REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No.8829 OF 2016
(ARISING OUT OF SLP (C) No. 24443/2007)
M/s Harish Chandra & Company …….Appellant(s)
VERSUS
State of U.P. Thr. Superintending
Engineer ……Respondent(s)
WITH
SPECIAL LEAVE PETITION (C) No. 23950 of 2007
M/s Harish Chandra & Company …….Petitioner (s)
VERSUS
State of U.P. Thr. Superintending
Engineer ……Respondent(s)
J U D G M E N T
Abhay Manohar Sapre, J.
In Special Leave Petition (c) No. 24443 of 2007
1) Leave granted.
2) This appeal is filed against the final judgment and order dated
17.08.2007 of the High Court of Uttarakhand at Nainital in O.A. No. 1097 of
2001 whereby the High Court allowed the appeal filed by the respondent
herein and set aside the judgment and order dated 30.05.1996 passed by the
Civil Judge, Dehradun and, in consequence, allowed the objections of the
State of U.P. filed under Section 30/33 of the Arbitration Act, 1940
(hereinafter referred to as “the Act 1940”) against the award dated
27.11.1995 which, in turn, also resulted in its setting aside.
3) Facts of the case need mention, in brief, infra to appreciate the
controversy involved in the appeal.
4) The appellant herein is a civil contractor whereas the respondent is
the State of U.P. represented through Superintending Engineer Irrigation
Construction Circle, Yamuna Colony, Dehradun.
5) In the year 1979, the respondent (State) invited tender being Number
6/1979-80 for doing "Earthwork in power channels on different routes of
various distances and also construction of drainage crossing in Chhoti Lui
falling in 6 stretches and divided in two sections called "serial 4” and
“serial 6" in a scheme called - KHARA HYDEL SCHEME".
6) The appellant submitted their tender for serial 4 and serial 6. The
respondent accepted the appellant's tender. Accordingly, two agreements
bearing nos. 5/SE/79-80 and 6/SE/79-80 were executed between the appellant
and the respondent for execution of the work in question on 30.10.1979.
7) So far as agreement No. 5/SE/79-80 is concerned, it was in relation
to work of section bearing serial 4 whereas agreement No. 6/SE/79-80 was in
relation to work of section bearing serial 6. The work, pursuant to these
agreements, was to start from 01.12.1979 and had to be completed on or
before 31.05.1982.
8) Disputes of various nature arose between the parties in execution of
both the agreements. The disputes were related to the completion of
works, its nature, manner of its completion, non-payment and withholding of
appellant's bills, deduction of amount from the bills etc.. Since the
disputes could not be settled amicably, the parties invoked the arbitration
clause (1.47) contained in the agreements and approached the Civil Court
for appointment of arbitrator and for making references to him for
adjudication of the disputes which had arisen between them in relation to 2
agreements. The request was acceded to and accordingly some disputes were
referred to the sole arbitrator.
9) So far as this appeal is concerned, it arises out of disputes, which
relates to agreement No. 6/SE/79-80, i.e., (serial 6). So far as disputes
relating to agreement No. 5/SE/79-80 i.e.(serial 4) and some disputes
relating to agreement No. 6/SE/79-80 are concerned, they were also referred
to the arbitrator for his decision. One reference, however, attained
finality by the orders of this Court in State of U.P. vs. Harish Chandra &
Co., (1999) 1 SCC 63, whereas another reference is pending in this Court.
10) Consequent upon the reference made to the arbitrator insofar as the
present appeal is concerned, the appellant (claimant) filed 6 claims (claim
Nos. 12 to 17) before the sole arbitrator (Mr. Harish Chandra - retired
Chief Engineer). The details of the 6 claims made by the appellant against
the respondent (State) are as under: -
|Claim No. |Claim |Amount |
|12. |Claim due on account |Rs. 1,05,00,000.00 |
| |of breaking of large |along with interest @ |
| |pieces of hard rock in|24% per annum from |
| |the filling done from |31.5.86 to the date the|
| |9.00 to 9.80 KM. |amount is actually |
| | |paid. |
|13. |Claims due as payment |Rs. 11,62,650.00 along |
| |on account of |with interest at 24% |
| |non-payment after |per annum from 1.6.86 |
| |30.9.85. |to the date the amount |
| | |is actually paid. |
|14. |Payment due as claim |Rs. 1,04,426.00 along |
| |on account of wrongful|with interest at 24% |
| |deduction of Security.|per annum from 1.5.85 |
| | |to the date the amount |
| | |is actually paid. |
|15. |Payment due as claim |Rs. 5,51,250.00 along |
| |on account of extra |with interest @ 24% per|
| |excavation. |annum from 1.6.86 to |
| | |the date the amount |
| | |actually paid. |
|16. |Payment due as claim |Rs. 4,59,200.00 along |
| |on account of dressing|with interest @ 24% per|
| |done on slopes of |annum from 1.6.86 to |
| |filled earth in |the date of amount |
| |embankments from Km. |actually paid. |
| |9.00 to KM. 9.80 | |
|17. |Stopping the |Order respondents to |
| |respondents from |accept our measurement |
| |deducting any quantity|for excavation on |
| |of excavation done by |31.5.86. |
| |petitioner because of | |
| |sitting in the monsoon| |
| |year 1986 and onwards,| |
| |if any. | |
11) The respondent (State) contested the aforementioned claims by filing
their reply. The State also filed their counter claims against the
appellant claiming damages. The appellant contested the counter claims by
filing their reply. The parties adduced evidence and examined several
witnesses in support of their respective claims.
