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State of Orissa Vs. Gokulachandra Kanungo - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtOrissa High Court
Decided On
Case NumberMisc. Appeal Nos. 249 and 250 of 1980
Judge
Reported inAIR1981Ori160; 52(1981)CLT416
ActsArbitration Act, 1940 - Sections 13, 29 and 30
AppellantState of Orissa
RespondentGokulachandra Kanungo
Appellant AdvocateAdditional Government Adv.
Respondent AdvocateR. Mohanty, ;R.K. Rath, ;B.K. Nayak, ;M.S. Roy and ;J.K. Mishra, Advs.
DispositionAppeals dismissed
Cases ReferredState of Orissa v. G. C. Kanungo
Excerpt:
.....to the decision either upon the law or the facts. so also in bungo steel case (supra) the distinction has been clearly stated. it is well settled that unless there is a specific clause in the agreement, prohibiting award of interest, the arbitrator has jurisdiction to award interest from the due date of payment till the date of the award. senapati case, referred to above, as well as a case of the division bench reported in ilr (1973) cut 1218. in bungo steel case (air 1967 sc 1032) (supra) the supreme court has followed the view expressed in edwards v. all the points raised by the learned counsel for the state are without any merit 12. the appeals fail and are accordingly, dismissed with costs......has been reiterated by this court in air 1981 orissa 32 andhra civil construction co. v. state of orissa referred to above. in the case of ashok construction co. (1970 scd 530) (supra) question arose as to whether the arbitrator could award interest by wav of damages for detention of money and it has been held that if the arbitration agreement did not exclude the jurisdiction of the arbitrator to entertain a claim for interest on the amount due under the contract, then this award on that count cannot be said to be invalid. the decision relied on by the appellant in union of india v. a. l. rallia ram, air 1963 sc 1685, has also been answered by this court in andhra civilconstruction case (supra) and in that decision reliance has been placed on three division bench decisions of this court.....
Judgment:

Das, J.

1. Both the appeals arise out of judgments overruling the objections of the appellant and making the award of the arbitrator rule of the Court in matters of reference made to the arbitrator by the court.Plaintiff-respondent is a contractor and he entered into a contract with the State of Orissa for construction of high-level bridge over river Rusikulya on National Highway No. 5 in the district of Ganiam. The work was to be completed within thirty months from the date of the written order. As the work could not be completed within time, the contractor made claims which were referred to an arbitrator.

2. In M. A. No. 249/80, the facts are that a sum of Rs. 12.14 lakhs being the difference between the estimated cost and the tendered amount of the contractor for item No. 35 of the tender was to be deducted from the running bills up to the construction of deck level in phases and when the contractor would start pre-stressed concrete superstructure work, the said deducted amount would be released in phases in addition to the payment which the contractor would get as per his quoted rates for the superstructure. The case of the contractor is that in order to re-cast girders, he collected material and hired the services of technical experts, but the concerned Department did not furnish the designs for such girders and consequently he sustained loss due to wastage of materials etc. and could not complete the work in respect of item No. 35 of the tender.He requested the Department to release the amount deducted from his running bills and not to make any further deduction. His further allegation is that there was change of designs, he was required to sink twin D. Wells under abutments and thus had to incur more expenses. He prayed for appointment of an arbitrator, but as the defendant-appellant did not appoint any the plaintiff-respondent filed application under Section 20 of the Arbitration Act to call for the agreement and to appoint an arbitrator. After hearing the parties, the learned Subordinate Judge referred the disputes for arbitration on the following questions:

(1) What amount is due to be paid to the plaintiff for the work of staining and well-sinking as per the rate claimed by the plaintiff and decided by the Chief Engineer who was in charge of the above work; and

(2) What should be the reasonable compensation payable on the withheld amount?

3. In M. A. No. 250/80 arising out of the very same dispute, the following question was referred to the arbitrator for decision:

Which party to the contract is responsible for the delay in execution of the work and its completion during the stipulated period of time and what is the reasonable amount of compensation payable by the party at fault to the other party?

In the dispute arising in M. A. No. 249/80, the contractor claimed Rupees 21,48,585/- under different heads and the arbitrator awarded a sum of Rupees 12,32,425/- in favour of the contractor along with interest at the rate of 10% per annum from the date of stoppage of the work till the date of the award and 6% per annum from the date of the award till payment.

4. The defendant-appellant challenged the award on the ground that the claim statement submitted by the plaintiff to the arbitrator was beyond the scope of reference and the arbitrator had no authority to entertain the same: the interest awarded by the arbitrator was also beyond jurisdiction; the arbitrator has not taken into consideration all the materials placed before him and as such, mis-conducted himself and the award is vitiated by error of law onthe face of it. Relating to the subject-matter of the other reference, the objections of the defendant-appellant were also the same.

