1. This petition under Section 14 of the Arbitration Act, 1940, has been registered as a suit. On the application, the arbitrator filed his award and the proceedings; the arbitrator being Shri Suresh Chander, Deputy Chief Engineer (Planning). Northern Railway. The petitioner filed objections thereto which have been numbered as I. A. No. 2067 of 1974. They are under Sections 30 and 33 of the Arbitration Act, 1940. The respondent Union of India, filed a reply and thereafter a replication was filed. On the pleadings of the parties, the following would were framed :-
'1. Whether the award is liable to be set aside for the reasons state in the application ?
The parties were directed to file affidavits as it was thought that the case could be decided without any oral evidence. The affidavits and counter-affidavits are on record and the arbitration proceedings are also before me.
2. The case of the objector is in a very narrow compass. The petitioner had submitted a tender for doing certain works for the Northern Railway which was accepted but the work was ever done in furtherance of the tender. It se that the Chief Engineer (Construction) of the Northern Railway purported to terminate the contract under clause No. 2 the tender form by a notice dated 30th June, 1972. In that notice, a copy of which is Annexure 'C' to the objections, it was stated that there was a tender dated 7th, May, 1971 submitted by the objector which had been accepted and constituted a binding contract. However, it was claimed that the tender documents had not been executed not the work commenced and, thereforee, under clause No. 2 of the tender form (first sheet) the tender was being determined. It was further stated that Rs. 20,000/- payable as earnest money had been withheld out of the lump sum deposit with the Railways. Thus, the contract was admittedly determined by the action of the Chief Engineer before the work was commenced and without a formal contract being signed.
3. Subsequently the applicant sought a reference to arbitration which was made to Shri Suresh Chander, Deputy Chief Engineer. According to the objector the only reference made to arbitration was in respect of the claims put forward by the objector. This in confirmed from the affidavit field in support of the petition and from the letter issued by the General Manager regarding the appointment of the arbitrator, that letter being of date 6th September. 1973, Annexure 'B' to the objections. It is stated there:-
'The details of claims referred to arbitration are given in Annexure 'A' which works out to Rs. 2.21 lacs.'
The arbitrator's award is challenged on the ground that the arbitrator has gone beyond the scope of the reference and miscomputed the proceedings. It is claimed that before the arbitrator, four claims of the objector were put forward and a counter-claim was made by the Northern Railway which has also been adjudicated upon , although not referred to arbitration. It is claimed that the award is vitiated because it goes beyond the scope of the reference and this fact can be ascertained from a consideration of the award.
4. The award shows that a sum of Rs. 15,000/- has been awarded to the objector in full and final settlement of the disputes referred. The award gives no reasons at all, and, it is difficult to make out which of the claims of the objector have been allowed and which have been disallowed. Also, it is not possible to determining whether any part of the counterclaim has been allowed. The arbitration proceedings have also come before the Court, which show that a number of documents were filed and there was also a statement of claim and a counter-claim of facts. In this counter-claim of facts, two points have been taken on behalf of the Northern Railway. Firstly, a sum of Rs. 1,57.772/- has been claimed as additional expenditure by the respondent for getting the work done by some one else. It was also claimed that on account of the failure of the claimant to start the execution of work up to 30th June, 1972, in spite of repeated assurances, the contract was determined, and fresh agencies for executing the work were appointed after determining the contract of the claimant. Secondly, it was stated in the counterclaim as an additional plea that in case any amount was granted to the claimant, income-tax at the rate of two per cent on the amount awarded should be deducted under Section 94-C of the Indian Finance Act, 1972. Significantly, it is mentioned in the award as follows:-
'From the amount awarded at (i) above, the Railway may recover income tax at 2% of the amount awarded as required under the Indian Finance Act, 1972.'
Thus, it seems that the award has mentioned the subject-matter of the counterclaim and has disallowed this amount by permitting a deduction of this amount by the Railway authorities, on a consideration of the counter-claim.
5. The contention of the learned counsel for the objector concerning the invalidity of the award is as follows: It is submitted that the refund of a earnest money amounting to Rs. 20,000/- was one of the claims made by the objector Which had to be allowed in full, as the contract was determined by the Chief Engineer without waiting for the expiry of the period of ten days fixed by a notice issued by him on 22nd June, 1972. It is asserted that the notice calling upon the objector to start work and to sign the formal contract was issued on 22nd, June, 1972, and the determination of the contract took place on 30th June, 1972. Thus, it is claimed that the forfeiture of the earnest money was patently invalid and this amount had to be allowed to the claimant. It is also submitted that some of the other claims of the claimant had to be allowed. I am not going to examine the validity or otherwise of the claims of the objector because that is outside the scope of this Court's jurisdiction. The question to be considered is whether the arbitrator has misconduct the proceeding or gone beyond the scope of the reference. This question has to be decided on a consideration of the questions which were considered by the arbitrator. The award is a non-speaking award and normally, it would be difficult to ascertain as to what are the questions which the arbitrator has considered. If the arbitrator had said nothing about what was referred to him and, merely said that a sum was awarded as stated to one of the parties, the objector could hardly press the present objections. However, the arbitrator has in the award made the following observations as a preamble. He has stated:-
'And whereas the said disputes and differences were referred to me, Suresh Chandra, at present employed as Dy. Chief Engineer (Planning). Northern Railway, Headquarters' Office, Baroda House, New Delhi.