12) On 27.11.1995, the arbitrator passed a reasoned award. Out of 6
claims, the arbitrator allowed appellant's 3 claims, i.e., claim Nos. 12,
13 and 17 and rejected the claims Nos. 14, 15 and 16. The arbitrator also
rejected the counter claims of the respondent (State) in toto. The details
of the claims awarded and rejected are as under:
|Claim No.|Amount demanded Rs. |Amount Awarded Rs. |
|12. |Rs. 1,05,00,000.00 24% |Rs. 44,98,995.00 |
| |interest from 31.5.86 | |
|13. |Rs. 11,62,650 with 24% |Rs. 10,61,450/- with |
| |interest upto 31.5.86 |interest 18% from 1.6.86|
| | |to 27.11.95 |
|14. |Rs. 1,04,426 with |Rejected |
| |interest from 1.5.85 | |
|15. |Rs. 5,51,250/- with |Rejected |
| |interest @ 24% from | |
| |1.6.86 | |
|16. |Rs. 4,59,200/- with |Rejected |
| |interest @ 24% from | |
| |1.6.86 | |
|17. |Order respondent to |No deduction in quantity|
| |accept measurement for |already paid vide 27th |
| |excavation on 31.5.86 |Running bill are |
| | |justified |
13) The respondent, felt aggrieved, filed objections under Section 30 of
the Act 1940 before the Civil Judge(S.D.), Dehradun against the award. The
appellant contested the objections and prayed for passing a decree in term
of the award. By order dated 30.05.1996, the civil Judge rejected the
objections and passed a decree in term of the award along with simple
interest payable at the rate of 18% p.a. on the awarded sum of
Rs.55,60,445/- from the date of decree till payment of amount.
14) The respondent, felt aggrieved, filed appeal being O.A. No. 1097 of
2001 before the High Court. By impugned judgment dated 17.08.2007, the High
Court allowed the appeal, set aside the order of the Trial Court and while
allowing the objections filed by the State set aside the award. The High
Court held that the arbitrator misconducted himself in passing the award
inasmuch as he travelled beyond the terms of the agreement.
15) Felt aggrieved, the appellant (contractor/claimant) has filed this
appeal by way of special leave against the judgment of the High Court.
16) Heard Mr. Vijay Hansaria, learned senior counsel for the appellant
and Mr. S.R. Singh, learned senior counsel for the respondent.
17) Mr. Vijay Hansaria, learned senior counsel appearing for the
appellant (claimant/contractor) while assailing the legality and
correctness of the impugned order contended that the High Court was clearly
in error in allowing the appeal of the State (respondent) which resulted in
allowing the objections filed by the State before the Civil judge which, in
turn, resulted in setting aside of the said award which was rightly upheld
by the Civil Judge.
18) Learned counsel urged that there was no case made out by the State in
their objections of any legal misconduct committed by the arbitrator and
nor there was any factual or/and legal foundation laid so as to constitute
a case of any legal misconduct within the meaning of Section 30 of the Act
1940 for setting aside the award.
19) Learned counsel pointed out that even cursory reading of the order of
the High Court would indicate that the apparent legal error was committed
by the High Court while allowing the appeal. It was his submission that the
High Court virtually acted as a first appellate Court as if the appeal
before the High Court arose directly against the award. Learned counsel
pointed out that the High Court then proceeded to examine the legality and
correctness of all factual findings of the arbitrator by appreciating the
evidence and then finding fault in the approach of the arbitrator so also
finding error in the findings set aside the award as being bad in law.
20) Learned counsel urged that such approach of the High Court was wholly
without jurisdiction being against the law laid down by this Court in
series of decisions wherein this Court has, inter alia, ruled that the
Court while hearing the objections under Section 30 of the Act 1940 against
the award, cannot sit as an appellate Court over the decision of the
arbitrator.
21) Learned counsel then contended that even otherwise on the merits, the
award and the judgment of the Trial Court do not suffer from any illegality
and nor any case of legal misconduct is made out against the arbitrator so
as to empower the Court to set aside the award under Section 30 of the Act
1940. It was his submission that the arbitrator did not travel beyond the
agreement and on the other hand discussed each and every issue by
appreciating the evidence on record with reference to each claim and then
recorded a finding in favour of the appellant in relation to three claims
and rejected the remaining claims of the appellant.
22) Learned counsel lastly contended that this Court should, therefore,
restore the order of the Trial Court and, in consequence, uphold the award,
which is partly in favour of the appellant and partly against them, as
being just and legal by setting aside of the impugned order of the High
Court.
23) In reply, Mr. S.R. Singh, learned counsel for the respondent
supported the impugned order and contended that it does not call for any
interference. It was his submission that the reasoning and the conclusion
arrived at by the High Court for setting aside the award is legal and
proper and hence it deserves to be upheld calling no interference.
24) Having heard the learned counsel for the parties and on perusal of
the record of the case, we are inclined to accept the submissions of the
learned counsel for the appellant as, in our opinion, it has substance.
25) The question which arises for consideration in this appeal is whether
the High Court was justified in allowing the objections filed by the
respondent (State) under Section 30 of the Act 1940 and thereby was
justified in setting aside of the award passed by the sole arbitrator on
the ground of "legal misconduct"? In other words, the question that arises
for consideration in this appeal is whether on facts any case of legal
misconduct on the part of the arbitrator is made out by the State under
Section 30 of the Act 1940 for setting aside of the award dated 27.11.1995?
26) This question, in our opinion, is required to be decided in the
context of Section 30 of Act 1940 since repealed.
27) What is the jurisdiction of the Court under Section 30 when it
examines the question as to whether any case of legal misconduct on the
part of an arbitrator in passing an award is made out or not has been the
subject matter of several decisions of this Court and remains no more res
integra?
28) A three-Judge Bench of this Court in State of U.P. vs. Allied
Constructions, (2003) 7 SCC 396 while examining the scope of Section 30
held as under:
“The award is a speaking one. The arbitrator has assigned sufficient and
cogent reasons in support thereof. Interpretation of a contract, it is
trite, is a matter for the arbitrator to determine.
Sudarshan Trading Co. vs. Govt. of Kerala (1989) 2 SCC 38: REFERRED TO:
Section 30 of the Arbitration Act, 1940 providing for setting aside an
award is restrictive in its operation. Unless one or the other condition
contained in Section 30 is satisfied, an award cannot be set aside. The
arbitrator is a Judge chosen by the parties and his decision is final. The
court is precluded from reappraising the evidence. Even in a case where
the award contains reasons, the interference herewith would still be not
available within the jurisdiction of the court unless, of course, the
reasons are totally perverse or the judgment is based on a wrong
proposition of law. An error apparent on the fact of the records would not
imply closer scrutiny of the merits of documents and materials on record.