The learned Subordinate Judge overruled the objections holding that the award is not supported by reasons and the arbitrator had jurisdiction to award interest and ordered to make the award rule of the court.

5. In these appeals, it is contended by the appellant that the items accepted by the arbitrator were items of claim made by the contractor and the claims accepted by the arbitrator were beyond the jurisdiction of reference, the amount claimed was also beyond the terms of reference and the interest awarded by the arbitrator from 1972, when there was stoppage of work, was beyond the reference and jurisdiction of the arbitrator. It was further contended that the amount of Rupees 1,00,000/- awarded by the arbitrator was also beyond jurisdiction.

6. In the claims made in respect of the subject-matter of M. A. 249/80, the contractor made claims on four items. The arbitrator has rejected one item and has allowed three. Out of the three items allowed, item No. 2 related to the claim for refund of the security deposit. During the pendency of the appeals, the security deposit has been refunded and memo has been filed on behalf of the defendant-appellant that this appeal is not pressed in respect of the principal amount of the security deposit which has already been refunded to the contractor. In respect of the subject-matter of M. A. No. 250/80, the contractor made claims in respect of nine items. The arbitrator has disallowed eight items and has allowed only the claim relating to incapacity to execute any new contract work due to blockage of capital in this work.

7. Undisputedly, the arbitrator has not given any reasons or basis for his finding nor has he made any document or the agreement part of the award. The award does not show that the arbitrator has referred to the terms of the agreement or that his findings are based on the stipulations contained in the agreement.

In Hodgkinson v. Fernie. (1857) 3 CB (NS) 189, the principle is stated as follows :--

'Where a cause or matters in difference are referred to an arbitrator, whether a lawyer or a layman, he is constituted the sole and final judge of all questions both of law and of fact... ...The only exceptions to that rule, are, cases where the award is the result of corruption or fraud, and one other, which though it is to be regretted, is now, I think, firmly established, viz., where the Question of law necessarily arises on the face of the award, or upon some paper accompanying and forming part of the award.'

These observations were also cited with approval in Union of India v. Bungo Steel Furniture Pvt. Ltd., AIR 1967 SC 1032.

Also in Giacomo Costa Fu Andrea v. British Italian Trading Co. Ltd.. (1962) 2 All ER 53, it has been observed:

'It seems to me, therefore, that on the cases, there is none which compels us to hold that a mere reference to the contract in the award entitles us to look at the contract. It may be that in particular cases a specific reference to a particular Clause of a contract may incorporate the contract, or that Clause of it in the award. I think that we are driven back to first principles in this matter, namely, that an award can only be set aside for error which is on its face. It is true that an award can incorporate another document so as to entitle one to read that document as part of the award and, by reading them together, find an error on the face of the award. The question whether a contract or 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 Supreme Court in Allen Berry & Co. Pvt. Ltd. v. The Union of India, AIR 1971 SC 696, made the aforesaid observation relying on the principles laid down in an unreported decision (Babu Ram v. Nanhcmal, C. A. No. 107of 1966 decided on 5-12-1968 by the Supreme Court), The Supreme Court further observed : (at p. 699)

'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 a 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.'

In this case, the contract was not referred to in the award.In Champsey Bhara & Co. v. Jivrai Balloo Spinning and Weaving Company Ltd.. AIR 1923 PC 66. it has been observed :

'An error in 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.'

This principle was also followed by the Supreme Court in Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd., AIR 1967 SC 1030.

Much reliance has been placed by the learned counsel for the appellant on the decision Thawardas Pherumal v. Union of India, AIR 1955 SC 468. This decision has been distinguished in the case of Madanlal Roshanlal (supra). In para. 4 of the judgment, their Lordships have discussed in detail the distinctive features and have come to the conclusion that Thawardas case does not lay down any general proposition. So also in Bungo Steel case (supra) the distinction has been clearly stated. Allen Berry case (supra) has also followed the principle laid down by the Supreme Court in Champsey Bhara case (supra). The Supreme Court again reiterated the principles laid down in Champsev Bhara case and Bungo Steel case and held in N. Chellappan v. Secretary, Kerala State Electricity Board, AIR 1975 SC 230, that the umpire as sole arbitrator wasnot 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 an erroneous proposition of law is stated in the award and which is the basis of the award, can the award be set aside or remitted on the ground of error of law apparenton the face of the record. The Supreme Court has further observed that an error of law on the face of the award means that you can find in the award or the document actually incorporated thereto as for instance a note appended by the arbitrator stating reasons for his judgment some legal proposition which is the basis of the award and which you can then say is erroneous. The court has no jurisdiction to investigate into 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.This court has followed the principles laid down in the decisions of the Supreme Court referred to above in a large number of cases. The aforesaid principles have also been reiterated in recent decisions of this court viz: State of Orissa v. U. N. Samantaray, AIR 1979 Orissa 39. Executive Engineer. Deburi Expressway Division v. Hemalata Singh, AIR 1980 Orissa 76; and Andhra Civil Construction Co. v. State of Orissa, AIR 1981 Orissa 32.

