'

It was urged that there was no prohibition for payment of interest from the date of the Award. Learned counsel urged that their Lordships of the Supreme Court in the cases of Firm Madanlal Roshanlal v. Hukumchand Mills Furniture : [1967]1SCR105 have held that the arbitrator has authoriiy to grant interest I from the date of the Award to the date of the decree. Consequently, the view taken by the learned District Judge in this respect was liable to be set aside.

29. In view of the above, both the points urged by the learned counsel for the appellant succeed and the consequence is that the appeal must be allowed and the judgment of the learned District Judge must be set aside.

30. The question raised in the connected F.A.F.O. No. 446 of 1977, as stated earlier, is identical. The Award in that case is a separate award and concerns only one claim for variation in Railway freight from Poona to Harrawala for the transport of semi-fabricated penstocks, steel liners of pressure shaft, MRT liners etc. In that Award too the arbitrators awarded to the appellant. Patel Engineering Co. Ltd. a sum of Rs. 88,205/- in respect of the claim as well as interest at the rate of 8 percent per annum from the date of the Award unto the date of payment or date of the decree. There too no reference has been made to any particular clause of the contract or the supplemental contract nor any paper was appended to the Award signifying that the arbitrators relied upon the same. For the reasons indicated earlier, the same principles and reasons would be applicable in this appeal too. The decision of the learned District Judge in this case too is liable to be set aside on both points, i.e. on the amount awarded by the arbitrators and also the award of interest.

31. In view of the above, F. A.F.O. No. 446 of 1977 is liable to be allowed and the judgment of the learned District Judge dated 5-7-1977 is liable to be set aside.

32. In the result, therefore, both the Appeals Nos. 445 and 446 of 1977 are allowed with costs and the judgments of the learned District Judge in these appeals are set aside.


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