Once it is found that the view of the arbitrator is a plausible one, the
court will refrain itself from interfering.”
29) Justice S. Mukharji, as His Lordship then was, speaking for the Bench
in M/s Sudarsan Trading Co. vs. Government of Kerala, (1989) 2 SCC 38 while
examining the jurisdiction of Court under Section 30 held as under:
“However, there is a distinction between disputes as to the jurisdiction of
the arbitrator and the disputes as to in what way that jurisdiction should
be exercised. There may be a conflict as to the power of the arbitrator to
grant a particular remedy. One has to determine the distinction between an
error within the jurisdiction and an error in excess of the jurisdiction.
Court cannot substitute its own evaluation of the conclusion of law or fact
to come to the conclusion that the arbitrator had acted contrary to the
bargain between the parties. Whether a particular amount was liable to be
paid or damages liable to be sustained, was a decision within the
competency of the arbitrator in this. By purporting to construe the
contract the court could not take upon itself the burden of saying that
this was contrary to the contract and, as such, beyond jurisdiction. If on
a view taken of a contract, the decision of the arbitrator on certain
amounts awarded, is a possible view through perhaps not the only correct
view, the award cannot be examined by the court.”
30) The aforesaid view was consistently followed in later decisions by
this Court in State of Andhra Pradesh & Ors. Vs. R.V. Rayanim & Ors.,
(1990) 1 SCC 433 and Ravindra Kumar Gupta & Co. vs. Union of India (2010)
1 SCC 409.
31) One cannot, therefore, dispute the legal proposition, which is now
fairly settled keeping in view the aforementioned law laid down by this
Court that an award can be set aside only on the grounds specified in sub-
clause (a) (b) and (c) of Section 30 of 1940 Act and on no other grounds.
Indeed this is clear from the opening words of Section 30 itself which
starts with the words "An award shall not be set aside except on one or
more of the following grounds." A fortiori, a reasoned award cannot be set
aside unless it falls in any of the three sub-clauses (a) (b) and (c) of
Section 30 of the Act 1940.
32) The grounds such as inadequacy of reasons in support of an award,
error committed by the arbitrator on facts, alternate or/and more plausible
view could be taken then what is taken by the arbitrator, improper
appreciation of evidence done by the arbitrator in recording any finding
etc. are not the grounds on which any award much less a reasoned award can
be set aside. In other words, none of these grounds can be made the
foundation for setting aside the award because they do not fall within the
four corners of any of the three sub- clauses of Section 30 of the Act
1940.
33) Coming now to the facts of this case, on perusal of the impugned
judgment, we find that the High Court while setting aside of the award did
not take into consideration the aforesaid view of this Court and thus, in
our view, committed a legal error.
34) We are constrained to observe that the High Court virtually sat as an
appellate Court as if it was hearing the appeal arising out of the award
little realizing rather ignoring its well defined jurisdiction in such
matter and proceeded to probe into all factual issues arising in the case.
It seems to have gone to the extent of permitting the State’s counsel to
file some documents in appeal as would be clear from para 12 of the
judgment. This would also be clear from the observations of the High Court
made in Paras 12, 13, 18 and 19 which read as under :
“12 The learned standing counsel has supplied the list of petty contractors
in whose names the bills were submitted before the Arbitrator. The details
of those bills is as below:-
|S.No. |Names of Petty |Amount |
| |Contractors | |
|1 |Harish Chandra & Sons |Rs. 3,11,965.80 |
|2 |Vijay Gupta & Sons |Rs. 3,04,828.00 |
|3 |Phool Chand Gupta & |Rs. 17,95,346.00 |
| |Sons | |
|4 |Ashok Gupta & Sons |Rs. 178,84,942.00 |
|5 |Vijay Gupta & Sons |Rs. 17,78,664.00 |
|6 |Phool Chand & Sons |Rs. 2,97,583.50 |
|7 |Ashok Gupta & Sons |Rs. 3,10,258.60 |
|8 |Harish Chandra & Sons |Rs. 17,84,468.00 |
|9 |Ajay Gupta & Sons |Rs. 3,00,196.90 |
|10 |Ajay Gupta & Sons |Rs. 17,73,903.98 |
13. The department made enquiries upon which it was revealed that in the
concerned area there exist no Firms in the aforesaid names and addresses.
The correspondence made in this regard is filed as Annexure No.2
(Collectively) to the Stay Application in the appeal before this Court. The
endorsement made by the postal department about non-existence of the said
Firms is also Arbitrator has not considered the above facts and allowed the
claims 12, 13 and 17 filed by the contractor. The Department’s allegation
is that the contractor for the first time raised claim Nos. 12 to 16 before
it vide his letter No. 102/S.C.C./87 dated 20.9.87 and the department vide
its letter No. 3911/-2/case/647/86, dated 28.11.87 has rejected the claims.
Claim No. 17 was never raised before the Department and it was placed
before the Arbitrator directly.
18.Now we proceed to scrutinize the claims awarded by the Arbitrator to the
contractor.
Claim No. 12 pertains to breaking of large pieces of hard rock in the
filling work done from Km. No. 9.00 to 9.80. The Arbitrator has allowed
this claim on the ground that the site is located in the upper Shivalik
ranges of the Himalayan mountains. These ranges are mostly built of the
sedimentary rocks compressed of the material flown down the rivers since
millions of years which got compressed under their own pressure and weights
and got very hard due to the ageing process. This material could not be
dugged out manually by pick axes or Phawaras. The possible means of
excavation were only by mechanical means either by mechanical shovels, back
hows, rippers or by blasting. The objections of the Department is that the
Arbitrator has allowed the claim on imagination. As per the contract clause
8.05 boulders of 150 mm dimensions were to be used in the filling reach and
of more than 150 mm were to be staked at the site. The stones of dimensions
of above 150 mm were not to be broken and then filled in the filling reach.