Very recently, the Hon'ble the ChiefJustice of this Court has discussed theprinciples elaborately in Executive Engineer, R. E. Division, Dhenkanal v.J. C. Budharai, M. A. Nos. 29, 30 and62 of 1981, disposed of on 7-5-1981 :(reported in AIR 1981 Orissa 172). Thearguments advanced on behalf of thelearned counsel for the State have beenoverruled in the aforesaid decision andthe decisions of the Supreme Court aswell as of this court relevant on thepoint have been discussed indetail in para 6 of the judgment. Alsoin another judgment, Gangaram Chhapolia v. State of Orissa, M. A. No. 151/78 disposed of on 12-3-1980 and inState of Orissa v. B. N. Agarwala, (1981)52 Cut LT 37 : (AIR 1981 Orissa 124)the aforesaid principle has been reiterateed. It is contended on behalf of the appellant that the decisions of this Courtare by single Judges, but all the singleJudge decisions of this Court are based on the principles laid down by the Supreme Court as discussed above. Therefore, the contention of the appellant has no basis.

The references as quoted above being general in character, the award being a non-speaking one and no document having been incorporated or made basis of the award, the contentions raised on behalf of the appellant are not tenable, in view of the principles laid down above.

8. The appeals could have been disposed of on this point, but as the learned counsel for the appellant seriously argued some points, it is desirable to record our finding on the same. It is contended on behalf of the appellant that the arbitrator has mis-conducted himself in awarding interest from the due date of payment and he had no jurisdiction to award interest. The reference in both the appeals were of general nature. There was no specified amount mentioned in the reference. Therefore, the claims had to be placed by the contractor before the arbitrator and the appellant also took part in the proceedings before the arbitrator without objecting before the Court. In State of Orissa v. Govinda Choudhurv. (1971) 37 Cut LT 937, it has been held:

'It is well settled that unless there is a specific Clause in the Agreement, prohibiting award of interest, the arbitrator has jurisdiction to award interest from the due date of payment till the date of the award. As such, the arbitrator exercised his jurisdiction legally in awarding interest.'

This Court relied on the decision in Firm Madanlal Roshanlal and Bungo Steel cases (AIR 1967 SC 1030 and AIR 1967 SC 1032) (supra) and Ashok Construction Co, v. Union of India, 1970 SCD 530. Another Division Bench of this Court in Hindusthan Steel Ltd. v. P. Boner, ILR (1973) Cut 1218, has also reiterated the same view and has followed the decision of the Division Bench referred to above. It has also been held by the Supreme Court in AIR 1972 SC 1057 (The State of Madhva Pradesh v. Saith and Skelton (P) Ltd); 1967 SCD 937 (supra): (1974) 2 Cut WR 917): (State of Orissa v. Govinda Choudhurv & Sons) and (1978) 45 Cut LT 443 : (AIR 1973 Orissa 121) (Executive Engineer v. Sankar Maharana) that unless there is aspecific Clause in the agreement prohibiting award of interest, the arbitrator has jurisdiction to award interest from the due date of payment. This principle has also been reiterated by this Court in Executive Engineer R. E. O., Khurda v. D. N, Senapati. AIR 1980 Orissa 74. Another decision. Executive Engineer, Deburi Expressway Division v. Hemalata Singh, AIR 1980 Orissa 76, has also reiterated the same view reiving on the decision reported in AIR 1979 Orissa 39 and D. N. Senapati case, referred to above, as well as a case of the Division Bench reported in ILR (1973) Cut 1218. In Bungo Steel case (AIR 1967 SC 1032) (supra) the Supreme Court has followed the view expressed in Edwards v. Great Western Rly., (1851) 11 CB 588, that submission to the arbitrator of all matters in difference and the interest would be a matter in difference whether demanded by the notice of action or not and if the arbitrator could give it, he might give it in that way notwithstanding the want of claim of interest in the notice. This Court also in the case of Govinda Choudhury & Sons v. Commissioner of Income-tax. Orissa, ILR (1977) 1 Cut 664: (1977 Tax LR 1223) has held that the arbitrator while assessing the total compensation to be paid in a case of this nature can legally take into account the loss suffered by the claimants due to the withholding ofpayment of the assessed amount of damage for a certain period and he can justly compensate the claimant for the said loss by awarding a sum equivalent to the interest accruing on the said amount for that period. This view has been reiterated by this Court in AIR 1981 Orissa 32 Andhra Civil Construction Co. v. State of Orissa referred to above. In the case of Ashok Construction Co. (1970 SCD 530) (supra) question arose as to whether the arbitrator could award interest by wav of damages for detention of money and it has been held that if the arbitration agreement did not exclude the jurisdiction of the arbitrator to entertain a claim for interest on the amount due under the contract, then this award on that count cannot be said to be invalid. The decision relied on by the appellant in Union of India v. A. L. Rallia Ram, AIR 1963 SC 1685, has also been answered by this Court in Andhra CivilConstruction case (supra) and in that decision reliance has been placed on three Division Bench decisions of this Court viz : (1971) 37 Cut LT 937; ILR (1973) Cut 1218 and ILR (1977) 1 Cut 664 : (1977 Tax LR 1223) referred to above, and this Court has held that it was within the competence of the arbitrator to award interest. The settled principle of allowing interest by the arbitrator as held in Ashok Construction case and Bungo Steel case followed in three other decisions of this Court has been reiterated in State v. U, N. Samantaray, AIR 1979 Orissa 39 (supra). The Hon'ble the Chief Justice of this Court in M. A. Nos. 29, 30 and 62 of 1981 (referred to above) and the Hon'ble J. K. Mohantv. J. in M. A. No. 151/78 (referred to above) have also reiterated the same view. It has been consistently held by this Court basing on the principle laid down in Ashok Construction case (supra) that interest can be awarded by the arbitrator if there in no prohibition for the same. The arbitrator has to find out as to what is the reasonable compensation. To justify the same the contractor has to place materials before the arbitrator which he did in the instant case. The contractor claimed interest at the rate of 18% whereas the arbitrator has awarded interest at the rate of 10%. Thus, it appears that the arbitrator has taken into consideration the question of rate of interest. The rate of interest is not challenged before us and no argument has been advanced on this point. In view of the dictum laid down in M/s. Ashok Construction case, it has been established by a series of decisions of this Court and it is no longer open to the appellant to contend that the arbitrator had no jurisdiction to award interest when the reference was of general nature.

