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Bharat Sanchar Nigam Limited Vs. Trinath Singh - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtOrissa High Court
Decided On
Case NumberA.R.B. Appeal No. 2 of 2002
Judge
Reported inAIR2005Ori70; 2005(2)ARBLR593(Orissa); 98(2004)CLT665
ActsArbitration and Conciliation Act, 1996 - Sections 34 and 34(2)
AppellantBharat Sanchar Nigam Limited
RespondentTrinath Singh
Appellant AdvocateB.S. Das, J. Das, R.N. Das Mohapatra and A.B. Choudhury
Respondent AdvocateS.K. Sanganaria, P.C. Patnaik and A.K. Sahu
Cases ReferredOil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd. (supra
Excerpt:
.....for failure of the respondent, an award has been passed in his favour. 5. shri sangnaria, learned counsel appearing for the respondent on the other hand, referring to each item of claim submitted that the arbitrator not being a judicial officer has tried his best to give reasons in each item of award. explanation :without prejudice to the generality of sub-clause (ii) it is hereby declared, for the evidence of any doubt, that an award is in conflict with the public policy of india if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81. (3) an application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if..........due to suspension of job from time to time. the arbitrator in respect of the above four items of claim awarded rs. 89,800/- in favour of the claimant. the arbitrator has further given reasons stating that the stipulated date for completion of work was 16.11.1993 whereas the contact was rescinded on 15.11.1996. he has also observed that not a single bill was paid to the claimant from the commencement of the work till the date of recession and the claimant also could not complete the work due to non-completion of structures. he has also observed that the appellant failed in making the monthly payment which was a condition stipulated in the agreement and also failed in handing over the structures for taking up the work. considering the reasons given by the arbitrator while passing the.....
Judgment:

L. Mohapatra, J.

1 . This appeal is directed against the judgment and order dated 4.5.2002 passed by the learned District Judge, Khurda at Bhubaneswar in Arbitration Misc. Case No. 187 of 2001 Under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter called 'the Act').

2. The facts giving rise to the proceeding under the Act are as follows :

The appellant by notice dated 13.7.1993 called for tender for construction of staff quarters at Rayagada i.e., 3 numbers of Type-I, 3 numbers of Type-H and 6 numbers of Type-Ill quarters at an estimated cost of Rs. 99,885.00. The respondent was one of the tenderers who had quoted Rs. 2,49,499.78 paise and the appellant accepted the said tender. After acceptance of the tender, both the parties entered into an agreement on 7.8.1993. The terms of the agreement provided for completion of the project within a time frame of three months, rescission of the contract on default of the respondent in completing the work as well as an arbitration clause. For reasons stated by the appellant in the appeal memo that the agreement was rescinded on 15.11.1996 and a dispute arose, under the terms of the contract, the dispute raised by the respondent was referred to the sole Arbitrator S.B. Lal, who was Chief Engineer (Arbitration), Bharat Sanchar Nigam Limited for adjudication. The Arbitrator on consideration on materials placed before him by both the parties passed an award on claim item Nos. 1, 2, 3, 4, 6, 8 and 9 the total whereof comes to Rs. 1,18,643/- with pendente lite interest at the rate 15% per annum with further condition that the interest shall run at the rate of 18% per annum, if the amount of award is not paid within 90 days from the date of publication of the order. The said award was challenged before the learned District Judge, Khurda Under Section 34 of the Act and the petition filed Under Section 34 of the Act having been rejected, this appeal has been filed.

3. On perusal of the impugned order, it appears that the learned District Judge has not discussed the contention raised by both the parties at all and only quoting Section 34 of the Act observed that the grounds taken in the petition filed Under Section 34 of the Act do not come within the purview of the said provision. Though this is a fit case for remand, the leaned counsel appearing for both the parties submitted that instead of remitting the case back, this Court may decide the matter on merit. Accordingly, both the parties were heard at length.