The relevant clause 8.05 clearly indicates “the boulders of more than 150
mm in dimension shall not be permitted in the embankments unless
specifically approved by the Engineer Incharge and shall be stacked by the
contractor 10 meters away from the toe of the bank and nothing extra shall
be paid to the contractor for this work”. There is no mention of breaking
of the stones in the agreement clause. The Arbitrator has acted beyond the
provision of the agreement in allowing this claim.”
35) The High Court then went on to examine the case on facts and
eventually held that the arbitrator has travelled beyond clauses 26, 3
(1)(a) and 1.46 of the agreement and hence committed legal misconduct
requiring the High Court to set aside the award.
36) With respect, we can neither agree and nor can uphold the
approach and the reasoning of the High Court. In our considered view, such
approach is wholly against the law laid down by this Court in the decisions
quoted supra.
37) In the first place, the High Court did not apply the law laid down by
this Court while deciding the appeal and hence committed a jurisdictional
error; Secondly, the High Court acted like an appellate Court and virtually
treated as if the appeal arose directly against the award and then
proceeded to examine all factual findings of the arbitrator by appreciating
the evidence. It was not permissible in law; Thirdly, the High Court
should have confined its inquiry to find out as to whether any legal
misconduct was committed by the arbitrator and, if so, how and in what
manner. It was, however, not done; Fourthly, the High Court went into the
factual question by referring to clause 26 of the agreement for holding
that the arbitrator passed an award contrary to clause 26 and thereby
traveled beyond the terms of agreement which constituted a legal misconduct
on his part. This finding, in our view, is, on the face of it, untenable
in law for the reason, inter alia, that this objection was neither raised
before the arbitrator and nor before the Trial Court in the manner in which
it was raised for the first time in the High Court. In any event, in the
absence of any finding recorded by the arbitrator and the Trial Court, such
issue could not have been gone into for the first time in appeal by the
High Court. That apart, it has otherwise no substance on facts for the
simple reason that it being a question of fact, the same could not be
examined in appeal; Fifthly, the High Court failed to see that clause 26
only prohibits the appellant from assigning the agreement to any third
person. Clause 26, therefore, had nothing to do with the claims filed by
the appellants. It was an admitted fact that the appellant did not assign
the agreement to any third person. If some work was got done by the
appellant by employing some small contractor then it did not constitute a
case of assignment of a whole agreement in favour of small contractors
within the meaning of clause 26 so as to empower the State to cancel the
agreement on such ground. The finding of the High Court that the award is
rendered bad because it was passed in contravention of clause 26 of the
agreement is, therefore, not legally sustainable in law; Sixthly, the High
Court further failed to see that there was no error apparent on the face of
the record in the findings recorded by the arbitrator; Seventhly, the High
Court also failed to see that the Trial Court had elaborately gone into all
the factual issues and rightly did not find any substance in the objections
raised by the respondent; and lastly, the award being a reasoned one
(running into 36 pages-Annexure P5 pages 127-163 of the SLP paper book),
the reasoning of the arbitrator could not be said to be perverse to the
extent that no man with ordinary prudence could take such view and nor any
finding of the arbitrator was against any provision of law or in
contravention of any of the clauses of the agreement so as to constitute a
case of legal misconduct on the part of the arbitrator within the meaning
of Section 30 of the Act for setting aside an award.
38) We, on perusal of the award, find that the main claim of the
appellant (claimant) against the State was "claim No. 12" which was in
relation to the work done by the appellant of breaking of large pieces of
hard rock from 9.00 Km to 9.80 Km distance. Since the respondent (State)
disputed the appellant's claim on various factual grounds and hence the
issue centered around to the questions as to whether the appellant did this
work and, if so, how and in what manner and to what extent and lastly, what
should be the rate at which the appellant should be paid, if it is held
that the appellant has done the work.
39) The arbitrator in Paras 19 to 36 of the award examined these issues
on the basis of the evidence adduced by the parties and held that the
appellant has done the work in question and, therefore, they were entitled
to claim its price for the work done. Though the appellant, in their claim
petition, claimed the money at the rate of Rs.30 per Cu M but the
arbitrator did not accept the rates claimed by the appellant and instead
awarded the amount to the appellant at the rate of Rs.12.97 per Cu.M.
40) So far as claim No. 13 was concerned, it pertained to interest
claimed by the appellant on their some amount whereas the claim No. 17 was
in relation to some deductions already made by the respondent in the
appellant's bills for certain work done under the agreement.
41) In our considered view, it is clear from the facts of the case that
the claims made by the appellant were essentially based on facts. They were
accordingly probed on oral and documentary evidence adduced by the parties,
which resulted in partial success of 3 claims in appellant's favour and
rejection of 3 claims. So far as the State is concerned, they did not
pursue their counter claim consequent upon its rejection by the arbitrator.
42) We have not been able to notice any kind of perversity in the
arbitrator's reasoning and nor are we able to notice any kind of apparent
error whether legal or otherwise in the award which may constitute a case
of any legal misconduct on the part of the arbitrator empowering the Court
to set aside the award by taking recourse to Section 30 of the Act. The
reasoning and the conclusion arrived at by the arbitrator is one of the
possible view which is capable of being taken by the arbitrator on the
material brought on record and we find no legal ground to set it aside the
same.
43) Learned counsel for the respondent made sincere attempt to
support the reasoning and the conclusion reached by the High Court but in
the light of what we have discussed above, we can not accept any of his
submissions.
44) In the light of foregoing discussion, we are unable to concur
with the reasoning and the conclusion arrived at by the High Court.
45) As a result, the appeal succeeds and is accordingly allowed.
Impugned order is set aside and that of the Trial Court restored.
In Special Leave Petition (c) No. 23950 of 2007
As prayed for, the petitioner is permitted to withdraw this special leave
petition with a liberty granted to the petitioner to file review petition
before the High Court. In the event of review petition being dismissed,
the petitioner would be at liberty to challenge the impugned order
including the order in the review petition.
With the aforesaid liberty, the special leave petition is dismissed as
withdrawn.
………...................................J.
[J. CHELAMESWAR]
…...……..................................J.