9. It is contended on behalf of the appellant that the arbitrator has not considered the distinction between Clauses 11 and 23 of the agreement and as such he has mis-conducted himself. This question has been directly answered by a Division Bench of this Court in A. C. Pairja v. Secretary in charge of Central P. W. D.. (1970) 36 Cut LT 1089. This Court relied on the principles laid down in Heyman v. Darwins Ltd., 1942 AC 356 and Willesford v. Watson, (1873) 8 Gh A 473, wherein it has been held that the arbitrator maydecide the dispute as to construction of contract and the dispute as to interpretation of arbitration Clause is one within the jurisdiction of arbitrator. The principle laid down in A. C. Parjia case (supra) has been consistently followed by this Court.

Moreover, when the award is a non-speaking award and when the reference was of a general nature and no document has been incorporated as part of award, the court cannot review the question referring to documents filed before the arbitrator.

10. The next contention of the appellant is that the arbitrator has exceeded the scope of reference and there was no reference on the points decided by him. This argument relates to extra work claimed to have been performed by the contractor. Nothing is apparent on the face of the award whether the works executed by the contractor were extra works or were beyond the agreement. As we have already held above, the award being a non-speaking one and the agreement not being made a part of the award, the court cannot go into those questions and the award cannot be struck down on that count.

Even assuming that claims on extra items of work have been made, in that case, Clause 11 of the contract will come into operation and not Clause 23, Reiving on the decisions in A. C. Parlia and Hindusthan Steel cases ((1970) 36 Cut LT 1089 and ILR (1973) Cut 1218) (referred to above), this Court has held in State of Orissa v. G. C. Kanungo, (1979) 48 Cut LT 505 : (AIR 1980 Orissa 157) that the arbitrator has jurisdiction to decide matters regarding additional work, as in deciding those matters, disputes and questions arising out of the contract may have to be considered and decided by the arbitrator. This view has been reiterated in a recent decision of this Court reported in (1981) 52 Cut LT 37 : (AIR 1981 Orissa 124) (referred to above.) The consistent view of this Court in four previous decisions from 1970 to 1981 have been followed which include the cases of A. C. Parjia, Hindusthan Steel and G. C, Kanungo. The Hon'ble the Chief Justice has also reiterated the same view in M. A. Nos. 29. 30 and 62 of 1981 disposed of on 7-5-1981 (referred to above).

11. All the questions raised in the argument on behalf of the State Government have been settled by a large number of decisions and the view is consistent throughout. As regards M. A. No. 250/80, the only point raised is in respect of granting of interest by the arbitrator. We have already discussed this point and our findings made above cover the point raised. All the points raised by the learned counsel for the State are without any merit

12. The appeals fail and are accordingly, dismissed with costs.

J.K. Mohanty, J.

I agree.


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