4. Shri Das, Learned Counsel appearing for the appellant referring to the award submitted that the Arbitrator is guilty of misconduct as he has gone beyond his jurisdiction while passing the award. So far as claim No. 1 is concerned, it was submitted by Shri Das that though the agreement provided for double recovery, under Clause 33 the Arbitrator illegally allowed single recovery in respect of non-refund of surplus materials to the department. It was further contended that so far as Claim Nos. 2, 3, 4 and 9 are concerned, the agreement having been rescinded with due notice by the department under unavoidable restraints, the claims should have been rejected and the Arbitrator has gone against the term as mentioned in Clause 5 of the agreement as no hindrance report has been submitted to the department within thirty days. It was also contended that a consolidated award in respect of all the four claims is not permissible and the Arbitrator should have dealt with each item of claim separately. So far as Claim No. 6 is concerned, for failure of the respondent, an award has been passed in his favour. Similarly, it was contended that so far as the award in respect of Claim No. 8 is concerned, Clause 3 of the agreement empowers the department to withhold or forfeit deposit for nonperformance of work by the respondent. In support of the claim of the appellant, the learned counsel also relied upon some decisions.

5. Shri Sangnaria, Learned Counsel appearing for the respondent on the other hand, referring to each item of claim submitted that the Arbitrator not being a Judicial Officer has tried his best to give reasons in each item of award. He further submitted that clubbing of certain items of claim is permissible in law and depending on the nature of claim, two or more claims can be clubbed and consolidated award can be passed. Referring to Section 34 of the Act, it was also contended by Shri Sangnaria that none of the grounds raised by the learned counsel for the appellant is covered within the purview of Section 34 of the Act and, therefore, the learned District Judge was justified in rejecting the petition.

Section 34 of the Act runs as follows:

'34. Application for setting aside arbitral award: (1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with Sub-section (2) and Sub-section (3).

(2) An arbitrary award may be set aside by the Court only if:

(a) the party making the application furnish proof that:

(i) a party was under some incapacity, or

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it, failing any indication thereon, under the law for the time being in force, or

(iii) the party making the application was not given proper notice of the appointment of an Arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv) the arbitral award deals with a dispute not contemplated by or not falling with the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration :

Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or (v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this part; or

(b) the Court finds that:

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or

(ii) the arbitral award is in conflict with the public policy of India.

Explanation : Without prejudice to the generality of Sub-clause (ii) it is hereby declared, for the evidence of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81.

(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made Under Section 33 from the date on which that request had been disposed of by the Arbitral Tribunal :

Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter. (4) On receipt of an application under Sub-section (1) the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of Arbitral Tribunal will eliminate the grounds for setting aside the arbitral award.'

6. On plain reading of the provision makes clear the ground-on which the Court can interfere in an award. The learned counsel appearing for the appellant submitted that the Apex Court in the case of Oil and Natural Gas Corporation Ltd. v. SAW Pipes Ltd., reported in 2003 (2) Arb. LR. 5 (SC) 5 has extended the scope of interference and the ground taken in the petition as well as in the appeal memo squarely come within the scope spelt out in the said judgment. Shri Sangnaria, leaned counsel for the respondent also referred to some other decisions of the Apex Court and other High Courts on this question and it is, therefore, necessary to analyses the decisions cited before this Court for the purpose of finding Out the scope for interference. The Apex Court in the case of Oil and natural Gas Corporation Ltd. v. SAW Pipes Ltd. (supra) arrived at the following conclusions :

'In the result, it is held that:

A. (1) The Court can set aside the arbitral award Under Section 34(2) of the Act if the party making the application furnishes proof that:

(i) a party was under some incapacity; or

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or

(iii) the party making the application was not given proper notice of the appointment of an Arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration.

(2) The Court may set aside the award :

(i) (a) if the composition of the Arbitral Tribunal was not in accordance with the agreement of the parties;

(b) failing such agsreement, the composition of the Arbitral Tribunal was not in accordance with Part I of the Act;

(ii) if the arbitral proceeding was not in accordance with :

(a) the agreement of the parties, or

(b) failing such agreement, the arbitral procedure was not in accordance with Part I of the Act, However, exception for setting aside the award on the ground of composition of Arbitral Tribunal or illegality of arbitral procedure is that the agreement should not be in conflict with the provisions of Part I of the Act from which parties cannot derogate.

(c) If the award passed by the Arbitral Tribunal is in contravention of provisions of the Act or any other substantive law governing the parties or is against the terms of the contract.