[ABHAY MANOHAR SAPRE] New Delhi;
September 08, 2016
-----------------------
29
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No.8829 OF 2016
(ARISING OUT OF SLP (C) No. 24443/2007)
M/s Harish Chandra & Company …….Appellant(s)
VERSUS
State of U.P. Thr. Superintending
Engineer ……Respondent(s)
WITH
SPECIAL LEAVE PETITION (C) No. 23950 of 2007
M/s Harish Chandra & Company …….Petitioner (s)
VERSUS
State of U.P. Thr. Superintending
Engineer ……Respondent(s)
J U D G M E N T
Abhay Manohar Sapre, J.
In Special Leave Petition (c) No. 24443 of 2007
1) Leave granted.
2) This appeal is filed against the final judgment and order dated
17.08.2007 of the High Court of Uttarakhand at Nainital in O.A. No. 1097 of
2001 whereby the High Court allowed the appeal filed by the respondent
herein and set aside the judgment and order dated 30.05.1996 passed by the
Civil Judge, Dehradun and, in consequence, allowed the objections of the
State of U.P. filed under Section 30/33 of the Arbitration Act, 1940
(hereinafter referred to as “the Act 1940”) against the award dated
27.11.1995 which, in turn, also resulted in its setting aside.
3) Facts of the case need mention, in brief, infra to appreciate the
controversy involved in the appeal.
4) The appellant herein is a civil contractor whereas the respondent is
the State of U.P. represented through Superintending Engineer Irrigation
Construction Circle, Yamuna Colony, Dehradun.
5) In the year 1979, the respondent (State) invited tender being Number
6/1979-80 for doing "Earthwork in power channels on different routes of
various distances and also construction of drainage crossing in Chhoti Lui
falling in 6 stretches and divided in two sections called "serial 4” and
“serial 6" in a scheme called - KHARA HYDEL SCHEME".
6) The appellant submitted their tender for serial 4 and serial 6. The
respondent accepted the appellant's tender. Accordingly, two agreements
bearing nos. 5/SE/79-80 and 6/SE/79-80 were executed between the appellant
and the respondent for execution of the work in question on 30.10.1979.
7) So far as agreement No. 5/SE/79-80 is concerned, it was in relation
to work of section bearing serial 4 whereas agreement No. 6/SE/79-80 was in
relation to work of section bearing serial 6. The work, pursuant to these
agreements, was to start from 01.12.1979 and had to be completed on or
before 31.05.1982.
8) Disputes of various nature arose between the parties in execution of
both the agreements. The disputes were related to the completion of
works, its nature, manner of its completion, non-payment and withholding of
appellant's bills, deduction of amount from the bills etc.. Since the
disputes could not be settled amicably, the parties invoked the arbitration
clause (1.47) contained in the agreements and approached the Civil Court
for appointment of arbitrator and for making references to him for
adjudication of the disputes which had arisen between them in relation to 2
agreements. The request was acceded to and accordingly some disputes were
referred to the sole arbitrator.
9) So far as this appeal is concerned, it arises out of disputes, which
relates to agreement No. 6/SE/79-80, i.e., (serial 6). So far as disputes
relating to agreement No. 5/SE/79-80 i.e.(serial 4) and some disputes
relating to agreement No. 6/SE/79-80 are concerned, they were also referred
to the arbitrator for his decision. One reference, however, attained
finality by the orders of this Court in State of U.P. vs. Harish Chandra &
Co., (1999) 1 SCC 63, whereas another reference is pending in this Court.
10) Consequent upon the reference made to the arbitrator insofar as the
present appeal is concerned, the appellant (claimant) filed 6 claims (claim
Nos. 12 to 17) before the sole arbitrator (Mr. Harish Chandra - retired
Chief Engineer). The details of the 6 claims made by the appellant against
the respondent (State) are as under: -
|Claim No. |Claim |Amount |
|12. |Claim due on account |Rs. 1,05,00,000.00 |
| |of breaking of large |along with interest @ |
| |pieces of hard rock in|24% per annum from |
| |the filling done from |31.5.86 to the date the|
| |9.00 to 9.80 KM. |amount is actually |
| | |paid. |
|13. |Claims due as payment |Rs. 11,62,650.00 along |
| |on account of |with interest at 24% |
| |non-payment after |per annum from 1.6.86 |
| |30.9.85. |to the date the amount |
| | |is actually paid. |
|14. |Payment due as claim |Rs. 1,04,426.00 along |
| |on account of wrongful|with interest at 24% |
| |deduction of Security.|per annum from 1.5.85 |
| | |to the date the amount |
| | |is actually paid. |
|15. |Payment due as claim |Rs. 5,51,250.00 along |
| |on account of extra |with interest @ 24% per|
| |excavation. |annum from 1.6.86 to |
| | |the date the amount |
| | |actually paid. |
|16. |Payment due as claim |Rs. 4,59,200.00 along |
| |on account of dressing|with interest @ 24% per|
| |done on slopes of |annum from 1.6.86 to |
| |filled earth in |the date of amount |
| |embankments from Km. |actually paid. |
| |9.00 to KM. 9.80 | |
|17. |Stopping the |Order respondents to |
| |respondents from |accept our measurement |
| |deducting any quantity|for excavation on |
| |of excavation done by |31.5.86. |
| |petitioner because of | |
| |sitting in the monsoon| |
| |year 1986 and onwards,| |
| |if any. | |
11) The respondent (State) contested the aforementioned claims by filing
their reply. The State also filed their counter claims against the
appellant claiming damages. The appellant contested the counter claims by
filing their reply. The parties adduced evidence and examined several
witnesses in support of their respective claims.