And Whereas the said disputes and differences are contained in the statement of facts and the counter statement of facts received from both the parties, as well as the additional papers produced and/or cited before me during the hearing on 14-1-1974.
After having heard on the above date and duly considered all arguments and documentary evidence of the parties concerning the said disputes and differences, and having considered all the matters submitted to me in connection with the aforesaid disputes and differences do award and direct as follows:-
(i) That the contractor M/s. G. S. Atwal & Co. (GUA) H-35, Green Park Extension, New Delhi-16 be paid, 'by the Union of India (Northern Railway) a sum of Rs. 15,000/- (Rupees Fifteen thousand only) in full and final settlement of all the claims referred, to me.'
It is urged by learned counsel for the respondent that as this award is in settlement of the claims referred to the arbitrator, It follows that it is the reference made by the General Manager which was decided and not any other dispute. He submits on this basis that the arbitrator has not exceeded the scope of the reference and not adjudicated upon any other matter. On the other hand, the learned counsel for the objector contends that it is clear from the award that the disputes and differences which have been considered by the arbitrator are the disputes and difference set out in the statement of facts and in the counter-statement of facts. In fact he says, that there is no reference in the award to the terms or scope of the matters which were referred to arbitration by the General Manager. I am inclined to agree with the counsel of the objectors in view of the language used by the arbitrator. The arbitrator need not have said that 'the disputes and differences are contained in the statement of facts and counter-statements of facts', if he meant to say that the disputes and differences were set out in the General Manager's order of reference. The arbitrator having said in so many words that he has decided the disputes and differences which were set out in the statement of facts and counter-statement, it would follow that the arbitrator must also have decided the counter-claim. The amount of the counter-claim is Rs. 1,57,772/-. It. thereforee, follows that the arbitrator has taken this claim into consideration while computing the amount awarded to the objector, and hence it can be inferred that the award might have been for a larger amount if the counter-claim. had been left out of consideration.
6. It is a great pity that an arbitration of this type, should be decided, without caring to mention the exact differences or disputes which have been decided by the arbitrator. It is true that an arbitrator need not give any reasons while giving his award, but this lack of detail or lack of reasoning need not be carried to the stage of unintelligibility so as to debar the Court from determining what exactly were the disputes and differences decided by the arbitrator. The objector had submitted several disputes to the arbitrator and in the counter-statement of facts two matters were submitted by the respondent. The arbitrator could easily have said which of the disputes or claims were being decided by him, and to what extent he was allowing the individual claims. By giving a lump sum award, he has deprived the Court of an opportunity of finding out which of the claims had been allowed, and which of the claims had been disallowed, and whether any claim outside the scope of the reference to arbitration had been omitted from the decision for that reason. A complete lack of details makes me come to the conclusion that the award cannot be upheld as it appears that the arbitrator has apparently decided matters outside the scope of the reference.
7. I would also say that the award could not be upheld, even otherwise in view of the second finding of the arbitrator, which says:-
(ii) From the amount awarded at (i) above, the Railway may recover income tax at 2% of the amount awarded as required under the Indian Finance Act, 1972.'
I am of the view that this shows an illegality on the face of the award, for the simple reason that there is no provision in the Indian Finance Act, 1972, which requires 2% of the amount awarded to be deducted by the Railways. The said Finance Act did make certain changes in the Income-tax Act and introduced a new section, which is Section 194-C, for deduction of tax at source. It was provided in that section that if a contractor was paid for work he had done for the Central Government, State Government or any other local authority, corporation or company that authority should deduct 2% of the amount payable for that work, as income-tax. There are some further provisions for dealing with the deducted amount in the section. The most noteworthy feature of this particular section in the Income-tax Act, is that the deduction is to be made for 'carrying out any work in pursuance of a contract'. It does not refer to the case of a suit for the recovery of earnest money or claims for damages for breach of contract. The admitted case between the parties before me is that the contract was never commenced by the contractor. In fact, the grievance of the respondent was that in spite of bier given an order to commence work, the contractor had not commenced work. The claim of the contractor on the other hand is for damages for illegal breach of contract and for recovery of his security deposit. In neither case and under no circumstances can S. 194-C of the Income-tax Act, 1961, as introduced, by the Indian Finance Act. 1972 be called into operation. The award is obviously bad on the face of it and this is certainly one consideration I have in mind to come to conclusion that the award has taken into consideration matters outside the scope of the reference and is also erroneous in law, and has thereforee, to be set aside. In spite of the award being wholly in favor of the claimant to the extent of Rs. 15,000/- the claimant has challenged the same and mainly on account of the fact that matters outside the scope of the reference have been taken into consideration.
8. I thereforee, uphold the objections and set aside the award.
9. The next question for consideration is whether after setting aside the award, the parties should be left to settle their disputes in the ordinary Civil Courts or the matter should be referred to arbitration again. After hearing counsel I find that they both agree that the matter doubled be referred again to an arbitrator in accordance with the arbitration agreement between the parties. I thereforee, direct that the disputes referred to Shri Suresh Chandra, Deputy Chief Engineer should again be referred to an arbitrator to be appointed by the general Manager. Northern Railway in the same manner as the previous arbitrator was appointed. The plaintiff will be entitled to costs. At the request of the counsel for the defendant a copy of the order may be sent to the General Manager, Northern Railway as he is the authority who bas to appoint a fresh arbitrator.
10. Order accordingly.