(2) The award could be set aside if it is against the public policy of India, that is to say, if it is contrary to :

(a) fundamental policy of Indian law;

(b) the interest of India; or

(c) justice or morality; or.

(d) if it is patently illegal;

(3) It could be challenged :

(a) as provided Under Section 13(5); and

(b) Section 16(6) of the Act.'

7. Though several decisions were cited by the Learned Counsel appearing for the respondent, the only decision that relates to Section 34 of the Arbitration and Conciliation Act is the case of Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan and Ors. reported in AIR 1999 Supreme Court 2102. The Apex Court in the said case held that the scope of interference Under Section 34 of the Act is far less than under Sections 130 and 133 of the Arbitration Act, 1940. This decision has not been taken note of by the Apex Court in the case of Oil and Natural Gas Corporation Ltd. v. SAW Pipes Ltd. (supra). All other decisions of the Apex Court relied on by the learned counsel for the respondent relate to the provision contained in Arbitration Act, 1940 and, therefore, have no relevance for the purpose of this case.

8. Shri Das, Learned Counsel for the appellant submitted that the award in respect of some items of claim are against the fundamental policy of Indian law and award in respect of some items of claim are patently illegal. Referring to the ratio laid down in the case of Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd. (supra), the Learned Counsel submitted that the award in respect of each item of claim has to be set aside on either of the said grounds. The learned counsel further submitted that the grounds as mentioned Under Section 34 of the Act have been discussed and the scope has been extended in the aforesaid case and, therefore the award being against the fundamental policy of Indian law and patently illegal, the same should be set aside. Shri Sangnaria, learned counsel appearing for the respondent contended that if the award passed by the Arbitrator is examined in respect of each item of claim in the light of the decision of the Apex Court, it will be found that neither the award is against the fundamental policy of Indian law nor patently illegal.

9. Considering the submissions made by the Learned Counsel appearing for the parties as well as the ratio laid down by the Apex Court in the case of Oil and Natural Gas Corporation Ltd. v. SAW Pipes Ltd., (supra), the Court is now called upon to examine the award to find out as to whether the award in respect of any item of claim is against the fundamental policy of Indian law or patently illegal. So far as first item of claim is concerned, it appears from the award that the claimant-respondent had claimed Rs. 49,721/-and the appellant in the final bill had proposed for recovery of money for the materials issued and not refunded at penal rate. The Arbitrator held that there is no pleading regarding theft or misuse or pilferage of the material issued to the claimant and consequently there is no proof of any loss. He also found that recovery of money at double rate is hit by Section 74 of the Contract Act and, therefore, allowed single recovery for an amount of Rs. 47,345/-. After deducting the said amount, an award of Rs. 2,376/- was made in favour of the respondent-claimant. Shri Das, Learned Counsel appearing for the appellant submitted that the agreement provides for recovery at double the rate and there was hardly any scope for the Arbitrator to allow single recovery and, therefore the award is patently illegal in respect of Claim item No. 1. From the award itself it appears that a clam was made by the appellant that the claimant-respondent had not returned 10 Metric tons of unutilised cement and 1.85 Metric tons steel. Clause 42(ii) of the agreement provides that after completion of the work the theoretical quantity of cement to be used in work shall be calculated on the basis of statement showing the quantity of cement to be used in different items of work. It is further provided that the difference in the quantity of cement actually issued to the contractor and the theoretical quantity including authorized variation, if not, returned by the contractor, shall be recovered at twice the issue rates, without prejudice to the provision of the relevant conditions regarding return of materials governing the contract. Similar is the provision for the structure skill in Clause 42(iii) of the agreement. Much reliance has been placed by the Learned Counsel for the appellant on Clause 42(ii) and (iii) in support of his argument. It was contended by the Leaned Counsel for the respondent that the said two Sub-clauses are hit by Section 74 of the Contract Act and, therefore, double recovery is not permissible. The claimant-respondent having accepted the terms and conditions of the agreement before executing the work, has no right to say that the aforesaid two clauses are hit by any provision of law. As per Clause 42(ii) and (iii) of the agreement, the appellant is entitled to recover the unreturned articles such as cement and steel at twice the issue rate. Therefore, so far as Claim No. 1 is concerned, in my view, the Arbitrator has committed an illegality in not allowing recovery as per the terms of the agreement and in this respect the appellant shall be entitled to recover a further sum of Rs. 47,345/-. The Arbitrator in respect of this claim of item having allowed the award for an amount of Rs. 2,376/-, the balance i.e. (47,345 - 2,376 = 44,969) Rs. 44,969/- (Rupees Forty four thousand nine hundred sixty nine) has to be recovered from the claimant-respondent.