12) On 27.11.1995, the arbitrator passed a reasoned award. Out of 6
claims, the arbitrator allowed appellant's 3 claims, i.e., claim Nos. 12,
13 and 17 and rejected the claims Nos. 14, 15 and 16. The arbitrator also
rejected the counter claims of the respondent (State) in toto. The details
of the claims awarded and rejected are as under:
|Claim No.|Amount demanded Rs. |Amount Awarded Rs. |
|12. |Rs. 1,05,00,000.00 24% |Rs. 44,98,995.00 |
| |interest from 31.5.86 | |
|13. |Rs. 11,62,650 with 24% |Rs. 10,61,450/- with |
| |interest upto 31.5.86 |interest 18% from 1.6.86|
| | |to 27.11.95 |
|14. |Rs. 1,04,426 with |Rejected |
| |interest from 1.5.85 | |
|15. |Rs. 5,51,250/- with |Rejected |
| |interest @ 24% from | |
| |1.6.86 | |
|16. |Rs. 4,59,200/- with |Rejected |
| |interest @ 24% from | |
| |1.6.86 | |
|17. |Order respondent to |No deduction in quantity|
| |accept measurement for |already paid vide 27th |
| |excavation on 31.5.86 |Running bill are |
| | |justified |
13) The respondent, felt aggrieved, filed objections under Section 30 of
the Act 1940 before the Civil Judge(S.D.), Dehradun against the award. The
appellant contested the objections and prayed for passing a decree in term
of the award. By order dated 30.05.1996, the civil Judge rejected the
objections and passed a decree in term of the award along with simple
interest payable at the rate of 18% p.a. on the awarded sum of
Rs.55,60,445/- from the date of decree till payment of amount.
14) The respondent, felt aggrieved, filed appeal being O.A. No. 1097 of
2001 before the High Court. By impugned judgment dated 17.08.2007, the High
Court allowed the appeal, set aside the order of the Trial Court and while
allowing the objections filed by the State set aside the award. The High
Court held that the arbitrator misconducted himself in passing the award
inasmuch as he travelled beyond the terms of the agreement.
15) Felt aggrieved, the appellant (contractor/claimant) has filed this
appeal by way of special leave against the judgment of the High Court.
16) Heard Mr. Vijay Hansaria, learned senior counsel for the appellant
and Mr. S.R. Singh, learned senior counsel for the respondent.
17) Mr. Vijay Hansaria, learned senior counsel appearing for the
appellant (claimant/contractor) while assailing the legality and
correctness of the impugned order contended that the High Court was clearly
in error in allowing the appeal of the State (respondent) which resulted in
allowing the objections filed by the State before the Civil judge which, in
turn, resulted in setting aside of the said award which was rightly upheld
by the Civil Judge.
18) Learned counsel urged that there was no case made out by the State in
their objections of any legal misconduct committed by the arbitrator and
nor there was any factual or/and legal foundation laid so as to constitute
a case of any legal misconduct within the meaning of Section 30 of the Act
1940 for setting aside the award.
19) Learned counsel pointed out that even cursory reading of the order of
the High Court would indicate that the apparent legal error was committed
by the High Court while allowing the appeal. It was his submission that the
High Court virtually acted as a first appellate Court as if the appeal
before the High Court arose directly against the award. Learned counsel
pointed out that the High Court then proceeded to examine the legality and
correctness of all factual findings of the arbitrator by appreciating the
evidence and then finding fault in the approach of the arbitrator so also
finding error in the findings set aside the award as being bad in law.
20) Learned counsel urged that such approach of the High Court was wholly
without jurisdiction being against the law laid down by this Court in
series of decisions wherein this Court has, inter alia, ruled that the
Court while hearing the objections under Section 30 of the Act 1940 against
the award, cannot sit as an appellate Court over the decision of the
arbitrator.
21) Learned counsel then contended that even otherwise on the merits, the
award and the judgment of the Trial Court do not suffer from any illegality
and nor any case of legal misconduct is made out against the arbitrator so
as to empower the Court to set aside the award under Section 30 of the Act
1940. It was his submission that the arbitrator did not travel beyond the
agreement and on the other hand discussed each and every issue by
appreciating the evidence on record with reference to each claim and then
recorded a finding in favour of the appellant in relation to three claims
and rejected the remaining claims of the appellant.
22) Learned counsel lastly contended that this Court should, therefore,
restore the order of the Trial Court and, in consequence, uphold the award,
which is partly in favour of the appellant and partly against them, as
being just and legal by setting aside of the impugned order of the High
Court.
23) In reply, Mr. S.R. Singh, learned counsel for the respondent
supported the impugned order and contended that it does not call for any
interference. It was his submission that the reasoning and the conclusion
arrived at by the High Court for setting aside the award is legal and
proper and hence it deserves to be upheld calling no interference.
24) Having heard the learned counsel for the parties and on perusal of
the record of the case, we are inclined to accept the submissions of the
learned counsel for the appellant as, in our opinion, it has substance.
25) The question which arises for consideration in this appeal is whether
the High Court was justified in allowing the objections filed by the
respondent (State) under Section 30 of the Act 1940 and thereby was
justified in setting aside of the award passed by the sole arbitrator on
the ground of "legal misconduct"? In other words, the question that arises
for consideration in this appeal is whether on facts any case of legal
misconduct on the part of the arbitrator is made out by the State under
Section 30 of the Act 1940 for setting aside of the award dated 27.11.1995?
26) This question, in our opinion, is required to be decided in the
context of Section 30 of Act 1940 since repealed.
27) What is the jurisdiction of the Court under Section 30 when it
examines the question as to whether any case of legal misconduct on the
part of an arbitrator in passing an award is made out or not has been the
subject matter of several decisions of this Court and remains no more res
integra?
28) A three-Judge Bench of this Court in State of U.P. vs. Allied
Constructions, (2003) 7 SCC 396 while examining the scope of Section 30
held as under:
“The award is a speaking one. The arbitrator has assigned sufficient and
cogent reasons in support thereof. Interpretation of a contract, it is
trite, is a matter for the arbitrator to determine.
Sudarshan Trading Co. vs. Govt. of Kerala (1989) 2 SCC 38: REFERRED TO:
Section 30 of the Arbitration Act, 1940 providing for setting aside an
award is restrictive in its operation. Unless one or the other condition
contained in Section 30 is satisfied, an award cannot be set aside. The
arbitrator is a Judge chosen by the parties and his decision is final. The
court is precluded from reappraising the evidence. Even in a case where
the award contains reasons, the interference herewith would still be not
available within the jurisdiction of the court unless, of course, the
reasons are totally perverse or the judgment is based on a wrong
proposition of law. An error apparent on the fact of the records would not
imply closer scrutiny of the merits of documents and materials on record.
Once it is found that the view of the arbitrator is a plausible one, the
court will refrain itself from interfering.”
29) Justice S. Mukharji, as His Lordship then was, speaking for the Bench
in M/s Sudarsan Trading Co. vs. Government of Kerala, (1989) 2 SCC 38 while
examining the jurisdiction of Court under Section 30 held as under:
“However, there is a distinction between disputes as to the jurisdiction of
the arbitrator and the disputes as to in what way that jurisdiction should
be exercised. There may be a conflict as to the power of the arbitrator to
grant a particular remedy. One has to determine the distinction between an
error within the jurisdiction and an error in excess of the jurisdiction.
Court cannot substitute its own evaluation of the conclusion of law or fact
to come to the conclusion that the arbitrator had acted contrary to the
bargain between the parties. Whether a particular amount was liable to be
paid or damages liable to be sustained, was a decision within the
competency of the arbitrator in this. By purporting to construe the
contract the court could not take upon itself the burden of saying that
this was contrary to the contract and, as such, beyond jurisdiction. If on
a view taken of a contract, the decision of the arbitrator on certain
amounts awarded, is a possible view through perhaps not the only correct
view, the award cannot be examined by the court.”
30) The aforesaid view was consistently followed in later decisions by
this Court in State of Andhra Pradesh & Ors. Vs. R.V. Rayanim & Ors.,
(1990) 1 SCC 433 and Ravindra Kumar Gupta & Co. vs. Union of India (2010)
1 SCC 409.
31) One cannot, therefore, dispute the legal proposition, which is now
fairly settled keeping in view the aforementioned law laid down by this
Court that an award can be set aside only on the grounds specified in sub-
clause (a) (b) and (c) of Section 30 of 1940 Act and on no other grounds.
Indeed this is clear from the opening words of Section 30 itself which
starts with the words "An award shall not be set aside except on one or
more of the following grounds." A fortiori, a reasoned award cannot be set
aside unless it falls in any of the three sub-clauses (a) (b) and (c) of
Section 30 of the Act 1940.
32) The grounds such as inadequacy of reasons in support of an award,
error committed by the arbitrator on facts, alternate or/and more plausible
view could be taken then what is taken by the arbitrator, improper
appreciation of evidence done by the arbitrator in recording any finding
etc. are not the grounds on which any award much less a reasoned award can
be set aside. In other words, none of these grounds can be made the
foundation for setting aside the award because they do not fall within the
four corners of any of the three sub- clauses of Section 30 of the Act
1940.
33) Coming now to the facts of this case, on perusal of the impugned
judgment, we find that the High Court while setting aside of the award did
not take into consideration the aforesaid view of this Court and thus, in
our view, committed a legal error.
34) We are constrained to observe that the High Court virtually sat as an
appellate Court as if it was hearing the appeal arising out of the award
little realizing rather ignoring its well defined jurisdiction in such
matter and proceeded to probe into all factual issues arising in the case.
It seems to have gone to the extent of permitting the State’s counsel to
file some documents in appeal as would be clear from para 12 of the
judgment. This would also be clear from the observations of the High Court
made in Paras 12, 13, 18 and 19 which read as under :
“12 The learned standing counsel has supplied the list of petty contractors
in whose names the bills were submitted before the Arbitrator. The details
of those bills is as below:-
|S.No. |Names of Petty |Amount |
| |Contractors | |
|1 |Harish Chandra & Sons |Rs. 3,11,965.80 |
|2 |Vijay Gupta & Sons |Rs. 3,04,828.00 |
|3 |Phool Chand Gupta & |Rs. 17,95,346.00 |
| |Sons | |
|4 |Ashok Gupta & Sons |Rs. 178,84,942.00 |
|5 |Vijay Gupta & Sons |Rs. 17,78,664.00 |
|6 |Phool Chand & Sons |Rs. 2,97,583.50 |
|7 |Ashok Gupta & Sons |Rs. 3,10,258.60 |
|8 |Harish Chandra & Sons |Rs. 17,84,468.00 |
|9 |Ajay Gupta & Sons |Rs. 3,00,196.90 |
|10 |Ajay Gupta & Sons |Rs. 17,73,903.98 |
13. The department made enquiries upon which it was revealed that in the
concerned area there exist no Firms in the aforesaid names and addresses.
The correspondence made in this regard is filed as Annexure No.2
(Collectively) to the Stay Application in the appeal before this Court. The
endorsement made by the postal department about non-existence of the said
Firms is also Arbitrator has not considered the above facts and allowed the
claims 12, 13 and 17 filed by the contractor. The Department’s allegation
is that the contractor for the first time raised claim Nos. 12 to 16 before
it vide his letter No. 102/S.C.C./87 dated 20.9.87 and the department vide
its letter No. 3911/-2/case/647/86, dated 28.11.87 has rejected the claims.
Claim No. 17 was never raised before the Department and it was placed
before the Arbitrator directly.
18.Now we proceed to scrutinize the claims awarded by the Arbitrator to the
contractor.
Claim No. 12 pertains to breaking of large pieces of hard rock in the
filling work done from Km. No. 9.00 to 9.80. The Arbitrator has allowed
this claim on the ground that the site is located in the upper Shivalik
ranges of the Himalayan mountains. These ranges are mostly built of the
sedimentary rocks compressed of the material flown down the rivers since
millions of years which got compressed under their own pressure and weights
and got very hard due to the ageing process. This material could not be
dugged out manually by pick axes or Phawaras. The possible means of
excavation were only by mechanical means either by mechanical shovels, back
hows, rippers or by blasting. The objections of the Department is that the
Arbitrator has allowed the claim on imagination. As per the contract clause
8.05 boulders of 150 mm dimensions were to be used in the filling reach and
of more than 150 mm were to be staked at the site. The stones of dimensions
of above 150 mm were not to be broken and then filled in the filling reach.