10. From the award, it further appears that the Arbitrator took up Claim Nos. 2, 3, 4 and 9 together and passed an award. Shri Das, the Learned Counsel appearing for the appellant submitted that each item of claim should have been dealt with individually instead of clubbing all the four items and passing a consolidated award. Claim item No. 2 relates to payment of compensation on account of maintenance of establishment at site during the enlarged over-run/spill-over period. Claim No. 3 relates to payment of compensation on account of additional/extra off-site expenses due to prolongation of work for a period of nearly 22 months. Claim No. 4 relates to payment of compensation on account of loss of profit during the extended period and Claim No. 9 relates to payment of compensation on account of idle labour due to suspension of job from time to time. The Arbitrator in respect of the above four items of claim awarded Rs. 89,800/- in favour of the claimant. The Arbitrator has further given reasons stating that the stipulated date for completion of work was 16.11.1993 whereas the contact was rescinded on 15.11.1996. He has also observed that not a single bill was paid to the claimant from the commencement of the work till the date of recession and the claimant also could not complete the work due to non-completion of structures. He has also observed that the appellant failed in making the monthly payment which was a condition stipulated in the agreement and also failed in handing over the structures for taking up the work. Considering the reasons given by the Arbitrator while passing the award in respect of the aforesaid four items of claim, I'm of the view that there is no reason for this Court to interfere with the said award as the same is based on reasons which are not in dispute. The only objection of the Learned Counsel appearing for the appellant in respect of the aforesaid four claims is, instead of clubbing all the four items; the Arbitrator should have dealt with each individual claim separately. From the award it appears that all the four claims are inter-linked and, therefore, there was no illegality in clubbing the four items of claim and passing a consolidated award in respect of the said four items of claim.

11. So far as Claim No. 6 is concerned, the claimant had prayed for payment of compensation on account of loss of expected profit on the value of unexecuted portion of the contract. The Arbitrator had passed an award of Rs. 25,700/- in respect of the said claim. The Arbitrator has further observed that it is admitted fact that the tendered amount for the above work was Rs. 2,49,499.28 and the total amount of work executed by the claimant was Rs. 49,721/-. Therefore, the balance amount of work, which could not be executed by the claimant works out to Rs. 1,99,778/-. He has further observed that in view of reasons mentioned in respect of claim Item Nos. 2, 3, 4 and 9 the rescission of the contract was illegal and wrongful. Therefore, the claimant has been deprived of the expected profit on the balance work for no fault of his and has partly allowed the claim as stated earlier. The Learned Counsel for the appellant could not challenge the reasons given by the Arbitrator to the satisfaction of the Court and, therefore, I do not find any reason to interfere with the award in respect of Claim No. 6. Claim No. 8 relates to release of deposit lying towards security and the said amount of Rs. 2,497/- having allowed in favour of the claimant, there is nothing to interfere in the said award. So far as Claim No. 13 is concerned, the same relates to payment of interest on the unpaid amount at the rate of 24%. In this respect, the Arbitrator has awarded 15% simple interest per annum from 26.2.1997 till the date of payment in respect of award against claim item Nos. 1, 2, 3, 4, 6, 8 and 9. The rate of interest granted by the Arbitrator being simple interest, I have also no reason to interfere with the same.

12. In view of the reasons given above, I modify the award and hold that the claimant-respondent is entitled to (2,376 + 89,800 + 23,970 + 2,497 = 1,18,643 - 47,345 = 71,298/-) Rs. 71,298/- (Rupees seventy one thousand two hundred ninety eight only) along with the interest as awarded by the Arbitrator.

Accordingly, the A.R.B. Appeal is partly allowed.


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