The relevant clause 8.05 clearly indicates “the boulders of more than 150
mm in dimension shall not be permitted in the embankments unless
specifically approved by the Engineer Incharge and shall be stacked by the
contractor 10 meters away from the toe of the bank and nothing extra shall
be paid to the contractor for this work”. There is no mention of breaking
of the stones in the agreement clause. The Arbitrator has acted beyond the
provision of the agreement in allowing this claim.”
35) The High Court then went on to examine the case on facts and
eventually held that the arbitrator has travelled beyond clauses 26, 3
(1)(a) and 1.46 of the agreement and hence committed legal misconduct
requiring the High Court to set aside the award.
36) With respect, we can neither agree and nor can uphold the
approach and the reasoning of the High Court. In our considered view, such
approach is wholly against the law laid down by this Court in the decisions
quoted supra.
37) In the first place, the High Court did not apply the law laid down by
this Court while deciding the appeal and hence committed a jurisdictional
error; Secondly, the High Court acted like an appellate Court and virtually
treated as if the appeal arose directly against the award and then
proceeded to examine all factual findings of the arbitrator by appreciating
the evidence. It was not permissible in law; Thirdly, the High Court
should have confined its inquiry to find out as to whether any legal
misconduct was committed by the arbitrator and, if so, how and in what
manner. It was, however, not done; Fourthly, the High Court went into the
factual question by referring to clause 26 of the agreement for holding
that the arbitrator passed an award contrary to clause 26 and thereby
traveled beyond the terms of agreement which constituted a legal misconduct
on his part. This finding, in our view, is, on the face of it, untenable
in law for the reason, inter alia, that this objection was neither raised
before the arbitrator and nor before the Trial Court in the manner in which
it was raised for the first time in the High Court. In any event, in the
absence of any finding recorded by the arbitrator and the Trial Court, such
issue could not have been gone into for the first time in appeal by the
High Court. That apart, it has otherwise no substance on facts for the
simple reason that it being a question of fact, the same could not be
examined in appeal; Fifthly, the High Court failed to see that clause 26
only prohibits the appellant from assigning the agreement to any third
person. Clause 26, therefore, had nothing to do with the claims filed by
the appellants. It was an admitted fact that the appellant did not assign
the agreement to any third person. If some work was got done by the
appellant by employing some small contractor then it did not constitute a
case of assignment of a whole agreement in favour of small contractors
within the meaning of clause 26 so as to empower the State to cancel the
agreement on such ground. The finding of the High Court that the award is
rendered bad because it was passed in contravention of clause 26 of the
agreement is, therefore, not legally sustainable in law; Sixthly, the High
Court further failed to see that there was no error apparent on the face of
the record in the findings recorded by the arbitrator; Seventhly, the High
Court also failed to see that the Trial Court had elaborately gone into all
the factual issues and rightly did not find any substance in the objections
raised by the respondent; and lastly, the award being a reasoned one
(running into 36 pages-Annexure P5 pages 127-163 of the SLP paper book),
the reasoning of the arbitrator could not be said to be perverse to the
extent that no man with ordinary prudence could take such view and nor any
finding of the arbitrator was against any provision of law or in
contravention of any of the clauses of the agreement so as to constitute a
case of legal misconduct on the part of the arbitrator within the meaning
of Section 30 of the Act for setting aside an award.
38) We, on perusal of the award, find that the main claim of the
appellant (claimant) against the State was "claim No. 12" which was in
relation to the work done by the appellant of breaking of large pieces of
hard rock from 9.00 Km to 9.80 Km distance. Since the respondent (State)
disputed the appellant's claim on various factual grounds and hence the
issue centered around to the questions as to whether the appellant did this
work and, if so, how and in what manner and to what extent and lastly, what
should be the rate at which the appellant should be paid, if it is held
that the appellant has done the work.
39) The arbitrator in Paras 19 to 36 of the award examined these issues
on the basis of the evidence adduced by the parties and held that the
appellant has done the work in question and, therefore, they were entitled
to claim its price for the work done. Though the appellant, in their claim
petition, claimed the money at the rate of Rs.30 per Cu M but the
arbitrator did not accept the rates claimed by the appellant and instead
awarded the amount to the appellant at the rate of Rs.12.97 per Cu.M.
40) So far as claim No. 13 was concerned, it pertained to interest
claimed by the appellant on their some amount whereas the claim No. 17 was
in relation to some deductions already made by the respondent in the
appellant's bills for certain work done under the agreement.
41) In our considered view, it is clear from the facts of the case that
the claims made by the appellant were essentially based on facts. They were
accordingly probed on oral and documentary evidence adduced by the parties,
which resulted in partial success of 3 claims in appellant's favour and
rejection of 3 claims. So far as the State is concerned, they did not
pursue their counter claim consequent upon its rejection by the arbitrator.
42) We have not been able to notice any kind of perversity in the
arbitrator's reasoning and nor are we able to notice any kind of apparent
error whether legal or otherwise in the award which may constitute a case
of any legal misconduct on the part of the arbitrator empowering the Court
to set aside the award by taking recourse to Section 30 of the Act. The
reasoning and the conclusion arrived at by the arbitrator is one of the
possible view which is capable of being taken by the arbitrator on the
material brought on record and we find no legal ground to set it aside the
same.
43) Learned counsel for the respondent made sincere attempt to
support the reasoning and the conclusion reached by the High Court but in
the light of what we have discussed above, we can not accept any of his
submissions.
44) In the light of foregoing discussion, we are unable to concur
with the reasoning and the conclusion arrived at by the High Court.
45) As a result, the appeal succeeds and is accordingly allowed.
Impugned order is set aside and that of the Trial Court restored.
In Special Leave Petition (c) No. 23950 of 2007
As prayed for, the petitioner is permitted to withdraw this special leave
petition with a liberty granted to the petitioner to file review petition
before the High Court. In the event of review petition being dismissed,
the petitioner would be at liberty to challenge the impugned order
including the order in the review petition.
With the aforesaid liberty, the special leave petition is dismissed as
withdrawn.
………...................................J.
[J. CHELAMESWAR]
…...……..................................J.
[ABHAY MANOHAR SAPRE] New Delhi;
September 08, 2016
-----------------------
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